SIMULATIONS PLUS, INC.
Lancaster, California
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Friday, February 23, 2007
The 2007 annual meeting of stockholders (the "Annual Meeting") of Simulations
Plus, Inc., a California corporation (the "Company"), will be held on Friday,
February 23, 2007, at 2:00 p.m., Pacific Time, at 42505 10th Street West,
Lancaster, California, for the following purposes:
1. To elect four (4) directors, to serve until the 2008 annual meeting of
stockholders of the Company or until their successors are elected and qualified,
subject to prior death, resignation or removal.
2. To ratify the appointment of Rose, Snyder and Jacobs as independent auditors
of the Company for the fiscal year ending August 31, 2007.
3. To approve the 2007 Stock Option Plan, which replaces the expired 1996 Stock
Option Plan.
4. To transact such other business as may properly come before the Meeting or
any adjournment(s) or postponement(s) thereof.
You are cordially invited to attend the meeting, although only stockholders of
record at the close of business on December 20, 2006, will be entitled to notice
of and to vote at the meeting. A list of stockholders entitled to vote at the
Annual Meeting will be open to inspection by the stockholders at the Company's
principal office, 42505 10th Street West, Lancaster, California, for a period of
10 days prior to the Annual Meeting and at the Annual Meeting itself.
Shares can be voted at the meeting only if the holder is present in person or
represented by proxy. WE URGE YOU TO DATE AND SIGN THE ENCLOSED PROXY AND RETURN
IT IN THE ACCOMPANYING ENVELOPE PROMPTLY SO THAT YOUR SHARES MAY BE VOTED IN
ACCORDANCE WITH YOUR WISHES AND THE PRESENCE OF A QUORUM MAY BE ASSURED. We
encourage you to do so even if you plan to attend the meeting in person. The
prompt return of your signed proxy, regardless of the number of shares you hold,
will aid the Company in reducing the expense of additional proxy solicitation.
THE GIVING OF SUCH PROXY DOES NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IN THE
EVENT YOU ATTEND THE MEETING.
By Order of the Board of Directors
Virginia Woltosz
Secretary
Lancaster, California
February 2, 2007
TABLE OF CONTENTS
-----------------
Page
Notice of Annual Meeting of Stockholders ....................................................cover
Solicitation and Revocability of Proxies.........................................................1
Incorporation by Reference.......................................................................1
Quorum; Abstentions; Broker non-votes............................................................2
Deadline for Receipt of Stockholder Proposals....................................................3
Company Stock Price Performance..................................................................3
Information Relating To Various Proposals........................................................4
Election of Directors (Item 1)...................................................................4
Information Regarding Nominees..........................................................4
Business Experience of Executive Officers Who Are Not Also Directors....................5
Executive Compensation..................................................................6
Employment and Other Compensation Agreements ...........................................6
Security Ownership of Certain Beneficial Holders and Management ........................7
Compliance with Section 16(a) of the Exchange Act.......................................8
Options Grants in FY06..................................................................8
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Option Values........9
Option Plans............................................................................9
Company Code of Ethics ................................................................10
Board Committees and Meetings..........................................................10
Director Compensation..................................................................10
Appointment of Auditors (Item 2)................................................................10
Audit Fees.............................................................................11
Approval of 2007 Stock Option Plan (Item 3).....................................................12
Other Matters (Item 4)..........................................................................16
Appendix 1 - Audit Committee Charter............................................................17
Appendix 2 - Form of Proxy Card.................................................................18
Appendix 3 - 2007 Stock Option Plan.............................................................19
[LOGO OMITTED]
SIMULATIONS PLUS, INC.
42505 10th Street West
Lancaster,California 93534-7059
(661) 723-7723
PROXY STATEMENT
SOLICITATION AND REVOCABILITY OF PROXIES
The enclosed proxy is solicited by and on behalf of the Board of Directors of
the Company for use at the Annual Meeting to be held at the Company's Offices
located at 42505 10th Street West, Lancaster, California 93534-7059, on Friday,
February 23, 2007, at 2:00 p.m. local time or any adjournment(s) thereof. The
solicitation of proxies by the Board of Directors of the Company (the "Board of
Directors") will be conducted primarily by mail. In addition, officers,
directors and employees of the Company may solicit proxies personally or by
telephone, or other forms of facsimile communication. The Company will reimburse
brokers, custodians, nominees and fiduciaries for reasonable expenses incurred
by them in forwarding proxy material to beneficial owners of common stock of the
Company ("Common Stock").
The costs of the solicitation will be borne by the Company. This proxy statement
and the form of proxy will first be mailed to stockholders of the Company on or
about February 2, 2007.
A list of stockholders entitled to vote at the Annual Meeting will be open to
inspection by the stockholders at the Company's principal office, 42505 10th
Street West, Lancaster, California, for a period of 10 days prior to the Annual
Meeting and at the Annual Meeting itself.
Requests should be addressed to the Company, Simulations Plus, Inc., to the
attention of Virginia E. Woltosz, Director and Secretary-Treasurer, 42505 10th
Street West, Lancaster, California 93534, (661) 723-7723.
INCORPORATION BY REFERENCE
Simulations Plus, Inc., a California corporation (the "Company") is currently
subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and, in accordance therewith, files reports, proxy
and Proxy Statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy and Proxy Statements and
other information may be inspected and copied at the public reference facilities
of the Commission at Judiciary Plaza, 100 F Street NE, Room 1580, Washington
D.C. 20549, and copies of such materials can be obtained from the Public
Reference Section of the Commission at prescribed rates. In addition, such
materials may be accessed electronically at the Commission's site on the World
Wide Web, located at http://www.sec.gov. The Company intends to furnish its
stockholders with annual reports containing audited financial statements and
such other periodic reports as the Company may determine to be appropriate or as
may be required by law.
A copy of the Company's 2006 Annual Report on Form 10-KSB including financial
statements for the years ended August 31, 2006 and 2005, is being mailed to all
stockholders herewith. Except for any portion of the Form 10-KSB which is
specifically incorporated by reference into this Proxy Statement, the Form
10-KSB is not to be regarded as proxy solicitation material or as a
communication by means of which any solicitation is being made. THE COMPANY WILL
PROVIDE ANY STOCKHOLDER WITH A COPY OF ANY EXHIBIT TO THE FORM 10-KSB/A PURSUANT
TO THE REQUEST PROCEDURE DESCRIBED IN THE FORM 10-KSB.
1
Each share of Common Stock is entitled to one vote for each share held as of
record, and there are no preemptive rights. The law of the state of California
and the Company's current Certificate of Incorporation (the "Certificate of
Incorporation") and Bylaws do provide for cumulative voting for the election of
directors or any other purpose.
The effect of cumulative voting is that the holders of a majority of the
outstanding shares of Common Stock may not be able to elect all of the Company's
directors. No stockholder will be entitled to cumulate votes for a candidate,
however, unless that candidate's name has been placed in nomination prior to the
voting and the stockholder, or any other stockholder, has given notice at the
meeting, prior to the voting, of an intention to cumulate votes. A favorable
vote consists of a simple majority of the shares entitled to vote at the
meeting. The Company believes that as of December 20, 2006, the approximate
number of stockholders of record of its common stock was 65 and that there were
approximately 757 beneficial owners. This includes shares held in nominee or
"street" accounts.
Only stockholders of record at the close of business on December 20, 2006, will
be entitled to vote at the meeting. On December 20, 2006, there were 7,468,696
shares of the Common Stock issued and outstanding. Stockholders are entitled to
one vote per share on all matters being submitted to stockholders at the
meeting, other than with respect to the election of directors, for which
cumulative voting is currently required under certain circumstances by
applicable provisions of California Law. Under cumulative voting, each
stockholder may give any one candidate whose name is placed in nomination prior
to the commencement of voting a number of votes equal to the number of directors
to be elected, multiplied by the number of votes to which the stockholder's
shares are normally entitled, or distribute such number of votes among as many
candidates as the stockholder sees fit.
The Board of Directors knows of only two stockholders who owned more than five
percent of the outstanding voting securities of the Company as of the record
date: Walter S. Woltosz and Virginia E. Woltosz. See "Beneficial Ownership of
Common Stock."
QUORUM; ABSTENTIONS; BROKER NON-VOTES
Shares representing 50% of the voting power of the 7,468,696 shares of Common
Stock outstanding on the Record Date, which have voting rights, must be
represented at the Meeting to constitute a quorum for conducting business. In
the absence of a quorum, the stockholders present in person or by proxy, by
majority vote and without further notice, may adjourn the meeting from time to
time until a quorum is attained. At any reconvened meeting following such
adjournment at which a quorum shall be present, any business may be transacted
which might have been transacted at the Meeting as originally notified.
The required quorum for the transaction of business at the Meeting is a majority
of the votes eligible to be cast by holders of shares of Common Stock issued and
outstanding on the Record Date. Shares that are voted "FOR" or "AGAINST" a
matter are treated as being present at the Meeting for purposes of establishing
a quorum and are also treated as shares entitled to vote at the Meeting (the
"Votes Cast") with respect to such matter.
The Company will count abstentions for purposes of determining both: (i) the
presence or absence of a quorum for the transaction of business, and (ii) the
total number of Votes Cast with respect to a proposal (other than the election
of directors). Accordingly, abstentions will have the same effect as a vote
against the proposal.
Further, the Company intends to count broker non-votes for the purpose of
determining the presence or absence of a quorum for the transaction of business,
although broker non-votes will not be counted for purposes of determining the
number of Votes Cast with respect to the particular proposal on which the broker
has expressly not voted. Thus, a broker non-vote will not affect the outcome of
the voting on a proposal.
2
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented by
such stockholders at the Company's next Annual Meeting of Stockholders for the
fiscal year ending August 31, 2007, must be received by the Company no later
than August 20, 2007, in order to be considered for inclusion in the proxy
statement and form of proxy relating to that meeting.
COMPANY STOCK PRICE PERFORMANCE
The stock price performance graph below is required by the SEC and shall not be
deemed to be incorporated by reference by any general statement incorporating by
reference this Proxy Statement into any filing under the Securities Act of 1933,
as amended, or under the Securities Exchange Act of 1934, as amended, except to
the extent that the Company specifically incorporates this information by
reference, and shall not otherwise be deemed soliciting material or filed under
such Acts.
The graph below compares the cumulative total stockholder return on the Common
Stock of the Company from the last day of the first month of trading of the
Company's Common Stock upon the Company's initial public offering (June 30,
1997) to August 31, 2006 with the cumulative total return on the Russell 2000
Index, and the S&P 600 Small Cap Index (assuming the investment of $100 in the
Company's Common Stock and in each of the indices on June 30, 1997, and
reinvestment of all dividends).
[GRAPH APPEARS HERE]
The graph above was plotted using the following data:
3
Stock Performance: 8/31/06
DATE Russell 2000 S&P 600 Simulations Plus, Inc.
--------- -------------------- --------------------- -----------------------
6/30/1997 396.37 100 161.55 100 2.5 100
8/31/1997 423.43 106.827 175.81 108.827 2.625 105
8/31/1998 337.95 85.2612 142.56 88.2451 0.75 30
8/31/1999 427.83 107.937 175.57 108.678 0.7508 30.32
8/31/2000 537.89 135.704 223.49 138.341 1.25 50
8/31/2001 468.56 118.213 223.04 138.063 0.6 24
8/31/2002 391.57 98.789 200.255 123.959 0.76 30.4
8/31/2003 508.87 128.383 243.425 150.681 1.275 51
8/31/2004 547.93 138.237 277.222 171.601 1.515 66
8/31/2005 661.51 166.892 347.42 215.054 1.7 68
8/31/2006 720.53 181.782 368.82 228.302 2.2 88
INFORMATION RELATING TO VARIOUS PROPOSALS
ELECTION OF DIRECTORS (ITEM 1)
The Board of Directors acts as a whole in determining the persons to be
nominated as members of the Board of Directors. The Board of Directors
identifies, screens and reviews potential directors for nominees for election to
the Board at the Annual Meeting and candidates to fill any vacancies on the
Board. When considering a potential candidate for membership on the Company's
Board, the Board of Directors considers relevant business and industry
experience and demonstrated character and judgment. The Board of Directors has
not received any recommended nominations from any of the Company's stockholders
in connection with this Annual Meeting.
INFORMATION REGARDING NOMINEES
The Board of Directors has nominated the persons named below for election as
directors of the Company to serve until the next Annual Meeting of Stockholders
and until their successors are duly elected and qualified.
In order to be elected as a director, a nominee will have to receive a majority
of the votes cast for that nominee, assuming a quorum (which consists of a
majority of the shares entitled to vote at the meeting) is present at the
meeting. See "Voting," above.
At the time of the Annual Meeting, the Board of Directors will consist of four
incumbent members who are seeking to be elected at the meeting to hold office
until the next meeting of stockholders and until their successors are elected
and qualified. The Company's Bylaws presently provide for a Board of no less
than three and no more than five directors, with the number of directors
currently fixed at four.
Walter S. Woltosz, Virginia E. Woltosz, Dr. David Z. D'Argenio, and Dr. Richard
R. Weiss, all of whom are incumbent directors, have been nominated by the Board
of Directors for election as directors of the Company. All of the nominees have
informed the Company that they are willing to serve, if elected, and management
has no reason to believe that any of the nominees will be unavailable. In the
event a nominee for director should become unavailable for election, the persons
named in the proxy will vote for the election of any other person who may be
recommended and nominated by the Board for the office of director. Information
regarding director nominees and directors is set forth below:
4
Directors and Director Nominees:
NAME AGE POSITION WITH THE COMPANY DIRECTOR SINCE
---- --- ------------------------- --------------
Walter S. Woltosz 61 Chairman of the Board, Chief Executive 1996
Officer and President of the Company
Virginia E. Woltosz 55 Secretary and Director of the Company 1996
Dr. David Z. D'Argenio 57 Director 1997
Dr. Richard R. Weiss 73 Director 1997
WALTER S. WOLTOSZ is a co-founder of the Company and has served as its Chief
Executive Officer and President and as Chairman of the Board of Directors since
its incorporation in July 1996. Mr. Woltosz is also a co-founder of Words+ and
served as its Chief Executive Officer and President from its incorporation in
1981 until the appointment of Jeffrey Dahlen as President of Words+ in 2004.
