<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 SEPTEMBER 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)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 04-3194255
(State or Other Jurisdiction of Incorporation or Organization) (IRS Employer Identification Number)
</TABLE>
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 formerfiscal 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 NOVEMBER 6, 1998
Common Stock, $0.01 par value 26,824,049 Shares
============================= ================================
1
<PAGE> 2
GEOTEL COMMUNICATIONS CORPORATION
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997.............................. 3
Consolidated Statements of Income for the three and nine months ended September 30, 1998 and 1997....... 4
Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and 1997............. 5
Notes to Consolidated Financial Statements.............................................................. 6 -- 7
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 8 -- 13
PART II OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds............................................................... 13
Item 6 Exhibits and Reports on Form 8-K........................................................................ 13
Signature............................................................................................... 14
Exhibit 10.1 Second Amended and Restated 1995 Stock Option Plan....................................... 15 -- 22
Exhibit 10.2 Amended and Restated 1998 Non-Executive Employee Stock Option Plan........................ 23 -- 29
Exhibit 27.1 Financial Data Schedule................................................................... 30
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GEOTEL COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 49,733 $ 40,428
Accounts receivable, net....................... 6,293 3,685
Prepaid expenses and other current assets...... 2,147 1,648
Deferred income taxes.......................... 958 763
-------- --------
Total current assets........................... 59,131 46,524
-------- --------
Property and equipment, net.................... 3,612 2,322
Deferred income taxes.......................... 1,133 1,427
-------- --------
Total assets................................... $ 63,876 $ 50,273
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 575 $ 708
Accrued expenses............................... 2,238 967
Accrued compensation and related accruals...... 2,528 1,311
Accrued income taxes........................... 388 951
Deferred revenue............................... 9,078 6,410
-------- --------
Total current liabilities...................... 14,807 10,347
-------- --------
Stockholders' equity:
Preferred stock................................ -- --
Common stock................................... 273 135
Additional paid-in capital..................... 44,153 40,893
Accumulated earnings (deficit)................. 5,413 (202)
Unearned compensation.......................... (677) (855)
-------- --------
49,162 39,971
Less treasury stock, at cost................... (93) (45)
-------- --------
Total stockholders' equity..................... 49,069 39,926
-------- --------
Total liabilities and stockholders' equity..... $ 63,876 $ 50,273
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
GEOTEL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Software license.................... $ 9,067 $ 4,059 $22,834 $ 9,605
Services and other.................. 3,021 1,100 7,091 2,749
------- ------- ------- -------
Total revenues...................... 12,088 5,159 29,925 12,354
------- ------- ------- -------
Cost of Revenues:
Cost of software licenses........... 344 153 939 330
Cost of services and other.......... 2,018 878 5,139 2,007
------- ------- ------- -------
Total cost of revenues.............. 2,362 1,031 6,078 2,337
------- ------- ------- -------
Gross profit........................... 9,726 4,128 23,847 10,017
------- ------- ------- -------
Operating Expenses:
Research and development............ 1,849 1,015 4,848 2,819
Sales and marketing................. 3,403 1,482 8,961 3,812
General and administrative.......... 1,112 547 2,810 1,382
------- ------- ------- -------
Total operating expenses............ 6,364 3,044 16,619 8,013
------- ------- ------- -------
Income from operations................. 3,362 1,084 7,228 2,004
Interest income........................ 651 508 1,756 1,415
------- ------- ------- -------
Income before income taxes............. 4,013 1,592 8,984 3,419
Provision for income taxes............. 1,505 105 3,369 226
------- ------- ------- -------
Net income............................. $ 2,508 $ 1,487 $ 5,615 $ 3,193
======= ======= ======= =======
Net income per share:
Basic earnings per share............ $ 0.10 $ 0.06 $ 0.22 $ 0.13
======= ======= ======= =======
Diluted earnings per share.......... $ 0.09 $ 0.05 $ 0.20 $ 0.12
======= ======= ======= =======
Weighted average number of common and
common equivalent shares outstanding:
Basic shares........................ 26,373 25,561 26,088 25,408
======= ======= ======= =======
Diluted shares...................... 28,890 27,828 28,295 27,622
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
GEOTEL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................... $ 5,615 $ 3,193
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............................ 783 547
