<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CATAPULT COMMUNICATIONS CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEVADA 3670 77-0086010
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
160 SOUTH WHISMAN ROAD
MOUNTAIN VIEW, CALIFORNIA 94041
(650) 960-1025
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
RICHARD A. KARP
President and Chief Executive Officer
Catapult Communications Corporation
160 South Whisman Road
Mountain View, California 94041
(650) 960-1025
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
------------------------------
COPIES TO:
HENRY P. MASSEY, JR., ESQ. KENNETH L. GUERNSEY, ESQ.
DAVID C. DRUMMOND, ESQ. CYDNEY S. POSNER, ESQ.
DEBRA B. ROSLER, ESQ. JEFF B. FURCHTENICHT, ESQ.
JOANNA S. LIN, ESQ. Cooley Godward LLP
Wilson Sonsini Goodrich & Rosati One Maritime Plaza, 20th Floor
Professional Corporation San Francisco, California 94111
650 Page Mill Road (415) 693-2000
Palo Alto, California 94304
(650) 493-9300
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _____
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _____
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _____
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, par value $.001................................... $42,409,125.00 $12,511.00
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a) of the Securities Act of 1933.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 11, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
SHARES
[LOGO]
COMMON STOCK
Of the shares of Common Stock offered hereby, shares are being
sold by Catapult Communications Corporation ("Catapult" or the "Company") and
shares are being sold by the Selling Stockholders. The Company will not
receive any of the proceeds from the sale of shares by the Selling Stockholders.
See "Principal and Selling Stockholders."
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $ and $ per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company has applied to have the Common Stock approved for
quotation on the Nasdaq National Market under the symbol CATT.
--------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
UNDERWRITING PROCEEDS TO SELLING
PRICE TO PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
Total (3)..................... $ $ $ $
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) A Selling Stockholder has granted to the Underwriters a 30-day option to
purchase up to additional shares of Common Stock, solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discount and Proceeds to Selling Stockholders will
be $ , $ and $ , respectively. See "Underwriting."
--------------
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1998, at the offices of the agent of Hambrecht
& Quist LLC in New York, New York.
HAMBRECHT & QUIST
CIBC OPPENHEIMER
C.E. UNTERBERG, TOWBIN
, 1998
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act of
1933, as amended (the "Securities Act") with respect to the shares of Common
Stock offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules thereto.
For further information with respect to the Company and such Common Stock,
reference is made to the Registration Statement and the exhibits and schedules
filed as a part thereof. Statements contained in this Prospectus as to the
contents of any contract or any other document referred to are not necessarily
complete and, in each instance, if such contract or document is filed as an
exhibit, reference is made to the copy of such document filed as an exhibit to
the Registration Statement. The Registration Statement, including exhibits and
schedules thereto, may be inspected without charge at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at Room 1228, Seven World Trade Center, Suite 1300, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials may be obtained from the
Public Reference Section of the Commission, Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and its public reference facilities
in New York, New York and Chicago, Illinois, at prescribed rates. In addition,
the Commission maintains a Website on the Internet that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's Website is
http://www.sec.gov.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
Catapult, DCT and DCPL are trademarks of the Company. This Prospectus also
includes trade names, trademarks and registered trademarks of companies other
than the Company.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS. THE COMMON STOCK OFFERED HEREBY INVOLVES
A HIGH DEGREE OF RISK. SEE "RISK FACTORS."
THE COMPANY
Catapult Communications Corporation ("Catapult" or the "Company") designs,
develops, manufactures, markets and supports an advanced software-based test
system offering an integrated suite of testing applications for the global
telecommunications industry. Catapult's Digital Communications Tester ("DCT") is
a comprehensive test solution designed to enable equipment manufacturers and
network operators to deliver complex digital telecommunications equipment and
services more quickly and cost-effectively, while helping to ensure
interoperability and reliability. The Company's advanced software and hardware
assist customers in the design, integration, installation and acceptance testing
of a broad range of digital telecommunications equipment and services. The
Company markets its products through a direct sales force to industry leaders
such as Cable & Wireless Communications PLC ("Cable & Wireless"), LM Ericsson
("Ericsson"), Fujitsu Limited ("Fujitsu"), Lucent Technologies, Inc. ("Lucent"),
Motorola Inc. ("Motorola"), NEC Corporation ("NEC"), Northern Telecom Limited
("Nortel"), Nippon Telephone and Telegraph ("NTT") and Tellabs Inc. ("Tellabs").
Technological advances, increasing competition resulting from deregulation
and privatization and a proliferation of standards are fundamentally changing
the telecommunications industry. Today, network operators are able to choose
heterogeneous products from multiple equipment manufacturers to obtain the best
set of features and reduce network cost. Consequently, to remain competitive,
equipment manufacturers must be able to rapidly provide cost-effective equipment
with enhanced features. At the same time, manufacturers and operators must
ensure that these advanced new products satisfy the telecommunications
industry's rigorous standards of seamless interoperability and high reliability
under variable traffic conditions. To address these needs, manufacturers and
operators require versatile test systems that can identify and locate errors in
network equipment, enhance the performance of the network, verify conformance to
industry standards and help ensure the interoperability of equipment from
various vendors.
The DCT system performs a variety of test functions, including simulation,
load and stress testing, feature verification, conformance testing and
monitoring. Catapult maintains an extensive library of software modules that
support more than 100 variants of approximately 30 protocols. The Company's
emphasis is on complex, high-level and emerging protocols, including Signaling
System 7 (SS7), Intelligent Network (IN), Global Systems for Mobile
Communications (GSM), V5, Code Division Multiple Access (CDMA), Integrated
Services Digital Network (ISDN) and Frame Relay. The Company's extensive
technical know-how and proprietary software development tools enable the Company
to implement new protocols and protocol variants rapidly in response to customer
needs. With its extensive library of software protocol modules, large selection
of physical interfaces and versatile platform, the DCT system is easily
configured to support a wide variety of digital testing functions, thereby
reducing a customer's need for multiple test systems. In addition, the DCT
system's multi-protocol, multi-user capability allows multiple testing
operations to be performed simultaneously, which can accelerate product
development cycles of the Company's customers.
The Company's objective is to become the leading supplier of advanced
software-based test systems for the global telecommunications industry. The
Company's strategy is to expand its direct sales and technical support presence
worldwide to increase market penetration, continue to support new and complex
protocols and variants, broaden the market for the DCT system by enhancing ease
of use through a graphical user interface and development of pre-programmed
applications, leverage its installed base of customers to gain access to
additional customers and pursue strategic acquisitions as appropriate
opportunities are identified.
The Company was incorporated in California in October 1985 and intends to
reincorporate in Nevada prior to the effective date of this offering. The
Company's principal executive offices are located at 160 South Whisman Road,
Mountain View, California 94041. Its telephone number is (650) 960-1025.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............ shares
Common Stock offered by the Selling shares
Stockholders.................................
Common Stock to be outstanding after the shares (1)
offering.....................................
Use of proceeds................................ For working capital and general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol......... CATT
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED SEPTEMBER 30, ENDED MARCH 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME DATA:
Total revenues....................... $ 2,307 $ 3,816 $ 6,869 $ 9,252 $ 13,352 $ 7,644 $ 8,459
Gross profit......................... 1,904 3,000 5,933 7,903 11,432 6,573 7,431
Operating income..................... 710 1,407 3,047 3,730 5,400 3,678 4,252
Net income........................... $ 485 $ 975 $ 2,172 $ 2,288 $ 3,338 $ 2,137 $ 2,492
Earnings per share--diluted (2)...... $ 0.05 $ 0.10 $ 0.22 $ 0.22 $ 0.31 $ 0.20 $ 0.23
Weighted average shares-- diluted.... 9,569 9,701 10,058 10,301 10,605 10,500 10,867
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------
AS
ACTUAL ADJUSTED(3)
--------- -------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ 12,581 $
Working capital..................................................................... 12,303
Total assets........................................................................ 18,074
Total stockholders' equity.......................................................... 12,890
</TABLE>
- ------------------------
(1) Based on the number of shares outstanding at June 11, 1998. Excludes, as of
June 11, 1998, 756,849 shares of Common Stock issuable upon exercise of
outstanding options at a weighted average exercise price of $0.98 per share
and an aggregate of 2,873,578 shares reserved for issuance under the
Company's 1989 Stock Option Plan, UK Executive Share Option Scheme, 1998
Stock Plan and 1998 Employee Stock Purchase Plan (the "Stock Plans"). See
"Management--Stock Plans," "Description of Capital Stock" and Note 4 of
Notes to Consolidated Financial Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements for the method used
to calculate earnings per share.