VIRGINIA E. WOLTOSZ is a co-founder of the Company and has served as its Senior
Vice President and Secretary since its incorporation in July 1996 until January
31, 2003. Mrs. Woltosz is also a co-founder of Words+ and served as its Vice
President, Secretary and Treasurer from its incorporation in 1981 until January
31, 2003. Mrs. Woltosz retired from the position of Senior Vice President as of
January 31, 2003, but remains as Secretary and Treasurer of Simulations Plus.
Virginia E. Woltosz is the wife of Walter S. Woltosz.
DR. DAVID Z. D'ARGENIO has served as a Director of the Company since June 1997.
He is currently Professor of Biomedical Engineering at the University of
Southern California ("USC"), and has been on the faculty at USC since 1979. He
also serves as the Co-Director of the Biomedical Simulations Resource Project at
USC, a project funded by the National Institutes of Health since 1985.
DR. RICHARD R. WEISS has served as a Director of the Company since June 1997.
From October 1994 to the present, Dr. Weiss has acted as a consultant to a
number of aerospace companies through his own consulting entity, Richard R.
Weiss Consulting Services. From June 1993 through July 1994, Dr. Weiss was
employed by the U.S. Department of Defense as its Deputy Director, Space Launch
& Technology.
BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS WHO
ARE NOT ALSO DIRECTORS:
NAME
OFFICER SINCE AGE POSITION WITH THE COMPANY
----------------------- ----- -----------------------------------------
Ronald F. Creeley 55 Vice President, Marketing and
1997 Sales of the Company and Words+, Inc.
Momoko A. Beran 54 Chief Financial Officer of the
1996 Company and Words+, Inc.
Jeffrey A. Dahlen 45 President of Words+, Inc.
2003
RONALD F. CREELEY joined the Company in February 1997 as its Vice President,
Marketing and Sales. Prior to joining the Company, Mr. Creeley had been
Marketing Director at Union Pen Company, Time Resources, and New England
Business Services, Inc., with experience in marketing and research.
5
MOMOKO A. BERAN joined Words+ in June 1993 as Director of Accounting and was
named the Company's Chief Financial Officer in July 1996. Prior to joining
Words+, Ms. Beran had been Financial Controller for AB Component Systems Inc.,
which had its headquarters in the U.K. Since February 1, 2003, Ms. Beran has
also been the Company's Director of Human Resources.
JEFFREY A. DAHLEN rejoined the Company in April 2003 as Vice President of
Research and Development for Words+ after five years with iAT, a software
consulting firm he founded based in Pasadena, California. Mr. Dahlen was
promoted to President of Words+, Inc. in April 2004. He is a graduate of
Stanford University in Electrical Engineering and has 20 years' experience in
both software and hardware design, which includes development of extremely high
speed processing hardware with the Jet Propulsion Laboratory at the California
Institute of Technology, and over 10 years of software and hardware design and
development at Words+.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation paid
or accrued for the fiscal year ended August 2006, 2005 and 2004 by the Company
to or for the benefit of the Company's CEO, President, Chief Financial Officer,
and Vice President, Sales and Marketing (the "named executive officers"). No
other executive officers of the Company received total annual compensation for
the fiscal year ended August 31, 2006, 2005 and 2004 that exceeded $100,000.
Summary Compensation Table
Long-Term
Annual Compensation Compensation
--------------------------------------- ----------------------
Securities (# shares)
Name and Principal Fiscal Underlying Options
Position Year Salary Bonus (1) Other (2) Granted during FY
------------------------------- --------- --------------- --------- ------------ ----------------------
Walter S. Woltosz 2006 $172,000 $49,887 $2,580 15,000
Chief Executive Officer 2005 $165,000 $19,340 - -
2004 $165,000 $38,813 - -
Ronald F. Creeley 2006 $100,000 $ 2,472 $4,360 20,000
Vice President, Sales 2005 $100,000 $ 4,951 $4,000 5,000
and Marketing 2004 $100,000 $ 6,596 $3,679 -
Momoko A. Beran 2006 $100,000 $ 3,332 $4,360 20,000
Chief Financial Officer 2005 $100,000 $ 6,010 $4,000 5,000
2004 $100,000 $10,010 $3,667 -
(1) Amount represents bonus earned during the applicable year.
(2) Amount represents Company matching for 401(k) Plan.
EMPLOYMENT AND OTHER COMPENSATION AGREEMENTS
The Board of Directors renewed its employment agreement with Walter Woltosz
commencing September 1, 2005 for two years. The agreement provided for an annual
salary of $172,000. Pursuant to such agreement, Mr. Woltosz was entitled to such
health insurance and other benefits that are not inconsistent with that which we
customarily provide to our other management employees and to reimbursement of
customary, ordinary and necessary business expenses incurred in connection with
the rendering of services to the Company. The agreement also provides that we
6
may terminate the agreement without cause upon 30 days written notice, and that
our only obligation to Mr. Woltosz would be for a payment equal to the greater
of (i) 12 months of salary or (ii) the remainder of the term of the employment
agreement from the date of notice of termination. Further, the agreement
provides that we may terminate the agreement for cause (as defined) and that our
only obligation to Mr. Woltosz would be limited to the payment of Mr. Woltosz'
salary and benefits through and until the effective date of any such
termination.
As part of the agreement with the original underwriter and as partial
compensation for the sale of Words+ to Simulations Plus in 1996, commencing with
our fiscal year ending 1997 and for each fiscal year thereafter, Walter and
Virginia Woltosz are entitled to receive bonuses not to exceed $150,000 and
$60,000, respectively, equal to 5% of our net annual income before taxes. The
net income before tax for FY06 was $997,728, thus we accrued bonuses in the
total amount of $99,773: $49,887 for Walter Woltosz and $49,886 for Virginia
Woltosz. These bonuses are due and payable within 10 days after the filing of
the annual report.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our Common Stock as of August 31, 2006 by (i) each person who is
known to own beneficially more than 5% of the outstanding shares of our Common
Stock, (ii) each of our directors and executive officers, and (iii) all
directors and executive officers of the Company as a group:
AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER (1)(2) BENEFICIAL OWNERSHIP OF CLASS
-------------------------------------------- ----------------------- -------------
Walter S. and Virginia E. Woltosz (3) 4,032,000 47.64%
Momoko Beran (4) 422,000 4.99%
Ronald F. Creeley (5) 414,000 4.90%
Jeffrey A. Dahlen (6) 130,000 1.54%
Dr. David Z. D'Argenio (7) 11,206 *
Dr. Richard R. Weiss (8) 9,206 *
All directors and officers as a group 5,018,412 59.31%
* Less than 1%
(1) Such persons have sole voting and investment power with respect to all
Shares of Common Stock shown as being beneficially owned by them, subject
to community property laws, where applicable, and the information contained
in the footnotes to this table.
(2) The address of each director and executive officer named is c/o the
Company, 42505 Tenth Street West, Lancaster, California 93534-7059.
(3) Own an aggregate of 4,002,000 plus 30,000 shares of common stock underlying
an option exercisable within the next 60 days of the date of this Annual
Report.
(4) Owns 2,600 shares of common stock acquired from the exercise of options
granted under the 1996 Stock Option plan, plus 419,400 shares of common
stock underlying an option exercisable within the next 60 days of the date
of this Annual Report.
7
(5) Owns 2,000 shares of common stock, plus 412,000 shares of common stock
underlying an option exercisable within the next 60 days of the date of
this Annual Report.
(6) 130,000 shares of common stock options were granted, which are exercisable
within the next 60 days of the date of this Annual Report.
(7) Owns 2,000 shares of common stock, plus 9,206 shares of common stock
underlying an option exercisable within the next 60 days of the date of
this Annual Report. Does not include stock options for 2,000 shares, which
are not exercisable within the next 60 days of the date of this Annual
Report.
(8) 9,206 shares of common stock options were granted, which are exercisable
within the next 60 days of the date of this Annual Report. Does not include
stock options for 2,000 shares, which are not exercisable within the next
60 days of the date of this Annual Report.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") requires the Company's directors and executive officers and beneficial
holders of more than 10% of the Company's Common Stock to file with the
Commission initial reports of ownership and reports of changes in ownership of
the Company's equity securities.
Walter S. Woltosz, Virginia E. Woltosz, Ronald F. Creeley, and Momoko A. Beran
were each late in filing two reports on Form 4s to report a grant of stock
options and a cancellation of stock options. Richard R. Weiss and David Z.
D'Argenio were each late in filing one report on Form 4s to report a grant of
stock options. These late reports were due to difficulties experienced with the
electronic filing system used by the Securities and Exchange Commission for such
reports.
OPTION GRANTS IN FY06
The following table discloses information about option grants to the Named
Executive Officers during the year ended August 31, 2006, including hypothetical
gains or "option spreads" for the options at the end of their respective
ten-year terms, as calculated in accordance with the rules of the SEC. Each gain
is based on an arbitrarily assumed annualized rate of compound appreciation of
the market price at the date of the grant of 1% and 4% from the date the option
was granted to the end of the option term. Actual gains, if any, on option
exercises are dependent on the future performance of our common stock, overall
market conditions and continued employment.
NO. OF PERCENT OF POTENTIAL REALIZABLE VALUE AT
SECURITIES TOTAL OPTIONS ASSUMED ANNUAL RATED OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------- ----------
NAME GRANTED FY06 SHARE DATE 1% 4%
------------------------------------------------------------------------------------------------------------------------------
Walter S. Woltosz 15,000 4.4% $ 2.48 07/19/2016 $ 3,892 $ 17,865
Virginia E. Woltosz 15,000 4.4% $ 2.48 07/19/2016 $ 3,892 $ 17,865
Momoko A. Beran 20,000 5.9% $ 2.25 07/19/2016 $ 4,708 $ 21,611
Ronald F. Creeley 20,000 5.9% $ 2.25 07/19/2016 $ 4,708 $ 21,611
Jeffrey A. Dahlen 20,000 5.9% $ 2.25 07/19/2016 $ 4,708 $ 21,611
8
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
The following table discloses certain information regarding the options held at
August 31, 2006 by the Chief Executive Officer and each other named executive
officer.
------------------------------- -------------- ----------- ----------------------------- -----------------------------
Shares Value
Acquired on Realized Number of Options Value of Options
Exercise at August 31, 2006 at August 31, 2006 (1)
------------------------------- -------------- ----------- ----------------------------- -----------------------------
Exercisable Unexercisable Exercisable Unexercisable
------------------------------- -------------- ----------- --------------- ------------- --------------- -------------
Walter S. Woltosz - - 15,000 - $0.00* $0.00*
------------------------------- -------------- ----------- --------------- ------------- --------------- -------------
Virginia E. Woltosz - - 15,000 - $0.00* $0.00*
------------------------------- -------------- ----------- --------------- ------------- --------------- -------------
Momoko Beran - - 419,400 - $484,133 $0.00
------------------------------- -------------- ----------- --------------- ------------- --------------- -------------
Ronald F. Creeley - - 412,000 - $469,880 $0.00
------------------------------- -------------- ----------- --------------- ------------- --------------- -------------
Dr. David Z. D'Argenio - - 9,206 2,000 $8,847 $0.00
------------------------------- -------------- ----------- --------------- ------------- --------------- -------------
Dr. Richard R. Weiss - - 9,206 2,000 $8,847 $0.00
------------------------------- -------------- ----------- --------------- ------------- --------------- -------------
Jeffrey Dahlen - - 130,000 - $0.00 $0.00
------------------------------- -------------- ----------- --------------- ------------- --------------- -------------
(1) Based on a per share price of $2.20 at August 31, 2006 less applicable
option exercise prices. * Granted at $2.48, 110% of market price of the
issue date. The closing stock price of the stock on 8/31/06 was $2.20.
OPTION PLANS (ALL NUMBERS OF SHARES IN THIS DISCUSSION HAVE BEEN
ADJUSTED FOR THE 2:1 STOCK SPLIT IN AUGUST 2006)
In September 1996, the Board of Directors adopted and the stockholders approved
the 1996 Stock Option Plan (the "Option Plan") under which a total of 500,000
shares of common stock had been reserved for issuance. In March 1999, the
stockholders approved an increase in the number of shares that may be granted
under the Option Plan to 1,000,000. In February 2000, the stockholders approved
an increase in the number of shares that may be granted under the Option Plan to
2,000,000. In December 2000, the stockholders approved an increase in number of
shares that may be granted under the Option Plan to 2,500,000. Furthermore, in
February 2005, the stockholders approved an additional 500,000 shares,
increasing the total number of shares that may be granted under the Option Plan
to 3,000,000.
As of September 30, 2006, the un-issued portion of the Option Plan was cancelled
by its Terms. During the ten-year life of the Option Plan, a total of 2,592,508
options were granted after cancellation of options that either expired
unexercised or were cancelled when employees terminated their employment with
the company and did not exercise their vested options within 30 days of their
termination date. The remaining 407,492 options were not granted at the time the
Option Plan expired in September 2006.
