<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-21761
GEOTEL COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-3194255
(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) Number)
900 CHELMSFORD STREET, TOWER II, 12TH FLOOR
LOWELL, MASSACHUSETTS 01851
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (978) 275-5100
NO CHANGE SINCE LAST REPORT
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
CLASS OUTSTANDING AT AUGUST 7, 1998
----------------------------- ------------------------------
Common Stock, $0.01 par value 13,344,489 Shares
============================= ==============================
1
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GEOTEL COMMUNICATIONS CORPORATION
INDEX TO FORM 10-Q
PAGE NO.
--------
PART I FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Balance Sheets as of June 30, 1998 3
and December 31, 1997
Consolidated Statements of Income for the 4
three and six months ended June 30, 1998 and 1997
Consolidated Statements of Cash Flows for the 5
three and six months ended June 30, 1998 and 1997
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of 7 - 12
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds 13
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 5 Other Information 13
Item 6 Exhibits and Reports on Form 8-K 13
Signature 14
Exhibit 10.1 Amended and Restated 1996 Employee
Stock Purchase Plan 15 - 23
Exhibit 10.2 1998 Non-Executive Employee Stock
Option Plan 24 - 30
Exhibit 27.1 Financial Data Schedule 31
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GEOTEL COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
ASSETS
- ------
Current assets:
Cash and cash equivalents $45,444 $40,428
Accounts receivable, net 5,568 3,685
Prepaid expenses and other current assets 1,683 1,648
Deferred income taxes 763 763
------- -------
Total current assets 53,458 46,524
------- -------
Property and equipment, net 3,620 2,322
Deferred income taxes 1,427 1,427
------- -------
Total assets $58,505 $50,273
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 634 $ 708
Accrued expenses 1,592 967
Accrued compensation and related accruals 1,900 1,311
Accrued income taxes 432 951
Deferred revenue 9,267 6,410
------- -------
Total current liabilities 13,825 10,347
------- -------
Stockholders' equity:
Preferred stock -- --
Common stock 136 135
Additional paid-in capital 42,422 40,893
Accumulated earnings (deficit) 2,905 (202)
Unearned compensation (737) (855)
------- -------
44,726 39,971
Less treasury stock, at cost (46) (45)
------- -------
Total stockholders' equity 44,680 39,926
------- -------
Total liabilities and stockholders' equity $58,505 $50,273
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
3
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GEOTEL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Software license $ 7,618 $ 3,072 $13,767 $ 5,546
Services and other 2,441 936 4,070 1,649
------- ------- ------- -------
Total revenues 10,059 4,008 17,837 7,195
------- ------- ------- -------
Cost of Revenues:
Cost of software licenses 410 78 595 177
Cost of services and other 1,682 625 3,121 1,129
------- ------- ------- -------
Total cost of revenues 2,092 703 3,716 1,306
------- ------- ------- -------
Gross profit 7,967 3,305 14,121 5,889
------- ------- ------- -------
Operating Expenses:
Research and development 1,653 937 2,999 1,804
Sales and marketing 3,162 1,303 5,558 2,330
General and administrative 917 467 1,698 835
------- ------- ------- -------
Total operating expenses 5,732 2,707 10,255 4,969
------- ------- ------- -------
Income from operations 2,235 598 3,866 920
Interest income 571 483 1,105 907
------- ------- ------- -------
Income before income taxes 2,806 1,081 4,971 1,827
Provision for income taxes 1,052 100 1,864 121
------- ------- ------- -------
Net income $ 1,754 $ 981 $ 3,107 $ 1,706
======= ======= ======= =======
Net income per share:
Basic earnings per share $ 0.13 $ 0.08 $ 0.24 $ 0.13
======= ======= ======= =======
Diluted earnings per share $ 0.12 $ 0.07 $ 0.22 $ 0.12
======= ======= ======= =======
Weighted average number of common and common
equivalent shares outstanding:
Basic shares 13,017 12,700 12,973 12,665
======= ======= ======= =======
Diluted shares 14,142 13,767 13,999 13,768
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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GEOTEL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,107 $ 1,706
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 496 348
Equity compensation 118 220
Tax benefit from employees' exercise of stock options 750 -
Changes in operating assets and liabilities:
Accounts receivable (1,883) (307)
Prepaid expenses and other current assets (35) (432)
Accounts payable (74) (81)
Accrued expenses and other current liabilities 1,214 286
Accrued income taxes (519) -
Deferred revenue 2,857 2,920
------- -------
Net cash provided by operating activities 6,031 4,660
------- -------
Cash flows used in investing activities:
Purchases of property and equipment (1,794) (1,245)
------- -------
Cash flows from financing activities:
Proceeds from sale of common stock and option exercises 780 154
Offering costs of registering common stock - (63)
Proceeds from notes receivable for common stock - 103
Acquisition of treasury stock (1) (2)
------- -------
Net cash provided by financing activities 779 192
------- -------
Net increase in cash and cash equivalents 5,016 3,607
Cash and cash equivalents, beginning of period 40,428 33,263
------- -------
Cash and cash equivalents, end of period $45,444 $36,870
======= =======
</TABLE>
The accompanying footnotes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
GEOTEL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements for the three and six month periods
ended June 30, 1998 and the related footnote information are unaudited and have
been prepared on a basis substantially consistent with the 1997 audited
consolidated financial statements, and in the opinion of management include all
adjustments (consisting of only normal recurring adjustments) necessary for fair
presentation of the results of this interim period. These statements should be
read in conjunction with the consolidated financial statements and related notes
for the year ended December 31, 1997 included in the Company's Amended Form
10-K. The results of operations for the three and six month periods ended June
30, 1998 are not necessarily indicative of the results to be expected for the
entire year.
GeoTel Communications Corporation ("GeoTel" or the "Company") is a provider
of customer-interaction software solutions for call center applications focused
on enhanced voice and data routing technology that enables customer-oriented
companies to deliver responsive and cost-effective customer service. The
Company's software solutions are aimed at decentralized or service-oriented
corporations that use call centers, voice response units, the Internet and other
answering resources to interact with their customers. Principal operations of
the Company commenced during 1995. The Company currently derives substantially
all of its revenues from licenses of the Intelligent CallRouter ("ICR") and
Network ICR products and related services. The Company primarily markets its
products in the United States through a direct sales force which is complemented
by strategic sales channels, selected resellers and international partners.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. COMPUTATION OF INCOME PER SHARE
Net income per basic common share is computed by dividing income by the
weighted average number of common shares outstanding for the period which
includes vested restricted common stock. Net income per diluted common share is
computed based on the weighted average number of common and dilutive common
equivalent shares outstanding during each period. Common equivalent shares
consist of the Company's common stock options and unvested restricted common
stock outstanding in the period. The calculation of per share earnings is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Basic:
- ------
Net income $ 1,754 $ 981 $ 3,107 $ 1,706
=========== =========== =========== ===========
Weighted average common shares outstanding 13,016,761 12,699,949 12,972,774 12,665,481
=========== =========== =========== ===========
Net income per share $ 0.13 $ 0.08 $ 0.24 $ 0.13
=========== =========== =========== ===========
Diluted:
- --------
Net income $ 1,754 $ 981 $ 3,107 $ 1,706
=========== =========== =========== ===========
Weighted average common shares outstanding 13,016,761 12,699,949 12,972,774 12,665,481
Common stock equivalents 1,124,774 1,066,839 1,025,828 1,102,472
----------- ----------- ----------- -----------
Total weighted average shares and equivalents outstanding 14,141,535 13,766,788 13,998,602 13,767,953
=========== =========== =========== ===========
Net income per share $ 0.12 $ 0.07 $ 0.22 $ 0.12
=========== =========== =========== ===========
</TABLE>
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the accompanying consolidated
financial statements for the periods specified and the associated notes. Further
reference should be made to the Company's Amended Form 10-K for the year ended
December 31, 1997.
