<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 16, 1997
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
VISUAL NUMERICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
TEXAS 7372 74-1671376
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NUMBER)
JURISDICTION OF CLASSIFICATION CODE
INCORPORATION OR NUMBER)
ORGANIZATION)
9990 RICHMOND AVENUE, SUITE 400
HOUSTON, TX 77042
(713) 784-3131
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
RICHARD G. COUCH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VISUAL NUMERICS, INC.
9990 RICHMOND AVENUE, SUITE 400
HOUSTON, TX 77042
(713) 784-3131
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
COPIES TO:
MICHAEL W. HALL HORACE L. NASH
PETER COHN PETER M.O. WONG
ARNOLD E. BROWN II HOWARD, RICE, NEMEROVSKI,
VENTURE LAW GROUP CANADY, FALK & RABKIN
A PROFESSIONAL CORPORATION A PROFESSIONAL CORPORATION
2800 SAND HILL ROAD THREE EMBARCADERO CENTER, SEVENTH
MENLO PARK, CALIFORNIA 94025 FLOOR
(415) 854-4488 SAN FRANCISCO, CALIFORNIA 94111
(415) 434-1600
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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 number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration 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. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
Common Stock, $0.02 par
value per share....... 1,897,500 shares $3.00 $5,692,250 $1,725
</TABLE>
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(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a).
----------------
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 THIS 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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 JANUARY 16, 1997
PROSPECTUS
1,650,000 SHARES
[LOGO OF VISUAL NUMERICS APPEARS HERE]
COMMON STOCK
All of the 1,650,000 shares of Common Stock offered hereby are being sold by
Visual Numerics, Inc. (the "Company"). Prior to this offering, there has been
no public market for the Common Stock of the Company. It is contemplated that
after this offering there will be no public market for the Common Stock and the
Common Stock will not be listed on a national securities exchange or traded on
any established securities market. It is currently estimated that the initial
public offering price will be between $2.00 and $3.00 per share. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price and the terms and conditions under which the
shares of Common Stock are offered hereby.
-----------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HASTHE 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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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share.................................... $ $ $
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Total(3)..................................... $ $ $
</TABLE>
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(1) See "Underwriting" for indemnification arrangements with the Underwriter.
(2) Before deducting expenses payable by the Company estimated at $375,000.
(3) The Company has granted the Underwriter an option, exercisable within 30
days from the date hereof, to purchase up to 247,500 additional shares of
Common Stock on the same terms as set forth above, solely to cover over-
allotments, if any. If such option is exercised in full, the total Price to
Public will be $ , the Underwriting Discount will be $ and the
Proceeds to Company will be $ . See "Underwriting."
-----------
The shares of Common Stock are offered by the Underwriter subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriter to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1997 at the office of the agent of Gordian
Group, L.P. in New York, New York.
GORDIAN GROUP, L.P.
, 1997
<PAGE>
INSIDE FRONT COVER
[Description of Graphics:
Visual Numerics (Logo)
"Visual Numerics provides leading computational algorithm libraries and
visual data analysis software and is extending these technologies for use in
intranet and Internet computing environments."
CAPTION: PV-WAVE in Earth Science--Graphics image of world
CAPTION: IMSL in Finance--Graphics image of 3-D Bar chart of data
CAPTION: IMSL in Finance--Graphics image of high-low-close prices for
fictitious "Alpha" Corporation
CAPTION: PV-WAVE in Signal Processing--Graphics image plotting of signal data
CAPTION: PV-WAVE in Life Sciences--Graphics image of human head generated
from Magnetic Resonance Imaging data
CAPTION: PV-WAVE in Finance--Graphics image of loan interest and principal
spreads]
Visual Numerics(R), IMSL(R), PV-WAVE(R) and the Company's logo are registered
trademarks of the Company. The Company has licensed the use of the trademark
Stanford from Leland Stanford Junior University. This Prospectus also contains
the trademarks of other companies.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus, including the information under "Risk
Factors."
THE COMPANY
Visual Numerics, Inc. ("Visual Numerics" or the "Company") is a leading
supplier of computational algorithm libraries and visual data analysis
software. Its IMSL libraries are proprietary sets of algorithms used by
scientists, researchers, engineers and information technology professionals to
perform complex numerical and computational functions and to develop computer
applications. The Company has been developing, enhancing and supplementing the
IMSL libraries for 26 years. The Company's PV-WAVE visual data analysis
products facilitate analysis of complex, multi-variable data sets in a wide
variety of industries and applications. Visual Numerics is enhancing its
existing products to enable their use in intranet- and Internet-computing
environments and is developing new products based upon its existing
technologies that are specifically designed for use in Java-based applications
in those environments. The Company's products help customers create high-
quality applications across multiple platforms. The Company's customers include
approximately 240 of the Fortune 1000 companies and are widely dispersed among
telecommunications, financial, life sciences, transportation, defense, earth
sciences, research and educational markets.
The IMSL libraries are collections of mathematical and statistical formulae
and functions coded into computer algorithms that are fully tested, supported
and maintained. These algorithms include linear matrix algebra, eigenvalue
analysis, interpolation and approximation algorithms, integral and differential
equations, optimization, transforms and statistics. The IMSL Fortran, Fortran
90 and C Libraries allow users to deploy the same algorithms across an array of
computing platforms and programming languages. PV-WAVE, the Company's powerful
visual data analysis software, allows its users to visualize, manipulate and
analyze complex or extremely large data sets to detect and display patterns,
trends, anomalies and other information. PV-WAVE facilitates data comprehension
and can reveal important information that might otherwise be hidden. The
Company believes that its IMSL numerical libraries and PV-WAVE products are the
most reliable and efficient products of their kind.
The rapid growth of intranets and the Internet is accelerating the need for
tools to analyze and manipulate data in heterogeneous distributed computing
environments. Fulfilling such need requires both a computer language that works
across diverse operating systems, platforms and protocols and the technology to
analyze and manipulate data. The Company believes that the object-oriented
language known as Java will become the preferred language for distributed
systems, such as intranets and the Internet, because of its ability to operate
across platforms and operating systems, its architectural design which provides
enhanced security, its built-in "multi-threading" which facilitates graphical
applications and other distributed features.
The Company's strategy is to enhance its position as a premier provider of
complex computational algorithms and visual data analysis software by
maintaining its technology leadership, focusing on development of platform-
independent applications and leveraging its market position, installed customer
base and brand names to exploit intranet and Internet market opportunities.
Visual Numerics is actively participating in setting industry standards in
intranet and Internet technologies and is extending its existing products for
use on intranets and the Internet and developing new products in Java.
Visual Numerics markets and sells its software through its global direct
sales force, international distributors and Internet sales in North America,
Europe and Asia. The Company's customers include Boeing, Caterpillar, Deutsche
Bank, Ford, GTE, Hewlett-Packard, Johns Hopkins University, Lockheed Martin,
Motorola, Northrop Grumman, and Siemens.
The Company was incorporated in 1970 under the name International
Mathematical and Statistical Libraries, Inc. in the State of Texas. The Company
changed its name to IMSL, Inc. in 1981 and to Visual Numerics, Inc. in 1993.
Unless the context otherwise requires, the "Company" and "Visual Numerics"
refer to Visual Numerics, Inc. and its subsidiaries. The Company's principal
executive offices are located at 9990 Richmond Avenue, Suite 400, Houston,
Texas 77042 and its telephone number is (713) 784-3131. Its Web site is located
at www.vni.com. Information contained in the Company's Web site shall not be
deemed a part of this Prospectus.
3
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company................ 1,650,000 shares
Common Stock to be outstanding after the offering.. 8,128,129 shares(1)
Use of proceeds.................................... For development and
marketing of new products
and for working capital
and other general
corporate purposes. See
"Use of Proceeds."
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenue................. $ 30,322 $ 32,713 $ 30,001 $ 21,963 $ 19,102
Costs and expenses:
Operating............. 16,405 16,052 15,296 11,373 9,156
General and
administrative....... 13,656 11,610 10,290 7,925 6,909
Research and
development.......... 3,822 2,918 4,215 3,100 3,537
Other................. 2,387 -- -- -- --
--------- --------- --------- --------- ---------
Total costs and
expenses........... 36,270 30,580 29,801 22,398 19,602
--------- --------- --------- --------- ---------
Operating income
(loss)................. (5,948) 2,133 200 (435) (500)
Other income (expense).. (185) (329) (272) (121) (209)
Net income (loss)....... $ (5,046) $ 1,605 $ (82) $ (367) $ (709)
Net income (loss) per
share(2)............... $ (2.56) $ 0.38 $ (0.04) $ (0.17) $ (0.32)
Pro forma net income
(loss) per share(2).... $ (0.81) $ 0.19 $ (0.01) $ (0.06) $ (0.11)
Shares used in computing
pro forma net income
(loss) per share(2).... 6,220,553 8,470,099 6,478,129 6,478,129 6,478,129
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 1,071 $ 4,532
Total current assets................................... 9,319 12,780
Working capital(4)..................................... 2,187 5,648
Long-term debt......................................... 2,576 2,576
Capital lease obligations, net of current portion...... 407 407
Redeemable preferred stock(5).......................... 3,608 --
Total shareholders' equity (deficit)(5)................ (7) 7,061
</TABLE>
- --------
(1) Excludes (i) 2,077,750 shares of Common Stock issuable upon exercise of
employee stock options with a weighted average exercise price of $0.40 per
share, (ii) 123,331 shares of Common Stock issuable upon exercise of
warrants with exercise prices of $3.90 per share, and (iii) an aggregate of
2,292,250 shares reserved for future issuance under the Company's existing
stock option plan. See "Management--Stock Plans" and "Description of
Capital Stock."
(2) Net income (loss) per share reflects the occurrence of a five-for-one stock
split in April 1993 and is computed based upon the weighted average number
of common shares and common stock equivalents outstanding during the
period. The weighted average shares used in the net income (loss) per share
calculations were 1,971,178, 4,182,920 and 2,190,950 for 1993, 1994 and
1995, respectively and were 2,190,950 and 2,190,950 for September 30, 1995
and September 30, 1996, respectively. Pro forma net income (loss) per share
reflects the conversion of all outstanding shares of preferred stock
("Preferred Stock") into Common Stock and is computed based upon the
weighted average number of common shares and common stock equivalents
outstanding during the period.
(3) Adjusted to give effect to the sale of the 1,650,000 shares of Common Stock
offered by this Prospectus at an assumed initial public offering price of
$2.50 per share and the use of the estimated net proceeds therefrom. See
"Use of Proceeds."
(4) Working capital consists of current assets less current liabilities plus
unearned support and maintenance revenues.
(5) Reflects reclassification of certain redeemable shares of Series D
Preferred Stock, which automatically convert into shares of Common Stock
upon the completion of the offering.
Except as otherwise noted, all information in this Prospectus (i) reflects
the occurrence of a five-for-one stock split in April 1993, (ii) assumes the
conversion of all outstanding shares of Preferred Stock into Common Stock upon
the completion of the offering and (iii) assumes no exercise of the
Underwriter's over-allotment option. See "Risk Factors--Risk Relating to
Holders of Preferred Stock," "Description of Capital Stock" and "Underwriting."
4
<PAGE>
RISK FACTORS
The Common Stock offered by this Prospectus involves a high degree of risk.
In addition to the other information in this Prospectus, the following factors
should be considered carefully in evaluating an investment in the shares of
Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in the forward-looking
statements as a result of certain factors, including those set forth below and
elsewhere in this Prospectus.
NO MARKET FOR COMMON STOCK; ILLIQUIDITY OF INVESTMENT
Prior to the offering, the Common Stock has not been publicly traded, and it
is anticipated that after the completion of the offering the Common Stock will
not be traded on any exchange or any other market and that no public market
for the Common Stock will develop. Accordingly, it is anticipated that any
investment in the shares offered hereby will be highly illiquid and that
shareholders may not be able to liquidate their investments in the event of an
emergency or for any other reason. In addition, based upon such illiquidity,
the shares offered hereby may not be readily acceptable as collateral for a
loan. There can be no assurance that the Common Stock will ever be freely
tradable on a public market. It is anticipated that the Common Stock will not
be registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and therefore the Company will not be subject to certain
filing and reporting requirements to which public companies are typically
subject. The lack of such filings and reports could also adversely affect the
availability of information concerning the Company, the likelihood of an
active trading market developing and the ability of investors to sell their
stock. See "Underwriting" and "Additional Information."
RESTRICTIONS ON SALE OF COMPANY OR SALE OF COMPANY'S ASSETS
Under an agreement entered into with the former stockholders of Precision
Visuals, Inc. ("PVI"), which was acquired by the Company in 1992, the Company
agreed not to sell control of the Company or a substantial portion of its
assets without the consent of such shareholders, which consent would not be
unreasonably withheld. This right has no express termination date. James R.
Warner, the former President of PVI, has the power to act on behalf of the
former stockholders of PVI on all matters relating to the Company's
acquisition of PVI, including this restrictive covenant. There can be no
assurance of when, if ever, this covenant will terminate or that this
restrictive covenant will not be interpreted to apply to any future sale of
control of the Company or sale of its assets. In addition, there can be no
assurance that the former stockholders of PVI will consent to any sale of
control of the Company or to any sale of its assets, or that such shareholders
will not seek to enjoin any such sale. The existence of this restrictive
covenant may impair the Company's ability to obtain debt or equity financing
on terms that are acceptable to it or to attract potential partners. In
addition, this restrictive covenant may significantly reduce the likelihood of
completing a sale of the Company and, consequently, may significantly reduce
the liquidity of any investment in Common Stock, including an investment made
hereby, and may force holders of Common Stock to hold their stock
indefinitely.
RISK RELATING TO HOLDERS OF PREFERRED STOCK
The Company has issued 925,000 shares of its Series D Preferred Stock to the
former stockholders of PVI. Under the Company's Restated Articles of
Incorporation, each share of Series D Preferred Stock automatically converts
into Common Stock upon the sale of Common Stock in a bona fide, firm
commitment underwriting pursuant to a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), which results in
aggregate gross cash proceeds to the Company in excess of $3.0 million, such
as the offering contemplated hereby. The merger agreement pursuant to which
the Company acquired PVI (the "PVI Merger Agreement") provides that if during
the six-month period commencing December 22, 1997 holders of more than 15% of
the stock issued to the former PVI stockholders so elect, the Company will be
obligated to repurchase all the shares of Series D Preferred Stock then held
by all former PVI stockholders at the fair market value per share as of the
end of the fiscal year preceding the repurchase date. This right terminates
upon the closing of a
5
<PAGE>
firm commitment underwritten public offering, such as the offering
contemplated hereby. Counsel retained by Mr. Warner for the former PVI
stockholders has asserted that the offering contemplated by this Prospectus
would not meet the foregoing standards and, therefore, the Series D Preferred
Stock would not automatically convert into Common Stock and the former PVI
stockholders' repurchase right would not automatically terminate. Such counsel
also asserted that the offering would breach a fiduciary duty owed to the
Company's shareholders and demanded that the Company terminate the offering
and that failure to terminate the offering will lead to litigation. Although
the Company believes the allegations are without foundation and that it would
prevail in such an action relating to the offering, there can be no assurance
that an action challenging this offering will not be brought or what the
outcome of any such action would be. Any such challenge to the offering could
require the Company to divert a substantial amount of management time as well
as financial and other resources toward its defense. Failure by the Company to
prevail against this challenge to the offering would have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Principal Shareholders" and "Certain Transactions."
NEED FOR ADDITIONAL CAPITAL
The Company's future liquidity and capital requirements will depend upon
numerous factors, including the progress and efficacy of the Company's product
development, marketing and sales efforts, the market acceptance of the
Company's existing and new products and resolution of outstanding disputes
with customers and the Internal Revenue Service (the "IRS"). The Company may
be required to expend more funds than it currently anticipates to develop,
market and sell its new products, and there can be no assurance that its
resources will be sufficient for these activities. While the Company believes
that the proceeds from this offering, together with the Company's current cash
balances and cash generated from operations, will be sufficient to meet the
Company's operating and capital requirements for the next 12 months, in order
to pursue new product development, marketing and sales, the Company may seek
to raise additional funds through public or private financing, collaborative
relationships or other arrangements in the second half of 1997. There can be
no assurance that such additional funding, if needed, will be available on
terms acceptable to the Company, if at all. Furthermore, any additional equity
financing may be dilutive to shareholders, and any debt financing, if
available, may involve restrictive covenants. Collaborative arrangements, if
necessary and available, may require the Company to relinquish certain rights
to its technologies or grant certain exclusive rights to such technologies to
third parties. The failure by the Company to raise capital when needed could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Business--Legal Proceedings."
HISTORY OF LOSSES
The Company suffered net losses of approximately $2.7 million, $5.0 million
and $82,000 in 1992, 1993 and 1995, respectively, and $709,000 in the nine
months ended September 30, 1996. The Company's recent losses were largely
attributable to declines in sales and increases in the cost of developing new
products and enhancing existing products. The Company expects to continue to
experience declining sales of its traditional products and to devote
substantial resources to developing, marketing and selling its next generation
of products. These expenditures could result in future net losses. There can
be no assurance that the Company will generate revenues from sales of its
products under development or that the Company will not continue to incur
losses in the future. Failure of the Company to generate substantial revenues
from the sales of its new products or to increase revenues from the sales of
its existing products would have a material adverse effect on the Company's
business, financial condition and results of operations.
From time to time, the Company has had difficulty meeting its payment
obligations to lenders and vendors and has failed to comply with certain
financial covenants under its bank credit agreement. In 1993, the Company
failed to make certain required payments to the former PVI stockholders. As a
result of negotiations with the former PVI stockholders, the Company
restructured its obligations to them. During 1995 and 1996, the Company failed
to comply with certain financial covenants contained in its bank credit
agreement. Although all such failures and defaults have been waived or
satisfied, there can be no assurance that, in the future, the Company
6
<PAGE>
will not breach certain financial covenants, that the Company's lenders will
waive any such breach, or that the Company will not have difficulty making
payments, or otherwise complying with its obligations. Charles W. Johnson, the
Company's largest shareholder and Chairman of the Board, has guaranteed up to
$1.5 million under the Company's bank credit agreement, and in August 1996,
lent the Company $1.0 million to fund the redemption of shares of Series D
Preferred Stock held by former PVI stockholders. There can be no assurance
that Mr. Johnson or any other shareholder will provide adequate credit
support, guarantees or loans or that the Company's current credit facilities
will continue to be available to the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Certain
Transactions."
NEW PRODUCT DEVELOPMENT AND MARKETING
The Company is developing and adapting its computational algorithm libraries
and visual data analysis software for use in intranet and Internet computing
environments. The Company will need to adapt its existing products and develop
new products to operate with developing intranet and Internet protocols and
standards and will need to coordinate these development efforts with the
companies that establish those protocols and standards. Key parts of the
Company's strategy involve focusing its marketing and sales efforts on the
users of intranets and the Internet and conducting its marketing and
distribution activities over the Internet. The Company has limited experience
in these activities. Consequently, the Company will need to reallocate its
resources, retrain its sales force and coordinate these efforts throughout its
international operations. There can be no assurance that the Company will be
successful in managing this shift in the focus of its product and marketing
efforts, and failure to implement necessary changes in a timely and cost-
effective manner could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Products--Web Products," "--Marketing, Sales and Distribution" and "--Product
Development and Engineering."
DEPENDENCE ON JAVA
It is unclear which of several competing intranet- and Internet-based
protocols and languages, if any, will achieve the broadest market acceptance.
The Company has identified Java, an object-oriented programming language
developed primarily for intranet and Internet applications, as the language
most likely to achieve widespread market acceptance, and is developing
products for intranets and the Internet based upon that language. Due to
Java's recent introduction and early stage of development, there is
insufficient experience with the language to determine whether Java will
become a significant programming language. To date, there are few commercially
significant Java-based products. Several companies, including Microsoft
Corporation, have announced alternatives to Java, and there can be no
assurance that Java will become the standard programming language for
intranets and the Internet. Failure of Java to become widely accepted in the
marketplace may result in the delay or abandonment of some or all of the
Company's new products and may cause the Company to lose a significant
investment it has made and intends to make in new product development. Any
delay or failure in development and market acceptance of Java would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Industry Background."
ADOPTION OF THE JNL LIBRARY
An important element of the Company's strategy is to establish one of its
computational algorithm libraries, referred to as the JNL Library, as the
computational application programming interface for Java. The developer of
Java standards has indicated, in response to inquiries by Visual Numerics,
that it does not intend to make any near-term decisions regarding the
incorporation of the JNL Library into the Java standards. There can be no
assurance that the Company will be able to establish the JNL Library as the
computational foundation for Java. Although the Company intends to make the
JNL Library available to companies that are developing integrated development
environments for Java, such as Borland International Inc., Microsoft
Corporation, Sun Microsystems, Inc. and Symantec, Inc., to date the Company
has not entered into any such arrangements. There can be no assurance that the
Company will be successful in establishing such arrangements or that the
Company's competitors or the developers of these environments will not develop
separate computational foundations for Java. Failure of the Company to
establish its JNL Library as the computational algorithm
7
<PAGE>
standard for integrated development environments for Java could have a
material adverse effect on the Company's business, financial condition and
results of operations. Even if there is widespread adoption of the JNL
Library, the Company does not anticipate deriving substantial revenue from
this product because it anticipates making this library available for no or a
nominal charge in order to promote market acceptance of the library and its
application programming interface. See "--Competition," "Business--Product
Development and Engineering" and "Business--Competition."
DEPENDENCE ON INTRANETS AND THE INTERNET
The Company's success will depend to a substantial degree upon continued
development, expansion and adoption of intranets and the Internet by
businesses and other organizations. Intranets and the Internet are new and
rapidly evolving, and there can be no assurance that they will develop as
viable, long-term media for the conduct of sales, marketing and other business
or commercial activity. Businesses and other organizations could decide not to
adopt intranets if standards or protocols are not developed and adopted, if
the network technologies important to intranets are not adequately developed
or adopted, or if intranets do not develop adequate reliability and security.
In addition, failure of the Internet to develop or expand could result from,
among other things, inadequate development of the Internet infrastructure
necessary to support increased traffic, or delayed development of
complementary products, technologies and standards such as high speed modems
and security procedures for financial transactions. There can be no assurance
that the infrastructure, complementary products, technologies or protocols
necessary to make the Internet a viable medium for business and commercial
activity will develop, or that such development will be accomplished in a time
frame that would allow the Company to achieve its objectives. Failure of
intranets and the Internet to be widely used by businesses and other users
would have a material adverse effect on the demand for the Company's products
under development and on the Company's business, financial condition and
results of operations. See "Business --Industry Background."
UNCERTAINTY OF MARKET ACCEPTANCE; LACK OF MARKETING EXPERIENCE IN NEW PRODUCT
SEGMENT
The Company's success will depend upon its ability to develop, market and
sell its intranet and Internet products. The Company has never sold products
in the intranet and Internet market and has no experience marketing tools to
Java programmers. There currently is no market for the Company's new products,
and there can be no assurance that such a market will develop. To promote
market acceptance of the JNL Library and its application programming
interface, the Company does not plan to realize any significant revenue from
the sale of third-party products incorporating this library. The Company
recently expanded its marketing efforts onto the Internet and expects to
conduct a significant amount of marketing activities, including the creation
of leads for sales, dissemination of product information and customer
feedback, through the Company's Web site. There can be no assurance that the
Company will be successful in marketing and selling products in the intranet
and Internet market or through its Web site. Failure of the Company to develop
or market its new intranet or Internet products successfully would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "--New Product Development and Marketing" and
"Business--Marketing, Sales and Distribution."
LEGAL PROCEEDINGS
In April 1994, American Airlines, Inc. asserted a claim against the Company
alleging the breach of a March 1992 agreement to provide customized software
and seeking damages, including alleged actual damages in the amount of
$780,000. The parties are attempting to resolve the matter through mediation.
The Company anticipates that it will establish a reserve in the amount of
approximately $400,000 for such contingency. Although the Company believes it
has meritorious defenses to some or all of the claims asserted, the Company
has made a settlement offer in connection with this matter. If the Company
does not reach a settlement it intends to defend the proceedings vigorously;
however, there can be no assurance that the Company will ultimately prevail or
that the Company will not have to make substantial payments in the event of
any settlement or a judgment in such matters. An adverse outcome in this
proceeding could have a material adverse effect on the Company's business,
financial condition and results of operations.
8
<PAGE>
On May 29, 1996, the IRS notified the Company of a deficiency in PVI's tax
returns for its fiscal years ended March 31, 1990 and March 31, 1992. The
Company had assumed liability for this deficiency upon its acquisition of PVI
in December 1992. Specifically, the IRS asserted a deficiency of $1.2 million
plus interest of approximately $500,000 by challenging PVI's transfer pricing
arrangements with its foreign subsidiaries for such fiscal years on the basis
that an alleged low transfer price to foreign subsidiaries understated the
Company's United States tax liability. In July 1996, the Company formally
protested the IRS's finding and requested a hearing before the regional
examiner. The Company's financial statements do not contain a reserve for this
contingency. An adverse outcome in this proceeding could have a material
adverse effect on the Company's business, financial condition and results of
operations.
In connection with its 1994 tax return, the Company agreed to pay the IRS
all taxes and penalties in 12 monthly installments. The IRS has indicated that
it intends to place a lien on the Company's assets to secure such payment.
Such a lien could give rise to a default under the Company's bank credit
agreement if such lien were not removed within 30 days, and such default could
result in an acceleration of amounts due under such agreement, a termination
of such facility or a renegotiation of terms thereof, which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
See "--Risk Relating to Holders of Preferred Stock," "--Need for Additional
Capital," "--Risks Associated with International Operations," "Business--Legal
Proceedings," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 10 of Notes to Consolidated Financial
Statements.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
A substantial portion of the Company's revenues are derived from sales by
its international subsidiaries and by distributors outside the United States.
The Company derived 42%, 44%, 52% and 45% of its revenue from sales outside of
the United States during 1993, 1994, 1995 and the nine months ended September
30, 1996, respectively. The Company expects that international sales will
continue to constitute a substantial percentage of its total revenue for the
foreseeable future. The Company also is restructuring its European and Asian
sales forces. There can be no assurance that these changes will not adversely
affect sales in these areas. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company's operations are subject to risks associated with foreign
currency fluctuations. Sales by the Company's foreign subsidiaries are
denominated in the local currency, and an increase in the value of the dollar
relative to such currencies reduces the Company's revenues in dollar terms and
could make the Company's products more expensive and, therefore, potentially
less competitive in foreign markets. International operations are subject to
other risks including: foreign government regulation; more prevalent software
piracy; longer payment cycles; unexpected changes in, or imposition of,
regulatory requirements, tariffs, import and export restrictions and other
barriers and restrictions; greater difficulty in accounts receivable
collection; potentially adverse tax consequences; the burdens of complying
with a variety of foreign laws; staffing and managing foreign operations;
political and economic instability; changes in diplomatic and trade
relationships; possible recessionary environments in economies outside the
United States; and other factors beyond the control of the Company, any of
which could have a material adverse effect on the Company's business,
financial condition and results or operations.
The Company relies upon international distributors for sales of its products
in certain foreign countries and, accordingly, is dependent upon their ability
to promote and support the Company's products and, in some cases, to adapt
them to local markets. The Company's international distributors generally
offer products of several different companies, including in some cases
products that are competitive with the Company's products, and such
distributors are not subject to any minimum purchase or resale requirements.
There can be no assurance that the Company's international distributors will
continue to sell the Company's products or provide end users with adequate
levels of support. There can be no assurance that one or more of the foregoing
factors will not
9
<PAGE>
have a material adverse effect on the Company's business, financial condition
or results of operations. See "Business--Marketing, Sales and Distribution."
In October 1995, in connection with an audit of the Company's Japanese
subsidiary by the Japanese tax authorities, the president and general manager
of the subsidiary, who served as a representative director of such subsidiary,
revealed to the Company that he had made $951,000 of improper payments over a
two-year period to a representative of a vendor and received a portion of such
payments back from such vendor representative. The president and general
manager was promptly relieved of his active duties with the subsidiary and
cooperated in finding a new general manager and representative director. The
former employee was removed as representative director of the Japanese
subsidiary in September 1996. After a thorough investigation and upon the
advice of local counsel, the Company disclosed the improper payments to the
Japanese tax authorities which then conducted a comprehensive tax audit. The
Company paid all amounts due as a result of such audit. The Company reached
settlements with such former employee and such representative of the vendor.
The former employee agreed to repay the entire misappropriated amount of
$951,000. To date, the vendor representative has repaid $677,000 and the
former employee has repaid $98,000 of the misappropriated amount to the
Company. The former employee has agreed to repay the remaining total of
$176,000 in nine quarterly installments and a final payment of $121,000 due on
March 31, 1998. Interest accrues at 4.0% per annum on all outstanding amounts.
The former employee is currently in arrears in the amount $17,500 and is
obligated to pay the Company a total of $182,000. In connection with this
debt, the Company has obtained a lien on certain real estate owned by such
former employee. The Company has implemented measures intended to prevent
future similar occurrences, including additional management, financial and
audit controls. Although the Company believes that is has is no material
exposure resulting from this incident, there can be no assurance that adverse
consequences, such as criminal penalties or other governmental sanctions, may
not result from the above incidents or that similar incidences will not occur
in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
SIGNIFICANT FLUCTUATIONS IN OPERATING RESULTS
The Company has experienced significant period-to-period fluctuations in
revenues and operating results and anticipates that such fluctuations will
continue in the future. These fluctuations may be caused by factors such as
volume and timing of orders, the timing and market acceptance of new products
and product enhancements by the Company or its competitors, customer deferrals
of orders in anticipation of such new products and enhancements, progress of
product life cycles, purchasing patterns of customers and distributors, market
acceptance of products sold by the Company's customers, timing and cycle of
foreign and domestic government-affiliated customer purchases, competitive
conditions in the industry, business cycles affecting the markets in which the
Company's products are sold, extraordinary events, such as acquisitions or the
settlement of disputes or lawsuits and economic conditions generally. A large
portion of the Company's revenues come from the sale of multi-user and multi-
site licenses, for which the procurement process of the Company's customers
tends to be several months or longer from the initial inquiry to order and may
involve competing considerations. The Company has at times recognized a
substantial portion of its total revenue from sales booked and shipped in the
latter part of the quarter; thus, the magnitude of quarterly fluctuations may
not become evident until late in a particular quarter. Because the Company's
staffing and operating expenses are based upon anticipated total revenue
levels and a high percentage of the Company's costs are fixed in the short
term, small variations between anticipated orders and actual orders, as well
as non-recurring or larger orders, could cause disproportionate variations in
the Company's operating results from quarter to quarter. Revenues are
generally higher during the fourth quarter, primarily as a result of budget
driven purchases, including purchases by organizations that perform work for
the U.S. government. These fluctuations are expected to continue. See "Risk
Factors--Risk Relating to Holders of Preferred Stock," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business--Marketing, Sales and Distribution" and "Legal Proceedings."
Due to the foregoing and other factors, the Company believes that period-to-
period comparisons of its results of operations are not necessarily meaningful
and should not be relied upon as an indication of future
10
<PAGE>
performance. It is possible that, in some future quarters, the Company's
operating results will be below the expectations of investors and an
investment in the Common Stock could be materially and adversely affected.
COMPETITION
The market for computational algorithm libraries and visual data analysis
software is intensely competitive and is characterized by rapidly advancing
technology. The Company believes that the principal competitive factors in the
industry are functionality, reliability, service, reputation, pricing and
compatibility with hardware platforms, operating systems and programming
languages. In order to maintain or improve its position in the industry, the
Company must continue to enhance its current products and develop new products
and product extensions rapidly. The Company's primary competition arises from
customers and potential customers that internally develop computer programs
similar to the Company's products. Certain manufacturers, including
International Business Machines Corporation, Digital Equipment Corporation and
Silicon Graphics, Inc., incorporate computational libraries in their operating
systems or offer sets of computational algorithms with certain application
developer software. The Company's computational algorithm products also
compete with algorithm libraries that are available to users as "shareware."
In the following product areas, the Company also competes with the following
companies: computational algorithm libraries--Rogue Wave Software, Inc., The
Numerical Algorithms Group Ltd., Waterloo Maple Inc. and Wolfram Research,
Inc.; visual data analysis software--Advanced Visual Systems Inc., Mathsoft,
Inc., The MathWorks, Inc., Research Systems, Inc., SAS Institute Inc. and
SPSS, Inc.; Java application development tools--Rogue Wave Software, Inc.
Hardware or other software vendors could seek to expand their product
offerings by designing and selling products that compete with or otherwise
adversely affect sales of the Company's products. In the area of intranet and
Internet products, companies such as Microsoft Corporation are developing
alternatives to Java and companies such as Borland International Inc. are
developing integrated development environments and associated development
tools that may compete with the Company's new products under development.
Several of these competitors have the ability to offer a single vendor
solution which may have certain competitive advantages over the Company's
products. Many of the Company's existing and potential competitors have
substantially greater financial, technical, marketing and sales resources than
does the Company and may have established relationships with current and
potential customers of the Company. There can be no assurance that the
Company's competitors will not develop technology equivalent or superior to
that of the Company.
In addition, competitive pressures in any market segment could cause the
Company to reduce the prices of its products, which would result in reduced
profit margins. There can be no assurance that the Company will be able to
compete effectively against its current and future competitors. If the Company
were unable to compete successfully, its business, financial condition and
results of operations would be materially and adversely affected. See
"Business--Competition."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends in significant part upon the continued
contributions of certain key personnel, and its ability to attract and retain
additional highly qualified personnel, many of whom are in great demand. The
failure of the Company to attract and retain such personnel could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company is currently seeking to fill important
positions in its Web Products Division, which require recruitment of
individuals who are in high demand. In addition, the Company has opened an
office in Northern California and the Company plans to hire additional
personnel for that office. The Company may need to relocate certain personnel
to that office over the next several years. Competition for highly qualified
personnel is intense and there can be no assurance that any such hiring and
relocation will be accomplished efficiently or that the Company's objectives
in establishing the new office will be realized. Under the PVI Merger
Agreement, the Company agreed to limit the number of options or warrants it
will issue at or above $3.90 per share to 521,960, which may adversely affect
the Company's ability to structure option incentives for key personnel in
desirable ways. There can be no assurance that the Company will be able to
attract and retain highly qualified personnel to advance its operations. In
addition, the Company's President does not work exclusively for the Company.
There can be no assurance that
11
<PAGE>
the IRS will not determine that Mr. Couch or any other consultants should be
treated as employees which could result in adverse tax consequences and
penalties to the Company. Any material diversion of his or their efforts to
other businesses or pursuits could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Employees," "--Facilities," "Management" and "Certain
Transactions."
RAPID TECHNOLOGICAL CHANGE
The market for the Company's computational algorithm libraries and visual
data analysis software is characterized by rapid technological change and
intense competition. The Company's success is dependent upon its ability to
develop and introduce in a timely manner new products that take advantage of
technological advances, to anticipate, identify and adhere to emerging
standards and protocols, to continue to improve the functionality of its
products, to offer products across or compatible with a spectrum of computer
hardware platforms, and designed to work with the various computer operating
systems and software languages, and to respond promptly to customers'
requirements. The Company has from time to time experienced delays in the
development of new products and the enhancement of existing products. There
can be no assurance that the Company will be successful in developing and
marketing, on a timely basis or at all, competitive products, product
enhancements and new products that respond to technological changes, changes
in customer requirements and emerging industry standards, or that the
Company's enhanced or new products will adequately address the changing needs
of the marketplace. The inability of the Company to develop and introduce new
products or product enhancements in a timely manner could have a material
adverse effect on the Company's business, financial condition and results of
operations. From time to time, the Company or its competitors may announce new
products, capabilities or technologies that have the potential to replace or
shorten the life cycles of the Company's existing products; such announcements
may cause customers to defer the purchasing of Company's existing products.
There can be no assurance that the Company will be able to keep pace with
current intranet and Internet technologies and develop products compatible
with standards and protocols utilized on intranets and the Internet. Until
recently, the Company's products were primarily used on the Unix operating
system. The Company has introduced a Windows NT and Windows 95 version of PV-
WAVE and related applications, its visual data analysis software, and is
targeting these platforms for a significant portion of its growth in the near
future. The market for products designed for these platforms has different
characteristics and may eventually include more competitors than does the Unix
market. As a result, there can be no assurance that the Company will be
successful with these new products, or that significant new competition will
not develop. Any failure by the Company to anticipate or respond adequately to
changing market conditions, or any significant delays in product development
or introduction, would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Industry Background."
RISKS OF PRODUCT AND OTHER LIABILITY OR PRODUCT DEFECTS
Software products are highly complex and often contain undetected errors or
compatibility problems, particularly when first introduced or as new versions
are released. There can be no assurance that, despite testing by the Company
and testing and use by current and potential customers, errors in new products
will not be discovered after commencement of commercial shipments. The
occurrence of such errors could result in loss of, or delay in, market
acceptance of the Company's products, which could have a material adverse
effect on the Company's business, financial condition and results of
operations. The Company's products may be used by customers for critical
business and other decision making purposes where the failure of the Company's
products could be linked to substantial economic loss. The Company's license
and other agreements with its customers typically contain provisions designed
to limit the Company's exposure to potential product liability and other
claims. The limitations on liability contained in the Company's agreements are
not effective in all circumstances. Although the Company has not experienced
any product liability or economic loss claims to date, the sale and support of
the Company's products entails the risk of such claims. The Company carries
insurance against product liability risks and errors or omissions, although
there can be no assurance that such insurance will
12
<PAGE>
continue to be available to the Company on commercially reasonable terms or at
all. A product liability claim or claim for economic loss brought against the
Company in excess of or outside the limits of its insurance coverage, or a
product recall involving the Company's software, could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business--Products."
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY
The Company's success depends heavily upon its proprietary technology. To
protect its proprietary rights, the Company relies on a combination of
copyright, trade secret and trademark laws, nondisclosure and other
contractual restrictions on copying, distribution and technical measures,
including provisions in its shrink wrap licenses. The Company seeks to protect
its software, documentation and other written materials through trade secret
and copyright laws, which provide only limited protection. As part of its
confidentiality procedures, the Company generally enters into nondisclosure
agreements with its employees, consultants, technical advisors and corporate
partners and limits access to and distribution of its software, documentation
and other proprietary information. End user licenses of the Company's software
are frequently in the form of shrink wrap license agreements, which are not
signed by licensees, and may ultimately be unenforceable under the laws of
certain jurisdictions. In the future, licenses may be obtained over the
Internet and the enforceability of such licenses may be subject to similar
limitations. Despite the Company's efforts to protect its proprietary rights,
unauthorized third parties may be able to copy or reverse engineer the
Company's products or obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's products is difficult,
and while the Company is unable to determine the extent to which software
piracy of its products exists, software piracy can be expected to be a
persistent problem. In addition, effective protection of intellectual property
rights may be unavailable or limited in certain countries. Because the Company
receives a significant portion of revenues from sales of products in foreign
markets, unauthorized copying and distribution would have a material adverse
effect on the Company's business, financial condition and results of
operations.
The Company licenses certain technologies from third parties, such as the
core graphics technology related to its Exponent Graphics product. Generally,
these licenses are non-exclusive and have fixed terms and fixed royalty rates.
If the agreements were to expire or terminate for any reason, the Company
would no longer be able to incorporate these technologies into its products.
There can be no assurance that the Company will be able to maintain its third-
party licenses successfully.
As the number of patents, copyrights, trademarks and other intellectual
property rights in the Company's industry increases, products based upon its
technology may increasingly become the subject of infringement claims. There
can be no assurance that third parties will not assert infringement claims
against the Company in the future. Any such claims, with or without merit,
could be time consuming, result in costly litigation, cause product shipment
delays or require the Company to enter into royalty or licensing agreements.
Other royalty or licensing agreements, if required, may not be available on
terms acceptable to the Company, or at all, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, the Company may initiate claims or litigation against
third parties for infringement of the Company's proprietary rights or to
establish the validity of the Company's proprietary rights. Litigation to
determine the validity of any claims, whether or not such litigation is
determined in favor of the Company, could result in significant expense to the
Company and divert the efforts of the Company's technical and management
personnel from operating and research and development activities. In the event
of an adverse ruling in any such litigation, the Company might be required to
pay substantial damages, discontinue the use and sale of infringing products,
expend significant resources to develop noninfringing technology or obtain
licenses to infringing technology. See "Business--Proprietary Rights."
PRODUCT CONCENTRATION
The Company's products are generally limited to computational algorithm
libraries and visual data analysis software. The primary users of these
products are application developers requiring sophisticated tools for
13
<PAGE>
computationally intensive mathematical and statistical analysis of data, and
the market for such products is limited. The Company derives substantially all
of its revenues from sales and services relating to its computational
algorithm libraries and visual data analysis software. Any downturn in the
market and demand for these products and services, whether caused by
competition, technological change, price pressures or other factors, would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Products" and "--Competition."
CONTROL BY EXISTING SHAREHOLDERS
After the offering, officers and directors of the Company, together with
entities affiliated with them, will beneficially own, as such term is defined
under the rules of the Securities and Exchange Commission, approximately 54.0%
of the Common Stock (approximately 52.7% if the Underwriter's over-allotment
option is exercised in full). These shareholders, acting as a group, will
continue to be able to control the election of all members of the Company's
Board of Directors and to determine all corporate actions after the sale of
the shares offered hereby. The voting power of these shareholders could also
have the effect of delaying or preventing a change in control of the Company.
See "Principal Shareholders" and "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
After the offering and based upon the shares outstanding as of December 31,
1996, a total of 8,128,129 shares of Common Stock will be outstanding assuming
no exercise of the Underwriter's over-allotment option. Of these shares, the
1,650,000 shares offered hereby (assuming no exercise of the Underwriter's
over-allotment option) will be freely tradable without restriction under the
Securities Act of 1933, as amended (the "Securities Act"), unless held by
"affiliates" of the Company (as that term is defined in Rule 144 of the
Securities Act). The remaining 6,478,129 shares will be "restricted
securities" as that term is defined under Rule 144 (the "Restricted Shares").
Sales of Restricted Shares in the public market, or the availability of such
shares for sale, could adversely affect the market price of the Common Stock.
Of the 6,478,129 Restricted Shares, 2,691,085 are eligible for immediate
sale pursuant to Rule 144(k) under the Securities Act and 3,787,044 shares are
eligible for public sale if sold in accordance with Rule 144 or Rule 701
thereunder (subject in the case of 3,749,040 of these shares to volume
restrictions under Rule 144 thereunder). Of the 6,478,129 Restricted Shares,
4,952,589 are subject to contractual restrictions preventing the holders from
selling Common Stock owned by them for a period of 180 days from the effective
date of this Prospectus.
An aggregate of 921,819 shares issuable upon exercise of vested stock
options will be eligible for public sale if sold in accordance with Rule 144
and Rule 701 under the Securities Act beginning 90 days after the date of this
Prospectus. Of the 921,819 shares issuable upon exercise of vested stock
options, 535,080 shares issuable upon exercise of options are subject to
contractual restrictions preventing the holders from selling Common Stock
owned by them for a period of 180 days from the effective date of this
Prospectus, unless earlier released, in whole or in part, by the Underwriter.
Although it is anticipated that the Common Stock will not be listed on a
securities exchange or any other trading market and there will be no public
market for the shares, the shares offered hereby will be freely tradable.
Shares held by shareholders that are not Restricted Shares will also be
tradable (typically these are shares that have been held by shareholders for
longer than three years). Restricted Shares will become tradable upon the
shareholder's satisfying the applicable holding period under the Securities
Act or obtaining reliance upon another applicable exemption from registration
under the Securities Act. See "Description of Capital Stock" and "Shares
Eligible for Future Sale."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Articles of Incorporation to be
effective upon the consummation of this offering, including the ability of the
Company's directors to issue and determine the rights, preferences,
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<PAGE>
privileges and restrictions of up to 5,000,000 shares of preferred stock
without shareholder approval, and its agreements with key employees that
provide for certain severance arrangements and the acceleration of vesting of
options upon a change in control of the Company, could prevent or make more
difficult a sale of the Company or its assets. See "Management--Employment and
Consulting Agreements," "Certain Transactions" and "Description of Capital
Stock--Anti-Takeover Provisions."
ABSENCE OF DIVIDENDS
The Company has not declared or paid dividends on its Common Stock and does
not anticipate declaring or paying cash dividends in the foreseeable future.
See "Dividend Policy."
DILUTION
Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution in the net tangible book value per share of Common Stock
of $2.44 from the assumed initial offering price set forth on the cover of
this Prospectus. In addition, substantial dilution will occur upon exercise of
outstanding options to purchase the Common Stock. See "Dilution."
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<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 1,650,000 shares of Common Stock
offered hereby are estimated to be approximately $3,461,000 ($4,037,000 if the
Underwriter's over-allotment option is exercised in full) based upon an
assumed initial public offering price of $2.50 per share and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses.
The Company currently intends to use the net proceeds from this offering
primarily to fund new product development and marketing. The balance of the
net proceeds will be added to working capital and used for general corporate
purposes. The Company intends to spend significant financial resources to
develop new products rapidly and may need to hire additional technical
personnel. The amount of net proceeds used for any specific purpose will
depend upon such factors as the rate and success of new product development,
changes in technology and competition and the market acceptance of any new
products. Pending such uses, the Company intends to invest the net proceeds
from this offering in short-term, government securities and other investment-
grade, interest-bearing securities.
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock and does not
anticipate paying cash dividends in the foreseeable future. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will depend upon the Company's financial condition, results of
operations, capital requirements and such other factors as the Board of
Directors deems relevant. The Company is restricted from paying any dividends
on its capital stock under its bank credit agreement.
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CAPITALIZATION
The following table sets forth as of September 30, 1996 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the
Company reflecting the automatic conversion of all outstanding shares of the
Preferred Stock into Common Stock and the issuance of 60,000 shares of Common
Stock to Gordian Group, L.P. pursuant to an agreement dated October 10, 1996
at an assumed initial public offering price of $2.50 per share, and (iii) the
as adjusted capitalization giving effect to the sale of the 1,650,000 shares
of Common Stock in the offering contemplated hereby at an assumed initial
public offering price of $2.50 per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses, and
the application of the estimated net proceeds therefrom. This table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Description of Capital Stock" and the
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------------
PRO AS
ACTUAL FORMA ADJUSTED
--------- --------- -----------
(IN THOUSANDS, EXCEPT SHARES)
<S> <C> <C> <C>
Current maturities and obligations............ $ 2,316 $ 2,316 $ 2,316
Notes payable and long-term debt.............. 2,576 2,576 2,576
Capital lease obligations, net of current
portion...................................... 407 407 407
Series D Preferred Stock, redeemable, no par
value; authorized (1): issued and
outstanding: 925,000 shares actual, no shares
pro forma and as adjusted.................... 3,608 -- --
Shareholders' equity (deficit):
Common Stock, $0.02 par value; authorized:
17,000,000 shares actual, pro forma and as
adjusted; issued: 2,195,750 shares actual,
6,486,769 shares pro forma and 8,136,769
shares as adjusted; outstanding: 2,190,950
shares actual; 6,478,129 shares pro forma
and 8,128,129 shares as adjusted (2)....... 44 130 163
Preferred Stock, no par value; authorized:
10,000,000 shares actual and pro forma,
5,000,000 shares as adjusted:
Series A Preferred Stock; authorized:
3,193,500 shares actual, no shares pro
forma and as adjusted; issued and
outstanding: 2,888,500 shares actual, no
shares pro forma and as adjusted......... 578 -- --
Series B Preferred Stock; authorized:
163,390 shares actual, no shares pro
forma and as adjusted; issued and
outstanding: 147,390 shares actual, no
shares pro forma and as adjusted......... 177 -- --
Series D Preferred Stock, nonredeemable;
authorized (1): issued 270,129 shares;
outstanding: 266,289 shares actual, no
shares pro forma and as adjusted......... 1,054 -- --
Treasury stock, at cost; 4,800 shares of
Common Stock actual, 8,640 shares pro forma
and as adjusted; 3,840 shares of Series D
Preferred Stock actual, no shares pro forma
and as adjusted............................ (16) (16) (16)
Additional paid-in capital.................. 249 5,729 9,157
Accumulated deficit......................... (1,827) (1,978) (1,978)
Cumulative translation adjustment........... (265) (265) (265)
--------- --------- ---------
Total shareholders' equity................ (7) 3,600 7,061
--------- --------- ---------
Total capitalization...................... $ 8,899 $ 8,899 $ 12,360
========= ========= =========
</TABLE>
17
<PAGE>
- --------
(1) As of September 30, 1996 there were 1,583,555 shares of Series D Preferred
Stock authorized, 1,195,129 shares of Series D Preferred Stock issued and
1,191,289 shares of Series D Preferred Stock outstanding. Of these
1,191,289 shares outstanding, 925,000 shares are redeemable pursuant to an
agreement between the former PVI stockholders and the Company, which
obligates the Company to repurchase such shares under certain
circumstances which obligation terminates upon the closing of a firm
commitment public offering, such as the offering contemplated by this
Prospectus. See "Risk Factors--Risk Relating to Holders of Preferred
Stock," "Certain Transactions" and Note 8 of Notes to the Financial
Statements.
(2) Excludes (i) 2,077,750 shares of Common Stock issuable upon exercise of
employee stock options outstanding as of September 30, 1996 with a
weighted average exercise price of $0.40 per share, (ii) 123,331 shares of
Common Stock issuable upon exercise of warrants outstanding at September
30, 1996 with a weighted average exercise price of $3.90 per share, and
(iii) an aggregate of 2,292,250 reserved for future issuance under the
Company's 1993 stock plan. See "Management--Stock Plans" and "Description
of Capital Stock" and Note 6 of Notes to Consolidated Financial
Statements.
18
<PAGE>
DILUTION
The pro forma net tangible book value of the Common Stock as of September
30, 1996, would have been approximately $(3.0) million or approximately
$(0.46) per share. Pro forma net tangible book value per share represents the
amount of the Company's total tangible assets reduced by the amount of its
total liabilities, divided by the total number of issued and outstanding
shares of Common Stock (assuming the conversion of all outstanding shares of
Preferred Stock into Common Stock upon closing of the offering contemplated by
this Prospectus).
Dilution per share to new investors represents the difference between the
amount per share paid by purchasers of shares of Common Stock in this offering
and the pro forma net tangible book value per share of Common Stock
immediately after completion of this offering. After giving effect to the sale
of the 1,650,000 shares of Common Stock in this offering at an assumed initial
public offering price of $2.50 per share, and after deducting underwriting
discounts and commission and estimated offering expenses payable by the
Company, the Company's as adjusted net tangible book value at September 30,
1996, would have been approximately $496,000, or approximately $0.06 per
share. This represents an immediate increase in net tangible book value of
$0.52 per share to existing shareholders and an immediate dilution in net
tangible book value of $2.44 per share to new investors purchasing shares of
Common Stock in this offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $ 2.50
Pro forma net tangible book value per share at September 30,
1996......................................................... $(0.46)
Increase per share attributable to new investors.............. 0.52
------
As adjusted net tangible book value per share after the
offering....................................................... 0.06
------
Dilution per share to new investors............................. $ 2.44
======
</TABLE>
The following table sets forth, on a pro forma basis as of September 30,
1996, the number of shares purchased from the Company, the total consideration
paid and the average price per share paid by existing shareholders and by new
investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Existing shareholders........ 6,478,129 79.7% $ 5,843,000 58.6% $0.90
New investors................ 1,650,000 20.3 4,125,000 41.4 2.50
--------- ----- ------------ -------
Total...................... 8,128,129 100.0% $ 9,968,000 100.0%
========= ===== ============ =======
</TABLE>
The foregoing discussion and table assumes (i) conversion of outstanding
Preferred Stock into Common Stock upon the closing of the offering
contemplated by this Prospectus; (ii) no exercise of outstanding warrants or
options after September 30, 1996; and (iii) no exercise of the Underwriter's
over-allotment option. At September 30, 1996, there were stock options
outstanding to purchase 2,077,750 shares of Common Stock under the Company's
stock plans at a weighted average exercise price of $0.40 per share, and
warrants outstanding to purchase 123,331 shares of Common Stock at a weighted
average exercise price of $3.90 per share. To the extent these stock options
and warrants or additional options or warrants issued after September 30, 1996
are exercised, there will be further dilution to the new investors in the
offering contemplated hereby. See "Management--Executive Compensation,"
"Certain Transactions," "Description of Capital Stock" and Note 6 of Notes to
Consolidated Financial Statements.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data is qualified by reference
to and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus. The consolidated balance sheet data at December 31, 1994 and 1995
and the consolidated statement of operations data set forth below for each of
the years in the three-year period ended December 31, 1995 are derived from,
and are qualified by reference to, the Consolidated Financial Statements,
which have been audited by KPMG Peat Marwick LLP, independent certified public
accountants, included elsewhere in this Prospectus and should be read in
conjunction with those Consolidated Financial Statements and the Notes
thereto. The consolidated statement of operations data for the year ended
December 31, 1992 and the consolidated balance sheet data as of December 31,
1992 and 1993 are derived from the financial statements of the Company audited
by KPMG Peat Marwick LLP that are not included herein. The consolidated
statement of operations data for the year ended December 31, 1991 and the
consolidated balance sheet data as of December 31, 1991 are derived from the
financial statements of the Company audited by Deloitte & Touche LLP that are
not included herein. The consolidated statements of operations data for the
nine months ended September 30, 1995 and 1996 and the balance sheet data at
September 30, 1996 have been derived from the Company's unaudited consolidated
financial statements included elsewhere in the Prospectus, which have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for such periods. The results of operations
for the nine months ended September 30, 1996 are not necessarily indicative of
results to be expected for the full year or for any subsequent period.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenue................. $ 19,476 $ 22,494 $ 30,322 $ 32,713 $ 30,001 $ 21,963 $ 19,102
Costs and expenses:
Operating.............. 7,726 10,259 16,405 16,052 15,296 11,373 9,156
General and
administrative........ 8,845 6,637 13,656 11,610 10,290 7,925 6,909
Research and
development........... 2,564 2,934 3,822 2,918 4,215 3,100 3,537
Charge for acquired
research and
development........... -- 4,225 -- -- -- -- --
Write-down of
investment in
subsidiary............ -- -- 1,664 -- -- -- --
Special charge for
asset impairment...... -- -- 723 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total costs and
expenses............ 19,135 24,055 36,270 30,580 29,801 22,398 19,602
--------- --------- --------- --------- --------- --------- ---------
Operating income
(loss)................. 341 (1,561) (5,948) 2,133 200 (435) (500)
Other income (loss)..... 40 (156) (185) (329) (272) (121) (209)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before
extraordinary item
and income taxes...... 381 (1,717) (6,133) 1,804 (72) (556) (709)
Income taxes expense
(benefit).............. 144 973 (1,087) 719 10 (189) --
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before
extraordinary item..... 237 (2,690) (5,046) 1,085 (82) (367) (709)
--------- --------- --------- --------- --------- --------- ---------
Extraordinary gain on
debt restructuring..... -- -- -- 520 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)....... $ 237 $ (2,690) $ (5,046) $ 1,605 $ (82) $ (367) $ (709)
========= ========= ========= ========= ========= ========= =========
Net income (loss) per
share(1)............... $ 0.23 $ (2.53) $ (2.56) $ 0.38 $ (0.04) $ (0.17) $ (0.32)
Pro forma net income
(loss) per share(1).... $ 0.05 $ (0.47) $ (0.81) $ 0.19 $ (0.01) $ (0.06) $ (0.11)
Shares used in computing
pro forma net loss per
share(1)............... 5,210,425 5,681,950 6,220,553 8,470,099 6,478,129 6,478,129 6,478,129
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 1,632 $ 2,110 $ 1,593 $ 1,704 $ 1,506 $ 1,071
Total current assets.... 7,043 11,590 10,073 11,797 11,959 9,319
Working capital(2)...... 3,531 3,256 472 3,097 5,349 2,187
Long-term debt.......... 803 1,482 1,611 103 2,535 2,576
Capital lease
obligations, net of
current portion........ -- 438 128 193 267 407
Redeemable preferred
stock(3)............... -- -- 4,607 4,607 4,607 3,608
Total shareholders'
equity (deficit)(3).... 6,153 6,847 (906) 920 923 (7)
</TABLE>
- --------
(1) Net income (loss) per share reflects the occurrence of a five-for-one
stock split in April 1993 and is computed based upon the weighted average
number of common shares and common share equivalents outstanding during
the period. The weighted average shares used in the net income (loss) per
share calculations were 1,033,082, 1,063,453, 1,971,178, 4,182,920 and
2,190,950 for 1991, 1992, 1993, 1994 and 1995, respectively, and were
2,190,950 and 2,190,950 for September 30, 1995 and September 30, 1996,
respectively. Pro forma net income (loss) per share reflects the
conversion of all outstanding shares of Preferred Stock into Common Stock
and is computed based upon the weighted average number of common shares
and common share equivalents outstanding during the period.
(2) Working capital consists of current assets less current liabilities plus
unearned support and maintenance revenues.
(3) Reflects reclassification of certain redeemable shares of Series D
Preferred Stock, which automatically convert into shares of Common Stock
upon the completion of the offering. See "Risk Factors--Risk Relating to
Holders of Preferred Stock."
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus, including Management's Discussion and Analysis of Financial
Condition and Results of Operations, contains forward-looking statements
relating to future events and the future financial performance of the Company.
Such statements are only projections and the actual events or results may
differ materially from the results discussed in these forward-looking
statements. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in "Risk Factors" or
elsewhere in this Prospectus. The historical results set forth in this
discussion and analysis are not necessarily indicative of trends with respect
to any actual or projected future financial performance of the Company. This
discussion and analysis should be read in conjunction with the consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
SUMMARY
The Company was founded as International Mathematical and Statistical
Libraries, Inc. in 1970 and changed its name to IMSL, Inc. in 1981. In
December 1992, the Company acquired Precision Visuals, Inc. ("PVI"), a
developer of visual data analysis software, and changed its name to Visual
Numerics, Inc. following the merger. The Company is engaged in the
development, marketing and sale of computational algorithm libraries and
visual data analysis software products that provide solutions to
computationally intensive computing problems in the areas of science,
engineering, research, education and finance.
The Company derives revenue from software license fees and related customer
support, training, consulting and other services, and from certain other
sources. The Company licenses its software to customers either through
perpetual licenses or renewable annual licenses. Revenue from non-cancellable
perpetual licenses is recognized upon execution of a license agreement and
shipment of the product if no significant contractual obligation remains and
collection of the resulting receivable is probable. Revenue from renewals of
annual licenses is recognized upon receipt of a written commitment to renew.
The largest portion of service revenue is derived from customer support fees,
which the Company recognizes ratably over the term of the support agreement
(usually one year). For all periods presented, the Company has recognized
revenue in accordance with Statement of Position 91-1 relating to Software
Revenue Recognition. For the year ended December 31, 1995, the Company derived
62.9% of its revenue from software license sales and renewals, 31.5% from
support and 5.6% from training, consulting, OEM arrangements and other
sources.
The Company conducts significant international business through its
subsidiaries in Europe and Japan. Over the past 12 months, the Company has
experienced significant disruptions in the operations of two of its
international subsidiaries. In October 1996, the Company relieved the
president and general manager of its Japanese subsidiary of his active duties
with the subsidiary after certain misappropriations of funds were revealed. In
addition, the Company terminated certain employees in its United Kingdom
subsidiary based upon performance. The Company believes that the decrease in
revenue for the nine months ended September 30, 1996 was primarily the result
of declines in sales in its European and Japanese subsidiaries a portion of
which was attributable to changes in management and anticipates that sales for
the next 12 months may continue to be adversely affected by those changes. See
"Risk Factors--Risks Associated with International Operations."
International revenue accounted for 44.8% of the Company's revenue in the
nine months ended September 30, 1996. Although the Company's international
subsidiaries distribute the Company's products, all products are licensed
directly from the Company. Sales by the Company's foreign subsidiaries are
denominated in the local currency, and an increase in the relative value of
the dollar against such currencies would reduce the Company's revenues in
dollar terms and could make the Company's products more expensive and,
therefore, potentially less competitive in foreign markets. The foreign
subsidiaries make periodic royalty payments to the Company in accordance with
distribution agreements with the Company. The Company translates its financial
statements for
22
<PAGE>
its foreign subsidiaries into U.S. dollars in accordance with generally
accepted accounting principles. The adjustments resulting from currency
translations are reflected as cumulative translation adjustments and included
in shareholders' equity. The Company does not hedge its foreign currency
royalty payments or enter into foreign exchange contracts. Exposure to
currency fluctuations may contribute to fluctuations in, and could have a
material adverse effect on, the Company's business, financial condition and
results of operations. See "Risk Factors--Risk of International Operations."
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenue represented by
certain data for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- -------------------
1993 1994 1995 1995 1996
----- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenue:
Computational libraries........ 30.9% 32.4% 32.6% 32.5% 25.6%
Visual data analysis software.. 29.6 35.9 31.1 30.5 32.8
Service and support revenue.... 39.5 31.7 36.3 37.0 41.6
----- ----- ----- -------- --------
Total revenue................ 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Operating...................... 54.1% 49.1% 51.0% 51.8% 47.9%
General and administrative..... 45.0 35.5 34.3 36.1 36.2
Research and development....... 12.6 8.9 14.0 14.1 18.5
Write-down of investment in
subsidiary.................... 5.5 -- -- -- --
Special change for asset
impairment.................... 2.4 -- -- -- --
----- ----- ----- -------- --------
Total costs and expenses..... 119.6 93.5 99.3 102.0 102.6
Operating income (loss).......... (19.6) 6.5 0.7 (2.0) (2.6)
Other income (expense)........... (0.6) (1.0) (0.9) (0.5) (1.1)
----- ----- ----- -------- --------
Income (loss) before income tax
and extraordinary item.......... (20.2) 5.5 (0.2) (2.5) (3.7)
Income taxes expense (benefit)... (3.6) 2.2 0.1 0.8 --
Extraordinary item, net of tax... -- 1.6 -- -- --
----- ----- ----- -------- --------
Net income (loss)................ (16.6)% 4.9% (0.3)% (1.7)% (3.7)%
===== ===== ===== ======== ========
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Revenue. Revenue includes sales of computational algorithm libraries, sales
of PV-Wave products and revenue from sales and support.
Revenue decreased 13.0% to $19.1 million in the nine months ended September
30, 1996 from $22.0 million in the corresponding period of the prior year,
primarily as a result of lower sales of IMSL library products but also as a
result of reduced revenues from sales of PV-WAVE products and maintenance and
support services. The Company expects revenue from its IMSL Fortran library
products to continue to decrease as the number of Fortran programmers
decreases. International sales decreased 19.5% to $8.5 million, or 44.8% of
revenue, in the nine months ended September 30, 1996 from $10.6 million, or
48.4% of revenue, in the corresponding period of the prior year primarily as a
result of lower sales in Japan. The decline in revenue in Japan resulted from
management changes in early 1996 and the disproportionate reliance on the
declining IMSL Fortran algorithm library products in Japan. European sales
decreased largely due to management changes and sales force turnover in the
United Kingdom and softened demand due to economic conditions in Germany and
France. North American sales declined due to a realignment of sales
territories and the resultant disruption of sales activities.
23
<PAGE>
Operating Expenses. Operating expenses consist of all costs related to
marketing, sales lead generation and selling. This includes employee costs,
advertising, commissions, travel, trade shows and allocated facilities costs.
Operating expenses decreased 19.5% to $9.2 million, or 47.9% of revenue, in
the nine months ended September 30, 1996 from $11.4 million, or 51.8% of
revenue, in the nine months ended September 30, 1995. Reduced sales
commissions based upon the lower sales level directly contributed to the lower
level of operating expenses; however, the decrease in operating expenses as a
percentage of sales was attributable to the implementation of cost reduction
measures, particularly related to marketing expense, and to a reduction in
overhead resulting from the realignment of the Company's North American sales
territories.
General and Administrative Expenses. General and administrative expenses
include all costs related to executive management, finance, human resources,
information services, legal, printing and product fulfillment. General and
administrative expenses also include fixed-asset depreciation and
amortization, goodwill amortization and the net effect of software
capitalization and amortization.
General and administrative expenses decreased 12.8% to $6.9 million, or
36.2% of revenue, in the nine months ended September 30, 1996 from $7.9
million, or 36.1% of revenue, in the comparable period of the prior year due
in part to lower product fulfillment costs as a result of a lower revenue, and
a reduction in costs related to executive management and reduced fixed asset
amortization and depreciation charges.
Research and Development Expenses. Research and development expenses consist
primarily of personnel costs, contractor costs and allocated facilities costs
required to conduct the Company's product development, customer support,
testing and quality assurance and control activities.
Research and development expenses increased 14.1% to $3.5 million, or 18.5%
of revenue, in the nine months ended September 30, 1996 from $3.1 million, or
14.1% of revenue, in the corresponding period of the prior year. The increase
was primarily attributable to development of new products designed for
operation with intranets and the Internet, PV-WAVE 6.0 for Windows 95 and
Windows NT, and computational algorithm libraries for C++. The Company has
suspended research and development relating to its C++ products due to a
desire to focus on intranet and Internet technologies and insufficient market
demand for C++ products. The Company expects research and development costs to
increase as the Company expands its development of new products for intranets
and the Internet.
Other Income (Expense). Other income and expense includes interest expense,
interest income and other miscellaneous sources of income that are not
recorded as revenue. Other expenses increased to $209,000 in the nine months
ended September 30, 1996 from $121,000 in the nine months ended September 30,
1995. The increase was principally due to higher interest expense resulting
from an overall increase the Company's debt over the period and a slight
increase in the interest rate applicable to such debt.
1995 COMPARED TO 1994
Revenue. Revenue decreased 8.3% to $30.0 million in 1995 from $32.7 million
in 1994, due primarily to lower product revenue, partially offset by higher
maintenance and support revenue. The decline in product revenue was primarily
the result of a delay in the release of a new version of PV-WAVE and
secondarily to declines in IMSL library product revenue. In addition, revenue
from sales of Stanford Graphics, a plotting and charting application tool
product, decreased by $500,000 due to competitive pressures from office suite
presentation graphics programs. The Company has decided to discontinue this
product. The foregoing decrease in revenue was partially offset by higher
sales of IMSL C Products, Exponent Graphics, university licensing revenue and
porting revenue. International revenue increased 7.3% to $15.5 million, or
51.5% of revenue, in 1995 from $14.4 million, or 44.0% of revenue, in 1994.
This increase was attributable to increases in Japanese and European revenues
of 24.5% and 8.4%, respectively, due to increased revenue from porting
activities in
24
<PAGE>
Japan and overall increased demand for PV-WAVE products and the increase in
international revenue as a percentage of revenue also reflects the decrease in
U.S. revenue.
Operating Expenses. Operating expenses decreased 4.7% to $15.3 million, or
51.0% of revenue, in 1995 from $16.1 million, or 49.1% of revenue, in 1994,
due primarily to a transfer of consulting and pre-sales support personnel to
product development. A decrease in sales administration and management costs
were offset by higher direct sales costs resulting from an increase in direct
sales force headcount.
General and Administrative Expenses. General and administrative expenses
decreased 11.4% to $10.3 million, or 34.3% of revenue, in 1995 from $11.6
million, or 35.5% of revenue, in 1994, as a result of a one-time $1.5 million
charge in 1994 for settlement of a legal action. The foregoing decrease was
offset slightly by an increase in European expenses due to the addition of a
vice president of European operations in late 1994.
Research and Development Expenses. Research and development expenses
increased 44.4% to $4.2 million, or 14.0% of revenue, in 1995 from $2.9
million, or 8.9% of revenue in 1994, primarily due to additional personnel
costs associated with the development of a new version of PV-WAVE, Wave 6.0
for Windows 95 and Windows NT and development of computational algorithm
libraries for C++.
Other Income (Expense). Other expenses decreased to $272,000 in 1995 from
$329,000 in 1994. The increase was largely attributable to a decrease in
interest expense resulting from an overall decrease the Company's debt over
the period.
1994 COMPARED TO 1993
Revenue. Revenue increased 7.9% to $32.7 million in 1994 from $30.3 million
in 1993, primarily as a result of new product releases and upgrades, increased
performance of the Company's sales force and improved economic conditions in
Europe. International revenues increased 13.4% to $14.4 million, or 44.0% of
revenue, in 1994 from $12.7 million, or 42.0% of revenue, in 1993, primarily
due to increases in revenues in Japan and Europe of 29.7% and 24.2%,
respectively. The increase in Japanese and European revenues both were the
result of improved integration of PV-WAVE into the product line and, with
respect to Europe, stabilization of the sales force. North American revenues
increased 4% due to increased demand for the Company's products.
Operating Expenses. Operating expenses decreased 2.2% to $16.1 million, or
49.1% of revenue, in 1994 from $16.4 million, or 54.1% of revenue, in 1993,
due primarily to increased efficiencies resulting from improved integration of
PVI following its acquisition.
General and Administrative Expenses. General and administrative expenses
decreased 15.0% to $11.6 million, or 35.5% of revenue, in 1994 from $13.7
million, or 45.0% of revenue, in 1993, primarily as a result of efficiencies
gained from improved integration of PVI following its acquisition including
the elimination of redundant executive management and product fulfillment
activities.
Research and Development Expenses. Research and development expenses
decreased 23.7% to $2.9 million, or 8.9% of revenue, in 1994 from $3.8
million, or 12.6% of revenue, in 1993. The decrease was attributable to the
reduction of research and development expenditures, including a reduction in
force, implemented to enable the Company to meet its debt requirements
resulting from the acquisition of PVI.
Special Charge for Asset Impairment. The Company recorded a one-time charge
of $723,000 in 1993 in anticipation of a sale of certain real estate assets
below their original purchase price. The sale was completed in 1994 with no
additional gain or loss.
Write-Down of Investment in Subsidiary. Based upon the prospect of continued
operating losses, the operation of 3-D Visions was discontinued. A write-down
of $1.7 million was recorded at December 31, 1993 related to the recorded
assets net of 3-D Visions.
25
<PAGE>
Other Income (Expense). Other expenses increased to $329,000 in 1994 from
$185,000 in 1993, due primarily to an increase in interest expense resulting
from an overall increase in the Company's debt.
Extraordinary Gain on Debt Restructuring. In 1994 the Company had an
extraordinary gain on debt restructuring attributable to an agreement with 3-D
Visions and its unsecured creditors to settle amounts due to such creditors.
INCOME TAXES
The Company's income tax expense differs from amounts computed by applying
the U.S. federal income tax rate of 34% to income, or loss, before income tax
and extraordinary item. The differences result from amortization of goodwill,
foreign taxes of foreign subsidiaries and other factors.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth the quarterly financial data for the seven
quarters ended September 30, 1996, including such amounts expressed as a
percentage of revenue. This quarterly information is unaudited, but in the
opinion of management reflects all adjustments (consisting only of normal
recurring adjustments) that the Company considers necessary for a fair
presentation of such information in accordance with generally accepted
accounting principles. The results for any quarter are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------
MAR 31, JUN 30, SEP 30, DEC 31, MAR 31, JUN 30, SEP 30,
1995 1995 1995 1995 1996 1996 1996
------- ------- ------- ------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenue................. $7,492 $7,897 $6,574 $8,038 $6,284 $6,609 $6,209
Costs and expenses:
Operating............. 3,502 4,111 3,760 3,923 2,688 3,371 3,097
General and
administrative....... 2,883 2,702 2,340 2,365 2,325 2,368 2,216
Research and
development.......... 976 1,000 1,124 1,115 1,146 1,190 1,201
------ ------ ------ ------ ------ ------ ------
Total costs and
expenses........... 7,361 7,813 7,224 7,403 6,159 6,929 6,514
Operating income
(loss)................. 131 84 (650) 635 125 (320) (305)
Other income (expense).. 12 (33) (100) (151) (153) (16) (40)
------ ------ ------ ------ ------ ------ ------
Income (loss) before
income tax............. $ 143 $ 51 $ (750) $ 484 $ (28) $ (336) $ (345)
------ ------ ------ ------ ------ ------ ------
PERCENT OF REVENUE DATA:
Costs and expenses:
Operating............. 46.7% 52.1% 57.2% 48.8% 42.8% 51.0% 49.9%
General and
administrative....... 38.5 34.2 35.6 29.4 37.0 35.8 35.7
Research and
development.......... 13.0 12.7 17.1 13.9 18.2 18.0 19.3
------ ------ ------ ------ ------ ------ ------
Total costs and
expenses........... 98.2 98.9 109.9 92.1 98.0 104.8 104.9
Operating income
(loss)................. 1.8 1.1 (9.9) 7.9 2.0 (4.8) (4.9)
Other income (expense).. 0.2 (0.4) (1.5) (1.9) (2.4) (0.2) (0.6)
------ ------ ------ ------ ------ ------ ------
Income (loss) before
income tax............. 2.0% 0.7% (11.4)% 6.0% (0.4)% (5.0)% (5.5)%
====== ====== ====== ====== ====== ====== ======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company's principal sources of liquidity
included cash generated from ongoing operations, cash and cash equivalents and
amounts available under its bank credit agreement. For the nine months ended
September 30, 1996, the Company's operating activities provided cash in the
amount of $1.1 million primarily as a result of decreases in accounts
receivable offset by decreases in accounts payable and accrued liabilities.
For the same period during 1995, the Company's operating activities provided
cash in the
26
<PAGE>
amount of $1.2 million primarily from net income offset by decreases in
accounts payable and accrued liabilities. The Company currently uses its
working capital to finance ongoing operations and to fund the development and
introduction of new products. From 1993 through 1995, the Company retired
approximately $3.6 million in debt related to its acquisition of PVI.
In July 1996, the Company re-negotiated its bank credit agreement to provide
for an increased credit facility, a split of that facility into a term note
and a revolving line of credit, covenants and restrictions that were less
restrictive, and an extended maturity date. The $1.5 million aggregate
principal amount of the term note is due and payable in twelve quarterly
installments of $125,000 commencing April 30, 1997 and accrues interest at the
bank's prime rate plus 1.5%. Aggregate borrowings under the revolving line of
credit are limited to 80% of eligible accounts receivable up to a maximum of
$1.5 million. As of September 30, 1996, $1.2 million was outstanding under the
revolving line of credit and $250,000 remained available. The revolving line
of credit accrues interest at the bank's prime rate plus 1%. Borrowings under
the bank credit agreement are secured by substantially all of the Company's
assets, and Mr. and Mrs. Johnson, the largest shareholders of the Company,
have personally guaranteed the bank credit agreement in an amount up to $1.5
million. See "Risk Factors--History of Losses" and "Certain Transactions."
In August 1996, Mr. Johnson loaned $1.0 million to the Company. The loan
matures and is payable in full on August 16, 2000 and bears interest at The
First National Bank of Chicago base rate plus 1.0%. If the Company does not
prepay the loan in full prior to March 1, 1997, the Company is required to
issue a warrant to Mr. Johnson to purchase 425,000 shares of Common Stock at
an exercise price of $2.96 per share. The Company used the proceeds of the
loan to repurchase 256,410 shares of Series D Preferred Stock held by the
former stockholders of PVI for an aggregate purchase price of $1.0 million as
required pursuant to the merger agreement under which the Company acquired
PVI. The PVI Merger Agreement provides that during the six-month period
commencing December 22, 1997, holders of more than 15% of the shares issued to
the former PVI stockholders in the PVI merger may require the Company to
repurchase an additional 925,000 shares of Series D Preferred Stock issued to
such stockholders at a price per share equal to the fair market value as of
the last day of the year preceding the date of repurchase. Upon completion of
the offering contemplated by this Prospectus, all shares of Preferred Stock,
including the Series D Preferred Stock, will automatically convert into shares
of Common Stock and the Company's repurchase obligations to the former PVI
stockholders will terminate. See "Certain Transactions," "Risk Factors--Risk
Relating to Holders of Preferred Stock" and Notes 10 and 11 of Notes to
Consolidated Financial Statements.
Certain pending proceedings may affect the Company's liquidity and capital
resources. In May 1996, the IRS notified the Company of a deficiency in PVI's
tax returns for the years ended March 31, 1990 and March 31, 1992, which the
Company assumed upon its acquisition of PVI in 1992. The IRS has challenged
PVI's transfer pricing arrangements with its foreign subsidiaries and asserted
a deficiency of $1.2 million plus interest of approximately $500,000. In July
1996, the Company formally protested the IRS's findings and requested a
hearing before the regional examiner. In connection with its 1994 tax return,
the Company agreed to pay the IRS all taxes and penalties due in 12 monthly
installments. The IRS has indicated that it intends to place a lien on the
Company's assets to secure such payment. Such a lien could give rise to a
default under the Company's bank credit agreement if such lien were not
removed within 30 days, and such default could result in an acceleration of
amounts due under such agreement, a termination of such facility or a
renegotiation of terms thereof. The Company is also involved in a commercial
dispute with a customer, in which the customer has asserted actual damages in
the amount of $780,000. If this dispute is not settled in a manner favorable
to the Company, it may be forced to pay all or a portion of the asserted
damages. The Company anticipates that it will establish a reserve in the
amount of approximately $400,000 for such contingency. Any of the foregoing
could have a material adverse effect on the Company's business, financial
condition or results of operations. See "Risk Factors--Need for Additional
Capital," "--Legal Proceedings," "Business--Legal Proceedings," "Certain
Transactions" and Note 10 of Notes to Consolidated Financial Statements.
The Company believes that the net proceeds from the sale of Common Stock
offered hereby, together with anticipated cash flows from operations, current
cash balances and cash available under its bank credit agreement, will be
sufficient to meet its working capital requirements for at least the next 12
months although the Company
27
<PAGE>
may be required to or may elect to raise additional capital during such period
to fund additional product development and marketing activities. Thereafter,
the Company may require additional funds to support its working capital or
other purposes and may seek to raise such additional funds through debt or
equity financings. There can be no assurance that such additional financing
will be available on terms favorable to the Company, if at all, and not be
dilutive to the Company's then current shareholders. The failure by the
Company to raise capital when needed could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Risk Factors--Need for Additional Capital."
EFFECTS OF INFLATION
The Company believes that the relatively moderate rate of inflation over the
past few years has not had a significant impact on the Company's results of
operations.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued SFAS No. 123, "Accounting
for Stock Based Compensation" in October 1995, which establishes financial
accounting and reporting standards for stock based upon employee compensation
plans including stock purchase plans, stock options, restricted stock and
stock appreciation rights. The Company has elected to continue accounting for
stock based upon compensation under Accounting Principles Board Opinion No.
25. The disclosure requirements of SFAS No. 123 will be effective for the
Company's financial statements beginning in 1996. Management does not believe
that the implementation of SFAS 123 will have a material effect on its
financial statements.
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121"). SFAS 121 requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS 121 is effective for fiscal years beginning after December
15, 1995. The Company believes that the adoption of SFAS 121 will not have a
material impact on its consolidated financial statements.
28
<PAGE>
BUSINESS
OVERVIEW
Visual Numerics is a leading supplier of computational algorithm libraries
and visual data analysis software. Its IMSL libraries are proprietary sets of
algorithms used by scientists, researchers, engineers and information
technology professionals to perform complex numerical and computational
functions and to develop computer applications. The Company has been
developing, enhancing and supplementing the IMSL libraries for 26 years. The
Company's PV-WAVE visual data analysis products facilitate analysis of
complex, multi-variable data sets in a wide variety of industries and
applications. Visual Numerics is enhancing its existing products to enable
their use in intranet and Internet computing environments and is developing
new products based upon its existing technologies that are specifically
designed for use in Java-based applications in those environments. The
Company's products help customers create high-quality applications across
multiple platforms. The Company's customers include approximately 240 of the
Fortune 1000 companies and are widely dispersed among telecommunications,
financial, life sciences, transportation, defense, earth sciences, research
and educational markets.
INDUSTRY BACKGROUND
Computational Algorithm Libraries
Scientists, researchers, engineers and information technology ("IT")
professionals frequently need to develop computer software applications to
manipulate and analyze complex or extremely large data sets. These computer
applications utilize sophisticated mathematical and statistical algorithms
which are time-consuming and expensive to program. Many application developers
prefer to use pre-developed algorithm programs that are accurate, efficient
and reliable, rather than develop algorithms on their own. Certain companies,
such as Visual Numerics, have developed libraries of frequently-used
algorithms for application developers to utilize. The libraries contain
algorithms to perform functions ranging from simple numerical computations to
differential equations and highly complex statistical and financial
calculations. Commercially available libraries are differentiated by the
number and variety of algorithms, their reliability and functionality, their
availability on diverse platforms, and the availability of additional features
such as error checking, error handling, exception checking, periodic updating,
overall efficiency, documentation, technical support and training.
Visual Data Analysis Software
As the amount of data amassed by scientists, researchers, engineers and
other technical personnel grows, it becomes increasingly difficult to analyze
that data. Visual data analysis software provides users with powerful tools to
visualize, manipulate and analyze complex or large data sets to detect and
display patterns, trends, anomalies and other information. Graphical
representation of data facilitates its comprehension and communication and can
reveal important information that might otherwise remain hidden. This visual
display process becomes increasingly complex as the number of variables
increases. Manipulation and analysis of data allow the user to specify and
extract data based upon a variety of parameters and to perform selected
functions on that data. For example, filters and other tools can be used to
segregate certain types of information within the data, eliminate spikes and
interpolate gaps in the data, and project the data into the future. Typically,
users rely upon an interactive process, iterating between visualization,
manipulation and analysis.
Evolution of Computing Environments
Over the last two decades, the computing environments of businesses and
other organizations have evolved dramatically. Initially, corporate computing
environments consisted of mainframe--or host--computers accessed through
remote terminals. The advent of the minicomputer made this centralized
environment available at a departmental level. As personal computers and
workstations proliferated, many computing functions were distributed to the
individual level. Local area networks and wide area networks were developed to
link personal computers together, creating an environment with a main
computer, or "server," as well as remote computers, or "clients," for
networked users. The typical networked personal computer and workstation
system requires
29
<PAGE>
relatively expensive clients with fast microprocessors, large amounts of
memory and frequent software upgrades. As a result of this evolution, many
computing environments have data and programs located on different platforms,
individual workstations that are unable to communicate effectively with older
hardware, personnel that program in different computer languages, and an
inability to create applications for use by all members of the organization.
Recently, computing environments have begun to migrate toward a shared system
of networked computers that utilizes tools developed in conjunction with the
Internet.
[GRAPHIC. BOXES WITH ARROWS ARRANGED AS A CHART WITH FOLLOWING TEXT INSIDE THE
BOXES: "MAINFRAMES MINICOMPUTERS, PERSONAL COMPUTERS WORKSTATIONS, DISTRIBUTED
NETWORKS INTRANETS INTERNET"]
The Internet has recently emerged as a popular computing environment. Its
popularity has been fueled by the development of the World Wide Web (the
"Web"), which takes advantage of graphical user interfaces and multimedia
interactivity. Businesses and other organizations are connecting their
employees and business partners through enterprise-wide networks known as
intranets which utilize Internet protocols and applications, such as browsers,
to share information and services both within an enterprise and across the
Internet. Intranets allow an enterprise to distribute data and applications
across geographically dispersed facilities, and enable customers, suppliers
and other business partners to access data and applications rapidly and
inexpensively. Through intranets, enterprises can allow individuals operating
on different platforms to perform applications and access data located on
different platforms throughout the enterprise.
Intranets and the Internet are currently used primarily for the
dissemination of information. In the future, network users may use intranets
and the Internet both to receive information and to analyze and manipulate
data in a heterogeneous computing environment.
Evolution in Computing Languages
As computing environments have evolved from mainframe computers to personal
computers to local and wide area networks to today's distributed networks,
computer programming has evolved from traditional computing languages, such as
Fortran and C, to object-oriented languages, such as C++ and Java. Object-
oriented programming languages are based upon the concept of objects, which
are reusable software components that contain both the data and the related
procedures. Objects are modular in nature and can be arranged or reused in
different combinations to form new applications. This modular characteristic
makes objects ideal for distributed computing environments because it permits
applications to be created by linking a series of objects that may be located
on different systems. The Company believes that the object-oriented language
known as Java will become the preferred object-oriented language for
distributed systems such as intranets and the Internet because of its ability
to operate across platforms and operating systems, its architectural design
which provides enhanced security, its built-in "multi-threading" which
facilitates graphical applications, and other distributed network features.
Applications written in Java, known as Java "applets," can allow individual
computers to manipulate data located throughout the enterprise from any
platform using any operating system or programming language. The Company
believes business applications increasingly will be composed of objects, Java
applets and databases that are distributed on networks and dynamically
assembled into highly customized solutions. Currently, there are many
developers creating Java applets, and the Company believes that Java will
attract an increasing number of application developers who will require
sophisticated mathematical and statistical functionality not currently
available in Java.