(3) Adjusted to reflect the sale of shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $ per share
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
------------------------
UNLESS THE CONTEXT OTHERWISE INDICATES, ALL REFERENCES TO THE "COMPANY" AND
"CATAPULT" MEAN CATAPULT COMMUNICATIONS CORPORATION AND ITS SUBSIDIARIES,
CATAPULT COMMUNICATIONS LTD., A U.K. COMPANY, CATAPULT COMMUNICATIONS K.K., A
CORPORATION ORGANIZED UNDER THE LAWS OF JAPAN, AND ISDN TECHNOLOGIES, LTD., A
FOREIGN SALES CORPORATION ORGANIZED UNDER THE LAWS OF BARBADOS. EXCEPT AS
OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS (I) GIVES EFFECT TO THE
ANTICIPATED REINCORPORATION OF THE COMPANY FROM CALIFORNIA INTO NEVADA PRIOR TO
THIS OFFERING IN WHICH STOCKHOLDERS OF THE CALIFORNIA CORPORATION WILL RECEIVE
THREE SHARES OF STOCK OF THE NEVADA CORPORATION FOR EVERY TWO SHARES OF STOCK OF
THE CALIFORNIA CORPORATION AND (II) ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION. SEE "UNDERWRITING."
4
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE
SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING RISK FACTORS
SHOULD BE CONSIDERED CAREFULLY IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; LENGTHY SALES CYCLE. The
Company has experienced, and anticipates that it will continue to experience,
significant fluctuations in quarterly revenues and operating results. The
Company's revenues and operating results are relatively difficult to forecast
for a number of reasons, including (i) the variable size and timing of
individual purchases by customers, (ii) seasonal factors that may affect capital
spending by customers, such as the varying fiscal year ends of customers and the
reduction in business during the summer months, particularly in Europe, (iii)
the relatively long sales cycles for the Company's products, (iv) the timing of
hiring sales and technical personnel, (v) changes in timing and amount of sales
incentive compensation, (vi) competitive conditions in the Company's markets,
(vii) exchange rate fluctuations, (viii) changes in the mix of products sold,
(ix) the timing of the introduction and market acceptance of new products or
product enhancements by the Company, its customers, competitors or suppliers,
(x) costs associated with developing and introducing new products, (xi) product
life cycles, (xii) changes in the level of operating expenses relative to
revenues, (xiii) software defects and other product quality problems, (xiv)
customer order deferrals in anticipation of new products, (xv) supply
interruptions, (xvi) changes in the regulatory environment and (xvii) changes in
global or regional economic conditions or in the telecommunications industry.
The Company's revenues in any period generally have been, and are likely to
continue to be, derived from relatively small numbers of sales and service
transactions with relatively high average revenues per order. Therefore, the
loss of any orders or delays in closing such transactions could have a more
significant impact on the Company's quarterly revenues and results of operations
than on those of companies with relatively high volumes of sales or low revenues
per order. The Company's products generally are shipped within 15 to 30 days
after orders are received and revenues are recognized upon shipment of the
products, provided no significant vendor obligations remain and collection of
the related receivable is deemed probable. As a result, the Company generally
does not have a significant backlog of orders, and revenues in any quarter are
substantially dependent on orders booked and shipped in that quarter.
A customer's decision to purchase the Company's products typically involves
a significant technical evaluation, internal procedural delays associated with
large capital expenditure approvals and testing and acceptance of new systems
that affect key operations. For these and other reasons, the sales cycle
associated with the Company's products is typically lengthy and subject to a
number of significant risks over which the Company has little or no control.
Historically, the period between initial customer contact and purchase of the
Company's products has typically ranged from two to nine months, with sales to
new customers (including new divisions within existing customers) at the longer
end of this range. Because of the lengthy sales cycle and the relatively small
number and large size of customers' orders, if revenues forecast from a specific
customer for a particular quarter are not realized in that quarter, the
Company's operating results for that quarter could be materially adversely
affected.
The Company's expectations for future revenues are predicated, to a large
extent, on the recruitment and hiring of a significant number of employees,
particularly experienced sales and technical personnel. Failure to hire, or
delays in hiring, sufficient sales and technical personnel could have a material
adverse effect on the Company's results of operations for any period.
Due to the relatively fixed nature of most of the Company's costs, including
personnel and facilities costs, and because operating expenses are based on
anticipated revenue, a decline in revenue from even a limited number of
transactions, failure to achieve expected revenue in any fiscal quarter or
unanticipated variations in the timing of recognition of specific revenues can
cause significant variations in operating results from quarter to quarter and
may in some future quarter result in losses or have a material adverse effect on
the Company's
5
<PAGE>
business, financial condition and results of operations. The Company believes,
therefore, that period-to-period comparisons of its operating results should not
be relied upon as an indication of future performance.
For all of the foregoing factors, as well as other unanticipated factors, it
is possible that in some future quarter the Company's results of operations
could fail to meet the expectations of public market analysts or investors. In
such event, or in the event that adverse conditions prevail or are perceived to
prevail generally or with respect to the Company's business, the price of the
Company's Common Stock will likely be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON LIMITED NUMBER OF CUSTOMERS. The Company's customer base is
highly concentrated, and a relatively small number of companies has accounted
for substantially all of the Company's revenues to date. Revenues from the top
four customers represented approximately 75%, 54% and 60% of total revenues in
fiscal 1995, 1996 and 1997, respectively. The Company's largest customer over
this period has been Motorola, which accounted for approximately 37%, 23% and
28% of total revenues in fiscal 1995, 1996 and 1997, respectively. In the six
months ended March 31, 1998, the Company's top four customers represented
approximately 66% of total revenues. These customers, NTT, Motorola, Lucent and
NEC, accounted for approximately 26%, 18%, 13% and 10% of total revenues,
respectively, in that period. The Company's top four customers in fiscal 1997
were Motorola, NEC, NTT and Fujitsu, which accounted for approximately 28%, 17%,
7% and 7% of total revenues, respectively. The Company expects that it will
continue to depend upon a relatively limited number of customers for
substantially all of its revenues in future periods, although no customer is
presently obligated either to purchase a specific amount of products or to
provide the Company with binding forecasts of purchases for any period. The loss
of a major customer or the reduction, delay or cancellation of orders from one
or more of the Company's significant customers could materially adversely affect
the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Customers."
COMPETITIVE MARKET FOR TECHNICAL AND SALES PERSONNEL. The Company's success
depends in part on its ability to attract, hire, train, retain and motivate
qualified technical and sales personnel with appropriate levels of managerial
and technical capabilities. The Company believes that a significant level of
expertise is required to develop and market the Company's products and services
effectively. The Company has in the past experienced, and expects to continue to
experience, difficulty in recruiting qualified technical and sales personnel.
The Company believes that the pool of potential applicants with the requisite
expertise is very limited. Recruiting qualified personnel is an intensely
competitive and time-consuming process. The Company competes for such personnel
with a number of other companies, many of which have substantially greater
resources than the Company. Such competition has also resulted in demands for
increased compensation from qualified applicants, and the Company may not be
able to compete effectively for such personnel with companies that provide more
attractive compensation arrangements. Although the Company has not experienced
significant turnover of technical and sales personnel to date, due to the
intense level of competition for such personnel, the Company expects that it may
experience greater turnover in technical and sales personnel in the future.
There can be no assurance that the Company will be successful in attracting and
retaining the technical and sales personnel it requires to conduct and expand
its operations successfully on a timely basis. The failure to attract, hire,
train, retain and motivate qualified technical and sales personnel in the future
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Sales and Marketing."
RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS; FOREIGN EXCHANGE
RISK. International sales constituted approximately 54%, 55%, 53% and 66% of
the Company's total revenues in fiscal 1995, 1996 and 1997 and the six months
ended March 31, 1998, respectively. The Company expects that international sales
will continue to account for a significant portion of its revenues in future
periods. The Company sells its products worldwide through its direct sales
force. The Company has offices located in Ottawa, Canada, Chippenham, United
Kingdom and Tokyo, Japan and plans to open new offices in continental Europe.
International sales and operations are subject to inherent risks, including
difficulties in staffing and managing foreign operations, longer
6
<PAGE>
customer payment cycles, greater difficulty in accounts receivable collection,
changes in regulatory requirements or in economic or trade policy, costs related
to localizing products for foreign countries, potentially weaker protection for
intellectual property in certain foreign countries, the burden of complying with
a wide variety of foreign laws and practices, tariffs and other trade barriers,
and potentially adverse tax consequences, including restrictions on repatriation
of earnings. In particular, during the last two fiscal years a significant
portion of the Company's sales has been to customers in Japan. If economic
conditions in Japan continue to deteriorate to a significant extent, the
Company's business, financial condition and results of operations would be
materially adversely affected. In addition, the Company cannot predict the
potential consequences to the Company's business of the adoption of the Euro as
a common currency in Europe. An inability to obtain necessary regulatory
approvals in foreign markets on a timely basis could also have a material
adverse effect on the Company's business, financial condition and results of
operations.
Most of the Company's international sales, including its sales in Japan, are
denominated in local currencies, and currently the Company does not engage in
significant currency hedging activities. The Company may elect in the future to
engage in hedging transactions; however, there can be no assurance that the
Company will do so or that it will be successful in doing so. Fluctuations in
foreign currency exchange rates may contribute to fluctuations in the Company's
operating results. For example, changes in foreign currency exchange rates could
adversely affect revenues, net income, earnings per share and cash flow of the
Company's operations in the affected markets. Similarly, such fluctuations may
cause the Company to raise prices, which could affect demand for the Company's
products and services. In addition, if exchange or price controls or other
restrictions are imposed in countries in which the Company does business, the
Company's business, financial condition and results of operations would be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation--Overview."
MANAGEMENT OF GROWTH. The Company's growth has placed, and is expected to
continue to place, significant demands on its management, administrative and
operational resources. During the first seven months of fiscal 1998, the
Company's employee base has grown by approximately 34%. To manage expansion
effectively, the Company needs to continue to develop and improve its
operational and financial systems, sales and marketing capabilities, and expand,
train, retain, manage and motivate its employee base. Some of the Company's
senior management have not previously managed a business of the Company's size,
and these individuals have limited or no experience managing a public company.
There can be no assurance that the Company's systems, procedures or controls
will be adequate to support the Company's operations or that the Company's
management will be able to exploit successfully future market opportunities or
successfully manage the Company's relationships with customers and other third
parties. There can be no assurance that the Company will continue to grow or, if
it does, that the Company will effectively manage such growth. Any failure to
manage growth would have a material adverse effect on the Company's business,
financial condition and results of operations.
DEPENDENCE ON CUSTOMER OUTSOURCING OF TEST SYSTEMS. The Company's success
will depend on continued growth in the market for telecommunications test
systems and services and the continued commercial acceptance of the Company's
products as a solution to address the testing requirements of telecommunications
equipment manufacturers and network operators. While most of the Company's
existing and potential customers have the technical capability and financial
resources to produce their own test systems and perform test services
internally, to date, many have chosen to outsource a substantial proportion of
their test system and service requirements. There can be no assurance that the
Company's customers will continue, or that new customers will choose, to
outsource any of their test systems and service requirements or that the
Company's products and services will be widely adopted. If the market for
telecommunications test systems and services, or the demand for outsourcing,
declines or fails to grow, or if the Company's products and services are not
widely adopted as a telecommunications test solution, the Company's business,
financial condition and results of operations would be materially adversely
affected. See "Business--Industry Background."
COMPETITION. The market for telecommunications test systems is
characterized by intense competition. The Company believes that its ability to
compete successfully depends on several factors, both within and
7
<PAGE>
outside its control, including availability of a broad range of protocols and
variants, system performance, length of operating history and industry
experience, product reliability, ease of use, quality of service and support,
status as an independent vendor and price. In addition, the Company believes
that potential customers consider other factors, such as whether the test system
vendor sells competing telecommunications equipment.
The Company believes its principal competitors are Able Communications Inc.
("Able"), Hewlett-Packard Company ("HP"), IFR Systems Inc. ("IFR"), INET, Inc.
("INET"), Schlumberger, Ltd. ("Schlumberger"), Tekelec, Tektronix Inc.
("Tektronix") and Wavetek Corporation ("Wavetek"). Many of the Company's
existing and potential competitors are large domestic and international
companies that have substantially greater financial, manufacturing,
technological, marketing, sales, distribution and other resources, larger
installed customer bases, greater name recognition and longer-standing customer
relationships than the Company. Accordingly, such competitors or potential
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements or to devote greater resources to the
development, promotion and sales of their products than the Company.
The Company also competes with internal test system groups of its customers
and potential customers. Many of the Company's existing and potential customers
have the technical capability and financial resources to produce their own test
systems and perform test services internally. These systems and services would
be competitive with the test systems offered by the Company. There can be no
assurance that the Company's customers will continue, or that new customers will
choose, to outsource any of their test systems and service requirements or that
the Company's products and services will be widely adopted. If the market for
telecommunications test systems and services, or the demand for outsourcing,
declines or fails to grow, or if the Company's products and services are not
widely adopted as a telecommunications test solution, the Company's business,
financial condition and results of operations would be materially adversely
affected.
The Company expects competition to increase in the future from existing
competitors and from other companies that may enter this market with solutions
that may be less costly or provide higher performance or offer more features
than the Company's solutions. Current and potential competitors have established
or may establish cooperative relationships among themselves or with third
parties to develop new test solutions for internal use or for sale to third
parties in the Company's markets. Accordingly, it is possible that new
competitors may emerge and acquire significant market share. Increased
competition may result in price reductions, reduced gross margins and loss of
market share, any of which would have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Competition."
DEPENDENCE ON RAPIDLY EVOLVING TELECOMMUNICATIONS INDUSTRY. The Company's
future success is dependent upon the continued growth of the telecommunications
industry. The global telecommunications industry is evolving rapidly, and it is
difficult to predict its potential growth rate or future trends in technology
development. There can be no assurance that the deregulation, privatization and
economic globalization of the worldwide telecommunications market that has
resulted in increased competition and escalating demand for new technologies and
services will continue in a manner favorable to the Company or its business
strategies. In addition, there can be no assurance that the growth in demand for
Internet services and the resulting need for high speed or enhanced
telecommunications equipment will continue at its current rate or at all.
While the Company's operations are not directly regulated, the Company's
existing and potential customers are subject to a variety of United States and
foreign governmental regulations. Such regulations may adversely affect the
telecommunications industry, limit the number of potential customers for the
Company's products and services or otherwise have a material adverse effect on
the Company's business, financial condition and results of operations. Recently
enacted legislation deregulating the telecommunications industry, including the
Telecommunications Act of 1996 (the "Telecommunications Act"), has caused
significant changes in the telecommunications industry, including the entrance
of new competitors and possible industry consolidation, which could in turn
affect demand for the Company's telecommunications test solutions or otherwise
have a material adverse effect on the Company's business, financial condition
and results of operations. Currently, the Federal Communications Commission
("FCC") and state authorities are implementing the provisions of the
Telecommunications Act, and several of the decisions by the FCC and state
authorities are being challenged in court. Therefore, the Company cannot at this
time predict the extent to which such legislation and related
8
<PAGE>
litigation will affect the Company's current and potential customers or
ultimately affect the Company's business, financial condition and results of
operations. See "Business--Industry Background."
