<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant / /
Filed by a Party other than the Registrant /X/
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
MPSI SYSTEMS INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
Bowne of Dallas, Inc.
Turtle Creek Business Center
1931 Market Center
Suite 111
Dallas, Texas 75207-0528
(214) 651-1001
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
N/A
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
N/A
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
N/A
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
N/A
- --------------------------------------------------------------------------------
(5) Total fee paid:
N/A
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-0-
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
N/A
- --------------------------------------------------------------------------------
(3) Filing Party:
N/A
- --------------------------------------------------------------------------------
(4) Date Filed:
N/A
- --------------------------------------------------------------------------------
<PAGE> 2
<TABLE>
<S> <C>
MPSI SYSTEMS INC. 8282 SOUTH MEMORIAL DRIVE
TULSA, OKLAHOMA 74133
918 250-9611
FACSIMILE 918 254-8764
</TABLE>
INTERNATIONAL COMPUTER SOFTWARE AND INFORMATION SERVICES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
LOGO February 12, 1998
</TABLE>
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of
Stockholders of MPSI Systems Inc. (the "Company") which will
be held on Thursday, March 5, 1998 at 9:00 a.m. at the
Sheraton Tulsa Hotel, 10918 East 41st Street, Tulsa, Oklahoma
74146.
The formal notice of the Annual Meeting and the Proxy
Statement have been made a part of this invitation.
After reading the Proxy Statement, please mark, date,
sign and return the enclosed Proxy as soon as possible in the
envelope provided. YOUR SHARES CANNOT BE VOTED UNLESS YOU
SIGN AND RETURN THE ENCLOSED PROXY OR ATTEND THE ANNUAL
MEETING IN PERSON.
A copy of the Company's Annual Report to Stockholders is
also enclosed.
The Board of Directors and Management look forward to
seeing you at the meeting.
Sincerely yours,
/s/ RONALD G. HARPER
RONALD G. HARPER
Chairman and Chief
Executive Officer
Encls.
<PAGE> 3
MPSI SYSTEMS INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 5, 1998
The Annual Meeting of Stockholders of MPSI Systems Inc. (the "Company")
will be held at the Sheraton Tulsa Hotel, 10918 East 41st Street, Tulsa,
Oklahoma, on March 5, 1998 at 9:00 a.m., for the following purposes:
1. To elect five (5) directors to hold office during the ensuing year.
2. To approve The MPSI Systems Inc. 1998 Stock Plan.
3. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors.
4. To transact such other business as may properly come before the
meeting and any postponement or adjournment thereof.
The Board of Directors has fixed the close of business on January 9, 1998
as the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting and any postponement or adjournment thereof. A
complete list of stockholders entitled to vote will be available at the
Company's headquarters, 8282 South Memorial Drive, Tulsa, Oklahoma, for ten days
prior to the meeting.
We hope that you will use this opportunity to take an active part in the
affairs of your Company by voting on the business to come before the meeting
either by executing and returning the enclosed Proxy or by casting your vote in
person at the meeting. The granting of such proxy will not affect your right to
vote in person should you decide to attend the meeting.
IF YOU DO NOT EXPECT TO ATTEND IN PERSON, IT WOULD BE APPRECIATED IF YOU
WOULD PROMPTLY SIGN AND RETURN THE ENCLOSED PROXY, WHICH IS SOLICITED BY AND ON
BEHALF OF THE BOARD OF DIRECTORS. A PREPAID ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE. IF A STOCKHOLDER RECEIVES MORE THAN ONE PROXY BECAUSE HE OR SHE
OWNS SHARES REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH PROXY SHOULD BE
COMPLETED AND RETURNED.
By Order of the Board of Directors
/s/ LINDA K. WELLS
LINDA K. WELLS
Secretary
Tulsa, Oklahoma
February 12, 1998
<PAGE> 4
February 12, 1998
MPSI SYSTEMS INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MARCH 5, 1998
SOLICITATION OF PROXY, REVOCABILITY AND VOTING
This Proxy Statement and the enclosed proxy are furnished in connection
with the solicitation by the Board of Directors of MPSI Systems Inc., a Delaware
corporation (the "Company"), with principal executive offices at 8282 South
Memorial Drive, Tulsa, Oklahoma 74133, of proxies in the accompanying form to be
used at the Annual Meeting of Stockholders to be held on March 5, 1998, and any
postponement or adjournment thereof. The shares represented by the proxies
received pursuant to this solicitation and not revoked will be voted at the
Annual Meeting. This Proxy Statement and the enclosed proxy are being first sent
to security holders on February 12, 1998.
A proxy may be revoked at any time before it is voted by filing with the
Secretary of the Company a written notice of revocation or by duly executing a
proxy bearing a later date. A proxy may also be revoked by any stockholder
present at the meeting who expresses a desire to vote his or her shares in
person. Subject to any such revocation, all shares represented by properly
executed proxies will be voted in accordance with the specification on the
enclosed proxy. If no choice is so specified, the shares will be voted FOR the
election of the five (5) nominees for director listed in this Proxy Statement,
FOR establishment of The MPSI Systems, Inc. 1998 Stock Plan and FOR ratification
of the appointment of Ernst & Young LLP as independent auditors all as described
in the Notice of Annual Meeting of Stockholders and in this Proxy Statement.
The close of business on January 9, 1998 has been fixed as the record date
for determining the holders of shares entitled to receive notice of and to vote
at the meeting. On such date, the Company had 2,841,455 shares of Common Stock
outstanding and entitled to vote. The holders of a majority of the outstanding
shares of Common Stock present in person or represented by proxy shall
constitute a quorum for the transaction of business at the meeting. Each such
share is entitled to one vote on all matters. An abstained vote will count in
achieving a quorum for transaction of business, but not towards approval or
rejection of the matter under consideration.
The expense of printing and mailing proxy materials will be borne by the
Company. In addition to the solicitation of proxies by mail, solicitation may be
made by certain directors, officers and other employees of the Company by
personal interview, telephone, facsimile or telegraph, and no additional
compensation will be paid for such solicitation. The Company will reimburse
brokers and nominees for their reasonable out-of-pocket expenses in forwarding
soliciting material to beneficial owners of shares held of record by such
brokers and nominees.
DIRECTORS AND EXECUTIVE OFFICERS
ELECTION OF DIRECTORS
Five directors are to be elected to serve until the next Annual Meeting of
Stockholders and until their respective successors are duly elected or appointed
and qualified. All five of the nominees named below are presently directors of
the Company. Unless authority to vote for the directors is withheld, it is
intended that
<PAGE> 5
the shares represented by the enclosed Proxy will be voted FOR the election of
all five nominees. In the event that any such nominee is unable or declines to
serve for any reason, it is intended that proxies will be voted for the election
of the balance of those nominees named and for such other persons as shall be
designated by the present Board of Directors, or the Board of Directors may be
reduced in accordance with the Bylaws of the Company. The Board of Directors has
no reason to believe that any of the persons named will be unable or unwilling
to serve. An affirmative vote of a majority of the outstanding shares of Common
Stock present and voting at the meeting is required for election of the five
nominees to the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
ELECTION OF ALL NOMINEES NAMED IN THIS PROXY STATEMENT.
INFORMATION WITH RESPECT TO NOMINEES
The following table sets forth the nominees, their ages, a brief
description of their recent business experience, including present occupations
and employment, certain directorships held by each and the year in which each
became a director of the Company. All were elected at the Company's Annual
Meeting of Stockholders held on January 30, 1997, and have continued to serve
since such time.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL OCCUPATION AT PRESENT DIRECTOR
AND FOR THE PAST FIVE YEARS; DIRECTORSHIPS SINCE AGE
------------------------------------------ -------- ---
<S> <C> <C>
Ronald G. Harper(1)......................................... 1970 59
Mr. Harper, who founded the Company in 1970, has served as
its President, Chairman of the Board and Chief Executive
Officer since its inception.
John C. Bumgarner, Jr.(1)(2)(3)............................. 1982 55
In 1979 Mr. Bumgarner was appointed to his present
position as Senior Vice President -- Corporate Development
and Planning of The Williams Companies, Inc., a
Tulsa-based conglomerate. He has been employed by The
Williams Companies, Inc. since 1977. He is also a director
of TRANSCO, James River Coal Company, and several
privately held companies.
Dr. David L. Huff(1)........................................ 1982 66
Since 1968 Dr. Huff has been a member of the faculty at
the University of Texas. He has been a Fulbright Lecturer
and has published numerous books and articles, including
Market Area Analysis, "A Graphical Index of Consumer
Expectation," "Measures of Market Area Overlap," and
"Retail Location Theory." He is an expert in computer
modeling techniques.
Joseph C. McNay(1)(2)(3).................................... 1982 63
Since November 1976 Mr. McNay has been the President, a
Director and the Chairman of the Board of Essex Investment
Management Company, Inc., a company engaged in investment
and advisory services. Mr. McNay is also a director of
Softech, Inc. and Alpha I Biomedical, Inc., each of which
are publicly-held companies.
John J. McQueen(2)(3)....................................... 1982 76
Mr. McQueen has been in the private practice of law in the
Tulsa area since 1959. He has also served as a certified
public accountant with KPMG Peat Marwick, as a tax
specialist with Warren Petroleum Corp., and as controller
of Davis Investments, a company engaged in oil and real
estate activities.
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Nominating Committee.
2
<PAGE> 6
MEETINGS OF THE BOARD AND COMMITTEES OF THE BOARD
During the fiscal year ended September 30, 1997, the Board of Directors
held four regular meetings and four special meetings. All of the directors
attended at least 75% of the meetings of the Board. To assist it in carrying out
its duties, the Board of Directors has standing Compensation, Audit and
Nominating Committees.
The Audit Committee's functions are to recommend and approve, subject to
ratification by the Board of Directors and the stockholders, the Company's
independent auditors, to review the scope and results of audits by the
independent auditors, to represent the Board of Directors and stockholders in
ensuring that the legal, ethical and regulatory requirements for reporting and
public disclosure are met by the Company and to serve as the channel of
communication between the Board of Directors and Management on matters involving
financial reporting, public disclosure, reporting policy and relationships with
financial and regulatory entities. The Audit Committee held no separate meetings
during the fiscal year ended September 30, 1997, but conducted the necessary
business during the regular meetings of the Board.
The Compensation Committee's functions are to develop and monitor
compensation arrangements. In performing these functions, the Compensation
Committee approves salary ranges and actual salaries for all executive officers,
monitors the effectiveness of and adopts changes as appropriate for all
executive compensation programs, sets requirements for and evaluates performance
under the executive compensation plans and approves all awards under such plans,
and administers and makes awards, interpretations and other decisions under
certain other employee benefit and compensation plans. The Compensation
Committee held no separate meetings during the fiscal year ended September 30,
1997, but conducted the necessary business during the regular meetings of the
Board. See also "Board Compensation Committee Report on Executive Compensation"
below.
The Nominating Committee was created in September 1993 to seek qualified
individuals for consideration to serve as directors of the Company. The
committee will function to identify, investigate and obtain consents before any
such person's name is placed in nomination to serve as a director of the
Company. The committee held no meetings during the fiscal year ended September
30, 1997 and has not yet established procedures governing submission and
qualifications for nominees by Company security holders or the committee itself,
but the Committee will consider nominees proposed by Company security holders.
INFORMATION WITH RESPECT TO EXECUTIVE OFFICERS
The following table sets forth the executive officers currently serving the
Company, their ages, all positions and offices held with the Company and their
tenure in such office. If such officer has been employed by the Company for less
than five years, other background information and experience is listed. All
officers of the Company serve at the pleasure of its Board of Directors, and
there exists no arrangement or understanding among any of the Company's
executive officers with any other person pertaining to their selection to serve
in such position.
<TABLE>
<CAPTION>
SERVING IN
CURRENT
NAME AND ALL POSITIONS POSITION
AND OFFICES HELD WITH THE COMPANY SINCE AGE
--------------------------------- ---------- ---
<S> <C> <C>
Ronald G. Harper............................................ 1970 59
Mr. Harper, who founded the Company in 1970, has served as
its President, Chairman of the Board and Chief Executive
Officer since its inception.
James C. Auten.............................................. 1996 49
Mr. Auten was appointed Vice President and Chief Financial
Officer on January 1, 1996. Mr. Auten joined MPSI in 1984
as Corporate Controller and held such position until
December 1992 when he was appointed Principal Accounting
Officer.
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
SERVING IN
CURRENT
NAME AND ALL POSITIONS POSITION
AND OFFICES HELD WITH THE COMPANY SINCE AGE
--------------------------------- ---------- ---
<S> <C> <C>
Jyo Umezawa................................................. 1996 57
Mr. Umezawa was appointed Sr. Vice President -- Retail
Petroleum on July 11, 1996. Mr. Umezawa joined MPSI in
1983 and has served as Manager -- Market Development,
Director -- Market Studies, Chief Information Officer and
General Manager -- Technical Services and Vice President,
Pacific Rim Region.
Bryan D. Porto.............................................. 1996 48
Mr. Porto was appointed to his present position as Sr.
Vice President -- Retail Petroleum on July 11, 1996. Mr.
Porto joined MPSI's Rio de Janeiro office in 1985 and has
served as Director -- Network Planning, General Manager --
Marketing and Vice President of MPSI's Brazilian
subsidiary and most recently served as Vice President
North/Central/South America Region prior to his present
position.
John C. Bergman............................................. 1995 63
Mr. Bergman affiliated with MPSI in 1995 as Senior
Advisory Consultant and in 1997 was named interim
president of MPSI Consulting. He is an officer and
principal owner of JCB Marketing, a marketing company
generally engaged in business consulting services. Prior
to that, he was employed by Amoco Oil Company in a variety
of executive management positions in the marketing area.
Mr. Bergman serves on the Board of Travelserve and on the
Advisory Board of Northern Trust Bank.
</TABLE>
STOCK OWNERSHIP
The following table sets forth information as of January 9, 1998, as to
shares of Common Stock beneficially owned by the directors (all of whom are
nominees for another term), certain executive officers, the directors and
executive officers of the Company as a group, and certain persons known to the
Company to own beneficially more than five percent of the Company's Common
Stock. Except as otherwise indicated, each person has sole investment and voting
power with respect to the shares shown. Ownership information is based upon
information furnished by the respective individuals.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP OF COMMON STOCK
-------------------------------
NUMBER PERCENT
NAME OF COMMON STOCKHOLDER OF SHARES OF CLASS
-------------------------- --------- --------
<S> <C> <C>
Ronald G. Harper(2)......................................... 1,185,873(1) 41.73%
8282 South Memorial Drive
Tulsa, Oklahoma 74133
John C. Bumgarner, Jr....................................... 222,322 7.82%
4900 Bank of Oklahoma Tower
One Williams Center
Tulsa, Oklahoma 74172
Joseph C. McNay............................................. 242,722 8.54%
125 High Street, 29th Floor
Boston, Massachusetts 02110
Bank of Oklahoma, N.A....................................... 285,714 10.05%
P.O. Box 2300
Tulsa, Oklahoma 74192
The Robertson Stephens Orphan Fund.......................... 244,888 8.61%
555 California Street, Suite 2600
San Francisco, California 94104
</TABLE>
4
<PAGE> 8
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP OF COMMON STOCK
-------------------------------
NUMBER PERCENT
NAME OF COMMON STOCKHOLDER OF SHARES OF CLASS
-------------------------- --------- --------
<S> <C> <C>
Sanford Orkin............................................... 222,222 7.82%
3414 Peachtree Road, N.E., Suite 236
Atlanta, Georgia 30326
James C. Auten(2)........................................... 22,021 .77%
Jyo Umezawa(2).............................................. 26,718 .94%
Bryan D. Porto(2)........................................... 23,402 .82%
John C. Bergman(2).......................................... 5,000 .18%
All officers and directors as a group (9 persons)........... 1,728,058 60.82%
</TABLE>
- ---------------
(1) Includes 331,614 shares of Common Stock held directly by Mr. Harper's family
or in trust for the benefit of Mr. Harper's family and 424,209 shares held
in trust for the benefit of certain charities. Mr. Harper disclaims
beneficial ownership of these trust shares.
(2) The indicated individuals are executive officers of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based upon a review of Forms 4 and 5 furnished to the Company with respect
to its most recent fiscal year, the Company has determined that reports required
pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended,
were filed on a timely basis.
COMPENSATION OF DIRECTORS AND OFFICERS
Summary Compensation Table. The following table summarizes the compensation
paid over the last three completed fiscal years to the Company's CEO and the
other executive officers of the Company who received compensation of $100,000 or
more during the fiscal year ended September 30, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------- ----------------------- -----------
OTHER ALL
ANNUAL OTHER
COMPEN- RESTRICTED COMPEN-
NAME AND SATION STOCK OPTIONS/ LTIP SATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(1) AWARD(S) ($) SARS (#) PAYOUTS ($) ($)(2)
------------------ ---- ---------- --------- ------- ------------ -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ronald G. Harper.............. 1997 194,158 -- 8,242 -- -- -- 9,657
Chairman of the Board, 1996
President 196,961 -- 8,242 -- -- -- 8,085
and Chief Executive Officer 1995 181,456 5,599 8,232 -- -- -- 8,128
Jyo Umezawa................... 1997 125,022 -- -- -- -- -- 17,153
Sr. Vice President 1996 100,122 3,690 -- -- -- -- 3,237
1995 100,022 4,701 -- -- 7,000 -- 3,155
Bryan D. Porto................ 1997 125,022 -- -- -- -- -- 12,200
Sr. Vice President 1996 100,122 3,690 -- -- -- -- 672
1995 100,022 4,000 -- -- 5,400 -- 624
John C. Bergman............... 1997 -- -- 131,950 -- -- -- --
Sr. Advisory Consultant 1996 -- -- 73,349 -- -- -- --
1995 -- -- -- -- -- -- --
</TABLE>
5
<PAGE> 9
- ---------------
(1) Represents automobile lease paid to or on behalf of Mr. Harper and
consulting fees paid to Mr. Bergman.
(2) The components of "All Other Compensation" for the fiscal years ended
September 30, 1997, 1996, and 1995 include (a) Company matching
contributions to the Company's 401(k) defined contribution plan (Mr.
Harper -- $4,750, $3,278, and $3,865, and Mr. Umezawa -- $2,831, $2,565, and
$2,531, respectively), (b) supplemental life insurance premiums paid by the
Company (Mr. Harper -- $4,907, $4,807, and $4,263, Mr. Umezawa -- $822,
$672, and $624 and Mr. Porto -- $822, $672, and $624, respectively), and (c)
deferred compensation, accrued and payable in 1997 (Mr. Umezawa -- $13,500
and Mr. Porto -- $8,700.) At September 30, 1995, the Company approved
discretionary employee performance awards in the form of deferred
compensation to a group of 19 employees including the indicated executive
officers. Such amounts were earned based on the employee's performance
during the year ended September 30, 1994. The Company agreed to pay future
cash awards to the specified employees upon the achievement, for thirty
consecutive business days, of a $6.00 per share market price for the
Company's Common Stock and upon exercise of the underlying options. Such
payments could be made at any point after November 29, 1995, assuming stock
price and other vesting requirements have been met. The amounts reflected
above vested based upon the stock price at September 19, 1997, which
triggered the Company's obligation under the plan.