30
<PAGE>
THE VISUAL NUMERICS SOLUTION
Visual Numerics is a leading provider of computational algorithm libraries
and visual data analysis software. The Company believes that its IMSL
numerical libraries and PV-WAVE products are the most reliable and efficient
products of their kind. The Company's IMSL Fortran, Fortran 90 and C Numerical
Libraries allow users to deploy the same algorithms across an array of
computing platforms and programming languages. The Company's powerful visual
data analysis software allows scientists, researchers, engineers and other
technical professionals to visualize, manipulate and analyze complex or
extremely large data sets. The Company has also developed "toolkits"
incorporating its visual data analysis software for specific applications such
as signal processing and image processing, and it intends to develop toolkits
for other specific applications. In response to the rapid development of
intranet and Internet environments, the Company is enhancing its existing
products to enable their use in these computing environments and is developing
new products based upon its existing technologies that are specifically
designed to take advantage of Java's platform independence, network
capabilities and security features.
THE VISUAL NUMERICS STRATEGY
The Company's strategy is to enhance its position as a premier provider of
complex computational algorithms and visual data analysis software to
scientists, researchers, engineers and IT professionals. The key components of
the Company's strategy are:
MAINTAIN TECHNOLOGY LEADERSHIP. The Company is committed to maintaining
its technology leadership by continuing to enhance and improve its
computational algorithms and visual data analysis software. Visual Numerics
will continue to invest in applied technology so that it can continue to
anticipate, react and adapt to changing trends and market needs. The
Company may also pursue the acquisition of technologies, products and
companies that address specific requirements of computationally intensive
applications.
FOCUS ON DEVELOPMENT OF PLATFORM-INDEPENDENT APPLICATIONS. The Company
believes that future generations of computing will rely upon technologies,
including Internet-based computer languages such as Java, that are
independent of platform or operating system thereby reducing the need for
"porting" current technologies and products to multiple computing platforms
and new releases of operating systems and computer programming languages.
The Company also believes that as enterprises expand their use of intranet
and Internet technologies, these enterprises will need to integrate older,
or legacy, computing applications and hardware systems into new enterprise-
wide systems. Consequently, the Company has begun to develop and market
"Web-enabled" products that are designed to permit the Company's existing
products to be used with the Internet, and new platform-independent
products based upon its computational algorithm libraries and visual data
analysis software that are "Web-architected," or specifically designed with
Internet standards and protocols for use in intranets or the Internet. In
addition, the Company is actively participating in setting industry
standards in intranet and Internet technologies because it believes that
maintaining open industry standards will be important to the development of
these technologies.
LEVERAGE MARKET POSITION. The Company believes that the emergence of
intranets and the Internet will increase the market for distributed
software applications generally, and data analysis and computationally
intensive applications specifically. The Company intends to leverage its
market position, installed customer base and IMSL Libraries and PV-WAVE
brand names to exploit intranet and Internet market opportunities. Visual
Numerics will seek to expand customer awareness of the benefits of
distributed applications, including collaborative computing and efficient
resource utilization.
ESTABLISH JNL LIBRARY AS THE STANDARD FOR INTRANET AND INTERNET NUMERICAL
COMPUTING. The Company believes that users of Java or other computer
languages developed for intranets and Internet will require sophisticated
numerical and computational functionality at a level that Java does not
currently provide. Consequently, the Company is seeking to establish its
JNL Library as the computational application programming interface for
future versions of Java. Although the developer of Java has indicated that
it does not intend to make any near-term decisions regarding the
incorporation of the JNL Library into Java, the
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<PAGE>
Company is endeavoring to promote acceptance of the JNL Library as a market
leader and, ultimately, market standard for numerical computing in intranet
and Internet environments.
DEVELOP TOOLKITS FOR SPECIFIC INDUSTRIES. The Company has developed
versions of its visual data analysis products, called toolkits, to provide
tailored applications for specific customer bases, and intends to develop
and market other toolkits for targeted customers.
32
<PAGE>
PRODUCTS
The Company offers three basic categories of products: (i) comprehensive
collections of computational algorithms, known as the IMSL Libraries; (ii)
visual data analysis software products, consisting of the PV-WAVE family of
advanced data analysis and visualization software; and (iii) platform-
independent products under development, including Web-enabled versions of
existing products and Web-architected new products.
<TABLE>
<CAPTION>
MOST RECENT SUPPORTED U.S. SUGGESTED
PRODUCT DESCRIPTION RELEASE DATE SYSTEMS LIST PRICE
----------------------- ---------------------------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
COMPUTATIONAL TECHNOLOGIES
IMSL Fortran Numerical Computational algorithm library Sept/94 PC $ 495
Libraries used by developers working in workstation 4,400
Fortran mainframe 16,300
supercomputer 33,900
IMSL Fortran 90 MP Advanced algorithm library used Oct/96 workstation 5,200
Libraries by developers working in Fortran mainframe 19,900
supercomputer 40,400
IMSL C Numerical Computational algorithm library May/95 PC 695
Libraries used by developers working in C workstation 4,400
mainframe 16,300
supercomputer 33,900
Exponent Graphics Library of charting and plotting Dec/96 PC 895
functions work station 2,895
mainframe 10,000
supercomputer 20,000
VISUAL DATA ANALYSIS TECHNOLOGIES
PV-WAVE Foundation Visual data analysis product Oct/96 PC 1,795
workstation 4,000
PV-WAVE Companion
Technologies
Mathematics Numerical analysis enhancements Oct/96 PC 695
to PV-WAVE Foundation workstation 1,495
Statistics Statistical analysis enhancements Oct/96 PC 695
to PV-WAVE Foundation workstation 1,495
Visual Exploration Graphical user interface and tools Oct/96 PC 695
for PV-WAVE Foundation workstation 1,495
PV-WAVE Advantage PV-WAVE Foundation and all PC 2,995
three Companion Technologies workstation 7,000
PV-WAVE TOOLKITS
Signal Processing Special purpose analysis and Oct/96
visualization tools for signal PC 495
processing applications workstation 995
Image Processing Special purpose analysis and Dec/96
visualization tools for image PC 495
processing applications workstation 995
Database Connection SQL database interface Nov/95 workstation 995
GTGrid Gridding functions for noisy data Mar/96 workstation 995
ODBC Toolkit Object data base connections for Nov/96 PC 495
Windows 95/NT compliant
databases
</TABLE>
33
<PAGE>
The foregoing prices represent the suggested list price in the United States
based upon the platform indicated and assuming a single installation and
single site usage of the product. Prices vary with the number of users, number
of sites using the product and class of computer. Visual Numerics also resells
complementary products manufactured by other software companies where such
products expand the functionality or utility of the Company's products.
The following table identifies the Company's products under development:
<TABLE>
<CAPTION>
SUPPORTED
PRODUCT DESCRIPTION STATUS/RELEASE SYSTEMS
---------------------- -------------------------------------------------------- -------------- ------------
<S> <C> <C> <C>
WEB PRODUCTS
Web-Enabled
Wave-on-Web Toolkit that enables PV-WAVE to be used on an Beta/ PC
intranet or the Internet. PV-WAVE Foundation is a December 1996 workstation
prerequisite for this product
PV WAVE Toolkit that enables PV-WAVE to be used in for Development/ PC
Visualization Server client/server environments using intranets or the 1Q97 workstation/
Internet servers
Web-Architected
JNL Library Extension of basic numerical algorithm libraries to Java Beta/1Q97 platform-
language independent
SmartTable Standard Converts spreadsheets into a Java applet using JNL Beta/1Q97 platform-
Library independent
SmartTable Analyst Enhances SmartTable Standard by providing full JNL Beta/1Q97 platform-
Library support, user defined functions, basic charting independent
and other capabilities
VDA Standard Java implementation of basic charting and plotting Development/ platform-
functionality for SmartTable 3Q97 independent
VDA Analyst Full PV-WAVE visualization functionality implemented Development/ platform-
in Java, including advanced charting and graphing, 4Q97 independent
image processing, animation, 3-D surface rendering
and multiple plot capabilities
</TABLE>
Prices of the Company's new Web products are being developed and future
release dates of these products included in the table above represent the
release dates anticipated by the Company. The Company's Web products are being
designed to permit sale and distribution over the Internet.
COMPUTATIONAL TECHNOLOGIES
The Company's IMSL Fortran, IMSL Fortran 90 MP and IMSL C Numerical
Libraries are collections of mathematical and statistical algorithms that
represent fully-tested, supported and maintained functions for use by
scientists, researchers, engineers and IT professionals in developing software
applications. The individual libraries include functions designed to take
advantage of specific programming languages. All libraries have been developed
to include extensive error checking and handling, exception checking and on-
line documentation. Algorithms contained in the libraries have been programmed
for efficiency and performance and are updated regularly. The Company also
provides training and technical support for its products. Because application
developers use different programming languages and operate computers on
different platforms and different operating systems, the Company provides
tools designed for an array of computing platforms, operating systems and
programming languages. The IMSL Libraries run on VAX/OpenVMS, DEC/Alpha,
DEC/Unix, IBM RS6000/AIX, Sun4/SunOS, Sun/MS-Solaris, Hewlett-Packard
HP9000/HPUX, Silicon Graphics/IRIX, Cray/Unicos and personal computers running
MS-DOS, Microsoft Windows and MacOS.
34
<PAGE>
IMSL Fortran Numerical Libraries
The IMSL Fortran Numerical Libraries are written in Fortran 77 to support
the needs of Fortran application developers. The IMSL Fortran Numerical
Libraries comprise over 900 mathematical and statistical functions including
linear matrix algebra, eigenvalue analysis, interpolation and approximation
algorithms, integration and differentiation, differential equations,
optimization, transforms and statistics.
IMSL Fortran 90 MP Libraries
The IMSL Fortran 90 MP Libraries include the complete Fortran Numerical
Libraries plus over 60 of such functions specifically written to take
advantage of the Fortran 90 language capabilities. The IMSL Fortran 90 MP
Libraries provide easier implementation and higher performance for developers
building applications for hardware such as parallel processors and
supercomputers. Fortran 90 application developers use the Fortran Numerical
Libraries for algorithms not included in the Fortran 90 MP Libraries. The
Fortran 90 MP Libraries include linear equation solvers, eigenvalue
computations, Fourier transforms and other utility functions.
IMSL C Numerical Libraries
The IMSL C Numerical Libraries comprise over 300 algorithms contained in the
IMSL Fortran Numerical Libraries specifically designed and written to take
full advantage of the C programming language. The Company believes that these
functions are the most widely used by scientists, researchers, and engineers
programming in C. These libraries eliminate the need to create and utilize C-
to-Fortran bindings, a time-consuming and expensive method of accessing
Fortran computer code from the C programming language. The IMSL C Numerical
Libraries include linear equation solvers, eigenvalue analysis, interpolation
functions, quadrature, transforms, differential equation solvers, optimization
and statistical analyses.
Exponent Graphics
Exponent Graphics is an application development tool that provides
developers with engineering and business plotting and charting functions.
Because of this product's ease of use, the level of expertise required to
program graphics applications is reduced. Exponent Graphics is available for a
variety of windowing and computer platform environments.
VISUAL DATA ANALYSIS TECHNOLOGIES
The Company develops, markets and sells the PV-WAVE family of advanced data
analysis and visualization software that allows developers to create
applications required to visualize, manipulate and analyze large or complex
data sets easily. PV-WAVE is designed to permit developers to create
customized applications for deployment to multiple users. The product family
consists of three groups: PV-WAVE Foundation, PV-WAVE Companion Technologies,
and PV-WAVE Toolkits. PV-WAVE is available for personal computers running
Windows 95 and Windows NT, as well as the operating systems for Unix platforms
manufactured by Digital Equipment Corporation, Hewlett-Packard Company,
International Business Machines Corporation, Silicon Graphics, Inc. and Sun
Microsystems, Inc.
PV-WAVE Foundation
PV-WAVE Foundation is an advanced, open system for data analysis and
visualization, featuring industry standard data input/output processing, a
symbolic graphical user interface debugger, and a wide variety of flexible
data management functions driven by an array-oriented, fourth-generation
programming language. Its graphical capabilities include two-, three- and
higher dimensional plots, contours and surface renderings, geographical data
mapping functions, volume visualization, multi-plot capabilities and image
processing capabilities. The software is easy to use, customizable and
extendible and supports cross-platform compatibility, thereby permitting both
application development and the delivery of end-user applications. Developers
can use PV-WAVE as a rapid prototype development environment to "plug in" and
test algorithms or functions for use
35
<PAGE>
in other applications. Alternatively, developers can customize PV-WAVE and
deploy it as a visual data analysis application to multiple users. PV-WAVE
Foundation is a prerequisite for the PV-WAVE Companion Technologies and
Toolkits.
PV-WAVE Companion Technologies
PV-WAVE Foundation has three Companion Technologies which expand the general
functionality and utility of the PV-WAVE Foundation. The Mathematics Companion
Technology integrates the more popular mathematical algorithms and numerical
methods available in the IMSL Numerical Libraries into PV-WAVE allowing users
to perform sophisticated data analysis. The Statistics Companion Technology
integrates the more popular statistical algorithms available in the IMSL
Numerical Libraries into PV-WAVE to enable users to perform advanced
statistical data analysis. The Company's Visual Exploration Companion
Technology provides high-level graphical interface components and a pre-
developed graphical user interface to help facilitate application development.
It includes pre-fabricated components in source code format and can serve as a
framework for creating customized applications. The Companion Technologies can
be added to PV-WAVE Foundation individually or collectively. The Company
bundles and sells PV-WAVE Foundation with the Companion Technologies as a set
called PV-WAVE Advantage.
PV-WAVE Toolkits
The toolkits supplement PV-WAVE Foundation and the Companion Technologies
with specialized sets of pre-defined application tools. Toolkits are special-
purpose packages focused on a specific market or application. The Company
believes that businesses and organizations prefer visual data analysis
software focused on specific applications to the more general applications
available in PV-WAVE Foundation and the Companion Technologies.
Signal Processing Toolkit. The Signal Processing Toolkit is a broad
-------------------------
selection of pre-defined and customizable digital signal processing functions
designed to improve data analysis and simulations in a PV-WAVE system,
including transfer function-based filters as well as the ability to include
custom-designed filters, and Fourier and wavelet analysis. It is designed to
make the PV-WAVE system more functional and marketable to users in industries
engaged in signal analysis, such as certain segments of the telecommunications
industry.
Image Processing Toolkit. The Image Processing Toolkit provides an extensive
------------------------
set of image processing and filtering algorithms for a wide variety of image
processing data formats. It provides users that have sophisticated, as well as
basic, image processing and manipulation needs with the tools essential for
creating their applications such as medical image processing of CAT scan or
MRI images, earth resource image processing and photographic digital image
processing. The Imaging Processing Toolkit is designed to make the PV-WAVE
system more functional and marketable to users in industries requiring image
processing capabilities.
Database Connection Toolkit. The Database Connection Toolkit provides direct
---------------------------
connection, query, extract and visual analysis of SQL databases. The package
supports the execution of standard SQL commands from PV-WAVE for data
extraction and direct input into PV-WAVE. It provides the ability to integrate
popular databases such as Oracle and Sybase with PV-WAVE.
GTGrid Toolkit. The GTGrid Toolkit is a powerful gridding environment that
--------------
simplifies data analysis and interpretation. The tool is designed to work with
data that contains extraneous noise or nulls. GTGrid provides powerful
numerical interpolation and extrapolation methods that can help filter this
type of data. GTGrid is useful in geophysical, electrical and mechanical
engineering applications, for which real-time data acquisition systems are
used to monitor and evaluate tests or performance.
WEB PRODUCTS
The Company is developing its Web products to extend its computational and
visual data analysis technologies to intranet and Internet computing
environments. The Company is developing products designed to provide advanced
mathematical and statistical computational functionality for Java-based
applications.
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<PAGE>
Web-Enabled Products
Web-enabled products are enhancements to existing products that are designed
to allow them to be used or accessed in intranet and Internet environments.
These enhancements permit customers to leverage their investments in existing
software, data storage and computing systems by deploying applications that
take advantage of Internet technology in their current business operations.
The Company has enhanced PV-WAVE to enable its use in intranet and Internet
computing environments and is developing similar enhancements to the IMSL
Fortran 90 Libraries. Wave-on-Web, the Company's initial product release for
the Internet, is a toolkit that allows developers to create Java-enabled PV-
WAVE applications. These tools provide extensions for support of the GIF,
JPEG, HTML and VRML Internet standards as well as the reading of files from a
URL. Java users can call, and be called by, PV-WAVE to distribute visual data
analysis applications over intranets or the Internet. In addition, PV-WAVE
sessions can be conducted over intranets or the Internet using Java-enabled
browsers such as Netscape Navigator and Internet Explorer. Client-side
solutions are also available for running PV-WAVE as a browser helper
application.
Web-Architected Products
JNL Library. The JNL Library is a subset of the Company's IMSL Libraries
------------
that includes basic numerical functions implemented in Java. The JNL Library
is designed as an application programming interface that is intended to be
directly incorporated into Java and accessible by any Java-based application.
The JNL Library forms the foundation required for developing Java-based
applications with advanced computational functionality. Its fundamental
algorithms and functions include basic linear algebra, complex numbers,
statistics, and finance. Although the developer of Java has indicated that it
does not intend to make any near-term decisions regarding the computational
foundation for Java or the incorporation of the JNL Library into Java, the
Company is endeavoring to promote acceptance of the JNL Library as a market
leader and, ultimately, market standard for numerical computing in intranet
and Internet environments.
SmartTable Standard. SmartTable Standard is an application development tool
--------------------
that converts an existing spreadsheet into a Java applet while preserving all
the formulae and calculations defined in the spreadsheet. This Java applet is
designed to be deployed to any computer with a Java-enabled browser. Initially
configured to convert Microsoft Excel spreadsheets, the Company intends to
enhance SmartTable to support all major commercially available spreadsheet
software. This product provides the ability to deploy spreadsheet applications
across intranets and the Internet without regard to computer platform.
SmartTable Analyst. SmartTable Analyst is an application development
-------------------
environment for the professional developer with sophisticated spreadsheet
requirements. This product builds on SmartTable Standard and includes more
sophisticated capabilities such as user-defined functions, charting and
plotting, and more complex spreadsheet relationships. A developer can use
SmartTable Analyst to create Java applets that can be deployed to any computer
with a Java-enabled browser. The Company anticipates that the initial product
release will be able to support Microsoft Excel and that later versions will
support other popular spreadsheets programs.
VDA Standard. The Company is developing VDA Standard as a Java language
-------------
implementation of basic charting and graphing functionality, including area,
bar, column, pie, doughnut, line, XY scatter, high-low-close and three-
dimensional surface plots.
VDA Analyst. The Company is developing VDA Analyst as an extension of VDA
------------
Standard, to provide a Java product with the equivalent functionality of PV-
WAVE. In addition to the basic charting of VDA Standard, VDA Analyst will
offer advanced charting and graphing, image processing, sophisticated three-
dimensional surface rendering, animation, volume rendering and multi-plot
capabilities.
TECHNICAL SUPPORT AND TRAINING
The Company's technical support staff responds to customer inquiries
relating to the installation and use of the Company's products. Technical
support is provided by Visual Numerics' staff of support engineers in North
37
<PAGE>
America, by the Company's subsidiaries in the United Kingdom, France, Germany,
Japan and Taiwan, and by staff support engineers and local distributors in the
rest of the world. Technical support is bundled with maintenance and is
offered on an annual fee basis. Support is provided by phone, fax, e-mail and
Internet services, as well as a Frequently Asked Questions service and an
electronic newsgroup on the Internet for interested customers.
Visual Numerics also offers training courses and workshops relating to the
use of its products. The courses are provided several times each month and are
taught by the Company's trainers at its facilities in Houston, Texas and
Boulder, Colorado. Outside of North America, the courses are given by the
Company's subsidiaries, distributors and training contractors. Training
courses can also be provided at a customer site under special arrangements.
ENGINEERING CONSULTING SERVICES
The Company provides application-level consulting, customization and porting
to strategic computer architectures in North America and Europe on a fee-for-
service basis. These services provide custom application development,
primarily for PV-WAVE customers, but are being expanded in the Web Products
Division for Java development and implementation.
INDUSTRY RELATIONSHIPS
The Company believes that its relationships with key organizations are
significant to its development and marketing strategy, including the Company's
strategy to develop products for intranets and the Internet. The Company has
entered into technical cooperation, information sharing and developer support
agreements with Sun Microsystems, Inc., Digital Equipment Corporation,
Hewlett-Packard Company, Silicon Graphics, Inc., Informix Corporation and
Oracle Corporation. The Company believes it is better able to access and help
define industry standards and to exchange important technical data through
such arrangements. The Company has a Developers Edge Gold relationship with
Netscape Communication Corporation that provides the Company with early beta
releases of Netscape's Internet software, as well as a forum for direct
communications with Netscape's developers. The Company also shares technical
information through informal relationships with certain developers of products
for intranets and the Internet, including Netscape, JavaSoft, Inc., Intel
Corporation, Silicon Graphics, Inc. and Borland International, Inc. As a part
of the Company's marketing strategy it has developed cooperative marketing
relationships with certain computer manufacturers, including Digital
Equipment, Sun Microsystems, Hewlett-Packard, Silicon Graphics and Informix.
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<PAGE>
CUSTOMERS
The Company's products have been deployed by organizations operating in a
broad range of industries, including aerospace, research and defense,
automotive, computers and electronics, education, financial services, and
telecommunications. No single customer accounted for more than 4% of the
Company's total revenues in 1996, and the top 20 customers accounted for an
aggregate of slightly more than 10% of total revenues. The following is a list
of representative customers:
<TABLE>
<CAPTION>
AEROSPACE, RESEARCH AND DEFENSE AUTOMOTIVE COMPUTERS/ELECTRONICS
------------------------------- ---------- ---------------------
<S> <C> <C>
Boeing Caterpillar EDS
Hughes Aircraft Cummins Engine Hewlett-Packard
Lockheed Martin Ford Sun Microsystems
McDonnell Douglas General Motors Texas Instruments
Northrop Grumman Nissan TRW
<CAPTION>
EDUCATION FINANCIAL SERVICES TELECOMMUNICATIONS
--------- ------------------ ------------------
<S> <C> <C>
Johns Hopkins University Deutsche Bank AirTouch Cellular
Massachusetts Institute of
Technology Goldman Sachs GTE
Max Planck Institute Lehman Brothers Motorola
Tokyo University Nomura Securities Siemens
University of California,
Berkeley Prudential Securities
</TABLE>
MARKETING, SALES AND DISTRIBUTION
Marketing
Visual Numerics utilizes traditional marketing tools for the creation of
product awareness and lead generation, including direct mail, advertising,
brochures, telemarketing and public relations. Visual Numerics also invests
heavily in the generation of future demand for its products by licensing its
software products at a substantial discount to universities that agree to use
such products in teaching and research. Approximately 1000 colleges and
universities throughout the world have licensed one or more of the Company's
products for use in both graduate and undergraduate instruction. In response
to the development of the Internet as a major source of information for
application developers, the Company has modified its marketing programs to
utilize the Internet. While the Company's marketing programs continue to
utilize traditional marketing communications devices, potential customers are
typically directed to the Company's Web site for most marketing information
and communications. The Company still accepts phone, fax or reply card
information requests, but even these responses are designed to direct the
inquirer to the Web site. This approach continues to create market awareness
for Visual Numerics and shorten the response time and sales cycle because
prospects can immediately obtain information directly via the Internet.
Sales
Visual Numerics markets and sells its products primarily through its own
direct sales organization, consisting of sales personnel and technical sales
engineers. The Company has 30 sales and technical sales support personnel
located in Houston and Boulder and 60 additional representatives throughout
its operations in Europe and Asia. The North American sales organization is
segmented into a group organized by geographic territory and a group which
focuses on major accounts. The Company also has licensed more than 30
international distributors, principally to serve customers in regions not
serviced by the Company's direct sales organizations. The Company has
established strategic relationships with computer hardware and software
vendors that enable Visual Numerics to broaden the geographic and market scope
for its products through joint promotional and selling activities.
Visual Numerics also has several OEM/reseller relationships for specific
products and platforms. For example, Microsoft bundles the IMSL Fortran
Numerical Library with its MS Fortran Professional Package,
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<PAGE>
Absoft includes the IMSL Fortran Numerical Library in the version of its
Fortran compiler products for the Macintosh platform, Hewlett-Packard includes
PV-WAVE as an optional package with its HP-VEE testing software and General
Electric Medical Systems includes a special version of PV-WAVE as an option
with its medical scanner systems. In aggregate, the total revenue from these
relationships represents less than 5% of the Company's total revenues. Visual
Numerics plans to continue to develop similar relationships, particularly with
respect to its Web products.
Distribution
Product distribution for commercially released software has been through
traditional media (magnetic tapes and CD-ROMs) shipped directly to the
customer or the Company's international subsidiary or distributor as required.
The Company has utilized electronic distribution for beta evaluations and
versions incorporating minor corrections for the last two years, and the
Company intends to expand its electronic distribution activities during the
next 12 months in an effort to make it the dominant form of product
distribution. As a result of the expanded utilization of electronic product
distribution, the Company expects to realize savings in distribution costs and
increased customer satisfaction.
PRODUCT DEVELOPMENT AND ENGINEERING
The Company's success will largely depend upon its ability to maintain and
enhance its traditional product lines and develop new products. Over the past
two years, the Company made substantial investments in the development of
computational algorithm libraries based upon object-oriented technologies,
including approximately $824,000 on the development of C++ language versions
of these libraries. Based upon the Company's belief that Java will be the
leading object-oriented language, the Company decided to focus its resources
on the development of Java-based products and has suspended development of its
C++ products. The Company expects that the knowledge and experience gained in
developing C++ products will accelerate its development efforts for Java-based
products. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The market for intranet and Internet products is dynamic and rapidly
changing, characterized by ongoing technological developments, evolving
industry standards and rapid changes in customer requirements. Consequently,
the Company's success depends upon its ability to develop and introduce in a
timely manner new products that take advantage of technological advances,
adhere to emerging standards and provide necessary functionality to customers.
The Company utilizes a rigorous product planning and development process, but
has from time to time experienced delays commonplace in the software industry.
There can be no assurance that the Company will be successful in developing
and marketing, on a timely basis or at all, competitive products, product
enhancements and new products that respond to technological change, changes in
customer requirements and emerging industry standards, or that the Company's
enhanced or new products will adequately address the changing needs of the
marketplace. See "Risk Factors--Uncertainty of Market Acceptance; Lack of
Marketing Experience in New Product Segment," "--Rapid Technological Change"
and "--Risk of Product and Other Liability or Product Defects."
COMPETITION
The markets for the Company's products are intensely competitive, subject to
rapid changes, new product introductions and other activities by participants
in the industry. The Company's products are targeted at software applications
developers who utilize computational algorithms and visual data analysis
software. Several companies currently offer products in these markets. The
Company believes that the principal competitive factors are product quality,
functionality, performance, reliability, support, reputation, price and
compatibility with hardware platforms, operating systems and programming
languages.
The Company believes that its primary competition for computational
algorithms comes from internal development efforts of customers and potential
customers. A potential customer may have significant resources
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<PAGE>
to devote to the internal development of computational algorithms, and some
application developers may prefer to develop and use their own algorithms
instead of commercially available ones. Certain manufacturers, including IBM,
Digital Equipment and Silicon Graphics, include computational libraries in
their operating systems or offer sets of computational algorithms with certain
application developer software. The Company's computational algorithm products
also compete with algorithm libraries that are in the public domain or are
available to users as shareware. In the following product areas, the Company
also competes with the following companies: computational algorithm
libraries--Rogue Wave Software, Inc., The Numerical Algorithms Group Ltd.,
Waterloo Maple Inc. and Wolfram Research, Inc.; visual data analysis
software--Advanced Visual Systems Inc., Mathsoft, Inc., The MathWorks, Inc.,
Research Systems, Inc., SAS Institute Inc. and SPSS, Inc.; Java application
development tools--Rogue Wave Software, Inc. The market segments addressed by
the Company sometimes differ from the segments addressed by its competitors.
There can be no assurance that these competitors will not seek to broaden
their product offerings.
In the area of intranet and Internet products, companies such as Microsoft,
are developing alternatives to Java and companies such as Borland are
developing integrated development environments and associated development
tools that may compete with the Company's new products under development.
Several of these competitors have the ability to offer a single vendor
solution which may have certain competitive advantages over the Company's
products. Many of these existing and potential competitors have substantially
greater financial, technical, marketing and sales resources than the Company,
and there can be no assurance that a competitor will not develop equivalent or
superior technology to that of the Company. The Company expects competition to
increase as a result of software industry consolidation. In view of the
breadth of the Company's products, the Company believes that competition is
likely to come from several competitors, rather than one competitor, each of
which will compete with selected Company product offerings. Increased
competitive pressures are likely to erode product prices, revenues and gross
margins and could result in a loss of market share by the Company. Failure of
the Company to counter competitive pressure would have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Risk Factors--Competition."
PROPRIETARY RIGHTS
The Company relies on a combination of trademark, copyright and trade secret
laws as well as employee and third-party non-disclosure agreements,
confidentiality procedures and contractual provisions to protect its
proprietary technology. The Company seeks to protect its software,
documentation and other written materials under trade secret and copyright
laws, which offer limited protection. The Company currently holds no United
States or international patents relating to its proprietary technology. There
can be no assurance that the measures taken by the Company to protect its
proprietary rights will be adequate to prevent misappropriation of the
technology or independent development of similar technology by others. In
addition, there can be no assurance that the Company's competitors will not
independently develop technologies that are substantially equivalent or
superior to the Company's technologies.
Generally, multi-site and multi-user license sales are accompanied by
specifically negotiated agreements signed by the licensee. In the case of
single user sales and for other sales that are not negotiated, the Company
relies upon its "shrink wrap" licenses which are not negotiated with or signed
by licensees. Certain provisions of the Company's shrink wrap licenses,
including provisions protecting against unauthorized use, copying, transfer
and disclosure of the licensed program, may be unenforceable under the laws of
certain jurisdictions. In addition, the laws of various countries in which the
Company's products may be sold may not protect the Company's products and
intellectual property rights to the same degree as the laws of the United
States.
The Company is not aware of any patent infringement charge or any violation
of other proprietary rights claimed by any third-party relating to the Company
or to the Company's products. The computer software market, however, is
characterized by frequent and substantial intellectual property litigation.
Intellectual property litigation is complex and expensive, and the outcome of
such litigation is difficult to predict. There can be no
41
<PAGE>
assurance that third parties will not assert intellectual property
infringement claims against the Company or that any such claims will not
require the Company to enter into royalty or other arrangements or result in
costly litigation. If infringement were alleged, the Company could be required
to discontinue the use of certain software or to cease the use and sale of
infringing products, to incur significant litigation costs and expenses and to
develop non-infringing technology or to obtain licenses to the alleged
infringing technology. There can be no assurance that the Company, in the
event it were required to discontinue use or sale of such products, would be
able to develop alternative technologies or to obtain such licenses or, if a
license were obtainable, that the terms would be commercially acceptable to
the Company. See "Risk Factors--Limited Protection of Proprietary Technology."
The Company relies upon certain software that it licenses from third
parties, including software that is integrated with the Company's internally
developed software and used to perform key functions such as license
management, help-file viewing, and graphics device driver interfaces. Included
in these third-party arrangements are the paid-up license for the PV-WAVE
kernel from Research Systems, Inc., a royalty license arrangement for the
HOOPS graphics device drivers from Aldus Corporation, an annual maintenance
license fee to Globetrotter for its FlexLM license manager software, an annual
license fee for the Frameviewer Software from Frame Technologies, and an
similar license arrangement with Bristol for its HyperHelp software for on-
line help. As of the date of this Prospectus, all minimum royalties due to
these licensors have been paid by the Company. There can be no assurance,
however, that these third-party software licenses will continue to be
available to the Company on commercially reasonable terms, if at all. The loss
of, or inability to maintain, any such software licenses could result in
shipment delays or reductions until equivalent software could be developed,
identified, licensed and integrated and could materially adversely affect the
Company's business, financial condition or results of operations.
EMPLOYEES
As of December 31, 1996, the Company had 182 employees and full time
consultants, including 37 in product development, 94 in sales and marketing,
18 in customer support and engineering services, 27 in finance and operations
and 6 in executive administration. The Company also employs additional part
time employees and contractors who in the aggregate equal approximately 8 full
time employees. None of the Company's employees is represented by a labor
union and the Company considers its employee relations to be good. In addition
to the employees, the Company utilizes the services of contractors to perform
various functions or projects. These services include all areas of the
Company's operations. The utilization of contract services allows the Company
to adjust its work force economically as its needs require without incurring
the penalties or expenses associated with obligations to regular employees.
FACILITIES
The Company's corporate headquarters are located in Houston, Texas and
consist of approximately 56,000 square feet of office space. The lease
relating to the Houston facility expires in June 2003. The Company also
maintains a sales, marketing and product development facility in Boulder,
Colorado consisting of 25,000 square feet of office space under a lease
expiring in June 1997. The Company intends to relocate its office in Boulder
and is negotiating for new office space in the Boulder area. Diablo Management
Group ("Diablo"), an affiliate of the Company's President, has leased
approximately 1,300 square feet of office space in the San Francisco Bay Area
in Danville, California, under a one-year lease expiring December 31, 1997 to
be used for the development and marketing activities of the Web Products
Division. Diablo has agreed to sublease such facility to the Company on the
same terms as the lease from the lessor subject to receipt of the landlord's
consent. The Company, through its subsidiaries, also leases space for sales
and support offices in five additional international locations, including
England, France, German, Japan and Taiwan. The Company intends to lease
additional office space in Korea and possibly Mexico City for sales and
support. See Note 5 of Notes to Consolidated Financial Statements.
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<PAGE>
LEGAL PROCEEDINGS
Counsel retained by Mr. Warner for the former PVI stockholders has asserted
that the offering contemplated by this Prospectus would not meet certain
standards set forth in the Company's Articles of Incorporation and the PVI
Merger Agreement and, therefore, the Preferred Stock would not automatically
convert into Common Stock and the former PVI stockholders' repurchase right
would not automatically terminate. They also asserted that the offering would
breach a fiduciary duty owed to the Company's shareholders and demanded that
the Company terminate the offering and that failure to terminate the offering
will lead to litigation. Although the Company believes the allegations are
without foundation and that it will prevail in any such action relating to the
offering, there can be no assurance that an action challenging this offering
will not be brought or what the outcome of any such action would be. Failure
by the Company to prevail against this challenge to the offering would have a
material adverse effect on this offering and the Company's business, financial
condition and results of operations.
In April 1994, American Airlines, Inc. asserted a claim against the Company
alleging the breach of a March 1992 agreement to provide customized software
and seeking damages, including alleged actual damages totaling approximately
$780,000. The parties are attempting to resolve the matter through mediation.
The Company anticipates that it will establish a reserve in the amount of
approximately $400,000 in its financial statements for such contingency.
Although the Company believes it has meritorious defenses to some or all of
the claims asserted, it has made a settlement proposal. If not accepted, the
Company intends to defend the proceedings vigorously; however, there can be no
assurance that the Company will ultimately prevail. An adverse outcome in this
proceeding could have a material adverse effect on the Company's business,
financial condition and results of operations.
On May 29, 1996, the IRS notified the Company of a deficiency in PVI's tax
returns for the years ended March 31, 1990 and March 31, 1992, liability for
which the Company assumed upon its acquisition of PVI in December 1992. The
IRS asserted a deficiency of $1.2 million plus interest of approximately
$500,000 by challenging PVI's transfer pricing arrangements with its foreign
subsidiaries for such fiscal years on the basis that an alleged low transfer
price to foreign subsidiaries understated the Company's United States tax
liability. In July 1996, the Company formally protested the IRS's finding and
requested a hearing before the regional examiner. The Company's financial
statements do not contain a reserve for such contingency. The Company intends
to defend the proceeding vigorously, however, an adverse outcome would have a
material adverse effect on the Company's business, financial condition and
results of operations.
In connection with the payment of taxes due under its 1994 tax return, the
Company has reached agreement on a 12-month payment plan; however, as a part
of such proceeding the IRS has indicated that it has placed a lien on the
Company's assets. Such a lien could give rise to a default under the Company's
bank credit agreement, which, in turn, could result in an acceleration of
amounts due under such agreement, a termination of such facility or a
renegotiation of terms thereof.
See "Risk Factors--Risk Relating to Holders of Preferred Stock," "--Legal
Proceedings," "--Risks Associated with International Operations," "--Need for
Additional Capital," "Business--Legal Proceedings," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Certain
Transactions" and Note 10 of Notes to Consolidated Financial Statements.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Charles W. Johnson(1)(2).. 67 Chairman of the Board
Richard G. Couch(1)....... 50 President, Chief Executive Officer and Director
Robert F. Strosser(1)..... 55 Executive Vice President, Chief Financial
Officer, General Manager, Asian Business
Operations, and Director
Executive Vice President, Marketing and
Ted R. Charter(1)(3)...... 59 Development, and Director
Vice President, General Manager, Web Products
Donald G. Kainer.......... 45 Division
William P. Hayes III...... 48 Vice President, North American Sales
Vice President and General Manager of Visual
David Lloyd............... 49 Numerics, Europe
Byron E. Fetters.......... 47 Vice President, Administration, and Controller
Thomas E. Congdon(2)(3)... 70 Director
</TABLE>
- --------
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
Charles W. Johnson co-founded the Company in October 1970 and has served as
its Chairman of the Board of Directors since inception. Mr. Johnson, who
continues to devote substantial time to the Company, is involved in marketing,
development and sales. His activities in these areas include strategic product
planning, product definition and review, technical conference planning and
participation, university liaison, major account selling, and strategic
partnering programs. From July 1993 to present, Mr. Johnson has also served as
an advisor to Heritage Bank & Trust. From December 1991 to December 1996, Mr.
Johnson served as a Director of Congdon Orchards, Inc., an agricultural
company, and as Vice Chairman from September 1992 to December 1996. Before
forming the Company, Mr. Johnson worked for International Business Machines
Corporation as a Systems Engineering Manager from January 1959 to May 1970.
Mr. Johnson received a B.S. in Civil Engineering from University of Wisconsin,
Madison and an Advanced Engineering degree from Massachusetts Institute of
Technology.
Richard G. Couch has served as President, Chief Executive Officer and a
Director of the Company since August 1990. Since September 1986, Mr. Couch has
also been Chairman of the Board, Chief Executive Officer and Managing
Principal of Diablo Management Group ("Diablo"), a management consulting
company that provides services primarily to companies involved in turnarounds,
work-outs, reorganizations and liquidations. Through Diablo he has often been
retained as an interim or part-time executive officer or director to turn
around, restructure or sell the assets of underperforming companies, some of
which are taken through formal bankruptcy reorganization. Since January 1992,
Mr. Couch has been retained as President and Chief Executive Officer of Allez,
Inc. ("Allez"), a retailing company, to oversee and implement its liquidation
and the sale of its assets through a bankruptcy pursuant to a petition filed
under Chapter 11 of the U.S. Bankruptcy Code in April 1992. Since January
1991, Mr. Couch has served as Vice President of MedChoice Warehouse Club,
Inc., a medical supply retailing company, to discontinue its operations and
liquidate its assets pursuant to a Chapter 11 bankruptcy petition filed in
March 1991. Since January 1990, Mr. Couch has served as Vice President of
Craftmart, Inc., a retailing company, to liquidate and distribute the
company's assets under a Chapter 11 bankruptcy petition filed in April 1990.
Mr Couch also serves as a Chapter 11 bankruptcy trustee for Xebec under a
petition filed in March 1990. Through Diablo, he has also served in executive
capacities in restructuring companies not in bankruptcy, including I.M.S.
Inc., Optilink and the snack-foods businesses of General Foods Industries.
Before founding Diablo, Mr. Couch served in various executive capacities for
Inco Venture Capital Management, Victor Technologies Inc., Infoscribe, Inc.
and Xerox Corporation. Mr. Couch received a B.A. in Social Science from the
University of Buffalo, and an M.S. in Industrial Psychology and an M.B.A. in
Finance and Economics from the Simon School of Business at the University of
Rochester.
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<PAGE>
Robert F. Strosser has been the Company's Executive Vice President,
Operations Support, and Chief Financial Officer of the Company since September
1991, General Manager, Asian Business Operations since November 1995 and a
Director since January 1994. Prior to joining the Company, Mr. Strosser held
positions as Vice President of Worldwide Materials Logistic Operations and
Vice President of Finance and Operations Support at Unisys Corporation from
March 1985 to August 1990. Prior to joining Unisys, Mr. Strosser was
Controller at Xerox Corporation. Mr. Strosser has been a principal of Diablo
since 1991. Mr. Strosser received a B.E. in Mechanical Engineering from
Youngstown State University in 1964, an M.S. in Mechanical Engineering from
Carnegie Mellon University and an M.B.A. in Finance from The Wharton School,
University of Pennsylvania.
Ted R. Charter joined the Company in January 1991 and has been its Executive
Vice President, Marketing and Development since August 1996 and a Director
since April 1994. Mr. Charter has held various positions at the Company
including Executive Vice President, Strategic Marketing and Business
Development from July 1995 to August 1996, Executive Vice President, European
Operations from January 1994 to July 1995, Executive Vice President and Chief
Operating Officer from January 1992 to January 1994 and Vice President,
Business Development from January 1991 to January 1992. Prior to joining the
Company, Mr. Charter had over 15 years of management experience with companies
such as Xerox Corporation, CalComp, Inc. and Eclat Incorporated. Mr. Charter
has been a principal of Diablo since 1988. Mr. Charter received his B.S. in
Electrical Engineering from University of Southern California.
Donald G. Kainer has been the Vice President, General Manager, Web Products
Division of the Company since August 1996. Mr. Kainer has held numerous
management and executive management positions since joining the Company in
June 1974 including Vice President, Product Development from August 1994 to
July 1996, Vice President, Visual Data Analysis from October 1993 to July
1995, and Program Business Manager from August 1990 to September 1993. Mr.
Kainer received his B.S. in Mathematics and Computer Science and his M.B.A.
from the University of Houston.
William P. Hayes, III has served as Vice President, North American Sales of
the Company since October 1996. He has held numerous management and executive
management positions at the Company including Vice President, European
Operations from July 1995 to September 1996, Vice President and General
Manager, Application Development Technologies Division from November 1993 to
June 1995, Vice President, Marketing from March 1992 to October 1993, and
Director of Marketing from January 1991 to March 1992. Mr. Hayes received his
B.S. in Marketing and Economics and his M.B.A. in Finance from Northeastern
University.
David Lloyd has been Vice President, European Channel Development of the
Company since August 1996. He has held management positions with the Company
including Vice President, North American Sales from November 1995 to August
1996 and Vice President, General Manager of the Company's Application
Development Technologies Division from July 1995 when he joined the Company
until November 1995. From October 1991 to April 1995, Mr. Lloyd was involved
in the management of various international operations for Legent, Inc., a
software company, including as General Manager, Spanish Operations from
December 1993 to April 1995, as President of Japanese Operations from April
1993 to November 1993 and as Managing Director of Italian Operations from
October 1991 to March 1993. From August 1986 to September 1991, Mr. Lloyd held
several positions with On-Line Software Inc., a software company, including
Senior Vice President of International Operations, Vice President of European
Operations and Managing Director of United Kingdom Operations. Mr. Lloyd read
History at St. Cassian's College in the United Kingdom.
Byron E. Fetters has been the Vice President, Administration and Controller
of the Company since January 1995. Mr. Fetters has served with the Company
since September 1993, including as Vice President and Controller from March
1994 to January 1995, and as a consultant from September 1993 to March 1994.
From March 1990 to present, Mr. Fetters has been an associate with Diablo.
From January 1992 to present, through his consulting activities with Diablo,
he has served as Vice President and Chief Financial Officer of Allez, which
filed a petition under Chapter 11 of the Bankruptcy Code in April 1992. Mr.
Fetters received his B.S. in Accounting from Southwestern Oklahoma State
University.
45
<PAGE>
Thomas E. Congdon has served as a Director of the Company since April 1988.
From May 1992 to present, Mr. Congdon has been the Chairman of the Board and
Chief Executive Officer of Saint Mary Land & Exploration Company, an oil, gas
and real estate company. From 1980 to 1991, he was the founder and Chairman of
CoCa Mines, Inc., a precious metals mining company. Mr. Congdon received a
B.A. from Yale University and an M.B.A. from the Harvard Business School.
The Company's Bylaws authorize up to nine directors and provide that the
Board shall determine the exact number of directors. At present, the Company's
Board has fixed the number of directors at six and currently the Board has one
vacancy. Directors hold office until the next annual meeting of shareholders,
or until their successors have been elected and qualified. The Board of
Directors elects the Company's officers, and such officers serve at the
discretion of the Board of Directors of the Company. The Company has granted
certain rights to the former PVI stockholders to entitle their representative,
James R. Warner, to observe meetings of the Board of Directors that do not
involve matters relating directly to the former PVI stockholders.
COMMITTEES OF THE BOARD OF DIRECTORS
There are three standing committees of the Board of Directors, the Executive
Committee, the Audit Committee and the Compensation Committee. The Executive
Committee, consisting of Messrs. Couch, Charter, Johnson and Strosser, meets
to decide issues relating to the management and operation of the Company in
the ordinary course of business. The Audit Committee, consisting of Messrs.
Congdon and Johnson reviews the Company's annual audit and meets with the
Company's independent auditors to review the Company's internal controls and
financial management practices. The Compensation Committee, consisting of
Messrs. Charter and Congdon, makes recommendations to the Board regarding
compensation for certain of the Company's personnel and administers the
Company's stock plans.
DIRECTORS' COMPENSATION
Outside directors are not compensated for attendance at meetings of the
Board of Directors or any committees thereof but are reimbursed for reasonable
expenses incurred in attending Board meetings. In addition, in May 1994, Mr.
Congdon received an option to purchase 5,000 shares of Common Stock at an
exercise price of $0.39 per share pursuant to the Company's 1993 Stock Plan.
Additionally, nonemployee directors of the Company are eligible to participate
in the Company's 1993 Stock Plan. See "--Stock Plans."
The Board of Directors elects the Company's officers, who serve at the
discretion of the Board. Mr. Congdon is the first cousin of Mr. Johnson's
wife, Jennifer C. Johnson. Mrs. Johnson is a principal shareholder of the
Company. Other than the relationship between Mr. Congdon and Mr. Johnson there
are no family relationships among the directors or officers of the Company.
TECHNICAL ADVISORY BOARD
The Company has established a technical advisory board (the "Technical
Advisory Board") consisting of engineers, mathematicians and computer
scientists. The membership of the board is periodically changed in order to
reflect the strategies and directions of the Company. The Technical Advisory
Board meets twice a year and is consulted throughout the year as needed. The
members of the Technical Advisory Board do not receive compensation for their
service on the board, however, the Company pays for expenses associated with
travel to and from the meetings. Most members of the Technical Advisory Board
are employed by institutions other than the Company and may have commitments
to, or consulting or advisory agreements with, other entities that may limit
their availability to the Company. The members of the Technical Advisory Board
are:
Dr. E. Andrew Boyd, Associate Professor, Department of Industrial
Engineering at Texas A&M University
Dr. Katherine B. Ensor, Associate Professor of Statistics at Rice
University
46
<PAGE>
Dr. James E. Gentle, Professor of Computational Statistics at George
Mason University and Program Director of Statistics for the National
Science Foundation
Dr. Ronald D. Kriz, Associate Professor in the Department of Material
Science and Engineering at Virginia Polytechnic Institute and State
University
Dr. Ewing L. Lusk, Senior Computer Scientist in the Mathematics and
Computer Science Division of Argonne National Laboratory and Scientific
Director of its High-Performance Computing Research Facility
Dr. Fred T. Krogh, Senior Mathematician at the Jet Propulsion Laboratory
Dr. Martin R. Satter, Chief PET Physicist, Department of Nuclear
Medicine/PET at Kettering Medical Center
EMPLOYMENT AND CONSULTING AGREEMENTS
In January 1995, the Company entered into a consulting agreement with Mr.
Couch that provides for him to receive monthly payments of $25,000 and an
annual target bonus of $150,000 based upon achieving performance objectives.
This agreement may be terminated by Mr. Couch or the Company upon 30-days'
written notice. If the Company terminates Mr. Couch other than for cause, he
will receive a payment equal to 12-months' consulting fee, health benefits and
life insurance for two years and accelerated vesting of outstanding stock
options or shares subject to a repurchase option. On January 1, 1995, Mr.
Couch accepted a $100,000 principal amount unsecured 12-month promissory note
in satisfaction of the 1994 bonus payment. This promissory note is payable in
monthly installments and bears an interest rate of 8.5% per annum.
Approximately $26,000 remains payable under the note. See "Certain
Transactions" and "--Stock Plans."
In January 1995, the Company also entered into employment agreements with
Messrs. Charter, Strosser, Kainer, Hayes and Johnson which provide for an
annual salary of $194,295, $177,216, $133,582, $129,018 and $127,458
respectively. These employment agreements generally provide for periodic
incentive cash bonuses pursuant to any incentive bonus programs, severance pay
equal to six months' salary upon involuntary termination other than for cause,
and acceleration of vesting of all unvested options upon a change of control
of the Company, as defined in such agreement, and that such accelerated
options are to remain exercisable until the earlier to occur of the second
anniversary from the date of the change of control or the original expiration
date of such option. Mr. Johnson's employment agreement provides for him to be
retained as a consultant for a period of three years if terminated other than
for cause at a per annum consulting fee equal to his salary as of the date of
termination. These employment agreements may be terminated by the Company or
the employee upon 30 days' notice. On January 31, 1995, Mr. Charter accepted a
$74,000 unsecured eight-month promissory note in satisfaction of the 1994
bonus payment. This promissory note is payable in monthly installments and
bears interest at a rate of 8.5% per annum. Approximately $19,000 remains
payable under the note to Mr. Charter.
In January 1995, the Company entered into a consulting agreement with Mr.
Fetters providing for compensation of $2,400 per week plus periodic incentive
cash bonuses pursuant to an incentive bonus programs. The agreement may be
terminated by Mr. Fetters or the Company upon 90 days' notice. In May 1995,
the Company entered into a consulting agreement with Mr. Lloyd providing for
an annual salary of $125,000, certain bonus payments and severance payments
equal to three months' salary upon involuntary termination other than for
cause.
In March 1996, the Company entered into a three-year consulting agreement
with James R. Warner to serve as a technology consultant. The agreement
provides for a monthly consulting fee of $1,000 and entitlement to benefits
under the Company health insurance plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Charter and Congdon constitute the Compensation Committee of the
Board of Directors. Mr. Charter is Executive Vice President, Marketing and
Development of the Company. During 1996, no executive officer of the Company
served as a member of the Board of Directors or Compensation Committee of any
entity
47
<PAGE>
that has one or more executives officers serving as a member of the Company's
Board of Directors or Compensation Committee.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation received during 1996 by the Company's Chief Executive Officer and
the other four most highly compensated executive officers whose aggregate
annual compensation for such year exceeded $100,000 (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- --------------------------- -------- ----- ------------
<S> <C> <C> <C>
Richard G. Couch
President and Chief Executive Officer........... $315,080 -- (1) $15,007(2)
Ted R. Charter
Executive Vice President, Marketing and
Development..................................... 194,295 -- (1) --
Robert F. Strosser
Executive Vice President, Chief Financial
Officer and
General Manager, Asian Business Operations...... 177,216 -- --
William P. Hayes III
Vice President, North American Sales............ 135,469 -- 46,367(3)
Donald G. Kainer
Vice President, General Manager, Web Products
Division........................................ 133,582 -- --
</TABLE>
- --------
(1) During 1996, Mr. Couch received $17,443 in payments under a promissory
note granted in 1995 by the Company in lieu of payment of 1994 bonuses.
During 1996, Mr. Charter received no payments under a comparable note. See
"--Employment and Consulting Agreements."
(2) Reflects payment of life insurance and long-term disability premiums. No
other Named Executive Officer is entitled to this benefit.
(3) Reflects payments under the Company's expatriate package made to
individuals working overseas to compensate for taxes paid in foreign
jurisdictions and benefits including automobile and housing allowances.
OPTION GRANTS IN 1996
The Company issued no options to the Named Executive Officers in 1996. In
December 1996, the Company informed Messrs. Couch, Charter, Strosser, Hayes
and Kainer and that at the first meeting following the closing of the offering
contemplated hereby, it would be recommended to the Board of Directors that
such individuals receive grants of options to purchase 50,000, 40,000, 40,000,
20,000 and 75,000 shares, respectively, at the fair market value of the Common
Stock at the time of grant. The Company anticipates granting options to
purchase an additional 325,000 shares of Common Stock to certain other
employees.
The following table sets forth certain information for the Named Executive
Officers with respect to options exercised during 1996. No options were
exercised in 1996. The Company has never issued stock appreciation rights.
48
<PAGE>
AGGREGATE YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR END AT YEAR END(1)
-------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Richard G. Couch........... 501,875(2) 23,125 $977,956 $48,794
Ted R. Charter............. 409,375 3,125 866,156 6,594
Robert F. Strosser......... 396,875 3,125 846,906 13,781
William P. Hayes III....... 66,875 13,125 144,906 27,694
Donald G. Kainer........... 76,875 13,125 167,906 27,694
</TABLE>
- --------
(1) There was no public trading market for the Common Stock at any time during
1996. Solely for purposes of this table, the values have been calculated
on the basis of the assumed initial public offering price of $2.50 per
share, less the aggregate exercise price of the options.
(2) Includes a non-qualified option to purchase 100,000 shares of Common Stock
at an exercise price of $1.20 per share issued in 1990.
STOCK PLANS
1993 Stock Plan
The Company's 1993 Stock Plan was adopted by the Board of Directors in April
1993 and approved by the Company's shareholders in May 1993. The plan was
amended and restated by the Board of Directors and approved by the Company's
shareholders in May 1994. An aggregate of 4,000,000 shares of Common Stock are
authorized for issuance under the 1993 Stock Plan. As of December 31, 1996,
the Company had granted options or restricted stock purchase rights to
purchase an aggregate of 2,460,500 shares of Common Stock at a weighted
average exercise price of $0.38. There are currently outstanding options to
purchase 1,711,500 shares of Common Stock at a weighted average exercise price
of $0.38 per share and 2,288,500 shares remain available for future grants
under the plan. The 1993 Stock Plan provides for the grant to employees
(including officers and employee directors) of "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and for the grant to employees, non-employee directors
and consultants of nonstatutory stock options. The 1993 Stock Plan also
provided for the grant of restricted stock purchase rights which permitted the
purchase of restricted stock by employees at prices not less than 75% of fair
market value. The restricted stock once purchased was subject to repurchase by
the Company upon termination, with such repurchase option lapsing over a
period of time as determined by the administrator of the plan.
The 1993 Stock Plan may be administered by the Board of Directors or the
Compensation Committee of the Board (the "Administrator"). The Administrator
determines the terms of options granted under the 1993 Stock Plan, including
the number of shares subject to the option, exercise price, term and
exercisability. The exercise price of all incentive stock options granted
under the 1993 Stock 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
options must be at least 75% of fair market value on the date of grant. The
exercise price of any incentive stock option granted to an optionee who owns
stock representing more than 10% of the voting power of the Company's
outstanding capital stock must equal at least 110% of the fair market value of
the Common Stock on the date of grant. Payment of the exercise price may be
made in cash, check, stock, promissory notes or other consideration determined
by the Administrator. The Administrator determines the term of options. With
respect to any participant who owns stock possessing more than 10% of the
voting power of the Company's outstanding capital stock, the maximum term of
the option must not exceed five years. Options terminate 180 days after an
employee's termination, except in the cases of disability and death, in which
case the option terminates 12 months after termination of employment or death.
Options granted under the 1993 Stock Plan are not permitted to be transferred,
sold or assigned, except in the case of death. The term of all other options
may not exceed ten years.
Upon a change in the Company's capitalization resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification, or any
other increase or decrease in the number of shares of the
49
<PAGE>
Common Stock without receipt of consideration, the number of shares underlying
the options as well as the exercise price shall be adjusted accordingly. If
the Company sells substantially all of its assets to or merges with another
corporation, then each option will accelerate so that each option will be
fully exercisable for all of the shares subject to such option immediately
prior to the transaction if such option is not assumed or substituted by the
successor corporation. If not terminated earlier, the 1993 Stock Plan will
terminate in April 2003. The Administrator has the authority to amend or
terminate the 1993 Stock Plan as long as such action does not adversely affect
any outstanding option. The Company has agreed to limit to 521,960 the number
of options or warrants it will issue at or above $3.90 per share, which may
limit the Company's ability to attract and retain qualified employees.
1991 Stock Plan
The Company's 1991 Stock Plan was adopted by the Board of Directors and
approved by its shareholders in 1991. Upon adoption of the 1993 Stock Plan in
April 1993, the Company terminated the 1991 Stock Plan. Options granted under
the 1991 Stock Plan continue to be administered under its terms. As of
December 31, 1996, the Company had granted options to purchase an aggregate of
1,972,750 shares at a weighted average exercise price of $0.20 per share.
There are currently outstanding options to purchase 266,250 shares of Common
Stock at a weighted average exercise price of $0.20 per share. The 1991 Stock
Plan provided for the grant to employees, including officers and directors
employed by the Company on substantially the same terms as the 1993 Stock
Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Bylaws provide that the Company will indemnify its directors
and officers against any damages arising from their actions as an agent of the
Company to the fullest extent permitted by Texas law. The Bylaws further
provide that the Company may similarly indemnify its other employees and
agents. In addition, each director has entered into an indemnification
agreement with the Company that may require the Company, among other things,
to indemnify its directors against certain liabilities that may arise by
reason of their status or service as directors (other than liabilities arising
from willful misconduct of a culpable nature), to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and maintains directors' and officers' insurance.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company in respect of that
indemnification would be required or permitted. The Company is not aware of
any threatened litigation or proceeding that might result in a claim for such
indemnification.
50
<PAGE>
CERTAIN TRANSACTIONS
In December 1992, the Company acquired Precision Visuals, Inc. ("PVI"), a
Delaware corporation engaged in the development and sale of visual data
analysis software, pursuant to a Plan and Agreement of Reorganization (the "PVI
Merger Agreement"). Under the PVI Merger Agreement, the stockholders of PVI
received: (i) 925,000 shares of Common Stock; (ii) approximately $2.1 million
in cash; (iii) promissory notes in the aggregate principal amount of
approximately $1.4 million; (iv) the right to receive up to $2.5 million in
contingent cash payments; and (v) the right to receive 256,410 additional
shares of Common Stock if certain targets were met. The promissory notes were
payable in seven quarterly installments with interest at a rate of 1.5% per
quarter and the contingent cash payments were payable quarterly at a rate based
upon the Company's consolidated revenues. Under the terms of the PVI Merger
Agreement, the Company was required to repurchase the 256,410 additional shares
of Common Stock at a price of $3.90 per share upon the election of the former
PVI stockholders two years following the merger closing date. Additionally, the
PVI Merger Agreement provides that at the election made by stockholders holding
more than 15% of the shares held by the former PVI stockholders during the six-
month period starting December 22, 1997, the Company must repurchase the
925,000 shares held by the former PVI stockholders at the fair market value as
of the end of the fiscal year preceding the date of repurchase. Such repurchase
right terminates upon the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement under the Securities
Act such as the offering contemplated by this Prospectus.
In connection with the merger, the former PVI stockholders also entered into
a shareholder rights agreement under which they received certain "piggyback"
registration rights subject to determination by the underwriter of such
offering that the inclusion of such shares would not be detrimental to such
offering, and James R. Warner agreed not to compete with the Company for a
period of three years and entered into a consulting agreement with the Company
providing for payments of approximately $168,000 per year during 1993, 1994 and
1995. In March 1996, the Company and Mr. Warner entered into a new consulting
agreement under which Mr. Warner receives monthly payments of $1,000. Under the
PVI Merger Agreement, Mr. Warner, as representative of the former PVI
stockholders, has certain rights to observe meetings of the Board of Directors.
In April 1993, the shareholders of the Company approved an exchange agreement
to restructure the Company's capital stock into Series A, B and C Preferred
Stock and Common Stock. Of the 6,632,985 shares of Class A Common Stock,
106,000 shares purchased for less than $0.20 per share (and 1,750,000 shares of
Class A Common Stock purchased by Mr. and Mrs. Johnson at $0.20 per share)
remained Class A Common Stock and the remaining 4,776,985 shares of Class A
Common Stock were eligible to be exchanged into Preferred Stock. 3,193,500
shares of Class A Common Stock purchased at $0.20 per share were eligible to be
exchanged for Series A Preferred Stock, of which 2,888,500 shares were
exchanged. 163,390 shares of Class A Common Stock purchased at $1.20 per share
were eligible to be exchanged for Series B Preferred Stock, of which 147,390
shares were exchanged. The 1,420,095 shares of Class A Common shares held by
the former PVI stockholders and by the former stockholders of 3-D Visions were
eligible to be exchanged for Series C Preferred Stock, of which 1,410,455
shares were exchanged. In addition, all remaining shares of Class A Common
Stock and Class B Common Stock were converted into Common Stock, and options
and a warrant to purchase Class A Common Stock were converted into options and
a warrant to purchase Common Stock, eliminating the Company's classes of common
stock. All shares, options and warrants were exchanged on a share-for-share
basis.
The Company made contingent cash payments to the former PVI stockholders
during 1993 in the aggregate amount of $316,276, which was less than the
payments required under the PVI Merger Agreement. In November 1993, the Company
received notification from the former PVI stockholders that it was in default
under the terms of the PVI Merger Agreement. The Company entered into a letter
agreement (the "Letter Agreement") with the former PVI stockholders dated
December 20, 1993 pursuant to which the terms of the debt restructuring were
defined and the remaining $2.2 million in aggregate contingent cash payments
owed to former PVI stockholders and $700,000 in promissory notes issued to
former PVI stockholders were consolidated into new promissory notes (the
"Restructure Notes") in the aggregate principal amount of $2.9 million. The
Letter Agreement
51
<PAGE>
provided for a $100,000 principal payment to the former PVI stockholders prior
to March 31, 1994 and a $400,000 principal payment quarterly thereafter until
the balance was paid, together with periodic payments of accrued interest.
Under the Letter Agreement each share of Series C Preferred Stock was
exchanged for a share of the newly created Series D Preferred Stock of the
Company. The Series D Preferred Stock has a $3.7 million liquidation preference
senior to other shareholders of the Company and retains substantially the same
dividend preferences and redemption rights as the Series C Preferred Stock.
Under the Letter Agreement, no other shares of Series D Preferred Stock may be
issued by the Company and no sale of control of the Company or any substantial
portion of its assets may be effected without the consent of the holders of the
former PVI stockholders, which consent shall not be unreasonably withheld. In
addition, the holders of Series D Preferred Stock retained their rights to
require the Company to repurchase the stock under certain circumstances. The
Restructure Notes were repaid in full in 1994. Upon completion of this
offering, the Series D Preferred Stock will automatically convert into Common
Stock, and the repurchase rights of the former PVI stockholders contained in
the Letter Agreement and the PVI Merger Agreement will terminate.
In December 1992, in connection with the Company's entering into the second
amended and restated loan agreement with its bank, the Company entered into a
guaranty and warrant agreement with Mr. Johnson, the largest shareholder and
Chairman of the Board of the Company. Mr. Johnson guaranteed the loan in
exchange for a warrant to purchase 38,460 shares of Common Stock at an exercise
price of $3.90 per share. In May 1995, in connection with an amendment to the
bank credit agreement and his guarantee in connection therewith, the Company
issued an additional warrant to purchase 44,871 shares of Common Stock at an
exercise price of $3.90 to Mr. Johnson. In June 1996, the Company entered into
the fourth and fifth amendments to the loan agreement with its bank and the
Company entered into a new guarantee and warrant agreement with Mr. Johnson
under which Mr. Johnson guaranteed the loan in exchange for warrants to
purchase 15,000 shares and 25,000 shares of Common Stock at an exercise price
of $3.90 per share. All of the warrants issued to Mr. Johnson are immediately
exercisable and terminate upon the earlier of (i) an initial public offering of
the Common Stock at an aggregate offering price of not less than $7.5 million,
(ii) the sale of substantially all of the assets of the Company or an
acquisition of the Company, or (iii) five years from the date of issuance.
In August 1996, certain former PVI stockholders exercised certain contingent
repurchase rights under the PVI Merger Agreement which required the Company to
repurchase 256,410 shares of its Series D Preferred Stock for approximately
$1.0 million. Shortly before such payment, the Company borrowed $1.0 million
from Mr. Johnson pursuant to a Loan and Security Agreement with at an interest
rate equal to 1% above the corporate base rate of First National Bank of
Chicago. The loan becomes due and payable on August 16, 2000. Under the Loan
and Security Agreement if the Company does not prepay the full amount of the
loan prior to March 1, 1997, Mr. Johnson will receive a seven-year warrant to
purchase 425,000 shares of Common Stock at an exercise price of $2.96 per
share. The promissory note is secured by certain assets, including certain
intellectual property rights of the Company. The Company is currently
prohibited from prepaying the note issued to Mr. Johnson under the Company's
loan agreement with Wells Fargo Bank (Texas), N.A. Messrs. Charter, Couch and
Strosser and Mr. Gary Hromadko, a former director and consultant of the
Company, have agreed in principle to enter into guarantee agreements with the
Company's bank to partially guarantee up to an aggregate of $200,000 the
Company's loan under its bank credit agreement. It is anticipated that upon
such event, Mr. Johnson's guarantee of the Company's bank credit agreement will
be reduced by the amount of the guarantees by such other individuals and that
such individuals would be entitled to receive a proportionate amount of the
warrants that the Company is obligated to grant to Mr. Johnson in connection
with his guarantee.
In December 1992, the Company, Mr. and Mrs. Johnson and Messrs. Aird,
Charter, Couch and Strosser, entered into a shareholders' agreement providing
such members of the Company's management with a right to sell a portion of
their shares of Common Stock together with Mr. and Mrs. Johnson if they decide
to sell any of their shares. In addition, this shareholders' agreement provides
that Mr. and Mrs. Johnson and such members of the Company's management have the
right to include their shares in a registration statement filed by the
52
<PAGE>
Company subject to the underwriter's determination that such participation
would not be detrimental to the offering.
From November 1990 to September 1992, Mr. Couch provided services to the
Company under a consulting agreement. In September 1992, the Company entered
into a new consulting arrangement with Mr. Couch that provided for a monthly
retainer of $20,000 and a deferred payouts and bonuses of up to $120,000 with
the exact amount based upon the achievement by the Company of certain revenue
goals. Mr. Couch received options to purchase 50,000 shares of Common Stock at
an exercise price of $0.36 per share in connection with the closing of the PVI
merger. Upon termination of the consulting arrangement, Mr. Couch is required
to resign as a director. In connection with his ongoing consulting services,
Mr. Couch received in 1993 options to purchase 225,000 shares of Common Stock
at an exercise price of $0.39 per share and in 1994 an option to purchase
100,000 shares of Common Stock at an exercise price of $0.39 per share. See "--
Employment and Consulting Agreements."
In January 1995, the Company entered into employment or consulting agreements
with Messrs. Couch, Charter, Strosser, Kainer, Hayes, Johnson and Fetters. See
"--Employment and Consulting Agreements." Mr. Couch is the Managing Principal
and sole owner of Diablo. Messrs. Couch, Strosser and Charter are principals of
Diablo and Mr. Fetters is an associate of Diablo. See "Management--Executive
Officers and Directors" and "--Employment and Consulting Agreements."
53
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of December 31, 1996, and as adjusted to
reflect the sale of shares offered by this Prospectus (i) by each person who
is known by the Company to own beneficially more than five percent of the
Common Stock, (ii) by each of the Company's directors and Named Executive
Officers and (iii) by all executive officers and directors as a group. Unless
otherwise indicated below, to the knowledge of the Company, all persons listed
below have sole voting and investment power with respect to their shares of
Common Stock, except to the extent authority is shared by spouses under
applicable law. The information set forth below gives effect to the conversion
of all outstanding shares of Preferred Stock into Common Stock upon completion
of the offering on contemplated hereby.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED
SHARES -----------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- ------------------------------------ ------------ ---------- ----------
<S> <C> <C> <C>
Charles W. Johnson (2).................. 3,638,381 55.1% 44.1%
3801 Lighthouse Drive
Racine, Wisconsin 53402
Jennifer C. Johnson (3)................. 3,638,381 55.1 44.1
3801 Lighthouse Drive
Racine, Wisconsin 53402
Richard G. Couch (4).................... 625,000 8.9 7.2
Visual Numerics, Inc.
9990 Richmond Avenue, Suite 400
Houston, Texas 77042
James R. Warner (5)..................... 546,480 8.4 6.7
2160 Meadow Avenue
Boulder, Colorado 80304
Ted R. Charter (6)...................... 412,550 6.0 4.8
Visual Numerics, Inc.
9990 Richmond Avenue, Suite 400
Houston, Texas 77042
Robert F. Strosser (7).................. 400,050 5.8 4.7
Visual Numerics, Inc.
9990 Richmond Avenue, Suite 400
Houston, Texas 77042
Donald G. Kainer (8).................... 105,475 1.6 1.3
William P. Hayes III (9)................ 70,675 1.1 *
Thomas E. Congdon (10).................. 11,000 * *
All executive officers and directors as
a group (7 persons) (11)............... 5,263,131 65.0 54.0
</TABLE>
- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In determining the number of shares
beneficially owned by a person, options or warrants to purchase Common
Stock held by that person that are currently exercisable, or become
exercisable within 60 days following December 31, 1996 are deemed
outstanding; however, such shares are not deemed outstanding for purposes
of computing the percentage ownership of any other person.
54
<PAGE>
(2) Includes 1,500,000 shares of Common Stock held by Jennifer C. Johnson,
spouse of Charles W. Johnson, and 123,331 shares issuable pursuant to
outstanding warrants exercisable within 60 days. Excludes 425,000 shares
exercisable upon exercise of a warrant issuable to Mr. Johnson in the event
the $1.0 million loan outstanding to Mr. Johnson is not repaid before March
1, 1997.
(3) Includes 2,015,050 shares of Common Stock held by Charles W. Johnson,
spouse of Jennifer C. Johnson and 123,331 shares issuable to Mr. Johnson
pursuant to outstanding warrants exercisable within 60 days. Excludes
425,000 shares exercisable upon exercise of a warrant issuable to Mr.
Johnson in the event the $1.0 million loan outstanding to Mr. Johnson is
not repaid before March 1, 1997.
(4) Includes 525,000 shares issuable upon exercise of outstanding options
exercisable within 60 days.
(5) Includes 106,025 shares of Common Stock held by Judith Wells Warner, spouse
of James R. Warner and 116,650 shares of Common Stock held jointly by Mr.
Warner and Judith Wells Warner.
(6) Includes 412,500 shares issuable upon exercise of outstanding options
exercisable within 60 days.
(7) Includes 400,000 shares issuable upon exercise of outstanding options
exercisable within 60 days.
(8) Includes 80,625 shares issuable upon exercise of outstanding options
exercisable within 60 days.
(9) Includes 70,625 shares issuable upon exercise of outstanding options
exercisable within 60 days.
(10) Includes 5,000 shares issuable upon exercise of outstanding options
exercisable within 60 days.
(11) Includes 1,617,081 shares subject to stock options and warrants held by
such directors and executive officers exerciseable within 60 days.
Includes shares included in footnote (2) that are held by the spouse of
Mr. Johnson.
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering and based upon the shares outstanding as of
December 31, 1996, there will be 8,128,129 shares of Common Stock outstanding.
Of these shares, the 1,650,000 shares sold in this offering (assuming no
exercise of the Underwriter's over-allotment option) will be freely tradable
without restriction or further registration unless purchased by "affiliates" of
the Company as that term is defined in Rule 144 under the Securities Act. The
remaining 6,478,129 shares will be "restricted securities" as that term is
defined under Rule 144 (the "Restricted Shares"). Sales of Restricted Shares in
the public market, or the availability of such shares for sale, could adversely
affect the market price of the Common Stock.
Of the 6,478,129 Restricted Shares, 2,691,085 are eligible for immediate sale
pursuant to Rule 144(k) under the Securities Act and the remaining 3,787,044
shares are eligible for public sale if sold in accordance with Rule 144 or Rule
701 thereunder (subject in the case of 3,749,040 of these shares to volume
restrictions under Rule 144 thereunder). Of the 6,478,129 Restricted Shares,
4,952,589 are subject to contractual restrictions preventing the holders from
selling Common Stock owned by them for a period of 180 days from the effective
date of this Prospectus.
An aggregate of 921,819 shares issuable upon exercise of vested stock options
will be eligible for public sale if sold in accordance with Rule 144 and Rule
701 under the Securities Act beginning 90 days after the date of this
Prospectus. Of the 921,819 shares issuable upon exercise of vested stock
options, 535,080 shares issuable upon exercise of options are subject to
contractual restrictions preventing the holders from selling Common Stock owned
by them for a period of 180 days from the effective date of this Prospectus,
unless earlier released, in whole or in part, by the Underwriter.
In general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned Restricted Shares for at
least two years would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of one percent of the number
of shares of Common Stock then outstanding. Sales under Rule 144 are subject to
certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. In addition, a
person who is not deemed to have been an "affiliate" of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned for at
least three years the shares proposed to be sold, would be entitled to sell
such shares under Rule 144(k) without regard to the requirements described
above. The Securities and Exchange Commission has recently proposed to reduce
the Rule 144 holding periods. If enacted, such modification will have a
material effect on the timing of when shares of the Common Stock become
eligible for resale.
Prior to this offering, there has been no public market for the Common Stock,
and upon completion of this offering, the Common Stock will not be traded on an
established market. Shareholders may be forced to hold their shares for a
substantial period of time as a consequence of the Common Stock not being
registered for trading on an established market. See "Risk Factors--No Market
for Common Stock; Illiquidity of Investment."
In addition, after this offering, the holders of 2,413,333 shares of Common
Stock are entitled to certain rights with respect to registration of such
shares under the Securities Act upon the registration of any Company shares.
Registration of such shares under the Securities Act would result in such
shares becoming freely tradable without restriction under the Securities Act
(except for shares purchased by affiliates of the Company) immediately upon the
effectiveness of such registration. See "Description of Capital Stock--
Registration Rights." If the Company were to include any of these registrable
securities pursuant to the exercise of piggyback registration rights in a
Company-initiated registration, such sales may have an adverse effect on the
Company's ability to raise needed capital.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, after giving effect to the amendment of the
Company's Articles of Incorporation to delete references to the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock and increase the authorized number of shares of Common Stock,
the authorized capital stock of the Company will consist of 17,000,000 shares
of Common Stock, without par value, and 5,000,000 shares of preferred stock,
without par value. Each outstanding share of Preferred Stock will be
automatically converted into one share of Common Stock upon the closing of the
offering being made hereby. Upon such conversion, such Preferred Stock will be
canceled, retired and eliminated from the shares that the Company is authorized
to issue. The following summary of certain provisions of the Common Stock and
the preferred stock of the Company does not purport to be complete and is
subject to, and is qualified in its entirety by, the Articles of Incorporation
and Bylaws of the Company, which are included as exhibits to the Registration
Statement of which this Prospectus forms a part and by the provisions of the
applicable laws.
COMMON STOCK
As of December 31, 1996, there were 6,448,129 shares of Common Stock
outstanding (as adjusted to reflect the conversion of all outstanding shares of
preferred stock into an aggregate of 4,227,179 shares of Common Stock) held of
record by approximately 215 shareholders. After giving effect to this offering,
there will be 8,128,129 shares of Common Stock outstanding (assuming no
exercise of the Underwriter's over-allotment option). The holders of Common
Stock are entitled to one vote for each share held of record on all matters
submitted to a vote of the shareholders, voting with the holders of preferred
stock as a single class except where class voting is required by the Texas
Business Corporation Act. Subject to preferential rights with respect to any
outstanding preferred stock, holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of
funds legally available therefor. In the event of a liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities and satisfaction
of preferential rights of any outstanding preferred stock. Holders of Common
Stock have no preemptive or conversion rights or other subscription rights, and
there are no redemption or conversion rights available to the Common Stock. The
outstanding shares of Common Stock are, and the shares of Common Stock to be
issued upon completion of this offering will be, fully paid and nonassessable.
PREFERRED STOCK
Upon completion of this offering, the Board of Directors will be authorized
without further shareholder action to issue 5,000,000 shares of preferred stock
in one or more series and to fix the 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 constituting any such series, without
further vote or action by the shareholders. The issuance of preferred stock may
have the effect of delaying, deterring or preventing a change in control of the
Company without further action by the shareholders. 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.
No series of preferred stock will be issued and outstanding upon completion of
the offering. At present, the Company has no plans to designate or issue any
shares of preferred stock.
WARRANTS AND OTHER RIGHTS
As of December 31, 1996, there were outstanding warrants to purchase 123,331
shares of Common Stock at an exercise price of $3.90 per share. Warrants to
purchase 425,000 at an exercise price of $2.96 per share will be issued in the
event the Company does not repay a $1.0 million loan prior to March 1, 1997.
REGISTRATION RIGHTS
The holders of 1,191,289 shares of Common Stock originally issued in
connection with the Company's acquisitions of PVI and 3-D Visions and the
holders of 3,736,450 shares of Common Stock held by certain
57
<PAGE>
existing and former executive officers, directors and consultants of the
Company (the "Registrable Securities") are entitled to certain rights with
respect to the registration of such shares under the Securities Act, under the
terms of certain agreements between the Company and the holders of Registrable
Securities (the "Rights Agreements"). If the Company registers any of its
Common Stock either for its own account or for the account of other security
holders, the holders of Registrable Securities are entitled to include their
shares of Common Stock in the registration, subject to certain conditions and
limitations, including lock-up agreements restricting the sale of such shares
for 180 days after the effective date of the registration statement filed in
connection with any such offering and the right of the underwriters to limit
the number of shares included in such registration. In the case of the
registration rights of the holders of shares, issued in connection with the
acquisition of the PVI and 3-D Visions, these registration rights are
transferable to any transferee of the shares and in the case of shares held by
Mr. and Mrs. Johnson and certain employees and consultants, the registration
rights terminate upon the cessation of the shareholder's employment,
consultancy or directorship. Pursuant to the Rights Agreements, all fees, costs
and expenses of registrations must be borne by the Company and all selling
expenses (including underwriting discounts and selling commissions) relating to
Registrable Securities must be borne by the holders of the securities being
registered.
The Company has granted certain registration rights to Gordian Group, L.P.
("Gordian") in connection with the issuance to Gordian of 30,000 shares of
Common Stock as partial payment for services rendered pursuant to an agreement
dated October 10, 1996. Gordian is entitled to include such shares in a
registration initiated by the Company, subject to terms and restrictions
similar to those contained in the Rights Agreements. In addition, Gordian is
entitled to receive 30,000 shares upon the successful restructuring of the
Company's capital structure and the Company has agreed to grant certain
registration rights to Gordian covering such shares. See "Underwriting."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Articles of Incorporation and Bylaws, as
they will be amended effective upon the completion of this offering, and the
Company's 1993 Stock Plan, employment agreements, consulting agreements and
agreements with certain shareholders could make more difficult the acquisition
of the Company by means of a tender offer, proxy contest or otherwise. These
provisions include the authority of the Board of Directors to designate and
issue up to 5,000,000 shares of preferred stock. The issuance of preferred
stock, while providing desirable flexibility in connection with potential
future financings, acquisitions and other corporate purposes, could have the
effect of making it more difficult for a third party to acquire a majority of
the outstanding voting stock of the Company, thereby delaying, deferring or
preventing a change in control of the Company. Furthermore, such preferred
stock may have other rights, including economic rights senior to the Common
Stock, and, as a result, the issuance of such preferred stock could have a
material adverse effect on the market value of the Common Stock. The Company
has no present plan to issue shares of preferred stock. The Company's 1993
Stock Plan provides that, upon a proposed sale of all or substantially all of
the Company's assets or the merger of the Company with or into another
corporation that the vesting of the options under the 1993 Stock Plan
accelerate and become exerciseable. In addition, the Company has employment and
consulting agreements with certain of its officers and key employees that
provide for substantial severance payments and an acceleration of option
vesting upon a change in control of the Company. Furthermore, the consent of
the former PVI stockholders is required for the Company to complete a merger or
sale of substantially all assets. See "Risk Factors Restrictions on Sale of
Company or Sale of Company's Assets" and "Management Employment and Consulting
Agreements."
TRANSFER AGENT AND REGISTRAR
The Company acts as the Transfer Agent and Registrar for its Common Stock.
The Company intends to hire a commercial Transfer Agent and Registrar if there
are any significant increases in the transfers and/or sales of the Company's
securities.
58
<PAGE>
UNDERWRITING
Gordian Group, L.P. (the "Underwriter") has agreed, subject to the terms and
conditions set forth in the Underwriting Agreement, to purchase from the
Company the 1,650,000 shares of Common Stock offered hereby at the initial
public offering price less the underwriting discount set forth on the cover
page of this Prospectus. The Underwriting Agreement provides that the
obligations of the Underwriter are subject to certain conditions precedent and
that the Underwriter is committed to purchase all of such shares, if any are
purchased.
The Underwriter has advised the Company that it initially proposes to offer
the Common Stock to the public on the terms set forth on the cover page of this
Prospectus. The Underwriter may allow a concession of not more than $0. per
share to selected dealers. After the initial public offering, the offering
price and other selling terms may be changed by the Underwriter. The Common
Stock is offered subject to receipt and acceptance by the Underwriter and to
certain other conditions, including the right to reject orders in whole or in
part.
The Company has granted an option to the Underwriter, exercisable during the
30-day period after the date of this Prospectus, to purchase up to a maximum of
247,500 additional shares of Common Stock, to cover over-allotments, if any, at
the same price per share as the initial 1,650,000 shares to be purchased by the
Underwriter. To the extent the Underwriter exercises this option, it will be
committed, subject to certain conditions, to purchase such additional shares.
The Underwriter may purchase such shares only to cover over-allotments made in
connection with this offering.
Holders of 2,139,950 shares of Common Stock prior to this offering have
agreed, subject to certain limited exceptions, not to sell or offer to sell or
otherwise dispose of the shares of Common Stock currently held by them, any
options to purchase any shares of Common Stock or any securities convertible or
exchangeable for any shares of Common Stock for a period of 180 days after the
date of the final Prospectus in connection with this offering without the prior
written consent of the Underwriter. Holders of an additional 2,812,639 shares
of Common Stock have agreed pursuant to registration rights agreements not to
sell, make a short sale, grant any purchase option or otherwise dispose of any
shares without the prior written consent of the Company or the Underwriter for
a period of 180 days from the effective date of the registration statement.
Gordian may, in its sole discretion, and at any time without notice, release
all or any portion of the securities subject to these lock-up agreements. In
addition, the Company has agreed that for a period of 180 days after the date
of this Prospectus it will not, without the consent of Gordian, issue, offer,
sell, grant options to purchase, or otherwise dispose of any equity securities
or securities convertible into or exchangeable for equity securities.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter and its controlling persons against certain liabilities, including
civil liabilities under the Securities Act, or will contribute to payments the
Underwriter may be required to make in respect thereof. It also contains a
covenant by the Company that the Company will provide to shareholders certain
annual and quarterly reports.
The Underwriter has advised the Company that it will not confirm sales of
shares offered hereby to any accounts over which it exercises discretionary
authority.
Prior to this offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price has been determined through
negotiations between the Company and the Underwriter. Among the factors
considered in such negotiations were the history of, and the prospects for, the
Company and the industry in which it competes, an assessment of the Company's
management, its past and present operations and financial performance, the
prospects for future earnings of the Company, the present state of the
Company's development, the general condition of the securities markets at the
time of the offering and the market prices of and demand for publicly traded
common stocks of comparable companies in recent periods, and other factors it
deemed relevant.
59
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the offering are being passed upon
for the Company by Venture Law Group, A Professional Corporation, Menlo Park,
California. The validity of the Common Stock offered hereby will be passed upon
for the Company by Lloyd M. Corpening, Esq., corporate counsel to the Company.
Certain legal matters in connection with this offering will be passed upon for
the Underwriter by Howard, Rice, Nemerovski, Canady, Falk & Rabkin, A
Professional Corporation, San Francisco, California.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1994
and 1995 and for the three-year period ended December 31, 1995, have been
included herein and in the Registration Statement in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act
with respect to the Common Stock offered hereby (the "Registration Statement").
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 such Common Stock, reference is
made to the Registration Statement and the exhibits and schedules filed as a
part thereof. Statements contained herein as to the contents of any documents
are not necessarily complete. In each instance, reference is made to the copy
of such document filed as an exhibit to the Registration Statement, and each
such statement is qualified in its entirety by such reference. Copies of the
Registration Statement, including exhibits and schedules filed therewith, may
be inspected without charge at the Commissions' principal office in Washington,
D.C. or obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W. Washington, D.C. 20549. The Commission
maintains a World Wide Web site on the Internet at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding companies that file electronically with the Commission. The Company
has filed the Registration Statement, including the exhibits and scheduled
thereto, electronically with the Commission via the Commission's Electronic
Data Gathering, Analysis, and Retrieval "EDGAR" system. The Company will
distribute to its shareholders annual reports containing audited financial
statements examined by an independent public accountant as well as certain
other information and quarterly reports for the first three quarters of each
fiscal year containing unaudited interim financial information.