The Company's future success is dependent upon the increased utilization of
its test solutions by network operators and telecommunications equipment
manufacturers. Industry-wide network equipment and infrastructure development
driving the demand for the Company's products and services may be delayed or
prevented by a variety of factors, including cost, regulatory obstacles or the
lack of or reduction in consumer demand for advanced telecommunications products
and services. There can be no assurance that telecommunications equipment
manufacturers and network operators will develop new technology or enhance
current technology or, if developed, that such new technology or enhancements
will create demand for the Company's products or services. See
"Business--Industry Background."
DEPENDENCE ON KEY PERSONNEL. The Company's future growth and success depend
to a significant extent upon the continuing services of its executive officers
and other key employees. The Company does not have long-term employment
agreements or non-competition agreements with any of its employees. Competition
for qualified management and other high-level telecommunications industry
personnel is intense, and there can be no assurance that the Company will be
successful in attracting and retaining such personnel. The loss of services of
any key employees would have a material adverse effect on the Company's
business, financial condition and results of operations. The Company maintains
and is the beneficiary under a key person life insurance policy in the amount of
$2 million with respect to Dr. Richard A. Karp, the Company's President, Chief
Executive Officer and Chairman of the Board. See "Management."
RAPID TECHNOLOGICAL CHANGE; UNCERTAINTY OF ACCEPTANCE OF THE COMPANY'S
PRODUCTS AND SERVICES. The market for telecommunications test systems and
services is subject to rapid technological change, evolving industry standards,
rapid changes in customer requirements and frequent product and service
introductions and enhancements. The Company's future success will depend in part
on its ability to anticipate and respond to these changes by enhancing its
existing products and services and by developing and introducing, on a timely
and cost-effective basis, new products, features and services that address the
needs of its customer base. There can be no assurance that the Company will be
successful in identifying, developing and marketing new products, product
enhancements and related services that respond to technological change or
evolving industry standards or that adequately meet new market demands. In
addition, because of the rapid technological change characteristic of the
telecommunications industry, the Company may be required to support legacy
systems used by its customers, which may place additional demands on the
Company's personnel and other resources and may require the Company to maintain
an inventory of otherwise obsolete components.
The Company's test systems currently operate only on the UNIX operating
system. The Company's current and prospective customers may require other
operating systems to be used in their telecommunications test systems, such as
Windows 95, Windows NT or Windows 98 or may require the integration of other
industry standards. There can be no assurance that the Company would be able to
successfully adapt its products to such operating systems on a timely or
cost-effective basis, if at all. The failure of the Company to respond to
rapidly changing technologies and to develop and introduce new products and
services in a timely manner would have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's success will depend in part on whether a large number of
telecommunications equipment manufacturers and network operators purchase the
Company's products and services. Because the telecommunications market is
rapidly evolving, it is difficult to predict the future success of products and
services in this market. The customers in this market use products from a number
of competing suppliers for various testing purposes, and there has not been
broad adoption of the products of one company. There can be no assurance that
the Company's current or future products or services will achieve widespread
acceptance among network operators, telecommunications equipment manufacturers
or other potential customers or that solutions developed by competitors will not
render the Company's products obsolete or uncompetitive. In the event the
telecommunications industry does not broadly adopt the Company's products or
services or does so less rapidly than expected by the Company, or in the event
the Company's products are rendered obsolete or uncompetitive
9
<PAGE>
by more advanced solutions, the Company's business, financial condition and
results of operations would be materially adversely affected. See
"Business--Competition."
DEPENDENCE ON SOLE AND SINGLE SOURCE SUPPLIERS. The Company purchases many
key components, including certain microprocessors, workstations, bus interface
and other chips, connectors and other hardware, from the sole supplier of a
particular component. For other components, even though multiple vendors may
exist, the Company may purchase components from only a single source. The
Company does not have any long-term supply agreements with these vendors to
ensure uninterrupted supply of these components. An inability to develop
alternative sources for these components or to obtain sufficient quantities of
them could result in delays or reductions in product shipments. In the event of
reduction or an interruption in the supply of a key component, a significant
amount of time could be required to qualify alternative suppliers and receive an
adequate flow of replacement components. Reconfiguration of the Company's
products to adapt to new components may also be required and could entail
substantial time and expense. In either event, the Company's business, financial
condition and results of operations would be materially adversely affected. In
addition, the process of manufacturing certain of these components is extremely
complex, and the Company's reliance on the suppliers of these components exposes
the Company to potential production difficulties and quality variations, which
could negatively affect cost and timely delivery of the Company's products. The
Company has from time to time in the past experienced supply problems as a
result of financial or operational difficulties of its suppliers,
discontinuations resulting from component obsolescence or other shortages or
allocations of supplies. For example, the supplier for the Company's portable
workstation has recently advised the Company that it plans to discontinue
manufacturing this product in the near future. While the Company intends to seek
an alternative workstation for the portable DCT system, it may be unable to
provide portable systems until an alternative supplier is qualified. To date,
sales of the portable DCT system have not accounted for a significant portion of
the Company's revenues. Although the Company, to date, has not experienced
material delays in product deliveries to its customers resulting from such
supply problems, there can be no assurance that supply problems will not recur
or, if such problems do recur, that satisfactory solutions would be found. Any
prolonged inability to obtain adequate amounts of fully functional components or
any other circumstances that would require the Company to seek alternative
sources of supply could have a material adverse effect on the Company's
relationship with its customers as well as on its business, financial condition
and results of operations. See "Business--The Catapult DCT System" and
"--Manufacturing."
DEPENDENCE ON THIRD-PARTY MANUFACTURERS. The Company relies on a limited
number of independent manufacturers, some of which are small, privately held
companies, to provide certain assembly services to the Company's specifications.
The Company does not have any long-term supply agreements with any third-party
manufacturer. In the event that the Company's subcontractors were to experience
financial, operational, production or quality assurance difficulties or allocate
production resources to others in lieu of the Company or experience a
catastrophic event that resulted in a reduction or interruption in assembly
services to the Company, the Company's business, financial condition and results
of operations would be materially adversely affected until the Company was able
to establish sufficient manufacturing supply from alternative sources. There can
be no assurance that alternative assembly services from alternative sources will
be able to meet the Company's future requirements or that existing or
alternative sources will continue to be available to the Company at favorable
prices. See "Business--Manufacturing."
RISK OF PRODUCT DEFECTS. Products as complex as that offered by the Company
may contain undetected errors or "bugs," particularly when first introduced or
when new versions are released. Although the Company conducts extensive testing,
the Company may discover errors only after a product has been installed and used
by customers, possibly resulting in a loss or delay in sales. Such errors or
"bugs" have been detected by the Company in the past both before and after
release of the Company's products. There can be no assurance that errors will
not be found in future releases of the Company's software or that any such
errors will not generate adverse publicity, impair the market acceptance of
these products, create customer concerns and adversely affect operating results
due to product returns, the costs of generating corrective releases or
otherwise. Difficulties encountered by customers with the installation and
implementation of new product releases or problems with the performance of the
Company's products, particularly in light of the rigorous standards of low-
10
<PAGE>
fault tolerance characteristic of the telecommunications industry, would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Product Development."
PRODUCT LIABILITY. The Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. However, it is possible that the limitation
of liability provisions contained in the Company's license agreements may not be
effective under the laws of certain jurisdictions, particularly since the
Company sells a majority of its products internationally. Although the Company
has not experienced any product liability claims to date, the sale and support
of products by the Company may entail the risk of such claims, and there can be
no assurance that the Company will not be subject to such claims in the future.
A successful product liability claim brought against the Company could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
PRODUCT CONCENTRATION. To date, substantially all of the Company's revenues
have been attributable to sales of the DCT family of products and related
services. The Company currently expects the DCT family of products and related
services to account for substantially all of its revenues for the foreseeable
future. As a result, factors adversely affecting the pricing of or demand for
DCT products, such as competition or technological change, could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's future financial performance will depend, in
significant part, on the successful development, introduction and customer
acceptance of new and enhanced versions of the DCT family of products. There can
be no assurance that the Company will continue to be successful in developing
and marketing the DCT family of products and related services.