OPTIONS EXERCISED TABLE
The following table sets forth information concerning each exercise of
stock options by the named executive officers during the last completed fiscal
year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY END OPTION VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY END(#) FY END($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- --------------- ----------- ------------- ---------------
<S> <C> <C> <C> <C>
Jyo Umezawa...................................... 10,000 $23,135 11,167/10,833 27,185/14,116
Bryan Porto...................................... 2,000 10,000 17,067/ 9,833 43,025/12,996
</TABLE>
EMPLOYMENT CONTRACTS AND SEVERANCE ARRANGEMENTS
The Company maintains a severance policy applicable to all full-time
regular employees with at least one year of full-time service. Eligible
employees are those who are terminated as the result of (1) a reduction of the
Company's work force, (2) elimination of a job or position, (3) inability to
satisfactorily perform required responsibilities, or (4) relocation of
applicable Company facilities. The amount of severance paid is based upon the
employee's base salary and length of service, and includes payment for vested
but unused vacations and pro rated automobile allowances, if applicable. The
only named executive officer who would receive aggregate severance in excess of
$100,000 under the current policy is Ronald G. Harper. Mr. Harper's aggregate
severance would be approximately $124,000 at September 30, 1997.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
composed of Ronald G. Harper, Chairman, President and Chief Executive Officer of
the Company, and independent outside directors, John C. Bumgarner, Jr., David L.
Huff and Joseph C. McNay. This Committee was responsible for overseeing and
administering the Company's executive compensation program described below.
The executive compensation program of the Company is reviewed and approved
annually by the Committee and is designed to serve the interest of the Company
and its stockholders by aligning executive compensation with stockholder
objectives and to encourage and reward management initiatives and good
performance. Specifically, the executive compensation program seeks to:
(i) implement compensation practices which allow the Company to
attract and retain highly qualified executives and maintain a competitive
position in the executive marketplace with employers of comparable size and
in similar lines of business;
6
<PAGE> 10
(ii) enhance the compensation potential of executives who are in the
best position to contribute to the development and success of the Company
by providing the flexibility to compensate individual performance; and
(iii) directly align the interest of executives with the long-term
interest of stockholders through compensation opportunities in the form of
Common Stock ownership.
These objectives are met through a program comprised of base salary and
annual cash or stock incentive awards, which are tied to operating performance,
and long-term incentive opportunities primarily in the form of incentive stock
options.
Salary. The Committee considers on an annual basis salary adjustments for
the Company's executive officers, including those named in the Summary
Compensation Table. Salary adjustments are designed to reflect internal
comparability and organizational considerations, and competitive data provided
by outside surveys. As a general rule, salary ranges are targeted toward the
median of survey results.
Incentive Awards. Executives are eligible for cash awards annually based
upon financial and non-financial results relative to pre-established performance
targets and objectives.
Stock Options. The Company's 1988 Stock Option Plan, approved by the
stockholders in 1989, permits the Committee, to grant incentive or nonstatutory
stock options to executive officers. The plan provides for stock option awards
giving executives the right to purchase Common Stock over a five-year period at
the fair market value per share as of the date the option is granted. Options
generally become exercisable in three equal annual installments beginning one
year after grant. Neither Mr. Harper nor any other member of the Board of
Directors is eligible to participate in the stock option plan. The 1988 Stock
Option Plan expires in November of 1998. Assuming approval by the Company's
stockholders, the 1998 Stock Plan will be used for the same purposes as the 1988
Stock Option Plan.
Chief Executive Officer Compensation. Mr. Harper's base compensation
package has increased by approximately 7% during the three years ended September
30, 1997 in recognition of the Company's progress. Additionally, Mr. Harper
received an annual incentive award in 1995 as set forth in the Summary
Compensation Table. In determining the amount of annual incentive awards, the
Committee took into consideration the Company's operating results in an
environment affected by adverse economic conditions, the increased quality of
core assets as a result of the Company's emphasis on its core client industry
(retail petroleum), and Mr. Harper's increased personal attention to
revitalization of certain significant client relationships and introduction of
new products.
THE COMPENSATION COMMITTEE
John C. Bumgarner, Jr.
Ronald G. Harper
David L. Huff
Joseph C. McNay
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Ronald G. Harper, Chief Executive Officer of the Company, is the only
member of the Compensation Committee who is also an employee or officer of the
Company. In addition, Mr. Harper is a party to certain relationships and
transactions with the Company which are described in "Certain Transactions"
below.
DIRECTORS' COMPENSATION
Members of the Board of Directors who are employees of the Company receive
no additional compensation as a result of their service as directors. Directors
who are not employees of the Company are compensated at the rate of $1,500 for
each board meeting attended and are reimbursed for any out-of-pocket expenses
incurred in attending meetings.
7
<PAGE> 11
PERFORMANCE GRAPH
The following graph sets forth the yearly percentage change in the
cumulative total shareholder return on the Company's Common Stock during the
preceding five fiscal years ended September 30, 1997 compared with the
cumulative total returns of the NASDAQ Stock Market -- U.S. index and an
industry peer group. The comparison assumes $100 was invested on September 30,
1992 in the Company's Common Stock and in each of the foregoing indices and
assumes reinvestment of dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG MPSI SYSTEMS INC., THE NASDAQ STOCK MARKET-(U.S.) INDEX AND A PEER GROUP
<TABLE>
<CAPTION>
MEASUREMENT PERIOD NASDAQ STOCK
(FISCAL YEAR COVERED) MPSI SYSTEMS INC. PEER GROUP MARKET-US
<S> <C> <C> <C>
9/92 100 100 100
9/93 225 122 131
9/94 1000 118 132
9/95 3000 136 182
9/96 388 155 216
9/97 2600 199 297
</TABLE>
For comparative purposes, the Company has identified a peer group including
companies who are competitors or who are known to provide services similar to
those provided by the Company. The peer group companies are CACI International
Incorporated, Information Research Incorporated, MARC Incorporated, Equifax
Incorporated, Dun & Bradstreet, Acxiom Corporation, Market Facts Incorporated,
SEI Corporation, and Fair Issac & Company.
CERTAIN TRANSACTIONS
The Company entered into a number of agreements on or about September 29,
1993 with certain directors, executive officers and stockholders in connection
with an equity recapitalization transaction. Participants in such equity
recapitalization transaction included Ronald G. Harper, John C. Bumgarner, Jr.,
Joseph C. McNay, Dr. David L. Huff, Bank of Oklahoma, N.A., the Robertson
Stephens Orphan Fund and Sanford Orkin (collectively, "Significant
Stockholders"). Under the terms of such agreements, the Company has agreed that,
upon the request of Significant Stockholders owning a specified percentage of
shares of Common Stock, on one additional occasion (one such registration
request having already been satisfied), the Company will register under the
Securities Act of 1933, as amended, and applicable states securities laws, the
sale of the Common Stock owned by the Significant Stockholders. The Company's
obligation is subject to certain limitations regarding the timing of
registrations and certain other matters. The Company is also obligated to offer,
on up to two occasions, to the Significant Stockholders the opportunity to
include shares of Common Stock owned by them in certain registration statements
filed by the Company. In addition, the Company has agreed to indemnify the
Significant Stockholders against securities law liabilities arising in
connection with such offerings, other than liabilities arising as a result of
information furnished to the
8
<PAGE> 12
Company by the Significant Stockholders participating in the registration. The
Company is obligated to pay all expenses incident to such registrations, except
underwriter's discounts and commissions allocable to the sale of shares by the
Significant Stockholders.
The Company believes that the terms of the above described transactions
were competitive and no less beneficial to the Company than would have been made
available from unaffiliated parties. The Board of Directors of the Company has a
policy that the Company not enter into any related party transactions unless
approved by a majority of the Company's independent directors based upon
independent evidence of fair value.
APPOINTMENT OF INDEPENDENT AUDITORS
The Company's Board of Directors has reappointed Ernst & Young LLP, the
independent auditors who examined the consolidated financial statements of the
Company for the fiscal year ended September 30, 1997, to act as the Company's
independent auditors for the current fiscal year, subject to ratification by the
stockholders. The decision of the Board of Directors to reappoint Ernst & Young
LLP is based on the recommendation of the Audit Committee. In making its
recommendation, the Audit Committee reviewed the auditor's independence, the
audit scope and audit fees. Representatives of Ernst & Young LLP will attend the
Annual Meeting and will be prepared to answer stockholders' questions but do not
plan to make a presentation.
An affirmative vote of a majority of the outstanding shares of Common Stock
present and voting at the meeting is required for ratification of the
appointment of the independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF ITS
SELECTION OF INDEPENDENT AUDITORS.
PROPOSAL TO ADOPT THE 1998 STOCK PLAN
GENERAL
The Board of Directors is proposing the MPSI Systems Inc. 1998 Stock Plan
(the "1998 Plan") for stockholder approval. The purpose of the 1998 Plan is to
promote the overall financial objectives of the Company and its shareholders by
motivating those persons selected to participate in the 1998 Plan to achieve
long-term growth in shareholder equity in the Company and by retaining the
association of those individuals who are instrumental in achieving this growth.
The MPSI Systems Inc. 1988 Stock Option (the "1988 Plan") Plan expires in
November, 1998, and all grants of stock options after expiration of the 1988
Plan will be made under the 1998 Plan. Reference is made to Exhibit A of this
Proxy Statement for the complete text of the 1998 Plan which is summarized
below.
Executive officers (consisting of approximately 4 persons), key employees
(consisting of approximately 20 persons), and non-employee directors (consisting
of approximately 4 persons), as well as such other employees or consultants as
the Board of Directors selects, are eligible recipients of awards under the 1998
Plan. The maximum number of shares authorized to be issued under the 1998 Plan
is 750,000 shares of Common Stock subject to adjustment as described below. No
grants or awards have been made under the 1998 Stock Plan.
STOCKHOLDER VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATION
Unless otherwise instructed, the proxy holders will vote the proxies
received by them FOR approval of the 1998 Plan. Approval of the 1998 Plan
requires the affirmative vote of the majority of the shares of common stock
present or represented by proxy at the annual meeting. Abstentions and broker
non-votes will not be counted as votes cast. The Board of Directors recommends a
vote FOR approval of the MPSI Systems Inc. 1998 Stock Plan.
9
<PAGE> 13
DESCRIPTION OF THE 1998 PLAN
ADMINISTRATION
The 1998 Plan is administered by the Board of Directors of the Company. The
Board may delegate any or all of its administrative authority under the 1998
Plan to a Compensation Committee (the "Committee") of the Board of Directors
consisting of not less than three directors who are not eligible to receive
discretionary awards under the 1998 Plan. The administrator of the 1998 Plan,
whether the Board or the Compensation Committee, will be referred to herein as
the "Administrator." The Administrator is authorized to determine plan
participants, the types and amounts of awards to be granted and the terms,
conditions and provisions of awards, prescribe forms of award agreements,
interpret the 1998 Plan, establish, amend and rescind rules and regulations
relating to the 1998 Plan and make all other determinations which may be
necessary or advisable for the administration of the 1998 Plan.
AVAILABLE SHARES
Under the 1998 Plan, the number of shares of Common Stock available for
grants of awards to participants will be 750,000, plus the number of shares
which shall have become available through the expiration, termination or
forfeiture of prior awards, including awards under prior plans such as the 1988
Plan.
In the event of any change affecting the shares of Common Stock by reason
of any stock dividend or split, recapitalization, merger, consolidation,
spin-off, combination or exchange of shares, or other corporate change or any
distributions to shareholders, the Administrator may make such substitution or
adjustment in the aggregate number or kind of shares which may be distributed
under the 1998 Plan and in the number, kind and exercise, grant or purchase
price of shares subject to the outstanding awards granted under the 1998 Plan,
or make provisions for a cash payment relating to any award, as it deems to be
appropriate in order to maintain the purpose of the original grant.
AWARDS
The 1998 Plan permits the granting of any or all of the following types of
awards: (a) stock options, (b) stock appreciation rights ("SARs"), and (c) stock
grants. Generally, awards under the 1998 Plan are granted for no consideration
other than prior and future services. Awards granted under the 1998 Plan may, in
the discretion of the Administrator, be granted alone or in addition to, in
tandem with or in substitution for any other award under the 1998 Plan or other
plan of the Company. Such grants could include grants of options after a decline
in the market price of the Common Stock in substitution for previously granted
options having a higher exercise price.
STOCK OPTIONS
Stock options granted pursuant to the 1998 Plan may, at the discretion of
the Administrator, be either ISOs within the meaning of Section 422 of the Code,
or non-qualified stock options. The exercise price of an ISO may not be less
than the fair market value of the Common Stock on the date of grant (or 110% of
such fair market value in the case of ISOs granted to employees who possess more
than 10% of the combined voting power of all classes of stock of the Company).
In the case of non-qualified stock options, the exercise price shall be as
determined by the Administrator in its sole discretion, but in no event shall be
less than 50% of the fair market value of the Common Stock on the date of grant.
Options granted pursuant to the 1998 Plan are exercisable in whole or in part at
such time or times as may be determined by the Administrator, except that ISOs
may not be exercised after the expiration of ten (10) years from the date
granted (or five (5) years in the case of ISOs granted to employees who possess
more than 10% of the combined voting power of all classes of stock of the
Company). Generally, options may be exercised by the payment of cash, promissory
notes, stock or a combination thereof as approved by the Administrator.
10
<PAGE> 14
STOCK APPRECIATION RIGHTS
Any SARs granted under the 1998 Plan will give the holder the right to
receive cash or stock in an amount equal to the difference between the fair
market value of a share of Common Stock on the date of exercise and the exercise
price of the options issued in conjunction with the SARs or such other amount as
the Administrator has established with respect to SARs issued on a stand-alone
basis. Methods of exercise and settlement and other terms of SARs are determined
by the Administrator.
STOCK GRANTS
The Administrator has authority to make awards in grants of shares of
stock. Most stock grants will likely be in the form of (i) bonus stock awards,
which are vested upon grant or (ii) restricted stock, generally consisting of
shares which may not be disposed of by participants until certain restrictions
established by the Administrator lapse. Such restrictions may lapse in whole or
in installments as the Administrator determines. A participant receiving
restricted stock will have all of the rights of a shareholder of the Company,
including the right to vote the shares and the right to receive any dividends,
unless the Administrator otherwise determines, but shall not be permitted to
sell, assign, or otherwise transfer the stock during the restriction period
established by the Administrator. Upon termination of employment during the
restriction period for any reason other than death or disability, restricted
stock will be forfeited, subject to such exceptions, if any, as are authorized
by the Administrator.
EFFECTIVE DATE, TERMINATION AND AMENDMENT
The Board of Directors may amend, alter, suspend, discontinue or terminate
the 1998 Plan without the consent of shareholders or participants, except that
shareholder approval of such action will be sought if such approval is required
by any federal or state law or regulation or by any agreement, or if the
Administrator in its discretion determines that obtaining such shareholder
approval is advisable. Unless earlier terminated by the Administrator the 1998
Plan will terminate when no shares remain reserved and available for issuance,
and the Company has no further obligation with respect to any award granted
under the 1998 Plan.
CHANGE IN CONTROL
In the event of a change of control of the Company, as defined in the 1998
Plan, all outstanding awards under the 1998 Plan, regardless of any limitations
or restrictions, become fully exercisable and freed of all restrictions.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the U.S. federal income tax
consequences of awards made under the 1998 Plan.
1. Stock Options. A participant will not recognize any income upon the
grant of a stock option. A participant will recognize compensation taxable as
ordinary income (and subject to income tax withholding) upon exercise of a
non-qualified stock option equal to the excess of the fair market value of the
shares purchased over their exercise price, and the Company will be entitled to
a corresponding deduction. A participant will not recognize income (except for
purposes of the alternative minimum tax) upon exercise of an Incentive Stock
Option. If the shares acquired by exercise of an Incentive Stock Option are held
for the longer of two years from the date the option was granted and one year
from the date it was exercised, any gain or loss arising from a subsequent
disposition of such shares will be taxed as long-term capital gain or loss, and
the Company will not be entitled to any deduction. If, however, such shares are
disposed of within the above-described period, then in the year of such
disposition the participant will recognize compensation taxable as ordinary
income equal to the excess of the lesser of (i) the amount realized upon such
disposition and (ii) the fair market value of such shares on the date of
exercise over the exercise price, and the Company will be entitled to a
corresponding deduction.
11
<PAGE> 15
2. SARs. A participant will not recognize any taxable income upon the grant
of an SAR. A participant will recognize compensation taxable as ordinary income
(and subject to income tax withholding) upon exercise of a SAR equal to the fair
market value of any shares delivered and the amount of cash paid by the Company
upon such exercise, and the Company will be entitled to a corresponding
deduction.
3. Restricted Stock. A participant will not recognize taxable income at the
time of the grant of shares of restricted stock, and the Company will not be
entitled to a tax deduction at such time unless the participant makes an
election to be taxed at the time restricted stock is granted. If such election
is not made, the participant will recognize taxable income at the time the
restrictions lapse in an amount equal to the excess of the fair market value of
the shares at such time over the amount, if any, paid for such shares. The
amount of ordinary income recognized by a participant by making the
above-described election or upon the lapse of the restrictions is deductible by
the Company as compensation expense, except to the extent the limit of section
162(m) of the Code applies. In addition, a participant receiving dividends with
respect to restricted stock for which the above-described election has not been
made and prior to the time the restrictions lapse will recognize compensation
taxable as ordinary income (subject to income tax withholding), rather than
dividend income, in an amount equal to the dividends paid and the Company will
be entitled to a corresponding deduction, except to the extent the limit of
section 162(m) of the Code applies.
4. Bonus Stock. A participant will recognize compensation taxable as
ordinary income, (and subject to income tax withholding) in respect of awards of
shares of bonus stock at the time such shares are transferred in an amount equal
to the then fair market value of such shares and the Company will be entitled to
a corresponding deduction, except to the extent the limit of section 162(m) of
the Code applies.
5. Section 162(m) of the Code. Section 162(m) of the Code generally limits
to $1 million the amount that a publicly-held corporation is allowed each year
to deduct for the Company's chief executive officer and the Company's four most
highly compensated officers. However, certain types of compensation paid to such
executives are not subject to the $1 million deduction limit. One such type is
"qualified performance-based" compensation. Qualified performance-based
compensation must satisfy all the following requirements (i) compensation must
be payable solely on account of the attainment of preestablished objective
performance measures, (ii) the performance measures must be determined by a
committee consisting solely of two or more "outside directors," (iii) the
material terms under which the compensation is to be paid, including the
performance measures, must be approved by a majority of the corporation's
stockholders, and (iv) the committee administering the plan must certify that
the applicable performance measures were satisfied before payment of any
performance-based compensation is made. Based on certain proposed regulations
published by the Internal Revenue Service, certain compensation under the 1998
Plan, such as that payable with respect to options and certain SARs, may not be
subject to the $1 million deduction limit under section 162(m) of the Code, but
other compensation payable under the 1998 Plan, such as grants of bonus stock
and restricted stock with restrictions not based upon attainment of performance
measures, will likely be subject to such limit.
POSSIBLE REGISTRATION OF 1998 PLAN
If approved by the stockholders, the Company intends to cause the 1998 Plan
and shares of stock related thereto to be registered under the Securities Act of
1933, as amended, and applicable rules and regulations thereunder.