60
<PAGE>
VISUAL NUMERICS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report of KPMG Peat Marwick LLP...................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and September
30, 1996 (unaudited)...................................................... F-4
Consolidated Statements of Operations for the three-year period ended
December 31, 1995 and the nine months ended September 30, 1995 and 1996
(unaudited)............................................................... F-6
Consolidated Statements of Shareholders' Equity (Deficit) for the three-
year period ended December 31, 1995 and the nine months ended September
30, 1996 (unaudited)...................................................... F-7
Consolidated Statements of Cash Flows for the three-year period ended
December 31, 1995 and the nine months ended September 30, 1995 and 1996
(unaudited)............................................................... F-8
Notes to Consolidated Financial Statements................................. F-9
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Visual Numerics, Inc.:
We have audited the accompanying consolidated balance sheets of Visual
Numerics, Inc. and its subsidiaries as of December 31, 1994 and 1995, and the
related consolidated statements of operations, shareholders' equity (deficit)
and cash flows for each of the years in the three-year period ended December
31, 1995. These consolidated 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, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Visual Numerics, Inc. and subsidiaries as of December 31, 1994 and 1995,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
May 1, 1996, except for the first
paragraph of Note 11, which is as
of July 31, 1996, and the second
paragraph Note 11, which is as of
August 16, 1996
F-2
<PAGE>
VISUAL NUMERICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1994 1995 1996
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 1,704 $ 1,506 $ 1,071
Accounts receivable, net of allowances of $213
as of December 31, 1994, $296 as of December
31, 1995 and $200 as of September 30, 1996... 8,127 8,775 6,147
Inventories................................... 476 462 474
Deferred tax assets (Note 4).................. 737 481 481
Other current assets.......................... 753 735 1,146
------- ------- -------
Total current assets........................ 11,797 11,959 9,319
------- ------- -------
Property and equipment (Note 5):
Furniture and equipment....................... 7,851 8,038 8,611
Leasehold improvements........................ 99 100 100
------- ------- -------
7,950 8,138 8,711
Less: Accumulated depreciation and
amortization................................. 6,430 6,751 7,288
------- ------- -------
Property and equipment, net................... 1,520 1,387 1,423
Software development costs, net of accumulated
amortization of $3,815 as of December 31, 1994,
$5,236 as of December 31, 1995 and $6,369 as of
September 30, 1996............................. 4,332 4,755 5,028
Other assets.................................... 672 665 595
Excess of costs over net assets acquired, net... 2,364 1,891 1,537
------- ------- -------
Total assets................................ $20,685 $20,657 $17,902
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
VISUAL NUMERICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1994 1995 1996
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable and
long-term debt (Note 3)................... $ 2,686 $ 536 $ 2,008
Current obligations under capital leases
(Note 5).................................. 185 225 308
Accounts payable........................... 1,706 2,485 1,901
Income taxes payable (Note 4).............. 524 419 377
Accrued liabilities........................ 3,599 2,945 2,538
Unearned support and maintenance revenue... 3,891 4,293 3,044
------- ------- -------
Total current liabilities................ 12,591 10,903 10,176
Noncurrent liabilities:
Deferred tax liabilities (Note 4).......... 1,418 1,080 1,080
Notes payable and long-term debt, excluding
current maturities (Note 3)............... 103 2,535 2,576
Obligations under capital leases, excluding
current maturities (Note 5)............... 193 267 407
Other long-term liabilities................ 853 342 62
Series D Preferred Stock, redeemable, no
par value, $3.90 stated value; authorized
1,583,555 shares; issued and outstanding
1,181,410 shares at 1995 and 1994 and
925,000 shares at September 30, 1996...... 4,607 4,607 3,608
------- ------- -------
Total liabilities and redeemable
preferred stock......................... 19,765 19,734 17,909
Commitments and contingencies (Note 10)
Shareholders' equity (Note 8):
Common Stock, $.02 par value; authorized
17,000,000; issued 2,195,750 shares;
outstanding 2,190,950 shares.............. 44 44 44
Series A Preferred Stock, no par value,
$.20 stated value; authorized 3,193,500
shares; issued and outstanding 2,888,500
shares.................................... 578 578 578
Series B Preferred Stock, no par value,
$1.20 stated value; authorized 163,390
shares; issued and outstanding 147,390
shares.................................... 177 177 177
Series D Preferred Stock, nonredeemable, no
par value, $3.90 stated value; authorized
1,583,555 shares; issued 270,129 shares;
outstanding 266,289 shares................ 1,053 1,053 1,053
Treasury stock, at cost; 4,800 shares of
Common Stock, 3,840 shares of Series D
Preferred Stock........................... (16) (16) (16)
Additional paid-in capital................. 249 249 249
Accumulated deficit........................ (1,036) (1,118) (1,827)
Cumulative translation adjustment.......... (129) (44) (265)
------- ------- -------
Total shareholders' equity............... 920 923 (7)
------- ------- -------
Total liabilities and shareholders'
equity.................................. $20,685 $20,657 $17,902
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
VISUAL NUMERICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue........................ $30,322 $32,713 $30,001 $ 21,963 $ 19,102
Cost and expenses:
Operating.................... 16,405 16,052 15,296 11,373 9,156
General and administrative... 13,656 11,610 10,290 7,925 6,909
Research and development..... 3,822 2,918 4,215 3,100 3,537
Write-down of investment in
subsidiary (Note 2)......... 1,664 -- -- -- --
Special charge for asset
impairment.................. 723 -- -- -- --
------- ------- ------- -------- --------
Total costs and expenses... 36,270 30,580 29,801 22,398 19,602
------- ------- ------- -------- --------
Operating income (loss)........ (5,948) 2,133 200 (435) (500)
Other income (loss)............ (185) (329) (272) (121) (209)
------- ------- ------- -------- --------
Income (loss) before
extraordinary item and income
taxes......................... (6,133) 1,804 (72) (556) (709)
Income taxes expense (benefit)
(Note 4)...................... (1,087) 719 10 (189) --
------- ------- ------- -------- --------
Net income (loss) before
extraordinary item............ (5,046) 1,085 (82) (367) (709)
Extraordinary item:
Extraordinary gain on debt
restructuring,
net of taxes................ -- 520 -- -- --
------- ------- ------- -------- --------
Net income (loss).......... $(5,046) $ 1,605 $ (82) $ (367) $ (709)
======= ======= ======= ======== ========
Income (loss) per common and
common equivalent share:
Income (loss) before
extraordinary item.......... $ (2.56) $ 0.26 $ (0.04) $ (0.17) $ (0.32)
Extraordinary item........... -- 0.12 -- -- --
------- ------- ------- -------- --------
Net income (loss) per
common share.............. $ (2.56) $ 0.38 $ (0.04) $ (0.17) $ (0.32)
======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
VISUAL NUMERICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NONREDEEMABLE
PREFERRED STOCK ADDITIONAL CUMULATIVE TOTAL
COMMON ------------------------------------ TREASURY PAID-IN (ACCUMULATED TRANSLATION SHAREHOLDERS'
STOCK SERIES A SERIES B SERIES C SERIES D STOCK CAPITAL DEFICIT) ADJUSTMENT EQUITY (DEFICIT)
---------- --------- -------- -------- -------- -------- ---------- ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1992........ $ 123 $ -- $ -- $ -- $ -- $ -- $4,492 $ 2,405 $(173) $6,847
Issuance of
stock.......... 10 -- -- -- -- -- 1,921 -- -- 1,931
Termination of
stock.......... (133) -- -- -- -- -- -- -- -- (133)
Issuance of new
stock.......... 44 578 177 -- 891 -- -- -- -- 1,690
Repurchase of
stock.......... -- -- -- -- -- (1) -- -- -- (1)
Recapitalization
adjustment..... -- -- -- -- -- -- (6,164) -- -- (6,164)
Translation
adjustment..... -- -- -- -- -- -- -- -- (30) (30)
Net loss........ -- -- -- -- -- -- -- (5,046) -- (5,046)
---------- --------- ------- ------- ------- ----- ------ ------- ----- ------
Balance, December
31, 1993........ 44 578 177 -- 891 (1) 249 (2,641) (203) (906)
Issuance of
stock.......... -- -- -- -- 162 -- -- -- -- 162
Repurchase of
stock.......... -- -- -- -- -- (15) -- -- -- (15)
Translation
adjustment..... -- -- -- -- -- -- -- -- 74 74
Net income...... -- -- -- -- -- -- -- 1,605 -- 1,605
---------- --------- ------- ------- ------- ----- ------ ------- ----- ------
Balance, December
31, 1994........ 44 578 177 -- 1,053 (16) 249 (1,036) (129) 920
Translation
adjustment..... -- -- -- -- -- -- -- -- 85 85
Net loss........ -- -- -- -- -- -- -- (82) -- (82)
---------- --------- ------- ------- ------- ----- ------ ------- ----- ------
Balance, December
31, 1995........ 44 578 177 -- 1,053 (16) 249 (1,118) (44) 923
Translation
adjustment..... -- -- -- -- -- -- -- -- (221) (221)
Net loss........ -- -- -- -- -- -- -- (709) -- (709)
---------- --------- ------- ------- ------- ----- ------ ------- ----- ------
Balance,
September 30,
1996
(unaudited)..... $ 44 $ 578 $ 177 $ -- $ 1,053 $ (16) $ 249 $(1,827) $(265) $ (7)
========== ========= ======= ======= ======= ===== ====== ======= ===== ======
Equity Share Activity
<CAPTION>
NONREDEEMABLE PREFERRED STOCK
COMMON ------------------------------------ TREASURY
STOCK SERIES A SERIES B SERIES C SERIES D STOCK
---------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1992........ 6,144,490 -- -- 1,950
Issuance of
stock.......... 239,145 -- -- 228,485 --
Exchange of
common for
preferred...... (4,189,835) 2,888,500 147,390 -- -- --
Repurchase of
stock.......... (2,850) -- -- -- -- 2,850
---------- --------- ------- ------- ------- -----
Balance, December
31, 1993........ 2,190,950 2,888,500 147,390 -- 228,485 4,800
Issuance of
stock.......... -- -- -- -- 41,644 --
Repurchase of
stock.......... -- -- -- (3,840) 3,840
---------- --------- ------- ------- ------- -----
Balance, December
31, 1994........ 2,190,950 2,888,500 147,390 -- 266,289 8,640
Issuance of
stock.......... -- -- -- -- -- --
Repurchase of
stock.......... -- -- -- -- -- --
---------- --------- ------- ------- ------- -----
Balance, December
31, 1995........ 2,190,950 2,888,500 147,390 -- 266,289 8,640
Issuance of
stock.......... -- -- -- -- -- --
Repurchase of
stock.......... -- -- -- -- -- --
---------- --------- ------- ------- ------- -----
Balance,
September 30,
1996
(unaudited)..... 2,190,950 2,888,500 147,390 -- 266,289 8,640
========== ========= ======= ======= ======= =====
</TABLE>
The accompanying notes are integral part of these financial statements.
F-6
<PAGE>
VISUAL NUMERICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- ------------------
1993 1994 1995 1995 1996
------- -------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............. $(5,046) $ 1,605 $ (82) $ (367) $ (709)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization................ 3,174 3,060 2,621 2,127 2,085
Special charge for asset
impairment.................. 723 -- -- -- --
Extraordinary gain on debt
restructuring............... -- (520) -- -- --
Loss (gain) on sale of
property.................... 31 (11) (56) 22 (72)
Unearned support and
maintenance revenue......... 1,037 (116) 402 (252) (1,249)
Deferred income tax provision
(benefit)................... (883) 194 (81) -- --
Write-down of investment in
subsidiary.................. 1,664 -- -- -- --
Changes in assets and
liabilities, net of effects
of acquisitions:
Accounts receivable, net.... 1,577 (1,272) (647) 552 2,628
Inventories................. 151 (277) 14 4 (12)
Income taxes receivable..... (466) 466 -- -- --
Noncurrent trade
receivables................ 228 (30) -- -- --
Other current assets........ 464 (189) 18 (21) (411)
Tax refund related to
acquired entity............ 514 -- -- -- --
Accounts payable............ 815 (133) 779 129 (584)
Accrued liabilities......... (385) 1,126 (655) (1,323) (342)
Income taxes payable........ (775) 344 (105) 13 (42)
Other....................... (14) 797 (435) 294 (178)
------- -------- ------- -------- --------
Net cash provided by
operating activities........ 2,809 5,044 1,773 1,178 1,114
------- -------- ------- -------- --------
Cash flows investing activities:
Payment of contingent purchase
consideration................ (316) -- -- -- --
Proceeds from the sale of
investment in land........... -- 317 -- -- --
Proceeds from the sale of
property..................... 9 2 6 5 --
Property and equipment
additions.................... (634) (300) (303) (410) (316)
Additions to software
development costs............ (1,172) (1,423) (1,844) (1,381) (1,406)
------- -------- ------- -------- --------
Net cash used in investing
activities.................. (2,113) (1,404) (2,141) (1,786) (1,722)
------- -------- ------- -------- --------
Cash flows from financing ac-
tivities:
Repayment of debt............. (1,704) (20,143) (1,294) (4,128) (384)
Principal payments on capital
lease obligations............ (376) (421) (199) (157) (152)
Repurchase of Series D
Preferred Stock.............. -- -- -- -- (1,000)
Acquisition of treasury
stock........................ (1) (15) -- -- --
Proceeds from debt............ 898 16,988 1,576 3,830 1,950
------- -------- ------- -------- --------
Net cash provided by (used
in) financing activities.... (1,183) (3,591) 83 (455) 414
------- -------- ------- -------- --------
Effect of exchange rate changes
on cash and cash equivalents.. (30) 62 87 122 (241)
------- -------- ------- -------- --------
Net increase (decrease) in cash
and cash equivalents.......... (517) 111 (198) (941) (435)
Cash and cash equivalents, be-
ginning of period............. 2,110 1,593 1,704 1,704 1,506
------- -------- ------- -------- --------
Cash and cash equivalents, end
of period..................... $ 1,593 $ 1,704 $ 1,506 $ 763 $ 1,071
======= ======== ======= ======== ========
</TABLE>
The accompanying notes are integral part of these consolidated financial
statements.
F-7
<PAGE>
VISUAL NUMERICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Visual Numerics, Inc. (the "Company") was founded in 1970. The Company's
principal business activities are the development and marketing of software
systems to support the solution of problems in the areas of engineering,
finance, research and education. The Company's products include advanced
numerical and graphical subroutine libraries, as well as visual data analysis
software. All of the Company's products are used to analyze, interpret and
present data. The Company has subsidiaries located in Europe and Asia to
facilitate foreign sales.
The consolidated financial statements include the accounts of Visual
Numerics, Inc. and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation. Certain
amounts in the prior period consolidated financial statements have been
reclassified to conform with current classifications.
Unaudited Interim Financial Statements (Unaudited)
In the opinion of management, the unaudited interim financial statements for
the nine months ended September 30, 1995 and 1996, presented herein, include
all adjustments, consisting only of normal recurring adjustments, necessary
for the fair presentation of the Company's financial position, results of
operations, shareholders' equity and cash flows for the interim periods. The
consolidated results of operations and cash flows for the nine months ended
September 30, 1996 and 1995 are not necessarily indicative of the results
which would be expected for a full year.
Revenue Recognition
The Company recognizes revenue from product license fees upon delivery and
acceptance of the products. Revenues related to license renewals are
recognized once a written commitment for a renewal is received. Revenue under
non-refundable fixed fee contracts for software products is recognized after
the software has been delivered, all significant obligations of the Company
have been fulfilled, and all significant uncertainties regarding customer
acceptance have expired. The portion of the fixed fee revenue related to
customer support is unbundled, deferred, and recognized ratably over the
contract period. The Company also contracts with customers for maintenance.
Revenue pursuant to maintenance contracts is deferred and recognized ratably
over the contract period.
Software Development Costs
Software development costs are accounted for in accordance with SFAS No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed." Costs associated with the planning and designing phase of
software development, including coding and testing activities necessary to
establish technological feasibility, are classified as product development and
expensed as incurred. Once technological feasibility has been determined,
additional costs incurred in development, including coding, testing, and
documentation writing, are capitalized.
Amortization of developed software is provided on a product-by-product basis
over the estimated economic life of the software, generally five years, using
the straight-line method. This method results in greater amortization than the
method based on the ratio of current year gross product revenue to current and
anticipated future gross product revenue. Amortization commences when a
product is available for general release to customers. Unamortized capitalized
costs determined to be in excess of the net realizable value of a product are
expensed at the date of such determination.
F-8
<PAGE>
VISUAL NUMERICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the years ended December 31, 1993, 1994 and 1995, $1,171,669,
$1,423,291 and $1,843,761, respectively, of software development costs were
capitalized. Amortization for the years ended December 31, 1993, 1994 and 1995
was $1,112,747, $1,260,165 and $1,420,531, respectively. For the nine months
ended September 30, 1995 and 1996, $1,068,892 and $1,133,132, respectively, of
software development costs were capitalized. Amortization for the same periods
was $1,381,306 and $1,406,190, respectively. Research and development costs
are charged to operations as incurred.
Liquidity
The Company incurred losses of $82,000 and $709,000 for the year ended
December 31, 1995 and the nine month period ended September 30, 1996,
respectively. From time to time, the Company has had difficulty meeting its
payment obligations to lenders and vendors and has failed to comply with
certain financial covenants under its outstanding loan agreements. Although
all such failures and defaults have been waived or satisfied, there can be no
assurance that, in the future, the Company will not breach certain financial
covenants, that the Company's lenders will waive any such noncompliance or
that the Company will not have difficulty making payments under or otherwise
complying with its obligations under its agreements. The Company's Chairman
has guaranteed up to $1.5 million under the Company's bank credit agreement
and, in August 1996, lent the Company $1.0 million to fund the redemption of
shares of Series D Preferred Stock held by former stockholders of Precision
Visuals, Inc. ("PVI"). If the Company does not prepay the loan in full prior
to March 31, 1997, the Company is required to issue a warrant to Mr. Johnson
to purchase 425,000 shares of Common Stock.
In order to provide funding for obligations as well as the development of
future products, the Company plans to raise funds through the offering of
common stock.
Income Taxes
The Company utilizes the asset and liability method of accounting for income
taxes whereby deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
Statements of Cash Flows
For cash flow presentation purposes, the Company considers all demand
accounts and highly-liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents. Cash payments for
interest in 1993, 1994 and 1995 were $414,873, $372,112 and $400,415,
respectively. Cash payments for income taxes in 1993 were $770,000. There were
no cash payments for income taxes in 1994 and 1995. The Company's cash and
cash equivalents balance includes $1,369,537 in 1995 and $746,432 in 1994 of
cash and cash equivalents held in the Company's foreign subsidiaries.
Included in noncash transactions for 1993 were $2,183,724 of debt and
$1,000,000 representing the fair value of 256,410 shares of Class A Common
Stock issued to the former PVI stockholders as a result of the renegotiation
of the consideration given in the acquisition of PVI.
F-9
<PAGE>
VISUAL NUMERICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Acquisition Activities
On March 18, 1993, the Company purchased a controlling interest in 3-D
Visions ("3-D Visions") in exchange for consideration consisting of 239,145
shares of the Company's Class A Common Stock valued at $932,665 and issuance
of $76,718 of debt. Expenses associated with the closing were $89,901.
The acquisition was accounted for as a purchase. The purchase price was
allocated to the assets and liabilities of 3-D Visions based upon their
estimated fair values. The purchase price and related expenses associated with
the acquisition exceeded the fair value of 3-D Visions' net assets by
approximately $1,650,000, which was assigned to goodwill.
Based upon the prospect of continued operating losses, management
subsequently discontinued the operations of 3-D Visions and recorded a write-
down of $1,664,341, related to the recorded assets of 3-D Visions at December
31, 1993.
During 1994, 3-D Visions entered into an agreement with its unsecured
creditors to settle the amounts due to such creditors for an amount equal to
approximately 25% of the debt to be paid over a two-year period. Pursuant to
this agreement, the Company reduced accounts payable and other liabilities for
3-D Visions which resulted in a nontaxable gain of $519,807. This amount is
reflected in the 1994 Statement of Operations as an extraordinary item.
Foreign Currency Transaction
For the Company's international subsidiaries, the functional currency is the
local currency of the country in which the subsidiary is domiciled.
Accordingly, assets and liabilities of the international subsidiaries are
translated into U.S. dollars at year-end exchange rates. Income and expense
items are translated at average rates of exchange prevailing during the year.
The adjustments resulting from translating the financial statements of
international subsidiaries are reflected as cumulative translation adjustments
and included in shareholders' equity.
Net Income (Loss) Per Share
Net income (loss) per share is computed based on the weighted average number
of common shares and common share equivalents outstanding during the period.
The weighted average shares used in the net income (loss) per share
calculations were 1,971,178, 4,182,920 and 2,190,950 in 1993, 1994 and 1995,
respectively. The weighted average shares utilized for the nine-month period
ended September 30, 1995 and 1996 were 2,190,950 and 2,190,950, respectively.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization of
property is computed using the straight-line method based on estimated useful
lives ranging from three to ten years. Expenditures for maintenance and
repairs are charged to operations as incurred. Improvements and betterments
are capitalized.
Excess of Cost Over Net Assets Acquired
In the past, the Company made an acquisition which it accounted for under
the purchase method of accounting. Accordingly, the purchase price was
allocated to identifiable tangible and intangible assets acquired and
liabilities assumed based on their estimated fair values. Excess of cost over
net assets acquired is amortized on the straight-line method over five years.
The Company reviews the carrying amount whenever events or changes indicate
that the carrying amount of the asset cannot be recoverable from expected
future undiscounted net cash flows. Accumulated amortization as of December
31, 1994 and 1995 and September 30, 1996 was $1,621,398, $2,094,250 and
$2,448,889, respectively
F-10
<PAGE>
VISUAL NUMERICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Use of Estimates
In preparing the consolidated financial statements management of the Company
has made a number of estimates and assumptions relating to the reporting of
assets and liabilities and the disclosure of contingent liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, trade accounts receivable,
accounts payable, accrued expenses and other liabilities approximate fair
value because of the short maturity of these financial instruments. The
carrying value of notes payable and long-term debt approximates fair value
because the current rates approximate market rates available on similar
instruments.
2. EXTRAORDINARY ITEM
During 1994, 3-D Visions entered into an agreement with its unsecured
creditors to settle the amounts due to such creditors for an amount equal to
approximately 25% of the obligations to be paid over a two-year period.
Pursuant to this agreement, the Company reduced accounts payable and other
liabilities for 3-D Visions which resulted in a nontaxable gain of $519,807.
This amount is reflected in the 1994 Consolidated Statement of Operations as
an extraordinary item. The reduced obligations were retired in April 1996.
F-11
<PAGE>
VISUAL NUMERICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. NOTES PAYABLE AND LONG-TERM DEBT
A summary of notes payable and long-term debt is presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1994 1995 1996
------ ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable to a bank under a revolving credit
arrangement, interest due monthly at prime plus
1.0% (8.25% at December 31, 1995); principal due
April 30 1997. Secured by 80% of domestic
commercial receivables and a guarantee of a
principal shareholder............................. $1,261 $1,910 $1,212
Term note, interest at prime plus 1.5%; principal
due in January 1997. Secured by a guarantee of a
shareholder....................................... -- 500 --
Term note, interest at prime plus 1.5%; principal
due in 12 quarterly installments commencing April
30, 1997. Secured by a guarantee of a principal
shareholder....................................... -- -- 1,500
Promissory notes to former PVI stockholders,
interest at 6%; principal due in quarterly
payments through December 1995. Secured by the
intellectual property of PVI...................... 1,288 -- --
Term note to a major shareholder, interest at base
rate plus 1.0%; principal due in August 2000.
Secured by the intellectual property of the
Company........................................... -- -- 1,000
Promissory note to a former 3-D Visions
shareholder, interest at 12.5%; principal and
interest due in monthly installments through March
1995.............................................. 7 --
Notes payable to Takushoju Bank (TAKUGIN), interest
ranging from 2.0% to 4.9%; with maturities from
January 1996 through April 1999................... 233 526 796
Note payable to Daiichi Kangyo Bank, interest at
1.9% due in February 1996......................... -- 135 76
------ ------ ------
2,789 3,071 4,584
Less: current maturities........................... 2,686 536 2,008
------ ------ ------
Notes payable and long-term debt, excluding current
maturities........................................ $ 103 $2,535 $2,576
====== ====== ======
</TABLE>
The revolving line of credit is in an amount of $1.5 million subject to the
level of eligible accounts receivable. As of September 30, 1996 (unaudited),
$1.2 million was outstanding and $250,000 remained available under the
revolving line of credit. The revolving line of credit accrues interest at the
bank's prime rate plus 1.0%. The $1.5 million aggregate principal amount of
the term note is due and payable in twelve quarterly installments of $125,000
each commencing April 30, 1997, with interest accruing at the bank's prime
rate plus 1 1/4%. Borrowings under the bank credit agreement are secured by
substantially all of the Company's assets. In addition, the largest
shareholders of the Company have personally guaranteed the bank credit
agreement in an amount up to $1.5 million.
Subsequent to year end, the Company refinanced its revolving credit
agreement and term note. See Note 11.
Based on the amounts outstanding at December 31, 1995 the aggregate
maturities of debt are as follows: 1996--$535,628; 1997--$2,409,406; 1998--
$55,593; and 1999--$70,096.
F-12
<PAGE>
VISUAL NUMERICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. INCOME TAXES
Income (loss) before income taxes and details of the income tax provision
for U.S. and foreign operations for the years ended December 31, 1993, 1994
and 1995 are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) after extraordinary item and before
taxes on income:
United States................................... $(5,587) $1,987 $ 633
Foreign......................................... (546) 336 (705)
------- ------ -----
$(6,133) $2,323 $ (72)
======= ====== =====
Income tax provision (benefit):
Current:
United States................................... $ (380) $ 383 $(103)
Foreign......................................... 80 128 180
State........................................... 36 14 14
------- ------ -----
(264) 525 91
Deferred:
United States................................... (708) 268 348
Foreign......................................... (70) (80) (436)
State........................................... (45) 6 7
------- ------ -----
(823) 194 (81)
------- ------ -----
$(1,087) $ 719 $ 10
======= ====== =====
</TABLE>
Income tax expense for the years ended December 31, 1993, 1994 and 1995
differed from the amounts computed by applying the United States federal
income tax rate of 34% to income, or loss, before income tax and extraordinary
item as a result of the following:
<TABLE>
<CAPTION>
1993 1994 1995
------- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)........... $(2,085) $ 790 $ (24)
Increase (decrease) in income taxes resulting from:
Utilization of net operating loss carry forward... -- (55) --
Amortization of goodwill.......................... 131 120 161
Write-down of investment in subsidiary............ 566 --
Extraordinary gain on debt restructuring.......... -- (176) --
Foreign taxes of foreign subsidiaries in excess of
U.S. credit...................................... 186 66 (187)
State and local income taxes, net of federal
income tax benefit............................... (6) 13 14
Other, net........................................ 121 (39) 46
------- ----- -----
$(1,087) $ 719 $ 10
======= ===== =====
</TABLE>
F-13
<PAGE>
VISUAL NUMERICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1994 and 1995 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts.................................... $ 140 $ 90
Accrued liabilities................................... 597 391
Property and equipment including purchased software,
principally due to differences in depreciation and
amortization......................................... 164 --
Foreign tax credit carry forward...................... -- 257
Net operating loss carry forward, not available for
carry back due to
IRC 382 limitations.................................. 52 53
Foreign net operating loss carry forward.............. -- 403
Other................................................. -- 230
------- -------
Total gross deferred tax assets................... 953 1,424
Less: valuation allowance............................. (52) (336)
------- -------
Net deferred tax assets............................... 901 1,088
------- -------
Deferred tax liabilities:
Software development, principally due to amortization
differences.......................................... (1,505) (1,553)
Property and equipment including purchased software,
principally due to differences in depreciation and
amortization......................................... -- (61)
Other................................................. (77) (73)
------- -------
Total gross deferred liabilities.................. (1,582) (1,687)
------- -------
Net deferred tax liabilities.......................... (681) (599)
Less: current deferred tax assets..................... 737 481
------- -------
Net noncurrent deferred tax liabilities............... $ 1,418 $ 1,080
======= =======
</TABLE>
Certain of the Company's foreign net operating loss carry forwards have an
indefinite carry forward period.
During the year ended December 31, 1995 the Company increased its valuation
allowance by approximately $283,000 due to increased foreign net operating
loss carry forwards.
5. LEASES
The Company is obligated under capital leases for certain computer hardware
and other capital items utilized in its operations. The leases mature through
2000. The lease agreements require payment of interest at rates of 3.91% to
25.5%. The gross amount of capital items recorded under capital leases and
accumulated amortization thereon was $1,065,334, $1,329,784 and $1,701,389 at
December 31, 1994, 1995 and September 30, 1996, respectively.
Rent expense for 1993, 1994 and 1995 was $1,691,943, $1,480,841 and
$1,537,080, respectively. Rent expense for the nine months ended September 30,
1995 and 1996 was $1,070,563 and $1,165,066, respectively.
F-14
<PAGE>
VISUAL NUMERICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments under noncancelable operating leases, (with
initial or remaining lease terms in excess of one year), and the present value
of the future minimum capital lease payments based on the interest rate
applicable as of December 31, 1995 were:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ----------
<S> <C> <C>
Year ending December 31:
1996.............................................. $281,190 $1,274,684
1997.............................................. 211,561 1,034,962
1998.............................................. 89,966 679,806
1999.............................................. 5,652 561,937
2000.............................................. 2,355 568,611
Thereafter.......................................... -- 1,414,513
-------- ----------
Total minimum lease payments...................... 590,724 $5,534,513
==========
Less: amount representing interest.................. 86,682
Less: amount representing sales tax................. 12,428
--------
Present value of net minimum capital lease
payments........................................... 491,614
Less: current installments of obligations under
capital leases..................................... 224,792
--------
Obligations under capital leases excluding current
installments....................................... $266,822
========
</TABLE>
6. STOCK OPTION PLANS
Options granted by the Company prior to May 1993 were granted pursuant to
the 1991 Stock Plan. The 1991 Stock Plan was terminated in May 1993 and no
shares will be granted under this plan in the future. Options granted under
the 1991 Stock Plan continue to be administered in accordance with the terms
of such plan. All options granted under the 1991 Stock plan are exerciseable
or have been rescinded or cancelled. The Company's 1993 Stock Plan provides
for the granting of options to purchase up to an aggregate of 4,000,000 shares
of Common Stock to key employees and consultants at prices not less than the
fair market value of the underlying stock on the date of grant. Such options
become exercisable over the four years following the date of grant and expire
in May 2001. Proceeds received upon the exercise of stock options are credited
to the common stock accounts.
Under the merger agreement with the former PVI stockholders the Company has
agreed to limit the number of options or warrants to purchase Common Stock it
will issue at or above $3.90 per share to 521,960, which could result in a
compensation expense for any options granted at a price less than fair market
value for the Common Stock.
F-15
<PAGE>
VISUAL NUMERICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The number of shares related to outstanding stock options is summarized as
follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES RANGE
--------- ------------
<S> <C> <C>
Balance at December 31, 1992......................... 1,502,950 $0.20-1.20
Granted.............................................. 1,525,000 0.36-0.39
Rescinded............................................ (775,000) 0.36-0.36
Expired or cancelled................................. (327,961) 0.20-0.39
---------
Balance at December 31, 1993......................... 1,924,989 0.20-1.20
Granted.............................................. 566,750 0.20-0.39
Rescinded............................................ (269,239) 0.20-0.39
---------
Balance at December 31, 1994......................... 2,222,500 0.20-1.20
Granted.............................................. 7,500 0.20-0.20
--------- ----------
Balance at December 31, 1995......................... 2,230,000 $0.20-1.20
========= ==========
Exercisable at December 31, 1995..................... 2,144,799 $0.20-1.20
========= ==========
</TABLE>
Additionally, there were warrants outstanding at December 31, 1995 and
September 30, 1996 to purchase 83,333 and 123,331 shares of Common Stock,
respectively, at an exercise price of $3.90.
7. BENEFIT PLAN
Under the terms of the Visual Numerics, Inc. Retirement and Savings Plan
(the "Plan"), participants may make contributions to the Plan up to fifteen
percent of their compensation. At the Company's discretion, the participants'
contributions may be matched dollar for dollar, up to three percent of the
participants' compensation. The Company may also contribute additional
discretionary amounts to the Plan that will be allocated to participants based
on individual participant compensation to total participant compensation.
There were no Company contributions in 1995. In 1993 and 1994, the Company
contributed $348,864 and $35,000, respectively, to the Plan.
8. CAPITAL STOCK
In April 1993, the Company's Articles of Incorporation (the "Restated
Articles") were amended and restated to effect a 5-for-1 stock split which
enabled the Company to effect a recapitalization. The Restated Articles
provided that the Company's authorized capital stock was increased to
27,000,000 shares divided into two classes consisting of 17,000,000 shares of
Class A Common Stock and 10,000,000 shares of Preferred Stock. 3,193,500
shares of Preferred Stock were designated Series A Preferred Stock, 163,390
shares of Preferred Stock were designated Series B Preferred Stock and
1,583,555 shares of Preferred Stock were designated Series C Preferred Stock.
The remaining shares of Preferred Stock were issuable from time to time in one
more series of Preferred Stock. Each outstanding share of Class B Common Stock
was converted into five shares of Class A Common Stock. Accordingly, all
shares and per share data presented in these consolidated financial statements
(including the share and per share amounts set forth below) have been restated
for the effects of the stock split.
As part of the recapitalization, certain shareholders of the Company were
eligible to exchange their shares of Class A Common Stock for Preferred Stock
according to the following criteria:
(i) 106,000 shares of Class A Common Stock purchased or acquired from the
Company for less than $0.20 per share and 1,750,000 shares of Class A
Common Stock originally issued for $0.20 per share plus all Class A Common
Stock not otherwise converted remained Common Stock;
F-16
<PAGE>
VISUAL NUMERICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ii) 3,193,500 shares of Class A Common Stock purchased or acquired from
the Company for $0.20 per share were eligible to be exchanged on a share-
for-share basis for Series A Preferred Stock, of which 2,888,500 shares
were exchanged;
(iii) 163,390 shares of Class A Common Stock purchased or acquired from
the Company for $1.20 per share were eligible to be exchanged on a share-
for-share basis for Series B Preferred Stock, of which 147,390 shares were
exchanged; and
(iv) 1,420,095 shares of Class A Common Stock purchased or acquired from
the Company for $3.90 per share were eligible to be exchanged on a share-
for-share basis for Series C Preferred Stock, of which 1,410,455 were
exchanged.
The Series A, Series B and Series C Preferred Stock became entitled to
noncumulative dividends of $0.02, $0.12 and $0.39 per share, respectively,
when and if declared by the Company's Board of Directors prior and in
preference to any dividend paid on the Company's Common Stock. Holders of the
Preferred Stock will have merger and liquidation preferences of $0.20, $1.20
and $3.90 per share for Series A, Series B and Series C Preferred Stock,
respectively. At any time after April 30, 1998, the Company may, but is not
obligated to, redeem in whole or in part, the outstanding shares of Preferred
Stock by paying to the respective holders an amount per share equal to the
liquidation preferences and conversion prices for the Preferred Stock.
Dividend, merger and liquidation preferences and conversion prices for the
Preferred Stock became subject to proportionate adjustments for stock splits,
reverse stock splits, stock dividends and the like.
As part of the recapitalization, outstanding stock options related to the
Company's Class A Common Stock were converted into new options to purchase
five shares each of the new Common Stock of the Company. Outstanding warrants
to purchase Class A Common Stock were exchanged for new warrants to purchase
five shares of Series C Preferred Stock at an exercise price of $3.90 per
share. The terms of the stock options and warrants were not substantially
changed by the recapitalization.
In connection with renegotiation of the debt held by the former PVI
stockholders, all Series C Preferred Stock was exchanged for a new Series D
Preferred Stock. The Series D Preferred Stock has a liquidation preference
over all other current and future classes of the Company's stock in an amount
equal to the lesser of $3.7 million or $3.90 per share plus declared but
unpaid dividends thereon.
In December 1995, 256,410 shares of the Series D Preferred Stock were
subject to repurchase at the option of the holders at a price of $3.90 per
share. These shares were subsequently repurchased. See Note 11 for further
discussion.
Additionally, for a six-month period commencing December 1997, 925,000
shares of the Series D Preferred Stock shall be subject to repurchase at the
option of the holders at the fair market value as of the end of the most
recent year end preceding the date of repurchase. Such redeemable shares have
been reflected above shareholders' equity in accordance with the requirements
of the Securities and Exchange Commission. These preferred shares will
automatically convert into Common Stock upon the closing of a sale of Common
Stock in a bona fide, firm commitment underwriting pursuant to a registration
statement under the Securities Act of 1993, as amended, which results in
aggregate gross cash proceeds to the Company in excess of $3.0 million.
9. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment, the development and marketing
of software products. The Company markets and services its products in the
United States and in foreign countries through its direct sales organization
and non-controlled product representatives.
F-17
<PAGE>
VISUAL NUMERICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table presents information about the Company by geographic
area. Export sales and certain income and expense items are reported in the
geographic area where the final sale is made rather than where the transaction
originates.
<TABLE>
<CAPTION>
NORTH
AMERICA EUROPE JAPAN OTHER TOTAL
------- ------ ------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1993:
Revenues........................... $17,587 $6,671 $3,335 $2,729 $30,322
Operating income (loss)............ (7,815) (184) 1,189 862 (5,948)
Identifiable assets................ 16,873 2,173 1,290 -- 20,336
1994:
Revenues........................... 18,307 8,284 4,324 1,798 32,713
Operating income (loss)............ (3,486) 3,673 1,183 763 2,133
Identifiable assets................ 14,913 4,238 1,534 -- 20,685
1995:
Revenues........................... 14,541 8,979 5,383 1,098 30,001
Operating income (loss)............ (4,253) 2,215 2,123 115 200
Identifiable assets................ 13,250 4,766 2,641 -- 20,657
</TABLE>
The revenue and operating income amounts above exclude the effect of
intercompany royalties. No single customer accounted for 10% or more of
revenues in 1993, 1994 or 1995.
10. COMMITMENTS AND CONTINGENCIES
Currently, there is a claim for damages, including actual damages totaling
approximately $780,000, against the Company by a customer relating to a
software license agreement entered into in 1992. The parties are currently
attempting to resolve the matter in mediation. Due to the nature of the claim,
which is based on a commercial dispute, the Company's responsibility has not
been determined. An adverse outcome in this proceeding could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Resolutions of other legal proceedings arising in the ordinary course of
business are expected to be immaterial to the Company's financial position and
results of operations.
Certain years of the Company's tax filings are currently under review by the
Internal Revenue Service (IRS). The IRS has issued a notice of proposed
adjustment totaling approximately $1.2 million, plus interest of approximately
$500,000, related to the transfer pricing policies of PVI prior to its
acquisition in 1992. The Company has formally protested the findings of the
IRS. An adverse outcome would have a material adverse effect on the Company's
business, financial condition and results of operations.
In connection with the Company's 1994 tax return, the Company agreed to pay
the IRS all taxes and penalties in 12 monthly installments. The IRS has
indicated that it intends to place a lien on the Company's assets to secure
such payment. Such a lien could give rise to a default under the Company's
bank credit agreement if such lien were not removed within 30 days, and such
default could result in an acceleration of amounts due under such agreement, a
termination of such facility or a renegotiation of terms thereof.
The Company has entered into an agreement with the former PVI stockholders
that stipulates that the Company will not sell control of the Company or a
substantial portion of its assets without consent of such shareholders. This
right has no express termination date.
F-18
<PAGE>
VISUAL NUMERICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
11. EVENTS SUBSEQUENT TO AUDITORS' REPORT DATE
As of July 31, 1996, the Company amended its loan agreement with the bank to
provide for an increased credit facility overall, a split of the facility into
a term note and a revolving line of credit, and an extended maturity date. The
aggregate principal amount of the term note is due and payable in 12 quarterly
installments of $125,000 commencing April 30, 1997, with interest accruing at
the bank's prime rate plus 1.5%. Aggregate borrowings under the revolving line
of credit are limited to 80% of eligible accounts receivable up to a maximum
of $1.5 million. The revolving line of credit accrues interest at the bank's
prime rate plus 1.0%. Borrowings under the loan agreement are secured by
substantially all of the Company's assets and a personal guarantee in an
amount up to $1.5 million by the Chairman of the Board and the largest
shareholder of the Company.
On August 16, 1996, the Chairman of the Board and largest shareholder loaned
$1.0 million to the Company. The loan matures and is payable in full on August
16, 2000 together with interest. Under the loan agreement, if the Company does
not repay the loan in full prior to March 1, 1997 the Company is required to
issue a warrant to the lender to purchase 425,000 shares of Common Stock at an
exercise price of $2.96 per share. The proceeds of the loan were used to
repurchase 256,410 shares of Series D Preferred Stock held by the former
stockholders of PVI for an aggregate purchase price of $1.0 million as
required pursuant to the merger agreement under which the Company acquired
PVI.
F-19
<PAGE>
INSIDE BACK COVER
[GRAPHICS: VISUAL NUMERICS LOGO ABOVE A GRAPHIC DEPICTION OF A THREE-
DIMENSIONAL SURFACE PLOT.
"THE COMPANY'S WEB SITE PROVIDES USERS WITH INFORMATION ON THE COMPANY'S
ADVANCED NUMERICAL AND VISUALIZATION PRODUCTS, INCLUDING ITS NEXT GENERATION
OF JAVA-BASED PRODUCTS."
GRAPHIC: WEB PRODUCTS GRAPHICS IMAGE SHOWING IMSL & PV-WAVE FLOWING INTO A
JAVA COMPUTER TERMINAL.]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIR-
CUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 19
Selected Consolidated Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 29
Management............................................................... 44
Certain Transactions..................................................... 50
Principal Shareholders................................................... 53
Shares Eligible for Future Sale.......................................... 55
Description of Capital Stock............................................. 56
Underwriting............................................................. 58
Legal Matters............................................................ 59
Experts.................................................................. 59
Additional Information................................................... 59
Index to Financial Statements............................................ F-1
</TABLE>
UNTIL , 1997 (90 DAYS AFTER THE EFFECTIVE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPAT-
ING 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,650,000 SHARES
[LOGO OF VISUAL NUMERICS APPEARS HERE]
COMMON STOCK
-------------
PROSPECTUS
-------------
GORDIAN GROUP, L.P.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
SEC registration fee............................................... $ 1,725
NASD filing fee.................................................... 1,070
Printing and engraving expenses.................................... 50,000
Legal fees and expenses............................................ 200,000
Accounting fees and expenses....................................... 50,000
Blue Sky qualification fees and expenses........................... 7,000
Other fees and expenses............................................ 65,205
--------
Total............................................................ $375,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 2.02-1 of the Texas Business Corporation Act authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Act").
Section 8.2 of Article VIII of the Registrant's Bylaws (Exhibit 3.2 hereto)
provides for indemnification of its directors, officers, employees and other
agents to the maximum extent permitted by Texas Business Corporation Act. In
addition, the Registrant has entered into Indemnification Agreements (Exhibit
10.4 hereto) with its directors and officers. Reference is also made to
Section 8 of the Underwriting Agreement, contained in Exhibit 1.1 hereto,
indemnifying officers and directors of the Registrant against certain
liabilities. The Indemnification Agreements are in some respects broader than
the specific indemnification provisions contained in the Texas Business
Corporation Act, and may require the Company, among other things, to indemnify
its directors against certain liabilities that may arise by reason of their
status or service as directors (other than liabilities arising from willful
misconduct of a culpable nature), to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified,
and to obtain directors' and officers' insurance, if available on reasonable
terms.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) Since December 31, 1993, Registrant has sold and issued the following
unregistered securities (without payment of any selling commission to any
person):
(1) In May 1995, Registrant issued a warrant to Charles W. Johnson to
purchase 44,871 shares of Common Stock at an exercise price of $3.90 per
share in connection with a guarantee of the Company's bank credit
agreement.
(2) In June 1996, Registrant issued warrants to Charles W. Johnson to
purchase an aggregate of 40,000 shares of Common Stock at an exercise price
of $3.90 per share in connection with a guarantee of Registrant's bank
credit agreement.
(3) In January 1995, Registrant issued a promissory note to Richard G.
Couch in the principal amount of $100,000 with an annual interest rate of
8.5% payable in twelve monthly installments in connection with the deferred
payment of Mr. Couch's annual bonus.
II-1
<PAGE>
(4) In January 1995, Registrant issued a promissory note to Ted Charter
in the principal amount of $74,000 with an annual interest rate of 8.5%
payable in twelve monthly installments in connection with the deferred
payment of Mr. Charter's annual bonus.
(5) From October to December 1996 Registrant issued 30,000 shares of
Common Stock to Gordian Group, L.P. in connection with financial services
rendered.
(6) In August 1996, in connection with Charles W. Johnson's loaning
Registrant $1.0 million for the repurchase of certain preferred stock, the
Company issued a promissory note to Mr. Johnson in the principal amount of
$1.0 million bearing interest of 1% above the corporate base rate of First
National Bank of Chicago N.A. with such note becoming due and payable on
August 16, 2000. If the Company does not prepay the full amount of the loan
prior to March 1, 1997, Mr. Johnson will receive a seven-year warrant to
purchase 425,000 shares of Common Stock at an exercise price of $2.96 per
share. The Company is currently prohibited from prepaying the note issued
to Mr. Johnson under the Company's loan agreement with the bank.
The sales and issuances of securities in the transactions described in
paragraphs 1 through 6 above were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of such Securities Act
as transactions by an issuer not involving any public offering.
Appropriate legends are affixed to the stock certificates issued in the
aforementioned transactions. In all such transactions, all recipients of
securities represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and all recipients either received adequate
information about the Registrant or had access, through employment or other
relationships, to such information.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of Registrant.
3.2 Bylaws of Registrant.
3.3* Form of Amended and Restated Articles of Incorporation of Registrant to
be filed with the Secretary of State of the State of Texas to become
effective upon consummation of this offering.
4.1 Specimen Common Stock Certificate.
5.1* Opinion of Lloyd M. Corpening, corporate counsel.
10.1 1991 Stock Plan.
10.2 1993 Stock Plan.
10.3 Form of Common Stock Purchase Warrant.
10.4 Form of Indemnification Agreement.
10.5 Employment Agreement between Registrant and Charles W. Johnson dated
January 1, 1995.
10.6 Employment Agreement between Registrant and Robert F. Strosser dated
January 1, 1995.
10.7 Employment Agreement between Registrant and Ted R. Charter dated
January 1, 1995.
10.8 Employment Agreement between Registrant and Donald G. Kainer dated
January 1, 1995.
10.9 Employment Agreement between Registrant and William P. Hayes, III dated
January 1, 1995.
10.10 Consultant Agreement by and between Registrant and Richard G. Couch
dated January 1, 1995.
10.11 Consulting Agreement by and between Registrant and Byron Fetters dated
as of January 1, 1995.
10.12 Consulting Agreement by and between Registrant and David Lloyd dated as
of May 23, 1995.
10.13 Designated Shareholders' Agreement dated December 15, 1992 between
Registrant, Charles W. Johnson and Jennifer C. Johnson and Designated
Shareholders of Common Stock.
10.14 Shareholder Rights Agreement dated December 22, 1992 between Registrant
and certain shareholders.
10.15 Shareholder Rights Agreement dated March 18, 1993 between Registrant
and certain shareholders.
10.16 Exchange Agreement between Registrant and the Shareholders of
Registrant dated June 1, 1993.
10.17 Office Lease Agreement by and between Registrant, Houston Growth
Associates and Douglas J. Tollett dated March 30, 1993 for facility in
Houston, Texas.
10.18 Lease by and between Registrant and PVI Building Investors dated July
8, 1991 for facility in Boulder, Colorado.
10.19 Sublease agreement between Registrant and Team Labs Corporation dated
November 1, 1996 for facility in Boulder, Colorado.
10.20 Software License and Distribution Agreement between Registrant and
Research Systems, Inc. ("RSI") dated April 1, 1988 together with
Amendments.
10.21 License Agreement between Registrant and RSI dated January 12, 1996.
10.22 Agreement and Plan of Reorganization among Registrant, IMSL Acquisition
Corp., Inc. and Precision Visuals, Inc. dated as of November 16, 1992
together with Addendum dated December 23, 1992.
10.23 Letter Agreement dated December 20, 1993 between Registrant and Davis,
Graham & Stubbs on behalf of former PVI stockholders.
10.24 Second Restated and Amended Loan Agreement dated as of December 16,
1992 by and among the Registrant, IMSL Acquisition Corp., Inc. and
First Interstate Bank of Texas, N.A. ("First Interstate Bank").
10.25 Commercial Security Agreement between Registrant and First Interstate
Bank dated December 16, 1992.
10.26 Commercial Security Agreement between IMSL Acquisition Corp, Inc. and
First Interstate Bank dated December 16, 1992.
10.27 Guaranty Agreement by IMSL Acquisition Corp., Inc. in favor of First
Interstate Bank dated December 16, 1992.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.28 Limited Guaranty Agreement by Charles W. Johnson in favor of First
Interstate Bank dated December 16, 1992 together with Addendum.
10.29 Security Agreement-Pledge by and between Registrant and First
Interstate Bank dated December 16, 1992.
10.30 Security Agreement-Pledge by and between Charles W. Johnson and First
Interstate Bank dated December 16, 1992.
10.31 Security Agreement-Pledge by and between Jennifer C. Johnson and First
Interstate Bank dated December 16, 1992.
10.32 Guaranty and Warrant Agreement between Registrant and Charles W.
Johnson dated December 22, 1992.
10.33 First Amendment dated as of February 28, 1994 to Second Restated and
Amended Loan Agreement by and among the Registrant, First Interstate
Bank and others.
10.34 Commercial Security Agreement by and between Registrant and First
Interstate Bank dated February 28, 1994.
10.35 First Amendment to Commercial Security Agreement by and between
Registrant and First Interstate Bank dated February 28, 1994.
10.36 First Amendment to Commercial Security Agreement by and between Visual
Numerics, Inc. of Colorado and First Interstate Bank dated February 28,
1994.
10.37 First Amendment to Security Agreement--Pledge by and between Charles W.
Johnson and First Interstate Bank dated February 28, 1994.
10.38 First Amendment to Security Agreement--Pledge by and between Jennifer
C. Johnson and First Interstate Bank dated February 28, 1994.
10.39 Restated and Amended Limited Guaranty Agreement by Charles W. Johnson
in favor of First Interstate Bank dated February 26, 1994.
10.40 Second Amendment dated as of April 1, 1995 to Second Restated and
Amended Loan Agreement by and among the Registrant, First Interstate
Bank of Texas, N.A. and others entered into among the Registrant,
Visual Numerics, Inc. of Colorado, Visual Numerics, Inc. (Europe) and
First Interstate Bank.
10.41 Third Amendment and Limited Waiver dated October 23, 1995 to Second
Restated and Amended Loan Agreement by and among the Registrant, First
Interstate Bank and others entered into among the Registrant, Visual
Numerics, Inc. of Colorado, Visual Numerics, Inc. (Europe) and First
Interstate Bank.
10.42 Fourth Amendment dated February 27, 1996 to Second Restated and Amended
Loan Agreement by and among the Registrant, First Interstate Bank and
others entered into among the Registrant, Visual Numerics, Inc. of
Colorado, Visual Numerics, Inc. (Europe) and First Interstate Bank.
10.43 Fifth Amendment dated July 31, 1996 to Second Restated and Amended Loan
Agreement by and among the Registrant, First Interstate Bank and others
entered into among the Registrant, Visual Numerics, Inc. of Colorado,
Visual Numerics, Inc. (Europe) and Wells Fargo Bank (Texas), National
Association ("Wells Fargo Bank").
10.44 First Amendment to Restated and Amended Limited Guaranty Agreement by
Charles W. Johnson in favor of Wells Fargo Bank dated July 31, 1996.
10.45 Second Amendment to Security Agreement-Pledge between Charles W.
Johnson and Wells Fargo Bank dated July 31, 1996.
10.46 Second Amendment to Security Agreement-Pledge between Jennifer C.
Johnson and Wells Fargo Bank dated July 31, 1996.
10.47 Subordination Agreement by and among Charles W. Johnson, Wells Fargo
Bank National Association dated August 16, 1996.
10.48 Loan and Security Agreement between Registrant and Charles W. Johnson
dated August 16, 1996, together with form of note.
10.49 Copyright Security Agreement between Registrant and Charles W. Johnson
dated August 16, 1996.
10.50 Trademark Security Agreement between Registrant and Charles W. Johnson
dated August 16, 1996.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.51 Ithaca Software HOOPS Distribution License Agreement between Registrant
and Ithaca Software dated July 2, 1991, together with amendments.
10.52* Registration Rights Agreement between Registrant and Gordian Group,
L.P. dated as of January 8, 1997.
10.53 Stock Option Agreement between Registrant and Richard G. Couch
effective as of December 18, 1990.
11.1 Statement of Computation of Income (Loss) Per Share.
21.1 Subsidiaries of Registrant.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedule
</TABLE>
- --------
* To be supplied by amendment.
(b) Financial Statement Schedules
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 notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriter at
the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions referenced in Item 14 of this Registration Statement
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 the Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
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
hereunder, 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 the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
Rule 497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the 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-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE COMPANY HAS
DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-1 TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE
OF TEXAS ON THIS 15TH DAY OF JANUARY, 1997.
Visual Numerics, Inc.
/s/ Richard G. Couch
By: _________________________________
RICHARD G. COUCH, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Richard G. Couch and Robert F. Strosser
and each of them acting individually, as his or her attorney in fact, each
with full power of substitution, for him or her in any and all capacities, to
sign any and all amendments to this Registration Statement (including post-
effective amendments), and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be
signed by our said attorneys to any and all amendments to said Registration
Statement, or any related registration statement that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on January 15, 1997:
SIGNATURE TITLE
/s/ Richard G. Couch President, Chief Executive
- ------------------------------------- Officer and Director (Principal
RICHARD G. COUCH Executive Officer)
/s/ Robert F. Strosser Executive Vice President and
- ------------------------------------- Chief Financial Officer,
ROBERT F. STROSSER Secretary, Treasurer and
Director (Principal Financial
and Accounting Officer)
/s/ Charles W. Johnson Chairman of the Board of
- ------------------------------------- Directors
CHARLES W. JOHNSON
/s/ Ted Charter Executive Vice President,
- ------------------------------------- Marketing and Development, and
TED CHARTER Director
/s/ Thomas E. Congdon Director
- -------------------------------------
THOMAS E. CONGDON
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of Registrant.
3.2 Bylaws of Registrant.
3.3* Form of Amended and Restated Articles of Incorporation of Registrant to
be filed with the Secretary of State of the State of Texas to become
effective upon consummation of this offering.
4.1 Specimen Common Stock Certificate.
5.1* Opinion of Lloyd M. Corpening, in-house corporate counsel.
10.1 1991 Stock Plan.
10.2 1993 Stock Plan.
10.3 Form of Common Stock Purchase Warrant.
10.4 Form of Indemnification Agreement.
10.5 Employment Agreement between Registrant and Charles W. Johnson dated
January 1, 1995.
10.6 Employment Agreement between Registrant and Robert F. Strosser dated
January 1, 1995.
10.7 Employment Agreement between Registrant and Ted R. Charter dated
January 1, 1995.
10.8 Employment Agreement between Registrant and Donald G. Kainer dated
January 1, 1995.
10.9 Employment Agreement between Registrant and William P. Hayes, III dated
January 1, 1995.
10.10 Consultant Agreement by and between Registrant and Richard G. Couch
dated January 1, 1995.
10.11 Consulting Agreement by and between Registrant and Byron Fetters dated
as of January 1, 1995.
10.12 Consulting Agreement by and between Registrant and David Lloyd dated as
of May 23, 1995.
10.13 Designated Shareholders' Agreement dated December 15, 1992 between
Registrant, Charles W. Johnson and Jennifer C. Johnson and Designated
Shareholders of Common Stock.
10.14 Shareholder Rights Agreement dated December 22, 1992 between Registrant
and certain shareholders.
10.15 Shareholder Rights Agreement dated March 18, 1993 between Registrant
and certain shareholders.
10.16 Exchange Agreement between Registrant and the Shareholders of
Registrant dated April 15, 1993.
10.17 Office Lease Agreement by and between Registrant, Houston Growth
Associates and Douglas J. Tollett dated March 30, 1993 for facility in
Houston, Texas.
10.18 Lease by and between Registrant and PVI Building Investors dated July
8, 1991 for facility in Boulder, Colorado.
10.19 Sublease agreement between Registrant and Team Labs Corporation dated
November 1, 1996 for facility in Boulder, Colorado.
10.20 Software License and Distribution Agreement between Registrant and
Research Systems, Inc. ("RSI") dated April 1, 1988 together with
Amendments.
10.21 License Agreement between Registrant and RSI dated January 12, 1996.
10.22 Agreement and Plan of Reorganization among Registrant, IMSL Acquisition
Corp., Inc. and Precision Visuals, Inc. dated as of November 16, 1992
together with Addendum dated December 23, 1992.
10.23 Letter Agreement dated December 20, 1993 between Registrant and Davis,
Graham & Stubbs on behalf of former PVI stockholders.
10.24 Second Restated and Amended Loan Agreement dated as of December 16,
1992 by and among the Registrant, IMSL Acquisition Corp., Inc. and
First Interstate Bank of Texas, N.A. ("First Interstate Bank").
10.25 Commercial Security Agreement between Registrant and First Interstate
Bank dated December 16, 1992.
10.26 Commercial Security Agreement between IMSL Acquisition Corp., Inc. and
First Interstate Bank dated December 16, 1992.
10.27 Guaranty Agreement by IMSL Acquisition Corp., Inc. in favor of First
Interstate Bank dated December 16, 1992.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.28 Limited Guaranty Agreement by Charles W. Johnson in favor of First
Interstate Bank dated December 16, 1992 together with Addendum.
10.29 Security Agreement-Pledge by and between Registrant and First
Interstate Bank dated December 16, 1992.
10.30 Security Agreement--Pledge by and between Charles W. Johnson and First
Interstate Bank dated December 16, 1992.
10.31 Security Agreement--Pledge by and between Jennifer C. Johnson and First
Interstate Bank dated December 16, 1992.
10.32 Guaranty and Warrant Agreement between Registrant and Charles W.
Johnson dated December 22, 1992.
10.33 First Amendment dated as of February 28, 1994 to Second Restated and
Amended Loan Agreement by and among the Registrant, First Interstate
Bank and others.
10.34 Commercial Security Agreement by and between Registrant and First
Interstate Bank dated February 28, 1994.
10.35 First Amendment to Commercial Security Agreement by and between
Registrant and First Interstate Bank dated February 28, 1994.
10.36 First Amendment to Commercial Security Agreement by and between Visual
Numerics, Inc. of Colorado and First Interstate Bank dated February 28,
1994.
10.37 First Amendment to Security Agreement--Pledge by and between Charles W.
Johnson and First Interstate Bank dated February 28, 1994.
10.38 First Amendment to Security Agreement--Pledge by and between Jennifer
C. Johnson and First Interstate Bank dated February 28, 1994.
10.39 Restated and Amended Limited Guaranty Agreement by Charles W. Johnson
in favor of First Interstate Bank dated February 26, 1994.
10.40 Second Amendment dated as of April 1, 1995 to Second Restated and
Amended Loan Agreement by and among the Registrant, First Interstate
Bank of Texas, N.A. and others entered into among the Registrant,
Visual Numerics, Inc. of Colorado, Visual Numerics, Inc. (Europe) and
First Interstate Bank.
10.41 Third Amendment and Limited Waiver dated October 23, 1995 to Second
Restated and Amended Loan Agreement by and among the Registrant, First
Interstate Bank and others entered into among the Registrant, Visual
Numerics, Inc. of Colorado, Visual Numerics, Inc. (Europe) and First
Interstate Bank.
10.42 Fourth Amendment dated February 27, 1996 to Second Restated and Amended
Loan Agreement by and among the Registrant, First Interstate Bank and
others entered into among the Registrant, Visual Numerics, Inc. of
Colorado, Visual Numerics, Inc. (Europe) and First Interstate Bank.
10.43 Fifth Amendment dated July 31, 1996 to Second Restated and Amended Loan
Agreement by and among the Registrant, First Interstate Bank and others
entered into among the Registrant, Visual Numerics, Inc. of Colorado,
Visual Numerics, Inc. (Europe) and Wells Fargo Bank (Texas), National
Association ("Wells Fargo Bank").
10.44 First Amendment to Restated and Amended Limited Guaranty Agreement by
Charles W. Johnson in favor of Wells Fargo Bank dated July 31, 1996.
10.45 Second Amendment to Security Agreement--Pledge between Charles W.
Johnson and Wells Fargo Bank dated July 31, 1996.
10.46 Second Amendment to Security Agreement--Pledge between Jennifer C.
Johnson and Wells Fargo Bank dated July 31, 1996.
10.47 Subordination Agreement by and among Charles W. Johnson, Wells Fargo
Bank National Association dated August 16, 1996.
10.48 Loan and Security Agreement between Registrant and Charles W. Johnson
dated August 16, 1996, together with form of note.
10.49 Copyright Security Agreement between Registrant and Charles W. Johnson
dated August 16, 1996.
10.50 Trademark Security Agreement between Registrant and Charles W. Johnson
dated August 16, 1996.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.51 Ithaca Software HOOPS Distribution License Agreement between Registrant
and Ithaca Software dated July 2, 1991, together with amendments.
10.52* Registration Rights Agreement between Registrant and Gordian Group,
L.P. dated as of January 8, 1997.
10.53 Stock Option Agreement between Registrant and Richard G. Couch
effective as of December 18, 1990.
11.1 Statement of Computation of Income (Loss) Per Share.
21.1 Subsidiaries of Registrant.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
3
<PAGE>
EXHIBIT 1.1
Draft of January ___, 1997
1,897,500 Shares
Visual Numerics, Inc.
Common Stock
Underwriting Agreement
dated March ___, 1997
<PAGE>
<TABLE>
<CAPTION>
Table of Contents Page
----
<S> <C>
SECTION 1. REPRESENTATIONS AND WARRANTIES................................ 2
Effectiveness of the Registration Statement; No Stop Order............ 2
Compliance with Registration Requirements............................. 2
Quantities Furnished to the Underwriter............................... 3
Distribution of the Offering Materials................................ 3
The Underwriting Agreement............................................ 3
Authorization of the Common Shares.................................... 3
No Applicable Registration or Other Similar Rights.................... 3
No Material Adverse Change............................................ 3
Independent Accountants............................................... 3
Preparation of the Financial Statements............................... 4
Incorporation and Good Standing of the Company and its Subsidiaries... 4
Capitalization and Other Capital Stock Matters 4
Non-Contravention of Existing Instruments; No Further Authorizations
or Approvals Required............................................. 5
No Material Actions or Proceedings.................................... 5
Intellectual Property Rights.......................................... 6
Compliance with Laws.................................................. 6
Title to Properties 6
Tax Law Compliance.................................................... 6
Company Not an "Investment Company"................................... 6
Insurance............................................................. 7
No Price Stabilization or Manipulation................................ 7
Related Party Transactions............................................ 7
Florida Blue Sky Compliance........................................... 7
Company's Accounting System........................................... 7
Compliance with Environmental Laws.................................... 7
ERISA Compliance...................................................... 8
No Unlawful Contributions or Other Payments........................... 8
SECTION 2. PURCHASE, SALE AND DELIVERY OF COMMON SHARES.................. 9
The Firm Common Shares................................................ 9
The First Closing Date................................................ 9
The Optional Common Shares; the Second Closing Date................... 9
Public Offering of the Common Shares.................................. 9
Payment for the Common Shares......................................... 10
Delivery of the Common Shares......................................... 10
Delivery of the Prospectus to the Underwriter......................... 10
SECTION 3. ADDITIONAL COVENANTS.......................................... 10
Underwriter's Review of Proposed Amendments and Supplements........... 10
Securities Act Compliance............................................. 11
Amendments and Supplements to the Prospectus and Other
Securities Act Matters............................................ 11
Copies of any Amendments and Supplements to the Prospectus............ 11
Blue Sky Compliance................................................... 11
Use of Proceeds....................................................... 12
Transfer Agent........................................................ 12
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Earnings Statement 12
Periodic Reporting Obligations........................................ 12
Company Agreement Not To Offer or Sell Additional Securities.......... 12
Acknowledgment Regarding Underwriter Information...................... 12
SECTION 4. PAYMENT OF EXPENSES........................................... 13
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITER.............. 13
Effectiveness of Registration Statement............................... 13
Accountants' Comfort Letter........................................... 14
Compliance with Registration Requirements; No Stop Order;
No Objection from NASD............................................ 14
No Material Adverse Change or Ratings Agency Change................... 14
Opinion of Counsel for the Company.................................... 14
Opinion of Counsel for the Underwriter................................ 14
Officers' Certificate 15
Bring-down Comfort Letter............................................. 15
Lock-Up Agreements.................................................... 15
Additional Documents.................................................. 15
SECTION 6. REIMBURSEMENT OF UNDERWRITER'S EXPENSES....................... 16
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT............................... 16
SECTION 8. INDEMNIFICATION............................................... 17
Indemnification of the Underwriter.................................... 17
Indemnification of the Company, Its Directors and Officers............ 17
Notifications and Other Indemnification Procedures.................... 18
Settlements 18
SECTION 9. CONTRIBUTION.................................................. 19
SECTION 10. DEFAULT OF THE UNDERWRITER................................... 20
SECTION 11. TERMINATION OF THIS AGREEMENT................................ 20
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY.......... 21
SECTION 13. NOTICES...................................................... 21
SECTION 14. SUCCESSORS................................................... 22
SECTION 15. PARTIAL UNENFORCEABILITY..................................... 22
SECTION 16. GOVERNING LAW PROVISIONS..................................... 22
SECTION 17. GENERAL PROVISIONS........................................... 22
EXHIBIT A................................................................. A-1
EXHIBIT B................................................................. B
</TABLE>
<PAGE>
Underwriting Agreement
January ___, 1997
GORDIAN GROUP, L.P.
500 Park Avenue, 5th Floor
New York, NY 10022-1606
Ladies and Gentlemen:
Introductory. Visual Numerics, Inc., a Texas corporation (the
------------
"Company"), proposes to issue and sell to Gordian Group, L.P. (the
"Underwriter") an aggregate of 1,897,500 shares of its Common Stock, par value
$.02 per share (the "Common Stock"). The 1,650,000 shares of Common Stock to be
sold are called the "Firm Common Shares." In addition, the Company has granted
to the Underwriter an option to purchase up to an additional 247,500 shares of
Common Stock, as provided in Section 2 hereof. The additional 247,500 shares to
be sold by the Company pursuant to such option are called the "Optional Common
Shares." The Firm Common Shares and, if and to the extent such option is
exercised, the Optional Common Shares are herein collectively called the "Common
Shares."
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-______), which registration statement contains a form of prospectus to be
used in connection with the public offering and sale of the Common Shares. Such
registration statement, as amended, including the financial statements, exhibits
and schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933 and the rules and regulations
promulgated thereunder (collectively, the "Securities Act"), including any
information deemed to be a part thereof at the time of such effectiveness
pursuant to Rule 430A or Rule 434 under the Securities Act, is herein called the
"Registration Statement." Any registration statement filed by the Company
pursuant to Rule 462(b) under the Securities Act is herein called the "Rule
462(b) Registration Statement," and from and after the date and time of such
filing of a Rule 462(b) Registration Statement the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. Such prospectus, in the
form first used by the Underwriter to confirm sales of the Common Shares, is
herein called the "Prospectus"; provided, however, if the Company has elected to
rely upon Rule 434 under the Securities Act (and has obtained the Underwriter's
consent thereto), the term "Prospectus" shall mean the Company's prospectus
subject to completion (each, a "preliminary prospectus") dated ___________,
1997 (such preliminary prospectus herein called the "Rule 434 preliminary
prospectus") together with the applicable term sheet (the "Term Sheet") prepared
and filed by the Company with the Commission under Rules 434 and 424(b) under
the Securities Act and provided, further, that all references in this Agreement
to the date of the Prospectus shall mean the date of such applicable Term Sheet.
Additionally, all references in this Agreement to (i) the Registration
Statement, the Rule 462(b) Registration Statement, a preliminary prospectus, the
Prospectus and the Term Sheet, or any amendments or supplements to any of the
foregoing, shall be deemed to include any copy thereof filed with the Commission
pursuant to its Electronic Data Gathering, Analysis and Retrieval System
("EDGAR").
<PAGE>
The Underwriter has advised the Company that the Underwriter proposes
to make a public offering of the Common Shares as soon as the Underwriter deems
advisable after this Agreement has been executed and delivered.
The Company hereby confirms its agreement with the Underwriter as
follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants to, and covenants and agrees with,
the Underwriter as follows:
(a) Effectiveness of the Registration Statement; No Stop Order. Each
----------------------------------------------------------
of the Registration Statement and the Rule 462(b) Registration Statement,
if any, has been declared effective by the Commission under the Securities
Act. The Company has complied, to the Commission's satisfaction, with all
requests of the Commission for providing additional or supplemental
information. No stop order suspending the effectiveness of either of the
Registration Statement or the Rule 462(b) Registration Statement, if any,
is in effect and no proceedings for such purpose have been instituted or
are pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.
(b) Compliance with Registration Requirements. Each preliminary
-----------------------------------------
prospectus and Prospectus filed as part of the Registration Statement, as
part of any amendment thereto or pursuant to Rule 424 under the Securities
Act, complied when so filed in all material respects with the requirements
of the Securities Act and, if so filed by electronic transmission pursuant
to EDGAR (except as may be permitted by Regulation S-T under the Securities
Act), was identical to the copy thereof delivered to the Underwriter for
use in connection with the offer and sales of the Common Shares. At the
respective times that the Registration Statement, the Rule 462(b)
Registration Statement, if any, and any post-effective amendments thereto
became effective, and at all times subsequent thereto up to and including
each Closing Date referred to below, the Registration Statement, such Rule
462(b) Registration Statement and each such post-effective amendment
thereto complied and will comply in all material respects with the
Securities Act and did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Prospectus, as amended or supplemented, as of its date and at all times
subsequent thereto up to and including each Closing Date referred to below,
did not and will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. If the Company has elected to rely upon Rule 434 under the
Securities Act, and has obtained the Underwriter's consent thereto, the
Company confirms that the Rule 434 preliminary prospectus is not materially
different from the Company's prospectus contained in the Registration
Statement at the time it was declared effective, and the Company agrees
that it shall comply with the requirements of Rule 434. Notwithstanding
the foregoing, the representations and warranties set forth in the second
and third sentences of this Section 1(b) do not apply to statements in or
omissions from the Registration Statement, the Rule 462(b) Registration
Statement, if any, and any post-effective amendments thereto, or the
Prospectus, or any amendments or supplements thereto, made in reliance upon
and in conformity with information relating to the Underwriter furnished to
the Company in writing by or on behalf of the Underwriter expressly for use
therein. There are no contracts or other documents required to be
described in the Prospectus or to be filed as exhibits to the Registration
Statement under the Securities Act that have not been described or filed as
required.
<PAGE>
(c) Quantities Furnished to the Underwriter. The Company has
---------------------------------------
delivered to the Underwriter one complete manually signed copy of the
Registration Statement including consents and certificates of experts filed
as a part thereof, and such quantities of conformed copies of the
Registration Statement (without exhibits) and preliminary prospectuses and
the Prospectus, as amended or supplemented, as the Underwriter has
reasonably requested.
(d) Distribution of the Offering Materials. The Company has not
--------------------------------------
distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriter's
distribution of the Common Shares, any offering material in connection with
the offering and sale of the Common Shares other than the preliminary
prospectus, the Prospectus, the Registration Statement and the other
offering materials permitted under the Securities Act.
(e) The Underwriting Agreement. This Agreement has been duly
--------------------------
authorized, executed and delivered by, and is a valid and binding agreement
of, the Company, enforceable against the Company in accordance with its
terms, except as rights to indemnification hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights and remedies of creditors or by general
equitable principles.
(f) Authorization of the Common Shares. The Common Shares to be
----------------------------------
purchased by the Underwriter have been duly authorized for issuance and
sale pursuant to this Agreement and, when issued and delivered by the
Company pursuant to this Agreement against payment of the consideration set
forth herein, will be validly issued, fully paid and nonassessable.
(g) No Applicable Registration or Other Similar Rights. Except as
--------------------------------------------------
disclosed in the Prospectus under the caption "Shares Eligible for Future
Sale" and "Description of Capital Stock--Registration Rights," there are no
persons with registration or other similar rights to have any equity or
debt securities registered for sale under the Registration Statement or
included in the offering contemplated by this Agreement, except for such
rights as have been duly waived.
(h) No Material Adverse Change. Except as otherwise may be stated in
--------------------------
the Prospectus, subsequent to the respective dates as of which information
is given in the Prospectus: (i) there has been no material adverse change,
or any development that would reasonably be expected to result in a
material adverse change, in the condition, financial or otherwise, or in
the earnings, business or operations, whether or not arising from
transactions in the ordinary course of business of the Company and its
subsidiaries, considered as one entity (any such change with respect to any
entity being referred to herein as a "Material Adverse Change"); (ii) the
Company and its subsidiaries, considered as one entity, have not incurred
any material liability or obligation, direct or contingent, not in the
ordinary course of business nor entered into any material transaction not
in the ordinary course of business; and (iii) there has been no dividend or
distribution of any kind declared, paid or made by the Company or, except
for dividends paid to the Company or other subsidiaries, any of its
subsidiaries on any class of capital stock or repurchase or redemption by
the Company or any of its subsidiaries of any class of capital stock.
(i) Independent Accountants. KPMG Peat Marwick LLP, which has
-----------------------
expressed its opinion with respect to the financial statements (which term
as used in this
<PAGE>
Agreement includes the related notes thereto) and any supporting schedules
filed with the Commission as a part of the Registration Statement and
included in the Prospectus and in the Registration Statement, is a firm of
independent public accountants as required by the Securities Act.
(j) Preparation of the Financial Statements. The financial statements
---------------------------------------
filed with the Commission as a part of the Registration Statement and
included in the Prospectus and in the Registration Statement present fairly
the consolidated financial position of the Company and its subsidiaries as
of and at the dates indicated and the results of their operations and
changes in financial position for the periods specified. The supporting
schedules included in the Registration Statement, if any, present fairly
the information required to be stated therein. Such financial statements
have been prepared in conformity with generally accepted accounting
principles in the United States applied on a consistent basis throughout
the periods involved, except as may be stated in the related notes thereto.
No other financial statements or supporting schedules are required to be
included in the Registration Statement. The financial and other data set
forth in the Prospectus under the captions "Prospectus Summary--Summary
Consolidated Financial Data," "Capitalization," "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" "Business--Legal Proceedings,"
"Management--Executive Compensation," "Management--Stock Plans," "Certain
Transactions" and "Principal Shareholders" fairly present the information
set forth therein on a basis consistent with that of the audited financial
statements of the Company and its consolidated subsidiaries contained in
the Registration Statement. The financial data set forth in the Prospectus
under the caption "Dilution" fairly presents the information set forth
therein on the basis stated in the Prospectus.
(k) Incorporation and Good Standing of the Company and its
------------------------------------------------------
Subsidiaries. Each of the Company and the subsidiaries of the Company
listed in Exhibit 21.1 to the Registration Statement (each, a "Subsidiary"
and, collectively, the "Subsidiaries"), has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation and has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus and, in the case of the Company, to enter into
and perform its obligations under this Agreement. Other than the
Subsidiaries referred to in the preceding sentence, the Company has no
investment in the equity securities of any other entity. The Company and
each Subsidiary is duly qualified as a foreign corporation to transact
business and is in good standing in each other jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except for such jurisdictions where
the failure to so qualify or to be in good standing would not, individually
or in the aggregate, result in a Material Adverse Change. All of the
issued and outstanding capital stock of each Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and is
owned by the Company, directly or through a Subsidiary, free and clear of
any security interest, mortgage, pledge, lien, encumbrance or claim. The
Company does not own or control, directly or indirectly, any corporation,
association or other entity other than the Subsidiaries.
(l) Capitalization and Other Capital Stock Matters. The authorized,
----------------------------------------------
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options or warrants described in
the Prospectus). The Common Stock (including the Common Shares) conforms
in all material respects to the description thereof contained in the
Prospectus. All of the outstanding shares of Common Stock have been duly
<PAGE>
authorized and validly issued, are fully paid and non-assessable and have
been issued in compliance with the federal and state securities laws. None
of the shares of Common Stock were issued in violation of or subject to any
preemptive rights, rights of first refusal or other similar rights to
subscribe for or purchase securities of the Company. There are no
authorized or outstanding options, warrants or rights to purchase, or
equity or debt securities convertible into or exchangeable or exercisable
for, any capital stock of the Company or any of its Subsidiaries other than
as set forth in the Prospectus. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options
or other rights granted and exercised thereunder, set forth in the
Prospectus accurately and fairly presents the information required to be
shown with respect to such plans, arrangements, options and rights. All
shares of the Company's preferred stock issued and outstanding prior to the
date hereof have been converted into shares of Common Stock as described in
the Prospectus, and the former holders of such shares of Preferred Stock
have no further rights in connection therewith.
(m) Non-Contravention of Existing Instruments; No Further
-----------------------------------------------------
Authorizations or Approvals Required. Neither the Company nor any of its
------------------------------------
Subsidiaries is in violation of its charter or by-laws or is in default
(or, with the giving of notice or lapse of time, would be in default)
("Default") in the performance or observance of any obligation, agreement,
covenant or condition contained in any indenture, mortgage, loan or credit
agreement, note, contract, franchise, lease or other instrument to which
the Company or any of its Subsidiaries is a party or by which it or any of
them may be bound or to which any of the property or assets of the Company
or any of its Subsidiaries is subject (each, an "Existing Instrument").
The Company's execution, delivery and performance of this Agreement and
consummation of the transactions contemplated hereby and by the Prospectus
(i) have been duly authorized by all necessary corporate action and will
not result in any violation of the provisions of the charter or by-laws of
the Company or any Subsidiary, (ii) will not conflict with or constitute a
breach of, or Default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or
any of its Subsidiaries pursuant to, any Existing Instrument, except for
such conflicts, breaches, Defaults, liens, charges or encumbrances as would
not, individually or in the aggregate, result in a Material Adverse Change;
and (iii) will not result in any violation of any law, administrative
regulation or administrative or court decree applicable to the Company or
any Subsidiary. No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency, is required for the Company's execution, delivery and performance
of this Agreement and consummation of the transactions contemplated hereby
and by the Prospectus, except such as have been obtained by the Company and
are in full force and effect under the Securities Act, applicable state
securities or blue sky laws and the NASD.
(n) No Material Actions or Proceedings. Except as otherwise disclosed
----------------------------------
in the Prospectus, there are no legal or governmental actions, suits or
proceedings pending or, to the best of the Company's knowledge, threatened,
(i) against or affecting the Company or any of its Subsidiaries, or (ii)
which have as the subject thereof any officer or director of, or property
owned or leased by, the Company or any of the Subsidiaries where in any
such case, (A) there is a reasonable possibility that such action, suit or
proceeding might be determined adversely to the Company or any Subsidiary
and (B) any such action, suit or proceeding, if so determined adversely,
would reasonably be expected to result in a Material Adverse Change or
materially and adversely affect the consummation of the transactions
contemplated by this Agreement. The Company has made adequate charges,
accruals and reserves in the applicable financial statements referred to in
Section 1(j) above in respect of all pending or, to the best of the
Company's knowledge, threatened legal or governmental actions, suits or
proceedings. All pending governmental or legal actions,
<PAGE>
suits or proceedings to which the Company or any of its Subsidiaries is a
party or of which any of their respective property or assets is the subject
that are not described in the Prospectus, including ordinary routine
litigation incidental to the business, are, considered in the aggregate,
not material. No material labor dispute with the employees of the Company
or any of the Subsidiaries exists or, to the best of the Company's
knowledge, is threatened or imminent.
(o) Intellectual Property Rights. The Company and the Subsidiaries own
----------------------------
or possess sufficient trademarks, trade names, patent rights, mask works,
copyrights, licenses and approvals (collectively, the "Intellectual
Property Rights") to conduct their businesses as now conducted; and no such
Intellectual Property Rights, the expiration of which would result in a
Material Adverse Change, will expire pursuant to its terms within five
years from the date hereof. Neither the Company nor any of the
Subsidiaries has received any notice of infringement or conflict with
asserted rights with respect to trademark, trade name, patent, mask work,
copyright, license, trade secret or other similar rights of others, which
infringement or conflict, if the subject of an unfavorable decision, would
result in a Material Adverse Change.
(p) Compliance with Laws. The Company and each Subsidiary possess such
--------------------
valid and current certificates, authorizations or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies
necessary to conduct their respective businesses except for those failures
to possess such certificates, authorizations or permits which will not in
the aggregate have a material adverse effect on the Company and its
subsidiaries taken as a whole, and neither the Company nor any Subsidiary
has received any notice of proceedings relating to the revocation or
modification of, or noncompliance with, any such certificate, authorization
or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a Material Adverse
Change with respect thereto. The Company has not been advised, and has no
reason to believe, that either it or any of the Subsidiaries is not
conducting business in compliance with all applicable laws, rules and
regulations of the jurisdictions in which it is conducting business,
including, without limitation, all applicable local, state and federal
environmental laws and regulations; except where failure to be so in
compliance would not result in a Material Adverse Change.
(q) Title to Properties. The Company and each of the Subsidiaries has
-------------------
good and marketable title to all the properties and assets reflected as
owned in the financial statements referred to in Section 1(j) above, in
each case free and clear of any security interests, mortgages, liens,
encumbrances, equities, claims and other defects, except such as do not
materially and adversely affect the value of such property and do not
materially interfere with the use made or proposed to be made of such
property by the Company or such Subsidiary. The real property,
improvements, equipment and personal property held under lease by the
Company or any Subsidiary are held under valid, subsisting and enforceable
leases, with such exceptions as are not material and do not materially
interfere with the use made or proposed to be made of such real property,
improvements, equipment or personal property by the Company or such
Subsidiary.
(r) Tax Law Compliance. The Company and its consolidated Subsidiaries
------------------
have filed all necessary federal, state and foreign income and franchise
tax returns and have paid all taxes required to be paid by any of them and,
if due and payable, any related or similar assessment, fine or penalty
levied against any of them except as may be being contested in good faith
and by appropriate proceedings. The Company has made adequate charges,
accruals and reserves in the applicable financial statements referred to in
Section 1(j) above in respect of all federal, state and foreign income and
franchise taxes
<PAGE>
for all periods as to which the tax liability of the Company or any of its
consolidated Subsidiaries has not been finally determined.
(s) Company Not an "Investment Company." The Company has been advised
----------------------------------
of the rules and requirements under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Company is not an "investment
company" or an entity "controlled" by an "investment company" within the
meaning of the Investment Company Act and intends to conduct its business
in a manner so that it will not become subject to the Investment Company
Act.
(t) Insurance. Each of the Company and the Subsidiaries are insured by
---------
recognized financially sound and reputable institutions with policies in
such amounts and with such deductibles and covering such risks generally
deemed adequate and customary for their businesses including, but not
limited to, policies covering real and personal property owned or leased by
the Company and the Subsidiaries against theft, damage, destruction, acts
of vandalism and such other risks. The Company has no reason to believe
that it or any Subsidiary will not be able (i) to renew its existing
insurance coverage as and when such policies expire or (ii) to obtain
comparable coverage from similar institutions as may be necessary or
appropriate to conduct its business as now conducted and at a cost that
would not result in a Material Adverse Change. Neither the Company nor any
Subsidiary has been denied any insurance coverage for which it has sought
or applied.
(u) No Price Stabilization or Manipulation. The Company has not taken
--------------------------------------
and will not take, directly or indirectly, any action designed to or that
might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or
resale of the Common Shares.
(v) Related Party Transactions. There are no business relationships or
--------------------------
related-party transactions involving the Company or any Subsidiary or any
other person required to be described in the Prospectus, other than those
that have been disclosed therein.
(w) Florida Blue Sky Compliance. The Company is not presently doing
---------------------------
business with the government of Cuba or with any person or affiliate
located in Cuba.