OPERATING RESULTS
The following table presents selected unaudited financial information as
the percentage of the Company's total revenues represented by each item, for the
Company's quarters and six-month periods ended June 30, 1998 and 1997. The
Company's operating results for any one quarter are not necessarily indicative
of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------- -------------------------
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues:
Software license .......................... 75.7% 76.6% 77.2% 77.1%
Services and other ........................ 24.3 23.4 22.8 22.9
----- ----- ----- -----
Total revenues ............................ 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of Revenues:
Cost of software licenses ................. 4.1 1.9 3.3 2.5
Cost of services and other ................ 16.7 15.6 17.5 15.7
----- ----- ----- -----
Total cost of revenues .................... 20.8 17.5 20.8 18.2
----- ----- ----- -----
Gross Profit ................................... 79.2 82.5 79.2 81.8
----- ----- ----- -----
Operating Expenses:
Research and development .................. 16.5 23.4 16.8 25.0
Sales and marketing ....................... 31.4 32.5 31.2 32.4
General and administrative ................ 9.1 11.7 9.5 11.6
----- ----- ----- -----
Total operating costs ..................... 57.0 67.6 57.5 69.0
----- ----- ----- -----
Income from operations ......................... 22.2% 14.9% 21.7% 12.8%
===== ===== ===== =====
</TABLE>
7
<PAGE> 8
REVENUES
Total revenues for the second quarter of 1998 increased by 151.0% to
$10,059,000 from $4,008,000 for the second quarter of 1997. Software license
revenue during the second quarter of 1998 increased by 148.0% to $7,618,000 from
$3,072,000 for the second quarter of 1997. Total revenues for the six months
ended June 30, 1998 increased by 147.9% to $17,837,000 from $7,195,000 for the
six months ended June 30, 1997. Software license revenue during these six-month
periods increased 148.2% to $13,767,000 from $5,546,000. The Company believes
that the increase in software license revenue is attributable to several factors
including revenue recognized under an international software licensing agreement
with Digital Equipment Co., Ltd. (the "DEC Agreement"); continued market
acceptance of the Company's products indicated by an increase in unit sales; an
increase in the size of the Company's direct sales force; expansion of the sales
channels through the addition of selected resellers and international partners,
and an increase in the Company's customer base. The DEC Agreement provides,
among other things, for the resale of a specified number of software licenses
and one year maintenance support valued at approximately $7,800,000. In the
second quarter of 1998, under the DEC Agreement, the Company recognized
approximately $1,266,000 in software license revenue and $162,500 in services
and other revenue compared to no software license revenue and $75,000 in
services and other revenue for the second quarter of 1997. The Company has
recognized $5,640,000 in software revenue and $851,000 in services and other
revenue under the DEC Agreement on a cumulative basis through June 30, 1998.
Management anticipates recognizing the remaining revenue under the DEC Agreement
in the next quarter.
Services and other revenue for the second quarter of 1998 increased by
160.8% to $2,441,000 from $936,000 for the second quarter of 1997. In the second
quarter of 1998, maintenance revenue, installation services revenue, and
professional services and other revenue represented 41.6%, 24.6% and 33.8%,
respectively, of services and other revenue. In the second quarter of 1997,
maintenance revenue, installation services revenue and professional services and
other revenue represented 69.8%, 29.3%, and .9%, respectively, of services and
other revenue. Services and other revenue for the six months ended June 30, 1998
increased by 146.8% to $4,070,000 from $1,649,000 for the six months ended June
30, 1997. Maintenance revenue, installation services revenue and professional
services and other revenue represented 45.7%, 30.7% and 23.6%, respectively, of
services and other revenue for the six months ended June 30, 1998. Services and
other revenue decreased slightly to 22.8% of total revenues in the six months
ended June 30, 1998 from 22.9% of total revenues in the six months ended June
30, 1997. Services and other revenue increased in dollars in the three and
six-month periods ended June 30, 1998, as a result of the increase in the
Company's customer base. The Company anticipates that maintenance revenue will
increase as a percentage of total revenues as the Company's customer base
increases. Installation services revenue will vary based upon software license
revenue. Professional services and other revenue are non-recurring in nature and
will fluctuate in dollars and as a percentage of total revenues from quarter to
quarter. The Company performs professional services primarily in situations
where such work will result in additional software license revenue.
International revenues for the second quarter of 1998 increased 162.1% to
$2,687,000 from $1,025,000 for the second quarter of 1997 and increased as a
percentage of total revenues to 26.7% from 25.6%. International revenues for the
six months ended June 30, 1998 increased 213.4% to $4,936,000 from $1,575,000
for the six months ended June 30, 1997. International revenues in 1998 and 1997
was derived from three and two customers, respectively. The Company believes
that it will continue to derive a significant portion of its total revenues from
international sales and that international revenues will comprise a larger
percentage of total revenues in future years. To date, the Company's
international revenues have been denominated in U.S. currency.
A significant portion of the Company's total revenues to date has been
derived from a limited number of customers. Revenues attributable to the five
largest customers accounted for approximately 73.7% and 77.9% of the Company's
total revenues for the quarters ended June 30, 1998 and 1997, respectively.
Revenues attributable to the five largest customers for the six months ended
June 30, 1998 and 1997 were 59.6% and 63.6%, respectively. For the quarters
ended June 30, 1998 and 1997, three and two customers represented more than ten
percent of the Company's total revenue, respectively. For the six months ended
June 30, 1998 and 1997, four and two customers represented more than ten percent
of the Company's total revenue, respectively. The Company expects that it will
continue to be dependent upon a limited number of customers for a significant
portion of its revenues in future periods.
8
<PAGE> 9
COST OF REVENUES
Cost of software licenses. Cost of software licenses consists principally
of development costs associated with the DEC Agreement and the costs of
interface cards. Cost of software licenses for the second quarter of 1998
increased by 425.6% to $410,000 from $78,000 for the second quarter of 1997.
Cost of software licenses as a percentage of software license revenue were 5.4%
and 2.5% for the second quarters of 1998 and 1997, respectively. Cost of
software licenses for the six months ended June 30, 1998 increased by 236.2% to
$595,000 from $177,000 for the six months ended June 30, 1997. Cost of software
licenses as a percentage of software license revenue were 4.3% and 3.2% for the
six-month periods ended June 30, 1998 and 1997, respectively. The increases in
dollars and as a percentage of software license revenues in 1998 were due to an
increase in development costs associated with development revenues. The Company
believes that in future periods, the percentage of cost of software licenses
will range from 3% to 5% of software license revenue but may increase depending
upon the size of any development related contracts.
Cost of services and other. Cost of services and other revenue consists
principally of the costs incurred to provide installation, professional
services, maintenance and training services. The expenses incurred to provide
these services are comprised primarily of personnel (salaries, fringe benefits
and recruiting fees), travel and facility costs. Cost of services and other
revenue for the second quarter of 1998 increased by 169.1% to $1,682,000 from
$625,000 for the second quarter of 1997. Cost of services and other revenue as a
percentage of services and other revenue were 68.9% and 66.8% for the second
quarters of 1998 and 1997, respectively. Cost of services and other revenue for
the six months ended June 30, 1998 increased by 176.4% to $3,121,000 from
$1,129,000 for the six months ended June 30, 1997. Cost of services and other
revenue as a percentage of services and other revenue were 76.7% and 68.5% for
the six months ended June 30, 1998 and 1997, respectively. The increases in
dollars and as a percentage of services and other revenue for the quarter and
six-month period ended June 30, 1998 as compared to the corresponding periods
ended June 30, 1997 were primarily due to an increase in personnel and travel
costs. These costs increased as a result of the increase in the number of
customers under maintenance contracts. The Company believes that in future
periods, cost of services and other revenue as a percentage of services and
other revenue will fluctuate significantly based upon the mix of the services
provided. The Company plans to continue to invest in its infrastructure both
domestically and internationally and as a result, the Company anticipates that
the cost of services and other revenue will increase in dollars and as a
percentage of services and other revenue. The Company believes that in future
periods, cost of services and other revenue will range from 75% to 85% of
services and other revenue.
OPERATING EXPENSES
Research and Development. Research and development expenses consist
principally of personnel and facility costs. Research and development expenses
for the second quarter of 1998 increased by 76.4% to $1,653,000 from $937,000
for the second quarter of 1997. Research and development expenses as a
percentage of total revenue were 16.5% and 23.4% for the second quarters of 1998
and 1997, respectively. Research and development expenses for the six months
ended June 30, 1998 increased by 66.2% to $2,999,000 from $1,804,000 for the six
months ended June 30, 1997. Research and development expenses as a percentage of
total revenue were 16.8% and 25.0% for the six-month periods ended June 30, 1998
and 1997, respectively. The decrease as a percentage of total revenue for the
quarter and six-month period ended June 30, 1998 as compared to the
corresponding periods ended June 30, 1997 was primarily the result of the
Company's significant revenue growth. The increase in absolute dollars for the
quarter and six-month period ended June 30, 1998 as compared to the
corresponding periods ended June 30, 1997 was the result of increases in
personnel and related facility costs. The major product development efforts in
the second quarter of 1998 related to the development of interfaces for
international carriers, computer telephony integration for the desktop and
enhancements to the Company's existing products. The Company plans to continue
to introduce enhancements to its existing products and new products that can be
sold to existing and new customers. The Company is also working on several
projects that will be designed to enhance its products for use with the Internet
and Intranets. The Company anticipates that research and development expenses
will continue to increase in absolute dollars and range from 17% to 20% of total
revenue in the foreseeable future.
