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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________ to ____________
Commission file number 0-11527
MPSI SYSTEMS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 73-1064024
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4343 SOUTH 118TH EAST AVENUE, TULSA, OKLAHOMA 74146
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (918) 877-6774
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF ACT: NONE
SECURITIES REGISTERED PURSUANT TO 12(g) OF THE ACT:
COMMON STOCK, $.05 PAR VALUE
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements or
any amendment to this Form 10-K. [ X ]
The aggregate market value of common stock held by non-affiliates of the
registrant on December 7, 1998 was approximately $1,192,000.
The number of shares outstanding of the registrant's common stock was
2,849,454 shares of $0.05 Par Value Common Stock as of December 7, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Shareholders presently anticipated to be held in February 1999 are incorporated
by reference into Part III.
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MPSI SYSTEMS INC.
FORM 10-K
CONTENTS
<TABLE>
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PAGE
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PART I
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<S> <C> <C>
ITEM 1. Business.................................................................... 3
ITEM 2. Properties.................................................................. 10
ITEM 3. Legal proceedings........................................................... 11
ITEM 4. Submission of matters to a vote of security holders......................... 11
PART II
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ITEM 5. Market for the registrant's common equity and related
stockholder matters......................................................... 11
ITEM 6. Selected financial data..................................................... 12
ITEM 7. Management's discussion and analysis of financial
condition and results of operation.......................................... 12
ITEM 8. Financial statements and supplementary data................................. 19
ITEM 9. Changes in and disagreements with accountants on accounting and
financial disclosure........................................................ 34
PART III
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ITEM 10. Directors and executive officers of the registrant.......................... 34
ITEM 11. Executive compensation...................................................... 34
ITEM 12. Security ownership of certain beneficial owners and management.............. 34
ITEM 13. Certain relationships and related transactions.............................. 34
PART IV
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ITEM 14. Exhibits, financial statement schedules, and
reports on Form 8-K......................................................... 35
Signatures ............................................................................ 41
Index to Exhibits ............................................................................ 42
</TABLE>
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PART I
All statements other than statements of historical fact included in this Form
10-K, including without limitation statements under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business"
regarding the Company's financial position, business strategy and plans and
objectives of management of the Company for future operations, are
forward-looking statements. When used in this Form 10-K, words such as
"anticipate," "believe," "estimate," "expect" "intend," and similar expressions,
as they relate to the Company or its management, identify forward-looking
statements. Such forward-looking statements are based on the beliefs of the
Company's management as well as assumptions made by and information currently
available to the Company's management. Actual results could differ materially
from those contemplated by the forward-looking statements as a result of certain
factors, including but not limited to technological change, product development
risks, competitive factors and pricing pressures and general economic
conditions. Such statements reflect the current views of the Company with
respect to future events and are subject to these and other risks,
uncertainties, and assumptions relating to the operations, results of
operations, growth strategy, and liquidity of the Company.
ITEM 1. BUSINESS
GENERAL
The operations of MPSI are confined to one business segment wherein it
provides decision support products and services in the form of (1) proprietary
computer software, (2) geographically specific information databases (market
studies), and (3) consulting services. These products and services are designed
to meet retail business planning requirements of its clients.
From its inception in 1970 until it became a publicly-held company in 1983,
the Company's decision support services were directed primarily at planning
requirements for petroleum companies and other multi-outlet retailers who were
concerned with retail site selection and retail network optimization. MPSI
products provided computerized models of specified retail markets which enabled
its clients to predict sales volumes at proposed new retail sites, while at the
same time indicating the effects of each new outlet on sales volumes at both the
client's and competitors' existing outlets. During this period, the Company's
operations were characterized by limited geographic diversification, centralized
management, centralized market study production and significant dependence on
the petroleum industry.
With the 1983 capital infusion from its initial public offering, the
operating plan of the Company expanded. In order to diversify and maintain
growth, management initiated programs intended to expand the Company's
geographic presence and its client mix. Accordingly, during the period from 1983
to 1987, MPSI expanded its European operations and opened new offices in
Singapore, Japan and Brazil. This expansion led to decentralization of
management and the market study production operations. In the late 1980's, MPSI
also attempted to diversify its product set and target industries through
acquisitions. Such acquisitions utilized all remaining funds from the initial
public offering and were supplemented by corporate debt. Ultimately, the burden
of multi-faceted product diversification was too great; and, when compounded by
the negative effect of the Persian Gulf War on the core petroleum business, the
Company was forced to substantially scale back and reorganize in the early
1990's. The reorganization resulted in (1) sale of the two acquired companies,
(2) downsizing of foreign database production facilities in Singapore and
Bristol, England, (3) substantial personnel reductions (approximately 50%), and
(4) an equity infusion, the proceeds of which liquidated the remaining
acquisition debt.
Among other benefits, the recapitalization allowed the Company to redirect
funding from debt service to product development. Beginning in 1994 and in
response to client input, MPSI committed substantial funding and development
efforts toward release of a new generation of MPSI decision support products.
Early versions of these products were completed for commercial release in fiscal
year 1995 (see discussion of CAPS(TM), OPS(R) and PVO(R) software under "Product
Development"). Although MPSI successfully launched initial versions of new
products in 1994 and 1995, such products principally were directed at the North
American market. New versions of CAPS for European and South American clients
were scheduled for release in the first quarter of fiscal year 1996 but were
ultimately delayed approximately eight months until June 1996. The delay in
release was partially attributable to MPSI's desire to accommodate client
requests for additional functionality and multi-product modeling capabilities.
However, a portion of the delay was attributable to
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MPSI's software development methodology and organizational structure. The
delayed release of the two new CAPS versions significantly hampered MPSI's sales
activities in the European and South American regions in 1996. In order to
address the organizational implications indicated above, MPSI undertook a
revision of its software development group and initiated an evaluation of its
database production methodology. These evaluations ultimately highlighted not
only short-term opportunities to streamline processes and reduce costs, but also
indicated competitive threats to MPSI's long-term growth.
In 1997, MPSI undertook a complete strategic re-evaluation of its product
direction, competitive position, pricing structure, and cost structure. This
strategic planning, headed by an expert external consultant, encompassed most of
fiscal 1997 and identified several key issues and corrective initiatives which
management began to implement in fiscal 1998. Among other things, the Company
undertook to (1) completely re-engineer its core "retail planning" software
suite in order to reduce development/maintenance costs and in order to open new
market segments for its software applications, (2) launch a substantially
expanded effort to leverage its considerable data warehouse of business location
and operational information through new sales channels, and (3) expand its
consulting practice to encompass broader services to its petroleum target
market. These initiatives were designed to make MPSI the "one-stop" shop for
clients whose retail planning needs span the gamut from raw data through
sophisticated applications software, to the ultimate "Solution" (rather than the
tools and data to develop a solution in house). Although implementation was
hampered in 1998 by a significant economic downturn in the Pacific Rim,
management expects to complete this strategic shift by the end of fiscal 2000.
PRODUCTS AND SERVICES
The Company markets its services in the United States, Europe, Africa,
Canada, South America, Central America, the Caribbean Basin and the Pacific Rim.
See Note 7 to the Consolidated Financial Statements for financial information
addressing foreign and domestic operations and export sales. Generally, the
Company's marketing activities center on personal presentations to existing and
prospective clients, client referrals, proposal submissions, selective mailings,
limited print advertising, seminars and trade show participation. Most of the
Company's clients are identified by the Company's direct sales force.
The Company's operating cycle and cash flow are driven principally by the
timing of client orders for market studies. Such studies are high dollar
projects and, consequently, the timing of market study production and the
resulting revenues are subject to a degree of fluctuation. Quarterly/annual
revenues can also be impacted by the timing of software license agreements.
Accordingly, management believes that quarterly results may not be indicative of
results for full fiscal years and that the comparability of annual revenues and
profitability should also be evaluated giving effect to the potential impact of
contract timing.
Economic conditions throughout the world have varying degrees of impact on
the Company's products. Volatile oil prices, unsettled economic conditions in
the Pacific Rim and consolidations of major multi-national oil companies
affected the Company's volume of new business in fiscal 1998. The Company is
unable to predict the extent to which these conditions will continue to affect
its business during 1999.
More than 96% of consolidated revenues were derived from the petroleum
industry during the fiscal years ended September 30, 1998, 1997, and 1996,
respectively. In each of the fiscal years 1998, 1997, and 1996, MPSI derived
revenues representing 10% or more of consolidated revenues from certain clients,
together with their affiliates, as set forth below (in millions of dollars):
<TABLE>
<CAPTION>
1998 1997 1996
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<S> <C> <C> <C> <C> <C> <C>
AMOUNT % AMOUNT % AMOUNT %
Exxon/Esso/Imperial $ 3.5 19 $ 5.6 24 $ 6.3 29
Texaco/Caltex...... $ .4 2 $ 2.6 11 $ 2.7 12
Amoco.............. $ 2.1 11 $ 2.0 8 $ 2.1 10
</TABLE>
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The Company would be adversely affected if several petroleum industry
clients curtailed their long-term usage of MPSI products. The following table
shows the percentage of total revenue from operations that the Company derived
from various sources during each of the last three fiscal years.
REVENUE DERIVED FROM KEY PRODUCTS AND SERVICES (%)
<TABLE>
<CAPTION>
1998 1997 1996
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<S> <C> <C> <C>
Database construction (market studies) 62 63 71
Software licenses.................... 3 8 2
Software maintenance agreements...... 4 4 6
Consulting, educational, and other 31 25 21
services.............................
</TABLE>
Described below are the computer applications software, information
databases and other services currently provided by the Company.
Retail Planning
Until 1995, the Company's primary retail planning applications software was
the mainframe, computer-based Retail Planning System(R) ("RPS"). See "Product
Development" for discussion of major enhancements of RPS commercially released
beginning in fiscal year 1995. The enhanced systems support client needs in
three areas:
Short-term pricing issues are addressed using PVO(R) and Price Zones(TM)
which assist the client with dAILy pricing decisions at retail outlets so as
to optimize profit while maintaining target sales volumes. The system also
aids with the establishment of supply/demand-balanced trade zones to reduce
rapid geographic deterioration in pricing.
Medium-term operational issues are addressed using OPS(R) which aids in
systematic forecasting of retaiL sales volume changes resulting from
operational changes (such as hours of operation and merchandising
practices), counseling dealers as to pricing, evaluating merchandising and
operational practices and providing territory-wide planning for anticipated
retail sales volumes, pricing and operations.
Long-term capital investment issues are addressed using CAPS in the
areas of (1) new retail site location where the system provides an objective
measure for comparing available sites based on competition and convenience
to demand, (2) identification of outlets to divest where the system isolates
and evaluates client locations that have poor performance, (3)
identification of outlets to be rebuilt by identifying sales potential to be
realized by remodeling or reformatting specified outlets and (4) assessing
multiple profit centers by forecasting the potential benefits of retailing
complementary products and services.
Software licensing agreements for the RPS, CAPS and OPS software (including
ancillary products) generally have multi-year (primarily five-year agreements)
noncancellable terms. These agreements offer the client an installment payment
option requiring a payment upon execution and annual payments on the succeeding
anniversary dates of the agreement. The software can be used by the client for a
particular industry (such as petroleum) and a particular geographic market (such
as Japan). Also, the agreement contains broad restrictions on the use and
disclosure of the software by the client. See "Trademarks, Copyrights, and
Licenses" below. Modifying the software typically involves changes in the
weighting of various supply and demand factors or the addition of a new factor
as the result of changes in the marketplace.
MPSI provides full maintenance (postcontract customer support) services for
the RPS, CAPS and OPS and, where necessary, training of and consultation with
client staff. Software licenses, maintenance and optional consulting services
are set out separately in each multi-year license agreement. The agreement
states that any company-sponsored modification to the software during the
postcontract customer support period will be provided to the client at no
additional cost. Prices for these software products in the United States are
based upon formulas which address geographical boundaries, population, number of
automobiles and other factors. Prices for such software applicable to foreign
countries are based on a percentage of the United States pricing.
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PVO and/or Price Zones(TM) software is generally licensed on a perpetual
basis. The contracts provide thAT subsequent upgrades will be provided as MPSI
determines them to be necessary for a given geographic region and that the
client will receive such upgrades upon payment for the enhanced modules, albeit
at a discount for licensed users. The license agreements also provide for
post-installation maintenance and support services, which terms are generally
similar to those related to RPS and CAPS.
Information Databases
The Company also constructs the market study databases that are the primary
informational sources used by the retail planning software. The database
construction process involves acquisition of geographic digitized mapping,
traffic counts, and demographic demand data from governmental agencies or
independent suppliers, on-site survey of retail outlet supply information by
MPSI personnel or contract surveyors, collation of all demographic demand and
supply information into specified data layout, data editing and quality control
checking, and preparation of the client-specific deliverables. Separate
contracts govern each database order by a client and generally require advance
payments ranging from 35 percent to 70 percent of the total sales value. The
amount of the required prepayment is determined principally by the client's
delivery requirements. There is no retainage provision relative to these
production-type contracts. These databases are arranged and presented in six
types of studies.
Constantly Current Market Studies ("CCMS"). These multi-year,
noncancelable studies are used by clients who possess a large number of
retail sites and who wish to analyze market conditions and evaluate site
locations in metropolitan areas on a regular basis. The supply and demand
data used in this type of study is collected by the Company. This type of
study provides clients with a series of consecutive database updates over a
specific time period, generally five years. Clients agree to pay for the
CCMS in periodic installments. It is tailored to individual client needs,
and pricing is determined in part by the number of subscribers to a
particular market during the commitment period and offers clients discounts
for their multi-year commitments.
Quality Partnership Studies ("QP"). These multi-year, noncancelable
study programs, like the CCMS studies, offer clients the opportunity to
regularly update market study information on an annual basis. However, in
the QP program, clients may participate in the updating process by providing
regular information about changes (new outlets, new brands, rebuilt outlets,
etc.) in the market. MPSI gathers information relative to these changes and
updates the database which otherwise remains unchanged. The lower update
costs are passed on to the client participants in the form of lower annual
update prices. Although the updates are not as extensive as full CCMS
updates, clients are able to track the effects of major market changes using
QP's.
Scheduled Market Area Studies ("SMAS"). These studies are similar to the
CCMS except that the clients do not commit to a series of consecutive
database updates over a specific time period. These studies are usually
scheduled by one client and offered to additional clients on a subscription
basis. While each study uses a common demand-side database, because of
customized supply-side information, the final database provided to each
client is unique.
Market Area Studies ("MAS"). These studies are similar to the SMAS
except they are sold to a single client and generally carry a higher price
than a multi-client SMAS of the same market. Portions of the demographic
data can generally be used as a major part of other studies in the same
market for clients in the same or comparable retail industries.
Mini-Market Area Studies. These studies are similar to the MAS except
the area studied does not contain more than 75 outlets. Likewise, the
accompanying study deliverables are scaled down.
Single Site Studies. These studies are used to evaluate market
conditions or the effects of various operating decisions at a specific
location within a specified geographic area.
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Other Products and Services
Licensed software clients may utilize the retail planning software and
information databases on their own computer facilities, may dial in to MPSI's
computers and use the software interactively (subject to certain usage
restrictions), or may elect to have MPSI run tactics (that is, pose "what if"
questions) on MPSI's computers. In cases where software is installed on client
computers, the Company charges for installation of the software and training the
client's personnel. A client may then run unlimited tactics on its own
equipment. If tactics are run on the Company's computers, the client pays a fee
per tactic. Clients who have entered into long-term user agreements are entitled
to discounts on databases and on tactics or support services.
MPSI introduced two new "data" products during fiscal year 1995 which were
designed to leverage market information already in MPSI's inventory or allow
clients to contract for customized data collection by MPSI. The Market Monitor
product allows MPSI clients to obtain supply trend information in a given
geographic market or to establish specialized market boundaries or specialized
data requirements for an additional fee. MPSI's PriceTracker(TM) product allows
clients to obtain high quality, timely retail pricing information on a recurriNG
basis in order to track pricing trends in the marketplace. Such products were
introduced partially in response to competitors who attempt to infiltrate MPSI's
client base by initially providing low-cost market data. These products are
currently utilized by clients principally in the United States and, while not
intended to be a material portion of MPSI's business, have been well received by
clients needing lower cost data.
Other products and services provided by the Company include litigation
support; determination of key competitors; regular tracking of petroleum prices
using geographic information systems for user analyses; retail consulting;
consumer research; and customized retail outlet surveys. Certain services are
complementary to retail planning services. For example, the databases provided
as part of the retail planning services may be linked with other data supplied
by the client. This data could then be processed interactively through
geographic information system software which manages and displays information in
a variety of graphic and map formats.
COMPETITION
Since its inception in 1970 the Company has provided comprehensive
applications software and database systems, primarily to the retail petroleum
industry, and currently has more than 139 multinational clients in 76 countries.
There has recently been a worldwide trend toward competitive product development
of this type due to the availability of computer resources and acceptance of
retail modeling theory. The Company believes its competition lies in two areas:
first, in the market research staffs of petroleum companies or potential
customers who develop and manage their own software and data; and second, in
consulting and research companies which compete for portions of the Company's
business.
The Company has found that the market research staffs of some large
petroleum companies continue to concentrate on in-house data gathering and site
selection methods, while other companies with more limited resources must
consider low cost alternatives for obtaining market information. It has been
MPSI's experience that clients often encounter substantial cost barriers
relative to internally developed systems. Without the economies of scale, data
gathering expertise and modeling sophistication that MPSI has obtained during
its 28-year existence, clients often find that systems developed in house are
expensive to develop, expensive to maintain given changing market conditions,
require market information with an inherent degree of accuracy which is
difficult to obtain, and that the results of such systems do not justify the
associated costs and effort. Additionally, as clients or potential clients
struggle to manage operating costs and consider outsourcing certain activities
where economically feasible, the capabilities of companies like MPSI offer an
attractive alternative to internal systems. Because of the trend in large
companies to outsource certain functions and because of the growth in business
consulting generally, independent consulting and research companies have
challenged certain products the Company offers such as demographic data
collection, geographic databases, retail outlet surveys, retail consulting,
pricing applications, and single site studies. Occasionally, such consultants
are engaged to develop a proprietary internal model for their clients. Often
competitive services of this type are offered by independent consultants as part
of a larger consulting project wherein pricing for the retail planning segment
can be very competitive with MPSI's pricing. Certain of such
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companies are offering computerized tools and services which, the Company
believes are not as sophisticated as MPSI products, but may be attractive to
customers willing to sacrifice accuracy for a lower cost solution to their
business needs.
The Company believes it competes with these various market alternatives by
providing high-quality, sophisticated software and reliable, accurate databases
at a reasonable cost. MPSI further believes its historical expertise and success
in the areas of volume projections and retail network planning provide a
substantial barrier to entry for competitors in the petroleum industry. Further,
MPSI's maintenance programs and its commitment to more than one client in a
given market results in regular updates of existing software and market
information in line with changes in a given market. The Company attributes its
ability to provide these quality products and services to the expertise and
experience of its personnel.