(x) Company's Accounting System. The Company maintains a system of
---------------------------
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles in the United States and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv)
the recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(y) Compliance with Environmental Laws. Except as would not,
----------------------------------
individually or in the aggregate, result in a Material Adverse Change (i)
neither the Company nor any of its Subsidiaries is in violation of any
federal, state, local or foreign laws and regulations relating to pollution
or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or wildlife, including without limitation, laws and
regulations relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants, contaminants, wastes, toxic substances,
hazardous substances, petroleum and petroleum products (collectively,
<PAGE>
"Materials of Environmental Concern"), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern (collectively,
"Environmental Laws"), which violation includes, but is not limited to,
noncompliance with any permits or other governmental authorizations
required for the operation of the business of the Company or its
Subsidiaries under applicable Environmental Laws, or noncompliance with the
terms and conditions thereof, nor has the Company or any of its
Subsidiaries received any written communication, whether from a
governmental authority, citizens group, employee or otherwise, that alleges
that the Company or any of its Subsidiaries is in any such violation; (ii)
there is no claim, action or cause of action filed with a court or
governmental authority, no investigation with respect to which the Company
has received written notice, and no written notice by any person or entity
alleging potential liability for investigatory costs, cleanup costs,
governmental responses costs, natural resources damages, property damages,
personal injuries, attorneys' fees or penalties arising out of, based on or
resulting from the presence, or release into the environment, of any
Material of Environmental Concern at any location owned, leased or operated
by the Company or any of the Subsidiaries, now or in the past
(collectively, "Environmental Claims"), pending or, to the best of the
Company's knowledge, threatened against the Company or any of its
Subsidiaries or, to the best of the Company's knowledge, against any person
or entity whose liability for any Environmental Claim the Company or any of
the Subsidiaries has retained or assumed either contractually or by
operation of law; and (iii) to the best of the Company's knowledge, there
are no past or present actions, activities, circumstances, conditions,
events or incidents, including, without limitation, the release, emission,
discharge, presence or disposal of any Material of Environmental Concern,
that reasonably could result in a violation of any Environmental Law or
form the basis of a potential Environmental Claim against the Company or
any of the Subsidiaries or against any person or entity whose liability for
any Environmental Claim the Company or any of the Subsidiaries has retained
or assumed either contractually or by operation of law.
(z) ERISA Compliance. The Company and the Subsidiaries and any
----------------
"employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or
maintained by the Company, its Subsidiaries or their "ERISA Affiliates" (as
defined below) are in compliance in all material respects with ERISA.
"ERISA Affiliate" means, with respect to the Company or any Subsidiary, any
member of any group of organizations described in Sections 414(b), (c), (m)
or (o) of the Internal Revenue Code of 1986, as amended, and the
regulations and published interpretations thereunder (the "Code") of which
the Company or such subsidiary is a member. No "reportable event" (as
defined under ERISA) has occurred or is reasonably expected to occur with
respect to any "employee benefit plan" established or maintained by the
Company, the Subsidiaries or any of their ERISA Affiliates. No "employee
benefit plan" established or maintained by the Company, the Subsidiaries or
any of their ERISA Affiliates, if such "employee benefit plan" were
terminated, would have any "amount of unfunded benefit liabilities" (as
defined under ERISA). Neither the Company, the Subsidiaries nor any of
their ERISA Affiliates has incurred or reasonably expects to incur any
liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "employee benefit plan" or (ii) Sections 412, 4971,
4975 or 4980B of the Code. Each "employee benefit plan" established or
maintained by the Company, its Subsidiaries or any of their ERISA
Affiliates that is intended to be qualified under Section 401(a) of the
Code is so qualified and, to the knowledge of the Company, nothing has
occurred, whether by action or failure to act, which would cause the loss
of such qualification.
<PAGE>
(aa) No Unlawful Contributions or Other Payments. Neither the Company
-------------------------------------------
nor any of the Subsidiaries nor, to the best of the Company's knowledge,
any employee or agent of the Company or any Subsidiary, has made any
contribution or other payment to any official of, or candidate for, any
federal, state or foreign office in violation of any law or of the
character required to be disclosed in the Prospectus.
Any certificate signed by any officer of the Company and delivered to
the Underwriter or to counsel for the Underwriter shall be deemed to be a
representation and warranty by the Company to the Underwriter as to the matters
covered thereby.
The Underwriter represents, warrants and agrees with the Company, and
the Company acknowledges, that the information set forth (i) on the cover page
of the Prospectus with respect to price, underwriting discounts and commissions
and terms of offering and (ii) in the first, second and last paragraphs under
"Underwriting" in the Prospectus (or any amendment or supplement thereto) is the
only information furnished to the Company by or on behalf of the Underwriter
expressly for use in the Registration Statement, any preliminary prospectus or
the Prospectus, and the Underwriter confirms that such information is correct in
all material respects.
SECTION 2. PURCHASE, SALE AND DELIVERY OF COMMON SHARES.
The Firm Common Shares. On the basis of the representations,
----------------------
warranties and agreements herein contained, and upon the terms but subject to
the conditions herein set forth, the Company agrees to issue and sell to the
Underwriter and the Underwriter agrees to purchase from the Company the Firm
Common Shares. The purchase price per Firm Common Share to be paid by the
Underwriter to the Company shall be $_____ per share.
The First Closing Date. Delivery of certificates for the Firm Common
----------------------
Shares to be purchased by the Underwriter and payment therefor shall be made at
the offices of Gordian Group, L.P., 500 Park Avenue, 5th Floor, New York City,
New York (or such other place as may be agreed to by the Company and the
Underwriter) at 9:00 a.m., New York City time on _______________, 1997, or such
other time and date not later than noon, New York City time, on _______________,
1997 as the Underwriter shall designate by notice to the Company (the time and
date of such closing are herein called the "First Closing Date"). The Company
hereby acknowledges that circumstances under which the Underwriter may provide
such notice to postpone the First Closing Date as originally scheduled include,
but are in no way limited to, any determination by the Company or the
Underwriter to recirculate to the public copies of an amended or supplemented
Prospectus or a delay as contemplated by the provisions of Section 10 hereof.
The Optional Common Shares; the Second Closing Date. In addition, on
---------------------------------------------------
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the Underwriter to purchase up to an aggregate of
247,500 Optional Common Shares from the Company at the purchase price per share
to be paid by the Underwriter for the Firm Common Shares. The option granted
hereunder is for use by the Underwriter solely in covering any over-allotments
in connection with the sale and distribution of the Firm Common Shares. The
option granted hereunder may be exercised at any time (but not more than once)
upon notice by the Underwriter to the Company, which notice may be given at any
time within 30 days from the date of this Agreement. Such notice shall set
forth (i) the aggregate number of Optional Common Shares as to which the
Underwriter is exercising the option, (ii) the names and denominations in which
the certificates for the Optional Common Shares are to be registered, and (iii)
the time, date and place at which such certificates will be delivered (which
time and date may be simultaneous
<PAGE>
with, but not earlier than, the First Closing Date; and in such case the term
"First Closing Date" shall refer to the time and date of delivery of
certificates for the Firm Common Shares and the Optional Common Shares). Such
time and date of delivery, if subsequent to the First Closing Date, is herein
called the "Second Closing Date" and shall be determined by the Underwriter and
shall not be earlier than three nor later than five full business days after
delivery of such notice of exercise. If any Optional Common Shares are to be
purchased, the Underwriter agrees to purchase, and the Company agrees to sell,
the number of Optional Common Shares set forth in the Underwriter's option
exercise notice.
Public Offering of the Common Shares. The Underwriter hereby advises
------------------------------------
the Company that the Underwriter intends to offer for sale to the public, as
described in the Prospectus, the Common Shares as soon after this Agreement has
been executed and the Registration Statement has been declared effective and the
Underwriter, in its sole judgment, has determined is advisable and practicable.
The Underwriter hereby further advises the Company that the Underwriter will
offer the Common Shares for sale to the public initially at a price of $__.__
per share and to certain dealers selected by the Underwriter at a price that
represents a concession of not more than $.__ per share from such initial public
offering price, and the Underwriter may allow, and such dealers may reallow, a
concession of not more than $ .__ per share to certain other dealers.
Payment for the Common Shares. Payment for the Common Shares shall be
-----------------------------
made at the First Closing Date (and, if applicable, at the Second Closing Date)
by certified or official bank checks payable in New York Clearing House or other
next day funds to the order of the Company.
It is understood that the Underwriter has been authorized, for its own
account, to accept delivery of and receipt for, and make payment of the purchase
price for, the Firm Common Shares and any Optional Common Shares the Underwriter
has agreed to purchase.
Delivery of the Common Shares. The Company shall deliver, or cause to
-----------------------------
be delivered, to the Underwriter certificates for the Firm Common Shares to be
sold at the First Closing Date, against payment therefor. The Company shall
also deliver, or cause to be delivered, to the Underwriter certificates for the
Optional Common Shares the Underwriter has agreed to purchase from them at the
First Closing Date or the Second Closing Date, as the case may be, against
payment therefor. The certificates for the Common Shares shall be in definitive
form and registered in such names and denominations as the Underwriter shall
have requested at least two full business days prior to the First Closing Date
(or the Second Closing Date, as the case may be) and shall be made available for
checking and packaging on the business day preceding the First Closing Date (or
the Second Closing Date, as the case may be) at a location in New York City as
the Underwriter may designate. Time shall be of the essence, and delivery at
the time and place specified in this Agreement is a further condition to the
obligations of the Underwriter.
Delivery of Prospectus to the Underwriter. The Company shall deliver,
-----------------------------------------
or cause to be delivered, to the Underwriter, copies of the Prospectus requested
by the Underwriter for the purpose of confirming sales of the Common Shares that
are expected to settle on the First Closing Date not later than 4:00 p.m. New
York City time on the next business day following the later of the date of this
Agreement or the date that the Common Shares are first released by the
Underwriter for sale to the public.
SECTION 3. ADDITIONAL COVENANTS.
The Company further covenants and agrees with the Underwriter and, with
respect to Section 3(i), the Company also covenants for the benefit of all
present and future holders of Common Stock, as follows:
<PAGE>
(a) Underwriter's Review of Proposed Amendments and Supplements. The
-----------------------------------------------------------
Company agrees that, during such period after the first date of the public
offering of the Common Shares as in the opinion of counsel for the
Underwriter the Prospectus is required by law to be delivered in connection
with sales by an Underwriter or dealer (the "Prospectus Delivery Period"),
prior to amending or supplementing the Registration Statement (including
any registration statement filed under Rule 462(b) under the Securities
Act) or the Prospectus, the Company shall furnish to the Underwriter for
review a copy of each such proposed amendment or supplement, and the
Company further agrees not to file any such proposed amendment or
supplement to which the Underwriter reasonably objects in writing.
(b) Securities Act Compliance. After the date of this Agreement, the
-------------------------
Company shall promptly advise the Underwriter in writing (i) of the receipt
of any comments of, or requests for additional or supplemental information
from, the Commission; (ii) of the time and date of any filing of any post-
effective amendment to the Registration Statement or any amendment or
supplement to any preliminary prospectus or the Prospectus; (iii) of the
time and date that any post-effective amendment to the Registration
Statement becomes effective; and (iv) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement
or any post-effective amendment thereto or of any order preventing or
suspending the use of any preliminary prospectus or the Prospectus, or of
any proceedings to remove or suspend from listing or quotation the Common
Stock from any securities exchange upon which it is listed for trading or
quotation, or of the threatening or initiation of any proceedings for any
of such purposes. If the Commission shall enter any such stop order at any
time, the Company will use its best efforts to obtain the lifting of such
order at the earliest possible moment. Additionally, the Company agrees
that it shall comply with the provisions of Rules 424(b), 430A and 434, as
applicable, under the Securities Act and will use its reasonable efforts to
confirm that any filings made by the Company under such Rule 424(b) were
received in a timely manner by the Commission.
(c) Amendments and Supplements to the Prospectus and Other Securities
-----------------------------------------------------------------
Act Matters. If, during the Prospectus Delivery Period, any event shall
-----------
occur or condition exist as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in the
light of the circumstances when the Prospectus is delivered to a purchaser,
not misleading, or if in the opinion of the Underwriter or counsel for the
Underwriter it is otherwise necessary to amend or supplement the Prospectus
to comply with law, the Company agrees to promptly prepare (subject to
Section 3(a) hereof), file with the Commission and furnish, at its own
expense, to the Underwriter and to dealers and such other persons (whose
names and addresses will be furnished to the Company by the Underwriter) to
whom Common Shares might have been sold, amendments or supplements to the
Prospectus so that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) Copies of any Amendments and Supplements to the Prospectus. The
----------------------------------------------------------
Company agrees to furnish the Underwriter, without charge, during the
Prospectus Delivery Period, as many copies of the Prospectus and any
supplements and amendments thereto as the Underwriter may reasonably
request.
(e) Blue Sky Compliance. The Company shall cooperate with the
-------------------
Underwriter and counsel for the Underwriter to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of)
the Blue Sky or state securities laws of
<PAGE>
those jurisdictions designated by the Underwriter, shall comply with such
laws and shall continue such qualifications, registrations and exemptions
in effect so long as reasonably required for the distribution of the Common
Shares. The Company shall not be required to qualify as a foreign
corporation or to take any action that would subject it to general service
of process in any such jurisdiction where it is not presently qualified or
where it would be subject to taxation as a foreign corporation. The
Company will advise the Underwriter promptly of the suspension of the
qualification or registration of (or any such exemption relating to) the
Common Shares for offering, sale or trading in any jurisdiction or any
initiation or threat of any proceeding for any such purpose, and in the
event of the issuance of any order suspending such qualification,
registration or exemption, the Company shall use its best efforts to obtain
the withdrawal thereof.
(f) Use of Proceeds. The Company shall apply the net proceeds of the
---------------
sale of the Common Shares sold by it in the manner described under the
caption "Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at its
--------------
expense, a registrar and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as practicable, the Company shall make
------------------
generally available to its security holders, and shall provide to the
Underwriter, an earnings statement (which need not be audited) covering a
twelve-month period that satisfies the provisions of Section 11(a) of the
Securities Act.
(i) Periodic Reporting Obligations. During the Prospectus Delivery
------------------------------
Period the Company shall file, on a timely basis, with the Commission all
reports and documents required to be filed under the Exchange Act.
Additionally, the Company shall file, on a timely basis, with the
Commission all reports on Form SR as may be required under Rule 463 under
the Securities Act and all reports required to be filed by Section 15(ds)
of the Exchange Act. During such time as the Company is not required to
file and is not filing reports and documents under the Exchange Act with
the Commission, the Company shall provide to each holder of Common Stock
reports and documents substantially the same as would be required to be
filed with the Commission under Section 15(d) of the Exchange Act, which
reports and documents shall be provided no later than would be required for
such reports and documents if they were required to be filed with the
Commission. In the event that the Company fails to deliver to the holders
of Common Stock any report required to be delivered pursuant to the
immediately preceding sentence within 10 days after the date such report
was due, the Company shall promptly (and in any event within 30 days after
the date such report was due) register its Common Stock under the Exchange
Act and commence to file all reports and documents required to be filed
under the Exchange Act.
(j) Company Agreement Not to Offer or Sell Additional Securities.
------------------------------------------------------------
During the period of 180 days following the date of the Prospectus, the
Company agrees that it will not, without the prior written consent of
Gordian Group, L.P. (which consent may be withheld at the sole discretion
of Gordian Group, L.P.), directly or indirectly, sell, offer or contract to
sell, grant any option for the sale of, or otherwise dispose of or
transfer, or announce the offering of, or file any registration statement
under the Securities Act in respect of, any shares of Common Stock or any
debt or equity securities convertible into or exchangeable or exercisable
for Common Stock (other than as contemplated by this Agreement with respect
to the Common Shares), provided, however, that the Company may issue shares
of its Common Stock or options to purchase its Common Stock, or Common
Stock upon exercise of options, pursuant to any stock option, stock bonus
or
<PAGE>
other stock plan or arrangement described in the Prospectus, but only if
the holders of such shares, options, or shares issued upon exercise of such
options, agree in writing not to sell, offer, dispose of or otherwise
transfer any such shares or options during such 180 day period without the
prior written consent of Gordian Group, L.P. (which consent may be withheld
at the sole discretion of the Gordian Group, L.P.).
The Underwriter may, in its sole discretion, waive in writing the
performance by the Company of any one or more of the foregoing covenants (other
than the covenants contained in Section 3(i)) or extend the time for their
performance.
SECTION 4. PAYMENT OF EXPENSES.
Whether or not the transactions contemplated hereunder are consummated,
the Company shall pay all costs, fees and expenses incurred in connection with
the performance of its obligations hereunder and in connection with the
transactions contemplated hereby, including without limiting the generality of
the foregoing, (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs); (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock; (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriter; (iv) all fees and expenses of
the Company's counsel, independent public accountants and other advisors,
including the Underwriter's out-of-pocket expenses in connection with
preparation of the Registration Statement (provided that such expenses shall not
include any general overhead, salaries, supplies or similar expenses of the
Underwriter incurred in the normal conduct of its business); (v) all costs and
expenses incurred in connection with the preparation, printing, filing, shipping
and distribution of the Registration Statement (including financial statements,
exhibits, schedules, consents and certificates of experts), each preliminary
prospectus and the Prospectus, and all amendments and supplements thereto, and
this Agreement; (vi) all filing fees, attorneys' fees and expenses incurred by
the Company or the Underwriter in connection with qualifying or registering (or
obtaining exemptions from the qualification or registration of) all or any part
of the Common Shares for offer and sale under the Blue Sky laws, and, if
requested by the Underwriter, preparing and printing a "Blue Sky Survey" or
memorandum, and any supplements thereto, advising the Underwriter of such
qualifications, registrations and exemptions; (vii) the filing fees incident to
the NASD's review and approval of the Underwriter's participation in the
offering and distribution of the Common Shares; and (viii) all other fees, costs
and expenses referred to in Item 13 of Part II of the Registration Statement.
The Underwriter shall deem the Company to be the primary obligor with respect to
all costs, fees and expenses to be paid by the Company. Except as provided in
this Section 4, Section 6, Section 8 and Section 9 hereof, the Underwriter shall
pay all of its own expenses, including the fees and disbursements of its counsel
(excluding those relating to the matters set forth under subparagraph (vi)
above).
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITER.
The obligations of the Underwriter to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company set
forth in Section 1 hereof as of the date hereof and as of the First Closing Date
and, with respect to the Optional Common Shares, the Second Closing Date as
though then made, to the timely performance by the Company of its covenants and
other obligations hereunder, and to each of the following additional conditions:
<PAGE>
(a) Effectiveness of Registration Statement. The Registration
---------------------------------------
Statement, including any Rule 462(b) Registration Statement, shall have
become effective no later than the date hereof.
(b) Accountants' Comfort Letter. On the date hereof, the Underwriter
---------------------------
shall have received from KPMG Peat Marwick LLP, independent public
accountants for the Company, a letter dated the date hereof, in form and
substance satisfactory to the Underwriter, containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the audited and unaudited
financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(c) Compliance with Registration Requirements; No Stop Order; No
------------------------------------------------------------
Objection from NASD. For the period from and after effectiveness of this
-------------------
Agreement and prior to the First Closing Date and, with respect to the
Option Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with the
Commission (including the information required by Rule 430A under the
Securities Act) in the manner and within the time period required by
Rule 424(b) under the Securities Act; or the Company shall have filed
a post-effective amendment to the Registration Statement containing
the information required by such Rule 430A, and such post-effective
amendment shall have become effective; or, if the Company elected to
rely upon Rule 434 under the Securities Act, and obtained the
Underwriter's consent thereto, the Company shall have filed a Term
Sheet with the Commission in the manner and time period required by
such Rule 424(b);
(ii) no stop order suspending the effectiveness of the
Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment to the Registration Statement, shall be in
effect and no proceedings for such purpose shall have been instituted
or threatened by the Commission; and
(iii) The NASD shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.
(d) No Material Adverse Change or Ratings Agency Change. For the
---------------------------------------------------
period from and after effectiveness of this Agreement and prior to the
First Closing Date and, with respect to the Optional Shares, the Second
Closing Date:
(i) there shall not have occurred any Material Adverse Change with
respect to the Company and its subsidiaries, considered as one entity;
and
(ii) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction
of the possible change, in the rating accorded any securities of the
Company or any of its subsidiaries by any "nationally recognized
statistical rating organization" as such term is defined for purposes
of Rule 436(g)(2) under the Securities Act.
(e) Opinion of Counsel for the Company. On each of the First Closing
----------------------------------
Date and the Second Closing Date, the Underwriter shall have received the
favorable opinion of Venture Law Group, A Professional Corporation, counsel
for the Company, dated as of such Closing Date, in form and substance
satisfactory to counsel for the Underwriter, with respect to the matters
set forth in Exhibit A hereto.
---------
<PAGE>
(f) Opinion of Counsel for the Underwriter. On each of the First
--------------------------------------
Closing Date and the Second Closing Date, the Underwriter shall have
received the favorable opinion of Howard, Rice, Nemerovski, Canady, Falk &
Rabkin, A Professional Corporation, counsel for the Underwriter, dated as
of such Closing Date, with respect to such matters as the Underwriter may
reasonably require, and the Company shall have furnished to such counsel
such documents as they may request for the purpose of enabling them to pass
on such matters.
(g) Officers' Certificate. On each of the First Closing Date and the
---------------------
Second Closing Date, the Underwriter shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer
or President of the Company and the Chief Financial Officer of the Company,
dated as of such Closing Date, to the effect set forth in subsection
(c)(ii) of this Section 5, and further to the effect that:
(i) the representations and warranties of the Company set forth in
Section 1 of this Agreement are true and correct with the same force
and effect as though expressly made at and as of such Closing Date;
and
(ii) the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied
at or prior to such Closing Date.
(h) Bring-down Comfort Letter. On each of the First Closing Date and
-------------------------
the Second Closing Date, the Underwriter shall have received from KPMG Peat
Marwick, LLP, independent public accountants for the Company, a letter
dated such date, in form and substance satisfactory to the Underwriter, to
the effect that they reaffirm the statements made in the letter furnished
by them pursuant to subsection (b) of this Section 5, except that the
specified date referred to therein for the carrying out of procedures shall
be no more than three business days prior to the First Closing Date or
Second Closing Date, as the case may be.
(i) Lock-Up Agreements. On the date hereof, the Company shall have
------------------
furnished to the Underwriter agreements substantially in the form of
Exhibit B hereto from all holders of shares of Common Stock or options to
---------
purchase shares of Common Stock who hold the equivalent of one percent or
more of the outstanding shares of Common Stock, and all executive officers
and directors of the Company, and such agreements shall be in full force
and effect on each of the First Closing Date and the Second Closing Date.
(j) Additional Documents. On or before each of the First Closing Date
--------------------
and the Second Closing Date, as the case may be, the Underwriter and
counsel for the Underwriter shall have received such information, documents
and opinions as they may reasonably require for the purposes of enabling
them to pass upon the issuance and sale of the Common Shares as
contemplated herein, or in order to evidence the accuracy of any of the
representations and warranties, or the satisfaction of any of the
conditions or agreements, herein contained.
<PAGE>
If any condition specified in this Section is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the Underwriter by
notice to the Company at any time on or prior to the First Closing Date and,
with respect to the Option Shares, at any time prior to the Second Closing Date,
which termination shall be without liability on the part of any party to any
other party, except that Section 4, Section 6, Section 8 and Section 9 shall at
all times be effective and shall survive such termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITER'S EXPENSES.
Notwithstanding any other provisions hereof, if this Agreement shall be
terminated by the Underwriter pursuant to any of Section 5, Section 7 or Section
10, or if for any reason the sale to the Underwriter of the Common Shares at the
First Closing is not consummated because of any refusal, inability or failure on
the part of the Company to perform any agreement herein or to comply with any
provision hereof, the Company agrees to reimburse the Underwriter upon demand
for all out-of-pocket expenses that shall have been reasonably incurred by the
Underwriter in connection with the proposed purchase and the sale of the Common
Shares, including but not limited to fees and disbursements of counsel, printing
expenses, travel expenses, postage, facsimile and telephone charges relating to
the offering contemplated by the Prospectus. Any such termination shall be
without liability of any party to any other party except that the provisions of
this Section 4, Section 6, Section 8 and Section 9 shall at all times be
effective and shall survive such termination.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
The parties hereto agree that this Agreement shall not become effective
until the later of (i) the execution of this Agreement by the parties hereto and
(ii) notification by the Commission to the Company and the Underwriter of the
effectiveness of the Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated by any
party by notice to each of the other parties hereto, and any such termination
shall be without liability on the part of (a) the Company to the Underwriter,
except that the Company shall be obligated to reimburse the expenses of the
Underwriter pursuant to Sections 4 and 6 hereof, (b) the Underwriter to the
Company, or (c) any party hereto to any other party except that the provisions
of Section 8 and Section 9 shall at all times be effective and shall survive
such termination.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriter. The Company agrees to
----------------------------------
indemnify and hold harmless the Underwriter, each person, if any, who
controls the Underwriter within the meaning of the Securities Act and the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder (collectively, the "Exchange Act") and each partner, officer and
employee of the Underwriter against any loss, claim, damage, liability or
expense, as incurred, to which the Underwriter or such controlling person
may become subject, under the Securities Act, the Exchange Act or other
federal or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected
with the written consent of the Company), insofar as such loss, claim,
damage, liability or expense (or actions in respect thereof as contemplated
below) arises out of or are based (i) upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement, or any amendment
<PAGE>
thereto, including any information deemed to be a part thereof pursuant to
Rule 430A or Rule 434 under the Securities Act, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) upon any
untrue statement or alleged untrue statement of a material fact contained
in any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(iii) in whole or in part upon any inaccuracy in the representations and
warranties of the Company contained herein; or (iv) in whole or in part
upon any failure of the Company to perform its obligations hereunder or
under law; and to reimburse the Underwriter and each such controlling
person for any and all expenses (including the fees and disbursements of
counsel chosen by Gordian Group, L.P., but subject to the limitations set
forth in Section 8(c)) as such expenses are reasonably incurred by the
Underwriter or such controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that the foregoing
-------- -------
indemnity agreement shall not apply to any loss, claim, damage, liability
or expense to the extent, but only to the extent, arising out of or based
upon any untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by the Underwriter expressly for use
in the Registration Statement, any preliminary prospectus or the Prospectus
(or any amendment or supplement thereto); and provided, further, that with
-------- -------
respect to any preliminary prospectus, the foregoing indemnity agreement
shall not inure to the benefit of the Underwriter from whom the person
asserting any loss, claim, damage, liability or expense purchased Common
Shares, or person controlling the Underwriter, if a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of
the Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the
Common Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage or liability. The indemnity agreement set forth in this Section
8(a) shall be in addition to any liabilities that the Company may otherwise
have.
(b) Indemnification of the Company, Its Directors and Officers. The
----------------------------------------------------------
Underwriter agrees to indemnify and hold harmless the Company, each of its
directors, each of its officers who signed the Registration Statement, and
each person, if any, who controls the Company within the meaning of the
Securities Act or the Exchange Act, against any loss, claim, damage,
liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the
Securities Act, the Exchange Act, or other federal or state statutory law
or regulation, or at common law or otherwise (including in settlement of
any litigation, if such settlement is effected with the written consent of
the Underwriter), insofar as such loss, claim, damage, liability or expense
(or actions in respect thereof as contemplated below) arises out of or are
based upon any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto), 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 to make the statements
therein not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Underwriter expressly for use therein; and
to reimburse the Company, or any such
<PAGE>
director, officer, or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer, or
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action. The indemnity agreement set forth in this Section 8(b) shall be in
addition to any liabilities that the Underwriter may otherwise have.
(c) Notifications and Other Indemnification Procedures. Promptly after
--------------------------------------------------
receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement
thereof, but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party
for contribution or otherwise than under this Section 8 or to the extent it
is not prejudiced as a proximate result of such failure. In case any such
action is brought against any indemnified party and such indemnified party
seeks or intends to seek indemnity from an indemnifying party, the
indemnifying party will be entitled to participate in, and, to the extent
that it shall elect, jointly with all other indemnifying parties similarly
notified, by written notice delivered to the indemnified party promptly
after receiving the aforesaid notice from such indemnified party, to assume
the defense thereof with counsel reasonably satisfactory to such
indemnified party; provided, however, if the defendants in any such action
-------- -------
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that a conflict may arise
between the positions of the indemnifying party and the indemnified party
in conducting the defense of any such action or that there may be legal
defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party,
the indemnified party or parties shall have the right to select separate
counsel to assume such legal defenses and to participate otherwise in the
defense of such action on behalf of such indemnified party or parties.
Upon receipt of notice from the indemnifying party to such indemnified
party of such indemnifying party's election so to assume the defense of
such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with
the proviso to the next preceding sentence (it being understood, however,
that the indemnifying party shall not be liable for the expenses of more
than one separate counsel reasonably approved by the indemnifying party,
representing the indemnified parties who are parties to such action) or
(ii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action, in
each of which cases the fees and expenses of counsel shall be at the
expense of the indemnifying party.
(d) Settlements. The indemnifying party under this Section 8 shall not
-----------
be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there shall be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party against any loss, claim, damage, liability or expense by
reason of such settlement or judgment. Notwithstanding the foregoing
sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by Section 8(c) hereof, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding
effected without its written consent if (i) such settlement is entered into
more than 30 days after receipt by such indemnifying party of the aforesaid
request, and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement.
<PAGE>
No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been
a party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter
of such proceeding.
SECTION 9. CONTRIBUTION.
If the indemnification provided for in Section 8 hereto is for any
reason held to be unavailable to or otherwise insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, liabilities or
expenses referred to herein, then each indemnifying party shall contribute to
the aggregate amount paid or payable by such indemnified party, as incurred, as
a result of any losses, claims, damages, liabilities or expenses referred to
herein (i) in such proportion as is appropriate to reflect the relative benefits
received by the Company, on the one hand, and the Underwriter, on the other
hand, from the offering of the Common Shares pursuant to this Agreement or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company, on the one hand, and the Underwriter, on the other hand, in connection
with the statements or omissions or inaccuracies in the representations and
warranties herein which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company, on the one hand, and the Underwriter, on the
other hand, in connection with the offering of the Common Shares pursuant to
this Agreement shall be deemed to be in the same respective proportions as the
total net proceeds from the offering of the Common Shares pursuant to this
Agreement (before deducting expenses) received by the Company, and the total
underwriting discount received by the Underwriter, in each case as set forth on
the front cover page of the Prospectus (or, if Rule 434 under the Securities Act
is used, the corresponding location on the Term Sheet) bear to the aggregate
initial public offering price of the Common Shares as set forth on such cover.
The relative fault of the Company, on the one hand, and the Underwriter, on the
other hand, shall be determined by reference to, among other things, whether any
such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact or any such inaccurate or the alleged
inaccurate representation and/or warranty relates to information supplied by the
Company, on the one hand, or the Underwriter, on the other hand, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in subparagraph (c) of Section 8,
any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim. The provisions
set forth in Section 8(c) with respect to notice of commencement of any action
shall apply if a claim for contribution is to be made under this Section 9;
provided, however, that no additional notice shall be required with respect to
- -------- -------
any action for which notice has been given under Section 8(c) for purposes of
indemnification.
The Company and the Underwriter agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in this Section 9. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 9 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing
<PAGE>
or defending against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever
based upon any such untrue or alleged untrue statement or omission or alleged
omission.
Notwithstanding the provisions of this Section 9, the Underwriter shall
not be required to contribute any amount in excess of the amount by which the
total price at which the Common Shares underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which the
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 9,
each person, if any, who controls the Underwriter within the meaning of the
Securities Act and the Exchange Act shall have the same rights to contribution
as the Underwriter, and each director of the Company, each officer of the
Company who signed the Registration Statement, and each person, if any, who
controls the Company with the meaning of the Securities Act and the Exchange Act
shall have the same rights to contribution as the Company.
SECTION 10. DEFAULT OF THE UNDERWRITER.
[intentionally left blank]
SECTION 11. TERMINATION OF THIS AGREEMENT.
For the period from and after the effectiveness of this Agreement and
prior to the First Closing Date, this Agreement shall be subject to termination
by the Underwriter by notice given to the Company if at any time during such
period (i) trading in securities generally on either of the Nasdaq Stock
Exchange or the New York Stock Exchange shall have been suspended or limited, or
minimum or maximum prices shall have been generally established on any of such
stock exchanges by the Commission or the NASD; (ii) a general banking moratorium
shall have been declared by any of federal, New York, Texas or California
authorities; (iii) there shall have occurred any outbreak or escalation of
national or international hostilities or any crisis or calamity, or any change
in the United States or international financial markets, or any substantial
change or development involving a prospective substantial change in United
States' or international political, financial or economic conditions, as in the
judgment of the Underwriter, is material and adverse and makes it impracticable
to market the Common Shares in the manner and on the terms described in the
Prospectus or to enforce contracts for the sale of securities; (iv) there shall
have occurred any Material Adverse Change with respect to the Company and its
Subsidiaries, considered as one entity; (v) any holder of the Company's
securities shall have filed an action in federal or state court, whether at law
or in equity, seeking to enjoin or seeking damages in connection with the
transactions contemplated by this Agreement or challenging any aspects of the
Registration Statement or the Prospectus; or (vi) the Company shall have
sustained a loss by strike, fire, flood, earthquake, accident or other calamity
of such character as to interfere materially with the conduct of the business
and operations of the Company regardless of whether or not such loss shall have
been insured. Any termination pursuant to this Section 11 shall be without
liability on the part of (a) the Company to the Underwriter, except that the
Company shall be obligated to reimburse the expenses of the Underwriter pursuant
to Sections 4 and 6 hereof, (b) the Underwriter, or (c) any party hereto to any
other party except that the provisions of Section 8 and Section 9 shall at all
times be effective and shall survive such termination.
<PAGE>
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY.
The respective indemnities, agreements, representations, warranties and
other statements of the Company, of its officers and of the Underwriter set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of the Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Common Shares sold hereunder and any termination of this Agreement.
SECTION 13. NOTICES.
All communications hereunder shall be in writing and shall be mailed,
delivered or telecopied and confirmed to the parties hereto as follows:
If to the Underwriter:
Gordian Group, L.P.
500 Park Avenue, 5th Floor
New York City, NY 10022-1606
Facsimile: 212-486-3616
Attention: Barbara S. Scholl
If sent to the Company:
Visual Numerics, Inc.
990 Richmond Avenue, Suite 400
Houston, TX 77042-4540
Facsimile: 713-781-9264
Attention: Richard G. Couch
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS.
This Agreement will inure to the benefit of and be binding upon the
parties hereto, including any substitute Underwriter pursuant to Section 10
hereof, and to the benefit of the partners, officers and directors and
controlling persons referred to in Section 8 and Section 9, and in each case
their respective successors, personal representatives and assigns, and no other
person will have any right or obligation hereunder. No such assignment shall
relieve any party of its obligations hereunder. The term "successors" shall not
include any purchaser of the Common Shares as such from any of the Underwriter
merely by reason of such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY.
The invalidity or unenforceability of any Section, paragraph or
provision of this Agreement shall not affect the validity or enforceability of
any other Section, paragraph or provision hereof. If any Section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, there shall be deemed to be made such minor changes (and only
such minor changes) as are necessary to make it valid and enforceable.
<PAGE>
SECTION 16. GOVERNING LAW PROVISIONS.
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York applicable to agreements made and to
be performed in such State.
SECTION 17. GENERAL PROVISIONS.
This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed in two or more counterparts, each one of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Agreement may not be amended or
modified unless in writing by all of the parties hereto, and no condition herein
(express or implied) may be waived unless waived in writing by each party for
whom the condition is meant to benefit. The Table of Contents and the section
headings herein are for the convenience of the parties only and shall not affect
the construction or interpretation of this Agreement. Unless otherwise
specified, times of day shall mean New York City time.
Each of the parties hereto hereby acknowledges that it is a
sophisticated business person who was adequately represented by counsel during
negotiations regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto hereby further acknowledges that the provisions of Sections 8 and 9
hereto fairly allocate the risks in light of the ability of the parties to
investigate the Company, its affairs and its business in order to assure that
adequate disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company the enclosed copies hereof,
whereupon this instrument, along with all counterparts hereof, shall become a
binding agreement in accordance with its terms.
Very truly yours,
VISUAL NUMERICS, INC.
By: ____________________________
Richard G. Couch
Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted by the
Underwriter in New York City, New York as of the date first above written.
GORDIAN GROUP, L.P.
By:______________________________
<PAGE>
EXHIBIT A
Opinion of counsel for the Company to be delivered pursuant to Section 5(e)
of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any supplements
---------
thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Texas.
(ii) The Company has corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the
Underwriting Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except for such
jurisdictions where the failure to so qualify or to be in good standing
would not, individually or in the aggregate, result in a Material Adverse
Change.
(iv) Each Subsidiary has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus and is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except for such
jurisdictions where the failure to so qualify or to be in good standing
would not, individually or in the aggregate, result in a Material Adverse
Change.
(v) All of the issued and outstanding capital stock of each
Subsidiary has been duly authorized and validly issued, is fully paid and
non-assessable and is owned by the Company, directly or through
Subsidiaries, free and clear of any security interest, mortgage, pledge,
lien, encumbrance or, to the best knowledge of such counsel, any pending or
threatened claim.
(vi) The authorized capital stock of the Company (including the
Common Stock) conforms as to legal matters to the description thereof set
forth in the Prospectus. All of the shares of Common Stock have been duly
authorized and validly issued, are fully paid and non-assessable and, to
the best of such counsel's knowledge, have been issued in compliance with
the federal and state securities laws. The form of certificate used to
evidence the Common Stock is in due and proper form and complies with all
applicable requirements of the charter and by-laws of the Company and the
General Corporation Law of the State of Texas. The description of the
Company's stock option, stock purchase and other stock plans or
arrangements, and the options or other rights granted and exercised
thereunder, set forth in the Prospectus, accurately and fairly presents the
information required to be shown with respect to such plans, arrangements,
options and rights. All shares of preferred stock issued and outstanding
prior to the date hereof have been repurchased by the Company or converted
into shares of Common Stock.
<PAGE>
(vii) No stockholder of the Company or any other person has any
preemptive right, right of first refusal or other similar right to
subscribe for or purchase securities of the Company arising (A) by
operation of the charter or by-laws of the Company or the laws of the State
of Texas or (B) to the best knowledge of such counsel, otherwise.
(viii) The Underwriting Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the
Company, enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except as
the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(ix) The Common Shares to be purchased by the Underwriter from the
Company have been duly authorized for issuance and sale pursuant to the
Underwriting Agreement and, when issued and delivered by the Company
pursuant to the Underwriting Agreement against payment of the consideration
set forth therein, will be validly issued, fully paid and nonassessable.
(x) Each of the Registration Statement and the Rule 462(b)
Registration Statement, if any, has been declared effective by the
Commission under the Securities Act. To the best knowledge of such
counsel, no stop order suspending the effectiveness of either the
Registration Statement or the Rule 462(b) Registration Statement, if any,
has been issued under the Securities Act and no proceedings for such
purpose have been instituted or are pending or are contemplated or
threatened by the Commission. Any required filing of the Prospectus and
any supplement thereto pursuant to Rule 424(b) under the Securities Act has
been made in the manner and within the time period required by such Rule
424(b).
(xi) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus and each amendment or supplement to
the Registration Statement and the Prospectus as of their respective
effective or issue dates (other than the financial statements and
supporting schedules included therein or in exhibits to or excluded from
the Registration Statement, as to which no opinion need be rendered)
complied as to form in all material respects with the applicable
requirements of the Securities Act.
(xii) The statements (A) in the Prospectus under the captions
"Risk Factors--Restrictions on Sale of Company or Sale of Company's
Assets," "Risk Factors--Risk Relating to Conversion of Preferred Stock,"
"Risk Factors--Legal Proceedings," "Capitalization," "Business--Proprietary
Rights," "Business--Legal Proceedings," "Management--Employment and
Consulting Agreements," "Management--Stock Option and Incentive Plans,"
"Certain Transactions," "Description of Capital Stock" and "Underwriting"
and (B) in Items 14 and 15 of Part II of the Registration Statement,
insofar as such statements constitute matters of law, summaries of legal
matters, the Company's charter or by-law provisions, agreements or legal
proceedings, or legal conclusions, have been reviewed by such counsel and
fairly present and summarize, in all material respects, the matters
referred to therein.
(xiii) To the best knowledge of such counsel, there are no legal
or governmental actions, suits or proceedings pending or threatened which
are required to be disclosed in the Registration Statement, other than
those disclosed therein.
<PAGE>
(xiv) To the best knowledge of such counsel, there are no material
agreements required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed as exhibits thereto; and the descriptions
thereof and references thereto are correct in all material respects.
(xv) No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency, is required for the Company's execution, delivery and performance
of the Underwriting Agreement and consummation of the transactions
contemplated thereby and by the Prospectus, except such as have been
obtained by the Company and are in full force and effect under the
Securities Act, applicable state securities or blue sky laws and the NASD.
(xvi) The execution, delivery and performance of the Underwriting
Agreement and consummation of the transactions contemplated thereby (other
than performance by the Company of its obligations under the
indemnification and contribution sections of the Underwriting Agreement, as
to which no opinion need be rendered) and by the Prospectus (i) have been
duly authorized by all necessary corporate action on the part of the
Company; (ii) will not result in any violation of the provisions of the
charter or by-laws of the Company or any Subsidiary; (iii) will not
conflict with or constitute a breach of, or Default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or any of its Subsidiaries pursuant to, any
material agreement known to such counsel after reasonable investigation; or
(iv) to the best knowledge of such counsel, will not result in any
violation of any law, administrative regulation or administrative or court
decree applicable to the Company or any Subsidiary.
(xvii) Except as disclosed in the Prospectus under the caption
"Shares Eligible for Future Sale" and "Description of Capital Stock--
Registration Rights," to the best knowledge of such counsel, there are no
persons with registration or other similar rights to have any equity or
debt securities registered for sale under the Registration Statement or
included in the offering contemplated by the Underwriting Agreement, except
for such rights as have been duly waived.
(xviii) To the best knowledge of such counsel, neither the Company
nor any Subsidiary is in violation of its charter or by-laws or any law,
administrative regulation or administrative or court decree applicable to
the Company or any Subsidiary, or is in Default in the performance or
observance of any obligation, agreement, covenant or condition contained in
any material Existing Instrument, except in each such case for such
violations or Defaults as would not, individually or in the aggregate,
result in a Material Adverse Change in the Company and its Subsidiaries,
considered as one entity.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants for the Company and with
representatives of and counsel to the Underwriter at which the contents of the
Registration Statement and the Prospectus, and any supplements or amendments
thereto, and related matters were discussed and, although such counsel is not
passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus (other than as specified above), and any supplements
or amendments thereto, on the basis of the foregoing, nothing has come to their
attention which would lead them to believe that either the Registration
Statement or any amendments thereto, at the time the Registration Statement or
such amendments became effective, contained an untrue statement of a material
fact or omitted to state
<PAGE>
a material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus, as of its date or at
the First Closing Date or the Second Closing Date, as the case may be, contained
an untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading (it being understood
that such counsel need express no belief as to the financial statements or
schedules or other financial or statistical data included in the Registration
Statement or the Prospectus or any amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the laws of the
States of Delaware and California or the federal law of the United States, to
the extent such counsel deems proper and specifies in such opinion, upon the
opinion (which shall be dated the First Closing Date or the Second Closing Date,
as the case may be, shall be satisfactory in form and substance to the
Underwriter, shall expressly state that the Underwriter may rely on such opinion
as if it were addressed to it and shall be furnished to the Underwriter) of
other counsel of good standing whom such counsel believes to be reliable and who
is satisfactory to counsel for the Underwriter, provided, however, that such
-------- -------
counsel shall further state that they believe that they and the Underwriter are
justified in relying upon such opinion of other counsel, and (B) as to matters
of fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials.
<PAGE>
EXHIBIT B
Gordian Group, L.P.
500 Park Avenue, 5th Floor
New York City, NY 10022-1606
Re: Visual Numerics, Inc. (the "Company")
-------------------------------------
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain
shares of Common Stock of the Company ("Common Stock") or securities convertible
into or exchangeable or exercisable for Common Stock. The Company proposes to
carry out a public offering of Common Stock (the "Offering") for which you will
act as the Underwriter. The undersigned recognizes that the Offering will be of
benefit to the undersigned and will benefit the Company by, among other things,
raising additional capital for its operations. The undersigned acknowledges
that you are relying on the representations and agreements of the undersigned
contained in this letter in carrying out the Offering and in entering into
underwriting arrangements with the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that
the undersigned will not, without the prior written consent of Gordian Group,
L.P. (which consent may be withheld in its sole discretion), directly or
indirectly, sell, offer, contract or grant any option to sell (including without
limitation any short sale), pledge, transfer, establish an open "put equivalent
position" within the meaning of Rule 16a-1(h) under the Securities Exchange Act
of 1934, as amended, or otherwise dispose (other than as one or more bona fide
gifts, provided each donee thereof agrees in writing to be bound by the terms of
this lock-up agreement and provided that no donee shall be permitted to dispose
of such shares by gift or otherwise during the period of this lock-up agreement)
of any shares of Common Stock, options or warrants to acquire shares of Common
Stock, or securities exchangeable for or convertible into shares of Common Stock
currently or hereafter owned either of record or beneficially (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended) by the
undersigned, or publicly announce the undersigned's intention to do any of the
foregoing, for a period commencing on the date hereof and continuing to a date
180 days after the date of the final prospectus for the Offering. The
undersigned also agrees and consents to the entry of stop transfer instructions
with the Company's transfer agent and registrar against the transfer of shares
of Common Stock or securities convertible into or exchangeable or exercisable
for Common Stock held by the undersigned except in compliance with the foregoing
restrictions.
This agreement is irrevocable and will be binding on the undersigned
and the respective successors, heirs, personal representatives and assigns of
the undersigned.
_______________________________ Dated: _______________________________, 1997
Printed Name of Holder
By:____________________________ ____________________________________________
Signature Printed Name of Person Signing (and indicate
capacity of person signing if signing as
custodian, trustee, or on behalf of an
entity)
<PAGE>
Exhibit 3.1
THE STATE OF TEXAS
SECRETARY OF STATE
CERTIFICATE OF RESTATED ARTICLES OF INCORPORATION
OF
VISUAL NUMERICS, INC.
The undersigned, as Secretary of State of Texas, hereby certifies that the
attached Restated Articles of Incorporation for the above named corporation have
been received in this office and are found to conform to law.
ACCORDINGLY the undersigned, as Secretary of State, and by virtue of the
authority vested in the Secretary by law, hereby issues this Certificate of
Restated Articles of Incorporation.
Dated: January 24, 1994
Effective: January 24, 1994
<PAGE>
Exhibit A
RESTATED ARTICLES OF INCORPORATION
SECTION ONE
-----------
Visual Numerics, Inc. (the "Corporation"), pursuant to the provisions of
Article 4.07 of the Texas Business Corporation Act (the "Act"), hereby adopts
restated articles of incorporation ("Restated Articles") which accurately copy
the articles of incorporation and all amendments thereto that are in effect to
date and as further amended by such Restated Articles as hereinafter set forth
and which contain no other change in any provision thereof.
SECTION TWO
-----------
The Restated Articles restate and integrate and further amend the articles
of incorporation heretofore in effect by substituting for the provisions of such
articles of Incorporation in their entirety the provisions of the Restated
Articles, the text of which is set forth below in Section Five of these Restated
Articles. The amendment effected by the Restated Articles affects Article IV
(capitalization).
SECTION THREE
-------------
Each amendment made by the Restated Articles has been effected in
conformity with the provisions of the Act. The number of shares of stock of the
Corporation outstanding at the time of such amendment, and the number of shares
entitled to vote thereon, was 2,190,650 shares of Common Stock and 4,447,785
shares of Preferred Stock. All of the shares outstanding are capital stock.
The Restated Articles were duly adopted by the shareholders of the Corporation
at the Special Meeting of the Shareholders held on January 13, 1994. The
following number of shares voted for, against or abstained from voting on the
amendment:
<TABLE>
<CAPTION>
Class of Stock Shares For Shares Against Shares Abstained
- ------------------ ---------- -------------- ----------------
<S> <C> <C> <C>
Preferred Stock 4,210,290 2,000 237,495
Common Stock 1,761,265 2,000 429,385
</TABLE>
The Amendments provide for conversion of each share of Class A Common
Stock, $0.02 par value per share, into one (1) share of Common Stock, $0.02 par
value per share, as set forth Article IV of the Restated Articles set forth in
Section Five herein. The amendments will not result in a change in the amount
of stated capital of the Corporation.
SECTION FOUR
------------
Each issued and currently outstanding share of Class A Common $0.02 par
value per share, of the Corporation, together with any treasury shares, shall on
the date of filing these Restated Articles in the office of the Secretary of
State of the State of Texas ("Secretary of
<PAGE>
State") be automatically converted into one (1) share of Common Stock, $0.02 par
value per share, of the Corporation without further action on behalf of the
Corporation or its shareholders. Any shareholder of the Corporation who desires
to exchange his old forms of stock certificates or whose old forms of stock
certificates are otherwise submitted to the Corporation following a sale or
other transaction will receive Common Stock certificates in replacement thereof.
SECTION FIVE
------------
The Articles of Incorporation and all amendments and supplements thereto
are hereby superseded in their entirety by the following Restated Articles,
which accurately copy the entire text thereof and are amended as set forth
herein:
ARTICLE I
The name of the Corporation shall be Visual Numerics, Inc.
ARTICLE II
The period of its duration is perpetual.
ARTICLE III
The purposes for which the Corporation is organized are:
(a) To undertake, conduct, assist, promote, engage and participate in the
creation, design, development, production, reproduction, modification,
ownership, use, management, sale, lease and distribution of, and generally to
deal in and with, computer hardware, computer timesharing and remote batch
services and computer programs (software), including without limitation,
scientific programs, engineering programs, commercial programs, computer system
operating programs, program libraries, application programs, industrial training
in mathematics and statistics and education in the production and use of all
such computer programs; and
(b) To transact any or all lawful business for which a corporation may be
incorporated under the Texas Business Corporation Act.
ARTICLE IV
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is twenty-seven million (27,000,000) shares, which
are divided into two classes as follows:
(a) Seventeen million (17,000,000) shares of Common Stock, $0.02 par value
per share ("Common Stock"); and
(b) Ten million (10,000,000) shares of Preferred Stock, without par value
("Preferred Stock").
-3-
<PAGE>
The Preferred Stock may be issued from time to time in one or more series.
The first series shall be designated "Series A Preferred Stock" and shall
consist of 3,193,500 shares. The second series shall be designated "Series B
Preferred Stock" and shall consist of 163,390 shares. The third series shall be
designated "Series C Preferred Stock" and shall consist of 1,439,026 shares.
The fourth series shall be designated "Series D Preferred Stock" and shall
consist of 1,439,026 shares. The remaining Preferred Stock may be issued from
time to time in one or more additional series.
PART I
PREFERRED STOCK
1. Rank; Authorization of Directors to Determine Certain Rights. The
------------------------------------------------------------
following is a statement of the designations, voting powers, preferences, and
relative, participating, optional and other special rights, and qualifications,
limitations, or restrictions thereon, of the classes of stock of the
Corporation. Except as to the Series A, Series B, Series C and Series D
Preferred Stock and except as otherwise provided in these Restated Articles, the
Board of Directors is authorized, from time to time, acting by resolutions duly
adopted by the Board of Directors (or duly authorized committee thereof), to
divide the Preferred Stock into additional Series, designate each Series, to fix
and determine separately for each Series any one or more of the following
relative rights and preferences, and to issue shares of any Series then or
previously designated, fixed and determined:
(a) the rate of dividend (if any);
(b) the amount payable upon shares in the event of voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation;
(c) the amount payable upon shares in the event of merger or
reorganization in which the Corporation shall not be the continuing or surviving
entity or any other transaction in which in excess of 50% of Corporation's
voting power is transferred;
(d) the amount payable upon a sale of all or substantially all of the
assets of the Corporation;
(e) sinking fund provisions (if any) for the redemption or purchase of
shares;
(f) the price at and the terms and conditions on which shares may be
redeemed;
(g) the terms and conditions on which Preferred Stock may be converted
into Common Stock;
(h) voting rights (including the number of votes per share, the
matters on which the shares can vote, and the contingencies which make the
voting rights effective);
-4-
<PAGE>
(i) the conditions or restrictions upon payment of dividends upon, or
the making of other distributions to, or the purchase or acquisition of shares
ranking junior to the Preferred Stock or to any such Series thereof with respect
to dividends or distribution of assets upon liquidation; and
(j) such other preferences and relative, participating, optional and
other special rights, and qualifications, limitations or restrictions thereof as
shall be fixed by the Board of Directors, so far as not inconsistent with the
provisions of this Articles IV and to the full extent now or hereafter permitted
by the laws of the State of Texas.
2. Dividends.
---------
(a) Amount; Time. The holders of shares of Series A, Series B, Series
------------
C and Series D Preferred stock shall be entitled to receive dividends, out of
any assets legally available therefor, prior and in preference to any
declaration or payment of any dividend (payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common stock of this
Corporation) on the Common Stock of this Corporation, at the rate of $0.02,
$0.12, $0.39 and $0.39 respectively per share per annum (in each case as
adjusted for stock splits, reverse stock splits, stock dividends and the like)
or, if greater (as determined on an as-converted basis for the Series A, Series
B, Series C and Series D Preferred Stock), an amount equal to that paid on any
other outstanding shares of this Corporation whenever funds are legally
available therefor, payable quarterly when, as and if declared by the Board of
Directors.
(b) Cumulatively. Dividends on Series A, Series B, Series C and
------------
Series D Preferred Stock shall not be cumulative.
(c) Priority Over Common. No dividend shall be declared and/or paid
--------------------
with respect to any series of Preferred Stock unless a dividend is declared
and/or paid with respect to each series of outstanding Preferred Stock at a rate
that is no less favorable to the Series A, Series B, Series C and Series D
Preferred Stock than $0.02, $0.12, $0.39 and $0.39, for each share of Series A,
Series B Series C and Series D Preferred Stock, respectively, (in each case as
adjusted for stock splits, reverse stock splits, stock dividends and the like).
3. Liquidation Preference.
----------------------
(a) Preference of Series D Preferred over Series A Preferred, Series B
------------------------------------------------------------------
Preferred, Series C Preferred, Common Stock, and convertible debt instruments
- -----------------------------------------------------------------------------
issued by the Corporation ("Convertible Debt"). In the event of any
- ----------------------------------------------
liquidation, dissolution or winding-up of this Corporation, either voluntary or
involuntary, after payment or provision for payment of all debts but before any
distribution to the holders of any Common Stock, the holders of Series D
Preferred Stock shall be entitled to receive prior to and in preference to any
distribution of any of the assets of the Corporation to the holders of Series A,
Series B or Series C Preferred Stock or Common Stock or holders of any other
class or series of Common Stock or Preferred Stock, or Convertible Debt by
reason of their ownership thereof, the lesser of a total aggregate amount of
three million six-hundred and sixty-seven thousand dollars ($3,667,000), or an
amount per share
-5-
<PAGE>
equal to (i) the sum of the original Series D issue price (as defined below
adjusted for stock splits, reverse stock splits, stock dividends and the like)
plus, in each case, (ii) an amount equal to all declared but unpaid dividends
thereon. If, upon the occurrence of such an event, the assets and property thus
distributed among the holders of the Series D Preferred Stock shall be
insufficient to permit the payment to such holders of the full preferential
amount as set forth hereinabove, then the assets and property of the Corporation
legally available for distribution shall be distributed ratably among the
holders of the Series D Preferred Stock in proportion to the aggregate
preferential amount owed such holders of the outstanding Series D Preferred
Stock upon a liquidation dissolution or winding-up of the Corporation.
(b) Preference of Series A Preferred, Series B Preferred, Series C
--------------------------------------------------------------
Preferred, and Series D Preferred over Common Stock and Convertible Debt. In
- ------------------------------------------------------------------------
the event of any liquidation, dissolution or winding-up of this Corporation,
either voluntary or involuntary, after payment or provision for payment of all
debts and after distribution to the holders of Series D Preferred Stock of the
aggregate preference amount of the lesser of three million six-hundred sixty-
seven thousand dollars ($3,667,000) or an amount per share equal to (i) the sum
of the original Series D issue price (as defined below adjusted for stock
splits, reverse stock splits, stock dividends and the like) plus, in each case,
(ii) an amount equal to all declared but unpaid dividends thereon, but before
any distribution to the holders of any Common Stock, the holders of Series A,
Series B, Series C and Series D Preferred Stock shall be entitled to receive,
prior to and in preference to any distribution of any of the assets of the
Corporation to the holders of Common Stock or Convertible Debt, by reason of
their ownership thereof, an amount per share equal to the sum of $0.20 for each
share of Series A Preferred Stock (the "Original Series A Issue Price"), $1.20
for each share of Series B Preferred Stock (the "Original Series B Issue
Price"), $3.90 for each share of Series C Preferred Stock (the "Original Series
C Issue Price"),and the difference between $3.90 for each share of Series D
Preferred Stock (the "Original Series D Issue Price"), if any, and the amount
per share paid to the holders of Series D Preferred Stock pursuant to the
aggregate preference amount of $3,667,000 set forth in section 3(a) hereinabove
(in each case, adjusted for stock splits, reverse stock splits, stock dividends
and the like) plus, in each case, an amount equal to all declared but unpaid
dividends thereon. If, upon the occurrence of such an event, the assets and
property thus distributed among the holders of the Series A Preferred, Series B
Preferred, Series C Preferred, and Series D Preferred Stock shall be
insufficient to permit the payment to such holders of the full preferential
amounts, then the assets and property of the Corporation legally available for
distribution shall be distributed ratably among the holders of the Series A
Preferred, Series B Preferred, Series C Preferred, and Series D Preferred Stock
in proportion to the aggregate preferential amount owed such holders of the
outstanding Series A Preferred, Series B Preferred, Series C Preferred, and
Series D Preferred Stock upon a liquidation, dissolution or winding-up on the
Corporation. All remaining assets shall be distributed pro rata among the
holders of Common Stock, based on the number of shares of Common Stock held by
each.
4. Redemption.
----------
(a) Timing and Price. On or at any time after April 30, 1998, this
----------------
Corporation may, at any time it may lawfully do so, at the option of the Board
of Directors, redeem in whole or in part the Series A, Series B, Series C and
Series D Preferred Stock by paying in cash therefor
-6-
<PAGE>
a sum per share equal to the Original Series A Issue Price, Original Series B
Issue Price, Original Series C Issue Price and Original Series D Issue Price, as
the case may be (in each case as adjusted for stock splits reverse stock splits
stock dividends and the like), plus any declared but unpaid dividends on such
shares to the date of redemption (each such total amount is hereinafter referred
to as the "Redemption Price").
(b) Procedure.
---------
(i) In the event of any redemption of only a part of the then
outstanding Series A, Series B, Series C and Series D Preferred Stock, this
Corporation shall redeem the same proportion of each outstanding series of
Preferred Stock and, as to each such series, shall effect such redemption pro
rata according to the number of shares held by each holder thereof. No
redemption of Series A, Series B, Series C and Series D Preferred Stock shall
occur, unless there is a pro rata redemption of all Series A, Series B, Series C
and Series D Preferred Stock in accordance with the foregoing. In the event of
any redemption of all or part of the then outstanding Series A, Series B, Series
C and Series D Preferred Stock, any holder thereof may avoid all or part of such
redemption by converting into Common Stock, pursuant to Section 5 below, up to
that number of shares of such holder's Preferred Stock scheduled to be redeemed
in such redemption. Such holder may condition such conversion on deposit by the
Corporation of the Redemption Price for the shares to be redeemed pursuant to
subsection 4(b)(iv) below.
(ii) At least twenty (20) but no more than sixty (60) days prior
to the date fixed for redemption of Series A, Series B, Series C and Series D
Preferred Stock (the "Redemption Date"), written notice shall be mailed, first
class postage prepaid, to each holder of record (at the close of business on the
business day next preceding the day on which notice is given) of the Series A,
Series B, Series C and Series D Preferred Stock to be redeemed, at the address
last shown on the records of this Corporation for such holder or given by the
holder to this Corporation for the purpose of notice, notifying such holder of
the redemption to be effected, specifying the number of shares to be redeemed
from such holder, the Redemption Date, the Redemption Price, the place at which
payment may be obtained and the date on which such holder's Conversion Rights
(as hereinafter defined) as to such shares terminate and calling upon such
holder to surrender to this Corporation, in the manner and at the place
designated, his certificate or certificates representing the shares to be
redeemed (the "Redemption Notice"). Except as provided in subsection 4(b)(iii),
on or after the Redemption Date, each holder of Series A, Series B, Series C and
Series D Preferred Stock to be redeemed shall surrender to this Corporation the
certificate or certificates representing such shares, in the manner and at the
place designated in the Redemption Notice, and thereupon the Redemption Price of
such shares shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. In the event less than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeerned shares.
(iii) From and after the Redemption Date, unless there shall have
been a default in payment of the Redemption Price, all dividends on the Series
A, Series B, Series C and Series D Preferred Stock designated for redemption in
the Redemption Notice shall cease to accrue, all rights of the holders of such
shares as holders of Series A, Series B, Series C and
-7-
<PAGE>
Series D Preferred Stock (except the right to receive the Redemption Price
without interest upon surrender of their certificate or certificates) shall
cease with respect to such shares, and such shares shall not thereafter be
transferred on the books of this Corporation or be deemed to be outstanding for
any purpose whatsoever. If the funds of the Corporation legally available for
redemption of shares of Series A, Series B, Series C and Series D Preferred
Stock on any Redemption Date are insufficient to redeem the total number of
shares of Series A, Series B, Series C and Series D Preferred Stock to be
redeemed on such date, those funds which are legally available will be used to
redeem the maximum possible number of such shares in accordance with the
provisions of paragraph 4(b)(i) hereof. The shares of Series A, Series B, Series
C and Series D Preferred Stock not redeemed shall remain outstanding and
entitled to all the rights and preferences provided herein. At any time
thereafter when additional funds of this Corporation are legally available for
the redemption of shares of Series A, Series B, Series C and Series D Preferred
Stock, such funds will immediately be used to redeem the balance of the shares
which this Company has become obligated to redeem on any Redemption Date but
which it has not redeemed.
(iv) Three days prior to the Redemption Date, this Corporation
shall deposit the Redemption Price of all outstanding shares of Series A, Series
B, Series C and Series D Preferred Stock designated for redemption in the
Redemption Notice, and not yet redeemed or converted, with a bank or trust
company having aggregate capital and surplus in excess of $50,000,000 as a trust
fund for the benefit of the respective holders of the shares designated for
redemption and not yet redeemed. Simultaneously, this Corporation shall deposit
irrevocable instruction and authority to such bank or trust company to publish
the notice of redemption thereof (or to complete such publication if theretofore
commenced) and to pay, on and after the date fixed for redemption or prior
thereto, the Redemption Price of the Series A, Series B, Series C and Series D
Preferred Stock to the holders thereof upon surrender of their certificates. Any
monies deposited by this Corporation pursuant to this subsection 4(b)(iv) for
redemption of shares which are thereafter converted into shares of Common Stock
pursuant to Section 5 hereof no later than the close of business on the
Redemption Date shall be returned to this Corporation forthwith upon such
conversion. The balance of any monies deposited by this Corporation pursuant to
this subsection 4(b)(iv) remaining unclaimed at the expiration of two years
following the Redemption Date shall thereafter be returned to this Corporation,
provided that the shareholder to which such money would be payable hereunder
shall be entitled, upon proof of its ownership of the Series A, Series B, Series
C and Series D Preferred Stock and payment of any bond requested by the Company,
to receive such monies but without interest from the Redemption Date.
5. Conversion. The holders of the Series A, Series B, Series C and Series
----------
D Preferred Stock shall have conversion rights as follows (the "Conversion
Rights"):
(a) Right to Convert.
----------------
(i) Subject to subsection 5(c), each share of Series A, Series
B, Series C and Series D Preferred Stock shall be convertible, at the option of
the holder thereof, at any time after the date of issuance of such share and
prior to the close of business on any Redemption Date as may have been fixed in
any Redemption Notice with respect to such share, at the office of
-8-
<PAGE>
this Corporation or any transfer agent for the Series A, Series B, Series C and
Series D Preferred Stock, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing $0.20 for each share of
Series A Preferred Stock, $1.20 for each share of Series B Preferred Stock,
$3.90 for each share of Series C Preferred Stock and $3.90 for each share of
Series D Preferred Stock by the Conversion Price (as defined below) at the time
in effect for such share. The initial "Conversion Price" shall be $0.20, $1.20,
$3.90 and $3.90 per share for the Series A, Series B, Series C and Series D
Preferred Stock, respectively; provided, however, that each such Conversion
Price shall be subject to adjustment as set forth in subsection 5(c).
(ii) In the event of a call for redemption of any shares of
Series A, Series B, Series C and Series D Preferred Stock pursuant to Section 4
hereof, the Conversion Rights shall terminate as to the shares designated for
redemption at the close of business on the Redemption Date, unless default is
made in payment of the Redemption Price.
(iii) Each share of Series A, Series B, Series C and Series D
Preferred Stock shall automatically be converted into shares of Common Stock at
the Conversion Price at the time in effect for such Series A, Series B, Series C
and Series D Preferred Stock immediately upon the consummation of this
Corporation's sale of its Common Stock in a bona fide, firm commitment
underwriting pursuant to a registration statement under the Securities Act of
1933, as amended, which results in aggregate gross cash proceeds to this
Corporation in excess of $3,000,000.
(b) Mechanics of Conversion. Before any holder of Series A, Series B,
-----------------------
Series C and Series D Preferred Stock shall be entitled to convert the same into
shares of Common Stock, he shall surrender the certificate or certificates
therefor, duly endorsed, at the office of this Corporation or of any transfer
agent for the Series A, Series B, Series C and Series D Preferred Stock, and
shall give written notice by mall, postage prepaid, to this Corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. This Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Series A, Series
B, Series C and Series D Preferred Stock, or to the nominee or nominees of such
holder, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Series A, Series B, Series C and Series D
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten offer of
securities registered pursuant to the Securities Act of 1933, as amended, the
conversion will be conditioned upon the closing with the underwriter of the sale
of securities pursuant to such offering unless otherwise designated in writing
by the holders of such Series A, Series B, Series C and Series D Preferred
Stock, in which event the person(s) entitled to receive the Common Stock
issuable upon such conversion of the Series A, Series B, Series C and Series D
Preferred Stock shall not be deemed to have converted such Series A, Series B,
Series C and Series D Preferred Stock until immediately prior to the closing of
such sale of securities.
-9-
<PAGE>
(c) Conversion Price Adjustments of Preferred Stock. The conversion
-----------------------------------------------
price of each series of Preferred Stock shall be subject to adjustment from time
to time as follows:
(i) In the event the Corporation should at any time or from
time to time fix a record date from the effectuation of a split or subdivision
of the outstanding shares of Common Stock or the determination of holders of
Common Stock entitled to receive a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights convertible
into, or entitling the holder thereof to receive directly or indirectly,
additional shares of Common Stock (hereinafter referred to as "Common Stock
Equivalents") without payment of any consideration by such holder from the
additional shares of Common Stock or the Common Stock Equivalents (including the
additional shares of Common Stock issuable upon conversion or exercise thereof),
then, as of such record date (or the date of such dividend distribution, split
or subdivision if no record date is fixed), the Conversion Prices of the Series
A, Series B, Series C and Series D Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of such series shall be increased in proportion to such increase of
outstanding shares.
(ii) If the number of shares of Common Stock outstanding at any
time after the Purchase Date is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination, the
Conversion Prices for the Series A, Series B, Series C and Series D Preferred
Stock shall be appropriately increased so that the number of shares of Common
Stock issuable on conversion of each share of such series shall be decreased in
proportion to such decrease in outstanding shares.
(d) Other Distributions. In the event this Corporation shall declare
-------------------
a distribution payable in securities of other persons, evidences of indebtedness
issued by this Corporation or other persons, assets (excluding cash dividends)
or options or rights not referred to in subsection 5(c)(i), then, in each such
case for the purpose of this subsection S(d), the holders of the Series A,
Series B, Series C and Series D Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of this Corporation into which their shares
of Series A, Series B, Series C and Series D Preferred Stock are convertible as
of the record date fixed for the determination of the holders of Common Stock of
this Corporation entitled to receive such distribution.
(e) Recapitalizations. If at any time or from time to time there
-----------------
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 5 or Section 6), provision shall be made so that the holders of the
Series A, Series B, Series C and Series D Preferred Stock shall thereafter be
entitled to receive upon conversion of the Series A, Series B, Series C and
Series D Preferred Stock the number of shares of stock or other securities or
property of the Company or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such recapitalization.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 5 with respect to the rights of the holders of the
Series A, Series B, Series C and Series D Preferred Stock after the
recapitalization to the end that the provisions of this Section 5 (including
adjustment of the Conversion Prices then in effect and
-10-
<PAGE>
the number of shares purchasable upon conversion of the Series A, Series B,
Series C and Series D Preferred Stock) shall be applicable after that event as
nearly equivalent as may be practicable
(f) No Impairment. This Corporation will not, by amendment of its
-------------
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 5 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A, Series B, Series C and Series D Preferred Stock against
impairment.
(g) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon conversion of the
Series A, Series B, Series C and Series D Preferred Stock, and the number of
shares of Common Stock to be issued shall be rounded to the nearest whole share.
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of Series A, Series B,
Series C and Series D Preferred Stock the holder is at the time converting into
Common Stock and the number of shares of common Stock issuable upon such
aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
any Conversion Price of Series A, Series B, Series C and Series D Preferred
Stock pursuant to this Section 5, this Corporation, at its expense, shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each holder of Series A, Series B, Series C
and Series D Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. This Corporation shall, upon the written request at any
time of any holder of Series A, Series B, Series C and Series D Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting forth
(a) such adjustment and readjustment, (b) the Conversion Prices at the time in
effect, and (c) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of a
share of Series A, Series B, Series C and Series D Preferred Stock.
(h) Notices of Record Date. In the event of any taking by this
----------------------
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 (other than a cash dividend) or other distribution, 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, this
Corporation shall mail to each holder of Series A, Series B, Series C and Series
D Preferred Stock, at least 20 days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right.
-11-
<PAGE>
(i) Reservation of Stock Issuable Upon Conversion. This 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 Series A, Series B, Series C and Series D Preferred Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of Series A, Series B, Series C and Series D 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
Series A, Series B, Series C and Series D Preferred Stock, in addition to such
other remedies as shall be available to the holder of such Preferred Stock, this
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes.
(j) Notices. Any notice required by the provisions of this Section 5
-------
to be given to the holders of shares of Series A, Series B, Series C and Series
D Preferred Stock shall be deemed given if deposited in the United States mail,
postage prepaid, and addressed to each holder of record at his address appearing
on the books of this Corporation.
6. Merger.
------
(a) At any time, in the event of:
(i) any merger of the Corporation with or into any other
Corporation or other entity or person, or any other corporate reorganization in
which the Corporation shall not be the continuing or surviving entity of such
merger or reorganization or effect any other transaction or series of related
transactions disposing of more than 50% of the voting power of the corporation,
or
(ii) a sale of all or substantially all of the assets of the
Corporation,
The documents effecting such transactions shall provide that:
(A) the holders of the Series A, Series B, Series C and
Series D Preferred Stock shall first receive for each share of such stock, in
cash or in securities received from the acquiring corporation, or in a
combination thereof, at the closing of any such transaction, an amount equal to
the Original Series A Issue Price, Original Series B Issue Price, Original
Series C Issue Price, or Original Series D Issue Price, as the case may be (in
each case as adjusted for stock splits, reverse stock splits, stock dividends
and the like), together with an amount equal to all declared but unpaid
dividends on each such share. If the aggregate cash value in such transaction
otherwise available to holders of Series A, Series B, Series C and Series D
Preferred Stock is insufficient to satisfy the aforementioned preference of
Series A, Series B, Series C and Series D Preferred Stock, such amounts shall be
distributed in proportion to the aggregate preferential amounts owed such
holders as set forth above.
(B) After such distributions to the holders of Series A,
Series B, Series C and Series D Preferred Stock have been paid, the remaining
assets of the Corporation
-12-
<PAGE>
available for distribution to shareholders shall be distributed ratably among
the holders of the outstanding Common Stock, based on the number of shares of
Common Stock held by each.
(b) Any securities to be delivered to the holders of the Series A,
Series B, Series C and Series D Preferred Stock pursuant to subsection 6(a)
above shall be valued as follows:
(i) Securities not subject to investment letter or other
similar restriction on free marketability:
(A) If traded on a securities exchange or the NASDAQ
National Market System, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the 30-day period ending
three (3) days prior to the closing;
(B) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid prices over the 30-day period ending
three (3) days prior to the closing; and
(C) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the Corporation and the
holders of not less than a majority of the then outstanding shares of Series A,
Series B, Series C and Series D Preferred Stock.
(ii) The method of valuation of securities subject to an
investment letter or other restrictions on free marketability shall be to make
an appropriate discount from the market value determined as above in (i) (A),
(B) or (C) to reflect the approximate fair market value thereof, as mutually
determined by the Corporation and the holders of a majority of the then
outstanding shares of Series A, Series B, Series C and Series D Preferred Stock.
(c) In the event the requirements of subsection 6(a) are not complied
with, the Corporation shall forthwith either:
(i) cause such closing to be postponed until such time as the
requirements of this Section 6 have been complied with, or
(ii) cancel such transaction, in which event the rights,
preferences, privileges and restrictions of the holders of the Series A, Series
B, Series C and Series D Preferred Stock shall revert to and be the same as such
rights, preferences, privileges and restrictions existing immediately prior to
the date of the first notice referred to in subsection 6(d) hereof.
(d) The Corporation shall give each holder of record of Series A,
Series B, Series C and Series D Preferred Stock written notice of such impending
transaction not later than twenty (20) days prior to the shareholders' meeting
called to approve such transaction, or twenty (20) days prior to the closing of
such transaction, whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. The first of such notices
shall describe the material terms and conditions of the impending transaction
and the provisions of this Section 6, and the Corporation shall thereafter give
such holders prompt notice of any material changes.
-13-
<PAGE>
The transaction shall in no event take place sooner than twenty (20) days after
the Corporation has given the first notice provided for herein or sooner than
ten (10 days after the Corporation has given notice of any material changes
provided for herein; provided, however, that such periods may be shortened upon
the written consent of the holders of a majority of the shares of Series A,
Series B, Series C and Series D Preferred Stock then outstanding.
7. Voting Rights. The holder of each share of Series A, Series B, Series
-------------
C and Series D Preferred Stock shall have the right to one vote for each share
of Common Stock into which such Series A, Series B, Series C and Series D
Preferred Stock could then be converted (with any fractional share determined on
an aggregate conversion basis being rounded to the nearest whole share), and
with respect to such vote, such holder shah have full voting rights and powers
equal to the voting rights and powers of the holders of Common Stock, and shall
be entitled, notwithstanding any provision hereof, to notice of any
shareholders' meeting in accordance with the by-laws of this Corporation, and
shall be entitled to vote, together with holders of Common Stock, with respect
to any question upon which holders of Common Stock have the right to vote.
8. Status of Converted or Redeemed Stock. In the event any shares of
-------------------------------------
Series A, Series B, Series C and Series D Preferred Stock shall be redeemed or
converted pursuant to Section 4 or Section 5 hereof, the shares so converted or
redeemed shall be canceled and shall not be issuable by the Corporation, and the
Articles of Incorporation of this Corporation shall be appropriately amended to
effect the corresponding reduction in the Corporation's authorized capital
stock.
PART II
COMMON STOCK
Rank. The Common Stock is junior and subordinate to any and all the
----
rights, privileges, preferences and priorities of the Series A, Series B, Series
C and Series D Preferred Stock of the Corporation as set forth in this Article
IV and any other Series of Preferred Stock as may expressly be provided by the
Board of Directors in a resolution creating a new Series of Preferred Stock
pursuant to Section 1 of Part I of this Article IV. All shares of Common Stock
shall be of equal rank and shall be identical in all respects.
PART III
PROVISIONS APPLICABLE TO COMMON STOCK
1. Liquidation, Dissolution or Winding-Up. In the event of any voluntary
--------------------------------------
or involuntary liquidation, dissolution or winding-up of the affairs of the
Corporation and after the holders of any Preferred Stock shall have received
payment in full of the liquidation preferences and cumulative dividends, if any,
to which such holders may be entitled, the remaining assets of the Corporation
shall be divided and distributed among the holders of Common Stock ratably and
in the proportion which the number of shares of such Common Stock owned by each
such holder bears to the aggregate number of shares of all Common Stock then
outstanding.
-14-
<PAGE>
2. Voting. The holders of shares of Common Stock shall possess full
------
voting power in the election of directors and for all other purposes, and each
holder of Common Stock shall at every meeting of the shareholders be entitled to
one vote for each share of Common Stock held by such holder on the record date
for determining shareholders entitled to vote at such meeting. Except as
otherwise required by law, the holders of Common Stock shall not vote as a
class.
3. Dividends. Subject to any prior dividend fights of the holders of the
---------
Preferred Stock, the holders of Common Stock shall be entitled to receive such
dividends as may be declared from time to time by the Board of Directors out of
any funds legally available therefor.
4. Redemption. Shares of Common Stock shall not be subject to redemption
----------
by the Corporation.
PART IV
PROVISIONS APPLICABLE TO ALL CLASSES OF STOCK
1. Issue and Sale of Stock. The Board of Directors shall have the power
-----------------------
and authority at any time from time to time to issue, sell or otherwise dispose
of any authorized and unissued shares of any class or series of any class of
stock of the Corporation to such persons or parties, including the holders of
any class of stock, for such consideration (not less than the par value, if any,
thereof) and upon such terms and conditions as the Board of Directors in its
discretion may deem in the best interests of the Corporation.
2. Cumulative Voting and Preemptive Rights. Reference in made to Article
---------------------------------------
V and Article IX of these Articles of Incorporation for provisions denying
cumulative voting for election of directors of the Corporation and denying
preemptive fights of any shareholder to acquire any part of any new or
additional shares or treasury shares of any class of stock now or hereafter
authorized.
3. Residual Rights. All rights of the outstanding shares of the
---------------
Corporation not expressly provided for to the contrary herein shall be vested
equally in the Common Stock.
ARTICLE V
At each election for directors of the Corporation, each shareholder
entitled to vote at such election shall have the right to vote, in person or by
proxy, only the number of shares owned by him for as many persons as there are
directors to be elected, and no shareholder shall ever have the right or be
permitted to cumulate his votes on any basis, any and all rights of cumulative
voting being hereby expressly denied.
ARTICLE VI
The Corporation did not commence business until it had received for the
issuance of its shares consideration of the value not less than $1,000.00
consisting of money, labor done or property actually received.
-15-
<PAGE>
ARTICLE VII
The address of the current registered office of the Corporation is 9990
Richmond Avenue, Suite 400, Houston, Texas 77042-4548 and the name of its
registered agent at such address is Richard G. Couch.
ARTICLE VIII
The number of directors constituting the Board of Directors shall be fixed
by, or in the manner provided in, the Bylaws of the Corporation. The number of
directors constituting the current Board of Directors is seven (7), and the
names and addresses of the persons presently serving as directors are as
follows:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Thomas J. Aird 12039 Mulholland
Stafford, Texas 77477
Thomas E. Congdon 1100 Denver Center Building
1776 Lincoln Street
Denver, Colorado 80203
Richard G. Couch 11 Wilson Court
Alamo, California 94507
</TABLE>
ARTICLE IX
No shareholder shall be entitled as a matter of right to subscribe for,
purchase or receive additional, unissued or treasury shares of any class of the
Corporation, whether now or hereafter authorized, or any bonds, debentures or
other securities convertible into shares, but such additional unissued or
treasury shares or other securities convertible into shares may be issued or
disposed of by the Board of Directors to such persons and on such terms as in
its discretion it may deem advisable.
ARTICLE X
Upon resolution adopted by the Board of Directors, the Corportion shall be
entitled to purchase shares of its own capital stock to the extent of the
aggregate of the available unrestricted capital surplus and available
unrestricted reduction surplus.
-16-
<PAGE>
ARTICLE XI
A director of the Corporation shall not be liable to the Corporation or its
shareholders for monetary damages for any act or omission in his capacity as a
director, and except to the extent otherwise expressly provided by a statute of
the State of Texas. Any repeal or modification of this Article shall be
prospective only, and shall not adversely affect any limitation of the personal
liability of a director of the Corporation existing at the time of the repeal or
modification.
ARTICLE XII
Any action required by the Texas Business Corporation Act to be taken at
any annual or special meeting of shareholders, or any action which may be taken
at any annual or special meeting of shareholders, may be taken without a
meeting, without prior notice, and without a vote, if a consent or consents in
writing, setting forth the action so taken shall be signed by the holder or
holders of shares having not less than the minimum number of votes that would be
necessary to take such action at a meeting at which the holders of all shares
entitled to vote on the action were present and voted.
ARTICLE XIII
The power to alter, amend or repeal the Bylaws of the corporation, or adopt
new bylaws, shall be vested in the Board of Directors. The bylaws may also be
altered, amended repealed or changed, and new bylaws made, by the shareholders,
and the shareholders may prescribe that any bylaws made by them shall not be
altered, amended or repealed or changed by the directors.
IN WITNESS WHEREOF, the undersigned officer has executed these Restated
Articles of Incorporation of the Corporation this 21st day of January, 1994
By: /s/ Lloyd M. Corpening
--------------------------------
Lloyd M. Corpening
Assistant Secretary
-17-
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
IMSL, INC.
Dated: May 11, 1987
<PAGE>
INDEX
<TABLE>
<CAPTION>
INDEX PAGE
<S> <C> <C>
ARTICLE I OFFICES
Section 1.1 Principal Office....................................................1
Section 1.2 Registered OfFice...................................................1
Section 1.3 Other Offices.......................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS
Section 2.1 Place of Meetings...................................................1
Section 2.2 Annual Meeting......................................................1
Section 2.3 Special Meetings....................................................2
Section 2.4 Notice of Meetings..................................................2
Section 2.5 Voting Lists........................................................2
Section 2.6 Quorum..............................................................3
Section 2.7 Organization........................................................3
Section 2.8 Proxies.............................................................3
Section 2.9 Voting of Shares....................................................4
Section 2.10 Voting of Shares by Certain Holders.................................4
Section 2.11 Election of Directors...............................................5
Section 2.12 Telephone Meetings..................................................5
Section 2.13 Action Without Meeting..............................................6
ARTICLE III DIRECTORS
Section 3.1 Number and QualiFication............................................6
Section 3.2 Election and Term of Office.........................................6
Section 3.3 Resignation.........................................................7
Section 3.4 Removal.............................................................7
Section 3.5 Vacancies...........................................................7
Section 3.6 General Powers......................................................7
Section 3.7 Compensation........................................................8
ARTICLE IV MEETINGS OF THE BOARD
Section 4.1 Place of Meetings...................................................8
Section 4.2 Annual Meeting......................................................8
Section 4.3 Regular Meetings....................................................8
Section 4.4 Special Meetings....................................................8
Section 4.5 Quorum and Action...................................................9
Section 4.6 Presumption of Assent to Action.....................................9
Section 4.7 Telephone Meetings..................................................9
Section 4.8 Action Without Meeting.............................................10
ARTICLE V COMMITTEES OF THE BOARD
Section 5.1 Membership and Authorities.........................................10
Section 5.2 Minutes and Rules of Procedure.....................................10
Section 5.3 Vacancies..........................................................10
Section 5.4 Telephone Meetings.................................................11
Section 5.5 Action Without Meeting.............................................11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE VI OFFICERS
Section 6.1 Number.............................................................11
Section 6.2 Election, Term of Office and Qualification.........................11
Section 6.3 Subordinate Officers...............................................11
Section 6.4 Resignation........................................................12
Section 6.5 Removal............................................................12
Section 6.6 Vacancies..........................................................12
Section 6.7 The Chairman of the Board..........................................12
Section 6.8 The President......................................................13
Section 6.9 The Vice Presidents................................................13
Section 6.10 The Secretary......................................................13
Section 6.11 Assistant Secretaries..............................................14
Section 6.12 The Treasurer......................................................14
Section 6.13 Assistant Treasurers...............................................14
Section 6.14 Treasurer's Bond...................................................15
Section 6.15 Salaries...........................................................15
ARTICLE VII CORPORATE SHARES
Section 7.1 Share Certificates.................................................15
Section 7.2 Lost Certificates, etc.............................................16
Section 7.3 Transfer of Shares.................................................17
Section 7.4 Ownership of Shares................................................17
Section 7.5 Closing of Transfer Books..........................................17
Section 7.6 Dividends..........................................................18
ARTICLE VIII INDEMNIFICATION
Section 8.1 Definitions........................................................18
Section 8.2 Indemnification....................................................19
Section 8.3 Successful Defense.................................................20
Section 8.4 Determinations.....................................................20
Section 8.5 Advancement of Expenses............................................21
Section 8.6 Employee Benefit Plans.............................................21
Section 8.7 Other Indemnification and Insurance................................22
Section 8.8 Notice.............................................................22
Section 8.9 Construction.......................................................22
Section 8.10 Continuing Offer, Reliance, etc....................................23
Section 8.11 Effect of Amendment................................................23
ARTICLE IX GENERAL PROVISIONS
Section 9.1 Waiver of Notice...................................................23
Section 9.2 Seal...............................................................24
Section 9.3 Fiscal Year........................................................24
Section 9.4 Checks, Notes, etc.................................................24
Section 9.5 Examination of Books and Records...................................24
Section 9.6 Voting Upon Shares Held by the Corporation.........................24
Section 9.7 Gender.............................................................25
ARTICLE X AMENDMENTS
Section 10.1 Amendment by Board of Directors....................................25
ARTICLE XI SUBJECT TO ALL LAWS.......................................................25
</TABLE>
<PAGE>
IMSL, INC.