Equity compensation...................................... 178 362
Deferred income taxes.................................... 99 --
Tax benefit from employees' exercise of stock options.... 1,750 --
Changes in operating assets and liabilities:
Accounts receivable...................................... (2,607) (1,044)
Prepaid expenses and other current assets................ (500) (964)
Accounts payable......................................... (131) 2
Accrued expenses and other current liabilities........... 2,488 1,148
Accrued income taxes..................................... (563) --
Deferred revenue......................................... 2,668 5,033
-------- --------
Net cash provided by operating activities............ 9,780 8,277
-------- --------
Cash flows used in investing activities:
Purchases of property and equipment...................... (2,073) (1,612)
-------- --------
Cash flows from financing activities:
Proceeds from sale of common stock and option exercises.. 1,601 162
Proceeds from notes receivable for common stock.......... -- 106
Offering costs of registering common stock............... -- (63)
Acquisition of treasury stock............................ (3) (3)
-------- --------
Net cash provided by financing activities............ 1,598 202
-------- --------
Net increase in cash and cash equivalents..................... 9,305 6,867
Cash and cash equivalents, beginning of period................ 40,428 33,263
-------- --------
Cash and cash equivalents, end of period...................... $ 49,733 $ 40,130
======== ========
</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 nine month periods
ended September 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 nine month periods ended
September 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. STOCKHOLDERS' EQUITY
On August 14, 1998, the Board of Directors approved a two-for-one stock
split of the Company's common stock, to be effected in the form of a 100% stock
dividend, payable to shareholders of record on August 31, 1998. All references
to number of shares and to per share information in the financial statements and
related footnotes have been adjusted to reflect the stock split on a retroactive
basis.
6
<PAGE> 7
3. 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Basic:
Net income $ 2,508 $ 1,487 $ 5,615 $ 3,193
======= ======= ======= =======
Weighted average common shares outstanding 26,373 25,561 26,088 25,408
======= ======= ======= =======
Net income per share $ 0.10 $ 0.06 $ 0.22 $ 0.13
======= ======= ======= =======
Diluted:
Net income $ 2,508 $ 1,487 $ 5,615 $ 3,193
======= ======= ======= =======
Weighted average common shares outstanding 26,373 25,561 26,088 25,408
Common stock equivalents 2,517 2,267 2,207 2,214
------- ------- ------- -------
Total weighted average shares and equivalents outstanding 28,890 27,828 28,295 27,622
======= ======= ======= =======
Net income per share $ 0.09 $ 0.05 $ 0.20 $ 0.12
======= ======= ======= =======
</TABLE>
7
<PAGE> 8
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 nine-month periods ended September 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------- -------------------------------
1998 1997 1998 1997
------- ------ ------ ------
<S> <C> <C> <C> <C>
Revenues
Software license............. 75.0% 78.7% 76.3% 77.7%
Services and other........... 25.0 21.3 23.7 22.3
----- ----- ----- -----
Total revenues............... 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of Revenues:
Cost of software licenses.... 2.8 3.0 3.1 2.7
Cost of services and other... 16.7 17.0 17.2 16.2
----- ----- ----- -----
Total cost of revenues....... 19.5 20.0 20.3 18.9
----- ----- ----- -----
Gross Profit...................... 80.5 80.0 79.7 81.1
----- ----- ----- -----
Operating Expenses:
Research and development..... 15.3 19.7 16.2 22.8
Sales and marketing.......... 28.2 28.7 29.9 30.9
General and administrative... 9.2 10.6 9.4 11.2
----- ----- ----- -----
Total operating costs........ 52.7 59.0 55.5 64.9
----- ----- ----- -----
Income from operations............ 27.8% 21.0% 24.2% 16.2%
===== ===== ===== =====
</TABLE>
REVENUES
Total revenues for the third quarter of 1998 increased by 134.3% to
$12,088,000 from $5,159,000 for the third quarter of 1997. Software license
revenue during the third quarter of 1998 increased by 123.4% to $9,067,000 from
$4,059,000 for the third quarter of 1997. Total revenues for the nine months
ended September 30, 1998 increased by 142.2% to $29,925,000 from $12,354,000 for
the nine months ended September 30, 1997. Software license revenue during these
nine-month periods increased 137.7% to $22,834,000 from $9,605,000. The Company
believes that the increase in software license revenue is attributable to
several factors including revenue recognized under the 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 third quarter of
1998, under the DEC Agreement, the Company recognized approximately $1,266,000
in software license revenue and $54,000 in services and other revenue, compared
to $1,491,000 in software license revenue and $176,000 in services and other
revenue for the third quarter of 1997. The Company has recognized the entire
$7,800,000 value, as of September 30, 1998. Additionally, the Company recognized
revenue related to follow-on orders from DEC associated with the ongoing
development of the Company's products at British Telecom (BT). Revenues related
to such follow-on orders represented approximately $2,900,000.