12
<PAGE> 16
NEW PLAN BENEFITS
The following table sets forth the number of shares of Common Stock which
would have been subject to Stock Options granted to the indicated persons or
groups if the 1998 Plan (rather than the 1988 Plan) had been in effect during
fiscal year 1997:
<TABLE>
<CAPTION>
NUMBER OF
NAME AND POSITION DOLLAR VALUE* SHARES
----------------- ------------- ---------
<S> <C> <C>
CEO......................................................... -- N/A
Jyo Umezawa................................................. -- --
Bryan D. Porto.............................................. -- --
John C. Bergman............................................. -- --
Executive Group**........................................... -- --
Non-Executive Director Group................................ -- N/A
Employee Group (excluding executives)***.................... $13,890 3,000
</TABLE>
- ---------------
* Based on the closing price ($4.63) of Common Stock on January 9, 1998, as
reported in The Wall Street Journal and calculated on assumed appreciation
of the initial grant at 5% per anum over five (5) years. These assumptions
are for illustration purposes only and actual results may vary materially
from the assumptions shown.
** Includes the individuals shown above as named executive officers.
*** Reflects grants of non-qualified option shares to 1 individual.
THE GRANT OF STOCK OPTIONS OR OTHER AWARDS UNDER THE 1998 PLAN IS ENTIRELY
COMMITTED TO THE DISCRETION OF THE ADMINISTRATOR. ACCORDINGLY, GRANTS AND VALUES
UNDER THE 1998 PLAN MAY DIFFER MATERIALLY FROM THOSE SET FORTH IN THE ABOVE
TABLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF
THE MPSI SYSTEMS INC. 1998 STOCK PLAN
STOCKHOLDER PROPOSALS
To be considered for presentation at the Annual Meeting of Stockholders to
be held in 1999, a stockholder proposal must be received by the Secretary at the
offices of the Company at the address set forth in the first page of this Proxy
Statement, not later than October 31, 1998.
13
<PAGE> 17
OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING
The Board of Directors knows of no business which will be presented for
consideration at the Annual Meeting other than as stated in the Notice of Annual
Meeting of Stockholders. If, however, other matters are properly brought before
the meeting, it is the intention of the persons named in the accompanying form
of proxy to vote the shares represented thereby on such matters in accordance
with their best judgment.
Whether or not you intend to be present at this meeting, you are urged to
return your proxy promptly. If you are present at this meeting and wish to vote
your shares in person, your proxy may be revoked upon request.
By Order of the Board of Directors
/s/ LINDA K. WELLS
LINDA K. WELLS
Secretary
Tulsa, Oklahoma
February 12, 1998
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO SIGN AND PROMPTLY RETURN
THE ACCOMPANYING PROXY IN THE ENCLOSED PREPAID ENVELOPE.
14
<PAGE> 18
EXHIBIT A
MPSI SYSTEMS INC.
1998 STOCK PLAN
ARTICLE I
ESTABLISHMENT
1. Purpose.
The MPSI Systems Inc. 1998 Stock Plan ("Plan") is hereby established by
MPSI Systems Inc. ("Company"). The purpose of the Plan is to promote the overall
financial objectives of the Company and its stockholders by motivating those
persons selected to participate in the Plan to achieve long-term growth in
stockholder equity in the Company and by retaining the association of those
individuals who are instrumental in achieving this growth. The Plan and the
grant of awards thereunder is expressly conditioned upon the Plan's approval by
the security holders of the Company. The Plan is adopted effective as of the
Effective Date.
ARTICLE II
DEFINITIONS
For purposes of the Plan, the following terms are defined as set forth
below:
2.1 "Administrator" means the administrator of the Plan, or any portion of
the Plan, whether the Board of Directors or the Committee.
2.2 "Affiliate" means any individual, corporation, partnership,
association, joint stock company, trust, unincorporated association or other
entity (other than the Company) that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company including, without limitation, any member of an affiliated group of
which the Company is a common parent corporation as provided in Section 1504 of
the Code.
2.3 "Agreement" or "Award Agreement" means, individually or collectively,
any agreement entered into pursuant to the Plan pursuant to which an Award is
granted to a Participant.
2.4 "Award" means a Stock Option, Stock Appreciation Right or Stock Grant.
2.5 "Board of Directors" or "Board" means the Board of Directors of the
Company.
2.6 "Cause" shall mean, for purposes of whether and when a Participant has
incurred a Termination of Employment for Cause, any act or omission which
permits the Company to terminate the written agreement or arrangement between
the Participant and the Company or an Affiliate for Cause as defined in such
agreement or arrangement, or in the event there is no such agreement or
arrangement or the agreement or arrangement does not define the term "cause,"
then Cause shall mean an act or acts of dishonesty by the Participant
constituting a felony under applicable law and resulting or intending to result
directly or indirectly in gain to or personal enrichment of the Participant at
the Company's expense. Notwithstanding the foregoing, the Participant shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to him or her a copy of a resolution, duly adopted by the
Administrator, finding that in the good faith opinion of the Administrator the
Participant was guilty of conduct set forth above in the previous sentence of
this Section and specifying the particulars thereof in detail.
2.7 "Change in Control" has the meaning set forth in Section 9.2.
2.8 "Code" or "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, final Treasury Regulations thereunder and any subsequent
Internal Revenue Code.
2.9 "Commission" means the Securities and Exchange Commission or any
successor agency.
15
<PAGE> 19
2.10 "Committee" means the Compensation Committee appointed by the Board
in accordance with Article III of the Plan.
2.11 "Common Stock" means the shares of the regular voting Common Stock,
$0.05 par value, whether presently or hereafter issued, and any other stock or
security resulting from adjustment thereof as described hereinafter or the
common stock of any successor to the Company which is designated for the purpose
of the Plan.
2.12 "Company" means MPSI Systems Inc., a Delaware corporation, and
includes any successor or assignee corporation or corporations into which the
Company may be merged, changed or consolidated; any corporation for whose
securities the securities of the Company shall be exchanged; and any assignee of
or successor to substantially all of the assets of the Company.
2.13 "Disability" means permanent and total disability as determined under
procedures established by the Administrator for purposes of the Plan.
Notwithstanding the foregoing, a Disability shall not qualify under this Plan if
it is the result of (i) a willfully self-inflicted injury or willfully
self-induced sickness; or (ii) an injury or disease contracted, suffered, or
incurred, while participating in a criminal offense. The determination of
Disability shall be made by the Administrator. The determination of Disability
for purposes of this Plan shall not be construed to be an admission of
disability for any other purpose.
2.14 "Non-Employee Director" means a person who is a Director of the
Company and who is not an employee of the Company and who would be a
"Non-Employee Director" within the meaning of Rule 16b-3 under the Exchange Act
and an "outside director" within the meaning of Section 162(m) of the Code.
2.15 "Effective Date" means December 1, 1998.
2.16 "Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
2.17 "Fair Market Value" means the value of the Common Stock determined as
follows:
(a) If the Common Stock is traded on an exchange or on the NASDAQ
National Market System, the price at which shares traded at the close of
business on the date of valuation;
(b) If the Common Stock is traded over the counter on the NASDAQ
System, the mean between the bid and the asked price on said System at the
close of business on the date of valuation; and
(c) If neither (a) nor (b) applies, the fair market value as
determined by the Administrator in good faith. Such determination shall be
conclusive and binding on all persons.
2.18 "Grant Date" means the date as of which an Award is granted pursuant
to the Plan.
2.19 "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
2.20 "Insider" means any Participant who is subject to the reporting
requirements of Section 16(a) of the Exchange Act.
2.21 "Nonqualified Stock Option" means an Option to purchase Common Stock
in the Company granted under the Plan other than an Incentive Stock Option
within the meaning of Section 422 of the Code.
2.22 "Option Period" means the period during which the Option shall be
exercisable in accordance with the Agreement and Article VI.
2.23 "Option Price" means the price at which the Common Stock may be
purchased under an Option as provided in Section 6.3.
2.24 "Participant" means a person who satisfies the eligibility conditions
of Article V and to whom an Award has been granted by the Administrator under
the Plan, and in the event a Representative is appointed for a Participant or a
former spouse becomes a Representative, then the term "Participant" shall mean
such appointed Representative, successor, Representative, or former spouse as
the case may be. The term shall also
16
<PAGE> 20
include any person or entity to whom an Option has been transferred, including a
trust for the benefit of the Participant, the Participant's parents, spouse or
descendants, a partnership, the partners of which include any of the foregoing,
or a custodian under a uniform gifts to minors act or similar statute for the
benefit of the Participant's descendants, to the extent permitted herein.
Notwithstanding the foregoing, the term "Termination of Employment" shall mean
the Termination of Employment of the Participant.
2.25 "Plan" means the MPSI Systems Inc. 1998 Stock Plan, as herein set
forth and as may be amended from time to time.
2.26 "Representative" means (a) the person or entity acting as the
executor or administrator of a Participant's estate pursuant to the last will
and testament of a Participant or pursuant to the laws of the jurisdiction in
which the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been permissibly transferred; provided that
only one of the foregoing shall be the Representative at any point in time as
determined under applicable law and recognized by the Administrator.
2.27 "Retirement" means retirement from employment by the Company at or
after age 65.
2.28 "Rule 16b-3" means Rule 16b-3, as promulgated under the Exchange Act,
as amended from time to time, or any successor thereto.
2.29 "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
2.30 "Stock Appreciation Right" means a right granted under Article VII.
2.31 "Stock Grant" means an award under Article VIII.
2.32 "Stock Option" or "Option" means an option granted under Article VI.
2.33 "Termination of Employment" means the occurrence of any act or event
whether pursuant to an employment agreement or otherwise that actually or
effectively causes or results in the person's ceasing, for whatever reason, to
be an officer, employee or consultant of the Company or of any Affiliate, or to
be an officer, employee or consultant of any entity that provides services to
the Company or an Affiliate, including, without limitation, death, Disability,
dismissal, severance at the election of the Participant, Retirement, or
severance as a result of the discontinuance, liquidation, sale or transfer by
the Company or its Affiliates of all businesses owned or operated by the Company
or its Affiliates. With respect to any person who is not an employee with
respect to the Company or an Affiliate, the Agreement shall establish what act
or event shall constitute a Termination of Employment for purposes of the Plan.
A Termination of Employment shall occur to an employee who is employed by an
Affiliate if the Affiliate shall cease to be an Affiliate and the Participant
shall not immediately thereafter become an employee of the Company or an
Affiliate.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
ARTICLE III
ADMINISTRATION
3.1 Structure and Authority. The Plan shall be administered by the Board
of Directors which may delegate any or all of its administrative authority under
the Plan to the Committee except that the Board shall make all decisions under
the Plan with respect to Insiders in the event the Committee is not comprised
entirely of Non-Employee Directors. The Committee shall be appointed by the
Board and shall consist of not less than three (3) disinterested members of the
Board. The term "disinterested member of the Board" shall include only members
of the Board who are not eligible to receive Awards under this Plan and who have
not been eligible to receive such Awards for at least one (1) year preceding
appointment as a member of the Committee. The Board may from time to time remove
members from, or add members to, to the Committee.
17
<PAGE> 21
Vacancies on the Committee, howsoever caused, shall be filled by the Board. The
Board shall appoint one (1) of the members of the Committee as Chairman. The
Chairman shall hold meetings at such times and places as it may determine. Acts
of a majority of the Committee at which a quorum is present, or acts reduced to
or approved in writing by a majority of the members of the Committee, shall be
the valid acts of the Committee.
Subject to the provisions of the Plan, the Administrator shall have the
sole discretion and authority to determine from time to time the participant or
participants to whom Awards shall be granted and the number of shares of Common
Stock subject to each Award, to interpret the Plan, to prescribe, amend, and
rescind any rules and regulations necessary or appropriate for the
administration of the Plan, to determine and interpret the details and
provisions of each Agreement, to modify or amend any Agreement or waive any
conditions or restrictions applicable to any Awards (or the exercise thereof),
and to make all other determinations necessary or advisable for the
administration of the Plan. The determination of an Award will be determined by
the Administrator.
Among other things, the Administrator shall have the authority, subject to
the terms of the Plan:
(a) to select those persons to whom Awards may be granted from time to
time;
(b) to determine whether and to what extent Stock Options, Stock
Appreciation Rights, Stock Grants or any combination thereof are to be
granted hereunder;
(c) to determine the number of shares of Common Stock to be covered by
each Award granted hereunder;
(d) to determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the Option Price, the Option
Period, any exercise restriction or limitation and any exercise
acceleration or forfeiture waiver regarding any Award and the shares of
Common Stock relating thereto);
(e) to adjust the terms and conditions, at any time or from time to
time, of any Award, subject to the limitations of Section 10.1;
(f) to determine to what extent and under what circumstances Common
Stock and other amounts payable with respect to an Award shall be deferred;
(g) to determine under what circumstances an Award may be settled in
cash or Common Stock;
(h) to provide for the forms of Agreement to be utilized in connection
with this Plan;
(i) to determine whether a Participant has a Disability;
(j) to determine what securities law requirements are applicable to
the Plan, Awards, and the issuance of shares of Common Stock and to require
of a Participant that appropriate action be taken with respect to such
requirements;
(k) to cancel, with the consent of the Participant or as otherwise
provided in the Plan or an Agreement, outstanding Awards;
(l) to interpret and make a final determination with respect to the
remaining number of shares of Common Stock available under Article IV;
(m) to require as a condition of the exercise of an Award or the
issuance or transfer of a certificate of Common Stock, the withholding from
a Participant of the amount of any federal, state or local taxes as may be
necessary in order for the Company or any other employer to obtain a
deduction or as may be otherwise required by law;
(n) to determine whether and with what effect an individual has
incurred a Termination of Employment;
(o) to determine whether the Company or any other person has a right
or obligation to purchase Common Stock from a Participant and, if so, the
terms and conditions on which such Common Stock is to be purchased;
18
<PAGE> 22
(p) to determine the restrictions or limitations on the transfer of
Common Stock;
(q) to determine whether an Award is to be adjusted, modified or
purchased, or is to become fully exercisable, under the Plan or the terms
of an Agreement;
(r) to determine the permissible methods of Award exercise and
payment, including cashless exercise arrangements;
(s) to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan; and
(t) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties.
The Administrator shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any Agreement) and to otherwise
supervise the administration of the Plan. The Administrator policies and
procedures may differ with respect to Awards granted at different times or to
different Participants.
Any determination made by the Administrator pursuant to the provisions of
the Plan shall be made in its sole discretion, and in the case of any
determination relating to an Award, may be made at the time of the grant of the
Award or, unless in contravention of any express term of the Plan or an
Agreement, at any time thereafter. All decisions made by the Administrator
pursuant to the provisions of the Plan shall be final and binding on all
persons, including the Company and Participants. Any determination shall not be
subject to de novo review if challenged in court.
ARTICLE IV
STOCK SUBJECT TO PLAN
4.1 Number of Shares. Subject to the adjustment under Section 4.6, the
total number of shares of Common Stock reserved and available for distribution
pursuant to Awards under the Plan shall be 750,000 shares of Common Stock
authorized for issuance on the Effective Date. Such shares may consist, in whole
or in part, of authorized and unissued shares or treasury shares.
4.2 Release of Shares. Unless otherwise provided in this Plan, if any
shares of Common Stock that have been subject to an Award, including awards
under prior employee stock option plans of the Company, cease to be subject to
an Award for any reason, such shares shall again be available for distribution
in connection with Awards under the Plan.
4.3 Restrictions on Shares. Shares of Common Stock issued upon exercise of
an Award shall be subject to the terms and conditions specified herein and to
such other terms, conditions and restrictions as the Administrator in its
discretion may determine or provide in the Award Agreement. The Company may
cause any certificate for any share of Common Stock to be delivered to be
properly marked with a legend or other notation reflecting the limitations on
transfer of such Common Stock as provided in this Plan or as the Administrator
may otherwise require. The Administrator may require any person exercising an
Award to make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of the shares
of Common Stock in compliance with applicable law or otherwise. Fractional
shares shall not be delivered, but shall be rounded to the next lower whole
number of shares.
4.4 Stockholder Rights. No person shall have any rights of a stockholder
as to shares of Common Stock subject to an Award until, after proper exercise of
the Award or other action required, such shares shall have been recorded on the
Company's official stockholder records as having been issued or transferred.
Upon exercise of the Award or any portion thereof, the Company will have thirty
(30) days in which to issue the shares, and the Participant will not be treated
as a stockholder for any purpose whatsoever prior to such issuance. No
adjustment shall be made for cash dividends or other rights for which the record
date is prior to
19
<PAGE> 23
the date such shares are recorded as issued or transferred in the Company's
official stockholder records, except as provided herein or in an Agreement.
4.5 Registration. The Company may, in its sole discretion, register under
the Securities Act the Common Stock delivered or deliverable pursuant to Awards
on Commission Form S-8 if available to the Company for this purpose (or any
successor or alternate form that is substantially similar to that form to the
extent available to effect such registration), in accordance with the rules and
regulations governing such forms, as soon as such forms are available for
registration to the Company for this purpose.
4.6 Anti-Dilution. In the event of any Company stock dividend, stock
split, combination or exchange of shares, recapitalization or other change in
the capital structure of the Company, corporate separation or division of the
Company (including, but not limited to, a split-up, spin-off, split-off or
distribution to Company stockholders other than a normal cash dividend), sale by
the Company of all or a substantial portion of its assets (measured on either a
stand-alone or consolidated basis), reorganization, rights offering, a partial
or complete liquidation, or any other corporate transaction, Company share
offering or event involving the Company and having an effect similar to any of
the foregoing, then the Administrator may, in its sole discretion, adjust or
substitute, as the case may be, the number of shares of Common Stock available
for Awards under the Plan, the number of shares of Common Stock covered by
outstanding Awards, the exercise price per share of outstanding Awards, and any
other characteristics or terms of the Awards as the Administrator shall deem
necessary or appropriate to reflect equitably the effects of such changes to the
Participants; provided, however, that any fractional shares resulting from such
adjustment shall be eliminated by rounding to the next lower whole number of
shares with appropriate payment for such fractional share as shall reasonably be
determined by the Administrator.
ARTICLE V
ELIGIBILITY
5.1 Eligibility. Except as herein provided, the persons who shall be
eligible to participate in the Plan and be granted Awards shall be those persons
who are officers, directors, employees or consultants of the Company or any
subsidiary who shall be in a position, in the opinion of the Administrator, to
make contributions to the growth, management, protection and success of the
Company and its subsidiaries. Of those persons described in the preceding
sentence, the Administrator may, from time to time, select persons to be granted
Awards and shall determine the terms and conditions with respect thereto. In
making any such selection and in determining the form of the Award, the
Administrator may give consideration to the functions and responsibilities of
the person's contributions to the Company and its subsidiaries, the value of the
individual's service to the Company and its subsidiaries and such other factors
deemed relevant by the Administrator. The Administrator may designate any person
who is eligible to participate in the Plan provided that such person is not a
member of the Administrator.