9
<PAGE> 10
Sales and Marketing. Sales and marketing expenses consist principally of
personnel (salaries, commissions and fringe benefits), travel, trade shows,
promotional expenses and facility costs. Sales and marketing expenses for the
second quarter of 1998 increased by 142.7% to $3,162,000 from $1,303,000 for the
second quarter of 1997. Sales and marketing expenses as a percentage of total
revenues were 31.4% and 32.5% for the second quarters of 1998 and 1997,
respectively. Sales and marketing expenses for the six months ended June 30,
1998 increased by 138.5% to $5,558,000 from $2,330,000 for the six months ended
June 30, 1997. Sales and marketing expenses as a percentage of total revenues
were 31.2% and 32.4% for the six months ended June 30, 1998 and 1997,
respectively. The increase in absolute dollars in 1998 was primarily comprised
of increases in personnel, travel, facility and commission costs. The increase
in personnel costs was the result of adding sales personnel to the direct sales
force. Direct sales personnel headcount increased to thirty at the end of the
second quarter of 1998 from twelve at the end of the second quarter of 1997. The
commission expense increase was attributable to higher sales. The Company
anticipates that sales and marketing expenses will increase in absolute dollars
but not vary significantly as a percentage of total revenue in the foreseeable
future as the Company continues its international expansion and increases its
reseller channel. The Company anticipates that sales and marketing expenses will
range from 30% to 35% in the foreseeable future.
General and Administrative. General and administrative expenses consist
principally of personnel costs for administrative, finance, information systems,
human resources and general management personnel, as well as legal expenses and
facility costs. General and administrative expenses for the second quarter of
1998 increased by 96.4% to $917,000 from $467,000 for the second quarter of
1997. General and administrative expenses as a percentage of total revenues were
9.1% and 11.7% for the second quarters of 1998 and 1997, respectively. General
and administrative expenses for the six months ended June 30, 1998 increased by
103.4% to $1,698,000 from $835,000 for the six months ended June 30, 1997.
General and administrative expenses as a percentage of total revenue were 9.5%
and 11.6% for the six months ended June 30, 1998 and 1997, respectively. General
and administrative expenses have increased in absolute dollars for the quarter
and six-month period ended June 30, 1998 as compared to the corresponding
periods ended June 30, 1997 due to an increase in personnel, travel, information
technology and legal costs. These costs have increased due to an increase in
employees and the growth of the business. The Company anticipates that general
and administrative expenses will increase in absolute dollars but level off as a
percentage of total revenues ranging from 9% to 12% in the foreseeable future.
INTEREST INCOME
Interest income of $571,000 and $483,000 for the second quarters of 1998
and 1997, respectively, resulted from investments of the Company's cash
balances. Interest income was $1,105,000 and $907,000 for the six-month periods
ended June 30, 1998 and 1997, respectively.
PROVISION FOR INCOME TAXES
The Company's effective tax rate for the second quarter and six months
ended June 30, 1998 was approximately 37.5% compared to approximately 9.3% and
6.6% for the second quarter and six months ended June 30, 1997, respectively. In
the second quarter of 1997, the effective tax rate was significantly lower than
the statutory rate due to the utilization of net operating losses. A valuation
allowance was recorded until the fourth quarter of 1997 to offset the entire net
deferred tax assets as a result of the uncertainties regarding the realization
of these assets due to the Company's limited history of operating profits.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company's cash and cash equivalents, accounts
receivable and working capital increased to $45,444,000, $5,568,000 and
$39,633,000, respectively, compared to $40,428,000, $3,685,000 and $36,177,000,
respectively, at December 31, 1997.
The Company generated cash in the amount of $6,031,000 from operations in
the six months ended June 30, 1998 compared to $4,660,000 in the corresponding
period of 1997. The improvement in cash flow from operations is primarily the
result of an increase in advance customer payments and more profitable
operations as a result of higher revenues.
10
<PAGE> 11
The Company used cash in investing activities of $1,794,000 and $1,245,000
in the six months ended June 30, 1998 and 1997, respectively. Capital
expenditures increased due to an increase in leasehold improvements for expanded
office space and due to the growth in personnel. The Company invested in
leasehold improvements due to the expansion of its corporate office from
approximately 31,800 square feet in 1997 to 67,000 square feet in 1998. The
Company generated cash in financing activities of $779,000 and $192,000 in the
six months ended June 30, 1998 and 1997, respectively. Financing activities
consisted primarily of sales of equity securities.
As of June 30, 1998, the Company had no material commitments for capital
expenditures.
The Company believes that existing cash balances and funds generated from
operations will be sufficient to meet its anticipated liquidity and working
capital requirements for at least the next twelve months.
IMPACT ON THE YEAR 2000 ISSUE
The Company is aware of the issues associated with the programming code in
existing computer systems and software products as the millennium (Year 2000)
approaches. The Company has designed its products to, and has commenced efforts
to ensure that the computer systems and applications upon which it relies for
internal operations will, function properly beyond 1999. Based on an assessment
of its products to date, the Company believes that its products are compatible
with Year 2000 functionality. While the Company's Year 2000 compliance
evaluation is not yet complete, the Company does not at this time foresee a
material impact on its business or operating results from the Year 2000 problem.
There can be no assurance, however, that further assessment of the Company's
products and internal systems and applications will not indicate that additional
Company efforts to assure Year 2000 compliance are necessary, and such efforts
may be costly and may divert the Company's resources from other product
development or infrastructure improvement programs. The foregoing could result
in the loss of or delay in market acceptance of the Company's products and
services, increased service and warranty costs to the Company or payment by the
Company of compensatory or other damages. Further, there can be no assurance
that the systems operated by other companies upon which the Company relies will
be Year 2000 compliant on a timely basis. The Company's business, operating
results and financial condition could be materially adversely affected by the
failure of the Company's products and its internal systems and applications to
properly operate or manage data beyond 1999. Costs incurred in the compliance
effort will be expensed as incurred. Currently, the Company has not developed a
contingency plan should its products or internal systems fail to operate after
the Year 2000 but plans to develop such a contingency plan in the future.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company does not provide forecasts of future financial performance of
the Company. However, from time to time, information provided by the Company or
statements made by its employees may contain "forward-looking" information that
involves risks and uncertainties. In particular, statements contained in this
Form 10-Q that are not historical facts (including, but not limited to,
statements concerning services and other revenue, anticipated revenue under the
DEC Agreement, anticipated international revenues, anticipated cost of revenues
levels, anticipated operating expense levels and such expense levels relative to
the Company's total revenues) constitute forward-looking statements and are made
under the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. The Company's actual results of operations and financial condition have
varied and may in the future vary significantly from those stated in any
forward-looking statements. Factors that may cause such differences include,
without limitation, the risks, uncertainties and other information discussed
below, as well as the accuracy of the Company's internal estimates of revenue
and operating expense levels. Each of these factors, and others, are discussed
from time to time in the filings made by the Company with the Securities and
Exchange Commission.
The Company's future results are subject to substantial risks and
uncertainties. The Company has experienced substantial revenue growth since the
ICR product introduction and first achieved profitability in the first quarter
of 1996. However, due to the Company's limited operating history there can be no
assurance that such revenue growth and profitability will continue in the future
on a quarterly or annual basis. Future operating results will depend on many
factors, including the demand for the Company's products, the level of product
and price competition, the Company's success in expanding its direct sales
force, indirect distribution channels and international sales and the ability of
the Company to develop and market new products and control costs. In order to
support the growth of its business, the Company plans to significantly expand
its level of operations. Due to the anticipated increase in the Company's
operating expenses caused by this expansion, the Company's operating results
will be adversely affected if revenues do not increase. The Company currently
expects to derive substantially all of its revenues from licenses of the ICR and
Network ICR
11
<PAGE> 12
products and related services and to continue to be dependent upon a limited
number of customers for a significant portion of its revenues in future periods.
Although demand for the ICR and Network ICR has grown in recent quarters, the
call center market is still an emerging market. The Company's future financial
performance will depend in large part on continued growth in the number of
organizations adopting software applications to enhance their responsiveness to
customers and the number of applications developed for use in these
environments.
The Company is dependent upon its ability to protect its proprietary
technology and relies upon a combination of patents, copyrights, trademarks,
trade secret laws and confidentiality procedures. There can be no assurance that
the protections put in place by the Company will be adequate. The Company
depends on a single vendor for the software and network adapter necessary for
the ICR to interface with the AT&T network. Although the Company has a
perpetual, fully-paid license, with access to the underlying source code for
this software and the rights to manufacture the network adapter, if for any
reason the vendor does not make the software or network adapter available to the
Company, there can be no assurance that the Company will be able to develop
these products on a timely basis.