BYLAWS
ARTICLE I
Offices
Section 1.1 Principal Office. The principal office of the Corporation
shall be in the City of Houston, Texas.
Section 1.2 Registered Office. The registered office of the Corporation
required by the Texas Business Corporation Act to be maintained in the State of
Texas, may be, but need not be, identical with the principal office, and the
address of the registered office may be changed from time to time by the Board
of Directors.
Section 1.3 Other Offices. The Corporation may also have offices at such
other places, both within and without the State of Texas, as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1 Place of Meetings. The Board of Directors may designate any
place, either within or without the State of Texas, as the place of meeting for
any annual meeting or for any special meeting called by the Board A waiver of
notice signed by all stockholders entitled to vote at a meeting may designate
any place, either within or without the State of Texas, as the place for the
holding of such meeting. If no designation is made, or if a special meeting be
otherwise called, the place of meeting shall be the principal office of the
Corporation.
Section 2.2 Annual Meeting. The annual meeting of stockholders commencing
with the year 1979 shall be held at such time, on such day and at such place as
may be designated by the
<PAGE>
Board of Directors, at which time the stockholders shall elect a Board of
Directors and transact such other business as may properly be brought before the
meeting.
Section 2.3 Special Meetings. Special meetings of the stockholders for
any purpose or purposes, unless otherwise prescribed by law or by the Articles
of Incorporation, may be called by (i) the Chairman of the Board, if one shall
be elected, (ii) the President, if a Chairman of the Board is not elected, (iii)
the Board of Directors or (iv) the holders of at least ten percent (10%) of all
of the shares entitled to vote at the meetings. Business transacted at all
special meetings shall be confined to the purpose or purposes stated in the
call.
Section 2.4 Notice of Meetings. Written or printed notice of all meetings
of stockholders stating the place, day and hour thereof, and in the case of a
special meeting the purpose or purposes for which the meeting is called, shall
be personally delivered or mailed, not less than ten (10) days nor more than
sixty (60) days prior to the date of the meeting, to the stockholders of record
entitled to vote at such meeting. If mailed, the notice shall be addressed to
the stockholders as their addresses appear on the stock transfer books of the
Corporation and the postage shall be prepaid. Personal delivery of any such
notice to any officer of a corporation or association, or to any member of a
partnership, shall constitute delivery of such notice to such corporation,
association or partnership.
Section 2.5 Voting Lists. The officer or agent having charge of the stock
transfer books for shares of the Corporation shall make, at least ten (10) days
before each meeting of the stockholders, a complete list of stockholders
entitled to vote at such meeting or any adjournment thereof, arranged in
alphabetical order, with the address of each and the number of shares held by
each, which list, for a period of ten (10) days prior to such meeting, shall be
kept on file at the registered office of the Corporation and shall be subject to
inspection by any stockholders at any time during usual business hours. Such
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any stockholder for the duration of
the meeting. The original stock transfer books shall be prima facie evidence as
to who are the stockholders entitled to examine such list or transfer books or
to vote at any meeting of stockholders. Failure to comply
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with this Section 2.5 with respect to any meeting of stockholders shall not
affect the validity of any action taken at such meeting.
Section 2.6 Quorum. The holders of a majority of the shares entitled to
vote, present in person or represented by proxy, shall constitute a quorum at
all meetings of the stockholders for the transaction of business, except as
otherwise provided by law, by the Articles of Incorporation or by these Bylaws.
If, however, such quorum shall not be present or represented at any meeting of
the stockholders, the stockholders entitled to vote at such meeting, present in
person or represented by proxy, shall have the power to adjourn the meeting from
time to time without notice other than announcement at the meeting until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented any business may be transacted which
might have been transacted at the meeting as originally convened. The
stockholders present at a duly organized meeting at which a quorum was present
may continue to transact business until adjournment notwithstanding the
withdrawal of enough stockholders to leave less than a quorum present.
Section 2.7 Organization. (a) The Chairman of the Board, if one shall be
elected, shall preside at all meetings of the stockholders. In the absence of
the Chairman of the Board or should one not be elected, the President or, in his
absence, a Vice President shall preside. In the absence of all of these
officers, any stockholder or the duly appointed proxy of any stockholder may
call the meeting to order and a chairman shall be elected from among the
stockholders present.
(b) The Secretary of the Corporation shall act as secretary at all
meetings of the stockholders. In his absence an Assistant Secretary shall so act
and in the absence of all of these officers the presiding officer may appoint
any person to act as secretary of the meeting.
Section 2.8 Proxies. (a) At any meeting of the stockholders every
stockholder entitled to vote at such meeting shall be entitled to vote in person
or by proxy executed in writing by such stockholder or by his duly authorized
attorney-in-fact Proxies shall be filed with the Secretary immediately after the
meeting has been called to order.
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(b) No proxy shall be valid after eleven (11) months from the date of its
execution unless such proxy otherwise provides.
(c) A proxy shall be revocable unless the proxy form conspicuously
states that the proxy is irrevocable and the proxy is coupled with an interest.
A proxy which is revocable as aforesaid may be revoked at any time by filing
with the Secretary an instrument revoking it or a duly executed proxy bearing a
later date. Any revocable proxy which is not so revoked shall, subject to
paragraph (b) above, continue in full force and effect.
(d) In the event that any instrument in writing shall designate two
(2) or more persons to act as proxies, a majority of such persons present at the
meeting or, if only one shall be present, then that one, shall have and may
exercise all of the powers conferred by such written instrument upon all the
persons so designated unless the instrument shall otherwise provide.
Section 2.9 Voting of Shares. Except as otherwise provided by' law, the
Articles of Incorporation or these Bylaws, each stockholder shall be entitled at
each meeting of stockholders to one (1) vote on each matter submitted to a vote
at such meeting for each share having voting rights registered in his name on
the books of the Corporation at the time of the closing of the stock transfer
books (or at the record date) for such meeting. When a quorum is present at any
meeting (and notwithstanding the subsequent withdrawal of enough stockholders to
leave less than a quorum present) the vote of the holders of a majority of the
shares entitled to vote, present in person or represented by proxy, shall decide
an>' matter submitted to such meeting, unless the matter is one upon which by
law or by express provision of the Articles of Incorporation or of these Bylaws
the vote of a different number is required, in which case the vote of such
different number shall govern and control the decision of such matter.
Section 2.10 Voting of Shares by Certain Holders. (a) Shares standing in
the name of another corporation may be voted by such officer, agent or proxy as
the bylaws of such corporation may authorize or, in the absence of such
authorization, as the board of directors of such corporation may determine.
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(b) Shares held by an administrator, executor, guardian or conservator
may be voted by him so long as such shares forming a part of an estate are in
the possession and form a part of the estate being served by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name as trustee.
(c) Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority to do so
be contained in an appropriate order of the court by which such receiver was
appointed.
(d) A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
(e) Shares of the Corporation's stock (i) owned by the Corporation
itself, (ii) owned by another corporation, the majority of the voting stock of
which is owned or controlled by the Corporation, or (iii) held by the
Corporation in a fiduciary capacity shall not be voted, directly or indirectly,
at any meeting, and shall not be counted in determining the total number of
outstanding shares at any given time.
Section 2.11 Election of Directors. At each election for Directors, each
stockholder entitled to vote at such election shall, unless otherwise provided
by the Articles of Incorporation or by applicable law, have the right to vote
the number of shares owned by him for as many persons as there are to be elected
and for whose election he has a right to vote. Unless otherwise provided by the
Articles of Incorporation, no stockholder shall have the right or be permitted
to cumulate his votes on any basis.
Section 2.12 Telephone Meetings. Stockholders may participate in and hold
a meeting of the stockholders by means of conference telephone or similar
communications equipment
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by means of which all persons participating in the meeting can hear each other
and participation in a meeting pursuant to this Section 2.12 shall constitute
presence in person at such meeting, except where a person participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
Section 2.13 Action Without Meeting. Any action required by any provision of law
or of the Articles of Incorporation or these Bylaws to be taken at a meeting of
the stockholders or any action which may be taken at a meeting of the
stockholders may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by all of the stockholders entitled
to vote with respect to the subject matter thereof, and such consent shall have
the same force and effect as a unanimous vote of the stockholders.
[Section 2.13 deleted by Board of Director resolution dated March 26, 1993]
ARTICLE III
DIRECTORS
Section 3.1 Number and Qualification. The Board of Directors shall be
composed of not less than one (1) nor more than nine (9) members who shall be
elected annually by the stockholders. Subject to any limitations specified by
law or in the Articles of Incorporation, the number of Directors may be
increased or decreased by resolution adopted by a majority of the Board of
Directors. No decrease in the number of Directors shall have the effect of
shortening the term of any incumbent Director. Directors need not be residents
of the State of Texas or stockholders of the Corporation.
Section 3.2 Election and Term of Office. The Directors shall be elected
at the annual meeting of the stockholders (except as provided in Sections 3.3
and 3.4). Each Director elected shall hold office until his successor shall be
elected at an appropriate annual meeting of the stockholders and shall qualify',
or until his death, resignation or removal in the manner hereinafter provided.
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Section 3.3 Resignation. Any Director may resign at any time by giving
written notice to the President or Secretary. Such resignation shall take effect
at the time specified therein, and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 3.4 Removal. At any special meeting of the stockholders called
expressly for that purpose, any Director or Directors, including the entire
Board of Directors, may be removed, either with or without cause, and another
person or persons may be elected to serve for the remainder of his or their term
by a vote of the holders of a majority of all shares outstanding and entitled to
vote at an election of directors. In case any vacancy so created shall not be
filled by the stockholders at such meeting, such vacancy may be filled by the
Directors as provided in Section 3.5.
Section 3.5 Vacancies. (a) Any vacancy occurring in the Board of
Directors (except by reason of an increase in the number of Directors) may be
filled in accordance with subsection (c) of this Section 3.5 or may be filled by
the affirmative vote of a majority of the remaining Directors though less than a
quorum of the Board of Directors. A Director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office.
(b) A directorship to be filled by reason of an increase in the number
of Directors may be filled in accordance with subsection (c) of this Section 3.5
or may be filled by the Board of Directors for a term of office continuing only
until the next election of one (1) or more Directors by the stockholders;
provided, however, that the Board of Directors may not fill more than two (2)
such directorships during the period between any two (2) successive annual
meetings of stockholders.
(c) Any vacancy occurring in the Board of Directors or any
directorship to be filled by reason of an increase in the number of Directors
may be filled by election at an annual or special meeting of stockholders called
for that purpose.
Section 3.6 General Powers. The property, business and affairs of the
Corporation shall be managed by the Board of Directors. In addition to the
powers and authorities expressly conferred upon them by these Bylaws, the Board
of Directors may exercise all such powers of the
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Corporation and do all such lawful acts and things as are not by law or by the
Articles of Incorporation or by these Bylaws directed or required to be
exercised or done by the stockholders.
Section 3.7 Compensation. Directors as such shall not receive any stated
salary for their services, but by resolution of the Board, fixed sums for the
commitment to serve as director and for attendance at any regular or special
meeting of the Board, including expenses of attendance, if any, may be allowed,
provided that nothing herein contained shall be construed to 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.
ARTICLE IV
MEETINGS OF THE BOARD
Section 4.1 Place of Meetings. The Directors of the Corporation may hold
their meetings, both regular and special, either within or without the State of
Texas.
Section 4.2 Annual Meeting. The first meeting of each newly elected Board
shall be held immediately following the adjournment of the annual meeting of the
stockholders 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, or they may meet at such time and place as shall be fixed by
the consent in writing of all of the Directors.
Section 4.3 Regular Meetings. Regular meetings of the Board, in addition
to the annual meetings referred to in Section 4.2, may be held without notice at
such time and place as shall from time to time be determined by the Board.
Section 4.4 Special Meetings. Special meetings of the Board may be called
by the Chairman of the Board, if one shall be elected, or by the President, if a
Chairman of the Board is not elected, on one (1) day's notice (oral or written)
to each Director. Special meetings shall be called by the President or the
Secretary on like notice on the written request of any Director. Neither the
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purpose of, nor the business to be transacted at, any special meeting of the
Board of Directors need be specified in the notice or waiver of notice of such
meeting Attendance of a Director at a meeting shall constitute a waiver of
notice of such meeting except where a Director attends a meeting for the express
purpose of objecting to the transaction of any business on the grounds that the
meeting is not lawfully called or convened.
Section 4.5 Quorum and Action. At all meetings of the Board, the presence
of a majority of the Directors shall be necessary and sufficient to constitute a
quorum for the transaction of business and the act of a majority of the
Directors at any meeting at which a quorum is present shall be the act of the
Board of Directors unless the act of a greater number is required by law, the
Articles of Incorporation or these Bylaws. If a quorum shall not be present at
any meeting of Directors, the Directors present may adjourn the meeting from
time to time without notice other than announcement at the meeting until a
quorum shall be present.
Section 4.6 Presumption of Assent to Action. A Director who is present at
a meeting of the Board at which action on any corporate matter is taken shall be
presumed to have assented to the action taken unless his dissent shall be
entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the secretary of the meeting before the adjournment
thereof or shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a Director who voted in favor of such action.
Section 4.7 Telephone Meetings. Directors may participate in and hold a
meeting of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other Participation in a meeting pursuant to this Section
shall constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
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Section 4.8 Action Without Meeting. Any action required or permitted to
be taken at a meeting of the Board of Directors, or any committee thereof, may
be taken without a meeting if a consent in writing, setting forth the action so
taken, is signed by all the members of the Board of Directors, or committee, as
the case may be, and such consent shall have the same force and effect as a
unanimous vote at a meeting.
ARTICLE V
COMMITTEES OF THE BOARD
Section 5.1 Membership and Authorities. The Board of Directors, by
resolution adopted by a majority of the full Board, may designate one (1) or
more Directors to constitute an Executive Committee and such other committees,
as the Board may determine, each of which committees to the extent provided in
such resolution, shall have and may exercise all of the authority of the Board
of Directors in the business and affairs of the Corporation, except in those
cases where the authority of the Board of Directors is specifically denied to
the Executive Committee or such other committee or committees by resolution duly
adopted by the Board of Directors, applicable law, the Articles of Incorporation
or these Bylaws. The designation of an Executive Committee or other committee
and the delegation thereto of authority shall not operate to relieve the Board
of Directors, or any member thereof, of any responsibility imposed upon it or
him by law. The members of each such committee shall serve at the pleasure of
the Board.
Section 5.2 Minutes and Rules of Procedure. Each committee designated by
the Board shall keep regular minutes of its proceedings and report the same to
the Board when required. Subject to the provisions of these Bylaws, the members
of any committee may fix such committee's own rules of procedure.
Section 5.3 Vacancies. The Board of Directors shall have the power at any
time to fill vacancies in, to change the membership of, or to dissolve, any
committee.
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Section 5.4 Telephone Meetings. Members of any committee designated by
the Board may participate in or hold a meeting by use of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other. Participation in a meeting pursuant to this
Section 54 shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting to the
transaction of any business on the grounds that the meeting is not lawfully
called or convened.
Section 5.5 Action Without Meeting. Any action required or permitted to
be taken at a meeting of any committee designated by the Board may be taken
without a meeting if a consent in writing, setting forth the action so taken, is
signed by all the members of the committee, and such consent shall have the same
force and effect as a unanimous vote at a meeting.
ARTICLE VI OFFICERS
Section 6.1 Number. The officers of the Corporation shall be a President
and a Secretary. The Board of Directors may also elect a Chairman of the Board,
one (1) or more Vice Presidents, a Treasurer, one (1) or more Assistant
Secretaries and one (1) or more Assistant Treasurers. One (1) person may hold
any two (2) or more of these offices.
Section 6.2 Election, Term of Office and Qualification. The Board of
Directors shall elect officers, none of whom need be a member of the Board
(except for the Chairman of the Board, if one shall be elected), at its first
meeting after each annual meeting of stockholders. Each officer so elected shall
hold office until his successor shall have been duly elected and qualified or
until his death, resignation or removal in the manner hereinafter provided.
Section 6.3 Subordinate Officers. The Board of Directors may appoint such
other officers and agents as it shall deem necessary who shall hold their
offices for such terms, have such authority and perform such duties as the Board
of Directors may from time to time determine. The Board of Directors may
delegate to any committee or officer the power to appoint any such
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subordinate officer or agent. No subordinate officer appointed by any committee
or superior officer as aforesaid shall be considered as an officer of the
Corporation, the officers of the Corporation being limited to the officers
elected or appointed as such by the Board of Directors.
Section 6.4 Resignation. Any officer may resign at any time by giving
written notice thereof to the Board of Directors or to the President or
Secretary of the Corporation. Any such resignation shall take effect at the time
specified therein and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 6.5 Removal. Any officer elected or appointed by the Board of
Directors may be removed by the Board at any time with or without cause by the
affirmative vote of the whole Board of Directors. Any other officer may be
removed at any time with or without cause by the Board of Directors or by any
committee or superior officer in whom such power of removal may be conferred by
the Board of Directors. The removal of any officer shall be without prejudice to
the contract rights, if any, of the person so removed. Election or appointment
of an officer or agent shall not of itself create any contract rights.
Section 6.6 Vacancies. A vacancy in any office shall be filled for the
unexpired portion of the term by the Board of Directors, but in case of a
vacancy occurring in an office filled by a committee or superior officer in
accordance with the provisions of Section 6.3, such vacancy may be filled by
such committee or superior officer.
Section 6.7 The Chairman of the Board. The Chairman of the Board, if one
shall be elected, shall preside at all meetings of the stockholders and
Directors and shall be ex officio a member of all standing committees. He may
sign, with any other proper officer, certificates for shares of the Corporation
and any deeds, bonds, mortgages, contracts and other documents which the Board
of Directors has authorized to be executed, except where required 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 or these Bylaws, to some
other officer or agent of the Corporation. In addition, the
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Chairman of the Board shall perform whatever duties and shall exercise all
powers that are given to him by the Board of Directors.
Section 6.8 The President. The President shall be the chief executive
officer of the Corporation, shall have general and active management of the
business of the Corporation, shall have the general supervision and direction of
all other officers of the Corporation with full power to see that their duties
are properly performed and shall see that all orders and resolutions of the
Board of Directors are carried into effect. In the absence of the Chairman of
the Board, if one shall be elected, the President shall preside at all meetings
of the stockholders and Directors. He may sign, with any other proper officer,
certificates for shares of the Corporation and any deeds, bonds, mortgages,
contracts and other documents which the Board of Directors has authorized to be
executed, except where required 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 or these Bylaws, to some other officer or agent of the
Corporation. In addition, the President shall perform whatever duties and shall
exercise all the powers that are given to him by the Board of Directors.
Section 6.9 The Vice Presidents. The Vice Presidents shall perform the
duties as are given to them by these Bylaws and as may from time to time be
assigned to them by the Board of Directors, by the Chairman of the Board, if one
shall be elected, or by the President, and may sign, with any other proper
officer, certificates for shares of the Corporation. At the request of the
President, or in his absence or disability, the Vice President, designated by
the President (or in the absence of such designation, the senior Vice
President), shall perform the duties and exercise the powers of the President.
Section 6.10 The Secretary. The Secretary, when available, shall attend
all meetings of the Board of Directors and all meetings of the stockholders and
record all votes and the minutes of all proceedings in a book to be kept for
that purpose and shall perform like duties for the Executive Committee and
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors as required by law or
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these Bylaws, be custodian of the corporate records and have general charge of
the stock books of the Corporation and shall perform such other duties as may be
prescribed by the Board of Directors, by the Chairman of the Board, if one shall
be elected, or by the President, under whose supervision he shall be. He may
sign, with any other proper officer. certificates for shares of the Corporation
and shall keep in safe custody the seal of the Corporation. and, when authorized
by the Board, affix the same to any instrument requiring it and, when so
affixed, it shall be attested by his signature or by the signature of the
Treasurer or an Assistant Secretary.
Section 6.11 Assistant Secretaries. The Assistant Secretaries shall
perform the duties as are given to them by these Bylaws or as may from time to
time be assigned to them by the Board of Directors or by the President or by the
Secretary. At the request of the Secretary, or in his absence or disability, the
Assistant Secretary, designated by the Secretary (or in the absence of such
designation the senior Assistant Secretary), shall perform the duties and
exercise the powers of the Secretary.
Section 6.12 The Treasurer. The Treasurer shall have the custody and be
responsible for all corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all monies and other valuable effects in the name
and to the credit of the Corporation in 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, taking proper vouchers for such
disbursements, and shall render to the Chairman of the Board, if one shall be
elected, the President and the Directors, at the regular meetings of the Board,
or whenever they may require it, an account of all his transactions as Treasurer
and of the financial condition of the Corporation He may sign, with any other
proper officer, certificates for shares of the Corporation.
Section 6.13 Assistant Treasurers. The Assistant Treasurers shall perform
the duties as are given to them by these Bylaws or as may from time to time be
assigned to them by the Board of Directors or by the President or by the
Treasurer At the request of the Treasurer, or in his
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absence or disability, the Assistant Treasurer, designated by the Treasurer (or
in the absence of such designation, the senior Assistant Treasurer), shall
perform the duties and exercise the powers of the Treasurer.
Section 6.14 Treasurer's Bond. If required by the Board of Directors, the
Treasurer and any Assistant Treasurer shall give the Corporation a bond in such
sum and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
Section 6.15 Salaries. The salary or other compensation of the Chairman
of the Board and the President shall be as determined or approved from time to
time by the Board of Directors. Except as provided in the first sentence of this
Section 6.15, the Board of Directors may determine the salary and other
compensation of other officers or may delegate to any committee or officer the
power to fix from time to time the salary or other compensation of any and all
such other officers and agents of the Corporation, including subordinate
officers and agents appointed in accordance with the provisions of Section 6.3.
ARTICLE VII
CORPORATE SHARES
Section 7.1 Share Certificates. (a) The certificates representing shares
of the Corporation shall be in such form, not inconsistent with statutory
provisions and the Articles of Incorporation, as shall be approved by the Board
of Directors The certificates shall be signed by the Chairman of the Board, if
one shall be elected, or the President or a Vice President and a Secretary or
Assistant Secretary, or such other or additional officers as may be prescribed
from time to time by the Board of Directors, and may be sealed with the
corporate seal or a facsimile thereof. The signatures of such officer or
officers upon a certificate may be facsimiles, if the certificate is
countersigned by a
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transfer agent, or registered by a registrar, either of which is other than the
Corporation itself or an employee of the Corporation. In case any officer who
has signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued with the same effect as if he were such officer at the date of its
issuance.
(b) If the Corporation is authorized to issue shares of more than one
(1) class or more than one (1) series of any class, there shall be set forth on
the face or back of the certificate or certificates, which the Corporation shall
issue to represent shares of such class or series of stock, such legends or
statements as may be required by applicable law or the Articles of Incorporation
or as may be approved by the Board of Directors.
(c) In the event the Corporation has, by its Articles of
Incorporation, limited or denied the preemptive right of stockholders of any
class or series of stock, there shall be set forth on the face or back of the
certificate or certificates, which the Corporation shall issue to represent
shares of such class or series of stock, such legends or statements as shall be
required by applicable law or the Articles of Incorporation or as may be
approved by the Board of Directors.
(d) All certificates for each class or series of stock shall be
consecutively numbered and the name of the person owning the shares represented
thereby, with the number of such shares and the date of issue, shall be entered
on the Corporation's books.
(e) All certificates surrendered to the Corporation shall be
cancelled, and, except as provided in Section 7.2 with respect to lost,
destroyed or mutiliated certificates, no new certificate shall be issued until
the former certificate for the same number of shares has been surrendered and
cancelled.
Section 7.2 Lost Certificates, etc. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. In authorizing such issue of a
new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to
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the issue thereof, require the owner of such lost or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or indemnify- the Corporation as the Board of Directors
may prescribe.
Section 7.3 Transfer of Shares. Subject to any restrictions upon
transfer, 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, assignment or authority to transfer and satisfaction of
the Corporation that the requested transfer complies with the provisions of
applicable state and federal laws and regulations and any agreements to which
the Corporation is a party, the Corporation shall issue a new certificate to the
person entitled thereto, cancel the old certificate and record the transaction
upon its books.
Section 7.4 Ownership of Shares. The Corporation shall be entitled to
treat and recognize the holder of record of any share or shares as the holder in
fact thereof and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the State of Texas.
Section 7.5 Closing of Transfer Books. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive a distribution by the
Corporation (other than a distribution involving a purchase or redemption by the
Corporation of any of its own stock) or a stock dividend, or in order to make a
determination of stockholders for any other proper purpose, the Board of
Directors may provide that the stock transfer books shall be closed for a stated
period but not to exceed, in any case, sixty (60) days. If the stock transfer
books shall be closed for the purpose of determining stockholders entitled to
notice of or to vote at a meeting of stockholders, such books shall be closed
for at least ten (10) days immediately preceding such meeting In lieu of closing
the stock transfer books, the Board of Directors may fix in advance a date as
the record date for any such determination of stockholders, such date in any
case to be not more than sixty (60) days and, in case of a meeting of
stockholders, not
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less than ten (10) days prior to the date on which the particular action
requiring such determination of stockholders is to be taken, and the
determination of stockholders on such record date shall apply with respect to
the particular action requiring the same notwithstanding any transfer of shares
on the books of the Corporation after such record date.
Section 7.6 Dividends. The Board of Directors may, from time to time,
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by the Articles of
Incorporation and by law, such dividends to be paid in cash or in property or in
shares of capital stock of the Corporation.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Definitions. In this Article:
(a) "Indemnitee" means (i) any present or former Director, advisory
director or officer of the Corporation, (ii) any person who while serving in any
of the capacities referred to in clause (i) hereof served at the Corporation's
request as a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, and (iii) any person nominated or designated by (or pursuant to
authority granted by) the Board of Directors or any committee thereof to serve
in any of the capacities referred to in clauses (i) or (ii) hereof.
(b) "Official Capacity" means (i) when used with respect to a
Director, the office of Director of the Corporation, and (ii) when used with
respect to a person other than a Director, the elective or appointive office of
the Corporation held by such person or the employment or agency relationship
undertaken by such person on behalf of the Corporation, but in each case and
except as otherwise expressly provided in Subsection (a) of this Section 8.1
does not include service for any other foreign or domestic corporation or any
partnership, joint venture, sole proprietorship, trust, employee benefit plan or
other enterprise.
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<PAGE>
(c) "Proceeding" means any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative, arbitrative or
investigative, any appeal in such an action, suit or proceeding, and any inquiry
or investigation that could lead to such an action, suit or proceeding.
Section 8.2 Indemnification. The Corporation shall indemnify every
Indemnitee against all judgments, penalties (including excise and similar
taxes), fines, amounts paid in settlement and reasonable expenses actually
incurred by the Indemnitee in connection with any Proceeding to which he was, is
or is threatened to be named defendant or respondent, or in which he was or is a
witness without being named a defendant or respondent, by reason of his serving
or having served, or having been nominated or designated to serve, in any of the
capacities referred to in Section 8.1, if it is determined in accordance with
Section 8.4 that the Indemnitee (a) conducted himself in good faith, (b)
reasonably believed, in the case of conduct in his Official Capacity, that his
conduct was in the Corporation's best interests and, in all other cases, that
his conduct was at least not opposed to the Corporation's best interests, and
(c) in the case of any criminal proceeding, had no reasonable cause to believe
that his conduct was unlawful; provided, however, that in the event that an
Indemnitee is found liable to the Corporation or is found liable on the basis
that personal benefit was improperly received by the Indemnitee the
indemnification (i) is limited to reasonable expenses actually incurred by the
Indemnitee in connection with the proceeding and (ii) shall not be made in
respect of any proceeding in which the lndemnitee shall have been found liable
for willful or intentional misconduct in the performance of his duty to the
Corporation. Except as provided in the immediately preceding proviso to the
first sentence of this Section 8.2, no indemnification shall be made under this
Section 8.2 in respect of any judgment, penalty, fine or amount paid in
settlement in connection with any Proceeding in which such Indemnitee shall have
been (x) found liable on the basis that personal benefit was improperly received
by him, whether or not the benefit resulted from an action taken in the
Indemnitee's Official Capacity, or (y) found liable to the Corporation. The
termination of any Proceeding by judgment, order, settlement or conviction, or
on a plea of nolo
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<PAGE>
contendere or its equivalent, is not of itself determinative that the Indemnitee
did not meet the requirements set forth in clauses (a), (b) or (c) in the first
sentence of this Section 8.2. An Indemnitee shall be deemed to have been found
liable in respect of any claim, issue or matter only after the Indemnitee shall
have been so adjudged by a court of competent jurisdiction after exhaustion of
all appeals therefrom. Reasonable expenses shall include, without limitation,
all court costs and all fees and disbursements of attorneys for the Indemnitee.
Section 8.3 Successful Defense. Without limitation of Section 8.2 and in
addition to the indemnification provided for in Section 8.2, the Corporation
shall indemnify every Indemnitee against reasonable expenses (including court
costs and attorneys' fees) actually incurred by such person in connection with
any Proceeding in which he is a witness or a named defendant or respondent
because he served in any of the capacities referred to in Section 8.1, if such
person has been wholly successful, on the merits or otherwise, in defense of the
Proceeding.
Section 8.4 Determinations. Any indemnification under Section 8.2 (unless
ordered by a court of competent jurisdiction) shall be made by the Corporation
only upon a determination that indemnification of the Indemnitee is proper in
the circumstances because he has met the applicable standard of conduct. Such
determination shall be made (a) by the Board of Directors by a majority vote of
a quorum consisting of Directors who, at the time of such vote, are not named
defendants or respondents in the Proceeding; (b) if such a quorum cannot be
obtained, then by a majority vote of a committee of the Board of Directors, duly
designated to act in the matter by a majority vote of all Directors (in which
designation Directors who are named defendants or respondents in the Proceeding
may participate), such committee to consist solely of two (2) or more Directors
who, at the time of the committee vote, are not named defendants or respondents
in the Proceeding; (c) by special legal counsel selected by the Board of
Directors or a committee thereof by vote as set forth in clauses (a) or (b) of
this Section 8.4 or. if the requisite quorum of all of the Directors cannot be
obtained therefor and such committee cannot be established, by a majority vote
of all of the Directors (in which Directors who are named defendants or
respondents in the Proceeding may participate); or (d) by
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majority vote of the stockholders in a vote that excludes the shares held by
Directors that are named defendants or respondents in the Proceeding.
Determination as to reasonableness of expenses shall be made in the same manner
as the determination that indemnification is permissible, except that if the
determination that indemnification is permissible is made by special legal
counsel, determination as to reasonableness of expenses must be made in the
manner specified in clause (c) of the preceding sentence for the selection of
special legal counsel. In the event a determination is made under this Section
8.4 that the Indemnitee has met the applicable standard of conduct as to some
matters but not as to others, amounts to be indemnified may be reasonably
prorated.
Section 8.5 Advancement of Expenses. Reasonable expenses (including court
costs and attorneys' fees) incurred by an Indemnitee who was, or is threatened
to be made a named defendant or respondent in a Proceeding shall be paid by the
Corporation at reasonable intervals in advance of the final disposition of such
Proceeding, and without any of the determinations specified in Section 8.4,
after receipt by the Corporation of (a) a written affirmation by such Indemnitee
of his good faith belief that he has met the standard of conduct necessary for
indemnification by the Corporation under this Article and (b) a written
undertaking by or on behalf of such Indemnitee to repay the amount paid or
reimbursed by the Corporation if it shall ultimately be determined that he is
not entitled to be indemnified by the Corporation as authorized in this Article.
Such written undertaking shall be an unlimited obligation of the Indemnitee but
need not be secured and it may be accepted without reference to financial
ability to make repayment. Notwithstanding any other provision of this Article,
the Corporation may pay or reimburse expenses incurred by an Indemnitee in
connection with his appearance as a witness or other participation in a
Proceeding at a time when he is not named a defendant or respondent in the
Proceeding.
Section 8.6 Employee Benefit Plans. For purposes of this Article, the
Corporation shall be deemed to have requested an Indemnitee to serve an employee
benefit plan whenever the performance by him of his duties to the Corporation
also imposes duties on or otherwise involves services by him to the plan or
participants or beneficiaries of the plan. Excise taxes assessed on an
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Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall be deemed fines. Action taken or omitted by an Indemnitee with respect to
an employee benefit plan in the performance of his duties for a purpose
reasonably believed by him to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the Corporation.
Section 8.7 Other Indemnification and Insurance. The indemnification
provided by this Article shall (a) not be deemed exclusive of, or to preclude,
any other rights to which those seeking indemnification may at any time be
entitled under the Corporation's Articles of Incorporation, any law, agreement
or vote of stockholders or disinterested Directors, or otherwise, or under any
policy or policies of insurance or trust or surety fund or other arrangement
established, purchased and maintained by the Corporation on behalf of any
Indemnitee, both as to action in his Official Capacity and as to action in any
other capacity, Ib) continue as to a person who has ceased to be in the capacity
by reason of which he was an Indemnitee with respect to matters arising during
the period he was in such capacity, and (c) inure to the benefit of the heirs,
executors and administrators of such a person.
Section 8.8 Notice. Any indemnification of or advance of expenses to a
Director of the Corporation in accordance with this Article shall be reported in
writing to the stockholders of the Corporation with or before the notice or
waiver of notice of the next stockholders' meeting or with or before the next
submission to stockholders of a consent to action without a meeting and, in any
case, within the twelve-month period immediately following the date of the
indemnification or advance.
Section 8.9 Construction. The indemnification provided by this Article
shall be subject to all valid and applicable laws, including, without
limitation, Article 2.02-1 of the Texas Business Corporation Act, and, in the
event this Article or any of the provisions hereof or the indemnification
contemplated hereby are found to be inconsistent with or contrary to any such
valid laws, the latter shall be deemed to control and this Article shall be
regarded as modified accordingly, and, as so modified, to continue in full force
and effect
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SECTION 8.10 CONTINUING OFFER, RELIANCE, etc. The provisions of this
Article (a) are for the benefit of, and may be enforced by, each Indemnitee, the
same as if set forth in their entirety in a written instrument duly executed and
delivered by the corporation and the indemnitee and (b) constitute a continuing
offer to all present and future Indemnitees The Corporation, by its adoption of
these Bylaws, (i) acknowledges and agrees that each Indemnitee of the
Corporation has relied upon and will continue to rely upon the provisions of
this Article in accepting and serving in any of the capacities referred to in
Section 81(a) of this Article, (ii) waives reliance upon, and all notices of
acceptance of, such provisions by such Indemnitees and (iii) acknowledges and
agrees that no present or future Indemnitee shall be prejudiced in his right to
enforce the provisions of this Article in accordance with their terms by any act
or failure to act on the part of the Corporation.
SECTION 8.11 EFFECT OF AMENDMENT. No amendment, modification or repeal of
this Article or any provision hereof shall in any manner terminate, reduce or
impair the right of any past, present or future Indemnitees to be indemnified by
the Corporation, nor the obligation of the Corporation to indemnify any such
Indemnitees, under and in accordance with the provisions of the Article as in
effect immediately prior to such amendment, modification or repeal with respect
to claims arising from or relating to matters occurring, in whole or in part,
prior to such amendment, modification or repeal, regardless of when such claims
may arise or be asserted.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Waiver of Notice. (a) Whenever, under the provisions of
applicable law or of the Articles of Incorporation or of these Bylaws, any
notice is required to be given to any stockholder or Director, a waiver thereof
in writing signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be equivalent to the giving of
such notice.
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(b) Attendance of a Director at a meeting shall constitute a waiver of
notice of such meeting except where a Director attends a meeting for the express
purpose of objecting to the transaction of any business on the grounds that the
meeting is not lawfully called or convened.
SECTION 9.2 Seal. If one be adopted, the corporate seal shall have
inscribed thereon the name of the Corporation and shall be in such form as may
be approved by the Board of Directors. said seal may be used by causing it or a
facsimile of it to be impressed or affixed or in any manner reproduced.
SECTION 9.3 Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 9.4 Checks, Notes, etc. All checks or demands for money and notes
of the Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate. The
Board of Directors may authorize any officer or officers or such other person or
persons to enter into any contract or execute and deliver any instrument in the
name of and on behalf of the Corporation, and such authority may be general or
confined to specific instances.
SECTION 9.5 EXAMINATION OF BOOKS AND RECORDS. The Board of Directors
shall determine from time to time whether, and if allowed, when and under what
conditions and regulations the accounts and books of the Corporation (except
such as may by statute be specifically opened to inspection) or any of them
shall be open to inspection by the stockholders, and the stockholders rights in
this respect are and shall be restricted and limited accordingly.
SECTION 9.6 VOTING UPON SHARES HELD BY THE CORPORATION. Unless otherwise
ordered by the Board of Directors, the Chairman of the Board, if one shall be
elected, or the President, acting on behalf of the Corporation, shall have full
power and authority to attend and to act and to vote at any meeting of
stockholders of any corporation in which the Corporation may hold shares and at
any such meeting, shall possess and may exercise any and all of the rights and
powers incident to the ownership of such shares which, as the owner thereof, the
Corporation might have possessed and
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exercised, if present. The Board of Directors by resolution from time to time
may confer like powers upon any other person or persons.
Section 9.7 Gender. Pronouns of whatsoever nature used herein shall be
deemed to include and designate the masculine, femine or neuter gender, as may
be appropriate to the context.
ARTICLE X
AMENDMENTS
Section 10.1 Amendment by Board of Directors. Except as otherwise
provided by applicable law or the Articles of Incorporation, the power to alter,
amend or repeal these Bylaws or to adopt new Bylaws shall be vested in the Board
of Directors and such action shall be taken by the affirmative vote of a
majority of the entire Board of Directors and may be taken at any annual,
regular or special meeting.
ARTICLE XI
SUBJECT TO ALL LAWS
The provisions of these Bylaws shall be subject to all valid and
applicable laws, including without limitation the Texas Business Corporation Act
as now or hereafter amended, and in the event that any of the provisions of
these Bylaws are found to be inconsistent or contrary with any such valid laws,
the latter shall be deemed to control and these Bylaws shall be regarded as
modified accordingly, and, as so modified to continue in full force and effect.
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EXHIBIT 4.1
SEE REVERSE SIDE FOR RESTRICTIVE LEGEND(S)
Number Shares
C-______ number of shares
SAMPLE
------
VISUAL NUMERICS, INC.
A Texas Corporation
AUTHORIZED CAPITAL STOCK 22,000,000
Common Shares 17,000,000
Preferred Shares 5,000,000
This certifies that Name of Shareholder is the record holder of Amount of
shares of COMMON STOCK of Visual Numerics, Inc. transferable only on the books
of Corporation by the holder, in person or by duly authorized attorney, upon
surrender of this certificate properly endorsed.
A statement of the rights, preferences, privileges and restrictions granted
to or imposed on the Common Stock and Preferred Stock of the Corporation and
upon the holders thereof as established by the Articles of Incorporation may be
obtained by any shareholder upon request and without charge at the principal
office of the Corporation at 9990 Richmond Avenue, Suite 400, Houston, Texas
77042.
In witness whereof, the Corporation has caused this Certificate to be
signed on by its duly authorized officers and to be sealed with the seal of the
Corporation this _______ of _______, ____.
- ----------------------------------- ------------------------------------
Secretary President
<PAGE>
FOR VALUE RECEIVED _____________________ HEREBY, SELL, ASSIGN AND TRANSFER UNTO
_____________________________ SHARES REPRESENTED BY THE WITHIN CERTIFICATE AND
DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT _____________ ATTORNEY TO TRANSFER
THE SAID SHARES ON THE SHARE REGISTER OF THE WITHIN NAMED CORPORATION WITH FULL
POWER OF SUBSTITUTION IN THE PREMISES.
DATED , 19
--- --
IN PRESENCE OF
------------------
NOTICE: THE SIGNATURE ON THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THIS CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 10.1
IMSL, INC.
1991 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 of the Company and
its Subsidiaries and to promote the success of the Company's business. Options
granted under the Plan may be incentive stock options (as defined under Section
422 of the Code) or non-statutory stock options, as determined by the
Administrator at the time of grant of an option and subject to the applicable
provisions of Section 422 of the Code, as amended, and the regulations
promulgated thereunder. 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
-------------
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means the Committee appointed by the Board in
---------
accordance with paragraph (a) of Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
------------
(f) "Company" means IMSL, Inc., a Texas corporation.
-------
(g) "Continuous Status as an Employee" means the absence of any
--------------------------------
interruption or termination of the employment relationship by the Company or any
Subsidiary. Continuous Status as an Employee shall not be considered interrupted
in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of
absence approved by the Board, provided that such leave is for a period of not
more than ninety (90) days, unless reemployment upon the expiration of such
leave is guaranteed by contract or statute, or unless provided otherwise
pursuant to Company policy adopted from time to time; or (iv) transfers between
locations of the Company or between the Company, its Subsidiaries or its
successor.
(h) "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 to constitute
"employment" by the Company.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(j) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
<PAGE>
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, 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 system or exchange 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 quoted on the NASDAQ System (but
not on the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high and low asked prices for the Common Stock; or
(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
Administrator.
(k) "Incentive Stock Option" means an Option intended to qualify
----------------------
as an incentive stock option within the meaning of Section 422 of the Code.
(l) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(m) "Option" means a stock option granted pursuant to the Plan.
------
(n) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(o) "Optionee" means an Employee who receives an Option.
--------
(p) "Parent" means a "parent corporation", whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(q) "Plan" means this 1991 Stock Plan.
----
(r) "Restricted Stock" means shares of Common Stock acquired
----------------
pursuant to a grant of Stock Purchase Rights under Section 11 below.
(s) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(t) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
<PAGE>
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 110,000 Shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Administration With Respect to Directors and Officers.
-----------------------------------------------------
With respect to grants of Options or Stock Purchase Rights to Employees who are
also officers or directors of the Company, the Plan shall be administered by
(A) the Board if the Board may administer the Plan in compliance with Rule 16b-3
promulgated under the Exchange Act or any successor thereto ("Rule 16b-3") with
respect to a plan intended to qualify thereunder as a discretionary plan, or
(B) a Committee designated by the Board to administer the Plan, which Committee
shall be constituted in such a manner as to permit the Plan to comply with Rule
16b-3 with respect to a plan intended to qualify thereunder as a discretionary
plan. Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by Rule 16b-3 with respect to a plan intended to qualify thereunder as
a discretionary plan.
(ii) Multiple Administrative Bodies. If permitted by Rule
------------------------------
16b-3, the Plan may be administered by different bodies with respect to
directors, non-director officers and Employees who are neither directors nor
officers.
(iii) Administration With Respect to Other Employees. With
----------------------------------------------
respect to grants of Options or Stock Purchase Rights to Employees who are
neither directors nor officers of the Company, or with respect to grants to all
Employees if Rule 16b-3 is inapplicable, the Plan shall be administered by
(A) the Board or (B) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the legal requirements relating to
the administration of stock option plans, if any, of Texas corporate and
securities laws and of the Code (the "Applicable Laws"). Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws.
<PAGE>
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, 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 of the Common Stock, in
accordance with Section 2(j) of the Plan;
(ii) to select the Employees to whom Options and Stock Purchase
Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but not
limited to, the exercise price and any restriction or limitation, or any vesting
acceleration or waiver of forfeiture restrictions regarding any Option or other
award and/or the shares of Common Stock relating thereto, based in each case on
such factors as the Administrator shall determine, in its sole discretion);
(vii) to determine whether and under what circumstances an Option
may be settled in cash under subsection 9(f) instead of Common Stock;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value (or to a price that is not less than 75% of Fair
Market Value in the case of Nonstatutory Stock Options) if the Fair Market Value
of the Common Stock covered by such Option shall have declined since the date
the Option was granted; and
(ix) to determine the terms and restrictions applicable to Stock
Purchase Rights and the Restricted Stock purchased by exercising such Stock
Purchase Rights.
(c) Effect of Committee's Decision. All decisions, determinations
------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options.
5. Eligibility.
-----------
(a) Options may be granted only to Employees. An Employee who has
been granted an Option may, if he is otherwise eligible, be granted an
additional Option or Options.
<PAGE>
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment relationship with the Company or
Subsidiary, nor shall it interfere in any way with his right or the Company's or
Subsidiary's right to terminate his employment relationship at any time, with or
without cause.
6. 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 as described in Section 19 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 15 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option agreement; provided, however, that in the case of an Incentive Stock
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option agreement.
However, 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 thereof or such shorter term as
may be provided in the Option agreement.
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board, but shall be subject to the following:
In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the
grant of such Incentive Stock Option, 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.
<PAGE>
(B) granted to any Employee, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
In the case of a Nonstatutory Stock Option the per Share exercise
price shall be no less than 75% of the Fair Market Value per Share on the date
of the grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator in its discretion at the time of grant (unless the Option
agreement expressly authorizes the Administrator to exercise such discretion at
the time of Option exercise) and may consist entirely of (1) cash, (2) check,
(3) promissory note, (4) other Shares which (x) in the case of Shares acquired
upon exercise of an Option either have been owned by the Optionee for more than
six months on the date of surrender or were not acquired, directly or
indirectly, from the Company, 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, (5) delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds required to pay the exercise price,
(6) any combination of the foregoing methods of payment, (7) or such other
consideration and method of payment for the issuance of Shares to the extent
permitted under Applicable Laws.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan.
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 agreement by the person entitled to exercise the Option and full payment
for the Shares with respect to which the Option is exercised, including
satisfaction of any withholding obligation for taxes, has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) 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. The Company shall issue (or cause to
be issued) such stock certificate promptly upon 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 the stock certificate is issued, except as provided in
Section 11 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.
<PAGE>
(b) Termination of Employment. In the event of termination of an
-------------------------
Optionee's Continuous Status as an Employee with the Company, such Optionee may,
but only within one hundred eighty (180) days (or such other period of time as
is determined by the Board, with such determination in the case of an Incentive
Stock Option being made at the time of grant of the Option) after the date of
such termination (but in no event later than the expiration date of the term of
such Option as set forth in the Option agreement), exercise his Option to the
extent that Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise the
Option at the date of such termination, or if Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of
----------------------
Section 9(b) above, in the event of termination of an Optionee's Continuous
Status as an Employee as a result of his total and permanent disability (as
defined in Section 22(e)(3) of the Code), Optionee may, but only within twelve
(12) months from the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee,
-----------------
the Option may be exercised, at any time within twelve (12) months following the
date of death (but in no event later than the expiration date of the term of
such Option as set forth in the Option agreement), by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the date of death. To the extent that Optionee was not entitled to
exercise the Option at the date of death, or if Optionee's estate or
representative does not exercise such Option to the extent so entitled within
the time specified herein, the Option shall terminate.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
----------
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) Conditions of Exercise. The Administrator may require, as a
----------------------
condition to the exercise of an Option, that the Optionee sign an agreement with
the Company respecting the Optionee's ownership of Shares. Any such agreement
may include provisions giving the Company a right of first refusal with respect
to Shares, a right to repurchase Shares upon termination of the Optionee's
employment with the Company or a Subsidiary, or such other provisions as the
Administrator deems appropriate.
(g) 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.
<PAGE>
10. 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.
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 of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid (which price shall not be less than 75% of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which such person must accept such offer, which shall in no event exceed
thirty (30) days from the date upon which the Administrator made the
determination to grant the Stock Purchase Right. The offer shall be accepted by
execution of a Restricted Stock purchase agreement in the form determined by the
Administrator. Shares purchased pursuant to the grant of a Stock Purchase Right
shall be referred to herein as "Restricted Stock."
(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 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 such rate as the Committee
may determine.
(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. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
(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. Stock Withholding to Satisfy Withholding Tax Obligations. At the
--------------------------------------------------------
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or Stock Purchase Right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by electing to
have the Company withhold from the Shares to be issued upon exercise of
<PAGE>
the Option, or the Shares to be issued in connection with the Stock Purchase
Right, if any, 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 (the "Tax Date").
All elections by an Optionee to have Shares withheld for this purpose shall
be made in writing in a form acceptable to the Administrator and shall be
subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option or Stock Purchase Right as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of
the Administrator;
(d) if the Optionee is subject to Rule 16b-3, the election must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is made by an Optionee
and the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, the Optionee shall receive the full
number of Shares with respect to which the Option or Stock Purchase Right is
exercised but such Optionee shall be unconditionally obligated to tender back to
the Company the proper number of Shares on the Tax Date.
13. Adjustments Upon Changes in Capitalization or Merger. Subject to any
----------------------------------------------------
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock 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 or Stock Purchase Right, as well as
the price per share of Common Stock covered by each such outstanding Option,
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.
<PAGE>
In the event of the proposed dissolution or liquidation of the
Company, the Board shall notify the Optionee at least fifteen (15) days prior to
such proposed action. To the extent it has not been previously exercised, the
Option will terminate immediately prior to the consummation of such proposed
action. 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, each outstanding Option shall be assumed or an equivalent Option
shall be substituted by such successor corporation or a parent or subsidiary of
such successor corporation, unless the Board determines, in the exercise of its
sole discretion and in lieu of such assumption or substitution that the Optionee
shall have the right to exercise the Option as to all of the Optioned Stock,
including Shares as to which the Option would not otherwise be exercisable. If
the Board makes an Option fully exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Company shall
notify the Optionee that the Option shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option will terminate
upon the expiration of such period. For purposes of this paragraph, an Option
granted under the Plan shall be deemed to be assumed if, following the sale of
assets or merger, the Option confers the right to purchase, for each Share of
Optioned Stock subject to the Option immediately prior to the sale of assets or
merger, the consideration (whether stock, cash or other securities or property)
received in the sale of assets or merger by holders of Common Stock for each
Share held on the effective date of the transaction (and if such holders were
offered a choice of consideration, the type of consideration chosen by the
holders if majority of the outstanding Shares); provided, however, that if such
consideration received in the sale of assets or merger was not solely Common
Stock of the successor corporation or its parent, the Board may, with the
consent of the successor corporation and the participant, provide for the
consideration to be received upon exercise of the Option 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 sale of
assets or merger.
14. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee to whom an Option is so
granted within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. 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 Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), 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
<PAGE>
this Plan had not been amended or terminated, unless mutually agreed otherwise
between the Optionee and the Board, which agreement must be in writing and
signed by the Optionee and the Company.
16. 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, 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.
17. 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.
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. Agreements. Options and Stock Purchase Rights shall be evidenced by
----------
written agreements in such form as the Board shall approve from time to time.
19. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company 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.
<PAGE>
EXHIBIT 10.2
VISUAL NUMERICS, INC.
AMENDED AND RESTATED 1993 STOCK PLAN
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 and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-statutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the Plan.
Definitions. As used herein, the following definitions shall apply:
"Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Committee appointed by the Board in
accordance with paragraph (a) of Section 4 of the Plan.
"Common Stock" means the Common Stock of the Company.
"Company" means Visual Numerics, Inc., a Texas corporation.
"Consultant" means any person, including an advisor, contractor
or other person engaged by the Company or a Parent or Subsidiary to render
services and who is compensated for such services. The term "Consultant" shall
include Directors who are paid only a director's fee by the Company or who are
not compensated by the Company for their services as Directors.
"Continuous Status as an Employee or Consultant" means the
absence of any interruption or termination of the employment or consulting
relationship by the Company or any Subsidiary. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of: (i) sick
leave; (ii) military leave; (iii) any other leave of absence approved by the
Board, provided that such leave is for a period of not more than ninety (90)
days, unless reemployment upon the expiration of such leave is guaranteed by
contract or statute, or unless provided otherwise pursuant to Company policy
adopted from time to time; or (iv) transfers between locations of the Company or
between the Company, its Subsidiaries or its successor.
<PAGE>
"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 be sufficient to constitute
"employment" by the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, 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 system or exchange 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;
If the Common Stock is quoted on the NASDAQ System (but not on the
National Market System thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high and low asked prices for the Common Stock; or
In the absence of an established market for the Common Stock, the Fair
Market Value thereof shall be determined in good faith by the Administrator.
"Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
"Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
"Option" means a stock option granted pursuant to the Plan.
"Optioned Stock" means the Common Stock subject to an Option.
"Optionee" means an Employee or Consultant who receives an
Option.
"Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
"Plan" means this 1993 Stock Plan.
"Restricted Stock" means shares of Common Stock acquired pursuant
to a grant of Stock Purchase Rights under Section 11 below.
-2-
<PAGE>
"Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
"Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
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 4,000,000 Shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
Administration of the Plan.
Procedure.
(iv) Administration With Respect to Directors and Officers.
With respect to grants of Options or Stock Purchase Rights to Employees or
Consultants who are also officers or directors of the Company, the Plan shall be
administered by (A) the Board if the Board may administer the Plan in compliance
with Rule 16b-3 promulgated under the Exchange Act or any successor thereto
("Rule 16b-3") with respect to a plan intended to qualify thereunder as a
discretionary plan, or (B) a Committee designated by the Board to administer the
Plan, which Committee shall be constituted in such a manner as to permit the
Plan to comply with Rule 16b-3 with respect to a plan intended to qualify
thereunder as a discretionary plan. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however caused,
and remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by Rule 16b-3 with respect to a plan intended
to qualify thereunder as a discretionary plan.
Multiple Administrative Bodies. If permitted by Rule 16b-3, the Plan
may be administered by different bodies with respect to directors, non-director
officers, Employees and Consultants who are neither directors nor officers.
Administration With Respect to Other Persons. With respect to grants
of Options or Stock Purchase Rights to Employees or Consultants who are neither
directors nor officers of the Company, or with respect to grants to all
Employees or Consultants if Rule 16b-3 is inapplicable, the Plan shall be
administered by (A) the Board or (B) a Committee designated by the Board, which
Committee shall be constituted in such a
-3-
<PAGE>
manner as to satisfy the legal requirements relating to the administration of
stock option plans, if any, of Texas corporate and securities laws and of the
Code (the "Applicable Laws"). Once appointed, such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of the Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies, however caused, and remove
all members of the Committee and thereafter directly administer the Plan, all to
the extent permitted by the Applicable Laws.
Powers of the Administrator. Subject to the provisions of the
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, the Administrator shall have the authority, in its
discretion:
to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
to select the Employees and Consultants to whom Options and Stock
Purchase Rights may from time to time be granted hereunder;
to determine whether and to what extent Options and Stock Purchase
Rights or any combination thereof, are granted hereunder;
to determine the number of shares of Common Stock to be covered by
each such award granted hereunder;
to approve forms of agreement for use under the Plan;
to determine the terms and conditions, not inconsistent with the terms
of the Plan, of any award granted hereunder (including, but not limited to, the
exercise price and any restriction or limitation, or any vesting acceleration or
waiver of forfeiture restrictions regarding any Option or other award and/or the
shares of Common Stock relating thereto, based in each case on such factors as
the Administrator shall determine, in its sole discretion);
to determine whether and under what circumstances an Option may be
settled in cash under subsection 9(g) instead of Common Stock;
to reduce the exercise price of any Option to the then current Fair
Market Value (or to a price that is not less than 75% of Fair Market Value in
the case of Nonstatutory Stock Options) if the Fair Market Value of the Common
Stock covered by such Option shall have declined since the date the Option was
granted; and
to determine the terms and restrictions applicable to Stock Purchase
Rights and the Restricted Stock purchased by exercising such Stock Purchase
Rights.
-4-
<PAGE>
Effect of Committee's Decision. All decisions, determinations and
interpretations of the Administrator shall be final and binding on all Optionees
and any other holders of any Options.
Eligibility.
Options may be granted only to Employees and Consultants. An
Employee or Consultant who has been granted an Option may, if he is otherwise
eligible, be granted an additional Option or Options.
Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
The Plan shall not confer upon any Optionee any right with
respect to continuation of the Optionee's employment or consulting relationship
with the Company or Subsidiary, nor shall it interfere in any way with the
Optionee's right or the Company's or Subsidiary's right to terminate his or her
employment or consulting relationship at any time, with or without cause.
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 as described in Section 19 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 15 of the Plan.
Term of Option. The term of each Option shall be the term stated in
the Option agreement; provided, however, that in the case of an Incentive Stock
Option, the term shall be no more than ten (10) years from the date of grant
thereof or such shorter term as may be provided in the Option agreement.
However, 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 thereof or such shorter term as
may be provided in the Option agreement.
-5-
<PAGE>
Option Exercise Price and Consideration.
The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
In the case of an Incentive Stock Option
(A) granted to an Employee or Consultant who, at the time of
the grant of such Incentive Stock Option, 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 or Consultant, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
In the case of a Nonstatutory Stock Option the per Share exercise
price shall be no less than 75% of the Fair Market Value per Share on the date
of the grant.
The consideration to be paid for the Shares to be issued upon exercise
of an Option, including the method of payment, shall be determined by the
Administrator in its discretion at the time of grant (unless the Option
agreement expressly authorizes the Administrator to exercise such discretion at
the time of Option exercise) and may consist entirely of (1) cash, (2) check,
(3) promissory note, (4) other Shares which (x) in the case of Shares acquired
upon exercise of an Option either have been owned by the Optionee for more than
six months on the date of surrender or were not acquired, directly or
indirectly, from the Company, 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, (5) delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds required to pay the exercise price,
(6) any combination of the foregoing methods of payment, (7) or such other
consideration and method of payment for the issuance of Shares to the extent
permitted under Applicable Laws.
Exercise of Option.
Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan.
An Option may not be exercised for a fraction of a Share.
-6-
<PAGE>
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 agreement by the person entitled to exercise the Option and full payment
for the Shares with respect to which the Option is exercised, including
satisfaction of any withholding obligation for taxes, has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) 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. The Company shall issue (or cause to
be issued) such stock certificate promptly upon 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 the stock certificate is issued, except as provided in
Section 13 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.
Termination of Employment or Consulting Relationship. In the
event of termination of an Optionee's Continuous Status as an Employee or
Consultant with the Company, such Optionee may, but only within one hundred
eighty (180) days (or such other period of time as is determined by the Board,
with such determination in the case of an Incentive Stock Option being made at
the time of grant of the Option) after the date of such termination (but in no
event later than the expiration date of the term of such Option as set forth in
the Option agreement), exercise his Option to the extent that Optionee was
entitled to exercise it at the date of such termination. To the extent that
Optionee was not entitled to exercise the Option at the date of such
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
Disability of Optionee. Notwithstanding the provisions of Section
9(b) above, in the event of termination of an Optionee's Continuous Status as an
Employee or Consultant as a result of his total and permanent disability (as
defined in Section 22(e)(3) of the Code), Optionee may, but only within twelve
(12) months from the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
Death of Optionee. In the event of the death of an Optionee, the
Option may be exercised, at any time within twelve (12) months following the
date of death (but in no event later than the expiration date of the term of
such Option as set forth in the Option agreement), by the Optionee's estate or
by a person who acquired the right
-7-
<PAGE>
to exercise the Option by bequest or inheritance, but only to the extent the
Optionee was entitled to exercise the Option at the date of death. To the extent
that Optionee was not entitled to exercise the Option at the date of death, or
if Optionee's estate or representative does not exercise such Option to the
extent so entitled within the time specified herein, the Option shall terminate.
Rule 16b-3. Options granted to persons subject to Section 16(b)
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
Conditions of Exercise. The Administrator may require, as a
condition to the exercise of an Option, that the Optionee sign an agreement with
the Company respecting the Optionee's ownership of Shares. Any such agreement
may include provisions giving the Company a right of first refusal with respect
to Shares, a right to repurchase Shares upon termination of the Optionee's
employment or consulting relationship with the Company or a Subsidiary, or such
other provisions as the Administrator deems appropriate.
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.
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.
Stock Purchase Rights.
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 of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid (which price shall not be less than 75% of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which such person must accept such offer, which shall in no event exceed
thirty (30) days from the date upon which the Administrator made the
determination to grant the Stock Purchase Right. The offer shall be accepted by
execution of a Restricted Stock purchase agreement in the form determined by the
Administrator. Shares purchased pursuant to the grant of a Stock Purchase Right
shall be referred to herein as "Restricted Stock."
-8-
<PAGE>
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 employment or consulting relationship 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 such rate as the Committee may determine.
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. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
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.
Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or Stock Purchase Right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by electing to
have the Company withhold from the Shares to be issued upon exercise of the
Option, or the Shares to be issued in connection with the Stock Purchase Right,
if any, 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 (the "Tax Date").
All elections by an Optionee to have Shares withheld for this purpose shall
be made in writing in a form acceptable to the Administrator and shall be
subject to the following restrictions:
the election must be made on or prior to the applicable Tax Date;
once made, the election shall be irrevocable as to the particular
Shares of the Option or Stock Purchase Right as to which the election is made;
all elections shall be subject to the consent or disapproval of
the Administrator;
-9-
<PAGE>
if the Optionee is subject to Rule 16b-3, the election must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is made by an Optionee
and the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, the Optionee shall receive the full
number of Shares with respect to which the Option or Stock Purchase Right is
exercised but such Optionee shall be unconditionally obligated to tender back to
the Company the proper number of Shares on the Tax Date.
Adjustments Upon Changes in Capitalization or Merger. Subject to any
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock 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 or Stock Purchase Right, as well as
the price per share of Common Stock covered by each such outstanding Option,
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.
In the event of the proposed dissolution or liquidation of the
Company, the Board shall notify the Optionee at least fifteen (15) days prior to
such proposed action. To the extent it has not been previously exercised, the
Option will terminate immediately prior to the consummation of such proposed
action. 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, each outstanding Option shall be assumed or an equivalent Option
shall be substituted by such successor corporation or a parent or subsidiary of
such successor corporation, unless the Board determines, in the exercise of its
sole discretion and in lieu of such assumption or substitution that the Optionee
shall have the right to exercise the Option as to all of the Optioned Stock,
including Shares as to which the Option would not otherwise be exercisable. If
the Board makes an Option fully exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Company shall
notify the Optionee that the Option shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option will terminate
-10-
<PAGE>
upon the expiration of such period. For purposes of this paragraph, an Option
granted under the Plan shall be deemed to be assumed if, following the sale of
assets or merger, the Option confers the right to purchase, for each Share of
Optioned Stock subject to the Option immediately prior to the sale of assets or
merger, the consideration (whether stock, cash or other securities or property)
received in the sale of assets or merger by holders of Common Stock for each
Share held on the effective date of the transaction (and if such holders were
offered a choice of consideration, the type of consideration chosen by the
holders if majority of the outstanding Shares); provided, however, that if such
consideration received in the sale of assets or merger was not solely Common
Stock of the successor corporation or its parent, the Board may, with the
consent of the successor corporation and the participant, provide for the
consideration to be received upon exercise of the Option 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 sale of
assets or merger.
Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Board. Notice
of the determination shall be given to each Employee or Consultant to whom an
Option is so granted within a reasonable time after the date of such grant.
Amendment and Termination of the Plan.
Amendment and Termination. 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 Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
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, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
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, 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.
-11-
<PAGE>
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.
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.
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.
Agreements. Options and Stock Purchase Rights shall be evidenced by
written agreements in such form as the Board shall approve from time to time.
Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company 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.
-12-
<PAGE>
EXHIBIT 10.3
[FORM OF COMMON STOCK PURCHASE WARRANT]
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENT COVERING THE
PURCHASE OF THESE SECURITIES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT
NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO
THE SECRETARY OF THE CORPORATION AT ITS PRINCIPAL EXECUTIVE OFFICE.
VISUAL NUMERICS, INC.
COMMON STOCK PURCHASE WARRANT
1. Number and Price of Shares Subject to Warrant. Subject to the terms and
---------------------------------------------
conditions herein set forth, _______________ or a permitted holder hereof (the
"Purchaser" or "Holder"), is entitled to purchase from Visual Numerics, Inc., a
Texas corporation (the "Company"), at any time on or before the earliest to
occur of the following: (i) the closing of the Company's initial firm commitment
underwritten public offering covering the offer and sale of Common Stock for the
account of the Company to the public at an aggregate offering price of not less
than $7,500,000 (the "Initial Public Offering"), (ii) the closing of the
Company's sale of all or substantially all of its assets or the acquisition of
the Company by another entity by means of merger or other transaction as a
result of which shareholders of the Company immediately prior to such
acquisition possess a minority of the voting power of the acquiring entity
immediately following such acquisition (the "Acquisition") or (iii) the date
five (5) years from the date hereof, _______________________ shares (which
number of shares is subject to adjustment as described below) of fully paid and
nonassessable Common Stock of the Company (the "Shares") upon surrender hereof
at the principal office of the Company, and upon payment of the aggregate
purchase price (the "Purchase Price") for such shares, determined as the product
of the number of shares of Common Stock acquired upon exercise hereof and the
Warrant Price (as defined below) at said office in cash, by check, by wire
transfer or by cancellation of indebtedness. The Company shall give notice to
the Purchaser of an Initial Public Offering or an Acquisition at least thirty
(30) days prior to the closing of such Initial Public Offering or Acquisition.
Subject to adjustment as hereinafter provided, the exercise price for one share
of Common Stock (or such securities as may be substituted for one share of
Common Stock pursuant to the provisions hereinafter set forth) shall be
______________________________. The exercise price for one share of Common Stock
(or such securities as may be substituted for one share of Common Stock pursuant
to the provisions hereinafter set forth) payable from time to time upon the
exercise of this Warrant (whether such price be the price specified above or an
adjusted price determined as hereinafter provided) is referred to herein as the
"Warrant Price."
2. Adjustment of Warrant Price and Number of Shares. The number and kind
------------------------------------------------
of securities issuable upon the exercise of this Warrant shall be subject to
adjustment from time to time and the Company agrees to provide notice upon the
happening of certain events as follows:
<PAGE>
(a) Adjustment for Dividends in Stock. In case at any time or from time
---------------------------------
to time on or after the date hereof the holders of the Common Stock of the
Company (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received, or, on after the record date
fixed for the determination of eligible stockholders, shall have become entitled
to receive, without payment therefor, other or additional securities or other
property of the Company by way of dividend or distribution, then and in each
case, the holder of this Warrant shall, upon the exercise hereof, be entitled to
receive, in addition to the number of shares of common stock receivable
thereupon, and without payment of any additional consideration therefor, the
amount of such other or additional securities or other property of the Company
which such holder would hold on the date of such exercise had it been the
holder of record of such Common Stock on the date hereof and had thereafter,
during the period from the date hereof to and including the date of such
exercise, retained such shares and/or all other additional securities or other
property receivable by it as aforesaid during such period, giving effect to all
adjustments called for during such period by this paragraph (a) and
paragraphs (b) and (c) of this paragraph 2.
(b) Adjustment for Reclassification or Reorganization. In case of any
-------------------------------------------------
reclassification or change of the outstanding securities of the Company or of
any reorganization of the Company (or any other corporation the stock or
securities of which are at the time receivable upon the exercise of this
Warrant) on or after the date hereof, then and in each such case the Company
shall give the Holder of this Warrant at least thirty (30) days notice of the
proposed effective date of such transaction, and the Holder of this Warrant,
upon the exercise hereof at any time after the consummation of such
reclassification, change or reorganization, shall be entitled to receive, in
lieu of the stock or other securities and property receivable upon the exercise
hereof prior to such consummation, the stock or other securities or property to
which such holder would have been entitled upon such consummation if such Holder
had exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in paragraphs (a) and (c) of this paragraph 2.
(c) Stock Splits and Reverse Stock Splits. If at any time on or after
-------------------------------------
the date hereof the Company shall subdivide its outstanding shares of Common
Stock into a greater number of shares, the Warrant Price in effect immediately
prior to such subdivision shall thereby be proportionately reduced and the
number of shares receivable upon exercise of the Warrant shall thereby be
proportionately increased; and, conversely, if at any time on or after the date
hereof the outstanding number of shares of Common stock shall be combined into a
smaller number of shares, the Warrant Price in effect immediately prior to such
combination shall thereby be proportionately increased and the number of shares
receivable upon exercise of this Warrant shall thereby be proportionately
decreased.
3. No Fractional Shares. No fractional shares of Common Stock will be
--------------------
issued in connection with any exercise hereunder. In lieu of any fractional
shares which would otherwise be issuable, the Company shall pay cash equal to
the product of such fraction multiplied by the fair market value of one share of
Common Stock on the date of exercise, as determined in good faith by the
Company's Board of Directors.
4. No Stockholder Rights. This Warrant as such shall not entitle its
---------------------
Holder to any of the rights of a stockholder of the Company until the Holder has
exercised this Warrant in
<PAGE>
accordance with Section 6 hereof or exercised conversion rights in accordance
with Section 7 hereof.
5. Reservation of Stock. The Company covenants that during the
--------------------
period this Warrant is exercisable, the Company will reserve from its authorized
and unissued Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon the exercise of this Warrant and all other
Warrants or instruments exercisable for Common Stock. The Company agrees that
its issuance of this Warrant shall constitute full authority to its officers who
are charged with the duty of executing stock certificates to execute and issue
the necessary certificates for the number of full shares Common Stock issuable
upon the exercise of this Warrant.
6. Exercise of Warrant. This Warrant may be exercised by its
-------------------
holder by the surrender of this Warrant at the principal office of the Company,
accompanied by payment in full of the Purchase Price of the Shares purchased
thereby, as described above. This Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above, and the person entitled to receive the Shares or
other securities issuable upon such exercise shall be treated for all purposes
as the holder of such shares of record as of the close of business on such date.
As promptly as practicable, the Company shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of full shares of Common Stock issuable upon such exercise, together with
cash in lieu of any fraction of a share as provided above.
7. Right to Convert Warrant for Common Stock.
-----------------------------------------
(a) Right to Convert. In addition to and without limiting the
----------------
rights of the Holder under the terms of this Warrant, the Holder shall have the
right to convert this Warrant or any portion hereof (the "Conversion Right")
into shares of Common Stock as provided in this Section 7 immediately prior to
its expiration after the Company has given the Purchaser notice pursuant to
Section 1 of an initial Public Offering or an Acquisition, subject to the
restrictions set forth in subsection (c) hereof. Upon exercise of the Conversion
Right with respect to a particular number of shares subject to this Warrant (the
"Converted Warrant Shares"), the Company shall deliver to the Holder (without
payment by the Holder of any cash or other consideration) that number of shares
of Common Stock equal to the quotient obtained by dividing (x) the value of this
Warrant (or the specified portion hereof) on the Conversion Date (as defined in
subsection (b) hereof), which value shall be determined by subtracting (A) the
aggregate Warrant Price of the Converted Warrant Shares immediately prior to the
exercise of the Conversion Right from (B) the aggregate fair market value of the
Converted Warrant Shares issuable upon exercise of this Warrant (or the
specified portion hereof) on the Conversion Date (as herein defined) by (y) the
fair market value of one share of Common Stock on the Conversion Date (as herein
defined). No fractional shares shall be issuable upon exercise of the
Conversion Right, and if the number of shares to be issued determined in
accordance with the foregoing formula is other than a whole number, the Company
shall pay to the Holder an amount in cash equal to the fair market value of the
resulting fractional share on the Conversion Date (as herein defined).
(b) Method of Exercise. The Conversion Right may be exercised by
------------------
the Holder by the surrender of this Warrant prior to its expiration and after
the Company shall have given the Purchaser notice pursuant to Section 1 of the
Initial Public Offering or the Acquisition, at the principal office of the
Company together with a written statement specifying that the Holder
<PAGE>
thereby intends to exercise the Conversion Right immediately prior to the
expiration of this Warrant and indicating the number of shares subject to this
Warrant which are being surrendered (referred to in subsection (a) hereof as the
converted Warrant Shares) in exercise of the Conversion Right. Such conversion
shall be effective immediately prior to the expiration of this Warrant (the
"Conversion Date"). Certificates for the shares of Common Stock issuable upon
exercise of the Conversion Right (or any other securities deliverable in lieu
thereof under Section 2(b)) shall be issued as of the Conversion Date and shall
be delivered to the Holder immediately following the Conversion Date.
(c) Restrictions on Conversion Right. in the event that the
--------------------------------
Conversion Right contained herein would, at any time this Warrant remains
outstanding, be deemed by the Company's independent certified public accountants
to trigger a charge to the Company's earnings for financial reporting purposes,
then the Conversion Right shall automatically terminate upon the Company's
written notice to the Holder of such adverse accounting treatment.
(d) Determination of Fair Market Value. For purposes of this
----------------------------------
Section 7, fair market value of a share of Common Stock as of a particular date
(the "Determination Date") shall mean:
(i) in the case of an initial Public offering, the value of
the shares of Common stock, as provided in the initial "price to Public"
specified in the final prospectus with respect to such offering; or
(ii) In the case of an Acquisition, the effective per share
consideration to be received in an Acquisition by holders of the Common Stock,
which price shall be as specified in the agreement entered into with respect to
such Acquisition and determined assuming receipt of the aggregate exercise price
of all outstanding Warrants to purchase Common Stock and Preferred Stock (the
"Outstanding Warrants"), or if no such price is set forth in the agreement
concerning the Acquisition, then as deter-mined in good faith by the Company's
Board of Directors upon a review of relevant factors, including the aggregate
exercise price of all outstanding Warrants.
8. Certificate of Adjustment. Whenever the Warrant Price or number
-------------------------
or type of securities issuable upon exercise of this Warrant is adjusted, as
herein provided, the Company shall promptly deliver to the record holder of this
Warrant a certificate of an officer of the Company setting forth the nature of
such adjustment and a brief statement of the facts requiring such adjustment.
9. Notice of proposed Transfers. Prior to any proposed transfer of
----------------------------
this Warrant or the shares of Common Stock received on the exercise of this
Warrant (the "securities"), unless there is in effect a registration statement
under the securities Act of 1933, as amended (the "securities Act"), covering
the pro-posed transfer, the Holder thereof shall give written notice to the
Company of such Holder's intention to effect such transfer. Each such notice
shall describe the manner and circumstances of the proposed transfer in
sufficient detail, and shall, if the Company so requests, be accompanied (except
in transaction in compliance with Rule 144) by either (i) an unqualified written
opinion of legal counsel who shall be reasonably satisfactory to the Company
addressed to the Company and reasonably satisfactory in form and substance to
the Company's counsel, to the effect that the proposed transfer of the
securities may be effected without registration under the securities Act, or
(ii) a "no action" letter from the Commission to the effect that the transfer of
such securities without registration will not result in a
<PAGE>
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the Holder of the securities shall be entitled to transfer
the securities in accordance with the terms of the notice delivered by the
Holder to the Company. Each certificate evidencing the securities transferred as
above provided shall bear the appropriate restrictive legend set forth above,
except that such certificate shall not bear such restrictive legend if in the
opinion of counsel for the Company such legend is not required in order to
establish compliance with any provisions of the securities Act.
10. Merger. If the Company shall at any time merge with or into another
------
corporation in a transaction that is not an Acquisition, the holder of this
Warrant will thereafter receive, upon the exercise of this Warrant in accordance
with its terms, the securities or properties to which the holder of the number
of shares of Common Stock then deliverable upon exercise of this Warrant would
have been entitled upon such merger.
11. Miscellaneous. This Warrant shall be governed by the laws of the State
-------------
of Texas. The headings in this Warrant are for purposes of convenience of
reference only, and shall not be deemed to constitute a part hereof. Neither
this Warrant nor any term hereof may be changed, waived, discharged or
terminated orally but only by an instrument in writing signed by the Company and
the registered holder hereof. All notices and other communications from the
Company to the holder of this Warrant shall be delivered personally or mailed by
first class mail, postage prepaid, to the address furnished to the Company in
writing by the last holder of this Warrant who shall have furnished an address
to the Company in writing, and if mailed shall be deemed given three days after
deposit in the U.S. Mail.
ISSUED this day of , 199 .
----- ----- ---
Visual Numerics, Inc.
a Texas corporation
By:
---------------------------------
Title:
<PAGE>
EXHIBIT 10.4
[FORM OF INDEMNIFICATION AGREEMENT]
-----------------------------------
This Indemnification Agreement (the "Agreement") is made as of
---------
____________, 1997 by and between Visual Numerics, Inc., a Texas corporation
(the "Company"), and _______________ (the "Indemnitee").
-------
RECITALS
--------
The Company and Indemnitee recognize the increasing difficulty in obtaining
liability insurance for directors, officers and key employees, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance. The Company and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting directors,
officers and key employees and agents to expensive litigation risks at the same
time as the availability and coverage of liability insurance has been severely
limited. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, and to indemnify its directors,
officers and key employees so as to provide them with the maximum protection
permitted by law.
AGREEMENT
---------
In consideration of the mutual promises made in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company and Indemnitee hereby agree as follows:
1. Indemnification.
---------------
(a) Third Party Proceedings. The Company shall indemnify Indemnitee
-----------------------
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that Indemnitee did
not act in good faith and in a manner which Indemnitee reasonably believed to be
in or not opposed
<PAGE>
to the best interests of the Company, or, with respect to any criminal action or
proceeding, that Indemnitee had reasonable cause to believe that Indemnitee's
conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The Company shall
---------------------------------------------
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and, to the fullest extent permitted by
law, amounts paid in settlement (if such settlement is approved in advance by
the Company, which approval shall not be unreasonably withheld), in each case to
the extent actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of such action or suit if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company and its stockholders, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudicated by court order or judgment
to be liable to the Company in the performance of Indemnitee's duty to the
Company and its stockholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(c) Mandatory Payment of Expenses. To the extent that Indemnitee has
-----------------------------
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1(a) or Section 1(b) or the defense of any
claim, issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
2. No Employment Rights. Nothing contained in this Agreement is intended
--------------------
to create in Indemnitee any right to continued employment.
3. Expenses; Indemnification Procedure.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all expenses
-----------------------
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referred to in
Section l(a) or Section 1(b) hereof (including amounts actually paid in
settlement of any such action, suit or proceeding). Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
by the Company as authorized hereby. Any advances to be made under this
Agreement shall be paid by the Company to Indemnitee within twenty (20) days
following delivery of a written request therefor by Indemnitee to the Company.
-2-
<PAGE>
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to his or her right to be indemnified under this Agreement,
give the Company notice in writing as soon as practicable of any claim made
against Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company and shall be given in accordance with the provisions of
Section 12(d) below. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
(c) Procedure. Any indemnification and advances provided for in
---------
Section 1 and this Section 3 shall be made no later than forty-five (45) days
after receipt of the written request of Indemnitee. If a claim under this
Agreement, under any statute, or under any provision of the Company's
Certificate of Incorporation or Bylaws providing for indemnification, is not
paid in full by the Company within forty-five (45) days after a written request
for payment thereof has first been received by the Company, Indemnitee may, but
need not, at any time thereafter bring an action against the Company to recover
the unpaid amount of the claim and, subject to Section 11 of this Agreement,
Indemnitee shall also be entitled to be paid for the expenses (including
attorneys' fees) of bringing such action. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred in
connection with any action, suit or proceeding in advance of its final
disposition) that Indemnitee has not met the standards of conduct which make it
permissible under applicable law for the Company to indemnify Indemnitee for the
amount claimed, but the burden of proving such defense shall be on the Company
and Indemnitee shall be entitled to receive interim payments of expenses
pursuant to Section 3(a) unless and until such defense may be finally
adjudicated by court order or judgment from which no further right of appeal
exists. It is the parties' intention that if the Company contests Indemnitee's
right to indemnification, the question of Indemnitee's right to indemnification
shall be for the court to decide, and neither the failure of the Company
(including its Board of Directors, any committee or subgroup of the Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination that indemnification of Indemnitee is proper in the circumstances
because Indemnitee has met the applicable standard of conduct required by
applicable law, nor an actual determination by the Company (including its Board
of Directors, any committee or subgroup of the Board of Directors, independent
legal counsel, or its stockholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not
met the applicable standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a notice of
------------------
a claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
-3-
<PAGE>
4. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. Notwithstanding any other provision of this Agreement, the
-----
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Restated
Articles of Incorporation, the Company's Bylaws or by statute. In the event of
any change, after the date of this Agreement, in any applicable law, statute, or
rule which expands the right of a Texas corporation to indemnify a member of its
board of directors or an officer, such changes shall be deemed to be within the
purview of Indemnitee's rights and the Company's obligations under this
Agreement. In the event of any change in any applicable law, statute or rule
which narrows the right of a Texas corporation to indemnify a member of its
board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Restated Articles of Incorporation, its Bylaws, any
agreement, any vote of shareholders or disinterested members of the Company's
Board of Directors, the corporation Law of the State of Texas, or otherwise,
both as to action in Indemnitee's official capacity and as to action in another
capacity while holding such office. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though he or she may have ceased
to serve in any such capacity at the time of any action, suit or other covered
proceeding.
5. Partial Indemnification. If Indemnitee is entitled under any provision
-----------------------
of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred in the
investigation, defense, appeal or settlement of any civil or criminal action,
suit or proceeding, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion of such expenses,
judgments, fines or penalties to which Indemnitee is entitled.
6. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, Federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise. For example, the Company and Indemnitee
acknowledge that the Securities and Exchange Commission (the "SEC") has taken
---
the position that indemnification is not permissible for liabilities arising
under certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the SEC to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
-4-
<PAGE>
7. Officer and Director Liability Insurance. The Company shall, from time
----------------------------------------
to time, make the good faith determination whether or not it is practicable for
the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
director and officer liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer; or of the Company's key employees, if
Indemnitee is not an officer or director but is a key employee. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a parent
or subsidiary of the Company.
8. Severability. Nothing in this Agreement is intended to require or
------------
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 2.02-1 of the Texas Business Corporation Act, but such indemnification
or advancement of expenses may be provided by the Company in specific cases if
the Board of Directors finds it to be appropriate;
(b) Lack of Good Faith. To indemnify Indemnitee for any expenses
------------------
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of
-5-
<PAGE>
the material assertions made by Indemnitee in such proceeding was not made in
good faith or was frivolous;
(c) Insured Claims. To indemnify Indemnitee for expenses or
--------------
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the
extent such expenses or liabilities have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability insurance
maintained by the Company; or
(d) Claims under Section 16(b). To indemnify Indemnitee for expenses
--------------------------
or the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
10. Construction of Certain Phrases.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" shall
-------
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
if Indemnitee is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
-----------------
shall include employee benefit plans; references to "fines" shall include any
-----
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
-------------------------------------
service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants, or beneficiaries;
and if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not
---
opposed to the best interests of the Company" as referred to in this Agreement.
- --------------------------------------------
11. Attorneys' Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement
-6-
<PAGE>
or to enforce or interpret any of the terms of this Agreement, Indemnitee shall
be entitled to be paid all court costs and expenses, including attorneys' fees,
incurred by Indemnitee in defense of such action (including with respect to
Indemnitee's counterclaims and cross-claims made in such action), unless as a
part of such action the court determines that each of Indemnitee's material
defenses to such action were made in bad faith or were frivolous.
12. Miscellaneous.
-------------
(a) Governing Law. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Texas, without giving effect to principles of conflict of law.
(b) Entire Agreement; Enforcement of Rights. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) Construction. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(d) Notices. Any notice, demand or request required or permitted to
-------
be given under this Agreement shall be in writing and shall be deemed sufficient
when delivered personally or sent by telegram or forty-eight (48) hours after
being deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed to the party to be notified at such party's address as
set forth below or as subsequently modified by written notice.
(e) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(f) Successors and Assigns. This Agreement shall be binding upon the
----------------------
Company and its successors and assigns, and inure to the benefit of Indemnitee
and Indemnitee's heirs, legal representatives and assigns.
(g) Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be
-7-
<PAGE>
necessary to secure such rights and to enable the Company to effectively bring
suit to enforce such rights.
-8-
<PAGE>
The parties hereto have executed this Agreement as of the day and year set
forth on the first page of this Agreement.
Visual Numerics, Inc.
By:
--------------------------
Title:
--------------------------
Address:
AGREED TO AND ACCEPTED:
- ----------------------------------------
(Signature)
Address:
-9-
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is dated as of January 1, 1995, by and between
Charles W. Johnson ("Employee") and VISUAL NUMERICS, INC. ("Company").
BACKGROUND:
----------
WHEREAS, the Company and Employee mutually desire to enter into an
Employment Agreement which will supersede existing agreements with respect to
Employee's employment.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the Company and Employee agree as follows:
1. Term of Agreement. This Agreement shall commence on the date hereof
and may be terminated by either party, with or without cause, on thirty (30)
days written notice to the other party.
2. Duties. Employee shall be employed as Chairman of the Board of
Directors. Employee shall devote approximately one-half of his time (on an
aggregate basis in each year in which this Agreement remains in effect) during
regular business hours, including appropriate effort and attention, to the
business and affairs of the Company. A general description of Employee's
current duties is attached hereto as Exhibit A. Employee acknowledges that the
Company may change the description of such duties from time to time.