ARTICLE VI
STOCK OPTIONS
6.1 General. The Administrator shall have authority to grant Options under
the Plan at any time or from time to time. Stock Options may be granted alone or
in addition to other Awards and may be either Incentive Stock Options or
Non-Qualified Stock Options. An Option shall entitle the Participant to receive
shares of Common Stock upon exercise of such Option, subject to the
Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with the Plan or an Agreement (the terms and
provisions of which may differ from other Agreements) including without
limitation, payment of the Option Price.
6.2 Grant and Exercise. The grant of a Stock Option shall occur as of the
date the Administrator determines. Each Option granted under this Plan shall be
evidenced by an Agreement, in a form approved by the Administrator, which shall
embody the terms and conditions of such Option and which shall be subject to
20
<PAGE> 24
the express terms and conditions set forth in the Plan. Such Agreement shall
become effective upon execution by the Participant. Only a person who is a
common-law employee of the Company, any parent corporation of the Company or a
subsidiary (as such terms are defined in Section 424 of the Code) on the date of
grant shall be eligible to be granted an Option which is intended to be and is
an Incentive Stock Option. To the extent that any Stock Option is not designated
as an Incentive Stock Option or even if so designated does not qualify as an
Incentive Stock Option, it shall constitute a Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be exercised, so as
to disqualify the Plan under Section 422 of the Code or, without the consent of
the Participant affected, to disqualify any Incentive Stock Option under such
Section 422.
6.3 Terms and Conditions. Stock Options shall be subject to such terms and
conditions as shall be determined by the Administrator, including the following:
(a) Option Period. The Option Period of each Stock Option shall be
fixed by the Administrator; provided that no Non-Qualified Stock Option
shall be exercisable more than fifteen (15) years after the date the Stock
Option is granted. In the case of an Incentive Stock Option, the Option
Period shall not exceed ten (10) years from the date of grant or five (5)
years in the case of an individual who owns more than ten percent (10%) of
the combined voting power of all classes of stock of the Company, a
corporation which is a parent corporation of the Company or any subsidiary
of the Company (each as defined in Section 424 of the Code). No Option
which is intended to be an Incentive Stock Option shall be granted more
than ten (10) years from the date the Plan is adopted by the Company or the
date the Plan is approved by the stockholders of the Company, whichever is
earlier.
(b) Option Price. The Option Price per share of the Common Stock
purchasable under an Option shall be determined by the Administrator, but
in no event shall the Option Price be less than fifty percent (50%) of the
Fair Market Value on the Grant Date. If such Option is intended to qualify
as an Incentive Stock Option, the Option Price per share shall be not less
than the Fair Market Value per share on the date the Option is granted, or
where granted to an individual who owns or who is deemed to own stock
possessing more than ten percent (10%) of the combined voting power of all
classes of stock of the Company, a corporation which is a parent
corporation of the Company or any subsidiary of the Company (each as
defined in Section 424 of the Code), not less than one hundred ten percent
(110%) of such Fair Market Value per share.
(c) Exercisability. Subject to Section 9.1, Stock Options shall be
exercisable at such time or times and subject to such terms and conditions
as shall be determined by the Administrator. If the Administrator provides
that any Stock Option is exercisable only in installments, the
Administrator may at any time waive such installment exercise provisions,
in whole or in part. In addition, the Administrator may at any time
accelerate the exercisability of any Stock Option.
(d) Method of Exercise. Subject to the provisions of this Article VI,
a Participant may exercise Stock Options, in whole or in part, at any time
during the Option Period by the Participant's giving written notice of
exercise on a form provided by the Administrator (if available) to the
Company specifying the number of shares of Common Stock subject to the
Stock Option to be purchased. Such notice shall be accompanied by payment
in full of the purchase price by cash or check or such other form of
payment as the Company may accept. If approved by the Administrator,
payment in full or in part may also be made (i) by delivering Common Stock
already owned by the Participant having a total Fair Market Value on the
date of such delivery equal to the Option Price; (ii) by the execution and
delivery of a note or other evidence of indebtedness (and any security
agreement thereunder) satisfactory to the Administrator and permitted in
accordance with Section 6.3(e); (iii) by authorizing the Company to retain
shares of Common Stock which would otherwise be issuable upon exercise of
the Option having a total Fair Market Value on the date of delivery equal
to the Option Price; (iv) by the delivery of cash or the extension of
credit by a broker-dealer to whom the Participant has submitted a notice of
exercise or otherwise indicated an intent to exercise an Option (in
accordance with Part 220, Chapter 11, Title 12 of the Code of Federal
Regulations, so-called "cashless" exercise); or (v) by any combination of
the
21
<PAGE> 25
foregoing. If payment of the Option Price of a Non-Qualified Stock Option
is made in whole or in part in the form of Restricted Stock or Deferred
Stock, the number of shares of Common Stock to be received upon such
exercise equal to the number of shares of Restricted Stock or Deferred
Stock used for payment of the Option Price shall be subject to the same
forfeiture restrictions or deferral limitations to which such Restricted
Stock or Deferred Stock was subject, unless otherwise determined by the
Administrator. In the case of an Incentive Stock Option, the right to make
a payment in the form of already owned shares of Common Stock of the same
class as the Common Stock subject to the Stock Option may be authorized
only at the time the Stock Option is granted. No shares of Common Stock
shall be issued until full payment therefor has been made. Subject to any
forfeiture restrictions or deferral limitations that may apply if a Stock
Option is exercised using Restricted Stock or Deferred Stock, a Participant
shall have all of the rights of a stockholder of the Company holding the
class of Common Stock that is subject to such Stock Option (including, if
applicable, the right to vote the shares and the right to receive
dividends), when the Participant has given written notice of exercise, has
paid in full for such shares and such shares have been recorded on the
Company's official stockholder records as having been issued or
transferred.
(e) Company Loan or Guarantee. Upon the exercise of any Option and
subject to the pertinent Agreement and the discretion of the Administrator,
the Company may at the request of the Participant:
(i) lend to the Participant, with recourse, an amount equal to such
portion of the Option Price as the Administrator may determine; or
(ii) guarantee a loan obtained by the Participant from a
third-party for the purpose of tendering the Option Price.
The terms and conditions of any loan or guarantee, including the term,
interest rate, and any security interest thereunder, shall be determined by
the Administrator, except that no extension of credit or guarantee shall
obligate the Company for an amount to exceed the lesser of the aggregate
Fair Market Value per share of the Common Stock on the date of exercise,
less the par value of the shares of Common Stock to be purchased upon the
exercise of the Award, or the amount permitted under applicable laws or the
regulations and rules of the Federal Reserve Board and any other
governmental agency having jurisdiction.
(f) Non-transferability of Options. Unless otherwise approved by the
Administrator, no Incentive Stock Option or interest therein shall be
transferable by the Participant other than by will or by the laws of
descent or distribution, and all Stock Options shall be exercisable during
the Participant's lifetime only by the Participant.
6.4 Termination by Reason of Death, Disability or Retirement. Unless
otherwise provided in an Agreement or determined by the Administrator, if a
Participant incurs a Termination of Employment due to death, Disability or
Retirement, any unexpired and unexercised Stock Option held by such Participant
shall thereafter be fully vested and exercisable for a period of one (1) year
(or such other period or no period as the Administrator may specify) immediately
following the date of such death, Disability or Retirement (as applicable) or
until the expiration of the Option Period, whichever period is the shorter. In
the event of Termination of Employment by reason of Disability, if an Incentive
Stock Option is exercised after the expiration of the exercise periods that
apply for purposes of Section 422 of the Code, such Stock Option will thereafter
be treated as a Non-Qualified Stock Option.
6.5 Other Termination. Unless otherwise provided in an Agreement or
determined by the Administrator, if a Participant incurs a Termination of
Employment that is not due to death, Retirement, Disability or with Cause, any
Stock Option held by such Participant shall thereupon terminate, except that
such Stock Option, to the extent then exercisable, may be exercised for the
lesser of a period of one (1) year commencing with the date of such Termination
of Employment or until the expiration of the Option Period, or in the case of a
voluntary Termination of Employment (other than due to death, Retirement,
Disability or with Cause), for a period of six (6) months commencing with the
date of such Termination of Employment in the case of a voluntary Termination of
Employment or until the expiration of the Option Period, whichever is less. If
the
22
<PAGE> 26
Participant incurs a Termination of Employment which is with Cause, the Option
shall terminate immediately. The death, Disability or Retirement of a
Participant after a Termination of Employment otherwise provided herein shall
not extend the exercisability of the time permitted to exercise an Option.
6.6 Cashing Out of Option. On receipt of written notice of exercise, the
Administrator may elect to cash out all or part of the portion of any Stock
Option to be exercised by paying the Participant an amount, in cash or Common
Stock, equal to the excess of the Fair Market Value of the Common Stock that is
subject to the Option over the Option Price times the number of shares of Common
Stock subject to the Option on the effective date of such cash out. The
Administrator may determine Fair Market Value under the pricing rule set forth
in Section 7.3(b).
ARTICLE VII
STOCK APPRECIATION RIGHTS
7.1 General. The Administrator shall have authority to grant Stock
Appreciation Rights under the Plan at any time or from time to time. Subject to
the Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with the Plan or an Agreement, a Stock
Appreciation Right shall entitle the Participant to surrender to the Company the
Stock Appreciation Right and to be paid therefor in shares of the Common Stock,
cash or a combination thereof as herein provided, the amount described in
Section 7.3(b).
7.2 Grant. Stock Appreciation Rights may be granted in conjunction with
all or part of any Stock Option granted under the Plan in which case the
exercise of the Stock Appreciation Right shall require the cancellation of a
corresponding portion of the Stock Option and the exercise of the Stock Option
will result in the cancellation of a corresponding portion of the Stock
Appreciation Right. In the case of a Non-Qualified Stock Option, such rights may
be granted either at or after the time of grant of such Stock Option. In the
case of an Incentive Stock Option, such rights may be granted only at the time
of grant of such Stock Option. A Stock Appreciation Right may also be granted on
a stand alone basis. The grant of a Stock Appreciation Right shall occur as of
the date the Administrator determines. Each Stock Appreciation Right granted
under this Plan shall be evidenced by an Agreement, which shall embody the terms
and conditions of such Stock Appreciation Right and which shall be subject to
the terms and conditions set forth in the Plan.
7.3 Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions as shall be determined by the Administrator, including
the following:
(a) Period and Exercise. The term of a Stock Appreciation Right shall
be established by the Administrator. If granted in conjunction with a Stock
Option, the Stock Appreciation Right shall have a term which is the same as
the Option Period and shall be exercisable only at such time or times and
to the extent the related Stock Options would be exercisable in accordance
with the provisions of Article VI. A Stock Appreciation Right which is
granted on a stand alone basis shall be for such period and shall be
exercisable at such times and to the extent provided in an Agreement. Stock
Appreciation Rights shall be exercised by the Participant's giving written
notice of exercise on a form provided by the Administrator (if available)
to the Company specifying the portion of the Stock Appreciation Right to be
exercised.
(b) Amount. Upon the exercise of a Stock Appreciation Right, a
Participant shall be entitled to receive an amount in cash, shares of
Common Stock or both as determined by the Administrator or as otherwise
permitted in an Agreement equal in value to the excess of the Fair Market
Value per share of Common Stock over the Option Price per share of Common
Stock specified in the related Agreement multiplied by the number of shares
in respect of which the Stock Appreciation Right is exercised. In the case
of a Stock Appreciation Right granted on a stand alone basis, the Agreement
shall specify the value to be used in lieu of the Option Price per share of
Common Stock. The aggregate Fair Market Value per share of the Common Stock
shall be determined as of the date of exercise of such Stock Appreciation
Right.
23
<PAGE> 27
(c) Special Rules. In the case of Stock Appreciation Rights relating
to Stock Options held by an Insider, no Stock Appreciation Right shall be
exercisable during the first six months of its term, except that this
limitation shall not apply in the event of death or Disability of the
Participant prior to the expiration of the six-month period.
(d) Non-transferability of Stock Appreciation Rights. Stock
Appreciation Rights shall be transferable only when and to the extent that
a Stock Option would be transferable under the Plan unless otherwise
provided in an Agreement.
(e) Termination. A Stock Appreciation Right shall terminate at such
time as a Stock Option would terminate under the Plan, unless otherwise
provided in an Agreement.
(f) Incentive Stock Option. A Stock Appreciation Right granted in
tandem with an Incentive Stock Option shall not be exercisable unless the
Fair Market Value of the Common Stock on the date of exercise exceeds the
Option Price. In no event shall any amount paid pursuant to the Stock
Appreciation Right exceed the difference between the Fair Market Value on
the date of exercise and the Option Price.
ARTICLE VIII
STOCK GRANTS
8.1 General. The Administrator shall have authority to make a Stock Grant
under the Plan at any time or from time to time. Shares of Stock may be awarded
either alone or in addition to other Awards granted under the Plan. The
Administrator shall determine the persons to whom and the time or times at which
a Stock Grant will be awarded, the number of shares of Shares to be awarded to
any Participant, the time or times within which such Awards may be subject to
forfeiture and any other terms and conditions of the Awards. Each Award shall be
confirmed by, and be subject to the terms of, an Agreement. The Administrator
may condition the grant of Stock upon the attainment of specified performance
goals by the Participant or by the Company or an Affiliate (including a division
or department of the Company or an Affiliate) for or within which the
Participant is primarily employed or upon such other factors or criteria as the
Administrator shall determine. The provisions of Stock Grants need not be the
same with respect to any Participant.
8.2 Awards and Certificates. Notwithstanding the limitations on issuance
of shares of Common Stock otherwise provided in the Plan, each Participant
receiving a Stock Grant Award shall be issued a certificate in respect of such
shares. Such certificate shall be registered in the name of such Participant and
shall bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such Award as determined by the Administrator. The
Administrator may require that the certificates evidencing such shares be held
in custody by the Company until the restrictions thereon shall have lapsed and
that, as a condition of any Stock Grant Award, the Participant shall have
delivered a stock power, endorsed in blank, relating to the Common Stock covered
by such Award.
8.3 Terms and Conditions. Stock Grant shares shall be subject to the
following terms and conditions:
(a) Limitations on Transferability. Subject to the provisions of the
Plan and except as provided in an Agreement, during a period set by the
Administrator, commencing with the date of such Award (the "Restriction
Period"), the Participant shall not be permitted to sell, assign, transfer,
pledge or otherwise encumber any interest in Stock Grant shares.
(b) Rights. Except as provided in Section 8.3(a), the Participant
shall have, with respect to the Stock Grant shares, all of the rights of a
stockholder of the Company holding the class of Common Stock that is the
subject of the Stock Grant, including, if applicable, the right to vote the
shares and the right to receive any cash dividends. Unless otherwise
determined by the Administrator and subject to the Plan, cash dividends on
the class of Common Stock that is the subject of the Stock Grant shall be
automatically deferred and reinvested in additional restricted stock, and
dividends on the class of Common Stock that is the subject of the Stock
Grant payable in Common Stock shall be paid in the form of the same class
as the Common Stock on which such dividend was paid.
24
<PAGE> 28
(c) Criteria. Based on service, performance by the Participant or by
the Company or the Affiliate, including any division or department for
which the Participant is employed or such other factors or criteria as the
Administrator may determine, the Administrator may provide for the lapse of
restrictions in installments and may accelerate the vesting of all or any
part of any Award and waive the restrictions for all or any part of such
Award.
(d) Forfeiture. Unless otherwise provided in an Agreement or
determined by the Administrator, if the Participant incurs a Termination of
Employment during the Restriction Period due to death or Disability, the
restrictions shall lapse and the Participant shall be fully vested in the
Stock Grant. Except to the extent otherwise provided in the applicable
Agreement and the Plan, upon a Participant's Termination of Employment for
any reason during the Restriction Period other than death or Disability,
all shares of the Stock Grant still subject to restriction shall be
forfeited by the Participant, except the Administrator shall have the
discretion to waive in whole or in part any or all remaining restrictions
with respect to any or all of such Participant's shares under the Stock
Grant.
(e) Delivery. If and when the Restriction Period expires without a
prior forfeiture of the stock subject to such Restriction Period,
unlegended certificates (other than a legend required by applicable
securities laws) for such shares shall be delivered to the Participant.
(f) Election. A Participant may elect to further defer receipt of the
shares under the Stock Grant for a specified period or until a specified
event, subject in each case to the Administrator's approval and to such
terms as are determined by the Administrator. Subject to any exceptions
adopted by the Administrator, such election must be made one (1) year prior
to completion of the Restriction Period.
ARTICLE IX
CHANGE IN CONTROL PROVISIONS
9.1 Impact of Event. Notwithstanding any other provision of the Plan to
the contrary, in the event of a Change in Control (as defined in Section 9.2):
(a) Any Stock Appreciation Rights and Stock Options outstanding as of
the date such Change in Control and not then exercisable shall become fully
exercisable to the full extent of the original grant.
(b) The restrictions and deferral limitations applicable to any Stock
Grant shall lapse, and such restricted stock shall become free of all
restrictions and become fully vested and transferable to the full extent of
the original grant.
9.2 Definition of Change in Control. For purposes of the Plan, a "Change
in Control" shall mean the happening of any of the following events:
(a) there shall be consummated (i) any consolidation or merger of the
Company in which the Company is not the continuing or surviving corporation
or pursuant to which shares of the Company's common stock would be
converted into cash, securities or other property, other than a merger of
the Company in which the holders of the Company's common stock immediately
prior to the merger have substantially the same proportionate ownership of
common stock of the surviving corporation immediately after the merger; or
(ii) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets
of the Company; or
(b) the stockholders of the Company shall approve any plan or proposal
for the liquidation or dissolution of the Company;
(c) any individual, partnership, firm, corporation, association,
trust, unincorporated organization, or other entity, or any syndicate or
group deemed to be a person under Section 14(d)(2) of the Act who is not as
of the Effective Date the "beneficial owner" (as defined in Rule 13d-3 of
the General Rules and Regulations under the Act) of at least five percent
(5%) of the outstanding Common Stock shall become the beneficial owner of
securities of the Company representing twenty (20%) or more of the combined
25
<PAGE> 29
voting power of the Company's then outstanding securities entitled to vote
in the election of directors of the Company; or
(d) during any period of two (2) consecutive years (not including any
period prior to the Effective Date), individuals who at the beginning of
such period constitute the Board of Directors and any new directors, whose
election by the Board of Directors or nomination for election by the
Company's stockholders was approved by a vote of at least three quarters
( 3/4) of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election
was previously so approved, cease for any reason to constitute a majority
of the Board of Directors.
A change in control under (c) or (d) above shall not be deemed to be a Change in
Control for purposes of this Plan if the Board of Directors has approved such
change in control prior to either (i) the occurrence of any of the events
described in the foregoing clauses (c) and (d), or (ii) the commencement by any
person other than the Company of a tender offer for the Common Stock.
ARTICLE X
MISCELLANEOUS
10.1 Amendments and Termination. The Board may amend, alter, discontinue
or terminate the Plan at any time, but no amendment, alteration, discontinuation
or termination shall be made which would impair the rights of a Participant
under a Stock Option, Stock Appreciation Right or Stock Grant theretofore
granted without the Participant's consent. In addition, no such amendment shall
be made without the approval of the Company's stockholders to the extent such
approval is required by law or agreement.