The Company's quarterly operating results may vary significantly in the
future depending on factors such as increased competition from the interexchange
carriers, Automatic Call Distribution switching system vendors and other
companies, the timing of new product announcements and changes in pricing
policies by the Company and its competitors, market acceptance of new and
enhanced versions of the Company's products, the size and timing of significant
orders, order cancellations by customers, changes in operating expenses, changes
in Company strategy, personnel changes, the Company's ability to manage growth,
if any, including the continued improvement in its financial and management
controls and growth of its employee work force and general economic factors. The
Company's expense levels are based, in part, on its expectations of future
revenues and to a large extent are fixed in the short-term. If revenue levels
are below expectations, the Company's business, operating results and financial
condition are likely to be materially adversely affected. Net income may be
disproportionately affected by a reduction in revenues because a proportionately
smaller amount of the Company's expenses varies with its revenues. As a result,
the Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indications of future performance. Additional information on the factors that
could affect the Company's financial results is included in the Company's 1997
Amended Form 10-K, which has been filed with the Securities and Exchange
Commission.
International sales accounted for approximately 27.7% and 21.9% of the
Company's revenues for the six months ended June 30, 1998 and 1997,
respectively. As part of its business strategy, the Company is seeking
opportunities to expand its products into international markets. The Company
believes that such expansion is important to the Company's ability to continue
to grow and to market its products and services. In marketing its products and
services internationally, however, the Company will face new competitors, some
of whom may have established strong relationships with carriers. In addition,
the ability of the Company to enter the international markets will be dependent
upon the Company's ability to integrate its products with local proprietary
networks in foreign countries. There can be no assurance that the Company will
be successful in integrating its products with these proprietary networks or
marketing or distributing its products abroad or that, if the Company is
successful, its international revenues will be adequate to offset the expense of
establishing and maintaining international operations. Additionally, there can
be no assurance that the Company will be successful in integrating its product
in international markets and such revenues are subject to a number of risks
including compliance with regulatory requirements, export restrictions and
controls, international trade barriers, protection of intellectual property
rights, management of international operations, collection of receivables,
political instability, currency exchange rate fluctuation and potentially
adverse tax consequences. To date, the Company has limited experience in
marketing and distributing its products internationally. In addition to the
uncertainty as to the Company's ability to establish an international presence,
there are certain difficulties and risks inherent in doing business on an
international level, such as compliance with regulatory requirements and changes
in these requirements, export restrictions, export controls relating to
technology, tariffs and other trade barriers, protection of intellectual
property rights, difficulties in staffing and managing international operations,
longer payment cycles, problems in collecting accounts receivable, political
instability, fluctuations in currency exchange rates and potentially adverse tax
consequences. There can be no assurance that one or more of such factors will
not have a material adverse effect on any international operations established
by the Company and, consequently, on the Company's business, operating results
and financial condition.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On November 20, 1996, the Company's Registration Statement of Form S-1 (File No.
333-13263) became effective. The net proceeds from the offering were
approximately $26,704,000. To date, the Company has utilized approximately
$756,000 of the proceeds to repay borrowings under its outstanding equipment
lines of credit. The Company has not used any of the remaining proceeds from the
effective date (November 20, 1996) through June 30, 1998. No payments were made
to directors, officers (except in their capacity as employees of the Company) or
to persons owning ten percent or more of any class of equity securities of the
Company, or to the affiliates of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's Annual Meeting of Stockholders held on May 28, 1998, the
following proposals were adopted by the vote specified below:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN WITHHOLD
---------- ------- ------- --------
<S> <C> <C> <C> <C>
1. To elect two directors to serve for a three
year term
Alexander V. d'Arbeloff 11,856,523 79,500
Gardner C. Hendrie 11,855,323 80,700
2. To ratify the selection by the Board of
Directors of Coopers & Lybrand L.L.P. as
independent public accountants for the
Company for 1998 11,921,547 8,673 5,803
</TABLE>
The other directors whose terms of office continued after the Annual Meeting of
Stockholders are Louis J. Volpe, Gary Bowen, W. Michael Humphreys and John C.
Thibault.
ITEM 5. OTHER INFORMATION.
The Company's by-laws establish an advance notice procedure with regard to
certain matters, including stockholder proposals not included in the Company's
proxy statement to be brought before an annual meeting of stockholders.
Proposals of stockholders intended for inclusion in the Proxy Statement to be
furnished to all stockholders must be received at the Company's principal
executive offices not later than December 23, 1998. The deadline for providing
timely notice to the Company of matters that stockholders otherwise desire to
introduce at the next Annual Meeting of stockholders of the Company is February
21, 1999, and such notice must contain specified information concerning the
matters to be brought before such meeting, the stockholder proposing such
matters and a representation that the stockholder is entitled to vote and
intends to appear at the annual meeting of stockholders. All notices of
proposals by stockholders should be sent to the attention of: Timothy J. Allen
at GeoTel Communications Corporation, 900 Chelmsford St., Lowell, Ma 01851
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit 10.1 Amended and Restated 1996 Employee Stock Purchase Plan
Exhibit 10.2 1998 Non-Executive Employee Stock Option Plan
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K.
The Company did not file a Form 8-K during the quarter ended June 30, 1998.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GEOTEL COMMUNICATIONS CORPORATION
(Registrant)
August 11, 1998 /s/ Timothy J. Allen
---------------------------------------------------
Timothy J. Allen
Vice President of Finance, Chief Financial Officer,
Treasurer and Secretary
(Principal Financial and Chief Accounting Officer)
14
<PAGE> 1
Exhibit 10.1
GEOTEL COMMUNICATIONS CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
(As Amended and Restated on June 1, 1998)
1. PURPOSE
It is the purpose of this 1996 Employee Stock Purchase Plan to provide a
means whereby eligible employees may purchase Common Stock of GeoTel
Communications Corporation (the "Company") and any subsidiaries as defined below
through after-tax payroll deductions. It is intended to provide a further
incentive for employees to promote the best interests of the Company and to
encourage stock ownership by employees in order that they may participate in the
Company's economic growth.
It is the intention of the Company that the Plan qualify as an "employee
stock purchase plan" within the meaning of Section 423 of the Internal Revenue
Code and the provisions of this Plan shall be construed in a manner consistent
with the Code and Treasury Regulations promulgated thereunder.
2. DEFINITIONS
The following words or terms, when used herein, shall have the following
respective meanings:
(a) "Plan" shall mean the 1996 Employee Stock Purchase Plan.
(b) "Company" shall mean GeoTel Communications Corporation, a
Delaware corporation.
(c) "Account" shall mean the Employee Stock Purchase Account
established for a Participant under Section 7 hereunder.
(d) "Basic Compensation" shall mean the regular rate of salary or
wages in effect immediately prior to a Purchase Period or New
Employee Stub Period (as defined in Section 2(m)), as the case
may be, before any deductions or withholdings and including
overtime, bonuses and sales commissions, but excluding amounts
paid in reimbursement for expenses.
(e) "Board of Directors" shall mean the Board of Directors of GeoTel
Communications Corporation.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(g) "Committee" shall mean the Compensation Committee appointed by
the Board of Directors.
15
<PAGE> 2
(h) "Common Stock" shall mean shares of the Company's common stock,
$.01 par value per share.
(i) "Effective Date" shall mean the date of the closing of the
Company's first public offering of Common Stock made pursuant to
an effective Registration Statement filed with the Securities and
Exchange Commission.
(j) "Eligible Employees" shall mean all persons employed by the
Company or one of its Subsidiaries, but excluding:
(1) Persons who have been employed by the Company or its
Subsidiaries for less than six months on the first day of
the applicable Purchase Period or New Employee Stub
Period, as the case may be;
(2) Persons whose customary employment is less than twenty
hours per week or five months or less per year; and
(3) Persons who are deemed for purposes of Section 423(b)(3)
of the Code to own stock possessing 5% or more of the
total combined voting power or value of all classes of
stock of the Company or a subsidiary.
For purposes of the Plan, employment will be treated as continuing
intact while a Participant is on military leave, sick leave, or other bona fide
leave of absence, for up to 90 days or so long as the Participant's right to
re-employment is guaranteed either by statute or by contract, if longer than 90
days.
(k) "Exercise Date" shall mean the last day of a Purchase Period or
New Employee Stub Period, as the case may be; provided, however,
that if such date is not a business day, "Exercise Date" shall
mean the immediately preceding business day.
(l) "Participant" shall mean an Eligible Employee who elects to
participate in the Plan under Section 6 hereunder.