Services and other revenue for the third quarter of 1998 increased by
174.6% to $3,021,000 from $1,100,000 for the third quarter of 1997. In the third
quarter of 1998, maintenance revenue, installation services revenue, and
professional services and other revenue represented 43.7%, 22.1% and 34.2%,
respectively, of services and other revenue. In the third quarter of 1997,
maintenance revenue,
8
<PAGE> 9
installation services revenue and professional services and other revenue
represented 60.5%, 27.9%, and 11.6%, respectively, of services and other
revenue. Services and other revenue for the nine months ended September 30, 1998
increased by 157.9% to $7,091,000 from $2,749,000 for the nine months ended
September 30, 1997. Maintenance revenue, installation services revenue and
professional services and other revenue represented 44.8%, 27.1% and 28.1%,
respectively, of services and other revenue for the nine months ended September
30, 1998, compared to 57.5%, 30.3% and 12.2%, respectively, for the nine months
ended September 30, 1997. Services and other revenue increased to 23.7% of total
revenues for the nine months ended September 30, 1998 from 22.3% of total
revenues in the nine months ended September 30, 1997. Services and other revenue
increased in dollars in the three and nine-month periods ended September 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 third quarter of 1998 increased 205.6% to
$6,992,000 from $2,288,000 for the third quarter of 1997 and increased as a
percentage of total revenues to 57.8% from 44.3%. International revenues for the
nine months ended September 30, 1998 increased 208.8% to $11,928,000 from
$3,863,000 for the nine months ended September 30, 1997. International revenue
represented approximately 39.9% and 31.3% of total revenues for the nine months
ended September 30, 1998 and 1997, respectively. International revenues in 1998
and 1997 were derived from eight and three customers, respectively. The Company
believes that it will continue to derive a significant portion of its total
revenues from international sales. 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 67.3% of the Company's total
revenues for the quarters ended September 30, 1998 and 1997. Revenues
attributable to the five largest customers for the nine months ended September
30, 1998 and 1997 were 57.1% and 56.0%, respectively. For the quarters ended
September 30, 1998 and 1997, two and one customer(s) represented more than ten
percent of the Company's total revenue, respectively. For the nine months ended
September 30, 1998 and 1997, two customers represented more than ten percent of
the Company's total revenue. 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.
COST OF REVENUES
Cost of software licenses. Cost of software licenses consists principally
of development costs associated with the DEC Agreements and the costs of
interface cards. Cost of software licenses for the third quarter of 1998
increased by 124.8% to $344,000 from $153,000 for the third quarter of 1997.