The Company decided to accelerate the vesting for outstanding options underlying
registered shares as of August 18, 2006. The Company's decision to accelerate
the vesting of these options was made to eliminate future compensation expense
that the Company would otherwise recognize with respect to these options
following the Company's adoption of SFAS 123(R), Share-Based Payment in the
beginning of the Company's fiscal year 2007 which is September 1, 2006. The
Company estimates that the pre-tax charge to be avoided would be approximately
$420,000 over the remaining portion of the original vesting periods, which on
average is approximately 3.9 years from the effective date of the acceleration.
A resolution to approve the new 2007 Stock Option Plan will be voted upon at the
Annual Stockholders' Meeting for which this Proxy Statement is being circulated.
See Proposal 3 below.
9
COMPANY CODE OF ETHICS
Our Code of Ethics is posted on our web site: www.simulations-plus.com.
BOARD COMMITTEES AND MEETINGS
The Board of Directors has an Audit Committee and a Compensation Committee.
Audit Committee
---------------
The Audit Committee reviews, acts on and reports to the Board of Directors with
respect to various auditing and accounting matters, including selecting our
independent auditors, the scope of the annual audits, fees to be paid to the
auditors, the performance of our independent auditors and our accounting
practices. This committee is responsible for selecting the Company's independent
auditors, reviewing the Company's internal audit procedures, reviewing quarterly
and annual financial statements independently and with the Company's independent
auditors, reviewing the results of the annual audit and implementing and
monitoring the Company's cash investment policy. In addition, this committee
assists the Board in its oversight of corporate accounting and internal
controls, reporting practices and the quality and integrity of the financial
reports of the Company. The Audit Committee met three times during fiscal 2006.
Audit Committee Financial Expert
--------------------------------
Currently our two independent directors, Dr. Richard R. Weiss and Dr. David Z.
D'Argenio, are the members of the Audit Committee. Under the new rules of the
Securities and Exchange Commission brought about by the Sarbanes-Oxley Act,
companies are required to disclose whether their audit committees have an "audit
committee financial expert" as defined in Item 401(h) of Regulation S-B under
the Exchange Act and whether that expert is "independent" as that term is used
in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act. The Board of
Directors believes that the two members of the current audit committee are well
qualified to read and understand financial reports, and to perform the duties of
"audit committee financial expert" as defined in the Regulation.
Compensation Committee
----------------------
The Compensation Committee reviews and approves the compensation and benefits of
our key executive officers, administers our employee benefit plans and makes
recommendations to the Board of Directors regarding such matters. Our two
independent directors, Dr. Richard R. Weiss and Dr. David Z. D'Argenio are
members of the Compensation Committee. The Compensation Committee did not meet
during fiscal 2006.
DIRECTOR COMPENSATION
At the Board of Directors' meeting held on July 19, 2006, the stipend for the
outside directors was increased to $5,000 per year. This is the first increase
since the Company was incorporated. The payment for individual meetings remains
at $500. In addition, stock options which each outside director receives
annually have been increased to 2,000 shares at the fair market value of the
shares on the date of grant.
APPOINTMENT OF AUDITORS (ITEM 2)
The Board has selected Rose, Snyder and Jacobs CPA's as its independent
registered accounting firm for the Company for fiscal year 2007. A resolution is
being submitted to stockholders at the meeting for ratification of such
selection and the accompanying proxy will be voted for such ratification, unless
instructions to the contrary are indicated therein. Although ratification by
stockholders is not a legal prerequisite to the Board's selection of Rose,
Snyder and Jacobs as the Company's independent registered accounting firm, the
Company believes such ratification to be appropriate. If the stockholders do not
ratify the selection of Rose, Snyder and Jacobs, the selection of our
independent registered accounting firm will be reconsidered by the Board;
however, the Board may select Rose, Snyder and Jacobs, notwithstanding the
failure of the stockholders to ratify its selection.
10
The Board expects that a representative of Rose, Snyder and Jacobs will be
present at the meeting, will have an opportunity to make a statement if he or
she so desires, and will be available to respond to appropriate questions.
AUDIT FEES
The Company incurred the following fees to Rose, Snyder & Jacobs, CPAs for
services rendered during the fiscal years ended August 31, 2006 and 2005:
Fee Category FY06 Fees FY05 Fees
------------ ----------- -----------
Audit fees $ 60,295 $ 55,803
Audit-related fees -- --
Tax fees 8,000 13,467
All other fees 1,120 --
----------- -----------
Total fees $ 69,415 $ 69,270
----------- -----------
AUDIT FEES - Consists of fees incurred for professional services rendered for
the audit of Simulations Plus, Inc.'s consolidated financial statements and for
reviews of the interim consolidated financial statements included in our
quarterly reports on Form 10-QSB and consents for filings with the SEC.
AUDIT-RELATED FEES - Consists of fees billed for professional services that are
reasonably related to the performance of the audit or review of Simulations
Plus, Inc.'s consolidated financial statements, but are not reported under
"Audit fees."
TAX FEES - Consists of fees billed for professional services relating to tax
compliance, tax reporting, and tax advice.
ALL OTHER FEES - Consists of fees billed for all other services.
The appointment of auditors is approved annually by the Board.
VOTE REQUIRED.
Approval of Proposal 2 requires the affirmative vote of a majority of the shares
of Common Stock present and voting at a meeting if a quorum is present.
Recommendation of the Board of Directors
The Board of Directors recommends a vote FOR approval of Proposal 2.
11
APPROVAL OF 2007 STOCK OPTON PLAN (ITEM 3)
On February 23, 2007, our Board will vote to approve the Simulations Plus, Inc.
2007 Stock Option Plan (the "2007 Plan"), effective February 23, 2007, to
promote the interests of Simulations Plus, Inc. and our stockholders by: (i)
attracting and retaining exceptional directors, employees and consultants
(including prospective directors, employees and consultants), and (ii) enabling
such individuals to participate in the long-term growth and financial success of
Simulations Plus, Inc. The following description of the 2007 Plan is qualified
by reference to the full text thereof, a copy of which is attached hereto as
Appendix 3.
Eligible Participants
Any director, employee or consultant (including any prospective director,
employee or consultant) of Simulations Plus, Inc. and any affiliate of
Simulations Plus, Inc. shall be eligible to be designated a participant in the
2007 Plan for purposes of receiving awards. However, incentive stock options
("ISOs") may be granted only to employees. After the annual meeting we
anticipate that we will have approximately four directors, thirty-five employees
and no consultants eligible to receive awards under the 2007 Plan.
Plan Administration
Our Board, or one or more committees appointed by our Board, will administer the
2007 Plan (in either case, the "administrator"). In the case of awards intended
to qualify as "performance-based compensation" within the meaning of Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), the
committee will consist of two or more "outside directors" within the meaning of
Section 162(m). The administrator has the power to determine the terms of the
awards, including the exercise price (which may be changed by the administrator
after the date of grant), the number of shares subject to each award, the
exercisability of the awards and the form of consideration payable upon
exercise. The administrator also has the power to implement an award exchange
program (whereby awards may be exchanged or cancelled for awards with lower
exercise prices or different terms), or a program through which participants may
reduce cash compensation payable in exchange for awards. The administrator may
also create other stock-based awards that are valued in whole or in part by
reference to (or are otherwise based on) shares of our common stock.
Shares Available For Awards
Subject to adjustment as provided below, the aggregate number of shares of our
common stock that may be issued pursuant to awards granted under the 2007 Plan
is 500,000 As of January 5, 2007, no options were granted under the 2007 Plan.
Notwithstanding the foregoing, the maximum number of shares that may be issued
pursuant to ISOs granted under the 2007 Plan is 500,000.
If an award expires or is terminated or canceled without having been exercised
or settled in full, it is forfeited back to or repurchased by us, the terminated
portion of the award (or forfeited or repurchased shares subject to the award)
will become available for future grant or sale under the 2007 Plan (unless it
has terminated). Shares are not deemed to be issued under the 2007 Plan with
respect to any portion of an award that is settled in cash. If the exercise or
purchase price of an award is paid for through the tender of shares, or
withholding obligations are met through the tender or withholding of shares,
those shares tendered or withheld will again be available for issuance under the
2007 Plan.
Awards
The 2007 Plan provides for the grant of options intended to qualify as ISOs
under Section 422 of the Code to our and our affiliates' employees and
non-statutory stock options ("NSOs"), stock appreciation rights, restricted
stock awards, restricted stock units, unrestricted stock awards, performance
unit awards, performance share awards and other stock based awards (each, an
"award") to our and our affiliates' directors, employees and consultants.
12
STOCK OPTIONS. An option is the right to purchase shares of our common
stock at a fixed exercise price for a fixed period of time. The administrator
may grant both ISOs and NSOs under the 2007 Plan. Except as otherwise determined
by the administrator in an award agreement, the exercise price for options
cannot be less than the fair market value (as defined in the 2007 Plan) of our
common stock on the date of grant. The term of each option will be determined by
the administrator; provided that no ISO will be exercisable after the tenth
anniversary of the date the option is granted. In the case of ISOs granted to an
employee who, at the time of the grant of an option, owns stock representing
more than 10% of the voting power of all classes of our stock or the stock of
any of our affiliates, the exercise price cannot be less than 110% of the fair
market value of a share of our common stock on the date of grant and its term
will be five years or less from the date of grant. All options granted under the
2007 Plan will be NSOs unless the applicable award agreement expressly states
that the option is intended to be an ISO. No participant shall be granted more
than 50,000 options in any one year.
Options shall vest and become exercisable as determined by the
administrator. The exercise price will be payable with cash (or its equivalent)
or by other methods as permitted by the administrator to the extent permitted by
applicable law.
If a participant's employment or relationship with us is terminated,
the participant (or his or her designated beneficiary or estate representative
in the case of death) may exercise his or her option within such period of time
as is specified in the award agreement to the extent that the option is vested
on the date of termination. In the absence of a specified time in the award
agreement, the option will remain exercisable for three months following the
date of termination, except in the case where termination is as a result of
disability or death, in which case the option will remain exercisable for 12
months following the date of termination or death.
The administrator may at any time offer to buy out an option previously
granted for a payment in cash or shares of our common stock based on such terms
and conditions as the administrator shall establish and communicate to the
participant at the time that such offer is made.
RESTRICTED STOCK. Restricted stock awards are awards of shares of our
common stock that vest in accordance with terms and conditions established by
the administrator. The administrator may impose whatever conditions to vesting
it determines to be appropriate. The administrator will determine the number of
shares of restricted stock granted to any employee. The administrator determines
the purchase price of any grants of restricted stock and, unless the
administrator determines otherwise, shares that do not vest typically will be
subject to forfeiture or to our right of repurchase, which we may exercise upon
the voluntary or involuntary termination of the purchaser's service with us for
any reason including death or disability. Holders of restricted stock may
exercise voting rights with respect to such stock, unless the administrator
determines otherwise. During the period of restriction, holders of restricted
stock will be entitled to receive all dividends and other distributions paid
with respect to such stock unless otherwise provided in the award agreement. If
any such dividends or distributions are paid in our shares of common stock, such
shares will be subject to the same restrictions on transferability and
forfeitability as the restricted stock with respect to which they were paid.
UNRESTRICTED STOCK. Subject to the terms of an award agreement, a
participant may be awarded (or sold at a discount) shares of our common stock
that are not subject to restrictions, in consideration for past services
rendered to us, our affiliates or for other valid consideration.
STOCK APPRECIATION RIGHTS. A stock appreciation right is the right to
receive an amount equal to the appreciation in the fair market value of our
common stock between the exercise date and the date of grant, for that number of
shares of our common stock with respect to which the stock appreciation right is
exercised. We may pay the appreciation in either cash, in shares of our common
stock with equivalent value, or in some combination, as determined by the
administrator and in conformance with Section 409A of the Code. The
13
administrator determines the exercise price of stock appreciation rights, the
vesting schedule and other terms and conditions of stock appreciation rights;
however, stock appreciation rights expire under the same rules that apply to
stock options. The administrator may at any time offer to buy out for a payment
in cash or shares of our common stock a stock appreciation right previously
granted based on such terms and conditions as the administrator shall establish
and communicate to the participant at the time that such offer is made.
PERFORMANCE UNITS AND PERFORMANCE SHARES. Performance units and
performance shares are awards that will result in a payment to a participant
only if performance goals established by the administrator are achieved or the
awards otherwise vest. The administrator will establish performance goals in its
discretion, which, depending on the extent to which they are met, will determine
the number and/or value of performance units and performance shares to be paid
to the participant. The performance goals may be based upon the achievement of
Simulations Plus, Inc., divisional or individual goals or objectives, securities
laws or any other basis determined by the administrator. Payment for performance
units and performance shares may be made in cash or in shares of our common
stock with equivalent value, or in some combination, as determined by the
administrator. Performance units will have an initial dollar value established
by the administrator prior to the grant date. Performance shares will have an
initial value equal to the fair market value of our common stock on the grant
date.
RESTRICTED STOCK UNITS. Restricted stock units are awards of restricted
stock, performance shares and/or performance units that are paid out in
installments or on a deferred basis as determined by the administrator in its
sole discretion in accordance with rules and procedures established by the
administrator and in conformance with Section 409A of the Code.
OTHER STOCK BASED AWARDS. The administrator has the authority to create
awards under the 2007 Plan in addition to those specifically described in the
2007 Plan. These awards must be valued in whole or in part by reference to, or
must otherwise be based on, the shares of our common stock.
Transferability of Awards
Generally, unless the administrator determines otherwise, our 2007 Plan does not
allow for the transfer of awards other than by will or by the laws of descent
and distribution, and only the participant may exercise an award during his or
her lifetime.
