<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
</TABLE>
SIMULATION SCIENCES INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] Fee not required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
SIMULATION SCIENCES INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 29, 1998
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of SIMULATION
SCIENCES INC., a Delaware corporation (the "Company"), will be held on April 29,
1998 at 9:00 a.m., local time, at the Company's principal executive offices
located at 601 Valencia Avenue, Suite 100, Brea, California 92823, for the
following purposes:
1. To elect a Board of Directors to serve until the next Annual Meeting of
Stockholders or until their successors are elected.
2. To ratify the appointment of Deloitte & Touche LLP as independent public
accountants of the Company for the fiscal year ending December 31, 1998.
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on March 16, 1998 as
the record date for the determination of stockholders entitled to notice of and
to vote at this meeting. Only stockholders of record at the close of business on
March 16, 1998 are entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed Proxy as promptly as possible in the postage
prepaid envelope enclosed for that purpose. Any stockholder attending the
meeting may vote in person even if he or she has returned a Proxy.
Sincerely,
Jeffrey D. Saper
Secretary
YOUR VOTE IS IMPORTANT.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU
ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS
PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE.
BREA, CALIFORNIA
APRIL 2, 1998
<PAGE> 3
SIMULATION SCIENCES INC.
PROXY STATEMENT FOR 1998
ANNUAL MEETING OF STOCKHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
SIMULATION SCIENCES INC., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held April 29, 1998 at 9:00 a.m., local
time, or at any adjournment thereof, for the purposes set forth herein and in
the accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting
will be held at the Company's principal executive offices located at 601
Valencia Avenue, Suite 100, Brea, California 92823. The Company's telephone
number at that location is (714) 579-0412.
These proxy solicitation materials and the Annual Report on Form 10-K for
the year ended December 31, 1997, including financial statements, were first
mailed on or about April 3, 1998 to all stockholders entitled to vote at the
meeting.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the meeting and voting in person.
VOTING AND SOLICITATION
Each holder of Common Stock is entitled to one vote for each share held.
This solicitation of proxies is made by the Company, and all related costs
will be borne by the Company. In addition, the Company may reimburse brokerage
firms and other persons representing beneficial owners of shares for their
expenses in forwarding solicitation material to such beneficial owners. Proxies
may also be solicited by certain of the Company's directors, officers and
regular employees, without additional compensation, personally or by telephone
or telegram.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 1999 Annual Meeting of Stockholders must
be received by the Company no later than November 24, 1998 in order that they
may be considered for inclusion in the proxy statement and form of proxy
relating to that meeting.
<PAGE> 4
RECORD DATE AND PRINCIPAL SHARE OWNERSHIP
Only stockholders of record at the close of business on March 16, 1998 (the
"Record Date") are entitled to notice of and to vote at the meeting. The Company
has one series of capital stock outstanding, designated Common Stock, $.001 par
value. At the Record Date, 14,143,609 shares of the Company's authorized Common
Stock were issued and outstanding.
The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of the Record Date as to (i) each
person who is known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each director and each nominee for
director of the Company, (iii) each of the executive officers named in the
Summary Compensation Table in "Executive Compensation and Other Matters" below
and (iv) all directors and executive officers as a group. Except as otherwise
indicated, the address of each of the persons in this table is as follows: c/o
Simulation Sciences Inc., 601 Valencia Ave., Suite 100, Brea, CA 92823.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED(1)
------------------------
PERCENTAGE
5% STOCKHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS NUMBER OWNERSHIP
- ------------------------------------------------------------- --------- ----------
<S> <C> <C>
Putnam Investments, Inc. (2)
One Post Office Square
Boston, MA 02109 ....................................... 1,714,467 12.1%
Massachusetts Financial Services Co. (3)
500 Boylston Street, 15th Floor
Boston, MA 02116 ....................................... 1,677,900 11.9%
INVESCO PLC(4)
1315 Peachtree Street NE
Atlanta, GA 30309 ...................................... 946,620 6.7%
George D. Bjurman & Associates
10100 Santa Monica Boulevard, Suite 1200
Los Angeles, CA 90067 .................................. 725,990 5.1%
401(k) Plan(5) .............................................. 994,013 7.0%
Charles R. Harris(6) ........................................ 62,537 *
Dirk M. Pfeiffer(7) ......................................... 25,000 *
Katherine Sullivan Abrams(8) ................................ 9,333 *
Daniel T. Nichols(9) ........................................ 20,096 *
Dr. Narendra K. Gupta(10) ................................... 28,885 *
Walter G. Kortschak (11) .................................... 12,101 *
All Directors & Executive Officers as a group (7 persons)(12) 157,952 1.1%
</TABLE>
- ------------
* Less than one percent of the outstanding Common Stock.