By focusing on PC-oriented products and services, the Company believes it is
better equipped to challenge "lower cost competitors". New data collection
techniques, to be implemented in 1999, will allow more timely and regular
updating of market data using handheld data collection technology and PC-based
data transmission and delivery technology. These processes are expected to
reduce MPSI's data collection costs relative to market studies and thereby allow
the Company to leverage data already collected or to collect custom data for
clients who may not require full market study information. The Company believes
it can thereby be competitive with potential competitors who have targeted
customers with limited retail market resources.
In addition to addressing low-cost competitors, MPSI regularly evaluates
potential strategic alliances with independent companies who will allow MPSI to
offer a wider variety of integrated products and/or provide a wider product
distribution system. The target firms will be those who service industries in
which MPSI has historical expertise (e.g., petroleum, government/postal, and
banking). Such alliances can also provide MPSI the opportunity to sub-contract
portions of larger consulting projects thereby establishing MPSI's credibility
with the client and allowing interface with customer personnel who are
potentially valuable sales contacts for future business. By positioning itself
as an integrated service provider and trusted advisor that can meet a client's
needs for a variety of retail decision support information and services, MPSI
can combat both the small competitor's pricing pressure (because the client can
identify the added value of MPSI's multi-purpose data and software as compared
to the individual product or service pricing by a competitor) and the larger
consulting firm's encroachment on retail business segments (by offering
particular industry expertise and a proven track record in our retail planning
niche which the larger firms cannot equal).
BACKLOG
The Company's September 30, 1998 and 1997 backlog consisted principally of
orders for market information databases (1998 -- $11,638,000, 1997 --
$12,928,000) and multi-year commitments by customers for software maintenance
and support services (1998 -- $1,991,000, 1997 -- $2,327,000). The Company
expects that the market information databases in backlog at September 30, 1998
will be recognized in fiscal year revenues as follows: 1999 -- $4,878,000, 2000
- -- $3,528,000, 2001 -- $1,519,000, 2002 -- $1,373,000, 2003 -- $280,000, and
beyond -- $60,000. Maintenance and support services in backlog are the result of
noncancelable client contractual obligations to purchase support services
generally over periods of three to five years. Such revenues will be recognized,
and backlog accordingly reduced, on a ratable basis over the life of each
underlying agreement. Of the aggregate maintenance and support backlog at
September 30, 1998, future fiscal year revenues are expected to be recognized as
follows: 1999 -- $645,000, 2000 -- $542,000, 2001 -- $460,000, 2002 -- $289,000,
2003 -- $53,000, and beyond -- $2,000.
EMPLOYEES
As of September 30, 1998, the Company employed 196 people, including 60 in
marketing (which includes sales and client services); 34 in research and
development (which includes software development and system support); 75 in
database analysis, consulting, and production; and 27 in management,
administration, and finance. Of these, 165 are employed in the United States and
31 are employed in foreign countries.
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PRODUCT DEVELOPMENT
Since 1970, the foundation of the Company's business has been its developed
software which helps retailers select sites, improve operations and make product
pricing decisions. Over the last five years, the major development efforts of
the Company have been directed toward (1) enhancement of these core retail
planning products in order to extend petroleum utilization around the world, (2)
portation of the software from mainframe to workstation/PC platforms, and (3)
incorporation of internally developed or third party software in order to
enhance the user interface, speed and efficiency of this software.
MPSI's product development cycle consists of four primary stages. During the
product specification phase the Company identifies the initial requirements of
the software, determines the functional requirements and begins the initial
design. During this stage, the Company sets forth the database requirements as
well as the hardware, operating systems, third-party imbedded software and
general functional requirements. From this information a business plan,
conceptual prototype and a project plan are developed. The prototypes developed
during this stage are not fully functional prototypes, but are designed to
present the "look and feel" of the end product. Upon completion of this phase,
the Company has generally completed a detailed program design and, accordingly,
established the technological feasibility of the project. Following the product
specification phase, the project enters the build phase where actual software
programming takes place. Once coding is complete the project enters the quality
assurance phase which encompasses various internal systems testing and user
acceptance testing. Once testing is completed the project enters the
implementation phase where hardware and software installation procedures and
user documentation are finalized.
Software development costs incurred prior to completion of the detailed
program design are expensed as research and development costs. Costs incurred
during the build, quality assurance and implementation phases are generally
capitalized. At the point where the software product is ready for general
release to the customers, capitalization of costs ceases.
Beginning in fiscal year 1993, MPSI undertook a major internally funded
enhancement of its retail planning software. The new systems were designed to
meet the three primary operational requirements of clients through PC-based
products including the Capital Performance System ("CAPS") for site selection
and capital planning, the Operational Performance System ("OPS") for use in the
field by retail managers in order to optimize outlet and territory performance
and the Price Volume Optimizer ("PVO") for retail fuel pricing decisions. The
CAPS software for North America was released in January 1995, and from that time
to the present, MPSI has developed and released CAPS, OPS, and PVO capable of
serving all MPSI operating regions except portions of the Pacific Rim. CAPS for
Japan is scheduled for release in fiscal year 1999. Upon completion of the
Japanese CAPS product, MPSI will embark upon development of its next generation
of retail planning applications software. Implicit in that design effort will be
(1) less expensive and less complex client deliverables, (2) modular
architecture which will yield maximum flexibility for interface with existing
client technology and maximum flexibility for MPSI to apply its technology to
industries other than retail petroleum, (3) a substantially reduced data
requirement thereby significantly reducing data gathering costs, and (4) higher
degree of predictive accuracy in geographic areas of sparse housing density
(high transient areas). Management anticipates the roll out of the North
American software in the summer of 1999 and a complete roll out to all MPSI
service regions within 18 months thereafter. Aggregate development costs of
approximately $1 million will be internally funded over the rollout period.
Additional development costs which may be associated with utilization of this
new technology to service industries other than retail petroleum may require
external funding.
Development of the initial PVO product was the result of a contract that was
signed with a North American client during 1993 for the nonexclusive development
of a volume prediction model for a petroleum related product and service
facility. The commercial version of PVO was completed in August of 1995 and has
been tested by clients in the Pacific Rim and the United States. This product
resulted in opportunities for MPSI to leverage its retail data warehouse and
allowed expanded client databases in 1998. Management expects this suite of
products will also lead to further business with other clients through the
adaptation of the model to other petroleum client ancillary product/service
needs in 1999. Although acceptance of this new price-prediction technology was
slow initially, the pricing business unit was profitable in 1998, and the
Company intends to add both sales and client
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support resources for this product set in fiscal year 1999. Utilizing
information from Company produced CAPS/RPS databases or from other MPSI studies,
PVO is designed to give retailers an easy to use decision tool for optimizing
petroleum outlet profits through price or volume level determinations.
During the years ended September 30, 1998, 1997, and 1996, the Company spent
$2,282,000, $2,132,000, and $2,610,000, respectively, on research and
development or enhancement of new products and the maintenance of existing
products. The amounts spent on research and development were primarily Company
sponsored, meaning there was no material amount of direct recoupment of expenses
from clients.
TRADEMARKS, COPYRIGHTS, AND LICENSES
The Company holds a number of trademarks, some of which are registered at
the U.S. Patent and Trademark Office. To date, registrations have been sought
only in the United States and Mexico. Set forth below are the Company's
trademarks and final filing dates required to renew trademark status.
<TABLE>
<CAPTION>
STATUS OF
PRODUCT MARK EXPIRATION COUNTRY
- ------------------ ---------- ---------- -------
<S> <C> <C> <C>
MPSI's Site Evaluation System..................... Registered November 25, 2001 U.S.
MPSI and Design .................................. Registered February 5, 2002 U.S. / Mexico
MPSI ............................................. Registered January 29, 2002 U.S. / Mexico
MPSI's OPS ....................................... Registered November 9, 2004 U.S.
Retail Planning System............................ Registered November 8, 2005 U.S.
PVO .............................................. Registered April 2, 2006 U.S.
Location Volume .................................. Registered October 23, 2006 U.S.
Facility/Location Volume.......................... Registered May 11, 2007 U.S.
MPSI's CAPS ...................................... Registered February 12, 2007 U.S. / Mexico
Price Volume Optimizer............................ Registered May 11, 2007 U.S.
MPSI Systems ..................................... Registered N/A Mexico
Capital Planning Systems.......................... Registered N/A Mexico
MPSI's Market Monitor............................. Trademark Common Law Rights U.S.
PriceTracker ..................................... Trademark Common Law Rights U.S.
The Intelligent Approach to Retail Marketing...... Trademark Common Law Rights U.S.
</TABLE>
The Company does not hold any patents or registered copyrights. The
Company's long-term software license agreements require customer acknowledgment
of the proprietary nature of the Company's software. The Company relies on these
agreements, together with trade secret laws and internal nondisclosure
safeguards, to protect its products. To date, the Company has had no indication
of any material breach in the security of its products. Should a material breach
in the security of the Company's software products occur, it might have the
impact of reducing the current barriers to entry for competitors and thus
materially adversely affect long-term results of Company operations. The
Company's modeling methodology, mathematical modeling algorithms and data
gathering processes have been developed over an extensive period of time and
would, in the absence of a material breach in the security, require potential
competitors a substantial period of time to duplicate. Even in the event that a
material breach did occur, such as a reverse engineering of an MPSI software
product, the Company believes that because of the annual change in technology,
the retail markets served, and the regular software upgrades required thereby,
such breach would not result in a material adverse effect on the Company's
short-term business because new versions of its products would likely reduce the
competitive value of older versions breached by potential competitors.
ITEM 2. PROPERTIES
The Company's principal facility and corporate headquarters in Tulsa,
Oklahoma (56,000 square feet) is the primary location for software development
and market study production. The Bristol, England facility encompasses 5,000
square feet, and the Rio de Janeiro, Brazil office encompasses 1,500 square
feet. Both foreign offices do single site and special project work in addition
to their primary marketing role. Regional sales offices in Singapore;
Johannesburg, South Africa (established in 1996); Melbourne, Australia; Tokyo,
Japan; Bangkok, Thailand (established in 1998); and Seoul, South Korea
(established in 1997) remained the Company's principal client liaison facilities
in those areas at September 30, 1998. Management believes that the various
facilities are properly sized to meet anticipated business levels.
10
<PAGE> 11
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings at September 30, 1998
which meet the criteria for disclosure under this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter ended September 30, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
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 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
Fiscal 1998
First Quarter Ended December 31, 1997 .......... 33/4 7
Second Quarter Ended March 31 .................. 3 4 5/8
Third Quarter Ended June 30 .................... 1 3/4 3 1/2
Fourth Quarter Ended September 30 ............. 1 3 3/4
</TABLE>
The 2,849,000 shares of Common Stock outstanding at December 7, 1998, were
held by 901 stockholders of record. At that date, an additional 160,000 shares
were subject to options to purchase Common Stock (See Note 8 to the Consolidated
Financial Statements). The per share bid and offer price on December 7, 1998,
was $1.00. Common Stock that could be sold pursuant to Rule 144 under the 1933
Act totals 1,657,000 shares as of December 7, 1998.
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.
11
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA*
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues ......................................... $ 19,101 $ 23,438 $ 21,745 $ 23,437 $ 19,872
Income (loss) from continuing operations ......... (1,499) 1,103 (623) 2,029 1,956
Income (loss) from discontinued operations ....... -- -- -- -- (482)
Net income (loss) ................................ (1,499) 1,103 (623) 2,029 1,474
Per share:
Basic income (loss) per common share:
Continuing operations ....................... $ (.53) $ .39 $ (.23) $ .73 $ .72
Discontinued operations ..................... -- -- -- -- (.18)
Net income (loss) ........................... (.53) .39 (.23) .73 .54
Weighted average common shares outstanding ..... 2,844 2,797 2,756 2,784 2,712
Diluted income (loss) per common and
common equivalent share:
Continuing operations ....................... $ (.53) $ .39 $ (.23) $ .72 $ .71
Discontinued operations ..................... -- -- -- -- (.18)
Net income (loss) ........................... (.53) .39 (.23) .72 .53
Weighted average shares of common stock and
dilutive common stock equivalents ........... 2,844 2,820 2,756 2,802 2,766
outstanding
BALANCE SHEET DATA:
Total assets ..................................... $ 9,490 $ 11,638 $ 10,319 $ 12,924 $ 9,734
Noncurrent deferred revenue ...................... 1,346 1,634 1,342 1,961 1,068
Noncurrent deferred income taxes ................. 86 442 98 -- --
Other noncurrent liabilities ..................... 172 37 79 220 349
- --------
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
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 1998 1997
--------------------------------------- VS. VS.
1998 1997 1996 1997 1996
------------ ------------ ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenues............................ $ 19,101 $ 23,438 $ 21,745 $ (4,337) $ 1,693
Cost of sales....................... 8,796 9,603 11,014 (807) (1,411)
-------- -------- -------- -------- --------
Gross profit...................... 10,305 13,835 10,731 (3,530) 3,104
-------- -------- -------- -------- --------
Operating expenses:
General and administrative........ 3,312 3,763 3,005 (451) 758
Marketing and client services..... 6,773 6,834 6,928 (61) (94)
Research and development.......... 1,888 1,598 1,382 290 216
-------- -------- -------- -------- --------
Total operating expenses.. 11,973 12,195 11,315 (222) 880
-------- -------- -------- -------- --------
Operating income (loss)............. (1,668) 1,640 (584) (3,308) 2,224
Other income (expense), net......... (30) 92 332 (122) (240)
-------- -------- -------- -------- --------
Income (loss) before income taxes.. (1,698) 1,732 (252) (3,430) 1,984
Income taxes........................ (199) 629 371 (828) 258
-------- -------- -------- -------- --------
Net income (loss)................... $ (1,499) $ 1,103 $ (623) $ (2,602) $ 1,726
======== ======== ======== ======== ========
</TABLE>
12
<PAGE> 13
RESULTS OF OPERATIONS
MPSI reported a net loss of $1.5 million for fiscal year 1998 as compared to
net income of $1.1 million in fiscal year 1997 and a net loss of $.6 million in
1996. As discussed below, the decline in profitability in 1998 from 1997 was
principally attributable to (1) a 19% decrease in revenues (primarily in the
Pacific Rim), (2) a 6% decrease in gross profit margins on data services, and
(3) the impact of new business units. The increase in net income in 1997 as
compared to 1996 was principally attributable to an 8% growth in revenues
resulting primarily from the renewal of a multi-year worldwide software license
by MPSI's largest client and to increased margins resulting from leveraged sales
of market studies in the Pacific Rim.
The Company does not believe that inflation has significantly impacted the
results of operations during the three years ended September 30, 1998. Lower
prices in certain regions resulting from increased competition, have adversely
effected revenues during the last three fiscal years.
Set forth below (in thousands of dollars) is an analysis of MPSI's revenue
fluctuations over the last three fiscal years.
<TABLE>
<CAPTION>
1998 VS. 1997 1997 VS. 1996
--------------------- --------------------
AMOUNT % AMOUNT %
-------- ---- -------- ----
<S> <C> <C> <C> <C>
Pacific Rim ........ $(4,281) (42) $ 1,942 22
North America ...... 349 4 (78) (1)
Europe/Africa ...... 96 5 295 19
Latin America ...... (501) (29) (466) (22)
------- -------
Totals ............. $(4,337) 19 $ 1,693 8
======= =======
</TABLE>
In addition to the specific regional information below, it should be noted
that as compared to fiscal 1997, 1998 revenues from all regions do not include a
$1.5 million single client software license renewal similar to that recorded
under a worldwide master agreement during 1997. That transaction principally
accounted for the significant difference in 1997 revenue from software licensing
as compared with 1998 and 1996. See Note 7 to the Consolidated Financial
Statements which sets forth the historical impact of that client on MPSI's
annual revenues. 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.
Economic conditions in the Pacific Rim throughout fiscal 1998 had negative
repercussions on MPSI's revenues and gross profits. MPSI's Pacific Rim region
experienced a 42% decline in revenues resulting from the economic uncertainties
in that region and, to a lesser extent, the geographical mix and cyclical impact
of Japanese studies which are updated approximately every 18 months. Although
orders received in late fiscal 1998 indicate that the situation may be
stabilizing, the Company is unable to predict the effect on fiscal year 1999 or
thereafter of unsettled economic conditions in the Pacific Rim. MPSI may
experience (1) pressure on pricing and/or delay in placing orders due to higher
costs of projects associated with weaker foreign currencies versus the US
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. Without the impact
of the Southeast Asian financial uncertainties which occurred in 1998, the
Company was able to leverage its sales of market studies in the Pacific Rim
Region in 1997, which resulted in, increased revenues of $1,942,000 (22%) over
1996.
Results of operations in North America were impacted during the three years
ended September 30, 1998 by (1) the activities of certain new business units as
discussed below and (2) to a lesser extent by client consolidations that reduced
the number of annual market studies. Recently announced consolidations (e.g.
Exxon and Mobil, British Petroleum and Amoco) may have a more pronounced future
impact. Management is not able at this time to fully assess the impact of these
recent events (positive or negative).
13
<PAGE> 14
o In 1996 MPSI released several new software and data products which target
customer retail pricing issues. Revenues from these products were
$1,524,000, $684,000 and $481,000 in 1998, 1997 and 1996 respectively
(incremental costs were $1,136,000, $860,000 and $873,000 respectively).
o MPSI's retail postal division has been slowly accepted and generated
revenues of only $251,000, $508,000 and $456,000 in 1998, 1997 and 1996
(costs of $453,000, $442,000 and $176,000 respectively). Management will
re-evaluate the continuation of this business unit pending the results of
recent proposals to the United States Postal Service.
o Based on strategic planning, MPSI began to directly focus on an enhanced
consulting offering in late 1997. As customers downsize (consequently
reducing their retail planning staffs) they often express a desire for MPSI
to deliver the "solution" to their retail planning problems rather than the
tools/data for them to internally resolve their problems. The consulting
division generated revenues of $313,000 in 1998 and $24,000 in 1997. This
required commitment of incremental costs of approximately $645,000 in 1998
and $454,000 in 1997, related primarily to start-up sales efforts utilizing
existing personnel. Funding constraints have prevented MPSI from
accelerating the growth opportunity as anticipated. Absent external funding
or strategic alliances in 1999 to allow for hiring of experienced sales and
delivery/consultants, management may re-focus on other growth-oriented
opportunities, which leverage MPSI's substantial data warehouse.
Fiscal year 1998 saw some stability in the revenue generated in
Europe/Africa as compared to fiscal 1997, both of which were better than 1996
primarily due to the roll-out of CAPS software for that region in the fourth
quarter of 1996. While European business remains sluggish, African petroleum
business increased $458,000 (48%) in 1998. The Company believes that recent oil
company consolidations in Europe have re-focused 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
grow European revenues in fiscal 1999.
Latin American revenue declined in 1998 as the result of two primary
factors: clients have been slower in that region to undertake the installation
and use of MPSI's CAPS software (which was rolled out during the fourth quarter
of 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. Because of the increased emphasis on retail
planning which encompasses privatization, the Company expects improved revenues
from Latin America in fiscal 1999.