Amendment and Termination of the 2007 Plan
The Board may at any time amend, alter, suspend or terminate the 2007 Plan.
Unless sooner terminated, the 2007 Plan shall terminate on February 23, 2017,
the date that is 10 years from the date the 2007 Plan was originally adopted by
the Board.
Effectiveness
The approval of the 2007 Plan will be effective as of February 23,
2007, subject to stockholder approval.
Liquidation or Dissolution of Simulations Plus, Inc.
In the event of the proposed dissolution or liquidation of Simulations
Plus, Inc., the administrator will notify each participant as soon as
practicable prior to the effective date of such proposed transaction. The
administrator in its discretion may provide for a participant to have the right
to exercise his or her award, to the extent applicable, until 10 days prior to
such transaction as to all of the stock covered thereby, including shares of our
common stock as to which such award would not otherwise be exercisable. In
addition, the administrator may provide that any Simulations Plus, Inc.
14
repurchase option or forfeiture rights applicable to any award shall lapse 100%,
and that any award vesting shall accelerate 100%, provided the proposed
dissolution or liquidation takes place at the time and in the manner
contemplated. To the extent it has not been previously exercised or vested, an
award will terminate immediately prior to the consummation of such proposed
action.
Change in Control
Generally, in the event Simulations Plus, Inc. experiences a "change in
control," as that term is defined in the 2007 Plan, it is anticipated that
awards will be assumed by the successor corporation or that the successor
corporation will substitute an equivalent award in its place. However, if the
successor corporation refuses to assume or substitute the outstanding award,
then the administrator may provide that the vesting of any award shall
accelerate 100%. If accelerated, the administrator shall give the recipient 15
days notice from which to exercise the vested awards. At the end of such 15-day
period, the awards shall terminate if they are not exercised.
Federal Income Tax Consequences
TO THE OPTIONEES OR RECIPIENTS.
NSOS. An optionee generally will not recognize any income for federal
income tax purposes on the grant of an NSO. Upon the exercise of an NSO, an
optionee generally will recognize compensation taxable as ordinary income, equal
to the difference between the fair market value of our common stock on the date
of exercise and the exercise price. This compensation is subject to withholding
taxes. An optionee will recognize gain or loss on the sale or exchange of stock
acquired pursuant to an exercise of an NSO. Such gain or loss will be equal to
the difference between the optionee's adjusted basis in the stock, which will
include the exercise price and any ordinary income recognized on exercise of the
option, and the fair market value of the stock on the date of sale or exchange.
The gain may be subject to preferential tax treatment if the stock has been held
for more than one year.
ISOS. An optionee will not recognize any income for federal income tax
purposes on the grant of an ISO. Upon the exercise of an ISO, tax is deferred
until the underlying stock is sold (though the spread at exercise may be a tax
preference for purposes of the Alternative Minimum Tax). When sold, the ISO is
taxed at the capital gains rate on the full amount of appreciation for the sales
proceeds over the option cost, provided the employee has satisfied the holding
period prescribed for ISOs -- the longer of two (2) years from the date of grant
or one (1) year from the date of exercise. If the ISO stock is sold within the
holding period, the option is taxed as an NSO.
RESTRICTED STOCK. Generally, a recipient recognizes no income from the
grant of a restricted stock award until the grant is no longer subject to a
substantial risk of forfeiture. Upon the lapse of a substantial risk of
forfeiture (i.e., the restricted stock becomes vested), the recipient has
taxable income equal to the excess of the fair market value of the restricted
stock over the amount paid. Upon a later disposition, the computation of taxable
gain will take into account any previous taxes paid, and the gain may be subject
to preferential tax treatment if the restricted stock has been held for more
than one year.
UNRESTRICTED STOCK. Unrestricted stock generally has the same tax
consequences as restricted stock.
STOCK APPRECIATION RIGHTS. A recipient of a stock appreciation right
will generally recognize ordinary income for federal income tax purposes, the
timing of which depends on the terms of the underlying award agreement and
Section 409A of the Code.
PERFORMANCE UNITS AND PERFORMANCE SHARES. A recipient of a performance
unit/share generally recognizes no income until the performance objectives are
satisfied. If the payout is in stock, the recipient has taxable income equal to
the excess of the fair market value of the stock over the amount paid. Upon a
later disposition, the computation of taxable gain will take into account any
previous taxes paid, and the gain may be subject to preferential tax treatment
if the stock has been held for more than one year. If the payout is in cash, the
recipient has ordinary income equal to the amount of cash received.
15
RESTRICTED STOCK UNITS. Restricted stock units must comply with Section
409A of the Code, and will be taxed in accordance with the terms of its
underlying award agreement.
OTHER STOCK BASED AWARDS. The taxation of other stock based awards
depends on the nature of the award.
With the exception of ISO awards, we generally are entitled to a
business expense deduction at the time and in the amount that the
optionee/recipient recognizes ordinary income in connection with the grant or
exercise of the award. As to grants of ISOs, we generally receive no deduction
associated with such grant except when the recipient has a disqualifying
disposition. Upon a disqualifying disposition, the option loses its ISO status,
converts to a NSO, and is taxed accordingly.
Current Awards Under 2007 Plan:
None. The actual number of future grants and awards under the 2007 Plan is at
the discretion of the administrator and is not determinable at this time.
VOTE REQUIRED.
Approval of Proposal 3 requires the affirmative vote of a majority of the shares
of Common Stock present and voting at a meeting if a quorum is present.
Recommendation of the Board of Directors
The Board of Directors believes that the 2007 Stock Option Plan is in the best
interests of Simulations Plus, Inc. and recommends a vote FOR approval of
Proposal 3.
OTHER MATTERS (ITEM 4)
The Board of Directors of the Company knows of no other matters to be presented
at the Annual Meeting other than those described above. However, if any other
matters properly come before the meeting, it is intended that any shares voted
by proxy will be voted in the discretion of the Board of Directors.
By Order of the Board of Directors
/s/ Virginia E. Woltosz
Virginia E. Woltosz
Secretary
Dated: December 20, 2006
16
APPENDIX 1: AUDIT COMMITTEE CHARTER
ORGANIZATION:
The audit committee shall be composed of directors, the majority of whom are
independent of the management of the corporation and are free of any
relationship that, in the opinion of the Board of Directors, would interfere
with their exercise of independent judgment as a committee member.
STATEMENT OF POLICY:
The audit committee shall provide assistance to the corporate management in
fulfilling their responsibility to the stockholders, potential stockholders, and
investment community on matters relating to corporate finances. In so doing, it
is the responsibility of the audit committee to maintain free and open means of
communication between the directors, the independent registered accounting firm
("independent auditors"), and the financial management of the corporation.
RESPONSIBILITIES:
In carrying out its responsibilities, the audit committee believes its policies
and procedures should remain flexible, in order to best react to changing
conditions and to ensure to the directors and stockholders that the corporate
accounting and reporting practices of the corporation are in accordance with all
requirements and are of high quality.
In carrying out these responsibilities, the audit committee will:
o Review and recommend to the management the independent auditors to be selected
to audit the financial statements of the corporation and its subsidiaries.
o Review with the independent auditors, the company's management, and financial
and accounting personnel, the adequacy and effectiveness of the accounting and
financial controls of the corporation, and elicit any recommendations for the
improvement of such internal control procedures or particular areas where new or
more detailed controls or procedures are desirable. Particular emphasis should
be given to the adequacy of such internal controls to expose any payments,
transactions, or procedures that might be deemed illegal or otherwise improper.
Further, the committee periodically should review company policy.
o Review the financial statements contained in the annual report to stockholders
with management and the independent auditors to determine that the independent
auditors are satisfied with the disclosure and content of the financial
statements to be presented to the stockholders. Any changes in accounting
principles should be reviewed.
o Provide sufficient opportunity for independent auditors to meet with the
members of the audit committee without members of management present. Among the
items to be discussed in these meetings are the independent auditors' evaluation
of the corporation's financial, accounting, auditing personnel, and the
cooperation that the independent auditors received during the course of the
audit.
o Investigate any matter brought to its attention within the scope of its
duties, with the power to retain outside counsel for this purpose if, in its
judgment, that is appropriate.
17
APPENDIX 2: FORM OF PROXY CARD
Exhibit to Proxy Statement for the 2007 Annual Meeting of Stockholders
Simulations Plus, Inc.
Proxy
Solicited by the Board of Directors of Simulations Plus, Inc. -- Annual Meeting
of Stockholders -- February 23, 2007
The undersigned hereby appoints Walter S. Woltosz and Momoko Beran, or either of
them, attorneys and proxies for the undersigned, with full power of
substitution, for and in the name, place and stead of the undersigned, to
represent and vote, as designated below, all shares of stock of Simulations
Plus, Inc., a California Corporation, held of record by the undersigned on
December 20, 2006, at the Annual Meeting of the Stockholders to be held at 42505
10th Street West, Lancaster, California at 2:00 p.m. Pacific Standard Time on
February 23, or at any adjournment or postponement of such meeting, in
accordance with and as described in the Notice of Annual Meeting of Stockholders
and Proxy Statement. If no direction is given, this proxy will be voted FOR
Proposals 1 and 2, and in the discretion of the proxy as to such other matters
as may properly come before the meeting.
[X] Please mark the votes as in this example.
The Board of Directors recommends a vote for Proposals 1, 2 and 3.
1. Election of Directors
Nominees: Walter S. Woltosz, Virginia E. Woltosz, Dr. David Z. D'Argenio and
Dr. Richard R. Weiss
FOR [ ] WITHHELD [ ]
FOR all nominees except as stated on line above
2. Ratification of Selection of Rose, Snyder and Jacobs CPA's as Auditors
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Ratification of the 2007 Stock Option Plan
FOR [ ] AGAINST [ ] ABSTAIN [ ]
The undersigned hereby revokes any proxy or proxies heretofore given to vote
upon or act with respect to such stock and hereby ratifies all that the proxies,
their substitutes, or any of them, may lawfully do by virtue hereof.
Please sign exactly as your name appears on the address label affixed hereto. If
acting as attorney, executor, trustee or in other representative capacity, sign
name and title.
Date:
Signature:
Signature if held jointly:
18
APPENDIX 3
Simulations Plus, Inc.