3. At-Will Employment. The Company and the Employee acknowledge that
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason, the
Employee shall not be entitled to any payments, benefits, damages, award or
compensation other than as provided in this Agreement, or as may otherwise be
available in accordance with the Company's established written plans and written
policies at the time of termination.
4. Compensation. For the duties and services to be performed by Employee
hereunder, the Company shall pay Employee, and Employee agrees to accept, the
salary, stock options, bonuses and other benefits described below in this
Section 4.
(a) Salary. Employee shall receive a base salary of $127,458 per
annum, payable twice monthly in equal installments (or at such other times as
the other executive officers of the Company are paid), in accordance with the
Company's normal payroll practices. The base salary shall be reviewed at least
annually by the Board, its Compensation Committee or the Chief Executive Officer
of the Company, and any increases will be effective as of the date determined
appropriate by the Board, its Compensation Committee or the Chief Executive
Officer.
(b) Stock Options and Other Incentive Programs. Employee shall be
eligible to participate in any stock option or other incentive programs
available to officers or employees of the Company.
<PAGE>
(c) Bonuses. Employee shall participate in and, to the extent earned
or otherwise payable thereunder, receive periodic incentive cash bonuses
pursuant to the incentive bonus programs currently maintained or hereafter
established by the Company for its executives generally. Employee's entitlement
to incentive bonuses is discretionary and shall be determined by the Board, its
Compensation Committee or the Chief Executive Officer of the Company in good
faith based upon the extent to which Employee's individual performance
objectives and the Company's profitability objectives and other financial and
nonfinancial objectives were achieved during the applicable bonus period. The
criteria for Employee's bonus eligibility for fiscal year 1995 are set forth in
Exhibit B, attached hereto. In the event of Employee's death or disability
during the term of this Agreement, the Company shall pay to Employee or
Employee's estate the bonus Employee would have earned during the entire year in
which death or disability occurred.
(d) Healthcare. During the term of this Agreement, Employee shall be
eligible to participate in any health insurance programs available to officers
or employees of the Company.
(e) Annual Physical Examination. During the term of this Agreement,
the Company shall pay an amount up to $1,500 per annum for the normal and
reasonable cost of a complete physical examination for Employee from the doctor
or medical clinic of Employee's choice.
(f) Insurance. During the term of Employee's employment, Employee
shall be eligible to participate in any life or disability insurance programs
available to officers or employees of the Company.
(g) Vacation and Sick Pay. Employee shall be eligible for vacation
and sick leave in accordance with the policies of the Company in effect from
time to time during the term of this Agreement. All accrued vacation shall be
paid to Employee in a lump sum payment on the date of retirement or termination
of employment with the Company.
5. Severance Benefits.
(a) Change of Control; Stock Options. Upon the occurrence of a Change
of Control, notwithstanding any other plan or agreement to the contrary, vesting
of all outstanding stock options, restricted stock and other long-term incentive
compensation awards held by Employee shall be accelerated such that all options,
restricted stock and other long-term incentive compensation awards shall be
fully exercisable or otherwise vested effective as of the date of such Change of
Control and any such options shall remain exercisable until the earlier to occur
of (i) two years from the date of the Change of Control or (ii) the original
expiration date of such option.
(b) Termination of Employment. In the event Employee's employment
terminates for any reason, after the occurrence of a Change of Control, then
Employee shall be entitled to receive severance benefits as follows:
(i) Voluntary Resignation. If Employee's employment terminates
by reason of Employee's voluntary resignation (and is not an Involuntary
Termination or a
-2-
<PAGE>
Termination for Cause), then Employee shall not be entitled to receive severance
payments. Employee's benefits will be continued under the Company's then
existing benefit plans and policies in accordance with such plans and policies
in effect on the date of termination and in accordance with the terms of this
Agreement.
(ii) Involuntary Termination. If Employee's employment is
terminated as a result of Involuntary Termination other than for Cause, Employee
will be retained as a Consultant by the Company (or its acquiror or successor
corporation, hereafter referred to as "Successor Corporation") for a period of
three (3) years from the date of such termination. The terms of the Consulting
Arrangement are set forth in Exhibit C, attached hereto. Health insurance
benefits including the same coverages provided to Employee prior to the
termination (e.g. medical, dental, optical, mental health) and in all other
respects significantly comparable to those in place immediately prior to the
termination will be provided at the Company's (or the Successor Corporation's)
cost until three (3) years after the date of termination. Life insurance
providing the same dollar amount of coverage and in all other respects
significantly comparable to that in place immediately prior to the termination
will be provided at the Company's (or the Successor Corporation's) cost until
three (3) years after the date of termination, or as otherwise agreed to by
Employee and the Company or the Successor Corporation. Notwithstanding any other
plan or agreement to the contrary, vesting of all outstanding stock options,
restricted stock and other long-term incentive compensation awards held by
Employee shall be accelerated such that all options, restricted stock and other
long-term incentive compensation awards shall be fully exercisable or otherwise
vested effective as of the date of termination and any such options shall remain
exercisable until the earlier to occur of (A) three (3) years after the date of
termination or (B) the original expiration date of such option.
(iii) Involuntary Termination for Cause. If Employee's employment
is terminated for Cause, then Employee shall not be entitled to receive
severance payments. Employee's benefits will be continued under the Company's
then existing benefit plans and policies in accordance with such plans and
policies in effect on the date of termination and in accordance with the terms
of this Agreement.
6. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings.
(a) Change of Control. "Change of Control" shall mean the occurrence
of any of the following events:
(i) Ownership. Any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing fifty-one
percent (51%) or more of the total voting power represented by the Company's
then outstanding voting securities; or
(ii) Composition of Board. A change in the composition of the
Board of Directors of the Company, as a result of which fewer than a majority of
the directors are Incumbent Directors. "Incumbent Directors" shall mean
directors who either (A) are directors of
-3-
<PAGE>
the Company as of the date hereof, or (B) are elected, or nominated for
election, to the Board of Directors of the Company with the affirmative votes of
at least a majority of the Incumbent Directors at the time of such election or
nomination (but shall not include an individual whose election or nomination is
in connection with an actual or threatened proxy contest relating to the
election of directors to the Company); or
(iii) Merger/Sale of Assets. The stockholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets.
(b) Cause. "Cause" shall mean gross negligence or willful misconduct
where such gross negligence or willful misconduct has resulted or is likely to
result in substantial and material damage to the Company or its subsidiaries.
Anything contained in this Section 6(b) to the contrary notwithstanding,
Employee shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to Employee a copy of a resolution duly adopted
by the Board of Directors of the Company, after reasonable notice to Employee
and an opportunity for Employee, together with Employee's counsel, to be heard
before the Board, finding that in the good faith opinion of the Board, Employee
has engaged in the conduct described in this Section 6(b).
(c) Current Compensation. "Current Compensation" shall mean an amount
equal to the greater of (A) Employee's highest annual base salary for the year
preceding the year in which the termination occurs, or (B) Employee's annual
base salary at any time during the year in which the termination occurs.
7. Excise Tax Payments. If an excise tax is imposed pursuant to Section
4999 of the Internal Revenue Code of 1986 or any corresponding provision of
state income tax law on any payments or benefits received by Employee under any
provision of this Agreement (other than this Section 7), the Company will pay
Employee an additional amount equal to the amount of such tax, plus any
interest, penalties or additions to tax which may be imposed with respect
thereto. Employee will not be entitled to receive any payment with respect to
any such excise tax which may be imposed on payments received under this Section
7.
8. Successors. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business and/or assets shall assume
the obligations under this Agreement and agree expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of Employee's rights hereunder
shall inure to the
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<PAGE>
benefit of, and be enforceable by, Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.
9. Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. Mailed notices to Employee shall be
addressed to Employee at the home address from which Employee most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its company headquarters in Houston, Texas, and
all notices shall be directed to the attention of its Secretary.
10. Miscellaneous Provisions.
(a) No Duty to Mitigate. Employee shall not be required to mitigate
the amount of any payment contemplated by this Agreement (whether by seeking new
employment or in any other manner), nor shall any such payment be reduced by any
earnings that Employee may receive from any other source.
(b) Waivers, etc. No amendment of this Agreement and no waiver of any
one or more of the provisions hereof, shall be effective unless set forth in
writing by such person against whom enforcement is sought.
(c) Sole Agreement. This Agreement, including the Exhibits hereto,
constitutes the sole agreement of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Texas.
(e) Severability. If any term or provision of this Agreement or the
application thereof to any circumstance shall, in any jurisdiction and to any
extent, be invalid or unenforceable, such term or provision shall be ineffective
as to such jurisdiction to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable the remaining terms and
provisions of this Agreement or the application of such terms and provisions to
circumstances other than those as to which it is held invalid or unenforceable,
and a suitable and equitable term or provision shall be substituted therefor to
carry out, insofar as may be valid and enforceable, the intent and purpose of
the invalid or unenforceable term or provision.
(f) Legal Fees and Expenses. The Company shall reimburse Employee for
all reasonable professional fees and expenses as incurred by Employee in
connection with negotiating and executing this Agreement. In the event an action
is brought to enforce any provision of this Agreement, Employee's legal fees and
expenses shall be paid by the Company as incurred by Employee, unless Employee
brings a claim which is determined by the arbitrator or court, as the case may
be, to be frivolous, in which case, Employee shall repay the Company all amounts
advanced by the Company to Employee in connection with such claim within thirty
days of such determination.
-5-
<PAGE>
(g) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement the date first
above written.
"Company"
VISUAL NUMERICS, INC.
By: /s/ Richard G. Couch
-----------------------------------------
Richard G. Couch,
President and Chief Executive Officer
"Employee"
/s/ Charles W. Johnson
---------------------------------------------
Charles W. Johnson
-6-
<PAGE>
EXHIBIT A
---------
DESCRIPTION OF DUTIES
<PAGE>
EXHIBIT B
---------
FISCAL YEAR 1995 BONUS CRITERIA
To be determined by February 1, 1995.
<PAGE>
EXHIBIT C
---------
CONSULTING ARRANGEMENT
1. Employee shall be retained for a period of three (3) years to provide
the following services for the Company or the Successor Corporation: business
development, customer liaison, strategic planning, major account management and
such other tasks as are in keeping with his current role as Chairman of the
Board of Directors. This includes, but is not necessary limited to, the
following:
. Major (named) account sales/marketing assistance with MIT, Lincoln
Lab, Boeing, Motorola, Logica, NEC, Fujitsu and Cray
. Product/Technology/Business Partnering
. Creation and Management of the Technical Advisory Board
. Duties as a Member of the Board of Directors, Audit Committee and
Compensation Committee
. Professional society membership, function attendance
. Trade show attendance and support
. Assistance in financing
2. It is agreed that a substantial portion of Employee's services shall
be performed at his office in Racine, Wisconsin.
3. Throughout the term of the Consulting Arrangement, Employee shall
remain an employee of the Company or the Successor Corporation, entitled to
continue coverage under the Company's (or its acquiror or successor
corporation's) then existing benefit plans and policies in accordance with such
plans and policies in effect on the date of termination and in accordance with
the terms of the Consulting Arrangement. Employee shall be entitled to receive
as compensation for his service an amount equal to the annual salary he was
receiving on the date of termination, in accordance with the Company's or the
Successor Corporation's normal payroll practices.
4. At the Company's or the Successor Corporation's discretion, the term
of the Consulting Agreement may expire on the date Employee is working as a
salaried employee or consultant to another person, company or entity which is
actually in competition with any business conducted by the Company or the
Successor Corporation, or the date Employee commences any service for any other
person, company or entity which might result in such person, company or entity
potentially or actually being in competition with any business conducted by the
Company or the Successor Corporation, all as determined by the Company or the
Successor Corporation in its sole discretion.
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is dated as of January 1, 1995, by and between
Robert F. Strosser ("Employee") and VISUAL NUMERICS, INC. ("Company").
BACKGROUND:
----------
WHEREAS, the Company and Employee mutually desire to enter into an
Employment Agreement which will supersede existing agreements with respect to
Employee's employment.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the Company and Employee agree as follows:
1. Term of Agreement. This Agreement shall commence on the date hereof and
may be terminated by either party, with or without cause, on thirty (30) days
written notice to the other party.
2. Duties. Employee shall be employed as Executive Vice President and Chief
Financial Officer. A general description of Employee's current duties is
attached hereto as Exhibit A. Employee acknowledges that the Company may change
the description of such duties from time to time, but that Employee will remain
in a role no less than a member of the Executive Staff for the period of this
Agreement.
3. At-Will Employment. The Company and the Employee acknowledge that
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason, the
Employee shall not be entitled to any payments, benefits, damages, award or
compensation other than as provided in this Agreement, or as may otherwise be
available in accordance with the Company's established written plans and written
policies at the time of termination.
4. Compensation. For the duties and services to be performed by Employee
hereunder, the Company shall pay Employee, and Employee agrees to accept, the
salary, stock options, bonuses and other benefits described below in this
Section 4.
(a) Salary. Employee shall receive a base salary of $177,216 per
annum, payable twice monthly in equal installments (or at such other times as
the other executive officers of the Company are paid or applicable local law
requires), in accordance with the Company's normal payroll practices. The base
salary shall be reviewed at least annually by the Board, its Compensation
Committee or the Chief Executive Officer of the Company, and any increases will
be effective as of the date determined appropriate by the Board, its
Compensation Committee or the Chief Executive Officer.
(b) Stock Options and Other Incentive Programs. Employee shall be
eligible to participate in any stock option or other incentive programs
available to officers or employees of the Company.
<PAGE>
(c) Bonuses. Employee shall participate in and, to the extent earned
or otherwise payable thereunder, receive periodic incentive cash bonuses
pursuant to the incentive bonus programs currently maintained or hereafter
established by the Company for its executives generally. Employee's entitlement
to incentive bonuses is discretionary and shall be determined by the Board, its
Compensation Committee or the Chief Executive Officer of the Company in good
faith based upon the extent to which Employee's individual performance
objectives and the Company's profitability objectives and other financial and
nonfinancial objectives were achieved during the applicable bonus period. The
criteria for Employee's bonus eligibility for fiscal year 1995 are set forth in
Exhibit B, attached hereto. In the event of Employee's death or disability
during the term of this Agreement, the Company shall pay to Employee or
Employee's estate the bonus Employee would have earned during the entire year in
which death or disability occurred.
(d) Special Incentive Payments. Employee shall participate in and, to
the extent earned or otherwise payable thereunder, receive periodic incentive
cash payments pursuant to the program established by the Company for Employee.
The criteria for Employee's eligibility for such incentive payments and the
amounts payable for fiscal year 1995 are set forth in Exhibit C, attached
hereto. In the event of Employee's death or disability during the term of this
Agreement, the Company shall pay to Employee or Employee's estate the incentive
payment Employee would have earned during the entire year in which death or
disability occurred.
(e) Healthcare. During the term of this Agreement, Employee shall be
eligible to participate in any health insurance programs available to officers
or employees of the Company.
(f) Insurance. During the term of Employee's employment, Employee
shall be eligible to participate in any life or disability insurance programs
available to officers or employees of the Company.
(g) Vacation and Sick Pay. Employee shall be eligible for vacation and
sick leave in accordance with the policies of the Company in effect from time to
time during the term of this Agreement. All accrued vacation pay shall be paid
to Employee in a lump sum payment on the date of retirement or termination of
employment with the Company.
5. Severance Benefits.
(a) Change of Control; Stock Options. Upon the occurrence of a Change
of Control, notwithstanding any other plan or agreement to the contrary, vesting
of all outstanding stock options, restricted stock and other long-term incentive
compensation awards held by Employee shall be accelerated such that all options,
restricted stock and other long-term incentive compensation awards shall be
fully exercisable or otherwise vested effective as of the date of such Change of
Control and any such options shall remain exercisable until the earlier to occur
of (i) two years from the date of the Change of Control or (ii) the original
expiration date of such option.
(b) Termination of Employment. In the event Employee's employment
terminates for any reason, either prior to or after the occurrence of a Change
of Control, then Employee shall be entitled to receive severance benefits as
follows:
-2-
<PAGE>
(i) Voluntary Resignation. If Employee's employment terminates by
reason of Employee's voluntary resignation (and is not an Involuntary
Termination or a Termination for Cause), then Employee shall not be entitled to
receive severance payments. Employee's benefits will be continued under the
Company's then existing benefit plans and policies in accordance with such plans
and policies in effect on the date of termination and in accordance with the
terms of this Agreement.
(ii) Involuntary Termination. If Employee's employment is
terminated as a result of Involuntary Termination other than for Cause, Employee
will be entitled to receive severance payments equal to the greater of
Employee's regular monthly salary for six (6) months (the "Severance Period"),
or the benefit set forth in the Company's severance policy in effect at the time
of Employee's termination. Such payments shall be made ratably over the
Severance period according to the Company's standard payroll schedule. Health
insurance benefits including the same coverages provided to Employee prior to
the termination (e.g. medical, dental, optical, mental health) and in all other
respects significantly comparable to those in place immediately prior to the
termination will be provided at the Company's cost until six months after the
date of termination. Life insurance providing the same dollar amount of coverage
and in all other respects significantly comparable to that in place immediately
prior to the termination will be provided at the Company's cost until six months
after the date of termination. Notwithstanding any other plan or agreement to
the contrary, vesting of all outstanding stock options, restricted stock and
other long-term incentive compensation awards held by Employee shall be
accelerated such that all options, restricted stock and other long-term
incentive compensation awards shall be fully exercisable or otherwise vested
effective as of the date of termination and any such options shall remain
exercisable until the earlier to occur of (AA) six months after the date of
termination or (BB) the original expiration date of such option.
(iii) Involuntary Termination for Cause. If Employee's employment
is terminated for Cause, then Employee shall not be entitled to receive
severance payments. Employee's benefits will be continued under the Company's
then existing benefit plans and policies in accordance with such plans and
policies in effect on the date of termination and in accordance with the terms
of this Agreement.
6. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings.
(a) Change of Control. "Change of Control" shall mean the occurrence
of any of the following events:
(i) Ownership. Any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing fifty-one
percent (51%) or more of the total voting power represented by the Company's
then outstanding voting securities; or
(ii) Composition of Board. A change in the composition of the
Board of Directors of the Company, as a result of which fewer than a majority of
the directors are
-3-
<PAGE>
Incumbent Directors. "Incumbent Directors" shall mean directors who either (A)
are directors of the Company as of the date hereof, or (B) are elected, or
nominated for election, to the Board of Directors of the Company with the
affirmative votes of at least a majority of the Incumbent Directors at the time
of such election or nomination (but shall not include an individual whose
election or nomination is in connection with an actual or threatened proxy
contest relating to the election of directors to the Company); or
(iii) Merger/Sale of Assets. The stockholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets.
(iv) Death of Charles W. Johnson and Jennifer C. Johnson. The
death of Charles W. Johnson and Jennifer C. Johnson (collectively "the
Johnsons") at a time when the Johnsons own a majority of the total voting power
represented by the Company's then outstanding voting securities. For purposes of
this provision, the term death shall include the disability of the Johnsons
which results in transfer of control of the total voting power represented by
the Company's then outstanding voting securities held by the Johnsons at the
time of such disability to a guardian or a trustee.
(b) Cause. "Cause" shall mean gross negligence or willful misconduct
where such gross negligence or willful misconduct has resulted or is likely to
result in substantial and material damage to the Company or its subsidiaries.
Anything contained in this Section 6(b) to the contrary notwithstanding,
Employee shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to Employee a copy of a resolution duly adopted
by the Board of Directors of the Company, after reasonable notice to Employee
and an opportunity for Employee, together with Employee's counsel, to be heard
before the Board, finding that in the good faith opinion of the Board, Employee
has engaged in the conduct described in this Section 6(b).
(c) Current Compensation. "Current Compensation" shall mean an amount
equal to the greater of (A) Employee's highest annual base salary for the year
preceding the year in which the termination occurs, or (B) Employee's annual
base salary at any time during the year in which the termination occurs.
7. Excise Tax Payments. If an excise tax is imposed pursuant to Section
4999 of the Internal Revenue Code of 1986 or any corresponding provision of
state income tax law on any payments or benefits received by Employee under any
provision of this Agreement (other than this Section 7), the Company will pay
Employee an additional amount equal to the amount of such tax, plus any
interest, penalties or additions to tax which may be imposed with respect
thereto.
-4-
<PAGE>
Employee will not be entitled to receive any payment with respect to any such
excise tax which may be imposed on payments received under this Section 7.
8. Successors. Any successor to the Company (whether direct or indirect and
whether by purchase, lease, merger, consolidation, liquidation or otherwise) to
all or substantially all of the Company's business and/or assets shall assume
the obligations under this Agreement and agree expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of Employee's rights hereunder
shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
9. Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. Mailed notices to Employee shall be
addressed to Employee at the home address from which Employee most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its company headquarters in Houston, Texas, and
all notices shall be directed to the attention of its Secretary.
10. Miscellaneous Provisions.
(a) No Duty to Mitigate. Employee shall not be required to mitigate
the amount of any payment contemplated by this Agreement (whether by seeking new
employment or in any other manner), nor shall any such payment be reduced by any
earnings that Employee may receive from any other source.
(b) Waivers, etc. No amendment of this Agreement and no waiver of any
one or more of the provisions hereof shall be effective unless set forth in
writing by such person against whom enforcement is sought.
(c) Sole Agreement. This Agreement, including the Exhibits hereto
constitutes the sole agreement of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Texas.
(e) Severability. If any term or provision of this Agreement or the
application thereof to any circumstance shall, in any jurisdiction and to any
extent, be invalid or unenforceable, such term or provision shall be ineffective
as to such jurisdiction to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable the remaining terms and
provisions of this Agreement or the application of such terms and provisions to
circumstances other than those as to which it is held invalid or unenforceable,
and a suitable and equitable term or provision shall be substituted therefor to
carry out, insofar as may be valid and enforceable, the intent and purpose of
the invalid or unenforceable term or provision.
-5-
<PAGE>
(f) Legal Fees and Expenses. The Company shall reimburse Employee for
all reasonable professional fees and expenses as incurred by Employee in
connection with negotiating and executing this Agreement. In the event an action
is brought to enforce any provision of this Agreement, Employee's legal fees and
expenses shall be paid by the Company as incurred by Employee, unless Employee
brings a claim which is determined by the arbitrator or court, as the case may
be, to be frivolous, in which case, Employee shall repay the Company all amounts
advanced by the Company to Employee in connection with such claim within thirty
days of such determination.
(g) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together will constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement the date first
above written.
"Company"
VISUAL NUMERICS, INC.
By: /s/ Richard G. Couch
-------------------------------------
Richard G. Couch,
President and Chief Executive Officer
"Employee"
/s/ Robert Strosser
-------------------------------------
Robert Strosser
-6-
<PAGE>
EXHIBIT A
DESCRIPTION OF DUTIES
<PAGE>
EXHIBIT B
FISCAL YEAR 1995 BONUS CRITERIA
To be determined February 1, 1995.
<PAGE>
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is dated as of January 1, 1995, by and between
Ted Charter ("Employee") and VISUAL NUMERICS, INC. ("Company").
BACKGROUND:
----------
WHEREAS, the Company and Employee mutually desire to enter into an
Employment Agreement which will supersede existing agreements with respect to
Employee's employment.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the Company and Employee agree as follows:
1. Term of Agreement. This Agreement shall commence on the date hereof and
may be terminated by either party, with or without cause, on thirty (30) days
written notice to the other party.
2. Duties. Employee shall be employed as Executive Vice President, European
Operations. A general description of Employee's current duties is attached
hereto as Exhibit A. Employee acknowledges that the Company may change the
description of such duties from time to time.
3. At-Will Employment. The Company and the Employee acknowledge that
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason, the
Employee shall not be entitled to any payments, benefits, damages, award or
compensation other than as provided in this Agreement, or as may otherwise be
available in accordance with the Company's established written plans and written
policies at the time of termination.
4. Compensation. For the duties and services to be performed by Employee
hereunder, the Company shall pay Employee, and Employee agrees to accept, the
salary, stock options, bonuses and other benefits described below in this
Section 4.
(a) Salary. Employee shall receive a base salary of $194,295 per
annum, payable twice monthly in equal installments (or at such other times as
the other executive officers of the Company are paid or applicable local law
requires), in accordance with the Company's normal payroll practices. The base
salary shall be reviewed at least annually by the Board, its Compensation
Committee or the Chief Executive Officer of the Company, and any increases will
be effective as of the date determined appropriate by the Board, its
Compensation Committee or the Chief Executive Officer.
(b) Stock Options and Other Incentive Programs. Employee shall be
eligible to participate in any stock option or other incentive programs
available to officers or employees of the Company.
(c) Bonuses. Employee shall participate in and, to the extent earned
or otherwise payable thereunder, receive periodic incentive cash bonuses
pursuant to the incentive
<PAGE>
bonus programs currently maintained or hereafter established by the Company for
its executives generally. Employee's entitlement to incentive bonuses is
discretionary and shall be determined by the Board, its Compensation Committee
or the Chief Executive Officer of the Company in good faith based upon the
extent to which Employee's individual performance objectives and the Company's
profitability objectives and other financial and nonfinancial objectives were
achieved during the applicable bonus period. The criteria for Employee's bonus
eligibility for fiscal year 1995 are set forth in Exhibit B, attached hereto. In
the event of Employee's death or disability during the term of this Agreement,
the Company shall pay to Employee or Employee's estate the bonus Employee would
have earned during the entire year in which death or disability occurred.
(d) Healthcare. During the term of this Agreement, Employee shall be
eligible to participate in any health insurance programs available to officers
or employees of the Company.
(e) Insurance. During the term of Employee's employment, Employee
shall be eligible to participate in any life or disability insurance programs
available to officers or employees of the Company.
(f) Vacation and Sick Pay. Employee shall be eligible for vacation and
sick leave in accordance with the policies of the Company in effect from time to
time during the term of this Agreement. All accrued vacation pay shall be paid
to Employee in a lump sum payment on the date of retirement or termination of
employment with the Company.
5. Severance Benefits.
(a) Change of Control; Stock Options. Upon the occurrence of a Change
of Control, notwithstanding any other plan or agreement to the contrary, vesting
of all outstanding stock options, restricted stock and other long-term incentive
compensation awards held by Employee shall be accelerated such that all options,
restricted stock and other long-term incentive compensation awards shall be
fully exercisable or otherwise vested effective as of the date of such Change of
Control and any such options shall remain exercisable until the earlier to occur
of (i) two years from the date of the Change of Control or (ii) the original
expiration date of such option.
(b) Termination of Employment. In the event Employee's employment
terminates for any reason, either prior to or after the occurrence of a Change
of Control, then Employee shall be entitled to receive severance benefits as
follows:
(i) Voluntary Resignation. If Employee's employment terminates by
reason of Employee's voluntary resignation (and is not an Involuntary
Termination or a Termination for Cause), then Employee shall not be entitled to
receive severance payments. Employee's benefits will be continued under the
Company's then existing benefit plans and policies in accordance with such plans
and policies in effect on the date of termination and in accordance with the
terms of this Agreement.
(ii) Involuntary Termination. If Employee's employment is
terminated as a result of Involuntary Termination other than for Cause, Employee
will be entitled to receive
-2-
<PAGE>
severance payments equal to the greater of Employee's regular monthly salary for
six (6) months (the "Severance Period") or the benefit set forth in the
Company's severance policy in effect at the time of Employee's termination. Such
payments shall be made ratably over the Severance Period according to the
Company's standard payroll schedule. Health insurance benefits including the
same coverages provided to Employee prior to the termination (e.g. medical,
dental, optical, mental health) and in all other respects significantly
comparable to those in place immediately prior to the termination will be
provided at the Company's cost until six months after the date of termination.
Life insurance providing the same dollar amount of coverage and in all other
respects significantly comparable to that in place immediately prior to the
termination will be provided at the Company's cost until six months after the
date of termination, or as otherwise agreed to by Employee and the Company.
Notwithstanding any other plan or agreement to the contrary, vesting of all
outstanding stock options, restricted stock and other long-term incentive
compensation awards held by Employee shall be accelerated such that all options,
restricted stock and other long-term incentive compensation awards shall be
fully exercisable or otherwise vested effective as of the date of termination
and any such options shall remain exercisable until the earlier to occur of (A)
six months after the date of termination or (B) the original expiration date of
such option. If Employee is working for the Company outside the United States at
the time of Employee's termination, the Company shall pay the normal and
reasonable costs incurred by Employee in re-entering the United States. In
addition, Employee will be entitled to receive reimbursement for all necessary
and reasonable expenses, which must be documented, incurred in connection with
moving himself and his personal possessions back to his home in the United
States from his then-current foreign assignment.
(iii) Involuntary Termination for Cause. If Employee's employment
is terminated for Cause, then Employee shall not be entitled to receive
severance payments. Employee's benefits will be continued under the Company's
then existing benefit plans and policies in accordance with such plans and
policies in effect on the date of termination and in accordance with the terms
of this Agreement. If Employee is working for the Company outside the United
States at the time of Employee's termination, the Company shall pay the normal
and reasonable costs incurred by Employee in re-entering the United States. In
addition, Employee will be entitled to receive reimbursement for all necessary
and reasonable expenses, which must be documented, incurred in connection with
moving himself and his personal possessions back to his home in the United
States from his then-current foreign assignment.
6. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings.
(a) Change of Control. "Change of Control" shall mean the occurrence of
any of the following events:
(i) Ownership. Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing fifty-one percent (51%) or
more of the total voting power represented by the Company's then outstanding
voting securities; or
-3-
<PAGE>
(ii) Composition of Board. A change in the composition of the
Board of Directors of the Company, as a result of which fewer than a majority of
the directors are Incumbent Directors. "Incumbent Directors" shall mean
directors who either (A) are directors of the Company as of the date hereof, or
(B) are elected, or nominated for election, to the Board of Directors of the
Company with the affirmative votes of at least a majority of the Incumbent
Directors at the time of such election or nomination (but shall not include an
individual whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors to the Company);
or
(iii) Merger/Sale of Assets. The stockholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets.
(iv) Death of Charles W. Johnson and Jennifer C. Johnson. The death
of Charles W. Johnson and Jennifer C. Johnson (collectively "the Johnsons") at a
time when the Johnsons own a majority of the total voting power represented by
the Company's then outstanding voting securities. For purposes of this
provision, the term death shall include the disability of the Johnsons which
results in transfer of control of the total voting power represented by the
Company's then outstanding voting securities held by the Johnsons at the time of
such disability to a guardian or a trustee.
(b) Cause. "Cause" shall mean gross negligence or willful misconduct
where such gross negligence or willful misconduct has resulted or is likely to
result in substantial and material damage to the Company or its subsidiaries.
Anything contained in this Section 6(b) to the contrary notwithstanding,
Employee shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to Employee a copy of a resolution duly adopted
by the Board of Directors of the Company, after reasonable notice to Employee
and an opportunity for Employee, together with Employee's counsel, to be heard
before the Board, finding that in the good faith opinion of the Board, Employee
has engaged in the conduct described in this Section 6(b).
(c) Current Compensation. "Current Compensation" shall mean an amount
equal to the greater of (A) Employee's highest annual base salary for the year
preceding the year in which the termination occurs, or (B) Employee's annual
base salary at any time during the year in which the termination occurs.
7. Excise Tax Payments. If an excise tax is imposed pursuant to Section
4999 of the Internal Revenue Code of 1986 or any corresponding provision of
state income tax law on any payments or benefits received by Employee under any
provision of this Agreement (other than this Section 7), the Company will pay
Employee an additional amount equal to the amount of such
-4-
<PAGE>
tax, plus any interest, penalties or additions to tax which may be imposed with
respect thereto. Employee will not be entitled to receive any payment with
respect to any such excise tax which may be imposed on payments received under
this Section 7.
8. Successors. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business and/or assets shall assume
the obligations under this Agreement and agree expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of Employee's rights hereunder
shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
9. Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. Mailed notices to Employee shall be
addressed to Employee at the home address from which Employee most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its company headquarters in Houston, Texas, and
all notices shall be directed to the attention of its Secretary.
10. Miscellaneous Provisions.
(a) No Duty to Mitigate. Employee shall not be required to mitigate
the amount of any payment contemplated by this Agreement (whether by seeking new
employment or in any other manner), nor shall any such payment be reduced by any
earnings that Employee may receive from any other source.
(b) Waivers, etc. No amendment of this Agreement and no waiver of any
one or more of the provisions hereof shall be effective unless set forth in
writing by such person against whom enforcement is sought.
(c) Sole Agreement. This Agreement, including the Exhibits hereto
constitutes the sole agreement of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Texas.
(e) Severability. If any term or provision of this Agreement or the
application thereof to any circumstance shall, in any jurisdiction and to any
extent, be invalid or unenforceable, such term or provision shall be ineffective
as to such jurisdiction to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable the remaining terms and
provisions of this Agreement or the application of such terms and provisions to
circumstances other than those as to which it is held invalid or unenforceable,
and a suitable and
-5-
<PAGE>
equitable term or provision shall be substituted therefor to carry out, insofar
as may be valid and enforceable, the intent and purpose of the invalid or
unenforceable term or provision.
(f) Legal Fees and Expenses. The Company shall reimburse Employee for
all reasonable professional fees and expenses as incurred by Employee in
connection with negotiating and executing this Agreement. In the event an
action is brought to enforce any provision of this Agreement, Employee's legal
fees and expenses shall be paid by the Company as incurred by Employee, unless
Employee brings a claim which is determined by the arbitrator or court, as the
case may be, to be frivolous, in which case, Employee shall repay the Company
all amounts advanced by the Company to Employee in connection with such claim
within thirty days of such determination.
(g) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement the date first
above written.
"Company"
VISUAL NUMERICS, INC.
By: /s/ Richard G. Couch
-------------------------------------
Richard G. Couch,
President and Chief Executive Officer
"Employee"
/s/ Ted Charter
-----------------------------------------
Ted Charter
-7-
<PAGE>
EXHIBIT A
DESCRIPTION OF DUTIES
<PAGE>
EXHIBIT B
FISCAL YEAR 1995 BONUS CRITERIA
To be determined by February 1, 1995.
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is dated as of January 1, 1995, by and between
Donald G. Kainer ("Employee") and VISUAL NUMERICS, INC. ("Company").
BACKGROUND:
-----------
WHEREAS, the Company and Employee mutually desire to enter into an
Employment Agreement which will supersede existing agreements with respect to
Employee's employment.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the Company and Employee agree as follows:
1. Term of Agreement. This Agreement shall commence on the date hereof and
may be terminated by either party, with or without cause, on thirty (30) days
written notice to the other party.
2. Duties. Employee shall be employed as Vice President and General
Manager, VDA Business Unit. Employee shall devote his full time, effort and
attention during regular business hours to the business and affairs of the
Company. A general description of Employee's current duties is attached hereto
as Exhibit A. Employee acknowledges that the Company may change the description
of such duties from time to time.
3. At-Will Employment. The Company and the Employee acknowledge that
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason, the
Employee shall not be entitled to any payments, benefits, damages, award or
compensation other than as provided in this Agreement, or as may otherwise be
available in accordance with the Company's established written plans and written
policies at the time of termination.
4. Compensation. For the duties and services to be performed by Employee
hereunder, the Company shall pay Employee, and Employee agrees to accept, the
salary, stock options, bonuses and other benefits described below in this
Section 4.
(a) Salary. Employee shall receive a base salary of $133,582 per
annum, payable twice monthly in equal installments (or at such other times as
the other executive officers of the Company are paid or applicable local law
requires), in accordance with the Company's normal payroll practices. The base
salary shall be reviewed at least annually by the Board, its Compensation
Committee or the Chief Executive Officer of the Company, and any increases will
be effective as of the date determined appropriate by the Board, its
Compensation Committee or the Chief Executive Officer.
(b) Stock Options and Other Incentive Programs. Employee shall be
eligible to participate in any stock option or other incentive programs
available to officers or employees of the Company.
<PAGE>
(c) Bonuses. Employee shall participate in and, to the extent earned
or otherwise payable thereunder, receive periodic incentive cash bonuses
pursuant to the incentive bonus programs currently maintained or hereafter
established by the Company for its executives generally. Employee's entitlement
to incentive bonuses is discretionary and shall be determined by the Board, its
Compensation Committee or the Chief Executive Officer of the Company in good
faith based upon the extent to which Employee's individual performance
objectives and the Company's profitability objectives and other financial and
nonfinancial objectives were achieved during the applicable bonus period. The
criteria for Employee's bonus eligibility for fiscal year 1995 are set forth in
Exhibit B, attached hereto. In the event of Employee's death or disability
during the term of this Agreement, the Company shall pay to Employee or
Employee's estate the bonus Employee would have earned during the entire year in
which death or disability occurred.
(d) Healthcare. During the term of this Agreement, Employee shall be
eligible to participate in any health insurance programs available to officers
or employees of the Company.
(e) Insurance. During the term of Employee's employment, Employee
shall be eligible to participate in any life or disability insurance programs
available to officers or employees of the Company.
(f) Vacation and Sick Pay. Employee shall be eligible for vacation and
sick leave in accordance with the policies of the Company in effect from time to
time during the term of this Agreement. All accrued vacation pay shall be paid
to Employee in a lump sum payment on the date of retirement or termination of
employment with the Company.
5. Severance Benefits.
(a) Change of Control; Stock Options. Upon the occurrence of a Change
of Control, notwithstanding any other plan or agreement to the contrary, vesting
of all outstanding stock options, restricted stock and other long-term incentive
compensation awards held by Employee shall be accelerated such that all options,
restricted stock and other long-term incentive compensation awards shall be
fully exercisable or otherwise vested effective as of the date of such Change of
Control and any such options shall remain exercisable until the earlier to occur
of (i) two years from the date of the Change of Control or (ii) the original
expiration date of such option.
(b) Termination of Employment. In the event Employee's employment
terminates for any reason, either prior to or after the occurrence of a Change
of Control, then Employee shall be entitled to receive severance benefits as
follows:
(i) Voluntary Resignation. If Employee's employment terminates by
reason of Employee's voluntary resignation (and is not an Involuntary
Termination or a Termination for Cause), then Employee shall not be entitled to
receive severance payments. Employee's benefits will be continued under the
Company's then existing benefit plans and policies in accordance with such plans
and policies in effect on the date of termination and in accordance with the
terms of this Agreement.
-2-
<PAGE>
(ii) Involuntary Termination. If Employee's employment is
terminated as a result of Involuntary Termination other than for Cause, Employee
will be entitled to receive severance payments equal to the greater of
Employee's regular monthly salary for six (6) months (the "Severance Period") or
the benefit set forth in the Company's severance policy in effect at the time of
Employee's termination. Such payments shall be made ratably over the Severance
period according to the Company's standard payroll schedule. Health insurance
benefits including the same coverages provided to Employee prior to the
termination (e.g. medical, dental, optical, mental health) and in all other
respects significantly comparable to those in place immediately prior to the
termination will be provided at the Company's cost until the earlier of (A) six
months after the date of termination or (B) the date on which Employee is
provided with comparable benefits by a new employer. Life insurance providing
the same dollar amount of coverage and in all other respects significantly
comparable to that in place immediately prior to the termination will be
provided at the Company's cost until the earlier of (x) six months after the
date of termination or (y) the date on which Employee is provided with
comparable benefits by a new employer, or as otherwise agreed to by Employee and
the Company. Notwithstanding any other plan or agreement to the contrary,
vesting of all outstanding stock options, restricted stock and other long-term
incentive compensation awards held by Employee shall be accelerated such that
all options, restricted stock and other long-term incentive compensation awards
shall be fully exercisable or otherwise vested effective as of the date of
termination and any such options shall remain exercisable until the earlier to
occur of (AA) six months after the date of termination or (BB) the original
expiration date of such option.
(iii) Involuntary Termination for Cause. If Employee's
employment is terminated for Cause, then Employee shall not be entitled to
receive severance payments. Employee's benefits will be continued under the
Company's then existing benefit plans and policies in accordance with such plans
and policies in effect on the date of termination and in accordance with the
terms of this Agreement.
6. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings.
(a) Change of Control. "Change of Control" shall mean the occurrence
of any of the following events:
(i) Ownership. Any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing fifty-one
percent (51%) or more of the total voting power represented by the Company's
then outstanding voting securities; or
(ii) Composition of Board. A change in the composition of the
Board of Directors of the Company, as a result of which fewer than a majority of
the directors are Incumbent Directors. "Incumbent Directors" shall mean
directors who either (A) are directors of the Company as of the date hereof, or
(B) are elected, or nominated for election, to the Board of Directors of the
Company with the affirmative votes of at least a majority of the Incumbent
Directors at the time of such election or nomination (but shall not include an
individual whose
-3-
<PAGE>
election or nomination is in connection with an actual or threatened proxy
contest relating to the election of directors to the Company); or
(iii) Merger/Sale of Assets. The stockholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets.
(b) Cause. "Cause" shall mean gross negligence or willful misconduct
where such gross negligence or willful misconduct has resulted or is likely to
result in substantial and material damage to the Company or its subsidiaries.
Anything contained in this Section 6(b) to the contrary notwithstanding,
Employee shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to Employee a copy of a resolution duly adopted
by the Board of Directors of the Company, after reasonable notice to Employee
and an opportunity for Employee, together with Employee's counsel, to be heard
before the Board, finding that in the good faith opinion of the Board, Employee
has engaged in the conduct described in this Section 6(b).
(c) Current Compensation. "Current Compensation" shall mean an amount
equal to the greater of (A) Employee's highest annual base salary for the year
preceding the year in which the termination occurs, or (B) Employee's annual
base salary at any time during the year in which the termination occurs.
7. Excise Tax Payments. If an excise tax is imposed pursuant to Section
4999 of the Internal Revenue Code of 1986 or any corresponding provision of
state income tax law on any payments or benefits received by Employee under any
provision of this Agreement (other than this Section 7), the Company will pay
Employee an additional amount equal to the amount of such tax, plus any
interest, penalties or additions to tax which may be imposed with respect
thereto. Employee will not be entitled to receive any payment with respect to
any such excise tax which may be imposed on payments received under this Section
7.
8. Successors. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business and/or assets shall assume
the obligations under this Agreement and agree expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of Employee's rights hereunder
shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
-4-
<PAGE>
9. Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. Mailed notices to Employee shall be
addressed to Employee at the home address from which Employee most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its company headquarters in Houston, Texas, and
all notices shall be directed to the attention of its Secretary.
10. Miscellaneous Provisions.
(a) No Duty to Mitigate. Employee shall not be required to mitigate
the amount of any payment contemplated by this Agreement (whether by seeking new
employment or in any other manner), nor shall any such payment be reduced by any
earnings that Employee may receive from any other source.
(b) Waivers, etc. No amendment of this Agreement and no waiver of any
one or more of the provisions hereof shall be effective unless set forth in
writing by such person against whom enforcement is sought.
(c) Sole Agreement. This Agreement, including the Exhibits hereto
constitutes the sole agreement of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Texas.
(e) Severability. If any term or provision of this Agreement or the
application thereof to any circumstance shall, in any jurisdiction and to any
extent, be invalid or unenforceable, such term or provision shall be ineffective
as to such jurisdiction to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable the remaining terms and
provisions of this Agreement or the application of such terms and provisions to
circumstances other than those as to which it is held invalid or unenforceable,
and a suitable and equitable term or provision shall be substituted therefor to
carry out, insofar as may be valid and enforceable, the intent and purpose of
the invalid or unenforceable term or provision.
(f) Legal Fees and Expenses. The Company shall reimburse Employee for
all reasonable professional fees and expenses as incurred by Employee in
connection with negotiating and executing this Agreement. In the event an
action is brought to enforce any provision of this Agreement, Employee's legal
fees and expenses shall be paid by the Company as incurred by Employee, unless
Employee brings a claim which is determined by the arbitrator or court, as the
case may be, to be frivolous, in which case, Employee shall repay the Company
all amounts advanced by the Company to Employee in connection with such claim
within thirty days of such determination.
-5-
<PAGE>
(g) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement the date first
above written.
"Company"
VISUAL NUMERICS, INC.
By: /s/ Richard G. Couch
-------------------------------------
Richard G. Couch,
President and Chief Executive Officer
"Employee"
/s/ Donald G. Kainer
----------------------------------------
Donald G. Kainer
-6-
<PAGE>
EXHIBIT A
DESCRIPTION OF DUTIES
<PAGE>
EXHIBIT B
FISCAL YEAR 1995 BONUS CRITERIA
To be determined by February 1, 1995
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is dated as of January 1, 1995, by and between
William P. Hayes, III ("Employee") and VISUAL NUMERICS, INC. ("Company").
BACKGROUND:
----------
WHEREAS, the Company and Employee mutually desire to enter into an
Employment Agreement which will supersede existing agreements with respect to
Employee's employment.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the Company and Employee agree as follows:
1. Term of Agreement. This Agreement shall commence on the date hereof
and may be terminated by either party, with or without cause, on thirty (30)
days written notice to the other party.
2. Duties. Employee shall be employed as Vice President and General
Manager, ADT Business Unit. Employee shall devote his full time, effort and
attention during regular business hours to the business and affairs of the
Company. A general description of Employee's current duties is attached hereto
as Exhibit A. Employee acknowledges that the Company may change the description
of such duties from time to time.
3. At-Will Employment. The Company and the Employee acknowledge that
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason, the
Employee shall not be entitled to any payments, benefits, damages, award or
compensation other than as provided in this Agreement, or as may otherwise be
available in accordance with the Company's established written plans and written
policies at the time of termination.
4. Compensation. For the duties and services to be performed by Employee
hereunder, the Company shall pay Employee, and Employee agrees to accept, the
salary, stock options, bonuses and other benefits described below in this
Section 4.
(a) Salary. Employee shall receive a base salary of $129,018 per
annum, payable twice monthly in equal installments (or at such other times as
the other executive officers of the Company are paid or applicable local law
requires), in accordance with the Company's normal payroll practices. The base
salary shall be reviewed at least annually by the Board, its Compensation
Committee or the Chief Executive Officer of the Company, and any increases will
be effective as of the date determined appropriate by the Board, its
Compensation Committee or the Chief Executive Officer.
(b) Stock Options and Other Incentive Programs. Employee shall be
eligible to participate in any stock option or other incentive programs
available to officers or employees of the Company.
<PAGE>
(c) Bonuses. Employee shall participate in and, to the extent earned
or otherwise payable thereunder, receive periodic incentive cash bonuses
pursuant to the incentive bonus programs currently maintained or hereafter
established by the Company for its executives generally. Employee's entitlement
to incentive bonuses is discretionary and shall be determined by the Board, its
Compensation Committee or the Chief Executive Officer of the Company in good
faith based upon the extent to which Employee's individual performance
objectives and the Company's profitability objectives and other financial and
nonfinancial objectives were achieved during the applicable bonus period. The
criteria for Employee's bonus eligibility for fiscal year 1995 are set forth in
Exhibit B, attached hereto. In the event of Employee's death or disability
during the term of this Agreement, the Company shall pay to Employee or
Employee's estate the bonus Employee would have earned during the entire year in
which death or disability occurred.
(d) Healthcare. During the term of this Agreement, Employee shall be
eligible to participate in any health insurance programs available to officers
or employees of the Company.
(e) Insurance. During the term of Employee's employment, Employee
shall be eligible to participate in any life or disability insurance programs
available to officers or employees of the Company.
(f) Vacation and Sick Pay. Employee shall be eligible for vacation
and sick leave in accordance with the policies of the Company in effect from
time to time during the term of this Agreement. All accrued vacation pay shall
be paid to Employee in a lump sum payment on the date of retirement or
termination of employment with the Company.
5. Severance Benefits.
(a) Change of Control; Stock Options. Upon the occurrence of a Change
of Control, notwithstanding any other plan or agreement to the contrary, vesting
of all outstanding stock options, restricted stock and other long-term incentive
compensation awards held by Employee shall be accelerated such that all options,
restricted stock and other long-term incentive compensation awards shall be
fully exercisable or otherwise vested effective as of the date of such Change of
Control and any such options shall remain exercisable until the earlier to occur
of (i) two years from the date of the Change of Control or (ii) the original
expiration date of such option.
(b) Termination of Employment. In the event Employee's employment
terminates for any reason, either prior to or after the occurrence of a Change
of Control, then Employee shall be entitled to receive severance benefits as
follows:
(i) Voluntary Resignation. If Employee's employment terminates by
reason of Employee's voluntary resignation (and is not an Involuntary
Termination or a Termination for Cause), then Employee shall not be entitled to
receive severance payments. Employee's benefits will be continued under the
Company's then existing benefit plans and policies in accordance with such plans
and policies in effect on the date of termination and in accordance with the
terms of this Agreement.
-2-
<PAGE>
(ii) Involuntary Termination. If Employee's employment is
terminated as a result of Involuntary Termination other than for Cause, Employee
will be entitled to receive severance payments equal to the greater of
Employee's regular monthly salary for three (3) months (the "Severance Period")
or the benefit set forth in the Company's severance policy in effect at the time
of Employee's termination. Such payments shall be made ratably over the
Severance period according to the Company's standard payroll schedule. Health
insurance benefits including the same coverages provided to Employee prior to
the termination (e.g. medical, dental, optical, mental health) and in all other
respects significantly comparable to those in place immediately prior to the
termination will be provided at the Company's cost until the earlier of (A)
three months after the date of termination or (B) the date on which Employee is
provided with comparable benefits by a new employer. Life insurance providing
the same dollar amount of coverage and in all other respects significantly
comparable to that in place immediately prior to the termination will be
provided at the Company's cost until the earlier of (x) three months after the
date of termination or (y) the date on which Employee is provided with
comparable benefits by a new employer, or as otherwise agreed to by Employee and
the Company. Notwithstanding any other plan or agreement to the contrary,
vesting of all outstanding stock options, restricted stock and other long-term
incentive compensation awards held by Employee shall be accelerated such that
all options, restricted stock and other long-term incentive compensation awards
shall be fully exercisable or otherwise vested effective as of the date of
termination and any such options shall remain exercisable until the earlier to
occur of (AA) three months after the date of termination or (BB) the original
expiration date of such option.
(iii) Involuntary Termination for Cause. If Employee's
employment is terminated for Cause, then Employee shall not be entitled to
receive severance payments. Employee's benefits will be continued under the
Company's then existing benefit plans and policies in accordance with such plans
and policies in effect on the date of termination and in accordance with the
terms of this Agreement.
6. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings.
(a) Change of Control. "Change of Control" shall mean the occurrence
of any of the following events:
(i) Ownership. Any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing fifty-one
percent (51%) or more of the total voting power represented by the Company's
then outstanding voting securities; or
(ii) Composition of Board. A change in the composition of the
Board of Directors of the Company, as a result of which fewer than a majority of
the directors are Incumbent Directors. "Incumbent Directors" shall mean
directors who either (A) are directors of the Company as of the date hereof, or
(B) are elected, or nominated for election, to the Board of Directors of the
Company with the affirmative votes of at least a majority of the Incumbent
Directors at the time of such election or nomination (but shall not include an
individual whose
-3-
<PAGE>
election or nomination is in connection with an actual or threatened proxy
contest relating to the election of directors to the Company); or
(iii) Merger/Sale of Assets. The stockholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets.
(b) Cause. "Cause" shall mean gross negligence or willful misconduct
where such gross negligence or willful misconduct has resulted or is likely to
result in substantial and material damage to the Company or its subsidiaries.
Anything contained in this Section 6(b) to the contrary notwithstanding,
Employee shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to Employee a copy of a resolution duly adopted
by the Board of Directors of the Company, after reasonable notice to Employee
and an opportunity for Employee, together with Employee's counsel, to be heard
before the Board, finding that in the good faith opinion of the Board, Employee
has engaged in the conduct described in this Section 6(b).
(c) Current Compensation. "Current Compensation" shall mean an amount
equal to the greater of (A) Employee's highest annual base salary for the year
preceding the year in which the termination occurs, or (B) Employee's annual
base salary at any time during the year in which the termination occurs.
7. Excise Tax Payments. If an excise tax is imposed pursuant to Section
4999 of the Internal Revenue Code of 1986 or any corresponding provision of
state income tax law on any payments or benefits received by Employee under any
provision of this Agreement (other than this Section 7), the Company will pay
Employee an additional amount equal to the amount of such tax, plus any
interest, penalties or additions to tax which may be imposed with respect
thereto. Employee will not be entitled to receive any payment with respect to
any such excise tax which may be imposed on payments received under this Section
7.
8. Successors. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business and/or assets shall assume
the obligations under this Agreement and agree expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of Employee's rights hereunder
shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
-4-
<PAGE>
9. Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. Mailed notices to Employee shall be
addressed to Employee at the home address from which Employee most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its company headquarters in Houston, Texas, and
all notices shall be directed to the attention of its Secretary.
10. Miscellaneous Provisions.
(a) No Duty to Mitigate. Employee shall not be required to mitigate
the amount of any payment contemplated by this Agreement (whether by seeking new
employment or in any other manner), nor shall any such payment be reduced by any
earnings that Employee may receive from any other source.
(b) Waivers, etc. No amendment of this Agreement and no waiver of any
one or more of the provisions hereof shall be effective unless set forth in
writing by such person against whom enforcement is sought.
(c) Sole Agreement. This Agreement, including the Exhibits hereto
constitutes the sole agreement of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Texas.
(e) Severability. If any term or provision of this Agreement or the
application thereof to any circumstance shall, in any jurisdiction and to any
extent, be invalid or unenforceable, such term or provision shall be ineffective
as to such jurisdiction to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable the remaining terms and
provisions of this Agreement or the application of such terms and provisions to
circumstances other than those as to which it is held invalid or unenforceable,
and a suitable and equitable term or provision shall be substituted therefor to
carry out, insofar as may be valid and enforceable, the intent and purpose of
the invalid or unenforceable term or provision.
(f) Legal Fees and Expenses. The Company shall reimburse Employee for
all reasonable professional fees and expenses as incurred by Employee in
connection with negotiating and executing this Agreement. In the event an action
is brought to enforce any provision of this Agreement, Employee's legal fees and
expenses shall be paid by the Company as incurred by Employee, unless Employee
brings a claim which is determined by the arbitrator or court, as the case may
be, to be frivolous, in which case, Employee shall repay the Company all amounts
advanced by the Company to Employee in connection with such claim within thirty
days of such determination.
-5-
<PAGE>
(g) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement the date first
above written.
"Company"
VISUAL NUMERICS, INC.
By:/s/ Richard G. Couch
-----------------------------------------
Richard G. Couch,
President and Chief Executive Officer
"Employee"
/s/ William P. Hayes, III
--------------------------------------------
William P. Hayes, III
-6-
<PAGE>
EXHIBIT A
DESCRIPTION OF DUTIES
<PAGE>
EXHIBIT B
FISCAL YEAR 1995 BONUS CRITERIA
To be determined by February 1, 1995
<PAGE>
EXHIBIT 10.10
CONSULTANT AGREEMENT
--------------------
This AGREEMENT is dated as of January 1, 1995, by and between Richard G.
Couch ("CONSULTANT") and Visual Numerics, Inc., ("VNI" or the "COMPANY").
VNI desires to obtain the consulting services of Consultant in performing
the duties of President and Chief Executive Officer of VNI and Consultant
desires to provide VNI with such consulting services during the term of this
Agreement in his capacity as an independent contractor.
Now, therefore, for good and valuable consideration, the legality and
sufficiency of which is hereby acknowledged, and intending to be legally bound,
the parties hereto agree as follows:
A. Description of Services.
1. (a) Consultant shall provide his services as President and Chief
Executive Officer to VNI (the "Services"). Consultant's specific services in
this capacity are outlined in Exhibit A, attached hereto.
(b) Consultant shall not delegate, subcontract or employ any
other person or entity in the performance of the Services without the prior
written consent of the Board of Directors or Chairman of VNI.
(c) Consultant shall use his best efforts in the performance of
the Services and agrees to perform the same to the best of his ability. It is
agreed that a substantial portion of Consultant's services shall be performed at
locations other than VNI facilities.
(d) Consultant and Company understand and accept that the
performance of the Services shall not require Consultant's efforts on an
exclusive basis. Consultant shall be free to accept other consulting and
management engagements not otherwise inconsistent with the terms of this
Agreement or any other agreement between the Company and Consultant.
Notwithstanding the nonexclusive nature of his Services for the Company,
Consultant understands and agrees that he has a continuing obligation during the
term of this Agreement to act at all times in the best interests of the Company
and its stockholders and to preserve and maximize the value of the Company's
assets.
2. Compensation to Consultant.
(a) Cash Compensation. As compensation for Consultant's Services,
as described in Exhibit A, over the term of this Agreement, VNI shall pay
Consultant a monthly retainer at the rate of twenty-five thousand dollars
($25,000.00) per month for the duration of this Agreement.
(b) Bonuses. In addition to the monthly retainer described in
Paragraph 2(a) above, Consultant shall be eligible to receive bonuses from VNI
in accordance with the following eligibility criteria:
<PAGE>
(i) an annual target bonus of $150,000, payable in
cash or short-term debt as determined by VNI, upon the attainment of revenue
goals as determined each year by the parties. The revenue targets for 1995 are
set forth on Exhibit B, attached hereto.
(ii) In addition, Consultant shall receive a bonus of
$100,000 relating to his 1994 services, which shall be payable on January 1,
1995 in cash or promissory note.
(c) Healthcare. VNI shall provide to Consultant at Company's
expense coverage under health insurance programs which provide equivalent
benefits to Consultant as are available to officers or employees of the Company.
Such healthcare benefits shall be provided throughout the term of this Agreement
and for a period of twelve (12) months following termination thereof.
(d) Insurance. VNI shall maintain the following insurance
coverage for Consultant at Company's expense, for a period of three (3) years
from the Effective Date of this Agreement:
(i) term life insurance of one and one-half million
dollars ($1,500,000);
(ii) personal disability income insurance providing
income protection to Consultant of Fifteen Thousand dollars ($15,000) a month;
(e) Annual Physical Examination. VNI shall pay an amount up to
$1,500 on an annual basis for the normal and reasonable cost of a complete
physical examination for Consultant from the doctor or medical clinic of
Consultant's choice.
(f) Reimbursement of Expenses. VNI shall also reimburse
Consultant for the reasonable out-of-pocket business costs and expenses incurred
by Consultant in the performance of the Services, including the costs and
expenses of travel, meals and lodging incurred by Consultant while performing
the Services under this Agreement. Consultant shall bill VNI monthly for all
such reimbursable expenses and VNI shall pay Consultant's invoices therefor no
later than thirty (30) days from the date of receipt thereof, unless otherwise
agreed in writing.
3. Stock Options. As an inducement to sign this Agreement, Consultant
was granted, on November 23, 1994, a nonstatutory option to purchase 100,000
shares of the Company's Common Stock pursuant to the Company's 1993 Incentive
Stock Option Plan, in accordance with the terms of such plan, at an exercise
price of $0.39 per share. A total of 75,000 of such shares are immediately
exercisable with the balance vesting fully on November 23, 1995. Consultant
shall also be eligible to receive additional option grants under such plan as
long as he continues to serve as a consultant to the Company.
4. Severance Benefits.
(a) Change of Control; Stock Options. Upon the occurrence of a
Change of Control, notwithstanding any other plan or agreement to the contrary,
vesting of all outstanding stock options, restricted stock and other long-term
incentive compensation awards
-2-
<PAGE>
held by Consultant shall be accelerated such that all options, restricted stock
and other long-term incentive compensation awards shall be fully exercisable or
otherwise vested effective as of the date of such Change of Control and any such
options shall remain exercisable until the earlier to occur of (i) two years
from the date of the Change of Control or (ii) the original expiration date of
such option.
(b) Termination of Service. In the event Consultant's service
with the Company terminates for any reason, either prior to or after the
occurrence of a Change of Control, then Consultant shall be entitled to receive
severance benefits as follows:
(i) Voluntary Resignation. If Consultant's service
with the Company terminates by reason of Consultant's voluntary resignation (and
is not an Involuntary Termination or a Termination for Cause), then Consultant
shall not be entitled to receive severance payments. Consultant's benefits will
be continued under the Company's then existing benefit plans and policies in
accordance with such plans and policies in effect on the date of termination and
in accordance with the terms of this Agreement.
(ii) Involuntary Termination. If Consultant's service
with the Company is terminated as a result of Involuntary Termination other than
for Cause, Consultant will be entitled to receive a severance payment equal to
twelve (12) months of Consultant's then current monthly retainer payment. Such
payment shall be a lump sum payment. Health insurance benefits including the
same coverages provided to Consultant prior to the termination (e.g. medical,
dental, optical, mental health) and in all other respects significantly
comparable to those in place immediately prior to the termination will be
provided at the Company's cost until two (2) years after the date of
termination. Life insurance providing the same dollar amount of coverage and in
all other respects significantly comparable to that in place immediately prior
to the termination will be provided at the Company's cost until two (2) years
after the date of termination, or as otherwise agreed to by Consultant and the
Company. Notwithstanding any other plan or agreement to the contrary, vesting of
all outstanding stock options, restricted stock and other long-term incentive
compensation awards held by Consultant shall be accelerated such that all
options, restricted stock and other long-term incentive compensation awards
shall be fully exercisable or otherwise vested effective as of the date of
termination and any such options shall remain exercisable until the earlier to
occur of (A) two (2) years after the date of termination or (B) the original
expiration date of such option.
(iii) Involuntary Termination for Cause. If Consultant's
service with the Company is terminated for Cause, then Consultant shall not be
entitled to receive severance payments. Consultant's benefits will be continued
under the Company's then existing benefit plans and policies in accordance with
such plans and policies in effect on the date of termination and in accordance
with the terms of this Agreement.
5. Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings.
(a) Change of Control. "Change of Control" shall mean the
occurrence of any of the following events:
-3-
<PAGE>
(i) Ownership. Any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing fifty-one
percent (51%) or more of the total voting power represented by the Company's
then outstanding voting securities; or
(ii) Composition of Board. A change in the composition
of the Board of Directors of the Company, as a result of which fewer than a
majority of the directors are Incumbent Directors. "Incumbent Directors" shall
mean directors who either (A) are directors of the Company as of the date
hereof, or (B) are elected, or nominated for election, to the Board of Directors
of the Company with the affirmative votes of at least a majority of the
Incumbent Directors at the time of such election or nomination (but shall not
include an individual whose election or nomination is in connection with an
actual or threatened proxy contest relating to the election of directors to the
Company); or
(iii) Merger/Sale of Assets. The stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
(iv) Death of Charles W. Johnson and Jennifer C.
Johnson. The death of Charles W. Johnson and Jennifer C. Johnson (collectively
"the Johnsons") at a time when the Johnsons own a majority of the total voting
power represented by the Company's then outstanding voting securities. For
purposes of this provision, the term death shall include the disability of the
Johnsons which results in transfer of control of the total voting power
represented by the Company's then outstanding voting securities held by the
Johnsons at the time of such disability to a guardian or a trustee.
(b) Cause. "Cause" shall mean gross negligence or willful
misconduct where such gross negligence or willful misconduct has resulted or is
likely to result in substantial and material damage to the Company or its
subsidiaries. Anything contained in this Section 5(b) to the contrary
notwithstanding, Consultant shall not be deemed to have been terminated for
Cause unless and until there shall have been delivered to Consultant a copy of a
resolution duly adopted by the Board of Directors of the Company, after
reasonable notice to Consultant and an opportunity for Consultant, together with
Consultant's counsel, to be heard before the Board, finding that in the good
faith opinion of the Board, Consultant has engaged in the conduct described in
this Section 5(b).
(c) Current Compensation. "Current Compensation" shall mean (i) an
amount equal to the greater of (A) Consultant's highest annual base compensation
for the year preceding the year in which the termination occurs, or (B)
Consultant's annual base compensation at any time during the year in which the
termination occurs.
-4-
<PAGE>
6. Excise Tax Payments. If an excise tax is imposed pursuant to
Section 4999 of the Internal Revenue Code of 1986 or any corresponding provision
of state income tax law on any payments or benefits received by Consultant under
any provision of this Agreement (other than this Section 6), the Company will
pay Consultant an additional amount equal to the amount of such tax, plus any
interest, penalties or additions to tax which may be imposed with respect
thereto. Consultant will not be entitled to receive any payment with respect to
any such excise tax which may be imposed on payments received under this Section
6.
7. Business and Technical Information. VNI shall furnish to
Consultant, on a continuing basis and at no charge to Consultant, such
technical, scientific, marketing, legal and financial information and other data
as may be necessary for the performance of the Services.
8. VNI's Responsibilities. VNI shall use its commercially reasonable
efforts to assist Consultant in directing the growth and development of VNI
through the performance of the Services set forth herein.
9. Disclosure and Confidentiality.
(a) Consultant shall keep in confidence and shall not disclose or
make available to third parties or make any use of any information or documents
relating to Consultant's Services under this Agreement or to the products,
methods of manufacture, trade secrets, processes, business or affairs or
confidential or proprietary information of VNI (other than information in the
public domain through no fault of Consultant), except with the prior written
consent of VNI or to the extent necessary in performing tasks assigned to
Consultant by VNI. Upon termination of this Agreement, Consultant will, to the
best of his ability and at the Company's expense, return to VNI all documents
and other materials related to the services provided hereunder or furnished to
Consultant by VNI. Consultant's obligations under this Paragraph 9(a) shall
survive termination of this Agreement for any reason.
(b) Consultant shall promptly disclose and hereby transfers and
assigns to VNI all right, title and interest in and to all techniques, methods,
processes, formulae, improvements, inventions and discoveries made or conceived
or reduced to practice by or on behalf of Consultant, solely or jointly with
others, in the course of providing services hereunder or with the use of
materials or facilities of VNI during the period of this Agreement or which
relate to VNI's business or its actual or demonstrably anticipated research or
development (except as otherwise provided below), and in and to all of
Consultant's intellectual property rights therein, including without limitation,
patents, trademarks, copyrights, trade secrets and moral rights. When requested
by VNI, Consultant will make available to VNI all notes, drawings, data and
other information relating to the above. Consultant will promptly sign any
documents (including U.S. and foreign patent assignments) requested by VNI
related to the above assignment of rights and inventions and will cooperate with
VNI at VNI's request and expense in preparation and prosecution of any U.S. or
foreign patent applications related to such rights and inventions. Consultant's
obligations under this Paragraph 9(b) shall survive termination of this
Agreement for any reason. This Agreement does not apply to inventions which were
made prior to the date of this Agreement and which are listed on Exhibit C
attached hereto (if any).
-5-
<PAGE>
10. Conflicting Obligations. Consultant represents that he is not a
party to any agreement which conflicts with the terms of this Agreement or which
materially and adversely affects Consultant's ability to perform the Services
for VNI; and Consultant agrees that he shall not enter into any such agreement
during the term hereof. The Company acknowledges that Consultant is the Chairman
and sole owner of Diablo Management Group, and that Consultant regularly engages
in consulting and management services for other businesses and organizations,
which services are and will be continuing during the term of this Agreement.
11. Term; Termination. This Agreement shall commence on the 1st day
of January, 1995, and may be terminated by either party, with or without cause,
on thirty (30) days written notice to the other party.
12. Indemnity. VNI and Consultant shall indemnify, and hold harmless
each other and each party's agents, employees, officers and directors from and
against any and all damage, loss, liability, obligations, cost or expense,
caused directly or indirectly, by or as a result of any wrongdoing, negligence,
error or omission under the terms of this Agreement.
13. Miscellaneous.
(a) Independent Contractor. Consultant and VNI are independent
contractors under the terms of this Agreement and neither shall be deemed to be
an employee of the other.
(b) Taxes. VNI shall pay the transaction, excise or other taxes
which may result from its execution of this Agreement and Consultant shall be
responsible for the payment of withholding and other taxes resulting from the
payment of any compensation by VNI to Consultant hereunder, except as provided
in Section 6 of this Agreement.
(c) Notices. All notices given under this Agreement shall be by
personal service, facsimile or by first class United States mail, postage
prepaid, return receipt requested, addressed to the parties at the following
addresses:
If to Consultant:
----------------
Richard G. Couch
c/o Diablo Management Group
P.O. Box 5500
Danville, CA 94526
Fax number: (510) 256-6847
Phone number: (510) 256-4157
-6-
<PAGE>
If to VNI:
---------
Visual Numerics, Inc.
3801 Lighthouse Drive
Racine, WI 53402
Attention: Charles W. Johnson
Fax number: (414) 639-3466
Phone number: (414) 639-8656
or to such addresses as may be specified by like notice and shall be deemed to
have been duly given or made when delivered or deposited postage-prepaid in the
U.S. mails.
(d) Governing Law. This Agreement shall be construed in
accordance with and governed by the internal laws of the State of Texas.
(e) Sole Agreement. This Agreement, including the Exhibits
thereto, constitutes the sole agreement of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof.
(f) Waivers, etc. No amendment of this Agreement, and no waiver
of any one or more of the provisions hereof, shall be effective unless set forth
in writing by such person against whom enforcement is sought.
(g) Successors. Any successor to the Company (whether direct or
indirect and whether by purchase, lease, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company's business and/or assets
shall assume the obligations under this Agreement and agree expressly to perform
the obligations under this Agreement in the same manner and to the same extent
as the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of Consultant's rights hereunder
shall inure to the benefit of, and be enforceable by, Consultant's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
(h) No Duty to Mitigate. Consultant shall not be required to
mitigate the amount of any payment contemplated by this Agreement (whether by
seeking a new consulting arrangement or in any other manner), nor shall any such
payment be reduced by any earnings that Consultant may receive from any other
source.
(i) Severability. If any term or provision of this Agreement or
the application thereof to any circumstance shall, in any jurisdiction and to
any extent, be invalid or unenforceable, such term or provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remaining
terms and provisions of this Agreement or the application of such terms and
provisions to circumstances other than those as to which it is held invalid or
unenforceable, and a suitable and equitable term or provision shall be
substituted therefor to carry out, insofar as may be valid and enforceable, the
intent and purpose of the invalid or unenforceable term or provision.
(j) Legal Fees and Expenses. The Company shall reimburse
Consultant for all reasonable professional fees and expenses as incurred by
Consultant in con-
-7-
<PAGE>
nection with negotiating and executing this Agreement. In the event an action is
brought to enforce any provision of this Agreement, Consultant's legal fees and
expenses shall be paid by the Company as incurred by Consultant, unless
Consultant brings a claim which is determined by the arbitrator or court, as the
case may be, to be frivolous, in which case, Consultant shall repay the Company
all amounts advanced by the Company to Consultant in connection with such claim
within thirty days of such determination.
(k) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, VNI and Consultant have executed this Agreement as of
the day and year written above.
VISUAL NUMERICS, INC.
By: /s/ Charles W. Johnson
-----------------------------------------
Title: Charles W. Johnson, Chairman of the
Board of Directors
RICHARD G. COUCH
/s/ Richard G. Couch
--------------------------------------------
-8-
<PAGE>
EXHIBIT A
---------
DESCRIPTION OF SERVICES
-----------------------
<PAGE>
EXHIBIT B
---------
1995 ANNUAL BONUS REVENUE TARGETS
---------------------------------
To be determined by February 1, 1995.
<PAGE>
EXHIBIT C
---------
INVENTIONS MADE PRIOR TO THIS AGREEMENT AND EXCLUDED FROM
PARAGRAPH 9(b) (IF NONE, SO STATE):
None
----
<PAGE>
EXHIBIT 10.11
CONSULTING AGREEMENT
This Consulting Agreement is entered into as of January 1, 1995 (this
"Agreement"), by and between Byron Fetters (the "Consultant") and Visual
Numerics, Inc. (the "Company").
In consideration of the mutual promises contained herein, the parties
agree as follows:
1. Services. Consultant shall render consulting services to the
Company as described on Exhibit A, attached hereto.
2. Term and Termination. This Agreement shall become effective
on the date hereof and either Consultant or the Company may terminate this
Agreement, with or without cause, on ninety (90) days notice to the other party.
If the Company terminates this Agreement with less than ninety (90) days notice,
the Company shall pay Consultant on the date of termination, in lieu of such
notice, the cash compensation which would be payable under Section 3(a) herein
during such notice period.
3. Consideration.
(a) Cash Compensation. Subject to Consultant's compliance with the
provisions hereof, in consideration for Consultant's services and other
obligations under this Agreement, the Company shall pay Consultant a weekly
retainer at the rate of two thousand four hundred dollars ($2,400) per week for
the duration of this Agreement. Consultant shall invoice the Company bi-weekly
for services rendered during the preceding period. The Company shall make
payment on each invoice as soon as the invoice is approved by the Company's
President or Chief Financial Officer.
(b) Bonuses. In addition to the weekly retainer described in Paragraph
3(a) above, Consultant shall be eligible to receive bonuses from the Company
pursuant to the incentive bonus programs currently maintained or hereafter
established by the Company for its executives generally. Consultant's
entitlement to incentive bonuses is discretionary and shall be determined by the
Board, its Compensation Committee or the Chief Executive Officer of the Company
in good faith based upon the extent to which Consultant's individual performance
objectives and the Company's profitability objectives and other financial and
nonfinancial objectives were achieved during the applicable bonus period. The
criteria for Consultant's bonus eligibility for fiscal year 1995 are set forth
in Exhibit B, attached hereto. In the event of Consultant's death or disability
during the term of this Agreement, the Company shall pay to Consultant or
Consultant's estate the bonus Consultant would have earned during the entire
year in which death or disability occurred.
(c) Living Arrangements in Houston. As additional consideration for
Consultant's services hereunder, the Company will provide Consultant with an
apartment and a leased car in Houston, Texas for his use while providing
services hereunder for the Company. Additionally, the Company shall reimburse
Consultant for reasonable living expenses incurred by Consultant in Houston.
Consultant shall invoice the Company bi-weekly for expenses incurred during the
preceding period, describing the incurred expenses and providing appropriate
<PAGE>
documentation in accordance with Company policy. The Company shall make payment
on each invoice as soon as the invoice is approved by the Company's President or
Chief Financial Officer.
4. Support. As additional consideration for Consultant's services
hereunder, the Company will provide Consultant with such support facilities and
space as may be required in the Company's judgment to enable Consultant to
properly perform Consultant's services hereunder.
5. Expenses. Consultant shall be reimbursed for reasonable travel and
other out-of-pocket expenses incurred by Consultant in connection with
Consultant's services under this Agreement, provided that Consultant provide
receipts and obtain the approval from the President or the Chief Financial
Officer of the Company for such expenses.
6. Independent Contractor. Consultant's relationship with the Company
shall be that of an independent contractor and not that of an employee.
Consultant will not be eligible for any employee benefits, nor will the Company
make deductions from payments made to Consultant for taxes, which shall be
Consultant's responsibility. Consultant shall have no authority to enter into
contracts which bind the Company or create obligations on the part of the
Company without the prior written authorization of the Company.
7. Reporting. All services to be performed by Consultant will be as
agreed between Consultant and the Chief Financial Officer of the Company.
Consultant shall be required to report to the Chief Financial Officer of the
Company concerning Consultant's services performed under this Agreement. The
nature and frequency of these reports will be left to the discretion of the
Chief Financial Officer.
8. Disclosure and Confidentiality.
(a) Consultant shall keep in confidence and shall not disclose or make
available to third parties or make any use of any information or documents
relating to Consultant's services under this Agreement or to the products,
methods of manufacture, trade secrets, processes, business or affairs or
confidential or proprietary information of the Company (other than information
in the public domain through no fault of Consultant), except with the prior
written consent of the Company or to the extent necessary in performing tasks
assigned to Consultant by the Company. Upon termination of this Agreement,
Consultant will, to the best of his ability and at the Company's expense, return
to the Company all documents and other materials related to the services
provided hereunder or furnished to Consultant by the Company. Consultant's
obligations under this Paragraph 8(a) shall survive termination of this
Agreement for any reason.
(b) Consultant shall promptly disclose and hereby transfers and
assigns to the Company all right, title and interest in and to all techniques,
methods, processes, formulae, improvements, inventions and discoveries made or
conceived or reduced to practice by or on behalf of Consultant, solely or
jointly with others, in the course of providing services hereunder or with the
use of materials or facilities of the Company during the period of this
Agreement or which relate to the Company's business or its actual or
demonstrably anticipated research or development (except as otherwise provided
below), and in and to all of Consultant's intellectual property rights therein,
including without limitation, patents, trademarks, copyrights, trade secrets
-2-
<PAGE>
and moral rights. When requested by the Company, Consultant will make available
to the Company all notes, drawings, data and other information relating to the
above. Consultant will promptly sign any documents (including U.S. and foreign
patent assignments) requested by the Company related to the above assignment of
rights and inventions and will cooperate with the Company at the Company's
request and expense in preparation and prosecution of any U.S. or foreign patent
applications related to such rights and inventions. Consultant's obligations
under this Paragraph 8(b) shall survive termination of this Agreement for any
reason. This Agreement does not apply to inventions which were made prior to the
date of this Agreement and which are listed on Exhibit C, attached hereto (if
any).
9. Return of Property. When requested by the Company and in all events at
the termination or expiration of this Agreement, Consultant will return to the
Company any of the Company's property that has come into Consultant's possession
during the term of this Agreement, unless authorization from the Company to keep
such property has been received. Consultant will not remove any of the Company's
property from the Company premises without permission from the Company.
10. Consulting for Competitors. The Company understands that Consultant
does not presently perform or intend to perform, during the term of this
Agreement, consulting or other services for companies whose businesses or
proposed businesses in any way involve products or services which would be
competitive with the services or proposed products or services of the Company
(except for the companies, if any, listed on Exhibit D, attached hereto). If,
however, Consultant decides to do so, Consultant agrees to notify the Company in
writing in advance (specifying the organization with which Consultant proposes
to consult) and provide information sufficient to allow the Company to determine
if such consulting would conflict with areas of interest to the Company or
further services which the Company might request of Consultant pursuant to this
Agreement.
11. Indemnity. VNI and Consultant shall indemnify, and hold harmless each
other and each party's agents, employees, officers and directors from and
against any and all damage, loss, liability, obligations, cost or expense,
caused directly or indirectly, by or as a result of any wrongdoing, negligence,
error or omission under the terms of this Agreement.
12. Remedies. Consultant understands that, in the event Consultant fails to
comply with the terms of this Agreement, the Company may suffer irreparable harm
which may not be adequately compensated by monetary damages. Accordingly,
Consultant agrees that, in the event of breach or threatened breach of the terms
of this Agreement, the Company shall be entitled to injunctive or other
preliminary or equitable relief in addition to such other remedies as may be
available to the Company for such breach or threatened breach, including
damages.
13. Counterparts. This Agreement may be signed in counterparts, each of
which shall be considered an original, but all of which, taken together, shall
constitute one and the same instrument.
-3-
<PAGE>
14. Amendment. Any amendment to this Agreement must be in writing signed by
Consultant and the Company.
15. No Assignment. Because of the personal nature of the services to be
rendered by Consultant, this Agreement may not be assigned by Consultant without
the prior written consent of the Company.
16. Notices. All notices, requests and other communications called for by
this Agreement shall be deemed to have been given if made in writing and mailed,
postage prepaid, if to Consultant at the address set forth on the Consultant's
most recent invoice to the Company and if to the Company at its company
headquarters in Houston, Texas, Attention: President, or to such other addresses
as either party shall specify to the other.
17. Governing Law. The validity, performance and construction of this
Agreement shall be governed by the laws of the State of Texas.
18. Sole Agreement. This Agreement, including the Exhibits thereto,
constitutes the sole Agreement of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof.
19. Waivers, etc. No amendment of this Agreement, and no waiver of any
one or more of the provisions hereof, shall be effective unless set forth in
writing by such person against whom enforcement is sought.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year written above.
VISUAL NUMERICS, INC.
By: /s/ Richard G. Couch
---------------------------------------
Richard G. Couch,
President and Chief Executive Officer
Byron Fetters
/s/ Byron Fetters
--------------------------------------------
(Signature)
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<PAGE>
EXHIBIT A
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<PAGE>
includes such things as providing an efficient and high quality pick, pack
and shipping process; providing and maintaining efficient computer services
and telecommunications; timely response to corporate and sales legal issues,
employee benefits, compensation and recruiting.
ORGANIZATION
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Vice President, Administration & Controller
Byron Fetters
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Accounting Operations IS Human Resources Legal
Michelle Laison Byron Howell David Wells Michael Zak Lloyd Corpening
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<PAGE>
EXHIBIT B
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FISCAL YEAR 1995 BONUS CRITERIA
To be determined by February 1, 1995.
<PAGE>
EXHIBIT C
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LIST OF INVENTIONS
None.
<PAGE>
EXHIBIT D
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LIST OF COMPANIES COMPETITIVE TO VISUAL NUMERICS, INC.
FOR WHICH CONSULTING SERVICES ARE PRESENTLY
BEING PERFORMED (IF NONE, SO STATE):
<PAGE>
EXHIBIT 10.12
May 23, 1995
Mr. David Lloyd
#3 Gun Place
86 Wapping Lane
Wapping, London E19RX
United Kingdom
Re: Employment
Dear David:
On behalf of Visual Numerics International, Ltd. ("VNI Ltd."), I am pleased
to offer you the position of Vice President, Consulting. Provided you accept
it, your initial consulting assignment will be to provide consulting services to
Visual Numerics, Inc. (our parent corporation) as the acting Vice President and
General Manager of the ADT Business Unit, reporting to Richard Couch, President
and CEO. This assignment will be in Houston, Texas. The official date of hire
will be Thursday, June 1, 1995.
With this position, the following compensation and benefit package is
offered:
. An annual base salary of (Pounds)79,355, which will be paid semi-
monthly (15th & EOM) at the rate of (Pounds)3,306.63.
. The exact details of your 1995 Incentive Program will be presented
under separate cover. The Targeted Earnings of this program is $15,000
at 100% of goal achievement. Your 1996 Incentive Program will be
presented no later than December 31, 1995.
. After a 30-day waiting period, you will be entitled to participate in
all VNI Ltd.'s flexible benefits program. You may elect to participate
in the Retirement & Savings Plan after a 30-day waiting period.
Additionally, VNI Ltd. will either (i) request that you be enrolled for
health insurance coverage under the group plan for Visual Numerics,
Inc., if available; or (ii) provided you meet the requirements of
insurability, reimburse you for the actual cost of health insurance
coverage.
<PAGE>
. After a 60-day waiting period, you will be granted a vacation accrual
equal to 10 days for the first year of employment.
. VNI will pay for one round-trip coach airfare between Houston and your
home in the UK after completion of six months in the position.
. A severance package equal to three months of base salary and reasonable
expenses associated with relocating your personal goods back to the
site of origination. The severance package is only good in the event
of an involuntary termination on our part. A termination due to cause,
will not warrant payment of the severance package.
With this consulting position, the following location package is offered:
. A $3,000 bonus payment to move necessary personal household goods from
your home to Houston, Texas, USA.
. During your stay in Houston, a temporary residence not to exceed $1,500
per month.
. Leasing of a mid-range size car.
Visual Numerics conducts quarterly performance appraisals, with a salary
review held the 1st of January.
David, I look forward to working with you. Please indicate your
understanding of this offer by signing this document and returning it to me at
the VNI Houston office, OR calling my Houston voice mail (713) 954-6442 no later
than Thursday, May 25.
Sincerely,
/s/ Richard G. Couch
Richard G. Couch
Chairman of the Board of Director
Visual Numerics International, Ltd.
I understand and accept this offer: /s/ David Lloyd
------------------------------
David Lloyd
Date:
----------------------
<PAGE>
EXHIBIT 10.13
DESIGNATED SHAREHOLDERS' AGREEMENT
This Designated Shareholders' Agreement (this "Agreement") is entered into
by and among IMSL, Inc., a Texas corporation (the "Company"), Charles W. Johnson
and Jennifer C. Johnson (collectively, "Johnson") and each of the undersigned
shareholders of the Company (collectively, "Designated Shareholders").
RECITALS
Each Designated Shareholder is a key employee, contractor or member of the
Board of Directors of the Company and in connection with such employment or
engagement has been issued Class A Common Stock, $0.10 par value per share, of
the Company ("Common Stock"), which number of shares of Common Stock currently
held by each Designated Shareholder is set forth below such Designated
Shareholder's name on the signature pages hereof. In addition, the Designated
Shareholders have been granted certain options to acquire additional shares of
Common Stock, which number of option shares currently held by each Designated
Shareholder is set forth below such Designated Shareholder's name on the
signature pages hereof. As a further inducement for the Designated Shareholders
to continue in their employment by and/or relationship with the Company, the
Company and the Johnsons, principal shareholders of the Company, desire to
afford such Designated Shareholders certain rights and benefits in the event
that (a) either Johnson transfers all or a designated portion of his or her
Common Stock or (b) the Company seeks to register shares of Common Stock for
distribution to the public.
In consideration of the premises, and of the mutual covenants,
representations, warranties and agreements herein contained, the parties hereto
agree as follows:
SECTION 1. CERTAIN DEFINITIONS
In addition to those terms defined in the recitals, the following terms
shall have the following respective meanings:
(a) "COMMISSION" shall mean the Securities and Exchange Commission, or
any other federal agency at the time administering the Exchange Act or the
Securities Act, whichever is the relevant statute for the particular purpose.