Revenues from market studies (MPSI's traditional full market analysis)
decreased approximately $3.0 million (20%) from 1997 ($.6 million decrease (4%)
in 1997 as compared to 1996) as a result of the Asian financial downturn and to
pricing pressures from competition. The significant revenue reduction in 1998
along with the increase in product deliverables and costs incurred on production
process improvements resulted in a loss of gross margin of $3.1 million (34%) as
compared with 1997. While there has been a decline in revenues from MPSI's
traditional market area studies, sales from other related products (single
sites, pricing products and consulting) have increased over the last three
fiscal years. Revenues from these products were approximately $5,931,000,
$5,824,000 and $4,619,000 for fiscal years 1998, 1997 and 1996 respectively.
Gross margins were approximately $3,556,000 (60%), $3,230,000 (55%) and
$1,452,000 (31%) respectively. MPSI expects to continue placing emphasis on
these revenue sources during fiscal 1999.
Overall, gross profit decreased approximately $3,530,000 (26%) from fiscal
1997 as a result of revenue shortfalls resulting from the Asian economic
downturn, increasing pricing pressures brought about by competition, enhanced
product deliverables in an attempt to counter price resistance, and a commitment
of resources to an internal evaluation of the production process aimed at cost
reduction ($233,000 in 1998 and $70,000 in 1997). Gross profit (loss)
attributable to software licensing was approximately $224,000, $1,042,000 and
($217,000) in fiscal years 1998, 1997 and 1996, respectively. The timing of
software license revenues as noted previously can significantly impact these
amounts. On a cost comparison basis, cost of sales relating to software
licensing
14
<PAGE> 15
decreased approximately $452,000 (59%) in 1998 compared with 1997 as the
European and South American CAPS software became fully amortized during the
first fiscal quarter of 1998. Similarly, such costs increased approximately
$120,000 (19%) in 1997 compared with 1996 as the Company amortized the costs
associated with CAPS versions related to Europe and South America.
Gross profits in 1997 increased $3,103,000 (29%) over 1996 as a result of
increased revenues derived from the renewal of a major five-year software
license, the corresponding orders of market studies, and the increased revenues
in the Pacific Rim as discussed above. Overall, the reduction in cost of sales
by $1.4 million in 1997, as compared to 1996, allowed the Company to commit
additional resources to client services. Enhanced commitment to client services,
in addition to a need to address timely product development, was one of the
reasons for a corporate reorganization 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.
Operating expenses decreased $222,000 (2%) as compared with fiscal year
1998. General and Administration expenses decreased $451,000 (12%) as compared
with 1997. Cost cutting measures, including staff reductions and related lease
space requirements, reduced expenses in Brazil and Bristol by $58,000 and
$174,000 respectively, while domestic expenses decreased primarily due to the
reduction of performance bonuses related to fiscal 1998 results. Overall,
marketing expenses declined approximately 1% in 1998 compared with 1997.
Research and development expenses increased $290,000 (18%) over 1997. This
increase resulted from staff commitment and the utilization of contract
programmers to develop the Japan CAPS product which will be completed in fiscal
1999 (cost are currently being capitalized).
Operating expenses increased $880,000 (8%) in 1997 compared with 1996.
Personnel re-allocations resulting from the re-organization in late 1996
resulted in growth of approximately $350,000 in both general & 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 relocation of the Bristol subsidiary's
offices 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 (who was replaced during fiscal 1998). Marketing
expenses declined approximately 1% in 1997 compared with 1996. The increase in
Research and Development 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 1999.
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 US Dollar relative to the respective foreign
currencies. The Company experienced exchange losses of approximately $240,000 in
fiscal 1998 as compared with $98,000 in fiscal 1997. During fiscal year 1996,
MPSI benefited from foreign currency exchange gains in the amount of $146,000.
The gain in 1996 was 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. By the time the collections were effected, the
contract values had increased relative to the US Dollar reporting currency.
Although MPSI anticipates continuing exposure from the same source in fiscal
year 1999, the magnitude is not expected to materially increase as the Company
expects to denominate a limited number of contracts in foreign currencies. The
Company does not utilize derivative financial instruments to hedge their foreign
currency risks.
Income taxes decreased $828,000 as compared to 1997 as a result of the
losses incurred in the US in fiscal 1998 (in which jurisdiction of most of the
Company's consolidated operations are reported) which allowed MPSI to offset
substantially all of the deferred tax liability from 1997 (See Note 6 to the
consolidated financial statements). Reflected in the net income tax benefit for
1998 was $158,000 of foreign income taxes ($212,000 in 1997 and $412,000 in
1996) which includes foreign income tax withheld at the source from payments by
foreign customers of ($87,000, $188,000, and $343,000) respectively. The Company
utilized net operating loss carryforwards in 1998 in Brazil ($71,000) and the UK
($53,000). The amount of foreign income taxes withheld can fluctuate
significantly
15
<PAGE> 16
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 issues raised will not have a
material effect on its financial position.
FINANCIAL CONDITION AND LIQUIDITY
Working capital, the Company's primary measure of liquidity, was $1.6
million at September 30, 1998 compared with $3 million at September 30, 1997.
The 1998 decrease of $1.4 million (47%) reflects an 86% ($1,375,000) decrease in
cash reserves, a 3% ($150,000) increase in trade receivables and 9% ($210,000)
lower trade liabilities. Additionally, the Company's production throughput,
which exceeded new orders, resulted in a 6% ($196,000) decrease of the deferred
revenue component at September 30, 1998 compared with 1997. In contrast, the $3
million working capital at September 30, 1997 represented a $1.6 million (114%)
increase compared with September 30, 1996, principally driven by increased
receivables and cash reserves.
On the strength of the Company's business fundamentals and improved results
of operations during fiscal 1997, MPSI obtained a bank line of credit in June
1997 (see Note 5 to the Consolidated Financial Statements). The initial amount
of the line was $500,000, which was increased to $1,500,000 in May 1998. The
Company had utilized $350,000 of the line of credit at September 30, 1998.
Management expects the combination of internal funding and the bank line of
credit to be sufficient for 1999 operations, excluding the potential
enhancements of the consulting division. Management further believes that
additional funding could be attracted through equity or leasing channels.
As set forth in the statements of cash flow, the Company utilized $1,202,000
of cash to fund operations in 1998 as compared with cash flows generated from
operations in 1997 of $785,000 and $975,000 from 1996. Expenditures for the
acquisition/upgrade of computer equipment and development of new software
products of $456,000 in 1998 and $434,000 in 1997 has declined from the
$1,363,000 expended in 1996 (during which MPSI committed substantial resources
to acquire and upgrade computer equipment and to development of new CAPS
software products). Capitalized software expenditures declined in 1998 and 1997
as software releases moved into the maintenance stage and equipment requirements
stabilized. The Company anticipates costs in both areas to increase in 1999 but
has no long-term commitments for equipment expenditures at September 30, 1998.
Increases in capitalized software expenditures are anticipated in 1999 related
to the completion of the last regional version of CAPS software (Japanese
version, to be released during 1999) and for the initial release of a new
generation of MPSI's retail planning software product starting with North
America. 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 $3.5 million and $3.8 million at September 30, 1998 and
1997, respectively) decreased in 1998 compared with 1997 primarily due to the
effect of a five-year license renewal by MPSI's largest customer in 1997. This
contract, now with four years remaining, was not offset by comparative new
contracts or renewals in 1998. The reduction in deferred maintenance in 1998 of
$336,000 (14%) reflects revenue recognition of maintenance income, from all
contracts, in excess of new contracts or renewals. In 1997 receivables and
deferred revenue from new software contracts or renewals exceeded the
collections and maintenance revenue recognized during 1997 resulting in an
increase of $808,000 and $129,000 in long-term receivables and deferred
maintenance, respectively, as compared with September 30, 1996. 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 adjusted. In accordance
with contractual cancellation options, certain clients canceled portions of
their software licenses aggregating $435,000 in 1996 (none in 1997 or 1998). As
the number of
16
<PAGE> 17
contracts with cancellation clauses is few, the Company does not expect a
significant impact from cancellations in 1999.
Noncurrent deferred income tax liabilities at September 30, 1998 were
$86,000 as compared to $442,000 in 1997. The reduction of $356,000 was a result
of utilizing the US component of deferred tax liabilities recorded in 1997
against the applicable losses incurred in fiscal 1998. The increase in other
noncurrent liabilities to $172,000 ($37,000 at September 30, 1997 as compared to
$79,000 at September 30, 1996) results from accrual of rental expense at an
average rate which exceeds cash outflow in the early years of the lease
applicable to new corporate headquarters which took effect May 1998.
MPSI's backlog of market studies at September 30, 1998 in the amount of
approximately $11.6 million, ($12.9 million at September 30, 1997), contained a
substantial number of recurring studies under multi-year client commitments.
Such studies represent approximately 25% of the estimated revenues for fiscal
year 1999. Because customer commitments for 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.
YEAR 2000 IMPACT
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of a company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
of deliverable software products to meet client specifications or the inability
of internal software to process transactions, send invoices, or engage in
similar normal business activities. In order to correct this problem, computer
operating systems, applications software and/or hardware may require
modifications.
MPSI's assessment of the impact of this issue has encompassed (1) internally
utilized systems, (2) software held for resale, (3) computerized information and
software provided by third parties which might be integral to client usage of
MPSI products, and (4) compliance issues related entirely to the state of
readiness by major customers and vendors. Set forth below is the status of each
review and the estimated impact, to the extent that management can determine it:
o Internal Systems. MPSI has assessed and tested its financial accounting
systems, production control systems, software/data development
applications, internal hardware, and other internal management information
systems and believes them to be materially Year 2000 compliant. No
significant costs have been expended. Costs yet to be incurred are
estimated to be $75,000.
o MPSI Software Held for Resale. The Company has evaluated and tested the
date sensitivity features of its applications software held for resale to
customers and believes that there are no material unresolved Year 2000
compliance issues. MPSI's products typically are not date sensitive in
nature and no significant costs were incurred or are anticipated in the
future.
o Third Party Systems. MPSI has queried all critical external suppliers of
applications software, operating systems and PC computer equipment which we
believe are integral components of a client's computer network that could
affect the performance of MPSI products in that environment. While such
products are not directly embedded in the MPSI product delivery, their Year
2000 compliance could affect a client's satisfaction with the use of MPSI
products on site. Although not all inquiries have been completed and
additional issues could yet be discovered, management estimates that it has
received compliance satisfaction from all of the third party vendors that
could materially impact MPSI product performance. Although no significant
costs have been incurred to
17
<PAGE> 18
o date relative to this category of computerized process, management is
unable to assess future costs associated with as yet unidentified issues.
o Customers and Vendors. MPSI's evaluation of the potential impact of Year
2000 readiness by major customers and suppliers is not yet complete. Such
evaluations should be completed by March 31, 1999 and should cost less than
$25,000 to complete. To date, management has identified two potential
issues: (1) remote product support, and (2) general client system failures.
Other than the applications software delivered to clients as discussed
above, the Company has limited direct interfaces with computerized systems
of its customers or vendors, except that MPSI does provide a variety of
product support and installation support services using remote access to
client systems. We do not expect those interfaces to be materially impacted
by Year 2000 issues, but in the event that they were, manual support could
supplant the remote support without significantly affecting client
relationships. Should major clients experience general systems failures as
the result of their planning for Year 2000, MPSI could be substantially
impacted on a temporary basis. However, as most of MPSI's applications
software can run on a single PC if necessary, our contingency plan
contemplates transfer of client delivered software from its network
configuration to individual PC equipment until a client's overall system
problems can be resolved. As clients and vendors are often unable or
unwilling to share information about their state of Year 2000 readiness,
management does not have sufficient information concerning the state of
readiness of major customers/vendors, and assessment of the potential costs
of the contingency plan (which might have to be partially borne by MPSI)
cannot be determined.
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner, to the extent that compliance is
within the Company's control. As noted above, the Company has not yet completed
all necessary phases of the Year 2000 program. In the event that the Company is
unable to ascertain all potential external impacts and thereby is unable to
contemplate all possible contingency plans, the Company may be unable to satisfy
customer product performance expectations, take additional orders, invoice
customers or collect payments, or perform certain other mission-critical
functions. In addition, disruptions in the economy generally resulting from Year
2000 issues could also materially adversely affect the Company. The Company
could be subject to litigation for computer systems product failure, for
example, equipment shutdown or failure to properly date business records. The
amount of potential liability and lost revenue cannot be reasonably estimated at
this time.
18
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
Report of Independent Auditors ................................................................ 20
Consolidated Statements of Operations for the Years Ended September 30, 1998, 1997
and 1996 ..................................................................................... 21
Consolidated Balance Sheets at September 30, 1998 and 1997 .................................... 22
Consolidated Statements of Cash Flow for the Years Ended September 30, 1998, 1997
and 1996 .................................................................................... 23
Consolidated Statements of Stockholders' Equity - Fiscal Years Ended
September 30, 1996, 1997 and 1998 ............................................................. 24
Notes to Consolidated Financial Statements .................................................... 25
</TABLE>
19
<PAGE> 20
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, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 1998. 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1998 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Tulsa, Oklahoma
November 20, 1998
20
<PAGE> 21
MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Information services and software maintenance ...................... $ 18,563,000 $ 21,630,000 $ 21,354,000
Software licensing ................................................. 538,000 1,808,000 391,000
------------ ------------ ------------
Total revenues .................................................. 19,101,000 23,438,000 21,745,000
------------ ------------ ------------
Cost of sales:
Information services and software maintenance ...................... 8,482,000 8,837,000 10,406,000
Software licensing (Note 4) ........................................ 314,000 766,000 608,000
------------ ------------ ------------
Total cost of sales ............................................. 8,796,000 9,603,000 11,014,000
------------ ------------ ------------
Gross profit .................................................... 10,305,000 13,835,000 10,731,000
Operating expenses:
General and administrative ......................................... 3,312,000 3,763,000 3,005,000
Marketing and client services ...................................... 6,773,000 6,834,000 6,928,000
Research and development ........................................... 1,888,000 1,598,000 1,382,000
------------ ------------ ------------
Total operating expenses ........................................ 11,973,000 12,195,000 11,315,000
------------ ------------ ------------
Operating income (loss) ......................................... (1,668,000) 1,640,000 (584,000)
Other income (expense):
Interest income .................................................... 292,000 197,000 204,000
Interest expense ................................................... (99,000) (154,000) (17,000)
Gain (loss) on foreign exchange .................................... (240,000) (98,000) 146,000
Other, net ......................................................... 17,000 147,000 (1,000)
------------ ------------ ------------
Income (loss) before income taxes .................................. (1,698,000) 1,732,000 (252,000)
Income taxes ......................................................... (199,000) 629,000 371,000
------------ ------------ ------------
Net income (loss) .................................................... $ (1,499,000) $ 1,103,000 $ (623,000)
============ ============ ============
Per share (Note 11):
Basic and diluted income (loss) per common share ................... $ (.53) $ .39 $ (.23)
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 22
MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................................... $ 224,000 $ 1,599,000
Short-term investments, at cost .............................................. 3,000 3,000
Receivables (Notes 2 and 5):
Trade ..................................................................... 4,207,000 4,210,000
Current portion of long-term receivables, net of unamortized
discount ................................................................. 1,275,000 1,122,000
Work in process inventory .................................................... 107,000 197,000
Prepayments .................................................................. 81,000 161,000
------------ ------------
Total current assets ...................................................... 5,897,000 7,292,000
Long-term receivables, net of unamortized discount (Note 2) .................... 2,201,000 2,642,000
Property and equipment, net (Note 3) ........................................... 962,000 1,165,000
Software products, net (Note 4) ................................................ 280,000 393,000
Other assets ................................................................... 150,000 146,000
------------ ------------
Total assets .............................................................. $ 9,490,000 $ 11,638,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank (Note 5) ............................................... $ 350,000 $ 147,000
Accounts payable ............................................................. 889,000 882,000
Accrued liabilities (Notes 6 and 8) .......................................... 1,173,000 1,390,000
Deferred revenue ............................................................. 1,929,000 1,837,000
------------ ------------
Total current liabilities ................................................. 4,341,000 4,256,000
Noncurrent deferred revenue .................................................... 1,346,000 1,634,000
Noncurrent deferred income taxes (Note 6) ...................................... 86,000 442,000
Other noncurrent liabilities ................................................... 172,000 37,000
------------ ------------
Total liabilities .................................................... 5,945,000 6,369,000
------------ ------------
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,
2,849,000 and 2,833,000 shares issued and outstanding at
September 30, 1998 and 1997, respectively ................................. 142,000 142,000
Junior Common Stock, $.05 par value, 500,000 shares authorized,
none issued or outstanding ................................................ -- --
Additional paid-in capital ................................................... 13,079,000 13,030,000
Deficit ...................................................................... (10,359,000) (8,860,000)
Foreign currency translation adjustment ...................................... 683,000 957,000
------------ ------------
Total stockholders' equity ........................................... 3,545,000 5,269,000
------------ ------------
Total liabilities and stockholders' equity ........................... $ 9,490,000 $ 11,638,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 23
MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (SEE ALSO NOTE 10)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Income (loss) from operations ............................................. $(1,499,000) $ 1,103,000 $ (623,000)
Adjustments to reconcile income (loss) from
operations to cash provided (used) by operations:
Depreciation and amortization of property and
equipment ............................................................ 425,000 419,000 450,000
Amortization of software products ....................................... 314,000 617,000 592,000
Deferred income taxes ................................................... (354,000) 312,000 --
Loss on sale of assets .................................................. -- -- 5,000
Changes in assets and liabilities:
Decrease (increase) in assets:
Receivables .......................................................... 295,000 (1,602,000) 1,970,000
Inventories .......................................................... 90,000 164,000 (57,000)
Prepayments and Other Assets ......................................... 76,000 114,000 189,000
Increase (decrease) in liabilities:
Trade payables and accruals .......................................... (406,000) (365,000) 388,000
Taxes payable ........................................................ 51,000 178,000 (438,000)
Deferred revenue ..................................................... (194,000) (155,000) (1,501,000)
----------- ----------- -----------
Net cash provided (used) by operations .......................... (1,202,000) 785,000 975,000
----------- ----------- -----------
Cash flows from investing activities:
Decrease in short-term investment ....................................... -- 46,000 --
Purchase equipment ...................................................... (255,000) (267,000) (601,000)
Software development .................................................... (201,000) (167,000) (762,000)
Proceeds from disposition of assets ..................................... 31,000 6,000 16,000
----------- ----------- -----------
Net cash used by investing activities ........................... (425,000) (382,000) (1,347,000)
----------- ----------- -----------
Cash flows from financing activities:
Net proceeds from bank line of credit ................................... 203,000 147,000 --
Proceeds from exercised stock options ................................... 49,000 98,000 53,000
----------- ----------- -----------
Net cash provided by financing activities ....................... 252,000 245,000 53,000
----------- ----------- -----------
...........