(1) Applicable percentage of ownership is based on 14,143,609 shares of the
Company's Common Stock outstanding as of the Record Date, together with
any applicable stock options held by such stockholder. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission (the "SEC"), and includes voting and dispositive power
with respect to shares. Shares of Common Stock subject to options
exercisable within 60 days of the Record Date are deemed outstanding for
computing the percentage ownership of the person holding such options, but
are not deemed outstanding for computing the percentage for any other
person. Unless otherwise indicated, the persons named in the table have
sole voting and dispositive power with respect to all shares of Common
Stock shown as beneficially owned by them, subject to community property
laws where applicable.
2
<PAGE> 5
(2) Certain entities affiliated with Putnam Investments, Inc. ("Putnam") claim
beneficial ownership of an aggregate of 1,714,467 shares. Putnam claims
(i) shared voting power with respect to 277,800 of the 1,714,467 shares,
(ii) shared dispositive powers with respect to the 1,714,467 shares and
(iii) no sole voting or dispositive power with respect to the 1,714,467
shares. Information provided herein is based upon certain information
contained in a Schedule 13G filed by Putnam and certain affiliated
entities with the SEC in March 1998.
(3) Massachusetts Financial Services Co. ("MFS") claims (i) sole voting power
as to 1,633,000 of the 1,677,900 shares, (ii) sole dispositive power as to
the 1,677,900 shares and (iii) no shared voting or dispositive power with
respect to the 1,677,900 shares. Information provided herein is based upon
certain information contained in a Schedule 13G filed by MFS with the SEC
in March 1998.
(4) Certain entities affiliated with INVESCO PLC (collectively the "INVESCO
Entities") claim beneficial ownership of an aggregate of 946,620 shares.
The INVESCO Entities claim (i) shared voting and dispositive power with
respect to the 946,620 shares and (ii) no sole voting or dispositive power
with respect to such shares. Information provided herein is based upon
certain information contained in a Schedule 13G filed by INVESCO and the
INVESCO Entities with the SEC in February 1998.
(5) Represents shares of Common Stock held of record by the Company's 401(k)
Plan which are beneficially owned by employees and former employees of the
Company.
(6) Includes 61,666 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of the Record Date.
(7) Represents 25,000 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of the Record Date.
(8) Represents 9,333 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of the Record Date.
(9) Includes 18,666 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of the Record Date.
(10) Includes 28,541 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of the Record Date.
(11) Represents 12,101 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of the Record Date.
(12) Includes 155,307 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of the Record Date. See footnotes 6
through 11.
3
<PAGE> 6
PROPOSAL ONE
ELECTION OF DIRECTORS
A board of three (3) directors is to be elected at the Annual Meeting of
Stockholders. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company's three (3) nominees named below, all
of whom are presently directors of the Company. In the event that any nominee of
the Company is unable or declines to serve as a director at the time of the
Annual Meeting of Stockholders, the proxies will be voted for any nominee who
shall be designated by the present Board of Directors to fill the vacancy. The
Company is not aware of any nominee who will be unable or will decline to serve
as a director. In the event that additional persons are nominated for election
as directors, the proxy holders intend to vote all proxies received by them in
such a manner as will assure the election of as many of the nominees listed
below as possible, and, in such event, the specific nominees to be voted for
will be determined by the proxy holders. The term of office for each person
elected as a director will continue until the next Annual Meeting of
Stockholders or until a successor has been elected and qualified.
