<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 29, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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SIMULATION SCIENCES INC.
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C> <C>
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
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Common Stock, $.001 par
value..................... 3,967,500 shares $10.00 $39,675,000 $13,681
</TABLE>
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(1) Includes 517,500 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.
------------------------------------
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 AUGUST 29, 1996
3,450,000 SHARES
LOGO
COMMON STOCK
------------------
Of the 3,450,000 shares of Common Stock offered hereby, 2,700,000 shares
are being sold by Simulation Sciences Inc. ("SimSci" or the "Company") and
750,000 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)(3) STOCKHOLDERS(3)
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Per Share.............. $ $ $ $
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Total(4)............... $ $ $ $
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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) Includes warrants to purchase an aggregate of 350,878 shares of Common Stock
to be sold by a Selling Stockholder to the Underwriters at a price per
underlying share equal to the price per share to the public less the sum of
the per share underwriting discounts and commissions and per share exercise
price of such warrants. The Underwriters will exercise such warrants by
payment to the Company of the exercise price therefor and will sell each
share received upon such exercise to the public at the Price to Public shown
above. The proceeds to the Company include $1,000,002 to be received from
the Underwriters upon the exercise of the warrants.
(4) The Company and certain Selling Stockholders have granted to the
Underwriters a 30-day option to purchase up to 517,500 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
------------------------------------
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 TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. 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 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 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'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 was incorporated in California in 1967 and will reincorporate in
Delaware prior to the closing of this offering. 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.... 750,000 shares
Common Stock to be outstanding after the offering... 9,811,323 shares(1)
Use of proceeds..................................... For working capital and other general
corporate purposes.
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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<S> <C> <C> <C> <C> <C> <C> <C>
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.............................................. $ 3,316 $ 24,915
Total assets................................................. 23,598 45,197
Total liabilities............................................ 11,874 11,874
Total stockholders' equity................................... 11,724 33,323
</TABLE>
- ---------------
(1) 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 and options to
purchase an additional 26,667 shares granted after June 30, 1996, and the
cancellation of 12,000 options after June 30, 1996. Includes 350,878 shares
issuable upon the exercise of warrants, the exercise of options to purchase
8,000 shares of Common Stock after June 30, 1996 and 59,942 shares issuable
upon the net exercise of 87,720 warrants (assuming an initial public
offering price of $9.00 per share) to be exercised upon the closing of this
offering. See "Underwriting."
(2) Reflects the conversion of all outstanding shares of Preferred Stock into
shares of Common Stock at the closing of this offering, the exercise of
350,878 shares issuable upon exercise of warrants and 59,942 shares
issuable upon the net exercise of 87,720 warrants (assuming an initial
public offering price of $9.00 per share) to be exercised upon the closing
of this offering at or prior to 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; (iv) reflects the exercise of
warrants to purchase 350,878 shares of Common Stock at an exercise price of
$2.85 per share upon the closing of this offering; (v) reflects the issuance of
59,942 shares of Common Stock upon the exercise 87,720 warrants (assuming an
initial public offering price of $9.00 per share) upon the closing of this
offering and (vi) reflects the reincorporation of the Company in the State of
Delaware prior to the closing of this offering. 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.
6
<PAGE> 8
Any significant or ongoing failure to achieve such benefits or to increase
market acceptance would 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
7
<PAGE> 9
direct international sales are denominated in local currencies, and the impact
of future exchange rate 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
8
<PAGE> 10
ability to manage future growth, if any, will depend on its ability to continue
to implement and improve 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
9
<PAGE> 11
liability claims. It is possible, however, that the limitation of liability
provisions contained in the Company's 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
10
<PAGE> 12
has no present plans to issue shares of Preferred Stock. In addition, the
Company is subject to the anti-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 9,811,323 shares of Common
Stock outstanding. Of these outstanding shares, the 3,450,000 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 6,361,323 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
6,335,989 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 date of this Prospectus
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, 6,335,989 shares of Common stock will be eligible for sale
180 days after the date of this Prospectus, 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 600,000 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 $5.70 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 $21.6 million ($25.5 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
in at least the past 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, (ii) the exercise of warrants to purchase 350,878
shares of Common Stock upon the closing of the offering and the receipt by the
Company of the proceeds therefrom, (iii) the issuance of 59,942 shares of Common
Stock upon the net exercise of 87,720 warrants (assuming an initial public
offering price of $9.00 per share) to be exercised upon closing of this
offering, and (iv) the reincorporation of the Company in the State of Delaware
prior to the closing of this offering, and as adjusted to give effect to the
sale of the 2,700,000 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; 7,103,323 and 9,803,323 shares issued and
outstanding pro forma and as adjusted(3).............. 5 7 9
Additional paid-in capital............................... 1,541 7,343 28,940
Retained earnings........................................ 4,374 4,374 4,374
------- ------------ --------------
Total stockholders' equity............................ 5,920 11,724 33,323
------- ------------ --------------
Total capitalization..................................... $10,722 $ 11,724 $ 33,323
======= ========== ===========
</TABLE>
- ---------------
(1) Reflects the conversion of all outstanding shares of Preferred Stock into
shares of Common Stock on a one-for-one basis, the exercise of warrants to
purchase 350,878 shares of Common Stock and the issuance of 59,942 shares
of Common Stock upon the net exercise of 87,720 warrants (assuming an
initial public offering price of $9.00 per share) to be exercised upon the
closing of this offering. See Note 4 to the Consolidated Financial
Statements. 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 12,000 options after June 30, 1996.
14
<PAGE> 16
DILUTION
The pro forma net tangible book value of the Company at June 30, 1996 was
$10,721,877, or $1.51 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 exercise of warrants to purchase 350,878 shares of Common
Stock at $2.85 per share immediately prior to the consummation of this offering
and the issuance of 59,942 shares of Common Stock upon the net exercise of
87,720 warrants (assuming an initial public offering price of $9.00 per share)
to be exercised prior to the closing of this offering, (iii) the conversion of
all outstanding shares of Preferred Stock into Common Stock on a one-for-one
basis and (iv) the reincorporation of the Company in the State of Delaware prior
to the closing of the offering. 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 $32,320,877 or $3.30 per share of Common Stock, representing an immediate
increase in net tangible book value of $1.79 per share to existing stockholders
and an immediate dilution of $5.70 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............ $ 1.51
Increase per share attributable to new investors....................... 1.79
------
Pro forma net tangible book value per share after offering............... 3.30
------
Net tangible book value dilution per share to new investors.............. $ 5.70
======
</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)................. 7,103,323 72.5% $ 7,349,824 23.2% $ 1.03
New Investors(1)......................... 2,700,000 27.5 24,300,000 76.8 9.00
--------- ------- ----------- -------
Total.................................. 9,803,323 100.0% $31,649,824 100.0%
======== ===== ========== =====
</TABLE>
- ---------------
(1) Sales by the Selling Stockholders in the offering made hereby will reduce
the number of shares held by existing stockholders to 6,353,323 shares, or
64.8% of the total number of shares of Common Stock outstanding, and will
increase the number of shares held by new investors to 3,450,000 shares, or
35.2% 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 12,000 options after June 30, 1996.
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>
JUNE
DECEMBER 31, 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
17
<PAGE> 19
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 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,
18
<PAGE> 20
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.
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
19
<PAGE> 21
$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
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,
20
<PAGE> 22
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.
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 and the Company was not in compliance with two of the financial
covenants. The Company has 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. 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 $1,000,000
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.
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<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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<PAGE> 29
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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<PAGE> 33
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 Nippon Sanso Corporation Idem Isu Engineering Company,
Oljeselskap 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. JGC Corporation
Kuwait Oil Co. ACADEMIC INSTITUTIONS Davy John Brown Pty Ltd.
Mobil Oil Corporation Carnegie-Mellon KTI BV
Pertamina Fachhochschule Ostfriesland Kvaerner Engineering AS
Petroleo Brasileiro-Petrobras Indian Institute of Technology Lurgi AG
Petrolios de Venezuela Kansas State University M.W. Kellogg Company Ltd.
Royal Dutch Shell Oil Company Louisiana State University Niigata Engineering Company
Saudi Arabian Oil Co. New Mexico State University Nippon Oil Engineering and
Scientific Computing Oklahoma State University Construction
Consulting Ltd.-Vniigas Pennsylvania State University Raytheon Engineers &
Star Enterprise University of Calgary Construction
Sun Company Inc. University of Southern Snamprogetti SpA
Texaco Refining and California Stone & Webster Engineering
Marketing, Inc. University of Texas Corp.
Unocal Corporation University of Wisconsin 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 renewing 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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<PAGE> 37
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.
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<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
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 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 five directors. 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 $110,000
for Katherine Sullivan Abrams from November 1, 1995.
(4) Represents amounts paid in connection with the reimbursement by the Company
of certain relocation expenses.
(5) Represents amounts received by Dr. Wang in his capacity as Chairman of the
Board. Dr. Wang also served as President and Chief Executive Officer of the
Company through June 1995. Dr. Wang resigned as Chairman of the Board in
May 1996.
(6) In June 1996, Mr. Campbell resigned as Vice President, Finance and
Controller.
(7) Represents compensation for services rendered as a consultant to the
Company.
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<PAGE> 41
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to stock options
under the Company's 1994 Stock Option Plan granted to the Named Executive
Officers during fiscal 1995.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM($)(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.
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<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 all 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 intends to seek
stockholder approval of the 1996 Plan. Unless terminated sooner, the 1996 Plan
will terminate automatically in May 2006. A total of 3,000,000 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'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 intends to seek stockholder approval
of the U.S. Purchase Plan. 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 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 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 grant of an option to purchase
20,000 shares of Common Stock (the "First Option") to each non-employee director
who first becomes a non-employee director after the effective date of the
Director Plan. Annually, each outside director shall automatically be granted an
option to purchase 5,000 shares (a "Subsequent Option"), provided he or she is
then a non-employee director and, as of such date, he or she shall have served
on the Board for at least the preceding six months. Each non-employee director
will be eligible to receive a Subsequent Option, regardless of whether such
non-employee director was eligible to receive a First Option. First Options and
each Subsequent Option will have a term of ten years. One-quarter of the shares
subject to a First Option will vest one year after their date of grant and the
remainder will vest at a rate of 1/48th of the shares per month thereafter
provided that the optionee continues to serve as a director on such dates.
Similarly, one-quarter of the shares subject to a Subsequent Option will vest
one year after the date of the option grant and provided that the optionee
continues to serve as a director on such date. The exercise prices of the First
Option and each Subsequent Option will be 100% of the fair market value per
share of the Company's Common Stock on the date of the grant of the option.
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 2,141,659 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
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<PAGE> 45
another corporation or other enterprise, shall be indemnified and held harmless
by the Company to the fullest 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.
44
<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 agreement with
Eugene L. Goda, former Chief Executive Officer and President of the Company.
Pursuant to such agreement, the Company provided Mr. Goda an aggregate of
$320,000 in settlement of certain claims.
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% 350,878(2) 1,333,334 13.6%
Enterprise Partners II, L.P.(3)
5000 Birch Street, Suite 6200
Newport Beach, CA 92660...................... 360,503 5.1 -- 360,503 3.7
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 31.7 116,431 2,141,659 21.8
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 23.7 350,878 1,333,334 13.6
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. The warrants will be
sold to the Underwriters at a price per underlying share equal to the price
per share to the public less the sum of the per share underwriting discount
and exercise price of the warrants. The Underwriters will exercise the
warrants so purchased and sell the shares of Common Stock received upon
exercise thereof to the public.
(3) Includes 59,942 shares of Common Stock to be issued upon net exercise of
87,720 warrants (assuming an initial public offering price of $9.00 per
share) upon the closing of this offering.
(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
1,083,422 or 11.0% 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 771,656 or 7.9% of the outstanding shares of
Common Stock after the offering.
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<PAGE> 48
(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 771,656 or 7.9% of
the outstanding shares of Common Stock after the offering.
(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 7,111,323 shares of Common
Stock outstanding (assuming conversion of all then outstanding preferred stock,
exercise of the then outstanding warrants 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 not 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.
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<PAGE> 49
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 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 of the Bylaws could
discourage potential acquisition proposals and could delay or prevent a change
in control of the Company. 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 designed to reduce the
vulnerability of the Company to an unsolicited acquisition proposal. The
provisions also are intended to discourage certain tactics that may be used in
proxy fights. However, such provisions could 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
48
<PAGE> 50
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 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 9,811,323 shares of
Common Stock outstanding. Of these outstanding shares, the 3,450,000 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 6,335,989 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 6,335,989 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.
Of 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 of the stockholders of the Company have entered into lock-up agreements
providing that such stockholder will not offer, sell, pledge or 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 date of this Prospectus 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,
6,335,989 shares of Common Stock will be eligible for sale 180 days after the
date of this Prospectus, subject in the case of shares held by "affiliates" of
the Company to the volume limitations of Rules 144 and 701 summarized below.
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 Securities and
Exchange Commission (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 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
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<PAGE> 52
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................................................... 3,450,000
=============
</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 517,500 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 3,450,000 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,
they will not directly or indirectly offer, sell, pledge, contract to sell
(including any short sale),
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<PAGE> 54
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
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 and the reincorporation of the Company in the state of Delaware
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 and reincorporation, which is described in Note 4 of the notes to the
consolidated financial statements, and assuming that, from August 29, 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.
Deloitte & Touche LLP
Costa Mesa, California
August 29, 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, 7,103,323
pro forma shares at June 30, 1996................... 5,000 5,000 5,026 $ 7,103
Additional paid-in capital............................ 1,470,402 1,470,402 1,540,599 7,342,721
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 $11,723,954
----------- ----------- -----------
$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 simulated
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 and the exercise of all warrants to purchase shares of common stock (Note
4). The accompanying pro forma information, which is unaudited, gives effect to
the conversion of all outstanding
F-8
<PAGE> 64
SIMULATION SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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, stock options using the treasury stock
method, the pro forma conversion of all outstanding shares of preferred stock
into shares of common stock and the exercise of all outstanding warrants to
purchase 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 form 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
F-9
<PAGE> 65
SIMULATION SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of Series A Convertible Preferred Stock to purchase 438,598 shares of the
Company's common stock for $2.85 per share. The warrants will be exercised prior
to the completion of the Company's initial public offering (Note 1).
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 12,000 options at $2.73 were cancelled.
F-10
<PAGE> 66
SIMULATION SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At June 30, 1996 options to purchase 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 Director Plans 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 of 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 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 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
F-11
<PAGE> 67
SIMULATION SCIENCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 shareholder'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 will, prior to its initial public offering,
reincorporate in the State of Delaware.
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 June 30, 1996, 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
------------------------------------------------------
------------------------------------------------------
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 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.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
3,450,000 SHARES
LOGO
COMMON STOCK
-------------------
PROSPECTUS
-------------------
ALEX. BROWN & SONS
INCORPORATED
WESSELS, ARNOLD & HENDERSON
, 1996
------------------------------------------------------
------------------------------------------------------
<PAGE> 73
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> 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..................................................... $ 13,681
NASD filing fee.......................................................... 4,468
Nasdaq National Market listing fee....................................... 42,028
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............................................................ 52,823
----------
Total............................................................... $1,000,000*
=========
</TABLE>
- ---------------
*To be provided by amendment.
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 and/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 Restated Articles of Incorporation of the Registrant, as currently in effect
3.2 Form of Restated Certificate of Incorporation of the Registrant to be effective
after the reincorporation of the Registrant in Delaware
3.3* Form of Restated Certificate of Incorporation of the Registrant to be effective
after the closing of the offering made pursuant to the Registration Statement
3.4 Bylaws of the Registrant
3.5 Form of Bylaws of the Registrant to be effective after the reincorporation of the
Registrant in Delaware
3.6* 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, P.C. (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
</TABLE>
II-2
<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ---------------------------------------------------------------------------------
<C> <S>
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 shareholders 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.
21.1 List of Subsidiaries
23.1* Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included as part of Exhibit
5.1 hereto)
23.2 Consent of Deloitte & Touche LLP, independent auditors (included on page II-6)
24.1 Powers of Attorney (included on page II-5)
27.1 Financial Data Schedule
</TABLE>
- ------------------
* To be filed by amendment.
+ Confidential treatment will be 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.
II-3
<PAGE> 77
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-4
<PAGE> 78
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Brea, State of
California, on the 28th day of August, 1996.
SIMULATION SCIENCES INC.
By: /s/ CHARLES R. HARRIS
----------------------------------
CHARLES R. HARRIS
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, jointly and severally, Charles R. Harris
and L. Ronald Trepp, and each one of them, his true and lawful attorneys-in-fact
and agents, each with full power of substitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to sign any
registration statement for the same offering covered by this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933, and all post-effective amendments
thereto, and to file the same, with all exhibits thereto and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents or any of them, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on the 28th day of August, 1996, by the
following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<C> <S>
/s/ CHARLES R. President and Chief Executive Officer
HARRIS (Principal Executive Officer) and Director
- ---------------------------------------------
Charles R. Harris
/s/ L. RONALD Vice President, Finance and Chief Financial
TREPP Officer (Principal Financial and
- --------------------------------------------- Accounting Officer)
L. Ronald Trepp
/s/ NARENDRA K. GUPTA Director
- ---------------------------------------------
Narendra K. Gupta
/s/ WALTER G. KORTSCHAK Director
- ---------------------------------------------
Walter G. Kortschak
</TABLE>
II-5
<PAGE> 79
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 Registration Statement of Simulation Sciences,
Inc. on Form S-1 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.
DELOITTE & TOUCHE LLP
Costa Mesa, California
August 29, 1996
II-6
<PAGE> 80
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> 81
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. EXHIBIT PAGE NUMBER
- ----------- ----------------------------------------------------------------------
<C> <S> <C>
1.1* Form of Underwriting Agreement
3.1 Restated Articles of Incorporation of the Registrant, as currently in
effect
3.2 Form of Restated Certificate of Incorporation of the Registrant to be
effective after the reincorporation of the Registrant in Delaware
3.3* Form of Restated Certificate of Incorporation of the Registrant to be
effective after the closing of the offering made pursuant to the
Registration Statement
3.4 Bylaws of the Registrant
3.5 Form of Bylaws of the Registrant to be effective after the
reincorporation of the Registrant in Delaware
3.6* 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, P.C. (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 shareholders 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.
21.1 List of Subsidiaries
23.1* Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included as part of
Exhibit 5.1 hereto)
23.2 Consent of Deloitte & Touche LLP, independent auditors (included on
page II-6)
24.1 Powers of Attorney (included on page II-5)
27.1 Financial Data Schedule
</TABLE>
- ------------------
* To be filed by amendment.
+ Confidential treatment will be requested for portions of this document.
<PAGE> 1
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
SIMULATION SCIENCES INC.
a California corporation
Eugene L. Goda and Vincent S. Verneuil, Jr. certify that:
1. They are the president and the secretary, respectively, of
Simulation Sciences Inc., a California corporation.
2. The articles of incorporation of this corporation are amended
and restated in their entirety as indicated in Exhibit A attached hereto and
made a part hereof by this reference.
3. The amendment and restatement of articles of incorporation has
been duly approved by the board of directors.
4. The amendment and restatement of articles of incorporation has
been duly approved by the required vote of the shareholders in accordance with
Section 902 of the Corporations Code. The total number of outstanding shares of
the corporation is 103,759. The number of shares voting in favor of the
amendment and restatement equaled or exceeded the vote required. The percentage
vote required was more than 50%.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Date: December 10, 1993 /s/ Eugene L. Goda
------------------------------
Eugene L. Goda
/s/ Vincent S. Verneuil, Jr.
------------------------------
Vincent S. Verneuil, Jr.,
Secretary
<PAGE> 2
EXHIBIT A
RESTATED ARTICLES OF INCORPORATION
OF
SIMULATION SCIENCES INC.
I
The name of the corporation is Simulation Sciences Inc.
II
The purpose of the corporation is to engage in any, lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
III
The corporation is authorized to issue two classes of shares designated
respectively "Common Stock" and "Preferred Stock". The number of shares of
Common Stock is 197,417,548, no par value, and the number of shares of Preferred
Stock is 5,000,000. The Preferred Stock shall be issued in series. The first
such series shall be designated Series A Preferred Stock and shall consist of
5,000,000 shares, $.01 par value per share. The Series A Preferred Stock is
referred to hereinafter as the "Preferred Stock."
The following is a statement of the designations powers, privileges,
preferences and relative, participating optional or other special rights, and
the qualifications, limitations or restrictions relating to the Preferred Stock.
1. Dividends. The holders of the then outstanding shares of the
Preferred Stock shall be entitled to receive when, as and if declared by the
Board of Directors, out of funds legally available therefor, cumulative
dividends, at the rate of $.08 per share per annum, and payable upon (i)
repurchase of such Preferred Stock; (ii) liquidation pursuant to Section 2
hereof; (iii) upon the Closing of the corporation's first underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock for the
account of the corporation; or (iv) conversion of the Preferred Stock as
expressly provided in Section 4(a); provided, however, in no event shall the
holder receive an amount on account of such accrued and unpaid dividends upon
(x) the repurchase of the Preferred Stock or upon a liquidation pursuant to
Section 2 herein, such that the aggregate amount received would exceed
<PAGE> 3
$3.00 per share (such amount to be equitably adjusted whenever there should
occur a stock-split, combination, reclassification or other similar event
affecting the Common Stock), or (y) the offering described in subpart (iii)
above, such that the aggregate offering price of the shares of Common Stock in
such offering into which each share of Preferred Stock would be converted as of
that date, plus the accrued and unpaid dividends, would exceed $3.00 per share
(such amount to be equitably adjusted whenever there should occur a stock-split,
combination, reclassification or other similar event affecting the Common
Stock), or (z) the conversion of the Preferred Stock such that the fair market
value of the shares of Common Stock received by the holder for each share of
Preferred Stock, plus the amount of cash or Common Stock, if any, paid on
account of the dividends would exceed $3.00 per share (such amount to be
equitably adjusted whenever there should occur a stock-split, combination,
reclassification or other similar event affecting the Common Stock). The fair
market value of a share of Common Stock shall mean (i) if the Common Stock is
publicly traded, the average over the preceding twenty (20) trading days of the
mean of the closing bid and asked prices on the over-the-counter market as
reported by NASDAQ, or, if then traded on a national securities exchange or the
National Market System, the average over the preceding twenty (20) trading days
of the mean of the high and low prices on the principal national securities
exchange or the National Market system on which it is so traded over the
preceding twenty (20) trading days, and (ii) if the Common Stock is not publicly
traded, then as agreed upon by the corporation and a majority in interest of the
holders of the Preferred Stock. If no such agreement is reached within thirty
(30) days, the fair market value shall be determined by appraisal.
2. Liquidation, Dissolution or Winding Up.
(a) Preference - Series A Preferred Stock. In the event
of any liquidation, dissolution or winding up of the corporation, whether
voluntary or involuntary, holders of each share of Preferred Stock shall be
entitled to be paid first out of the assets of the corporation available for
distribution to holders of the corporation's capital stock of all classes,
whether such assets are capital, surplus, or earnings, before any sums shall be
paid or any assets distributed among the holders of shares of Common Stock, an
amount equal to the greater of (i) $1.00 per share of Preferred Stock, plus all
accrued and unpaid dividends thereon up to and including the date of full
payment; or (ii) such amount per share of Preferred Stock as would have been
payable had each such share, plus all accrued and unpaid dividends thereon,
subject to the limitation on the payment of dividends set out in Section 1
hereof, been converted to Common Stock immediately prior to such event of
liquidation, dissolution or winding up pursuant to the provisions of Section 4
hereof, subject to the same adjustments as provided in Section 4 herein, up to
and including the date of full payment. If the assets of the corporation shall
be insufficient to permit the payment in full to the holders of the Preferred
Stock of the amount thus distributable, then the entire assets of the
corporation available for such distribution shall be distributed ratably among
the holders of the Preferred Stock. After such payment shall have been made in
full to the holders of the Preferred Stock or funds necessary for such payment
shall have been set aside by the corporation in trust for the account of holders
of the Preferred Stock so as to be available for such payment, holders of the
Preferred Stock shall be entitled to no further participation in the
distribution of the assets of the corporation and shall have no further rights
of conversion, and the remaining assets available for distribution shall then be
distributed ratably among the holders of the Common Stock.
-2-
<PAGE> 4
(b) A consolidation or merger (other than a consolidation
or merger in which the holders of voting securities of the corporation
immediately before the consolidation or merger own (immediately after the
consolidation or merger) voting securities of the surviving or acquiring
corporation, or of a parent party of such surviving or acquiring corporation,
possessing more than 50% of the voting power of such surviving or acquiring
corporation or parent party) of the corporation or a sale of all of
substantially all of the assets of the corporation shall be regarded as a
liquidation, dissolution or winding up of the affairs of the corporation within
the meaning of this Section 2; provided, however, in the event of a
consolidation, merger or sale of substantially all the assets of the corporation
in exchange for the equity securities of the acquirer, the holders of the
Preferred Stock shall receive the greater of a payment under Section 2(a)(i) or
2(a)(ii).
(c) Each holder of Preferred Stock shall have the right
to elect the benefits of the provisions of Section 4(g) hereof in lieu of
receiving payment in liquidation, dissolution or winding up of the corporation
pursuant to this Section 2. The election procedures shall be as provided in
Section 4(g) hereof.
(d) Whenever the distribution provided for herein shall
be paid in property other than cash, the value of such distribution shall be the
fair market value of such property as determined in good faith by the Board of
Directors of the corporation.
3. Voting Power. Except as otherwise expressly provided in
Section 7 hereof, or as required by law, each holder of Preferred Stock shall be
entitled to vote on all matters and shall be entitled to that number of votes
equal to the largest number of whole shares of Common Stock into which such
holder's shares of Preferred Stock could be converted, pursuant to the
provisions of Section 4 hereof at the record date for the determination of
shareholders entitled to vote on such matter or, if no such record date is
established, at the date such vote is taken or any written consent of
shareholders is solicited. Except as otherwise expressly provided herein or as
required by law, the holders of shares of Preferred Stock and Common Stock shall
vote together as a class on all matters.
4. Conversion Rights. The holders of the Preferred Stock shall
have the following conversion rights:
(a) General. Subject to and in compliance with the
provisions of this Section 4, any shares of the Preferred Stock and the accrued
and unpaid dividends upon the election of the holder, may, at the option of the
holder, be converted at any time or from time to time into fully-paid and
nonassessable shares (calculated as to each conversion to the largest whole
share) of Common Stock. The number of shares of Common Stock to which a holder
of Preferred Stock shall be entitled upon conversion shall be the product
obtained by multiplying the Applicable Conversion Rate (determined as provided
in Section 4 (b)) by the number of shares of Preferred Stock being converted,
and then payment of accrued but unpaid dividends to be paid either (i) in cash
or (ii) into shares of Common Stock by converting the accrued and unpaid
dividends at the then fair market value of such Common Stock as determined in
Section 1 herein. The method of payment of the dividends as provided in (i) and
(ii) above shall be at the election of the corporation.
-3-
<PAGE> 5
(b) Applicable Conversion Rate. The conversion rate in
effect at any time (the "Applicable Conversion Rate") shall be the quotient
obtained by dividing $1.00 by the Applicable Conversion Value, calculated as
provided in Section 4(c).
(c) Applicable Conversion Value. The Applicable
Conversion Value in effect from time to time, except as adjusted in accordance
with Section 4(d) hereof, shall be $1.00.
(d) Adjustments to Applicable Conversion Value.
(i) Upon Sale of Common Stock. If the
corporation shall, while there are any shares of Preferred Stock outstanding,
issue or sell shares of its Common Stock without consideration or at a price per
share less than the Applicable Conversion Value in effect immediately prior to
such issuance or sale, then in each such case such Applicable Conversion Value
upon each such issuance or sale, except as hereinafter provided, shall be
adjusted to an amount determined by multiplying the Applicable Conversion Value
by a fraction:
(A) the numerator of which shall be (a) the
number of shares of Common Stock outstanding and the number of
shares of Common Stock subject to issuance pursuant to any
convertible securities, warrants, options, subscription rights
or purchase rights outstanding immediately prior to the
issuance of such additional shares of Common Stock, plus (b)
the number of shares of Common Stock which the net aggregate
consideration received by the corporation for the total number
of such additional shares of Common Stock so issued would
purchase at the Applicable Conversion Value, and
(B) the denominator of which shall be (a) the
number of shares of Common Stock outstanding and the number of
shares of Common Stock subject to issuance pursuant to any
convertible securities, warrants, options, subscription rights
or purchase rights outstanding immediately prior to the
issuance of such additional shares of Common Stock, plus (b)
the number of such additional shares of Common Stock so
issued.
The corporation's issuance of up to an aggregate of 5,000,000 shares of
Common Stock, or options exercisable therefor, pursuant to any stock purchase or
stock option plan or other employee incentive program approved by the Board of
Directors to the corporation's employees, directors or officers, the shares of
Common Stock pursuant to the conversion of the Preferred Stock and accrued and
unpaid dividends thereon, and the exercise of the four-year warrants to purchase
1,315,789 shares of the corporations Common Stock or any adjustments thereto,
shall not be deemed an issuance of additional shares of Common Stock and shall
have no effect on the calculations contemplated by this Section 4(d) except as
specifically otherwise set forth herein.
Except as discussed in the preceding paragraph, for the purposes of
this Section 4(d), the issuance of any warrants, options, subscriptions or
purchase rights with respect to shares of Common Stock and the issuance of any
securities convertible into or exchangeable for shares of Common
-4-
<PAGE> 6
Stock (or the issuance of any warrants, options or any rights with respect to
such convertible or exchangeable securities) shall be deemed an issuance at such
time of such Common Stock if the Net Consideration Per Share (as hereinafter
determined) which may be received by the corporation for such Common Stock shall
be less than the Applicable Conversion Value at the time of such issuance. Any
obligation, agreement or undertaking to issue warrants, options, subscriptions
or purchase rights at any time in the future shall be deemed to be an issuance
at the time such obligation, agreement or undertaking is made or arises. No
adjustment of the Applicable Conversion Value shall be made under this Section
4(d) upon the issuance of any shares of Common Stock which are issued pursuant
to the exercise of any warrants, options, subscriptions or purchase rights or
pursuant to the exercise of any conversion or exchange rights in any convertible
securities if any adjustment shall previously have been made upon the issuance
of any such warrants, options or subscriptions or purchase rights or upon the
issuance of any convertible securities (or upon the issuance of any warrants,
options or any rights therefor) as above provided. Any adjustment of the
Applicable Conversion Value with respect to this paragraph which relates to
warrants, options, subscriptions or purchase rights with respect to shares of
Common Stock shall be disregarded if and when all of such warrants, options,
subscriptions or purchase rights expire or are canceled without being exercised,
so that the Applicable Conversion Value effective immediately upon such
cancellation or expiration shall be equal to the Applicable Conversion Value in
effect at the time of the issuance of the expired or canceled warrants,
options, subscriptions or purchase rights, with such additional adjustments as
would have been made to that Applicable Conversion Value had the expired or
canceled warrants, options, subscriptions or purchase rights not been issued.
For purposes of this paragraph, the "Net Consideration Per Share" which may be
received by the corporation shall be determined as follows:
(A) The "Net Consideration Per Share" shall mean
the amount equal to the total amount of consideration, if any,
received by the corporation for the issuance of such warrants,
options, subscriptions or other purchase rights or convertible
or exchangeable securities, plus the minimum amount of
consideration, if any, payable to the corporation upon
exercise or conversion thereof, divided by the aggregate
number of shares of Common Stock that would be issued if all
such warrants, options, subscriptions or other purchase rights
or convertible or exchangeable securities were exercised,
exchanged or converted.
(B) The "Net Consideration Per Share" which may
be received by the corporation shall be determined in each
instance as of the date of issuance of warrants, options,
subscriptions or other purchase rights or convertible or
exchangeable securities without giving effect to any possible
future price adjustments or rate adjustments which may be
applicable with respect to such warrants, options,
subscriptions or other purchase rights or convertible or
exchangeable securities.
For purposes of this Section 4(d), if a part or all of the
consideration received by the corporation in connection with the issuance of
shares of Common Stock or the issuance of any of the securities described in
this Section 4(d) consists of property other than cash, the value of such
contribution shall be the fair market value of such property as determined in
good faith by the Board
-5-
<PAGE> 7
of Directors of the corporation, whereupon such value shall be given to such
consideration and shall be recorded on the books of the corporation with respect
to receipt of such property.
This Section 4(d) shall not apply under any of the circumstances which
would constitute an Extraordinary Common Stock Event (as hereinafter defined in
Section 4(d)(ii)).
(ii) Upon the happening of an Extraordinary Common Stock
Event (as hereinafter defined), the Applicable Conversion Value (and all other
conversion values set forth in Section (d) (i) above) shall, simultaneously with
the happening of such Extraordinary Common Stock Event, be adjusted by
multiplying the then effective Applicable Conversion Value by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such Extraordinary Common Stock Event and the denominator
of which shall be the number of shares of Common Stock outstanding immediately
after such Extraordinary Common Stock Event, and the product so obtained shall
thereafter be the Applicable Conversion Value. The Applicable Conversion Value,
as so adjusted, shall be readjusted in the same manner upon the happening of any
successive Extraordinary Common Stock Event or Events.
"Extraordinary Common Stock Event" shall mean (i) the issue of
additional shares of the Common Stock as a dividend or other distribution on
outstanding Common Stock, (ii) subdivision of outstanding shares of Common Stock
into a greater number of shares of the Common Stock, or (iii) combination of
outstanding shares of the Common Stock into a smaller number of shares of the
Common Stock.
(e) Dividends. In the event the corporation shall make or issue,
or fix a record date for the determination of holders of Common Stock entitled
to receive, a dividend or other distribution payable in securities of the
corporation other than shares of Common Stock or in assets (excluding cash
dividends or distributions), then and in each such event provision shall be made
so that the holders of the Preferred Stock shall receive upon conversion thereof
in addition to the number of shares of Common Stock receivable thereupon, the
number of securities or such other assets of the corporation which they would
have received had their Preferred Stock been converted into Common Stock on the
date of such event and had they thereafter, during the period from the date of
such event to and including the Conversion Date (as that term is hereafter
defined in Section 4(i)), retained such securities or such other assets
receivable by them as aforesaid during such period, giving application to all
adjustments called for during such period under this Section 4 with respect to
the rights of the holders of the Preferred Stock.
(f) Recapitalization or Reclassification. If the Common Stock
issuable upon the conversion of the Preferred Stock shall be changed into the
same or different number of shares of any class or classes of stock of the
corporation, whether by recapitalization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
elsewhere in this Section 4, or a reorganization, merger, consolidation or sale
of assets provided for elsewhere in this Section 4), then and in each such event
the holder of each share of Preferred Stock shall have the right thereafter to
convert such share into the kind and amount of shares of stock and other
securities and property receivable upon such reorganization, reclassification or
other change by holders of the
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<PAGE> 8
number of shares of Common Stock into which such share of Preferred Stock might
have been converted (taking into account all accrued and unpaid dividends and
interest with respect to such Preferred Stock) immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.
(g) Capital Reorganization, Merger or Sale of Assets. If at any
time or from time to time there shall be a capital reorganization of the Common
Stock (other than a subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section 4) or a merger or consolidation of
the corporation with or into another corporation, or the sale of all or
substantially all of the corporation's properties and assets to any other
person, then, as a part of such reorganization, merger, consolidation or sale,
provision shall be made so that the holders of the Preferred Stock shall
thereafter be entitled to receive upon conversion of the Preferred Stock, the
number of shares of stock or other securities or property of the corporation, or
of the successor corporation resulting from such merger, consolidation or sale,
to which a holder of Common Stock issuable upon conversion would have been
entitled on such capital reorganization, merger, consolidation, or sale. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of the
Preferred Stock after the reorganization, merger, consolidation or sale to the
end that the provisions of this Section 4 (including adjustment of the
Applicable Conversion Value then in effect and the number of shares purchasable
upon conversion of the Preferred Stock) shall be applicable after that event in
as nearly equivalent a manner as may be practicable.
Each holder of Preferred Stock upon the occurrence of a capital
reorganization, merger or consolidation of the corporation, or the sale of all
or substantially all its assets and properties as such events are more fully set
forth in the first paragraph of this Section 4(g), shall have the option of
electing treatment of his shares of Preferred Stock under either this Section
4(g) or section 2 hereof, notice of which election shall be submitted in writing
to the corporation at its principal offices no later than five (5) days before
the effective date of such event, but, if a holder fails to make any election,
he shall be deemed to have elected the benefits of Section 2 hereof.
(h) Accountant's Certificate as to Adjustments. In each case of
an adjustment or readjustment of the Applicable Conversion Rate, the corporation
will furnish each holder of Preferred Stock with a certificate, prepared by its
chief financial officer showing such adjustment or readjustment, and stating in
detail the facts upon which such adjustment or readjustment is based. Upon the
request of the holders of a majority of either series of the Preferred Stock,
the corporation will cause its independent public accountants to confirm the
accuracy of such adjustment or readjustment.
(i) Exercise of Conversion Privilege. To exercise its conversion
privilege, a holder of Preferred Stock shall surrender the certificate or
certificates representing the shares being converted to the corporation at its
principal office, and shall give written notice to the corporation at that
office that such holder elects to convert such shares and whether such holder
elects to convert the accrued and unpaid dividends or to take cash in payment of
the accrued and unpaid dividends. Such notice shall also state the name or names
(with address or addresses) in which the certificate or
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<PAGE> 9
certificates for shares of Common Stock issuable upon such conversion shall be
issued. The certificate or certificates for shares of Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the corporation or in blank. The date when such written notice is received by
the corporation, together with the certificate or certificates representing the
shares of Preferred Stock being converted shall be the "Conversion Date."
Immediately upon receipt of such notice, but in any event within 3 days after
the Conversion Date, the corporation shall deliver notice to the holder who has
elected to convert setting forth its election to pay the accrued but unpaid
dividends in cash or to convert the accrued but unpaid dividends into shares of
Common Stock. As promptly as practicable, but in any event within 15 days after
the Conversion Date, the corporation shall issue and shall deliver to the holder
of the shares of Preferred Stock being converted, or on its written order, such
certificate or certificates as it may request for the number of whole shares of
Common Stock issuable upon the conversion of such shares of Preferred Stock and,
if so elected, upon the conversion of the accrued and unpaid dividends thereon,
in accordance with the provisions of this Section 4, or, if not electing to
convert such accrued and unpaid dividends, then cash in the amount of all
accrued and unpaid dividends on such shares of Preferred Stock, whether or not
earned or declared, up to and including the Conversion Date, and cash, as
provided in Section 4(j), in respect of any fraction of a share of Common Stock
issuable upon such conversion. Such conversion shall be deemed to have been
effected immediately prior to the close of business on the Conversion Date, and
at such time the rights of the holder as holder of the converted shares of
Preferred Stock shall cease and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Common Stock represented thereby.
(j) Cash in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Preferred Stock. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion of Preferred
Stock, the corporation shall pay to the holder of the shares of Preferred Stock
which were converted a cash adjustment in respect of such fractional shares in
an amount equal to the same fraction of the market price per share of the Common
Stock (as determined in a reasonable manner prescribed by the Board of
Directors) at the close of business on the Conversion Date. The determination as
to whether or not any fractional shares are issuable shall be based upon the
total number of shares of Preferred Stock being converted at any one time by any
holder thereof, not upon each share of Preferred Stock being converted.
(k) Partial Conversion. In the event some but not all of the
shares of Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the corporation shall execute and deliver
to or on the order of the holder, at the expense of the corporation, a new
certificate representing the number of shares of Preferred Stock which were not
converted.
(l) Reservation of Common Stock. The corporation shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of the Preferred Stock, such number of its shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding shares of
the
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<PAGE> 10
Preferred Stock, and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Preferred Stock, the corporation shall take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.
5. Mandatory Conversion.
(a) Mandatory Conversion. The Preferred Stock shall be converted
into fully paid and nonassessable shares (calculated as to each conversion to
the largest whole share) of Common Stock, without election by the holders
thereof, upon the closing of an underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of Common Stock for the account of the corporation
from which the gross cash proceeds to the corporation are not less than $10
million, and in which the price per share is at least $2.00 per share (such
amount to be equitably adjusted whenever there should occur a stock-split
combination, combination, reclassification or other similar event affecting the
Common Stock) ("Qualified Public Offering") or on December 17, 1999, if the
Preferred Stock then remains outstanding. The conversion of the Preferred Stock
pursuant to this Section 5 shall be on the terms and subject to the provisions
of Section 4 herein.
(b) Mandatory Conversion Notice. At least 30 days before any
Qualified Public offering, written notice (the "Mandatory Conversion Notice")
shall be mailed, postage prepaid, to each holder of record of each share of
Preferred Stock which is to be converted, at its address shown on the records of
the corporation; provided, however, that the giving of such Mandatory Conversion
Notice shall not affect the conversion rights of such holder pursuant to Section
4; provided, further, that the giving of such Mandatory Conversion Notice shall
not affect the rights of such holder pursuant to any agreement between the
corporation and such holder with respect to such holders right to cause the
corporation to repurchase such Preferred Stock. The Mandatory Conversion
Notice shall contain the following information:
(i) a statement that it is the intention of the
corporation to effect a Qualified Public Offering, together with a copy of the
preliminary prospectus as filed with the Securities and Exchange Commission
therefor,
(ii) the number of shares of Preferred Stock held by the
holder and the number of shares of Common Stock to be received by such holder
upon the conversion of such Preferred Stock,
(iii) the expected date of the closing of the Qualified
Public Offering, and
(iv) that the holder is to surrender to the corporation,
at the place designated therein, its certificate or certificates representing
the shares of Preferred Stock to be converted.
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<PAGE> 11
6. No Reissuance of the Preferred Stock. No share or shares of
the Preferred Stock acquired by the corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued. The corporation may from
time to time take such appropriate corporate action as may be necessary to
reduce the authorized number of shares of the Preferred Stock accordingly.
7. Restrictions and Limitations.
(a) Except as expressly provided herein or as required by
law, so long as any shares of Preferred Stock remain outstanding, the
corporation shall not, and shall not permit any subsidiary (which shall mean any
corporation or trust of which the corporation directly or indirectly owns at the
time more than 50% of the voting power of such corporation or trust) to, without
the vote or written consent by the holders of at least a majority of the then
outstanding shares of Preferred Stock, each share of Preferred Stock to be
entitled to one vote in each instance:
(i) Redeem, purchase or otherwise acquire for
value (or pay into or set aside for a sinking fund for such purpose), any share
or shares of the corporation (except for those shares repurchased from officers,
directors or employees under agreements requiring such persons to sell such
shares to the corporation, at cost, on termination of their relationship with
the corporation or its subsidiaries);
(ii) Authorize or pay any cash dividend in
respect to the Common Stock;
(iii) Authorize or issue, or obligate itself to
authorize or issue, any other equity security senior to or on a parity with the
Preferred Stock as to liquidation preferences, conversion rights, voting rights
or otherwise, provided, however, that in no event shall this provision restrict
the issuance of Common Stock; or
(iv) Effect any sale, lease, assignment, transfer
or other conveyance of all or substantially all of the assets of the corporation
or any subsidiary thereof, or any consolidation or merger involving the
corporation or any subsidiary thereof, or any reclassification or other change
of shares, or any recapitalization or any dissolution, liquidation or winding up
of the corporation.