Increase (decrease) in cash and cash equivalents .......................... (1,375,000) 648,000 (319,000)
Cash and cash equivalents at beginning of period .......................... 1,599,000 951,000 1,270,000
----------- ----------- -----------
Cash and cash equivalents at end of period ................................ $ 224,000 $ 1,599,000 $ 951,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 24
MPSI SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN
----------------------- ADDITIONAL CURRENCY
CARRYING PAID-IN TRANSLATION STOCKHOLDERS'
SHARES VALUE CAPITAL DEFICIT ADJUSTMENT EQUITY
------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
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
Net loss ..................... -- -- -- (1,499,000) -- (1,499,000)
Stock options exercised ...... 16,000 -- 49,000 -- -- 49,000
Translation adjustment ....... -- -- -- -- (274,000) (274,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance, September 30, 1998 .... 2,849,000 $ 142,000 $ 13,079,000 $(10,359,000) $ 683,000 $ 3,545,000
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 25
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 51% of consolidated revenues
are generated from foreign customers, and 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 are 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 represents 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,
25
<PAGE> 26
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 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: Basic earnings per share are based upon the average
number of common shares outstanding. Diluted earnings per share assume the
issuance of common stock from dilutive stock options. The earnings per share
amounts for 1997 and 1996 have been restated to reflect the adoption of
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share"
(see Note 11).
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. 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.
26
<PAGE> 27
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 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 (fiscal year 1999 for the
Company). FAS 130 establishes standards for the reporting and display of
comprehensive income. While the Company does have certain comprehensive income
items, primarily foreign currency 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.
In November 1997, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position 97-2 ("SOP 97-2") entitled "Software Revenue
Recognition." 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. The SOP is effective for
transactions entered into by the Company beginning October 1, 1998. However, in
March 1998, the AcSEC issued SOP 98-4 which defers for one year the effective
date of specific provisions within SOP 97-2. Management does not believe that
the impact of adoption will materially impact the current revenue recognition
methods.
In March 1998, the AICPA issued SOP 98-1, Accounting For the Costs of
Computer Software Developed For or Obtained For Internal-Use. The SOP is
effective for the Company beginning on October 1, 1999. The SOP will require the
capitalization of certain costs incurred after the date of adoption in
connection with developing or obtaining software for internal-use. The Company
currently expenses such costs as incurred. The Company has not yet assessed what
the impact of the SOP will be on the Company's future earnings or financial
position.
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 $692,000 at September
30, 1998 and $1,630,000 at September 30, 1997. 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
$3,605,000 at September 30, 1998 and $4,196,000 at September 30, 1997 (before
present value discount and excluding $231,000 and $74,000 which had been billed
at September 30, 1998 and 1997, 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,
1998 unbilled amounts, $1,248,000 (compared with $1,294,000 at September 30,
1997) 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 $204,000 and $247,000 at September 30,
1998 and 1997, respectively. Noncurrent long-term receivables are presented net
of unamortized present value discount in the amount of $156,000 and $259,000 at
September 30, 1998 and 1997, 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 $267,000, $177,000, and $160,000
in fiscal years 1998, 1997 and 1996, respectively.
27
<PAGE> 28
A significant portion of the Company's business activity is with the major
multinational oil companies. At September 30, 1998, 96% ($7,680,000) of the
Company's receivables (before present value discounts) were from petroleum
clients ($8,198,000 or 97% at September 30, 1997). 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 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Leasehold improvements................. Various $ 803,000 $ 679,000
Computer equipment and software........ 4-5 4,426,000 6,202,000
Office furnishings and equipment ...... 3-10 1,309,000 1,586,000
---------- ----------
6,538,000 8,467,000
Accumulated depreciation............... (5,576,000) (7,302,000)
---------- ----------
Net property and equipment.......... $ 962,000 $1,165,000
========== ==========
</TABLE>
The provision for depreciation was $425,000, $419,000, and $450,000 for the
years ended September 30, 1998, 1997 and 1996, respectively. At September 30,
1998, fully depreciated assets with an aggregate original cost of approximately
$4,378,000 remain in use.
4. SOFTWARE PRODUCTS:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1998 1997
---------- -----------
<S> <C> <C>
Capitalized software development costs... $4,299,000 $4,098,000
Accumulated amortization.......... (4,019,000) (3,705,000)
---------- ----------
Net software products... $ 280,000 $ 393,000
========== ==========
</TABLE>
The provision for amortization, reflected in Software Licensing cost of sales,
was $314,000, $617,000, and $592,000 for the years ended September 30, 1998,
1997 and 1996, 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 1998, the Company expanded its bank line of credit through April 1999
in the aggregate amount of $1,500,000 which is secured by billed accounts
receivable and current portions of long-term receivables; $350,000 was
outstanding at September 30, 1998. Outstanding balances bear interest at 9.25%.
The Agreement requires that the Company shall maintain Tangible Net Worth of not
less than $3.5 million, shall maintain reasonable and customary insurance, and
shall not, without authorization of lender, undertake to additional debt (other
than lease indebtedness), lend money, invest in other entities or guarantee debt
of others during the term of the Agreement.
28
<PAGE> 29
6. INCOME TAXES:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Income (loss) from continuing operations before
income taxes:
Domestic ........................................................... $(1,987,000) $ 1,682,000 $ 27,000
Foreign ............................................................ 289,000 50,000 (279,000)
----------- ----------- -----------
Total ...................................................... $(1,698,000) $ 1,732,000 $ (252,000)
=========== =========== ===========
Income taxes (benefits):
Current:
Federal ......................................................... $ -- $ 27,000 $ 15,000
State ........................................................... -- 81,000 (56,000)
Foreign ......................................................... 155,000 209,000 412,000
----------- ----------- -----------
Current income taxes ....................................... 155,000 317,000 371,000
Deferred:
Federal ......................................................... (307,000) 285,000 --
State ........................................................... (50,000) 24,000 --
Foreign ......................................................... 3,000 3,000 --
----------- ----------- -----------
Deferred income taxes ........................................... (354,000) 312,000 --
----------- ----------- -----------
Provision for total income taxes ........................... $ (199,000) $ 629,000 $ 371,000
=========== =========== ===========
</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,
---------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Expense (benefit) at statutory rate........................................ $(595,000) $ 607,000 $ (88,000)
Alternative minimum tax (credit) .......................................... (189,000) (188,000) 15,000
Foreign income and taxes, net ............................................. 319,000 9,000 295,000
Loss carryforwards generated .............................................. 320,000 68,000 156,000
State income taxes ........................................................ (119,000) 71,000 (36,000)
Other, net ................................................................ 65,000 62,000 29,000
--------- --------- ---------
Income taxes ............................................................ $(199,000) $ 629,000 $ 371,000
========= ========= =========
</TABLE>
Income taxes of $25,000 were receivable at September 30, 1998 ($35,000
receivable at September 30, 1997). The Company does not accrue income taxes on
undistributed earnings of certain foreign subsidiaries which are permanently
invested. At September 30, 1998 and 1997, the amount of undistributed earnings
for which taxes have not been accrued was insignificant.
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 items raised will not have a
material effect on its financial position.
At September 30, 1998, the Company has various U.S. tax credits of $451,000
which expire between 1999 and 2003 At September 30, 1998, certain foreign
subsidiaries have net operating loss carryforwards of approximately $7,806,000
which may be utilized in future years.
29
<PAGE> 30
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,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Software revenue............................ $ 730,000 $ 873,000
Depreciation................................ 126,000 79,000
Other....................................... 121,000 130,000
---------- ----------
Total deferred tax liabilities...... 977,000 1,082,000
---------- ----------
Deferred tax assets:
Accrued liabilities......................... 379,000 295,000
U.S. and foreign loss carryforwards......... 2,841,000 2,451,000
U.S. tax credit carryforwards............... 284,000 652,000
---------- ----------
Total deferred tax assets........... 3,504,000 3,398,000
Valuation allowance for deferred tax assets. 2,613,000 2,758,000
---------- ----------
Net deferred tax assets.................. 891,000 640,000
---------- ----------
Net deferred tax liabilities........ $ 86,000 $ 442,000
========== ==========
</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:
More than 96% of total revenues from continuing operations were derived from
the petroleum industry during each of the years ended September 30, 1998, 1997,
and 1996. Individual customers accounted for MPSI revenues that were in excess
of 10% of consolidated revenues in those years as follows (in millions of
dollars):
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
AMOUNT % AMOUNT % AMOUNT %
-------- ---- ------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Exxon/Esso/Imperial $ 3.5 19 $ 5.6 24 $ 6.3 29
Texaco/Caltex...... $ .4 2 $ 2.6 11 $ 2.7 12
Amoco.............. $ 2.1 11 $ 2.0 8 $ 2.1 10
</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.
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, Japan, 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.
30
<PAGE> 31
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Unaffiliated customers:
United States ........................................................... $ 18,102,000 $ 21,845,000 $ 20,248,000
Europe .................................................................. 550,000 908,000 780,000
Brazil .................................................................. 449,000 685,000 717,000
Between geographic areas(1):
United States ........................................................... -- -- 237,000
Europe .................................................................. 65,000 63,000 673,000
Asia/Pacific Rim ........................................................ 2,072,000 2,097,000 2,228,000
Brazil .................................................................. 325,000 383,000 387,000
Eliminations .............................................................. (2,462,000) (2,543,000) (3,525,000)
------------ ------------ ------------
Total revenues .................................................. $ 19,101,000 $ 23,438,000 $ 21,745,000
============ ============ ============
Operating income (loss):
United States ........................................................... $ (984,000) $ 2,383,000 $ 795,000
Europe .................................................................. (296,000) (426,000) (891,000)
Brazil .................................................................. (388,000) (317,000) (488,000)
------------ ------------ ------------
Total operating income (loss) ................................... $ (1,668,000) $ 1,640,000 $ (584,000)
============ ============ ============
Identifiable assets:
United States ........................................................... $ 8,579,000 $ 10,714,000 $ 9,276,000
Europe .................................................................. 471,000 627,000 436,000
Brazil .................................................................. 440,000 297,000 607,000
------------ ------------ ------------
Total assets .................................................... $ 9,490,000 $ 11,638,000 $ 10,319,000
============ ============ ============
Export sales from U.S.:
Canada .................................................................. $ 478,000 $ 462,000 $ 952,000
Central America ......................................................... 489,000 408,000 358,000
South America ........................................................... 295,000 572,000 1,055,000
Europe .................................................................. 582,000 788,000 521,000
Asia/Pacific Rim ........................................................ 5,991,000 10,815,000 8,873,000
Africa .................................................................. 829,000 188,000 289,000
------------ ------------ ------------
Total export sales .............................................. $ 8,664,000 $ 13,233,000 $ 12,048,000
============ ============ ============
Consolidated revenues from foreign customers
by geographic area are as follows:
Canada and Central America .............................................. $ 967,000 $ 870,000 $ 1,310,000
Singapore, Australia and Japan .......................................... 5,991,000 10,815,000 8,873,000
Europe and United Kingdom ............................................... 1,002,000 1,384,000 1,172,000
Africa .................................................................. 959,000 501,000 418,000
South America ........................................................... 744,000 1,256,000 1,772,000
------------ ------------ ------------
Consolidated foreign revenues ................................... $ 9,663,000 $ 14,826,000 $ 13,545,000
============ ============ ============
Depreciation and amortization of property and equipment:
United States ........................................................... $ 387,000 $ 379,000 $ 402,000
Europe .................................................................. 26,000 35,000 36,000
Brazil .................................................................. 12,000 5,000 12,000
Capital expenditures:
United States ........................................................... $ 238,000 $ 262,000 $ 563,000
Europe .................................................................. 17,000 -- 20,000
Brazil .................................................................. -- 5,000 18,000
</TABLE>
- ----------
(1) Sales between geographic areas are made at prices that generally approximate
the prices of similar charges to unaffiliated customers.
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 nine equity or fixed-income funds. The
Company recorded expense related to its matching contribution of $155,000,
$153,000, and $143,000 in fiscal years 1998, 1997 and 1996, respectively. At
September 30, 1998 and 1997, the Company had
31
<PAGE> 32
accrued $120,000 and $122,000 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 1998, the Company liquidated its matching
contribution liability for the Plan year ended December 31, 1997 by contributing
$158,000 in cash. During fiscal year 1997, the Company contributed $138,000 in
cash applicable to the Plan year ended December 31, 1996. The matching
contribution for Plan year 1998 will be paid during fiscal year 1999.
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 November 1998. Options granted under the plan vest one-third annually
over a three-year period. An additional 27,000 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 106.5% (114% for 1997 and 1996); risk-free
interest rate of 5.77% (6.2% in 1997 and 1996) 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>
1998 1997 1996
------------------------ ----------------------- ---------------------------
PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA REPORTED
----------- ----------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)...... $(1,675,000) $(1,499,000) $ 941,000 $1,103,000 $(771,000) $(623,000)
Basic and diluted earnings
(loss) per share.... $ (.59) $ (.53) $ .33 $ .39 $ (.28) $ (.23)
</TABLE>
32
<PAGE> 33
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, 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
Granted.............. 3,000 4.63
Exercised............ (17,516) 2.82
Forfeited............ (5,233) 3.34
Expired.............. (33,967) 2.25
AT SEPTEMBER 30, 1998 159,819 4.75 153,597
</TABLE>
The weighted average grant date fair value for options granted during each
of the three fiscal years ended September 30, 1998, 1997 and 1996 were $3.45,
$2.52, and $4.16, respectively. The exercise price for options outstanding as of
September 30, 1998 ranged from $2.25 to $5.50. The weighted average remaining
contractual life of those options is two years.
The Company accrued $14,000 at September 30, 1998 ($308,000 accrued at
September 30, 1997); 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, 1998.
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, 1998 and 1997, the Company had accrued $573,000 and
$607,000, respectively, 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 $952,000 was
recorded during the year ended September 30, 1998 ($929,000 and $1,040,000 in
1997 and 1996, respectively). Aggregate future rentals under these commitments
are as follows: 1999 -- $811,000, 2000 -- $775,000, 2001 -- $687,000, 2002 --
$657,000, 2003 -- $487,000 and thereafter -- $1,000.
33
<PAGE> 34
10. SUPPLEMENTAL CASH FLOW INFORMATION:
The Company paid interest of $99,000 during fiscal year 1998, $154,000
during fiscal year 1997, and $17,000 during fiscal year 1996. Income taxes of
$105,000, $132,000, and $809,000 were paid during fiscal years 1998, 1997 and
1996, respectively.
11. BASIC AND DILUTED EARNINGS PER SHARE:
The following sets forth the computation of basic and diluted earnings
(loss) per share for the years ended September 30:
<TABLE>
<CAPTION>
In thousands: 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net income (loss): ........................................................ $(1,499) $ 1,103 $ (623)
------- ------- -------
Basic weighted-average shares ............................................. 2,844 2,798 2,756
Effect of dilutive stock options ..................................... -- 22 --
Diluted weighted-average shares ........................................... 2,844 2,820 2,756
------- ------- -------
Basic and diluted earnings (loss)
per common share ..................................................... $ (.53) $ .39 $ (.23)
------- ------- -------
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in accountants or disagreements with accountants
on matters related to accounting or financial disclosure during the fiscal years
ended September 30, 1998 and 1997.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information appearing under the caption
"Directors and Executive Officers" in the Company's Proxy Statement which will
be filed pursuant to Regulation 14A not later than 120 days after the end of the
Company's fiscal year ended September 30, 1998 and is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information appearing under the caption
"Compensation of Directors and Officers" in the Company's Proxy Statement which
will be filed pursuant to Regulation 14A not later than 120 days after the end
of the Company's fiscal year ended September 30, 1998 and is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information appearing under the caption "Stock
Ownership" in the Company's Proxy Statement which will be filed pursuant to
Regulation 14A not later than 120 days after the end of the Company's fiscal
year ended September 30, 1998 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information appearing under the caption
"Certain Transactions" in the Company's Proxy Statement which will be filed
pursuant to Regulation 14A not later than 120 days after the end of the
Company's fiscal year ended September 30, 1998 and is incorporated herein by
reference.
34
<PAGE> 35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) The response to this portion of ITEM 14 is submitted as a
separate section of this report under ITEM 8.
(2) The response to this portion of ITEM 14 is set forth in ITEM
14(d) below.
(3) Exhibits.
EXHIBIT
NUMBER DESCRIPTION
------- -------------------------------------------------------------
*3.1 -- Certificate of Incorporation of MPSI Systems Inc., as
amended, filed as the same numbered exhibit with the Company's
Form 10-Q dated March 31, 1987, File No. 0-11527.
*3.2 -- By-laws, as amended, filed as Exhibit 3.1 with the Company's
Form 10-Q dated June 30, 1987, File No. 0-11527.
*3.3 -- Certificate of Designation dated September 23, 1993
establishing the rights conferred on $.10 Par Value Convertible
Preferred Stock, Series 1993, filed as the same numbered exhibit
with the Company's 1993 Form 10-K, File No. 0-11527.
*3.4 -- Amendment to Certificate of Incorporation dated November 16,
1993 to reflect a one-for-ten reverse stock split, filed as the
same numbered exhibit with the Company's 1993 Form 10-K, File
No. 0-11527.
10.1 -- MPSI Systems Inc. 1998 Stock Plan.
*10.3 -- MPSI Systems Inc. 1984 Stock Option Plan as amended effective
January 1, 1987, filed as the same numbered exhibit with the
Company's 1987 Form 10-K, File No. 0-11527.
*10.4 -- Stock Option Agreement pursuant to MPSI Systems Inc. 1984
Stock Option Plan, filed as the same numbered exhibit with the
Company's 1984 Form 10-K, File No. 0-11527.
10.7 -- Real property lease dated February 11, 1998, between American
Southwest Properties, Inc., as lessor, and the Company, as
lessee, relating to the Company's Tulsa, Oklahoma facility.
*10.15 -- Indemnification Agreements with Directors and Officers of
MPSI Systems Inc. filed as the same numbered exhibit with the
Company's 1986 Form 10-K, File No. 0-11527.
*10.16 -- MPSI Systems Inc. Amended and Restated 1988 Stock Option
Plan, effective November 29, 1988, filed as Exhibit 4.5 with the
Company's 1994 Form S-8, File No. 0-11527.
*10.17 -- Stock Option Agreement pursuant to MPSI Systems Inc. Amended
and Restated 1988 Stock Option Plan, filed as Exhibit 4.6 with
the Company's 1994 Form S-8, File No. 0-11527.
*10.20 -- MPSI Systems Inc. Matching Investment Plan, effective January
1, 1990, filed as Exhibit 4(c) with Pre-effective Amendment No.
1 to the Company's Form S-8, filed on December 29, 1989, File
No. 0-11527.
35
<PAGE> 36
(3) Exhibits. (Continued)
EXHIBIT
NUMBER DESCRIPTION
------- -------------------------------------------------------------
21.1 -- List of Subsidiaries.
23.1 -- Consent of Independent Auditors -- Ernst & Young LLP.
27.1 -- Financial Data Schedule.
- ----------
* Incorporated by reference.
(b) No report on Form 8-K was filed by the Company during or applicable to
the quarter ended September 30, 1998.
(c) Exhibits - The response to this ITEM is submitted as a separate section
of this report.
(d) Financial Statement Schedules - Set forth below are the required
financial statement schedules together with the Report of Independent
Auditors on Financial Statement Schedules. All other schedules are
omitted because they are not applicable or the information is shown in
the financial statements or notes thereto.