CONTROL BY PRINCIPAL STOCKHOLDER. Upon completion of this offering, Richard
A. Karp will beneficially own shares or approximately % of the
Company's outstanding Common Stock ( % if the Underwriters' over-allotment
option is exercised in full), which will include shares beneficially
owned by Nancy H. Karp ( shares if the Underwriters' over-allotment option
is exercised in full). Dr. Karp will have voting control through a voting trust,
but not dispositive power, with respect to the shares beneficially owned by Ms.
Karp. As a result, upon completion of this offering, Dr. Karp will be able to
control matters requiring approval by the stockholders of the Company, including
the election of directors. Such a concentration of ownership may have the effect
of delaying or preventing a change in control of the Company. See "Principal and
Selling Stockholders" and "Certain Transactions."
LIMITED PROTECTION OF PROPRIETARY RIGHTS; ENFORCEMENT OF RIGHTS. The
Company's success and its ability to compete effectively is dependent in part
upon its proprietary technology. The Company relies on a combination of
trademark, copyright and trade secret laws, as well as nondisclosure agreements
and other contractual restrictions, to establish and protect its proprietary
rights. The Company generally enters into nondisclosure and invention assignment
agreements with its employees and consultants, and into nondisclosure agreements
with its customers and suppliers. The Company has not in the past and does not
expect in the future to rely on patent laws to protect its proprietary
technology. There can be no assurance that the measures the Company undertakes
will be adequate to protect its proprietary technology. Additionally, the
Company may be subject to further risks as it enters into transactions in
countries where intellectual property laws are unavailable, do not provide
adequate protection or are difficult to enforce. Despite the Company's efforts
to protect its proprietary rights, unauthorized parties may attempt to duplicate
aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. There can be no assurance that the steps taken
by the Company to protect its proprietary technology will be adequate to prevent
misappropriation of such technology or that they will preclude competitors from
independently developing products with functionality or features similar to the
Company's products. The failure of the Company to protect its proprietary
technology would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Intellectual
Property."
RISKS OF THIRD PARTY CLAIMS OF INFRINGEMENT. The telecommunications
industry is characterized by a relatively high level of litigation based on
allegations of infringement of proprietary rights. While to date, the Company
has not been subject to claims of infringement or misappropriation of
intellectual property of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company, that
11
<PAGE>
any such assertion of infringement will not result in litigation or that the
Company would prevail in such litigation. Furthermore, any such claims, with or
without merit, could result in substantial cost to the Company and diversion of
its personnel, require the Company to develop new technology, or require the
Company to enter into royalty or licensing arrangements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
the Company or at all. Because the Company does not rely on patents to protect
its technology, the Company will not be able to offer a license for patented
technology in connection with any settlement of patent infringement lawsuits. In
the event of a successful claim of infringement or misappropriation against the
Company and failure or inability of the Company to develop non-infringing
technology or license the infringed, misappropriated or similar technology at a
reasonable cost, the Company's business, financial condition and results of
operations would be materially adversely affected. In addition, the Company
indemnifies its customers against claimed infringement of patents, trademarks,
copyrights and other proprietary rights of third parties. Any requirement for
the Company to indemnify a customer could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Intellectual Property."
RISKS RELATING TO POTENTIAL ACQUISITIONS. As part of its business strategy,
the Company may make acquisitions of, or significant investments in, companies,
products or technologies that it believes are complementary, although no such
acquisitions or investments are currently pending. Any such future transactions
would be accompanied by the risks commonly encountered in making acquisitions of
companies, products and technologies. Such risks include, among others, the
difficulties associated with assimilating the personnel and operations of
acquired companies, the potential disruption of the Company's ongoing business,
the distraction of management and other resources, the integration of personnel
and technology of an acquired Company, difficulties in evaluating the technology
of a potential target, inability to motivate and retain new personnel, the
maintenance of uniform standards, controls, procedures and policies, and the
impairment of relationships with employees and clients as a result of the
integration of new management personnel. The Company has no experience in
assimilating acquired companies or product lines into its operations. There can
be no assurance that the Company will be successful in overcoming these risks or
any other problems encountered in connection with any such acquisitions.
Furthermore, future acquisitions by the Company could result in the issuance of
dilutive equity securities, the incurrence of debt or contingent liabilities or
amortization expenses related to goodwill and other intangible assets, any of
which could have a material adverse effect on the Company's business, financial
condition and results of operation or on the market price of the Company's
Common Stock. See "Use of Proceeds."
BENEFITS OF THIS OFFERING TO CURRENT STOCKHOLDERS. The completion of this
offering will provide significant benefits to the current stockholders of the
Company, including certain of the Company's directors and executive officers.
The Company will not receive any of the net proceeds from the sale of shares by
the Selling Stockholders, which will be approximately $ ($ if the
Underwriters' over-allotment option is exercised in full), based upon an assumed
initial public offering price of $ per share, after deducting estimated
underwriting discounts and commissions. The completion of this offering will
also create a public market for the Common Stock, which is likely to increase
the market value of the investment by the current stockholders in shares of the
Company. Upon the completion of the offering and after giving effect to the sale
of Common Stock by the Selling Stockholders, the present directors and executive
officers of the Company will beneficially own Common Stock of the Company having
an aggregate market value equal to approximately $ million, based upon an
assumed initial public offering price of $ per share. See "Principal and
Selling Stockholders."
IMPACT OF YEAR 2000. Many currently installed computer systems and software
products are coded to accept only two digit entries in the date code field.
These date code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, in less than two years,
computer systems and/ or software used by many companies may need to be upgraded
to comply with such "Year 2000" requirements. Currently, the Company believes
there are no material operational issues or costs associated with preparing its
internal systems for the Year 2000. There can be no assurance, however, that the
Company will not experience serious unanticipated negative consequences and/or
material costs caused by undetected errors or defects in the technology used in
its internal systems, which include third-party software and hardware
technology.
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<PAGE>
The Company generally represents to its customers that it has achieved Year
2000 compliance for its products and believes this to be the case. However,
there can be no assurance that the Company will not experience serious
unanticipated negative consequences and/or material costs caused by warranty
claims based upon undetected defects related to the Year 2000.
The Company's products may be integrated by the Company or its customers
with, or otherwise interact with, non-compliant software produced by other
companies, which may expose the Company to claims from its customers. The
foregoing could result in the loss of or delay in market acceptance of the
Company's products and services or increased service and warranty costs to the
Company, either of which would have a material adverse effect on the Company's
business, financial condition and results of operations.
BROAD MANAGEMENT DISCRETION OVER USE OF PROCEEDS. The principal purposes of
this offering are to obtain additional working capital, establish a public
market for the Company's Common Stock, facilitate future access to public
capital markets, provide liquidity to existing stockholders, provide increased
visibility and credibility, enhance the ability of the Company to acquire other
businesses or technologies and attract and retain key personnel. A significant
portion of the anticipated net proceeds to the Company from this offering has
not been designated for specific uses. Accordingly, management of the Company
will have broad discretion with respect to the use of these funds. See "Use of
Proceeds."