(b) The corporation shall not amend its Articles of
Incorporation without the approval by vote or written consent by the holders of
at least a majority of the then outstanding Preferred Stock, each share of
Preferred Stock to be entitled to one vote in each instance, if such amendment
would change any of the rights, preferences, privileges or limitations provided
for herein for the benefit of any Preferred Stock. Without limiting the
generality of the next preceding sentence, the corporation will not amend its
Articles of incorporation without the approval by the holders of at least a
majority of the then outstanding Preferred Stock if such amendment would:
(i) Change the relative seniority rights of the
holders of Preferred Stock as to the payment of dividends in relation to the
holders of any other capital shares of the corporation; or
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<PAGE> 12
(ii) Reduce the amount payable to the holders of
Preferred Stock upon the voluntary or involuntary liquidation, dissolution or
winding up of the corporation, or change the relative seniority or the
liquidation preferences of the holders of Preferred Stock to the rights upon
liquidation of the holders of any other capital Shares of the corporation or
change the dividend rights of the holders of Preferred Stock; or
(iii) Cancel or modify the conversion rights of
the holders of Preferred Stock provided for in Section 4 herein.
8. No Dilution or Impairment. The corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
of performance of any of the terms of the Preferred Stock set forth herein, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holders of the Preferred Stock against dilution or
other impairment. Without limiting the generality of the foregoing, the
corporation (a) will not increase the par value of any shares of stock
receivable on the conversion of the Preferred Stock above the amount payable
therefor on such conversion, (b) will take all such action as may be necessary
or appropriate in order that the corporation may validly and legally issue fully
paid and nonassessable shares on the conversion of all Preferred Stock from time
to time outstanding, (c) will not issue any shares of any class which is senior
to or on a parity with the Preferred Stock as to dividends or as to the
distribution of assets upon voluntary or involuntary dissolution, liquidation or
winding up of the corporation, and (d) will not transfer all or substantially
all of its properties and assets to any other person (corporate or otherwise),
or consolidate with or merge into any other person or permit any such person to
consolidate with or merge into the corporation (if the corporation is not the
surviving person), unless such other person shall expressly assume in writing
and will be bound by all the terms of the Preferred Stock set forth herein.
9. Notices of Record Date. In the event of (a) any taking by the
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the corporation, any
reclassification or recapitalization of the capital stock of the corporation,
any merger or consolidation of the corporation, or any transfer of all or
substantially all of the assets of the corporation to any other corporation, or
any other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation
or winding up of the corporation, then and in each such event the corporation
shall mail or cause to be mailed to each holder of Preferred Stock a notice
specifying (i) the date on which any such record is to be taken for the purpose
of such dividend, distribution or right and a description of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer,
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consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, (iii) the time, if any, that is to be fixed, as to when the
holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be mailed at least 30 days prior to the date
specified in such notice on which such action is to be taken.
IV
The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
V
The corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through bylaw
provisions, agreements with the agents, vote of shareholders or disinterested
directors or otherwise, in excess of the indemnification otherwise permitted by
Section 317 of the California Corporations Code, subject only to the applicable
limits set forth in Section 204 of the California Corporations Code with
respect to actions for breach of duty to this corporation and its shareholders.
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<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 a corporation may be organized under the General Corporation
Law of Delaware.
<PAGE> 2
IV
The corporation is authorized to issue two classes of shares designated
respectively "Common Stock" and "Preferred Stock". The number of shares of
Common Stock is 90,000,000, $.001 par value, and the number of shares of
Preferred Stock is 5,000,000. The Preferred Stock shall be issued in series. The
first such series shall be designated Series A Preferred Stock and shall consist
of 5,000,000 shares, $.001 par value per share. The Series A Preferred Stock is
referred to hereinafter as the "Preferred Stock."
The following is a statement of the designations powers, privileges,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations or restrictions relating to the Preferred Stock:
1. Dividends. The holders of the then outstanding shares of the
Preferred Stock shall be entitled to receive when, as and if declared by the
Board of Directors, out of funds legally available therefor, cumulative
dividends, at the rate of $.08 per share per annum, and payable upon (i)
repurchase of such Preferred Stock; (ii) liquidation pursuant to Section 2
hereof; (iii) upon the Closing of the corporation's first underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock for the
account of the corporation; or (iv) conversion of the Preferred Stock as
expressly provided in Section 4 (a); provided, however, in no event shall the
holder receive an amount on account of such accrued and unpaid dividends upon
(x) the repurchase of the Preferred Stock or upon a liquidation pursuant to
Section 2 herein, such that the aggregate amount received would exceed $1.00 per
share (such amount to be equitably adjusted whenever there should occur a
stock-split, combination, reclassification or other similar event affecting the
Common Stock), or (y) the offering described in subpart (iii) above, such that
the aggregate offering price of the shares of Common Stock in such offering into
which each share of Preferred Stock would be converted as of that date, plus the
accrued and unpaid dividends, would exceed $1.00 per share (such amount to be
equitably adjusted whenever there should occur a stock-split, combination,
reclassification or other similar event affecting the Common Stock), or (z) the
conversion of the Preferred Stock such that the fair market value of the shares
of Common Stock received by the holder for each share of Preferred Stock, plus
the amount of cash or Common Stock, if any, paid on account of the dividends
would exceed $1.00 per share (such amount to be equitably adjusted whenever
there should occur a stock-split, combination, reclassification or other similar
event affecting the Common Stock). The fair market value of a share of Common
Stock shall mean (i) if the Common Stock is publicly traded, the average over
the preceding twenty (20) trading days of the mean of the closing bid and asked
prices on the over-the-counter market as reported by NASDAQ, or, if then traded
on a national securities exchange or the National Market System, the average
over the preceding twenty (20) trading days of the mean of the high and low
prices on the principal national securities exchange or the National Market
System on which it is so traded over the preceding twenty (20) trading days, and
(ii) if the Common Stock is not publicly traded, then as agreed upon by the
corporation and a majority in interest of the holders of the Preferred Stock. If
no such agreement is reached within thirty (30) days, the fair market value
shall be determined by appraisal.
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<PAGE> 3
2. Liquidation, Dissolution or Winding Up.
(a) Preference - Series A Preferred Stock. In the event
of any liquidation, dissolution or winding up of the corporation, whether
voluntary or involuntary, holders of each share of Preferred Stock shall be
entitled to be paid first out of the assets of the corporation available for
distribution to holders of the corporation's capital stock of all classes,
whether such assets are capital, surplus, or earnings, before any sums shall be
paid or any assets distributed among the holders of shares of Common Stock, an
amount equal to the greater of (i) $1.00 per share of Preferred Stock, plus all
accrued and unpaid dividends thereon up to and including the date of full
payment; or (ii) such amount per share of Preferred Stock as would have been
payable had each such share, plus all accrued and unpaid dividends thereon,
subject to the limitation on the payment of dividends set out in Section 1
hereof been converted to Common Stock immediately prior to such event of
liquidation, dissolution or winding up pursuant to the provisions of Section 4
hereof subject to the same adjustments as provided in Section 4 herein, up to
and including the date of full payment. If the assets of the corporation shall
be insufficient to permit the payment in full to the holders of the Preferred
Stock of the amount thus distributable, then the entire assets of the
corporation available for such distribution shall be distributed ratably among
the holders of the Preferred Stock. After such payment shall have been made in
full to the holder of the Preferred Stock or funds necessary for such payment
shall have been set aside by the corporation in trust for the account of holders
of the Preferred Stock so as to be available for such payment, holders of the
Preferred Stock shall be entitled to no further participation in the
distribution of the assets of the corporation and shall have no further rights
of conversion, and the remaining assets available for distribution shall then be
distributed ratably among the holders of the Common Stock.
(b) A consolidation or merger (other than consolidation
or merger in which the holders of voting securities of the corporation
immediately before the consolidation or merger own (immediately after the
consolidation or merger) voting securities of the surviving or acquiring
corporation, or of a parent party of such surviving or acquiring corporation,
possessing more than 50% of the voting power of such surviving or acquiring
corporation or parent party) of the corporation or a sale of all or
substantially all of the assets of the corporation shall be regarded as a
liquidation, dissolution or winding up of the affairs of the corporation within
the meaning of this Section 2; provided, however, in the event of a
consolidation, merger or sale of substantially all the assets of the corporation
in exchange for the equity securities of the acquirer, the holders of the
Preferred Stock shall receive the greater of a payment under Section 2(a)(i) or
2(a)(ii).
(c) Each holder of Preferred Stock shall have the right
to elect the benefits of the provisions of Section 4(g) hereof in lieu of
receiving payment in liquidation, dissolution or winding up of the corporation
pursuant to this Section 2. The election procedures shall be as provided in
Section 4(g) hereof.
(d) Whenever the distribution provided for herein shall
be paid in property other than cash, the value of such distribution shall be the
fair market value of such property as determined in good faith by the Board of
Directors of the corporation.
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3. Voting Power. Except as otherwise expressly provided in
Section 7 hereof, or as required by law, each holder of Preferred Stock shall be
entitled to vote on all matters and shall be entitled to that number of votes
equal to the largest number of whole shares of Common Stock into which such
holder's shares of Preferred Stock could be converted, pursuant to the
provisions of Section 4 hereof at the record date for the determination of
shareholders entitled to vote on such matter or, if no such record date is
established, at the date such vote is taken or any written consent of
shareholders is solicited. Except as otherwise expressly provided herein or as
required by law, the holders of shares of Preferred Stock and Common Stock shall
vote together as a class on all matters.
4. Conversion Rights. The holders of the Preferred Stock shall
have the following conversion rights:
(a) General. Subject to and in compliance with the
provisions of this Section 4, any shares of the Preferred Stock and the accrued
and unpaid dividends upon the election of the holder, may, at the option of the
holder, be converted at any time or from time to time into fully-paid and
nonassessable shares (calculated as to each conversion to the largest whole
share) of Common Stock. The number of shares of Common Stock to which a holder
of Preferred Stock shall be entitled upon conversion shall be the product
obtained by multiplying the Applicable Conversion Rate (determined as provided
in Section 4 (b) ) by the number of shares of Preferred Stock being converted,
and then payment of accrued but unpaid dividends to be paid either (i) in cash
or (ii) into shares of Common Stock by converting the accrued and unpaid
dividends at the then fair market value of such Common Stock as determined in
Section 1 herein. The method of payment of the dividends as provided in (i) and
(ii) above shall be at the election of the corporation.
(b) Applicable Conversion Rate. The conversion rate in
effect at any time (the "Applicable Conversion Rate") shall be the quotient
obtained by dividing $1.00 by the Applicable Conversion Value, calculated as
provided in Section 4(c).
(c) Applicable Conversion value. The Applicable
Conversion Value in effect from time to time, except as adjusted in accordance
with Section 4(d) hereof, shall be $1.00.
(d) Adjustments to Applicable Conversion Value.
(i) Upon Sale of Common Stock. If the
corporation shall, while there are any shares of Preferred Stock outstanding,
issue or sell shares of its Common Stock without consideration or at a price per
share less than the Applicable Conversion Value in effect immediately prior to
such issuance or sale, then in each such case such Applicable Conversion Value
upon each such issuance or sale, except as hereinafter provided, shall be
adjusted to an amount determined by multiplying the Applicable conversion Value
by a fraction:
(A) the numerator of which shall be (a)
the number of shares of Common Stock outstanding and the number of shares of
Common Stock subject to issuance pursuant to any convertible securities,
warrants, options, subscription rights or purchase rights outstanding
immediately prior to the issuance of such additional shares of Common Stock,
plus (b) the number of
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<PAGE> 5
shares of Common Stock which the net aggregate consideration received by the
corporation for the total number of such additional shares of Common Stock so
issued would purchase at the Applicable Conversion Value, and
(B) the denominator of which shall be
(a) the number of shares of Common Stock outstanding and the number of shares of
Common Stock subject to issuance pursuant to any convertible securities,
warrants, options, subscription rights or purchase rights outstanding
immediately prior to the issuance of such additional shares of Common Stock,
plus (b) the number of such additional shares of Common Stock so issued.
The corporation's issuance of up to an aggregate of 5,000,000 shares of
Common Stock, or options exercisable therefor, pursuant to any stock purchase or
stock option plan or other employee incentive program approved by the Board of
Directors to the corporation's employees, directors or officers, the shares of
Common Stock pursuant to the conversion of the Preferred Stock and accrued and
unpaid dividends thereon, and the exercise of the four-year warrants to purchase
1,315,789 shares of the corporation's Common Stock or any adjustments thereto,
shall not be deemed an issuance of additional shares of Common Stock and shall
have no effect on the calculations contemplated by this Section 4 (d) except as
specifically otherwise set forth herein.
Except as discussed in the preceding paragraph, for the purposes of
this Section 4 (d), the issuance of any warrants, options, subscriptions or
purchase rights with respect to shares of Common Stock and the issuance of any
securities convertible into or exchangeable for shares of Common Stock (or the
issuance of any warrants, options or any rights with respect to such convertible
or exchangeable securities) shall be deemed an issuance at such time of such
Common Stock if the Net Consideration Per Share (as hereinafter determined)
which may be received by the corporation for such Common Stock shall be less
than the Applicable Conversion Value at the time of such issuance. Any
obligation, agreement or undertaking to issue warrants, options, subscriptions
or purchase rights at any time in the future shall be deemed to be an issuance
at the time such obligation, agreement or undertaking is made or arises. No
adjustment of the Applicable Conversion Value shall be made under this Section
4(d) upon the issuance of any shares of Common Stock which are issued pursuant
to the exercise of any warrants, options, subscriptions or purchase rights or
pursuant to the exercise of any conversion or exchange rights in any convertible
securities if any adjustment shall previously have been made upon the issuance
of any such warrants, options or subscriptions or purchase rights or upon the
issuance of any convertible securities (or upon the issuance of any warrants,
options or any rights therefor) as above provided. Any adjustment of the
Applicable Conversion Value with respect to this paragraph which relates to
warrants, options, subscriptions or purchase rights with respect to shares of
Common Stock shall be disregarded if and when all of such warrants, options,
subscriptions or purchase rights expire or are canceled without being exercised,
so that the Applicable Conversion Value effective immediately upon such
cancellation or expiration shall be equal to the Applicable Conversion Value in
effect at the time of the issuance of the expired or canceled warrants, options,
subscriptions or purchase rights, with such additional adjustments as would have
been made to that Applicable Conversion Value had the expired or canceled
warrants, options, subscriptions or purchase rights not been issued. For
purposes of this paragraph, the "Net Consideration Per Share" which may be
received by the corporation shall be determined as follows:
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<PAGE> 6
(A) The "Net Consideration Per Share"
shall mean the amount equal to the total amount of consideration, if any,
received by the corporation for the issuance of such warrants, options,
subscriptions or other purchase rights or convertible or exchangeable
securities, plus the minimum amount of consideration, if any, payable to the
corporation upon exercise or conversion thereof, divided by the aggregate number
of shares of Common Stock that would be issued if all such warrants, options,
subscriptions or other purchase rights or convertible or exchangeable securities
were exercised, exchanged or converted.
(B) The "Net Consideration Per Share"
which may be received by the corporation shall be determined in each instance as
of the date of issuance of warrants, options, subscriptions or other purchase
rights or convertible or exchangeable securities without giving effect to any
possible future price adjustments or rate adjustments which may be applicable
with respect to such warrants, options, subscriptions or other purchase rights
or convertible or exchangeable securities.
For purposes of this Section 4(d), if a part or all of the
consideration received by the corporation in connection with the issuance of
shares of Common Stock or the issuance of any of the securities described in
this Section 4(d) consists of property other than cash, the value of such
contribution shall be the fair market value of such property as determined in
good faith by the Board of Directors of the corporation, whereupon such value
shall be given to such consideration and shall be recorded on the books of the
corporation with respect to receipt of such property.
This Section 4(d) shall not apply under any of the circumstances which
would constitute an Extraordinary Common Stock Event (as hereinafter defined in
Section 4(d)(ii)).
(ii) Upon the happening of an Extraordinary
Common Stock Event (as hereinafter defined), the Applicable Conversion Value
(and all other conversion values set forth in Section (d) (i) above) shall,
simultaneously with the happening of such Extraordinary Common Stock Event, be
adjusted by multiplying the then effective Applicable Conversion Value by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such Extraordinary Common Stock Event and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such Extraordinary Common Stock Event, and the product so
obtained shall thereafter be the Applicable Conversion Value. The Applicable
Conversion Value, as so adjusted, shall be readjusted in the same manner upon
the happening of any successive Extraordinary Common Stock Event or Events.
"Extraordinary Common Stock Event" shall mean (i) the issue of
additional shares of the Common Stock as a dividend or other distribution on
outstanding Common Stock, (ii) subdivision of outstanding shares of Common Stock
into a greater number of shares of the Common Stock, or (iii) combination of
outstanding shares of the Common Stock into a smaller number of shares of the
Common Stock.
(e) Dividends. In the event the corporation shall make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other
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<PAGE> 7
distribution payable in securities of the corporation other than shares of
Common Stock or in assets (excluding cash dividends or distributions), then and
in each such event provision shall be made so that the holders of the Preferred
Stock shall receive upon conversion thereof in addition to the number of shares
of Common Stock receivable thereupon, the number of securities or such other
assets of the corporation which they would have received had their Preferred
Stock been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
Conversion Date (as that term is hereafter defined in Section 4(i)), retained
such securities or such other assets receivable by them as aforesaid during such
period, giving application to all adjustments called for during such period
under this Section 4 with respect to the rights of the holders of the Preferred
Stock.
(f) Recapitalization or Reclassification. If the Common
Stock issuable upon the conversion of the Preferred Stock shall be changed into
the same or different number of shares of any class or classes of stock of the
corporation, whether by recapitalization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
elsewhere in this Section 4, or a reorganization, merger, consolidation or sale
of assets provided for elsewhere in this Section 4), then and in each such event
the holder of each share of Preferred Stock shall have the right thereafter to
convert such share into the kind and amount of shares of stock and other
securities and property receivable upon such reorganization, reclassification or
other change by holders of the number of shares of Common Stock into which such
share of Preferred Stock might have been converted (taking into account all
accrued and unpaid dividends and interest with respect to such Preferred Stock)
immediately prior to such reorganization, reclassification or change, all
subject to further adjustment as provided herein.
(g) Capital Reorganization, Merger or Sale of Assets. If
at any time or from time to time there shall be a capital reorganization of the
Common Stock (other than a subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this Section 4) or a merger or
consolidation of the corporation with or into another corporation, or the sale
of all or substantially all of the corporation's properties and assets to any
other person, then, as a part of such reorganization, merger, consolidation or
sale, provision shall be made so that the holders of the Preferred Stock shall
thereafter be entitled to receive upon conversion of the Preferred Stock, the
number of shares of stock or other securities or property of the corporation, or
of the successor corporation resulting from such merger, consolidation or sale,
to which a holder of Common Stock issuable upon conversion would have been
entitled on such capital reorganization, merger, consolidation, or sale. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of the
Preferred Stock after the reorganization, merger, consolidation or sale to the
end that the provisions of this Section 4 (including adjustment of the
Applicable Conversion Value then in effect and the number of shares purchasable
upon conversion of the Preferred Stock) shall be applicable after that event in
as nearly equivalent a manner as may be practicable.
Each holder of Preferred Stock upon the occurrence of a capital
reorganization, merger or consolidation of the corporation, or the sale of all
or substantially all its assets and properties as such events are more fully set
forth in the first paragraph of this Section 4 (g), shall have the option of
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<PAGE> 8
electing treatment of his shares of Preferred Stock under either this Section
4(g) or Section 2 hereof, notice of which election shall be submitted in writing
to the corporation at its principal offices no later than five (5) days before
the effective date of such event, but, if a holder fails to make any election,
he shall be deemed to have elected the benefits of Section 2 hereof.
(h) Accountant's Certificate as to Adjustments. In each
case of an adjustment or readjustment of the Applicable Conversion Rate, the
corporation will furnish each holder of Preferred Stock with a certificate,
prepared by its chief financial officer showing such adjustment or readjustment,
and stating in detail the facts upon which such adjustment or readjustment is
based. Upon the request of the holders of a majority of either series of the
Preferred Stock, the corporation will cause its independent public accountants
to confirm the accuracy of such adjustment or readjustment.
(i) Exercise of Conversion Privilege. To exercise its
conversion privilege, a holder of Preferred Stock shall surrender the
certificate or certificates representing the shares being converted to the
corporation at its principal office, and shall give written notice to the
corporation at that office that such holder elects to convert such shares and
whether such holder elects to convert the accrued and unpaid dividends or to
take cash in payment of the accrued and unpaid dividends. Such notice shall
also state the name or names (with address or addresses) in which the
certificate or certificates for shares of Common Stock issuable upon such
conversion shall be issued. The certificate or certificates for shares of
Preferred Stock surrendered for conversion shall be accompanied by proper
assignment thereof to the corporation or in blank. The date when such written
notice is received by the corporation, together with the certificate or
certificates representing the shares of Preferred Stock being converted, shall
be the "Conversion Date." Immediately upon receipt of such notice, but in any
event within 3 days after the Conversion Date, the corporation shall deliver
notice to the holder who has elected to convert setting forth its election to
pay the accrued but unpaid dividends in cash or to convert the accrued but
unpaid dividends into shares of Common Stock. As promptly as practicable, in any
event within 15 days after the conversion Date, the corporation shall issue and
shall deliver to the holder of the shares of Preferred Stock being converted, or
on its written order, such certificate or certificates as it may request for the
number of whole shares of Common Stock issuable upon the conversion of such
shares of Preferred Stock and, if so elected, upon the conversion of the accrued
and unpaid dividends thereon, in accordance with the provisions of this Section
4, or, if not electing to convert such accrued and unpaid dividends, then cash
in the amount of all accrued and unpaid dividends on such shares of Preferred
Stock, whether or not earned or declared, up to and including the Conversion
Date, and cash, as provided in Section 4 (j), in respect of any fraction of a
share of Common Stock issuable upon such conversion. Such conversion shall be
deemed to have been effected immediately prior to the close of business on the
Conversion Date, and at such time the rights of the holder as holder of the
converted shares of Preferred Stock shall cease and the person or persons in
whose name or names any certificate or certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become the
holder or holders of record of the shares of Common Stock represented thereby.
(j) Cash in Lieu of Fractional Shares. No Factional
shares of Common Stock or scrip representing fractional shares shall be issued
upon the conversion of shares of Preferred Stock.
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<PAGE> 9
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of Preferred Stock, the corporation shall pay to the
holder of the shares of Preferred Stock which were converted a cash adjustment
in respect of such fractional shares in an amount equal to the same fraction of
the market price per share of the Common Stock (as determined in a reasonable
manner prescribed by the Board of Directors) at the close of business on the
Conversion Date. The determination as to whether or not any fractional shares
are issuable shall be based upon the total number of shares of Preferred Stock
being converted at any one time by any holder thereof, not upon each share of
Preferred Stock being converted.
(k) Partial Conversion. In the event some but not all of
the shares of Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the corporation shall execute and deliver
to or on the order of the holder, at the expense of the corporation, a new
certificate representing the number of shares of Preferred Stock which were not
converted.
(l) Reservation of Common Stock. The corporation shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
shares of the Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Preferred Stock, and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, the
corporation shall take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
5. Mandatory Conversion.
(a) Mandatory Conversion. The Preferred Stock shall be
converted into fully paid and nonassessable shares (calculated as to each
conversion to the largest whole share) of Common Stock, without election by the
holders thereof, upon the closing of an underwritten public offering pursuant to
an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the account of the
corporation from which the gross cash proceeds to the corporation are not less
than $10 million, and in which the price per share is at least $2.00 per share
(such amount to be equitably adjusted whenever there should occur a stock-split
combination, combination, reclassification or other similar event affecting the
Common Stock) ("Qualified Public Offering") or on December 17, 1999, if the
Preferred Stock then remains outstanding. The conversion of the Preferred Stock
pursuant to this Section 5 shall be on the terms and subject to the provisions
of Section 4 herein.
(b) Mandatory Conversion Notice. At least 30 days before
any Qualified Public Offering, written notice (the "Mandatory Conversion
Notice") shall be mailed, postage prepaid, to each holder of record of each
share of Preferred Stock which is to be converted, at its address shown on the
records of the corporation; provided, however, that the giving of such Mandatory
Conversion Notice shall not affect the conversion rights of such holder pursuant
to Section 4; provided, further, that the giving of such Mandatory Conversion
Notice shall not affect the rights of such holder
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<PAGE> 10
pursuant to any agreement between the corporation and such holder with respect
to such holder's right to cause the corporation to repurchase such Preferred
Stock. The Mandatory Conversion Notice shall contain the following information:
(i) a statement that it is the intention of the
corporation to effect a Qualified Public Offering, together with a copy of the
preliminary prospectus as filed with the Securities and Exchange Commission
therefor,
(ii) the number of shares of Preferred Stock held
by the holder and the number of shares of Common Stock to be received by such
holder upon the conversion of such Preferred Stock,
(iii) the expected date of the closing of the
Qualified Public offering, and
(iv) that the holder is to surrender to the
corporation, at the place designated therein, its certificate or certificates
representing the shares of Preferred Stock to be converted.
6. No Reissuance of the Preferred Stock. No share or shares of
the Preferred Stock acquired by the corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued. The corporation may from
time to time take such appropriate corporate action as may be necessary to
reduce the authorized number of shares of the Preferred Stock accordingly.
7. Restrictions and Limitations.
(a) Except as expressly provided herein or as required by
law, so long as any shares of Preferred Stock remain outstanding, the
corporation shall not, and shall not permit any subsidiary (which shall mean any
corporation or trust of which the corporation directly or indirectly owns at the
time more than 50% of the voting power of such corporation or trust) to, without
the vote or written consent by the holders of at least a majority of the then
outstanding shares of Preferred Stock, each share of Preferred Stock to be
entitled to one vote in each instance:
(i) Redeem, purchase or otherwise acquire for
value (or pay into or set aside for a sinking fund for such purpose), any share
or shares of the corporation (except for those shares repurchased from officers,
directors or employees under agreements requiring such persons to sell such
shares to the corporation, at cost, on termination of their relationship with
the corporation or its subsidiaries);
(ii) Authorize or pay any cash dividend in
respect to the Common Stock;
(iii) Authorize or issue, or obligate itself to
authorize or issue, any other equity security senior to or on a parity with the
Preferred Stock as to liquidation preferences, conversion rights, voting rights
or otherwise, provided, however, that in no event shall this provision restrict
the issuance of Common Stock; or
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<PAGE> 11
(iv) Effect any sale, lease, assignment, transfer
or other conveyance of all or substantially all of the assets of the corporation
or any subsidiary thereof, or any consolidation or merger involving the
corporation or any subsidiary thereof, or any reclassification or other change
of shares, or any recapitalization or any dissolution, liquidation or winding up
of the corporation.
(b) The corporation shall not amend its Articles of
Incorporation without the approval by vote or written consent by the holders of
at least a majority of the then outstanding Preferred Stock, each share of
Preferred Stock to be entitled to one vote in each instance, if such amendment
would change any of the rights, preferences, privileges or limitations provided
for herein for the benefit of any Preferred Stock. Without limiting the
generality of the next preceding sentence, the corporation will not amend its
Articles of Incorporation without the approval by the holders of at least a
majority of the then outstanding Preferred Stock if such amendment would:
(i) Change the relative seniority rights of the
holders of Preferred Stock as to the payment of dividends in relation to the
holders of any other capital shares of the corporation; or
(ii) Reduce the amount payable to the holders of
Preferred Stock upon the voluntary or involuntary, liquidation, dissolution or
winding up of the corporation, or change the relative seniority of the
liquidation preferences of the holders of Preferred Stock to the rights upon
liquidation of the holders of any other capital Shares of the corporation or
change the dividend rights of the holders of Preferred Stock; or
(iii) Cancel or modify the conversion rights of
the holders of Preferred Stock provided for in Section 5 herein.
8. No Dilution or Impairment. The corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
of performance of any of the terms of the Preferred Stock set forth herein, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holders of the Preferred Stock against dilution or
other impairment. Without limiting the generality of the foregoing, the
corporation (a) will no, increase the par value of any shares of stock
receivable on the conversion of the Preferred Stock above the amount payable
therefor on such conversion, (b) will take all such action as may be necessary
or appropriate in order that the corporation may validly and legally issue fully
paid and nonassessable shares on the conversion of all Preferred Stock from time
to time outstanding, (c) will not issue any shares of any class which is senior
to or on a parity with the Preferred Stock as to dividends or as to the
distribution of assets upon voluntary or involuntary dissolution, liquidation or
winding up of the corporation, and (d) will not transfer all substantially all
of its properties and assets to any other person (corporate or otherwise), or
consolidate with or merge into any other person or permit any such person to
consolidate with or merge into the corporation (if the corporation is not the
surviving person), unless such other person shall expressly assume in writing
and will be bound by all the terms of the Preferred Stock set forth herein.
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9. Notices of Record Date. In the event of (a) any taking by the
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(a) any capital reorganization of the corporation, any
reclassification or recapitalization of the capital stock of the corporation,
any merger or consolidation of the corporation, or any transfer of all or
substantially all of the assets of the corporation to any other corporation, or
any other entity or person, or
(b) any voluntary or involuntary dissolution, liquidation
or winding up of the corporation, then and in each such event the corporation
shall mail or cause to be mailed to each holder of Preferred Stock a notice
specifying (i) the date on which any such record is to be taken for the purpose
of such dividend, distribution or right and a description of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective, (iii)
the time, if any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
upon such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up. Such notice shall
be mailed at least 30 days prior to the date specified in such notice on which
such action is to be taken.
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.
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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.
VIII
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this 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.
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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
<PAGE> 1
EXHIBIT 3.4
BY-LAWS
OF
SIMULATION SCIENCES INC.
(A California Corporation)
***
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICES. The board of directors shall fix the
location of the principal executive office of the corporation at any place
within or outside the State of California. If the principal executive office is
located outside this state, and the corporation has one or more business offices
in this state, the board of directors shall fix and designate a principal
business office in the State of California.
Section 2. OTHER OFFICES. The board of directors may at any time
establish branch or subordinate offices at any place or places where the
corporation is qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at
any place within or outside the State of California designated by the board of
directors. In the absence of any such designation, shareholders' meetings shall
be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETING. The annual meeting of shareholders shall be
held each year on a date and at a time designated by the board of directors. At
each annual meeting directors shall be elected, and any other proper business
may be transacted.
Section 3. SPECIAL MEETING. A special meeting of the shareholders may
be called at any time by the board of directors, or by the chairman of the
board, or by the president, or by one or more shareholders holding shares in the
aggregate entitled to cast not less than 10% of the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president, any
vice president, or the secretary of the corporation. The officer receiving the
request shall cause notice to
<PAGE> 2
be promptly given to the shareholders entitled to vote, in accordance with the
provisions of Section 4 and 5 of this Article II, that a meeting will be held at
the time requested by the person or persons calling the meeting, not less than
thirty-five (35) nor more than sixty (60) days after the receipt of the request.
If the notice is not given within twenty (20) days after receipt of the request,
the person or persons requesting the meeting may give the notice. Nothing
contained in this paragraph of this Section 3 shall be construed as limiting,
fixing or affecting the time when a meeting of shareholders called by action of
the board of directors may be held.
Section 4. NOTICE OF SHAREHOLDERS' MEETINGS. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 5 of
this Article II not less than ten (10) nor more than sixty (60) days before the
date of the meeting. The notice shall specify the place, date and hour of the
meeting and (i) in the case of a special meeting, the general nature of the
business to be transacted, or (ii) in the case of the annual meeting, those
matters which the board of directors, at the time of giving the notice, intends
to present for action by the shareholders. The notice of any meeting at which
directors are to be elected shall include the name of any nominee or nominees
whom, at the time of the notice, management intends to present for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California, (ii)
an amendment of the articles of incorporation, pursuant to Section 902 of that
Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of
that Code, (iv) a voluntary dissolution of the corporation, pursuant to Section
1900 of that Code, or (v) a distribution in dissolution other than in accordance
with the rights of outstanding preferred shares, pursuant to Section 2007 of
that Code, the notice shall also state the general nature of that proposal.
Section 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any
meeting of shareholders shall be given either personally or by first-class mail
or telegraphic or other written communication, charges prepaid, addressed to the
shareholder at the address of that shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for the purpose of
notice. If no such address appears on the corporation's books or is given,
notice shall be deemed to have been given if sent to that shareholder by
first-class mail or telegraphic or other written communication to the
corporation's principal executive office, or if published at lease once in a
newspaper of general circulation in the county where that office is located.
Notice shall be deemed to have been given at the time when delivered personally
or deposited in the mail or sent by telegram or other means of written
communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at that address, all future notices or reports shall be deemed to have been duly
given without further mailing if these shall be available to the shareholder on
written demand of the shareholder at the principal executive office of the
corporation for a period of one year from the date of the giving of the notice.
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An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting shall be executed by the secretary, assistant secretary,
or any transfer agent of the corporation giving the notice, and shall be filed
and maintained in the minute book of the corporation.
Section 6. QUORUM. The presence in person or by proxy of the holders of
a majority of the shares entitled to vote at any meeting of shareholders shall
constitute a quorum for the transaction of business. The shareholders present at
a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 7. ADJOURNED MEETING; NOTICE. Any shareholders' meeting, annual
or special, whether or not a quorum is present, may be adjourned from time to
time by the vote of the majority of the shares represented at that meeting,
either in person or by proxy, but in the absence of a quorum, no other business
may be transacted at that meeting, except as provided in Section 6 of this
Article II.
When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place are announced at a meeting at which the
adjournment is taken, unless a new record date for the adjourned meeting is
fixed, or unless the adjournment is for more than forty-five (45) days from the
date set for the original meeting, in which case the board of directors shall
set a new record date. Notice of any such adjourned meeting shall be given to
each shareholder of record entitled to vote at the adjourned meeting in
accordance with the provisions of Sections 4 and 5 of this Article II. At any
adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting.
Section 8. VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of Section 11
of this Article II, subject to the provisions of Section 702 and 704, inclusive,
of the Corporations Code of California (relating to voting shares held by a
fiduciary, in the name of a corporation, or in joint ownership). The
shareholders' vote may be by voice vote or by ballot; provided, however that any
election for directors must be by ballot if demanded by any shareholder before
the voting has begun. On any matter other than elections of directors, any
shareholder may vote part of the shares in favor of the proposal and refrain
from voting the remaining shares or vote them against the proposal, but, if the
shareholder fails to specify the number of shares which the shareholder is
voting affirmatively, it will be conclusively presumed that the shareholder's
approving vote is with respect to all shares that the shareholder is entitled to
vote. If a quorum is present, the affirmative vote of the majority of the shares
represented at the meeting entitled to vote on any matter (other than the
election of directors) shall be the act of the shareholders, unless the vote of
a greater number of voting by classes is required by California General
Corporation Law or by the articles of incorporation.
At a shareholders' meeting at which directors are to be elected, no
shareholder shall be entitled to cumulate votes (i.e., cast for any one or more
candidates a number of votes greater than
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the number of the shareholder's shares) unless the candidates' names have been
placed in nomination prior to commencement of the voting and a shareholder has
given notice prior to commencement of the voting of the shareholder's intention
to cumulate votes. If any shareholder has given such a notice, then every
shareholder entitled to vote may cumulate votes for candidates in nomination and
give one candidate a number of votes equal to the number of directors to be
elected multiplied by the number of votes to which that shareholder's shares are
entitled, or distribute the shareholder's votes on the same principle among any
or all of the candidates, as the shareholder thinks fit. The candidates
receiving the highest number of votes, up to the number of directors to be
elected, shall be elected.
Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The
transactions of any meeting of shareholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each person
entitled to vote, who was not present in person or by proxy, signs a written
waiver of notice or a consent to a holding of the meeting, or an approval of the
minutes. The waiver of notice or consent need not specify either the business to
be transacted or the purpose of any annual or special meeting of shareholders,
except that if action is taken or proposed to be taken for approval of any of
those matters specified in the second paragraph of Section 4 of this Article II,
the waiver of notice or consent shall state the general nature of the proposal.
All such waivers, consents or approvals shall be filed with the corporate
records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if that objection is expressly made at the meeting.
Section 10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Any action which may be taken at any annual or special meeting of shareholders
may be taken without a meeting and without prior notice, if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take that action at a meeting at which all shares
entitled to vote on that action were present and voted. In the case of election
of directors, such a consent shall be effective only if signed by the holders of
all outstanding shares entitled to vote for the election of directors; provided,
however, that a director may be elected at any time to fill a vacancy on the
board of directors that has not been filled by the directors, by the written
consent of the holders of a majority of the outstanding shares entitled to vote
for the election of directors. All such consents shall be filed with the
secretary of the corporation and shall be maintained in the corporate records.
Any shareholder giving a written consent, or the shareholder's proxy holders, or
a transferee of the shares or a personal representative of the shareholder or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary.
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If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all such
shareholders shall not have been received, the secretary shall give prompt
notice of the corporate action approved by the shareholders without a meeting.
This notice shall be given in the manner specified in Section 5 of this Article
II. In the case of approval of (i) contracts or transactions in which a director
has a direct or indirect financial interest, pursuant to Section 310 of the
Corporations Code of California, (ii) indemnification of agents of the
corporation, pursuant to Section 317 of that Code, (iii) a reorganization of the
corporation, pursuant to Section 1201 of that Code, and (iv) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares pursuant to Section 2007 of that Code, the notice shall be given at least
ten (10) days before the consummation of any action authorized by that approval.
Section 11. RECORD DATE FOR SHAREHOLDER NOTICE, VOTING, AND GIVING
CONSENTS. For purposes of determining the shareholders entitled to notice of any
meeting or to vote or entitled to give consent to corporate action without a
meeting, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) days nor less than ten (10) days before the date of
any such meeting nor more than sixty (60) days before any such action without a
meeting, and in this event only shareholders of record on the date so fixed are
entitled to notice and to vote or to give consents, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date, except as otherwise provided in the California General
Corporation Law.
If the board of directors does not so fix a record date:
(a) The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.
(b) The record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action of the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to that action, or the sixtieth (60th) day before the date of such
other action, whichever is later.
Section 12. PROXIES. Every person entitled to vote for directors or on
any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission, or otherwise) by the shareholder or the
shareholder's attorney in fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, before the vote pursuant to that proxy, by a
writing delivered to the corporation stating that the proxy is revoked, or by a
subsequent proxy executed by,
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or attendance at the meeting and voting in person by, the person executing the
proxy; or (ii) written notice of the death or incapacity of the maker of that
proxy is received by the corporation before the vote pursuant to that proxy is
counted; provided, however, that no proxy shall be valid after the expiration of
eleven (11) months from the date of the proxy, unless otherwise provided in the
proxy. The revocability of a proxy that states on its face that it is
irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of
the Corporations Code of California.
Section 13. INSPECTORS OF ELECTION. Before any meeting of shareholders,
the board of directors may appoint any persons other than nominees for office to
act as inspectors of election at the meeting or its adjournment. If no
inspectors of election are so appointed, the chairman of the meeting may, and on
the request of any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors shall be either
one (1) or three (3). If inspectors are appointed at a meeting on the request of
one or more shareholders or proxies, the holders of a majority of shares or
their proxies present at the meeting shall determine whether one (1) or three
(3) inspectors are to be appointed. If any person appointed as inspector fails
to appear or fails or refuses to act, the chairman of the meeting may, and upon
the request of any shareholder or a shareholder's proxy shall, appoint a person
to fill that vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting
power of each, the shares represented at the meeting, the existence of a quorum,
and the authenticity, validity, and effect of proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election
or vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to the provisions of the California General
Corporation Law and any limitations in the articles of incorporation and these
bylaws relating to action required to
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be approved by the shareholders 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.
Without prejudice to these general powers, and subject to the same
limitations, the directors shall have the power to:
(a) Select and remove all officers, agents, and employees of the
corporation; prescribe any powers and duties for them that are consistent with
law, with the articles of incorporation, and with these bylaws; fix their
compensation; and require from them security for faithful service.
(b) Change the principal executive office or the principal
business office in the State of California from one location to another; cause
the corporation to be qualified to do business in any other state, territory,
dependency, or country and conduct business within or without the State of
California for the holding of any shareholders' meeting, or meetings, including
annual meetings.
(c) Adopt, make, and use a corporate seal; prescribe the forms of
certificates of stock; and alter the form of the seal and certificates.
(d) Authorize the issuance of shares of stock of the corporation
on any lawful terms, in consideration of money paid, labor done, services
actually rendered, debts or securities cancelled, or tangible or intangible
property actually received.
(e) Borrow money and incur indebtedness on behalf of the
corporation, and cause to be executed and delivered for the corporation's
purposes, in the corporate name, promissory notes, bonds, debentures, deeds of
trust, mortgages, pledges, hypothecations, and other evidences of debt and
securities.
Section 2. NUMBER OF DIRECTORS. The authorized number of directors
shall be three (3) until changed by a duly adopted amendment to the articles of
incorporation or by an amendment to this bylaw adopted by the vote or written
consent of holders of a majority of the outstanding shares entitled to vote;
provided, however, that an amendment reducing the number of directors to a
number less than five (5) cannot be adopted if the votes cast against its
adoption at a meeting, or the shares not consenting in the case of action by
written consent, are equal to more than 16 2/3% of the outstanding shares
entitled to vote.
Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be
elected at each annual meeting of the shareholders to hold office until the next
annual meeting. Each director, including a director elected to fill a vacancy,
shall hold office until the expiration of the term for which elected and until a
successor has been elected and qualified.
Section 4. VACANCIES. Vacancies in the board of directors may be filled
by a majority of the remaining directors, though less than a quorum, or by a
sole remaining director,
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except that a vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be filled only by the
vote of a majority of the shares entitled to vote represented at a duly held
meeting at which a quorum is present, or by the written consent of holders of a
majority of the outstanding shares entitled to vote. Each director so elected
shall hold office until the next annual meeting of the shareholders and until a
successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to
exist in the event of the death, resignation, or removal of any director, or if
the board of directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or convicted of a
felony, or if the authorized number of directors is increased, or if the
shareholders fail, at any meeting of shareholders at which any director or
directors are elected, to elect the number of directors to be voted for at that
meeting.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election by
written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary, or the board of directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
board of directors may elect a successor to take office when the resignation
becomes effective.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
Section 5. PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. Regular
meetings of the board of directors may be held at any place within or outside
the State of California that has been designated from time to time by resolution
of the board. In the absence of such a designation, regular meetings shall be
held at the principal executive office of the corporation. Special meetings of
the board shall be held at the principal executive office of the corporation.
Special meetings of the board shall be held at any place within or outside the
State of California that has been designated in the notice of the meeting or, if
not stated in the notice or there is no notice, at the principal executive
office of the corporation. Any meeting, regular or special, may be held by
conference telephone or similar communication equipment, so long as all
directors participating in the meeting can hear one another, and all such
directors shall be deemed to be present in person at the meeting.
Section 6. ANNUAL MEETING. Immediately following each annual meeting of
shareholders, the board of directors shall hold a regular meeting for the
purpose of organization, any desired election of officers, and the transaction
of other business. Notice of this meeting shall not be required.
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Section 7. OTHER REGULAR MEETINGS. Other regular meetings of the board
of directors shall be held without call at such time as shall from time to time
be fixed by the board of directors. Such regular meetings may be held without
notice.
Section 8. SPECIAL MEETINGS. Special meetings of the board of directors
for any purpose or purposes may be called at any time by the chairman of the
board or the president or any vice president or the secretary or any director.