VOTE REQUIRED
If a quorum is present and voting, the three (3) nominees receiving the
highest number of votes will be elected to the Board of Directors. Votes
withheld from any nominee, abstentions and shares held by brokers that are
present but not voted because the brokers were prohibited from exercising
discretionary authority ("broker non-votes") will be counted for purposes of
determining the presence or absence of a quorum.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES
LISTED BELOW.
NOMINEES
The names of the nominees and certain information about them as of December
31, 1997 are set forth below:
<TABLE>
<CAPTION>
Name of Nominee Age Position
- --------------- --- --------
<S> <C> <C>
Dr. Narendra K. Gupta(1)(2)............... 49 Director
Charles R. Harris......................... 48 President, Chief Executive Officer
and Director
Walter G. Kortschak (1)(2)................ 38 Director
</TABLE>
- ------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
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 an M.S. degree from California Institute of Technology and a
Ph.D. from Stanford University.
4
<PAGE> 7
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.
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 were principal stockholders of the Company
from 1993 to 1997. He is also a director of Diamond Multimedia Systems, Inc.,
HMT Technology Corporation and SteriGenics International, 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 California Institute of
Technology and an M.B.A. degree from University of California, Los Angeles.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of eleven meetings during
fiscal 1997, of which none were by unanimous written consent. No director
attended fewer than 75% of the meetings of the Board of Directors and committees
thereof, if any, upon which such director served. The Board of Directors has a
Compensation Committee and an Audit Committee. The Board of Directors has no
nominating committee or any committee performing such functions.
The Compensation Committee, which consisted of directors Dr. Narendra K.
Gupta and Walter G. Kortschak at the end of fiscal 1997, met two times during
the fiscal year. This Committee is responsible for determining salaries,
incentives and other forms of compensation for directors and officers of the
Company and administers various incentive compensation and benefit plans.
The Audit Committee, which consisted of directors Dr. Narendra K. Gupta and
Walter G. Kortschak, met three times during fiscal 1997. This Committee is
responsible for overseeing actions taken by the Company's independent auditors
and reviews the Company's internal financial controls.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, the Compensation Committee consisted of Dr. Narendra K.
Gupta and Walter G. Kortschak. The Compensation Committee makes recommendations
to the Board of Directors concerning salaries and incentive compensation for
directors and officers of the Company. Mr. Harris, President and Chief Executive
Officer of the Company, is not a member of the Compensation Committee and cannot
vote on matters decided by the Committee. He does participate in all discussions
and decisions regarding salaries and incentive compensation for all employees of
and consultants to the Company, except that Mr. Harris is excluded from
discussions and decisions regarding his own salary and incentive compensation.
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
5
<PAGE> 8
company, nor has any such interlocking relationship existed in the past. Mr.
Kortschak, a director of the Company, is an employee and general partner of
Summit Partners L.P. which, together with its affiliates, manage a number of
venture capital funds, including Summit Ventures III, L.P. and Summit Investors
II, L.P. See "Executive Compensation and Other Matters - Certain Transactions"
for a discussion of transactions between the Company and Summit Ventures III,
L.P. and Summit Investors II, L.P.
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Deloitte & Touche LLP, independent
public accountants, to audit the financial statements of the Company for the
fiscal year ending December 31, 1998, and recommends that stockholders vote for
ratification of such appointment. In the event of a negative vote on
ratification, the Board of Directors will reconsider its selection.
Deloitte & Touche LLP has audited the Company's financial statements
annually since 1992. Representatives of Deloitte & Touche LLP are expected to be
present at the meeting with the opportunity to make a statement if they desire
to do so and are expected to be available to respond to appropriate questions.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock voting in person or by proxy on this proposal at the
annual meeting is required to approve the appointment of the independent
auditors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT PUBLIC ACCOUNTANTS.