(m) Except as provided below, there shall be two "Purchase Periods"
in each full calendar year during which the Plan is in effect,
one commencing on January 1 of each calendar year and continuing
through June 30 of such calendar year, and the second commencing
on July 1 of each calendar year and continuing through December
31 of such calendar year, provided, however, that solely with
respect to each employee whose six month anniversary of
employment by the Company or its Subsidiaries occurs between
January 1 and March 31 (an "April Employee") or between July 1
and September 30 (an "October Employee"), the initial Purchase
Period for such employee will be the three-month period from
April 1 to June 30 or from October 1 to December 31, as the case
may be (the "New Employee Stub Period") except that the first New
Employee Stub Period shall be the one month period from June 1,
1998 to June 30, 1998. The first Purchase Period after the
16
<PAGE> 3
Effective Date of the Plan shall commence on January 1, 1997. The
last Purchase Period shall commence on July 1, 2006 and end on
December 31, 2006 and the last New Employee Stub Period shall
commence on October 1, 2006 and end on December 31, 2006.
(n) "Purchase Price" shall mean the lower of (i) 85% of the fair
market value of a share of Common Stock for the first business
day of the relevant Purchase Period or New Employee Stub Period,
as the case may be, or (ii) 85% of such value on the relevant
Exercise Date. If the shares of Common Stock are listed on any
national securities exchange, or traded on the National
Association of Securities Dealers Automated Quotation System
("Nasdaq") National Market System, the fair market value per
share of Common Stock on a particular day shall be the closing
price, if any, on the largest such exchange, or if not traded on
an exchange, the Nasdaq National Market System, on such day, and,
if there are no sales of the shares of Common Stock on such
particular day, the fair market value of a share of Common Stock
shall be determined by taking a weighted average of the means
between the highest and lowest sales on the nearest date before
and the nearest date after the particular day in accordance with
Treasury Regulations Section 25.2512-2. If the shares of Common
Stock are not then listed on any such exchange or the Nasdaq
National Market System, the fair market value per share of Common
Stock on a particular day shall be the mean between the closing
"Bid" and the closing "Asked" prices, if any, as reported in the
National Daily Quotation Service for such day. If the fair market
value cannot be determined under the preceding sentences, it
shall be determined in good faith by the Board of Directors.
(o) "Subsidiary" shall mean any present or future corporation which
(i) would be a "subsidiary corporation" of the Company as that
term is defined in Section 424(f) of the Code and (ii) is
designated as a participant in the Plan by the Board.
3. GRANT OF OPTION TO PURCHASE SHARES.
Each Eligible Employee shall be granted an option effective on the first
business day of each Purchase Period or New Employee Stub Period, as the case
may be, to purchase shares of Common Stock. The term of the option shall extend
until the end of the relevant Purchase Period or New Employee Stub Period. The
number of shares subject to each option shall be the quotient of the aggregate
payroll deductions in the Purchase Period or New Employee Stub Period, as the
case may be, authorized by each Participant in accordance with Section 6 divided
by the Purchase Price, but in no event greater than 1,000 shares per option, or
such other number as determined from time to time by the Board of Directors or
the Committee (the "Share Limitation"); provided however that the Share
Limitation may only be adjusted by the Board of Directors or the Committee prior
to the beginning of the Purchase Period for which such Share Limitation is to be
effective; and further provided that, with respect to all options granted during
any Purchase Period, including all options granted during the New Employee Stub
Period that falls within such Purchase Period, such Share Limitation shall be
the same. Notwithstanding the
17
<PAGE> 4
foregoing, no employee shall be granted an option which permits his right to
purchase shares under the Plan to accrue at a rate which exceeds in any one
calendar year $25,000 of the fair market value of the Common Stock as of the
date the option to purchase is granted.
4. SHARES.
There shall be 250,000 shares of Common Stock reserved for issuance to
and purchase by Participants under the Plan, subject to adjustment as herein
provided. The shares of Common Stock subject to the Plan shall be either shares
of authorized but unissued Common Stock or shares of Common Stock reacquired by
the Company and held as treasury shares. Shares of Common Stock not purchased
under an option terminated pursuant to the provisions of the Plan may again be
subject to options granted under the Plan.
The aggregate number of shares of Common Stock which may be purchased
pursuant to options granted hereunder, the number of shares of Common Stock
covered by each outstanding option, and the purchase price for each such option
shall be appropriately adjusted for any increase or decrease in the number of
outstanding shares of Common Stock resulting from a stock split or other
subdivision or consolidation of shares of Common Stock or for other capital
adjustments or payments of stock dividends or distributions or other increases
or decreases in the outstanding shares of Common Stock effected without receipt
of consideration by the Company.
5. ADMINISTRATION.
The Plan shall be administered by the Board of Directors or the
Compensation Committee appointed from time to time by the Board of Directors.
The Board of Directors or the Committee, if one has been appointed, is vested
with full authority to make, administer and interpret such equitable rules and
regulations regarding the Plan as it may deem advisable. The Board of
Directors', or the Committee's, if one has been appointed, determinations as to
the interpretation and operation of the Plan shall be final and conclusive. No
member of the Board of Directors or the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any option
granted under the Plan.
6. ELECTION TO PARTICIPATE.
An Eligible Employee may elect to become a Participant in the Plan for a
Purchase Period by completing a "Stock Purchase Agreement" form prior to the
first day of the Purchase Period or New Employee Stub Period, as the case may
be, for which the election is made. Such Stock Purchase Agreement shall be in
such form as shall be determined by the Board of Directors or the Committee. The
election to participate shall be effective for the Purchase Period for which it
is made. There is no limit on the number of Purchase Periods for which an
Eligible Employee may elect to become a Participant in the Plan; except that
only April Employees and October Employees can elect to become Participants in
the Plan during a New Employee Stub Period and no Participant may participate in
more than one New Employee Stub Period. In the Stock Purchase Agreement, the
Eligible Employee shall authorize regular payroll deductions of any full
percentage of his Basic Compensation, but in no event less than one percent (1%)
nor more than ten percent (10%) of his Basic Compensation, not to exceed $25,000
per year. An
18
<PAGE> 5
Eligible Employee may not change his authorization except as otherwise provided
in Section 9. Options granted to Eligible Employees who have failed to execute a
Stock Purchase Agreement within the time periods prescribed by the Plan will
automatically lapse.
7. EMPLOYEE STOCK PURCHASE ACCOUNT.
An Employee Stock Purchase Account will be established for each
Participant in the Plan for bookkeeping purposes, and payroll deductions made
under Section 6 will be credited to such Accounts. However, prior to the
purchase of shares in accordance with Section 8 or withdrawal from or
termination of the Plan in accordance with the provisions hereof, the Company
may use for any valid corporate purpose all amounts deducted from a
Participant's wages under the Plan and credited for bookkeeping purposes to his
Account.
The Company shall be under no obligation to pay interest on funds
credited to a Participant's Account, whether upon purchase of shares in
accordance with Section 8 or upon distribution in the event of withdrawal from
or termination of the Plan as herein provided.
8. PURCHASE OF SHARES.
Each Eligible Employee who is a Participant in the Plan automatically
and without any act on his part will be deemed to have exercised his option on
each Exercise Date to the extent that the balance then in his Account under the
Plan is sufficient to purchase at the Purchase Price whole shares of the Common
Stock subject to his option, subject to the Share Limitations and the Section
423(b)(8) limitation described in Section 3. Any balance remaining in the
Participant's Account shall be refunded to him in cash without interest.
9. WITHDRAWAL.
A Participant who has elected to authorize payroll deductions for the
purchase of shares of Common Stock may cancel his election by written notice of
cancellation ("Cancellation") delivered to the office or person designated by
the Company to receive Stock Purchase Agreements, but any such notice of
Cancellation must be so delivered not later than ten (10) days before the
relevant Exercise Date.
A Participant will receive in cash, as soon as practicable after
delivery of the notice of Cancellation, the amount credited to his Account. Any
Participant who so withdraws from the Plan may again become a Participant at the
start of the next Purchase Period in accordance with Section 6.
Upon dissolution or liquidation of the Company every option outstanding
hereunder shall terminate, in which event each Participant shall be refunded the
amount of cash then in his Account. If the Company shall at any time merge into
or consolidate with another corporation, the holder of each option then
outstanding will thereafter be entitled to receive at the next Exercise Date,
upon exercise of such option and for each share as to which such option was
exercised, the securities or property which a holder of one share of the Common
Stock was entitled upon and at such time of such merger or consolidation. In
accordance with this
19
<PAGE> 6
paragraph and this Plan, the Board of Directors or Committee, if any, shall
determine the kind or amount of such securities or property which such holder of
an option shall be entitled to receive. A sale of all or substantially all of
the assets of the Company shall be deemed a merger or consolidation for the
foregoing purposes.
10. ISSUANCE OF STOCK CERTIFICATES.
The shares of Common Stock purchased by a Participant shall, for all
purposes, be deemed to have been issued and sold at the close of business on the
Exercise Date. Prior to that date none of the rights or privileges of a
shareholder of the Company, including the right to vote or receive dividends,
shall exist with respect to such shares.