Notice of the time and place of special meetings shall de delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. In case 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. In case the notice is delivered
personally, or by telephone or 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 whom the person giving notice has reason to believe will
promptly communicate it to the director. The notice need not specify the purpose
of the meeting nor the place if the meeting is to be held at the principal
executive office of the corporation.
Section 9. QUORUM. A majority of the authorized number of directors
shall constitute a quorum for the transaction of business, except to adjourn as
provided in Section 11 of this Article III. Every act or decision done or made
by a majority of the directors present at a meeting duly held at which a quorum
is present shall be regarded as the act of the board of directors, subject to
the provisions of Section 310 of the Corporations Code of California (as to
approval of contracts or transactions in which a director has a direct or
indirect material financial interest), Section 311 of that Code (as to
appointment of committees), and Section 317(e) of that Code (as to
indemnification of directors). A meeting at which a quorum is initially present
may continue to transact business notwithstanding the withdrawal of directors,
if any action taken is approved by at least a majority of the required quorum
for that meeting.
Section 10. WAIVER OF NOTICE. The transactions of any meeting of the
board of directors, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice if a
quorum is present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding the
meeting or an approval of the minutes. The waiver of notice or consent need not
specify the purpose of the meeting. All such waivers, consents, and approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting. Notice of a meeting shall also be deemed given to any director who
attends the meeting without protesting before or at its commencement, the lack
of notice to that director.
Section 11. ADJOURNMENT. A majority of the directors present, whether
or not constituting a quorum, may adjourn any meeting to another time and place.
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Section 12. NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given, unless the meeting is adjourned
for more than twenty-four hours, in which case notice of the time and place
shall be given before the time of the adjourned meeting, in the manner specified
in Section 8 of this Article III, to the directors who were not present at the
time of the adjournment.
Section 13. ACTION WITHOUT MEETING. Any action required or permitted to
be taken by the board of directors may be taken without a meeting, if all
members of the board shall individually or collectively consent in writing to
that action. Such action by written consent shall have the same force and effect
as a unanimous vote of the board of directors. Such written consent or consents
shall be filed with the minutes of the proceedings of the board.
Section 14. FEES AND COMPENSATION OF DIRECTORS. Directors and members
of committees may receive such compensation, if any, for their services, and
such reimbursement of expenses, as may be fixed or determined by resolution of
the board of directors. This Section 14 shall not be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for those services.
ARTICLE IV
OFFICERS AND COMMITTEES
Section 1. OFFICERS. The officers of the corporation shall be a
president, a secretary, and a chief financial officer. The corporation may also
have, at the discretion of the board of directors, a chairman of the board, one
or more vice presidents, one or more assistant secretaries, one or more
assistant treasurers, and such other officers as may be appointed in accordance
with the provisions of Section 3 of this Article IV. Any number of offices may
be held by the same person.
Section 2. ELECTION OF OFFICERS. The officers of the corporation,
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article IV, shall be chosen by the board of
directors, and each shall serve at the pleasure of the board, subject to the
rights, if any of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The board of directors may appoint,
and may empower the president to appoint, such other officers 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 the bylaws or as
the board of directors may from time to time determine.
Section 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 the board of directors, at any regular
or special meeting of the board, or, except in 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.
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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.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these bylaws for regular appointment to that office.
Section 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 be from
time to time assigned to him by the board of directors or prescribed by the
bylaws. If there is no president, the chairman of the board shall in addition be
the chief executive officer of the corporation and shall have the powers and
duties prescribed in Section 7 of this Article IV.
Section 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 of the chairman of the board, or if there be none, 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 the bylaws.
Section 8. VICE PRESIDENTS. 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 or the bylaws, and the president, or the chairman of the
board.
Section 9. SECRETARY. The secretary shall keep or cause to be kept, at
the principal executive office 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, with the time and place of holding, whether
regular or special, and, if special, how authorized, 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.
The secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent or
registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and
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their addresses, the number and classes of shares held by each, the number and
date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the board of directors required by the bylaws or by
law to be given, and 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 the bylaws.
Section 10. CHIEF FINANCIAL OFFICER. The chief financial officer 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 chief financial officer shall deposit all moneys and other
valuables in the name and to the credit of the corporation with such
depositories 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 chief financial officer and of the financial
condition of the corporation, and shall have other powers and perform such other
duties as may be prescribed by the board of directors or the bylaws.
Section 11. EXECUTIVE AND OTHER COMMITTEES. The Board of Directors may
appoint an executive committee, and such other committees as may be necessary
from time to time, consisting of such number of its members and with such powers
as it may designate, consistent with the Articles of Incorporation and bylaws
and the General Corporation Laws of the State of California. Such committees
shall hold office at the pleasure of the board.
Section 12. REIMBURSEMENT OF DISALLOWED EXPENSES. If any payments made
to an officer of this corporation, such as salary, bonus, or expense
reimbursement, shall be disallowed in full or in part as deductible expenses by
the corporation by the Internal Revenue Service and/or California Franchise Tax
Board, the same shall be repaid by such officer to the corporation to the full
extent of such disallowance. It shall be the duty of the board of directors to
enforce repayment of such amount disallowed. In lieu of repayment by the
officer, subject to the determination of the directors, appropriate amounts may
be withheld from such officer's future compensation until the amount has been
recovered.
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ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES, AND OTHER AGENTS
Section 1. AGENTS, PROCEEDINGS, AND EXPENSES. For the purposes of this
Article, "agent" means any person who is or was a director, officer, employee,
or other agent of this corporation, or is or was serving at the request of this
corporation as a director, officer, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise, or
was a director, officer, employee, or agent of a foreign or domestic corporation
which was a predecessor corporation of this corporation or of another enterprise
at the request of such predecessor corporation; "proceeding" means any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative, or investigative; and "expenses" includes, without limitation,
attorneys' fees and any expenses of establishing a right to indemnification
under Section 4 or Section 5(c) of this Article.
Section 2. ACTIONS OTHER THAN BY THE CORPORATION. This corporation
shall indemnify any person who was or is a party, or is threatened to be made a
party, to any proceeding (other than an action by or in the right of this
corporation) by reason of the fact that such person is or was an agent of this
corporation, against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with such proceeding if that
person acted in good faith and in a manner that person reasonably believed to be
in the best interests of this corporation and, in the case of a criminal
proceeding, had no reasonable cause to believe the conduct of that person was
unlawful. The termination of any proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contenders or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in the best interests of this
corporation or that the person had reasonable cause to believe that the person's
conduct was unlawful.
Section 3. ACTIONS BY THE CORPORATION. This corporation shall indemnify
any person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action by or in the right of this corporation
to procure a judgment in its favor by reason of the fact that that person is or
was an agent of this corporation, against expenses actually and reasonably
incurred by that person in connection with the defense or settlement of that
action if that person acted in good faith, in a manner that person believed to
be in the best interests of this corporation and with such care, including
reasonable inquiry, as an ordinarily prudent person in a like position would use
under similar circumstances. No indemnification shall be made under this Section
3:
(a) In respect of any claim, issue or matter as to which that
person shall have been adjudged to be liable to this corporation in the
performance of that person's duty to this corporation, unless and only to the
extent that the court in which that action was brought shall determine upon
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application, that, in view of all the circumstances of the case, that person is
fairly and reasonably entitled to indemnity for the expenses which the court
shall determine;
(b) Of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval; or
(c) Of expenses incurred in defending a threatened or pending
action which is settled or otherwise disposed of without court approval.
Section 4. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of
this corporation has been successful on the merits in defense of any proceeding
referred to in Sections 2 or 3 of this Article, or in defense of any claim,
issue, or matter therein, the agent shall be indemnified against expenses
actually and reasonably incurred by the agent in connection therewith.
Section 5. REQUIRED APPROVAL. Except as provided in Section 4 of this
Article, any indemnification under this Article shall be made by this
corporation only if authorized in the specific case on a determination that
indemnification of the agent is proper in the circumstances because the agent
has met the applicable standard of conduct set forth in Sections 2 or 3 of this
Article, by:
(a) A majority vote of a quorum consisting of directors who are
not parties to the proceeding;
(b) Approval by the affirmative vote of a majority of the shares
of this corporation entitled to vote represented at a duly held meeting at which
a quorum is present or by the written consent of holders of a majority of the
outstanding shares entitled to vote. For this purpose, the shares owned by the
person to be indemnified shall not be considered outstanding or entitled to vote
thereon; or
(c) The court in which the proceeding is or was pending, on
application made by this corporation or the agent or the attorney or other
person rendering services in connection with the defense, whether or not such
application by the agent, attorney, or other person is opposed by this
corporation.
Section 6. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by this corporation before the final disposition of
the proceeding on receipt of an undertaking by or on behalf of the agent to
repay the amount of the advance unless it shall be determined ultimately that
the agent is entitled to be indemnified as authorized in this Article.
Section 7. OTHER CONTRACTUAL RIGHTS. Nothing contained in this Article
shall affect any right to indemnification to which persons other than directors
and officers of this corporation or any subsidiary hereof may be entitled by
contract or otherwise.
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<PAGE> 15
Section 8. LIMITATIONS. No indemnification or advance shall be made
under this Article, except as provided in Section 4 or Section 5(c), in any
circumstance where it appears:
(a) That it would be inconsistent with a provision of the
articles, a resolution of the shareholders, or an agreement in effect at the
time of the accrual of the alleged cause of action asserted in the proceeding in
which the expenses were incurred or other amounts were paid, which prohibits or
otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
Section 9. INSURANCE. Upon and in the event of a determination by the
board of directors of this corporation to purchase such insurance, this
corporation shall purchase and maintain insurance on behalf of any agent of the
corporation against any liability asserted against or incurred by the agent in
such capacity or arising out of the agent's status as such whether or not this
corporation would have the power to indemnify the agent against that liability
under the provisions of this section.
Section 10. FIDUCIARIES OF CORPORATION EMPLOYEE BENEFIT PLAN. This
Article does not apply to any proceeding against any trustee, investment
manager, or other fiduciary of an employee benefit plan in that person's
capacity as such, even though that person may also be an agent of the
corporation as defined in Section 1 of this Article. Nothing contained in this
Article shall limit any right to indemnification to which such a trustee,
investment manager, or other fiduciary may be entitled by contract or otherwise,
which shall be enforceable to the extent permitted by applicable law other than
this Article.
ARTICLE VI
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The
corporation shall keep at its principal executive office, or at the office of
its transfer agent or registrar, if either be appointed and as determined by
resolution of the board of directors, a record of its shareholders, giving the
names and addresses of all shareholders and the number and class of shares held
by each shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation may (i) inspect and copy the records of shareholders' names and
addresses and shareholdings during usual business hours on five days prior
written demand on the corporation, and (ii) obtain from the transfer agent of
the corporation, on written demand and on the tender of such transfer agent's
usual charges for such list, a list of the shareholders' names and addresses,
who are entitled to vote for the election of directors, and their shareholdings,
as of the most recent record date for which that list has been compiled or as of
a date specified by the shareholder after the date of demand. This list shall be
made available to any such shareholder by the transfer agent on or before the
later of five (5) days after the demand is received or
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<PAGE> 16
the date specified in the demand as the date as of which the list is to be
compiled. The record of shareholders shall also be open to inspection on the
written demand of any shareholder or holder of a voting trust certificate, at
any time during usual business hours, for a purpose reasonably related to the
holder's interests as a shareholder or as the holder of a voting trust
certificate. Any inspection and copying under this Section 1 may be made in
person or by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
Section 2. MAINTENANCE AND INSPECTION OF BYLAWS. The corporation shall
keep at its principal executive office, or if its principal executive office is
not in the State of California, at its principal business office in this state,
the original or a copy of the bylaws as amended to date, which shall be open to
inspection by the shareholders at all reasonable times during office hours. If
the principal executive office of the corporation is outside the State of
California and the corporation has no principal business office in this state,
the Secretary shall, upon the written request of any shareholder, furnish to
that shareholder a copy of the bylaws as amended to date.
Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS. The
accounting books and records and minutes of proceedings of the shareholders and
the board of directors and any committee or committees of the board of directors
shall be kept at such place or places designated by the board of directors, or,
in the absence of such designation, at the principal executive office of the
corporation. The minutes shall be kept in written form and the accounting books
and records shall be kept either in written form or in any other form capable of
being converted into written form. The minutes and accounting books and records
shall be open to inspection upon the written demand of any shareholder or holder
of a voting trust certificate, at any reasonable time during usual business
hours, for a purpose reasonably related to the holder's interests as a
shareholder or as the holder of a voting trust certificate. The inspection may
be made in person or by an agent or attorney, and shall include the right to
copy and make extracts. These rights of inspection shall extend to the records
of each subsidiary corporation of the corporation.
Section 4. INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect all books, records, and
documents of every kind and the physical properties of the corporation and each
of its subsidiary corporation. The inspection by a director may be made in
person or by an agent or attorney and the right of inspection includes the right
to copy and make extracts of documents.
Section 5. ANNUAL REPORT TO SHAREHOLDERS. The annual report to
shareholders referred to in Section 1501 of the California General Corporation
Law is expressly dispensed with, but nothing herein shall be interpreted as
prohibiting the board of directors from issuing annual or other periodic reports
to the shareholders of the corporation as they consider appropriate.
Section 6. FINANCIAL STATEMENTS. A copy of any annual financial
statement and any income statement of the corporation for each quarterly period
of each fiscal year, and any accompanying balance sheet of the corporation as of
the end of each such period, that has been prepared by the corporation shall be
kept on file in the principal executive office of the corporation
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<PAGE> 17
for twelve (12) months and each such statement shall be exhibited at all
reasonable times to any shareholder demanding an examination of any such
statement or a copy shall be mailed to any such shareholder.
If a shareholder or shareholders holding at least five percent (5%) of
the outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and a balance
sheet of the corporation as of the end of that period, the chief financial
officer shall cause that statement to be prepared, if not already prepared, and
shall deliver personally or mail that statement or statements to the person
making the request within thirty (30) days after the receipt of the request. If
the corporation has not sent to the shareholder its annual report for the last
fiscal year, this report shall likewise be delivered or mailed to the
shareholder or shareholders within thirty (30) days after the request.
The corporation shall also, on the written request of any shareholder,
mail to the shareholder a copy of the last annual, semi-annual, or quarterly
income statement which it has prepared, and a balance sheet as of the end of
that period.
The quarterly income statement and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
ARTICLE VII
GENERAL CORPORATE MATTERS
Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For
purposes of determining the shareholders entitled to receive payment of any
dividend or other distribution of allotment of any rights or entitled to
exercise any rights in respect of any other lawful action (other than action by
shareholders by written consent without a meeting), the board of directors may
fix, in advance, a record date, which shall not be more than sixty (60) days
before any such action, and in that case only shareholders of record on the date
so fixed are entitled to receive the dividend, distribution, or allotment of
rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date so
fixed, except as otherwise provided in the California General Corporation Law.
If the board of directors does not so fix a record date, the record
date for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
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<PAGE> 18
Section 2. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks,
drafts, or other orders for payment of money, notes, or other evidences of
indebtedness, issued in the name of or payable to the corporation, shall be
signed or endorsed by such person or persons and in such manner as, from time to
time, shall be determined by resolution of the board of directors.
Section 3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The board
of directors, except as otherwise provided in these bylaws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the corporation, and this authority
may be general or confined to specific instances; and, 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.
Section 4. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of the capital stock of the corporation shall be issued to each
shareholder when any of these shares are fully paid, and the board of directors
may authorize the issuance of certificates or shares as partly paid provided
that these certificates shall state the amount of the consideration to be paid
for them and the amount paid. All certificates shall be signed in the name of
the corporation by the chairman of the board or vice chairman of the board or
the president or vice president and by the chief financial officer or an
assistant treasurer or the secretary or any assistant secretary, certifying the
number of shares and the class or series of shares owned by the shareholder. Any
or all of the signatures on the certificate may be facsimile. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed on a certificate shall have ceased to be that officer,
transfer agent, or registrar before that certificate is issued, it may be issued
by the corporation with the same effect as if that person were an officer,
transfer agent, or registrar at the date of issue.
Section 5. LOST CERTIFICATES. Except as provided in this Section 5, no
new certificates for shares shall be issued to replace an old certificate unless
the latter is surrendered to the corporation and cancelled at the same time. The
board of directors may, in case any share certificate or certificate for any
other security is lost, stolen, or destroyed, authorize the issuance of a
replacement certificate on such terms and conditions as the board may require,
including provision for indemnification of the corporation secured by a bond or
other adequate security sufficient to protect the corporation against any claim
that may be made against it, including any expense or liability, on account of
the alleged loss, theft, or destruction of the certificate or the issuance of
the replacement certificate.
Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The chairman
of the board, the president, or any vice president, or any other person
authorized by resolution of the board of directors or by any of the foregoing
designated officers, is authorized to vote on behalf of the corporation any and
all shares of any other corporation or corporations, foreign or domestic,
standing in the name of the corporation. The authority granted to these officers
to vote or represent on behalf of the corporation any and all shares held by the
corporation in any other
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<PAGE> 19
corporation or corporations may be exercised by any of these officers in person
or by any person authorized to do so by proxy duly executed by these officers.
Section 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in the
California 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.
ARTICLE VIII
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. New bylaws maybe adopted or these
bylaws may be amended or repealed by the vote or written consent of holders of a
majority of the outstanding shares entitled to vote; provided, however, that if
the articles of incorporation of the corporation set forth the number of
authorized directors of the corporation, the authorized number of directors may
be changed only by an amendment of the articles of incorporation.
Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the
shareholders as provided in Section 1 of this Article VIII, bylaws, other than a
bylaw or an amendment of a bylaw changing the authorized number of directors,
may be adopted, amended, or repealed by the board of directors.
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<PAGE> 20
CERTIFICATION OF BY-LAWS
KNOW ALL MEN BY THESE PRESENTS:
The undersigned, being the secretary of the corporation known as:
SIMULATION SCIENCES INC.
does hereby certify that the above and foregoing By-Laws of said corporation
were duly adopted as the By-Laws thereof on the 15th day of March, 1977.
/s/ Vincent S. Verneuil,Jr.
-------------------------------------
Secretary of
SIMULATION SCIENCES, INC.
<PAGE> 1
EXHIBIT 3.5
BYLAWS
OF
SIMULATION SCIENCES INC.,
a Delaware Corporation
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I - CORPORATE OFFICES.........................................................................................1
1.1 REGISTERED OFFICE...................................................................................1
1.2 OTHER OFFICES.......................................................................................1
ARTICLE II - MEETINGS OF STOCKHOLDERS.................................................................................1
2.1 PLACE OF MEETINGS...................................................................................1
2.2 ANNUAL MEETING......................................................................................1
2.3 SPECIAL MEETING.....................................................................................2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS....................................................................2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND
STOCKHOLDER BUSINESS..............................................................................2
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE........................................................3
2.7 QUORUM..............................................................................................3
2.8 ADJOURNED MEETING; NOTICE...........................................................................4
2.9 VOTING..............................................................................................4
2.10 WAIVER OF NOTICE....................................................................................4
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT
A MEETING ........................................................................................4
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING;
GIVING CONSENTS...................................................................................5
2.13 PROXIES.............................................................................................5
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE...............................................................5
2.15 CONDUCT OF BUSINESS.................................................................................6
ARTICLE III - DIRECTORS...............................................................................................6
3.1 POWERS..............................................................................................6
3.2 NUMBER..............................................................................................6
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE
OF DIRECTORS......................................................................................7
3.4 RESIGNATION AND VACANCIES...........................................................................7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE............................................................8
3.6 FIRST MEETINGS......................................................................................8
3.7 REGULAR MEETINGS....................................................................................8
3.8 SPECIAL MEETINGS; NOTICE............................................................................8
3.9 QUORUM..............................................................................................9
3.10 WAIVER OF NOTICE....................................................................................9
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
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<S> <C>
3.11 ADJOURNED MEETING; NOTICE...........................................................................9
3.12 CONDUCT OF BUSINESS.................................................................................9
3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT
A MEETING........................................................................................10
3.14 FEES AND COMPENSATION OF DIRECTORS.................................................................10
3.15 APPROVAL OF LOANS TO OFFICERS......................................................................10
3.16 REMOVAL OF DIRECTORS...............................................................................10
ARTICLE IV - COMMITTEES..............................................................................................11
4.1 COMMITTEES OF DIRECTORS............................................................................11
4.2 COMMITTEE MINUTES..................................................................................11
4.3 MEETINGS AND ACTION OF COMMITTEES..................................................................11
ARTICLE V - OFFICERS.................................................................................................12
5.1 OFFICERS...........................................................................................12
5.2 ELECTION OF OFFICERS...............................................................................12
5.3 REMOVAL AND RESIGNATION OF OFFICERS................................................................12
5.4 CHAIRMAN OF THE BOARD..............................................................................13
5.5 CHIEF EXECUTIVE OFFICER............................................................................13
5.6 PRESIDENT..........................................................................................13
5.7 VICE PRESIDENT.....................................................................................13
5.8 SECRETARY..........................................................................................14
5.9 CHIEF FINANCIAL OFFICER............................................................................14
5.10 ASSISTANT SECRETARY................................................................................14
5.11 AUTHORITY AND DUTIES OF OFFICERS...................................................................15
ARTICLE VI - INDEMNITY...............................................................................................15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS..........................................................15
6.2 INDEMNIFICATION OF OTHERS..........................................................................15
6.3 INSURANCE..........................................................................................16
ARTICLE VII - RECORDS AND REPORTS....................................................................................16
7.1 MAINTENANCE AND INSPECTION OF RECORDS..............................................................16
7.2 INSPECTION BY DIRECTORS............................................................................16
7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.....................................................17
ARTICLE VIII - GENERAL MATTERS.......................................................................................17
8.1 CHECKS.............................................................................................17
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS...................................................17
</TABLE>
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<PAGE> 4
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
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<S> <C>
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.............................................................17
8.4 SPECIAL DESIGNATION ON CERTIFICATES................................................................18
8.5 LOST CERTIFICATES..................................................................................18
8.6 CONSTRUCTION; DEFINITIONS..........................................................................18
8.7 DIVIDENDS..........................................................................................19
8.8 FISCAL YEAR........................................................................................19
8.9 SEAL...............................................................................................19
8.10 TRANSFER OF STOCK..................................................................................19
8.11 STOCK TRANSFER AGREEMENTS..........................................................................19
8.12 REGISTERED STOCKHOLDERS............................................................................19
ARTICLE IX - AMENDMENTS..............................................................................................20
ARTICLE X - DISSOLUTION..............................................................................................20
ARTICLE XI - CUSTODIAN...............................................................................................20
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES........................................................20
11.2 DUTIES OF CUSTODIAN................................................................................21
</TABLE>
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<PAGE> 5
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 agent named in the Certificate of
Incorporation until changed by the Board of Directors.
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 registered
office of the Corporation.
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. At the meeting, directors
shall be elected and any other proper business may be transacted.
<PAGE> 6
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
(i) board of directors, (ii) the chairman of the board, (iii) the president,
(iv) the chief executive officer or (v) one or more stockholders holding shares
in the aggregate entitled to cast not less than ten percent (10%) of the votes
at that meeting.
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 2.6 of these Bylaws not
less than 10 nor more than 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 or special 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 in proper form of
his intent to bring such business before such meeting. To be timely, such
stockholder's written notice must be delivered to or mailed and received by the
secretary of the Corporation not less than 90 days prior to the meeting;
provided, however, that in the event that less than 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, propose the business, and, as the case may
be, the name and address of the person or persons to be
nominated or the nature 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 or introduce the business specified in the notice;
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<PAGE> 7
(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;
(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 stock holders 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) the 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.
When a quorum is present or represented at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which, by express provisions of the statutes or
of the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of the question.
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<PAGE> 8
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 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.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Sections 2.12 and 2.14 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 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
Unless otherwise provided in the certificate of incorporation, any
action required by this chapter to be taken at any annual or special meeting of
stockholders of a Corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action
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<PAGE> 9
which is consented to is such as would have required the filing of a certificate
under any section of the General Corporation Law of Delaware if such action had
been voted on by stockholders at a meeting thereof, then the certificate filed
under such section shall state, in lieu of any statement required by such
section concerning any vote of stockholders, that written notice and written
consent have been given as provided in Section 228 of the General Corporation
Law of Delaware.
Notwithstanding the foregoing, effective upon the registration of any
class of securities of the Corporation pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, the stockholders of the Corporation
may not take action by written consent (other than a unanimous written consent)
without a meeting but must take any such actions at a duly called annual or
special meeting.
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 corpo rate action in writing without
a meeting, 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 60 nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action.
If the board of directors does not so fix a record date, the fixing of
such record date shall be governed by the provisions of Section 213 of the
General Corporation Law of Delaware.
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 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.
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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 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 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 stock ledger 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. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list of stockholders or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders and
of the number of shares held by each such stockholder.
2.15 CONDUCT OF BUSINESS
Meetings of stockholders shall be presided over by the chairman of the
board, if any, or in his absence by the president, or in his absence by a vice
president, or in the absence of the foregoing persons by a chairman designated
by the board of directors, or in the absence of such designation by a chairman
chosen at the meeting. The secretary shall act as secretary of the meeting, but
in his absence the chairman of the meeting may appoint any person to act as
secretary of the meeting. 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.
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
The authorized number of directors of the Corporation shall be five
(5); provided, however, that the number of directors may be changed 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
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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, at each annual
meeting of stockholders, directors of the Corporation shall be elected to hold
office until the expiration of the term for which they are elected, and until
their successors have been duly elected and qualified; except that if any such
election shall not be so held, such election shall take place at a stockholders'
meeting called and held in accordance with the Delaware General Corporation Law.
Directors need not be stockholders unless so required by the
certificate of incorporation or these Bylaws, wherein other qualifications for
directors may be prescribed.
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. Stockholders may remove directors with or without cause. Any
vacancy occurring in the board of directors with or without cause may be filled
by a majority of the remaining members of the board of directors, although such
majority is less than a quorum, or by a plurality of the votes cast at a meeting
of stock holders, and each director so elected shall hold office until the
expiration of the term of office of the director whom he has replaced.
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
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of a stockholder, 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 10% 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.
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 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 of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
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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
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 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 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 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.
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 CONDUCT OF BUSINESS
Meetings of the board of directors shall be presided over by the
chairman of the board, if any, or in his absence by the chief executive officer,
or in their absence by a chairman chosen at the meeting. The secretary shall act
as secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting. The chairman of any
meeting shall determine the order of business and the procedures at the meeting.
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3.13 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.
3.14 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 therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
3.15 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.
3.16 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these Bylaws, any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors. If at any time a class
or series of shares is entitled to elect one or more directors, the provisions
of this Article 3.16 shall apply to the vote of that class or series and not to
the vote of the outstanding shares as a whole.
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.
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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 Corporation. 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 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 Corpo ration 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),
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Section 3.12 (conduct of business) and 3.13 (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.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the Corporation shall be a chief executive officer, one
or more vice presidents, a secretary and a chief financial officer. The
Corporation may also have, at the discretion of the board of directors, a
chairman of the board, a president, a chief operating officer, one or more
executive, senior or assistant vice presidents, assistant secretaries and any
such other officers as may be appointed in accordance with the provisions of
Section 5.2 of these Bylaws. Any number of offices may be held by the same
person.
5.2 ELECTION OF OFFICERS
Except as otherwise provided in this Section 5.2, the officers of the
Corporation shall be chosen by the board of directors, subject to the rights, if
any, of an officer under any contract of employment. The board of directors may
appoint, or empower an officer to appoint, such officers and agents of the
business as the Corporation may require (whether or not such officer or agent is
described in this Article V), 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. Any vacancy occurring
in any office of the Corporation shall be filled by the board of directors or
may be filled by the officer, if any, who appointed such officer.
5.3 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 or, in the case of an officer appointed by
another officer, by such other officer.
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
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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.
5.4 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 chief
executive officer, 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 5.5 of these Bylaws.
5.5 CHIEF EXECUTIVE OFFICER.
The Chief Executive Officer of the Corporation 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 or she shall
preside at all meetings of the stockholders and, in the absence or nonexistence
of a Chairman of the Board at all meetings of the Board of Directors. He or she
shall have the general powers and duties of management usually vested in the
chief executive officer of a Corporation, including general supervision,
direction and control of the business and supervision of other officers of the
Corporation, and shall have such other powers and duties as may be prescribed by
the Board of Directors or these Bylaws.
The Chief Executive Officer shall, without limitation, have the
authority to execute bonds, mortgages and other contracts requiring a seal,
under the seal of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the Corporation.
5.6 PRESIDENT.
Subject to such supervisory powers as may be given by these Bylaws or
the Board of Directors to the Chairman of the Board or the Chief Executive
Officer, if there be such officers, the president shall have general
supervision, direction and control of the business and supervision of other
officers of the Corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or these Bylaws. In the event a Chief
Executive Officer shall not be appointed, the President shall have the duties of
such office.
5.7 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 chief executive officer and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the chief executive
officer. The vice presidents shall have such other powers and perform such other
duties as from time to time may be prescribed for
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them respectively by the board of directors, these Bylaws, the chief executive
officer or the chairman of the board.
5.8 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 stockholders. 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
stockholders' 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 resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all stockholders 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.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders 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.
5.9 CHIEF FINANCIAL OFFICER
The chief financial officer 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 chief financial officer 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
chief executive officer 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.
5.10 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
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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.
5.11 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.
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.
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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.
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 stockholders listing their names and addresses and the number and class of
shares held by each stockholder, 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.
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 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the chief executive officer, any vice
president, the chief financial officer, the secretary or assistant secretary of
this Corporation, or any other person authorized by the board of directors or
the chief executive officer 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
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.
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<PAGE> 22
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 representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made 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.
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<PAGE> 23
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 stockholders of any one or more classes of stock of
the Corporation to restrict the transfer of shares 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
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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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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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<PAGE> 1
EXHIBIT 10.3
SIMULATION SCIENCES INC.
1994 STOCK OPTION PLAN
AS AMENDED
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. Purpose......................................................................................................1
2. Definitions..................................................................................................1
3. Effective Date...............................................................................................3
4. Administration...............................................................................................3
5. Participation. .............................................................................................3
(a) Eligibility.........................................................................................3
(b) Ten-Percent Shareholders............................................................................4
(c) Stock Ownership.....................................................................................4
(d) Outstanding Stock...................................................................................4
6. Stock........................................................................................................4
7. Terms and Conditions of Options. ...........................................................................4
(a) Stock Option Agreements.............................................................................4
(b) Nature of Option....................................................................................4
(c) Number of Shares....................................................................................4
(d) Exercise Price......................................................................................4
(e) Medium and Time of Payment..........................................................................5
(f) Term and Non-Transferability of Options...........................................................5
(g) Cessation of Employment (Except by Death, Disability or Retirement).................................5
(h) Death of Optionee...................................................................................5
(i) Disability of Optionee..............................................................................6
(j) Retirement of Optionee..............................................................................6
(k) Rights as a Shareholder.............................................................................6
(l) Modification, Extension and Renewal of Options......................................................6
(m) Restrictions on Shares..............................................................................6
(n) Other Provisions....................................................................................7
(o) Substitution of Options.............................................................................7
(p) Information.........................................................................................7
8. Term of Plan.................................................................................................7
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
9. Effect of Certain Events. ..................................................................................7
(a) Stock Splits and Dividends..........................................................................7
(b) Merger, Sale of Assets, Liquidation.................................................................7
(c) Adjustment Determination. ..........................................................................8
(d) Limitation on Rights................................................................................8
10. Securities Law Requirements..................................................................................8
(a) Legality of Issuance. ..............................................................................8
(b) Restrictions on Transfer; Representations of Optionee; Legends......................................9
(c) Registration or Qualification of Securities.........................................................9
(d) Exchange of Certificates............................................................................9
11. Amendment of the Plan.......................................................................................10
12. Exchange Act. ..............................................................................................10
13. Application of Funds........................................................................................10
14. Approval of Shareholders....................................................................................11
</TABLE>
-ii-
<PAGE> 4
EXHIBIT 10.3
SIMULATION SCIENCES INC.
1994 STOCK OPTION PLAN
AS AMENDED
1. Purpose. The Plan is intended to provide incentive to key employees
and directors of the Corporation and its Subsidiaries, to encourage proprietary
interest in the Corporation, to encourage such key employees to remain in the
employ of the Corporation and its Subsidiaries or such key directors to remain
in the service of the Corporation and its Subsidiaries, and to attract new
employees and directors with outstanding qualifications.
2. Definitions. Unless otherwise defined herein or the context
otherwise requires, the capitalized terms used herein shall have the following
meanings:
(a) "Act" shall mean the Securities Act of 1933, as amended.
(b) "Administrator" shall mean the Board or the Committee,
whichever shall be administering the Plan from time to time in the discretion of
the Board, as described in Section 4 of the Plan.
(c) "Board" shall mean the Board of Directors of the
Corporation.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "Committee" shall mean the committee appointed by the
Board in accordance with Section 4 of the Plan.
(f) "Common Stock" shall mean the Common Stock of the
Corporation.
(g) "Corporation" shall mean SIMULATION SCIENCES INC., a
California corporation.
(h) "Disability" shall mean a medically determinable physical
or mental impairment which has made an individual incapable of engaging in his
employment with the Corporation. A condition shall be considered a Disability
only if (i) it can be expected to result in death or has lasted or it can be
expected to last for a continuous period of not less than four (4) months, and
(ii) the Administrator has expressly determined that Disability exists.
(i) "Employee" shall mean an individual who is employed
(within the meaning of Section 3401 of the Code and the regulations thereunder)
by the Corporation or a Subsidiary.
(j) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
<PAGE> 5
(k) "Exercise Price" shall mean the price per Share of Common
Stock, determined by the Administrator, at which an option may be exercised.
(l) "Fair Market Value shall mean the value of one (1) Share
of Common Stock, determined as follows:
(i) If the Shares are traded on an exchange, the
price at which Shares traded at the close of business on the date of valuation;
(ii) If the Shares are traded over-the-counter on the
NASDAQ system, the mean between the bid and asked prices on such system at the
close of business on the date of valuation; and
(iii) If neither clause (i) nor (ii) above applies,
the fair market value as determined by the Administrator in good faith;
provided, however, that in making such good faith determination, the
Administrator shall consider the earnings history, book value and prospects of
the Corporation, and the price at which Shares recently have been sold. Such
determination shall be conclusive and binding on all persons.
(m) "Nonstatutory Stock Option" shall mean an option not
described in Section 422(b) or 423(b) of the Code.
(n) "Option" shall mean any stock option granted pursuant to
the Plan. An Option shall be granted on the date the Administrator takes the
necessary action to approve the grant. However, if the minutes or appropriate
resolutions of the Administrator provide that an Option is to be granted as of a
date in the future, the date of grant shall be that future date.
(o) "Option Agreement" shall mean a written stock option
agreement evidencing a particular Option.
(p) "Optionee" shall mean a Participant who has received an
Option.
(q) "Participant" shall have the meaning assigned to it in
Section 5(a) hereof.
(r) "Plan" shall mean this SIMULATION SCIENCES INC. 1994 Stock
Option Plan, as it may be amended from time to time.
(s) "Purchase Price" shall mean the Exercise Price multiplied
by the number of Shares with respect to which an Option is exercised.
(t) "Retirement" shall mean the voluntary cessation of
employment by an Employee upon the attainment of age sixty-five (65) and the
completion of not less than twenty (20) years of service with the Corporation or
a Subsidiary.
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<PAGE> 6
(u) "Share" shall mean one share of Common Stock, adjusted in
accordance with Section 9 of the Plan (if applicable).
(v) "Subsidiary" shall mean any subsidiary corporation as
defined in Section 425(f) of the Code.
3. Effective Date. The Plan was adopted by the Board effective March 2,
1994.
4. Administration. The Plan shall be administered, in the discretion of
the Board from time to time, by the Board or by a Committee which shall be
appointed by the Board. The Board may from time to time remove members from, or
add members to, the Committee. Vacancies on the Committee, however caused, shall
be filled by the Board. The Committee shall be composed of disinterested
directors, i.e., directors who have not, during the one year prior to service as
an administrator of the Plan and during the time of service as an administrator
of the Plan, been granted or awarded equity securities pursuant to the Plan or
any other plan of the Corporation or any of its affiliates, other than a plan
which would not negate such director's status as "disinterested" pursuant to
Rule 16b-3 promulgated under the Exchange Act. There shall be at least two
directors serving on the Committee at any time. The Board shall appoint one of
the members of the Committee as Chairman. The Administrator shall hold meetings
at such times and places as it may determine. Acts of a majority of the
Administrator at which a quorum is present, or acts reduced to or approved in
writing by the unanimous consent of the members of the Administrator, shall be
the valid acts of the Administrator.
The Administrator shall from time to time at its discretion select the
Employees and directors who are to be granted Options and determine the number
of Shares to be subject to Options to be granted to each Optionee. A Committee
or Board member shall in no event participate in any determination relating to
Options held by or to be granted to such Committee or Board member. The
interpretation and construction by the Administrator of any provision of the
Plan or of any Option or Option Agreement shall be final. No member of the
Administrator shall be liable for any action or determination made in good faith
with respect to the Plan or any Option.
5. Participation.
(a) Eligibility. The Optionees shall be such persons
(collectively, "Participants;" individually, a "Participant") as the
Administrator may select from among the following classes of persons, subject to
the terms and conditions of Section 5(b) below:
(i) Employees (who may be officers, whether or not
they are directors);
and
(ii) Directors of the Corporation or of a Subsidiary.
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<PAGE> 7
Notwithstanding provisions of the first paragraph of this
Section 5(a), the Administrator may at any time or from time to time designate
one or more directors as being ineligible for selection as Participants in the
Plan for any period or periods of time.
(b) Ten-Percent Shareholders. A Participant who owns more than
ten percent (10%) of the voting power of outstanding stock of the Corporation,
its parent or any of its Subsidiaries shall not be eligible to receive an Option
unless the Exercise Price of the Shares subject to such option is at least one
hundred ten percent (110%) of the Fair Market Value of such Shares on the date
of grant.
(c) Stock Ownership. For purposes of Section 5(b) above, in
determining stock ownership, a Participant shall be considered as owning the
stock owned, directly or indirectly, by or for his or her brothers and sisters,
spouse, ancestors and lineal descendants. Stock owned, directly or indirectly,
by or for a corporation, partnership, estate or trust shall be considered as
being owned proportionately by or for its shareholders, partners or
beneficiaries. Stock with respect to which such Participant holds an Option
shall not be counted.
(d) Outstanding Stock. For purposes of Section 5(b) above,
"outstanding stock" shall include all stock actually issued and outstanding
immediately after the grant of the Option to the Optionee. "Outstanding stock"
shall not include shares authorized for issue under outstanding Options held by
the Optionee or by any other person.
6. Stock. The stock subject to Options granted under the Plan shall be
Shares of the Corporation's authorized but unissued or reacquired Common Stock.
The aggregate number of Shares which may be issued upon exercise of Options
under the Plan shall not exceed five million (5,000,000). The number of Shares
subject to Options outstanding at any time shall not exceed the number of Shares
remaining available for issuance under the Plan. The limitations established by
this Section 6 shall be subject to adjustment in the manner provided in Section
9 hereof upon the occurrence of an event specified in that Section.
7. Terms and Conditions of Options.
(a) Stock Option Agreements. Each Option shall be evidenced by
an Option Agreement in such form as the Administrator shall from time to time
determine. Such Option Agreement need not be identical but shall comply with and
be subject to the terms and conditions set forth in this Section 7.
(b) Nature of Option. Each Option shall state that it is a
Nonstatutory Stock Option.
(c) Number of Shares. Each Option shall state the number of
Shares to which it pertains and shall provide for the adjustment thereof in
accordance with the provisions of Section 9 hereof.
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<PAGE> 8
(d) Exercise Price. Each Option shall state the Exercise
Price. The Exercise Price in the case of any Option shall not be less than
eighty-five percent (85%) of the Fair Market Value on the date of grant and, in
the case of an Option granted to an Optionee described in Section 5(b) hereof,
shall not be less than one hundred ten percent (110%) of the Fair Market Value
on the date of grant.
(e) Medium and Time of Payment. The Purchase Price shall be
payable in full in cash or check upon the exercise of the Option.
In the event the Corporation determines that it is required to
withhold state or Federal income tax as a result of the exercise of an Option,
as a condition to the exercise thereof, an Optionee must make arrangements
satisfactory to the Corporation to enable it to satisfy such withholding
requirements before the Optionee shall be permitted to exercise the Option.
(f) Term and Non-Transferability of Options. Each Option shall
state the time or times when all or part thereof becomes exercisable. The
vesting schedule of Options granted pursuant to the Plan shall be determined by
the Administrator in its sole discretion, but shall provide for the right to
exercise the Option at the rate of at least 20% per year over five (5) years
from the date of grant. No Option shall be exercisable after the expiration of
ten (10) years from the date it was granted. During the lifetime of the
Optionee, the Option shall be exercisable only by the Optionee or the Optionee's
guardian or legal representative and shall not be assignable or transferable. In
the event of the Optionee's death, the Option shall not be transferable by the
Optionee other than by will or the laws of descent and distribution. Any other
attempted alienation, assignment, pledge, hypothecation, attachment, execution
or similar process, whether voluntary or involuntary, with respect to all or any
part of any Option or right thereunder, shall be null and void and, at the
Corporation's option, shall cause all of the Optionee's rights under the Option
to terminate.
(g) Cessation of Employment (Except by Death, Disability or
Retirement). If an Optionee ceases to be an Employee for any reason other than
his death, Disability or Retirement, such Optionee shall have the right, subject
to the restrictions referred to in Section 7(f) above, to exercise the Option at
any time within thirty (30) days after cessation of employment, but, except as
otherwise provided in the applicable Option Agreement, only to the extent that,
at the date of cessation of employment, the Optionee's right to exercise such
Option had accrued pursuant to the terms of the applicable Option Agreement and
had not previously been exercised.
For purposes of this Section 7(g), the employment relationship
shall be treated as continuing intact while the Optionee is on military leave,
sick leave or other bona fide leave of absence (to be determined in the sole
discretion of the Administrator).
(h) Death of Optionee. If an Optionee dies while a
Participant, or after ceasing to be a Participant but during the period in which
he could have exercised the Option under this Section 7, and has not fully
exercised the Option, then the Option may be exercised in full, subject to
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<PAGE> 9
the restrictions referred to in Section 7(f) above, at any time within six (6)
months after the Optionee's death by the executor or administrator of his estate
or by any person or persons who have acquired the Option directly from the
Optionee by bequest or inheritance, but, except as otherwise provided in the
applicable Option Agreement, only to the extent that, at the date or death, the
Optionee's right to exercise such Option had accrued and had not been forfeited
pursuant to the terms of the applicable Option Agreement and had not previously
been exercised.
(i) Disability of Optionee. If an Optionee ceases to be an
Employee by reason of Disability, such Optionee shall have the right, subject to
the restrictions referred to in Section 7(f) above, to exercise the Option at
any time within six (6) months after such cessation of employment, but, except
as provided in the applicable Option Agreement, only to the extent that, at the
date of such cessation of employment, the Optionee's right to exercise such
Option had accrued pursuant to the terms of the applicable Option Agreement and
had not previously been exercised.
(j) Retirement of Optionee. If an Optionee ceases to be an
Employee by reason of Retirement, such Optionee shall have the right, subject to
the restrictions referred to in Section 7(f) above, to exercise the Option at
any time within ninety (90) days after cessation of employment, but only to the
extent that, at the date of cessation of employment, the Optionee's right to
exercise such Option had accrued pursuant to the terms of the applicable Option
Agreement and had not previously been exercised.