2007 STOCK OPTION PLAN
(Effective as of February 23, 2007 if Approved by the Stockholders)
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1 PURPOSE OF THE PLAN.....................................................................................1
ARTICLE 2 DEFINITIONS.............................................................................................1
2.1 "ADMINISTRATOR..................................................................................1
2.2 "AFFILIATE......................................................................................1
2.3 "APPLICABLE LAWS................................................................................1
2.4 "AWARD..........................................................................................1
2.5 "AWARD AGREEMENT................................................................................1
2.6 "AWARDED STOCK..................................................................................1
2.7 "BENEFICIALLY OWNED" AND "BENEFICIAL OWNERSHIP..................................................1
2.8 "BOARD..........................................................................................2
2.9 "CHANGE IN CONTROL..............................................................................2
2.10 "CODE...........................................................................................2
2.11 "COMMITTEE......................................................................................2
2.12 "COMMON STOCK...................................................................................3
2.13 "CONSULTANT.....................................................................................3
2.14 "CORPORATION....................................................................................3
2.15 "DIRECTOR.......................................................................................3
2.16 "DISABILITY.....................................................................................3
2.17 "EFFECTIVE DATE.................................................................................3
2.18 "EMPLOYEE.......................................................................................3
2.19 "EXCHANGE ACT...................................................................................3
2.20 "EXCHANGE PROGRAM...............................................................................3
2.21 "FAIR MARKET VALUE..............................................................................3
2.22 "FISCAL YEAR....................................................................................4
2.23 "INCENTIVE STOCK OPTION.........................................................................4
2.24 "NON-QUALIFIED STOCK OPTION.....................................................................4
2.25 "OFFICER........................................................................................4
2.26 "OPTION.........................................................................................4
2.27 "OTHER STOCK BASED AWARDS.......................................................................4
2.28 "OUTSIDE DIRECTOR...............................................................................4
2.29 "PARTICIPANT....................................................................................4
2.30 "PERFORMANCE SHARE..............................................................................4
2.31 "PERFORMANCE UNIT...............................................................................5
2.32 "PERIOD OF RESTRICTION..........................................................................5
2.33 "PLAN...........................................................................................5
2.34 "RESTRICTED STOCK...............................................................................5
2.35 "RESTRICTED STOCK UNIT..........................................................................5
2.36 "RULE 16B-3.....................................................................................5
2.37 "SECTION 16(B)..................................................................................5
2.38 "SERVICE PROVIDER...............................................................................5
2.39 "SHARE..........................................................................................5
2.40 "STOCK APPRECIATION RIGHT" OR "SAR..............................................................5
2.41 "UNRESTRICTED STOCK.............................................................................5
ARTICLE 3 PLAN ADMINISTRATION.....................................................................................6
3.1 PROCEDURE.......................................................................................6
3.2 POWERS OF THE ADMINISTRATOR.....................................................................6
3.3 EFFECT OF ADMINISTRATOR'S DECISION..............................................................8
ARTICLE 4 STOCK SUBJECT TO THE PLAN...............................................................................8
4.1 STOCK SUBJECT TO THE PLAN.......................................................................8
4.2 LAPSED AWARDS...................................................................................8
4.3 ADJUSTMENTS FOR CHANGES IN CAPITALIZATION AND SIMILAR EVENTS....................................8
4.4 SUBSTITUTE AWARDS...............................................................................9
ARTICLE 5 PARTICIPATION...........................................................................................9
5.1 ELIGIBILITY.....................................................................................9
5.2 TERMINATION OF PARTICIPATION...................................................................10
ARTICLE 6 STOCK OPTIONS..........................................................................................10
6.1 OPTION GRANT...................................................................................10
6.2 EXERCISE PRICE.................................................................................11
6.3 WAITING PERIOD AND EXERCISE DATES..............................................................11
6.4 EXERCISE OF OPTION.............................................................................11
6.5 FORM OF CONSIDERATION..........................................................................13
6.6 PROMISSORY NOTE................................................................................13
ARTICLE 7 RESTRICTED STOCK.......................................................................................14
7.1 GRANT OF RESTRICTED STOCK......................................................................14
7.2 RESTRICTED STOCK AGREEMENT.....................................................................14
7.3 TRANSFERABILITY................................................................................14
7.4 OTHER RESTRICTIONS.............................................................................14
7.5 REMOVAL OF RESTRICTIONS........................................................................14
7.6 VOTING RIGHTS..................................................................................14
7.7 DIVIDENDS AND OTHER DISTRIBUTIONS..............................................................14
7.8 RETURN OF RESTRICTED STOCK TO CORPORATION......................................................14
ARTICLE 8 UNRESTRICTED STOCK.....................................................................................15
ARTICLE 9 STOCK APPRECIATION RIGHTS..............................................................................15
9.1 GRANT OF SARS..................................................................................15
9.2 NUMBER OF SHARES...............................................................................15
9.3 EXERCISE PRICE AND OTHER TERMS.................................................................15
9.4 SAR AGREEMENT..................................................................................15
9.5 EXPIRATION OF SARS.............................................................................15
9.6 PAYMENT OF SAR AMOUNT..........................................................................15
9.7 BUYOUT PROVISIONS..............................................................................15
ARTICLE 10 PERFORMANCE UNITS AND PERFORMANCE SHARES..............................................................15
10.1 GRANT OF PERFORMANCE UNITS/SHARES..............................................................15
10.2 VALUE OF PERFORMANCE UNITS/SHARES..............................................................16
10.3 PERFORMANCE OBJECTIVES AND OTHER TERMS.........................................................16
10.4 EARNING OF PERFORMANCE UNITS/SHARES............................................................16
10.5 FORM AND TIMING FOR PAYMENT OF PERFORMANCE UNITS/SHARES........................................16
10.6 CANCELLATION OF PERFORMANCE UNITS/SHARES.......................................................16
ARTICLE 11 RESTRICTED STOCK UNITS................................................................................16
ARTICLE 12 OTHER STOCK BASED AWARDS..............................................................................17
ARTICLE 13 DISSOLUTION OR LIQUIDATION; OR CHANGE IN CONTROL......................................................17
13.1 DISSOLUTION OR LIQUIDATION.....................................................................17
13.2 CHANGE IN CONTROL..............................................................................17
ARTICLE 14 MISCELLANEOUS PROVISIONS..............................................................................19
14.1 NO UNIFORM RIGHTS TO AWARDS....................................................................19
14.2 SHARE CERTIFICATES.............................................................................19
14.3 NO RIGHTS AS A SERVICE PROVIDER................................................................19
14.4 NO RIGHTS AS STOCKHOLDER.......................................................................19
14.5 NO TRUST OR FUND CREATED.......................................................................20
14.6 NO FRACTIONAL SHARES...........................................................................20
14.7 REQUIREMENT OF CONSENT AND NOTIFICATION OF ELECTION UNDER CODE SS. 83(B) OR SIMILAR PROVISION..20
14.8 REQUIREMENT OF NOTIFICATION UPON DISQUALIFYING DISPOSITION UNDER CODE SS. 421(B)...............20
14.9 LEAVES OF ABSENCE..............................................................................20
14.10 NOTICES........................................................................................21
14.11 NON-TRANSFERABILITY OF AWARDS..................................................................21
14.12 DATE OF GRANT..................................................................................21
14.13 AMENDMENT AND TERMINATION OF PLAN..............................................................21
14.14 CONDITIONS UPON ISSUANCE OF SHARES.............................................................21
14.15 SEVERABILITY...................................................................................22
14.16 INABILITY TO OBTAIN AUTHORITY..................................................................22
14.17 STOCKHOLDER APPROVAL...........................................................................22
14.18 GOVERNING LAW..................................................................................22
SIMULATIONS PLUS, INC.
2007 STOCK OPTION PLAN
ARTICLE 1
PURPOSE OF THE PLAN
The purpose of this Simulations Plus, Inc. 2007 Stock Option Plan is to
promote the interests of Simulations Plus, Inc. and its stockholders by: (i)
attracting and retaining exceptional Directors, Employees and Consultants
(including prospective Directors, Employees and Consultants) of the Corporation,
and (ii) enabling such individuals to participate in the long-term growth and
financial success of the Corporation.
Accordingly, the Plan provides for the granting of Incentive Stock
Options, Non-Qualified Stock Options, Restricted Stock Awards, Unrestricted
Stock Awards, Restricted Stock Units, Stock Appreciation Rights, Performance
Unit Awards, Performance Share Awards, and Other Stock Based Awards.
ARTICLE 2
DEFINITIONS
2.1 "ADMINISTRATOR" means the Board, the Committee, or any Officer or
Employee of the Corporation to whom the Board or the Committee has delegated
authority to administer the Plan.
2.2 "AFFILIATE" means a "parent" or "subsidiary" corporation as defined
in Code ss.ss. 424(e) and (f), or that the Board has designated as participating
in the Plan.
2.3 "APPLICABLE LAWS" means the requirements relating to the
administration of equity-based awards or equity compensation plans under U.S.
federal and state laws, the Code, any stock exchange or quotation system on
which the Common Stock is listed or quoted, and the applicable laws of any
foreign country or jurisdiction where Awards are, or will be, granted under the
Plan.
2.4 "AWARD" means, individually or collectively, a grant under the Plan
of Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock
Awards, Unrestricted Stock Awards, Restricted Stock Units, Stock Appreciation
Rights, Performance Unit Awards, Performance Share Awards or Other Stock Based
Awards.
2.5 "AWARD AGREEMENT" means the written or electronic agreement setting
forth the terms and provisions applicable to each Award granted under the Plan.
The Award Agreement is subject to the terms and conditions of the Plan.
2.6 "AWARDED STOCK" means the Common Stock subject to an Award.
2.7 "BENEFICIALLY OWNED" AND "BENEFICIAL OWNERSHIP" means as set forth
in Rule 13d-3 of the Exchange Act, provided that the exercise of voting rights
by a nominee or proxy holder of the Board in connection with a meeting or
proposed action by stockholders of the Corporation shall not be deemed to
constitute such ownership and any ownership or voting power of the trustee under
an employee benefit plan of the Corporation shall not be deemed to constitute
such ownership.
1
2.8 "BOARD" means the Board of Directors of the Corporation.
2.9 "CHANGE IN CONTROL" means, unless otherwise defined under Code ss.
409A and reflected in the Award Agreement, the occurrence of any of the
following events:
(a) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other entity such that after
the transaction more than 50% of the outstanding "Voting Securities"
(defined as securities the holders of which are entitled to vote for
the election of Directors) of the surviving entity would be
Beneficially Owned by "Persons" (as such term is used in ss.ss. 13(d)
and 14(d) of the Exchange Act) who did not Beneficially Own "Voting
Securities" of the Corporation prior to the transaction;
(b) Directors who were members of the Board immediately prior
to a meeting of the stockholders of the Corporation which meeting
involves a contest for the election of at least one directorship, do
not constitute at least a majority of the Directors following such
meeting or election;
(c) an acquisition, directly or indirectly, of more than 50%
of the outstanding shares of any class of "Voting Securities" of the
Corporation by any "Person;"
(d) the stockholders of the Corporation approve a sale of all
or substantially all of the assets of the Corporation or the
liquidation of the Corporation; OR
(e) there is a change, during any period of two consecutive
years or less of a majority of the Board as constituted as of the
beginning of such period, unless the election of each Director who is
not a Director at the beginning of such period was approved by a vote
of at least two-thirds of the Directors then in office who were
Directors at the beginning of the period.
Notwithstanding the foregoing, a Change in Control shall not be deemed to have
occurred in the event the Corporation forms a holding company as a result of
which the holders of the Corporation's "Voting Securities" immediately prior to
the transaction, hold, in approximately the same relative proportions as they
held prior to the transaction, substantially all of the "Voting Securities" of a
holding company owning all of the Corporation's "Voting Securities" after the
completion of the transaction.
2.10 "CODE" means the Internal Revenue Code of 1986, as amended, and
the Treasury regulations promulgated thereunder. Any reference to a section of
the Code herein will be a reference to any successor or amended section of the
Code.
2.11 "COMMITTEE" means a committee of Directors or other individuals
satisfying Applicable Laws and appointed by the Board in accordance with Article
3 of the Plan. If the Committee is comprised of two Directors, both Directors
shall be "non-employee directors" as that term is defined in Rule 16b-3.
2
2.12 "COMMON STOCK" means the Common Stock of the Corporation, or in
the case of Awards not based on Shares, the cash equivalent thereof.
2.13 "CONSULTANT" means any person, including an advisor, engaged by
the Corporation or an Affiliate to render services to such entity.
2.14 "CORPORATION" means Simulations Plus, Inc., a California
corporation.
2.15 "DIRECTOR" means a member of the Board.
2.16 "DISABILITY" means, unless otherwise defined under Code ss. 409A
and reflected in the Award Agreement, total and permanent disability as defined
in Code ss. 22(e)(3), provided that in the case of Awards other than Incentive
Stock Options, the Administrator in its discretion may determine whether a
permanent and total disability exists in accordance with uniform and
non-discriminatory standards adopted by the Administrator from time to time.
2.17 "EFFECTIVE DATE" means as of February 23, 2007, provided that the
Plan as amended and restated is approved by the stockholders of the Corporation
on or within 12 months of such date.
2.18 "EMPLOYEE" means any person, including Officers and Directors,
employed by the Corporation or an Affiliate. Neither service as a Director nor
payment of a director's fee by the Corporation will be sufficient to constitute
"employment" by the Corporation.
2.19 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
2.20 "EXCHANGE PROGRAM" means a program under which (i) outstanding
Awards are surrendered or cancelled in exchange for Awards of the same type
(which may have lower exercise prices and different terms), Awards of a
different type, and/or cash; or (ii) the exercise price of an outstanding Award
is reduced. The terms and conditions of any Exchange Program will be determined
by the Administrator in its sole discretion.
2.21 "FAIR MARKET VALUE" means, as of any date and unless the
Administrator determines otherwise, the value of Common Stock determined as
follows:
(a) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the
American Stock Exchange, the NASDAQ National Market or the NASDAQ
SmallCap Market of the NASDAQ Stock Market, its Fair Market Value will
be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or system for the day
of determination, as reported in THE WALL STREET JOURNAL or such other
source as the Administrator deems reliable;
(b) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market
Value of a Share of Common Stock will be the mean between the high bid
and low asked prices for the Common Stock for the day of determination,
as reported in THE WALL STREET JOURNAL or such other source as the
Administrator deems reliable; or
3
(c) In the absence of an established market for the Common
Stock, the Fair Market Value will be determined in good faith by the
Administrator.
Notwithstanding the preceding, for federal, state, and local income tax
reporting purposes and for such other purposes as the Administrator deems
appropriate, the Fair Market Value shall be determined by the Administrator in
accordance with uniform and nondiscriminatory standards adopted by it from time
to time.
2.22 "FISCAL YEAR" means the fiscal year of the Corporation.
2.23 "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Code ss. 422 and the Treasury
regulations promulgated thereunder.
2.24 "NON-QUALIFIED STOCK OPTION" means an Option that by its terms
does not qualify or is not intended to qualify as an Incentive Stock Option.
2.25 "OFFICER" means a person who is an officer of the Corporation
within the meaning of ss. 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
2.26 "OPTION" means an Incentive Stock Option or a Non-Qualified Stock
Option or both, as the context requires.
2.27 "OTHER STOCK BASED AWARDS" means any other awards not specifically
described in the Plan that are valued in whole or in part by reference to, or
are otherwise based on, Shares and are created by the Administrator pursuant to
Article 12.
2.28 "OUTSIDE DIRECTOR" means a Director who either: (i) is not a
current Employee of the Corporation or an "affiliated corporation" (within the
meaning of the Treasury regulations promulgated under Code ss. 162(m)), is not a
former employee of the Corporation or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
retirement plan), was not an officer of the Corporation or an "affiliated
corporation" at any time, and is not currently receiving direct or indirect
remuneration (within the meaning of the Treasury regulations promulgated under
Code ss. 162(m)) from the Corporation or an "affiliated corporation" for
services in any capacity other than as a Director; or (ii) is otherwise
considered an "outside director" for purposes of Code ss. 162(m).
2.29 "PARTICIPANT" means the holder of an outstanding Award granted
under the Plan.
2.30 "PERFORMANCE SHARE" means, pursuant to Article 10, an Award
granted to a Service Provider under which, upon the satisfaction of
predetermined individual or Corporation performance goals and/or objectives,
shares of Common Stock are paid to the Participant.
4
2.31 "PERFORMANCE UNIT" means, pursuant to Article 10, an Award granted
to a Service Provider under which, upon the satisfaction of predetermined
individual or Corporation performance goals and/or objectives, a cash payment
shall be paid to the Participant based on the number of "units" awarded to the
Participant. For this purpose, the term "unit" means bookkeeping units, each of
which represents such monetary amount as shall be designated by the
Administrator in each Award Agreement.
2.32 "PERIOD OF RESTRICTION" means the period during which the transfer
of Shares of Restricted Stock are subject to restrictions. Such restrictions may
be based on the passage of time, the achievement of target levels of
performance, or the occurrence of other events as determined by the
Administrator.