SHARES ELIGIBLE FOR FUTURE SALE; POTENTIAL ADVERSE EFFECT ON MARKET
PRICE. Sales of substantial numbers of shares of Common Stock in the public
market following this offering could adversely affect the market price for the
Common Stock. Upon completion of this offering, the Company will have an
aggregate of shares of Common Stock outstanding, assuming no exercise
of outstanding options. Of these shares, all of the shares sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act. The remaining shares outstanding upon completion
of this offering will be "restricted securities" as that term is defined in Rule
144 under the Securities Act (the "Restricted Shares"). Restricted Shares may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rules 144, 144(k) or 701 promulgated under the
Securities Act. Of these Restricted Shares, are subject to lock-up
agreements under which the holders have agreed not to offer, sell, contract to
sell, or otherwise dispose of any of their shares for a period of 180 days
following the offering, without the prior written consent of Hambrecht & Quist
LLC. All holders of options to purchase Common Stock of the Company (as of
, 1998) are also bound by lock-up agreements. Taking into account the
lock-up agreements, the number of shares that will be available for sale in the
public market under the provisions of Rules 144, 144(k) and 701, including
certain shares issuable upon exercise of options, will be as follows: (i)
approximately Restricted Shares will be eligible for sale immediately after
the effective date of the registration statement; (ii) approximately
additional Restricted Shares (plus shares of Common Stock issuable upon
exercise of outstanding options) will be eligible for sale upon expiration of
lock-up agreements 180 days after the date of this Prospectus, subject in some
cases to certain restrictions on such sales by "affiliates" of the Company, as
that term is defined under Rule 144, and vesting provisions; and (iii) the
remainder of the Restricted Shares will be eligible for sale following
expiration of the lock-up agreements at various times in the year following the
completion of this offering, subject in some cases to vesting restrictions and
the volume and manner of sale restrictions of Rule 144. See "Description of
Capital Stock" and "Shares Eligible for Future Sale." Except as described in
"Shares Eligible for Future Sale" and "Underwriting," Hambrecht & Quist LLC does
not have any agreements or understandings regarding the release of any
securities from the prohibitions on sales and other dispositions imposed by
these lock-up agreements. Hambrecht & Quist LLC, however, retains the right at
any time and without notice to release from the scope of the lock-up
restrictions all or any portion of the securities currently subject to such
restrictions. The release of any securities from such prohibitions and the
subsequent sale of such shares may have an adverse effect on the ability of the
Company to raise capital and could adversely affect the market price of the
Company's Common Stock. See "Shares Eligible for Future Sale" and
"Underwriting."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to this
offering, there has been no public market for the Company's Common Stock, and
there can be no assurance that an active public trading market for the Common
Stock will develop or be sustained after the offering. The initial public
offering price will be
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determined through negotiations between the Company, the Selling Stockholders
and the representatives of the Underwriters based upon several factors and is
not necessarily indicative of the market price at which the Common Stock of the
Company will trade after this offering. The market prices for securities of
technology companies have been highly volatile and the market has experienced
significant price and volume fluctuations that are unrelated to the operating
performance of particular companies. Announcements of technological innovations
or new products or service offerings by the Company or its competitors,
developments concerning proprietary rights, domestic or international regulatory
developments affecting the telecommunications industry, general market
conditions, any shortfall in revenues or earnings from expected levels or other
failures by the Company to meet expectations of securities analysts and other
factors may have a significant impact on the market price of the Common Stock.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have particularly affected the market prices
for the common stocks of emerging growth companies and that have often been
unrelated to the operating performance of such companies. These broad market
fluctuations may adversely affect the market price of the Company's Common
Stock. In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. There can be no assurance that such
litigation will not occur in the future with respect to the Company. Such
litigation could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect upon the
Company's business, financial condition and results of operations. See
"Underwriting."
ANTI-TAKEOVER EFFECT OF NEVADA LAW AND CHARTER AND BYLAW PROVISIONS;
AVAILABILITY OF PREFERRED STOCK FOR ISSUANCE. Nevada law and the Company's
Articles of Incorporation and Bylaws contain provisions that could discourage a
proxy contest or make more difficult the acquisition of a substantial block of
the Company's Common Stock. In addition, the Board of Directors is authorized to
issue, without stockholder approval, up to 5,000,000 shares of Preferred Stock
with voting, conversion and other rights and preferences that may be superior to
those of the Common Stock and that could adversely affect the voting power or
other rights of the holders of Common Stock. The issuance of Preferred Stock or
of rights to purchase Preferred Stock could be used to discourage an unsolicited
acquisition proposal. See "Description of Capital Stock--Preferred Stock" and
"--Nevada Anti-Takeover Statutes."
IMMEDIATE AND SUBSTANTIAL DILUTION. Investors purchasing shares of Common
Stock in this offering will incur immediate and substantial dilution in net
tangible book value of the Common Stock of $ per share. To the extent that
currently outstanding options to purchase the Company's Common Stock are
exercised, there will be further dilution. See "Dilution."
FORWARD-LOOKING STATEMENTS. This Prospectus contains forward-looking
statements, which may be deemed to include, but are not limited to, the
Company's business strategy, timing of and plans for the introduction of new
products, services and enhancements, plans for hiring additional personnel,
timing of and plans for opening new offices and the adequacy of anticipated
sources of cash, including the proceeds from this offering, to fund the
Company's operations through the next 18 months. Words such as "believes,"
"anticipates," "plans," "expects," "intends" and similar expressions are
intended to identify forward-looking statements, but are not the exclusive means
of identifying such statements. Actual results could differ materially from
those projected in any forward-looking statements for the reasons detailed in
other sections of this "Risk Factors" portion of the Prospectus, or elsewhere in
this Prospectus. The Company assumes no obligation to update any forward-looking
statement.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock offered hereby are estimated to be approximately $ , after deducting
underwriting discounts and commissions and estimated offering expenses. The
principal purposes of this offering are to obtain additional working capital, to
establish a public market for the Company's Common Stock, to facilitate future
access to public capital markets, to provide liquidity to existing stockholders,
to provide increased visibility and credibility, to enhance the ability of the
Company to acquire other businesses, products or technologies and to attract and
retain key personnel.
The net proceeds of this offering will be used for general corporate
purposes, including working capital. Pending such uses, the proceeds will be
invested in short-term, investment-grade, interest-bearing securities. A portion
of the proceeds may also be used to acquire or invest in complementary
businesses or products or to obtain the right to use complementary technologies.
While from time to time the Company evaluates potential acquisitions of such
businesses, products or technologies, there are no present understandings,
commitments or agreements with respect to any acquisition of other businesses,
products or technologies. The Company will not receive any of the proceeds from
the sale of Common Stock by the Selling Stockholders. See "Risk Factors-- Broad
Management Discretion over Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Principal and Selling Stockholders."
DIVIDEND POLICY
The Company has never paid or declared any cash dividends. It is the present
policy of the Company to retain earnings to finance its business and, therefore,
the Company has not paid any cash dividends on its Common Stock to date and does
not anticipate paying any dividends on its Common Stock in the foreseeable
future.
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CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
as of March 31, 1998 and (ii) the capitalization as adjusted to reflect the sale
by the Company of shares of Common Stock offered hereby at an assumed
initial public offering price of $ per share and the application of the
estimated net proceeds therefrom. This table should be read in conjunction with
the Consolidated Financial Statements and the Notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity:
Preferred Stock, $0.001 par value, 5,000,000 shares authorized;
none issued or outstanding (actual and as adjusted)................................. $ -- $ --
Common Stock, $0.001 par value, 40,000,000 shares authorized,
10,397,568 shares issued and outstanding (actual); shares
issued and outstanding (as adjusted)(1)............................................. 10
Additional paid-in capital............................................................ 1,020
Deferred compensation................................................................. (715)
Retained earnings..................................................................... 12,658
Cumulative translation adjustment..................................................... (83)
--------- -----------
Total stockholders' equity.......................................................... 12,890
--------- -----------
Total capitalization.............................................................. $ 12,890 $
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) Excludes 774,476 shares issuable upon exercise of outstanding options as of
March 31, 1998 at a weighted average exercise price of $0.79 per share, and
an aggregate of 339,328 shares reserved at that date for future issuance
under the Company's Stock Plans. Subsequent to March 31, 1998, the Board of
Directors and stockholders adopted the 1998 Stock Plan and 1998 Employee
Stock Purchase Plan and reserved 1,800,000 shares and 750,000 shares of
Common Stock, respectively, for issuance thereunder. See "Management-- Stock
Plans" and Note 4 of Notes to Consolidated Financial Statements.
16
<PAGE>
DILUTION
As of March 31, 1998, the Company had a net tangible book value of
approximately $12,890,000 or approximately $1.24 per share of Common Stock. Net
tangible book value per share represents the amount of total tangible assets
less total liabilities divided by the number of shares of Common Stock
outstanding. After giving effect to the receipt by the Company of the net
proceeds from the sale of shares of Common Stock offered by the Company
hereby at an assumed initial public offering price of $ per share, the pro
forma net tangible book value of the Company as of March 31, 1998 would have
been approximately $ or approximately $ per share. This represents an
immediate increase in net tangible book value per share of $ to existing
stockholders and an immediate dilution of $ per share to new investors. The
following table sets forth this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......................... $
Net tangible book value per share as of March 31, 1998................. $ 1.24
Increase per share attributable to new investors.......................