6
<PAGE> 9
EXECUTIVE COMPENSATION AND OTHER MATTERS
EXECUTIVE OFFICERS
The executive officers of the Company and their ages as of December 31, 1997
are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Charles R. Harris ............. 48 President, Chief Executive Officer and Director
Robert E. Grice, Jr. .......... 38 Executive Vice President, Finance and Chief
Financial Officer
Dirk M. Pfeiffer .............. 40 Executive Vice President, Sales, Marketing and
Engineering Services
Katherine Sullivan Abrams ..... 58 Executive Vice President, Research and Development
.
Daniel T. Nichols ............. 49 Executive Vice President, Human Resources and
Administration
</TABLE>
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.
Robert E. Grice, Jr. has served as Executive Vice President, Finance and
Chief Financial Officer of the Company since October 1997. Prior to joining the
Company, Mr. Grice was employed as Vice President, Finance and Chief Financial
Officer of Smith Micro Software, Inc., a software company, from March 1996 to
October 1997. From July 1993 to August 1994, Mr. Grice was employed as Chief
Financial Officer of Newport Solutions, Inc., a privately owned networking
company, until its acquisition by Cisco Systems, Inc., after which Mr. Grice
served as Director of Finance at Cisco Systems, Inc. from August 1994 to March
1996. Mr. Grice is a certified public accountant and holds a B.S. degree from
California Polytechnic University.
Dirk M. Pfeiffer has served as Executive Vice President, Sales, Marketing
and Engineering Services of the Company since July 1997 and Vice President,
Sales, Marketing and Engineering Services of the Company from September 1995 to
July 1997. From January 1993 to June 1995, Mr. Pfeiffer was employed by SAP AG,
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 an M.B.A. degree from the
University of Cologne in Germany.
Katherine Sullivan Abrams has served as Executive Vice President, Research
and Development of the Company since July 1997, Vice President, Research and
Development of the Company from November 1995 to July 1997, and a consultant to
the Company from August 1995 to November 1995. From 1984 to February 1995, Ms.
Abrams held senior management positions with Computervision's Software
7
<PAGE> 10
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.
Daniel T. Nichols has served as Executive Vice President, Human Resources
and Administration of the Company since July 1997 and Vice President, Human
Resources and Administration of the Company from February 1996 to July 1997.
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 December 1994, 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.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the Company's four other executive officers
(collectively, the "Named Executive Officers") for services rendered in all
capacities to the Company during the years ended December 31, 1995, 1996 and
1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
COMPENSATION OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) SAR'S(#) ($)(2)
- --------------------------- ---- -------- -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Charles R. Harris ................ 1997 $200,000 $105,000 75,000 $ 9,247
President and Chief Executive 1996 193,749 100,000 $ 79,684(4) 91,666 8,092
Officer ..................... 1995 86,413(3) 37,500 148,670(4) 250,000 4,583
Dirk M. Pfeiffer ................. 1997 150,000 78,750 35,000 9,097
Executive Vice President, ... 1996 150,000 75,000 214,714(4) 25,000 7,321
Sales, Marketing and ........ 1995 43,750(3) 37,500 125,000
Engineering Services
Katherine Sullivan Abrams ........ 1997 150,000 47,250 40,000 6,666
Executive Vice President, ... 1996 135,693 45,000 46,666 3,449
Research and Development .... 1995 18,667(3) 8,800 22,500(5) 20,000
Daniel T. Nichols ................ 1997 150,000 47,250 43,846(4) 25,000 6,822
Executive Vice President, ... 1996 127,307(3) 45,000 54,186(4) 66,666 7,315
Human Resources and ......... 1995
Administration
L. Ronald Trepp .................. 1997 129,907(6) 4,833
Vice President, Finance and . 1996 86,665(3) 12,000 66,666 2,766
Chief Financial Officer
</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.