(k) Rights as a Shareholder. No one shall have rights as a
shareholder with respect to any Shares covered by an Option until the date of
the issuance of a stock certificate for such Shares. No adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash, securities or other
property), distributions or other rights for which the record date is prior to
the date such stock certificate is issued, except as expressly provided in
Section 9 hereof.
(l) Modification, Extension and Renewal of Options. Within the
limitations of the Plan, the Administrator may modify an Option, extend or renew
outstanding Options or accept the cancellation of outstanding Options (to the
extent not previously exercised) for the granting of new Options in substitution
therefor. The foregoing notwithstanding, no modification of an Option shall,
without the consent of the Optionee, alter or impair any rights or obligations
under any Option previously granted.
(m) Restrictions on Shares. At the discretion of the
Administrator, the Corporation may reserve to itself, its assignee(s) or its
shareholders, in an Option Agreement: (i) a right of first refusal to purchase
any Shares that an Optionee (or a subsequent transferee) may propose to transfer
to a third party; and (ii) a right to repurchase any or all Shares held by an
Optionee upon the Optionee's cessation of employment or service with the
Corporation or any of its Subsidiaries for any reason within a specified time as
determined by the Administrator at the time of grant, at a price equal to the
higher of the original Exercise Price or the Fair Market Value on the date of
Optionee's cessation of employment, exercisable within ninety (90) days of
Optionee's cessation of employment, but terminating if the Corporation's Common
Stock becomes publicly
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<PAGE> 10
traded; provided, however, that in the event all or part of an Optionee's Option
is vested but unexercised as of ninety (90) days following such Optionee's
cessation of employment, the Corporation's option may be exercised by (A) having
given notice to Optionee, within ninety (90) days following Optionee's cessation
of employment, of its election to repurchase any Shares which are issued upon
exercise of the Option and (B) thereafter repurchasing such Shares within 90
days following the cessation of Optionee's employment. In the event the
Corporation elects to repurchase Shares under this Section 7(m), the Corporation
shall be entitled to repurchase all, but not less than all, Shares issued upon
exercise of such Option, or, subject to the express written consent of Optionee,
less than all Shares issued upon exercise of the Option.
(n) Other Provisions. An Option Agreement authorized under the
Plan may contain such other provisions not inconsistent with the terms of the
Plan (including, without limitation, restrictions upon the exercise of the
Option) as the Administrator shall deem advisable.
(o) Substitution of Options. Notwithstanding any inconsistent
provisions or limits under the Plan, in the event the Corporation acquires
(whether by purchase, merger or otherwise) all or substantially all of
outstanding capital stock or assets of another corporation or of any
reorganization or other transaction qualifying under Section 424 of the Code,
the Administrator may, in accordance with the provisions of that Section,
substitute options under the Plan for options under the plan of the acquired
company provided (i) the excess of the aggregate fair market value of the shares
subject to an option immediately after the substitution over the aggregate
option price of such shares is not more than the similar excess immediately
before such substitution and (ii) the new option does not give persons
additional benefits, including any extension of the exercise period.
(p) Information. The Company shall provide financial
statements of the Corporation to each Optionee at least annually during the
period such Optionee holds any outstanding Option.
8. Term of Plan. Options may be granted pursuant to the Plan until the
expiration of the Plan ten years after the effective date referred to in Section
3.
9. Effect of Certain Events.
(a) Stock Splits and Dividends. Subject to any required action
by shareholders, the number of Shares covered by the Plan as provided in Section
6 hereof, the number of Shares covered by each outstanding Option and the
Exercise Price thereof shall be proportionately adjusted for any increase or
decrease in the number of issued Shares resulting from a subdivision or
consolidation of Shares or the payment of a stock dividend (but only if paid in
Common Stock) or any other increase or decrease in the number of issued Shares
effected without receipt of consideration by the Corporation.
(b) Merger, Sale of Assets, Liquidation. Subject to any
required action by shareholders, if the Corporation shall merge with another
corporation and the Corporation is the
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<PAGE> 11
surviving corporation in such merger and under the terms of such merger the
shares of Common Stock outstanding immediately prior to the merger remain
outstanding and unchanged, each outstanding Option shall continue to apply to
the Shares subject thereto and shall also pertain and apply to any additional
securities and other property, if any, to which a holder of the number of Shares
subject to the Option would have been entitled as a result of the merger. If the
Corporation sells substantially all of its assets or merges (other than a merger
of the type described in the immediately preceding sentence) or consolidates
with or into another corporation, this Plan and each option shall terminate, but
only after each Optionee (or the successor in interest) has been given the
following rights, which rights shall be exercisable for the period of twenty
(20) days ending five (5) days before the effective date of the sale, merger, or
consolidation (or such longer period as the Administrator may specify): (a) the
right to exercise any unexpired Option or Options in full or in part, but only
to the extent that, on the date of such sale, disposition or merger, each
Optionee's right to exercise such Option or Options has accrued pursuant to the
terms of the applicable Option Agreement and has not previously been exercised,
plus (b) unless, in its sole and absolute discretion, the surviving or acquiring
corporation (or the parent company of the surviving or acquiring corporation)
tenders to each Optionee (or successor in interest) a substitute option or
options to purchase shares of the surviving or acquiring corporation (or the
parent corporation of the surviving or acquiring corporation), the right to
exercise fifty percent (50%) of any Option or Options that, on the date of such
sale, disposition or merger are unexpired and unvested. Any other dissolution or
liquidation of the Corporation shall cause each Option to terminate.
At the discretion of the Administrator, an Option exercised in
contemplation of the consummation of the sale of all or substantially all of the
assets of the Corporation or a merger (other than a merger of the type described
in the first sentence of the immediately preceding paragraph) or consolidation
of the Corporation with another corporation, may be conditioned upon such sale,
merger or consolidation becoming effective.
(c) Adjustment Determination. To the extent that the foregoing
adjustments relate to securities of the Corporation, such adjustments shall be
made by the Administrator, whose determination shall be conclusive and binding
on all persons.
(d) Limitation on Rights. Except as expressly provided in this
Section 9, the Optionee shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class, the payment of any stock dividend
or any other increase or decrease in the number of shares of stock of any class
or by reason of any dissolution, liquidation, merger or consolidation or
spin-off of assets or stock of another corporation, and any issue by the
Corporation of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or Exercise Price of Shares
subject to an Option. The grant of an Option pursuant to the Plan shall not
affect in any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.
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<PAGE> 12
10. Securities Law Requirements.
(a) Legality of Issuance. No Shares shall be issued upon the
exercise of any Option unless and until the Corporation has determined that:
(i) it and the Optionee have taken all actions
required to register the offer and sale of the Shares under the Act, or to
perfect an exemption from the registration requirements thereof;
(ii) any applicable listing requirement of any stock
exchange on which the Common Stock is listed has been satisfied; and
(iii) any other applicable provision of state or
Federal law has been satisfied.
(b) Restrictions on Transfer; Representations of Optionee;
Legends. Regardless of whether the offering and sale of Shares under the Plan
has been registered under the Act or has been registered or qualified under the
securities laws of any state, the Corporation may impose restrictions upon the
sale, pledge or other transfer of such Shares (including the placement of
appropriate legends on stock certificates) if, in the judgment of the
Corporation and its counsel, such restrictions are necessary or desirable in
order to achieve compliance with the provisions of the Act, the securities laws
of any state or any other law. In the event that the sale of Shares under the
Plan is not registered under the Act but an exemption is available which
requires an investment representation or other representation, each Optionee
shall be required to represent that such Shares are being acquired for
investment, and not with a view to the sale or distribution thereof, and to make
such other representations as are deemed necessary or appropriate by the
Corporation and its counsel. Stock certificates evidencing Shares acquired under
the Plan pursuant to an unregistered transaction shall bear the following
restrictive legend and such other restrictive legends as are required or deemed
advisable under the provisions of any applicable law:
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE 'ACT'). ANY
TRANSFER OR PLEDGE OF SUCH SECURITIES WILL BE INVALID UNLESS A
REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH
TRANSFER OR IN THE OPINION OF COUNSEL FOR THE ISSUER SUCH
REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER OR
PLEDGE TO COMPLY WITH THE ACT."
Any determination by the Corporation and its counsel in connection with
any of the matters set forth in this Section 10 shall be conclusive and binding
on all persons.
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<PAGE> 13
(c) Registration or Qualification of Securities. The
Corporation may, but shall not be obligated to, register or qualify the sale of
Shares under the Act or any other applicable law. The Corporation shall not be
obligated to take any affirmative action in order to cause the sale of Shares
under the Plan to comply with any law.
(d) Exchange of Certificates. If, in the opinion of the
Corporation and its counsel, any legend placed on a stock certificate
representing Shares sold under the Plan is no longer required, the holder of
such certificate shall be entitled to exchange such certificate for a
certificate representing the same number of Shares but without such legend.
11. Amendment of the Plan. The Board may from time to time, with
respect to any Shares at the time not subject to Options, suspend or discontinue
the Plan or revise or amend it in any respect whatsoever except that, without
the approval of the Corporation's shareholders, no such revision or amendment
shall:
(a) Materially increase the benefits accruing to Participants
under the Plan;
(b) Increase the number of Shares which may be issued under
the Plan;
(c) Change the designation in Section 5 hereof with respect to
the classes of persons eligible to receive Options; or
(d) Amend this Section 11 to defeat its purpose.
12. Exchange Act. If the Common Stock is registered under the Exchange
Act, the Plan shall be amended by the Board from time to time to the extent
necessary or advisable, in the judgment of the Board after having consulted with
Corporation's counsel, to enable Participants who are officers or directors of
the Corporation and who are generally subject to the duties established by
Section 16(a) or 16(b) of the Exchange Act ("Section 16 Requirements") with
respect to purchases and sales of equity securities of the Corporation, to
obtain the benefits of such exclusions or exemptions from the Sections 16
Requirements as may be established by the Securities and Exchange Commission
from time to time by rule, regulation, administrative order or interpretation
(whether such interpretation is made by such Commission or staff) with respect
to (i) the receipt of Options, (ii) the exercise, modification, extension,
cancellation, exchange, termination or expiration of Options, (iii) the purchase
of Common Stock upon the exercise of Options, and (iv) the sale of Common Stock
received upon the exercise of Options. Anything in the Plan to the contrary
notwithstanding, such amendments may be made without approval of the
Corporation's shareholders unless and to the extent that, in the judgment of the
Board after consulting with the Corporation's counsel, shareholder approval of
such an amendment is a prerequisite to effectuating a desired exclusion or
exemption from the Section 16 Requirements.
With respect to Participants who may be subject to the Section 16
Requirements, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors
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<PAGE> 14
under the Exchange Act. To the extent any provision of the Plan or action by the
Administrator fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Administrator.
13. Application of Funds. The proceeds received by the Corporation from
the sale of Common Stock pursuant to the exercise of an Option will be used for
general corporate purposes.
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<PAGE> 15
14. Approval of Shareholders. Continuance of the Plan shall be subject
to approval by the shareholders of the Corporation within twelve (12) months
before or after the date the Plan is adopted. Such shareholder approval shall be
obtained in the degree and manner required under applicable state and federal
law and the rules of any stock exchange upon which the Common Stock is listed.
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<PAGE> 16
SIMULATION SCIENCES INC.
STOCK OPTION AGREEMENT
<PAGE> 17
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
RECITALS .............................................................................................................1
1. Definitions and Incorporation.......................................................................1
2. Grant of Option.....................................................................................1
3. Option Price........................................................................................1
4. Right to Exercise...................................................................................1
5. Securities Law Requirements.........................................................................2
6. Term of Option......................................................................................2
7. Exercise Following Cessation of Employment..........................................................2
8. Exercise Following Death or Disability..............................................................2
9. Exercise Following Retirement.......................................................................2
10. Time of Cessation of Service........................................................................2
11. Nontransferability..................................................................................2
12. Merger, Sale of Assets, Liquidation.................................................................3
13. Effect of Exercise..................................................................................3
14. Exercise Of Option..................................................................................3
15. Withholding Taxes...................................................................................3
16. Issuance of Shares..................................................................................3
17. Restrictions on Shares..............................................................................4
17.1 Right of First Refusal.....................................................................4
17.2 Right to Repurchase........................................................................4
</TABLE>
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<PAGE> 18
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
17.3 Assignment.................................................................................5
18. Lock-Up....................................................................................5
19. No Rights as to Service....................................................................5
20. Rights as a Shareholder....................................................................5
21. Investment Representation..................................................................5
22. Notices....................................................................................5
23. Interpretation.............................................................................5
24. Arbitration................................................................................6
25. Information................................................................................6
</TABLE>
SCHEDULES
Schedule 1
EXHIBITS
Exhibit A
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<PAGE> 19
SIMULATION SCIENCES INC.
STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into as of the ___________ day of 199__,
between SIMULATION SCIENCES INC., a California corporation (the "Corporation"),
and ______________________ (the "Optionee").
R E C I T A L S
A. The Board of Directors of the Corporation (the "Board") has
established the Corporation's 1994 Stock Option Plan (the "Plan") in order to
provide key employees of the Corporation with a favorable opportunity to acquire
shares of the Corporation's common stock ("Stock").
B. The Board regards the Optionee as a key employee as contemplated by
the Plan and has determined that it would be in the best interests of the
Corporation and its shareholders to grant the option described in this Agreement
to the Optionee as an inducement to remain in the service of the Corporation,
and as an incentive for increasing efforts during such service.
NOW, THEREFORE, it is agreed as follows:
1. Definitions and Incorporation. Unless otherwise defined herein or
the context otherwise requires, the capitalized terms used in this Agreement
shall have the meanings given to such terms in the Plan. The Plan is hereby
incorporated in and made a part of this Agreement as if fully set forth herein.
The Optionee hereby acknowledges that he has received a copy of the Plan.
2. Grant of Option. Pursuant to the Plan, the Corporation hereby grants
to the Optionee as of the date hereof the option to purchase all or any part of
an aggregate of ____________ shares of Stock (the "Option"), subject to
adjustment in accordance with Section 9 of the Plan. The Option is intended to
be a Nonstatutory Stock Option. If the Corporation elects to grant additional
shares of Stock to the Optionee, the parties shall sign an additional agreement.
3. Option Price. The price to be paid for Stock upon exercise of the
Option or any part thereof shall be _________________ (the "Exercise Price").
4. Right to Exercise. Subject to the conditions set forth in this
Agreement, the right to exercise the Option shall accrue in accordance with
Schedule 1 attached hereto and hereby made a part hereof.
<PAGE> 20
5. Securities Law Requirements. No part of the Option shall be
exercised if counsel to the Corporation determines that any applicable
registration requirement under the Securities Act of 1933 (the "Act") or any
other applicable requirement of Federal or state law has not been met.
6. Term of Option. The Option shall terminate in any event on the
earliest of (a) the _________________ day of _____________, ______, at 11:59
P.M. California time, (b) the expiration of the period described in Section 7
below, (c) the expiration of the period described in Section 8 below or (d) the
expiration of the period described in Section 9 below. The Option shall also
terminate as provided in the Plan or elsewhere in this Agreement.
7. Exercise Following Cessation of Employment. If Optionee ceases to be
an Employee for any reason other than his death, Disability or Retirement, such
Optionee shall have the right, subject to the restrictions referred to in
Section 6 above, to exercise the Option at any time within thirty (30) days
after cessation of employment, but, except as otherwise provided herein, only to
the extent that, at the date of cessation of employment, the Optionees right to
exercise such Option had vested in accordance with Schedule 1 and had not
previously been exercised.
8. Exercise Following Death or Disability. If the Optionee's employment
with the Corporation ceases by reason of the Optionee's death or Disability, or
if the Optionee dies after cessation of employment but while the Option would
have been exercisable hereunder, the Option (to the extent it is vested in
accordance with Schedule 1 at the time of cessation and not yet exercised) may
be exercised within six (6) months after the date of the Optionee's death or
cessation by reason of Disability. In the case of death, the exercise may be
made by his representative or by the person entitled thereto under the
Optionee's will or the laws of descent and distribution; provided that such
representative or such person consents in writing to abide by and be subject to
the terms of the Plan and this Agreement and such writing is delivered to the
President or Chairman of the Corporation.
9. Exercise Following Retirement. If the Optionee's employment with the
Corporation ceases by reason of Retirement, the Option (to the extent it is
vested in accordance with Schedule 1 at the time of cessation and not yet
exercised) may be exercised within ninety (90) days after the date of the
Optionee's Retirement.
10. Time of Cessation of Service. For the purposes of this Agreement,
the Optionee's employment shall, be deemed to have ceased on the earlier of (a)
the date when the Optionee's employment in fact ceased or (b) except in the case
of Retirement, the date when the Optionee gave or received written notice that
his employment was to cease.
11. Nontransferability. The Option shall be exercisable during the
Optionee's lifetime only by the Optionee or the Optionee's guardian or legal
representative and shall be nontransferable, except that the Optionee may
transfer all or any part of the Option by will or by the laws of descent and
distribution. Except as otherwise provided herein, any attempted alienation,
assignment, pledge, hypothecation, attachment, execution or similar process,
whether voluntary or involuntary, with
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<PAGE> 21
respect to all or any part of the option or any right thereunder, shall be null
and void and, at the Corporation's option, shall cause all of the Optionee's
rights under this Agreement to terminate.
12. Merger, Sale of Assets, Liquidation. Subject to any required action
by shareholders, if the Corporation shall merge with another corporation and the
Corporation is the surviving corporation in such merger and under the terms of
such merger the shares of Common Stock outstanding immediately prior to the
merger remain outstanding and unchanged, each outstanding Option shall continue
to apply to the Shares subject thereto and shall also pertain and apply to any
additional securities and other property, if any, to which a holder of the
number of Shares subject to the Option would have been entitled as a result of
the merger. If the Corporation sells substantially all of its assets or merges
(other than a merger of the type described in the immediately preceding
sentence) or consolidates with or into another corporation, this Plan and each
Option shall terminate, but only after the Optionee (or the successor in
interest) has been given the following rights, which rights shall be exercisable
for the period of twenty (20) days ending five (5) days before the effective
date of the sale, merger, or consolidation (or such longer period as the
Administrator may specify): (a) the right to exercise any unexpired Option or
Options in full or in part, but only to the extent that, on the date of such
sale, disposition or merger, the Optionee's right to exercise such Option or
Options has vested in accordance with Schedule 1 and has not previously been
exercised, plus (b) unless, in its sole and absolute discretion, the surviving
or acquiring corporation (or the parent company of the surviving or acquiring
corporation) tenders to the Optionee (or successor in interest) a substitute
Option or Options to purchase shares of the surviving or acquiring corporation
(or the parent corporation of the surviving or acquiring corporation), the right
to exercise fifty percent (50%) of any Option or Options that, on the date of
such sale, disposition or merger are unexpired and unvested. Any other
dissolution or liquidation of the Corporation shall cause each Option to
terminate.
13. Effect of Exercise. Upon exercise of all or any part of the Option,
the number of Shares subject to the Option under this Agreement shall be reduced
by the number of Shares with respect to which such exercise is made.
14. Exercise Of Option. Optionee's Option may be exercised only upon
delivery to the Secretary, or other designated employee of the Corporation, of a
written notice of exercise. Such notice shall specify the number of Shares which
the Option is then being exercised and shall be accompanied by payment in cash
of the full purchase price. In the event the Option is being exercised by a
person other than the Optionee, such person must provide the Corporation with
proof of his/her right to exercise the Option and any other pertinent data as
the Corporation may deem necessary. The contemplated form of notice of exercise
is attached hereto as Exhibit "A".
15. Withholding Taxes. The Corporation may require the optionee to
deliver payment, upon exercise of the Option, of any withholding taxes (in
addition to the Purchase Price) with respect to the difference between the
Purchase Price and the Fair Market Value of the Stock acquired upon exercise, in
cash or some other form satisfactory to the Corporation.
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<PAGE> 22
16. Issuance of Shares. Subject to the foregoing conditions, the
Corporation, as soon as reasonably practicable after receipt of a proper notice
of exercise and without transfer or issue tax or other incidental expense to the
person exercising the Option, shall deliver to such person at the principal
office of the Corporation, or such other location as may be acceptable to the
Corporation and such person, one or more certificates for the Shares with
respect to which the Option is exercised. Such Shares shall be fully paid and
nonassessable and shall be issued in the name of such person.
17. Restrictions on Shares.
17.1 Right of First Refusal. In the event Optionee desires to
transfer any Shares which he or she has purchased pursuant to this Agreement,
Optionee shall deliver to the Corporation written notice of his or her intention
to transfer such Shares (the "Notice") together with a copy of a signed and
binding offer by the proposed transferee. The Notice shall state the name and
address of the proposed transferee, the number of Shares to be transferred, the
price per Share, and the other terms of such transfer. For thirty (30) days
following delivery of the Notice, the Corporation shall have the option to
purchase all (but not less than all) of the Shares proposed to be sold by
Optionee at the price and terms stated in the Notice. Such option is exercisable
by delivery of written notice to Optionee within such thirty (30) day period.
Any Shares not purchased by the Corporation may, for a period of sixty (60) days
commencing on the expiration of the Corporation's option to purchase such
Shares, be sold to the proposed transferee at the price and upon the terms
specified in the Notice. Shares which are not sold by Optionee within such sixty
(60) day period shall again become subject to the notice and option provisions
of this Section 17.1. Any transfer of Shares by Optionee or any successive
transferee shall be conditioned upon the transferee granting the Corporation a
right of first refusal under the terms set forth in this Section 17.1.
17.2 Right to Repurchase. In the event of the cessation of
Optionee's employment with the Corporation or its Subsidiaries (whether
voluntarily or involuntarily), including, without limitation, due to death,
Disability or Retirement, then the Corporation shall have the option (but not
the obligation) to purchase from the Optionee, his or her spouse or the legal
representative of his or her spouse's estate, as the case may be, all of the
Shares held by such person for cash. The Corporation's option may be exercised
within ninety (90) days of the cessation of Optionee's employment (the
"Cessation Date"); provided, however, that in the event all or part of the
Option is vested but unexercised as of ninety (90) days following the Cessation
Date, the Corporation's option may be exercised by (i) having given notice to
Optionee, within ninety (90) days following the Cessation Date, of its election
to purchase any Shares which are issued upon exercise of the Option and (ii)
thereafter purchasing such Shares within 90 days following the Cessation Date.
In the event the Corporation elects to purchase Shares under this Section 17.2,
the Corporation shall be entitled to purchase all, but not less than all, Shares
issued upon exercise of the Option, or, subject to the express written consent
of Optionee, less than all Shares issued upon exercise of the Option. The
Corporation's option shall be exercised by delivering a written notice of such
exercise within the applicable time period to the Optionee, the Optionee's
spouse or such spouse's successors in interest. The purchase price for any
Shares purchased pursuant to this Section 17.2 shall be the higher of the
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<PAGE> 23
Exercise Price or the Fair Market Value of the subject Shares on the Event Date.
The Corporation's rights under this Section 17.2 shall terminate if the
Corporation's Common Stock becomes publicly traded.
17.3 Assignment. The options and rights of the Corporation
created pursuant to this Section 17 shall be assignable by the corporation.
18. Lock-Up. In the event that the Corporation files a registration
statement with respect to an underwritten public offering under the Act in which
any class of the Corporation's equity securities is to be offered, the Optionee
shall not make any public sale or distribution of any shares of the Stock or any
of the Corporation's other equity securities, or of any securities convertible
into, or exchangeable or exercisable for such securities, during the period
beginning ninety (90) days prior to the filing of such registration statement
with the Securities and Exchange Commission and ending on such date after such
registration statement has become effective as shall be specified by the
managing underwriter of such public offering.
19. No Rights as to Service. Nothing in this Agreement shall be
construed to give any person the right to remain in the employ or service of the
Company or any Subsidiary or to affect the absolute and unqualified right of the
Company and any Subsidiaries to terminate such person's employment or service
relationship at any time for any reason or no reason and with or without cause
or prior notice.
20. Rights as a Shareholder. Neither the Optionee nor any other person
entitled to exercise the Option shall have any rights as a shareholder of the
Corporation with respect to the Stock subject to the Option until a certificate
for such Shares has been issued to him following the exercise of the Option.
21. Investment Representation. This Option is granted to the Optionee
on the condition that all purchases of Shares will be for investment purposes,
and not with a view to resale or distribution. Any Shares issued under this
Option shall be specifically subject to such restrictive provisions as the Board
may from time to time deem necessary in order to fully comply with all
applicable securities laws. The Optionee understands that the Corporation is not
presently taking actions to register the shares to be obtained upon the exercise
of the Options, is under no obligation to do so, and has no present intention of
doing so.
22. Notices. Any notice to the Corporation contemplated by this
Agreement shall be in writing and shall be addressed to it in care of its Chief
Financial officer, 601 South Valencia Avenue, Brea, CA 92621, or at such other
address as the Corporation may specify in a notice to the Optionee; and any
notice to the Optionee shall be in writing and shall be addressed to him or her
at the address on file with the Corporation on the date hereof or at such other
address as he or she may hereafter designate in writing. Notice shall be deemed
to have been given upon receipt or, if sooner, five (5) days after such notice
has been deposited, postage prepaid, certified or registered mail, return
receipt
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<PAGE> 24
requested, in the United States mail addressed to the address specified in the
immediately preceding sentence.
23. Interpretation. The interpretation, construction, performance and
enforcement of this Agreement and of the Plan shall lie within the sole
discretion of the Administrator, and the Administrator's determinations shall be
conclusive and binding on all interested persons.
24. Arbitration. Any controversy or dispute regarding this Agreement
shall be settled by arbitration pursuant to the terms of this Section 24. The
arbitration shall proceed in accordance with the laws of the State of
California. Any party seeking arbitration shall give a written demand for
arbitration to the other parties by registered or certified mail. The demand
shall set forth a statement of the nature of the dispute, the amount involved,
and the remedies sought. No later than twenty (20) calendar days after the
demand for arbitration is served, the parties shall obtain an arbitrator through
the Judicial Arbitration and Mediation Service, Inc. As rules for the
arbitration, the arbitrator shall apply the provisions of Sections 1282 through
1284.2 of the California Code of Civil Procedure and the parties may pursue
discovery in accordance with California Code of Civil Procedure Section 1283.05.
No later than ten (10) days after the arbitrator is appointed, the arbitrator
shall schedule the arbitration for a hearing to commence on a mutually
convenient date. The hearing shall commence no later than one hundred twenty
(120) days after the arbitrator is appointed and shall continue from day to day
until completed. The arbitration award shall be final and binding regardless of
whether one of the parties fails or refuses to participate in the arbitration.
25. Information. The Corporation shall provide financial statements of
the Corporation to the Optionee at least annually during the period the optionee
holds any outstanding Option.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, in the case of the Corporation by its duly authorized officer, as of
the day and year first above written.
"CORPORATION"
SIMULATION SCIENCES INC,
a California corporation
By:______________________________
Its:_____________________________
"OPTIONEE"
_________________________________
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<PAGE> 25
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<PAGE> 26
SCHEDULE 1
RIGHT TO EXERCISE
Subject to the conditions set forth in this Agreement, the right to
exercise the Option shall accrue and vest as follows:
(a) On _______________, 199_ (the "First Vesting
Anniversary"), the Option may be exercised to the extent of
one-fifth of the Shares subject to the option if and only if
the Optionee has been employed continuously by the Corporation
during the entire twelve (12) months immediately preceding
the,First Vesting Anniversary.
(b) Commencing one year after the First Vesting
Anniversary (the "Second Vesting Anniversary"), the Option may
be exercised to the extent of one-fifth of the shares subject
to the Option, if and only if the Optionee has been employed
continuously by the Corporation during the entire twelve (12)
months immediately preceding the Second Vesting Anniversary,
plus any shares with respect to which the Option has
previously become exercisable but has not been exercised.
(c) Commencing two years after the First Vesting
Anniversary (the "Third Vesting Anniversary"), the Option may
be exercised to the extent of one-fifth of the shares subject
to the Option, if and only if the Optionee has been employed
continuously by the Corporation during the entire twelve (12)
months immediately preceding the Third Vesting Anniversary,
plus any shares with respect to which the Option has
previously become exercisable but has not been exercised.
(d) Commencing three years after the First Vesting
Anniversary (the "Fourth Vesting Anniversary"), the Option may
be exercised to the extent of one-fifth of the shares subject
to the Option, if and only if the Optionee has been employed
continuously by the Corporation during the entire twelve (12)
months immediately preceding the Fourth Vesting Anniversary,
plus any shares with respect to which the Option has
previously become exercisable but has not previously been
exercised.
(e) Commencing four years after the First Vesting
Anniversary (the "Fifth Vesting Anniversary"), the Option may
be exercised to the extent of one-fifth of the shares subject
to the option,
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<PAGE> 27
if and only if the Optionee has been employed continuously by
the Corporation during the entire twelve (12) months
immediately preceding the Fifth Vesting Anniversary, plus any
shares with respect to which the Option has previously become
exercisable but not previously been exercised.
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<PAGE> 28
EXHIBIT A
NOTICE OF EXERCISE OF STOCK OPTION
TO THE SECRETARY OF
SIMULATION SCIENCES INC.
The undersigned hereby notifies Simulation Sciences Inc., a California
corporation (the "Corporation"), of the undersigned's desire to exercise his/her
Stock Option with respect to ________________ shares (the "Securities") pursuant
to his/her Stock Option Agreement.
The undersigned tenders full payment for the Securities by enclosing
payment in the amount of $__________ by check made payable to Simulation
Sciences, Inc.
In connection with such exercise, I hereby certify as follows:
1. My full name (which is the name in which all shares should
be issued), residence address, and business address are as follows:
NAME RESIDENCE BUSINESS
--------------------- ------------------- ------------------
2. I am purchasing the Securities in my own name and for my own
account, and no other person has any interest in or right with respect to the
Securities (except, if applicable, a community property interest of my spouse in
the shares), nor have I agreed to give any person any such interest or right in
the future.
3. I am acquiring the Securities for investment and not with a view to
or for sale in connection with any distribution of the Securities. I recognize
that any disposition of the Securities is subject to restrictions imposed by
federal and state law and that the certificates representing the Securities will
bear a restrictive legend. I also recognize that I cannot dispose of the
Securities absent registration or an available exemption from registration. I
understand that the availability of an exemption in the future will depend in
part on circumstances outside my control and that I may be required to hold the
Securities for a substantial period.
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<PAGE> 29
4. I acknowledge that I have been given the opportunity by the
Corporation to obtain such information and ask such questions concerning the
Corporation, the Securities, and my investment as I felt necessary, and to the
extent I have availed myself of such opportunity, I received satisfactory
information and answers. In reaching the conclusion to invest in the Securities,
I have carefully evaluated my financial resources and investment position, and
the risks associated with this investment, and I hereby acknowledge that I am
able to bear the economic risks of this investment. By electing to participate
therein, I realize I may lose my entire investment.
5. In the event of any past or future underwritten public offering
registered pursuant to the Securities Act of 1933, as amended, I hereby agree
that I will not offer to sell or sell any of the Securities for such period of
time as may be required by the underwriter of such offering.
DATED:______________________________, 19__
__________________________________
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<PAGE> 30
SIMULATION SCIENCES INC.
INVESTOR'S CERTIFICATE
The undersigned, as a condition to obtaining the right (the "Right") to
purchase certain shares of Common Stock of Simulation Sciences Inc., a
California corporation (the "Corporation"), pursuant to that certain Stock
Option Agreement by and between the Corporation and the undersigned bearing even
date herewith, hereby certifies to the Corporation as follows:
1. My full name, residence address, and business address are as
follows:
NAME RESIDENCE BUSINESS
--------------------- ------------------- ------------------
2. I am acquiring the Right in my own name and for my own account and
no other person has any interest in or right with respect to the Right (except
for possible community property interest of my spouse, if any), nor have I
agreed to give any person any such interest or right in the future.
3. I am acquiring the Right for investment and not with a view to or
for sale in connection with any distribution of the Right. I recognize that the
Right has not been registered under the Federal Securities Act of 1933, nor
registered or qualified under the California Corporate Securities Law of 1968 or
the securities laws of any other state or jurisdiction. I also recognize that
any disposition of the Right is subject to restrictions imposed by federal and
state law. I also recognize that the Right cannot be disposed of by me absent
registration and qualification, or an available exemption from registration and
qualification, and that no undertaking has been made with regard to registering
or qualifying the Right in the future. I understand that the availability of an
exemption in the future will depend in part on circumstances outside my control
and that I may be required to hold the Right for a substantial period.
4. I have not seen or received any advertisement or general
solicitation with respect to the sale of the Right.
5. I have been given the opportunity by the Corporation to obtain such
information and ask such questions concerning the Corporation and the Right as I
felt necessary, and to the extent I availed myself of such opportunity, I
received satisfactory information and answers.
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<PAGE> 31
6. I have not relied upon the Corporation for tax advice regarding the
acquisition of the Right or the exercise thereof, and I hereby accept full
responsibility for all state and federal tax consequences resulting from my
acquisition of the Right and my exercise thereof.
Dated:_____________________________
__________________________________
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<PAGE> 1
EXHIBIT 10.4
SIMULATION SCIENCES INC.
1996 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are:
- to attract and retain the best available personnel
for positions of substantial responsibility,
- to provide additional incentive to Employees,
Directors and Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees
as shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means a committee of Directors appointed by
the Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means Simulation Sciences Inc., a California
corporation.
(h) "Consultant" means any person, including an advisor,
engaged by the Company or a Parent or Subsidiary to render services to such
entity.
(i) "Director" means a member of the Board.
<PAGE> 2
(j) "Disability" means total and permanent disability as
defined in Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended
to qualify as an Incentive Stock Option.
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<PAGE> 3
(p) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the
Plan.
(s) "Option Agreement" means an agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby
outstanding options are surrendered in exchange for options with a lower
exercise price.
(u) "Optioned Stock" means the Common Stock subject to an
Option or Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or
Stock Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1996 Stock Plan.
(y) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 below.
(z) "Restricted Stock Purchase Agreement" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "Section 16(b)" means Section 16(b) of the Exchange Act.
(cc) "Service Provider" means an Employee, Director or
Consultant.
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<PAGE> 4
(dd) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common
Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether
now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 3,000,000 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated); provided, however, that Shares that have actually been issued
under the Plan, whether upon exercise of an Option or Right, shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if Shares of Restricted Stock are repurchased by the
Company at their original purchase price, such Shares shall become available for
future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the
Administrator determines it to be desirable to qualify Options granted hereunder
as "performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided
above, the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
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<PAGE> 5
(b) Powers of the Administrator. Subject to the provisions of
the Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options
and Stock Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common
Stock to be covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the
Plan;
(v) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option or Stock Purchase Right
granted hereunder. Such terms and conditions include, but are not limited to,
the exercise price, the time or times when Options or Stock Purchase Rights may
be exercised (which may be based on performance criteria), any vesting
acceleration or waiver of forfeiture restrictions, and any restriction or
limitation regarding any Option or Stock Purchase Right or the shares of Common
Stock relating thereto, based in each case on such factors as the Administrator,
in its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or
Stock Purchase Right to the then current Fair Market Value if the Fair Market
Value of the Common Stock covered by such Option or Stock Purchase Right shall
have declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the
Plan and awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
(x) to modify or amend each Option or Stock Purchase
Right (subject to Section 15(c) of the Plan), including the discretionary
authority to extend the post-termination exercisability period of Options longer
than is otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock
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<PAGE> 6
Purchase Right that number of Shares having a Fair Market Value equal to the
amount required to be withheld. The Fair Market Value of the Shares to be
withheld shall be determined on the date that the amount of tax to be withheld
is to be determined. All elections by an Optionee to have Shares withheld for
this purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of
the Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed
necessary or advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights
may be granted to Service Providers. Incentive Stock Options may be granted only
to Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right
shall confer upon an Optionee any right with respect to continuing the
Optionee's relationship as a Service Provider with the Company, nor shall they
interfere in any way with the Optionee's right or the Company's right to
terminate such relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of
Options:
(i) No Service Provider shall be granted, in any
fiscal year of the Company, Options to purchase more than 1,000,000 Shares.
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<PAGE> 7
(ii) In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional
1,000,000 Shares which shall not count against the limit set forth in subsection
(i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same fiscal
year of the Company in which it was granted (other than in connection with a
transaction described in Section 13), the cancelled Option will be counted
against the limits set forth in subsections (i) and (ii) above. For this
purpose, if the exercise price of an Option is reduced, the transaction will be
treated as a cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the
Option Agreement. In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided in
the Option Agreement. Moreover, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Incentive Stock Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time
the Incentive Stock Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an
Employee described in paragraph (A) immediately above, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
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<PAGE> 8
(ii) In the case of a Nonstatutory Stock Option, the
per Share exercise price shall be determined by the Administrator. In the case
of a Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price of less than 100% of the Fair Market
Value per Share on the date of grant pursuant to a merger or other corporate
transaction.
(b) Waiting Period and Exercise Dates. At the time an Option
is granted, the Administrator shall fix the period within which the Option may
be exercised and shall determine any conditions which must be satisfied before
the Option may be exercised.
(c) Form of Consideration. The Administrator shall determine
the acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the Administrator
shall determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender, and (B) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;
(v) consideration received by the Company under a
cashless exercise program implemented by the Company in connection with the
Plan;
(vi) a reduction in the amount of any Company
liability to the Optionee, including any liability attributable to the
Optionee's participation in any Company-sponsored deferred compensation program
or arrangement;
(vii) any combination of the foregoing methods of
payment; or
(viii) such other consideration and method of payment
for the issuance of Shares to the extent permitted by Applicable Laws.
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<PAGE> 9
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable according to the terms of the Plan
and at such times and under such conditions as determined by the Administrator
and set forth in the Option Agreement. Unless the Administrator provides
otherwise, vesting of Options granted hereunder shall be tolled during any
unpaid leave of absence. An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number
of Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a
Service Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement to the extent the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option
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<PAGE> 10
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant), by the Optionee's estate or
by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the person(s)
entitled to exercise the Option under the Optionee's will or the laws of descent
or distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Option previously granted based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically, by means of a Notice of Grant,
of the terms, conditions and restrictions related to the offer, including the
number of Shares that the offeree shall be entitled to purchase, the price to be
paid, and the time within which the offeree must accept such offer. The offer
shall be accepted by execution of a Restricted Stock Purchase Agreement in the
form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator 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 service 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
Administrator.
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<PAGE> 11
(c) Other Provisions. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to
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<PAGE> 12
such transaction as to all of the Optioned Stock covered thereby, including
Shares as to which the Option would not otherwise be exercisable. In addition,
the Administrator may provide that any Company repurchase option applicable to
any Shares purchased upon exercise of an Option or Stock Purchase Right shall
lapse as to all such Shares, provided the proposed dissolution or liquidation
takes place at the time and in the manner contemplated. To the extent it has not
been previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option and Stock Purchase Right
shall be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
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<PAGE> 13
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to options
granted under the Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to
the exercise of an Option or Stock Purchase Right unless the exercise of such
Option or Stock Purchase Right and the issuance and delivery of such Shares
shall comply with Applicable Laws and shall be further subject to the approval
of counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise
of an Option or Stock Purchase Right, the Company may require the person
exercising such Option or Stock Purchase Right to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is
required.
17. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-13-
<PAGE> 14
1996 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the
Company, subject to the terms and conditions of the Plan and this Option
Agreement, as follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted _________________________
Total Exercise Price $________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with
the following schedule:
[25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 1/48 of the Shares subject to the Option
shall vest each month thereafter, subject to the Optionee continuing to be a
Service Provider on such dates].
<PAGE> 15
Termination Period:
This Option may be exercised for _____ [days/months] after Optionee
ceases to be a Service Provider. Upon the death or Disability of the Optionee,
this Option may be exercised for such longer period as provided in the Plan. In
no event shall this Option be exercised later than the Term/Expiration Date as
provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 15(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock
Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option
under Section 422 of the Code. However, if this Option is intended to be an
Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code
Section 422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its
term in accordance with the Vesting Schedule set out in the Notice of Grant and
the applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery
of an exercise notice, in the form attached as Exhibit A (the "Exercise
Notice"), which shall state the election to exercise the Option, the number of
Shares in respect of which the Option is being exercised (the "Exercised
Shares"), and such other representations and agreements as may be required by
the Company pursuant to the provisions of the Plan. The Exercise Notice shall be
completed by the Optionee and delivered to the Company. The Exercise Notice
shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of this
Option unless such issuance and exercise complies with Applicable Laws. Assuming
such compliance, for income tax purposes the Exercised Shares shall be
considered transferred to the Optionee on the date the Option is exercised with
respect to such Exercised Shares.
-2-
<PAGE> 16
3. Method of Payment. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash;
(b) check;
(c) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, AND (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares; or
(e) with the Administrator's consent, delivery of Optionee's
promissory note (the "Note") in the form attached hereto as Exhibit C, in the
amount of the aggregate Exercise Price of the Exercised Shares together with the
execution and delivery by the Optionee of the Security Agreement attached hereto
as Exhibit B. The Note shall bear interest at the "applicable federal rate"
prescribed under the Code and its regulations at time of purchase, and shall be
secured by a pledge of the Shares purchased by the Note pursuant to the Security
Agreement.
4. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal tax consequences relating to
this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) Exercising the Option.
(i) Nonstatutory Stock Option. The Optionee may incur
regular federal income tax liability upon exercise of a NSO. The Optionee will
be treated as having received compensation income (taxable at ordinary income
tax rates) equal to the excess, if any, of the Fair
-3-
<PAGE> 17
Market Value of the Exercised Shares on the date of exercise over their
aggregate Exercise Price. If the Optionee is an Employee or a former Employee,
the Company will be required to withhold from his or her compensation or collect
from Optionee and pay to the applicable taxing authorities an amount in cash
equal to a percentage of this compensation income at the time of exercise, and
may refuse to honor the exercise and refuse to deliver Shares if such
withholding amounts are not delivered at the time of exercise.
(ii) Incentive Stock Option. If this Option qualifies
as an ISO, the Optionee will have no regular federal income tax liability upon
its exercise, although the excess, if any, of the Fair Market Value of the
Exercised Shares on the date of exercise over their aggregate Exercise Price
will be treated as an adjustment to alternative minimum taxable income for
federal tax purposes and may subject the Optionee to alternative minimum tax in
the year of exercise. In the event that the Optionee ceases to be an Employee
but remains a Service Provider, any Incentive Stock Option of the Optionee that
remains unexercised shall cease to qualify as an Incentive Stock Option and will
be treated for tax purposes as a Nonstatutory Stock Option on the date three (3)
months and one (1) day following such change of status.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for at
least one year, any gain realized on disposition of the Shares will be treated
as long-term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at
least one year after exercise and two years after the grant date, any gain
realized on disposition of the Shares will be treated as long-term capital gain
for federal income tax purposes. If the Optionee disposes of ISO Shares within
one year after exercise or two years after the grant date, any gain realized on
such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the excess, if any, of the lesser of (A) the
difference between the Fair Market Value of the Shares acquired on the date of
exercise and the aggregate Exercise Price, or (B) the difference between the
sale price of such Shares and the aggregate Exercise Price. Any additional gain
will be taxed as capital gain, short-term or long-term depending on the period
that the ISO Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
-4-
<PAGE> 18
7. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws, but not
the choice of law rules, of California.