Within a reasonable time after the Exercise Date, the Company shall
notify the transfer agent and registrar of the Common Stock of the Participant's
ownership of the number of shares of Common Stock purchased by a Participant for
the Purchase Period or New Employee Stub Period, as the case may be, which shall
be registered either in the Participant's name or jointly in the names of the
Participant and his spouse with right of survivorship as the Participant shall
designate in his Stock Purchase Agreement. Such designation may be changed at
any time by filing notice thereof with the party designated by the Company to
receive such notices.
11. TERMINATION OF EMPLOYMENT.
(a) Upon a Participant's termination of employment for any reason, other
than death, no payroll deduction may be made from any compensation due him and
the entire balance credited to his Account shall be automatically refunded, and
his rights under the Plan shall terminate.
(b) Upon the death of a Participant, no payroll deduction shall be made
from any compensation due him at time of death, the entire balance in the
deceased Participant's Account shall be paid in cash to the Participant's
designated beneficiary, if any, under a group insurance plan of the Company
covering such employee, or otherwise to his estate, and his rights under the
Plan shall terminate.
12. RIGHTS NOT TRANSFERABLE.
The right to purchase shares of Common Stock under this Plan is
exercisable only by the Participant during his lifetime and is not transferable
by him. If a Participant attempts to transfer his rights to purchase shares
under the Plan, he shall be deemed to have requested withdrawal from the Plan
and the provisions of Section 9 hereof shall apply with respect to such
Participant.
13. NO GUARANTEE OF CONTINUED EMPLOYMENT.
Granting of an option under this Plan shall imply no right of continued
employment with the Company for any Eligible Employee.
14. NOTICE.
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<PAGE> 7
Any notice which an Eligible Employee or Participant files pursuant to
this Plan shall be in writing and shall be delivered personally or by mail
addressed to GeoTel Communications Corporation, 900 Chelmsford St., Tower II,
Lowell, Massachusetts, Attn: Timothy Allen. Any notice to a Participant or an
Eligible Employee shall be conspicuously posted in the Company's principal
office or shall be mailed addressed to the Participant or Eligible Employee at
the address designated in the Stock Purchase Agreement or in a subsequent
writing.
15. APPLICATION OF FUNDS.
All funds deducted from a Participant's wages in payment for shares
purchased or to be purchased under this Plan may be used for any valid corporate
purpose provided that the Participant's Account shall be credited with the
amount of all payroll deductions as provided in Section 7.
16. GOVERNMENT APPROVALS OR CONSENTS.
This Plan and any offering and sales to Eligible Employees under it are
subject to any governmental approvals or consents that may be or become
applicable in connection therewith. Subject to the provisions of Section 17, the
Board of Directors of the Company may make such changes in the Plan and include
such terms in any offering under this Plan as may be necessary or desirable, in
the opinion of counsel, to comply with the rules or regulations of any
governmental authority, or to be eligible for tax benefits under the Code or the
laws of any state.
17. AMENDMENT OF THE PLAN.
The Board of Directors may, without the consent of the Participants,
amend the Plan at any time, provided that no such action shall adversely affect
options theretofore granted hereunder, and provided that no such action by the
Board of Directors without approval of the Company's shareholders may (a)
increase the total number of shares of Common Stock which may be purchased by
all Participants, (b) change the class of employees eligible to receive options
under the Plan, or (c) make any changes to the Plan which require shareholder
approval under applicable law or regulations, including Section 423 of the Code
and the regulations promulgated thereunder.
For purposes of this Section 17, termination of the Plan by the Board of
Directors pursuant to Section 18 shall not be deemed to be an action which
adversely affects options theretofore granted hereunder.
18. TERM OF THE PLAN.
The Plan shall become effective on the Effective Date, provided that it
is approved within twelve months after adoption by the Board of Directors by the
affirmative vote of holders of a majority of the stock of the Company present or
represented and entitled to vote at a duly held stockholders' meeting. The Plan
shall continue in effect through December 31, 2006, provided, however, that the
Board of Directors shall have the right to terminate the Plan at any time, but
such termination shall not affect options then outstanding under the Plan. It
will terminate in any
21
<PAGE> 8
case when all or substantially all of the unissued shares of stock reserved for
the purposes of the Plan have been purchased. If at any time shares of stock
reserved for the purposes of the Plan remain available for purchase but not in
sufficient number to satisfy all then unfilled purchase requirements, the
available shares shall be apportioned among Participants in proportion to the
amount of payroll deductions accumulated on behalf of each Participant that
would otherwise be used to purchase stock and the Plan shall terminate. Upon
such termination or any other termination of the Plan, all payroll deductions
not used to purchase stock will be refunded, without interest.
19. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION; LEGEND.
By electing to participate in the Plan, each Participant agrees to
notify the Company in writing immediately after the Participant transfers Common
Stock acquired under the Plan, if such transfer occurs within two years after
the first business day of the Purchase Period or New Employee Stub Period, as
the case may be, in which such Common Stock was acquired. Each Participant
further agrees to provide any information about such a transfer as may be
requested by the Company or any subsidiary corporation in order to assist it in
complying with the tax laws. Such dispositions generally are treated as
"disqualifying dispositions" under Sections 421 and 424 of the Code, which have
certain tax consequences to Participants and to the Company and its
participating Subsidiaries. The Participant further agrees that all stock
certificates for Common Stock purchased under the Plan by the Participant shall
be held in his name or jointly with his spouse, as the case may be, and not in
the name of a broker, nominee or other person or entity for such two-year
period, and agrees that such stock certificates shall bear a legend reflecting
that such Common Stock was obtained upon the purchase of Common Stock under the
Plan. The Participant acknowledges that the Company may send a Form W-2, or
substitute therefor, as appropriate, to the Participant with respect to any
income recognized by the Participant upon a disqualifying disposition of Common
Stock.
20. WITHHOLDING OF ADDITIONAL INCOME TAXES.
By electing to participate in the Plan, each Participant acknowledges
that the Company and its participating Subsidiaries are required to withhold
taxes with respect to the amounts deducted from the Participant's compensation
and accumulated for the benefit of the Participant under the Plan and each
Participant agrees that the Company and its participating Subsidiaries may
deduct additional amounts from the Participant's compensation, when amounts are
added to the Participant's account, used to purchase Common Stock or refunded,
in order to satisfy such withholding obligations. Each Participant further
acknowledges that when Common Stock is purchased under the Plan, the Company and
its participating Subsidiaries may be required to withhold taxes with respect to
all or a portion of the difference between the fair market value of the Common
Stock purchased and its purchase price, and each Participant agrees that such
taxes may be withheld from compensation otherwise payable to such Participant.
It is intended that tax withholding will be accomplished in such a manner that
the full amount of payroll deductions elected by the Participant under Section 6
will be used to purchase Common Stock. However, if amounts sufficient to satisfy
applicable tax withholding obligations have not been withheld from compensation
otherwise payable to any Participant, then, notwithstanding any other provision
of
22
<PAGE> 9
the Plan, the Company may withhold such taxes from the Participant's accumulated
payroll deductions and apply the net amount to the purchase of Common Stock,
unless the Participant pays to the Company, prior to the Exercise Date, an
amount sufficient to satisfy such withholding obligations. Each Participant
further acknowledges that the Company and its participating Subsidiaries may be
required to withhold taxes in connection with the disposition of stock acquired
under the Plan and agrees that the Company or any participating subsidiary may
take whatever action it considers appropriate to satisfy such withholding
requirements, including deducting from compensation otherwise payable to such
Participant an amount sufficient to satisfy such withholding requirements or
conditioning any disposition of Common Stock by the Participant upon the payment
to the Company or such subsidiary of an amount sufficient to satisfy such
withholding requirements.
21. GENERAL.
Whenever the context of this Plan permits, the masculine gender shall
include the feminine and neuter genders.
23
<PAGE> 1
Exhibit 10.2
GEOTEL COMMUNICATIONS CORPORATION
1998 NON-EXECUTIVE EMPLOYEE STOCK OPTION PLAN
1. Purpose of the Plan.
This stock option plan (the "Plan") is intended to provide incentives
to the employees of GeoTel Communications Corporation (the "Company") and any
present or future subsidiaries of the Company by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which do not qualify as "incentive stock options" under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") (the "Option" or
"Options"). As used herein, the terms "parent" and "subsidiary" mean "parent
corporation" and "subsidiary corporation," respectively, as those terms are
defined in Section 424 of the Code and the Treasury Regulations promulgated
thereunder (the "Regulations").
2. Stock Subject to the Plan.
(a) The initial maximum number of shares of common stock, par value
$.01 per share, of the Company ("Common Stock") available for stock options
granted under the Plan through the end of the Company's fiscal year ending
December 31, 1998 shall be 500,000 shares of Common Stock. The maximum number of
shares of Common Stock available for grants shall be subject to adjustment in
accordance with Section 11 thereof. Shares issued under the Plan may be
authorized but unissued shares of Common Stock or shares of Common Stock held in
treasury.