(b) "EXCHANGE ACT" shall mean the Securities Exchange Act of l934, or
any successor thereto, and the rules and regulations promulgated thereunder, all
as the same shall be amended from time to time.
(c) "HOLDER" shall mean (i) Johnson, (ii) any Designated Shareholder
who owns any Registrable Securities, (iii) all heirs, executors, personal
representatives, successors and assigns (including any successive successors and
assigns) of Johnson who acquire Registrable Securities, directly or indirectly,
from either Johnson by a Permitted Transfer and (iv) all heirs,
<PAGE>
executors and personal representatives of any deceased Designated Shareholder
who become holders of Common Stock of the Company as a result of the death of a
Designated Shareholder.
(d) "JOHNSON SHARES" shall mean (i) all shares of Common Stock owned
of record by either Johnson, (ii) any shares of Common Stock issued to either
Johnson by way of stock dividend or stock split or in connection with a
combination of shares, conversion, recapitalization, merger, consolidation or
other reorganization, and (iii) any other shares of Common Stock hereafter
acquired by either Johnson. As to any particular shares constituting Johnson
Shares, such shares will cease to be Johnson Shares when they have been
transferred (other than by Permitted Transfers) in compliance with Section 2
hereof.
(e) "PARTICIPATION NOTICE" means a written notice by a Holder of his
desire to sell Registrable Securities in a registration by the Company.
(f) "PERMITTED TRANSFERS" shall mean any transfer of Johnson Shares by
either Johnson (i) to his or her spouse, siblings or descendants; (ii) to any
trust for the benefit of either Johnson, his or her spouse, siblings or
descendants; or (iii) for estate planning or testamentary purposes.
(g) "PERSON" shall mean a corporation, association, partnership,
organization, business, individual, government or political subdivision thereof
or governmental agency.
(h) "PUBLIC SALE" shall mean any sale of the Company's Common Stock to
the public pursuant to a public offering registered under the Securities Act, or
pursuant to the provisions of Rule 144 (or any successor rule) adopted under
the Securities Act.
(i) THE TERMS "REGISTER," "REGISTERED" AND "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering of
effectiveness of such registration statement.
(j) "REGISTRABLE SECURITIES" shall mean (i) the Common Stock, (ii) any
shares of Common Stock issued as a dividend upon or in exchange for the Common
Stock and (iii) any Common Stock issued upon the exercise of any options to
acquire Common Stock, or subject to options which are vested and therefore
issuable upon exercise of such options; provided, however, that shares
constituting the Common Stock shall cease to be Registrable Securities when (y)
a registration statement covering those shares has been declared effective and
such shares have been sold or otherwise transferred by the holder thereof
pursuant to such effective registration statement or (z) they are distributed to
the public pursuant to Rule 144 (or any successor provisions) promulgated under
the Securities Act.
(k) "REGISTRATION NOTICE" means a written notice by the Company to the
Holders of its intent to file a registration statement with the Commission.
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<PAGE>
(l) "SECURITIES ACT" means the Securities Act of 1933, or any
successor thereto, and the rules and regulations promulgated thereunder, all as
the same shall be amended from time to time.
(m) "DESIGNATED SHAREHOLDER REPRESENTATIVE" means the heirs, executors
or personal representatives of any deceased Designated Shareholder who, as the
case may be, become holders of Common Stock of the Company as a result of the
death of a Designated Shareholder.
(n) "TRANSFER" shall mean any sale, assignment, pledge or other
disposition of any interest in Common Stock, other than a bona fide pledge to a
lending institution for value.
SECTION 2. RIGHT TO JOIN IN SALE
2.1 GENERAL RIGHT. Anything in this Agreement to the contrary
notwithstanding, if either Johnson proposes, in a single transaction or a series
of related transactions, to Transfer any Johnson Shares (other than Transfers
permitted under Section 2.3 below), then they shall refrain from effecting such
Transfer unless, prior to the consummation thereof, each Designated Shareholder
(or the Designated Shareholder's Representative) shall have been afforded the
opportunity to join in such Transfer on a pro rata basis, as hereinafter
provided.
2.2 PROCEDURE. Prior to the consummation of any Transfer subject to this
Section 2, Johnson shall cause the Person that proposes to acquire Johnson
Shares in a Transfer subject to this Section 2 (the "Proposed Purchaser") to
offer (the "Purchase Offer") in writing to each Designated Shareholder (or the
Designated Shareholder's Representative) to purchase shares of Common Stock
owned by such Designated Shareholder (or the Designated Shareholder's
Representative), such that the aggregate number of shares of Common Stock which
may be so purchased from each Designated Shareholder (or the Designated
Shareholder's Representative) (the "Disposition Amount") shall be computed in
accordance with the following formula:
Disposition Amount = [P / (M + PA)] X T
M Equal to the Johnson Shares held by Johnson and his and her
transferees pursuant to Permitted Transfers.
P Equal to the shares of Common Stock owned or issuable upon the
exercise of all options held by each Designated Shareholder (or the Designated
Shareholder's Representative) (such Designated Shareholder or Designated
Shareholder's Representative being referred to in this Section 2.2 as a
"Disposing Shareholder").
PA Equal to the aggregate number of shares of Common Stock owned by
all Designated Shareholders and Designated Shareholder Representatives plus all
shares of Common Stock issuable upon the exercise of all options held by all
Designated Shareholders and Designated Shareholder Representatives.
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<PAGE>
T Equal to the total number of shares to be purchased by the Proposed
Purchaser.
Each purchase from a Disposing Shareholder shall be made at the same
consideration per share and on such other terms and conditions as the Proposed
Purchaser has offered to purchase Johnson Shares to be sold by Johnson. In the
event that any sale of shares by Johnson and the Disposing Shareholders is
accomplished in a series of related transactions for varying consideration per
share, the shares of the Disposing Shareholders shall be acquired at the same
times, in the same manner as the Johnson Shares sold by Johnson, and for the
same consideration, and the number of shares sold for any specific consideration
per share in any one of the series of transactions by each of the Disposing
Shareholders shall be equal to (i) the total number of shares to be purchased by
the Proposed Purchaser at any specific consideration per share in any one of a
related series of transactions, times (ii) the Disposition Amount for each such
Disposing Shareholder, divided by (iii) the aggregate number of shares to be
purchased by the Proposed Purchaser in all of the related series of
transactions. Each Disposing Shareholder shall have at least 10 days from the
receipt of the Purchase Offer in which to accept such Purchase Offer, and the
closing of such purchase shall occur within 30 days after such acceptance or at
such other time as such Disposing Shareholder and the Proposed Purchaser may
agree. If any Disposing Shareholder shall decline to Transfer all or any portion
of its Disposition Amount, other Disposing Shareholders shall have the right to
include additional shares of Common Stock in the transfer to the extent of the
deficiency in such Disposing Shareholders Disposition Amount, as mutually agreed
by such other Disposing Shareholders or, failing agreement, in the proportion
which P for each such other Disposing Shareholder bears to the sum of the shares
of Common Stock owned by all such other Disposing Shareholders (including Common
Stock issuable upon the exercise of all Options held by all such Disposing
Shareholders). If Disposing Shareholders shall decline to transfer all or any
portion of the Disposition Amount allocable to such Disposing Shareholders
hereunder, Johnson shall have, the right to include additional Johnson Shares in
the Transfer to the extent of the deficiency. If, in connection with any sale of
Common Stock by a Disposing Shareholder pursuant to this Section 2.2, the
Disposing Shareholder shall have given notice of exercise of options held by
such Disposing Shareholder with shares of Common Stock issuable pursuant to such
exercise to be delivered upon consummation of such sale, and if for any reason
(other than breach or default by the Disposing Shareholder) the sale and
purchase of Common Stock contemplated by the Purchase Offer is not consummated
with respect to the shares of Common Stock offered for sale by the Disposing
Shareholder, then at the Disposing Shareholders option the notice of exercise of
option by the Disposing Shareholder shall be deemed withdrawn and of no force
and effect.
In the event that a Transfer subject to this Section 2 is to be made to a
Proposed Purchaser who is not a party to this Agreement, Johnson shall notify
the Proposed Purchaser that the Transfer is subject to this Section 2 and shall
ensure that no Transfer is consummated without the Proposed Purchaser first
complying with this Section 2.
2.3 EXCLUDED TRANSFERS. The provisions of Section 2 do not apply to a
Transfer in the following circumstances:
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<PAGE>
(a) Permitted Transfers;
(b) Transfers by either Johnson (or by any transferees pursuant to a
Permitted Transfer), not excluded from Section 2.1 by clause (a) above, to
Persons other than Johnson of up to an aggregate of three percent 3% per annum
(during each year commencing with the date of execution of this Agreement) of
the Johnson Shares issued and outstanding at the commencement of each annual
period, such right to be noncumulative; and
(c) Transfers pursuant to a Public Sale.
All shares of Common Stock Transferred pursuant to Section 2.3(b) and
2.3(c) shall be no longer bound by the terms and provisions of this Agreement.
2.4 LEGEND. Each certificate evidencing Johnson Shares and each
certificate issued in exchange for or upon the transfer of any Johnson Shares
(if such shares remain Johnson Shares as defined herein upon such transfer) will
be stamped or otherwise imprinted with a legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS OF THE DESIGNATED SHAREHOLDERS' AGREEMENT, DATED EFFECTIVE AS OF
__________1992, AMONG THE ISSUER OF SUCH SECURITIES (THE "COMPANY"), CHARLES W.
JOHNSON, JENNIFER C. JOHNSON AND CERTAIN OF THE COMPANY'S SHAREHOLDERS. A COPY
OF SUCH DESIGNATED SHAREHOLDERS' AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY
THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST."
Johnson will cause the Company to imprint such legends on certificates
evidencing Johnson Shares outstanding either prior to or concurrent with the
effective date hereof. The legend set forth above shall be removed from the
certificates evidencing any shares which cease to be Johnson Shares pursuant to
Section 4(a) hereof.
2.5 TRANSFER. Prior to any Permitted Transfer of Johnson Shares and as a
condition precedent to the effectiveness of any such Permitted Transfer, Johnson
will cause such transferee to execute and deliver to the Company and the
Shareholders an appropriate amendment to or counterpart of this Agreement.
2.6 HOLD HARMLESS. The Designated Shareholders agree and acknowledge that
(a) neither Johnson is acting as an agent or fiduciary for either the Designated
Shareholders nor any purchaser of the Common Stock in connection with any
Transfer, (b) neither Johnson shall be liable or responsible for the truth,
veracity, breach or completeness of any information, representations or
warranties made or given by the Designated Shareholders to any purchaser of the
Common Stock in connection with any Transfer, or by any purchaser of the Common
Stock to any of the Designated Shareholders in connection with any Transfer, (c)
the terms of any Transfer in which the Designated Shareholders participate shall
be deemed fair to the Designated
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<PAGE>
Shareholders absent a showing by clear and convincing evidence of bad faith or
fraud on the part of either Johnson in connection with any such Transfer.
SECTION 3. REGISTRATION RIGHTS
3.1 RIGHTS. If, at any time, the Company proposes to file a registration
statement in connection with the public offering of shares of Common Stock to be
sold by the Company for its own account or for the account of any Holder or any
other person under the Securities Act, prior to such filing the Company shall
give each Holder a Registration Notice. Within 15 business days after receipt
by any Holder of a Registration Notice, such Holder shall have the right to
deliver to the Company a Participation Notice of such Holder's desire to sell
Registrable Securities under such registration. The Participation Notice shall
state the number of Registrable Securities which the Holder desires to be
included and disposed of in such registration; provided, however, such Holder's
right to registration of such Registrable Securities shall be subject to any
limitations in the number thereof which may be required by the underwriters
pursuant to Section 3.4 hereof. The Company shall use all reasonable efforts to
promptly cause all such Registrable Securities to be registered along with the
other securities to be registered for the account of the Company provided, that
(a) the Company shall not be required to give notice or include such Registrable
Securities in any such registration if the proposed registration is primarily
(i) a registration of a stock option or other employee incentive compensation
plan or of securities issued or issuable pursuant to any such plan, (ii)
securities issued or issuable pursuant to a dividend or interest reinvestment
plan, or other similar plan, or (iii) a registration of securities proposed to
be issued in exchange for securities or assets of, or in connection with a
merger or consolidation with, another corporation; (b) the Company shall not be
required to include the Registrable Securities of a Holder in any such
registration if the Holder fails to timely provide the Company with all
information which is in the possession of and relates to such Holder and which
is necessary in connection with such registration and take all such action as
may be reasonably required in order not to delay the registration and offering
of securities by the Company; and (c) the Company may, in its sole discretion
and without the consent of the Holders, withdraw such registration statement and
abandon any such proposed offering, notwithstanding any Holder's request to
participate therein in accordance with this Section 3.1. The Registrable
Securities proposed to be registered under any registration statement under this
Section 3.1 will be offered for sale upon the same terms as like securities
offered for sale by the Company in such registration. If, in connection with
the registration for sale of Common Stock, any Holder who shall have given a
Participation Notice and also given notice of exercise of options held by such
Holder with the intent to include shares of Common Stock issuable pursuant to
such options in such registration, and if for any reason (other than breach or
default by such Holder) the registration and sale of Common Stock is not
consummated with respect to the shares of Common Stock proposed for registration
and sale by such Holder, then at such Holder's option the notice of exercise of
option by such Holder shall be deemed withdrawn and of no force or effect.
3.2 OBLIGATIONS OF THE COMPANY. Whenever required under Section 3.1 hereof
to use all reasonable efforts to effect the registration of any Registrable
Securities, the Company shall, as expeditiously as reasonably possible:
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<PAGE>
(a) Prepare and file with the Commission a registration statement with
respect to such Registrable Securities and use all reasonable efforts to cause
such registration statement to become and remain effective; provided, however,
that the Company shall have no obligation to maintain the effectiveness of any
registration statement filed hereunder or to cause the information therein to
remain current for more than 90 days following such registration statement's
effective date.
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to keep such registration
statement effective in order to dispose of the securities registered thereunder
in the manner described in the underwriting agreement executed in connection
therewith and to comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such registration statement;
provided, however, that the Company shall have no obligation to maintain the
effectiveness of any registration statement filed hereunder or to cause the
information therein to remain current for more than 90 days following such
registration statement's effective date.
(c) Furnish to the Holders registering securities in such registration
such numbers of copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other documents
as they may reasonably request in order to facilitate the disposition of
Registrable Securities owned by the Holders.
(d) Use all reasonable efforts to register and qualify the securities
covered by such registration statement under such other securities or "Blue Sky"
laws of such jurisdictions as shall be reasonably appropriate for the
distribution of the securities covered by the registration statement; provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to rile a general consent to service of
process in any such jurisdictions.
(e) Use all reasonable efforts to comply with all applicable rules and
regulations of the Commission, and make available to its security holders, as
soon as reasonably practicable (but not more than eighteen months) after the
effective date of the registration statement, an earnings statement which shall
satisfy the provisions of Section 11(a) of the Securities Act and the rules and
regulations promulgated thereunder.
(f) Use all reasonable efforts to list such Registrable Securities on
any securities exchange on which the Common Stock of the Company is then listed,
if such Registrable Securities are not already so listed and if such listing is
then permitted under the rules of such exchange, and to provide a transfer agent
and registrar for such Registrable Securities covered by such registration
statement not later than the effective date of such registration statement.
(g) Enter into such customary agreements (including an underwriting
agreement in customary form) and take such other actions as Holders of a
majority of shares of
-7-
<PAGE>
such Registrable Securities or the underwriters, if any, reasonably request in
order to expedite or facilitate the disposition of such Registrable Securities.
(h) Make available for inspection by any Holder of Registrable
Securities covered by such registration statement, by any underwriter
participating in any disposition to be effected pursuant to such registration
statement and by any attorney, accountant or other agent retained by any such
Holder or any such underwriter, all pertinent financial and other records,
pertinent corporate documents and properties of the Company, and cause all of
the Company's officers, directors and employees to supply all information
reasonably requested by any such Holder, underwriter, attorney, accountant or
agent in connection with such registration statement.
The Company may require each Holder of Registrable Securities as to
which any registration is being effected to furnish the Company with such
information regarding such Holder and pertinent to the disclosure requirements
relating to the registration and the distribution of such securities as the
Company may from time to time reasonably request in writing.
3.3 EXPENSES OF REGISTRATION. All expenses incurred in connection with a
registration pursuant to Section 3.1 hereof (excluding only underwriters'
discounts and commissions applicable to Registrable Securities), including
without limitation all registration, qualification, and listing fees, printing
fees and expenses, accounting fees and expenses, and fees and disbursements of
counsel for the Company, shall be borne by the Company. Each Holder of
Registrable Securities shall pay the underwriters' discounts and commissions
applicable to the securities sold by such Holder. In addition, each selling
Holder shall pay its own legal fees and expenses of separate counsel, and costs
for experts or professionals employed by it or on its behalf, in connection with
the registration of Registrable Securities.
3.4 UNDERWRITING REQUIREMENTS.
(a) In connection with any offering involving an underwriting of
shares being issued by the Company, the Company shall not be required to include
any of the Holders' Registrable Securities in such underwriting unless the
Holders accept the terms of the underwriting as agreed upon between the Company
and the underwriters selected by the Company.
(b) If a registration pursuant to Section 3.1 hereof involves an
underwritten offering and the managing underwriter advises the Company in
writing that, in its opinion, the number of securities requested to be included
in such registration exceeds the number which can be sold in such offering, so
as to be likely to have an adverse effect on such offering as contemplated by
the Company (including the price at which the Company proposes to sell such
securities), then the Company will include in such registration (i) first, 100%
of the securities the Company proposes to sell, (ii) second, to the extent of
the number of Registrable Securities requested to be included in such
registration which, in the opinion of such managing underwriter, can be sold
without having the adverse effect referred to above, the number of Registrable
Securities which the Holders have requested to be included in such registration,
such amount to
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<PAGE>
be allocated pro rata among all requesting Holders on the basis of the relative
number of shares of Registrable Securities then held by each such Holder
(provided that any shares thereby allocated to any such Holder that exceed such
Holder's request will be reallocated among the remaining requesting Holders in
like manner).
(c) If a registration pursuant to Section 3.1 hereof involves Common
Stock of one or more Holders but does not include Common Stock of the Company,
then the Holders shall be entitled to include such number of Registrable
Securities which the Holders have requested to be included in such registration,
with such amount to be allocated pro rata among all requesting Holders on the
basis of the relative number of shares of Registrable Securities then held by
each such Holder.
3.5 INDEMNIFICATION.
(a) In the event of registration of any of the Registrable Securities
under the Securities Act, the Company will, and hereby does, indemnify and hold
harmless the seller of such Registrable Securities, each underwriter of such
Registrable Securities, and each other person, if any, who controls such seller
or underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages or liabilities, joint or several, to which
such seller, underwriter or controlling person may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable Securities
were registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the registration statement, or any amendment or
supplement to such registration statement, preliminary prospectus or financial
prospectus or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company will reimburse such seller,
underwriter, and each such controlling person for any legal or any other
expenses reasonably incurred by such seller, underwriter, or controlling person
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that and such loss, claim, damage, or liability
arises out of or is based upon any untrue statement or omission made in such
registration statement, preliminary prospectus or prospectus, or any such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by or
on behalf of such seller or underwriter specifically for use in preparation
thereof.
(b) In the event of any registration of any of the Registrable
Securities under the Securities Act, each seller of the Registrable Securities,
severally and not jointly, will, and hereby does, indemnify and hold harmless
the Company, each of its directors and officers and each underwriter (if any),
and each person, if any, who controls the Company or any such underwriter within
the meaning of the Securities Act or the Exchange Act, against losses, claims,
damages or liabilities, joint or several, to which the Company, such directors
and officers, underwriter or controlling person may become subject under the
Securities Act, Exchange Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise
-9-
<PAGE>
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in any registration statement under which such
Registrable Securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained in the registration statement, or any
amendment or supplement to such registration statement, preliminary prospectus
or final prospectus or arise out of or are based upon any omission or alleged
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, if the statement or omission was
made in reliance upon and in conformity with written information furnished to
the Company through an instrument duly executed by or on behalf of such seller
specifically for use in connection with the preparation of such registration
statement, prospectus, amendment or supplement.
(c) Each party entitled to indemnification under this Section 3.5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and
shall, unless in the reasonable judgment of such Indemnified Party a conflict of
interest between such Indemnified Party and the Indemnifying Party may exist in
respect of such claim, permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel
chosen by the Indemnifying Party to conduct the defense of such claim or
litigation shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 3.5 except to the
extent that the Indemnifying Party has been prejudiced by such late or deficient
notice. After the Indemnifying Party has assumed the defense of such claim or
litigation, the Indemnifying Party will not be liable to such Indemnified Party
for any legal or other expenses subsequently incurred by such Indemnified Party
in connection with the defense thereof other than reasonable costs of
investigation, unless the Indemnifying Party abandons the defense of such claim
or litigation. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
3.6 LOCKUP AGREEMENT. In connection with any registration hereunder, upon
the request of the Company or the underwriters managing any underwritten
offering of securities, each Holder agrees not to sell, make any short sale of,
loan, grant any option for the purchase of, or otherwise dispose of any
Registrable Securities (other than those included in the registration) without
the prior written consent of the Company or such underwriters, as the case may
be, for such period of time (not to exceed 180 days) from the effective date of
such registration as the Company or the underwriters may specify.
3.7 RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees that he will not sell, dispose of or otherwise
transfer any of the Registrable Securities except (i) upon registration of such
shares under the Securities
-10-
<PAGE>
Act, (ii) pursuant to Rule 144 under the Securities Act or such comparable rules
as shall from time to time be in effect, or (iii) in a transaction exempt from
the registration requirements of the Securities Act.
(b) Each certificate representing the Registrable Securities shall
bear a conspicuous legend in form approved by the Company reflecting in
substance that such shares have been acquired for investment and have not been
registered under the Securities Act and may be transferred only upon receipt by
the issuer of an opinion of counsel acceptable to the issuer that the transfer
will not violate the Securities Act.
3.8 REPORTS UNDER THE EXCHANGE ACT. With a view to making available to the
Holders the benefits of Rule 144 promulgated under the Securities Act and any
other rule or regulation of the Commission that may at any time permit a Holder
to sell securities of a company to the public without registration, the Company
agrees to use all reasonable efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144, at all times subsequent to ninety (90) days
after the effective date of the first registration statement covering an
underwritten public offering filed by the Company or to the extent otherwise
required on the part of the Company under applicable provisions of the Exchange
Act;
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) Furnish to the Holders, so long as the Holders own any Registrable
Securities, forthwith upon request, a written statement by the Company that it
has complied with the reporting requirements of Rule 144 (at any time after
ninety (90) days after the effective date of the first registration statement
filed by the Company) and of the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirements), a copy of the
most recent annual or quarterly report of the Company, and such other reports
and documents so filed by the Company as may be reasonably requested in availing
Holders of any rule or regulation of the Commission permitting the selling of
any such securities without registration.
3.9 EFFECT ON FUTURE GRANTS OF REGISTRATION RIGHTS. In the event that
following the effective date of this Agreement the Company shall enter into one
or more agreements with any holder or prospective holder of any securities of
the Company which provides for the granting to such holder of registration
rights, then, unless such registration rights are made either senior or
subordinate to the rights of Holders hereunder, the registration rights granted
under this Agreement shall be deemed to be pari passu with such other
registration rights with the attendant effect that a Holder shall only be
entitled to include such number of Registrable Securities which the Holder has
requested to be included in any such registration in proportion to which the
relative number of shares of Registrable Securities then held by such Holder
bears to the total amount of Registrable securities sought to be registered
(provided that any shares thereby
-11-
<PAGE>
allocated to any such Holder that exceed such Holder's request will be
reallocated among the remaining requesting Holders in like manner).
SECTION 4. MISCELLANEOUS
4.1 TERMINATION. The provisions of Sections 2 and 3 of this Agreement will
terminate upon the earlier of (i) the written agreement of an authorized officer
of the Company, the Johnson's (and all transferees of Permitted Transfers) and
the Designated Shareholders (or the Designated Shareholders' Representatives, as
the case may be), (ii) as to each Designated Shareholder at such time as such
Designated Shareholder (A) ceases to hold of record any shares of Common Stock
by reason other than death or (B) ceases to be an employee or contractor of the
Company or otherwise serve as an officer or director of the Company by reason
other than death, or (iii) the tenth (10th) anniversary of the effective date
hereof. If not sooner terminated, the provisions of Section 2 of this Agreement
shall terminate at such time as (i) shares of Common Stock of the Company are
publicly traded on an exchange or in the over-the-counter market, or (ii)
Johnson holds less than 33% of the issued and outstanding shares of Common Stock
of the Company.
4.2 ADJUSTMENTS. In the event that the Company shall declare a stock split,
stock dividend or other distribution of capital stock in respect of, or issue
capital stock in replacement of or exchange for, shares of Common Stock, (i)
such shares shall be subject to this Agreement and the provisions of this
Agreement providing for calculations based on the number of shares of Common
Stock shall include the shares issued in respect of the Common Stock, and (ii)
the numbers for shares shall be equitably adjusted as appropriate to give effect
to such event.
4.3 AMENDMENTS. This Agreement may be amended, or any matter may be
consented to, only by an instrument in writing executed by an authorized officer
of the Company, Johnson and the Designated Shareholders (or the Designated
Shareholders' Representatives, as the case may be), except for any Designated
Shareholders as to whom the Agreement has terminated.
4.4 RELATIONSHIPS AND RIGHTS OF THE HOLDERS. The Holders agree that,
notwithstanding that certain rights of each Holder herein may be affected by
similar rights of other Holders, the Holders shall, in respect of the ownership
of the Registrable Securities, not be related as, or deemed to be, a
partnership, joint venture, or other "group" for the purpose of acquiring,
holding, voting, or disposing of securities of the Company.
4.5 HEADINGS. The headings, captions, and arrangements used herein are,
unless specified otherwise, for convenience only and shall not be deemed to
limit, amplify, or modify the terms hereof, nor affect the meaning thereof.
4.6 NOTICES. Each notice relating to this Agreement shall be in writing and
validly given if (a) personally delivered, (b) delivered and confirmed by
telecopier or like instantaneous transmission service, (c) delivered by Federal
Express or other overnight courier delivery service or (d) deposited in the
United States mail, first class, postage prepaid, registered or certified,
return receipt requested, addressed as follows:
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<PAGE>
If to the Company:
IMSL, Inc.
14141 Southwest Freeway, Suite 3000
Sugar Land, Texas 77478-3498
Attention: President
If to Johnson:
Charles and Jennifer Johnson
3801 Lighthouse Drive
Racine, Wisconsin 53402
If to a Shareholder:
Addressed to the Shareholder at the address reflected on the signature
pages hereof.
Notice given by instantaneous transmission device or overnight courier
delivery service shall be effective as of confirmation of receipt by the
recipient or delivery by the courier at the address for notice herein stated.
Notice given by mail in the manner specified shall be conclusively deemed given
three (3) days before the date postmarked or upon receipt, whichever is sooner.
Any party may change its address for the purpose of notices by notice given as
herein provided.
4.7 GOVERNING LAW. THE VALIDITY, CONSTRUCTION, ENFORCEMENT, AND
INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
TEXAS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
4.8 INVALID PROVISIONS. If any provision hereof is held to be illegal,
invalid, or unenforceable under present or future laws effective during the term
hereof, such provision shall be fully severable; this Agreement shall be
construed and enforced as if such illegal, invalid, or unenforceable provision
had never comprised a part hereof, and the remaining provisions hereof shall
remain in full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision.
4.9 SUCCESSORS, ASSIGNS AND TRANSFEREES. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, executors and personal representatives and permitted successors and
assigns. In addition, and whether or not any express assignment shall have been
made, the provisions of this Agreement which are for the benefit of the parties
hereto other than the Company shall also be for the benefit of and enforceable
by any transferee of a Permitted Transfer. Unless otherwise expressly provided
by the Board of
-13-
<PAGE>
Directors of the Company in writing or as expressly provided herein upon the
death of a Designated Shareholder, the rights provided to the Designated
Shareholders in Sections 2 and 3 hereof are not assignable nor otherwise
transferable by the Designated Shareholders (whether by operation of law or
otherwise). Any attempt to assign or transfer this Agreement or all or any of
the rights hereof contrary to the terms hereof shall be null and void and of no
force and effect.
4.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and it shall not be
deemed necessary in making proof of this Agreement to produce or account for
more than one counterpart signed by the party to be charged thereby.
4.11 SPECIFIC ENFORCEMENT. The parties hereby declare that it is impossible
to measure in money the damages which will accrue to a party hereto by reason of
a breach of, or a failure to perform any of, the obligations under this
Agreement. Therefore, in addition to all rights and remedies contained in this
Agreement and to which the parties hereto are entitled at law, it is understood
and agreed that any party hereto shall have the right to enforce specifically by
an action in equity the terms of this Agreement.
-14-
<PAGE>
IN WITNESS HEREOF, this Agreement has been duly executed and delivered
EFFECTIVE as the 15th day of December, 1992.
COMPANY:
IMSL, INC.
By: /s/ Richard Couch
-------------------------------
Printed Name:
---------------------
Title:
----------------------------
JOHNSON:
By:/s/ Charles W. Johnson
-------------------------------
Charles W. Johnson
# Shares of Common Stock
Currently Held of Record: 403,000
By:/s/ Jennifer C. Johnson
-------------------------------
Jennifer C. Johnson
# Shares of Common Stock
Currently Held of Record: 300,000
-15-
<PAGE>
SHAREHOLDERS:
By:/s/ Richard G. Couch
--------------------------------
Richard G. Couch
Address: 11 Wilson Court
Alamo, California 94507
# Shares of Common Stock
Currently Held of Record: 20,000
# Option Shares: 57,222*
________________________________________
* Includes 20,000 existing options and
options issuable on consummation of
Precision Visuals, Inc. acquisition (5,000
shares), and pursuant to bonus/retention
plan (22,222 shares) and 1993 performance
incentive (10,000 shares).
By:/s/ Thomas J. Aird
-------------------------------------
Thomas J. Aird
Address: 12039 Mulholland
Stafford, Texas 77477
# Shares of Common Stock
Currently Held of Record: 24,250
# Option Shares: 20,000
By:/s/ Ted Charter
-------------------------------------
Ted Charter
Address: 200 Shantilly
Danville, CA 94526
# Shares of Common Stock
Currently Held of Record: None
# Option Shares: 72,500
-16-
<PAGE>
By:/s/ Robert Strosser
-------------------------------------
Robert Strosser
Address: 840 Macclesfield Rd.
Furlong, PA 18925
# Shares of Common Stock
Currently Held of Record: None
# Option Shares: 70,000
-17-
<PAGE>
EXHIBIT 10.14
SHAREHOLDER RIGHTS AGREEMENT
----------------------------
This Shareholder Rights Agreement ("Agreement") is effective as of
December 22, 1992 by and between IMSL, Inc. (the "Company") and the investors
designated on Exhibit A attached hereto (the "Investors").
---------
1. Registration Rights.
-------------------
1.1 Certain Definitions. As used in this Agreement, the
-------------------
following terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or
----------
any other federal agency at the time administering the Securities Act of 1933,
as amended (the "Securities Act").
"Holder" shall mean any person acquiring Registrable Securities
------
(including securities convertible into Registrable Securities) directly from the
Company and any person holding Registrable Securities to whom the rights under
this paragraph 1.1 have been transferred in accordance with paragraph 1.8
hereof.
"Registrable Securities" means (i) up to 236,282 shares of Class A
----------------------
Common Stock issued pursuant to the Agreement and Plan of Reorganization among
IMSL, Inc., IMSL Acquisition Corporation and Precision Visuals, Inc., dated as
of November 16, 1992, and (ii) any Common Stock of the Company issued or
issuable in respect of the shares listed in (i) above upon any stock split,
stock dividend, recapitalization, or similar event, provided, however, that
shares of Common Stock or other securities shall only be treated as Registrable
Securities if and so long as they have not been (A) sold to or through a broker
or dealer or underwriter in a public distribution or a public securities
transaction, or (B) sold (or are available for sale without volume restrictions
in the opinion of counsel to the Company) in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act so that
all transfer restrictions and restrictive legends with respect thereto are
removed upon the consummation of such sale.
The terms "register," "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, except as
---------------------
otherwise stated below, incurred by the Company in complying with paragraph 1.2
hereof, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, the expense of any special audits
<PAGE>
incident to or required by any such registration and the fees and disbursements
of one counsel for the selling shareholders which counsel fees shall not exceed
$15,000 in any offering (but excluding the compensation of regular employees of
the Company which shall be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts, selling
----------------
commissions and stock transfer taxes applicable to the securities registered by
the Holders.
1.2 Company Registration.
--------------------
(a) If, at any time or from time to time, the Company shall determine
to register any of its securities, either for its own account or the account of
a security holder or holders, other than (i) a registration relating solely to
employee benefit plans, or (ii) a registration relating solely to a Commission
Rule 145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within twenty (20) days after receipt of such written notice from
the Company, by any Holder.
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to paragraph
1.2(a)(i). In such event the right of any Holder to registration pursuant to
paragraph 1.2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of Registrable Securities in the underwriting to
the extent provided herein. All Holders proposing to distribute their
securities through such underwriting shall (together with the Company and the
other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Company. Notwithstanding any other
provision of this paragraph 1.2, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the Registrable Securities or
other securities to be included in such registration. The Company shall so
advise all Holders and other holders distributing their securities through such
underwriting and the number of shares of Registrable Securities and other
securities that may be included in the registration and underwriting shall be
allocated among all Holders and such other holders in
-2-
<PAGE>
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities and other securities (possessing registration rights) held by such
Holders and such other holders at the time of filing the registration statement.
To facilitate the allocation of shares in accordance with the above provisions,
the Company may round the number of shares allocated to any Holder or holder to
the nearest 100 shares. If any Holder or holder disapproves of the terms of any
such underwriting, he may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to 90 days after the effective date
of the registration statement relating thereto, or such other shorter period of
time as the underwriters may require.
(c) The Company shall have the right to terminate or withdraw any
registration initiated by it under this paragraph 1.2 prior to the effectiveness
of such registration whether or not any Holder has elected to include securities
in such registration.
1.3 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with paragraph 1.2 shall be borne by the Company. All Selling
Expenses relating to securities registered on behalf of the Holders shall be
borne by the Holders of such securities pro rata on the basis of the number of
shares so registered.
1.4 Registration Procedures. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to this Section 1,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least ninety (90)
days or until the distribution described in the registration statement has been
completed;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
-3-
<PAGE>
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Furnish on the date that such Registrable Securities are
delivered to the underwriters for sale in connection with a registration
pursuant to this Section 1, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter, dated such date, from
the independent accountants of the Company, in form and substance as is
customarily given by independent accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
1.5 Indemnification.
---------------
(a) The Company will indemnify each Holder, each of its officers
and directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification
-4-
<PAGE>
or compliance has been effected pursuant to this Section 1, and each
underwriter, if any, and each person who controls any underwriter within the
meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the Company of any
federal, state or common law rule or regulation applicable to the Company in
connection with any such registration, qualification or compliance, and the
Company will reimburse each such Holder, each of its officers and directors, and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder, controlling person or underwriter and stated to be
specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers, directors and
partners and each person controlling such Holder within the meaning of Section
15 of the Securities Act, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Company, such Holders, such directors, officers, persons,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
-5-
<PAGE>
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder and
stated to be specifically for use therein. Notwithstanding the foregoing, the
liability of each Holder under this subparagraph (b) shall be limited in an
amount equal to the public offering price of the shares sold by such Holder. A
Holder will not be required to enter into any agreement or undertaking in
connection with any registration under this Section 1 providing for any
indemnification or contribution on the part of such Holder greater than the
Holder's obligations under this paragraph 1.5(b).
(c) Each party entitled to indemnification under this paragraph
1.5 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 1 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action
and provided further, that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or separate and
different defenses. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
1.6 Information by Holder. The Holder or Holders of Registrable
---------------------
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 1.
1.7 Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the restricted securities
-6-
<PAGE>
to the public without registration, after such time as a public market exists
for the Common Stock of the Company, the Company agrees to use its best efforts
to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended.
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Securities Exchange Act of 1934, as amended (at any time
after it has become subject to such reporting requirements).
(c) So long as a Holder owns any restricted securities to furnish
to the Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 (at any time
after 90 days after the effective date of the first registration statement filed
by the Company for an offering of its securities to the general public), and of
the Securities Act and the Securities Exchange Act of 1934, as amended (at any
time after it has become subject to such reporting requirements), a copy of the
most recent annual or quarterly report of the Company, and such other reports
and documents of the Company and other information in the possession of or
reasonably obtainable by the Company as a Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing an Investor
to sell any such securities without registration.
1.8 Transfer of Registration Rights. The rights to cause the Company
-------------------------------
to register securities granted Holders under paragraph 1.2 may be assigned to a
transferee or assignee provided that: (i) such transfer may otherwise be
effected in accordance with applicable securities laws, and (ii) such assignee
or transferee acquires at least 50,000 shares of Class A Common Stock.
Notwithstanding the foregoing, the rights to cause the Company to register
securities may be assigned to any constituent partner of a Holder, without
compliance with item (ii) above, provided written notice thereof is promptly
given to the Company.
1.9 Standoff Agreement. Each Holder agrees that in connection with
------------------
the Company's initial underwritten public offering of the Company's securities,
upon request of the Company or the underwriters managing such initial
underwritten public offering of the Company's securities, each Holder shall not
sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any securities of the Company (other than those included in
the registration) without the prior written
-7-
<PAGE>
consent of the Company or such underwriters, as the case may be, for such period
of time (not to exceed one hundred eighty (180) days) from the effective date of
such registration as may be requested by the underwriters.
1.10 Amendment of Registration Rights. With the written consent of
--------------------------------
the holders of more than 50% of the then outstanding Registrable Securities, the
Company may amend this Section 1.
2. Right of First Refusal.
----------------------
2.1 Grant of Right. Except as set forth in Section 2.5, the Company
--------------
hereby grants to James R. Warner and Advent IV Liquidating Trust, William
Gorham, Trustee the right of first refusal to purchase (i) in the case of James
R. Warner, up to three-fourths (3/4) and (ii) in the case of Advent IV
Liquidating Trust, William Gorham, Trustee up to one-fourth (1/4), of the total
of all or any part of the Investors' Pro Rata Share (as hereinafter defined) of
the New Securities (as defined in Section 2.2) which the Company may, from time
to time, propose to sell and issue. James R. Warner and Advent IV Liquidating
Trust, William Gorham, Trustee may purchase said New Securities on the same
terms and at the same price at which the Company proposes to sell the New
Securities. The Pro Rata Share of the Investors, for purposes of this right of
first refusal, is the ratio of the total number of shares of Class A Common
Stock held by the Investors, to the total number of shares of Class A Common
Stock outstanding immediately prior to the issuance of the New Securities
(including any shares of Class A Common Stock into which outstanding shares of
Preferred Stock are convertible).
2.2 New Securities. "New Securities" shall mean any capital stock of
--------------
the Company, whether now authorized or not, and any rights, options or warrants
to purchase said capital stock, and securities of any type whatsoever that are,
or may become, convertible into said capital stock; provided, however, that "New
-------- -------
Securities" does not include (i) the Class A Common Stock issued pursuant to the
Agreement and Plan of Reorganization of even date herewith, (ii) securities
offered pursuant to a registration statement filed under the Securities Act,
(iii) securities issued pursuant to the acquisition of another corporation by
the Company by merger, purchase of substantially all of the assets or other
reorganization, (iv) all shares of Class A Common Stock hereafter issued or
issuable to officers, directors, employees or consultants of the Company
pursuant to any employee or consultant stock offering, plan or arrangement
approved by the Board of Directors of the Company and (v) capital stock issued
in connection with any stock split, stock dividend or recapitalization of the
Company.
2.3 Notice. In the event the Company proposes to undertake an
------
issuance of New Securities, it shall give to the
-8-
<PAGE>
Investors written notice (the "Notice") of its intention, describing the type of
New Securities, number of shares, the price, the terms upon which the Company
proposes to issue the same, and a statement as to the number of days from
receipt of such Notice within which the Investors must respond to such Notice.
The Investors shall have fifteen (15) days from the date of such Notice to
purchase any or all of the New Securities for the price and upon the terms
specified in the Notice by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased and forwarding payment
for such New Securities to the Company if immediate payment is required by such
terms, or in any event no later than fifteen (15) days after the date of receipt
of the Notice.
2.4 Sale after Notice. If not all Investors elect to purchase their
-----------------
Pro Rata Share of the New Securities, then Investors who do so elect shall be
offered the right to acquire such non-participating Investors' Pro Rata Share.
If the Investors fail to exercise in full the right of first refusal within said
fifteen (15) day period, the Company shall have ninety (90) days thereafter to
sell or enter into an agreement (pursuant to which the sale of New Securities
covered thereby shall be closed, if at all, within thirty (30) days from the
date of said agreement) to sell the New Securities respecting which the
Investors' rights were not exercised, at a price and upon general terms no more
favorable than specified in the Notice. In the event the Company has not sold
the New Securities within said ninety (90) day period (or sold and issued New
Securities in accordance with the foregoing within thirty (30) days from the
date of said agreement), the Company shall not thereafter issue or sell any New
Securities without first offering such securities to the Investors in the manner
provided above.
2.5 Expiration. The right of first refusal granted under this
----------
Section 1 shall expire upon the date upon which a registration statement filed
by the Company under the Securities Act (other than a registration of securities
in a Rule 145 transaction or with respect to an employee benefit plan) in
connection with an underwritten public offering of its securities first becomes
effective and the securities registered thereunder shall have been sold.
2.6 Assignment. The right of first refusal granted under this
----------
Section 2 is assignable by the Investors to any transferee of a minimum of Ten
Thousand (10,000) shares of Class A Common Stock (as adjusted for stock splits
and combinations).
2.7 Amendment of Right of First Refusal. With written consent of more
-----------------------------------
than 50% of the Investors the Company may amend this Section 2.
-9-
<PAGE>
3. Miscellaneous Provisions.
------------------------
3.1 Notices. All notices and other communications required or
-------
permitted hereunder shall be in writing and, except as otherwise noted herein,
shall be deemed effectively given upon personal delivery, delivery by nationally
recognized courier or upon deposit with the United States Post Office, (by first
class mail, postage prepaid) addressed: (a) if to the Company, at 14141
Southwest Freeway, Suite 3000, Sugar Land, Texas 77478 (or at such other address
as the Company shall have furnished to the Holders in writing) attention of
President and (b) if to a Holder, at the latest address of such Holder shown on
the Company's records.
3.2 Descriptive Headings. The descriptive headings herein have been
--------------------
inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provisions hereof.
3.3 Governing Law. This Agreement shall be governed by and
-------------
interpreted under the laws of the State of California as applied to agreements
among California residents, made and to be performed entirely within the State
of California.
3.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument, but only one of which
need be produced.
3.5 Expenses. If any action at law or in equity is necessary to
--------
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.6 Entire Agreement. This Agreement constitutes the full and entire
----------------
understanding and agreement between the parties with regard to the subject
matter of this Agreement.
3.7 Separability; Severability. Unless expressly provided in this
--------------------------
Agreement, the rights of each Investor under this Agreement are several rights,
not rights jointly held with any other Investors. Any invalidity, illegality or
limitation on the enforceability of this Agreement with respect to any Investor
shall not affect the validity, legality or enforceability of this Agreement with
respect to the other Investors. If any provision of this Agreement is
judicially determined to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not be affected or
impaired.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first set forth above.
IMSL, INC.
By: /s/ Richard G. Couch
---------------------------
Title: PRESIDENT/CEO
-----------------------
-11-
<PAGE>
SHAREHOLDER SIGNATURE PAGE
--------------------------
The undersigned shareholder hereby agrees to the provisions of the
Shareholder Rights Agreement dated December 22 , 1992.
----
Dated: March 15, 1993
-----------------------
/s/ signed by Shareholders
-------------------------------
(Signature)
-------------------------------
(Name)
<PAGE>
EXHIBIT 10.15
SHAREHOLDER RIGHTS AGREEMENT
----------------------------
This Shareholder Rights Agreement ("Agreement") is effective as of March
18, 1993 by and between IMSL, Inc., a Texas corporation doing business as Visual
Numerics, Inc. (the "Company"), and the investors designated on Exhibit A
attached hereto (the "Investors").
1. Registration Rights.
1.1 Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act of 1933,
as amended (the "Securities Act").
"Holder" shall mean any person acquiring Registrable Securities
(including securities convertible into Registrable Securities) directly from the
Company and any person holding Registrable Securities to whom the rights under
this paragraph 1.1 have been transferred in accordance with paragraph 1.8
hereof.
"Registrable Securities" means (i) up to 72,000 shares of Class A
Common Stock issued pursuant to the Agreement and Plan of Reorganization among
the Company, VNI Acquisition Corporation and 3D-Visions Corporation, dated as of
February 26, 1993, and (ii) any Common Stock of the Company issued or issuable
in respect of the shares listed in (i) above upon any stock split, stock
dividend, recapitalization, or similar event, provided, however, that shares of
Common Stock or other securities shall only be treated as Registrable Securities
if and so long as they have not been (A) sold to or through a broker or dealer
or underwriter in a public distribution or a public securities transaction, or
(B) sold (or are available for sale without volume restrictions in the opinion
of counsel to the Company) in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act so that all transfer
restrictions and restrictive legends with respect thereto are removed upon the
consummation of such sale.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, except as
otherwise stated below, incurred by the Company in complying with paragraph 1.2
hereof, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, the expense of any special audits
incident to or required by any such registration and the fees and disbursements
of one counsel for the selling shareholders which counsel fees shall not exceed
$15,000 in any offering (but excluding the compensation of regular employees of
the Company which shall be paid in any event by the Company).
<PAGE>
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders.
1.2 Company Registration.
(a) If, at any time or from time to time, the Company shall determine
to register any of its securities, either for its own account or the account of
a security holder or holders, other than (i) a registration relating solely to
employee benefit plans, or (ii) a registration relating solely to a Commission
Rule 145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within twenty (20) days after receipt of such written notice from
the Company, by any Holder.
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to paragraph
1.2(a)(i). In such event the right of any Holder to registration pursuant to
paragraph 1.2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of Registrable Securities in the underwriting to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Company. Notwithstanding any other provision of
this paragraph 1.2, if the managing underwriter determines that marketing
factors require a limitation of the number of shares to be underwritten, the
managing underwriter may limit the Registrable Securities or other securities to
be included in such registration. The Company shall so advise all Holders and
other holders distributing their securities through such underwriting and the
number of shares of Registrable Securities and other securities that may be
included in the registration and underwriting shall be allocated among all
Holders and such other holders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities and other securities (possessing
registration rights) held by such Holders and such other holders at the time of
filing the registration statement. To facilitate the allocation of shares in
accordance with the above provisions, the Company may round the number of shares
allocated to any Holder or holder to the nearest 100 shares. If any Holder or
holder disapproves of the terms of any such underwriting, he may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration, and shall not be transferred in a public
distribution prior to 90 days after the effective date of the registration
statement relating thereto, or such other shorter period of time as the
underwriters may require.
-2-
<PAGE>
(c) The Company shall have the right to terminate or withdraw any
registration initiated by it under this paragraph 1.2 prior to the effectiveness
of such registration whether or not any Holder has elected to include securities
in such registration.
1.3 Expenses of Registration. All Registration Expenses incurred in
connection with paragraph 1.2 shall be borne by the Company. All Selling
Expenses relating to securities registered on behalf of the Holders shall be
borne by the Holders of such securities pro rata on the basis of the number of
shares so registered.
1.4 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 1,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least ninety (90)
days or until the distribution described in the registration statement has been
completed;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
-3-
<PAGE>
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Furnish on the date that such Registrable Securities are
delivered to the underwriters for sale in connection with a registration
pursuant to this Section 1, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter, dated such date, from
the independent accountants of the Company, in form and substance as is
customarily given by independent accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
1.5 Indemnification.
(a) The Company will indemnify each Holder, each of its officers
and directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 1, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the Company of any
federal, state or common law rule or regulation applicable to the Company in
connection with any such registration, qualification or compliance, and the
Company will reimburse each such Holder, each of its officers and directors, and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder, controlling person or underwriter and stated to be
specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers, directors and
partners and each person controlling such Holder within the meaning of Section
15 of the Securities Act, against all claims, losses, damages and liabilities
(or actions in
-4-
<PAGE>
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder and
stated to be specifically for use therein. Notwithstanding the foregoing, the
liability of each Holder under this subparagraph (b) shall be limited in an
amount equal to the public offering price of the shares sold by such Holder. A
Holder will not be required to enter into any agreement or undertaking in
connection with any registration under this Section 1 providing for any
indemnification or contribution on the part of such Holder greater than the
Holder's obligations under this paragraph 1.5(b).
(c) Each party entitled to indemnification under this paragraph
1.5 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 1 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action
and provided further, that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or separate and
different defenses. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
1.6 Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 1.
1.7 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the restricted securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to use its best efforts to:
-5-
<PAGE>
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended.
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Securities Exchange Act of 1934, as amended (at any time
after it has become subject to such reporting requirements).
(c) So long as a Holder owns any restricted securities to furnish
to the Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 (at any time
after 90 days after the effective date of the first registration statement filed
by the Company for an offering of its securities to the general public), and of
the Securities Act and the Securities Exchange Act of 1934, as amended (at any
time after it has become subject to such reporting requirements), a copy of the
most recent annual or quarterly report of the Company, and such other reports
and documents of the Company and other information in the possession of or
reasonably obtainable by the Company as a Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing an Investor
to sell any such securities without registration.
1.8 Transfer of Registration Rights. The rights to cause the Company
to register securities granted Holders under paragraph 1.2 may be assigned to a
transferee or assignee provided that: (i) such transfer may otherwise be
effected in accordance with applicable securities laws, and (ii) such assignee
or transferee acquires at least 5,000 shares of Class A Common Stock (as
adjusted for stock splits and stock dividends). Notwithstanding the foregoing,
the rights to cause the Company to register securities may be assigned to any
constituent partner of a Holder, without compliance with item (ii) above,
provided written notice thereof is promptly given to the Company.
1.9 Standoff Agreement. Each Holder agrees that in connection with
the Company's initial underwritten public offering of the Company's securities,
upon request of the Company or the underwriters managing such initial
underwritten public offering of the Company's securities, each Holder shall not
sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any securities of the Company (other than those included in
the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed one
hundred eighty (180) days) from the effective date of such registration as may
be requested by the underwriters.
1.10 Amendment of Registration Rights. With the written consent of
the holders of more than 50% of the then outstanding Registrable Securities, the
Company may amend this Section 1.
2. Miscellaneous Provisions.
-6-
<PAGE>
2.1 Notices. All notices and other communications required or
permitted hereunder shall be in writing and, except as otherwise noted herein,
shall be deemed effectively given upon personal delivery, delivery by nationally
recognized courier or upon deposit with the United States Post Office, (by first
class mail, postage prepaid) addressed: (a) if to the Company, at 14141
Southwest Freeway, Suite 3000, Sugar Land, Texas 77478 (or at such other address
as the Company shall have furnished to the Holders in writing) attention of
President and (b) if to a Holder, at the latest address of such Holder shown on
the Company's records.
2.2 Descriptive Headings. The descriptive headings herein have been
inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provisions hereof.
2.3 Governing Law. This Agreement shall be governed by and
interpreted under the laws of the State of California as applied to agreements
among California residents, made and to be performed entirely within the State
of California.
2.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument, but only one of which
need be produced.
2.5 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
2.6 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter of this Agreement.
2.7 Separability; Severability. Unless expressly provided in this
Agreement, the rights of each Investor under this Agreement are several rights,
not rights jointly held with any other Investors. Any invalidity, illegality or
limitation on the enforceability of this Agreement with respect to any Investor
shall not affect the validity, legality or enforceability of this Agreement with
respect to the other Investors. If any provision of this Agreement is judicially
determined to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not be affected or impaired.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the day and year first set forth above.
THE COMPANY IMSL, INC.
By: /s/ Robert F. Strosser
-----------------------------------------
Title:
--------------------------------------
THE INVESTORS
--------------------------------------------
(print or type Investor Name)
By: /s/ The investors listed on Exhibit A
-----------------------------------------
Title:
--------------------------------------
(if applicable)
--------------------------------------------
(print or type Investor Name)
By:
-----------------------------------------
Title:
--------------------------------------
(if applicable)
-8-
<PAGE>
EXHIBIT A
---------
IMSL, INC.
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES
- ---------------- ----------------
<S> <C>
Peter D. Hirsch 22,815
2780 Skypark Drive
Torrance, CA 90505
John G. Wright 6,026
1502 Esplanade #G
Redondo Beach, CA 90277
Adolf A. Hirsch 4,278
1431 Saratoga Ave.
Suite C-229
San Jose, CA 95129
David Osteryoung 2,808
P.O. Box 7935
Boulder, CO 80306
Carl Padgett 2,106
1520 23rd Street
Manhattan Beach, CA 90266
Robert Gilchrist 1,579
31862 Via Faison
Trabuco Canyon, CA 92678
Donald K. Wright 1,521
4 Eastfield Drive
Rolling Hills, CA 90274
Adonis Corporation 1,057
12310 Northeast 8th Street
Bellevue, WA 98005
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
John Trzeciak 3,846
4152 Randolf Street
San Diego, CA 92103
David Joseph Trzeciak Trust III 1,025
3005 Cerrado Los Palitos
Tucson, AZ 85718
Frank Tomich 768
6421 Via Colinta
Rancho Palos Verdes, CA 90274
TOTAL 47,829
</TABLE>
<PAGE>
EXHIBIT 10.16
IMSL, INC.
(DBA VISUAL NUMERICS, INC.)
EXCHANGE AGREEMENT
JUNE 1, 1993
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Exchange of Stock.......................................................... 1
1.1 Transfer of Preferred Shares and Common Shares........................ 1
1.2 Closing............................................................... 1
2. Representations and Warranties of the Company.............................. 2
2.1 Organization and Standing; Articles and Bylaws........................ 2
2.2 Corporate Power....................................................... 2
2.3 Capitalization........................................................ 2
2.4 Authorization......................................................... 2
2.5 Compliance with Other Instruments..................................... 3
2.6 Litigation, etc....................................................... 3
2.7 Governmental Consent, etc............................................. 3
2.8 Offering.............................................................. 4
3. Securities Laws; Representations of the Shareholders....................... 4
3.1 Restrictive Legend.................................................... 4
3.2 Representations....................................................... 4
4. Covenants of the Company................................................... 5
4.1 Contractual Rights of Former Stockholders of Precision Visuals, Inc... 5
4.2 Contractual Rights of Former Stockholders of 3-D Visions Corporation.. 6
4.3 Contractual Rights of Parties to the Stock Repurchase Agreement....... 6
5. Affirmative Covenants of the Shareholders.................................. 6
5.1 Recapitalization and Exchange......................................... 6
5.2 Contingent VNI Class A Common Stock................................... 7
6. Closing Conditions......................................................... 7
6.1 Conditions to Obligations of Investor................................. 7
6.2 Conditions of the Company's Obligations............................... 7
7. Miscellaneous.............................................................. 8
7.1 Entire Agreement...................................................... 8
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<S> <C>
7.2 Assignment............................................................ 8
7.3 Governing Law......................................................... 8
7.4 Attorney's Fees....................................................... 8
7.5 Notices............................................................... 8
7.6 Counterparts.......................................................... 8
</TABLE>
LIST OF EXHIBITS
Exhibit A - Amended and Restated Articles of Incorporation
Exhibit B - Letter of Transmittal
Exhibit C - Schedule of Exceptions to Representations and Warranties
-ii-
<PAGE>
IMSL, INC.
(DBA VISUAL NUMERICS, INC.)
EXCHANGE AGREEMENT
This Exchange Agreement ("Agreement") is made and entered into as of the
1st day of June, 1993, by and between IMSL, Inc., a Texas corporation doing
business as Visual Numerics, Inc. (the "Company"), and the persons on the
attached Schedule of Shareholders (the "Shareholders").
WHEREAS, each of the Shareholders currently holds shares of the Company's
Class A Common Stock (the "Common Shares") in the amounts as set forth opposite
each such Shareholder's name on the attached Schedule of Shareholders; and
WHEREAS, the Shareholders and the Company desire to exchange the Common
Shares for shares of the Company's Preferred Stock (the "Preferred Shares") in
the amount and of the series as set forth opposite each such Shareholder's name
on the attached Schedule of Shareholders.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties hereto agree as follows:
1. Exchange of Stock.
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1.1 Transfer of Preferred Shares and Common Shares. Subject to the
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terms and conditions hereof, the Company will issue to the Shareholders the
Preferred Shares, and the Shareholders will transfer to the Company all right,
title and interest in and to the Common Shares. The rights, preferences,
privileges and restrictions of the Preferred Shares are as set forth in the
Company's Restated Articles of Incorporation in the form attached hereto as
Exhibit A (the "Restated Articles").
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1.2 Closing. The closing of the exchange of the Preferred Shares for
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the Common Shares shall occur at the offices of Venture Law Group, at 2:00 p.m.
on or before May 15, 1993, or at such other time and place as the parties shall
agree (the "Closing Date"). At the Closing, the Company will deliver to each of
the Shareholders a certificate or certificates, issued in the Shareholder's
name, representing the Preferred Shares to be issued at the Closing, against
transfer to the Company of the Common Shares. Each Shareholder will deliver to
the Company a certificate or certificates representing the Common Shares
accompanied by a letter of transmittal duly completed and executed by the
Shareholder in the form attached to this Agreement as Exhibit B (the "Letter of
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Transmittal"), unqualifiedly surrendering all such Common Shares to the Company
in a form sufficient to surrender all right, title and interest in the Common
Shares to the
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Company free and clear of any lien, restriction, claim, or encumbrance. Each
Shareholder shall also deliver to the Company all such further documents,
certificates and instruments, and shall take all such further actions, as the
Company may reasonably request in order for the Shareholder to surrender all
right, title and interest in the Common Shares.
2. Representations and Warranties of the Company. Except as set forth
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in the Schedule of Exceptions to Representations and Warranties attached hereto
as Exhibit C, which statements shall be deemed to be representations and
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warranties as if made hereunder, the Company represents and warrants to the
Shareholders as follows:
2.1 Organization and Standing; Restated Articles. The Company is a
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corporation duly organized and existing under, and by virtue of, the laws of the
State of Texas and is in good standing under such laws. The Company has
requisite corporate power to own and operate its properties and assets, and to
carry on its business as currently conducted. The Company is qualified to do
business as a foreign corporation in Virginia. The Company is not qualified to
do business as a foreign corporation in any other jurisdiction and the failure
to be so qualified does not have a material adverse effect on the Company's
business. The Company has made available to the Shareholders a copy of its
Restated Articles which is attached as Exhibit A. Such copy is true, correct
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and complete and contains all amendments through the Closing Date.
2.2 Corporate Power. The Company has all requisite legal and
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corporate power to execute and deliver this Agreement, to issue the Preferred
Shares hereunder and to carry out and perform its obligations under the terms of
this Agreement.
2.3 Capitalization. The authorized capital stock of the Company
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consists of 17,000,000 shares of Class A Common Stock and 10,000,000 shares of
Preferred Stock, of which (i) 3,193,500 shares of Preferred Stock have been
designated Series A Preferred Stock, (ii) 163,390 shares of Preferred Stock have
been designated Series B Preferred Stock, and (iii) 1,583,555 shares of
Preferred Stock have been designated Series C Preferred Stock. 6,638,485 shares
of Class A Common Stock are issued and outstanding. No shares of Preferred Stock
are issued and outstanding. There are options for the purchase of 1,493,750
shares of Class A Common Stock outstanding. There is a warrant for the purchase
of 38,460 shares of Class A Common Stock. All issued and outstanding shares have
been duly authorized and validly issued, and are fully paid and nonassessable.
The Preferred Shares will have the rights, preferences, privileges and
restrictions set forth in the Restated Articles. All outstanding securities of
the Company were issued in compliance with applicable federal and state
securities laws. Except as expressly provided in this Agreement and the exhibits
hereto, there are no preemptive rights, voting agreements, options or warrants
or other conversion privileges or rights currently outstanding to purchase any
of the authorized but unissued stock of the Company.
2.4 Authorization. All corporate action on the part of the Company,
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its directors and its shareholders necessary for the authorization, execution,
delivery and performance of this Agreement by the Company, the authorization,
issuance and delivery of the Preferred Shares and
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the performance of all of the Company's obligations hereunder has been taken.
This Agreement, when executed and delivered by the Company, shall constitute a
valid and binding obligation of the Company enforceable in accordance with its
terms, subject to laws of general application relating to bankruptcy, insolvency
and the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies. The Preferred Shares, when issued
in compliance with the provisions of this Agreement, will be validly issued and
will be fully paid and nonassessable, and will have the rights, preferences,
privileges and restrictions described in the Restated Articles. The Preferred
Shares will be free of any liens or encumbrances other than those created by or
imposed upon the holders thereof through no action of the Company; provided,
however that the Preferred Shares may be subject to restrictions on transfer
under state and/or federal securities laws. The Preferred Shares are not subject
to any preemptive rights or rights of first refusal.
2.5 Compliance with Other Instruments. The Company is not in
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violation of any term of its Articles of Incorporation or Bylaws, or in any
material respect of any term or provision of any material mortgage,
indebtedness, indenture, contract, agreement, instrument, judgment or decree,
order, statute, rule or regulation applicable to the Company. The execution,
delivery and performance of and compliance with this Agreement and the issuance
of the Preferred Shares have not resulted and will not result in any material
violation of, or conflict with, or constitute a material default under, or
result in the creation of, any mortgage, pledge, lien, encumbrance or charge
upon any of the properties or assets of the Company; and there is no such
violation or default that materially and adversely affects the business of the
Company as conducted or any of the Company's properties or assets.
2.6 Litigation, etc. The Company has not instituted, and is not a
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party to, any action, suit, proceeding or investigation against any party. There
are no actions, suits, proceedings or investigations pending against the Company
or its properties before any court or governmental agency that, either in any
case or in the aggregate, might result in any material adverse change in the
business or financial condition of the Company or any of its properties or
assets, or in any material impairment of the right or ability of the Company to
carry on its business as now conducted, or in any material liability on the part
of the Company, and none that questions the validity of this Agreement or any
action taken or to be taken in connection herewith, including, without
limitation, any such action involving the prior employment of any of the
Company's employees or their obligations under any agreements with prior
employers.
2.7 Governmental Consent, etc. No consent, approval or authorization
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of or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of this Agreement, the issuance of the Preferred Shares, or the
consummation of any other transaction contemplated hereby, except for filing of
notices required by Section 25102(f) of the California Corporate Securities Law
of 1968 and any other filings required under applicable Blue Sky laws of other
states.
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2.8 Offering. Subject to the accuracy of the representations of the
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Shareholders in Section 3 hereof and in written responses to the Company's
inquiries, the issuance of the Preferred Shares constitutes a transaction exempt
from the registration requirements of Section 5 of the Securities Act of 1933,
as amended (the "Securities Act").
3. Securities Laws; Representations of the Shareholders.
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3.1 Restrictive Legend. The certificate or certificates representing
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the Preferred Shares or any securities issued upon conversion of or in exchange
for the Preferred Shares shall bear the following legend (as well as any legends
required by applicable corporate and securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"). THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE DISTRIBUTION
THEREOF. THESE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED UNLESS (A) A REGISTRATION STATEMENT UNDER THE
SECURITIES ACT IS IN EFFECT AS TO THESE SECURITIES OR (B) THERE IS AN
OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION, THAT AN EXEMPTION
THEREFROM IS AVAILABLE.
3.2 Representations and Warranties of Shareholders. In connection
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with the exchange of Common Stock for Preferred Shares, each of the Shareholders
represents and warrants to the Company the following:
(a) The Shareholder has good, absolute and valid title to the
Common Shares free and clear of all liens, encumbrances, claims and restrictions
of any kind.
(b) The Shareholder is familiar with the business and affairs of
the Company, and has had access to all information which it has requested
concerning the Company.
(c) The Shareholder is acquiring the Preferred Shares for
investment and not with a view towards distribution to the public within the
meaning of the Securities Act. The Shareholder understands that the Preferred
Shares have not been registered under the Securities Act by reason of a specific
exemption therefrom, which exemption depends upon, among other things, the bona
fide nature of such Shareholder's investment intent as expressed herein.
(d) The Shareholder understands that the Preferred Shares will
be legended as set forth in Section 3.1 above.
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(e) The Shareholder further acknowledges and understands that
the Preferred Shares must be held indefinitely until redeemed or converted into
Common Stock in accordance with the Restated Articles unless the Preferred
Shares are subsequently registered under the Securities Act or an exemption from
such registration is available. The Shareholder further acknowledges and
understands that the Company is under no obligation to register the Preferred
Shares.
(f) The Shareholder is aware of the provisions of Rule 144
promulgated under the Securities Act which, in substance, permit limited public
resale of "restricted securities" (acquired, directly or indirectly, from the
issuer thereof or from any affiliate of such issuer, in a non-public offering)
subject to the satisfaction of certain conditions, including, among other
things: (i) the availability, in certain cases, of certain public information
about the Company, (ii) the resale occurring not less than two years after the
party has purchased and paid for the securities to be sold; (iii) in the case of
an affiliate, or a non-affiliate who has held the restricted securities for less
than three years, the sale being made through a broker in an unsolicited
"broker's" transaction or in transactions directly with a market maker (as such
term in defined under the Securities Exchange Act of 1934, as amended) and the
amount of securities being sold during any three-month period not exceeding the
specified limitations stated therein.
(g) The Shareholder further understands that, at the time
Shareholder wishes to sell the Preferred Shares or any securities issued in
exchange therefor, there may be no public market upon which to make such a sale,
and that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144, and that, in
such event, the Shareholder would be precluded from selling the securities under
Rule 144 even if the two-year minimum holding period had been satisfied.
(h) All corporate action on the part of the Shareholder, its
directors and its shareholders necessary for the authorization, execution,
delivery and performance of this Agreement by the Shareholder and the
performance of all of the Shareholder's obligations hereunder has been taken or
will be taken prior to the Closing. This Agreement, when executed and delivered
by the Shareholder, will constitute a valid and binding obligation of the
Shareholder enforceable in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies.
4. Affirmative Covenants of the Company.
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4.1 Contractual Rights of Former Stockholders of Precision Visuals,
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Inc. The Company hereby covenants that all contractual rights expressed in the
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Agreement and Plan of Reorganization dated as of November 16, 1992 by and among
the Company, IMSL Acquisition Corp., Inc. and Precision Visuals, Inc. (the "PVI
Merger Agreement") shall survive and the holders of those rights shall continue
to enjoy such rights in the same manner as set forth in the PVI Merger
Agreement, except to the extent such rights are adjusted for the 5-for-1 stock
split
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<PAGE>
and recapitalization of the Company. For example, a Shareholder who holds a
Contingent Repurchase Right (as such term is defined in the PVI Merger
Agreement) and exchanges his Common Shares for Preferred Shares shall continue
to be able to exercise his Contingent Repurchase Right, but as a result of the
5-for-1 stock split and the recapitalization, the Shareholder shall be able to
exercise the Contingent Repurchase Right with respect to his Preferred Shares at
five (5) times the number of shares that were initially subject to the right,
but at a price per share that is one-fifth (1/5th) of the price set forth in the
PVI Merger Agreement. The net economic result for the Shareholder is the same as
it was before accounting for the recapitalization and the 5-for-1 stock split.
4.2 Contractual Rights of Former Stockholders of 3-D Visions
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Corporation. The Company hereby covenants that all contractual rights expressed
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in the Agreement and Plan of Reorganization dated as of February 26, 1993 by and
among the Company, VNI Acquisition Corporation and 3-D Visions Corporation (the
"3-D Merger Agreement") shall survive and the holders of those rights shall
continue to enjoy such rights in the same manner as set forth in the 3-D Merger
Agreement, except to the extent such rights are adjusted for the 5-for-1 stock
split and the recapitalization of the Company. As expressed in Section 4.1, the
net economic result for the Shareholder is the same as it was before accounting
for the recapitalization and the 5-for-1 stock split.
4.3 Contractual Rights of Parties to the Stock Repurchase Agreement.
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The Company hereby covenants that all contractual rights expressed in the Stock
Repurchase Agreements dated as of March 18, 1993 entered into with certain
former stockholders of 3-D Visions Corporation in connection with the
acquisition of 3-D Visions Corporation (the "Stock Repurchase Agreements") shall
survive and the holders of those rights shall continue to enjoy such rights in
the same manner as set forth in the Stock Repurchase Agreements, except to the
extent such rights are adjusted for the 5-for-1 stock split and the
recapitalization of the Company. As expressed in Section 4.1, the net economic
result for the Shareholder is the same as it was before accounting for the
recapitalization and the 5-for-1 stock split.
5. Affirmative Covenants of Shareholders.
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5.1 Recapitalization and Exchange. By execution of this Agreement,
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the Shareholder consents to and agrees with the recapitalization of the Company
and the exchange by the Shareholders of Common Stock for shares of Preferred
Stock according to the following criteria:
(a) shares of Common Stock purchased or acquired for $1.00 per
share are eligible to be exchanged on a share-for-share basis for shares of
Series A Preferred Stock;
(b) shares of Common Stock purchased or acquired for $6.00 per
share are eligible to be exchanged on a share-for-share basis for shares of
Series B Preferred Stock; and
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(c) shares of Common Stock purchased or acquired from the
Company for $19.50 per share are eligible to be exchanged on a share-for-share
basis for shares of Series C Preferred Stock.
5.2 Contingent VNI Class A Common. By execution of this Agreement,
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each Shareholder, who was a former stockholder of PVI or 3-D and is eligible to
receive additional shares of Common Stock ("Contingent Stock") if certain
performance criteria and escrow provisions are satisfied as set forth in the
respective PVI and 3-D Merger Agreements, hereby agrees to:
(a) if a former PVI stockholder, exchange each share of
Contingent Stock issued but currently held in escrow for five (5) shares of
Series C Preferred Stock of VNI and hereby authorizes First Interstate Bank of
Texas, N.A., as Escrow Agent, to rely on this Section 5.2 and exchange, on
behalf of each such Shareholder, each such escrowed share of Common Stock for
five (5) shares of Series C Preferred Stock of VNI, or
(b) if a former 3-D stockholder, receive, when and if earned
and/or released from escrow pursuant to the 3-D Merger Agreement, five (5)
shares of Series C Preferred Stock of VNI in lieu of one (1) share of Common
Stock that would otherwise be issued.
6. Closing Conditions.
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6.1 Conditions to Obligations of the Shareholders. The obligations
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of the Shareholders under Section 1 of this Agreement are subject to the
fulfillment, at or before the Closing, of the condition that the representations
and warranties made by the Company in Section 2 hereof shall be true and correct
when made, and as of the Closing Date.
6.2 Conditions to Obligations of the Company. The obligations of
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the Company to the Shareholders under this Agreement are subject to the
fulfillment, at or before the Closing, of each of the following conditions:
(a) Representations and Warranties Correct. The
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representations and warranties made by the Shareholders in Section 3 hereof
shall be true and correct when made, and as of the Closing Date.
(b) Blue Sky. The Company shall have obtained all necessary
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Blue Sky law permits and qualifications, or secured exemptions therefrom,
required in any state for the offer, sale and issuance of the Preferred Shares.
(c) Minimum Required Exchange. The Company shall have received
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signed Exchange Agreements and Transmittal Letters from at least fifty-one
percent (51%) of each series of Preferred Stock calculated on an as exchanged
basis assuming one hundred percent (100%) exchange of eligible shares of Common
Stock for shares of Preferred Stock.
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7. Miscellaneous.
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7.1 Entire Agreement. This Agreement (including the exhibits hereto)
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represents the entire agreement between the Company and the Shareholders with
respect to the subject matter hereof, supersedes all prior agreements and
understandings with respect to such subject matter, and may only be amended in
writing signed by the Company and persons holding at least a majority of the
Preferred Shares (including shares of Common Stock into which such Preferred
Shares have converted but excluding shares of such Common Stock that have been
sold to the public in a transaction or transactions in which such shares became
freely tradable).
7.2 Assignment. This Agreement shall bind and benefit the
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successors, assigns, heirs, executors and administrators of the parties
(including, without limitation, any successor corporation to the Company). The
rights of the Shareholders under this Agreement may not be assigned without the
prior written consent of the Company, which consent shall not unreasonably be
withheld.
7.3 Governing Law. This Agreement shall be governed in all respects
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by the laws of the state of Texas, without regard to the conflicts of law
provisions of the state of Texas or of any other state.
7.4 Attorney's Fees. The prevailing party in any legal action
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brought by one party against the other with respect to this Agreement or the
Restated Articles, or the respective rights or obligations of the parties set
forth herein or therein, shall be entitled, in addition to any other rights and
remedies it may have, to reimbursement for its expenses incurred in connection
therewith, including court costs and reasonable attorney's fees.
7.5 Notices. Any notice, demand or request required or permitted to
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be given under this Agreement shall be in writing and shall be deemed sufficient
when delivered personally or sent by telegram, or forty-eight (48) hours after
being deposited in the United States mail, as certified or registered mail, with
postage prepaid, and addressed, if to the Company, at its principal place of
business, attention to the Chief Financial Officer, and if to a Shareholder, at
such Shareholder's address shown on the stock records of the Company.
7.6 Counterparts. This Agreement may be executed in any number of
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counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first set forth above.
THE COMPANY: IMSL, INC.
(Doing Business as Visual Numerics, Inc.)
By: /s/ Robert F. Strosser
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Robert F. Strosser
Chief Financial Officer
SHAREHOLDER:
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(Print Name(s) and Title, if any)
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(Signature)
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(Signature, if second is necessary)
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<PAGE>
SCHEDULE OF SHAREHOLDERS
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To be prepared after the exchange is complete.
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<PAGE>
EXHIBIT A
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RESTATED ARTICLES OF INCORPORATION
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<PAGE>
EXHIBIT B
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LETTER OF TRANSMITTAL
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A Letter of Transmittal is included with your materials.
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<PAGE>
EXHIBIT C
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SCHEDULE OF EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
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There are no exceptions to the representations and warranties set
forth in Section 2 of the Exchange Agreement.
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<PAGE>
EXHIBIT 10.17
OFFICE LEASE AGREEMENT
by and between
HOUSTON GROWTH ASSOCIATES,
an Ohio limited partnership
and DOUGLAS J. TOLLETT, individually
("Landlord")
and
IMSL, INC.,
a Texas corporation
d/b/a
VISUAL NUMERICS, INC.
("Tenant")
Dated: March 30, 1993
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
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<C> <S> <C>
1. LEASED PREMISES........................................... 1
2. TERM AND POSSESSION....................................... 1
3. MONTHLY RENTAL............................................ 2
4. ANNUAL FINANCIAL STATEMENT................................ 6
5. OCCUPANCY AND USE......................................... 6
6. COMPLIANCE WITH LAWS...................................... 7
7. ALTERATIONS............................................... 8
8. CONSTRUCTION OF LEASEHOLD IMPROVEMENTS.................... 8
9. LIENS..................................................... 9
10. ASSIGNMENT AND SUBLETTING................................. 9
11. INSURANCE AND INDEMNIFICATION.............................10
12. WAIVER OF SUBROGATION.....................................11
13. SERVICE AND UTILITIES.....................................11
14. ESTOPPEL CERTIFICATE......................................14
15. HOLDING OVER..............................................14
16. SUBORDINATION.............................................15
17. REENTRY BY LANDLORD.......................................15
18. BANKRUPTCY................................................16
19. DEFAULT AND REMEDIES......................................17
20. DAMAGE BY FIRE OR OTHER CASUALTY..........................19
21. CONDEMNATION..............................................20
22. SALE BY LANDLORD..........................................22
23. RIGHT OF LANDLORD TO PERFORM..............................22
24. SURRENDER OF PREMISES.....................................22
25. WAIVER . . '....................22
26. PARKING...................................................23
27. NOTICES...................................................23
28. CERTAIN RIGHTS RESERVED TO LANDLORD.......................24
29. SUCCESSORS................................................25
30. ATTORNEY'S FEES...........................................25
31. CORPORATE AUTHORITY.......................................25
32. NEGATION OF LIEN FOR RENT.................................25
33. QUIET ENJOYMENT...........................................25
34. LIMITATION OF LANDLORD'S LIABILITY........................26
35. DISCLAIMER OF CREATION OF PARTNERSHIP OR JOINT VENTURE....26
36. LEASE EFFECTIVE DATE......................................26
37. RULES AND REGULATIONS.....................................26
38. NO BROKERS................................................26
39. RECORDING.................................................27
40. MISCELLANEOUS.............................................27
41. RENEWAL OR TERMINATION OPTIONS............................28
42. SPECIAL CONDITIONS........................................31
</TABLE>
EXHIBIT "A" DESCRIPTION OF LEASED PREMISES
EXHIBIT "B" DESCRIPTION OF LAND
EXHIBIT "C" LEASED PREMISES IMPROVEMENT AGREEMENT
EXHIBIT "D" ESTOPPEL CERTIFICATE
EXHIBIT "E" BUILDING RULES AND REGULATIONS
EXHIBIT "F" ILLUSTRATION OF ESCALATION PROVISION
EXHIBIT "G" TENANT'S REMOVABLES LIST
<PAGE>
EXHIBIT "H" FORM OF SUBORDINATION, NON-DISTURBANCE AND
ATTORNMENT AGREEMENT
EXHIBIT "I" PARKING PLAN
(i)
<PAGE>
OFFICE LEASE AGREEMENT
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THIS LEASE (this "Lease") is made as of the 30th day of March, 1993, between
HOUSTON GROWTH ASSOCIATES, an Ohio limited partnership and DOUGLAS J. TOLLETT,
individually (hereinafter called "Landlord"), and IMSL, INC., a Texas
corporation d/b/a VISUAL NUMERICS, INC., (hereinafter called "Tenant").
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord those
premises (hereinafter called the "Leased Premises") shown on Exhibit "A"
attached hereto and made a part hereof, being located on the fourth (4th) floor
of 9990 Richmond North and South and a portion of the first (1st) floor of 9990
Richmond North, a multi-story office building (the "Building") constructed on a
parcel of land (the "Land") described on Exhibit "B" attached hereto and made a
part hereof.
1. LEASED PREMISES:
Net Usable Area of Leased Premises: 51,596 sq. ft.
Net Rentable Area of Leased Premises: 56,694 sq. ft.
So long as Tenant is entitled to possession of the Leased Premises, Tenant
shall be entitled to the following as appurtenances to the Leased Premises: (a)
the use in accordance with the Paragraph 26 hereof of parking spaces in the
parking garage (the "Garage") and the surface parking areas, and (b) the
nonexclusive use of the Common Areas. The term "Common Areas" means all areas
and facilities inside or outside the Building now or hereafter intended for the
common use of tenants in the Building, including corridors, lobbies, restrooms,
elevators, stairs, telephone and electric closets and risers, other service
areas, truck docks and loading facilities, surface parking areas, walkways,
plazas, courts, and landscaped areas. Notwithstanding the foregoing, restrooms
on floors leased entirely by Tenant shall be for the exclusive use of Tenant.
The Land, Building, Garage, Common Areas, and any and all other alterations,
additions, fixtures, and other improvements now or hereafter located on the Land
and owned by Landlord are referred to collectively as the "Property".
2. TERM AND POSSESSION
(a) The primary term of this Lease (the "Primary Term") shall be for one
hundred twenty (120) months (or until sooner terminated as herein provided),
beginning on the "Commencement Date" (as hereinafter defined), except that if
the Commencement Date is other than the first day of a calendar month, the term
shall be extended for the remainder of the final calendar month thereof. The
term "Lease Term", as used herein, shall include the Primary Term and any
renewal term in accordance with Paragraph 41 hereof.
(b) The "Commencement Date" shall be the earlier of (i) June 15, 1993, or
(ii) the date Tenant commences occupancy of the Leased Premises. Landlord
covenants and agrees to fully cooperate with and assist Tenant in the
construction of the Leasehold Improvements (as defined in the Leased Premises
Improvement Agreement attached hereto as Exhibit "C").
<PAGE>
(c) Landlord and Tenant agree that the Leased Premises shall be built out
as set forth in the plans and specifications to be prepared by Tenant in
accordance with the Leased Premises Improvement Agreement.
(d) The taking of possession by Tenant shall be deemed conclusively to
establish that the Leased Premises have been
<PAGE>
completed in accordance with the plans and specifications and are in good and
satisfactory condition as of the date when possession was so taken, subject,
however, to latent defects that existed in the Leased Premises prior to the
commencement of Tenant's construction of the Leasehold Improvements.
MONTHLY RENTAL
(a) Tenant shall pay to Landlord, commencing on the Commencement Date (and
thereafter payment dates shall be the first (let) of each month) and continuing
throughout the Primary Term, monthly rental of Fifty One Thousand Nine Hundred
Sixty-Nine and 50/100 ($51,969.50) Dollars. The monthly rental is computed for
the portion of the Leased Premises located on the first (1st) floor of the
Building by multiplying the net useable area thereof, being 3,570 square feet,
by a "multi-tenant" factor of 1.15, then multiplying the product thereof by
Eleven and No/100 ($11.00) Dollars per square foot, and then dividing the
product thereof by 12. The monthly rental is computed for the portion of the
Leased Premises located on the fourth (4th) floor of the Building by multiplying
the net useable area thereof, being 48,026 square feet, by a "single-tenant"
factor of 1.095, then multiplying the product thereof by Eleven and No/100
($11.00) Dollars per square foot, and then dividing the product thereof by 12.
Said monthly rental shall be due and payable in equal installments on the first
day of each month during every year of the Primary Term in lawful money of the
United States, without deduction or offset whatsoever, except as otherwise
expressly provided in this Lease, to Landlord or to such other firm or person as
Landlord may from time to time designate in writing. Said rental is subject to
adjustment as provided hereinbelow, provided that in no event shall monthly
rental be at any time less than the original base monthly rental stated
hereinabove. If this Lease commences on a day other than the first day of a
calendar month, the monthly rental for the fractional month shall be
appropriately prorated. The monthly rental provided in this Paragraph is herein
called "Rent".
(b) Tenant recognizes that late payment of Rent Or other sum due hereunder
from Tenant to Landlord will result in administrative expenses to Landlord, the
extent of which additional expense is extremely difficult and economically
impracticable to ascertain. Tenant therefore agrees that if Tenant shall fail to
pay Rent or any other payment due hereunder to Landlord when due and such amount
remains unpaid ten (10) days after said amount is due, then upon the second
(2nd) and any subsequent failure to pay such amounts within such 10-day period
in any twelve (12) month period the amount of such unpaid Rent or other payment
shall be increased by a late charge to be paid Landlord by Tenant in an amount
equal to two and one-half percent (2-1/2%) of the amount of the delinquent Rent
or other payment. The amount of the late charge to be paid to Landlord by Tenant
for any month shall be computed on the aggregate amount of delinquent rents and
other payments, including all accrued late charges, then outstanding. Tenant
agrees that such amount is a reasonable estimate of the loss and expense to be
suffered by Landlord as a result of such late payment by Tenant and may be
charged by Landlord to defray such loss and expense. The provisions of this
Paragraph shall not relieve Tenant of the obligation to pay Rent or other
payments on or before the date on which they are due; nor do the terms of this
Paragraph in any way affect Landlord's remedies pursuant to Paragraph 19
("Default and Remedies") or Paragraph 41 ("Renewal or Termination Option") or
otherwise at law in the event said Rent or other payment is unpaid after the
date due.
<PAGE>
(c) Landlord and Tenant agree that at each anniversary of the Commencement
Date during the Primary Term, the then current monthly Rent (excluding Tenant's
proportionate share of Operating Expenses [hereinafter defined]) shall be
increased by an amount calculated by multiplying the then current monthly Rent
(as increased by any prior Consumer Price Index rental adjustments under this
Lease) for the month immediately preceding such
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<PAGE>
anniversary, by a fraction the numerator of which shall be the Consumer Price
Index (as hereinafter defined) published for the last month immediately
preceding said anniversary, and the denominator of which shall be the Consumer
Price Index published for (i) the first month of the Primary Term, for the
calculation on the first anniversary, or (ii) the monthly period that is twelve
(12) months earlier than the last month immediately preceding the anniversary
that has most recently occurred for all calculations on the second and
subsequent anniversaries, less, in either event, the Rent for the month
immediately preceding such anniversary. (For an example of this calculation, see
Exhibit "F" attached hereto and made a part hereof for all purposes.) This
adjustment in the monthly Rent shall be made on each and every anniversary of
the Commencement Date. Landlord shall prepare a statement reflecting the monthly
Rent as it has been adjusted which shall become and be effective as of the
installment of monthly Rent which is due and payable in the first month
following the anniversary and shall remain in effect until the next annual
adjustment is made on the next anniversary date. It is understood and agreed
that the Consumer Price Index adjustment shall apply only to the base monthly
Rent and not to the Operating Expenses. Furthermore, Landlord will provide
Tenant with all of the relevant data used to compute the Consumer Price Index,
and Tenant shall have 30 days following the receipt of such data to review same,
to make any objections thereto, and to pay the appropriate increase.