The Administrator may amend the terms of any Award or other Award
theretofore granted, prospectively or retroactively, but no such amendment shall
impair the rights of any Participant without the Participant's consent. The
Administrator may also substitute new Stock Options or Stock Appreciation Rights
for previously granted Stock Options, including previously granted Stock Options
or Stock Appreciation Rights having higher Option Prices but no such
substitution shall be made which would impair the rights of Participants under
such Stock Option or Stock Appreciation Right theretofore granted without the
Participant's consent.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules, as
well as other developments and to grant Awards which qualify for beneficial
treatment under such rules without stockholder approval.
10.2 Unfunded Status of Plan. It is intended that the Plan be an
"unfunded" plan for incentive and deferred compensation. The Administrator may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Common Stock or make payments; provided,
however, that, unless the Administrator otherwise determines, the existence of
such trusts or other arrangements is consistent with the "unfunded" status of
the Plan.
10.3 General Provisions.
(a) Representation. The Administrator may require each person
purchasing or receiving shares pursuant to an Award to represent to and
agree with the Company in writing that such person is acquiring the shares
without a view to the distribution thereof. The certificates for such
shares may include any legend which the Administrator deems appropriate to
reflect any restrictions on transfer.
(b) No Additional Obligation. Nothing contained in the Plan shall
prevent the Company or an Affiliate from adopting other or additional
compensation arrangements for its employees.
(c) Withholding. No later than the date as of which an amount first
becomes includible in the gross income of the Participant for the Company
income tax purposes with respect to any Award, the Participant shall pay to
the Company (or other entity identified by the Administrator), or make
arrangements satisfactory to the Company or other entity identified by the
Administrator, regarding the
26
<PAGE> 30
payment of any federal, state, local or foreign taxes of any kind required
by law to be withheld with respect to such amount required in order for the
Company or an Affiliate to obtain a current deduction. Unless otherwise
determined by the Administrator, withholding obligations may be settled
with Common Stock, including Common Stock that is part of the Award that
gives rise to the withholding requirement provided that any applicable
requirements under Section 16 of the Exchange Act are satisfied. The
obligations of the Company under the Plan shall be conditional on such
payment or arrangements, and the Company and its Affiliates shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment otherwise due to the Participant.
(d) Reinvestment. The reinvestment of dividends in additional Deferred
or Restricted Stock at the time of any dividend payment shall only be
permissible if sufficient shares of Common Stock are available for such
reinvestment (taking into account then outstanding Options and other
Awards).
(e) Representative. The Administrator shall establish such procedures
as it deems appropriate for a Participant to designate a Representative to
whom any amounts payable in the event of the Participant's death are to be
paid.
(f) Controlling Law. The Plan and all Awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws
of the State of Oklahoma. The Plan shall be construed to comply with all
applicable law, and to avoid liability to the Company, an Affiliate or a
Participant, including, without limitation, liability under Section 16 of
the Exchange Act.
(g) Offset. Any amounts owed to the Company or an Affiliate by the
Participant of whatever nature may be offset by the Company from the value
of any shares of Common Stock, cash or other thing of value under this Plan
or an Agreement to be transferred to the Participant, and no shares of
Common Stock, cash or other thing of value under this Plan or an Agreement
shall be transferred unless and until all disputes between the Company and
the Participant have been fully and finally resolved and the Participant
has waived all claims to such against the Company or an Affiliate.
10.4 Mitigation of Excise Tax. If any payment or right accruing to a
Participant under this Plan (without the application of this Section 10.4),
either alone or together with other payments or rights accruing to the
Participant from the Company or an Affiliate ("Total Payments") would constitute
a "parachute payment" (as defined in Section 28OG of the Code and regulations
thereunder), such payment or right shall be reduced to the largest amount or
greatest right that will result in no portion of the amount payable or right
accruing under the Plan being subject to an excise tax under Section 4999 of the
Code or being disallowed as a deduction under Section 28OG of the Code. The
determination of whether any reduction in the rights or payments under this Plan
is to apply shall be made by the Administrator in good faith after consultation
with the Participant, and such determination shall be conclusive and binding on
the Participant. The Participant shall cooperate in good faith with the
Administrator in making such determination and providing the necessary
information for this purpose. The foregoing provisions of this Section 10.4
shall apply with respect to any person only if after reduction for any
applicable federal excise tax imposed by Section 4999 of the Code and federal
income tax imposed by the Code, the Total Payments accruing to such person would
be less than the amount of the Total Payments as reduced, if applicable, under
the foregoing provisions of the Plan and after reduction for only federal income
taxes.
10.5 Rights with Respect to Continuance of Employment. Nothing contained
herein shall be deemed to alter the relationship between the Company or an
Affiliate and a Participant, or the contractual relationship between a
Participant and the Company or an Affiliate if there is a written contract
regarding such relationship. Nothing contained herein shall be construed to
constitute a contract of employment between the Company or an Affiliate and a
Participant. The Company or an Affiliate and each of the Participants continue
to have the right to terminate the employment or service relationship at any
time for any reason, except as provided in a written contract. The Company or an
Affiliate shall have no obligation to retain the Participant in its employ or
service as a result of this Plan. There shall be no inference as to the length
of employment or service hereby, and the Company or an Affiliate reserves the
same rights to terminate the Participant's employment or service as existed
prior to the individual becoming a Participant in this Plan.
27
<PAGE> 31
10.6 Awards in Substitution for Awards Granted by Other
Corporations. Awards may be granted under the Plan from time to time in
substitution for awards held by employees, directors or service providers of
other corporations who are about to become officers, directors or employees of
the Company or an Affiliate as the result of a merger or consolidation of the
employing corporation with the Company or an Affiliate, or the acquisition by
the Company or an Affiliate of the assets of the employing corporation, or the
acquisition by the Company or Affiliate of the stock of the employing
corporation, as the result of which it becomes a designated employer under the
Plan. The terms and conditions of the Awards so granted may vary from the terms
and conditions set forth in this Plan at the time of such grant as the majority
of the members of the Administrator may deem appropriate to conform, in whole or
in part, to the provisions of the awards in substitution for which they are
granted.
10.7 Procedure for Adoption. Any Affiliate of the Company may by
resolution of such Affiliate's board of directors, with the consent of the Board
of Directors and subject to such conditions as may be imposed by the Board of
Directors, adopt the Plan for the benefit of its employees as of the date
specified in the board resolution.
10.8 Procedure for Withdrawal. Any Affiliate which has adopted the Plan
may, by resolution of the board of directors of such direct or indirect
subsidiary, with the consent of the Board of Directors and subject to such
conditions as may be imposed by the Board of Directors, terminate its adoption
of the Plan. If the Participant disposes of shares of Common Stock acquired
pursuant to an Incentive Stock Option in any transaction considered to be a
disqualifying transaction under the Code, the Participant must give written
notice of such transfer and the Company shall have the right to deduct any taxes
required by law to be withheld from any amounts otherwise payable to the
Participant.
10.9 Delay. If at the time a Participant incurs a Termination of
Employment (other than due to Cause) or if at the time of a Change in Control,
the Participant is subject to "short-swing" liability under Section 16 of the
Exchange Act, any time period provided for under the Plan or an Agreement to the
extent necessary to avoid the imposition of liability shall be suspended and
delayed during the period the Participant would be subject to such liability,
but not more than six(6)months and one(1)day and not to exceed the Option
Period, or the period for exercise of a Stock Appreciation Right as provided in
the Agreement, whichever is shorter. The Company shall have the right to suspend
or delay any time period described in the Plan or an Agreement if the
Administrator shall determine that the action may constitute a violation of any
law or result in liability under any law to the Company, an Affiliate or a
stockholder of the Company until such time as the action required or permitted
shall not constitute a violation of law or result in liability to the Company,
an Affiliate or a stockholder of the Company.
10.10 Headings. The headings contained in this Plan are for reference
purposes only and shall not affect the meaning or interpretation of this Plan.
10.11 Severability. If any provision of this Plan shall for any reason be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not effect any other provision hereby, and this Plan shall be construed as if
such invalid or unenforceable provision were omitted.
10.12 Successors and Assigns. This Plan shall inure to the benefit of and
be binding upon each successor and assign of the Company. All obligations
imposed upon a Participant, and all rights granted to the Company hereunder,
shall be binding upon the Participant's heirs, legal representatives and
successors.
28
<PAGE> 32
10.13 Entire Agreement. This Plan and the Agreement constitute the entire
agreement with respect to the subject matter hereof and thereof, provided that
in the event of any inconsistency between the Plan and the Agreement, the terms
and conditions of the Agreement shall control.
Executed as of the day of , 1998.
MPSI SYSTEMS INC.
By:
------------------------------------
Ronald G. Harper
Chairman, President and Chief
Executive Officer
29
<PAGE> 33
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED IN Please mark
THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED your votes as
STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL indicated in [X]
BE VOTED FOR PROPOSALS 1, 2 AND 3. this example
1. ELECTION OF DIRECTORS NOMINEES: Ronald G. Harper, John C. Bumgarner, Jr.,
Dr. David L. Huff, Joseph C. McNay and John J. McQueen
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.)
-------------------------------------------------------------------------
FOR all nominees WITHHOLD
listed to the right AUTHORITY
(except as marked to vote for all nominees
to the contrary) listed to the right
[ ] [ ]
2. Approval of the MPSI Systems Inc. 3. Ratification of Ernst & Young LLP 4. In their discretion, the Proxies are
1998 Stock Plan. as the independent certified public authorized to vote upon such other
accountants of the corporation. business as may properly come before the
meeting.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
[ ] [ ] [ ] [ ] [ ] [ ]
Please sign exactly as name appears hereon.
When shares are held by joint tenants, both
should sign. When signing as attorney, executor,
administrator, trustee, or guardian, please give
full title as such. If a corporation, please
sign in full corporate name by President or
other authorized officer. If a partnership,
please sign in partnership name by authorized
person.
Dated: , 1998
--------------------------------
-----------------------------------------------
(Signature)
-----------------------------------------------
(Signature if held jointly)
PLEASE SIGN, DATE, AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE
- -----------------------------------------------------------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
ADMISSION TICKET
ANNUAL MEETING
OF
MPSI SYSTEMS INC. STOCKHOLDERS
THURSDAY, MARCH 5, 1998
9:00 A.M. CST
SHERATON TULSA HOTEL
10918 EAST 41ST
TULSA, OKLAHOMA 74146
==========================================================================
AGENDA
* Election of Directors
* Approval of the MPSI Systems Inc. 1998 Stock Plan
* Ratification of the appointment of independent public accountants
* Report on the progress of the corporation
* Discussion on matters of current interest
==========================================================================
</TABLE>
<PAGE> 34
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
MPSI SYSTEMS INC.
The undersigned hereby appoints Ronald G. Harper and Linda K. Wells
proxies, with power to act without the other and with power of substitution, and
hereby authorizes them to represent and vote, as designated on the other side,
all the shares of stock of MPSI Systems Inc. standing in the name of the
undersigned with all powers which the undersigned would possess if present at
the Annual Meeting of Stockholders of the Company to be held March 5, 1998 or
any adjournment thereof.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
- -------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
MPSI SYSTEMS INC.
ANNUAL MEETING OF STOCKHOLDERS
March 5, 1998
9:00 a.m. CST
Sheraton Tulsa Hotel
10918 East 41st
Tulsa, Oklahoma 74146
<PAGE> 35
MPSI Systems Inc. and Subsidiaries
- --------------------------------------------------------------------------------
[FRONT COVER]
MPSI
ANNUAL REPORT 1997
<PAGE> 36
MPSI Systems Inc. and Subsidiaries
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA*
(in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------
1997 1996 1995 1994 1993
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues .............................................. $ 23,438 $ 21,745 $ 23,437 $ 19,872 $ 19,524
Income (loss) from continuing operations .............. 1,103 (623) 2,029 1,956 (939)
Income (loss) from discontinued operations ............ -- -- -- (482) 2,149
Extraordinary gain on debt extinguishment ............. -- -- -- -- 350
Net income (loss) ..................................... 1,103 (623) 2,029 1,474 1,560
Per share:
Income (loss) per common and common equivalent share:
Continuing operations ............................ $ .39 $ (.23) $ .72 $ .71 $ (.94)
Discontinued operations .......................... -- -- -- (.18) 2.15
Extraordinary item ............................... -- -- -- -- .35
Net income (loss) ................................ .39 (.23) .72 .53 1.56
Weighted average shares of common
stock and common stock equivalents
outstanding ......................................... 2,820 2,756 2,802 2,766 998
BALANCE SHEET DATA:
Total assets .......................................... $ 11,638 $ 10,319 $ 12,924 $ 9,734 $ 10,040
Noncurrent deferred revenue ........................... 1,634 1,342 1,961 1,068 1,453
Noncurrent deferred income taxes ...................... 442 98 -- -- --
Other noncurrent liabilities .......................... 37 79 220 349 252
</TABLE>
- ----------
* Operating data prior to fiscal year 1994 has been restated giving effect to
the September 1994 sale of RSI .
ABOUT THE COMPANY
MPSI Systems Inc., headquartered in Tulsa, Oklahoma, was founded more than
two decades ago as a company focused on providing site analysis services to the
petroleum industry. Today, we are an international company that provides
decision support systems, consulting services, and market information databases
to clients in many retail environments such as petroleum, convenience food,
banking, and postal services.
MPSI has regional offices strategically located around the world and employs
more than 200 highly skilled professionals. Our products and services
incorporate proven state-of-the-art technologies. They are designed to meet a
variety of business planning requirements, including retail site location,
retail network operations, short-term pricing, and much more. With the
comprehensive mix of offerings from MPSI, clients can develop strategies,
identify opportunities, solve problems, and increase the decision-making
effectiveness for their retail business.
<PAGE> 37
MPSI Systems Inc. and Subsidiaries
- --------------------------------------------------------------------------------
TO OUR STOCKHOLDERS
I am pleased to report that MPSI enjoyed a successful 1997 and that the needs
and strengths of our clients on a worldwide basis bode well for the future. We
continue to focus our resources on the retail convenience sector of the
petroleum industry which has been our mainstay since MPSI's inception. Retail
petroleum marketers and convenience retailers must continually evaluate
increased competitive pressures. Deregulation, the proliferation of new
offerings at service station outlets, consumer price sensitivity, the
consolidation of industry participants, and the growth of non-traditional
petroleum retailers, among other factors, present significant planning
challenges for our clients and opportunities for MPSI.
Deregulation of the petroleum industry in countries like Japan and the
Philippines will intensify competitive pressure on the petroleum marketers in
those countries. With the relaxation of trade barriers in countries like China
and the resulting entry of external marketers into that environment, new tools
and expertise are going to be required both by the state companies who will be
introduced to competition for the first time and by potential new entrants into
the markets who must understand the Chinese consumer.
A variety of innovative non-traditional services can now be found at many
service stations. Availability of quick-serve restaurants, banking and
convenience stores at petroleum outlets provides the consumer with attractive
alternatives between outlets. Continuing consumer price sensitivity makes it
imperative that our clients recognize market trends and make sound business
decisions about which ancillary services to bring on line to attract customers
as well as how to price those services to maximize their return on investment.
The last year has seen some extraordinary mergers, joint ventures, and other
strategic alliances of petroleum companies, particularly in Europe and the
United States. These business combinations potentially result in marketers with
more cost effective and, therefore, more competitive operations.
Petroleum retailers in some parts of the world are faced with competition from
a variety of non-traditional retailers who have begun to offer gasoline as an
additional product line. In Europe and the United States, for example,
supermarkets and other large format retailers who offer gasoline as an
additional product often significantly influence consumers who are price and
convenience oriented.
Recognizing and defeating competition is the name of the game for our
customers. I believe MPSI is uniquely qualified to address the issues raised
above. For over 25 years, we have been the trusted business advisor to many of
the most successful petroleum retail marketers in the world. As a leading
provider of decision support software tools, market information, and turnkey
network planning solutions for the convenience retailing industry, we are well
positioned to assist our customers during these challenging times.
During 1997, our largest client, Exxon Company International, renewed its
commitment to MPSI by executing an extension of its worldwide software license
agreement for a further five years. We believe that such transactions ratify
MPSI's market leadership in providing retail planning tools, consumer and market
information, practical market knowledge, and retail petroleum expertise. In 1998
and beyond, we will continue to develop new software tools and data services
geared toward these new challenges. Additionally, for those clients who do not
have the in-house expertise or who, for cost reasons, desire turnkey solutions,
we intend to significantly expand our cadre of convenience retailing and
petroleum industry consultants. We believe that by fiscal year 1999, MPSI will
have significantly increased its business consultancy capabilities in the
convenience retailing niche.
During the latter half of fiscal 1997, MPSI has undertaken several new
projects aimed at improving our software tool set and our market information
databases. To our present software products, including the PC-oriented Capital
Planning System (CAPS(R)) and the mainframe-oriented Retail Planning System(R)
(RPS), we are adding an exciting new category management software product to
help retailers better manage the merchandise within their stores. Unlike many
software products now available which monitor product turnover, our service will
extend beyond that to provide predictive capabilities with respect to which
products best serve the local area. It will also help the merchant arrange
product categories in a store so as to maximize the potential of cross
merchandising.
With respect to market and consumer information, we are implementing a process
change referred to internally as Just-In-Time ("JIT"). Our goals are to reduce
by 50% the amount of time necessary to develop and deliver a market information
database while concurrently using new technologies to reduce the costs
associated with this labor intensive process. Our clients will benefit by
receiving fresher data on their target markets and by an expanded list of cities
which can be economically surveyed. MPSI will enjoy better profitability and
greater penetration of both our present regional and national customers and
smaller independent marketers.
We believe we have the expert personnel, industry knowledge, and market savvy
to remain the leader in retail decision support to convenience retailers. We
thank our clients, employees, and stockholders for their continuing support as
we look forward to a successful and profitable 1998 and beyond.
Sincerely,
Ronald G. Harper
Chairman of the Board and President
- --------------------------------------------------------------------------------
2
<PAGE> 38
MPSI Systems Inc. and Subsidiaries
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth (in thousands), for the periods indicated,
certain items in the consolidated statements of operations and the change of
such items as compared with the indicated prior period.
<TABLE>
<CAPTION>
CHANGE
----------------------
YEAR ENDED SEPTEMBER 30 1997 1996
----------------------------------- VS. VS.
1997 1996 1995 1996 1995
----------------------------------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues ......................... $ 23,438 $ 21,745 $ 23,437 $ 1,693 $ (1,692)
Cost of sales .................... 9,603 11,014 10,432 (1,411) 582
-------- -------- -------- -------- --------
Gross profit ................... 13,835 10,731 13,005 3,104 (2,274)
-------- -------- -------- -------- --------
Operating expenses:
General and administrative ..... 3,763 3,005 2,571 758 434
Marketing and client services .. 6,834 6,928 6,993 (94) (65)
Research and development ....... 1,598 1,382 1,794 216 (412)
-------- -------- -------- -------- --------
Total operating expenses 12,195 11,315 11,358 880 (43)
-------- -------- -------- -------- --------
Operating income (loss) .......... 1,640 (584) 1,647 2,224 (2,231)
Other income (expense), net ...... 92 332 836 (240) (504)
-------- -------- -------- -------- --------
Income (loss) before income taxes 1,732 (252) 2,483 1,984 (2,735)
Income taxes ..................... 629 371 454 258 (83)
-------- -------- -------- -------- --------
Net income (loss) ................ $ 1,103 $ (623) $ 2,029 $ 1,726 $ (2,652)
======== ======== ======== ======== ========
</TABLE>
Portions of this document may constitute forward looking statements as defined
by federal law. Although the Company believes any such statements are based on
reasonable assumptions, there is no assurance that actual outcomes will not be
materially different. Additional information about issues that could lead to
material changes in performance is contained in the Company's annual report on
Form 10-K filed with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
Net income of $1.1 million in fiscal year 1997 represented a substantial
improvement over 1996, in spite of a significant increase in income taxes
between the two years. As discussed below, this improvement was principally
attributable to an 8% growth in revenues (spearheaded by MPSI's largest client
renewing its worldwide software license for five more years) and to improved
gross profit margins on data services, but offset with additional resources
allocated or acquired in order to continue ongoing client service initiatives.