36
<PAGE> 37
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULES
We have audited the consolidated financial statements of MPSI Systems Inc. and
subsidiaries as of September 30, 1998 and 1997, and for each of the three years
in the period ended September 30, 1998, and have issued our report thereon dated
November 20, 1998 (included elsewhere in this Form 10-K). Our audits also
included the financial statement schedules included in this Form 10-K. These
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Tulsa, Oklahoma
November 20, 1998
37
<PAGE> 38
SCHEDULE VIII
MPSI SYSTEMS INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------------- ----------- ------------------------------- --------------- ------------
ADDITIONS
-------------------------------
BALANCE AT CHARGED TO OTHER BALANCE
BEGINNING COSTS AND REDUCTION OF (DEDUCTIONS) AT END OF
DESCRIPTION OF PERIOD EXPENSES REVENUES ADDITIONS PERIOD
- --------------------------------------- ----------- ------------ ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
For the year ended September 30, 1996:
Accumulated depreciation ............. $ 7,420,000 $ 450,000 $ -- $ (901,000)(2) $ 6,969,000
Accumulated amortization ............. 2,498,000 592,000 -- (2,000) 3,088,000
Unamortized discount on software
license agreements ................ 321,000 -- 77,000(1) (160,000)(1) 238,000
For the year ended September 30, 1997
Accumulated depreciation ............. $ 6,969,000 $ 419,000 $ -- $ (86,000)(2) $ 7,302,000
Accumulated amortization ............. 3,088,000 617,000 -- -- 3,705,000
Unamortized discount on software
license agreements ................. 238,000 -- 445,000(1) (177,000)(1) 506,000
For the year ended September 30, 1998
Accumulated depreciation ............. $ 7,302,000 $ 425,000 $ -- $(2,151,000)(2) $ 5,576,000
Accumulated amortization ............. 3,705,000 314,000 -- -- 4,019,000
Unamortized discount on software
License agreements ................. 506,000 -- 121,000(1) (267,000)(1) 360,000
</TABLE>
- ----------
(1) Reduction of unamortized discount on long-term receivables represents
current period interest income recognition (see Note 2 to Consolidated
Financial Statements). Increases to unamortized discount represent the
present-value-discount on new software license agreements net of adjustment
for any contract cancellations or revisions.
(2) Reduction is due to retirement of fully amortized assets and to assets sold
or otherwise disposed.
38
<PAGE> 39
SCHEDULE IX
MPSI SYSTEMS INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
THREE YEARS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- -------- -------- -------- -------- --------
MAXIMUM AVERAGE WEIGHTED
WEIGHTED AMOUNT AMOUNT AVERAGE
CATEGORY OF AGGREGATE BALANCE AT AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE
SHORT-TERM BORROWINGS END OF PERIOD INTEREST RATE (2) DURING PERIOD DURING PERIOD DURING PERIOD (2)
------------------------ --------------- ----------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Note payable to bank (1) $350,000 9.25% $600,000 $361,000 9.25%
</TABLE>
(1) Note payable originated in May 1997 with a borrowing limit of $500,000.
In May 1998, the note payable to the bank was increased to an aggregate
amount of $1,500,000. The borrowings as of September 30, 1997 were
$147,000.
(2) Calculated by multiplying the number of days applicable to each
interest rate change times the applicable interest rate and dividing
the results by 365 days.
39
<PAGE> 40
SCHEDULE X
MPSI SYSTEMS INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
THREE YEARS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
COLUMN A COLUMN B
- ---------------------------------------- ------------------------------------
FISCAL YEAR ENDED
SEPTEMBER 30,
------------------------------------
ITEM 1998 1997 1996
- ---------------------------------------- ------------ ------------ --------
<S> <C> <C> <C>
Maintenance and repairs................. $ 88,000 $ 214,000 $ 172,000
Amortization of internally developed
software................................ 314,000 617,000 592,000
Royalties............................... -- 93,000 125,000
Advertising costs....................... 90,000 112,000 114,000
</TABLE>
40
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant, a corporation organized and existing under
the laws of the State of Delaware, has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Tulsa,
State of Oklahoma, on the 9th day of December, 1998.
MPSI SYSTEMS INC.
By /s/ Ronald G. Harper
-----------------------------------
Ronald G. Harper
Chairman of the Board,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed below by the following persons on behalf of the Registrant, in the
capacities and on the date indicated.
<TABLE>
<S> <C> <C>
/s/ Ronald G. Harper Chairman of the Board, December 9, 1998
- -------------------------------- President and Chief
Ronald G. Harper Executive Officer
/s/ James C. Auten Vice President and Chief-- December 9, 1998
- -------------------------------- Financial Officer
James C. Auten
s/ John C. Bumgarner, Jr. Director December 9, 1998
- --------------------------------
John C. Bumgarner, Jr.
/s/ David L. Huff Director December 9, 1998
- --------------------------------
David L. Huff
/s/ Joseph C. McNay Director December 9, 1998
- --------------------------------
Joseph C. McNay
/s/ John J. McQueen Director December 9, 1998
- --------------------------------
John J. McQueen
/s/ Bryan D. Porto Director December 9, 1998
- --------------------------------
Bryan D. Porto
</TABLE>
The Company's Proxy Statement for the Annual Meeting of Stockholders to be
held February 1, 1999 has not yet been sent to stockholders. Copies of such
materials will be furnished to the Commission at such time as they are sent to
stockholders.
41
<PAGE> 42
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------- -------
<S> <C>
10.1 -- MPSI Systems Inc. 1998 Stock Plan
10.7 -- MPSI Corporate Headquarters Facility Lease
21.1 -- List of Subsidiaries
23.1 -- Consent of Independent Auditors -- Ernst & Young LLP
27.1 -- Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
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 shareholders by motivating those
persons selected to participate in the 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 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
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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.
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.
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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 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,
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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.
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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. 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;
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(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;
(1) 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;
(p) to determine the restrictions or limitations on the
transfer of Common Stock;
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(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.
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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 Shareholder Rights. No person shall have any rights of a
shareholder 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 shareholder 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 shareholder 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 the date such shares are recorded as issued or
transferred in the Company's official shareholder 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 shareholders 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.
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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 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.
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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 shareholders 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
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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
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 shareholder 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 shareholder 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.
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(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 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
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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.
(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
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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.
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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 shareholder 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.
(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.
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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 shareholders 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 voting power of the
Company's then outstanding securities entitled to vote in the election
of directors of the Company; or
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(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 shareholders 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 shareholders 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 shareholder 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.
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<PAGE> 18
(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 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
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<PAGE> 19
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.
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
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<PAGE> 20
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
shareholder 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 shareholder 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.
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<PAGE> 21
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 4th day of February, 1998.
MPSI SYSTEMS INC.
By: /s/ Ronald G. Harper
----------------------------------
Ronald G. Harper
Chairman, President and
Chief Executive Officer
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<PAGE> 1
EXHIBIT 10.7
LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease"), made in multiple copies and entered
into between American Southwest Properties, Inc., an Oklahoma corporation, (the
"Landlord"), and MPSI System Inc., a Delaware corporation (the "Tenant");
WITNESSETH:
That Landlord in consideration of the covenants and agreements to be
performed by Tenant and upon the terms and conditions hereinafter stated does
hereby lease, demise and let unto Tenant and Tenant does hereby let and accept
from Landlord the premises described in Exhibit "A" (the "Demised Premises"),
complete with the item of work and materials required. if any, under the term of
a certain work letter executed between Landlord and tenant attached hereto as
Exhibit "B" in the building known as the Southpark Building (the "Building")
together with outdoor, non-exclusive, surface automobile parking adjacent to the
Building at a ratio of one parking space per 250 rentable square fed ("RSF") in
the Demised Premises, from time to time, all on that certain tract or parcel of
land located, lying and being situate in Tulsa County, State of Oklahoma, more
particularly described as follows:
Lot One (1), Block Three (3), SOUTHPARK CENTER (Block One (1)
Lots One (1) through Four (4), Block Two (2) and Lot One (1),
Block Three (3)), an Addition to the City of Tulsa, according to
the recorded Plat thereof (the "Land");
TO HAVE AND TO HOLD the Demised Premises unto the Tenant, its duly
approved successors and assigns, for sixty-two (62) consecutive months (the
%ease Term") commencing the first day of the mouth after (1) the date Tenant
actually takes possession of the Demised Promises, in whole or in part, i.e.,
for occupancy or use, or (2) ninety (90) days after the date on which the Lease
is fully executed by the Landlord and Tenant, whichever date occurs first (the
"Commencement Date"), and ending, at midnight local time on the last day of the
sixty-second (62nd) month after the Commencement Date (the "Expiration Due);
PROVIDED, however, Tenant shall be permitted access to the Demised Premises
before the Commencement Date once this Lease is in force at all reasonable times
and under reasonable conditions for purposes of construction and installation of
leasehold improvements and furnishing the same. By occupying the Demised
Premises, Tenant shaft be deemed to have accepted them as suitable for an
purposes and to have acknowledged they comply fully with Landlord's obligations
hereunder. For purposes of this paragraph, occupancy or occupying shall not
include construction prior to move in to the Demised Premises. Landlord hereby
waives payment of rent covering any period prior to the tendering of possession
to Tenant hereunder. The Lease shall be subject to the following terms and
conditions:
1. RENT. Tenant promises to pay Landlord at Landlord's place of business,
in advance and without further demand or set off, the sum of Two Million Six
Hundred Thirty-Seven Thousand Four Hundred Twenty-Four and 201100 Dollars
($2,637,424.20) as and for
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<PAGE> 2
minimum rent for the entire Lean Term in monthly installments payable as
follows: A. No rent shall be due and payable during the first two months of the
Lease Term;
B. Commencing the third month of the Lease Term and on like date of
each of the next succeeding months through and including the 14th month thereof
the monthly rent is $41,698.90 per month ($9.19 per RSFX 54,436 RSF divided by
12);
C. Commencing the 15th month of the Lease Term and on like date of each
of the next succeeding months through and including the 26th mouth thereof the
monthly rent is $42,922.99 per mouth ($9.44 per RSF X 54,436 RSF divided by 12);
D. Commencing the 27th month of the Lease Term and on like date of each
of the next succeeding months through and including the 38th month thereof the
monthly rent is $43,957.07 per month ($9.69 per RSF X 54,436 RSF -4-12);
E. Commencing the 39th month of the Lease Term and on like date of each
of the next succeeding months through and including the 50th month thereof the
monthly rent is $45,091.15 per month ($9.94 per RSF X 54,436 RSF - 12); and
F. Commencing the 51st month of the Lease Term and on like date of each
of the next succeeding months through and including the 62nd and final month
thereof the monthly rent is $46,225.24 per month ($10.19 per RSF X 54,436 RSF
divided by 12) until all minimum rent is My paid.
Further, if this Lease be renewed, pursuant to the provisions of
Paragraph 34, infra, then in such event, commencing on the first day of the
Renewal Term, and on like date of each of the succeeding months through and
including the 12th and final month thereof the monthly rent payable to Landlord
shall be determined, as follows: $10.70 per RSF X 54,436 RSF divided by 12.
All installments of said rent shall be due and payable, without demand
or setoff on or before the first day of each calendar month during the Lease
Term. Rent for any fractional month at the beginning or end of the LEASE, Term
shall be prorated. A security deposit of Forty-One Thousand Six Hundred
Eighty-Eight and 90/100 Dollars ($41,689.00) shall be payable to Landlord in
addition to the monthly minimum, rent installment due January 1, 1999. The
security deposit shall be held by Landlord as security for the performance by
Tenant of Tenant's covenants and obligations under this Lease, it being
expressly understood that such deposit shall not be considered an advance
payment of rental or a measure of Landlord's damages in case of default by
Tenant. Upon the occurrence of any event of default by Tenant, Landlord may,
from time to time, without prejudice to, any other damage, injury expense or
liability caused to Landlord deduct said amount from the security deposit and
demand repayment of the amount so applied in order to restore the security
deposit to its original amount. If Tenant is not then in default hereunder, any
remaining balance of such deposit shall be returned by Landlord to Tenant upon
termination of this Lease. If Landlord transfers its interest in the Demised
Premises, Landlord shall assign the security deposit to the transferee and
thereafter shall have no further liability for the return of such security
deposit.
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<PAGE> 3
In the event Tenant fails to pay any installment of rent or other
incurred expense hereunder within five (5) days of the due date, to help defray
the additional cost to Landlord for processing such late payments Tenant shall
pay to Landlord on demand a late charge in an amount equal to five percent (5%)
Of such installment. The provision for such late charge shall be in addition to
all of Landlord's other rights and remedies hereunder or at law, equity or both
and shall not be construed as liquidated damages or as limiting Landlord's
remedies in any manner.
2. USE. The Demised Premises shall be used and occupied by Tenant only as
general office space. Tenant shall not use, or permit to be used, the Demised
Premises for any other purpose. Tenant will not occupy or use, nor permit the
occupation or use of any portion of the Demised Premises for any business or
purpose which is unlawful in part or in whole or deemed to be disreputable in
any manner or extra hazardous on account of fire, nor permit anything to be done
which will in any way increase the rate of fire insurance on the Building or its
contents, and in the event that, there shall be any increase in the rate of
insurance on the Building or contents created by Tenant's ads or conduct of
business then such acts shall be deemed to be an event of default hereunder and
Tenant hereby agrees to pay the amount of such increase on demand, and
acceptance of such payment shall not constitute a waiver of any of Landlord's
rights hereunder.
3. LANDLORD'S OBLIGATIONS. The Landlord shall be responsible for the
following items:
A. Furnishing utility services such as electricity, water and sewer,
natural gas, and telephone services at the points of supply provided for general
use of tenants of the Building; heated and refrigerated air conditioning in
season, at such times as Landlord normally furnishes these services to all
tenants of the Building, and at such temperatures and in such amounts as are
considered standard for comparable office buildings in Tulsa, Oklahoma divided
by including without limitation, janitorial services (5 day per week the
schedule for which is attached hereto as Exhibit "C"); elevator service; and
electric service in the manner and to the extent deemed standard for comparable
office buildings in Tulsa, Oklahoma. The failure, to any went to furnish, or any
stoppage of these defined services, resulting from any cause, shall not render
Landlord liable in any respect for damages to person, property or business, nor
be construed as an eviction of Tenant or work as at) abatement of rent (unless
said interruption continues for fifteen (15) consecutive days after notice in
writing has been received by Landlord, in which event rent shall abate as of the
date of the interruption), nor relieve Tenant from fulfillment of any covenant
or agreement thereof "Should any equipment or machinery furnished by Landlord
break down, or for any cause cease to function property, Landlord shall use
reasonable diligence to repair same promptly, but Tenant shall have no claim for
rebate of rent (unless said interruption continues for fifteen (15) consecutive
days in which event rent shall abate as of the date of the interruption) or
damages on account of any interruptions in service occasioned thereby or
resulting therefrom. Tenant shall pay to Landlord on demand such charges as
Landlord may reasonably prescribe for any extraordinary electric service
required by Tenant. Landlord agrees that all equipment required to be installed
by Landlord will be in good working condition on the Commencement Date. General
ad valorem taxes and special assessments, if
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any, property insurance (fire and extended coverage insurance) on the Building
itself, general maintenance and management expense shall be the Landlord's
expense, subject to the right to recover a part of the basic costs pursuant to
Section 15 hereof. Landlord agrees that the temperature variance in the Demised
Premises shall not exceed 85 degrees F. nor fall below 55 degrees F. during
Non-Operating Hours of the Building. Landlord agrees to be responsible for
general maintenance of the Building and surrounding grounds including, but not
limited to, trash removal, mowing and snow removal on sidewalks and parking
areas.
B. Except when the Tenant is observing National or State holidays in the
ordinary course of its business, the Building shall be open for business between
7:00 o'clock A.M. and 6:00 o'clock P.M., Monday through Friday and 8:00 o'clock
A.M. until 1:00 o'clock P.M. on Saturdays (the "Operating Hours"). The HVAC, gas
and electrical utility charges for the Building shall be the obligation of the
Landlord during Operating Hours of the Building.
Should the Tenant require HVAC, gas and/or electricity other than during
Operating Hours then, in that event, the Landlord shall provide such additional
services to the Demised Premises upon Tenant's prior request and Tenant shall
pay Landlord for such services within fifteen (15) days of receipt of an invoice
therefor at an hourly rate reasonably determined by Landlord and agreed to by
Tenant within ninety (90) days after the Tenant's move in (the "Hourly Rate"
charged for use of utilities during non-operating hours). After the first Lease
Year, Landlord shall only have the right to adjust the hourly rate once a year
at the time the Landlord adjusts Tenant's Operating Expenses. Any adjustment to
the hourly rate shall be determined by professional means or such other means as
may produce objective, verifiable evidence of said increased cost. Tenant and/or
Landlord may, with the Landlord's prior written consent as to type, model, make
and cost, elect to purchase and install an electrical and gas measuring device
to record the actual times these services are used by the Tenant before and
after Operating Hours of the Building. In such event, Tenant shall be
responsible for the first $10,000 cost to purchase and install such device and
the Landlord shall be responsible for the excess. In the event such system
benefits the entire building, Tenant's share of said cost shall be calculated on
a pro rata basis not to exceed $10,000. Should the device not be purchased or
installed, or if installed, should it fail to become operative or in disrepair
for any reason, then, in either event, the Landlord shall be entitled to
professionally estimate all other hourly charges and bill the same to the Tenant
with equal force and effect.
C. Landlord shall pay Tenant a relocation allowance of $81,654 ($1.50 X
54,436 RSF) payable in cash within 90 days after the Lease is executed by
Landlord and Tenant.
D. Landlord shall maintain a minimum of 10,000 rentable square feet
("RSF") in the Building contiguous to the Demised Premises (previously
identified as first floor - Section "L" West and N/2 Section H, as defined in
Exhibit "E") for a period of two (2) years from and after the Rent Commencement
Date for potential use by Tenant should it elect to expand its offices. Tenant
shall not be charged for the 1,922 RSF hallway, although included within the
aforementioned 10,000 RSF (herein "Expansion Area"). Expansion Area shall be
held by the Landlord without additional charge to Tenant. Should Tenant elect to
exercise its options to rent any or all of Expansion Area, Tenant shall give
Landlord sixty (60) days notice in writing.
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Rent shall commence after the sixty (60) day period or on the date of occupancy
or use thereof, whichever occurs first, at the same rate per rentable square
foot then applicable. The Lease Term herein mentioned shall apply equally to the
expansion space and any and all tenant improvement allowances shall apply
equally to the Expansion Area and any and all tenant improvement allowances
shall be reduced and prorated in ratio to the Lease Term remaining as of the
date rent shall commence. The Expansion Area shall be made available coterminous
with the terms of the original lease. If Tenant elects to exercise its expansion
option during the first two (2) years of the lease term, Tenant must first
expand into the 10,000 square feet reserved Expansion Area, before expanding
into additional blocks of space within the building.