---------
Pro forma net tangible book value per share after the offering...........
---------
Dilution per share to new investors...................................... $
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1998,
the differences between existing stockholders and new investors with respect to
the number of shares of Common Stock purchased from the Company, the total
consideration paid and average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders(1)............................. 10,397,568 % $ 225,000 % $
New Investors(1).....................................
-- --
------------ ----------
Total........................................ 100% 100%
-- --
-- --
------------ ----------
------------ ----------
</TABLE>
The above calculations assume no exercise of stock options after March 31,
1998. As of March 31, 1998, there were options outstanding to purchase 774,476
shares of Common Stock under the Company's 1989 Stock Option Plan and the UK
Executive Share Option Scheme at a weighted average exercise price of $0.79 per
share and options to purchase 339,328 shares remained available for grant.
Subsequent to March 31, 1998, the Board of Directors granted options to purchase
an additional 15,750 shares of Common Stock with a weighted average exercise
price of $8.00 per share. Subsequent to March 31, 1998, the Board of Directors
and stockholders adopted the 1998 Stock Plan and 1998 Employee Stock Purchase
Plan and reserved 1,800,000 shares and 750,000 shares of Common Stock,
respectively, for issuance thereunder. To the extent outstanding options are
exercised, or shares reserved for future option grants are issued, there will be
further dilution to new investors. See "Management--Stock Plans," "Certain
Transactions" and Note 4 of Notes to Consolidated Financial Statements.
- ------------------------
(1) Sales by the Selling Stockholders in this offering will reduce the number of
shares held by existing stockholders to shares, or approximately % of
the total shares of Common Stock after the offering ( shares or
approximately % if the Underwriters over-allotment option is exercised in
full), and will increase the number of shares held by new investors to ,
or approximately % ( shares or approximately % if the Underwriters
over-allotment option is exercised in full) of the total shares of Common
Stock outstanding after the offering. See "Principal and Selling
Stockholders."
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data is qualified by reference to and
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus. The
consolidated statements of income for the fiscal years ended September 30, 1995,
1996 and 1997 and the consolidated balance sheets at September 30, 1996 and 1997
are derived from, and are qualified by reference to, the audited Consolidated
Financial Statements included elsewhere herein. The consolidated balance sheet
data at September 30, 1995 are derived from audited financial statements of the
Company not included herein. The consolidated statements of income for the
fiscal years ended September 30, 1993 and 1994 and the consolidated balance
sheet data at September 30, 1993 and 1994 are derived from unaudited financial
statements of the Company not included herein. The selected historical financial
data set forth below at March 31, 1998 and for the six-month periods ended March
31, 1997 and 1998 were derived from unaudited consolidated financial statements
of the Company included elsewhere in this Prospectus. In the opinion of
management, the unaudited consolidated financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations for these
periods. The results for an interim period are not necessarily indicative of the
results to be expected for the full fiscal year.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED MARCH 31,
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME DATA:
Revenues:
Product sales..................................... $ 1,801 $ 3,147 $ 5,857 $ 7,690 $ 11,519 $ 6,717 $ 7,293
Services.......................................... 506 669 1,012 1,562 1,833 927 1,166
--------- --------- --------- --------- --------- --------- ---------
Total revenues.................................. 2,307 3,816 6,869 9,252 13,352 7,644 8,459
--------- --------- --------- --------- --------- --------- ---------
Cost of revenues:
Product sales..................................... 306 674 804 1,103 1,576 902 689
Services.......................................... 97 142 132 246 344 169 339
--------- --------- --------- --------- --------- --------- ---------
Total cost of revenues.......................... 403 816 936 1,349 1,920 1,071 1,028
--------- --------- --------- --------- --------- --------- ---------
Gross profit........................................ 1,904 3,000 5,933 7,903 11,432 6,573 7,431
--------- --------- --------- --------- --------- --------- ---------
Operating expenses:
Research and development.......................... 384 504 697 908 1,419 683 885
Sales and marketing............................... 466 719 1,300 1,881 2,550 1,207 1,247
General and administrative........................ 344 370 889 1,384 2,063 1,005 1,047
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses........................ 1,194 1,593 2,886 4,173 6,032 2,895 3,179
--------- --------- --------- --------- --------- --------- ---------
Operating income.................................... 710 1,407 3,047 3,730 5,400 3,678 4,252
Interest income..................................... 29 85 224 269 380 169 249
Other income (expense).............................. (10) 5 126 (209) (6) (150) (137)
--------- --------- --------- --------- --------- --------- ---------
Income before taxes................................. 729 1,497 3,397 3,790 5,774 3,697 4,364
Provision for taxes................................. 244 522 1,225 1,502 2,436 1,560 1,872
--------- --------- --------- --------- --------- --------- ---------
Net income.......................................... $ 485 $ 975 $ 2,172 $ 2,288 $ 3,338 $ 2,137 $ 2,492
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings per share(1):
Basic............................................. $ 0.05 $ 0.10 $ 0.23 $ 0.24 $ 0.35 $ 0.22 $ 0.24
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Diluted........................................... $ 0.05 $ 0.10 $ 0.22 $ 0.22 $ 0.31 $ 0.20 $ 0.23
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average shares:
Basic............................................. 9,569 9,569 9,581 9,621 9,630 9,630 10,280
Diluted........................................... 9,569 9,701 10,058 10,301 10,605 10,500 10,867
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 1,413 $ 2,903 $ 5,438 $ 7,171 $ 10,672 $ 12,581
Working capital......................................... 1,293 2,238 4,260 6,496 9,698 12,303
Total assets............................................ 1,445 3,289 6,760 9,542 14,035 18,074
Total stockholders' equity.............................. 1,414 2,398 4,557 6,832 10,170 12,890
</TABLE>
- ------------------------------
(1) See Note 1 of Notes to Consolidated Financial Statements for the method used
to calculate earnings per share.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED CONSOLIDATED FINANCIAL DATA" AND THE COMPANY'S CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. THE
FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, INCLUDING WITHOUT LIMITATION, STATEMENTS OF THE COMPANY'S PLANS,
OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS
PROSPECTUS SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING
STATEMENTS WHEREVER THEY MAY APPEAR IN THIS PROSPECTUS. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED OR IMPLIED BY THE
FORWARD-LOOKING STATEMENTS DISCUSSED HERE. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES ARE DISCUSSED IN "RISK FACTORS," AS WELL AS
ELSEWHERE HEREIN.
OVERVIEW
Catapult Communications Corporation ("Catapult" or the "Company") designs,
develops, manufactures, markets and supports an advanced software-based digital
telecommunications test system offering an integrated suite of testing
applications for equipment manufacturers and network operators. The Company
introduced the Digital Communications Tester (the "DCT") in 1985. Catapult
maintains an extensive library of software modules that support more than 100
variants of approximately 30 protocols. The DCT system performs simulation, load
and stress testing, feature verification, conformance testing and monitoring.
The DCT system consists of advanced software and hardware running on a
third-party UNIX-based workstation. In addition, the Company offers customer
support under software support contracts, as well as installation and training.
The Company's revenues are derived from product sales, which include both
licenses of the DCT system software and sales of hardware, and from services,
which includes customer support under software support contracts, as well as
installation and training. Prices for the DCT system depend upon the number and
type of software protocol modules, the number of physical interfaces required by
the customer and the overall system configuration. A DCT system sale typically
ranges in price from approximately $100,000 to $175,000 and has been as high as
$1 million. In addition to the initial system purchase, customers also may
upgrade their systems by purchasing additional software protocol modules and
physical interfaces. Customers have the option to purchase a third-party
workstation from Catapult or provide a workstation to the Company for
configuration. Revenues from product sales are recognized upon shipment to the
customer, provided that no significant obligations on the part of the Company
remain and collection is considered probable.