8
<PAGE> 11
(3) Amounts based on annual salary of $175,000 for Charles R. Harris from July
1, 1995 through December 31, 1995, $150,000 for Dirk M. Pfeiffer from
September 15, 1995 through December 31, 1995, $110,000 for Katherine
Sullivan Abrams from November 1, 1995 through December 31, 1995, $150,000
for Daniel T. Nichols from February 26, 1996 through December 31, 1996,
and $160,000 for L. Ronald Trepp from June 18, 1996 through December 31,
1996.
(4) Represents amounts paid in connection with the reimbursement by the
Company of certain relocation expenses.
(5) Represents compensation for services rendered as a consultant to the
Company.
(6) Amounts based on an annual salary of $160,000 from January 1, 1997 through
September 30, 1997, the date L. Ronald Trepp resigned from the Company.
Such amount includes $9,907 paid for vacation earned but not taken.
OPTION GRANTS DURING FISCAL 1997
The following table provides information with respect to stock option grants
in fiscal 1997 to the Named Executive Officers.
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------- VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM ($)(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED(#) FISCAL YEAR(1) ($/SHARE) DATE 5% 10%
- ---- ---------- -------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Charles R. Harris ....... 75,000 6.42% $12.75 7/22/07 $ 601,380 $1,524,016
Dirk M. Pfeiffer ........ 35,000 3.00 12.75 7/22/07 280,644 711,208
Katherine Sullivan Abrams 40,000 3.42 12.75 7/22/07 320,736 812,809
Daniel T. Nichols ....... 25,000 2.14 12.75 7/22/07 200,460 508,005
L. Ronald Trepp (3) ..... --
</TABLE>
- ---------------
(1) Based on options to purchase 1,168,392 shares of Common Stock granted
during fiscal 1997.
(2) Potential realizable value is based on the assumption that the price of
the Common Stock appreciates at the annual rate shown, compounded
annually, from the date of grant until the end of the 10-year option term.
The 5% and 10% assumed annual compound rates of stock price appreciation
are mandated by rules promulgated by the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
future Common Stock prices.
(3) Mr. Trepp resigned from the Company in September 1997.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the number of
options and the aggregate value of in-the-money options held by each Named
Executive Officer at December 31, 1997.
9
<PAGE> 12
AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND FISCAL 1997 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES VALUE OPTIONS AT FISCAL YEAR END IN-THE-MONEY OPTIONS($)(1)
ACQUIRED ON REALIZED ---------------------------- ----------------------------
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles R. Harris ....... 75,000 $ 902,250 43,333 298,333 $ 511,080 $2,954,580
Dirk M. Pfeiffer ........ 35,000 487,800 20,000 130,000 248,450 1,307,500
Katherine Sullivan Abrams 17,333 153,891 89,333 666,970
Daniel T. Nichols ....... 8,000 62,100 5,333 78,333 51,730 598,580
L. Ronald Trepp(2) ...... 26,666 283,549
</TABLE>
- --------------
(1) Calculated by determining the difference between the fair market value of
the securities on December 31, 1997 of $16.00 (as reported on the Nasdaq
National Market), less the exercise price of the option.
(2) Mr. Trepp resigned from the Company in September 1997.
EMPLOYMENT AGREEMENTS AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company has entered into separation agreements (the "Separation
Agreements") with certain of its executive officers, including its Chief
Executive Officer. Each Separation Agreement provides for a two-year term of
employment, subject to early termination as provided therein, a base salary,
bonus, inclusion in the Company's benefit plans and reimbursement for
out-of-pocket expenses reasonably incurred. The Separation Agreements further
provide that if, prior to a Change in Control (as defined) the executive resigns
from his employment for Good Reason (as defined), or following a Change of
Control, the executive is terminated without Cause (as defined) or resigns for
Good Reason, the Company will (i) pay the executive severance payments of one
month's salary for a period of six months, subject to one-month extensions for
up to six months if the executive has not obtained subsequent employment, (ii)
cause the accelerated vesting of all options exercisable within one year from
the date of the resignation, (iii) continue to effect the executive's benefits
through the Severance Period, including any extensions thereof, and (iv) pay
outplacement fees of up to $10,000 for the purpose of assisting the executive in
securing re-employment. If the executive resigns without Good Reason or is
terminated by the Company for Cause, the executive is entitled only to payment
of all amounts earned or owed to the executive and the vesting of equity
compensation through the date of such resignation.