In contrast with the positive results in fiscal year 1997, the fiscal year 1996
results reflected a 7% decline in revenues compared with 1995 and were further
adversely affected by delays in rolling out new retail planning software for
MPSI clients in Europe and South America which impacted productivity.
Set forth below (in thousands of dollars) is an analysis of MPSI's revenue
fluctuations over the last three fiscal years.
<TABLE>
<CAPTION>
1997 VS. 1996 1996 VS. 1995
-------------------- --------------------
AMOUNT % AMOUNT %
-------------------- --------------------
<S> <C> <C> <C> <C>
Pacific Rim ...................... $ 1,942 22 $(1,193) (12)
North America .................... (78) (1) 336 4
Europe/Africa .................... 295 19 (824) (34)
Latin America .................... (466) (22) (11) (1)
------- -------
Totals ................. $ 1,693 8 $(1,692) (7)
======= =======
</TABLE>
The 1997 revenues in all regions were positively impacted by MPSI's largest
customer continuing its commitment to MPSI by renewing its worldwide CAPS(R)
software license for five more years. This transaction principally accounts for
the significant increase in 1997 revenue from software licensing compared with
1996 and 1995. See Note 7 to the Consolidated Financial Statements which sets
forth the historical impact of that client on MPSI's annual revenues. Revenues
in 1996 declined compared with 1995 due to several factors including lower
software licensing and renewal rates
- --------------------------------------------------------------------------------
3
<PAGE> 39
MPSI Systems Inc. and Subsidiaries
- --------------------------------------------------------------------------------
brought about by (1) uncertainty in countries such as Japan related to the
effects of deregulation, and (2) delays in rolling out MPSI software upgrades
reflecting new technology and market conditions for the European and South
American target markets. The timing of new or renewed long-term software license
agreements, and the normally attendant market study orders which often accompany
them, can have a substantial impact upon reported revenues and net income
between accounting periods
In addition to recurring revenues from traditional sources, management is also
pleased that a number of clients in North America and the Pacific Rim have
licensed and/or are testing the Company's Price Zones(TM), PriceTracker(TM) and
Price Volume Optimizer(R) products which first became commercially available in
1996. During 1997, revenues of approximately $1 million were realized from those
products and services in North America, representing a 111% increase over 1996.
Additional revenues of approximately $380,000, virtually all of which
represented new business, were realized from the Pacific Rim in 1997. The
Company will commit additional resources toward the growth of retail pricing
revenues both from additional installation of these products, as well as from
consultation with clients concerning the establishment of price monitoring
infrastructure.
On a regional basis, revenues in North America declined slightly compared with
1996, primarily as the result of alternate year cycling of certain market
studies for some clients and of pricing pressures in this most competitive MPSI
region. The Pacific Rim continued to be a substantial source of revenue for the
Company. In addition to the 1997 revenue generated from pricing products as
discussed above, the Company increased its traditional services in several
Pacific Rim countries which allowed the opportunity to leverage market study
production costs in the region and thereby improve gross profit. The Company is
unable to predict the effect on fiscal year 1998 or thereafter of unsettled
economic conditions in the Pacific Rim but has identified several potentially
adverse effects, including (1) pressure on MPSI pricing and/or delay in placing
orders due to higher costs of projects associated with weaker foreign currencies
versus the U.S. dollar, (2) longer payment cycles by customers in the region,
and (3) pressure to denominate contracts in foreign currencies which may
increase the Company's exposure to gains or losses based on currency
fluctuations. Fiscal year 1997 saw a significant turnaround in the revenue trend
in Europe, principally attributable to the 1996 roll-out of CAPS software for
that region. Revenues in Europe declined in fiscal 1996 primarily due to a delay
in the introduction of the CAPS software version for that region. European
petroleum companies have been under considerable profit pressure over the last
several years and have consequently reduced their focus on retail planning
issues. The Company believes that recent oil company consolidations in Europe
have refocused the European petroleum industry on the necessity to maximize
profits from existing facilities through ancillary product offerings in order to
remain competitive. Consolidations also have the effect of requiring retail
network outlet rationalization for those companies who do combine. These market
driven fundamentals should allow the Company to continue the European revenue
growth demonstrated in fiscal 1997. South American revenue declined in 1997 as
the result of two primary factors: clients have been slower in that region to
undertake the installation and use of MPSI's new CAPS software, which was
delayed in roll-out during 1996 for the same reasons set forth in Europe above,
and privatization of the petroleum industry in certain countries has diverted
client focus to more long-range strategic issues. The Company expects improved
revenues from South America in fiscal 1998.
The Company does not believe that inflation has significantly impacted the
results of operations during the three years ended September 30, 1997. Lower
prices in all regions except the Pacific Rim aided revenue generation during
1996 and 1995, but no substantial pricing changes impacted fiscal 1997. The
Company attributes the 1997 revenue growth, where it occurred, primarily to the
ongoing technological improvements and additions to its products and services.
As the result of cost containment measures and smaller retail planning staff,
portions of the retail sector of the petroleum industry, which is the Company's
principal vertical market, are increasingly interested in initial delivery of
the "solution" to their retail network planning concerns and perhaps secondarily
interested in the "tools" to address the issues internally. Although MPSI has
traditionally undertaken a variety of special consultation projects, management
anticipates a greater focus of corporate resources toward delivery of consulting
solutions, thereafter relying on our tools and data as a means of generating
ongoing revenues from such clients. This focus on a more integrated role with
our customers should not only reduce client price sensitivity, but should also
strengthen the barriers to competition.
The Company realized significant improvement in gross profit during 1997
compared with prior years. Gross profit (loss) attributable to software
licensing was approximately $1,042,000, ($217,000) and $757,000 in fiscal years
1997, 1996 and 1995, respectively. These percentages can be significantly
impacted by the timing of software license revenues as noted previously. On a
cost comparison basis, cost of sales from software licensing increased
approximately 26% in 1997 compared with 1996 as amortization was recorded for
the European and South American CAPS software development. Similarly, such costs
increased approximately 83% in 1996 compared with 1995 as the Company amortized
the costs associated with CAPS versions related to North America, Africa and
Australia. Gross profit on market study data services,
- --------------------------------------------------------------------------------
4
<PAGE> 40
MPSI Systems Inc. and Subsidiaries
- --------------------------------------------------------------------------------
the largest component of revenues, increased approximately 4% in 1997 (declined
10% in 1996 compared with 1995). The 1997 improvement was attributable to
additional new client participants in certain market studies, most notably in
the Pacific Rim, and to improved market study production processes. The 1996
decline compared to 1995 was the result of timing related to certain multi-year
market study updates (which carry acceptable gross profit margins over the
entire commitment period but may result in reduced margins in certain fiscal
year components) and rework during the transition between RPS and CAPS software
for Europe and South America.
Overall, the reduction in cost of sales components by $1.4 million in 1997
allowed the Company to commit additional resources to client service. Enhanced
commitment to client service, in addition to a need to address timely product
development, was one of the reasons for a corporate restructuring undertaken in
July 1996. MPSI was able to utilize personnel previously in production and
marketing to (1) organize new business units focused on specific strategic
initiatives and (2) add additional client service personnel to our marketing
group. These personnel re-allocations resulted in growth of approximately
$350,000 in both general and administrative and marketing expenses. General and
administrative expenses further increased by approximately $350,000 due to
incremental employee incentive accruals, legal and accounting fees associated
with evaluation of strategic alliance opportunities, and termination costs
relative to the Bristol subsidiary's offices to be moved in April 1998. The
internal allocation of personnel to client service (marketing) functions was
offset by reduced headcount in Europe and retirement of a senior officer in
Japan (slated for replacement during fiscal 1998). Overall, marketing expenses
declined approximately 1% in 1997 compared with 1996. Research and development
expenses were relatively unaffected by the resource allocation in 1997. The
increase of $216,000 (16%) in 1997 compared with 1996 is attributable to less
capitalizable software development work as opposed to pure research. This ratio
is the result of the Company having completed most of its regional CAPS software
development except for the Japanese version due for release in fiscal 1998.
Management expects capitalized software development to increase somewhat in
fiscal 1998 as the Company undertakes development of new software to address
product category management issues applicable to convenience stores and
eventually to large format retailers.
Operating expenses declined slightly in 1996 compared with 1995. Development
of the South American and European CAPS versions in 1996 resulted in a higher
level of capitalizable work than in 1995. General and administrative expenses
were higher in 1996 than in 1995 due to certain severance costs in Europe
associated with the restructuring and with opening new offices in South Korea
and South Africa.
MPSI enters into multi-year contracts for market studies, some of which are
denominated in foreign currencies (principally the Singapore Dollar and the
British Pound Sterling). This exposes MPSI to exchange gains or losses depending
upon the periodic value of the U.S. Dollar relative to the respective foreign
currencies. The Company experienced exchange losses of approximately $98,000 in
fiscal 1997. During fiscal years 1996 and 1995, MPSI benefited from foreign
currency exchange gains in the amount of $146,000 and $638,000, respectively.
The gains in 1996 and 1995 were generally the result of multi-year database
contracts denominated in Singapore Dollars which were booked by clients in prior
years and partially collected in 1996 or 1995. By the time the collections were
effected, the contract values had increased relative to the U.S. Dollar
reporting currency. Foreign currency valuation changes led to opposite results
in 1997. Although MPSI anticipates continuing exposure from the same source in
fiscal year 1998, the magnitude is not expected to materially increase as the
Company denominates a limited number of contracts in foreign currencies.
Income taxes increased $258,000 (70%) in 1997 compared with 1996 as the
company utilized its remaining tax credit carryforwards for U.S. income tax
purposes (in which jurisdiction of most of the Company's consolidated operations
are reported) and thus began to record book tax expense at an effective rate of
approximately 34%. The income taxes reported in 1996 declined 18% compared with
1995, principally as the result of a change in estimate for 1995 in the amount
of approximately $210,000 recorded during 1996 when the 1995 returns were
actually completed and filed. Reflected in income tax expense for 1997 was
$212,000 of foreign income taxes ($412,000 in 1996 and $171,000 in 1995). Such
tax related to foreign income tax withheld at the source from payments by
foreign customers ($188,000, $343,000 and $53,000 in 1997, 1996 and 1995,
respectively) and to income taxes applicable to the Company's foreign
subsidiaries ($24,000, $69,000 and $118,000 in 1997, 1996 and 1995,
respectively). The amount of foreign incomes withheld can fluctuate
significantly between fiscal periods based upon not only the geographic areas in
which the Company operates, but on the particular products and services
delivered within an individual country.
In March 1996, the Internal Revenue Service initiated an examination of tax
years 1993 through 1995. The Company has not yet received a final report of the
results, and believes that the resolution of any issue raised will not have a
material effect on its financial position.
- --------------------------------------------------------------------------------
5
<PAGE> 41
MPSI Systems Inc. and Subsidiaries
- --------------------------------------------------------------------------------
FINANCIAL CONDITION AND LIQUIDITY
Working capital, the Company's primary measure of liquidity, was $3 million at
September 30, 1997 compared with $1.4 million at September 30, 1996. The 1997
increase of $1.6 million (115%) reflects a 68% ($648,000) increase in cash
reserves, a 17% ($742,000) increase in receivables and 7% ($183,000) lower trade
payables and accruals. Additionally, the Company's production throughput
resulted in a 19% ($443,000) lower deferred revenue component at September 30,
1997 compared with 1996. In contrast, the $1.4 million working capital at
September 30, 1996 represented a $558,000 (29%) decline compared with September
30, 1995, principally driven by lower receivables and cash reserves brought
about in part by delays in the delivery of European and South American software
as previously discussed.
On the strength of the Company's business fundamentals and improved results of
operations, MPSI obtained a bank line of credit in June 1997 (see Note 5 to the
Consolidated Financial Statements). The initial amount of the line is $500,000
of which approximately $147,000 was in use at September 30, 1997. As the
Company's strategic plans indicate a requirement for additional financing in
order to (1) bring on board supplemental convenience retailing expertise and
consulting personnel, (2) upgrade computer equipment and worldwide
communications, and (3) fund the requirements associated with streamlining
MPSI's data acquisition processes, management expects to explore additional
funding through a combination of an increased bank line and/or issuance of
additional stock either through private placement or through an additional
offering to the public. With improved results of operations in 1997, the Company
can also now take advantage of lease financing, particularly with respect to
computer equipment.
As set forth in the statements of cash flow, the Company generated cash flow
from operations of $785,000 in 1997 which represented a $190,000 (20%) decrease
as compared with $1.0 million in 1996 ($0.7 million or 41% decline compared with
1995). In each of the years 1996 and 1995, MPSI committed substantial resources
to acquisition/upgrade of computer equipment and to development of new software
products. Expenditures for such purposes declined to $434,000 in 1997 ($1.4
million in 1996 and $1.0 million in 1995) as software releases moved into the
maintenance stage and equipment requirements stabilized. The Company anticipates
costs in both areas to increase in 1998 but has no commitments for equipment
expenditures at September 30, 1997. Capitalized software expenditures are
anticipated both for the forthcoming regional version of Japanese CAPS software
and for a new category management product offering. Such costs are expected to
be funded entirely out of operating cash flows.
The trends in software licensing discussed under "Results of Operations" above
impacted the relative levels of both the long-term receivables and deferred
revenues. The net current and noncurrent balances in long-term receivables
(totaling $3.8 million and $3.0 million at September 30, 1997 and 1996,
respectively) increased in 1997 compared with 1996 primarily due to the effect
of a five-year license renewal by MPSI's largest customer. This transaction also
increased deferred maintenance in 1997 (although revenue recognition of
maintenance income from all contracts masks the increase). In 1996 receivables
and deferred revenue from new software contracts were less than the collections
and maintenance revenue recognized during 1996 resulting in declines of $1.1
million and $800,000 in long-term receivables and deferred maintenance,
respectively, as compared with September 30, 1995. MPSI's license agreements
generally are noncancelable, although a few contracts include provisions for
cancellation of portions of the client's commitment upon occurrence of certain
negative economic events in the clients' geographic areas of operations. In
accordance with its policy, the Company does not recognize revenues on such
contingent portions of agreements, so that in the event of cancellation, only
receivables and deferred revenue are generally adjusted. In accordance with
contractual cancellation options, certain clients canceled portions of their
software licenses aggregating $435,000 in 1996 and $65,000 during 1995 (none in
1997). As the number of contracts with cancellation clauses are few, the Company
does not expect a significant impact from cancellations in 1998.
Noncurrent deferred income tax liabilities increased to $442,000 at September
30, 1997, reflecting recognition of deferred U.S. income taxes entirely offset
in previous years by income tax credits and net operating loss carryforwards.
The decrease in other noncurrent liabilities to $37,000 ($79,000 at September
30, 1996 from $220,000 at September 30, 1995) is the result of reclassifying
certain U.S. headquarters lease obligations to current accrued liabilities. The
Company's present lease on its headquarters facility expires in April 1998, and
the Company has been informed by a new landlord who recently acquired and
desires to occupy the building that MPSI will be required to vacate at the end
of the lease. The Company is presently evaluating facility alternatives but does
not expect to move before lease expiration. The Company does not expect to
materially increase its overall headquarters occupancy costs in 1998 as a result
of the move.
MPSI's backlog of market studies at September 30, 1997 in the amount of
approximately $12.9 million ($16.3 million at September 30, 1996) contained a
substantial number of recurring studies under multi-year client commitments.
Such studies represent approximately 30% of the estimated revenues for fiscal
year 1998. Because customer commitments for
- --------------------------------------------------------------------------------
6
<PAGE> 42
MPSI Systems Inc. and Subsidiaries
- --------------------------------------------------------------------------------
market studies may entail multi-year terms, the number of such agreements in
force may have significant implications on the conclusions to be drawn
concerning fluctuations in backlog between accounting periods. For example, if a
customer commits to a five-year series of market studies in year one, backlog of
that year would substantially increase. Thereafter, as the Company delivers
successive market studies, backlog would decline in years 2 - 4. An analysis
which identifies a declining backlog might lead one to incorrectly assume that
the Company's business is declining, when in fact it is servicing its customers
satisfactorily and can rightfully expect renewed study commitments in the
future,
------------------
MARKET INFORMATION FOR MPSI COMMON STOCK
The Company's Common Stock is listed on The NASDAQ SmallCap Market tier of The
Nasdaq Market (hereafter NASDAQ). The trading symbol is "MPSI." Information in
the table below reflects the high and low sales prices reported by NASDAQ.
<TABLE>
<CAPTION>
LOW HIGH
----- -----
<S> <C> <C>
Fiscal 1996
First Quarter Ended December 31, 1995......... 4 3/4 7
Second Quarter Ended March 31................. 3 5 1/4
Third Quarter Ended June 30................... 2 3/4 3 1/2
Fourth Quarter Ended September 30............. 5/8 4 1/4
Fiscal 1997
First Quarter Ended December 31, 1996......... 29/64 3 1/2
Second Quarter Ended March 31................. 1 3/4 3 3/4
Third Quarter Ended June 30................... 2 3 1/2
Fourth Quarter Ended September 30............. 2 3/8 9 1/2
</TABLE>
The 2,841,000 shares of Common Stock outstanding at December 5, 1997, were
held by 904 stockholders of record. At that date, an additional 204,000 shares
were subject to options to purchase Common Stock as discussed more fully in Note
8 to the Consolidated Financial Statements. The per share bid and offer prices
on December 5, 1997, were $4.25 and $4.88, respectively. Common Stock that could
be sold pursuant to Rule 144 under the 1933 Act totals 840,000 shares as of
December 5, 1997.
The Company intends to reinvest its earnings in its business and therefore
does not anticipate paying any cash dividends in the foreseeable future. The
Company has not paid cash dividends since its inception.
- --------------------------------------------------------------------------------
7
<PAGE> 43
MPSI Systems Inc. and Subsidiaries
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
MPSI SYSTEMS INC.
We have audited the accompanying consolidated balance sheets of MPSI Systems
Inc. and subsidiaries as of September 30, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flow for
each of the three years in the period ended September 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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
MPSI Systems Inc. and subsidiaries at September 30, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1997 in conformity with generally
accepted accounting principles.