During the Lease Term, 823 square feet of "as is" storage space is
available to Tenant at no charge within the Demised Premises, which is in
addition to the 54,436 square feet of rentable space. The location of this 823
square feet is shown on Exhibit A. In addition, Landlord will make available at
no charge to Tenant, 1700 square feet of "as is" storage space within the
building, during the Lease, contingent upon at least 1700 square feet remaining
unoccupied by another tenant within the building. During the first two (2) years
of the Lease Term, the 1700 square feet of "as is" storage space shall be
located within the unoccupied portion of the 10,000 square feet of reserved
Expansion Space described above. After the first two (2) years of the Lease Term
(or during the first two (2) years of the Lease Term, should tenant elect to
fully occupy the reserved Expansion Space described above), the location of the
1700 square feet of "as is" storage space shall be determined at Landlord's
sole discretion. Should Landlord lease Tenant's storage space to a third party,
Tenant shall vacate the space within thirty (30) days of written notice from
Landlord (or prior to the second year, if Tenant exercises its Expansion
Option).
E. Landlord shall maintain a minimum of 10% of total air volume intake of
outside air in the Building's HVAC system
F. Landlord shall have Tenant's carpeted areas professionally cleaned one
time per year upon five days verbal notice from Tenant to Landlord, at
Landlord's sole expense.
4. TENANT'S REPAIRS AND ALTERATIONS. All existing fixtures, equipment,
HVAC and other improvements in the Demised Premises shall remain in-place for
Tenant's use if applicable to Tenant's plans at no additional charge to Tenant.
Tenant shall have the right to perform its own construction management,
including, but not limited to selection of contractors pre-qualified and
approved in writing by Landlord. There shall be no additional Landlord mark-up
for construction costs or construction management. Landlord has the right to
approve Tenant's plans, PROVIDED that Tenant is no way relieved of its
responsibility to maintain the building and structure integrity. Tenant shall
pay all design and engineering fees associated with Tenant's work. Tenant may
amortize the cost of additional improvements over and above the allowance stated
in Paragraph 1.G. of Exhibit B (Work Letter); however, not to exceed a maximum
of $12.00 per square foot by adding to the minimum rent payments using a 9.5%
interest rate. Tenant shall not be required to remove its cabling and telephone
lines at the expiration of the Lease.
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Tenant shall not in any manner deface, damage or injure the Building,
or any part thereof and shall pay the cost of repairing any damage or injury
done to the Building or any part thereof by Tenant or Tenant's agents,
contractors, employees and invitees. Tenant shall take good care of the Demised
Premises and keep them free from waste and nuisance of any kind. Tenant agrees
to keep the Demised Premises, including all fixtures installed by Tenant and any
interior plate glass, in good condition and make all necessary repairs. At the
end or other termination of this Lease, Tenant shall deliver up the Demised
Premises with all improvements located thereon, except as provided in this
paragraph, in good repair and condition, reasonable wear and tear accepted.
Except for non-structural alterations costing less than $10,000 for each such
alteration, Tenant shall not make or allow to be made any alterations or
physical additions in or to the Demised Premises without the prior written
consent of Landlord. Such improvements shall be delivered up to Landlord with
the Demised Premises. All furniture and moveable trade fixtures installed by
Tenant may be removed by Tenant at the termination of this Lease if Tenant so
elects and shall be removed if Landlord so elects. All such removals and
restoration shall be accomplished in a good and workmanlike manner so as not to
damage the structure or structural qualities of the Building. If the removal of
trade or other fixtures as Tenant shall be entitled to remove at the end of the
Lease Term and Renewal Term, as applicable, blemishes or otherwise damages the
walls, floors, ceiling and other parts of the Demised Premises, then, Tenant
shall be obliged to promptly repair said damage, ordinary wear and tear
excepted.
The sufferance or commission of waste or filing of mechanic's or
materialmens' or laborer's liens on the Building Land shall constitute an event
of default by the Tenant, and failure of Tenant to secure release and discharge
of such liens, or to provide sufficient security acceptable to Landlord to
protect Landlord against said liens after thirty (30) days written notice to
Tenant, shall constitute a default under the Lease, for which Landlord may
exercise any remedy at law or in equity available to obtain relief therefrom.
5. ASSIGNMENT AND SUBLETTING. Tenant shall not assign this Lease, or
allow same to be assigned by operation of law or otherwise, or sublet the
Demised Premises or any part thereof without the prior written consent of
Landlord, which consent shall not be unreasonably withheld or delayed. Landlord
shall have the right to transfer and assign, in whole or in part, any of its
rights under this Lease, and in the Building and Property, and to the extent
that such assignee assumes Landlord's obligations hereunder, Landlord shall by
virtue of such assignment be released from such obligations occurring after the
effective date of the assignment. No assignment or subletting of this Lease or
any part thereof by Tenant, shall operate to release Tenant from its obligations
under this Lease. So long as Tenant or any Related Entity (hereinafter defined),
is the Tenant, Tenant shall have the right, without the consent or approval of
Landlord, to: (a) assign its interest in the lease (i) to any corporation or
other entity which is a successor to Tenant either by merger or consolidation,
or (ii) to a purchaser of all or substantially all of Tenant's assets, or (iii)
to a corporation or other entity which shall directly or indirectly control, be
under control of, or be under common control with a Related Entity. For purposes
hereof, control shall be deemed to mean the direct or indirect
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ownership of more than fifty percent of the outstanding voting stock of a
corporation or other majority equity and controlling interest if not a
corporation.
6. MAINTENANCE. Tenant shall maintain the Demised Premises in a clean and
healthful condition, and except as provided in Section 24 of this Lease, comply
with all laws, ordinances, orders, rules, and regulations (state, federal,
municipal, and other agencies or bodies having any jurisdiction thereof) with
reference to use, condition, or occupancy of the Demised Premises.
7. LIABILITY AND INSURANCE. Landlord shall not be liable for and Tenant
will save, defend, indemnify, and hold Landlord harmless from any loss,
liability, costs and expenses, including attorneys fees, arising out of any
claim for bodily injury or property damage on or about the Demised Premises due
to the alleged negligence or misconduct or breach of this Lease by Tenant, its
agents, contractors, employees, invitees or by any other person entering the
Demised Premises, the Building or Land under express or implied invitation of
Tenant or arising out of Tenant's agents, contractors, employees, invitees or
any person entering upon the Property in whole or in part because of Tenant's
use of the Demised Premises for any damage to persons or property due to
condition, design or defect in the Demised Premises or its mechanical systems
which may exist or occur, and Tenant assumes all risks of damage to such persons
or property, Landlord shall not be liable or responsible for any loss or damage
to any property or person occasioned by theft fire, act of God, public enemy,
injunction, riot, strike, war, court order, requisition or order of governmental
body or authority, or other matter beyond the control of Landlord, or for any
injury or damage or inconvenience, which may arise through repair or alteration
of any part of the Building, or failure to make repairs, or from any cause
whatever except Landlord's willful acts or negligence.
TENANT'S INSURANCE.
Tenant, at its expense, shall maintain in force during the Lease Term:
(1) comprehensive general public liability insurance, which shall include
coverage for personal injury, contractual liability, broad form property damage,
products/completed operations, independent contractors, bodily injury (including
death), and property damage, all on an occurrence basis with respect to the
business carried on, in or from the Demised Premises and Tenant's use and
occupancy of the Demised Premises with coverage for any one occurrence or claim
of not less than $1,000,000.
(2) fire and extended coverage insurance for the replacement value of
Tenant's property (including fixtures, leasehold improvements and equipment
which Tenant is required to replace under this Lease) in the event of loss,
damage or destruction.
All insurance required to be maintained by Tenant shall be on terms and
with insurers reasonably acceptable to Landlord. Each policy shall contain a
waiver by the insurer of any rights of subrogation or indemnity or any other
claim as provided herein. These policies shall name Landlord as an additional
insured.
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Such insurance shall contain a clause that the policy will not lapse, be
canceled or be materially changed, except after not less than 30 days' prior
written notice to Landlord of the intended change, lapse or cancellation. Tenant
shall furnish to Landlord, if and whenever requested by it, certificates or
other evidences acceptable to Landlord as to the insurance from time to time
maintained by Tenant and the renewal or continuation in force of such insurance.
Landlord at all times during the term of this Lease and any other period
of occupancy of the Premises by Tenant shall provide and maintain, at Landlord's
expense, comprehensive fire insurance with extended coverage insuring the
Building, providing such level of coverage and insuring against such risks as
are customarily maintained with respect to comparable Buildings in the market in
which the Premises are located.
Each party hereto hereby waives any and all claims for recovery which
such party or anyone claiming through such party may have against the other
party hereto (or such other party's officers, agents or employees) for or with
respect to any loss of or damage to such waiving party's property which is
insured under valid insurance policies, to the extent of any recovery actually
collectible under such insurance policies, whether or not such loss or damage
caused by the negligence of such other party or such other party's agents,
employees, subtenants, concessionaires or licensees or of any other person or
persons for whose actions such other party may be responsible or liable.
Landlord and Tenant each agree to obtain from the insurance companies providing
its insurance applicable hereto permission to allow Landlord and Tenant to waive
their respective insurance companies' rights of subrogation. Landlord and Tenant
shall each provide to the other written proof of the waiver of said claims by
said insurance companies.
8. RULES AND REGULATIONS. Tenant and Tenant's agents, contractors,
employees, visitors and invitees shall comply fully with all requirements of the
rules of the Building, a copy of which is attached hereto as Exhibit "D" and
made a part hereof as though fully set out herein. Landlord shall at all times
have the right to change such rules and regulations or to amend them in such
reasonable manner as may be deemed advisable for safety care, and cleanliness of
the Building and for preservation of good order therein, all of which rules and
regulations, changes, and amendments, shall apply equally to all tenants and
will be furnished to Tenant in writing and shall be carried out and observed by
Tenant. Tenant shall further be responsible for the compliance with such rules
and regulations by the employees, servants, agents, contractors, visitors and
invitees of Tenant. In the event of a conflict between the rules and regulations
and this Lease, the provisions of the Lease shall control.
9. INSPECTION. Landlord, or its officers, agents, contractors and
representatives, shall have the right to enter into and upon any and all parts
of the Demised Premises, upon prior reasonable notice and approval of tenant
(except in the event of an emergency), (a) at all reasonable hours to inspect
same or clean or make repairs or alterations or additions as Landlord may deem
necessary, or (b) during business hours to show the Demised Premises to
prospective tenants, purchasers or lenders, and Tenant shall not be entitled to
any abatement or reduction of rent by reason thereof
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10. CONDUCT OF BUSINESS. Tenants shall conduct its business, and control
its agents, contractors, employees, visitors so as not to create any nuisance,
or interfere with, annoy or disturb other tenants or Landlord in the management
of the Building.
11. CONDEMNATION. If the Demised Premises are taken or condemned in whole
or part for public purposes, then this Lease shall at the option of Landlord or
Tenant, to be exercised by written notice given to the other within thirty (30)
days after the date of such taking forthwith cease and terminate.
12. FIRE AND OTHER CASUALTY. In the event that the Building should be
totally destroyed, without limitation, by fire or other casualty, or should be
so damaged that rebuilding or repairs cannot be completed within one hundred
eighty (180) days after the date of such casualty, either Tenant or Landlord may
at its option terminate this Lease, to be exercised within thirty (30) days
after the date of such casualty. In the event this Lease is not so terminated,
rent shall be abated during the unexpired portion of this Lease effective with
the date of such damage, and Landlord may proceed to rebuild and repair the
Building and the Demised Premises, except that Landlord shall not be required to
rebuild, repair or replace any part of the partitions, fixtures, and other
improvements which may have been placed by Tenant or other tenants within the
Building. In the event the Building should be damaged by fire or other casualty,
but only to such extent that rebuilding or repair can be completed within one
hundred eighty (180) days after the date of such casualty, or if the casualty
should be more serious but neither Landlord or Tenant elect to terminate this
Lease, in either such event Landlord shall within forty (40) days after the date
of such casualty commence to rebuild or repair the Building and shall proceed
with reasonable diligence to restore the Building to substantially the same
condition in which it was immediately prior to the happening of the casualty,
except that Landlord shall not be required to rebuild repair or replace any part
of the partitions, fixtures, and other improvements which may have been placed
by Tenant or other tenants within the Building. Landlord shall allow Tenant a
fair diminution of rent during the time the Demised Premises are unfit for
occupancy. Any insurance which may be collected by Landlord or Tenant against
loss or casualty to the Building or to the Demised Premises shall be for the
sole benefit of the party, carrying such insurance and under its sole control.
Notwithstanding any of the foregoing to the contrary, neither Landlord nor
Tenant shall be required to continue under this Lease if the Demised Premises
have been damaged to such an extent that Tenant has been required to vacate all
or a substantial portion of the Demised Premises and at the time such casualty
occurred, less than twelve (12) months remain on the Term.
13. HOLDING OVER. Should Tenant, or any of its successors in interest,
hold over the Demised Premises, or any part thereof after the expiration of the
Lease Term or Renewal Term, as the case may be, unless otherwise agreed in
writing, such holding over shall constitute and be construed as a tenancy at
sufferance only, at a rental equal to the rent paid for the last month of the
Term, plus fifty percent (50%) of such rent. The inclusion of the preceding
sentence shall not be construed as Landlord's consent for the Tenant to hold
over.
14. TAXES ON TENANT'S PROPERTY. Tenant shall be liable for all taxes
separately
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levied or assessed against personal property, furnishings or fixtures placed by
Tenant in the Demised Premises. If any such taxes for which Tenant is liable are
levied or assessed against Landlord or Landlord's property and if Landlord
elects to pay the same or if the assessed value of Landlord's property is
increased solely by inclusion of personal property, furniture or fixtures placed
by Tenant in the Demised Premises, and Landlord elects to pay the taxes based on
such increase, Tenant shall pay to Landlord upon demand that part of such taxes
for which Tenant is primarily liable hereunder.
15. RENT ADJUSTMENT - OPERATING EXPENSES. The Minimum rent
specified in Section 1 hereof, is subject to adjustment if and when the
Operating Expenses reflected in accordance with generally accepted accounting
principles exceed the Expense Stop, as herein defined. The term "Expense Stop"
shall mean the actual per square foot Basic Costs of operating the Building in
calendar year 1998 (the "Base Year"), and the term "Basic Costs" shall include
those expenses paid or incurred by the Landlord for maintaining, operating and
repairing the Land of which the Demised Premises are a part, the Building and
other improvements thereon and the personal property used in conjunction
therewith (the "Project") including but not limited to the cost of ad valorem
taxes, electricity, natural gas, ventilation, heating and air conditioning,
water, window cleaning, janitorial service, trash removal, insurance, including
but not limited to fire, extended coverage, liability, worker's compensation,
elevator or any other insurance carried in good faith by the Landlord and
applicable to the Project, painting, uniforms, customary property management
fees not to exceed five percent (5%) of the gross rents, supplies, sundries,
sales or use taxes on supplies or services, cost of wages and salaries of all
persons engaged in the operation, maintenance and repair of the Project, the
charges of any independent contractor who under contract with the Landlord or
its representatives does any of the work of operating, maintaining or repairing
the Project, legal expenses (however, limited to those which are for the benefit
of all tenants of the Building) and accounting expenses or any other expense or
charge, whether or not herein before mentioned. If any Project expense, though
paid in one year, relates to more than one calendar year, such expense shall be
proportionately allocated among such related calendar years in accordance with
general accepted accounting principles. The term "Operating Expenses" as used
herein, shall not include depreciation on the Building or equipment, interest,
leasing commissions, capital expenditures or executives' salaries.
Adjustments, if any, shall be calculated according to generally accepted
standards of accounting for office building management and added proportionate
to the ratio of tenant's RSF to the total square footage of the Building. If
occupancy in the Building during the Base Year is less than ninety-five percent
(95%), the Operating Expenses for the Base Year shall be increased to an amount
that would have been incurred had the Building been ninety-five Percent (95%)
occupied during the Base Year, Landlord shall provide Tenant a reasonably
detailed written description of its computation and proration of the Operating
Expenses. In no event shall the amount of Operating Expenses be reduced below
the Expense Stop for the Base Year or previous year, nor shall Tenant's share
of Operating Expenses in any Lease Year of this Lease increase more than five
percent (5%) over and above the Tenant's share of the previous year's recovered
Operating Expenses.
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Within one hundred fifty (150) days after the close of the calendar year,
Landlord shall give Tenant a statement of the operating expenses for the
Building for such calendar year. If such operating expenses exceed the Expense
Stop, Tenant will pay Landlord, within thirty (30) days of statement receipt
Tenant's proportionate share of such increased expenses for the entire year
immediately preceding issuance of said statement and for the previous months in
the then current year. Thereafter, Tenant will pay in addition to the minimum
rents, an adjusted monthly rent, which reflects the most recent year's operating
expense increases, subject to increases as aforesaid. Tenant shall have the
right to audit the Operating Expenses at its sole cost and expense at Landlord's
place of business upon reasonable prior notice, during regular office hours. In
the event such audit reasonably determines a discrepancy in the amount paid by
Tenant, Tenant shall furnish Landlord a true copy thereof with a written request
that Landlord shall refund such amount within thirty (30) days after receipt
thereof. If Landlord disputes said audit and request for refund, Landlord shall
furnish Tenant written objections to the audit and request for refund within
said thirty (30) days period in lieu of a refund. The parties understand and
agree that Landlord can pass through Operating Expense increases over and above
the Base Year in any successive year; PROVIDED, however, in no event shall the
increase passed through exceed five percent (5%) of the Tenant's share of
Operating Expenses for the Lease Year immediately preceding the Lease Year in
which the increase in Operating Expense is to be added.
If at the Commencement Date, or at termination of this Lease a partial
calendar year is involved, Operating Expenses shall be computed as though a full
calendar year was involved and prorated for such partial year. If this Lease
terminates other than at the end of a calendar year, an estimate of current
annual Operating Expenses shall be computed for the year of termination and any
increased rental based on such estimate shall be billed to the Tenant prior to
termination.
16. EVENTS OF DEFAULT. The following events shall be deemed to be events
of default by Tenant under this Lease:
A. Tenant shall fail to pay any installment of the rent hereby reserved
and such failure shall continue for a period of ten (10) days after receipt by
Tenant of written notice of said default.
B. Tenant shall fail to comply with any term, provision, or covenant of
this Lease, other than the payment of rent, and such failure shall continue for
a period of thirty (30) days after receipt by Tenant of written notice of said
default, or in the case of a default not curable within thirty (30) days, if
Tenant shall fail to commence to cure the same within thirty (30) days, and
thereafter proceed diligently to complete the cure thereof.
C. Tenant shall make an assignment for the benefit of creditors.
D. Tenant shall file a petition under any section or chapter of the
United States Bankruptcy Code, as amended, or under any similar law or statute
of the United States or any State thereof, or Tenant shall be adjudged bankrupt
or insolvent in proceedings filed against
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Tenant thereunder and such adjudication shall not be vacated or set aside or
stayed within the time permitted by law.
E. A receiver or Trustee shall be appointed for all or substantially all
of the assets of Tenant and such receivership shall not be terminated or stayed
within sixty (60) days.
F. Tenant shall desert or vacate all or any substantial portion of the
Demised Premises for a period of fifteen (15) days or more and Tenant fails to
pay rent as required under this Lease.