2.33 "PLAN" means this Simulations Plus, Inc. 2007 Stock Option Plan,
as amended from time to time.
2.34 "RESTRICTED STOCK" means shares of Common Stock issued pursuant to
a Restricted Stock Award under the Plan or issued pursuant to the early exercise
of an Option.
2.35 "RESTRICTED STOCK UNIT" means an Award that the Administrator
permits to be paid in installments or on a deferred basis, and that represents
an unfunded and unsecured promise to deliver Shares, cash, other securities,
other Awards or other property in accordance with the terms of the applicable
Award Agreement.
2.36 "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
2.37 "SECTION 16(B)" means Section 16(b) of the Exchange Act.
2.38 "SERVICE PROVIDER" means an Employee, Director or Consultant.
2.39 "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 4.3 and Article 13 of the Plan.
2.40 "STOCK APPRECIATION RIGHT" OR "SAR" means an Award that is
designated as a SAR, and represents an unfunded and unsecured promise to deliver
Shares, cash, other securities, other Awards or other property equal in value to
the excess, if any, of the Fair Market Value per Share over the exercise price
per Share of the SAR, subject to the terms of the applicable Award Agreement.
2.41 "UNRESTRICTED STOCK" means as defined in Article 8 of the Plan.
5
ARTICLE 3
PLAN ADMINISTRATION
3.1 PROCEDURE.
(a) BOARD'S DELEGATION. The Board may delegate administration
of the Plan to a Committee(s). If administration is delegated to a
Committee, the Committee shall have, in connection with the
administration of the Plan, the powers possessed by the Board, subject,
however, to such resolutions, not inconsistent with the provisions of
this Plan, as may be adopted from time to time by the Board. The Board
may abolish the Committee at any time and revest in the Board the
administration of the Plan. Different Committees with respect to
different groups of Service Providers may administer the Plan.
(b) CODE SS. 162(M). To the extent that the Administrator
determines it to be desirable and necessary to qualify Awards granted
hereunder as "performance-based compensation" within the meaning of
Code ss. 162(m), the Plan will be administered by a Committee of two or
more Outside Directors.
(c) RULE 16B-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder will be structured to satisfy the requirements
for exemption under Rule 16b-3.
(d) OTHER ADMINISTRATION. Other than as provided above, the
Plan will be administered by: (i) the Board, or (ii) a Committee, which
committee will be constituted to satisfy Applicable Laws.
(e) DELEGATION OF AUTHORITY FOR DAY-TO-DAY ADMINISTRATION.
Except to the extent prohibited by Applicable Law, the Administrator
may delegate to one or more individuals the day-to-day administration
of the Plan and any of the functions assigned to it in this Plan. Such
delegation may be revoked at any time.
3.2 POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan,
and in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator will have the authority, in its
discretion:
(a) To determine the Fair Market Value.
(b) To select the Service Providers to whom Awards may be
granted hereunder.
(c) To determine the number of Shares to be covered by each
Award granted hereunder.
(d) To approve forms of agreement for use under the Plan.
6
(e) To determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Award granted hereunder. Such terms
and conditions include, but are not limited to, the exercise price, the
time or times when Awards may be exercised (which may be based on
performance criteria), any vesting acceleration or waiver of forfeiture
or repurchase restrictions, and any restriction or limitation regarding
any Award or the Shares relating thereto, based in each case on such
factors as the Administrator will determine in its sole discretion.
(f) To reduce the exercise price of any Award to the then
current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Award shall have declined since the date the Award was
granted.
(g) To institute an Exchange Program.
(h) To construe and interpret the terms of the Plan and Awards
granted pursuant to the Plan, and to establish, amend and revoke rules
and regulations for its administration.
(i) To prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of satisfying applicable foreign
laws and/or qualifying for preferred tax treatment under applicable
foreign tax laws.
(j) To modify or amend each Award (subject to Section 14.13(c)
of the Plan), including the discretionary authority to extend the
post-termination exercise period of Awards longer than is otherwise
provided for in the Plan.
(k) To allow Participants to satisfy withholding tax
obligations by electing to have the Corporation withhold from the
Shares or cash to be issued upon exercise or vesting of an Award that
number of Shares or cash having a Fair Market Value equal to the
minimum amount required to be withheld. The Fair Market Value of any
Shares to be withheld will be determined on the date that the amount of
tax to be withheld is to be determined. All elections by a Participant
to have Shares or cash withheld for this purpose will be made in such
form and under such conditions as the Administrator may deem necessary
or advisable.
(l) To authorize any person to execute on behalf of the
Corporation any instrument required to affect the grant of an Award
previously granted by the Administrator.
(m) To allow a Participant to defer the receipt of the payment
of cash or the delivery of Shares that would otherwise be due to such
Participant under an Award.
(n) To determine whether Awards will be settled in Shares,
cash or in any combination thereof.
(o) To create Other Stock Based Awards for issuance under the
Plan.
(p) To establish a program whereby Service Providers
designated by the Administrator can reduce compensation otherwise
payable in cash in exchange for Awards under the Plan.
7
(q) To impose such restrictions, conditions or limitations as
it determines appropriate as to the timing and manner of any resales by
a Participant or other subsequent transfers by the Participant of any
Shares issued as a result of or under an Award, including without
limitation, (i) restrictions under an insider trading policy, and (ii)
restrictions as to the use of a specified brokerage firm for such
resales or other transfers. AND
(r) To make all other determinations deemed necessary or
advisable for administering the Plan.
3.3 EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's decisions,
determinations and interpretations will be final and binding on all Participants
and any other holders of Awards.
ARTICLE 4
STOCK SUBJECT TO THE PLAN
4.1 STOCK SUBJECT TO THE PLAN. Subject to the provisions of this
Article 4 and Article 13 of the Plan, the maximum aggregate number of Shares
that may be issued under the Plan is 500,000, of which the maximum number of
Shares that may be delivered pursuant to Incentive Stock Options granted under
the Plan shall be 500,000. The Shares may be authorized and unissued, or
reacquired Common Stock. Shares shall not be deemed to have been issued pursuant
to the Plan with respect to any portion of an Award that is paid in cash. Upon
payment in Shares pursuant to the exercise of an Award, the number of Shares
available for issuance under the Plan shall be reduced only by the number of
Shares actually issued in such payment. If a Participant pays the exercise price
(or purchase price, if applicable) of an Award through the tender of Shares, or
if Shares are tendered or withheld to satisfy any Corporation withholding
obligations, the number of Shares so tendered or withheld shall again be
available for issuance pursuant to future Awards under the Plan.
4.2 LAPSED AWARDS. If any outstanding Award expires or is terminated or
canceled without having been exercised or settled in full, or if Shares acquired
pursuant to an Award subject to forfeiture or repurchase are forfeited or
repurchased by the Corporation, the Shares allocable to the terminated portion
of such Award or such forfeited or repurchased Shares shall again be available
for grant under the Plan.
4.3 ADJUSTMENTS FOR CHANGES IN CAPITALIZATION AND SIMILAR EVENTS. In
the event that any dividend or other distribution (whether in the form of cash,
Shares, other securities or other property), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, change in corporate structure or other transaction not involving
the receipt of consideration by the Company, then the Administrator shall:
(a) appropriately adjust any or all of (i) the number of
Shares or other securities of the Company (or number and kind of other
securities or property) with respect to which Awards may be granted,
including (1) the aggregate number of Shares that may be delivered
pursuant to Awards granted under the Plan, and the maximum number of
Shares that may be delivered pursuant to Incentive Stock Options
granted under the Plan, as provided in Section 4.1 of the Plan, and (2)
8
the maximum number of Shares or other securities of the Company (or
number and kind of other securities or property) with respect to which
Awards may be granted to any Participant in any fiscal year of the
Company, and (ii) the terms of any outstanding Award, including (1) the
number of Shares or other securities of the Company (or number and kind
of other securities or property) subject to outstanding Awards or to
which outstanding Awards relate, and (2) the exercise price with
respect to outstanding Awards; OR
(b) if required under the terms of an Award, make provision
for a cash payment to the holder of an outstanding Award in
consideration for the cancellation of such Award, including, in the
case of an outstanding Option or SAR, a cash payment to the holder of
such Option or SAR in consideration for the cancellation of such Option
or SAR in an amount equal to the excess, if any, of the Fair Market
Value (as of a date specified by the Administrator) of the Shares
subject to such Option or SAR over the aggregate exercise price of such
Option or SAR (it being understood that, in such event, any Option or
SAR having a per Share exercise price equal to, or in excess of, the
Fair Market Value of a Share subject to such Option or SAR may be
cancelled and terminated without any payment or consideration
therefore).
Such adjustments made by the Administrator shall be final, binding and
conclusive. Any Shares issuable as a result of any such adjustment shall be
rounded to the next lower whole Share; no fractional Shares shall be issued. At
all times the conversion of any convertible securities of the Company shall not
be treated as a "transaction not involving the receipt of consideration by the
Company."
4.4 SUBSTITUTE AWARDS. Awards may, in the discretion of the
Administrator, be granted under the Plan in assumption of, or in substitution
for, outstanding awards previously granted by the Corporation and any Affiliate
or a company acquired by the Corporation or with which the Corporation combines
("Substitute Awards"). The number of Shares underlying any Substitute Awards
shall be counted against the aggregate number of Shares available for Awards
under the Plan; provided, however, that Substitute Awards issued in connection
with the assumption of, or in substitution for, outstanding awards previously
granted by an entity that is acquired by the Corporation or its Affiliate
through a merger or acquisition shall not be counted against the aggregate
number of Shares available for Awards under the Plan; provided further, however,
that Substitute Awards issued in connection with the assumption of, or in
substitution for, outstanding stock options intended to qualify for special tax
treatment under Code ss.ss. 421 and 422 that were previously granted by an
entity that is acquired by the Corporation or an Affiliate through a merger or
acquisition shall be counted against the aggregate number of Shares available
for Incentive Stock Options under the Plan.
ARTICLE 5
PARTICIPATION
5.1 ELIGIBILITY. Any Director, Employee or Consultant (including any
prospective Director, Employee or Consultant) of the Corporation and any
Affiliate shall be eligible to be designated a Participant in the Plan for
purposes of receiving Awards. However, Incentive Stock Options may be granted
only to Employees.
9
5.2 TERMINATION OF PARTICIPATION. If a Participant is no longer a
Service Provider due to a termination for "Cause," then all Awards granted to
the Participant shall expire upon the earlier of: (i) the date of the occurrence
giving rise to such termination, or (ii) the natural expiration of the Award
according to its underlying terms. Thereafter, the Participant shall have no
rights with respect to any Awards under the Plan.
(a) DEFINING "CAUSE." For purposes of the Plan, "Cause" shall
mean a Participant's personal dishonesty; misconduct; breach of
fiduciary duty; incompetence; intentional failure to perform stated
obligations; willful violation of any law, rule, regulation or final
cease and desist order; or any material breach of any provision of this
Plan, Award Agreement, or any employment agreement.
ARTICLE 6
STOCK OPTIONS
6.1 OPTION GRANT. Subject to the provisions of the Plan, the
Administrator shall have sole and plenary authority to determine the
Participants to whom Options shall be granted, the number of Shares to be
covered by each Option, whether the Option will be an Incentive Stock Option or
a Non-Qualified Stock Option and the conditions and limitations applicable to
the vesting and exercise of the Option. However, no Participant shall be granted
more than 50,000 Options in any calendar year. In the case of Incentive Stock
Options, the terms and conditions of such grants shall be subject to and comply
with such rules as may be prescribed by Code ss. 422 and any regulations related
thereto, as may be amended from time to time. All Options granted under the Plan
shall be Non-Qualified Stock Options unless the applicable Award Agreement
expressly states that the Option is intended to be an Incentive Stock Option. If
an Option is intended to be an Incentive Stock Option, and if for any reason
such Option (or any portion thereof) shall not qualify as an Incentive Stock
Option, then, to the extent of such non-qualification, such Option (or portion
thereof) shall be regarded as a Non-Qualified Stock Option appropriately granted
under the Plan, provided that such Option (or portion thereof) otherwise
complies with the Plan's requirements relating to Non-Qualified Stock Options.
(a) TERM OF OPTION. The term of each Option will be stated in
the Award Agreement. In the case of an Incentive Stock Option, the term
will be 10 years from the date of grant or such shorter term as may be
provided in the Award Agreement. Moreover, in the case of an Incentive
Stock Option granted to a Participant who, at the time the Incentive
Stock Option is granted, owns stock representing more than 10% of the
total combined voting power of all classes of stock of the Corporation
or any Affiliate, the term of the Incentive Stock Option will be five
years from the date of grant or such shorter term as may be provided in
the Award Agreement.
(b) $100,000 LIMITATION FOR INCENTIVE STOCK OPTIONS. Each
Option will be designated in the Award Agreement as either an Incentive
Stock Option or a Non-Qualified Stock Option. However, notwithstanding
such designation, to the extent the aggregate Fair Market Value of the
Shares with respect to which Incentive Stock Options are exercisable
for the first time by the Participant during any calendar year (under
all plans of the Corporation and any Affiliate) exceeds $100,000, such
10
Options will be treated as Non-Qualified Stock Options. For purposes of
this Section 6.1(b), Incentive Stock Options will be taken into account
in the order in which they were granted. The Fair Market Value of the
Shares will be determined as of the time the Option with respect to
such Shares is granted.