Cost of software licenses as a percentage of software license revenue were 3.8%
for the third quarters of 1998 and 1997. Cost of software licenses for the nine
months ended September 30, 1998 increased by 184.5% to $939,000 from $330,000
for the nine months ended September 30, 1997. Cost of software licenses as a
percentage of software license revenue were 4.1% and 3.4% for the nine-month
periods ended September 30, 1998 and 1997, respectively. The increases in
dollars and as a percentage of software license revenues in the 1998 periods
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 third quarter of 1998 increased by 129.8% to $2,018,000 from
$878,000 for the third quarter of 1997. Cost of services and other revenue as a
percentage of services and other revenue were 66.8% and 79.8% for the third
quarters of 1998 and 1997, respectively. Cost of services and other revenue for
the nine months ended September 30, 1998 increased by 156.1% to $5,139,000 from
$2,007,000 for the nine months ended September 30, 1997. Cost of services and
other revenue as a percentage of services and other revenue were 72.5% and 73.0%
for the nine months ended September 30, 1998 and 1997, respectively. The
increase in dollars for the quarter and nine-month period ended September 30,
1998 as compared to the corresponding periods ended September 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
9
<PAGE> 10
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 70% to 80% 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 third quarter of 1998 increased by 82.2% to $1,849,000 from $1,015,000
for the third quarter of 1997. Research and development expenses as a percentage
of total revenue were 15.3% and 19.7% for the third quarters of 1998 and 1997,
respectively. Research and development expenses for the nine months ended
September 30, 1998 increased by 72.0% to $4,848,000 from $2,819,000 for the nine
months ended September 30, 1997. Research and development expenses as a
percentage of total revenue were 16.2% and 22.8% for the nine-month periods
ended September 30, 1998 and 1997, respectively. The decrease as a percentage of
total revenue for the quarter and nine-month period ended September 30, 1998 as
compared to the corresponding periods ended September 30, 1997 was primarily the
result of the Company's significant revenue growth. The increase in absolute
dollars for the quarter and nine-month period ended September 30, 1998 as
compared to the corresponding periods ended September 30, 1997 was the result of
increases in personnel and related facility costs. The major product development
efforts in the third 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 15% to 20% of total
revenue in the foreseeable future.
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
third quarter of 1998 increased by 129.6% to $3,403,000 from $1,482,000 for the
third quarter of 1997. Sales and marketing expenses as a percentage of total
revenues were 28.2% and 28.7% for the third quarters of 1998 and 1997,
respectively. Sales and marketing expenses for the nine months ended September
30, 1998 increased by 135.1% to $8,961,000 from $3,812,000 for the nine months
ended September 30, 1997. Sales and marketing expenses as a percentage of total
revenues were 29.9% and 30.9% for the nine months ended September 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-one at
the end of the third quarter of 1998 from seventeen at the end of the third
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 third quarter of
1998 increased by 103.3% to $1,112,000 from $547,000 for the third quarter of
1997. General and administrative expenses as a percentage of total revenues were
9.2% and 10.6% for the third quarters of 1998 and 1997, respectively. General
and administrative expenses for the nine months ended September 30, 1998
increased by 103.3% to $2,810,000 from $1,382,000 for the nine months ended
September 30, 1997. General and administrative expenses as a percentage of total
revenue were 9.4% and 11.2% for the nine months ended September 30, 1998 and
1997, respectively. General and administrative expenses have increased in
absolute dollars for the quarter and nine-month period ended September 30, 1998
as compared to the corresponding periods ended September 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 $651,000 and $508,000 for the third quarters of 1998 and
1997, respectively, resulted from investments of the Company's cash balances.
Interest income was $1,756,000 and $1,415,000 for the nine-month periods ended
September 30, 1998 and 1997, respectively.
10
<PAGE> 11
PROVISION FOR INCOME TAXES
The Company's effective tax rate for the third quarter and nine months
ended September 30, 1998 was approximately 37.5% compared to approximately 6.6%
for the third quarter and nine months ended September 30, 1997, respectively. In
the third 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 September 30, 1998, the Company's cash and cash equivalents, accounts
receivable and working capital increased to $49,733,000, $6,293,000 and
$44,324,000, 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 $9,780,000 from operations in
the nine months ended September 30, 1998 compared to $8,277,000 in the
corresponding period of 1997. The improvement in cash flow from operations is
primarily the result of an increase in advance customer payments, tax benefits
from employees' exercise of stock options and more profitable operations as a
result of higher revenues.
The Company used cash in investing activities of $2,073,000 and $1,612,000
in the nine months ended September 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 $1,598,000 and $202,000 in the
nine months ended September 30, 1998 and 1997, respectively. Financing
activities consisted primarily of sales of equity securities in connection with
employee benefit plans.