(b) To the extent that any stock option shall lapse, terminate, expire
or otherwise be cancelled without the issuance of shares of Common Stock, the
shares of Common Stock covered by such option(s) shall again be available for
the granting of stock options.
(c) Common Stock issuable under the Plan may be subject to such
restrictions on transfer, repurchase rights or other restrictions as shall be
determined by the Committee (as defined in Section 3 below).
3. Administration of the Plan.
(a) The Plan shall be administered by a committee (the "Committee")
consisting of two or more members of the Company's Board of Directors, each of
whom is a disinterested person as defined from time to time in Rule 16b-3
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"). The
Board of Directors may from time to time appoint a member or members of the
Committee in substitution for or in addition to the member or members then in
office and may fill vacancies on the Committee however caused. The Committee
shall choose one of its members as Chairman and shall hold meetings at such
times and places as it shall deem advisable. A majority of the members of the
Committee shall constitute a quorum and any action may be taken by a majority of
those present and voting at any meeting. Any action may also be taken without
the necessity of a meeting by a written instrument signed by a majority of the
Committee. The decision of the Committee as to all questions of interpretation
and application of the Plan shall be final, binding and conclusive on all
persons. The Committee shall have the authority to adopt, amend and rescind such
rules and regulations as, in its opinion, may be advisable in the administration
of the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any option agreement granted
hereunder in the manner and to the extent it shall deem expedient to carry the
Plan into effect and shall be the sole and final judge of such expediency. No
Committee member shall be liable for any action or determination made in good
faith. Prior to the date of the registration of an equity security of the
Company under Section 12 of the Exchange Act, the Plan may be administered by
the Board of Directors and in such event all references in this Plan to the
Committee shall be deemed to mean the Board of Directors.
24
<PAGE> 2
(b) Subject to the terms of the Plan, the Committee shall have the
authority to (i) determine the employees of the Company and its subsidiaries
(from among the class of employees eligible under Section 4 to receive Options)
to whom Options may be granted; (ii) determine the time or times at which
options may be granted; (iii) determine the option price of shares subject to
each option which price shall not be less than the minimum price specified in
Section 6; (iv) determine (subject to Section 9) the time or times when each
option shall become exercisable and the duration of the exercise period; (v)
determine whether restrictions such as repurchase options are to be imposed on
shares subject to options and the nature of such restrictions; and (vi)
determine the size of any Options under the Plan, taking into account the
position or office of the optionee with the Company, the job performance of the
optionee and such other factors as the Committee may deem relevant in the good
faith exercise of its independent business judgment.
4. Eligibility.
Options may be granted only to employees of the Company or any
subsidiary.
In determining the eligibility of an individual to be granted an
option, as well as in determining the number of shares to be optioned to any
individual, the Committee shall take into account the position and
responsibilities of the individual being considered, the nature and value to the
Company or its subsidiaries of his or her service and accomplishments, his or
her present and potential contribution to the success of the Company or its
subsidiaries, and such other factors as the Committee may deem relevant.
5. Option Agreement.
Each option shall be evidenced by an option agreement (the "Agreement")
duly executed on behalf of the Company and by the optionee to whom such option
is granted, which Agreement shall comply with and be subject to the terms and
conditions of the Plan. The Agreement may contain such other terms, provisions
and conditions which are not inconsistent with the Plan as may be determined by
the Committee. The date of grant of an option shall be as determined by the
Committee. More than one option may be granted to an individual.
6. Option Price.
The option price shall be as determined by the Committee, but in no
event shall the option price be less than the minimum legal consideration
required therefor under the laws of the State of Delaware or the laws of any
jurisdiction in which the Company or its successors in interest may be
organized.
7. Manner of Payment; Manner of Exercise.
(a) Options granted under the Plan may provide for the payment of
the exercise price by delivery of (i) cash or a check payable to the order of
the Company in an amount equal to the exercise price of such options, (ii)
shares of Common Stock of the Company owned by the optionee having a fair market
value equal in amount to the exercise price of the options being exercised, or
(iii) any combination of (i) and (ii), provided, however, that payment of the
exercise price by delivery of shares of Common Stock of the Company owned by
such optionee may be made only under such circumstances and on such terms as may
from time to time be established by the Committee. The fair market value of any
shares of the Company's Common Stock which may be delivered upon exercise of an
option shall be determined as set forth below. With the consent of the
Committee, payment may also be made by delivery of a properly executed exercise
notice to the Company, together with a copy of irrevocable instruments to a
broker to deliver promptly to the Company the amount of sale or loan proceeds to
pay the exercise price. To facilitate the foregoing, the Company may enter into
agreements for coordinated procedures with one or more brokerage firms. For the
purposes of the Plan, if the shares of the Company's Common Stock are then
listed on any national securities exchange, the fair market value shall be the
mean between the high and low sales prices, if any, on such exchange on the
business day immediately preceding the date of the grant of the option or, if
none, shall be determined by taking a weighted average of the means between the
25
<PAGE> 3
highest and lowest sales prices on the nearest date before and the nearest date
after the date of grant in accordance with Treasury Regulations Section
25.2512-2. If the shares are not then listed on any such exchange, the fair
market value of such shares shall be the mean between the high and low sales
prices, if any, as reported in the National Association of Securities Dealers
Automated Quotation System National Market System ("NASDAQ/NMS") for the
business day immediately preceding the date of the grant of the option, or, if
none, shall be determined by taking a weighted average of the means between the
highest and lowest sales on the nearest date before and the nearest date after
the date of grant in accordance with Treasury Regulations Section 25.2512-2. If
the shares are not then either listed on any such exchange or quoted in
NASDAQ/NMS, the fair market value shall be the mean between the average of the
"Bid" and the average of the "Ask" prices, if any, as reported in the National
Daily Quotation Service for the business day immediately preceding the date of
the grant of the option, or, if none, shall be determined by taking a weighted
average of the means between the highest and lowest sales prices on the nearest
date before and the nearest date after the date of grant in accordance with
Treasury Regulations Section 25.2512-2. If the fair market value cannot be
determined under the preceding three sentences, it shall be determined in good
faith by the Committee.
(b) To the extent that the right to purchase shares under an
option has accrued and is in effect, options may be exercised in full at one
time or in part from time to time, by giving written notice, signed by the
person or persons exercising the option, to the Company, stating the number of
shares with respect to which the option is being exercised, accompanied by
payment in full for such shares as provided in subparagraph (a) above. Upon such
exercise, delivery of a certificate for paid-up non-assessable shares shall be
made at the principal office of the Company to the person or persons exercising
the option at such time, during ordinary business hours, after ten business days
from the date of receipt of the notice by the Company, as shall be designated in
such notice, or at such time, place and manner as may be agreed upon by the
Company and the person or persons exercising the option.
8. Exercise of Options.
Subject to the provisions of paragraphs 9 through 11, each option
granted under the Plan shall be exercisable as follows:
(a) Vesting. The option shall either be fully exercisable on the date
of grant or shall become exercisable thereafter in such installments as the
Committee may specify.
(b) Full Vesting of Installments. Once an installment becomes
exercisable it shall remain exercisable until expiration or termination of the
option, unless otherwise specified by the Committee.
(c) Partial Exercise. Each option or installment may be exercised at
any time or from time to time, in whole or in part, for up to the total number
of shares with respect to which it is then exercisable.
(d) Acceleration of Vesting. The Committee shall have the right to
accelerate the date of exercise of any installment or any option.
9. Term of Options; Exercisability.
(a) Term. Each option shall expire not more than ten (10) years from
the date of the granting thereof, but shall be subject to earlier termination as
may be provided in the Agreement.
(b) Exercisability. Except as otherwise provided in the Agreement, an
option granted to an employee optionee who ceases to be an employee of the
Company or one of its subsidiaries shall be exercisable only to the extent that
the right to purchase shares under such option has accrued and is in effect on
the date such optionee ceases to be an employee of the Company or one of its
subsidiaries.
26
<PAGE> 4
10. Options Not Transferable.
The right of any optionee to exercise any option granted to him or her
shall not be assignable or transferable by such optionee otherwise than by will
or the laws of descent and distribution, or pursuant to a qualified domestic
relations order, as defined by the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder, and any such option shall be
exercisable during the lifetime of such optionee only by him. Any option granted
under the Plan shall be null and void and without effect upon the bankruptcy of
the optionee to whom the option is granted, or upon any attempted assignment or
transfer, except as herein provided, including without limitation any purported
assignment, whether voluntary or by operation of law, pledge, hypothecation or
other disposition, attachment, divorce, except as provided above with respect to
a qualified domestic relations order, trustee process or similar process,
whether legal or equitable, upon such option.