6.2 EXERCISE PRICE. Except as otherwise established by the
Administrator at the time an Option is granted and set forth in the applicable
Award Agreement, the exercise price of each Share covered by an Option shall be
not less than 100% of the Fair Market Value of such Share (determined as of the
date the Option is granted); provided, however, that in the case of an Incentive
Stock Option granted to an Employee who, at the time of the grant of such
Option, owns stock representing more than 10% of the voting power of all classes
of stock of the Corporation and any Affiliate, the per Share exercise price
shall be no less than 110% of the Fair Market Value per Share on the date of the
grant. Options are intended to qualify as "qualified performance-based
compensation" under Code ss. 162(m). Notwithstanding the foregoing, Options may
be granted with an exercise price of less than 100% of the Fair Market Value per
Share on the date of grant if such Option is granted pursuant to an assumption
or substitution for another option in a manner satisfying the provisions of Code
ss. 424(a) (involving a corporate reorganization).
6.3 WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator will fix the period within which the Option may be
exercised and will determine any conditions that must be satisfied before the
Option may be exercised.
6.4 EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any
Option granted hereunder will be exercisable according to the terms of
the Plan and at such times and under such conditions as determined by
the Administrator and set forth in the Award Agreement. An Option may
not be exercised for a fraction of a Share.
An Option will be deemed exercised when the Corporation
receives: (i) written or electronic notice of exercise (in accordance
with the Award Agreement) from the person entitled to exercise the
Option, and (ii) full payment for the Shares with respect to which the
Option is exercised. Full payment may consist of any consideration and
method of payment authorized by the Administrator and permitted by the
Award Agreement and the Plan. Shares issued upon exercise of an Option
will be issued in the name of the Participant or, if requested by the
Participant, in the name of the Participant and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on
the books of the Corporation or of a duly authorized transfer agent of
the Corporation), no right to vote or receive dividends or any other
rights as a stockholder will exist with respect to the Awarded Stock,
notwithstanding the exercise of the Option. The Corporation will issue
(or cause to be issued) such Shares promptly after the Option is
exercised. No adjustment will be made for a dividend or other right for
which the record date is prior to the date the Shares are issued,
except as provided in Articles 4 and 13 of the Plan or the applicable
Award Agreement.
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Exercising an Option in any manner will decrease the number of Shares
thereafter available for sale under the Option, by the number of Shares as to
which the Option is exercised.
(b) TERMINATION OF RELATIONSHIP AS SERVICE PROVIDER. If a
Participant ceases to be a Service Provider, other than upon the
Participant's death or Disability, the Participant may exercise his or
her Option within such period of time as is specified in the Award
Agreement to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of
such Option as set forth in the Award Agreement). In the absence of a
specified time in the Award Agreement, the Option will remain
exercisable for three months following the Participant's termination.
(c) DISABILITY OF PARTICIPANT. If a Participant ceases to be a
Service Provider as a result of the Participant's Disability, the
Participant may exercise his or her Option within such period of time
as is specified in the Award Agreement to the extent the Option is
vested on the date of termination (but in no event later than the
expiration of the term of such Option as set forth in the Award
Agreement). In the absence of a specified time in the Award Agreement,
the Option will remain exercisable for 12 months following the
Participant's termination.
(d) DEATH OF PARTICIPANT. If a Participant dies while a
Service Provider, the Option may be exercised following the
Participant's death within such period of time as is specified in the
Award Agreement to the extent that the Option is vested on the date of
death (but in no event may the option be exercised later than the
expiration of the term of such Option as set forth in the Award
Agreement), by the Participant's designated beneficiary, provided such
beneficiary has been designated prior to Participant's death in a form
acceptable to the Administrator. If no such beneficiary has been
designated by the Participant, then such Option may be exercised by the
personal representative of the Participant's estate or by the person(s)
to whom the Option is transferred pursuant to the Participant's will or
in accordance with the laws of descent and distribution. In the absence
of a specified time in the Award Agreement, the Option will remain
exercisable for 12 months following Participant's death.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer
to buy out for a payment in cash or Shares an Option previously granted
based on such terms and conditions as the Administrator shall establish
and communicate to the Participant at the time that such offer is made.
(f) REVERSION TO PLAN. Unless otherwise provided by the
Administrator, if on the date of termination, Disability or death as
provided in Sections 6.4(b), (c), and (d) of the Plan, Participant is
not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option will immediately revert to the Plan
following the Participant's termination, Disability or death. If the
Option is not so exercised within the time specified herein, the Option
will terminate, and the Shares covered by such Option will revert to
the Plan.
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6.5 FORM OF CONSIDERATION. The Administrator will determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator will
determine the acceptable form of consideration at the time of grant. To the
extent permitted by Applicable Laws, consideration may consist entirely of:
(a) cash;
(b) check;
(c) promissory note (subject to Section 6.6);
(d) other Shares which meet the conditions established by the
Administrator to avoid adverse accounting consequences (as determined
by the Administrator);
(e) consideration received by the Corporation under a cashless
exercise program implemented by the Corporation in connection with the
Plan;
(f) a reduction in the amount of any Corporation liability to
the Participant, including any liability attributable to the
Participant's participation in any Corporation-sponsored deferred
compensation program or arrangement;
(g) any combination of the foregoing methods of payment; or
(h) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
6.6 PROMISSORY NOTE. Where applicable and subject to the requirements
of Applicable Law, payment of all or part of the purchase price of an Award may
be made by delivery of a full recourse promissory note ("Promissory Note"). The
Promissory Note shall be executed by the Participant, made payable to the
Corporation and bear interest at such rate as the Administrator shall determine,
but in no case less than the minimum rate which will not cause under the Code:
(i) imputed interest, (ii) original issue discount, or (iii) any other similar
result. Unless otherwise determined by the Administrator, interest on the
Promissory Note shall be payable in quarterly installments on March 31, June 30,
September 30, and December 31 of each calendar year. A Promissory Note shall
contain such other terms and conditions as may be determined by the
Administrator; provided, however, that the full principal amount of the
Promissory Note and all unpaid interest accrued thereon shall be due not later
than five years from the date of exercise. The Corporation may obtain from the
Participant a security interest in all Awards issued to the Participant under
the Plan for the purpose of securing payment under the Promissory Note and may
retain possession of, where applicable, the Share certificates in order to
perfect its security interest.
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ARTICLE 7
RESTRICTED STOCK
7.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of
the Plan, the Administrator, at any time and from time to time, may grant Shares
of Restricted Stock to Service Providers in such amounts as the Administrator,
in its sole discretion, will determine.
7.2 RESTRICTED STOCK AGREEMENT. Each Award of Restricted Stock will be
evidenced by an Award Agreement that will specify the Period of Restriction, the
number of Shares granted, and such other terms and conditions as the
Administrator will determine in its sole discretion. Unless the Administrator
determines otherwise, Shares of Restricted Stock will be held by the Corporation
as escrow agent until the restrictions on such Shares have lapsed.
7.3 TRANSFERABILITY. Except as provided in this Article 7, Shares of
Restricted Stock may not be sold, transferred, pledged, assigned or otherwise
alienated or hypothecated until the end of the applicable Period of Restriction.
7.4 OTHER RESTRICTIONS. The Administrator, in its sole discretion, may
impose such other restrictions on Shares of Restricted Stock as it may deem
advisable or appropriate.
7.5 REMOVAL OF RESTRICTIONS. Except as otherwise provided in this
Article 7, Shares of Restricted Stock covered by each Restricted Stock grant
made under the Plan will be released from escrow as soon as practicable after
the last day of the Period of Restriction. The Administrator, in its discretion,
may accelerate the time at which any restrictions will lapse or be removed.
7.6 VOTING RIGHTS. During the Period of Restriction, Service Providers
holding Shares of Restricted Stock granted hereunder may exercise full voting
rights with respect to those Shares, unless the Administrator determines
otherwise.
7.7 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of
Restriction, Service Providers holding Shares of Restricted Stock will be
entitled to receive all dividends and other distributions paid with respect to
such Shares unless otherwise provided in the Award Agreement. If any such
dividends or distributions are paid in Shares, the Shares will be subject to the
same restrictions on transferability and forfeitability as the Shares of
Restricted Stock with respect to which they were paid.
7.8 RETURN OF RESTRICTED STOCK TO CORPORATION. On the date set forth in
the Award Agreement, the Restricted Stock for which restrictions have not lapsed
will revert to the Corporation and again will become available for grant under
the Plan.
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ARTICLE 8
UNRESTRICTED STOCK
Pursuant to the terms of the applicable Award Agreement, a Service
Provider may be awarded (or sold at a discount) shares of Common Stock that are
not subject to a Period of Restriction, in consideration for past services
rendered thereby to the Corporation and any Affiliate or for other valid
consideration.
ARTICLE 9
STOCK APPRECIATION RIGHTS
9.1 GRANT OF SARS. Subject to the terms and conditions of the Plan, a
SAR may be granted to Service Providers at any time and from time to time as
will be determined by the Administrator, in its sole discretion.
9.2 NUMBER OF SHARES. The Administrator will have sole discretion to
determine the number of SARs granted to any Service Provider.
9.3 EXERCISE PRICE AND OTHER TERMS. The Administrator, subject to the
provisions of the Plan, will have sole discretion to determine the terms and
conditions of SARs granted under the Plan.
9.4 SAR AGREEMENT. Each SAR grant will be evidenced by an Award
Agreement that will specify the exercise price, the term of the SAR, the
conditions of exercise, and such other terms and conditions as the
Administrator, in its sole discretion, will determine.
9.5 EXPIRATION OF SARS. A SAR granted under the Plan will expire upon
the date determined by the Administrator, in its sole discretion, and as set
forth in the Award Agreement. Notwithstanding the foregoing, the rules of
Sections 6.4(b), (c) and (d) will also apply to SARs.
9.6 PAYMENT OF SAR AMOUNT. Upon exercise of a SAR, a Participant will
be entitled to receive payment from the Corporation an amount determined by
multiplying: (i) the difference between the Fair Market Value of a Share on the
date of exercise over the exercise price; times (ii) the number of Shares with
respect to which the SAR is exercised. At the discretion of the Administrator,
the payment upon SAR exercise may be in cash, in Shares of equivalent value,
other securities, other Awards, other property or a combination of any of the
foregoing.
9.7 BUYOUT PROVISIONS. The Administrator may at any time offer to buy
out for a payment in cash or Shares a SAR previously granted based on such terms
and conditions as the Administrator shall establish and communicate to the
Participant at the time that such offer is made.
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ARTICLE 10
PERFORMANCE UNITS AND PERFORMANCE SHARES
10.1 GRANT OF PERFORMANCE UNITS/SHARES. Subject to the terms and
conditions of the Plan, Performance Units and Performance Shares may be granted
to Service Providers at any time and from time to time, as will be determined by
the Administrator, in its sole discretion. The Administrator will have complete
discretion in determining the number of Performance Units and Performance Shares
granted to each Participant.
10.2 VALUE OF PERFORMANCE UNITS/SHARES. Each Performance Unit will have
an initial value that is established by the Administrator on or before the date
of grant. Each Performance Share will have an initial value equal to the Fair
Market Value of a Share on the date of grant.
10.3 PERFORMANCE OBJECTIVES AND OTHER TERMS. The Administrator will set
performance objectives in its discretion which, depending on the extent to which
they are met, will determine the number or value of Performance Units/Shares
that will be paid out to the Service Providers. The time period during which the
performance objectives must be met will be called the "Performance Period." Each
Award of Performance Units/Shares will be evidenced by an Award Agreement that
will specify the "Performance Period," and such other terms and conditions as
the Administrator, in its sole discretion, will determine. The Administrator may
set performance objectives based upon the achievement of Corporation-wide,
divisional, or individual goals, applicable federal or state securities laws, or
any other basis determined by the Administrator in its discretion.
10.4 EARNING OF PERFORMANCE UNITS/SHARES. After the applicable
"Performance Period" has ended, the holder of Performance Units/Shares will be
entitled to receive a payout of the number of Performance Units/Shares earned by
the Participant over the "Performance Period," to be determined as a function of
the extent to which the corresponding performance objectives have been achieved.
After the grant of a Performance Unit/Share, the Administrator, in its sole
discretion, may reduce or waive any performance objectives for such Performance
Unit/Share.
10.5 FORM AND TIMING FOR PAYMENT OF PERFORMANCE UNITS/SHARES. Payment
of earned Performance Units/Shares will be made as soon after the expiration of
the applicable Performance Period at the time determined by the Administrator.
The Administrator, in its sole discretion, may pay earned Performance
Units/Shares in the form of cash, in Shares (which have an aggregate Fair Market
Value equal to the value of the earned Performance Units/Shares at the close of
the applicable Performance Period) or in a combination thereof.
10.6 CANCELLATION OF PERFORMANCE UNITS/SHARES. On the date set forth in
the Award Agreement, all unearned or unvested Performance Units/Shares will be
forfeited to the Corporation, and again will be available for grant under the
Plan.
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ARTICLE 11
RESTRICTED STOCK UNITS
Restricted Stock Units are Awards consisting of Restricted Stock,
Performance Shares and/or Performance Units that the Administrator, in its sole
discretion permits to be paid out in installments or on a deferred basis, in
accordance with rules and procedures established by the Administrator and in
conformance with Code ss. 409A.
ARTICLE 12
OTHER STOCK BASED AWARDS
Other Stock Based Awards may be granted either alone, in addition to,
or in tandem with, other Awards granted under the Plan and/or cash awards made
outside of the Plan. The Administrator shall have authority to determine the
Service Providers to whom and the time or times at which Other Stock Based
Awards shall be made, the amount of such Other Stock Based Awards, and all other
conditions of the Other Stock Based Awards including any dividend and/or voting
rights.