As of September 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 current 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. The Company's Year 2000 compliance
evaluation has been completed and the Company does not at this time foresee a
material impact on its business or operating results from the Year 2000 problem.
Before any new products are introduced, the Company will continue to evaluate
the compatibility with Year 2000 functionality. 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.
11
<PAGE> 12
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 Agreements, anticipated international revenues, anticipated cost of revenues
levels, anticipated operating expense levels and such expense levels relative to
the Company's total revenues, product development plans and liquidity and
working capital requirements) 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 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 39.9% and 31.3% of the
Company's revenues for the nine months ended September 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
12
<PAGE> 13
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.
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 September 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 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit 10.1 Second Amended and Restated 1995 Stock Option Plan
Exhibit 10.2 Amended and Restated 1998 Non-Executive Employee Stock
Option Plan
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K on September 25, 1998
relating to a two-for-one stock split approved by the Board of Directors.
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)
November 10, 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
SECOND AMENDED AND RESTATED
GEOTEL COMMUNICATIONS CORPORATION
1995 STOCK OPTION PLAN
(AS AMENDED AUGUST 5, 1996 AND AUGUST 31, 1998)
1. Purpose of the Plan.
This stock option plan (the "Plan") is intended to provide
incentives: (a) to the officers and other 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 qualify as "incentive stock options"
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")
("ISO" or "ISOs"); and (b) to officers, employees, consultants and directors of
the Company and any present or future subsidiaries by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which do not qualify as ISOs ("Non-Qualified Option" or "Non-Qualified
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, 1996 shall be 1,335,652 shares of Common Stock. The number of
shares of Common Stock available for grants of stock options under this Plan
shall be increased by the number of shares of Common Stock repurchased from time
to time by the Company under the Company's 1993 Restricted Stock Purchase Plan.
In addition, effective January 1, 1997 and each January 1 thereafter during the
term of this Plan, the number of shares of Common Stock available for grants of
stock options under this Plan shall be increased cumulatively by 4% of the total
number of issued and outstanding shares of Common Stock (including shares held
in treasury) as of the close of business on December 31 of the preceding year.
Notwithstanding the foregoing, the maximum cumulative number of shares of Common
Stock available for grants of stock options under the Plan shall be 6,000,000.
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 canceled 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
15
<PAGE> 2
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.
(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 ISOs) to
whom ISOs may be granted, and to determine (from the class of individuals
eligible under Section 4 to receive Non-Qualified Options) to whom Non-Qualified
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 whether each option granted shall be an ISO or a Non-Qualified Option;
(v) determine (subject to Section 9) the time or times when each option shall
become exercisable and the duration of the exercise period; (vi) determine
whether restrictions such as repurchase options are to be imposed on shares
subject to options and the nature of such restrictions; and (vii) 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 designated as ISOs may be granted only to officers and other
employees of the Company or any subsidiary. Non-Qualified Options may be granted
to any officer, employee, consultant or director of the Company or of any of its
subsidiaries.
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.
No option designated as an ISO shall be granted to any employee of
the Company or any subsidiary if such employee owns, immediately prior to the
grant of an option, stock representing more than 10% of the voting power or more
than 10% of the value of all classes of stock of the Company or a parent or a
subsidiary, unless the purchase price for the stock under such option shall be
at least 110% of its fair market value at the time such option is granted and
the option, by its terms, shall not be exercisable more than five years from the
date it is granted. In determining the stock ownership under this paragraph, the
provisions of Section 424(d) of the Code shall be controlling. In determining
the fair market value under this paragraph, the provisions of Section 6 hereof
shall apply.
5. Option Agreement.
16
<PAGE> 3
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, provided that options designated as ISOs shall meet
all of the conditions for ISOs as defined in Section 422 of the Code. 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 or prices of shares of the Company's Common Stock
for options designated as Non-Qualified Options 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. The option price or prices of shares of the Company's Common Stock
for ISOs shall be the fair market value of such Common Stock at the time the
option is granted as determined by the Committee in accordance with the
Regulations promulgated under Section 422 of the Code. If such shares 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
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.