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. However, the Company's charter does not limit directors'
monetary liability under the federal securities laws. The DGCL does not permit
such a limitation on the personal liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under section 174 of the DGCL; or (iv) for any
transaction from which the director derived an improper personal benefit. Under
the Company's bylaws, 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,
10
<PAGE> 13
officer, employee or agent of 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 bylaws 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 Proxy Statement, 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.
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.
11
<PAGE> 14
CERTAIN TRANSACTIONS
In September 1992, the Company entered into a lease agreement with respect
to its Brea, CA 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 October 1997,
Brea Partners sold the Brea, CA building to a third party.
In February 1997, Summit Ventures III, L.P. and Summit Investors II, L.P.
(the "Summit Entities") exercised warrants for the purchase of an aggregate of
350,879 shares of the Company's Common Stock pursuant to a net exercise
provision contained in such warrant agreements, as amended. Mr. Kortschak, a
director of the Company, is an employee and general partner of Summit Partners
L.P. which, together with its affiliates, manage a number of venture capital
funds, including the Summit Entities. Upon the net exercise of such warrants,
the Company issued an aggregate of 284,434 shares of Common Stock to the Summit
Entities.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During the fiscal year ended December 31, 1997, the Compensation Committee
of the Board of Directors was comprised of two non-employee directors. The
Compensation Committee is responsible for setting compensation levels for the
Company's executive officers, including the chief executive officer and for
overseeing the administration of the Company's stock option plans. All decisions
by the Compensation Committee are reviewed by the entire Board of Directors.
In making compensation decisions, it has been the practice of the
Compensation Committee to meet with the Company's chief executive officer, as
appropriate. For fiscal 1997, the Compensation Committee consulted with an
outside compensation firm and reviewed published surveys and special studies.
Such surveys and studies were utilized to establish compensation packages that
are within the range of those persons holding comparably responsible positions
at companies similar to the Company in revenue, industry, number of employees
and overall growth rate.
The Compensation Committee believes that executive officer compensation
should be closely aligned with the performance of the Company on both a
short-term and long-term basis and that such compensation should assist the
Company in attracting and retaining key executives critical to its long-term
success. To that end, the Compensation Committee's policy is that the
compensation package for executive officers should consist of the following
components: (i) annual base salary; (ii) the potential to earn incentive bonuses
each quarter, the amount of which is dependent on the Company's overall
performance and (iii) stock option awards designed to align stockholder
interests with those of management by providing long-term incentives for the
Company's key employees.
Base salary is based upon the responsibilities of the particular executive
officers targeted at the median of comparable companies and is reviewed on an
annual basis. Incentive bonuses represent an opportunity for each executive
officer to earn additional annual cash compensation in an amount tied to a
percentage of each officer's base salary. Such incentive bonuses are based upon
Company, organizational and individual performance objectives and are
established and reviewed by the Compensation Committee.
12
<PAGE> 15
The long-term performance based compensation of executive officers takes the
form of stock option awards under the Company's 1994 Stock Option Plan and 1996
Stock Plan (the "Stock Plans"). The Compensation Committee believes that
equity-based compensation ensures that the Company's executive officers have a
continuing stake in the long-term success of the Company. All stock options
granted by the Company have been granted with an exercise price equal to the
market price of the Company's Common Stock on the date of grant and,
accordingly, have value only if the Company's stock price increases after such
date. In granting options under the Stock Plans, the Committee takes into
account each executive's responsibilities, relative position in the Company and
past grants.
The compensation of Mr. Charles R. Harris, the Company's Chief Executive
Officer, for fiscal 1997 was approved by the Board of Directors. The
Compensation Committee made its recommendation and the Board determined the
Chief Executive Officer's compensation after considering the same factors used
to determine the compensation of other executive officers.