ARTICLE 13
DISSOLUTION OR LIQUIDATION; OR CHANGE IN CONTROL
13.1 DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Corporation, the Administrator will notify
each Participant as soon as practicable prior to the effective date of such
proposed transaction. The Administrator in its discretion may provide for a
Participant to have the right to exercise his or her Award, to the extent
applicable, until 10 days prior to such transaction as to all of the Awarded
Stock covered thereby, including Shares as to which the Award would not
otherwise be exercisable. In addition, the Administrator may provide that any
Corporation repurchase option or forfeiture rights applicable to any Award shall
lapse 100%, and that any Award vesting shall accelerate 100%, provided the
proposed dissolution or liquidation takes place at the time and in the manner
contemplated. To the extent it has not been previously exercised or vested, an
Award will terminate immediately prior to the consummation of such proposed
action.
13.2 CHANGE IN CONTROL.
(a) OPTIONS AND SARS. In the event of a Change in Control,
each outstanding Option and SAR shall be assumed or an equivalent
option or SAR substituted by the successor corporation or Affiliate of
the successor corporation. With respect to Options and SARs granted to
an Outside Director that are assumed or substituted for, if immediately
prior to or after the Change in Control the Participant's status as a
Director or a director of the successor corporation, as applicable, is
terminated other than upon a voluntary resignation by the Participant,
then the Participant shall fully vest in and have the right to exercise
such Options and SARs as to all of the Awarded Stock, including Shares
as to which it would not otherwise be vested or exercisable. Unless
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otherwise determined by the Administrator, in the event that the
successor corporation refuses to assume or substitute for the Option or
SAR, the Participant shall fully vest in and have the right to exercise
the Option or SAR as to all of the Awarded Stock, including Shares as
to which it would not otherwise be vested or exercisable. If an Option
or SAR is not assumed or substituted in the event of a Change in
Control, the Administrator shall notify the Participant in writing or
electronically that the Option or SAR shall be exercisable for a period
of up to 15 days from the date of such notice, and the Option or SAR
shall terminate upon the expiration of such period. For the purposes of
this paragraph, the Option or SAR shall be considered assumed if,
following the Change in Control, the option or stock appreciation right
confers the right to purchase or receive, for each Share of Awarded
Stock subject to the Option or SAR immediately prior to the Change in
Control, the consideration (whether stock, cash, or other securities or
property) received in the Change in Control by holders of Common Stock
for each Share held on the effective date of the transaction (and if
holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the
Change in Control is not solely common stock of the successor
corporation or its Affiliate, the Administrator may, with the consent
of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or SAR, for each Share of
Awarded Stock subject to the Option or SAR, to be solely common stock
of the successor corporation or its Affiliate equal in fair market
value to the per share consideration received by holders of Common
Stock in the Change in Control. Notwithstanding anything herein to the
contrary, an Award that vests, is earned or paid-out upon the
satisfaction of one or more performance goals will not be considered
assumed if the Corporation or its successor modifies any of such
performance goals without the Participant's consent; provided, however,
a modification to such performance goals only to reflect the successor
corporation's post-Change in Control corporate structure will not be
deemed to invalidate an otherwise valid Award assumption.
(b) RESTRICTED STOCK, UNRESTRICTED STOCK, PERFORMANCE SHARES,
PERFORMANCE UNITS, RESTRICTED STOCK UNITS, AND OTHER STOCK BASED
AWARDS. In the event of a Change in Control, each outstanding
Restricted Stock, Unrestricted Stock, Performance Share, Performance
Unit, Other Stock Based Award and Restricted Stock Unit awards shall be
assumed or an equivalent Restricted Stock, Unrestricted Stock,
Performance Share, Performance Unit, Other Stock Based Award and
Restricted Stock Unit award substituted by the successor corporation or
an Affiliate of the successor corporation. With respect to Awards
granted to an Outside Director that are assumed or substituted for, if
immediately prior to or after the Change in Control the Participant's
status as a Director or a director of the successor corporation, as
applicable, is terminated other than upon a voluntary resignation by
the Participant, then the Participant shall fully vest in such Awards,
including Shares as to which it would not otherwise be vested. Unless
determined otherwise by the Administrator, in the event that the
successor corporation refuses to assume or substitute for the
Restricted Stock, Unrestricted Stock, Performance Share, Performance
Unit, Other Stock Based Award or Restricted Stock Unit award, the
Participant shall fully vest in the Restricted Stock, Unrestricted
Stock, Performance Share, Performance Unit, Other Stock Based Award or
Restricted Stock Unit including as to Shares which would not otherwise
be vested. For the purposes of this paragraph, a Restricted Stock,
Unrestricted Stock, Performance Share, Performance Unit, Other Stock
Based Award and Restricted Stock Unit award shall be considered assumed
if following the Change in Control, the award confers the right to
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purchase or receive, for each Share subject to the Award immediately
prior to the Change in Control, the consideration (whether stock, cash,
or other securities or property) received in the Change in Control by
holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration,
the type of consideration chosen by the holders of a majority of the
outstanding Shares); provided, however, that if such consideration
received in the Change in Control is not solely common stock of the
successor corporation or its Affiliate, the Administrator may, with the
consent of the successor corporation, provide for the consideration to
be received, for each Share and each unit/right to acquire a Share
subject to the Award, to be solely common stock of the successor
corporation or its Affiliate equal in fair market value to the per
share consideration received by holders of Common Stock in the Change
in Control. Notwithstanding anything herein to the contrary, an Award
that vests, is earned or paid-out upon the satisfaction of one or more
performance goals will not be considered assumed if the Corporation or
its successor modifies any of such performance goals without the
Participant's consent; provided, however, a modification to such
performance goals only to reflect the successor corporation's
post-Change in Control corporate structure will not be deemed to
invalidate an otherwise valid Award assumption.
ARTICLE 14
MISCELLANEOUS PROVISIONS
14.1 NO UNIFORM RIGHTS TO AWARDS. The Corporation has no obligation to
uniformly treat Participants or holders or beneficiaries of Awards. The terms
and conditions of Awards and the Administrator's determinations and
interpretations with respect thereto need not be the same with respect to each
Participant and may be made selectively among Participants, whether or not such
Participants are similarly situated.
14.2 SHARE CERTIFICATES. All certificates for Shares or other
securities of the Corporation or Affiliate delivered under the Plan pursuant to
any Award or the exercise thereof shall be subject to such stop transfer orders
and other restrictions as the Administrator may deem advisable under the Plan,
the applicable Award Agreement or the rules, regulations and other requirements
of the SEC, the NYSE or any other stock exchange or quotation system upon which
such Shares or other securities are then listed or reported and any applicable
Federal or state laws, and the Administrator may cause a legend or legends to be
put on any such certificates to make appropriate reference to such restrictions.
14.3 NO RIGHTS AS A SERVICE PROVIDER. Neither the Plan nor any Award
shall confer upon a Participant any right with respect to continuing his or her
relationship as a Service Provider, nor shall they interfere in any way with the
right of the Participant or the right of the Corporation or its Affiliate to
terminate such relationship at any time, with or without cause.
14.4 NO RIGHTS AS STOCKHOLDER. No Participant or holder or beneficiary
of any Award shall have any rights as a stockholder with respect to any Shares
to be distributed under the Plan until he or she has become the holder of such
Shares. In connection with each grant of Restricted Stock, except as provided in
the applicable Award Agreement, the Participant shall not be entitled to the
rights of a stockholder in respect of such Restricted Shares. Except as
otherwise provided in Section 4.3 or the applicable Award Agreement, no
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adjustments shall be made for dividends or distributions on (whether ordinary or
extraordinary, and whether in cash, Shares, other securities or other property),
or other events relating to, Shares subject to an Award for which the record
date is prior to the date such Shares are delivered.
14.5 NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Corporation or Affiliate, on one hand, and a
Participant or any other person, on the other. To the extent that any person
acquires a right to receive payments from the Corporation or Affiliate pursuant
to an Award, such right shall be no greater than the right of any unsecured
general creditor of the Corporation or Affiliate.
14.6 NO FRACTIONAL SHARES. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Administrator shall
determine whether cash, other securities or other property shall be paid or
transferred in lieu of any fractional Shares or whether such fractional Shares
or any rights thereto shall be cancelled, terminated or otherwise eliminated.
14.7 REQUIREMENT OF CONSENT AND NOTIFICATION OF ELECTION UNDER CODE SS.
83(B) OR SIMILAR PROVISION. No election under Code ss. 83(b) (to include in
gross income in the year of transfer the amounts specified in Code ss. 83(b)) or
under a similar provision of law may be made unless expressly permitted by the
terms of the applicable Award Agreement or by action of the Administrator in
writing prior to the making of such election. If an Award recipient, in
connection with the acquisition of Shares under the Plan or otherwise, is
expressly permitted under the terms of the applicable Award Agreement or by such
Administrator action to make such an election and the Participant makes the
election, the Participant shall notify the Administrator of such election within
10 days of filing notice of the election with the IRS or other governmental
authority, in addition to any filing and notification required pursuant to
regulations issued under Code ss. 83(b) or other applicable provision.
14.8 REQUIREMENT OF NOTIFICATION UPON DISQUALIFYING DISPOSITION UNDER
CODE SS. 421(B). If any Participant shall make any disposition of Shares
delivered pursuant to the exercise of an Incentive Stock Option under the
circumstances described in Code ss. 421(b) (relating to certain disqualifying
dispositions) or any successor provision of the Code, such Participant shall
notify the Corporation of such disposition within 10 days of such disposition.
14.9 LEAVES OF ABSENCE. Unless the Administrator provides otherwise,
vesting of Awards granted hereunder will be suspended during any unpaid leave of
absence and will resume on the date the Participant returns to work on a regular
schedule as determined by the Corporation; provided, however, that no vesting
credit will be awarded for the time vesting has been suspended during such leave
of absence. A Service Provider will not cease to be an Employee in the case of
(i) any leave of absence approved by the Corporation or (ii) transfers between
locations of the Corporation or between the Corporation or its Affiliate. For
purposes of Incentive Stock Options, no such leave may exceed 3 months, unless
reemployment upon expiration of such leave is guaranteed by statute or contract.
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If reemployment upon expiration of a leave of absence approved by the
Corporation is not so guaranteed, then 6 months from the first day of such leave
any Incentive Stock Option held by the Participant will cease to be treated as
an Incentive Stock Option and will be treated for tax purposes as a
Non-Qualified Stock Option.
14.10 NOTICES. Any written notice to the Corporation required by any
provisions of the Plan shall be addressed to the Secretary of the Corporation
and shall be effective when received.
14.11 NON-TRANSFERABILITY OF AWARDS. Other than pursuant to a domestic
relations order (within the meaning of Rule 16a-12 promulgated under the
Exchange Act) and unless determined otherwise by the Administrator, an Award may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution, and may be
exercised, during the lifetime of the Participant, only by the Participant. If
the Administrator makes an Award transferable, such Award will contain such
additional terms and conditions as the Administrator deems appropriate.
14.12 DATE OF GRANT. The date of grant of an Award will be, for all
purposes, the date on which the Administrator makes the determination granting
such Award, or such other later date as is determined by the Administrator.
Notice of the determination will be provided to each Participant within a
reasonable time after the date of such grant.
14.13 AMENDMENT AND TERMINATION OF PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time
amend, alter, suspend or terminate the Plan. Unless sooner terminated,
this Plan shall terminate on February 23, 2017, the date that is 10
years from the date the Plan was originally adopted by the Board or
approved by the stockholders of the Corporation, whichever was earlier.
(b) STOCKHOLDER APPROVAL. The Corporation will obtain
stockholder approval of any Plan amendment to the extent necessary and
desirable to comply with Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. Subject to Section
14.15 of the Plan, no amendment, alteration, suspension or termination
of the Plan will impair the rights of any Participant, unless mutually
agreed upon between the Participant and the Administrator, which
agreement must be in writing and signed by the Participant and the
Corporation. Termination of the Plan will not affect the
Administrator's ability to exercise the powers granted to it hereunder
with respect to Awards granted under the Plan prior to the date of such
termination.
14.14 CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares will not be issued pursuant to
the exercise of an Award unless the exercise of such Award and the
issuance and delivery of such Shares will comply with Applicable Laws
and will be further subject to the approval of counsel for the
Corporation with respect to such compliance.
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(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise
or receipt of an Award, the Corporation may require the person
exercising or receiving such Award to represent and warrant at the time
of any such exercise or receipt that the Shares are being purchased
only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the
Corporation, such a representation is required.
14.15 SEVERABILITY. Notwithstanding any contrary provision of the Plan
or an Award to the contrary, if any one or more of the provisions (or any part
thereof) of this Plan or the Awards shall be held invalid, illegal or
unenforceable in any respect, such provision shall be modified so as to make it
valid, legal and enforceable, and the validity, legality and enforceability of
the remaining provisions (or any part thereof) of the Plan or Award, as
applicable, shall not in any way be affected or impaired thereby.
14.16 INABILITY TO OBTAIN AUTHORITY. The inability of the Corporation
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Corporation's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, will relieve the Corporation of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority will not have been obtained.
14.17 STOCKHOLDER APPROVAL. The Plan will be subject to approval by the
stockholders of the Corporation within 12 months after the date the Plan is
adopted. Such stockholder approval will be obtained in the manner and to the
degree required under Applicable Laws, and is effective as of the Effective
Date.
14.18 GOVERNING LAW. The validity, construction and effect of the Plan
and any rules and regulations relating to the Plan and any Award Agreement shall
be determined in accordance with the laws of the State of California, without
giving effect to the conflict of laws provisions thereof.
Adopted by the Board of Directors: ____________________, _____
Approved by the Stockholders: _________________________, _____
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