(d) "Consumer Price Index" shall be the Consumer Price Index for All Urban
Consumers - U.S. City Average for All Items (1967=100) of the Bureau of Labor
Statistics of the United States Department of Labor. If the Consumer Price Index
published by the Department of Labor, Bureau of Labor Statistics is changed so
that it affects the calculation achieved hereunder, the Consumer Price Index
shall be converted in accordance with a conversion factor published by the
United States Department of Labor, Bureau of Labor Statistics. If the Consumer
Price Index is discontinued or revised during the Primary Term, such other
government index or computation with which it is replaced shall be used in order
to obtain substantially the same result as would have been obtained if the
Consumer Price Index had not been discontinued or revised. If the Consumer Price
Index is discontinued and no government index or computation replaces the same,
Landlord and Tenant shall in good faith agree upon a suitable substitute.
(e) If Landlord's cost of operating and maintaining the Building, called
the "Operating Expenses", including the Garage and other facilities maintained
for the benefit of the Building or its tenants, during any calendar year of the
Primary Term, exceeds the annual Operating Expenses for the base year 1993, then
Tenant will pay to Landlord each month after notice thereof and for the
subsequent calendar year or years, an amount representing Tenant's proportionate
share of the increased cost. This amount will be known as "Tenant's
Proportionate Share of Excess Operating Expenses". For purposes hereof,
Operating Expenses shall mean all expenses of every kind, both fixed and
variable and including without limitation, any and all federal, state and local
taxes (except income taxes), fees and assessments now or hereafter existing, as
are incurred with respect to the ownership, management, operation, or
maintenance of the Building, the Garage, and all appurtenances, all as recorded
on an accrual basis and in accordance with accepted principles of sound
management and generally accepted accounting practices applicable to first-class
office building complexes. Operating Expenses shall include, without limitation:
<PAGE>
(i) all general real estate taxes and all special assessments, costs and
expenses of contesting the validity or amount of real estate taxes; insurance
premiums; water, sewer, electrical and other utility charges (excluding late
fees); heating, ventilation and air-conditioning system maintenance; cleaning
and other janitorial services; tools and supplies; repair costs; landscape
maintenance costs; security services; license, permit and inspection fees;
management fees; wages of
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<PAGE>
employees directly engaged in the maintenance and operation of the Property,
including taxes and insurance relating thereto; trash removal; Garage
maintenance and operating costs and all such expenses attributable to any space
in the Building occupied by Landlord as office space; and, in general, all other
costs and expenses which would generally be regarded as operating and
maintenance costs and expenses; and
(ii) the cost of any capital improvements to the Building by Landlord
that reduce Operating Expenses or that are required or mandated under any
governmental law or regulation not applicable to the Building or not in effect
at the time the Building was constructed, such cost to be amortized over the
life of the capital item in accordance with generally accepted accounting
principles with a return on capital at the then prime rate of interest as
announced by Bank One Texas, N.A. on the unamortized balance. However, the
portion of any increase in annual Operating Expenses attributable to the cost of
capital improvements (including the interest costs) made to reduce Operating
Expenses shall never exceed the amount of reduction in the annual Operating
Expenses attributable to such improvements.
Provided, however, in no event shall Operating Expenses include: (A) the cost of
any service, e.g. electricity, that Landlord sells to tenants and for which
Landlord is entitled to be reimbursed by such tenants; (B) leasing commissions,
attorneys fees and other costs and expenses incurred in connection with
negotiations or disputes with tenants or other occupants of the Building or
prospective tenants; (C) the cost of any work or service performed for any
specific tenant (as distinguished from work or services performed generally for
all tenants); (D) management fees in excess of 4% of gross annual collections
for the Building; (E) any other interest or amortization of debt or other costs
of funds except as specified in this Lease; (F) any cost or expense for which
Landlord is separately reimbursed or for which Landlord receives a credit from
any other party; (G) any costs, fines or penalties incurred due to violations by
Landlord of any governmental rule or authority or private contract; (H) Costs
incurred in connection with the resurfacing of parking areas (excluding routine
maintenance and patching), correction of defects in design or construction,
repairs, maintenance, and replacement parts and any other costs required to be
capitalized in accordance with generally accepted accounting principles; (I)
Costs of selling, syndicating, financing, mortgaging, or hypothecating any part
of or interest in the Property; (J) Taxes on income, franchise taxes, or any
governmental charges other than ad valorem taxes; (K) Depreciation, reserves of
any kind, including replacement reserves and reserves for bad debts or lost rent
(or insurance against rent losses not caused by fire or other casualty); (L)
Landlord's overhead costs associated with the operation and internal
organization and function of Landlord as a business entity, including salaries,
equipment, supplies, accounting and legal fees, rent and other occupancy costs;
(M) Wages and salaries (including employee benefits) of executive or other
personnel above the grade of building manager, or of employees who do not devote
the majority of their time to the Building; provided, however, the cost
associated with such employees who do not devote the majority of their time to
the Building may be prorated and such an amount shall be included as an
Operating Expense to the extent that such employees devote their time to the
Building; (N) Costs of defending or prosecuting litigation with any party,
including tenants, mortgagees, or others, unless a favorable judgment would
reduce or avoid an increase in Operating Expenses, or unless the litigation is
to enforce compliance with Building Rules or other
<PAGE>
standards or requirements for the general benefit of the tenants in the
Building; (O) Late charges, interest, or penalties of any kind for late or other
improper payment of any public or private obligation, including ad valorem
taxes; (P) Costs of removing hazardous substance or asbestos (excluding,
however, the costs of removing any hazardous substance or asbestos introduced
into the Building by Tenant);
(Q) Costs for which Landlord receives reimbursement from any
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<PAGE>
source, including costs covered by proceeds of insurance, condemnation awards,
or court judgments, amounts specifically billed to or payable by individual
tenants, costs covered by any manufacturer's, contractor's, or other warranty,
or any other cost for which Landlord receives reimbursement. Landlord agrees to
use reasonable efforts to collect any such sums to which it is entitled
reimbursement to the extent it is economically practical to do so; (R) Costs
associated in any way with any part of the Property not devoted to general
office uses, including any part of the Property used as an observatory,
broadcasting studio, luncheon club or restaurant, athletic club, theater, hotel,
retail store or mall, or for any other use other than general offices; (s) Costs
related to any building or land not included in the Property, including any
allocation of costs incurred on a shared basis, such as centralized accounting
costs, unless the allocation is made on a reasonable and consistent basis that
fairly reflects the share of such costs actually attributable to the Property,
and unless such sharing of costs actually reduces Operating Expenses; or (T) The
part of any cost or other sum paid to any affiliate of Landlord or to any other
party for goods or services that may exceed the fair market price or cost
generally payable for comparable goods or services in the area of the Property.
(f) Landlord shall use its best efforts to make payments in a time and
manner to obtain maximum possible discounts or rebates. Landlord shall operate
the Property in an efficient manner designed to minimize Operating Expenses to
the lowest level achievable consistent with maintaining the standards for
services established under this Lease.
(g) Beginning on January i of the year immediately following the Base
Year, and on the first day of each calendar month thereafter throughout the
Primary Term, Tenant shall pay to Landlord an amount each month equal to one-
twelfth (1/12th) of Landlord's current estimate of Tenant's Proportionate Share
of Excess Operating Expenses for the calendar year in which payment is due. All
estimates of Tenant's Proportionate Share of Excess Operating Expenses shall be
made in good faith, delivered to Tenant in writing, and accompanied by
sufficient documentation reasonably acceptable to Tenant supporting and
justifying the estimate. Within ninety (90) days after the end of the calendar
year immediately following the first full calendar year after the Commencement
Date, and within ninety (90) days after the end of each calendar year of the
Lease Term thereafter (including any partial calendar year in which the Lease
Term ends), Landlord shall furnish Tenant a statement of actual Operating
Expenses for the preceding calendar year and of the difference between the
amount paid by Tenant pursuant to this Paragraph based on Landlord's estimate of
Tenant's Proportionate Share of Excess Operating Expenses and the amount that
would have been payable had all such payments been made based on the actual
Operating Expenses. Any underpayment reflected on the statement shall be paid by
Tenant to Landlord within forty-five (45) days after receipt of the statement.
Any overpayment by Tenant reflected on the statement shall be refunded by
Landlord to Tenant at the time the statement is delivered to Tenant. Also, if
Tenant overpaid by more than ten percent (10%) of the amount actually owing,
Landlord shall include in Tenant's refund interest on any amounts overpaid from
the time of each monthly payment under this Paragraph to the time of Landlord's
refund to Tenant, computed at the Agreed Interest Rate (hereinafter defined).
Since Tenant's Proportionate Share and the Net Rentable Area of the Leased
Premises will vary with increases or decreases in Net Rentable Area (including
increases pursuant to any rights of expansion included in this Lease), all sums
payable under this
<PAGE>
Paragraph, whether determined on the basis of a specified rate per square foot
of Net Rentable Area or on the basis of estimated or actual Operating Expenses,
shall be appropriately adjusted as and when the Net Rentable Area of the Leased
Premises and Tenant's Proportionate Share increases or decreases. Tenant shall
have no liability for payment of any Operating Expenses attributable to any part
of any calendar year after the end of the Lease Term,
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<PAGE>
and Tenant's Proportionate Share of Excess Operating Expenses in the calendar
year In which the Lease Term ends shall be so prorated and apportioned.
Landlord's and Tenant's rights and obligations under this Paragraph shall
survive the end of the Lease Term.
(h) Operating Expenses shall be calculated on an annualized basis as if the
Building were ninety percent (90%) occupied in accordance with generally
accepted accounting principles consistently applied. Any adjustment to reflect
ninety percent (90%) occupancy shall not affect costs or expenses that do not
vary with occupancy (such as ad valorem taxes, insurance premiums, utility and
maintenance costs for Common Areas, and other similar items that do not vary
with occupancy), shall be made in a manner that reasonably reflects all factors
relating to the impact of occupancy on the amount of variable costs and expenses
and that reasonably constitutes the most accurate possible approximation of what
such variable costs and expenses would actually have been had the Building
actually been ninety percent (90%) occupied, and shall not result in any
adjustment of Operating Expenses to a level such that if all occupied areas of
the Building had paid all of such adjusted Operating Expenses, Landlord would
have received more than actual Operating Expenses without such adjustment to
ninety percent (90%) occupancy.
(i) Tenant shall have the right, on written notice to Landlord, to have
Landlord's books and records relating to Operating Expenses audited by a
qualified professional selected by Tenant. If Landlord's calculation of
Operating Expenses (or of any overpayment, underpayment, interest, annualization
or adjustment to ninety percent (90%) occupancy) fails to comply with the
requirements of this Lease or contains any other error, as determined by the
audit, Tenant's past payments of Tenant's Proportionate Share of Excess
Operating Expenses shall be adjusted in accordance with the results of the
audit, and appropriate payments shall be made by Landlord or Tenant, as the case
may be, within forty-five (45) days after completion of the audit. All books and
records necessary to accomplish any audit permitted under this Paragraph shall
be retained for a period of three (3) years from the end of the calendar year to
which they relate, and shall be made available to the person conducting the
audit at the Property. All reasonable costs of the audit shall be paid by Tenant
unless the audit reveals that Tenant's Proportionate Share of Excess Operating
Expenses were overstated by five percent (5%) or more in the calendar year
audited, in which case Landlord shall pay or reimburse Tenant for all reasonable
costs of the audit. Landlord's and Tenant's rights and obligations under this
Paragraph shall survive the end of the Lease Term.
(j) Tenant's proportionate monthly share of the increased costs of owning
and maintaining the Building shall be determined by dividing the Net Rentable
Area of the Leased Premises by the Net Rentable Area of the Building and
multiplying the increase in the yearly Operating Expenses by the resulting
fraction and dividing by twelve. Based upon the foregoing, the number of square
feet of Net Rentable Area contained in the Leased Premises is stipulated to be
56,694 square feet and the Net Rentable Area contained in the Building is
stipulated to be 187,843 square feet, and the resulting fraction, as described
above and to be used in the calculation described in this Paragraph is .3018.
<PAGE>
4. ANNUAL FINANCIAL STATEMENT
Tenant shall provide to Landlord, on an annual basis when available, a current
financial statement for itself.
5. OCCUPANCY AND USE
(a) The Leased Premises may be used and occupied by Tenant for general
office use and any other lawful uses which are consistent with uses in a first
class office building. Without
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<PAGE>
limiting the generality of the foregoing, Tenant may maintain in the Leased
Premises and utilize the Leased Premises for (including use by Tenant and its
employees and invitees for) the following uses to the extent incidental to
Tenant's businesses: (i) conference and/or meeting facilities, (ii) coffee bars,
(iii) support staff facilities (including without limitation word processing and
copy facilities), (iv) lunchrooms (including vending machines and microwave
ovens for use by Tenant and its employees and invitees), (v) storage space
incidental to general business office purposes, (vi) computer facilities, and
(vii) print facilities that may require special venting. Landlord covenants that
it has good and marketable fee simple title to the Property, and the right to
make this Lease for the Lease Term and that it has obtained or shall obtain all
necessary certificates and permits required under applicable laws to permit
Tenant to use and occupy the Building for the above described uses; provided,
however, Tenant shall be responsible for obtaining the necessary permits and
certificates of occupancy relating to the construction of the Leasehold
Improvements. Landlord agrees to use its best efforts not to allow or permit the
Building to be used for any purpose prohibited by any law of the United States
or the state or city in which the Building is located. Landlord agrees not to
commit waste at the Property. Landlord agrees to use its best efforts to control
its agents, employees, licensees, and invitees in such a manner, and to require
other tenants of the Building to control their respective agents, employees,
licensees, and invitees in such a manner so as not to create any nuisance or
unreasonable interference with, or disturbance of Tenant in its use of the
Leased Premises.
(b) Tenant shall not do or permit anything to be done in or about the
Leased Premises which will unreasonably obstruct or interfere with the rights of
Landlord, other tenants or occupants of the Building, including but not limited
to their reasonable access to parking or elevator facilities, or injure or annoy
them; nor shall Tenant use or allow the Leased Premises to be used whether by
employees, agents, invitees, and/or licensees, for any improper, immoral, or
unlawful purposes or for any business, use or purpose reasonably deemed to be
disreputable or inconsistent with the operation of a first class office
building; nor shall Tenant cause or maintain or permit any nuisance or breach of
the peace, in, on, or about the Leased Premises. Tenant shall not commit or
suffer the commission of any waste in, on, or about the Leased Premises, and
Tenant shall be responsible for policing any nonpermitted use by its employees
in the Leased Premises and Common Areas.
6. COMPLIANCE WITH LAWS
(a) Tenant shall be solely responsible for, and shall pay promptly and
before delinquent, all federal, state, city, county and other taxes, license
fees and assessments due or coming due during or after the Lease Term against
Tenant, Tenant's interest in this Lease or Tenant's personal property or
intangibles owned, placed in or generated in, upon or about the Leased Premises
by Tenant. Tenant shall not use the Leased Premises in a manner which will in
any way conflict with any law, statute, ordinance, or governmental rule or
regulation now in force or which may hereafter be enacted or promulgated. Tenant
shall not do or permit anything to be done on or about the Leased Premises or
bring or keep anything therein which will in any way increase the rate of any
insurance upon the Building or any of its contents (unless Tenant agrees to pay
the increased insurance costs) or cause a cancellation of said insurance or
otherwise affect said insurance in any manner. Tenant shall at its sole cost and
expense promptly comply with all
<PAGE>
laws, statutes, ordinances, recommendations, rules, regulations and requirements
of governmental, public or private authorities and agencies, which are now in
force or which may hereafter be in force and with the requirements of the Texas
State Insurance Commission or similar body now or hereafter constituted in
relation to or affecting the condition, use, or occupancy of the Leased
Premises. Upon demand, Tenant shall pay to Landlord as additional rent, to be
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<PAGE>
added to any installment of Rent thereafter becoming due, any cost incurred by
Landlord in curing any default or meeting any obligation of Tenant under this
Paragraph, and Landlord shall have the same remedies for a default in payment of
such sums as for a default in the payment of Rent.
(b) Landlord shall obtain and keep in force all certificates of occupancy
and other governmental permits or licenses required to permit Tenant lawfully to
use and occupy the Leased Premises; provided, however, Tenant shall be
responsible for obtaining the necessary permits and certificates of occupancy
relating to the construction of the Leasehold Improvements. To the extent
necessary to prevent interference with Tenant's use and enjoyment of the
Property, Landlord shall comply with all private covenants, conditions, and
restrictions relating to the Property and with all applicable laws, ordinances,
and other governmental requirements relating to the Property, to the ownership,
design, construction, use, operation, or maintenance of the Property, or to the
health, safety, and welfare of persons on the Property. Landlord represents and
warrants that, to the best of Landlord's knowledge, the Property and the use and
occupancy of the Property as contemplated by this Lease comply fully with all
such private covenants, conditions, and restrictions and with all such laws,
ordinances, and other governmental requirements.
7. ALTERATIONS
Tenant shall not make or suffer to be made any alterations, additions,
changes, or improvements in, on or to the Leased Premises or any part thereof
(collectively "Alterations") without the prior written consent of Landlord,
which consent shall not be unreasonably withheld or delayed; and any
Alterations, except for Tenant's movable furniture and equipment and for those
items described on Exhibit "G" hereto (the "Tenant's Removables List")
(including any items that Tenant may add to the Tenant's Removables List after
the Commencement Date, with Landlord's consent, which consent shall not be
unreasonably withheld), shall immediately become Landlord's property and, at the
end of the Lease Term, shall remain on the Leased Premises without compensation
to Tenant. In the event Landlord consents to the making of any such Alterations,
the same shall be made by Tenant, at Tenant's sole cost and expense, and in
accordance with all applicable laws, statutes, ordinances, rules and
regulations, public and private, and all requirements of Landlord's and Tenant's
insurance policies. If Landlord fails to respond to Tenant's written request for
consent to Alterations within ten (10) days after the date of such written
request (with respect to Alterations which do not involve structural changes to
the Building) or within thirty (30) days after the date of Tenant's request
(with respect to Alterations which do involve structural changes to the
Building), then Landlord shall be deemed to have consented to such Alterations.
Any contractor or person selected by Tenant to make the same, and all
subcontractors, must first be approved in writing by Landlord, which approval
shall not be unreasonably withheld or delayed. Upon the expiration or sooner
termination of the Lease Term, Tenant shall upon demand by Landlord, at Tenant's
sole cost and expense, forthwith and with all due diligence remove any or all
Alterations made by or for the account of Tenant (other than the initial
Leasehold Improvements and any refurbishment improvements constructed in
accordance with this Lease), designated by Landlord to be removed, and Tenant
shall forthwith and with all due diligence, at its sole cost and expense, repair
and restore the Leased Premises to the condition in which they existed prior to
Tenant's construction of the
<PAGE>
Alterations, except for normal wear and tear and except to the extent such
restoration would constitute waste.
8. CONSTRUCTION OF LEASEHOLD IMPROVEMENTS
Tenant specifically acknowledges and agrees that Tenant is solely responsible
for the construction of the Leasehold Improvements in the Leased Premises and
that Landlord shall have
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<PAGE>
no liability for the quality of workmanship or materials used in connection with
that construction; however, Landlord agrees to assign to Tenant, upon Tenant's
request, all of Landlord's rights against the General Contractor under the
Leasehold Improvements contract, and Landlord further agrees to cooperate with
and assist Tenant in the construction of the Leasehold Improvements.
9. LIENS
Tenant shall keep the Leased Premises free from any liens arising out of work
performed, material furnished, or obligations incurred by Tenant. In the event
that Tenant shall not, within forty-five (45) days following the imposition of
any such lien, cause the same to be released of record by payment or posting of
a proper bond, Landlord shall have, in addition to all other remedies provided
herein and by law, the right, but not the obligation, to cause the same to be
released by such means as it shall deem proper, including payment of the claim
giving rise to such lien. All such sums paid by Landlord and all expenses
incurred by it in connection therewith shall be considered additional rent and
shall be payable to Landlord by Tenant on demand and with interest at ten
percent (10%) per annum, provided, however, that if such rate exceeds the
maximum rate permitted by law the maximum lawful rate shall apply (the "Agreed
Interest Rate"). During any period of construction, Landlord shall have the
right to post and keep posted on the Leased Premises any notices permitted or
required by law, or which Landlord shall deem proper, for the protection of
Landlord, the Leased Premises; the Building, and any other party having an
interest therein, from mechanics' and materialmen's liens, and Tenant shall give
to Landlord at least five (5) business days prior written notice of commencement
of any construction on the Leased Premises.
10. ASSIGNMENT AND SUBLETTING
(a) Subject to Subparagraph (d) hereof, Tenant shall not sell, assign,
encumber or otherwise transfer by operation of law or otherwise this Lease or
any interest herein, sublet the Leased Premises or any portion thereof, or
suffer any other person to occupy or use the Leased Premises or any portion
thereof, without the prior written consent of Landlord, which consent shall not
be unreasonably withheld or delayed. Tenant shall (i) by written notice, advise
Landlord of its desire from and after a stated date (which shall not be less
than twenty (20) days or more than ninety (90) days after the date of Tenant's
notice) to execute a document by which Tenant assigns this Lease or sublets the
Leased Premises or any portion thereof for any part of the Lease Term; said
notice by Tenant shall state the name and address of the proposed assignee or
subtenant, (ii) supply Landlord with financial information concerning the
proposed assignee or subtenant for informational purposes only (it being
understood and agreed that Landlord shall not have the right to withhold its
consent to a proposed subtenant or assignee on the basis of that person's or
entity's financial condition), and (iii) supply Landlord with such additional
information, verifications and related materials as Landlord may reasonably
request or desire to evaluate the written request to sublet or assign provided
that Landlord requests such items within five (5) days of Tenant's notice.
Landlord shall notify Tenant in writing within ten (10) business days after
receipt of the items specified in the preceding sentence if Landlord reasonably
objects to the proposed assignment or sublease, but
<PAGE>
otherwise Landlord shall have waived any right it may have to object to the
sublease or assignment.
If such subletting or assignment is approved (or deemed approved) Tenant shall,
at Tenant's own cost and expense, discharge in full any commissions which may be
due and owing as a result of any proposed assignment or subletting, at the time
of such subletting or assignment.
(b) Any subletting or assignment hereunder by Tenant shall not result in
Tenant being released or discharged from any liability under this Lease. As a
condition to Landlord's prior
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<PAGE>
written consent as provided for in this Paragraph, the assignee or subtenant
shall agree in writing to comply with and be bound by all of the terms,
covenants, conditions, provisions and agreements of this Lease with respect to
the portion of this Lease assigned or portion of the Leased Premises subleased,
and Tenant shall deliver to Landlord promptly after execution, an executed copy
of each sublease or assignment and an agreement of said compliance by each
subtenant or assignees.
(c) Landlord's consent to any sale, assignment, encumbrance, subletting,
occupation, lien or other transfer shall not release Tenant from any of Tenant's
obligations hereunder or be deemed to be a consent to any such subsequent
occurrence.
(d) Notwithstanding the provisions of this Lease to the contrary, Tenant
shall have the right to assign this Lease or to sublease all or a portion of the
Leased Premises to an Affiliate or corporate successor of Tenant without
Landlord's prior written consent, provided that Tenant is not in default under
this Lease (beyond the applicable cure period) and provided further that the
assignee or sublessee executes and delivers to Landlord prior to commencement of
such assignment or sublease a document under which the assignee or sublessee
assumes all of the obligations of Tenant under this Lease with respect to the
portion of this Lease assigned or portion of the Leased Premises subleased and
agrees to be bound by the terms and conditions of this Lease with respect to the
portion of this Lease assigned or the portion of the Leased Premises subleased.
For purposes of this subparagraph, "Affiliate" means any person or entity
controlling, controlled by, or under common control with, Tenant. "Control" as
used herein shall mean the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such controlled
person or entity; the ownership, directly or indirectly, of at least fifty-one
percent (51%) of the voting securities of, or possession of the right to vote
in, the ordinary direction of its affairs, at least fifty-one percent (51%) of
the voting interest in, any person or entity shall be presumed to constitute
such control. Prior to the effectiveness of any assignment or sublease to an
Affiliate or corporate successor, Tenant shall certify to Landlord the manner in
which such Affiliate or corporate successor is related to Tenant and shall
furnish a copy of such assignment or sublease to Landlord. Any attempted
assignment or sublease in violation of this provision shall be null and void.
Any subletting or assignment hereunder by Tenant shall not result in Tenant
being released or discharged from any liability under this Lease.
11. INSURANCE AND INDEMNIFICATION
(a) Except as otherwise expressly provided in this Lease to the contrary,
Landlord shall not be liable to Tenant, its agents, servants, employees,
contractors, customers or invitees for any damage to person or property caused
by any act, omission or neglect of Tenant, its agents, servants or employees,
and Tenant agrees to indemnify and hold Landlord harmless from all liability and
claims for any such damage.
(b) Except as otherwise expressly provided in this Lease to the contrary,
Tenant shall not be liable to Landlord, or to Landlord's agents, servants,
employees, contractors, customers or invitees for any damage to person or
property caused by any act, omission or neglect of Landlord, its
<PAGE>
agents, servants or employees, and Landlord agrees to indemnify and hold Tenant
harmless from all claims for such damage.
(c) Tenant agrees to purchase at its own expense and to keep in force
during the Lease Term a policy or policies of comprehensive general liability
insurance, including personal injury and property damage, with contractual
liability endorsement, in the amount of One Million ($1,000,000.00) Dollars each
occurrence and Two Million ($2,000,000.00) Dollars aggregate per occurrence for
personal injuries or deaths of persons occurring in or about the Leased
Premises. Additionally,
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<PAGE>
Tenant shall carry umbrella coverage of at least $1,000,000.00. Said policies
shall (i) name Landlord as an additional insured and insure Landlord's
contingent liability under this Lease, (ii) be issued by an insurance company
which is acceptable to Landlord and authorized to do business in the State of
Texas, and (iii) provide that said insurance shall not be cancelled unless
thirty (30) days' prior written notice shall have been given to Landlord. Said
policy or policies or certificates thereof shall be delivered to Landlord by
Tenant upon commencement of the Lease Term and upon each renewal of said
insurance.
(d) Landlord shall carry (i) all-risk property damage insurance including
fire, extended coverage, vandalism, and malicious mischief upon all parts of the
Property (including any parts of the Leasehold Improvements and any Alterations
that Landlord owns) in an amount not less than the full replacement cost, and
(ii) comprehensive public liability and property damage insurance with base
limits of liability of not less than $1,000,000.00, with additional umbrella
coverage of at least $5,000,000.00, naming Tenant as an additional insured. All
required policies shall be underwritten by insurers who have a general policy
holder's rating of not less than A- and a financial rating of class X as stated
in the most current available Best's Insurance Reports, who are authorized to do
business in the State of Texas under the surplus lines laws, and who are
authorized to issue the policies. Landlord shall deliver to Tenant certificates
of insurance (or if requested by Tenant, certified copies of each policy) prior
to the Commencement Date and renewal certificates (or policies) not less than
ten (10) days prior to the expiration of the previous policies. All policies
carried by Landlord shall contain an undertaking by the insurers to notify
Tenant in writing not less than thirty (30) days prior to any cancellation or
termination. Landlord's liability policy shall contain a provision stating that
the policy shall apply to each insured in the same manner and to the same extent
as if a separate policy had been issued to each, except with respect to limits
of liability.
12. WAIVER OF SUBROGATION
Landlord and Tenant hereby release the other from any and all liability or
responsibility to the other or to anyone claiming through or under them by way
of subrogation or otherwise for any loss or damage to property (or caused by
anything that is required under this Lease to be insured, regardless whether or
not it is actually so insured) caused by fire or any other perils insured in
policies of insurance covering such property, even if such loss or damage shall
have been caused by fault or negligence of the other party, or anyone for whom
such party may be responsible, including any other tenants or occupants of the
remainder of the Building in which the Leased Premises are located. Landlord and
Tenant each hereby covenant and agree to cause their respective insurance
carrier(s) to include in their policy(ies) such a clause or endorsement.
13. SERVICE AND UTILITIES
(a) Landlord shall maintain the public and common areas of the Building,
including lobbies, stairs, elevators, escalators, landscaping, parking
facilities, loading docks and areas, corridors and restrooms, the windows in the
Building; the mechanical, plumbing and electrical equipment serving the
Building, and the structure itself, in keeping with the usual standard for first
class office buildings. In the event Tenant requires or needs to have
<PAGE>
one or more separate systems of either heating, ventilating, air-conditioning or
other similar systems over and above that provided by Landlord, the
installation, care, expenses and maintenance of each such system shall be borne
by and paid for by Tenant.
(b) Provided Tenant shall not be in default hereunder, and subject to the
provisions elsewhere herein contained and to the rules and regulations of the
Building, Landlord agrees to furnish
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<PAGE>
to the Leased Premises during "Normal Business Hours" (being herein defined as
those hours between 7:00 a.m. and 6:00 p.m., Monday through Friday, and between
8:00 a.m. and 2:00 p.m. on Saturday [excluding New Year's Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day]), reasonable
volumes and temperatures of heat and air conditioning required for the
comfortable use and occupation of the Leased Premises, electrical services equal
to 4.0 watts per square foot of the net useable area of the Leased Premises,
janitorial services during the times and in the manner that such services are
customarily furnished in keeping with usual standard for first class office
buildings and elevator service. In addition to the aforementioned services,
Landlord shall furnish Tenant the following throughout the Lease Term at no cost
to Tenant (other than as included in Tenant's Proportionate Share of Excess
Operating Expenses or as specified in this subparagraph):
(1) Access to the Leased Premises twenty-four (24) hours per day,
seven (7) days per week, including operatorless passenger elevators serving
the floor(s) on which the Leased Premises are located.
(2) Landlord shall furnish air conditioning after Normal Building
Hours for areas requested by Tenant from the manager of the Building by
3:00 p.m. on the business day service is required, or by 3:00 p.m. on the
immediately preceding business day when service is required for a Saturday,
Sunday, or Holiday. Tenant shall pay Landlord $20 per hour per air handler
for after Normal Building Hours air conditioning (which charge shall be
adjusted annually for changes in the Consumer Price Index). If Tenant's
equipment requires air conditioning that cannot be accommodated by the
designed capacities of the Building's air conditioning, supplemental air
conditioning shall be installed as part of the construction of the
Leasehold Improvements or any Alterations, at Tenant's cost.
Notwithstanding the above, the approximate 3000 square foot computer
facility to be located within the Leased Premises will be serviced by 24
hour a day heating, ventilation, and air conditioning. Landlord agrees to
submeter this facility at Tenant's expense and Tenant agrees to pay for the
actual cost of this service on a monthly basis as invoiced.
(3) If physically possible without damage to the Building, Landlord
shall provide electrical power in excess of 4.0 watts per square foot of
useable area if needed for any supplemental air conditioning or if Tenant
otherwise requests, but Tenant shall pay for any transformers, risers,
wiring, or other additional equipment needed to provide that excess
electrical power (to the extent not already included in the Leasehold
Improvements) and for any electrical consumption costs in excess of the
foregoing standards at the average rate paid by Landlord to the electrical
utility company serving the Building (without profit or any additional
charge or fee to Landlord). Landlord will require excess electrical
consumption to be metered (using meters installed by Tenant at Tenant's
expense).
(4) Cleaning of the Property, including window washing and wall
cleaning in Common Areas, janitorial service in Common Areas (including
restrooms), removal of ice and snow from driving areas and sidewalks,
vermin extermination and repair and replacement of property damaged by
vermin (unless the vermin were introduced into the Building by Tenant or
<PAGE>
Tenant's employees), mowing and irrigation of landscaping, and sweeping and
removal of litter and debris from the Garage and exterior Common Areas.
(5) Maintenance and repair (including replacement parts and labor) of
the Property, including (i) the roof, walls (including glass curtain walls,
windows, and doors), foundation, and other structural elements of the
Building and Garage, (ii) heating, ventilating, air conditioning,
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<PAGE>
mechanical, electrical, security, energy management, plumbing, lighting,
and other systems and equipment, (iii) interior walls, ceilings, floors,
and floor coverings, and (iv) driveways, sidewalks, curbs, signs,
landscaping, and other exterior areas (including painting and striping of
parking areas). This Section does not obligate Landlord to make repairs in
the event of fire or other casualty or repairs for which Tenant is
responsible under other provisions of this Lease, nor does it require the
maintenance or repair of property owned by Tenant.
(6) Electrical lighting for all public and service areas of the
Building and Garage, and replacement of Building standard fluorescent tubes
in the Leased Premises and in public and service areas.
(7) Cold water (at the normal temperature of the supply of water to
the Building) for lavatory and toilet purposes, refrigerated water for
drinking purposes, and hot water (from the regular Building supply at
prevailing temperatures) for lavatory purposes, all at points of supply
provided for general use of tenants through fixtures installed by Landlord
or by Tenant.
(8) No less than the number of restroom facilities currently located
in the Building.
(9) Sanitary sewer service and trash removal.
(10) Limited card access to the Building after Normal Business Hours,
and the posting of a security guard in the Building lobby between the hours
of 5:00 p.m. and 9:00 p.m., 5 days a week, to escort Building occupants to
their vehicles.
(11) Facilities for Tenant's loading, unloading, delivery, and pick-up
activities twenty-four (24) hours per day, seven (7) days per week,
including the right to leave vehicles standing at a loading dock for enough
time to lead or unload and pick up and deliver goods to and from the Leased
Premises.
(12) All letters or numerals on doors in the Leased Premises using
Building standard graphics.
(13) Directory listings for Tenant's various offices, officers, and
major employees.
(14) Keys and other Building access-control cards or items in
reasonable quantities for Tenant and its employees.
Landlord shall comply with the rules and regulations of all public and
private utility providers. Landlord shall employ, and cause its contractors to
employ, competent and experienced persons capable of meeting the standards of
service established by this Lease. All services and other items to be furnished
shall be of a quality and quantity at least equal to that of comparable services
or other items furnished in other first-class office buildings located in the
city in which the Property is located, shall be performed in a good and
workmanlike manner, and shall be appropriate to permit the comfortable use and
occupancy of the Leased Premises by Tenant.
<PAGE>
Notwithstanding any of the foregoing or anything in this Lease to the
contrary, and without limiting Tenant's other rights under this Lease, if
Landlord for any reason, whether or not within its control, is unable or fails
to provide HVAC, electrical, elevator, water or sewer services to the Leased
Premises and such failure materially adversely affects Tenant's use and
occupancy of the Leased Premises and continues for more than three (3)
consecutive business days, then Tenant shall be entitled to abate Rent with
respect to the portion of the Leased Premises so affected from and after the day
following the third (3rd) consecutive business day until such services are
restored
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<PAGE>
and Tenant can operate its business in its customary fashion; provided, however,
that Tenant shall provide Landlord with written notice of said services failure
before the three (3) business day period begins to run. Should any such services
failure materially adversely affect Tenant's use and occupancy of the Leased
Premises, and should such services not be substantially restored so that Tenant
can operate its business in its customary continuity and fashion within ninety
(90) days after such failure, then Tenant may terminate this Lease upon the
expiration of said 90-day period by providing written notice thereof to
Landlord, and in the event of any such termination, Tenant shall have no further
claim against Landlord hereunder. Landlord shall give Tenant at least one (1)
day's advance notice of any scheduled interruption of services for maintenance
or other purposes. Notwithstanding anything contained in this Paragraph to the
contrary, Tenant shall not have a right to abate Rent or terminate this Lease on
account of a failure of services if such failure of services is caused by
Tenant's design and construction of the Leasehold Improvements.
(c) Any sums being payable under this Paragraph shall be considered
additional rent and shall be added to the next installment of Rent thereafter
becoming due with charges for additional electrical usage to be submetered and
billed to the Tenant directly, and Landlord shall have the same remedies for a
default in payment of such sums as for a default in the payment of Rent.
(d) Tenant shall not provide any janitorial services without Landlord's
written consent and then only subject to supervision of Landlord, and then only
through a janitorial contractor or employees at all times satisfactory to
Landlord. Any such services provided by Tenant shall be Tenant's sole risk and
responsibility.
14. ESTOPPEL CERTIFICATE
Within ten (10) business days following any written request which Landlord
may make from time to time, Tenant shall execute and deliver to Landlord an
Estoppel Certificate substantially as attached hereto as Exhibit "D" and made a
part hereof, indicating thereon any exceptions thereto which may exist at that
time. Failure of Tenant to execute and deliver such certificate shall constitute
an acceptance of the Leased Premises and acknowledgment by Tenant that the
statements included in Exhibit "D" are true and correct without exception, and
Landlord's written request for Tenant to execute the Estoppel Certificate must
state this. Landlord and Tenant intend that any statement delivered pursuant to
this Paragraph may be relied upon by Landlord or by any mortgagee, beneficiary,
purchaser or prospective purchaser of the Building or any interest therein, or
by anyone to whom Landlord may provide said certificate. Tenant agrees to make
reasonable and appropriate modifications to the form of Estoppel Certificate
attached hereto as Exhibit "D" to the extent reasonably requested by any
mortgagee or purchaser of the Building.
15. HOLDING OVER
Tenant will, at the termination of this Lease by lapse of time or
otherwise, yield up immediate possession to Landlord. If Tenant retains
possession of the Leased Premises or any part thereof after such termination,
then Landlord may, at its option, serve written notice upon Tenant that such
holding over constitutes any one of: (i) creation of a month to month tenancy;
<PAGE>
or (ii) creation of a tenancy at sufferance, in any case upon the terms and
conditions set forth in this Lease; provided, however, that the monthly rental
(or daily rental under (ii)) shall, in addition to all other sums which are to
be paid by Tenant hereunder, whether or not as additional rent, be equal to 150%
of the rental being paid monthly to Landlord under this Lease immediately prior
to such termination (prorated in the case of (ii) on the basis of a 365 day year
for each day Tenant
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<PAGE>
remains in possession.) If no such notice is served, then a tenancy at
sufferance shall be deemed to be created at the rent in the preceding sentence.
If Tenant shall hold over for more than ninety (90) days after the termination
of this Lease without Landlord's written consent or approval, then Tenant shall
also pay to Landlord as additional rent due and payable, all damages sustained
by Landlord resulting from the unapproved retention of possession by Tenant,
including the loss of any proposed subsequent tenant for any portion of the
Leased Premises (provided Landlord notifies Tenant in writing that it desires to
lease the Leased Premises to a proposed tenant). In any such events, Tenant
shall vacate the Leased Premises and deliver full possession to Landlord upon
the giving to Tenant by Landlord of thirty (30) days' written notice and demand
therefor. The provisions of this paragraph shall not constitute a waiver by
Landlord of any right of re-entry as herein set forth; nor shall receipt of any
Rent or any other act in apparent affirmance of the tenancy operate as a waiver
of the right to terminate this Lease for a breach of any of the terms, covenants
or obligations herein on Tenant's part to be performed by Tenant, or of any
other right of Landlord.
16. SUBORDINATION
Landlord agrees to cause the Holder (hereinafter defined) of any Mortgage
(hereinafter defined) encumbering the Property to deliver to Tenant a
subordination, non-disturbance and attornment agreement in the form attached
hereto as Exhibit "H" and made a part hereof for all purposes, providing, in
substance, as follows:
(a) this Lease shall be subordinate to the Mortgage;
(b) so long as Tenant has not committed an event of default under this
Lease, Tenant's leasehold estate, use, possession, tenancy, rights, options
and occupancy under this Lease shall remain undisturbed and shall survive
any and all actions which may be taken pursuant to the Mortgage to which
this Lease is subordinated; and
(c) Tenant agrees that if the Holder shall succeed to Landlord's
interest in this Lease, Tenant will recognize the Holder as its landlord
under the provisions of this Lease provided that the Holder shall assume
all the obligations of Landlord under this Lease.
The delivery of the subordination, non-disturbance and attornment agreement in
the form set forth above shall be a condition to Tenant's performance under the
terms of this Lease. Such delivery must occur, with respect to any existing
Mortgage, prior to the execution of this Lease, and, with respect to any future
Mortgage, within thirty (30) days after the execution of such future Mortgage.
As used herein "Mortgage" means any mortgage, deed of trust, sale/leaseback
transaction, ground lease, or any other hypothecation for security now or
hereafter placed upon the Building and/or the Property, and "Holder" means the
mortgagee, trustee, beneficiary, landlord or leaseback lessor under the
foregoing documents.
17. RE-ENTRY BY LANDLORD
Landlord reserves and shall at all reasonable times have the right to re-enter
the Leased Premises to inspect the same, to supply janitorial service and any
other service provided by Landlord to Tenant hereunder, to the Leased
<PAGE>
Premises to prospective purchasers, mortgagees or tenants (however Landlord may
show the Leased Premises to prospective tenants during only the last twelve (12)
months of the Lease Term), to post notices of nonresponsibility, and with
Tenant's written consent, to alter, improve, or repair the Leased Premises and
any portion of the Building of which the Leased Premises are a part or to which
access is conveniently made through the Leased Premises, without abatement of
rent, and may for that purpose erect, use, and
--15--
<PAGE>
maintain scaffolding, pipes, conduits, and other necessary structures in and
through the Leased Premises where reasonably required by the character of the
work to be performed, provided that entrance to the Leased Premises shall not be
blocked thereby, and further provided that the business of Tenant shall not be
interfered with unreasonably. For each of the aforesaid purposes, Landlord shall
at all times have and retain a key with which to unlock all of the doors, in,
upon, and about the Leased Premises, and Landlord shall have the right to use
any and all means which Landlord may deem necessary or proper to open said doors
in an emergency, in order to obtain entry to any portion of the Leased Premises,
and any entry to the Leased Premises, or portions thereof obtained by Landlord
by any of said means, or otherwise, shall not under any circumstances be
construed or deemed to be a forcible or unlawful entry into, or a detainer of,
the Leased Premises, or any eviction, actual or constructive, of Tenant from the
Leased Premises or any portions thereof. Landlord shall also have the right at
any time with Tenant's written consent, which consent shall not be unreasonably
withheld or delayed, without the same constituting an actual or constructive
eviction and without incurring any liability to Tenant therefor, to change the
arrangement and/or location of entrances or passageways, doors and doorways, and
corridors, elevators, stairs, toilets, parking facilities, loading docks and
areas, delivery and pick-up areas or other public parts of the Building.
Landlord agrees not to change the name of the Building or any exterior signs now
affixed to the Building or the Land if the proposed new name or sign identifies,
or in Tenant's reasonable judgment may be associated with, a competitor of
Tenant.
18. BANKRUPTCY
If a petition is filed by or against Tenant for relief under Title 11 of
the United States Code, as amended (the "Bankruptcy Code"), and Tenant
(including for purposes of this Section Tenant's successor in bankruptcy,
whether a trustee or Tenant as debtor in possession) assumes and proposes to
assign, or proposes to assume and assign, this Lease pursuant to the provisions
of the Bankruptcy Code to any person or entity who has made or accepted a bona
fide offer to accept an assignment of this Lease on terms acceptable to Tenant,
then notice of the proposed assignment setting forth (a) the name and address of
the proposed assignee, (b) all of the terms and conditions of the offer and
proposed assignment, and (c) the adequate assurance to be furnished by the
proposed assignee of its future performance under the Lease, shall be given to
Landlord by Tenant no later than twenty (20) days after Tenant has made or
received such offer, but in no event later than ten (10) days prior to the date
on which Tenant applied to a court of competent jurisdiction for authority and
approval to enter into the proposed assignment. Landlord shall have the prior
right and option, to be exercised by notice to Tenant given at any time prior to
the date on which the court order authorizing such assignment becomes final and
non-appealable, to receive an assignment of this Lease upon the same terms and
conditions, and for the same consideration, if any, as the proposed assignee,
less any brokerage commissions which may otherwise be payable out of the
consideration to be paid by the proposed assignee for the assignment of this
Lease. If this Lease is assigned pursuant to the provisions of the Bankruptcy
Code, Landlord: (i) may require from the assignee a deposit or other security
for the performance of its obligations under this Lease in an amount
substantially the same as would have been required by Landlord upon the initial
leasing to a tenant similar to the assignee; and (ii) shall receive, as
additional rent, any and all further sums as are required of Tenant under this
lease. Any person or entity to which
<PAGE>
this Lease is assigned pursuant to the provisions of the Bankruptcy Code shall
be deemed, without further act or documentation, to have assumed all of the
Tenant's obligations arising under this Lease on and after the date of such
assignment. Any such assignee shall, upon demand, execute and deliver to
Landlord an instrument confirming such assumption. No provision of this Lease
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<PAGE>
shall be deemed a waiver of Landlord's rights or remedies under the Bankruptcy
Code to oppose any assumption and/or assignment cf this Lease, to require a
timely performance of Tenant's obligations under this Lease, or to regain
possession of the Leased Premises if this Lease has neither been assumed or
rejected within sixty (60) days after the date of the order for relief or within
such additional time as a court of competent jurisdiction may have fixed.
Notwithstanding anything in this Lease to the contrary, all amounts payable by
Tenant to or on behalf of Landlord under this Lease, whether or not expressly
denominated as Rent (specifically including, but not limited to, the amounts
described in Paraaraph 41(b) hereof), shall constitute rent for the purposes of
Section 502(b) (6) of the Bankruptcy Code.
19. DEFAULT AND REMEDIES
(a) The following events shall be deemed to be events of default by Tenant
under this Lease:
(1) Tenant shall fail to pay when or before due any sum of money, in
whole or in part, becoming due to be paid to Landlord hereunder, whether
such sum be any installment of the Rent herein reserved, any other amount
treated as additional rent hereunder, or any other payment or reimbursement
to Landlord required herein, whether or not treated as additional rent
hereunder, and such failure shall continue for a period of ten (10) days
after written notice thereof is delivered to Tenant; provided, however,
Landlord shall not be required to provide such notice more than three (3)
times in any twelve month period, the fourth (4th) such failure
constituting an Event of Default without Landlord being required to provide
such notice and 10-day cure period; or
(2) Tenant shall fail to comply with any term, provision or covenant
of this Lease other than by failing to pay when or before due any sum of
money becoming due to be paid to Landlord hereunder, and shall not cure
such failure within thirty (30) days after written notice thereof is
delivered to Tenant (except that if such compliance cannot be reasonably
effected within such 30-day period, Tenant shall not be in default
hereunder provided that it commences to effect compliance within such 30-
day period and diligently pursues such compliance thereafter); or
(3) If, in spite of the provisions hereof, the interest of Tenant
shall be levied upon under execution or be attached by process of law, or
Tenant shall fail to contest diligently the validity of any lien or claimed
lien upon the Leased Premises and give sufficient security to Landlord to
insure payment thereof, and such default shall continue for one hundred
twenty (120) days after written notice thereof to Tenant.
(b) Upon the occurrence of any such events of default described in
subparagraph (a) above, Landlord shall have, as its sole remedy, the right to
terminate this Lease and to recover the following money damages from Tenant as
liquidated damages:
(1) If the event of default which gives rise to the Lease termination
occurs prior to or during the sixtieth (60th) month of the Lease Term, then
Landlord's liquidated damages shall be equal to the sum of (a) the amount
of Tenant's funds then being retained by Landlord in
<PAGE>
Tenant's Security Account (as defined in Paragraph 41(b)), plus (b) the
additional funds which Tenant would otherwise be required to contribute to
the Security Account through the end of the 60th month, plus (c) the lump
sum termination Option payment required under Paragraph 41(b), plus (d) all
base rent, including any amount treated as additional rent hereunder, and
other sums due and payable by Tenant on the date of termination, plus (e)
an amount equal to the then
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<PAGE>
present value of the base rent, excluding any amounts treated as additional
rent hereunder, payable through the 60th month of the Primary Term, less
the fair rental value of the Leased Premises for such period (taking into
account the time and expense reasonably necessary to obtain a replacement
tenant or tenants, including reasonable expenses relating to the recovery
of the Leased Premises, preparation for reletting and for reletting itself,
such as brokerage commissions, etc.; provided, however, such costs shall be
chargeable to tenant only to the extent that they relate to the then
remaining period of the lease Term); or
(2) If the event of default which gives rise to the Lease
termination occurs after the sixtieth (60th) month of the Lease Term, then
Landlord's liquidated damages shall be equal to the sum of (a) the amount
of Tenant's funds then being retained by Landlord in Tenant's security
account, plus (b) an amount equal to the product of (i) the lump sum
termination option payment required under Paragraph 41(b) times (ii) the
number of calendar months remaining in the Primary Term at Lease
Termination divided by (iii) sixty (60), plus (c) all base rent, including
any amount treated as additional rent hereunder, and other sums due and
payable by Tenant on the date of termination, plus (d) an amount equal to
the then present value of the base rent, excluding any amounts treated as
additional rent hereunder, payable through the remainder of the Primary
Term, less the fair rental value of the Leased Premises for such period
(taking into account the time and expense reasonably necessary to obtain a
replacement tenant or tenants, including reasonable expenses relating to
the recovery of the Leased Premises, preparation for reletting and for
reletting istelf, such as brokerage commissions, etc.; provided, however,
such costs shall be chargeable to Tenant only to the extent that they
relate to the then remaining period of the Lease Term).
(c) Should Landlord, acting reasonably and in good faith, determine that
Tenant is not acting within a commercially reasonable time to maintain, repair
or replace anything for which Tenant is responsible hereunder, Landlord may, in
landlord's option, upon tenant's continued failure to so maintain, repair or
replace after forty-five (45) days written notice from landlord (which notice
shall specify in detail tenant's alleged failures), enter into and upon the
leased premises, with or without process of law and correct the same, without
being deemed in any manner guilty of trespass, eviction or forcible entry and
detainer and without incurring any liability for any damage resulting therefrom,
and tenant agrees to reimburse landlord, on demand, as additional rent, for any
expenses which landlord may incur in thus effecting compliance with tenant's
obligations under this lease.
(d) Any and all property which may be removed from the Leased Premises by
Landlord pursuant to the authority of this Lease or of law, to which Tenant is
or may be entitled, may be handled, removed and stored, as the case may be, by
or at the discretion of Landlord at the risk, cost and expense of Tenant, and
Landlord shall in no event be responsible for the value, preservation or
safekeeping thereof, except for losses occasioned by Landlord's negligence or
willful misconduct. Tenant shall pay to Landlord, upon demand, any and all
reasonable expenses incurred in such removal and all storage charges against
such property so long as the same shall be in Landlord's possession or under
Landlord's control. Any such property of Tenant not retaken by Tenant from
storage within ninety (90) days after removal from the Leased Premises shall,
<PAGE>
at Landlord's option, be deemed conveyed by Tenant to Landlord under this Lease
as by a bill of sale without further payment or credit by Landlord to Tenant.
(e) In exercising any of the remedies set forth in this Lease with respect
to entry or re-entry of the Leased Premises, Landlord shall not be civilly or
otherwise liable to Tenant for
--18--
<PAGE>
any damage to Tenant's property unless same is caused by the intentional or
wanton willful or negligent conduct of Landlord.
(f) No act or thing done by Landlord or its agents during the Lease Term
shall be deemed a termination of this Lease or an acceptance of the surrender of
the Leased Premises, and no agreement to terminate this Lease or accept a
surrender of the Leased Premises shall be valid unless in writing signed by
Landlord. No waiver by Landlord of any violation or breach of any of the terms,
provisions and covenants herein contained shall be deemed or construed to
constitute a waiver of any other violation or breach of any of the terms,
provisions and covenants herein contained. Landlord's acceptance of the payment
of rental or other payments hereunder after the occurrence of an event of
default shall not be construed as a waiver of such default, or as accord and
satisfaction of any liability of Tenant, unless Landlord expressly so notifies
Tenant in writing. Forbearance by Landlord in enforcing one or more of the
remedies herein provided upon any event of default shall not be deemed or
construed to constitute a waiver of such default or of Landlord's right to
enforce any such remedies with respect to such default or any subsequent
default.
(g) Without limiting the foregoing:
(i) Service of process upon Tenant may be had by serving any officer,
director or employee of Tenant at or upon the Leased Premises, and Landlord
or anyone acting therefor shall at all times have the right to enter, seek
out and locate any appropriate person for such purpose;
(ii) Service of process upon Landlord may be had by serving any
registered agent or partner of Landlord, or any person acting therefor, at
Landlord's offices upon the Leased Premises or elsewhere;
(iii) Provided, however, neither Landlord nor Tenant hereby waives the
right to serve each other with process by any other lawful means;
(iv) To the extent permitted by existing or future law of the State of
Texas, Tenant expressly waives any and all rights of redemption granted by
or under any existing or future laws if Tenant is evicted or dispossessed
for any cause, or if Landlord obtains possession of the Leased Premises due
to Tenant's default hereunder or otherwise.
20. DAMAGE BY FIRE OR OTHER CASUALTY
(a) If the Building, improvements, or Leased Premises are rendered
partially or wholly untenantable by fire or other casualty, and if such damage,
in the reasonable opinion of an architect selected by Landlord by its
certificate so stating (the "Architect's certificate"), cannot be materially
restored within one hundred-fifty (150) days of such damage, then either Tenant
or Landlord may, at its sole option, terminate this Lease as of the date of such
fire or casualty. The architect selected shall one of the following architects
(or another architect mutually acceptable to Tenant and Landlord): (i) Ziegler
Cooper, Inc., (ii) Gensler and Associates, or (iii) CRSS, Inc. Landlord or
Tenant shall exercise its termination option provided herein by written notice
to the other party within thirty (30) days after deliverance of the Architect's
Certificate. For purposes hereof, the Building, improvements, or Leased Premises
shall be deemed "materially restored" if they
<PAGE>
are in such condition as would not prevent or materially interfere with Tenant's
use of the Leased Premises for the purpose for which the Leased Premises were
being used at the time of such fire or casualty. If the Architect's Certificate
indicates that the restoration can be accomplished with such 150-day period,
then this Lease shall not terminate. When required by this Paragraph, the
Architect's Certificate shall be delivered within thirty (30) days from the date
of damage.
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<PAGE>
(b) If this Lease is not terminated pursuant to this Paragraph, then
Landlord shall proceed with all due diligence to repair and restore the
Building, improvements or Leased Premises, as the case may be (except that
Landlord may elect not to rebuild if such damage occurs during the last year of
the Lease Term exclusive of any option which is unexercised at the date of such
damage).
(c) If this Lease shall be terminated pursuant to this Paragraph, the Lease
Term shall end on the date of such damage as if that date had been originally
fixed in this Lease for the expiration of the Lease Term. If this Lease shall
not be terminated by Landlord or Tenant pursuant to this Paragraph and if the
Leased Premises are untenantable in whole or in part following such damage, the
Rent payable during the period in which the Leased Premises are untenantable
shall be reduced to such extent, if any, as may be fair and reasonable under all
of the circumstances. In the event that Landlord shall fail substantially to
complete such repairs and material restoration within one hundred fifty (150)
days after the date of such damage, Tenant may at its option and as its sole
remedy terminate this Lease by delivering written notice to Landlord, whereupon
this Lease shall end on the date of such notice as if the date of such notice
were the date originally fixed in this Lease for the expiration of the Lease
Term; provided, however, that if construction is delayed because of changes,
deletions, or additions in construction requested by Tenant, strikes, lockouts,
casualties, acts of God, war, material or labor shortages, governmental
regulation or control or other causes beyond the reasonable control of Landlord,
the period for restoration, repair or rebuilding shall be extended for the
amount of time Landlord is so delayed.
In no event shall Landlord be required to rebuild, repair or replace any
part of the partitions, fixtures, additions or other improvements which may have
been placed in or about the Leased Premises by Tenant (except to the extent paid
for, in whole or in part, with a leasehold improvements allowance from
Landlord). Any insurance which may be carried by Landlord or Tenant against loss
or damage to the Building or the Leased Premises shall be for the sole benefit
of the party carrying such insurance and under it sole control except that
Landlord's insurance may be subject to control by (i) the holder or holders of
any indebtedness secured by a mortgage or deed to secure debt covering any
interest of Landlord in the Leased Premises, the Building, or the Property,
and/or (ii) the ground lessor of the Property. In no event shall Landlord be
required under this Lease to incur any expenses in excess of available insurance
proceeds for the purpose of repairing or restoring the Building or the Leased
Premises after a fire or other casualty.
(d) In the event of any damage or destruction to the Building or the Leased
Premises by any peril covered by the provisions of this Paragraph, Tenant shall,
upon written notice from Landlord, remove forthwith, at its sole cost and
expense (except to the extent such moving costs are covered by Landlord's
insurance), such portion or all of the property belonging to Tenant or its
licensees from such portion or all of the Building or the Leased Premises as
Landlord shall reasonably request.
21. CONDEMNATION
(a) If any substantial part of the Building, improvements, or Leased
Premises should be taken for any public or quasi-public use under governmental
law, ordinance or regulation, or by right of eminent domain, or by private
<PAGE>
purchase in lieu thereof, and the taking would prevent or materially interfere
with the use of the Building or the Leased Premises for the purpose for which it
is then being used, this Lease shall terminate on the date title vests in the
taking authority in the same manner as if the date of such taking were the date
originally fixed in this Lease for the expiration of the Lease Term.
--20--
<PAGE>
(b) If part of the Building improvements, or Leased Premises shall be taken
for any public or quasi-public use under any governmental law, ordinance or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof, and if as a result the Leased Premises become unfit for Tenant's normal
use (whether or not the Leased Premises themselves are condemned or taken),
Tenant may, at its option by written notice to Landlord, terminate this Lease as
of the date of the condemnation or taking If Landlord and Tenant are unable to
agree as to whether the Leased Premises are rendered unfit for Tenant's normal
use as a result of the condemnation, then the matter shall be submitted to
arbitration pursuant to Paragraph 42(i) hereof. Otherwise, this Lease shall not
terminate but the Rent payable hereunder during the unexpired portion of this
Lease shall be reduced to such extent, if any, as may be fair and reasonable
under all of the circumstances. Landlord shall undertake to restore the Building
improvements, and Leased Premises to a condition suitable for Tenant's use, as
near to the condition thereof immediately prior to such taking as is reasonably
feasible under all circumstances. In no event, however, shall Landlord be
required under this Lease to incur any expenses in excess of available proceeds
from any taking contemplated hereby for the purposes of restoring the Building
or the Leased Premises after any such taking.
(c) Tenant shall not share in any condemnation award or payment in lieu
thereof or in any award for damages resulting from any grade change of adjacent
streets, the same being hereby assigned to Landlord by Tenant; provided,
however, that Tenant may separately claim and receive from the condemning
authority, if legally payable, compensation for Tenant's removal and relocation
costs and for Tenant's loss of business and/or business interruption and for the
loss of Tenant's unexpired leasehold estate, and for any loss or damage to
Tenant's property.
(d) Notwithstanding anything to the contrary contained in this Paragraph,
if the temporary use or occupancy of any part of the Leased Premises shall be
taken or appropriated under power of eminent domain during the Lease Term, this
Lease shall be and remain unaffected by such taking or appropriation except that
Rent shall be calculated based on the Net Rentable Area of the Leased Premises
not so taken, for the period of time that the Leased Premises are so taken as of
the date of transfer of possession of the Leased Premises. For purposes of this
subparagraph, a "temporary" taking shall mean any taking or condemnation for any
public purpose of the Leased Premises or any portion thereof for ninety (90)
days or less. In the event of any such temporary appropriation or taking Tenant
shall be entitled to receive that portion of any award which represents
compensation for the use or occupancy of the Leased Premises during the Lease
Term, and Landlord shall be entitled to receive that portion of any award which
represents the cost of restoration of the Leased Premises and the use and
occupancy of the Leased Premises after the end of the Lease Term.
(e) Notwithstanding anything to the contrary contained in this Paragraph 21
or elsewhere in this Lease, in the event of any condemnation, Landlord shall be
entitled to receive its entire award but Tenant shall have the right to make a
separate claim with the condemning authority for, and to receive therefrom, (i)
any moving expenses incurred by Tenant as a result of such condemnation; (ii)
any costs incurred or paid by Tenant in connection with any Alteration or
Leasehold Improvement paid for by Tenant; (iii) the value of any of Tenant's
property taken; (iv) any award for the value of Tenant's unexpired
<PAGE>
leasehold estate; and (v) any other separate claim which Tenant may hereafter be
permitted to make under applicable law; provided, however, that such other
separate claim shall not reduce or adversely affect the amount of the Landlord's
award.
--21--
<PAGE>
22. SALE BY LANDLORD
Landlord shall have the right to transfer or assign the Property and any of
its rights under this Lease. No transfer or assignment by Landlord shall release
Landlord from any liability or obligation to Tenant for the payment of any
allowance or other sum of money. If Landlord's transferee or assignee assumes
Landlord's obligations, Landlord shall remain liable for all existing
liabilities or obligations, but shall be released from any future obligations.
23. RIGHT OF LANDLORD TO PERFORM
All covenants and agreements to be performed by Tenant under any of the terms
of this Lease shall be performed by Tenant at Tenant's sole cost and expense and
without any abatement of Rent, except as otherwise provided herein. If Tenant
shall fail to pay any sum of money or incur any expense, other than Rent,
required to be paid by it hereunder, and such failure shall continue beyond the
applicable cure period, Landlord may, but shall not be obligated to do so, and
without waiving or releasing Tenant from any of its obligations, make any such
payment or incur any such expense or perform any such act on Tenant's part to be
made or performed as is required by this Lease to be made or done by Tenant. All
sums so paid by Landlord and all necessary incidental costs together with
interest thereon at the Agreed Interest Rate from the date of such payment by
Landlord shall be payable as additional rent to Landlord on demand, and Tenant
covenants to pay any such sums, and Landlord shall have, in addition to any
other right or remedy of Landlord, the same rights and remedies in the event of
nonpayment thereof by Tenant as in the case of default by Tenant in the payment
of Rent.
24. SURRENDER OF PREMISES
(a) At the end of the Lease Term or other sooner termination of this Lease,
Tenant will peaceably deliver up to Landlord possession of the Leased Premises,
together with all improvements or additions upon or belonging to the same,
excluding those Alterations and Leasehold Improvements which were paid for by
Tenant and those items described on the Tenant's Removables List, in the same
condition as received, or first installed, ordinary wear and tear, damage by
fire, earthquake, act of God, or the elements as are beyond Tenant's control,
and condemnation excepted. So long as Tenant is not in default hereunder (beyond
any applicable cure period), Tenant may, upon the termination of this Lease,
remove all movable furniture and equipment belonging to Tenant, at Tenant's sole
cost, title to which shall be in name of Tenant until such termination,
repairing any damage caused by such removal. Property not so removed shall be
deemed abandoned by Tenant, and title to the same shall thereupon pass to
Landlord.
(b) The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, shall terminate all or any existing subleases or
subtenancies; however, Landlord shall have the right to thereafter negotiate
directly with Tenant's subtenants.
25. WAIVER
If either Landlord or Tenant waives the performance of any term, covenant
or condition contained in this Lease, such waiver shall not be deemed to be a
waiver of any subsequent breach of the same or any other term,
<PAGE>
covenant or condition contained herein. Furthermore, the acceptance of Rent by
Landlord shall not constitute a waiver of any preceding breach by Tenant of any
term, covenant or condition of this Lease, regardless of Landlord's knowledge of
such preceding breach at the time Landlord accepted such Rent. Failure by either
Landlord or Tenant to enforce any of the terms, covenants or conditions of this
Lease for any length of time shall not be deemed to waive or to decrease the
right of Landlord or Tenant, as the case may be,
--22--
<PAGE>
to insist thereafter upon strict performance by the other party. Waiver by
Landlord or Tenant of any term, covenant or condition contained in this Lease
may only be made by a written waiver, shall be effective only with respect to
the subject matter stated therein, and only for such time and to such extent as
provided therein.
26. PARKING
During the Lease Term, Landlord shall provide, for the non-assigned use of
Tenant, one hundred seventy (170) parking spaces, which is equivalent to three
(3) cars per 1000 square feet of Net Rentable Area of the Leased Premises (which
ratio shall also determine any parking spaces to be provided for any expansion
area leased) at a base rental rate of Zero Dollars (-0-) per space per month.
Twenty-five (25) of the above described spaces shall be reserved parking spaces
for Tenant's use at no additional cost, and Landlord will provide Tenant with
additional reserved spaces at a cost equal to the rate then in effect for other
tenants in the Building for reserved parking spaces. Landlord reserves the right
to designate spaces at a future date, and to establish devices to provide
ingress and egress to and from parking areas. The Garage shall be available for
use twenty-four (24) hours per day, every day of the year, and shall be
illuminated when necessary. Landlord shall maintain the Garage in a clean, safe,
and first-class condition. Landlord shall not allow the use of parking spaces in
the Garage by others to such an extent that Tenant and its employees are unable
to locate and use unassigned parking spaces in the Garage. Landlord shall
maintain and enforce controls, such as parking stickers, and towing to control
vehicular access to the Garage and surface parking areas of the Property and to
limit parking therein so that only visitors park in areas designated for visitor
parking and only tenants of the Building and their employees park in areas of
the Garage designated for tenant parking and so that only Tenant's employees
park in Tenant's reserved spaces. Attached hereto as Exhibit "I" is the diagram
of the Garage and surface parking areas (the "Parking Plan"). The Parking Plan
includes the area designated for visitor parking as well as the areas designated
for Tenant's reserved spaces. The locations of visitor parking spaces and
Tenant's reserved spaces shall not be changed from the locations reflected on
the attached Parking Plan without Tenant's prior written consent, which consent
shall not be unreasonably withheld.
27. NOTICES
Each notice required or permitted to be given under this Lease shall be
sent by hand delivery or by depositing it with the United States Postal Service
or the official successor thereto, certified or registered mail, return receipt
requested, with adequate postage prepaid, addressed to the appropriate party as
hereinafter provided. Each such notice shall be effective upon being hand-
delivered, deposited with a courier service or with the United States Postal
Service, as the case may be, but the time period in which a response to any such
notice must be given or any action taken with respect thereto shall commence to
run from the date of receipt of the notice by the addressee thereof, as
evidenced by the delivery record of the messenger or courier service or by the
return receipt of the United States Postal Service, as the case may be.
Rejection or other refusal by the addressee to accept or the inability of the
messenger or courier service, or the United States Postal Service to deliver
because of a changed address of which no notice was given,
<PAGE>
shall in any case be deemed to be the receipt of the notice sent. The address of
Landlord and Tenant are as follows:
Landlord: c/o Houston Growth Associates
d/b/a Richpark Associates
9990 Richmond, Suite 106
Houston, Texas 77042
--23--
<PAGE>
With copies to: Douglas J. Tollett, President
American Resurgens Management Corp.
945 East Paces Ferry Road, Suite 1100
Atlanta, Georgia 30326
James L. McMahan, Managing Director
American Home Equities Inc.
2929 Lennox Road
Atlanta, Georgia 30324
General Electric Real Estate Equities
Attn: Asset Manager
3379 Peachtree Road, Suite 300
Atlanta, Georgia 30326
Tenant: Visual Numerics, Inc.
Attn: Chief Financial Officer
(Post-Commencement 9990 Richmond, Suite 400
Date) Houston, Texas 77042
(Pre-Commencement 14141 Southwest Freeway
Date): Suite 3000
Houston, Texas 77478-34981
Any party shall have the right from time to time to change the ADDRESS TO WHICH
NOTICES TO IT SHALL BE SENT AND TO SPECIFY UP TO TWO ADDITIONAL ADDRESSES TO
WHICH COPIES OF NOTICES TO IT SHALL BE SENT BY GIVING TO THE OTHER PARTY OR
PARTIES AT LEAST THIRTY (30) DAYS PRIOR NOTICE OF THE CHANGED ADDRESS OR
ADDITIONAL ADDRESSES.
28. CERTAIN RIGHTS RESERVED TO LANDLORD
Landlord reserves and may exercise the following rights without affecting
Tenant's obligations hereunder:
(a) To change the name of the Building (subject to the limitations
contained elsewhere in this Lease);
(b) To designate all sources furnishing sign painting and lettering,
towels, valet service and toilet supplies, lamps and bulbs used on the
Leased Premises;
(c) To retain at all times pass keys to the Leased Premises provided,
however, Tenant may designate areas in the Premises as secured areas, and
except in bona fide emergencies, Landlord shall not enter any secured area
without being accompanied by a designated representative of Tenant;
(d) To grant to anyone the exclusive right to conduct any particular
business or undertaking in the Building;
(e) To close the Building after regular work hours and on legal
holidays subject, however, to Tenant's right to admittance, under such
reasonable regulations as Landlord may prescribe from time to time, which
may include by way of example but not of limitation, that persons
<PAGE>
entering or leaving the Building identify themselves to a watchman by
registration or otherwise and that said persons establish their right to
enter or leave the Building; and
(f) To take any and all measures, including inspections, repairs,
alterations, decorations, additions, and improvements to the Leased
Premises or the Building, and identification and admittance procedures for
access to the Building as may be necessary or desirable for the safety,
protection, preservation or security of the Leased Premises or the Building
or Landlord's interest, or as may be necessary or desirable to operate the
Building in the manner required by this Lease.
--24--
<PAGE>
Subject to the terms of this Lease, Landlord may enter upon the Leased
Premises and may exercise any or all of the foregoing rights hereby without
being deemed guilty of an eviction or disturbance of Tenant's use or possession
and without being liable in any manner to Tenant and without abatement of Rent
or affecting any of Tenant's obligations hereunder.
29. SUCCESSORS
Subject to the provisions of Paragraphs 10 and 22 hereof, the terms,
covenants, and conditions contained herein shall be binding upon and inure to
the benefit of the heirs, successors, executors, administrators and assigns of
the parties hereto.
30. ATTORNEY'S FEES
In the event that any action or proceeding is brought to enforce any term,
covenant or condition of this Lease on the part of Landlord or Tenant, the
prevailing party in such litigation shall be entitled to reasonable attorneys'
fees to be fixed by the decision maker in such action or proceeding.
31. CORPORATE AUTHORITY
If Tenant signs as a corporation, each of the persons executing this Lease
on behalf of Tenant does hereby covenant and warrant that Tenant is a duly
authorized and existing corporation, that Tenant has and is qualified to do
business in Texas, that the corporation has full right and authority to enter
into this Lease, and that each and every one of the persons signing on behalf of
the corporation is authorized to do so. Upon Landlord's request, Tenant shall
provide Landlord with evidence reasonably satisfactory to Landlord confirming
the foregoing covenants and warranties and a corporate resolution authorizing
Tenant to execute this Lease. Likewise, if Landlord is a corporation,
partnership or other entity, Landlord warrants that all consent or approvals
required of third parties (including but not limited to its Board of Directors
or partners) for the execution, delivery and performance of this Lease have been
obtained and that Landlord has the right and authority to enter into and perform
its covenants contained in this Lease. Upon Tenant's request, Landlord shall
provide Tenant with evidence reasonably satisfactory to Tenant confirming the
foregoing covenants and warranties and a corporate resolution authorizing
Landlord to execute this Lease.
32. NEGATION OF LIEN FOR RENT
Landlord hereby expressly waives and negates any and all contractual liens
and security interests, statutory liens and security interests or constitutional
liens and security interests arising by operation of law to which Landlord might
now or hereafter be entitled on all property of Tenant now or hereafter placed
in or upon the Leased Premises (except for judgment liens that may hereafter
arise in favor of Landlord). The waiver and negation contained herein shall not
waive, negate or otherwise affect any unsecured claim Landlord may have.
33. QUIET ENJOYMENT
Landlord represents and warrants that it has good and indefeasible fee
simple title to the Property and the full right and authority to enter into
<PAGE>
this Lease and that Tenant, while paying the rental and performing its other
covenants and agreements herein set forth, shall peaceably and quietly have,
hold and enjoy the Leased Premises for the term hereof without hinderance or
molestation from Landlord subject to the terms and provisions of this Lease.
Landlord shall not be liable for any interference or disturbance by other
tenants or third persons, nor shall Tenant be released from any of the
obligations of this Lease because of such interference or disturbance; provided,
however, Landlord shall use its best efforts to control other
--25--
<PAGE>
tenants and third persons so as to not disturb Tenant's quiet enjoyment of the
Leased Premises.
34. LIMITATION OF LANDLORD'6 LIABILITY
Any liability of Landlord hereunder shall be enforceable only for and out
of the interest of Landlord in the Building. Anything to the contrary contained
in this Lease notwithstanding, there shall in no event be any personal or
derivative liability, with respect to, arising from or related in any manner to
the terms, covenants, conditions and provisions of this Lease or their
application, sought or endorsed against any persons, firms or other entities who
constitute the partners of Landlord, and Tenant hereby exculpates each
individual person and all general and limited partners of Landlord from any and
all liability arising from or relating to this Lease and its provisions or from
Landlord's status as such hereunder. Tenant shall, subject to the rights of any
ground lessor, mortgagee or holder of any security interest, look solely to the
interest of Landlord, its successors and assigns, in the Building for the
satisfaction of each and every remedy, if any, of Tenant as against Landlord
herein, including default by Landlord hereunder, and shall in no event have or
seek such satisfaction out of the separate assets of, or from, any individual
person or partner of Landlord.
35. DISCLAIMER OF CREATION OF PARTNERSHIP OR JOINT VENTURE
This Lease shall not be deemed to create or constitute a partnership or
joint venture of and between Landlord and Tenant for any purpose; nor is
Landlord to be deemed for any purpose a master, servant, employer, employee,
principal or agent of Tenant.
36. LEASE EFFECTIVE DATE
Submission of this instrument for examination or signature by Tenant does
not constitute a reservation of or option for lease, and is not effective as a
lease or otherwise until execution by both Landlord and Tenant.
37. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the Rules and Regulations
printed on Exhibit "E" annexed to this Lease and all reasonable additions
thereto as are from time to time now or hereafter at any time put into effect by
Landlord; provided, however, any modifications or additions to the rules and
regulations which affect issues of liability (as opposed to rules and
regulations which are promulgated for the purpose of improving the enjoyment of
the Building by its various tenants) shall require Tenant's written consent,
which consent shall not be unreasonably withheld or delayed. In the event of a
conflict between the provisions of this Lease and the Building Rules, the
provisions of this Lease shall control. Landlord shall not enforce the Building
Rules with respect to Tenant in a manner that is more restrictive than
Landlord's enforcement of such Building Rules as to any other tenant of the
Building.
38. NO BROKERS
Tenant and Landlord each represent and warrant to the other that, except
for American Resurgens Management Corp. and The Amend Group, no broker, agent,
<PAGE>
commission salesman or other person has represented either of them in the
negotiations for and procurement of this Lease and that, except for the
commission payable to the said brokers, no commission, fee or compensation of
any kind is due and payable in connection herewith to any person or entity.
Tenant and Landlord hereby acknowledge and agree that the commission payable to
the said brokers in connection with this Lease is the sole responsibility of
Landlord, and that said commission shall be paid by Landlord to the said brokers
in accordance with the terms of a separate agreement.
--26--
<PAGE>
39. RECORDING
Neither this Lease, nor any memorandum hereof, shall be recorded by either
Landlord or Tenant without the prior written consent of the other party.
40. MISCELLANEOUS
(a) The Paragraph numbers and Paragraph headings herein, and designation of
subparagraphs, are for convenience of reference only and shall in no way define,
increase, limit, or describe the scope or intent of any provision of this Lease,
which shall be construed without reference thereto.
(b) If this Lease is signed by more than one person, or if Tenant is a
partnership, joint venture, or other business organization the members of which
are subject to personal liability, the obligations and liability of each such
person or member hereunder shall be joint and several.
(c) The term "Landlord" in this Lease shall include Landlord and its
successors and assigns.
(d) The term "Tenant" or any pronoun used in place thereof shall indicate
and include the masculine, feminine or neuter genders, the singular or plural
number, individuals, firms or corporations, and each of their respective
successors, executors, administrators, and permitted assigns, according to the
context hereof.
(e) Time is of the essence of this Lease and each and all of its
provisions.
(f) This Lease shall in all respects be governed by and construed under the
laws of the State of Texas.
(g) Except as expressly set forth in this Lease or provided by law, Tenant
shall have no right to hold back, offset or otherwise fail to pay any rent,
including additional rent due or any other charges assessed under any provision
of this Lease, for or on account of any claim or counterclaim alleged against
Landlord, save and except pursuant to an order issued with prior notice to
Landlord and after a hearing by a court of record of competent jurisdiction in
the State of Texas.
(h) This Lease, together with its Exhibits and riders, if any, contains all
the agreements of the parties hereto and supersedes any previous negotiations or
agreements, whether oral or written. There have been no representations made by
the Landlord or understandings made between the parties other than those set
forth in this Lease and its Exhibits and riders, if any.
(i) This Lease may not be modified except by a written instrument executed
by all the parties hereto or their successors and assigns.
(j) All obligations of Tenant and Landlord hereunder not fully performed as
of the expiration or earlier termination of the Lease Term shall survive the
expiration or earlier termination of the Lease Term.
<PAGE>
(k) If, for any reason whatsoever, any clause, phrase, provision or portion
of this Lease, or the application thereof to any person or circumstance, shall
be or become invalid, unenforceable or ineffective, such event shall not affect,
impair or render invalid, unenforceable or ineffective the remainder of this
Lease or any other clause, phrase, provision or portion hereof, nor shall it
affect the application of any clause, phrase, provision or portion hereof to
other persons or circumstances. It is also the intention of the parties to this
Lease that in lieu of each such clause, phrase, provision or portion of this
Lease that is or may become invalid,
--27--
<PAGE>
unenforceable or ineffective, there be added as a part of this Lease a clause,
phrase, provision or portion as like and similar in terms to such invalid,
unenforceable or ineffective clause, phrase, provision or portion as may be
valid, enforceable and effective.
(l) Whenever a period of time is herein prescribed for action to be taken
by Landlord (other than the payment of money to Tenant), Landlord shall not be
liable or responsible for, and there shall be deducted from the computation for
any such period of time, any period for delays due to causes of any kind
whatsoever including without limitation, acts or events of force majeure, which
are beyond the control of Landlord. The period for performance of any such
delayed action by Landlord shall be extended for a period equivalent to the
period of such delay. Likewise, whenever a period of time is herein prescribed
for action to be taken by Tenant (other than the payment of money to Landlord),
Tenant shall not be liable or responsible for, and there shall be deducted from
the computation for any such period of time, any period for delays due to causes
of any kind whatsoever including without limitation, acts or events of force
majeure, which are beyond the control of Tenant. The period for performance of
any such delayed action by Tenant shall be extended for a period equivalent to
the period of such delay.
(m) Notwithstanding any other provisions of this Lease to the contrary, if
the commencement date hereof shall not have occurred before the twentieth (20th)
anniversary of the date hereof, this Lease shall be null and void and neither
party shall have any liability or obligation to the other hereunder. The purpose
and intent of this provision is to avoid the application of the Rule Against
Perpetuities to this Lease.
(n) To the best of Landlord's knowledge, the Building and Leased Premises
are free from and have never contained asbestos or any Hazardous Material
(hereinafter defined). Neither Landlord nor Tenant shall cause any Hazardous
Materials to be used, generated, treated, installed, stored or disposed of in,
on, under or about the Building except to the extent consistent with the
customary and reasonable business practice of office tenants provided (a) such
Hazardous Materials do not endanger the health of any person on or about the
Leased Premises or the Building and (b) Tenant or Landlord, as the case may be,
complies with all legal requirements applicable to such Hazardous Materials. It
is hereby agreed that the following shall be considered "customary and
reasonable business practices" within the meaning of the previous sentence: (i)
possession and use of copy machines and machines used to electronically accept
written data which utilize small amounts of chemicals which may be included in
the definition of Hazardous Materials; (ii) use of reproduction, blueprint and
photographic facilities in the Leased Premises that utilize chemicals which may
be included within the definition of Hazardous Materials. "Hazardous Materials"
means any flammables, explosives, radioactive materials, asbestos-containing
materials, the group of organic compounds known as polychlorinated biphenyls and
any other hazardous, toxic or dangerous waste, substance or materials defined as
such in (or for purposes of) the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended, the Hazardous Materials
Transportation Act, the Resources Conservation and Recovery Act of 1976, the
Toxic Substance Control Act or any so called "Superfund" or "Superlien" law or
any other legal requirement from time to time in effect regulating, relating to
or imposing liability or standards of conduct concerning any hazardous, toxic or
dangerous waste, substance or material.
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41. RENEWAL OR TERMINATION OPTIONS
(a) Renewal Options. Tenant shall have the right to renew this Lease with
respect to all space then leased by Tenant for two (2) additional five (5) year
periods. The rate on renewal shall be ninety-five percent (95%) of the
prevailing market rate, as defined below, in effect as of the date on which
Landlord is
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required to make the determination of prevailing market rent (the "Rent
Determination Date"); provided, however, if, at the time Landlord is required to
notify Tenant of the prevailing market rate, as provided below, Landlord has
elected to not lease any space in the Building due to unfavorable market
conditions (and Landlord has committed to continue such non-leasing for six (6)
months from the date of such notice), then the rate on renewal shall be equal to
the rate then being charged Tenant under this Lease, and Landlord will so state
that in Landlord's notice. For the purposes of this Lease, "prevailing market
rate" shall mean the rate at which a willing landlord and a willing tenant would
agree to lease comparable space in a comparable office building in the Westchase
area of Houston, Texas, as of the Rent Determination Date, taking into account
all relevant factors with respect to the Renewal Term, including length of term,
tenant creditworthiness, size of the premises, extent of leasehold improvements,
the basis for tenant payment of taxes, operating expenses, electricity, and
parking, allowances (including the $3.00 refurbishment allowance to be provided
by Landlord), and other factors affecting rent in the market. For purposes of
this Lease, the "Westchase area of Houston" shall be deemed to be the area
situated within the following boundaries: Westpark Drive (to the South), South
Gessner Road (to the East), Westheimer Road (to the North), and Wilcrest Drive
(to the West).
At least three hundred (300) days before the end of the Primary Term or the
first Renewal Term, as applicable, Landlord shall notify Tenant in writing of
its good faith estimate of the prevailing market rate at that time. If Tenant
agrees with Landlord's estimate of the prevailing market rate, or if Landlord
and Tenant reach an agreement that a different figure more accurately reflects
the prevailing market rate, they shall execute an agreement specifying the
prevailing market rate on which they have so agreed, and that figure shall be
the "Agreed Rata." The Rent for each month of the applicable Renewal Term shall
equal one twelfth (1/12th) of the product of the then Net Rentable Area of the
Leased Premises (including expansion premises added to the Leased Premises)
times a rate per annum equal to the Agreed Rate. If a written agreement on the
Agreed Rate has not been so executed at least two hundred seventy (270) days
before the end of the Primary Term or first Renewal Term, as applicable, then
Tenant may require appraisals to determine the Appraised Rate in the manner
described in the following paragraph by giving written notice to Landlord on or
before such 270th day.
Within ten (10) days after Tenant notifies Landlord that it is requiring
appraisals, each party at its cost and by giving notice to the other party,
shall appoint an MAI-certified real estate appraiser with at least five (5)
years' experience appraising similar commercial properties in the city in which
the Property is located to appraise the prevailing market rate at that time. If
either party fails to appoint an appraiser within the allotted time, the single
appraiser appointed by the other party shall be the sole appraiser. If an
appraiser is appointed by each party and the appraisers so appointed are unable
to agree upon the prevailing market rate within twenty (20) days after the
appointment of the second, the two appraisers shall appoint a third similarly
qualified appraiser within ten (10) days after the expiration of that 20-day
period. The third appraiser shall be a person who has not previously been
employed by Tenant or Landlord in any capacity. The third appraiser shall
complete his appraisal within twenty (20) days after appointment. The prevailing
market rate determined by a majority of the three appraisers shall be the
"Appraised Rate." If a majority are unable to agree within the allotted time,
the two appraisals of prevailing market rate that
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are nearest to one another in amount shall be added together and divided by two
(2), and the resulting quotient shall be Appraised Rate. Tenant shall pay the
fees of the appraiser it appoints, Landlord shall pay the fees of the appraiser
it appoints, and the fees of any third appraiser shall be paid equally by
Landlord and Tenant.
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<PAGE>
Each Renewal Option shall be exercised, if at all, by Tenant's delivery of
written notice of exercise to Landlord not less than one hundred eighty (180)
days prior to the end of the Primary Term or first Renewal Term, as applicable.
If any Renewal Option is not so exercised, it and all subsequent Renewal Options
shall lapse. If Tenant does exercise a Renewal Option, the Lease Term shall be
renewed and extended for the applicable Renewal Term under exactly the same
provisions (including payments of Tenant's Proportionate Share of Excess
Operating Expenses [with a Base Year equal to the year in which the Renewal Term
commences], parking rights, and options and rights under other paragraphs of
this Lease) as were in effect under this Lease at the end of the immediately
proceeding Primary Term or Renewal Term, as the case may be, except that (a) the
Rent per month and parking charges shall be the amount calculated pursuant to
this Paragraph, and (b) t