Tulsa, Oklahoma
November 21, 1997
- --------------------------------------------------------------------------------
8
<PAGE> 44
MPSI Systems Inc. and Subsidiaries
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1997 1996 1995
------------------------------------------------
<S> <C> <C> <C>
Revenues:
Information services and software maintenance $ 21,630,000 $ 21,354,000 $ 22,348,000
Software licensing .......................... 1,808,000 391,000 1,089,000
------------ ------------ ------------
Total revenues .......................... 23,438,000 21,745,000 23,437,000
------------ ------------ ------------
Cost of sales:
Information services and software maintenance 8,837,000 10,406,000 10,100,000
Software licensing (Note 4) ................. 766,000 608,000 332,000
------------ ------------ ------------
Total cost of sales ..................... 9,603,000 11,014,000 10,432,000
------------ ------------ ------------
Gross profit ............................ 13,835,000 10,731,000 13,005,000
Operating expenses:
General and administrative .................. 3,763,000 3,005,000 2,571,000
Marketing and client services ............... 6,834,000 6,928,000 6,993,000
Research and development .................... 1,598,000 1,382,000 1,794,000
------------ ------------ ------------
Total operating expenses ................ 12,195,000 11,315,000 11,358,000
------------ ------------ ------------
Operating income (loss) ................. 1,640,000 (584,000) 1,647,000
Other income (expense):
Interest income ............................. 197,000 204,000 195,000
Interest expense ............................ (154,000) (17,000) (12,000)
Gain (loss) on foreign exchange ............. (98,000) 146,000 638,000
Other, net .................................. 147,000 (1,000) 15,000
------------ ------------ ------------
Income (loss) before income taxes ........... 1,732,000 (252,000) 2,483,000
Income taxes ................................... 629,000 371,000 454,000
------------ ------------ ------------
Net income (loss) .............................. $ 1,103,000 $ (623,000) $ 2,029,000
============ ============ ============
Per share (Note 1):
Income (loss) per common and common
equivalent share ........................ $ .39 $ (.23) $ .72
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
9
<PAGE> 45
MPSI Systems Inc. and Subsidiaries
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
ASSETS
================================================================================
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1997 1996
------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................... $ 1,599,000 $ 951,000
Short-term investments, at cost ............................. 3,000 49,000
Receivables (Notes 2 and 5):
Trade ................................................... 4,210,000 3,413,000
Current portion of long-term receivables, net of
unamortized discount .................................. 1,122,000 1,177,000
Work in process inventory ................................... 197,000 361,000
Prepayments ................................................. 161,000 174,000
------------ ------------
Total current assets .................................... 7,292,000 6,125,000
Long-term receivables, net of unamortized discount (Note 2) .... 2,642,000 1,779,000
Property and equipment, net (Note 3) ........................... 1,165,000 1,325,000
Software products, net (Note 4) ................................ 393,000 843,000
Other assets ................................................... 146,000 247,000
------------ ------------
Total assets ............................................ $ 11,638,000 $ 10,319,000
============ ============
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
<S> <C> <C>
Current liabilities:
Note payable to bank (Note 5) .............................. $ 147,000 $ --
Accounts payable ............................................ 882,000 1,241,000
Accrued liabilities (Notes 6 and 8) ......................... 1,390,000 1,214,000
Deferred revenue ............................................ 1,837,000 2,280,000
------------ ------------
Total current liabilities ............................... 4,256,000 4,735,000
Noncurrent deferred revenue .................................... 1,634,000 1,342,000
Noncurrent deferred income taxes (Note 6) ...................... 442,000 98,000
Other noncurrent liabilities ................................... 37,000 79,000
------------ ------------
Total liabilities ................................. 6,369,000 6,254,000
------------ ------------
Commitments and contingencies (Note 9) ......................... -- --
Stockholders' equity (Note 8):
Preferred Stock, $.10 par value, 1,000,000 shares authorized,
none issued or outstanding .............................. -- --
Common Stock, $.05 par value, 20,000,000 shares authorized,
2,833,000 and 2,794,000 shares issued and outstanding at
September 30, 1997 and 1996, respectively ............... 142,000 140,000
Junior Common Stock, $.05 par value, 500,000 shares
authorized, none issued or outstanding .................. -- --
Additional paid-in capital .................................. 13,030,000 12,934,000
Deficit ..................................................... (8,860,000) (9,963,000)
Foreign currency translation adjustment ..................... 957,000 954,000
------------ ------------
Total stockholders' equity ........................ 5,269,000 4,065,000
------------ ------------
Total liabilities and stockholders' equity ........ $ 11,638,000 $ 10,319,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
10
<PAGE> 46
MPSI Systems Inc. and Subsidiaries
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW (SEE ALSO NOTE 10)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1997 1996 1995
---------------------------------------------
<S> <C> <C> <C>
Income (loss) from operations ....................... $ 1,103,000 $ (623,000) $ 2,029,000
Adjustments to reconcile income (loss) from
operations to cash provided by operations:
Depreciation and amortization of property and
equipment ..................................... 419,000 450,000 405,000
Amortization of software products ................. 617,000 592,000 294,000
Deferred income taxes ............................. 312,000 -- --
Loss on sale of assets ............................ -- 5,000 7,000
Write off of capitalized software development
costs ......................................... -- -- 30,000
Changes in assets and liabilities:
Decrease (increase) in assets:
Receivables ................................... (1,602,000) 1,970,000 (2,436,000)
Inventories ................................... 164,000 (57,000) 228,000
Prepayments and Other Assets .................. 114,000 189,000 138,000
Increase (decrease) in liabilities:
Trade payables and accruals ................... (365,000) 388,000 (214,000)
Taxes payable ................................. 178,000 (438,000) 234,000
Deferred revenue .............................. (155,000) (1,501,000) 924,000
----------- ----------- -----------
Net cash provided by operations ......... 785,000 975,000 1,639,000
----------- ----------- -----------
Cash flows from investing activities:
Decrease in short-term investment ................. 46,000 -- --
Purchase equipment ................................ (267,000) (601,000) (634,000)
Software development .............................. (167,000) (762,000) (396,000)
Proceeds from disposition of assets ............... 6,000 16,000 16,000
----------- ----------- -----------
Net cash used by investing activities ... (382,000) (1,347,000) (1,014,000)
----------- ----------- -----------
Cash flows from financing activities:
Net proceeds from bank line of credit ............. 147,000 -- --
Proceeds from exercised stock options ............. 98,000 53,000 10,000
----------- ----------- -----------
Net cash provided by financing activities 245,000 53,000 10,000
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents ..... 648,000 (319,000) 635,000
Cash and cash equivalents at beginning of period ..... 951,000 1,270,000 635,000
----------- ----------- -----------
Cash and cash equivalents at end of period ........... $ 1,599,000 $ 951,000 $ 1,270,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
11
<PAGE> 47
MPSI Systems Inc. and Subsidiaries
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN
--------------------------- ADDITIONAL CURRENCY TOTAL
CARRYING PAID-IN TRANSLATION STOCKHOLDER'S
SHARES VALUE CAPITAL DEFICIT ADJUSTMENT EQUITY
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1994 .. 2,728,000 $ 136,000 $ 12,742,000 $(11,369,000) $ 974,000 $ 2,483,000
Net income ................ -- -- -- 2,029,000 -- 2,029,000
Stock options exercised ... 5,000 1,000 9,000 -- -- 10,000
Translation adjustment .... -- -- -- -- (36,000) (36,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 1995 .. 2,733,000 137,000 12,751,000 (9,340,000) 938,000 4,486,000
Net loss .................. -- -- -- (623,000) -- (623,000)
Stock options exercised ... 20,000 1,000 52,000 -- -- 53,000
Stock issued to 401(k) Plan 41,000 2,000 131,000 -- -- 133,000
Translation adjustment .... -- -- -- -- 16,000 16,000
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 1996 .. 2,794,000 140,000 12,934,000 (9,963,000) 954,000 4,065,000
Net income ............... -- -- 1,103,000 -- 1,103,000
Stock options exercised ... 39,000 2,000 96,000 -- -- 98,000
Translation adjustment .... -- -- -- -- 3,000 3,000
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 1997 .. 2,833,000 $ 142,000 $ 13,030,000 $ (8,860,000) $ 957,000 $ 5,269,000
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
12
<PAGE> 48
MPSI Systems Inc. and Subsidiaries
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations: MPSI Systems Inc. is a United States-based multinational
corporation whose principal line of business is providing decision support
software, information databases and consulting services to businesses which have
an investment in retail outlet networks. The Company markets its products and
services in North America, the Pacific Rim, Latin America, Europe and South
Africa through a direct sales force located in various foreign countries. As
discussed more fully in Note 7, over 63% of consolidated revenues are generated
from foreign customers, and substantial portions of such revenues are billed in
foreign currencies. Most of the Company's business comes from the petroleum
industry, including several customers who individually account for a significant
portion of consolidated revenues. Services are also provided for clients in the
banking, convenience food, quick service restaurant and government postal
industries. All software development and substantially all of the information
database preparation is performed at the Company's headquarters facility in
Tulsa, Oklahoma.
Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of MPSI Systems Inc. and its wholly owned
subsidiaries. All significant intercompany transactions and accounts have been
eliminated in consolidation.
Revenue Recognition: Revenues and costs related to production of market
information databases are recorded based upon the ratio of costs incurred to
total estimated completion costs (percentage-of-completion method). Revenues and
costs related to single site studies, mini-market studies and other projects
which are completed in a short time period are recognized at completion.
Anticipated losses on contracts are charged against earnings at the time such
losses are identified.
The Company's software products are generally licensed to customers through
noncancelable software license and maintenance contracts with terms of up to
five years. The corresponding long-term receivables and deferred maintenance
revenue from these installment contracts are stated at the discounted present
value of annual license and maintenance payments to be received over the
contract term based upon the prime rate of interest on the effective date of
each contract. The present value discount, related to installments due after one
year, is amortized to interest income using an accelerated method that equates
interest earnings with outstanding receivable balances. Software license
revenues, equal to the present value of the aggregate annual license
installments, are recognized at the latter of contract execution or software
delivery when collection is probable. When it cannot be determined that
collection is probable, or if a contract contains cancellation options, software
revenues are deferred. At the time revenue is recognized, the Company has no
remaining obligations under the software license and maintenance contracts other
than providing postcontract customer support services related to the maintenance
portion of the contract and performance obligations under any optional and
separately priced training or consulting arrangements. Maintenance revenues,
equal to the present value of annual installment payments, are recognized
ratably over the term of the contracts as the postcontract customer support
services are provided and the related costs are incurred and recognized.
Optional training and consulting represent service transactions as to which
revenues and expense are recognized when the earnings process is substantially
complete.
Statement of Cash Flows: For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
Property and Equipment: Property and equipment is stated at cost. Depreciation
is provided using the straight-line method, over the estimated useful lives of
the respective assets, except for leasehold improvements which are amortized
over the lesser of the lease term or the economic life of the underlying asset.
Since such assets are employed in all facets of the Company's operations,
depreciation expense is reflected in cost of sales as well as in each category
of operating expenses. The Company charges the cost of repairs and maintenance
to expense as incurred and capitalizes the cost of replacements, renewals and
betterments. When property or equipment is retired, the cost and accumulated
depreciation are removed from the accounts, and the resulting gain or loss on
the disposition is reflected in other income (expense).
Software Products: Cost of software held for resale, which was either
purchased with the intent to incorporate the acquired software in MPSI products
or developed internally, is presented net of accumulated amortization. The costs
of internally developed software include direct labor, materials and overhead,
and relate to significant enhancements to existing software or to development of
new software products. All costs incurred to establish the technological
feasibility of internally developed software are charged to research and
development expense as incurred. Royalties, which may become payable because of
ongoing proprietary interests related to third-party software imbedded in MPSI
products, are charged to cost of sales-software licensing as applicable software
sales are recognized.
The annual amortization of software products is computed on a
product-by-product basis and is the greater of the amount determined using (1)
the ratio that current gross revenues for a product bear to the total of current
and anticipated future gross
- --------------------------------------------------------------------------------
13
<PAGE> 49
MPSI Systems Inc. and Subsidiaries
- --------------------------------------------------------------------------------
revenues for that product or (2) the straight-line method over the remaining
economic life of the product. Historically, the straight-line method has
resulted in a greater amount of amortization in each accounting period and has,
therefore, been the basis for amortization in the current period and in prior
periods. Amortization starts when a product is available for general release to
customers and is reflected in cost of sales-software licensing.
In the event that capitalized software development costs are subsequently
determined not to be fully recoverable from future operations, the carrying
value of such software is reduced to an amount equal to its net realizable value
less costs of marketing and distribution. The reduction in carrying value is
recorded in cost of sales-software licensing.
Inventory: Work-in-process is composed of direct labor, costs of gathering
demographic data, indirect costs and overhead. Indirect costs and overhead are
allocated to each contract based upon the direct labor incurred.
Income Taxes: The Company applies the liability method of accounting for
income taxes. Under this method, deferred income taxes are recognized for the
tax consequences of "temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
effect on deferred taxes of a change in tax rates is recognized in the results
of operations during the period that includes the enactment date.
Earnings Per Share: Earnings per share computations are based upon the
weighted average number of common shares outstanding during each period,
including dilutive common stock equivalents related to unexercised stock
options. Earnings per share computations do not give effect to common stock
equivalents for any period in which their inclusion would have the effect of
increasing the earnings per share amount or decreasing the loss per share amount
otherwise computed. The adjusted weighted average shares utilized in determining
income (loss) per share were 2,820,000 for fiscal year 1997, 2,756,000 for
fiscal year 1996, and 2,802,000 for fiscal year 1995.
Foreign Currency Translation: Assets and liabilities of the Company's foreign
operations, except Brazil, are translated from the foreign operating currency to
the U.S. Dollar equivalent for consolidated reporting purposes using the
applicable exchange rates at the balance sheet date. Revenues and expenses are
translated at average rates for the year. Exchange differences from these
translations are included in stockholders' equity. Where amounts denominated in
a foreign currency are or are expected to be converted into dollars by
remittance or repayment, the realized exchange differences are reflected in the
results of operations. Due to high rates of inflation in Brazil, transactions
and accounting records are maintained in U.S. Dollar equivalents.
Restructuring Expenses: Expenses associated with corporate restructuring are
recognized at the time that the underlying obligations are incurred. Severance
costs are accrued in the accounting period during which management, having
authority to do so, approves severance plans, provided that (1) the specific
individuals or positions to be terminated have been identified and the costs
thereof were reasonably quantifiable and probable of occurrence within the
succeeding twelve months, and (2) prior to release of the financial statements
for the affected period, the affected employees or positions are either
terminated or the general terms of the termination plan have been communicated,
including the benefits to which terminated employees are entitled or will
voluntarily receive. The net present value of remaining lease obligations
related to excess space is accrued in full at the time the space is abandoned,
net of sublease recoveries which are probable. The costs of other corporate
restructuring decisions are accrued at the time the obligations related thereto
are incurred and quantifiable.
New Accounting Pronouncements: In October 1995, the Financial Accounting
Standards Board adopted Statement No. 123, "Accounting for Stock Based
Compensation," ("FAS 123") effective for fiscal years beginning after December
15, 1995. MPSI continues to account for its stock option plans under the
provisions of APB 25, "Accounting for Stock Issued to Employees" as permitted by
FAS 123. MPSI has incorporated the disclosures required by FAS 123 herein (See
Note 8).
In February 1997, the Financial Accounting Standards Board issued FAS No. 128,
"Earnings Per Share," effective for financial statement reporting periods ending
after December 15, 1997. Earnings per share calculated under this standard would
not differ significantly from amounts reported in the Consolidated Statements of
Income.
In June 1997, the Financial Accounting Standards Board issued two additional
accounting standards, FAS No. 130, "Reporting Comprehensive Income," ("FAS 130")
and FAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," ("FAS 131") effective for fiscal years beginning after December
15, 1997. FAS 130 establishes standards for the reporting and display of
comprehensive income. While the Company does have certain comprehensive income
items, primarily translation adjustments, adopting FAS 130 will not materially
change the Company's financial reporting and disclosures. FAS 131 establishes
standards for reporting financial and descriptive information about a company's
operating segments. Management is currently analyzing the impact of FAS 131, but
does not expect the standard to materially change its current segment reporting
disclosures.
- --------------------------------------------------------------------------------
14
<PAGE> 50
MPSI Systems Inc. and Subsidiaries
- --------------------------------------------------------------------------------
In November 1997, the Accounting Standards Executive Committee issued
Statement of Position 97-2 ("SOP 97-2") entitled "Software Revenue Recognition."
SOP 97-2 is effective for fiscal years beginning after December 15, 1997. The
SOP provides revised and expanded guidance on when software revenue should be
recognized and in what amounts for licensing, selling, and leasing, or otherwise
marketing computer software. Management is currently evaluating the impact of
the SOP but presently does not believe that the impact of adoption will
materially impact the current revenue recognition methods.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expense during the reporting period. Actual
results could differ from those estimates.
2. RECEIVABLES:
Trade accounts receivable include unbilled amounts of $1,630,000 at September
30, 1997 and $1,423,000 at September 30, 1996. These amounts represent market
study revenues recognized under the percentage-of-completion method in excess of
amounts billed and will generally be billable during the succeeding twelve
months upon completion of the respective studies.
Current and noncurrent receivables also include unbilled amounts of $4,196,000
at September 30, 1997 and $2,987,000 at September 30, 1996 (before present value
discount and excluding $74,000 and $194,000 which had been billed at September
30, 1997 and 1996, respectively) related to multi-year software license and
maintenance agreements. Since these agreements contain annual installment
billing provisions, the unbilled receivable balance for some contracts is as
much as four years' future annual billings. Of the September 30, 1997 unbilled
amounts, $1,294,000 (compared with $1,099,000 at September 30, 1996) will be
billed in the succeeding twelve months, and the remainder will be billed
thereafter at such future dates as are specified in the respective contracts.
The portion of such future billings related to maintenance and support services
not yet performed is offset by corresponding amounts in deferred revenue. The
current portions of long-term receivables are reduced by unamortized present
value discount of $247,000 and $116,000 at September 30, 1997 and 1996,
respectively. Noncurrent long-term receivables are presented net of unamortized
present value discount in the amount of $259,000 and $122,000 at September 30,
1997 and 1996, respectively. The present value discount is imputed based upon
the New York prime rate on the effective date of each agreement. Interest income
related to these agreements was $177,000, $160,000, and $171,000 in fiscal years
1997, 1996 and 1995, respectively.
A significant portion of the Company's business activity is with the major
multinational oil companies. At September 30, 1997, 97% ($8,198,000) of the
Company's receivables (before present value discounts) were from petroleum
clients ($6,341,000 or 96% at September 30, 1996). The receivable portfolio is
well diversified geographically which tends to mitigate the potential impact of
fluctuations in petroleum activities which may otherwise result if receivables
were confined to a particular geographic area. Software license agreements are
payable over several years (generally five-year agreements) and are expected to
be paid from operating cash flows of the customers. The Company does not require
collateral or other security to support these contractual receivables. The
carrying value of long-term receivables, net of unearned discount, approximates
market value.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of:
<TABLE>
<CAPTION>
SEPTEMBER 30,
USEFUL LIFE ------------------------------
IN YEARS 1997 1996
---------- ------------------------------
<S> <C> <C> <C>
Leasehold improvements............... Various $ 679,000 $ 702,000
Computer equipment and software...... 4-5 6,202,000 5,955,000
Office furnishings and equipment..... 3-10 1,586,000 1,637,000
---------- ----------
8,467,000 8,294,000
Accumulated depreciation............. (7,302,000) (6,969,000)
---------- ----------
Net property and equipment..... $1,165,000 $1,325,000
========== ==========
</TABLE>
The provision for depreciation was $419,000, $450,000, and $405,000 for the
years ended September 30, 1997, 1996 and 1995, respectively. At September 30,
1997, fully depreciated assets with an aggregate original cost of approximately
$5,262,000 remain in use.