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
-5-
<PAGE> 19
OPTIONEE: SIMULATION SCIENCES INC.
- ------------------------------------ ---------------------------------------
Signature By
- ------------------------------------ ---------------------------------------
Print Name Title
- ------------------------------------
Residence Address
- ------------------------------------
-6-
<PAGE> 20
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the
terms and conditions of the Plan and this Option Agreement. In consideration of
the Company's granting his or her spouse the right to purchase Shares as set
forth in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
---------------------------------------
Spouse of Optionee
-7-
<PAGE> 21
EXHIBIT A
1996 STOCK PLAN
EXERCISE NOTICE
Simulation Sciences Inc.
601 S. Valencia Ave.
Brea, CA 92621
Attention: Corporate Secretary
1. Exercise of Option. Effective as of today, ________________, 199__,
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of Simulation Sciences Inc. (the "Company")
under and pursuant to the 1996 Stock Plan (the "Plan") and the Stock Option
Agreement dated , 19___ (the "Option Agreement"). The purchase price for the
Shares shall be $ ___________ , as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing
<PAGE> 22
signed by the Company and Purchaser. This agreement is governed by the internal
substantive laws, but not the choice of law rules, of California.
Submitted by: Accepted by:
PURCHASER: SIMULATION SCIENCES INC.
- ---------------------------------- -------------------------------------
Signature By
- ---------------------------------- -------------------------------------
Print Name Its
Address: Address:
- --------------------------------- 601 S. Valencia Ave.
Brea, CA 92621
- ---------------------------------
-------------------------------------
Date Received
-2-
<PAGE> 23
EXHIBIT B
SECURITY AGREEMENT
This Security Agreement is made as of __________, 19___ between
Simulation Sciences Inc., a California corporation ("Pledgee"), and
_________________________ ("Pledgor").
Recitals
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated ________ (the "Option"), between Pledgor and Pledgee under
Pledgee's 1996 Stock Plan, and Pledgor's election under the terms of the Option
to pay for such shares with his promissory note (the "Note"), Pledgor has
purchased _________ shares of Pledgee's Common Stock (the "Shares") at a price
of $________ per share, for a total purchase price of $__________. The Note and
the obligations thereunder are as set forth in Exhibit C to the Option.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of
the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the California Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number ______, duly endorsed in blank or with executed stock powers, and
herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"),
who shall hold said certificate subject to the terms and conditions of this
Security Agreement.
The pledged stock (together with an executed blank stock assignment for
use in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option, and the
Pledge holder shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
a. Payment of Indebtedness. Pledgor will pay the principal sum
of the Note secured hereby, together with interest thereon, at the time and in
the manner provided in the Note.
b. Encumbrances. The Shares are free of all other
encumbrances, defenses and liens, and Pledgor will not further encumber the
Shares without the prior written consent of Pledgee.
<PAGE> 24
c. Margin Regulations. In the event that Pledgee's Common
Stock is now or later becomes margin-listed by the Federal Reserve Board and
Pledgee is classified as a "lender" within the meaning of the regulations under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G"),
Pledgor agrees to cooperate with Pledgee in making any amendments to the Note or
providing any additional collateral as may be necessary to comply with such
regulations.
3. Voting Rights. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of
this Security Agreement in the event:
a. Payment of principal or interest on the Note shall be
delinquent for a period of 10 days or more; or
b. Pledgor fails to perform any of the covenants set forth in
the Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules
under Regulation G, there shall be released from this pledge a portion of the
pledged Shares held by Pledgeholder here-
-2-
<PAGE> 25
under upon payments of the principal of the Note. The number of the pledged
Shares which shall be released shall be that number of full Shares which bears
the same proportion to the initial number of Shares pledged hereunder as the
payment of principal bears to the initial full principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment
of all indebtedness secured hereby, at which time the remaining pledged stock
shall be promptly delivered to Pledgor, subject to the provisions for prior
release of a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
governed under the internal substantive laws, but not the choice of law rules,
of California.
-3-
<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"PLEDGOR" ---------------------------
Signature
---------------------------
Print Name
Address:
---------------------------
---------------------------
"PLEDGEE" SIMULATION SCIENCES INC.,
a California corporation
---------------------------
Signature
---------------------------
Print Name
---------------------------
Title
"PLEDGEHOLDER" ---------------------------
Secretary
Simulation Sciences Inc.
-4-
<PAGE> 27
EXHIBIT C
NOTE
$_______________ [City, State]
______________, 19___
FOR VALUE RECEIVED, _______________ promises to pay to Simulation
Sciences Inc., a California corporation (the "Company"), or order, the principal
sum of _______________________ ($_____________), together with interest on the
unpaid principal hereof from the date hereof at the rate of _______________
percent (____%) per annum, compounded semiannually.
Principal and interest shall be due and payable on __________, 19___.
Should the undersigned fail to make full payment of principal or interest for a
period of 10 days or more after the due date thereof, the whole unpaid balance
on this Note of principal and interest shall become immediately due at the
option of the holder of this Note. Payments of principal and interest shall be
made in lawful money of the United States of America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of
________________. This Note is secured in part by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith and
is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the
undersigned, and shall not be required to proceed against the collateral
securing this Note in the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
------------------------------------
------------------------------------
<PAGE> 28
1996 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Notice of Grant.
[Grantee's Name and Address]
You have been granted the right to purchase Common Stock of the Company,
subject to the Company's Repurchase Option and your ongoing status as a Service
Provider (as described in the Plan and the attached Restricted Stock Purchase
Agreement), as follows:
Grant Number _________________________
Date of Grant _________________________
Price Per Share $________________________
Total Number of Shares Subject _________________________
to This Stock Purchase Right
Expiration Date: _________________________
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE
OR IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES.
By your signature and the signature of the Company's representative below, you
and the Company agree that this Stock Purchase Right is granted under and
governed by the terms and conditions of the 1996 Stock Plan and the Restricted
Stock Purchase Agreement, attached hereto as Exhibit A-1, both of which are made
a part of this document. You further agree to execute the attached Restricted
Stock Purchase Agreement as a condition to purchasing any shares under this
Stock Purchase Right.
GRANTEE: SIMULATION SCIENCES INC.
- --------------------------- --------------------------------
Signature By
- --------------------------- --------------------------------
Print Name Title
<PAGE> 29
EXHIBIT A-1
1996 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser")
is an Service Provider, and the Purchaser's continued participation is
considered by the Company to be important for the Company's continued growth;
and
WHEREAS in order to give the Purchaser an opportunity to acquire an
equity interest in the Company as an incentive for the Purchaser to participate
in the affairs of the Company, the Admin istrator has granted to the Purchaser a
Stock Purchase Right subject to the terms and conditions of the Plan and the
Notice of Grant, which are incorporated herein by reference, and pursuant to
this Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser
and the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the per Share purchase price and as otherwise described in
the Notice of Grant.
2. Payment of Purchase Price. The purchase price for the Shares may be
paid by delivery to the Company at the time of execution of this Agreement of
cash, a check, or some combination thereof.
3. Repurchase Option.
(a) In the event the Purchaser ceases to be a Service Provider
for any or no reason (including death or disability) before all of the Shares
are released from the Company's Repurchase Option (see Section 4), the Company
shall, upon the date of such termination (as reasonably fixed and determined by
the Company) have an irrevocable, exclusive option (the "Repurchase Option") for
a period of sixty (60) days from such date to repurchase up to that number of
shares which constitute the Unreleased Shares (as defined in Section 4) at the
original purchase price per share (the "Repurchase Price"). The Repurchase
Option shall be exercised by the Company by delivering written notice to the
Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) AND, at
the Company's option, (i) by delivering to the Purchaser or the Purchaser's
executor a check in the amount of the aggregate Repurchase Price, or (ii) by
cancelling an amount of the Purchaser's indebtedness to the Company equal to the
aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that
the combined payment and cancellation of indebtedness equals the aggregate
Repurchase Price. Upon delivery of such notice and the payment of the aggregate
Repurchase Price, the Company shall become the legal and beneficial owner of the
Shares being repurchased and all
<PAGE> 30
rights and interests therein or relating thereto, and the Company shall have the
right to retain and transfer to its own name the number of Shares being
repurchased by the Company.
(b) Whenever the Company shall have the right to repurchase
Shares hereunder, the Company may designate and assign one or more employees,
officers, directors or shareholders of the Company or other persons or
organizations to exercise all or a part of the Company's purchase rights under
this Agreement and purchase all or a part of such Shares. If the Fair Market
Value of the Shares to be repurchased on the date of such designation or
assignment (the "Repurchase FMV") exceeds the aggregate Repurchase Price of such
Shares, then each such designee or assignee shall pay the Company cash equal to
the difference between the Repurchase FMV and the aggregate Repurchase Price of
such Shares.
4. Release of Shares From Repurchase Option.
(a) _______________________ percent (______%) of the Shares
shall be released from the Company's Repurchase Option [one year] after the Date
of Grant and __________________ percent (______%) of the Shares [at the end of
each month thereafter], provided that the Purchaser does not cease to be a
Service Provider prior to the date of any such release.
(b) Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase
Option shall be delivered to the Purchaser at the Purchaser's request (see
Section 6).
5. Restriction on Transfer. Except for the escrow described in Section
6 or the transfer of the Shares to the Company or its assignees contemplated by
this Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Repurchase Option in accordance with the provi
sions of this Agreement, other than by will or the laws of descent and
distribution.
6. Escrow of Shares.
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Unreleased Shares, together with the
stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Purchaser attached
hereto as Exhibit A-3, until such time as the Company's Repurchase Option
expires. As a further condition to the Company's obligations under this
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<PAGE> 31
Agreement, the Company may require the spouse of Purchaser, if any, to execute
and deliver to the Company the Consent of Spouse attached hereto as Exhibit A-4.
(b) The Escrow Holder shall not be liable for any act it may
do or omit to do with respect to holding the Unreleased Shares in escrow while
acting in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase
Option hereunder, the Escrow Holder, upon receipt of written notice of such
exercise from the proposed transferee, shall take all steps necessary to
accomplish such transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all
the rights of a shareholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7. Legends. The share certificate evidencing the Shares, if any, issued
hereunder shall be endorsed with the following legend (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
8. Adjustment for Stock Split. All references to the number of Shares
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
9. Tax Consequences. The Purchaser has reviewed with the Purchaser's
own tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contem-
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<PAGE> 32
plated by this Agreement. The Purchaser is relying solely on such advisors and
not on any statements or representations of the Company or any of its agents.
The Purchaser understands that the Purchaser (and not the Company) shall be
responsible for the Purchaser's own tax liability that may arise as a result of
the transactions contemplated by this Agreement. The Purchaser understands that
Section 83 of the Internal Revenue Code of 1986, as amended (the "Code"), taxes
as ordinary income the difference between the purchase price for the Shares and
the Fair Market Value of the Shares as of the date any restrictions on the
Shares lapse. In this context, "restriction" includes the right of the Company
to buy back the Shares pursuant to the Repurchase Option. The Purchaser
understands that the Purchaser may elect to be taxed at the time the Shares are
purchased rather than when and as the Repurchase Option expires by filing an
election under Section 83(b) of the Code with the IRS within 30 days from the
date of purchase. The form for making this election is attached as Exhibit A-5
hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.
10. General Provisions.
(a) This Agreement shall be governed by the internal
substantive laws, but not the choice of law rules of California. This Agreement,
subject to the terms and conditions of the Plan and the Notice of Grant,
represents the entire agreement between the parties with respect to the purchase
of the Shares by the Purchaser. Subject to Section 15(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and the terms
and conditions of this Agreement, the terms and conditions of the Plan shall
prevail. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be
given by either the Company or the Purchaser pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties at the addresses of the parties set forth at the end of
this Agreement or such other address as a party may request by notifying the
other in writing.
Any notice to the Escrow Holder shall be sent to the Company's
address with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
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<PAGE> 33
(d) Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such provision,
nor prevent that party from thereafter enforcing any other provision of this
Agreement. The rights granted both parties hereunder are cumulative and shall
not constitute a waiver of either party's right to assert any other legal remedy
available to it.
(e) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF
SHARES PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A
SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING
HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES
THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING
SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF
CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY
PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE
COMPANY'S RIGHT TO TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER AT
ANY TIME, WITH OR WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he
or she is familiar with the terms and provisions of the Plan, and hereby accepts
this Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
DATED:
----------------------
PURCHASER: SIMULATION SCIENCES INC.
- ------------------------------ ----------------------------------
Signature By
- ------------------------------ ----------------------------------
Print Name Title
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<PAGE> 34
EXHIBIT A-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign
and transfer unto __________________________________ (__________) shares of the
Common Stock of Simulation Sciences Inc. standing in my name of the books of
said corporation represented by Certificate No. _____ herewith and do hereby
irrevocably constitute and appoint __________________________ to transfer the
said stock on the books of the within named corporation with full power of
substitution in the premises.
This Stock Assignment may be used only in accordance with the
Restricted Stock Purchase Agreement (the "Agreement")
between________________________ and the undersigned dated ______________, 19__.
Dated: _______________, 19
Signature:______________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE> 35
EXHIBIT A-3
JOINT ESCROW INSTRUCTIONS
__________, 19__
Corporate Secretary
Simulation Sciences Inc.
601 S. Valencia Ave.
Brea, CA 92621
Dear _________________:
As Escrow Agent for both Simulation Sciences Inc., a California
corporation (the "Company"), and the undersigned purchaser of stock of the
Company (the "Purchaser"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Restricted
Stock Purchase Agreement ("Agreement") between the Company and the undersigned,
in accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company
(referred to collectively as the "Company") exercises the Company's Repurchase
Option set forth in the Agreement, the Company shall give to Purchaser and you a
written notice specifying the number of shares of stock to be purchased, the
purchase price, and the time for a closing hereunder at the principal office of
the Company. Purchaser and the Company hereby irrevocably authorize and direct
you to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
<PAGE> 36
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within 90 days after Purchaser ceases to be a Service Provider, you shall
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree, you
shall not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
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<PAGE> 37
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be an officer or agent of the Company or if you shall resign
by written notice to each party. In the event of any such termination, the
Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, addressed to each of the other parties thereunto
entitled at the following addresses or at such other addresses as a party may
designate by ten days' advance written notice to each of the other parties
hereto.
COMPANY: SIMULATION SCIENCES INC.
PURCHASER: ______________________________
______________________________
______________________________
ESCROW AGENT: Corporate Secretary
Simulation Sciences Inc.
601 S. Valencia Ave.
Brea, CA 92621
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
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<PAGE> 38
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the internal substantive laws, but not the
choice of law rules, of California.
Very truly yours,
SIMULATION SCIENCES INC.
-------------------------------------
By
-------------------------------------
Title
PURCHASER:
-------------------------------------
Signature
-------------------------------------
Print Name
ESCROW AGENT:
- -------------------------------------
Corporate Secretary
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<PAGE> 39
EXHIBIT A-4
CONSENT OF SPOUSE
I, ____________________, spouse of ___________________, have read and
approve the foregoing Restricted Stock Purchase Agreement (the "Agreement"). In
consideration of the Company's grant to my spouse of the right to purchase
shares of Simulation Sciences Inc., as set forth in the Agreement, I hereby
appoint my spouse as my attorney-in-fact in respect to the exercise of any
rights under the Agreement and agree to be bound by the provisions of the
Agreement insofar as I may have any rights in said Agreement or any shares
issued pursuant thereto under the community property laws or similar laws
relating to marital property in effect in the state of our residence as of the
date of the signing of the foregoing Agreement.
Dated: _______________, 19
------------------------------------------
Signature of Spouse
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<PAGE> 40
EXHIBIT A-5
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of
the undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: shares (the "Shares") of the Common Stock of Simulation
Sciences Inc. (the "Company").
3. The date on which the property was transferred is: , 19__.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon
certain events. This right lapses with regard to a portion of the
Shares based on the continued performance of services by the taxpayer
over time.
5. The fair market value at the time of transfer, determined without
regard to any restriction other than a restriction which by its terms
will never lapse, of such property is:
$_______________.
6. The amount (if any) paid for such property is:
$_______________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated:___________________, 19____ _____________________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated:___________________, 19____ _____________________________________________
Spouse of Taxpayer
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<PAGE> 1
EXHIBIT 10.5
SIMULATION SCIENCES INC.
EMPLOYEE STOCK PURCHASE PLAN FOR U.S. EMPLOYEES
(AS ADOPTED IN MAY OF 1996)
The following constitute the provisions of the Simulation Sciences Inc.
Employee Stock Purchase Plan for U.S. Employees.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that Section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Simulation Sciences Inc. and any
Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
earnings, commissions and overtime, but exclusive of payments for shift premium,
incentive compensation, incentive payments, bonuses, allowances and other
compensation.
(f) "Designated Subsidiaries" shall mean the Subsidiaries
which have been designated by the Board from time to time in its sole discretion
as eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
<PAGE> 2
(h) "Enrollment Date" shall mean the first day of each
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of each
Offering Period.
(j) "Fair Market Value" shall mean, as of any date, the value
of Common Stock determined as follows:
(1) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation The
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable, or;
(2) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(3) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.
(4) For purposes of the Enrollment date under the
first Offering Period under the Plan, the Fair Market Value shall be the initial
price to the public as set forth in the final Prospectus included within the
Registration Statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock.
(k) "Offering Period" shall mean a period of approximately six
(6) months, commencing on the first Trading Day on or after January 1 and
terminating on the last Trading Day in the period ending the following June 30,
or commencing on the first Trading Day on or after July 1 and terminating on the
last Trading Day in the period ending the following December 31, during which an
option granted pursuant to the Plan may be exercised; provided, however, that
the first Offering Period shall be the period commencing on the first Trading
Day after the effective date of the Company's initial public offering of its
Common Stock registered with the Securities and Exchange Commission and
terminating on the last Trading Day on or before December 31, 1996. The duration
of Offering Periods may be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan for
U.S. Employees, as it may be amended from time to time.
(m) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever price is lower.
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<PAGE> 3
(n) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(o) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which national stock
exchanges and The Nasdaq Stock Market are open for trading.
3. Eligibility.
(a) Any Employee who has been employed by the Company for
thirty (30) days or more on a given Enrollment Date shall be eligible to
participate in the Plan.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) to
the extent that, immediately after the grant, such Employee (or any other person
whose stock would be attributed to such Employee pursuant to Section 424(d) of
the Code) would own capital stock of the Company and/or hold outstanding options
to purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Company and its
Subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the fair market value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after January 1 and July 1 each year, or on such other date as the Board
shall determine, and continuing thereafter until terminated in accordance with
Section 19 hereof. The first Offering Period shall commence on the effective
date of the Company's initial public offering of its Common Stock registered
with the Securities and Exchange Commission and shall terminate the following
December 31, 1996. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least fifteen (15) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan
by completing a subscription agreement authorizing payroll deductions in the
form of Exhibit A to this Plan and filing it with the Company's payroll office
ten (10) days prior to the applicable Enrollment Date.
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<PAGE> 4
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
(c) Notwithstanding anything to the contrary contained herein,
an Employee's enrollment in the Plan shall also constitute enrollment in the
Company's Employee Stock Purchase Plan for Non-U.S. Employees (the "Foreign
ESPP") as of the Enrollment Date of the current Offering Period under the
Foreign ESPP. Such Employee's payroll deductions with respect to the Foreign
ESPP prior to the effective date of a transfer of the Employee to the Company or
a Designated Subsidiary that results in the Employee ceasing to be an Employee
for U.S. tax purposes shall be zero percent (0%), and such Employee's payroll
deductions with respect to the Foreign ESPP following the effective date of the
Employee's transfer may be at the same rate as the Employee's rate of payroll
deductions with respect to this Plan prior to such transfer, or may be adjusted
by the Employee pursuant to Section 6 of the Foreign ESPP. Such Employee's
payroll deductions with respect to this Plan shall be zero percent (0%) as of
the effective date of such transfer.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not less than two percent (2%) nor more
than ten percent (2 - 10%) of the Compensation which he or she receives on each
pay day during the Offering Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may not change the rate of his or her
payroll deductions during the Offering Period but may discontinue his or her
participation in the Plan as provided in Section 10 hereof. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, a participant's payroll
deductions shall be decreased to zero percent (0%) at such time during any
Offering Period that the aggregate of all payroll deductions accumulated with
respect to such Offering Period equals $10,000. Payroll deductions shall
recommence at the rate provided in such participant's subscription agreement at
the beginning of the following Offering Period, unless terminated by the
participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part,
or at the time some or all of the Company's Common Stock issued under the Plan
is disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary
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<PAGE> 5
for the Company to meet applicable withholding obligations, including any
withholding required to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common Stock by the
Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Offering Period more than one
thousand shares (1,000) of the Company's Common Stock, and provided further that
such purchase shall be subject to the limitations set forth in Sections 3(b),
6(d), and 12 hereof. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The
Option shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be refunded to the participant. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company at its discretion shall either
arrange for the delivery to each participant, as appropriate, of a certificate
representing the shares purchased upon exercise of his or her option or credit
the shares purchased to an account in the participant's name with a brokerage
firm selected by the Board to hold the shares in street name.
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
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<PAGE> 6
(b) Upon a participant's ceasing to be an Employee for any
reason, he or she shall be deemed to have elected to withdraw from the Plan and
the payroll deductions credited to such participant's account during the
Offering Period but not yet used to exercise the option shall be returned to
such participant or, in the case of his or her death, to the person or persons
entitled thereto under Section 14 hereof, and such participant's option shall be
automatically terminated. The preceding sentence notwithstanding, a participant
who receives payment in lieu of notice of termination of employment shall be
treated as continuing to be an Employee for the participant's customary number
of hours per week of employment during the period in which the participant is
subject to such payment in lieu of notice.
(c) A participant's withdrawal from an Offering Period shall
not have any effect upon his or her eligibility to participate in any similar
plan which may hereafter be adopted by the Company or in succeeding Offering
Periods which commence after the termination of the Offering Period from which
the participant withdraws.
11. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
12. Stock.
(a) The maximum number of shares of the Company's Common Stock
which shall be made available for sale under the Plan shall be three hundred
thousand (300,000) shares, subject to adjustment upon changes in capitalization
of the Company as provided in Section 18 hereof. If, on a given Exercise Date,
the number of shares with respect to which options are to be exercised exceeds
the number of shares then available under the Plan, the Company shall make a pro
rata allocation of the shares remaining available for purchase in as uniform a
manner as shall be practicable and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan
shall be registered in the name of the participant or in the name of the
participant and his or her spouse.
13. Administration.
(a) Administrative Body. The Plan shall be administered by the
Board or a committee of members of the Board appointed by the Board. The Board
or its committee shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and determination made by the Board or its committee shall, to the full
extent permitted by law, be final and binding upon all parties.
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<PAGE> 7
(b) Rule 16b-3 Limitations. Notwithstanding the provisions of
Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor provision ("Rule 16b-3") provides specific requirements for the
administrators of plans of this type, the Plan shall be administered only by
such a body and in such a manner as shall comply with the applicable
requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion
concerning decisions regarding the Plan shall be afforded to any committee or
person that is not "disinterested" as that term is used in Rule 16b-3.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
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<PAGE> 8
18. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the Reserves, as well as the price per share
and the number of shares of Common Stock covered by each option under the Plan
which has not yet been exercised, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of shares of Common Stock effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period shall terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"). The
New Exercise Date shall be before the date of the Company's proposed sale or
merger. The Board shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
19. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and
for any reason terminate or amend the Plan. Except as provided in Section 18
hereof, no such termination can affect options previously granted, provided that
an Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Plan is in the best
interests of the Company and its shareholders. Except as provided in Section 18
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Rule 16b-3 or under Section 423 of the Code (or any successor rule
or provision or any other applicable law or regulation), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
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<PAGE> 9
(b) Without shareholder consent and without regard to whether
any participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
20. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 19 hereof.
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<PAGE> 10
EXHIBIT A
SIMULATION SCIENCES INC.
EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ____________________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in
the Simulation Sciences Inc. Employee Stock Purchase Plan (the
"Employee Stock Purchase Plan") and subscribes to purchase shares of
the Company's Common Stock in accordance with this Subscription
Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 2 to 10%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise
my option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of (Employee or Employee and Spouse
only): _________________.
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares), I will be
treated for federal income tax purposes as having received ordinary
income at the time of such disposition in an amount equal to the excess
of the fair market value of the shares at the time such shares were
purchased by me over the price which I paid for the shares. I hereby
agree to notify the Company in writing within 30 days after the date of
any disposition of shares and I will make adequate provision for
Federal, state or other tax withholding obliga-
<PAGE> 11
tions, if any, which arise upon the disposition of the Common Stock.
The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any
time after the expiration of the 2-year holding period, I understand
that I will be treated for federal income tax purposes as having
received income only at the time of such disposition, and that such
income will be taxed as ordinary income only to the extent of an amount
equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase price which I
paid for the shares, or (2) 15% of the fair market value of the shares
on the first day of the Offering Period. The remainder of the gain, if
any, recognized on such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)__________________________________________________________
(First) (Middle) (Last)
_____________________________ ____________________________________________
Relationship
____________________________________________
(Address)
Employee's Social
Security Number: ____________________
Employee's Address: ____________________________________________
____________________________________________
___________________________________________
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<PAGE> 12
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_______________ ____________________________________________________
Signature of Employee
____________________________________________________
Spouse's Signature (If beneficiary other than spouse)
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<PAGE> 13
EXHIBIT B
SIMULATION SCIENCES INC.
EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Simulation
Sciences Inc. Employee Stock Purchase Plan which began on ___________ 19____
(the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
_____________________________________________
_____________________________________________
_____________________________________________
Signature:___________________________________
Date:________________________________________
<PAGE> 1
EXHIBIT 10.6
SIMULATION SCIENCES, INC.
EMPLOYEE STOCK PURCHASE PLAN FOR NON-U.S. EMPLOYEES
(AS ADOPTED IN MAY OF 1996)
The following constitute the provisions of the Simulation Sciences,
Inc. Employee Stock Purchase Plan for Non-U.S. Employees.
1. Purpose. The purpose of the Plan is to provide non-U.S.
employees of the Company and its Designated Subsidiaries with an opportunity to
purchase Common Stock of the Company through accumulated payroll deductions.
2. Definitions.
(a) "Applicable Law" shall mean legal requirements
relating to the administration of Stock Option Plans under the applicable laws
of any foreign company or jurisdiction where Options or Stock Purchase Rights
are granted under the Plan.
(b) "Board" shall mean the Board of Directors of the
Company.
(c) "Common Stock" shall mean the Common Stock of the
Company.
(d) "Company" shall mean Simulation Sciences, Inc. and
any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time
gross earnings, commissions and overtime, but exclusive of payments for shift
premium, incentive compensation, incentive payments, bonuses, allowances and
other compensation.
(f) "Designated Subsidiaries" shall mean the Subsidiaries
which have been designated by the Board from time to time in its sole
discretion as eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an
employee of the Company for tax purposes whose customary employment with the
Company is at least twenty (20) hours per week and more than five (5) months in
any calendar year. For purposes of the Plan, the employment relationship may,
pursuant to regulations established by the Board and as permitted or required
by Applicable Law, be treated as continuing intact while the individual is on
sick leave or other leave of absence approved by the Company.
(h) "Enrollment Date" shall mean the first day of each
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of
each Offering Period.
<PAGE> 2
(j) "Fair Market Value" shall mean, as of any date, the
value of Common Stock determined as follows:
(1) If the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation The Nasdaq National Market or The Nasdaq SmallCap Market of The
Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable, or;
(2) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(3) In the absence of an established market for
the Common Stock, the Fair Market Value thereof shall be determined in good
faith by the Board.
(4) For purposes of the Enrollment date under the
first Offering Period under the Plan, the Fair Market Value shall be the
initial price to the public as set forth in the final Prospectus included
within the Registration Statement in Form S-1 filed with the U.S. Securities
and Exchange Commission for the initial public offering of the Company's Common
Stock.
(k) "Offering Period" shall mean a period of
approximately six (6) months, commencing on the first Trading Day on or after
January 1 and terminating on the last Trading Day in the period ending the
following June 30, or commencing on the first Trading Day on or after July 1
and terminating on the last Trading Day in the period ending the following
December 31, during which an option granted pursuant to the Plan may be
exercised; provided, however, that the first Offering Period shall be the
period commencing on the first Trading Day after the effective date of the
Company's initial public offering of its Common Stock registered with the U.S.
Securities and Exchange Commission and terminating on the last Trading Day on
or before December 31, 1996. The duration of Offering Periods may be changed
pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan
for Non-U.S. Employees, as it may be amended from time to time.
(m) "Purchase Price" shall mean an amount equal to 85% of
the Fair Market Value of a share of Common Stock on the Enrollment Date or on
the Exercise Date, whichever price is lower.
(n) "Reserves" shall mean the number of shares of Common
Stock covered by each option under the Plan which have not yet been exercised
and the number of shares of Common Stock which have been authorized for
issuance under the Plan but not yet placed under option.
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<PAGE> 3
(o) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the
Company or any Subsidiary, whether or not such corporation now exists or is
hereafter organized or acquired by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which national
stock exchanges and The Nasdaq Stock Market are open for trading.
3. Eligibility.
(a) Any Employee who is not an Employee for U.S. tax
purposes and who has been employed by the Company for thirty (30) days or more
on a given Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) to
the extent that, immediately after the grant, such Employee (or any other
person whose stock would be attributed to such Employee) would own capital
stock of the Company and/or hold outstanding options to purchase such stock
possessing five percent (5%) or more of the total combined voting power or
value of all classes of the capital stock of the Company or of any Subsidiary,
or (ii) to the extent that his or her rights to purchase stock under all
employee stock purchase plans of the Company and its Subsidiaries accrues at a
rate which exceeds Twenty- Five Thousand Dollars ($25,000) worth of stock
(determined at the fair market value of the shares at the time such option is
granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by
consecutive Offering Periods with a new Offering Period commencing on the first
Trading Day on or after January 1 and July 1 each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 19 hereof. The first Offering Period shall commence on
the effective date of the Company's initial public offering of its Common Stock
registered with the Securities and Exchange Commission and shall terminate the
following December 31, 1996. The Board shall have the power to change the
duration of Offering Periods (including the commencement dates thereof) with
respect to future offerings without shareholder approval if such change is
announced at least fifteen (15) days prior to the scheduled beginning of the
first Offering Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the
Plan by completing a participation agreement authorizing payroll deductions in
the form of Exhibit A to this Plan and filing it with the Company's payroll
office ten (10) days prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence
on the first payroll following the Enrollment Date and shall end on the last
payroll in the Offering Period to which such authorization is applicable,
unless sooner terminated by the participant as provided in Section 10 hereof.
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<PAGE> 4
(c) Notwithstanding anything to the contrary contained
herein, an Employee's enrollment in the Plan shall also constitute enrollment
in the Company's Employee Stock Purchase Plan for U.S. Employees (the "U.S.
ESPP") as of the Enrollment Date of the current Offering Period under the U.S.
ESPP. Such Employee's payroll deductions with respect to the U.S. ESPP prior
to the effective date of a transfer of the Employee to the Company or a
Designated Subsidiary that results in the Employee becoming an Employee for
U.S. tax purposes shall be zero percent (0%), and such Employee's payroll
deductions with respect to the U.S. ESPP following the effective date of the
Employee's transfer may be at the same rate as the Employee's rate of payroll
deductions with respect to this Plan prior to such transfer, or may be adjusted
by the Employee pursuant to Section 6 of the U.S. ESPP. Such Employee's
payroll deductions with respect to this Plan shall be zero percent (0%) as of
the effective date of such transfer.
6. Payroll Deductions.
(a) At the time a participant files his or her
subscription agreement, he or she shall elect to have payroll deductions made
on each pay day during the Offering Period in an amount not less than two
percent (2%) nor more than ten percent (2 - 10%) of the Compensation which he
or she receives on each pay day during the Offering Period.
(b) All payroll deductions made for a participant shall
be credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may not change the rate of his or her
payroll deductions during the Offering Period but may discontinue his or her
participation in the Plan as provided in Section 10 hereof. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, a participant's
payroll deductions shall be decreased to zero percent (0%) at such time during
any Offering Period that the aggregate of all payroll deductions accumulated
with respect to such Offering Period equals $10,000. Payroll deductions shall
recommence at the rate provided in such participant's subscription agreement at
the beginning of the following Offering Period, unless terminated by the
participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in
part, or at the time some or all of the Company's Common Stock issued under the
Plan is disposed of, the participant must make adequate provision for the
Company's federal, state, or other tax withholding obligations, if any, which
arise upon the exercise of the option or the disposition of the Common Stock.
At any time, the Company may, but shall not be obligated to, withhold from the
participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to make
available to the Company any tax deductions or benefits attributable to sale or
early disposition of Common Stock by the Employee.
-4-
<PAGE> 5
7. Grant of Option. On the Enrollment Date of each Offering
Period, each eligible Employee participating in such Offering Period shall be
granted an option to purchase on the Exercise Date of such Offering Period (at
the applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Offering Period more than one
thousand shares (1,000) of the Company's Common Stock, and provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b), 6(d), and 12 hereof. Exercise of the option shall occur as provided in
Section 8 hereof, unless the participant has withdrawn pursuant to Section 10
hereof. The Option shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the
Plan as provided in Section 10 hereof, his or her option for the purchase of
shares shall be exercised automatically on the Exercise Date, and the maximum
number of full shares subject to option shall be purchased for such participant
at the applicable Purchase Price with the accumulated payroll deductions in his
or her account. No fractional shares shall be purchased; any payroll
deductions accumulated in a participant's account which are not sufficient to
purchase a full share shall be refunded to the participant. Any other monies
left over in a participant's account after the Exercise Date shall be returned
to the participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date
on which a purchase of shares occurs, the Company at its discretion shall
either arrange for the delivery to each participant, as appropriate, of a
certificate representing the shares purchased upon exercise of his or her
option or credit the shares purchased to an account in the participant's name
with a brokerage firm selected by the Board to hold the shares in street name.
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all
the payroll deductions credited to his or her account and not yet used to
exercise his or her option under the Plan at any time by giving written notice
to the Company in the form of Exhibit B to this Plan. All of the participant's
payroll deductions credited to his or her account shall be paid to such
participant promptly after receipt of notice of withdrawal and such
participant's option for the Offering Period shall be automatically terminated,
and no further payroll deductions for the purchase of shares shall be made for
such Offering Period. If a participant withdraws from an Offering Period,
payroll deductions shall not resume at the beginning of the succeeding Offering
Period unless the participant delivers to the Company a new subscription
agreement.
(b) Upon a participant's ceasing to be an Employee for
any reason, he or she shall be deemed to have elected to withdraw from the Plan
and the payroll deductions credited to such participant's account during the
Offering Period but not yet used to exercise the option shall be returned to
such participant or, in the case of his or her death, to the person or persons
entitled thereto under Section 14 hereof, and such participant's option shall
be automatically terminated. The
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<PAGE> 6
preceding sentence notwithstanding, a participant who receives payment in lieu
of notice of termination of employment shall be treated as continuing to be an
Employee for the participant's customary number of hours per week of employment
during the period in which the participant is subject to such payment in lieu
of notice.
(c) A participant's withdrawal from an Offering Period
shall not have any effect upon his or her eligibility to participate in any
similar plan which may hereafter be adopted by the Company or in succeeding
Offering Periods which commence after the termination of the Offering Period
from which the participant withdraws.
11. Interest. No interest shall accrue on the payroll deductions
of a participant in the Plan.
12. Stock.
(a) The maximum number of shares of the Company's Common
Stock which shall be made available for sale under the Plan shall be
[______________________ (_______)] shares, less the number issued under the
U.S. Plan and subject to adjustment upon changes in capitalization of the
Company as provided in Section 18 hereof. If, on a given Exercise Date, the
number of shares with respect to which options are to be exercised exceeds the
number of shares then available under the Plan, the Company shall make a pro
rata allocation of the shares remaining available for purchase in as uniform a
manner as shall be practicable and as it shall determine to be equitable.
(b) The participant shall have no interest or voting
right in shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the
Plan shall be registered in the name of the participant or in the name of the
participant and his or her spouse.
13. Administration.
(a) Administrative Body. The Plan shall be administered
by the Board or a committee of members of the Board appointed by the Board.
The Board or its committee shall have full and exclusive discretionary
authority to construe, interpret and apply the terms of the Plan, to determine
eligibility, to adjudicate all disputed claims filed under the Plan and to
prescribe, amend and rescind rules and regulations relating to the Plan, in the
form of addendums hereto or otherwise, including rules and regulations
necessary to conform the Plan to Applicable Law. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
(b) Rule 16b-3 Limitations. Notwithstanding the
provisions of Subsection (a) of this Section 13, in the event that Rule 16b-3
("Rule 16b-3") promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), provides specific requirements for the
administrators of plans of this type, the Plan shall be administered only by
such a body and in such a manner as shall comply with the applicable
requirements of Rule 16b-3. Unless permitted by
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<PAGE> 7
Rule 16b-3, no discretion concerning decisions regarding the Plan shall be
afforded to any committee or person that is not "disinterested" as that term is
used in Rule 16b-3.
14. Designation of Beneficiary.
(a) Subject to applicable law, a participant may file a
written designation of a beneficiary who is to receive any shares and cash, if
any, from the participant's account under the Plan in the event of such
participant's death subsequent to an Exercise Date on which the option is
exercised but prior to delivery to such participant of such shares and cash.
In addition, a participant may file a written designation of a beneficiary who
is to receive any cash from the participant's account under the Plan in the
event of such participant's death prior to exercise of the option. If a
participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known
to the Company, then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option
or to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose,
and the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
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<PAGE> 8
(a) Changes in Capitalization. Subject to any required
action by the shareholders of the Company, the Reserves as well as the price
per share and the number of shares of Common Stock covered by each option under
the Plan which has not yet been exercised shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other increase or decrease in
the number of shares of Common Stock effected without receipt of consideration
by the Company; provided, however, that conversion of any convertible
securities of the Company shall not be deemed to have been "effected without
receipt of consideration". Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. Except
as expressly provided herein, no issuance by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, the Offering Period shall
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed
sale of all or substantially all of the assets of the Company, or the merger of
the Company with or into another corporation, the Offering Period then in
progress shall be shortened by setting a new Exercise Date (the "New Exercise
Date"). The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing,
at least ten (10) business days prior to the New Exercise Date, that the
Exercise Date for the participant's option has been changed to the New Exercise
Date and that the participant's option shall be exercised automatically on the
New Exercise Date, unless prior to such date the participant has withdrawn from
the Offering Period as provided in Section 10 hereof.
19. Amendment or Termination.
(a) The Board of Directors of the Company may at any time
and for any reason terminate or amend the Plan. Except as provided in Section
18 hereof, no such termination can affect options previously granted, provided
that an Offering Period may be terminated by the Board of Directors on any
Exercise Date if the Board determines that the termination of the Plan is in
the best interests of the Company and its shareholders. Except as provided in
Section 18 hereof, no amendment may make any change in any option theretofore
granted which adversely affects the rights of any participant. To the extent
necessary to comply with Rule 16b-3 (or any successor rule or provision or any
other applicable law or regulation), the Company shall obtain shareholder
approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to
whether any participant rights may be considered to have been "adversely
affected," the Board (or its committee) shall be entitled to change the
Offering Periods, limit the frequency and/or number of changes in the amount
withheld during an Offering Period, establish the exchange ratio applicable to
amounts withheld in a currency other than U.S. dollars, permit payroll
withholding in excess of the amount designated by
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<PAGE> 9
a participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
participant properly correspond with amounts withheld from the participant's
Compensation, and establish such other limitations or procedures as the Board
(or its committee) determines in its sole discretion advisable which are
consistent with the Plan.
20. Notices. All notices or other communications by a participant
to the Company under or in connection with the Plan shall be deemed to have
been duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be
issued with respect to an option unless the exercise of such option and the
issuance and delivery of such shares pursuant thereto shall comply with all
applicable provisions of law, domestic or foreign, including, without
limitation, the U.S. Securities Act of 1933, as amended, the U.S. Securities
Exchange Act of 1934, as amended, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares
may then be listed, and shall be further subject to the approval of counsel for
the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the
earlier to occur of its adoption by the Board of Directors or its approval by
the shareholders of the Company. It shall continue in effect for a term of ten
(10) years unless sooner terminated under Section 19 hereof.
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<PAGE> 10
EXHIBIT A
SIMULATION SCIENCES, INC.
EMPLOYEE STOCK PURCHASE PLAN FOR NON-U.S. EMPLOYEES
PARTICIPATION AGREEMENT
_____ Original Application Enrollment Date: __________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. I, _____________________________________, hereby elect to participate
in the Simulation Sciences, Inc. Employee Stock Purchase Plan for
Non-U.S. Employees (the "Plan") and subscribe to purchase shares of
the Company's Common Stock in accordance with this Participation
Agreement and the Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 2 to 10%) during the
Offering Period in accordance with the Plan. (Please note that no
fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Plan. I understand that if I do not
withdraw from an Offering Period, any accumulated payroll deductions
shall be used to automatically exercise my option.
4. I have received a copy of the complete "Employee Stock Purchase Plan
for Non-U.S. Employees." I understand that my participation in the
Plan is in all respects subject to the terms of the Plan. I
understand that the grant of the option by the Company under this
Participation Agreement is subject to obtaining shareholder approval
of the Plan.
5. Shares purchased for me under the Plan should be issued in the name(s)
of (Employee or Employee and Spouse Only): _____________________
____________________
6. I understand and acknowledge that my participation in the Plan and any
benefits thereunder shall not form part of any contract of employment
with the Company or any subsidiary and said benefits are not part of
my remuneration and do not count as such for any purpose. I
acknowledge further that in the event of the termination of my
employment and my resulting ineligibility to participate in the Plan I
shall have no claim for compensation for any loss of
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<PAGE> 11
any right or benefit or prospective right or benefit under the Plan
which I might otherwise have enjoyed.
7. I understand that I may be subject to taxation upon grant or exercise
of any option granted under the Plan or the subsequent disposition of
any shares so purchased.
8. I hereby agree to be bound by the terms of the Plan. The
effectiveness of this Participation Agreement is dependent upon my
eligibility to participate in the Plan.
Employee's Address: __________________________________
__________________________________
__________________________________
I UNDERSTAND THAT THIS PARTICIPATION AGREEMENT SHALL REMAIN IN EFFECT
THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated: ___________________ __________________________________
Signature of Employee
__________________________________
Spouse's Signature (If beneficiary
other than spouse)
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<PAGE> 12
EXHIBIT B
SIMULATION SCIENCES, INC.
EMPLOYEE STOCK PURCHASE PLAN FOR U.S. EMPLOYEES
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Simulation
Sciences, Inc. Employee Stock Purchase Plan for U.S. Employees which began on
______ 19___ (the "Enrollment Date") hereby notifies the Company that he or she
hereby withdraws from the Offering Period. He or she hereby directs the
Company to pay to the undersigned as promptly as practicable all the payroll
deductions credited to his or her account with respect to such Offering Period.
The undersigned understands and agrees that his or her option for such Offering
Period shall be automatically terminated. The undersigned understands further
that no further payroll deductions shall be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to
participate in succeeding Offering Periods only by delivering to the Company a
new Participation Agreement.