17. REMEDIES. Upon the occurrence of any event of default specified in
Paragraph 16 hereof, in addition to any other remedy at law or in equity,
Landlord shall have the option to pursue any one or more of the following
remedies without any notice or demand whatsoever:
A. Terminate this Lease in which event Tenant shall immediately surrender
the Demised Premises to Landlord and if Tenant fails to do so, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearage in rent, to the extent permitted by law, enter upon and take
possession and expel or remove Tenant and any other person who may be occupying
the Demised Premises or any part thereof, without being liable for prosecution
or any claim of damages therefor.
B. To the extent permitted by law, enter upon and take possession of the
Demised Premises and expel or remove Tenant and any other person who may be
occupying the Demised Premises or any part thereof without being liable for
prosecution or any claim for damages therefor, and if Landlord so elects, relet
the Demised Premises and receive the rent therefor, and Tenant agrees to pay to
Landlord on demand any deficiency that may arise by reason of such reletting.
C. To the extent permitted by law, enter upon the Demised Premises
without being liable for prosecution or any claim for damages therefor, and do
whatever Tenant is obligated to do under the terms of this lease; and Tenant
agrees to reimburse Landlord on demand for any expenses which Landlord may incur
in thus effecting compliance with Tenant's obligations under this Lease, and
Tenant further agrees that Landlord shall not be liable for any damages
resulting to the Tenant from such action.
Pursuit of any of the foregoing remedies shall not preclude pursuit of
any of the other remedies herein provided or any other remedies provided by law,
equity or both, nor shall pursuit of any remedy herein provided constitute a
forfeiture or waiver of any rent due to Landlord hereunder or of any damages
occurring to Landlord by reason of the violation of any of the terms, provisions
and covenants herein contained. Landlord's acceptance of rent following an event
of default hereunder shall not be construed as Landlord's waiver of such event
of default. No waiver by Landlord of any violation or breach of any of the
terms, provisions and covenants herein contained nor forbearance by Landlord to
enforce one or more of the remedies herein provided upon an event of default
shall not be deemed or construed to constitute a waiver of such default.
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18. SURRENDER. No act or thing done by the Landlord or its agents shall
be deemed an acceptance of a surrender of the Demised Premises, and no agreement
to accept a surrender of the Demised Premises shall be valid unless the same be
made in writing and subscribed by the Landlord.
19. ATTORNEY'S FEES. In case it should be necessary or proper for
Landlord to bring any action under this Lease or to consult or place said Lease,
or any amount payable by Tenant thereunder, with an attorney concerning or for
the enforcement of any of Landlord's rights hereunder, then Tenant agrees in
each and any such case to pay to Landlord a reasonable attorney's fee, if
Landlord is the prevailing party. In case it should be necessary for Tenant to
bring any action under this Lease because of Landlord's default hereunder, then
Landlord agrees in each and every case to pay to Tenant a reasonable attorney's
fee if Tenant is the prevailing party.
20. STANDBY LETTER OF CREDIT. Notwithstanding anything herein to the
contrary, and for purposes of further securing the full and timely performance
by the Tenant of all the terms and conditions hereof, within fifteen (15) days
after the date of this Lease, Tenant shall post an irrevocable standby letter of
credit with a declining balance and from Nations Bank, N.A., Tulsa, Oklahoma,
the issuing bank in form acceptable to Landlord, its successors and assigns, in
the sum of Three Hundred Fifty Thousand and No/100 Dollars ($350,000.00) for the
first three (3) years of the Lease Term, Two Hundred Fifty Thousand and No/100
Dollars ($250,000.00) for the fourth year of the Lease Term, and One Hundred
Fifty Thousand and No/100 Dollars ($150,000.00) for the remainder of the Lease
Term.
21. QUIET ENJOYMENT. Landlord represents and covenants that it has full
right, power and authority to make this Lease and that Tenant, upon the payment
of the rentals and performing the covenants on Tenant's part to be performed
hereunder, shall and may peaceably and quietly have, hold and enjoy the Demised
Premises during the Term, free from interference or disturbance, but subject to
the terms and conditions of this Lease. Landlord agrees to make reasonable
efforts to protect Tenant from interference or disturbance by other tenants or
third persons; however, Landlord shall not be liable for any such interference
or disturbance, nor shall Tenant be released from any of the obligations of this
lease because of such interference or disturbance.
22. NOTICES. Each provision of this Lease, or of any applicable
governmental laws, ordinances, regulations, and other requirements with
reference to the sending, mailing, or delivery of any notice, or with reference
to the making of any payment by Tenant to Landlord shall be deemed to be
complied with when and if the following steps are taken:
A. All rent and other payments required to be made by Tenant to Landlord
hereunder shall be payable to Landlord at the address hereinbelow set
forth, or at such other address as Landlord may specify from time to time
by written notice delivered in accordance herewith.
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<PAGE> 14
B. Any notice or document required to be delivered hereunder shall be
deemed to be delivered whether actually received or not, when deposited
in the United States mail, postage prepaid, certified or registered mail,
(return receipt requested), addressed to the parties hereto at the
respective addresses set out opposite their names below, or at such other
address as they have theretofore specified by written notice delivered in
accordance herewith:
IF TO LANDLORD: American Southwest Properties, Inc.
1700 West Albany
Broken Arrow, OK 74012
IF TO TENANT: MPSI Systems Inc.
4343 South 118th East Avenue
Tulsa, OK 74145
Attention President Ronald Harper
23. SIGNAGE. Subject to City of Tulsa ordinances, and subject to
Landlord's prior written approval, which shall not be unreasonably withheld,
Tenant shall be permitted, at Tenant's sole cost, to install identifying signage
upon the Building and upon any Landlord provided monument signage in front of
the building. Landlord shall install at the outset of the Lease Term directory
signage inside the building at its sole cost on a one time basis; amendments and
modifications thereof shall be at Tenant's sole cost and expense. Tenant shall
have the right to install its signage on the south entry port and on the top of
the south end facade.
24. HAZARDOUS MATERIALS AND AMERICANS WITH DISABILITIES. Landlord
represents that the Building and Demised Premises are presently, to the best of
Landlord's knowledge, information and belief after due inquiry, free of any
asbestos or any other hazardous material or substance. Landlord shall indemnify
and hold Tenant harmless from all direct (but not consequential loss and
damage) liability incurred in rectifying any alleged ADA violations that are
not caused by the Tenant during the Lease Term or Renewal Term.
25. FORCE MAJEURE. Whenever a period of time is herein prescribed for
action to be taken by Landlord or Tenant (other than the payment of rent),
neither Landlord nor Tenant shall be liable or responsible for, and there shall
be excluded from the computation for any such period of time, any delays due to
strikes, riots, acts of God, shortages of labor or materials, war, governmental
laws, regulations, or restrictions, or any other causes of any kind whatsoever
which are beyond the control of Landlord or Tenant respectively.
26. SEVERABILITY. If any clause or provision of this Lease is illegal,
invalid or unenforceable under present or future laws effective during the Lease
Term or Renewal Term, then and in that event, it is the intention of the parties
hereto that the remainder of this Lease not be affected thereby, and it is also
the intention of the parties to this Lease that in lieu of each clause or
provision of this Lease that is illegal, invalid or unenforceable, there be
added as a part
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<PAGE> 15
of this Lease a clause or provision as similar in terms to such illegal,
invalid, or unenforceable clause or provision as may be possible and be legal,
valid and enforceable.
27. AMENDMENTS; BINDING EFFECT. This Lease may not be altered, changed,
or amended except by instrument in writing signed by both parties hereto. The
terms, provisions, covenants and conditions contained in this Lease shall apply
to, inure to the benefit of, and be binding upon the parties hereto, and upon
their respective successors, assigns and legal representatives, except as
otherwise herein expressly provided.
28. GENDER Words of any gender used in this Lease shall be held and
construed to include any other gender, and words in the singular number shall be
held to include the plural, unless the context otherwise requires.
29. CAPTIONS. The captions contained in this Lease are for convenience of
reference only, and in no way limit or enlarge the terms and conditions of this
Lease.
30. RIGHT TO EXPAND. So long as Tenant is not in default hereof, Tenant
shall have the right to lease any vacant block of space in the Building as
described in Exhibit "E" hereof contiguous to the Demised Premises during the
Lease Term, that is not leased nor subject to lease and occupied by another.
Tenant shall provide Landlord written notice requesting the space, and the
acquisition thereof shall be subject to the terms hereof. The rent shall be at
"market" rate for the balance of the Lease Term and pro-rated tenant
improvements provided. If the parties cannot agree upon what the "market rate"
should be, then, in such event, within thirty (30) days thereof, the Landlord
and Tenant will each select an appraiser and their selected appraisers will
select a third appraiser. The appraisers will submit their evaluation within 30
days. The high and low appraisals will be eliminated and the middle appraisal
shall be the applicable "market rate." Each party will pay its own appraiser and
equally share the cost of the third appraiser. The vestibule north of the main
staircase on the second floor shall remain common area throughout the primary
term of the Lease, unless Tenant expands beyond the Demised Premises.
31. RIGHT OF FIRST REFUSAL. So long as Tenant is not in default hereof
and provided Tenant has first exercised its right in respect to Expansion Area
as defined on Exhibit E during the Lease Term, Tenant shall have a right of
first refusal on all blocks of space in the Building. If Landlord receives an
arm's length offer on all or any part of such blocks, one or more, Landlord
shall provide Tenant ten (10) days written notice thereof in which Tenant shall
respond and accept or reject the space. The rent for the right of first refusal
space shall be at market rate for the remaining term and prorated Tenant
Improvements provided. If the parties cannot agree to market rate the parties
shall utilize the appraisal that is as described below. If the parties cannot
agree upon the market rate within thirty (30) days, the parties will each select
an appraiser and the appraisers will select a third appraiser. The appraisers
will submit their evaluations within thirty (30) days. The high and low
appraisals will be eliminated and the middle appraisal will be selected in
determining the market. Each party will pay its own appraiser and will equally
share the cost of the third appraiser. If Landlord does not lease the block of
space, the Right of First Refusal shall be reinstated.
15
<PAGE> 16
32. OPTION FOR EARLY TERMINATION. So long as Tenant is not in default
hereof effective as of the end of the 38th month of the Lease Term, Tenant shall
be entitled to the one time right to cancel this lease provided Tenant has given
Landlord written notice of the exercise of this option on or before the end of
the 35th month of the Lease Term and Tenant has made a simultaneous cash payment
of an early termination cancellation charge. An early termination-cancellation
charge calculated in accordance with Exhibit "F" attached hereto and
incorporated herein by reference shall be assessed for the recovery of the
unamortized Tenant improvements and unrealized rental. This early termination
charge shall in no way relieve Tenant of the responsibility to Landlord to leave
the Demised Premises in good condition and order, less normal wear and tear, and
clean and free from trash and debris.
33. OPTION TO REDUCE SIZE OF DEMISED PREMISES. So long as Tenant is not
in default hereof, effective as of the end of the 38th month of the Lease Term,
Tenant shall be entitled to the one time right provided Tenant has given
Landlord written notice of said exercise on or before the end of the 35th month
of the Lease Term, to reduce the size of the Demised Premises by tendering back
to the Landlord not more than 11,244 RSF (i.e., first floor of F, M. G & L East
as shown on Exhibit "E") and quitting that part of Demised Premises in good,
clean condition, ordinary wear and tear excepted. Should Tenant elect to
exercise this option, an additional sum calculated as set forth on Exhibit "F"
attached hereto and incorporated herein by reference will be added to the
rental rate for years four (4) and five (5) for the remaining RSF.
34. OPTION TO RENEW LEASE. So long as Tenant is not in default thereof
upon six (6) months prior written notice to Landlord, Tenant shall have a right
to renew this lease for one (1) additional year, commencing the day after the
Expiration Date and expiring at Midnight of the day preceding the first
anniversary thereof (the "Renewal Term").
35. ADDITIONAL PROVISIONS.
A. Time is of the essence in the performance of each provision of this
Lease.
B. Except as set forth in 35E below, Tenant represents and warrants to
Landlord that Tenant has not incurred and will not incur any liability for
brokerage fees, finders fees, agents commissions or similar compensation to
third parties in connection with this transaction. In the event Tenant has
incurred any such fees, commissions or compensation, said fees, commissions and
compensation so incurred shall be charged solely against Tenant and Tenant
agrees to indemnify Landlord against and hold landlord harmless from any and all
liabilities arising from any claim for such fees, commissions or compensation,
including without limitation, the cost of counsel fees in connection therewith.
C. It is understood and agreed that this Lease, including all rights of
Tenant hereunder is subject and subordinate to any mortgage or deed of trust or
trustee indenture ("mortgage) which may or hereafter affect this Lease or the
Property which the Demised Premises form a part and to any and all advances made
under any such mortgage and to the interest thereon, and all renewals,
replacements and extensions thereof. This section shall be self-operative and no
further instrument or subordination shall be required, but Tenant shall
nevertheless at any time
16
<PAGE> 17
hereafter, on the demand of Landlord, execute any instruments, releases or other
documents that may be reasonably required by any such mortgage holder or any of
their respective successors-in-interest to evidence such subordination. In the
event of termination of this Lease through foreclosure of any mortgage to which
this Lease is subordinated, Tenant shall, upon the demand of the purchaser of
the Property at the foreclosure sale thereof, attorn to and accept such
purchaser as Landlord under this Lease or upon demand, enter into a new lease
agreement with such purchaser for the unexpired term of this Lease at the same
rent and under the same provisions of this Lease. Tenant shall be obligated to
subordinate its interest under the Lease to any lien or encumbrance which may
hereafter be placed on, against or affecting the Premises only if, and on the
condition that, Landlord shall provide Tenant with a non-disturbance agreement
in favor of Tenant from the holder of such lien or encumbrance in a form
reasonably acceptable to Tenant. Landlord shall, contemporaneously herewith,
provide Tenant with a non-disturbance agreement in favor of Tenant from the
holder of any existing lien or encumbrance, if any, now on, against or affecting
the Premises in a form reasonably acceptable to Tenant.
D. Tenant agrees, at any time and from time to time, upon not less than
ten (10) business days prior written notice by Landlord, to execute, acknowledge
and deliver to Landlord a statement in writing (a) certifying that this Lease is
unmodified and in full force and effect, or if there have been any
modifications, that this Lease is in full force and effect as modified, (b)
stating the dates to which the rent and any other charges hereunder have been
paid by Tenant, (c) stating whether or not to the best knowledge of Tenant,
Landlord is in default in the performance of any covenant, agreement or
condition contained in this Lease, and, if so, specifying each such default of
which Tenant may acknowledge and (d) stating the address to which notices to
Tenant should be sent. Any such statement delivered pursuant hereto may be
relied on by any owner of the Property, any prospective purchaser of the
Property, and any present or perspective mortgagee, deed of trust holder or
trustee for bondholders with respect to the Property or Landlord's interest.
E. Trammell Crow MW, Inc. represents Tenant in this transaction. Landlord
shall not be required to pay Broker's professional services fees, and Tenant
shall save, defend, indemnify and hold Landlord harmless of and from any and all
loss therefrom.
F. MEASUREMENT STANDARD. All space in the building other than that
initially leased by Tenant hereunder shall be measured based on the measurement
standards contained in the American National Standard Method of Measuring Floor
Area and Office Projects published by the Building Owners and Managers
Association International.
G. CONSENTS. Wherever in this Lease Landlord or Tenant's consent is
required, said consent shall not be unreasonably withheld, delayed or
conditioned.
H. SATELLITE DISH. During the Lease Term, for as long as Tenant is not in
default of this Lease, and subject to Landlord's right to decide the location
thereof, Tenant shall have the right to install, at its sole cost and expense,
antennas on the roof of such building (including necessary connections to the
Demised Premises) for use by the Tenant. Any such antennas shall be installed in
accordance with all applicable laws and building codes. Tenant shall have the
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<PAGE> 18
option to remove such antennas at the expiration or earlier termination of the
Lease, provided, in the event of removal Tenant shall repair any damage to the
roof caused by such removal. Tenant shall further be required to repair any
damage to the roof caused by the installation of the antenna and to provide or
collect insurance relating to said antenna.
I. SPRINKLERING. If at any time before or during the Lease Term
sprinklering is required by final decree of any governmental authority of
competent jurisdiction in all or any part of the Demised Promises, or the
Building, Landlord, at Landlord's sole cost or expense shall install said
sprinklering. In conducting said installation, Landlord shall use its best
efforts not to interfere with Tenant's use of the Premises.
J. FIBER OPTICS CABLING. Within one hundred fifty (150) days of the
full execution of this Lease, Landlord, at Landlord's sole cost and expense
shall cause fiber optic cabling to be brought to the Building with reasonably
sufficient capacity to service the reasonably anticipated needs of the Building
and its Tenants.
K. ARBITRATION. All disputes and controversies between the parties
hereto as may arise out of or incident to this Lease Agreement shall be settled
by binding, informal mediation or formal arbitration in accordance with the
Commercial Rules of the American Arbitration Association and pursuant to the
Federal Arbitration Act.
WITNESS, the signature of the parties hereto in multiple copies, this
11 day of February, 1998.
"LANDLORD"
AMERICAN SOUTHWEST
PROPERTIES, INC.
By: /s/ JACK WRIGHT
---------------------------------------
its President
"TENANT"
MPSI SYSTEMS INC.
By: /s/ JAMES C. AUTEN
---------------------------------------
its Vice President,
Finance & CFO
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STATE OF OKLAHOMA )
)
COUNTY OF TULSA )
Subscribed and acknowledged before me by Jack Wright, President of
American Southwest Properties, Inc., a corporation, this 13th day of February,
1998.
/s/ PATTY R. NORTHAM
---------------------------------------
NOTARY PUBLIC
My Commission expires:
4-15-2000
- ----------------------
[NOTARIAL SEAL]
STATE OF OKLAHOMA )
)
COUNTY OF TULSA )
Subscribed and acknowledged before me by JAMES C. AUTEN, President of
MPSI Systems Inc., a corporation, this 13th day of February, 1998.
/s/ LINDA KAY WELLS
---------------------------------------
NOTARY PUBLIC
My Commission expires:
July 21, 1999
- ----------------------
[NOTARIAL SEAL]
19
<PAGE> 20
EXHIBIT A TO LEASE AGREEMENT BETWEEN AMERICAN SOUTHWEST PROPERTIES, INC. AND
MPSI SYSTEMS, INC. IN RESPECT TO THE SOUTHPARK BUILDING, TULSA, OKLAHOMA
FLOOR PLAN OF DEMISED PREMISES
(NOT LESS THAN 54,436 RSF [PLUS 823 RSF(1) NO CHARGE STORAGE SPACE])
- ---------------
(1) RSF (rentable square footage) is the actual square footage within the
Demised Premises measured from the midline of all demising walls and windows.