COMPENSATION COMMITTEE
Dr. Narendra K. Gupta
Walter G. Kortschak
13
<PAGE> 16
PERFORMANCE GRAPH
Set forth below is a line graph comparing the annual percentage change in
the cumulative return to the stockholders of the Company's Common Stock with the
cumulative return of (i) the Nasdaq U.S. Index and (ii) the Nasdaq Computer &
Data Processing Index for the period commencing October 25, 1996 (the date of
the Company's initial public offering) and ending on December 31, 1997. The
information contained in the performance graph shall not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act or Exchange Act, except to the extent
that the Company specifically incorporates it by reference into such filing.
[OBJECT OMITTED]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------------------------------------------
10/25/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Simulation Sciences Inc. SMCI 100 165 113 169 219 178
NASDAQ STOCK MARKET (U.S.) 100 106 100 119 139 130
NASDAQ COMPUTER & DATA PROCESSING 100 105 98 125 137 129
</TABLE>
14
<PAGE> 17
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's executive officers and directors, and persons who own
more than ten percent of a registered class of the Company's equity securities
to file reports of ownership on Form 3 and changes in ownership on Form 4 and
Form 5 with the Securities and Exchange Commission ("SEC") and the National
Association of Securities Dealers, Inc. Executive officers, directors and
greater than ten percent stockholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file. Based solely in
its review of the copies of such forms received by it, or written
representations from certain reporting persons, the Company believes that,
during fiscal 1997, all filing requirements applicable to its executive officers
and directors were complied with.
OTHER MATTERS
The Company knows of no other matters to be submitted at the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the shares they represent as
the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: April 2, 1998
15
<PAGE> 18
PROXY PROXY
Simulation Sciences Inc.
Proxy Solicited on Behalf of the Board of Directors
1998 Annual Meeting of Stockholders.
The undersigned stockholder(s) of Simulation Sciences Inc., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement for the 1998 Annual Meeting of
Stockholders to be held on April 29, 1998, and hereby appoints Charles R.
Harris and Robert E. Grice, Jr. and each of them, as Proxies, with power
and substitution, to represent the undersigned at such meeting and at any
adjournments thereof, and to vote all shares of Common Stock which the
undersigned is entitled to vote, as designated below.
In their discretion the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
THE ELECTION OF DIRECTORS AS SET FORTH IN PROPOSAL 1 AND FOR CONFIRMATION
OF DELOITTE & TOUCHE LLP AS AUDITORS AS SET FORTH IN PROPOSAL 2.
(Continued, and to be signed on the other side)
<PAGE> 19
SIMULATION SCIENCES INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
Proposal 1 -- To elect directors to serve for the ensuing year and until their
successors are elected.
For All
For Withheld Except
/ / / / / /
Nominees:
Dr. Narendra K. Gupta, Charles R. Harris and Walter G. Kortschak
If you wish to withhold authority to vote for any individual nominee, strike a
line through that nominee's name.
Proposal 2 -- To confirm the appointment of Deloitte & Touche LLP as independent
auditors of the company for the 1998 fiscal year.
For Against Abstain
/ / / / / /
I PLAN TO ATTEND THE MEETING / /
COMMENTS/ADDRESS CHANGE
Please mark this box if you have written comments/address / /
changes.
Please sign exactly as name appears hereon. If the stock is
registered in the names of two or more persons, each person
should sign. Executors, administrators, trustees, guardians
and attorneys-in-fact should add their titles. If signer is a
corporation, please give the full corporate name and have a
duly authorized officer sign, stating title. If signer is a
partnership, please sign in the partnership name by the
authorized person.
Dated:__________________________, 1998
______________________________________________________________
Signature(s)
Note: Please vote, date and promptly return this proxy in the enclosed envelope
which is postage prepaid if mailed in the United States.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES LISTED ABOVE AND FOR
PROPOSAL 2.