Name and Address of Participant:
_______________________________
_______________________________
_______________________________
Signature:
_______________________________
Date: _________________________
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<PAGE> 13
BENEFICIARY DESIGNATION
In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the Plan:
PRIMARY
NAME: (Please print)
________________________________________________________________
(First) (Middle) (Last)
________________________________________________________________
Relationship
________________________________________________________________
(Street Address)
________________________________________________________________
________________________________________________________________
SECONDARY
NAME: (Please print)
________________________________________________________________
(First) (Middle) (Last)
________________________________________________________________
Relationship
________________________________________________________________
(Street Address)
________________________________________________________________
________________________________________________________________
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<PAGE> 14
Date:__________________________ ______________________________________
Signature of Employee
______________________________________
Spouse's Signature
(If primary beneficiary other than
spouse)
PLEASE RETURN THIS FORM TO ____________________________________________________
BY ___________________________________________________.
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<PAGE> 1
EXHIBIT 10.7
SIMULATION SCIENCES INC.
1996 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1996 Director Option Plan
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock
options.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" means the Common Stock of the Company.
(d) "Company" means Simulation Sciences Inc., a California
corporation.
(e) "Director" means a member of the Board.
(f) "Employee" means any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(g) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(h) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the date of determination, as
reported in The Wall Street Journal or such other source as the Board deems
reliable, or;
<PAGE> 2
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.
(i) "Inside Director" means a Director who is an Employee.
(j) "Option" means a stock option granted pursuant to the
Plan.
(k) "Optioned Stock" means the Common Stock subject to an
Option.
(l) "Optionee" means a Director who holds an Option.
(m) "Outside Director" means a Director who is not an
Employee.
(n) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1996 Director Option Plan.
(p) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Internal Revenue Code
of 1986.
3. Stock Subject to the Plan. Subject to the provisions of Section 10
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 375,000 Shares of Common Stock (the "Pool"). The Shares
may be authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having
been exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. Administration and Grants of Options under the Plan.
(a) Procedure for Grants. All grants of Options to Outside
Directors under this Plan shall be automatic and nondiscretionary and shall be
made strictly in accordance with the following provisions:
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<PAGE> 3
(i) No person shall have any discretion to select
which Outside Directors shall be granted Options or to determine the number of
Shares to be covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically
granted an Option to purchase 60,000 Shares (the "First Option") on the date on
which the later of the following events occurs: (A) the effective date of this
Plan, as determined in accordance with Section 6 hereof, or (B) the date on
which such person first becomes an Outside Director, whether through election by
the shareholders of the Company or appointment by the Board to fill a vacancy;
provided, however, that an Inside Director who ceases to be an Inside Director
but who remains a Director shall not receive a First Option.
(iii) Each Outside Director shall be automatically
granted an Option to purchase 15,000 Shares (a "Subsequent Option") on the date
of the Annual Shareholder Meeting of the Company at which such director is
re-elected as an outside director of the Company, provided he or she is then an
Outside Director and if as of such date, he or she shall have served on the
Board for at least the preceding six (6) months.
(iv) Notwithstanding the provisions of subsections
(ii) and (iii) hereof, any exercise of an Option granted before the Company has
obtained shareholder approval of the Plan in accordance with Section 16 hereof
shall be conditioned upon obtaining such shareholder approval of the Plan in
accordance with Section 16 hereof.
(v) The terms of a First Option granted hereunder
shall be as follows:
(A) the term of the First Option shall be
ten (10) years.
(B) the First Option shall be exercisable
only while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be
100% of the Fair Market Value per Share on the date of grant of the First
Option. In the event that the date of grant of the First Option is not a trading
day, the exercise price per Share shall be the Fair Market Value on the next
trading day immediately following the date of grant of the First Option.
(D) subject to Section 10 hereof, the First
Option shall become exercisable as to twenty-five percent of the Shares subject
to the First Option on the first anniversary of its date of grant and 1/48 of
the shares subject to the First Option shall vest each month thereafter,
provided that the Optionee continues to serve as a Director on such dates.
(vi) The terms of a Subsequent Option granted
hereunder shall be as follows:
(A) the term of the Subsequent Option shall
be ten (10) years.
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<PAGE> 4
(B) the Subsequent Option shall be
exercisable only while the Outside Director remains a Director of the Company,
except as set forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be
100% of the Fair Market Value per Share on the date of grant of the Subsequent
Option. In the event that the date of grant of the Subsequent Option is not a
trading day, the exercise price per Share shall be the Fair Market Value on the
next trading day immediately following the date of grant of the Subsequent
Option.
(D) subject to Section 10 hereof, the
Subsequent Option shall become exercisable as to twenty-five percent of the
Shares subject to the Subsequent Option on the first anniversary of its date of
grant and 1/48th of the shares subject to the Subsequent Option shall vest each
month thereafter, provided that the Optionee continues to serve as a Director
on such dates.
(vii) In the event that any Option granted under the
Plan would cause the number of Shares subject to outstanding Options plus the
number of Shares previously purchased under Options to exceed the Pool, then the
remaining Shares available for Option grant shall be granted under Options to
the Outside Directors on a pro rata basis. No further grants shall be made until
such time, if any, as additional Shares become available for grant under the
Plan through action of the Board or the shareholders to increase the number of
Shares which may be issued under the Plan or through cancellation or expiration
of Options previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which the Director
or the Company may have to terminate the Director's relationship with the
Company at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the Shares
to be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) delivery of a properly
executed exercise notice together with such other documentation as the Company
and the broker, if applicable, shall require to effect an exercise of the Option
and delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (v) any combination of the foregoing methods of payment.
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<PAGE> 5
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable at such times as are set forth in
Section 4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Continuous Status as a Director. Subject to
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or total and permanent disability (as
defined in Section 22(e)(3) of the Code)), the Optionee may exercise his or her
Option, but only within three (3) months following the date of such termination,
and only to the extent that the Optionee was entitled to exercise it on the date
of such termination (but in no event later than the expiration of its ten (10)
year term). To the extent that the Optionee was not entitled to exercise an
Option on the date of such termination, and to the extent that the Optionee does
not exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event Optionee's status as
a Director terminates as a result of total and permanent disability (as defined
in Section 22(e)(3) of the Code), the Optionee may exercise his or her Option,
but only within twelve (12) months following the date of such termination,
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<PAGE> 6
and only to the extent that the Optionee was entitled to exercise it on the date
of such termination (but in no event later than the expiration of its ten (10)
year term). To the extent that the Optionee was not entitled to exercise an
Option on the date of termination, or if he or she does not exercise such Option
(to the extent otherwise so entitled) within the time specified herein, the
Option shall terminate.
(d) Death of Optionee. In the event of an Optionee's death,
the Optionee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the number of Shares covered by each
outstanding Option, the number of Shares which have been authorized for issuance
under the Plan but as to which no Options have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option, as well
as the price per Share covered by each such outstanding Option, and the number
of Shares issuable pursuant to the automatic grant provisions of Section 4
hereof shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation or the sale of substantially all of the
assets of the Company, outstanding Options may be assumed or equivalent options
may be substituted by the successor corporation or a Parent or Subsidiary
thereof (the "Successor Corporation"). If an Option is assumed or substituted
for, the Option
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<PAGE> 7
or equivalent option shall continue to be exercisable as provided in Section 4
hereof for so long as the Optionee serves as a Director or a director of the
Successor Corporation. Following such assumption or substitution, if the
Optionee's status as a Director or director of the Successor Corporation, as
applicable, is terminated other than upon a voluntary resignation by the
Optionee, the Option or option shall become fully exercisable, including as to
Shares for which it would not otherwise be exercisable. Thereafter, the Option
or option shall remain exercisable in accordance with Sections 8(c) through (e)
above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and upon the expiration of such period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares).
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. Except as set forth in Section
4, the Board may at any time amend, alter, suspend, or discontinue the Plan, but
no amendment, alteration, suspension, or discontinuation shall be made which
would impair the rights of any Optionee under any grant theretofore made,
without his or her consent. In addition, to the extent necessary and desirable
to comply with any applicable law or regulation, the Company shall obtain
shareholder approval of any Plan amendment in such a manner and to such a degree
as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state
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<PAGE> 8
securities laws, and the requirements of any stock exchange upon which the
Shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company at or prior to the first annual
meeting of shareholders held subsequent to the granting of an Option hereunder.
Such shareholder approval shall be obtained in the degree and manner required
under applicable state and federal law.
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<PAGE> 1
EXHIBIT 10.8
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT entered into this 17th day of December, 1993 by and
among SIMULATION SCIENCES, INC., a California Corporation (the "Company"), the
persons named as Shareholders on Exhibit A hereto (the "Shareholders"), the
persons named as Investors on Exhibit B hereto (the "Investors"), and Northern
Trust Company, as Trustee of the Simulation Sciences, Inc. Employee Stock
Ownership Plan and Money purchase Pension Plan, (the "ESOP").
WHEREAS, the Investors are, on the date hereof, acquiring an aggregate
of 5,000,000 shares of the Company's Series A Convertible Preferred Stock, $.01
par value per share (the "Preferred Stock") and four-year Warrants to Purchase
1,315,789 shares of the Company's Common Stock (the "Warrants") pursuant to the
terms of a Convertible Preferred Stock and Warrant Purchase Agreement dated the
date hereof among the Company, the Shareholders, and the Investors (the
"Investor Purchase Agreement");
WHEREAS, the ESOP is, on the date hereof, acquiring an aggregate of
1,096,764.1603 shares of the Company's Common Stock (the "Purchased ESOP
Shares") pursuant to the terms of a Stock Purchase and Investment Agreement
dated the date hereof among the Company, the Shareholders, and the ESOP (the
"ESOP Purchase Agreement");
WHEREAS, the Shareholders, except for Eugene L. Goda, are the holders
of 8,225,731 shares of the Company's Common Stock as of the date of this
Agreement (in the case of Eugene L. Goda, he is the holder of options to
purchase 5,500 pre-split shares of the Company's Common Stock and will acquire
additional options to purchase 1,750,000 shares of the Company's Common Stock on
the date hereof);
WHEREAS, the Company desires to grant registration rights to the
Investors, the Shareholders, and the ESOP.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the Investors, the Shareholders, the ESOP and the Company
agree as follows:
REGISTRATION
1. DEFINITIONS
As used herein:
1.1 The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act of 1933, and the declaration or ordering of
the effectiveness of such registration statement.
<PAGE> 2
1.2 The term "Registrable Shares" means and includes (i) the Shares of
Common Stock acquired or available to be acquired upon conversion of the
Preferred Stock or upon exercise of the Warrants, which are referred to as the
"Conversion Shares" and the "Warrant Shares," respectively; (ii) any other
shares of Common Stock held by the Investors; (iii) any shares of Common Stock
issued or issuable upon conversion of other securities of the Company held by
Investors, excluding any of the foregoing that have been repurchased by the
Company pursuant to the Repurchase Agreement dated the date hereof among the
Company and the Investors; (iv) any shares of Common Stock held by the
Shareholders (the "Shareholders' Shares"); and (v) the Purchased ESOP Shares.
1.3 The term "Ownership Percentage" means and includes, with respect to
each holder of Registrable Shares requesting inclusion of Registrable Shares in
an offering pursuant to this Agreement, the number of Registrable Shares held by
such holder divided by the aggregate of (i) all Registrable Shares held by all
holders requesting registration in such offering and (ii) the total number of
all Other securities entitled to registration pursuant to agreement with the
Company approved by the Board of Directors and held by others participating in
the underwriting.
1.4 The term "Securities Act" means the Securities Act of 1933, as
amended.
2. REGISTRATION RIGHTS
2.1 "PIGGY BACK" REGISTRATION. If at anytime the Company shall
determine to register under the Securities Act (including pursuant to a demand
of any shareholder of the Company exercising registration rights) any of its
Common Stock (except shares to be issued solely in connection with any
acquisition of any entity or business, shares issuable solely upon exercise of
stock options, or shares issuable solely pursuant to employee benefit plans), it
shall send to each holder of Registrable Shares, written notice of such
determination and, if within ten (10) days after receipt of such notice, such
holder shall so request in writing, the Company shall use its best efforts to
include in such registration statement all or any part of the Registrable Shares
that such holder requests to be registered, except that if, in connection with
any offering involving an underwriting of Common Stock to be issued by the
Company, the managing underwriter shall impose a limitation on the number of
shares of Common Stock included in any such registration statement because, in
its judgment, such limitation is necessary to effect an orderly public
distribution, and such limitation is imposed as provided herein among the
holders of such Common Stock having an incidental ("piggy back") right to
include such Common Stock in the registration statement as provided below, then,
to the extent any Registrable Shares remain available for registration after the
underwriter's cut-back (the "Available Shares"), the Company shall be obligated
to include in such registration statement, with respect to the requesting
holder, only the product of (i) the number of Available Shares and (ii) such
holder's Ownership Percentage, as that term is defined in Section 1.3.
Notwithstanding the foregoing, such a reduction, or cut-back, shall be made by
the underwriter, with respect to the holders of Common Stock having "piggy back"
rights to include such Common Stock in the registration statement, as follows:
the underwriter shall first reduce or cut-back a pro rata number of
Shareholders' Shares and Purchased ESOP Shares based on the ESOP's and the
Shareholders' respective Ownership Percentages which the Shareholders and the
ESOP, respectively, have requested for inclusion hereunder, and to the extent
that after such reduction, the underwriter
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<PAGE> 3
determines that further reductions are necessary to effect an orderly public
distribution, the underwriter shall reduce the number of additional Registrable
Shares held by the Investors (the "Investors' Shares") available for
registration hereunder, to the extent necessary. Notwithstanding the foregoing,
no such reduction shall be made with respect to securities being offered by the
Company for its own account or by holders of securities who have requested the
Company to register such securities pursuant to a mandatory registration
obligation of the Company similar to Section 2.2 hereof If any holder of
Registrable Shares disapproves of the terms of such underwriting, he may elect
to withdraw therefrom by written notice to the Company and the underwriter. No
incidental right under this Section 2.1 shall be construed to limit any
registration required under Section 2.2.
2.2 REQUIRED REGISTRATION. Upon the earlier to occur of (i) the Company
completing any Public Offering, or (ii) the third anniversary date hereof, on
any two occasions, one or more holders of at least forty percent (40%) of the
Investors' Shares, as defined in Section 2.1 above, shall notify the Company in
writing that it or they intend to offer or cause to be offered for public sale
at least twenty percent (20%) of the Investors' Shares, the Company will so
notify all holders of Investors' Shares. Upon written request of any holder
given within thirty (30) days after the receipt by such holder from the Company
of such notification, the Company will use its best efforts to cause all or any
part of the Investors' Shares that may be requested by any holder thereof
(including the holder or holders giving the initial notice of intent to offer)
to be registered under the Securities Act as expeditiously as possible. If the
Company determines to include shares to be sold by it in any registration
requests pursuant to this Section 2.2, such registration shall be deemed to have
been a registration under Section 2.1 of this Agreement. Notwithstanding
anything contained in this Section 2.2 or Section 2.3 to the contrary, if the
Company furnishes to the holders of Registrable Shares, requesting any
registration pursuant to such sections, a certificate signed by the President of
the Company stating that, in the good faith judgment of the Board of Directors
of the Company, such registration would be detrimental to the Company and that
it is in the best interests of the Company to defer the filing of a registration
statement, then the Company shall have the right to defer the filing of a
registration statement with respect to such offering for a period of not more
than 90 days from receipt by the Company of the request by the initiating
holder; provided, however, that the Company may not exercise such right more
than three times, nor may the Company exercise such right consecutively.
2.3 REGISTRATION ON FORM S-3. In addition to the rights provided to the
holders of Registrable Shares in Section 2.1 and Section 2.2 above, if the
registration of Investors' Shares, as defined in Section 2.1 above, under the
Securities Act can be effected on Form S-3 (or any similar form promulgated by
the Securities and Exchange Commission), the Company will promptly so notify
each holder of Investors' Shares and then will at any time thereafter, until the
fifth anniversary of the Company's first Qualified Public Offering as
expeditiously as possible, use its best efforts to effect qualification and
registration under the Securities Act on said Form S-3 of all or such portion of
the Investors' Shares as the holder or holders shall specify. Provided, however,
the Company shall not be required to register a number of such Investors'
Shares, which at the then current price of the Common Stock of the Company on
the principal national exchange or automated quotation system then traded, would
be less than $1,000,000 of Registrable Shares offered.
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<PAGE> 4
2.4 EFFECTIVENESS. The Company will use its best efforts to maintain
the effectiveness for up to nine (9) months of any registration statement
pursuant to which any of the Registrable Shares are being offered, and from time
to time will amend or supplement such registration statement and the prospectus
contained therein as and to the extent necessary to comply with the Securities
Act and any applicable state securities statute or regulation.
2.5 INDEMNIFICATION OF HOLDERS OF REGISTRABLE SHARES. In the event that
the Company registers any of the Registrable Shares under the Securities Act,
the Company will indemnify and hold harmless each holder and each underwriter of
the Registrable Shares so registered (including any broker or dealer through
whom such shares may be sold) and each person, if any, who controls such holder
or any such underwriter within the meaning of Section 15 of the Securities Act
from and against any and all losses, claims, damages, expenses or liabilities,
joint or several, to which they or any of them become subject under the
Securities Act or under any other statute or at common law or otherwise, and,
except as hereinafter provided, will reimburse each such holder, each such
underwriter and each such controlling person, if any, for any legal or other
expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement, in any
preliminary or amended preliminary prospectus or in the prospectus (or the
registration statement or prospectus as from time to time amended or
supplemented by the Company) or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein not misleading or any
violation by the Company of any rule or regulation promulgated under the
Securities Act applicable to the Company and relating to action or inaction
required of the Company in connection with such registration, unless such untrue
statement or omission was made in such registration statement, preliminary or
amended, preliminary prospectus or prospectus in reliance upon and in conformity
with information furnished in writing to the Company in connection therewith by
such holder of Registrable Shares, any such underwriter or any such controlling
person expressly for use therein. Promptly after receipt by any holder of
Registrable Shares, any underwriter or any controlling person of notice of the
commencement of any action in respect of which indemnity may be sought against
the Company, such holder of Registrable Shares, or such underwriter or such
controlling person, as the case may be, will notify the Company in writing of
the commencement thereof, and, subject to the provisions hereinafter stated, the
Company shall assume the defense of such action (including the employment of
counsel, who shall be counsel reasonably satisfactory to such holder of
Registrable Shares, such underwriter or such controlling person, as the case may
be), and the payment of expenses insofar as such action shall relate to any
alleged liability in respect of which indemnity may be sought against the
Company. Such holder of Registrable Shares, any such underwriter or any such
controlling person shall have the right to employ separate counsel in any such
action and to participate in the defense thereof but the fees and expenses of
such counsel shall not be at the expense of the Company unless the employment of
such counsel has been specifically authorized by the Company. The Company shall
not be liable to indemnify any person for any settlement of any such action
effected without the Company's consent. The Company shall not, except with the
approval of each party being indemnified under this Section 2.5, consent to
entry of any judgment or enter into any settlement that does not include as an
unconditional term thereof the
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<PAGE> 5
giving by the claimant or plaintiff to the parties being so indemnified of a
release from all liability in respect to such claim or litigation.
2.6 INDEMNIFICATION OF COMPANY. In the event that the Company registers
any of the Registrable Shares under the Securities Act, each holder of the
Registrable Shares so registered will indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed the registration
statement, each underwriter of the Registrable Shares so registered (including
any broker or dealer through whom such of the shares may be sold) and each
person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act from and against any and all losses, claims, damages, expenses or
liabilities, joint or several, to which they or any of them may become subject
under the Securities Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse the Company and
each such director, officer, underwriter or controlling person for any legal or
other expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement, in any
preliminary or amended preliminary prospectus or in the prospectus (or the
registration statement or prospectus as from time to time amended or
supplemented) or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, but only insofar as any
such statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Company in connection therewith by such
holder of Registrable Shares, expressly for use therein; provided, however, that
such holder's obligations hereunder shall be limited to an amount equal to the
proceeds to such holder of the Registrable Shares sold in such registration.
Promptly after receipt of notice of the commencement of any action in respect of
which indemnity may be sought against such holder of Registrable Shares, the
Company will notify such holder of Registrable Shares in writing of the
commencement thereof, and such holder of Registrable Shares shall, subject to
the provisions hereinafter stated, assume the defense of such action (including
the employment of counsel, who shall be counsel satisfactory to the Company) and
the payment of expenses insofar as such action shall relate to the alleged
liability in respect of which indemnity may be sought against such holder of
Registrable Shares. The Company and each such director, officer, underwriter or
controlling person shall have the right to employ separate counsel in any such
action and to participate in the defense thereof but the fees and expenses of
such counsel shall not be at the expense of such holder of Registrable Shares
unless employment of such counsel has been specifically authorized by such
holder of Registrable Shares. Notwithstanding the two preceding sentences, if
the action is one in which the Company may be obligated to indemnify any holder
of Registrable Shares pursuant to Section 2.5, the Company shall have the right
to assume the defense of such action, subject to the right of such holders to
participate therein as permitted by Section 2.5. Such holder of Registrable
Shares shall not be liable to indemnify any person for any settlement of any
such action effected without such holder's consent. Such holder shall not,
except with the approval of the Company, consent to entry of any judgment or
enter into any settlement that does not include as an unconditional term thereof
the giving by the claimant or plaintiff to the party being so indemnified of a
release from all liability in respect to such claim or litigation.
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<PAGE> 6
2.7 EXCHANGE ACT REGISTRATION. The Company will use its best efforts to
file on a timely basis with the Securities and Exchange Commission all
information that the Commission may require under either of Section 13 or
Section 15(d) of the Exchange Act and, so long as it is required to file such
information, shall use its best efforts to take all action that may be required
as a condition to the availability of Rule 144 under the Securities Act (or any
successor exemptive rule hereinafter in effect) with respect to the Company's
Common Stock. The Company shall furnish to any holder of Registrable Shares
forthwith upon request (i) a written statement by the Company as to its
compliance with the reporting requirements of Rule 144, (ii) a copy of the most
recent annual or quarterly report of the Company as filed with the Securities
and Exchange Commission, and (iii) any other reports and documents that a holder
may reasonably request in availing itself of any rule or regulation of the
Securities and Exchange Commission allowing a holder to sell any such
Registrable Securities without registration.
2.8 FURTHER OBLIGATIONS OF THE COMPANY. Whenever the Company is
required hereunder to register Registrable Shares, it agrees that it shall also
do the following:
(a) Furnish to each selling holder such copies of each
preliminary and final prospectus and any other documents that such holder may
reasonably request to facilitate the public offering of its Registrable Shares;
(b) Use its best efforts to register or qualify the
Registrable Shares to be registered pursuant to this Agreement under the
applicable securities or 'blue sky" laws of such jurisdictions as any selling
holder may reasonably request; provided, however, that the Company shall not be
obligated to qualify to do business in any jurisdiction where it is not then so
qualified or to take any action that would subject it to the service of process
in suits other than those arising out of the offer or sale of the securities
covered by the registration statement in any jurisdiction where it is not then
so subject;
(c) Furnish to each selling holder a signed counterpart of,
(i) an opinion of counsel for the Company, dated the
effective date of the registration statement;
(ii) "comfort" letters signed by the Company's
independent public accountants who have examined and reported on the Company's
financial statements included in the registration statement, to the extent
permitted by the standards of the American Institute of Certified Public
Accountants, covering substantially the same matters with respect to the
registration statement (and the prospectus included therein) and (in the case of
the accountants "comfort" letters) with respect to events subsequent to the date
of the financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' "comfort" letters delivered to the underwriters in
underwritten public offerings of securities, but only if and to the extent that
the Company is required to deliver or cause the delivery of such opinion or
"comfort" letters to the underwriters in an underwritten public offering of
securities;
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<PAGE> 7
(d) Permit each selling holder or his counsel or other
representatives to inspect and copy such corporate documents and records as may
reasonably be requested by them; and
(e) Furnish to each selling holder, upon request, a copy of
all documents filed and all correspondence from or to the Securities and
Exchange Commission in connection with any such offering unless confidential
treatment of such information has been requested of the Securities and Exchange
Commission.
2.9 EXPENSES. In the case of a registration under Sections 2.1, 2.2 or
2.3 the Company shall bear all costs and expenses of each such registration,
including, but not limited to, printing, legal and accounting expenses,
Securities and Exchange Commission filing fees and "blue sky" fees and expenses;
provided, however, that the Company shall have no obligation to pay or otherwise
bear (i) any portion of the fees or disbursements of more than one counsel for
the selling holders of Registrable Shares in connection with the registration of
their Registrable Shares, (ii) any portion of the underwriter's commissions or
discounts attributable to the Registrable Shares being offered and sold by the
holders of Registrable Shares, or (iii) any of such expenses if the payment of
such expenses by the Company is prohibited by the laws of a state in which such
offering is qualified and only to the extent so prohibited; and provided
further, that, in the event any registration under the Securities Act is
initiated by any holders of Registrable Shares pursuant to Sections 2.2 or 2.3
of this Agreement and such registration is thereafter withdrawn or terminated by
such holders for reasons other than the occurrence of one or more events
regarding the Company, which event or events may have a material adverse affect
upon the business or prospects of the Company, and such holders learn of such
event or events after the date of the demand for registration and prior to the
date of withdrawal or termination by them and such withdrawal or termination
occurs with reasonable promptness thereafter, then the Company shall have no
obligation to pay or otherwise bear any fees, expenses or other costs arising
out of or relating to such registration, unless, in the case of a registration
under Section 2.2 hereof, such holders relinquish one of their rights to demand
registration under such section.
2.10 TRANSFER OF REGISTRATION RIGHTS. The registration rights of the
holders of Registrable Shares under this Agreement may be transferred to any
transferee of Registrable Shares.
2.11 NO SUPERIOR RIGHTS. The Company will not grant registration rights
to any Person that are superior to the rights granted hereunder.
2.12 MARKET STAND-OFF AGREEMENT. No holder of Registrable Shares shall,
to the extent requested by the Company or any underwriter of the Company, sell
or otherwise transfer or dispose of (other than to donees who agree to be
similarly bound) any Registrable Shares during a period (the "Stand-Off Period")
equal to 120 days, or, if earlier, the period of time which Eugene L. Goda is
required by the Company or any underwriter from selling shares of the Company's
securities, following the effective date of a registration statement of the
Company filed under the Securities Act except for securities sold as part of the
offering covered by such registration statement in accordance with the
provisions of this Agreement. In order to enforce the foregoing covenant, the
Company may
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<PAGE> 8
impose stock transfer restrictions with respect to the Registrable Shares of
each holder until the end of the Stand-Off Period.
3. ASSIGNABILITY
This Agreement shall be binding upon and inure to the benefit of the
respective heirs, successors and assigns of the parties hereto.
4. LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of California.
5. CONFLICT
Any modification, amendment, or waiver of this Agreement or any
provision hereof shall be in writing and executed by holders of not less then 66
2/3 percent of the Registrable Shares; provided however, that no such
modification, amendment or waiver shall reduce the aforesaid percentage of
Registrable Shares without the consent of the record of beneficial holders of no
less then 90 percent of the Registrable Shares.
6. CONFLICT
In the event of any conflict between the terms of this Agreement, the
Investor Purchase Agreement, the ESOP Purchase Agreement, and the Repurchase
Agreement, the terms of this Agreement shall control.
7. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
SIMULATION SCIENCES, INC.
By: /s/ Eugene L. Goda
-----------------------------------
Eugene L. Goda, President
SHAREHOLDERS
/s/ Y.L. Wang
-------------------------------------------------
Y.L. Wang,Trustee of Wang Family Trust UTD
July 10, 1987
/s/ Ellen Y.L. Wang
-------------------------------------------------
Ellen Y.L. Wang, Trustee of Wang Family Trust UTD
July 10, 1987
/s/ N. Fred Brannock
-------------------------------------------------
N. Fred Brannock, Trustee of Brannock Family Trust
UTD June 7, 1988
/s/ Jo Ann C. Brannock
-------------------------------------------------
Jo Ann C. Brannock, Trustee of Brannock Family Trust
UTD June 7, 1988
/s/ Vincent S. Verneuil, Jr.
-------------------------------------------------
Vincent S. Verneuil, Jr., Trustee of Verneuil Family
Trust UTD June 22, 1988
/s/ Mary Ann Verneuil
-------------------------------------------------
Mary Ann Verneuil, Trustee of Verneuil Family Trust
UTD June 22, 1988
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<PAGE> 10
INVESTORS
SUMMIT VENTURES III, L.P.
By: Summit Partners III, L.P.
General Partner
By: Stamps, Woodsum & Co. III
General Partner
By: /s/ Walter S. Kortschak
--------------------------------
General Partner
SUMMIT INVESTORS II, L.P.
By: /s/ Walter S. Kortschak
--------------------------------
General Partner
ENTERPRISE PARTNERS II, L.P.
By: /s/ Charles D. Martin
--------------------------------
General Partner
ENTERPRISE PARTNERS II ASSOCIATES, L.P.
By: /s/ Charles D. Martin
--------------------------------
General Partner
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<PAGE> 11
ESOP
By: Northern Trust Company, as
Trustee of the Simulation
Sciences, Inc. Employee Stock
Ownership Plan and Employee
Purchase Pension Plan.
By: /s/ Katherine Russell
--------------------------------
Katherine Russell
Second Vice President
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EXHIBIT A
LIST OF SHAREHOLDERS
Wang Family Trust UTD July 10, 1987
Brannock Family Trust UTD June 7, 1988
Verneuil Family Trust UTD June 22, 1988
Eugene L. Goda
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<PAGE> 13
EXHIBIT B
LIST OF INVESTORS
Summit Ventures III, L.P.
499 Hamilton Avenue
Palo Alto, California 94301
Summit Investors II, L.P.
499 Hamilton Avenue
Palo Alto, California 94301
Enterprise Partners II, L.P.
5000 Birch Street, Suite 6200
Newport Beach, California 92660
Enterprise Partbners II, Associates, L.P.
5000 Birch Street, Suite 6200
Newport Beach, California 92660
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<PAGE> 1
EXHIBIT 10.9
FIRST AMENDMENT TO OFFICE LEASE
FOR 601 SOUTH VALENCIA AVENUE
BY THIS LEASE AMENDMENT NO. 1, the parties hereto hereby amend that
Office Lease for 601 South Valencia Avenue, Brea, California 92621, dated
September 1, 1992, between BREA PARTNERS, as Landlord and SIMULATION SCIENCES,
INC., a California corporation as Tenant.
TERMS
In consideration of the mutual agreements herein contained, the parties
hereby agree:
That Simulation Sciences, Inc., will lease an additional 14,887 square
feet of space at 601 South Valencia.
The additional space will increase Simulation Sciences' proportionate
share of their operating expenses to 89%.
The monthly rent per square foot for the entire 54,339 square feet
shall be changed in accordance with the following formula:
Current rent .683 per square foot
.683 + (TCC) x (.11)
-------------
12 x 54,339
"TCC" in the foregoing formula shall refer to the "Tenant's Capitalized
Costs" and shall mean any charges incurred by Tenant to improve the
additional space. That cost is estimated to be $150,000.00. The maximum
amount available for Tenant Improvements shall be $22.00 per usable
square footage of newly occupied space:
(12,996 sq.ft. x $22.00 = $285,912).
The monthly rent for all space shall be adjusted according to the
Standard Office Lease. (The rent for all space, including the
additional 14,887 square feet, shall be increased by 5% on April 26,
1996, and each succeeding year as per the Lease).
All other terms and conditions applied under the present Lease shall
also include the additional space.
COMMENCEMENT DATE:
The "Commencement Date" of this Lease Amendment shall be September 1,
1995.
Tenant shall pay $0.30 per square foot from September 1, 1995 to
December 31, 1995 on the additional space. ($0.30 x 14,887 = $4,466.10
per month).
<PAGE> 2
During the construction period starting January 1, 1996, through April
30, 1996, the tenant shall pay no rent on the additional space. If the
tenant takes occupancy on the additional space prior to April 30, 1996,
then the commencement date for the rent shall be the occupancy date,
but in no event shall rent for the additional space start later than
May 1, 1996.
Except as herein modified, the Lease shall remain in full force and
effect.
The provisions of this Agreement shall bind and inure to the benefit of
the heirs, representatives, successors and assigns of the parties hereto.
Attached as Exhibit "A" is the Floor Plan for the additional space.
DATED: 8/31/95
---------------------------
LANDLORD: TENANT:
BREA PARTNERS
BY: THE BETTY L. HUTTON COMPANY, SIMULATION SCIENCES, Inc., a
a California corporation, General Partner California corporation
BY: /s/ THOMAS C. PARKER BY: /s/ CHARLES R. HARRIS
------------------------------ -------------------------
-2-
<PAGE> 3
EXHIBIT "A"
GRAPHIC DEPICTING PREMISES
<PAGE> 4
STANDARD OFFICE LEASE--NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC LEASE PROVISIONS ("Basic Lease Provisions")
1.1 PARTIES: This Lease, dated for reference purposes only, September
1, 1992 , is made by and between BREA PARTNERS, (herein called "Lessor") and
SIMULATION SCIENCES INC., a California corporation (herein called "Lessee").
1.2 PREMISES: Suite Number(s) 100, 109, 208, 250, 295 on 2 floors
consisting of approximately 39,452 square feet, more or less, as defined in
paragraph 2 and as shown on Exhibit "A" hereto (the "Premises). That portion of
the Premises located on the First Floor ("First Floor Premises") consists of
approximately 17,044 rentable square feet. That portion of the Premises located
on the second floor ("Second Floor Premises") consists of approximately 22,408
rentable square feet. Suite 250 within the Second Floor Premises which consists
of approximately 15,351 rentable square feet ("Existing Premises") is currently
occupied by Lessee. The First Floor Premises, the Existing Premises and the
Second Floor Premises are depicted on Exhibit "A" attached hereto.
1.3 BUILDING: Commonly described as being located at 601 Valencia
Avenue in the City of Brea, County of Orange, State of California, as more
particularly described in Exhibit A-1 hereto, and as defined in paragraph 2.
1.4 USE: General Office
1.5 TERM: Fifteen (15) years. The "Commencement Date" of this Lease
shall be determined separately for the First Floor Premises and for the Second
Floor Premises and shall be the first to occur of the following:
(a) Five (5) days following issuance of final inspection by
the City of Brea on building permits issued to Lessor for construction of the
Interior Improvements for the First Floor Premises or the Second Floor Premises,
as applicable, in accordance with the Work Letter attached to this Lease; or
(b) Lessee's acceptance of possession of the First Floor
Premises or the Second Floor Premises, as applicable, whether for purposes of
fixturizing and/or conducting business.
Lessee currently occupies the Existing Premises pursuant to that
certain Lease dated December 19, 1989 between Lessor's predecessor in interest,
Five-O-Two Properties/Brea Ltd., a California limited partnership and Lessee
("Existing Lease"). The Existing Lease shall be assigned to Lessor concurrently
with Lessor's purchase of the Office Building Project. Lessee will continue to
occupy the Existing Premises in accordance with the Existing Lease, which shall
remain in full force and effect until the Commencement Date of this Lease as to
the First Floor Premises, at which time the Existing Lease shall terminate, and
all rights and obligations of Lessor
<PAGE> 5
and Lessee under the Existing Lease which arise from and after the Commencement
Date of this Lease as to the First Floor Premises, shall automatically terminate
and be of no further force or effect.
1.5A OPTIONS TO EXTEND. Lessee shall have two (2) options to extend the
term for additional periods of five (5) years each for the rent and on the terms
and conditions hereinafter described. To exercise the options, Lessee shall
notify Lessor in writing not late than six (6) months prior to expiration of the
then current Term. if Lessee fails to notify Lessor in the time and manner
above-provided, Lessee's option(s) to extend the Lease shall be void and of no
further force or effect without notice by Lessor to Lessee. If Lessee timely
exercises its option to extend the Lease, Lessee shall continue to occupy the
Premises on the same terms and conditions as are described herein, except that
(a) no further options to extend shall be granted and (b) the Base Rent payable
hereunder shall be adjusted to the then fair market rental value of the Premises
determined in the manner hereinafter described. The "Fair Market Rental Rate" of
the Premises shall be determined, if possible, by the mutual agreement of Lessor
and Lessee. Lessee shall designate its estimation of the Fair Market Rental Rate
of the Premises in its written notice electing to extend the Lease. Lessor shall
notify Lessee, within fifteen (15) days of receipt of Lessee's notice whether
Lessor accepts the Fair Market Rental Rate
1.6 BASE RENT:
(a) The Base Rent initially payable by Lessee shall be determined
in accordance with the following formula:
[(TC) x (39,452/60,755) x (.11)]
-------------------------------------
(12) x (39,452)
For example, if the TC is equal to $4,100,000.00, the Monthly
Base Rent per rentable square foot within the Premises would be $.62, i.e.:
[($4,100,000.00) x (.6493) x (.11)]
----------------------------------- = 292,834.3 = .6185
(12) x (39,452) ---------
473,424
"TC" in the foregoing formula shall refer to the "Total Costs"
and shall mean all direct and indirect costs incurred by Lessor in acquiring the
Office Building Project and all direct and indirect costs incurred designing and
installing improvements benefitting the Building as a whole and all Interior
Improvements constructed in the Premises pursuant to the Work Letter, which
costs shall include, without limitation, those paid to professional consultants,
including architects, engineers, surveyors, attorneys and accountants; all
permits, non-refunded deposits and fees paid to governmental entities or public
utilities; and all amounts paid for materials, labor and supervision used in the
construction of Building Improvements and the Interior Improvements, but
excluding the cost of specific tenant improvements expended for improvement of
premises of other lessees in the Building. "TC" shall also include all financing
costs including interest, all costs of holding the Building including, without
limitation, property taxes and assessments and insurance incurred by Lessor
prior to the Commencement Date of this Lease as to both the First Floor Premises
and the Second Floor Premises.
<PAGE> 6
(b) Not less than fifteen (15) days prior to the
Commencement Date for the First Floor Premises, Lessor shall notify Lessee, in
writing, of the monthly Base Rent per rentable square foot payable by Lessee for
the first month of the Term, which Base Rent shall be based on the "Total Costs"
incurred by Lessor through the end of the preceding calendar month. So long as
the Total Costs continue to increase, Lessor shall continue to provide to
Lessee, by the fifteenth (15th) day of the month preceding the date on which the
next monthly Base Rent is due, a written statement identifying the Total Costs
and the monthly Base Rent per square foot payable for the next calendar month.
In the event Lessor fails to deliver such written notice by the twentieth (20th)
day of the month, Lessee shall be entitled to continue to pay the monthly Base
Rent last payable; provided, however, that Lessee shall pay any increases in the
monthly Base Rents previously due, on the first day of the calendar month
following the month in which a written notice advising of the increase, is
received by Lessee by the twentieth (20th) day of the month.
(c) Lessee shall commence paying the Base Rent for the
rentable area within the First Floor Premises as of the Commencement Date of the
First Floor Premises. Lessee shall commence paying the Base Rent for the
rentable area of all of the Premises upon the Commencement Date of the Second
Floor Premises.
1.7 BASE RENT INCREASE: On Monthly Base Rent payable by Lessee
hereunder, as determined in accordance with Paragraph 3 of this Page 1B shall be
increased annually, commencing on the first anniversary of the Commencement Date
for the Second Floor Premises and continuing on each anniversary of such date
throughout the remainder of the term of the Lease ("Adjustment Dates"), to a
sum equal to 105t of the monthly Base Rent payable immediately prior to each
such Adjustment Date.
1.8 RENT PAID UPON EXECUTION: $24,403, which amount shall be applied to
the Base Rent first owing hereunder.
1.9 SECURITY DEPOSIT: -0-
1.10 LESSEE'S SHARE OF OPERATING EXPENSES: 65 % as defined in paragraph
4.2.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES: The Premises are a portion of a building, herein
sometimes referred to as the "Building" identified in paragraph 1.3 of the Basic
Lease Provisions. "Building" shall include adjacent parking structures used in
connection therewith. The Premises, the Building, the Common Areas, the land
upon which the same are located, along with all other buildings and improvements
thereon or thereunder, are herein collectively referred to as the "Office
Building Project." Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
the real property referred to in the Basic Lease Provisions, paragraph 1.2, as
the "Premises," including rights to the Common Areas as hereinafter specified.
2.2 VEHICLE PARKING: So long as Lessee is not in default and subject to
the rules and regulations attached hereto, and as established by Lessor from
time to time, Lessee shall be entitled to use 156 parking spaces in the Office
Building Project
<PAGE> 7
2.2.1 If Lessee commits, permits or allows any of the
prohibited activities described in the Lease or the rules then in effect, then
Lessor shall have the right, without notice, in addition to such other rights
and remedies that it may have, to remove or tow away the vehicle involved and
charge the cost to Lessee, which cost shall be immediately payable upon demand
by Lessor.
2.2.2 The monthly parking rate per parking space will be $ -0-
during the term of this Lease.
2.3 COMMON AREAS--DEFINITION. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Office Building Project that are provided and designated by the Lessor
from time to time for the general non-exclusive use of Lessor, Lessee and of
other lessees of the Office Building Project and their respective employees,
suppliers, shippers, customers and invitees, including but not limited to common
entrances, lobbies, corridors, stairways and stairwells, public restrooms,
elevators, escalators, parking areas to the extent not otherwise prohibited by
this Lease, loading and unloading areas, trash areas, roadways, sidewalks,
parkways, ramps, driveways, landscaped areas and decorative walls.
2.4 COMMON AREAS--RULES AND REGULATIONS. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit B with respect
to the Office Building Project and Common Areas, and to cause its employees,
suppliers, shippers, customers, and invitees to so abide and conform. Lessor or
such other person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right from time to time, to
modify, amend and enforce said rules and regulations. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees, their agents, employees and invitees of the Office Building
Project.
2.5 COMMON AREAS--CHANGES. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Building interior and exterior and
Common Areas, including, without limitation, changes in the location, size,
shape, number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, decorative walls, landscaped areas and walkways;
provided, however, Lessor shall at all times provide the parking facilities
required by applicable law and such changes will not unreasonably interfere with
Lessee's use and occupancy of the Premises.
(b) To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to the Premises remains
available;
(c) To designate other land and improvements outside the
boundaries of the Office Building Project to be a part of the Common Areas,
provided that such other land and improvements have a reasonable and functional
relationship in the Office Building Project;
(d) To add additional buildings and improvements to the Common
Areas;
<PAGE> 8
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Office Building Project
as Lessor may, in the exercise of sound business judgment deem to be
appropriate.
3. TERM.
3.1 TERM. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
3.2 DELAY IN POSSESSION. Notwithstanding said Commencement Date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date and subject to paragraph 3.2.2, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease or
the obligations of Lessee hereunder or extend the term hereof; but in such case,
Lessee shall not be obligated to pay rent or perform any other obligation of
Lessee under the terms of this Lease, except as may be otherwise provided in
this Lease, until possession of the Premises is tendered to Lessee, as
hereinafter defined,
3.2.1 POSSESSION TENDERED--DEFINED. Possession of the Premises
shall be deemed tendered to Lessee ("Tender of Possession") when (1) the
improvements to be provided by Lessor under this Lease are substantially
completed, (2) the Building utilities are ready for use in the Premises, (3)
Lessee has reasonable access to the Premises, and (4) five (5) days shall have
expired following advance written notice to Lessee of the occurrence of the
matters described in (1), (2) and (3), above of this paragraph 3.2.1.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
3.4 UNCERTAIN COMMENCEMENT. In the event commencement of the Lease term
is defined as the completion of the improvements, Lessee and Lessor shall
execute an amendment to this Lease establishing the date of Tender of Possession
(as defined in paragraph 3.2.1) or the actual taking of possession by Lessee,
whichever first occurs, as the Commencement Date.