11. Adjustments. Upon the occurrence of any of the following events, an
optionee's rights with respect to options granted to him or her hereunder shall
be adjusted as hereinafter provided, unless otherwise specifically provided in
the written agreement between the optionee and the Company relating to such
option:
(a) Stock Dividends and Stock Splits. If the shares of Common
Stock shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock dividend on
its outstanding Common Stock, the number of shares of Common Stock deliverable
upon the exercise of options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
(b) Consolidations or Mergers. If the Company is to be
consolidated with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"), the
Committee or the board of directors of any entity assuming the obligations of
the Company hereunder (the "Successor Board"), shall, as to outstanding options,
either (i) make appropriate provision for the continuation of such options by
substituting on an equitable basis for the shares then subject to such options
the consideration payable with respect to the outstanding shares of Common Stock
in connection with the Acquisition; or (ii) upon written notice to the
optionees, provide that all options must be exercised, to the extent then
exercisable, within a specified number of days of the date of such notice, at
the end of which period the options shall terminate; or (iii) terminate all
options in exchange for a cash payment equal to the excess of the fair market
value of the shares subject to such options (to the extent then exercisable)
over the exercise price thereof.
(c) Recapitalization or Reorganization. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph (b) above) pursuant to which securities of the Company
or of another corporation are issued with respect to the outstanding shares of
Common Stock, an optionee upon exercising an option shall be entitled to receive
for the purchase price paid upon such exercise the securities he would have
received if he had exercised his option prior to such recapitalization or
reorganization.
(d) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, each option will terminate
immediately prior to the consummation of such proposed action or at such other
time and subject to such other conditions as shall be determined by the
Committee.
(e) Issuances of Securities. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.
27
<PAGE> 5
(f) Fractional Shares. No fractional shares shall be issued under
the Plan and the optionee shall receive from the Company cash in lieu of such
fractional shares.
(g) Adjustments. Upon the happening of any of the events described
in subparagraphs (a), (b) or (c) above, the class and aggregate number of shares
set forth in Section 2 hereof that are subject to options which previously have
been or subsequently may be granted under the Plan shall also be appropriately
adjusted to reflect the events described in such subparagraphs. The Committee or
the Successor Board shall determine the specific adjustments to be made under
this paragraph 11 and, subject to Section 3, its determination shall be
conclusive.
If any person or entity owning restricted Common Stock obtained by
exercise of an option made hereunder receives shares or securities or cash in
connection with a corporate transaction described in subparagraphs (a), (b) or
(c) above as a result of owning such restricted Common Stock, such shares or
securities or cash shall be subject to all of the conditions and restrictions
applicable to the restricted Common Stock with respect to which such shares or
securities or cash were issued, unless otherwise determined by the Committee or
the Successor Board.
12. No Special Employment Rights.
Nothing contained in the Plan or in any option granted under the Plan
shall confer upon any option holder any right with respect to the continuation
of his employment by the Company (or any subsidiary) or interfere in any way
with the right of the Company (or any subsidiary), subject to the terms of any
separate employment agreement to the contrary, at any time to terminate such
employment or to increase or decrease the compensation of the option holder from
the rate in existence at the time of the grant of an option. Whether an
authorized leave of absence, or absence in military or government service, shall
constitute termination of employment shall be determined by the Committee at the
time.
13. Withholding.
The Company's obligation to deliver shares upon the exercise of any
option granted under the Plan shall be subject to the option holder's
satisfaction of all applicable Federal, state and local income, excise and
employment tax withholding requirements. The Company and employee may agree to
withhold shares of Common Stock purchased upon exercise of an option to satisfy
the above-mentioned withholding requirements. With the approval of the
Committee, which it shall have sole discretion to grant, and on such terms and
conditions as the Committee may impose, the option holder may satisfy the
foregoing condition by electing to have the Company withhold from delivery
shares having a value equal to the amount of tax to be withheld. The Committee
shall also have the right to require that shares be withheld from delivery to
satisfy such condition.
14. Restrictions on Issue of Shares.
(a) Notwithstanding the provisions of Section 7, the Company may
delay the issuance of shares covered by the exercise of an option and the
delivery of a certificate for such shares until one of the following conditions
shall be satisfied:
(i) The shares with respect to which such option has been
exercised are at the time of the issue of such shares effectively registered or
qualified under applicable Federal and state securities acts now in force or as
hereafter amended; or
(ii) Counsel for the Company shall have given an opinion,
which opinion shall not be unreasonably conditioned or withheld, that such
shares are exempt from registration and qualification under applicable Federal
and state securities acts now in force or as hereafter amended.
28
<PAGE> 6
(b) It is intended that all exercises of options shall be
effective, and the Company shall use its best efforts to bring about compliance
with the above conditions within a reasonable time, except that the Company
shall be under no obligation to qualify shares or to cause a registration
statement or a post-effective amendment to any registration statement to be
prepared for the purpose of covering the issue of shares in respect of which any
option may be exercised, except as otherwise agreed to by the Company in
writing.
15. Purchase for Investment; Rights of Holder on Subsequent
Registration.
Unless the shares to be issued upon exercise of an option granted under
the Plan have been effectively registered under the Securities Act of 1933, as
now in force or hereafter amended, the Company shall be under no obligation to
issue any shares covered by any option unless the person who exercises such
option, in whole or in part, shall give a written representation and undertaking
to the Company which is satisfactory in form and scope to counsel for the
Company and upon which, in the opinion of such counsel, the Company may
reasonably rely, that he or she is acquiring the shares issued pursuant to such
exercise of the option for his or her own account as an investment and not with
a view to, or for sale in connection with, the distribution of any such shares,
and that he or she will make no transfer of the same except in compliance with
any rules and regulations in force at the time of such transfer under the
Securities Act of 1933, or any other applicable law, and that if shares are
issued without such registration, a legend to this effect may be endorsed upon
the securities so issued. In the event that the Company shall, nevertheless,
deem it necessary or desirable to register under the Securities Act of 1933 or
other applicable statutes any shares with respect to which an option shall have
been exercised, or to qualify any such shares for exemption from the Securities
Act of 1933 or other applicable statutes, then the Company may take such action
and may require from each optionee such information in writing for use in any
registration statement, supplementary registration statement, prospectus,
preliminary prospectus or offering circular as is reasonably necessary for such
purpose and may require reasonable indemnity to the Company and its officers and
directors and controlling persons from such holder against all losses, claims,
damages and liabilities arising from such use of the information so furnished
and caused by any untrue statement of any material fact therein or caused by the
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
under which they were made.
16. Loans.
The Company may make loans to optionees to permit them to exercise
options. If loans are made, the requirements of all applicable Federal and state
laws and regulations regarding such loans must be met.
17. Modification of Outstanding Options.
The Committee may authorize the amendment of any outstanding option
with the consent of the optionee when and subject to such conditions as are
deemed to be in the best interests of the Company and in accordance with the
purposes of this Plan.
18. Termination and Amendment.
Unless sooner terminated as herein provided, the Plan shall terminate
ten (10) years from the date upon which the Plan was duly adopted by the Board
of Directors of the Company. The Board of Directors may at any time terminate
the Plan or make such modification or amendment thereof as it deems advisable;
provided, however, that except as provided in this Section 19, the Board of
Directors may not, without the approval of the shareholders of the Company
change the designation of the class of persons eligible to receive options under
the Plan, or make any other change in the Plan which requires shareholder
approval under applicable law or regulations, including any approval requirement
which is a prerequisite for exemptive relief under Section 16 of the Exchange
Act. The Committee may grant options to persons subject to Section 16(b) of the
Exchange Act after an amendment to the Plan by the Board of Directors
29
<PAGE> 7
requiring shareholder approval under Section 19, but any such option shall
become effective as of the date of grant only upon such shareholder approval
and, accordingly, no such option may be exercisable prior to such shareholder
approval. The Committee may terminate, amend or modify any outstanding option
without the consent of the option holder, provided, however, that, except as
provided in Section 11, without the consent of the optionee, the Committee shall
not change the number of shares subject to an option, nor the exercise price
thereof, nor extend the term of such option.
19. Reservation of Stock.
The Company shall at all times during the term of the Plan reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of the Plan and shall pay all fees and expenses necessarily
incurred by the Company in connection therewith.
20. Limitation of Rights in the Option Shares.
An optionee shall not be deemed for any purpose to be a shareholder of
the Company with respect to any of the options except to the extent that the
option shall have been exercised with respect thereto and, in addition, a
certificate shall have been issued theretofore and delivered to the optionee.
21. Notices.
Any communication or notice required or permitted to be given under the
Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to its principal place of business,
attention: President, and, if to an optionee, to the address as appearing on the
records of the Company.
Approved by the Directors: April 30, 1998
30
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FOR THE QUARTER ENDED JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q FILING.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
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<CASH> 45,444
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