20
<PAGE> 21
Exhibit A - Page 1 of 2 - Floor Plan
[1st FLOOR - SOUTHPARK BUILDING FLOOR PLAN]
<PAGE> 22
Exhibit A - Page 2 of 2 - Floor Plan
[2ND FLOOR - SOUTHPARK BUILDING FLOOR PLAN]
<PAGE> 23
EXHIBIT B TO LEASE AGREEMENT BETWEEN AMERICAN SOUTHWEST
PROPERTIES, INC. AND MPSI SYSTEMS, INC. IN RESPECT TO THE SOUTHPARK
BUILDING, TULSA, OKLAHOMA
WORK LETTER RELATIVE TO TENANT IMPROVEMENTS
1. As to all leasehold improvements to be constructed and installed on the
Demised Premises:
A. Such shall conform to and be in compliance with all applicable laws,
statutes, ordinances, rules and regulations of governmental authority,
regardless of jurisdiction;
B. Tenant's agents, employees, architects, space planners, engineers
and/or contractors who are to plan and do the work, together with the plans
proposed to be utilized, must be reasonably preapproved by Landlord in writing,
PROVIDED that Tenant is no way relieved of its responsibility to maintain the
building and structural integrity related to Tenant's construction;
C. Tenant shall maintain appropriate liability and property insurance
naming Landlord as an additional insured, against risk or loss, including
without limitation, for bodily injury, property damage, employer's liability,
and worker's compensation, fire and extended perils acceptable to Landlord
during the construction of aid leasehold improvements;
D. All plans and specification for the work shall be preapproved in
writing by Landlord and true and correct copies thereof, inclusive of all
material change orders, if any, shall be attached to and made a part of this
Exhibit "B." Landlord shall respond to Tenant's request for approval of Tenant's
plans and specifications within three (3) days after receipt thereof; the
failure of Landlord to respond within such period shall constitute approval of
such plans and specifications. In the event Landlord shall not approve the plans
and specifications, Landlord shall notify Tenant of its objections thereto.
Landlord and Tenant shall thereafter work cooperatively and in good faith to
reach agreement upon mutually agreeable plans and specifications. If,
notwithstanding their respective reasonable good faith efforts, Landlord and
Tenant are unable to agree upon mutually acceptable plans and specifications
within fifteen (15) days after Tenant has first submitted its plans and
specifications to Landlord, then Tenant shall have the right to terminate the
Lease. Tenant shall not be responsible for Landlord's own costs related to
review, construction management or supervision fees, costs or expenses related
to the work Landlord agrees to reasonably assist Tenant in obtaining all
necessary permits for the Tenant work from appropriate governmental authorities.
E. All contractors and subcontractors of Tenant, as applicable, shall
furnish certificates of insurance evidencing worker's compensation insurance
coverage for their respective employees before undertaking any work on the
Demised Premises;
F. All work shall be done in a good and workmanlike manner and
materials used shall be of good quality and Tenant shall be responsible to
assure structural integrity (excluding
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<PAGE> 24
preexisting conditions and latent defects) of the Building and Demised Premises
are not impaired, and
G. Landlord shall pay to Tenant the actual costs of tenant
improvements, but not to exceed $544,360 ($10.00 per RSF X 54,436 RSF), and not
to exceed $5,987.96 ($.11 per RSF X 54,436 RSF) for all tenant improvement
planning), which shall be payable by Landlord to Tenant on presentation of
invoices and lien waivers as construction progresses and as the parties may
otherwise agree; the final draft shall not be payable until said tenant
improvements are completed, in whole or in substantial part. Any allowances
unspent by Tenant shall be reduced from rent on a nine percent (9.0%)
amortization basis over the Lease Term.
2. The relationship between the parties is solely that of Landlord-Tenant and no
agency, partnership or joint venture agreement is intended nor shall be deemed
to arise from this work order, or otherwise implied from the conduct of the
parties hereto.
3. Landlord shall, at Landlord's sole, cost and expense, for the original tenant
improvements applicable to the Demised Premises as well as any expansions
thereof, within the same time said leasehold improvements are being constructed
and installed by Tenant, do the following:
A. install building standard miniblinds on all exterior windows; an
additional elevator providing second floor access from the front of the
building; a stairwell "branch" accessing the south tenant entry, and in areas
where there is no ceiling install budding standard lights, ceiling grid, ceiling
tiles and duct drops from the plenum, provided said ceiling installation shall
commence immediately upon lease execution and shall proceed diligently to
completion.
B. Install a unisex, handicapped restroom on each floor within ninety
(90) days after the Lease is executed by the Landlord and Tenant, and represent
upon its best knowledge, information and belief after due inquiry that the
elevator and bathrooms meet minimum ADA requirement for dimension and are wheel
chair accessible. Should regulatory authorities require changes to the Building
for compliance with ADA now or in the future, Landlord sole obligation shall
be, at its sole cost and expense, to cure such defects and to bring the Building
into compliance and all such expenses shall be added to the operating expenses
of the Building for purposes of later determining pass-throughs to Tenant
subject to the cap on increases in Operating Expenses set forth in Section 15 of
this Lease. Landlord will coordinate construction with Tenant's construction to
insure that it does not delay Tenant's work.
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<PAGE> 25
EXHIBIT C TO LEASE AGREEMENT BETWEEN AMERICAN SOUTHWEST
PROPERTIES, INC. AND MPSI SYSTEMS, INC. IN RESPECT TO THE SOUTHPARK
BUILDING, TULSA, OKLAHOMA
JANITOR'S SCHEDULE
SEE ATTACHMENT
23
<PAGE> 26
[AMERICAN BUILDING MAINTENANCE CO. LETTERHEAD]
JANITORIAL SPECIFICATIONS
SOUTHPARK
ENTRANCE LOBBIES/BUILDING CORRIDORS
1. Daily Services: Five Days Per Week
Sweep and spot clean all flooring.
Vacuum carpets completely. Spot clean spillages.
Dust ledges within reach.
Damp mop spillage as needed.
Empty and wash cigarette receptacles.
Spot clean walls and doors.
Clean entrance door glass.
Clean entrance mats as necessary.
Clean and polish all metal at entrances and other areas of building
lobby.
Clean and polish drinking fountains.
2. Weekly Services:
Spot clean carpet in heavy traffic areas.
3. As Needed:
Detail vacuum carpeted areas.
Clean all baseboards.
STAIRWAY
Remove debris and vacuum clean weekly.
Sweep carpeted stair landings and steps.
Damp clean handrails weekly.
RESTROOMS
1. Daily Services: Five Days Per Week
Clean and sanitize restrooms, wash basins, all dispensers and chrome
fittings.
Clean mirrors and frames.
Wet mop floors with disinfecting cleaner.
Sanitize toilets, both sides of toilet seats, urinals and sanitary napkin
recepticles.
Dust ledges and partitions.
Report to building office any fixture not working properly.
Damp clean as required: walls, partitions, ledges, sills and counters.
<PAGE> 27
JANITORIAL SPECIFICATIONS -- Continued
Refill all dispensers (towels, tissue, hand soap, napkins from building
stock).
Gather all waste and place for disposal.
Spot clean partitions, walls and doors.
Turn off all lights.
2. Monthly Services:
Dust vacuum ceiling vents.
Wash metal partition and ceramic tile walls using disinfectant.
Perform high dusting, including walls.
OFFICE AREAS
1. Daily Services: Five Days Per Week
Gather all waste and place for disposal.
Empty and polish all ashtrays.
Dust mop tile with chemically treated dust mops.
Spot clean spillage from tile floors.
Vacuum carpets in usage areas (spot clean as required).
Dust desks, chairs, and all other horizontal surfaces within reach.
Spot clean glass desk tops.
Properly position furniture, and waste baskets.
Spot clean desk tops and counter tops.
Spot clean partition door glass.
Clean and polish drinking fountains.
Dust all ledges and flat surfaces within reach to maintain them dust
free. Upon completion of cleaning, all lights will be turned off.
Check and lock all doorways, as instructed by management.
2. Weekly Services:
Remove finger smudges from woodwork, walls and partitions.
Perform low dusting not done daily.
Vacuum carpeted areas complete, including edges.
Dust all baseboards.
Dust all vertical surfaces on furniture and spot clean.
Dust all door louvers and other ventilation louvers within reach.
3. Monthly Services:
Perform high dusting (i.e. door sash, tips of partitions).
Dust all picture frames, charts and similar hangings not dusted in daily
or weekly cleaning.
Dust or vacuum all air vents.
<PAGE> 28
JANITORIAL SPECIFICATIONS - Continued
4. Quarterly Services:
Dust all venetian blinds.
Vacuum upholstered furniture (or as needed).
WINDOW CLEANING SERVICE
WINDOW CLEANING SERVICE
We will wash all windows annually. Cost of cleaning will be in included in your
monthly billing.
CARPET CLEANING SERVICE
We will shampoo your carpets annually. Cost of cleaning is included in your
monthly billing.
SUPPLIES AND EQUIPMENT
We will furnish all janitorial supplies and equipment required to properly
perform the above work.
FIDELITY BOND
All of our employees are covered by a Fidelity Bond.
<PAGE> 29
EXHIBIT D TO LEASE AGREEMENT BETWEEN AMERICAN
SOUTHWEST PROPERTIES, INC. AND MPSI SYSTEMS INC.
IN RESPECT TO THE SOUTHPARK BUILDING,
TULSA, OKLAHOMA
BUILDING RULES AND REGULATIONS
24
<PAGE> 30
EXHIBIT "D"
RULES AND AGREED REGULATIONS
1. Tenant agrees, upon termination of this Lease, to return all keys to
the Demised Premises to Landlord. Tenant shall not alter any lock or install a
new or additional lock or bolt on any door of the Demised Premises without the
prior written consent of Landlord.
2. Tenant will refer all contractors, contractor's representatives and
installation technicians, rendering any service to Tenant, to Landlord for
Landlord's approval, and control before performance of any contractual service.
This provision shall apply in all work performed in the Building including
installations of telephones, telegraph equipment or any other physical portion
of the Building.
3. Movement in or out of the Building of furniture or office equipment,
or dispatch or receipt by Tenant of any merchandise or materials which requires
use of elevators or stairways, or movement through Building entrances or lobby
shall be restricted to hours designated by Landlord. Tenant is to assume all
risk as to damage to articles moved and injury to persons or the public engaged
or not engaged in such movement, including equipment, property and personnel of
Landlord if damaged or injured as a result of acts in connection with carrying
out this service for Tenant from time of entering the tract on which the
Building stands to completion of work; and Landlord shall not be liable for
acts of any person engaged in, or any damage or loss to any of said property or
persons resulting from any act in connection with such service performed for
Tenant.
4. Unless written approval has been given by Landlord, no signs will be
allowed in any form on the exterior of Building or windows inside or out, and
no signs, except in uniform location and uniform styles approved by Landlord,
will be permitted in the public corridors or on corridor doors or entrances to
Tenant's space. Tenant will pay for any approved signage.
5. No draperies, shutters, or other window covering shall be installed
on exterior windows or walls or windows and doors facing public corridors
without Landlord's prior written approval.
6. No portion of the Demised Premises or any other part of Building
shall at any time be used or occupied as sleeping or lodging quarters.
7. Tenant shall not place, install or operate on the Demised Premises or
in any part of the Building any engine, stove, or machinery, or conduct
mechanical operations or cook thereon or therein, or place or use in or about
premises any explosives, gasoline, kerosene, oil, acids, caustics, or any other
inflammable, explosive, or hazardous materials without written consent of
Landlord.
8. Landlord will not be responsible for lost or stolen personal
property, equipment, money, or jewelry from the Demised Premises or public
rooms regardless of whether such loss occurs when area is locked against entry
or not.
9. No birds or animals shall be brought into or kept in or about the
Building.
10. Landlord will not permit entrance to the Demised Premises by use of
pass keys controlled by Landlord, to any person at any time without written
permission by Tenant, except employees, contractors, or service personnel
directly supervised by Landlord and employees of the United States Postal
Service.
11. None of the entries, passages, doors, elevators, elevator doors,
hallways, or stairways shall be blocked or obstructed, or any rubbish, litter,
trash, or material of any nature placed, emptied or thrown into these areas, or
such areas be used at any time except for ingress by Tenant, Tenant's agents,
employees, or invitees.
12. Tenant and its employees, agents and invitees, shall observe and
comply with the driving and parking signs and markers on the premises
surrounding the Building.
13. Landlord shall have the right to prescribe the weight and position of
safes, computers and other heavy equipment which shall, in all cases, in order
to distribute their weight, stand on supporting devises approved by Landlord.
All damage done to the Building by placing in or taking out any property of
Tenant while in the Building shall be repaired promptly at the expense of
Tenant.
14. To insure orderly operation of the Building no ice, mineral water or
other beverages, food, towels, newspapers, etc., shall be delivered to the
Demised Premises except by persons and at times approved by Landlord in writing.
15. Should Tenant require telegraphic, telephonic, annunciator or other
communication services, Landlord shall direct where and how wires are to be
introduced and placed and none shall be introduced or placed except as Landlord
shall direct.
16. Without Landlord's prior approval, Tenant shall not install any radio
or television antenna, loudspeaker, music system or other devise on the roof or
exterior walls of the Building or on common walls with adjacent tenants.
<PAGE> 31
17. No hand trucks or other vehicles of any kind shall be used in or
brought into the Building or the Demised Premises by Tenant or others unless
such vehicle shall have been inspected and approved in writing by Landlord.
18. Tenant shall store all its trash and garbage within its Demised
Premises. No material shall be placed in the trash boxes or receptacles if such
material is of such nature that it may not be disposed of in ordinary and
customary manner of removing and disposing of trash and garbage and without
being in violation of any law or ordinance governing such disposal. All garbage
and refuse disposal shall be made only through entryways and elevators provided
for such purposes and at such times as Landlord shall designate.
19. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify, alter or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease covering premises in the
Building.
20. Landlord reserves the right to make such other reasonable rules and
regulations as in its judgment may from time to time be needed for the safety,
care and cleanliness of the Building, and for the preservation of good order
therein.
<PAGE> 32
EXHIBIT E TO LEASE AGREEMENT BETWEEN AMERICAN
SOUTHWEST PROPERTIES, INC. AND MPSI SYSTEMS INC
IN RESPECT TO THE SOUTHPARK BUILDING,
TULSA, OKLAHOMA
EXPANSION BLOCKS DEFINED WITH
CONTRACTION OPTION DEFINED
25
<PAGE> 33
Exhibit E, Page 1 of 2 - Expansion Blocks Defined
Contraction Option Defined
[1ST FLOOR FLOOR PLAN]
<PAGE> 34
Exhibit E, Page 2 of 2 - Expansion Blocks Defined
[2ND FLOOR FLOOR PLAN]
<PAGE> 35
EXHIBIT F TO LEASE AGREEMENT BETWEEN AMERICAN
SOUTHWEST PROPERTIES, INC. AND MPSI SYSTEMS INC
CALCULATION OF EARLY
TERMINATION-CANCELLATION CHARGE
26
<PAGE> 36
EXHIBIT F
CALCULATION OF CONTRACTION CHARGE AND EARLY TERMINATION-CANCELLATION CHARGE
(Assume that Tenant Improvements are $10.00 per square foot and total leased
space is 54,436 square feet)
$10.00 Improvemets Per Square Foot
$1.50 Moving Allowance Per Square Foot
$0.11 Space Planning Per Square Foot
- -----------
$11.61 Total Tenant Investment Per Square Foot
$11.61 Total Tenant Investment Per Square Foot
x54436 Square Feet Rented
- -----------
$632,001.96 Total Tenant Investment
Amortized over 5 years at 9% = $13,119.32 per month
$13,119,32
x12 Months
/54,436 Square Feet Rented
- -----------
$2.89 Tenant Investment Charge per square foot
Rental rate was marked down by .50 in year 1 and .25 in year 2.
This is compensated for in years 4 and 5.
If years 4 and 5 are cancelled, then this will not be compensated for.
Therefore, we have added this into the cost of contraction or cancellation.
Unamortized improvements + unreimburesed rental adjustments=
2.89 + .25 = 3.14 per square foot in year 4
2.89 + .50 = 3.39 per square foot in year 5
CONTRACTION CHARGE
$3.14 x 11,244 square feet = $35,306.16
$3.39 x 11,244 square feet = $38,117.16
Total $73,423.32
Total Square Footage of 54,436 Less Contraction Space = 43,192 square feet
remaining $73,423.32/43,192 square feet equals $1.70 per square foot to be
added to rental rate of remaining square footage.
EARLY TERMINATION-CANCELLATION CHARGE
$3.14 x 54,438 square feet = $170,929.04 per year divided by 12 months =
$14,244.09
$3.39 x 54,436 square feet = $184,538.04 per year divided by 13 months =
$15,378.17
The present value of 12 monthly payments of $14,244.09 followed by 12 monthly
payments of $15,378.17 at 9% is equal to $326,074.26. $326,074.26 divided by
54,436 square feet is equal to $5.99 per square foot. A penalty of $2.28 per
square foot has been added to this number to equal a cancellation charge of
$8.27 per square foot.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
<TABLE>
<S> <C>
MPSI Systems Limited........................................................................U.K. Corporation
MPSI Australia Pty. Ltd................................................................Australia Corporation
MPSI do Brasil............................................................................Brazil Corporation
MPSI Systems K.K........................................................................Japanese Corporation
MPSI Systems Pte. Ltd..................................................................Singapore Corporation
Shanghai MPSI Software Inc...............................................................Chinese Corporation
Management Planning Systems, Inc........................................................Oklahoma Corporation
INACTIVE CORPORATIONS
MPSI China Inc..........................................................................Delaware Corporation
MPSI Surveys Inc........................................................................Oklahoma Corporation
MPSI Systems Canada Inc.................................................................Canadian Corporation
MPSI Systems GmbH.........................................................................German Corporation
MPSI Systems SARL.........................................................................French Corporation
Quest Systems International Inc.........................................................Delaware Corporation
BRANCH OFFICES
Seoul, South Korea.......................................................Branch of MPSI Systems Pte. Ltd.
Johannesburg, South Africa.....................................Branch of Management Planning Systems Inc.
(d/b/a MPSI Africa Inc.)
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 2-97190 and 33-86016) pertaining to the MPSI Systems Inc. 1984
Stock Option Plan and the MPSI Systems Inc. 1988 Stock Option Plan and in the
related Prospectuses of our reports dated November 20, 1998, with respect to the
consolidated financial statements and schedules of MPSI Systems Inc. included in
this Annual Report (Form 10-K) for the year ended September 30, 1998.
ERNST & YOUNG LLP
Tulsa, Oklahoma
December 18, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 224
<SECURITIES> 3
<RECEIVABLES> 5,482
<ALLOWANCES> 0
<INVENTORY> 107
<CURRENT-ASSETS> 5,897
<PP&E> 6,538
<DEPRECIATION> 5,576
<TOTAL-ASSETS> 9,490
<CURRENT-LIABILITIES> 4,341
<BONDS> 0
0
0
<COMMON> 142
<OTHER-SE> 3,403
<TOTAL-LIABILITY-AND-EQUITY> 9,490
<SALES> 19,101
<TOTAL-REVENUES> 19,101
<CGS> 8,796
<TOTAL-COSTS> 8,796
<OTHER-EXPENSES> 11,973
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99
<INCOME-PRETAX> (1,698)
<INCOME-TAX> (199)
<INCOME-CONTINUING> (1,499)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,499)
<EPS-PRIMARY> (.53)
<EPS-DILUTED> (.53)
</TABLE>