4. RENT.
4.1 BASE RENT. Subject to adjustment as hereinafter provided in
paragraph 4.3. and except as may be otherwise expressly provided in this Lease.
Lessee shall pay to Lessor the Base Rent for the Premises set forth in paragraph
1.6 of the Basic Lease Provisions, without offset or deduction. Lessee shall pay
Lessor upon execution hereof the advance Base Rent described in paragraph 1.8 of
the Basic Lease Provisions. Rent for any period during the term hereof which is
for less than one month shall be prorated based upon the actual number of days
of the calendar month involved. Rent shall be payable in lawful money of the
United States to Lessor at the address stated herein or to such other persons or
at such other places as Lessor may designate in writing.
<PAGE> 9
4.2 OPERATING EXPENSES. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent. Lessee's Share as hereinafter defined of
all Operating Expenses, as hereinafter defined, during each calendar year of the
term of this Lease, in accordance with the following provisions:
(a) "Lessee's Share" is deemed, for purposes of this Lease, as
the percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage has been determined by dividing the approximate square footage of the
Premises by the total approximate square footage of the rentable space contained
in the Office Building Project. It is understood and agreed that the square
footage figures set forth in the Basic Lease Provisions are approximations which
Lessor and Lessee agree are reasonable and shall not be subject to revision
except in connection with an actual change in the size of the Premises or a
change in the space available for lease in the Office Building Project.
(b) "Operating Expenses" is defined, for purposes of this
Lease, to include all costs if any, incurred, by Lessor in the exercise of its
reasonable discretion, for:
(i) The operation, repair, maintenance, and
replacement, in neat, clean, safe, good order and condition, of the Office
Building Project, including but not limited to, the following:
(aa) The Common Area, including their
surfaces, coverings, decorative items, carpets, drapes and window coverings, and
including parking areas, loading and unloading areas, trash areas, roadways,
sidewalks, walkways, stairways, parkways, driveways, landscape areas, striping,
bumpers, irrigation systems. Common Area lighting facilities, building exteriors
and roofs, fences and gates.
(bb) All heating, air conditioning,
plumbing, electrical systems, life safety equipment, telecommunication and other
equipment used in common by or for the benefit of, lessees or occupants of the
Office Building Project, including elevators and escalators, tenant directories,
fire detection systems including sprinkler system maintenance and repair.
(ii) Trash disposal, janitorial and security
services;
(iii) Any other service to be provided by Lessor that
is elsewhere in this Lease stated to be an "Operating Expense":
(iv) The cost of the premiums for the liability and
property insurance policies to be maintained by Lessor under paragraph 8 hereof;
(v) The amount of the real property taxes to be paid
by Lessor under paragraph 10.1 hereof;
(vi) The cost of water, sewer, gas, electricity, and
other publicly mandated services to the Office Building Project:
<PAGE> 10
(vii) Labor, salaries and applicable fringe benefits
and costs, materials, supplies and tools, used in maintaining and/or cleaning
the Office Building Project and accounting and a management fee which management
fee shall not exceed five percent (5%) of gross rentals; attributable to the
operation of the Office Building Project;
(viii) Replacing and/or adding improvements mandated
by any governmental agency and any repairs or removals necessitated thereby
amortized over its useful life according to Federal income tax regulations or
guidelines for depreciation thereof (including interest on the unamortized
balance as is then reasonable in the judgement of Lessor's accountants):
(ix) Replacements of equipment or improvements that
have a useful life for depreciation purposes according to Federal income tax
guidelines of five (5) years or less, as amortized over such life.
(c) Operating Expenses shall not include the costs of
replacements of equipment or improvements that have a useful life for Federal
income tax purposes in excess of five (5) years unless it is of the type
described in paragraph 4.2(b)(viii), in which case their cost shall be included
as above provided.
(d) Operating Expenses shall not include any expenses paid by
any lessee directly to third parties, or as to which Lessor is otherwise
reimbursed by any third party, other tenant, or by insurance proceeds.
(e) Lessee's Share of Operating Expenses shall be payable by
Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time of Lessee's Share of annual
Operating Expenses and the same shall be payable monthly or quarterly, as Lessor
shall designate, during each calendar year of the Lease term, on the same day as
the Base Rent is due hereunder in the event that Lessee pays Lessor's estimate
of Lessee's Share of Operating Expenses as aforesaid. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Operating
Expenses incurred during the preceding year. If Lessee's payments under this
paragraph 4.2(e) during said preceding calendar year exceed Lessee's Share as
indicated on said statement. Lessee shall be entitled to credit the amount of
such overpayment less than Lessee's Share as indicated on said statement Lessee
shall pay to Lessor the amount of the deficiency within ten (10) days after
delivery by Lessor to Lessee of said statement.
(f) Lessee shall commence paying Lessee's Share of all
Operating Expenses upon the commencement date of the Lease as to the First Floor
Premises. Notwithstanding anything to the contrary contained in this Lease,
Lessee's Share of Operating Expenses from the Commencement Date of the Lease for
the First Floor Premises until the Commencement Date of the Second Floor
Premises shall be twenty-eight percent (28%) instead of sixty-five percent
(65%).
6. USE.
<PAGE> 11
6.1 USE. The Premises shall be used and occupied only for the purpose
set forth in paragraph 1.4 of the Basic Lease Provisions or any other use which
is reasonably comparable to that use and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences but without regard to
alterations or improvements made by Lessee or the use for which Lessee will
occupy the Premises, does not violate any covenants or restrictions of record.
or any applicable building code. regulation or ordinance in effect on such Lease
term Commencement Data. In the event it is determined that this warranty has
been violated. then it shall be the obligation of the Lessor, after written
notice from Lessee, to promptly. at Lessor's sole cost and expense, rectify any
such violation.
(b) Except as provided in paragraph 6.2(a) Losses shall. at
Lessee's expense, promptly comply with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record. and
requirements of any fire insurance underwriters or rating bureaus, now in effect
or which may hereafter come into effect, whether or not they reflect a change in
policy from that now existing, during the term of any part of the term hereof,
relating in any manner to the Premises and the occupation and use by Losses of
the Premises. Lessee shall conduct its business in a lawful manner and shall not
use or permit the use of the Premises of the Common Areas in any manner that
will tend to create waste or a nuisance or shall tend to disturb other occupants
of the Office Building Project.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee in a clean
condition on the Lease Commencement Date (unless Lessee is already in
possession) and Lessor warrants to Lessee that the plumbing, lighting, air
condition, and heating system in the Premises shall be in good operating
condition. In the event that it is determined that this warranty has been
violated, then it shall be the obligation of Lessor, after receipt of written
notice from Lessee setting forth with specificity the nature of the violation to
promptly, at Lessor's sole cost, rectify such violation.
(b) Except as otherwise provided in this Lease, and paragraph
7 of the Work Letter attached hereto, Lessee hereby accepts the Premises and the
Office Building Project in the condition existing as of the Lease Commencement
Date or the date that Lessee takes possession of the Premises, whichever is
earlier, subject to all applicable zoning, municipal, county and state laws,
ordinances and regulations governing and regulating the use of the Premises, and
any easements, covenants or restrictions of record, and accepts this Lease
subject thereto and to all matters disclosed thereby and by any exhibits
attached hereto. Lessee acknowledges that it has satisfied itself by its won
independent investigation that the Premises are suitable for its intended use,
and that neither Lessor nor Lessor's agent or agents has made any representation
or warranty as to the present or future suitability of the Premises. Common
Area, or Office Building Project for the conduct of Lessee's business.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
<PAGE> 12
7.1 LESSOR'S OBLIGATIONS. Lessor shall keep the Office Building
Project, including the Premises, interior and exterior walls, roof, and common
areas, and the equipment whether used exclusively for the Premises or in common
with other premises in good condition and repair provided however Lessor shall
not be obligated to paint, repair or replace wall coverings, or to repair or
replace any improvements that are not ordinarily a part of the Building or are
above then Building standards. Except as provided in paragraph 9.5 there shall
be no abatement of rent or liability of Lessee on account of any injury or
interference with Lessee's business with respect to any improvements alterations
or repairs made by Lessor to the Office Building Project or any part thereof.
Lessor shall not be in default in the performance of any obligation required to
be performed by Lessor under the Lease unless Lessor has failed to perform such
obligation within thirty (30) days after the receipt of notice from Lessee
specifying in detail Lessor's failure to perform; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) calendar days
are required for its performance, then Lessor shall not be deemed in default if
it commences such performance within thirty (30) days and thereafter diligently
pursues the same to completion. Upon any such default by Lessor, Lessee may
exercise any of its rights provided in law or at equity.
7.2 LESSEE'S OBLIGATIONS.
(a) Notwithstanding Lessor's obligation to keep the Premises
in good condition and repair. Lessee shall be responsible for payment of the
cost thereof to Lessor an additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear. Lessee shall be responsible for the cost of
painting, repairing or replacing wall coverings, and to repair or replace any
Premises improvements that are not ordinarily a part of the Building or that are
above then Building standards. Lessor may, at its option, upon reasonable
notice, elect to have Lessee perform any particular such maintenance or repairs
the cost of which is otherwise Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as received (together with all alterations and improvements installed by Lessee
pursuant to Section 7.3, except as other specifically provided in Section 7.3)
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good maintenance practices by Lessee. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, alterations, furnishings and equipment.
Except as otherwise stated in this Lease, Lessee shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall paneling, ceilings
and plumbing on the Premises and in good operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent
make any alterations, improvements, additions, Utility Installations or repairs
in, on or about the Premises, or the Office Building Project. As used in this
paragraph 7.3 the term "Utility Installation" shall mean carpeting, window and
wall coverings, power panels, electrical distribution systems, lighting
fixtures, air conditioning, plumbing, and telephone and telecommunication wiring
and equipment. As a condition to Lessor's approval of an alternation,
<PAGE> 13
improvement, addition or Utility Installation, Lessor may require the removal of
any or all of said alterations, improvements, additions or Utility
Installations, and the restoration of the Premises and the Office Building
Project to their prior condition, at Lessee's expense. Should Lessor permit
Lessee to make its own alterations, improvements, additions or Utility
Installations, Lessee shall use only such contractor as has been expressly
approved by Lessor and Lessor may require Lessee to provide Lessor at Lessee's
sole cost and expense either a lien and completion bond in an amount approved by
Lessor and Lessor may require Lessee to provide Lessor, at Lessee's sole cost
and expense either (i) a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work or (ii) other evidence, reasonably acceptable to Lessor, that Lessee
has adequate funds to pay for all such work and a reasonable builder's control
system to assure the release of all mechanic and material lien rights upon
disbursement of funds to contractors. Should Lessee make any alterations,
improvements, additions or Utility Installations without the prior approval of
Lessor, or use a contractor not expressly approved by Lessor, Lessor may, at any
time during the term of this Lease, require that Lessee remove any part of all
of the same.
(b) Any alterations. improvements, additions or Utility
Installations in or about the Premises or the Office Building Project that
Lessee shall desire to make shall be presented to Lessor in written form. with
proposed detailed plans. It Lessor shall give its consent to Lessee's making
such alteration, improvement. addition or Utility Installation, the consent
shall be deemed conditioned upon Lessee acquiring a permit to do so from the
applicable governmental agencies. furnishing a copy thereof to Lessor prior to
the commencement of the work. and compliance by Lessee and all conditions of
said Permit in a prompt and expeditious manner.
(c) Lessee shall pay when due. all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at of for
use in the Premise which claims are or may be secured by any mechanics or
materialmen's lion against the Promises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days'
notice prior to the commencement of any work in the Premises by Lessee. and
Lessor shall have the right to post notices of non-responsibility in or on the
Premises or the Building as provided by law. If Lessee shall, in good faith,
contest the validity of any such lien, claim or demand, then Lessee shall, at
its sole expense defend itself and Lessor against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises, the Building or the
Office Building Project, upon the condition that if Lessor shall require, Lessee
shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal
to such contested lien claim or demand indemnifying Lessor against liability for
the same and holding the Premises, the Building and the Office Building Project
free from the effect of such lien or claim. In addition, Lessor may require
Lessee to pay Lessor's reasonable attorneys fees and costs in participating in
such action if Lessor shall decide it is to Lessor's best interest so to do.
(e) All alterations, improvements, additions and Utility
installations (whether or not such Utility Installations constitute trade
fixtures of Lessee) which may be made to the Premises by Lessee, including but
not limited to, floor coverings, panelings, doors. drapes, built -ins, moldings,
sound attenuation, and lighting and telephone or communication systems, conduit,
wiring and outlets, shall be made and done in a good and workmanlike manner and
of good and sufficient quality and materials and shall be the Property of Lessor
and
<PAGE> 14
remain upon and be surrendered with the Premises at the expiration of the Lease
term, unless Lessor requires their removal pursuant to paragraph 7.3(a).
Provided Lessee is not in default, notwithstanding the provisions of this
paragraph 7.3(e), Lessee's personal property and equipment, other than that
which is affixed to the Premises so that it cannot be removed without material
damage to the Premises or the Building, and other than Utility installations,
shall remain the property of Lessee and may be removed by Lessee subject to the
provisions of paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and
specifications for any alterations, improvements, additions or Utility
installations.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building Project,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, security systems, communication systems, and fire protection and
detection systems, so long as such installations do not unreasonably interfere
with Lessee's use of the Premises.
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE--LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Comprehensive
General Liability insurance utilizing an insurance Services Office standard form
with Broad Form General Liability Endorsement (GL0404), or equivalent, in an
amount of not less than $1,000,000 per occurrence of bodily injury and property
damage combined or in a greater amount as reasonably determined by Lessor and
shall insure Lessee with Lessor as an additional insured against liability
arising out of the use, occupancy or maintenance of the Premises. Compliance
with the above requirement shall not, however, limit the liability of Lessee
hereunder.
8.2 LIABILITY INSURANCE--LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage insurance, plus coverage against such other risks
Lessor deems advisable from time to time, insuring Lessor, but not Lessee,
against liability arising out of the ownership, use, occupancy or maintenance of
the Office Building Project in an amount not less than 35,000,000.00 per
occurrence.
8.3 PROPERTY INSURANCE--LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during eh term of this Lease for the benefit of Lessee,
replacement cost fire and extended coverage insurance, with vandalism and
malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 PROPERTY INSURANCE--LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss or
damage to the Office Building Project improvements, but not Lessee's personal
property, fixtures, equipment or tenant improvements, in the amount of the full
replacement cost thereof, as the same may exist from time to time, utilizing
Insurance Services Office standard form, or equivalent, providing protection
against all perils included within the classification of fire, extended
coverage,
<PAGE> 15
vandalism, malicious mischief, plate glass, and such other perils as Lessor
deems advisable or may be required by a lender having a lien on the Office
Building Project. In addition, Lessor shall obtain and keep in force, during the
term of this Lease, a policy of rental value insurance covering a period of one
year, with loss payable to Lessor, which insurance shall also cover all
Operating Expenses for said period. Lessee will not be named in any such
policies carried by Lessor and shall have no right to any proceeds therefrom.
The policies required by these paragraphs 8.2 and 8.4 shall contain such
deductibles as Lessor or the aforesaid lender may determine. In the event that
the Premises shall suffer an insured loss as defined in paragraph 9.1(f) hereof.
The deductible amounts under the applicable insurance policies shall be deemed
an Operating Expense. Lessee shall not do or permit to be done anything which
shall invalidate the insurance policies carried by Lessor. Lessee shall pay the
entirety of any increase in the property insurance premium for the Office
Building Project over what it was immediately prior to the commencement of the
term of this Lease if the increase is specified by Lessor's insurance carrier as
being caused by the nature of Lessee's occupancy or any act or omission of
Lessee.
8.5 INSURANCE POLICIES. Lessee shall deliver to Lessor copies of
liability insurance policies required under paragraph 8.1 or certificates
evidencing the existence and amounts of such insurance within seven (7) days
after the Commencement Date of this Lease. No such policy shall be cancelable or
subject to reduction of coverage or other modification except after thirty (30)
days prior written notice to Lessor. Lessee shall, at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with renewals thereof.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss of damage arising out of or incident to the
perils covered by property insurance carried by such party, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. If necessary all property insurance policies required under this Lease
shall be endorsed to so provide.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor and its
agents, Lessor's master or ground lessor, partners and lenders, from and against
any and all claims for damage to the person or property of anyone or any entity
arising from Lessee's use of the Office Building Project, or from the conduct of
Lessee's business or from any activity, work or things done, permitted or
suffered by Lessee in or about the Premises or elsewhere and shall further
indemnify and hold harmless Lessor from and against any and all claims, costs
and expenses arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, employees or invitees and from and against all costs, attorney's
fees, expenses and liabilities incurred by Lessor as the result of any such use,
conduct, activity, work, things done, permitted or suffered, breach, default or
negligence, and in dealing reasonably therewith, including but not limited to
the defense or pursuit of any claim or any action or proceeding involved
therein; and in case any action or proceeding be brought against Lessor by
reason of any such matter, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified. Lessee, as a material part of the
consideration to Lessor, hereby assumes all risk of damage to property of Lessee
or injury to persons, in, upon or about the Office Building Project arising from
any cause and Lessee hereby waives all claims in respect thereof against Lessor.
<PAGE> 16
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises or the Office Building Project, nor shall Lessor be
liable for injury to the person or Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or from other sources or places, or
from new construction or the repair, alteration or improvement of any part of
the Office Building Project, or of the equipment, fixtures or appurtenances
applicable thereto, and regardless of whether the cause of such damage or injury
or the means of repairing the same is inaccessible, Lessor shall not be liable
for any damages arising from any act or neglect of any other lessee, occupant or
user of the Office Building Project, nor from the failure of Lessor to enforce
the provisions of any other lease of any other lessee of the Office Building
Project.
8.9 NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified in
this paragraph 8 are adequate to cover Lessee's property or obligations under
this Lease.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Damage" shall mean if the Premises are damaged
or destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is less than fifty percent (50%) of the then Replacement
Cost of the Building.
(c) "Premises Building Total Destruction" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is fifty percent (50%) or more of the then Replacement
Cost of the Building.
(d) "Office Building Project Buildings" shall mean all of the
buildings on the Office Building Project site.
(e) "Office Building Project Buildings total Destruction"
shall mean if the Office Building Project Buildings are damaged or destroyed to
the extent that the cost of repair is fifty percent (50%) or more of the then
Replacement Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8. The fact that an Insured Loss has a deductible amount shall not
make the loss an uninsured loss.
(g) "Replacement Cost" shall mean the amount of money
necessary to be spent in order to repair or rebuild the damaged area to the
condition that existed immediately prior to the damage occurring, excluding all
improvements made by lessees, other than those installed by Lessor at Lessee's
expense.
9.2 PREMISES DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
<PAGE> 17
(a) Insured Loss: Subject to the provisions of paragraphs 9.4
and 9.5, if at any time during the term of this Lease there is damage which is
an Insured Loss and which falls into the classification of either Premises
Damage or Premises Building Partial Damage, then Lessor shall, as soon as
reasonably possible and to the extent the required materials and labor are
readily available through usual commercial channels, at Lessor's expense, repair
such damage (but not Lessee's fixtures, equipment or tenant improvements
originally paid for by Lessee) to its condition existing at the time of the
damage, and this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraph 9.4
and 9.5, if at any time during the term of this Lease there is damage which is
not an Insured Loss and which falls within the classification of Premises damage
or Premises Building Partial Damage, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense),
which damage prevents Lessee from making any substantial use of the Premises,
Lessor may at Lessor's option either (i) repair such damage as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after the date of the occurrence of such damage of Lessor's
intention to cancel and terminate this Lease as of the date of the occurrence of
such damage, in which event this Lease shall terminate as of the date of the
occurrence of such damage.
9.3 PREMISES BUILDING TOTAL DESTRUCTION; OFFICE BUILDING PROJECT TOTAL
DESTRUCTION. Subject to the provisions of paragraphs 9.4 and 9.5, if at any time
during the term of this Lease there is damage, whether or not it is an Insured
Loss, which falls into the classifications of either (i) Premises Building Total
Destruction, or (ii) Office Building Project Total Destruction, then Lessor may
at Lessor's option either (i) repair such damage or destruction as soon as
reasonably possible at Lessor's expense (to the extent the required materials
are readily available through usual commercial channels) to its condition
existing at the time of the damage, but not Lessee's fixtures, equipment or
tenant improvements, and this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after the date of the
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease, in which case this Lease shall terminate as of the date of the occurrence
of such damage.
9.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 9.4(b), if at any time during the
last twelve (12) months of the term of this Lease there is substantial damage to
the Premises, Lessor may at Lessor's option cancel and terminate this Lease as
of the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee
has an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such option,
if it is to be exercised at all, no later than twenty (20) days after the
occurrence of an Insured Loss falling within the classification of Premises
Damage during the last twelve (12) months of the term of this Lease. If Lessee
duly exercises such option during said twenty (20) day period, Lessor shall, at
Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option
during said twenty (20) day period, then Lessor may at Lessor's option terminate
and cancel this Lease as of the expiration
<PAGE> 18
of said twenty (20) day period by giving written notice to Lessee of Lessor's
election to do so within ten (10) days after the expiration of said twenty (20)
day period, notwithstanding any term or provision in the grant of option to the
contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Building or
Premises pursuant to the provisions of this paragraph 9, and any part of the
Premises are not usable (including loss of use due to loss of access or
essential services), the rent payable hereunder (including Lessee's Share of
Operating Expenses) for the period during which such damage, repair or
restoration continues shall be abated, provide (1) the damage was not the result
of the negligence of Lessee, and (2) such abatement shall only be to the extent
the operation and profitability of Lessee's business as operated from the
Premises is adversely affected. Except for said abatement of rent, if any,
Lessee shall have no claim against Lessor for any damage suffered by reason of
any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises or the Building under the provisions of this Paragraph 9 and shall not
commence such repair or restoration within ninety (90) days after such
occurrence, or if Lessor shall not complete the restoration and repair within
six (6) months after such occurrence, Lessee may at Lessee's option cancel and
terminate this Lease by giving Lessor written notice of Lessee's election to do
so at any time prior to the commencement or completion, respectively, of such
repair or restoration. In such event this Lease shall terminate as of the date
of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with
any such restoration and repair, including but not limited to the approval
and/or execution of plans and specifications required.
9.6 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for
paying any increase in real property tax specified in the tax assessor's records
and work sheets as being caused by additional improvements placed upon the
Office Building Project by other leases or by Lessor for the exclusive enjoyment
of any other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under
<PAGE> 19
paragraph 4.2(c) the entirety of any increase in real property tax if assessed
solely by reason of additional improvements placed upon the Premises by Lessee
or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Office Building Project or any portion thereof
by any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Office Building Project or in any
portion thereof, as against Lessor's right to rent or other income therefrom,
and as against Lessor's business of leasing the Office Building Project. The
term "real property tax" shall also include any tax, fee, levy, assessment or
charge (i) in substitution of, partially or totally, any tax, fee, levy,
assessment or charge hereinabove included within the definition of "real
property tax," or (ii) the nature of which was hereinbefore included within the
definition of "real property tax," or (iii) which is imposed for a service or
right not charged prior to June 1, 1978, or, if previously charged, has been
increased since June 1, 1978, or (iv) which is imposed as a result of a change
of ownership, as defined by applicable local statutes for property tax purposes,
of the Office Building Project or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such change of
ownership, or (v) which is imposed by reason of this transaction, any
modifications or changes hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the improvements or property, the taxes for
which are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not
separately assessed, Lessee's portion of that tax shall equitably determined by
Lessor from the respective valuations assigned in the assessor's work sheets or
such other information (which may include the cost of construction) as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be
assessed with Lessor's real property, Lessee shall pay to Lessor the taxes
attributable to Lessee within ten (10) days after receipt of a written statement
setting forth the taxes applicable to Lessee's property.
11. UTILITIES.
11.1 SERVICES PROVIDED BY LESSOR. Lessor shall provide heating,
ventilation, air conditioning, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines, water
for reasonable and normal drinking and lavatory use, and replacement light bulbs
and/or fluorescent tubes and ballasts for standard overhead fixtures.
<PAGE> 20
11.2 SERVICES EXCLUSIVE TO LESSEE. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately metered
to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
11.3 HOURS OF SERVICE. Said services and utilities shall be provided
during generally accepted business days and hours of such other days or hours as
may hereafter be set forth. Utilities and services required at other times shall
be subject to advance request and reimbursement by Lessee to Lessor of the cost
thereof.
11.4 EXCESS USAGE BY LESSEE. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power, or suffer or permit any act that causes extra burden upon the
utilities or services, including but not limited to security services, over
standard office usage for the Office Building Project. Lessor shall require
Lessee to reimburse Lessor for any excess expenses or costs that may arise out
of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion,
install at Lessee's expense supplemental equipment and/or separate metering
applicable to Lessee's excess usage or loading.
11.5 INTERRUPTIONS. Thee shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a material
default and breach of this Lease without the need for notice to Lessee under
paragraph 13.1 "Transfer" within the meaning of this paragraph 12 shall include
the transfer or transfers aggregating: (a) if Lessee is a corporation, more than
fifty percent (50%) of the voting stock of such corporation, or (b) if Lessee is
a partnership, more than fifty percent (50%) of the profit and loss
participation in such partnership.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate";
provided that before such assignment shall be effective, (a) said assignee shall
assume, in full, the obligations of Lessee under this Lease and (b) Lessor shall
be given written notice of such assignment and assumption. Any such assignment
shall not, in any way, affect or limit the liability of Lessee under the terms
of this Lease even if
<PAGE> 21
after such assignment or subletting the terms of this Lease are materially
changed or altered without the consent of Lessee, the consent of whom shall not
be necessary.
12.3 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, no assignment or
subletting shall release Lessee of Lessee's obligations hereunder or alter the
primary liability of Lessee to pay the rent and other sums due Lessor hereunder
including Lessee's Share of Operating Expenses, and to perform all other
obligations to be performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such
assignment or subletting, nor the acceptance of rent, shall constitute a waiver
or estoppel of Lessor's right to exercise its remedies for the breach of any of
the terms or conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have been
guaranteed by third parties, then an assignment or sublease, and Lessor's
consent thereto, shall not be effective unless said guarantors give their
written consent to such sublease and the terms thereof.
(e) The consent by lessor to any assignment or subletting
shall not constitute a consent to any subsequent assignment or subletting by
Lessee or to any subsequent or successive assignment or subletting by the
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable on the Lease or sublease and without obtaining
their consent and such action shall not relieve such persons from liability
under this Lease or said sublease; provided, however, such persons shall not be
responsible to the extent any such amendment or modification enlarges or
increases the obligations of the Lessee or sublessee under this Lease or such
sublease.
(f) In the event of any default under this Lease, Lessor may
proceed directly against Lessee, any guarantors or any one else responsible for
the performance of this Lease, including the subleases, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting
of the Premises by Lessee shall not constitute an acknowledgment that no default
then exists under this Lease of the obligations to be performed by Lessee nor
shall such consent be deemed a waiver of any then existing default, except as
may be otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement
relied upon by Lessor in giving its consent to an assignment or subletting was
materially false shall, at Lessor's election, render Lessor's said consent null
and void.
<PAGE> 22
12.4 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING.
Regardless of Lessor's consent, the following terms and conditions shall apply
to any subletting by Lessee of all or any part of the Premises and shall be
deemed included in all subleases under this Lease whether or not expressly
incorporated therein.
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease heretofore
or hereafter made by Lessee, and Lessor may collect such rent and income and
apply same toward Lessee's obligations under this Lease; provided, however, that
until a default shall occur in the performance of Lessee's obligations under
this Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease, Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of the Lessee's obligations to such sublease under
such sublease, Lessee hereby irrevocably, authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a default
exists in the performance of Lessee's obligations under this Lease to pay to
Lessor the rents due and to become due under the sublease. Lessee agrees that
such sublessee shall have the right to rely upon any such statement and request
from Lessor, and that such sublease shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from lessee to the contrary. Lessee
shall have no right or claim against said sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective
unless and until it has been approved in writing by Lessor. In entering into any
sublease, Lessee shall use only such form of sublease as is satisfactory to
Lessor, and once approved by Lessor, such sublease shall not be changed or
modified without Lessor's prior written consent. Any sublessee shall, by reason
of entering into a sublease under this Lease, be deemed, for the benefit of
Lessor, to have assumed and agreed to conform and comply with each and every
obligation herein to be performed by Lessee other than such obligations as are
contrary to or inconsistent with provisions contained in a sublease to which
Lessor has expressly consented in writing.
(c) In the event Lessee shall default in the performance of
its obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublease to attorn to Lessor, in which
event Lessor shall undertake the obligations of Lessee under such sublease from
the time of the exercise of said option to the termination of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to Lessee or for any other prior defaults of
Lessee under such sublease.
(d) No sublessee shall further assign or sublet all or any
part of the Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has
consent, Lessor agrees to deliver a copy of any notice of default by Lessee to
the sublessee. Such sublessee shall have the right to cure a default of Lessee
within three (3) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee.
12.5 LESSOR'S EXPENSES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee
<PAGE> 23
proposes to do then Lessee shall pay Lessor's reasonable costs and expenses
incurred in connection therewith, including attorneys', architects', engineers'
or other consultants' fees.
12.6 CONDITIONS TO CONSENT. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the proposed
assignee or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Office Building Project and not in violation of
any exclusives or rights then held by other tenants, and (b) the proposed
assignee or sublessee be at least as financially responsible as Lessee was
expected to be at the time of the execution of this Lease or of such assignment
of subletting, whichever is greater.
13. DEFAULT; REMEDIES.
13.1 DEFAULT. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacation of abandonment of the Premises by Lessee.
Vacation of the Premises shall include the failure to occupy the Premises for a
continuous period of sixty (60) days or more, whether or not the rent is paid.
(b) The breach of Lessee of any of the covenants, conditions
or provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment
or subletting), 13.1(a) (vacation or abandonment), 13.1(e) (insolvency), 13.1(f)
(false statement), 16(a) (estoppel certificate), 30(b) (subordination), 33
(auctions), or 4.1 (easements), all of which are hereby deemed to be material,
non-curable defaults without the necessity of any notice by Lessor to Lessee
thereof.
(c) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due, where
such failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(d) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee other than those referenced in subparagraphs (b) and (c), above, where
such failure shall continue for a period of thirty (30) days after written
notice thereof from Lessor to Lessee; provided, however, that if the nature of
Lessee's noncompliance is such that more than thirty (30) days are reasonably
required for its cure, then Lessee shall not be deemed to be in default if
Lessee commenced such cure within said thirty (30) day period and thereafter
diligently pursues such cure to completion. To the extent permitted by law, such
thirty (30) day notice shall constitute the sole and exclusive notice required
to be given to Lessee under applicable Unlawful Detainer statutes.
(e) (i) The making by lessee of any general arrangement or
general assignment for the benefit of creditors; (ii) Lessee becoming a "debtor"
as defined in 11 U.S.C. Section101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within sixty
(60) days; (iii) the
<PAGE> 24
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days. In the event that any
provision of this paragraph 13.1(e) is contrary to any applicable law, such
provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given
to Lessor by Lessee, or its successor in interest or by any guarantor of
Lessee's obligation hereunder, was materially false.
13.2 REMEDIES. In the event of any material default or breach of this
Lease by Lessee, Lessor may at any time thereafter, with or without notice or
demand and without limiting Lessor in the exercise of any right or remedy which
Lessor may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender, possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee all damages incurred
by Lessor by reason of Lessee's default including, but not limited to, the cost
of recovering possession of the Premises; expenses of reletting, including
necessary renovation and alternation of the Premises, reasonable attorneys'
fees, and any real estate commission actually paid; the worth at the time of
award by the court having jurisdiction thereof the amount by which the unpaid
rent for the balance of the term after the time of such award exceeds the amount
of such rental loss for the same period that Lessee proves could be reasonably
avoided; that portion of the leasing commission paid by Lessor pursuant to
paragraph 15 applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have vacated or
abandoned the Premises. In such event Lessor shall be entitled to enforce all of
Lessor's rights and remedies under this Lease, including the right to recover
the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located. Unpaid installments of rent and other unpaid monetary obligations
of Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event no later than thirty (30) days after written notice by Lessee to Lessor
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have theretofore been furnished to Lessee in
writing, specifying wherein Lessor has failed to perform such obligation,
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such 30-day period and thereafter
diligently pursues the same to completion.
<PAGE> 25
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Base Rent, Lessee's Share of Operating Expenses or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges, and
late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Office Building Project. Accordingly, if any installment
of Base Rent, Operating Expenses, or any other sum due from Lessee shall not be
received by Lessor or Lessor's designee within ten (10) days after such amount
shall be due, then, without any requirement for notice to Lessee, Lessee shall
pay to Lessor a late charge equal to 6% of such overdue amount. The parties
hereby agree that such late charge represents a fair and reasonable estimate of
the costs Lessor will incur by reason of late payment by lessee. Acceptance of
such late charge by Lessor shall in no event constitute a waiver of Lessee's
default with respect to such overdue amount, nor prevent Lessor from exercising
any of the other rights and remedies granted hereunder.
14. CONDEMNATION. If the Premises or any portion thereof or the Office Building
Project are taken under the power of eminent domain, or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date of the condemning
authority takes title or possession, whichever first occurs; provided that if so
much of the Premises or the Office Building Project are taken by such
condemnation as would substantially and adversely affect the operation and
profitability of Lessee's business conducted from the Premises, Lessee shall
have the option, to be exercised only in writing within thirty (30) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within thirty (30) days after the condemning authority shall
have taken possession), to terminate this Lease as of the date of the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the rent and Lessee's
Share of Operating Expenses shall be reduced in the proportion that the floor
area of the Premises taken bears to the total floor area of the Premises. Common
areas taken shall be excluded from the Common Areas usable by Lessee and no
reduction of rent shall occur with respect thereto or by reason thereof. Lessor
shall have the option in its sole discretion to terminate this Lease as of the
taking of possession by the condemning authority, by giving written notice to
Lessee of such election within thirty (30) days after receipt of notice of a
taking by condemnation of any part of the Premises or the Office Building
Project. Any award for the taking of all or any part of the Premises or the
Office Building Project under the power of eminent domain or any payment made
under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided
however, that Lessee shall be entitled to any separate award for loss of or
damage to Lessee's trade fixtures, removable personal property and unamortized
tenant improvements that have been paid for by Lessee. For that purpose the cost
of such improvements shall be amortized over the original term of this Lease
excluding any options. In the event that this Lease is not terminated by reason
of such condemnation, Lessor shall to the extent of severance damages received
by Lessor in connection with such condemnation, repair any damage to the
premises caused by such condemnation except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall pay any amount in
excess of such severance damages required to complete such repair.
16. ESTOPPEL CERTIFICATE.
<PAGE> 26
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Office Building Project or
of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance, and (iii)
if Lessor is the requesting party, not more than one month's rent has been paid
in advance.
(c) If Lessor desires to finance, refinance. or sell the Office
Building Project, or any pan thereof, Lessee hereby agrees to deliver to any
lender or purchaser designated by Lessor such financial statements of Lessee as
any be reasonably required by such lender or purchaser. Such statements shall
include in past three (3) years' financial statements of Lessee. All such
financial statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a Lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer of such title
or interest. Lessor herein named (and in case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law or judgments from the data due. Payment of such interest
shall not excuse or cure any default by Lessee under this Lease; provide,
however, that interest shall not be payable an late charges incurred by Lessee
nor on any amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations to
be performed under this Lease.
<PAGE> 27
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense and any other expenses payable by Lessee hereunder shall be deemed to be
rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor or any employee or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of the Premises or the Office Building Project and Lessee acknowledges
that Lessee assumes all responsibility regarding the Occupational Safety Health
Act, the legal use and adaptability of the Premises and the compliance thereof
with all applicable laws and regulations in effect during the term of this
Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to Lessee
or to Lessor at the address noted below or adjacent to the signature of the
respective parties, as the case may be. Mailed notices shall be deemed given
upon actual receipt at the address required, or forty-eight hours following
deposit in the mail, postage prepaid, whichever first occurs. Either party may
by notice to the other specify a different address for notice purposes except
that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice purposes. A copy of all notices required
or permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses Lessor may from time to time
hereafter designate by notice to Lessee
24. WAIVERS. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to or approval of any
subsequent act by Lessee. The acceptance of rent hereunder by Lessor shall not
be a waiver of any preceding breach by Lessee of any provision hereof, other
than the failure of Lessee to pay the particular rent so accepted, regardless of
Lessor's knowledge of such preceding breach at the time of acceptance of such
rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. It Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof,. such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, except that the rent payable
shall be two hundred percent (200%) of the rent payable immediately preceding
the termination data of this Lease, and all Options,. it any, granted under the
terms of this Lease shall be deemed terminated and be of no further effort
during said month to month tenancy.
<PAGE> 28
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shell, whenever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by Lessee
shall be deemed a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAWS. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraph
17, this Lease shall bind the parties, their personal representatives,
successors or assigns. This Lease shall be governed by the laws of the State
where the Office Building Project is located and any litigation concerning this
Lease between the parties hereto shall be initiated in the county in which the
Office Building Project is located.
30. Subordination.
(a) This Lease, and any Option or right of first refusal granted
hereby, at Lessor's option, shall be subordinate to any ground lease, mortgage,
deed of trust, or any other hypothecation or security now or hereafter placed
upon the Office Building Project and to any and all advances made on security
thereof and to all renewals, modifications, consolidations, replacements and
extensions thereof. Notwithstanding such subordination, Lessee's right to quiet
possession of the Premises shall not be disturbed if Lessee is not in default
and so long as Lessee shall pay the rent and serve and perform all of the
provisions of this Lease, unless this Lease is otherwise terminated pursuant to
its terms. If any mortgagee, trustee or ground Lessor shall elect to have this
Lease and any Options granted hereby prior to the lien of its mortgage, deed of
trust or ground lease, and shall give written notice thereof to Lessee, this
Lease and such Options shall be deemed prior to such mortgage, deed of trust or
ground lease, whether this Lease or such Options are dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be, Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessee shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 28(b).
31. Attorney's Fees.
31.1 If either party or the broker(s) named herein bring on action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the
same or a separate suit, and whether or not such action is pursued to decision
or judgment. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
<PAGE> 29
31.2 The attorneys' fee award shall not be computed in accordance with
any court fee schedule, but shall be such as to fully reimburse all attorneys'
fees reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all
other costs and expense incurred in the preparation and service of notices of
fault and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such default.
32. LESSOR'S ACCESS.
32.1 Lessor and Lessor's agents shall have the right to enter the
Premises at reasonable times for the purpose of inspecting the same, performing
the services required of Lessor, showing the same to prospective purchasers,
lenders, or Lessees, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project Lessor, may
reasonably deemed necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the premises and/or other
premises as long as there is no material adverse effect to Lessee's use of the
Premises. Lessor may at any time place on or about the Premises or the Building
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Premises any ordinary "For Lease"
signs.
32.2 All activities of Lessor pursuant to this paragraph shall be
without abatement of rent, nor shall Lessor have any liability to Lessee for the
same.
32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to file, vaults and safes,
in the case of emergency to enter the Premises by any reasonably appropriate
means, and any such entry shall not be deemed a forceable or lawful entry or
detainer of the Premises or an eviction. Lessee waives any charges for damages
or injuries or interference with Lessee's property business in connection
therewith.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated exercise
any standard of reasonableness in determining whether to grant such consent. The
holding of any auction on the Premises or Common Areas in violation of this
paragraph shall constitute a material default of this Lease.
34. SIGNS. Lessee shall be entitled to install an illuminated sign, at its sole
cost and expense, on the exterior of the Building provided that (a) the size,
design, materials and color are all reasonably acceptable to Lessor and are
consistent with exterior signage found on other first class office buildings;
and (b) any such signage complies with all applicable governmental rules,
regulations and restrictions. Lessee shall not place any other sign upon the
exterior of the Premises or the Office Building Project without Lessor's prior
written consent. Under no circumstances shall Lessee place a sign on any roof of
the Office Building Project.
<PAGE> 30
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or any, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. CONSENTS. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder. Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Office Building Project.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessees has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within the
Office Building Project or other property of Lessor; (3) the right or option to
purchase the Premises or the Office Building Project, or the right of first
refusal to purchase the Premises or the Office Building Project or the right of
first offer to purchase the Premises or the Office Building Project, or the
right or option to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor or the right of first offer to
purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee; provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
options to extend or renew this Lease a later option cannot be exercised unless
the prior option to extend or renew this Lease has been so exercised.
<PAGE> 31
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i) during
the time commencing from the date Lessor gives to Lome a notice of default
pursuant to paragraph 13.1(c) or 13.1(d) and continuing until the noncompliance
alleged in said notice of default is cured, or (ii) during the period of time
commencing on the day after a monetary obligation to Lessor is due from Lessee
and unpaid (without any necessity for notice thereof to Lessee) and continuing
until the obligation is paid, or (iii) in the event that Lessor has given to
Lessee three or more notices of default under paragraph 13.1(c), or paragraph
13.1(d), whether or not the defaults are cured, during the 12 month period of
time immediately prior to the time that Lessee attempts to exercise the subject
Option, (iv) if Lessee has committed any non-curable breach, including without
limitation those described in paragraph 13.1(b), or is otherwise in default of
any of the terms, covenants or conditions of this Lease.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 13.1(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation at Lessee
for a period of thirty (30) days after such obligation becomes due without any
necessity of Lessor to give notice thereof to Lessee), or Lessee fails to
commence to cure a default specified in paragraph 13.1(d) within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, (iii)
Lessor gives to Lessee three or more notices of default under paragraph 13.1(c),
or paragraph 13.1(d), whether or not the defaults are cured, or (iv) if Lessee
committed any non-curable breach, including without limitation those described
in paragraph 13.1(b), or is otherwise in default of any of the terms, covenants
and conditions of this Lease.
40. SECURITY MEASURES - LESSOR'S RESERVATIONS.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole
discretion, from providing security protection for the Office Building Project
or any part thereof, in which event the cost thereof shall be included within
definition of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office
Building Project or building in which the Premises are located upon not less
than 90 days prior written notice;
(b) To, all Lessee's expense, provide and install Building
standard graphics on the door of the Premises and such portions of the Common
Areas as Lessor shall reasonably deem appropriate;
<PAGE> 32
(c) To permit any Lessee the exclusive right to conduct any
business as long as such exclusive does not conflict with any rights expressly
herein;
(d) To place such signs, notices or displays as Lessor
reasonably deems necessary or advisable upon the roof, exterior of the buildings
or Office Building Project or on pole signs in the Common Areas.
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the
Building or the Office Building Project or their name(s) in connection with
Lessee's business;
(b) Suffer or permit anyone, except in emergency, to go upon
the roof of the Building.
41. EASEMENTS.
41.1 Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and are to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
43. AUTHORITY. It Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity, represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. CONFLICT. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten provisions, it any, shall be controlled by the
typewritten or handwritten provisions.
<PAGE> 33
45. NO OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
46. LENDER MODIFICATION. Lessee agrees to make such reasonable modifications to
this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
47. MULTIPLE PARTIES. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein,
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
48. WORK LETTER. This Lease is supplement by that certain Work Letter of even
date executed by Lessor and Lessee attached hereto as Exhibit C incorporated
herein by this reference.