- --------------------------------------------------------------------------------
15
<PAGE> 51
MPSI Systems Inc. and Subsidiaries
- --------------------------------------------------------------------------------
4. SOFTWARE PRODUCTS:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1997 1996
----------------------------
<S> <C> <C>
Capitalized software development costs $ 4,098,000 $ 3,931,000
Accumulated amortization ............. (3,705,000) (3,088,000)
----------- -----------
Net software products ...... $ 393,000 $ 843,000
=========== ===========
</TABLE>
The provision for amortization, reflected in Software Licensing cost of sales,
was $617,000, $592,000, and $294,000 for the years ended September 30, 1997,
1996 and 1995, respectively. Based upon current sales forecasts, capitalized
software costs are projected to be recoverable. However, these sales forecasts
are subject to certain vulnerabilities which could potentially affect the
recoverability of those costs.
5. NOTE PAYABLE TO BANK:
In May 1997, the Company obtained a bank line of credit through April 1998 in
the aggregate amount of $500,000 which is secured by billed accounts receivable
applicable to North American customers; $147,000 was outstanding at September
30, 1997. Outstanding balances bear interest at 9.5%. The Agreement requires
that the Company shall maintain Tangible Net Worth of not less than $4.5
million, shall maintain reasonable and customary insurance, and shall not,
without authorization of lender, undertake to lend money, invest in other
entities or guarantee debt of others during the term of the Agreement.
6. INCOME TAXES:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
Income (loss) from operations before income taxes:
Domestic ....................................... $ 1,682,000 $ 27,000 $ 3,515,000
Foreign ........................................ 50,000 (279,000) (1,032,000)
----------- ----------- -----------
Total .................................. $ 1,732,000 $ (252,000) $ 2,483,000
=========== =========== ===========
Income taxes (benefits):
Current:
Federal ..................................... $ 27,000 $ 15,000 $ 80,000
State ....................................... 81,000 (56,000) 203,000
Foreign ..................................... 209,000 412,000 171,000
----------- ----------- -----------
Current income taxes ................... 317,000 371,000 454,000
Deferred:
Federal ..................................... 285,000 -- --
State ....................................... 24,000 -- --
Foreign ..................................... 3,000 -- --
----------- ----------- -----------
Deferred income taxes ....................... 312,000 -- --
----------- ----------- -----------
Provision for total income taxes ....... $ 629,000 $ 371,000 $ 454,000
=========== =========== ===========
</TABLE>
A reconciliation of the provision for income taxes at the applicable Federal
statutory income tax rate to the actual provision for income taxes follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1997 1996 1995
---------------------------------------
<S> <C> <C> <C>
Expense (benefit) at statutory rate $ 607,000 $ (88,000) $ 869,000
Alternative minimum tax (credit) .. (188,000) 15,000 80,000
Foreign income and taxes, net ..... 9,000 295,000 (201,000)
Loss carryforwards generated ...... 68,000 156,000 418,000
Federal loss carryforwards utilized -- -- (813,000)
State income taxes ................ 71,000 (36,000) 132,000
Other, net ........................ 62,000 29,000 (31,000)
--------- --------- ---------
Income taxes ................... $ 629,000 $ 371,000 $ 454,000
========= ========= =========
</TABLE>
Income taxes of $35,000 were receivable at September 30, 1997 ($210,000
refundable at September 30, 1996). The Company does not accrue income taxes on
undistributed earnings of certain foreign subsidiaries which are permanently
invested. At September 30, 1997 and 1996, the amount of undistributed earnings
for which taxes have not been accrued was insignificant.
- --------------------------------------------------------------------------------
16
<PAGE> 52
MPSI Systems Inc. and Subsidiaries
- --------------------------------------------------------------------------------
In March 1996, the Internal Revenue Service initiated an examination of tax
years 1993 through 1995. The Company has not yet received a final report of the
results, and believes that the resolution of any items raised will not have a
material effect on its financial position.
At September 30, 1997, the Company has various U.S. tax credits of $652,000
which expire between 1998 and 2002. At September 30, 1997, certain foreign
subsidiaries have net operating loss carryforwards of approximately $8,203,000
which may be utilized in future years.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1997 1996
-------------------------
<S> <C> <C>
Deferred tax liabilities:
Software revenue .......................... $ 873,000 $ 699,000
Depreciation .............................. 79,000 58,000
Other ..................................... 130,000 98,000
---------- ----------
Total deferred tax liabilities .... 1,082,000 855,000
---------- ----------
Deferred tax assets:
Accrued liabilities ....................... 295,000 287,000
U.S. and foreign loss carryforwards ....... 2,451,000 2,413,000
U.S. tax credit carryforwards ............. 652,000 633,000
---------- ----------
Total deferred tax assets ......... 3,398,000 3,333,000
Valuation allowance for deferred tax assets 2,758,000 2,576,000
---------- ----------
Net deferred tax assets ................ 640,000 757,000
---------- ----------
Net deferred tax liabilities ...... $ 442,000 $ 98,000
========== ==========
</TABLE>
Utilization of the Company's tax credit and loss carryforwards is dependent on
realizing taxable income in the appropriate tax jurisdiction. Deferred tax
assets for these carryforwards have been reduced by the valuation allowance to
an amount that is more likely than not to be realized.
7. BUSINESS SEGMENT AND REVENUE FROM MAJOR CUSTOMERS:
Approximately 97% of total revenues from continuing operations were derived
from the petroleum industry during the year ended September 30, 1997 (97% and
96% during 1996 and 1995, respectively). Individual customers accounted for MPSI
revenues which were in excess of 10% of consolidated revenues in 1997, 1996 or
1995 as follows:
<TABLE>
<CAPTION>
1997 1996 1995
AMOUNT % AMOUNT % AMOUNT %
------------------------ ------------------------ ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Exxon/Esso/Imperial.............. $5.6 24 $ 6.3 29 $ 4.4 19
Texaco/Caltex.................... $2.6 11 $ 2.7 12 $ 1.3 6
Shell............................ $1.6 7 $ 1.5 7 $ 2.8 12
Amoco............................ $2.0 8 $ 2.1 10 $ 2.5 11
</TABLE>
Although the Company would be adversely affected if several petroleum industry
customers curtailed their long-term usage of MPSI products or in the event of a
significant long-term economic downturn in the petroleum industry generally, the
Company's petroleum clients are well diversified geographically which reduces
the long-term risk attendant with its industry dependence, and MPSI has
historically experienced high renewal rates for its software license and
maintenance agreements.
- --------------------------------------------------------------------------------
17
<PAGE> 53
MPSI Systems Inc. and Subsidiaries
- --------------------------------------------------------------------------------
The Company operates in one business segment from its principal production
facility in the United States supported by satellite production facilities in
England and Brazil. Foreign sales offices or representatives are currently
maintained in Australia, Brazil, Canada, Japan, Italy, South Africa, South
Korea, Shanghai, the United Kingdom and Singapore. The following table sets
forth the revenues and other information related to continuing services provided
by each of the Company's three production centers.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1997 1996 1995
------------------------------------------------
<S> <C> <C> <C>
Revenues:
Unaffiliated customers:
United States ............................ $ 21,845,000 $ 20,248,000 $ 21,839,000
Europe ................................... 908,000 780,000 1,369,000
Brazil ................................... 685,000 717,000 229,000
Between geographic areas(1):
United States ............................ -- 237,000 300,000
Europe ................................... 63,000 673,000 284,000
Asia/Pacific Rim ......................... 2,097,000 2,228,000 2,222,000
Brazil ................................... 383,000 387,000 --
Eliminations ............................... (2,543,000) (3,525,000) (2,806,000)
------------ ------------ ------------
Total revenues ................... $ 23,438,000 $ 21,745,000 $ 23,437,000
============ ============ ============
Operating income (loss):
United States ............................ $ 2,383,000 $ 795,000 $ 2,868,000
Europe ................................... (426,000) (891,000) (649,000)
Brazil ................................... (317,000) (488,000) (572,000)
------------ ------------ ------------
Total operating income (loss) .... $ 1,640,000 $ (584,000) $ 1,647,000
============ ============ ============
Identifiable assets:
United States ............................ $ 10,714,000 $ 9,276,000 $ 11,581,000
Europe ................................... 627,000 436,000 891,000
Brazil ................................... 297,000 607,000 452,000
------------ ------------ ------------
Total assets ..................... $ 11,638,000 $ 10,319,000 $ 12,924,000
============ ============ ============
Export sales from U.S.:
Canada ................................... $ 462,000 $ 952,000 $ 749,000
Central America .......................... 408,000 358,000 154,000
South America ............................ 572,000 1,055,000 1,554,000
Europe ................................... 788,000 521,000 903,000
Asia/Pacific Rim ......................... 10,815,000 8,873,000 10,066,000
Africa ................................... 188,000 289,000 143,000
------------ ------------ ------------
Total export sales ............... $ 13,233,000 $ 12,048,000 $ 13,569,000
============ ============ ============
Consolidated revenues from foreign customers
by geographic area are as follows:
Canada and Central America ............... $ 870,000 $ 1,310,000 $ 903,000
Singapore, Australia and Japan ........... 10,815,000 8,873,000 10,066,000
Europe and United Kingdom ................ 1,384,000 1,172,000 2,271,000
Africa ................................... 501,000 418,000 143,000
South America ............................ 1,256,000 1,772,000 1,783,000
------------ ------------ ------------
Consolidated foreign revenues .... $ 14,826,000 $ 13,545,000 $ 15,166,000
============ ============ ============
Depreciation and amortization of property
and equipment:
United States ............................ $ 379,000 $ 402,000 $ 366,000
Europe ................................... 35,000 36,000 24,000
Brazil ................................... 5,000 12,000 15,000
Capital expenditures:
United States ............................ $ 262,000 $ 563,000 $ 565,000
Europe ................................... -- 20,000 64,000
Brazil ................................... 5,000 18,000 5,000
</TABLE>
- ------------
(1) Sales between geographic areas are made at prices that generally approximate
the prices of similar charges to unaffiliated customers.
- --------------------------------------------------------------------------------
18
<PAGE> 54
MPSI Systems Inc. and Subsidiaries
- --------------------------------------------------------------------------------
8. EMPLOYEE BENEFITS:
Under an employee stock ownership and investment plan, all qualifying U.S.
employees may contribute up to 16% of their annual earnings. Subject to certain
limitations, the Company will contribute in cash or Common Stock an amount equal
to but not less than 50% or more than 100% of a participant's salary deferral
contributions that are not in excess of 6% of the participant's earnings for the
year. Contributions may be invested in the Company's Common Stock or in nine
other equity or fixed-income funds. The Company recorded expense related to its
matching contribution of $153,000, $143,000 and $132,000 in fiscal years 1997,
1996 and 1995, respectively. At September 30, 1997 and 1996, the Company had
accrued $122,000 and $114,000 of liabilities for matching contributions to the
401(k) Plan (which in each case represented the estimated Company match
attributable to nine months of participant contributions since the Plan year
ends December 31). During fiscal year 1997, the Company liquidated its matching
contribution liability for the Plan year ended December 31, 1996 by contributing
$138,000 in cash. During fiscal year 1996, the Company contributed previously
unissued Common Stock at a value of $133,000 applicable to the Plan year ended
December 31, 1995. The matching contribution for Plan year 1997 will be paid
during fiscal year 1998.
The Company has reserved 750,000 shares of Common Stock for issuance of stock
options under a 1988 stock option plan covering all employees which expires in
1998. Options granted under the plan vest one-third annually over a three-year
period. An additional 62,000 shares are potentially issuable if outstanding
options under a 1984 stock option plan are exercised. The remaining options
under the 1984 plan expire from September 3, 1998 to November 28, 1999 and are
fully vested. No further options may be granted under that plan.
The Company has elected to follow Accounting Principals Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB 25") and related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided under FASB Statement 123, "Accounting
for Stock-Based Compensation," requires the use of option valuation models that
were not developed for use in valuing stock options. Under APB 25, because the
exercise price of the Company's employee stock options equal the market price of
the underlying stock on the date of the grant, no compensation expense is
recognized.
Pro forma information regarding net income and earnings per share is required
by FASB 123 and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of the grant using a
Black-Scholes option pricing model. The fair value of the options was estimated
at the date of the grants with the following average assumptions: expected life
of the stock options 4 years; volatility of the expected market price of the
Company's common stock price of 114%; risk-free interest rate of 6.2% and a
no-dividend yield.
The Black-Scholes option valuation model was developed for use in estimating
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------- ----------------------------
PRO FORMA REPORTED PRO FORMA REPORTED
--------------------------- ----------------------------
<S> <C> <C> <C> <C>
Net income (loss) ....... $ 941,000 $ 1,103,000 $ (771,000) $ (623,000)
Earnings (loss) per share $ .33 $ .39 $ (.28) $ (.23)
</TABLE>
- --------------------------------------------------------------------------------
19
<PAGE> 55
MPSI Systems Inc. and Subsidiaries
- --------------------------------------------------------------------------------
A summary of the Company's stock option activity and related information for
the years ended September 30 follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE EXERCISABLE
------- -------------- -----------
<S> <C> <C> <C>
At September 30, 1994......................... 112,100 $ 2.79 32,900
Granted................................... 68,900 3.00
Exercised................................. (4,333) 2.25
Forfeited................................. (8,050) 4.04
At September 30, 1995......................... 168,617 2.83 62,912
Granted................................... 139,050 5.36
Exercised................................. (19,500) 2.72
Forfeited................................. (7,984) 3.06
Expired................................... (900) 17.50
At September 30, 1996......................... 279,283 4.04 98,288
Granted................................... 3,000 3.25
Exercised................................. (38,782) 2.53
Forfeited................................. (28,866) 4.53
Expired................................... (1,100) 8.75
At September 30, 1997......................... 213,535 4.21 117,810
</TABLE>
The weighted average grant date fair value for options granted during the
fiscal years ended September 30, 1997 and 1996 were $2.52 and $4.16,
respectively. The exercise price for options outstanding as of September 30,
1997 ranged from $2.25 to $5.50. The weighted average remaining contractual life
of those options is 2.5 years.
The Company accrued $308,000 at September 30, 1997 ($92,000 accrued at
September 30, 1996); in connection with incentive award programs for certain
employees. The awards were accrued based upon the Company's achievement of
certain revenue and operating income objectives and the respective contributions
of certain employees to the achievement of those objectives. The various
incentive plans specify cash settlement of the accrued liability prior to
December 31, 1997.
At September 30, 1995, the Company approved discretionary employee performance
awards in the form of deferred compensation. Such amount was earned based on the
employee's performance during the year ended September 30, 1994. Under related
deferred compensation agreements with certain key employees as approved by the
Compensation Committee, the Company agreed to pay future cash awards to the
specified employees upon the achievement, for thirty consecutive business days,
of a $6.00 per share market price for the Company's Common Stock and upon
exercise of the underlying options. Such payments could be made at any point
after November 29, 1995, assuming stock price and other vesting requirements
have been met. Based upon the stock price at September 19, 1997, which triggered
the Company's obligation under the plan, approximately $102,000 of compensation
expense was accrued and reflected in G&A expense.
At September 30, 1997 and 1996, the Company had accrued $607,000 related to
employee vacations earned but not yet taken.
9. COMMITMENTS AND CONTINGENCIES:
The Company leases other office space and equipment under various agreements,
substantially all of which have been accounted for as operating leases. Rental
expense, including the leases described above, of $929,000 was recorded during
the year ended September 30, 1997 ($1,040,000 and $1,095,000 in 1996 and 1995,
respectively). Aggregate future rentals under these commitments are as follows:
1998 -- $442,000, 1999 -- $85,000, 2000 -- $28,000 and 2001 -- $0.
10. SUPPLEMENTAL CASH FLOW INFORMATION:
The following information concerning noncash transactions is provided to
supplement the Consolidated Statements of Cash Flow.
In the normal course of business, certain clients exercised contract
cancellation options available in their software license agreements in response
to economic downturns in their operating regions. As the Company, in accordance
with its policy, had not recognized any revenues on such contingent portions of
those agreements, the cancellations resulted in noncash reductions of long-term
receivables and deferred revenues in the amount of approximately $435,000 during
fiscal year 1996.
The Company satisfied its 401(k) matching contribution for the Plan year ended
December 31, 1995 by subsequently issuing its Common Stock. This transaction
resulted in a noncash reduction of accrued liabilities and a corresponding
increase in Common Stock and additional paid-in capital of approximately
$133,000 in fiscal year 1996.
The Company paid interest of $154,000 during fiscal year 1997, $17,000 during
fiscal year 1996, and $12,000 during fiscal year 1995. Income taxes of $132,000,
$809,000, and $220,000 were paid during fiscal years 1997, 1996 and 1995,
respectively.
- --------------------------------------------------------------------------------
20
<PAGE> 56
[INSIDE BACK COVER]
BOARD OF DIRECTORS
Ronald G. Harper
Chairman of the Board
John C. Bumgarner, Jr.
Senior Vice President
The Williams Companies
Tulsa, Oklahoma
Dr. David L. Huff
Faculty Member
The University of Texas
Austin, Texas
Joseph C. McNay
Chairman of the Board
Essex Investment
Management Company
Boston, Massachusetts
John J. McQueen
Attorney
Tulsa, Oklahoma
OFFICERS
Ronald G. Harper
President and
Chief Executive Officer
Bryan D. Porto
Sr. Vice President
Jyo Umezawa
Sr. Vice President
James C. Auten
Vice President and
Chief Financial Officer
Linda K. Wells
Corporate Secretary
CORPORATE DATA
Corporate Headquarters:
MPSI Systems Inc.
8282 South Memorial Drive
Tulsa, Oklahoma 74133
TEL: 918/250-9611
FAX: 918/254-8764
http://www.mpsisys.com
Auditors:
Ernst & Young LLP
Tulsa, Oklahoma
Registrar and Transfer Agent:
ChaseMellon Shareholder Services
Ridgefield Park, New Jersey
http://www.cmssonline.com
Legal Counsel:
Hall, Estill, Hardwick, Gable,
Golden & Nelson, P.C.
Tulsa, Oklahoma
Annual Reports:
Copies of the Form 10-K and Annual Report to Stockholders filed with the
Securities and Exchange Commission are available without charge upon
written request to:
Linda K. Wells
Corporate Secretary
MPSI Systems Inc.
8282 South Memorial Drive
Tulsa, Oklahoma 74133
Stock Listing:
The Nasdaq SmallCap MarketSM
Symbol - MPSI
<PAGE> 57
MPSI, PVO, The Intelligent Approach to Retail Marketing, MPSI's CAPS,
MPSI's OPS, Location Volume, Facility/Location
Volume, Price Volume Optimizer, Market Monitor
and PriceTracker are trademarks of MPSI Systems Inc.
<PAGE> 58
[BACK COVER]
MPSI LOGO(R)
The Intelligent Approach to Retail Marketing(TM)