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 by the Committee in accordance with Section 6 hereof.
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.
(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,
17
<PAGE> 4
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; provided that
the Committee shall not, without the consent of an optionee, accelerate the
exercise date of any installment of any option granted to any employee as an ISO
if such acceleration would violate the annual vesting limitation contained in
Section 422(d) of the Code.
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.
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 (solely with respect to
Non-Qualified Options) 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 Non-Qualified
Options, 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:
18
<PAGE> 5
(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, make
appropriate provisions 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.
(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) Modification of ISOs. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs (a), (b) or (c) with respect to ISOs
shall be made only after the Committee, after consulting with counsel for the
Company, determines whether such adjustments would constitute a "modification"
of such ISOs (as that term is defined in Section 424 of the Code) or would cause
any adverse tax consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs, it may refrain from making such adjustments.
(e) 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.
(f) 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.
(g) 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.
(h) 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
19
<PAGE> 6
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.
(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
20
<PAGE> 7
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. Approval of Shareholders.
The Plan shall be subject to approval by the vote of shareholders
holding at least a majority of the voting stock of the Company voting in person
or by proxy at a duly held shareholders' meeting, or by written consent of
shareholders holding at least a majority of the voting stock of the Company,
within twelve (12) months after the adoption of the Plan by the Board of
Directors and shall take effect as of the date of adoption by the Board of
Directors upon such approval. The Committee may grant options under the Plan
prior to such approval, but any such option shall become effective as of the
date of grant only upon such approval and, accordingly, no such option may be
exercisable prior to such approval.
19. 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
obtained in the manner stated in Section 18, increase the maximum number of
shares for which options may be granted or 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 requiring shareholder approval
under Section 19, but any such option shall become effective as of the date of
grant only upon such approval and, accordingly, no such option may be
exercisable prior to such 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
21
<PAGE> 8
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.
20. Compliance with Rule 16b-3.
It is intended that the provisions of the Plan and any option granted
hereunder to a person subject to the reporting requirements of Section 16(a) of
the Exchange Act shall comply in all respects with the terms and conditions of
Rule 16b-3 under the Exchange Act, or any successor provisions, to the extent
the Company has any equity security registered pursuant to Section 12 of the
Exchange Act. Any agreement granting options shall contain such provisions as
are necessary or appropriate to assure such compliance. To the extent that any
provision hereof is found not to be in compliance with such Rule, such provision
shall be deemed to be modified so as to be in compliance with such Rule, or if
such modification is not possible, shall be deemed to be null and void, as it
relates to a recipient subject to Section 16(a) of the Exchange Act.
21. 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.
22. 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.
23. 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: August 5, 1996
Approved by the Stockholders: August 5, 1996
22
<PAGE> 1
EXHIBIT 10.2
GEOTEL COMMUNICATIONS CORPORATION
AMENDED AND RESTATED 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 canceled 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.
23
<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
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
24
<PAGE> 3
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.
10. Options Not Transferable.
25
<PAGE> 4
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, make
appropriate provisions 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.
(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.
(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
26
<PAGE> 5
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.
(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.
27
<PAGE> 6
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 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.
28
<PAGE> 7
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
29
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FORM 10-Q FILING.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 49,733
<SECURITIES> 0
<RECEIVABLES> 6,293
<ALLOWANCES> 300
<INVENTORY> 0
<CURRENT-ASSETS> 59,131
<PP&E> 6,099
<DEPRECIATION> 2,487
<TOTAL-ASSETS> 63,876
<CURRENT-LIABILITIES> 14,807
<BONDS> 0
0
0
<COMMON> 273
<OTHER-SE> 48,796
<TOTAL-LIABILITY-AND-EQUITY> 63,876
<SALES> 12,088
<TOTAL-REVENUES> 12,088
<CGS> 2,362
<TOTAL-COSTS> 2,362
<OTHER-EXPENSES> 6,364
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,013
<INCOME-TAX> 1,505
<INCOME-CONTINUING> 2,508
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,508
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.09
</TABLE>