49. HAZARDOUS WASTE AND MATERIALS. Lessee shall not engage in any activity on or
about the Building or the Premises that violates any Environmental Law and shall
promptly, at Lessee's sole cost and expense, take all investigatory and/or
remedial action required or ordered by any governmental agency or Environmental
Law for cleanup and removal of any contamination involving any Hazardous
Materials created or caused directly or indirectly by Lessee. All costs of the
cleanup and removal of contamination within the Office Building Project created
or caused directly or indirectly by Lessor shall be paid for by Lessor. No cost
of cleanup and removal of contamination by Lessor, Lessee or any third party
shall be included as an Operating Expense. The term "Environmental Law" shall
mean any federal, state or local law, statute, ordinance or regulation
pertaining to health, industrial hygiene or the environmental conditions on,
under or about the Premises, including without limitation (i) the Comprehensive
Environmental Response Compensation and Liability Act of 1980 ("CERCLAR"), 42
U.S.C. Sections 9601 et seq.; (ii) the Resource Conservation and Recovery Act of
1976 ("RCRA") , 42 U.S.C. Sections 6901 et seq.; (iv) the Safe Drinking Water &
Toxic Enforcement Act of 1986, California Health & Safety Code Section 25249.5
et seq.; (v) The Federal Water Pollution Control Act, 33 U.S.C. Sections 1317 et
seq.; (vi) California Water Code Section 1300 et seq.; and (vii) California
Civil Code Section 3479 et seq., as such laws are amended and supplemented and
the regulations and administrative codes applicable thereto. The term "Hazardous
Materials" includes, without limitation, any material or substance which is (i)
defined or listed as a "hazardous waste", "extremely hazardous waste",
"restrictive hazardous waste" or "hazardous substance or considered a waste,
condition or pollution or nuisance under the Environmental Law; (ii) petroleum
or a petroleum product or fraction thereof; (iii) asbestos; and/or (iv)
substances known by the State of California to cause cancer and/or reproductive
toxicity. It is the intent of the parties hereto to construe the term "hazardous
materials" and "Environmental Laws" in their broadest sense. Lessee shall
provide all notices required pursuant to the Safe Drinking Water and Toxic
Enforcement Act of 1986, California Health & Safety Code Section 25249.5 et seq.
Lessee shall provide prompt written notice to Lessor of the existence of
hazardous substances on the Building or the Premises and all notices of
violation of the Environmental Laws received by Lessee.
50. GUARANTEES. Lessee's performance under this Lease shall be guaranteed by the
following individuals: Dr. Y.L. Wang, N. Fred Brannock and Vincent S. Verneuil.
Guarantees shall be executed in the form of Guaranty of Lease attached hereto as
Exhibit "D".
<PAGE> 34
51. EXHIBITS. The following exhibits are attached hereto and made a part hereof:
Exhibit "A" - Floor Plans Depicting Premises
Exhibit "A-1" - Legal Description of Premises
Exhibit "B" - Rules and Regulations
Exhibit "C" - Work Letter
Exhibit "D" - Guaranty of Lease
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THE
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR
SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL NO REPRESENTATION
OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL
ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS
OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING
THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF
THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES
OF THIS LEASE.
<TABLE>
<S> <C>
LESSOR LESSEE
A PARTNERS, a joint venture
The Betty L. Hutton Company, a SIMULATION SCIENCES, INC.
- -------------------------------------------- ----------------------------------------
California corporation general partner a California corporation
By: /s/ THOMAS C. PARKER By: /s/ N. FRED BRANNOCK
----------------------------------------- -------------------------------------
Its: PRESIDENT Its: VICE PRESIDENT
----------------------------------- -----------------------------
By:
- -------------------------------------------- -------------------------------------
Its: Its:
------------------------------------ ------------------------------
Executed at The Betty L. Hutton Company Executed at Simulation Sciences, Inc.
</TABLE>
<PAGE> 35
September 28, 1992 on September 24, 1992
- ------------------------------------------ -------------------------------
Address: 2524 N. Santiago Boulevard Address: 1051 W. Bastanchury Rd.
-------------------------------- -----------------------
Orange, CA 92667 Fullerton, CA
-------------------------------- -----------------------
4 American Industrial Real Estate Association
FULL SERVICE - NET
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are
utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 345 So. Figueroa St., M-1, Los Angeles, CA 90071, (212)
687-8777.
<PAGE> 36
EXHIBIT "A"
FLOOR PLANS DEPICTING PREMISES
<PAGE> 37
EXHIBIT "A-1"
LEGAL DESCRIPTION OF PREMISES
ALL THAT CERTAIN LAND SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF
ORANGE, CITY OF BREA, DESCRIBED AS FOLLOWS:
PARCEL 1, AS SHOWN ON A MAP FILED IN BOOK 188, PAGES 34 TO 36 INCLUSIVE
OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
EXCEPT ALL MATERIALS, OIL, NATURAL GAS AND OTHER HYDROCARBON
SUBSTANCES, BUT WITHOUT THE RIGHT OF SURFACE ENTRY UPON THE TOP 500 FEET
THEREOF, AS RESERVED IN THE DEED FROM TIDEWATER OIL COMPANY, A CORPORATION,
RECORDED JULY 31, 1993 IN BOOK 6655, PAGE 397, OFFICIAL RECORDS.
<PAGE> 38
EXHIBIT "B"
RULES AND REGULATIONS FOR
STANDARD OFFICE LEASE
Dated , 1992
By and Between BREA PARTNERS AND SIMULATION SCIENCES INC.
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common Areas,
including driveway and walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in good
faith judges to be a threat to the safety, reputation, or property of the Office
Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or interfere
with other issues or persons having business within the Office Building Project.
4. Lessee shall not keep animals or birds within the Office Building Project,
and shall not bring bicycles, motorcycles or other vehicles into are not
designated as authorized for same.
5. Lessee shall not make, suffer or permit lifter except in appropriate
receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks or bolls.
7. Lessee shalt be responsible for the inappropriate use of any toilet rooms.
plumbing or other utilities. No foreign substances of any kind are to be
inserted therein.
8. Lessee shall not deface the wells, partitions or other surfaces of the
Premises or Office Building Project.
9. Lessee shall not suffer or permit any thing in or around the Premises or
Building that causes excessive vibration or floor loading in any part of the
Office Building Project.
10. Furniture, significant freight and equipment shall be moved into or out of
the building only with the Lessor's knowledge and consent, and subject to such
reasonable limitations, techniques and timing, as may be designated by Lessor.
Lessee shall be responsible for any damage to the Office Building Project
arising from any such activity.
11 Lessee shall not employ any service or contractor for services or work to be
performed in the Building. except as approved by Lessor.
<PAGE> 39
12. Lessor reserves the right lo close and lock the Building on Saturdays,
Sundays and legal holidays. and on other days between the hours of 6:00 PM. and
8:00 A.M. of the following day. If Lessee uses the Premises during such periods,
Lessee shall be responsible for securely locking any doors it may have opened
for entry.
13. Lessee shall return all keys at the termination of its tenancy and shall be
responsible for the cost of replacing any keys that are lost.
14. NO window coverings, shades or awnings shall be installed or used by Lessee
on the exterior of the Building.
15. No Lessee, employee or invites shall go upon the roof of the Building.
16. Lessee shall not suffer or permit smoking or carrying of lighted cigars or
cigarettes in areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.
17. Lessee shall not use any method of heating or air conditioning other than as
provided by Lessor.
18. Lessee shall not install, maintain or operate any vending machines upon the
Premises without Lessor's written Consent.
19. The Premises shall not be used for lodging or manufacturing, cooking or food
preparation, except for kitchen areas incidental to the primary office use.
20. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any applicable governmental agency.
21. Lessor reserves the right to waive any one of these rules or regulations,
and/or as to any particular Lome, and any such waiver shall not constitute a
waiver of any other rule or regulation or any subsequent application thereof to
such Lessee.
22. Lessee assumes all risks from them or vandalism and agrees to keep its
Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants. Lessee
agrees to abide by these and such rules and regulations.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer than full
size, passenger automobiles herein called "Permitted Size Vehicles". Vehicles
other than Permitted Size Vehicles are herein referred to as "Oversized
Vehicles."
<PAGE> 40
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employee, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessor for such activities.
3. Parking stickers or identification devices shall be the property of Lessor
and be returned to Lessor by the holder thereof upon termination of the holder's
parking privileges. Lessee will pay such replacement charge as is reasonably
established by Lessor for the loss of such devices.
4. Lessor reserves the right to refuse the sale of monthly identification
devices to any person or entity that willfully refuses to comply with the
applicable rules. regulations, laws and/or agreements.
5. Users of the parking area will obey all posted signs and park only in the
areas designated for vehicle parking.
6. Unless otherwise instructed, every person using the parking area is required
to park and lock his own vehicle. Lessor will not be responsible for any damage
to vehicles, injury to persons or loss of property, all of which risks are
assumed by the party using the parking area.
7. Validation, if established, will be permissible only by such method or
methods as Lessor and/or its licensee may establish at rates generally
applicable to visitor parking.
8. The maintenance, washing, waiting or cleaning of vehicles in the parking
structure or Common Areas is prohibited.
9. Lessee shall be responsible for seeing that all of its employees, agents and
invitees comply with the applicable parking rules and regulations as it may deem
necessary for the proper operation of the parking area.
10. Lessor reserves the right to modify these rules and/or adopt such other
reasonable and non-discriminatory rules and regulations as it may deem necessary
for the proper operation of the parking area.
11. Such parking use as is herein provided is intended merely as a license only
and no bailment is intended or shall be created hereby
<PAGE> 41
WORK LETTER
This Agreement supplements the Lease dated September 1, 1992, executed
concurrently herewith by BREA PARTNERS, a joint venture, as Lessor and
SIMULATION SCIENCES INC., a California corporation, as Lessee. Capitalized terms
used in this Work Letter that are defined in the Lease shall have the same
definition as that provided for in the Lease.
1. Within sixty (60) days of the date of this Lease, Lessee shall
submit to Lessor's architect two (2) sets of working plans and specifications
prepared by Lessee's licensed architect, at Lessee's expense, setting forth the
improvements (the "Interior Improvements") which Lessee desires to have made to
the interior of the First Floor Premises and the Second Floor Premises. The
Interior Improvements shall include, without limitation, all utility
installations, partitions, heating, ventilation and air conditioning ducts and
outlets, telephone and electrical wall outlets, dropped ceilings, light
fixtures, floor coverings, window coverings, dry wall on perimeter walls, doors
and frames, fire sprinkler system, hardware and other fixtures reasonably
required for Lessee's use and occupancy of the Premises for office purposes.
Lessee represents that said plans and specifications for the Interior
Improvements shall comply with all applicable building laws and all laws,
ordinances, orders, rules, regulations and requirements of all governmental
authorities having jurisdiction thereof. Lessor agrees to indicate its approval
or disapproval of the plans and specifications for the Interior improvements
within ten (10) days of its architect's receipt of the same and further agrees
not to unreasonably withhold its approval. Such approval by Lessor shall not be
deemed to constitute approval as to compliance of such plans and specifications
with governmental laws, ordinances, orders, rules, regulations and requirements
or as to structural integrity or suitability for Lessee's intended purposes. In
the event that Lessor disapproves of the said plans and specifications, Lessor
shall provide Lessee with a specification of the modifications required by
Lessor for Lessor's approval, within said ten (10) day period, and Lessee shall
cause the plans and specifications to be appropriately modified, and resubmit
the same to Lessor within ten (10) days of its receipt of the required
modifications, for approval by Lessor. The provisions of this paragraph with
respect to notice, time for and method of performance shall also apply to any
revised plans and specifications. Neither Lessor nor Lessee shall act
arbitrarily or unreasonably in connection with the approval and/or revision of
the said plans and specifications.
2. Upon approval of the plans and specifications for the Interior
Improvements, Lessor agrees to obtain at least two (2) bids from reputable
general contractors for the construction of the interior improvements, unless
Lessee approves of a negotiated bid, which approval shall not unreasonable be
withheld. Lessee shall have the right, for a period of fifteen (15) days
following the approval of the plans and specifications for the Interior
Improvements, to suggest up to two (2) additional general contractors to be
added to Lessor's bid list, by giving written notice of such contractors to
Lessor within said fifteen (15) day period. Any such general contractor
suggested by Lessee shall be added to Lessor's bid list, provided that the
contractor is a reputable contractor with a bonding capacity sufficient for the
proposed work of improvement. Except for good cause, Lessor shall award the
contract to the low bidder, pursuant to a construction contract, in a form
approved by Lessor, which contract shall require the contractor to provide a
standard performance labor and material bond in a penal sum equal to the
contract sum. Upon request from Lessor, Lessee shall provide copies of the
approved plans and specifications sufficient for bidding and construction
purposes.
<PAGE> 42
3. In the event that the "costs of construction", as defined
hereinbelow, exceed or will exceed the sum of EIGHT HUNDRED THOUSAND DOLLARS
($800,000.00), Lessee agrees to pay to Lessor a sum in cash equal to such excess
amount as is hereinafter provided. The "costs of construction" shall include
costs for all of the following items:
(a) All sums paid or to be paid by Lessor to the general
contractor selected pursuant to Paragraph 3 above for the construction
of the Interior improvements;
(b) Fees, permits, licenses, inspections and certificates,
including, without limitation, building and plan check fees required in
connection with the construction of the Interior Improvements by any
governmental authority, not included in (a) above;
(c) Changes in the approved plans and specifications of the
Interior Improvements if requested by either party and approved by the
other party, or required by governmental authorities or to conform to
the drawings and specifications described in the attached Exhibit "1",
including architect's fees and additional costs resulting from change
orders;
(d) Architect's fees incurred by Lessor in connection with the
review of the plans and specifications for and the supervision of
construction of the interior improvements; and
(e) A sum equal to Lessee's architectural fees for the
preparation of the plans and specifications for the Interior
Improvements and copies of plans and specifications provided for
bidding and construction purposes, which sum shall be paid to Lessee or
to Lessee's architect upon the commencement of the construction of the
Interior Improvements and receipt from Lessee of reasonable supportive
evidence of the amount of such costs and, unless payment is made to
Lessee's architect, of payment thereof by Lessee, Lessor may require an
unconditional final mechanic's lien release from Lessee's architect as
a condition to any such payment.
Prior to letting the construction contract for the Interior Improvements
pursuant to Paragraph 3 above, Lessor may, in the event that the costs of
construction described in (d) above theretofore incurred by Lessor, plus those
to be incurred or reasonably estimated to be incurred under (a), (b) and (e)
above exceed EIGHT HUNDRED THOUSAND DOLLARS ($800,000.00), require that Lessee
pay to Lessor a sum equal to the amount of such excess. Any additional excess of
the costs of construction over said sum resulting from Lessor's incurring or
having to incur other costs of construction shall be paid to Lessor upon demand.
4. If Lessee shall request any change, addition or alteration in
approved plans and specifications for the Interior Improvements prior to the
completion of the Interior improvements and such change, addition or alteration
is approved by Lessor (which approval shall not be unreasonably withheld),
Lessor shall promptly give Lessee a written estimate of the maximum cost of
engineering and design services to prepare working drawings in accordance with
such request. If Lessee approves such estimate in writing, Lessor shall have
such working drawings prepared, at Lessee's expense, as provided in Paragraph 3
above. Promptly upon completion of such working drawings, Lessor shall notify
Lessee in writing of the cost which will be chargeable to Lessee by reason of
such change, addition or alteration. Lessee shall within three (3) business days
notify Lessor in writing
<PAGE> 43
whether it desires to proceed with such change, addition or alteration. Lessee
shall be deemed to have elected not to proceed with such change, addition or
alteration if such written authorization is not received by Lessor within such
three (3) day period. If Lessee elects to proceed with such change, alteration
or addition, Lessee notice of such election shall be accompanied by the payment
of any sums payable under Paragraph 3 above by reason of such change, alteration
or addition. Lessor shall not be obligated to postpone or delay work on the
Interior Improvements by reason of any such request by Lessee for a change,
alteration or addition to the, work, but Lessor may do so, at Lessor's option,
while such request is being processed for approval, if Lessee so requests, but,
in such event, Lessee shall be charged with any damages incurred by Lessor
resulting from such delay, including, without limitation, rental loss resulting
from such delay.
5. Following the award of the construction contract for the Interior
Improvements, Lessor shall commence and shall thereafter diligently prosecute to
completion the construction of the Interior Improvements pursuant to the
approved plans and specifications. Lessor's commencement and completion of such
construction shall be subject to delays resulting from the acts of Lessee, Acts
of God, action of the elements, war, invasion, insurrection, acts of a public
enemy, riot, mob violence, civil commotion, sabotage, labor disputes, inability
to procure or general shortage of labor, materials, facilities, equipment or
supplies on the open market, failure of or delay in transportation, laws, rules,
regulations or orders of governmental or military authorities, or any other
causes beyond the reasonable control of Lessor, whether similar or dissimilar to
the foregoing, financial liability excepted.
6. If the substantial completion of the Interior Improvements is
delayed by Lessee's failure to comply with the foregoing provisions
(notwithstanding Lessor's election to extend any time for the performance of any
act by Lessee), or by changes to the Interior Improvements ordered by Lessee,
then Lessee shall be chargeable with any loss incurred by Lessor resulting from
such delay, including, without limitation, rental loss resulting from a delay in
the commencement of the term of this Lease. The work to be done by Lessor
pursuant to this Work Letter shall be deemed to have been substantially
completed when the Interior Improvements and the public areas of the Building
reasonably required for Lessee's use of Lessee's Premises are suitable for
occupancy for their intended purposes, notwithstanding that minor corrections or
additions remain to be completed which will not interfere with the reasonable
use and occupancy of Lessee's Premises.
7. Lessor shall notify Lessee, upon Lessee's request, of the then
current estimated completion date for Lessor's construction of any Interior
improvements within the Premises. Lessor shall notify Lessee, immediately prior
to substantial completion of the Interior Improvements to arrange a walk-through
by Lessee to identify any additional work (hereinafter "Punchlist Items") which
may need to be completed for final completion of the Interior Improvements in
accordance with the approved plans. Lessee may also notify Lessor up to thirty
(30) days following the Commencement Date for the affected portion of the
Premises, of any additional Punchlist Items. Lessor shall cause the contractor
to promptly complete all Punchlist Items timely identified by Lessee.
Thereafter, Lessor shall repair, at its expense, only those defects, if any, in
the Building or the Premises which constitute latent defects.
8. If the costs of construction of the initial Interior Improvements
are less than EIGHT HUNDRED THOUSAND DOLLARS ($800,000.00), then Lessor agrees
to make the balance of such allowance available to Lessee, from time to time, to
pay the costs of construction of additional Interior Improvements to the
Premises
<PAGE> 44
in general accordance with the process outlined in this Work Letter. The Base
Rent shall be adjusted in accordance with Section 1.6 following each subsequent
expenditure by Lessor pursuant to this Paragraph 8.
IN WITNESS WHEREOF, the undersigned have executed this Work Letter
concurrently with the execution of the said Lease.
SIMULATION SCIENCES INC., BREA PARTNERS,
a California corporation a joint venture
By: /s/ N. Fred Brannock By: The Betty L. Hutton Company
------------------------- a California corporation,
Its: Vice President general partner
--------------------
By: By: /s/ Thomas C. Parke
------------------------ -------------------------------
Its: Its: General Partner, President
--------------------- -------------------------------
"Lessee" "Lessor"
<PAGE> 45
EXHIBIT "1"
DRAWINGS AND SPECIFICATIONS
[To be attached]
<PAGE> 46
EXHIBIT "D"
GUARANTY OF LEASE
THIS GUARANTY OF LEASE (this "Guaranty") dated for reference purposes
as of September _, 1992, is entered into by DR. Y.L. WANG, N. FRED BRANNOCK and
VINCENT S. VERNEUIL (collectively "Guarantor") in favor of BREA PARTNERS, a
joint venture ("Lessor"), with reference to the following facts:
A. Lessor and Simulation Sciences Inc., a California corporation
("Lessee") have or will be entering into that certain Lease of even date
herewith ("Lease") wherein Lessor will lease to Lessee those certain premises in
the City of Brea, County of Orange, State of California, commonly known as 601
South Valencia Avenue, Suites 100, 109, 208, 250 and 295, Brea, California
("Premises").
B. Lessor requires as a condition to its execution of the Lease that
Guarantor guarantees the full performance of the obligations of Lessee under the
Lease, and Guarantor acknowledges that Lessor would not execute the Lease if
Guarantor did not execute and deliver to Lessor this Guaranty.
C. Guarantor has a financial interest in Lessee and is desirous that
Lessor enter into the Lease with Lessee.
NOW, THEREFORE, in consideration of the execution by Lessor of the
Lease, the performance of the terms thereof by Lessor, the reliance of Lessor in
this Guaranty, and as a material inducement to Lessor to execute the Lease,
Guarantor does hereby, jointly and severally, independently of the obligations
of Lessee, unconditionally and irrevocably guarantee the prompt performance by
Lessee of each and every term, condition and covenant of the Lease to be
performed by Lessee, including but not limited to, the prompt payment of all
rentals and other sums payable by Lessee under the Lease.
Guarantor further agrees as follows:
1. This is a continuing guaranty which shall remain in effect
throughout the term of the Lease, including the period of any renewals,
extensions or holding over, except as otherwise specifically provided in
Paragraph 9 below. This Guaranty shall continue in favor of Lessor
notwithstanding any extension, modification, or alteration of the Lease entered
into by and between Lessor and Lessee, or their successors or assigns, or
notwithstanding any assignment of the Lease, with or without the consent of
Lessor, and no extension, modification, alteration or assignment of the Lease
shall in any manner release or discharge Guarantor hereunder. Guarantor
authorizes Lessor, without notice or demand, from time to time, in its absolute
discretion, and without prejudice to or in any way affecting, limiting or
lessening the liability of Guarantor hereunder, to (a) modify, amend,
supplement, or renew the Lease even where such action shall increase the
liability of Guarantor hereunder; (b) compromise, grant extensions of time or
other indulgences, accelerate, modify, discharge, release any party or parties,
or otherwise change the time for payment of any rents or other sum due by the
terms of the Lease, or any of the other obligations of Lessee as provided
therein, (c) take and hold security for the performance of the Lease or this
Guaranty, and exchange, enforce, waive and release any such security; and (d)
<PAGE> 47
apply such security and direct the order of manner of sale thereof as Lessor in
its discretion may determine. This Guaranty shall not be released, modified or
affected by the failure or delay on the part of Lessor to enforce any of the
rights or remedies of the Lessor under the Lease, whether pursuant to the terms
thereof or at law or in equity.
2. Guarantor waives (a) notice of any demand by Lessor; (b) any notice
of default by Lessee in the payment of rent or other sums under the Lease or in
the performance of any other obligations contained or reserved in the Lease; (c)
all presentments, demands for performance, notices of non-performance, protests,
notices of protest, notices of dishonor, notice of sales; (d) notices of
acceptance of this Guaranty and of the existence, creation, or incurring of new
or additional indebtedness; and (e) all right to assert or plead any statute of
limitations as to or relating to this Guaranty and the Lease.
3. The liability of Guarantor under this Guaranty shall be primary.
Guarantor waives any right to require Lessor, in any right of action which may
accrue to Lessor under the Lease, or otherwise, to (a) proceed against Lessee,
its successor, assignee or subtenant; (b) proceed against or exhaust any
security held from Lessee, its successor, assignee or subtenant; or (c) pursue
any other remedy in Lessor's power whatsoever.
4. Separate action or actions may be brought and prosecuted against
Guarantor whether action is brought and prosecuted against Lessee or any
successor or assignee of Lessee, or whether Lessee, or any successor or assignee
be joined in any such action or actions. Guarantor may be joined in any action
with any of the foregoing parties.
5. This Guaranty will continue unchanged by any bankruptcy,
reorganization or insolvency of Lessee or any successor assignee thereof or by
any disaffirmance or abandonment by a trustee of Lessee. Guarantor waives any
defense arising by reason of any disability or other defense of Lessee or by
reason of the cessation from any cause whatsoever of the liability of Lessee.
6. Until all indebtedness or other obligations of Lessee to Lessor
shall have been paid in full, Guarantor shall have no right of subrogation, and
waives any right to enforce any remedy which Lessor now has or may hereafter
have against Lessee, and waives any benefit of, and any right to participate in
any security now or hereafter held by Lessor.
7. The terms and provisions of this Guaranty shall be binding upon and
inure to the benefit of the respective successors and assigns of the parties
herein named. Lessor may without notice assign this Guaranty in whole or in
part, and no assignment or transfer of the Lease shall operate to extinguish or
diminish the liability of Guarantor hereunder. Upon any transfer or sale of the
subject real property, or the assignment of the Lease, or upon the transfer of
the Lease by will or inheritance or otherwise by law, this Guaranty shall pass
to and may be enforced by any such transferee, it being the intention of Lessor
that this Guaranty has a marked effect on the future value of the Lease.
8. Within ten (10) days after request therefor by Lessor, or in the
event that upon any sale, assignment or hypothecation of the Premises or the
land thereunder by Lessor, an estoppel certificate and/or financial statement
shall be requested of Guarantor, Guarantor agrees to deliver such financial
statement and such
<PAGE> 48
estoppel certificate (in recordable form if required by Lessor) addressed to any
such proposed mortgagee or purchaser and/or to the Lessor certifying the
requested information, including among other things the date of commencement and
termination of the Lease, the amounts of security deposits thereunder, if any,
and that the Lease and this Guaranty are in full force and effect (if such be
the case) and that there are no defaults, off sets or defaults of Lessor or
Lessee, or noting such defaults, of sets or defaults as actually exist.
Guarantor shall be liable for any loss or liability resulting from any incorrect
information certified, and such mortgagee and purchaser shall have the right to
rely on such estoppel certificate and financial statement.
9. Notwithstanding anything to the contrary contained in this Guaranty,
the maximum liability of Guarantor under this Guaranty (exclusive of costs of
collection, including, without limitation, attorneys' fees) shall be the amount
("Maximum Liability") by which the "Unreturned Contributed Capital" invested by
the Betty L. Hutton Company as a joint venture partner of Lessor exceeds
$3,100,000.00 on the date when Lessee has failed to cure a material default
under the Lease following receipt of written notice of such default from Lessor
and the lapse of the applicable grace period, if any. Guarantor's liability for
payment of attorneys' fees and costs of collecting any amounts owing under this
Guaranty shall not be limited by this provision.
10. If Lessee is a corporation, it is not necessary for Lessor to
inquire into the corporate powers of Lessee or the officers, directors or agents
acting or purporting to act on Lessee's behalf, and any indebtedness made or
created in reliance upon the professed exercise of such powers shall be
guaranteed hereunder.
11. Guarantor agrees to pay attorneys' fees and all other costs and
expenses which may be incurred by Lessor in the enforcement of or attempt to
enforce this Guaranty or the obligations guaranteed hereby, whether by action at
law or otherwise. If Lessor shall retain an attorney as a result of a default
hereunder or under the Lease, even if legal proceedings are not commenced,
Lessor shall be entitled to recover its reasonable attorneys, fees and all other
costs and expenses from Guarantor.
12. Guarantor hereby agrees that the State of California is the proper
jurisdiction for litigation of any matters relating to said Lease and Guaranty,
and service mailed to the address of Lessee set forth in said Lease shall be
adequate service for such litigation.
13. All married persons who sign as Guarantor hereby expressly agree
recourse may be had against his or her separate property for all obligations
under this Guaranty.
14. In all cases where there is more than one (1) Guarantor, the word
Guarantor shall mean all and any one or more of them. If there is more than one
Guarantor, the liability of each Guarantor under this Guaranty is joint and
several. , In such event Lessor may in its sole and absolute discretion proceed
against any one or more Guarantor without any obligation to proceed against all
Guarantors.
<PAGE> 49
IN WITNESS WHEREOF, Guarantor has caused this Guaranty of Lease to be
executed as of the date set forth on Page 1 of this Guaranty.
DR. Y. L. WANG
N. FRED BRANNOCK
VINCENT S. VERNEUIL
"GUARANTOR"
<PAGE> 1
Exhibit 10.10
STOCK PURCHASE AND INVESTMENT AGREEMENT
THIS STOCK PURCHASE AND INVESTMENT AGREEMENT (this "Agreement") is made
and entered into as of this 17th day of December, 1993 by and among SIMULATION
SCIENCES INC., a California corporation (the "Company"), the persons named as
Party Shareholders in Exhibit "A" hereto (the "Party Shareholders") and NORTHERN
TRUST BANK OF CALIFORNIA, N.A. as Trustee of the Simulation Sciences Inc.
Employee stock Ownership Plan and Money Purchase Pension Plan (the "ESOP").
R E C I T A L S
A. The Company, certain of the Party Shareholders and certain other
investors (the "Investors") are parties to that certain Convertible Preferred
Stock and Warrant Purchase Agreement of even date herewith (the "Purchase
Agreement") pursuant to which the Investors are acquiring an aggregate of
5,000,000 shares of the Company's Series A Convertible Preferred Stock, $.01 par
value per share (the "Preferred Stock"), and four-year warrants to purchase
1,315,789 shares of the Company's common stock (the "Warrants") pursuant to the
terms of the Purchase Agreement. Capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Purchase Agreement.
B. Concurrently with the purchase of the Preferred Stock and Warrants
by the Investors, the ESOP desires to acquire 1,096,764.1603 shares of the
Company's common stock (the "Purchased ESOP Shares") from certain of the Party
Shareholders, an set forth in Exhibit "B" hereto (the "Selling Shareholders"),
and the Selling Shareholders desire to sell the Purchased ESOP Shares to the
ESOP, on the terms and conditions set forth herein.
C. It is a condition to the purchase of the Purchased ESOP Shares by
the ESOP that certain rights be granted to the ESOP with respect to the
Purchased ESOP Shares and other shares of the Company's Common Stock currently
owned or owned in the future by the ESOP (collectively with the Purchased ESOP
Shares, the "Aggregate ESOP Shares"), as set forth herein and pursuant to (i)
that certain Shareholders' Agreement of even date herewith (the "Shareholders'
Agreement") by and among the Company, the Party Shareholders, the Investors and
the ESOP, and (ii) that certain Registration Rights Agreement of even date
herewith by and among the Company, the Party Shareholders, the Investors and the
ESOP.
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein, and subject to the terms and conditions hereinafter set forth, the
parties hereby agree as follows:
1. Purchase and Sale of Purchased ESOP Shares.
1.1 Transfer of Shares. Each of the Selling Shareholders
agrees to and does hereby sell, transfer and convey the Purchased ESOP Shares
set forth opposite such shareholder's name on Exhibit B hereto, free and clear
of all lions, claims and encumbrances, to the ESOP and the ESOP agrees to and
does hereby purchase such Purchased ESOP Shares from each Selling Shareholder.
In consideration of the sale and transfer of the Stock and in full payment
therefor, the
<PAGE> 2
ESOP agrees to and concurrently with the execution of this Agreement shall pay
to the Selling Shareholders the aggregate purchase price of $1,000,000, payable
to the Selling Shareholders in the amounts set forth on Exhibit B.
1.2 Transfer of Certificates. Concurrently with the purchase and sale
contemplated by Section 1.1 hereof, the present outstanding certificates
representing the Purchased ESOP Shares registered in the respective names of the
Selling Shareholders shall be cancelled and returned to the Company's stock
record book and there shall be issued and delivered to the ESOP a new
certificate registered in the ESOP's name for one Million Ninety-Six Thousand
Seven Hundred Sixty-Four and 1,603/10,000 (1,096,764.1603) shares of the
Company's Common Stock.
1.3 Representations and Warranties of Seller. Each Selling Shareholder
represents and warrants to the ESOP, severally but not jointly, that:
(a) The Company is a corporation duly organized and validly
existing and in good standing under the laws of the State of California and has
all corporate power and authority to conduct its business as such business is
now being conducted.
(b) Each Selling Shareholder is the owner of the shares of the
Common Stock of the Company set forth opposite such shareholder's name on
Exhibit B hereto, free and clear of all liens, encumbrances, security
agreements, equities, options, claims, charges and restrictions, and each
selling Shareholder has full power and authority to transfer the shares to the
ESOP.
The representations and warranties made pursuant to this Section 1.3
shall survive the execution and delivery hereof for the shorter period of
eighteen months from the date of this Agreement or the closing of a Qualified
Public Offering.
2. Representations, Warranties and Covenants of the Company.
2.1 Representations ANSI Warranties. The Company hereby
incorporates by reference herein as though set forth in full and restates for
the benefit of the ESOP with respect to its purchase of the Purchased ESOP
Shares each of the representations and warranties set forth in Article III of
the Purchase Agreement. The representations and warranties made pursuant to this
Section 2.1 shall survive the execution and delivery hereof for the shorter
period of eighteen months from the date of this Agreement or the closing of a
Qualified Public Offering.
2.2 Affirmative Covenants. The Company hereby incorporates by
reference herein as though set forth in full for the benefit of the ESOP with
respect to its purchase of the Purchased ESOP Shares each of the affirmative
covenants set forth in Section 4.1 of the Purchase Agreement, with the following
changes:
(a) The Company's obligations shall continue for so long
as such covenants are in affect with respect to the Investors.
-2-
<PAGE> 3
(b) The reference to "without approval of the holders
of the Securities in accordance with Section 8.21" contained in the preamble of
such section is deemed to be replaced in its entirety by the phrase "without
approval of the ESOP."
2.3 Right to Participate in Financings. The Company hereby
grants to the ESOP the right to participate in future financings of the Company
such that the ESOP shall retain its then existing equity percentage of the
Company on a fully diluted basis. Such right shall be on the same terms and
conditions as the right granted by the Company to the Investors pursuant to
Article V of the Purchase Agreement, including, without limitation, that the
Company shall deliver to the ESOP the Offer at the same time that the offer in
delivered to the Investors; provided, however, that the Offer shall remain open
and irrevocable to the ESOP for the shorter of ten (10) days or five (5) days
after receipt of notice by the ESOP from the Company that the Investors have
accepted or rejected the Offer. The Company hereby agrees to provide the ESOP
written notice of the Investors' acceptance or rejection of the Offer. For
purposes of such right, it is understood and agreed that the "Basic Amount"
computed pursuant to such Article V shall be the portion of the offered
Securities an the Aggregate ESOP Shares bears to the total number of outstanding
shares of Common Stock of the Company, plus all shares of Common Stock issuable
upon exercise of warrants or options or upon conversion of convertible
securities of the Company, and the "Undersubscription Amount" referred to in
such Article shall be and is inapplicable.
2.4 Contributions to 401(k) Plan. The Company shall establish
a 401(k) plan for the benefit of the Company's employees on substantially the
terms set forth on Schedule 2.4 attached hereto.
3. Miscellaneous.
3.1 Notices. All notices or other communications required or
permitted to be delivered hereunder shall be in writing signed by the party
giving the notice to the company at 601 South Valencia Avenue, Brea, California
92621, Attention: President, and to the other parties hereto at their respective
addresses set forth in Exhibits A and B to this Agreement. Any party may at any
time change the address to which notice shall be delivered by giving notice to
the other parties pursuant to this Section 3.1, and such notice shall be deemed
given when received by the other parties hereto.
3.2 Entire Agreement. This Agreement and the other agreements
referred to herein constitute the entire agreement of the parties with respect
to the matters contemplated herein. This Agreement supersedes any and all prior
understandings as to the subject matter of this Agreement.
3.3 Amendments, Waivers and Consents. Any provision in this
Agreement to the contrary notwithstanding, changes in or additions to this
Agreement may be made, and compliance with any covenant or provision herein set
forth may be omitted or waived, if the Company shall obtain consent thereto in
writing from (i) persons holding or having the right to acquire more than 50%
shares held by the Party Shareholders or their permitted transferees pursuant to
Section 3 of the
-3-
<PAGE> 4
Shareholders' Agreement, and (ii) the ESOP, and shall, in each such case,
deliver copies of such consent in writing to any holders who did not execute the
same.
3.4 Binding Effect; Assignment; Termination. This Agreement
shall be binding upon and inure to the benefit of the personal representatives
and successors of the respective parties hereto. No party shall have the right
to assign its rights hereunder without the written consent of the other parties
hereto; provided, however, that the ESOP may assign its rights to the trustee of
any successor plan to the ESOP. This Agreement shall terminate upon the sale or
transfer of all of the ESOP's shares (including a transfer to its participants).
3.5 General. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement. In this Agree ment the singular includes the
plural, the plural the singular, the masculine gender includes the neuter,
masculine and feminine genders. This Agreement shall be governed by and
construed under the laws of the State of California, to the extent not preempted
by the Employee Retirement Income Security Act of 1974, as amended.
3.6 Severability. If any provision of this Agreement shall be
found by any court of competent jurisdiction to be invalid or unenforceable,
such provision shall, to the maximum extent allowable by law, be modified by
such court so that it becomes enforceable, and, as modified, shall be enforced
as any other provision hereof, all the other provision hereof continuing in full
force and effect.
3.7 Counterparts. This Agreement may be executed in
counterparts, all of which together shall constitute one and the same
instrument.
3.8 Attorney's Fees. In the event of any controversy, claim or
dispute among the parties hereto arising out of or relating to this Agreement,
or breach hereof, the prevailing party shall be entitled to recover from the
losing party reasonable attorneys' fees, expenses and costs.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
THE COMPANY
SIMULATION SCIENCES INC.
By: /s/ Eugene L. Goda
--------------------------------
Eugene L. Goda, President
-4-
<PAGE> 5
PARTY SHAREHOLDERS
/s/ Y. L. Wang
--------------------------------------------------------
Y. L. Wang, Trustee of Wang Family Trust
UTD July 10, 1987
/s/ Ellen Y. L. Wang
--------------------------------------------------------
Ellen Y. L. Wang, Trustee of Wang Family Trust
UTD July 10, 1987
/s/ N. Fred Brannock
--------------------------------------------------------
N. Fred Brannock, Trustee of Brannock Family Trust
UTD June 7, 1988
/s/ Jo Ann C. Brannock
--------------------------------------------------------
Jo Ann C. Brannock, Trust of Brannock Family Trust
UTD June 7, 1988
/s/ Vincent S. Verneuil, Jr.
--------------------------------------------------------
Vincent S. Verneuil, Jr., Trustee of Verneuil Family
Trust UTD June 22, 1988
/s/ Mary Ann P. Verneuil
--------------------------------------------------------
Mary Ann P. Verneuil, Trustee of Verneuil Family
Trust June 22, 1988
/s/ Eugene L. Goda
--------------------------------------------------------
Eugene L. Goda
ESOP
Simulation Sciences Inc. Employee Stock Ownership
Plan and Money Purchase Pension Plan
By: Northern Trust Bank of California, N.A.,
as Trustee of the Simulation Sciences
-5-
<PAGE> 6
Inc. Employee Stock Ownership Plan
and Money Purchase Pension Plan
By: /s/ Katherine Russell
-------------------------------
Katherine Russell
Its: Second Vice President
------------------------------
<PAGE> 7
EXHIBIT A
LIST OF PARTY SHAREHOLDERS
Wang Family Trust UTD July 10, 1987
Brannock Family Trust UTD June 7, 1988
Verneuil Family Trust UTD June 22, 1988
Eugene L. Goda
c/o Simulation Sciences Inc.
601 South Valencia Avenue
Brea, California 92621
-7-
<PAGE> 8
EXHIBIT B
SELLING SHAREHOLDER
<TABLE>
<CAPTION>
NO. OF PURCHASE
SHAREHOLDER AND ADDRESS SHARES SOLD PRICE
- -----------------------------------------------------------------------------------
<S> <C> <C>
Wang Family Trust 438,705.6641 400,000
UTD June 10, 1987
c/o Simulation Sciences Inc.
601 South Valencia Avenue
Brea, California 92621
Brannock Family Trust 329,029.2481 300,000
UTD June 7, 1988
c/o Simulation Sciences Inc.
601 South Valencia Avenue
Brea, California 92621
Verneuil Family Trust 329,029.2481 300,000
UTD June 22, 1988
c/o Simulation Sciences Inc.
601 South Valencia Avenue
Brea, California 92621
-------------- ---------
1,096,764.1603 1,000,000
</TABLE>
-8-
<PAGE> 9
SCHEDULE 2.4
401(K) PLAN DESIGN
<TABLE>
<CAPTION>
FEATURE DESIGN
- -------------------------------------------------------------------------------
<S> <C>
Eligibility After 1 year of service with at least
1,000 hours of service actively at work
unless over age 40, then eligible
immediately. Allow all employees as of
4/01/94 to enter immediately.
Company Match At the rates set out below, subject to
an upper limit of 5% of the employee's
base pay:
Base Pay: Company Match
$0 - 25,000 100% on the $
25,001-50,000 75% on the $
50,001-75,000 50% on the $
75,000-100,000 25% on the $
Compensation Definition Base pay only, exclusive of commissions,
overtime allowance, bonuses and stock
options
Funding the Company Match Will be done at time payroll deduction
is credited
Forfeitures Will occur quarterly and will be used
to offset company match
Deferrals Can defer up to 15% of compensation
Vesting 20% per year to 100% vesting at
five years based on years of service not
years in the plan
Rollovers from Other Plan Rollovers will be allowed immediately
upon hire
Investments There will be 4 investment vehicles that
employees may chose to invest their
contributions as well as the company
match:
Fixed Income Contract (pooled)
Balance Fund
Aggressive Equity Fund
Bond Fund
Investments to each fund can only be
done in 10% increments
Changes Changes in contribution levels, funds,
etc. can be made quarterly
Cease Participation Employees can cease contribution at any
time but will have to wait 6 months
before they are allowed to re-enter the
plan
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
FEATURE DESIGN
- -------------------------------------------------------------------------------
<S> <C>
Loans Loans for a minimum of $1,000 from
individual accounts will be allowed for
any reason. There will be only 1
outstanding loan allowed at a time.
Repayment can be amortized up to 5 years
unless the loan is to purchase a primary
residence, then repayment may be up to
15 years.
There will be a $100 processing fee
charged on each loan.
Interest on Loans The rate will be prime + 1%
Repayment on Loans Repayment of loans will be payroll
withdraw only
Withdrawals In-service withdrawals will be allowed
for "hardship" only following the IRS
safe harbor rules
Distributions Distributions upon termination will be
in lump sums only
</TABLE>
-2-
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
JURISDICTION OF
NAME INCORPORATION
- ---- ---------------
SimSci Latinoamerica C.A. Venezuela
SimSci Japan K.K. Japan
SimSci International, Ltd. England and Wales
Simulation Sciences GmbH Germany
SimSci Asia Pacific Pte Ltd. Singapore
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,693,032
<SECURITIES> 14,531
<RECEIVABLES> 9,431,462
<ALLOWANCES> 751,969
<INVENTORY> 0
<CURRENT-ASSETS> 14,190,418
<PP&E> 8,683,809
<DEPRECIATION> 5,312,530
<TOTAL-ASSETS> 22,595,800
<CURRENT-LIABILITIES> 11,873,925
<BONDS> 0
0
4,802,120
<COMMON> 5,026
<OTHER-SE> 5,914,729
<TOTAL-LIABILITY-AND-EQUITY> 22,595,800
<SALES> 19,636,493
<TOTAL-REVENUES> 21,790,977
<CGS> 1,778,479
<TOTAL-COSTS> 3,330,941
<OTHER-EXPENSES> 17,250,036
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,373,253
<INCOME-TAX> 563,214
<INCOME-CONTINUING> 810,039
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 810,039
<EPS-PRIMARY> .10
<EPS-DILUTED> 0
</TABLE>