The Company offers product warranties for various lengths of time, depending
on the product and country of purchase or operation. Customers may elect to
purchase an annual software support contract, which includes both ongoing
technical support and any new software releases made available during the term
of the support contract. These software releases include protocol variants for
protocols already purchased by the customer. Revenues from software support
contracts are recognized ratably over the contract period, which is generally
one year. New customers typically purchase onsite installation and training,
which are charged on a fixed-price basis and recognized as the services are
performed.
The Company derives a majority of its total revenues from international
customers. These revenues constituted approximately 54%, 55%, 53% and 66% of
total revenues for fiscal 1995, 1996 and 1997 and the six months ended March 31,
1998, respectively. The Company expects that international sales will continue
to account for a significant portion of its revenues in future periods. Most of
the Company's international sales, including its sales in Japan, are denominated
in local currencies, and currently the Company does not engage in significant
currency hedging activities. The Company may elect in the future to engage in
hedging transactions; however, there can be no assurance that the Company will
do so or that it will be successful in doing so. Fluctuations in foreign
currency exchange rates may contribute to fluctuations in the Company's
operating results. For example, changes in foreign currency exchange rates could
adversely affect the Company's revenues, net income, earnings per share and cash
flow from operations. Similarly, such fluctuations may cause the Company to
raise prices, which could affect demand for the Company's products and services.
International sales are also subject to a number of inherent risks, such as
longer customer payment cycles, greater difficulty in
19
<PAGE>
accounts receivable collection, tariffs and other trade barriers. In addition,
if exchange or price controls or other restrictions are imposed in countries in
which the Company does business, the Company's business, financial condition and
results of operations would be materially adversely affected. See "Risk
Factors--Risk Associated with International Sales and Operations; Foreign
Exchange Risk."
Revenues from the Company's top four customers represented approximately
75%, 54% and 60% of total revenues in fiscal 1995, 1996 and 1997, respectively.
The Company's largest customer over this period has been Motorola, which
accounted for approximately 37%, 23% and 28% of total revenues in fiscal 1995,
1996 and 1997, respectively. In the six months ended March 31, 1998, the
Company's top four customers represented approximately 66% of total revenues.
These customers, NTT, Motorola, Lucent and NEC, accounted for approximately 26%,
18%, 13% and 10% of total revenues, respectively, in that period. The Company's
four largest customers in fiscal 1997 were Motorola, NEC, NTT and Fujitsu, which
accounted for approximately 28%, 17%, 7% and 7% of total revenues, respectively.
Separate engineering groups of the same customer at different locations
generally make independent decisions to purchase the Company's products. The
Company expects that it will continue to depend upon a relatively limited number
of customers for substantially all of its revenues in future periods, although
no customer is presently obligated either to purchase a specific amount of
products or to provide the Company with binding forecasts of purchases for any
period. The loss of a major customer or the reduction, delay or cancellation of
orders from one or more of the Company's significant customers could materially
adversely affect the Company's business, financial condition and results of
operations. See "Risk Factors-- Dependence on Limited Number of Customers."
20
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship of certain items from the Company's consolidated statements of
income to total revenues.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
-----------------------------------------------------
SIX MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30,
MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales....................................................... 85.3% 83.1% 86.3% 87.9% 86.2%
Services............................................................ 14.7 16.9 13.7 12.1 13.8
--------- --------- --------- --------- ---------
Total revenues.................................................... 100.0 100.0 100.0 100.0 100.0
--------- --------- --------- --------- ---------
Cost of revenues:
Product sales....................................................... 11.7 11.9 11.8 11.8 8.2
Services............................................................ 1.9 2.7 2.6 2.2 4.0
--------- --------- --------- --------- ---------
Total cost of revenues............................................ 13.6 14.6 14.4 14.0 12.2
--------- --------- --------- --------- ---------
Gross profit.......................................................... 86.4 85.4 85.6 86.0 87.8
--------- --------- --------- --------- ---------
Operating expenses:
Research and development............................................ 10.2 9.8 10.6 8.9 10.5
Sales and marketing................................................. 18.9 20.3 19.1 15.8 14.7
General and administrative.......................................... 12.9 15.0 15.5 13.2 12.4
--------- --------- --------- --------- ---------
Total operating expenses.......................................... 42.0 45.1 45.2 37.9 37.6
--------- --------- --------- --------- ---------
Operating income...................................................... 44.4 40.3 40.4 48.1 50.2
Interest income....................................................... 3.3 2.9 2.8 2.2 3.0
Other income (expense)................................................ 1.8 (2.3) -- (1.9) (1.6)
--------- --------- --------- --------- ---------
Income before taxes................................................... 49.5 40.9 43.2 48.4 51.6
Provision for taxes................................................... 17.9 16.2 18.2 20.4 22.1
--------- --------- --------- --------- ---------
Net income............................................................ 31.6% 24.7% 25.0% 28.0% 29.5%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Gross margin on product sales......................................... 86.3% 85.7% 86.3% 86.6% 90.6%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Gross margin on services.............................................. 87.0% 84.3% 81.2% 81.8% 70.9%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
SIX MONTHS ENDED MARCH 31, 1997 AND 1998
REVENUES. Revenues increased by approximately 11% from $7.6 million for the
six months ended March 31, 1997 to $8.5 million for the six months ended March
31, 1998. Over the same period, product sales increased by approximately 9% from
$6.7 million to $7.3 million, and services revenue increased by approximately
26% from $927,000 to $1.2 million. The increase in product sales was primarily
attributable to increased system sales to customers in Japan as well as
increased sales of the Company's Modular Physical Interface ("MPI") cards. The
increase in services revenue was primarily due to sales of software support
contracts associated with new system sales as well as contract renewals.
Services revenue is dependent in part on the amount of sales to Japan, where the
Company has historically received proportionately lower services revenue than in
other countries.
COST OF REVENUES. Cost of product sales consists of the costs of board
assembly by independent contractors, purchased components, payroll and benefits
for personnel in product testing, purchasing, shipping and inventory management,
as well as supplies, media and freight. Cost of services consists primarily of
the costs of payroll and benefits for customer support personnel, installation
and training. Cost of product sales decreased by
21
<PAGE>
approximately 24% from $902,000 for the six months ended March 31, 1997 to
$689,000 for the six months ended March 31, 1998. Gross margin on product sales
increased from 86.6% for the six months ended March 31, 1997 to 90.6% for the
six months ended March 31, 1998 as the Company's hardware sales in the first six
months of 1998 included a greater proportion of higher margin products. Cost of
services increased by approximately 100% from $169,000 for the six months ended
March 31, 1997 to $339,000 for the six months ended March 31, 1998. Gross margin
on services decreased from 81.8% for the six months ended March 31, 1997 to
70.9% for the six months ended March 31, 1998 as the Company added support
personnel in anticipation of increased sales. Gross margin on services is
dependent in part on the amount of sales to Japan, where the Company has
historically generated lower margins on services revenue.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of the costs of payroll and benefits for engineers, equipment and
consulting services. The Company's policy is to evaluate software development
projects for technological feasibility to determine if they meet capitalization
requirements. To date, all software development costs have been expensed as
research and development expenses as incurred. Research and development expenses
increased by approximately 30% from $683,000 for the six months ended March 31,
1997 to $885,000 for the six months ended March 31, 1998. As a percentage of
total revenues, research and development expenses increased from 8.9% to 10.5%
over the same period. These increases were due primarily to an increase in
engineering personnel. The Company expects that research and development
expenses will increase in absolute dollars for the foreseeable future as the
Company intends to continue to invest in product development.
SALES AND MARKETING. Sales and marketing expenses consist primarily of the
costs of payroll, benefits, commissions and bonuses, and travel and promotional
expenses, such as brochures and trade shows. Sales and marketing expenses
remained relatively constant at $1.2 million for the six months ended March 31,
1997 and the six months ended March 31, 1998. As a percentage of total revenues,
sales and marketing expenses decreased slightly from 15.8% to 14.7% over the
same period. The Company expects that sales and marketing expenses will increase
in absolute dollars for the foreseeable future as the Company intends to invest
in its sales and marketing capabilities.
GENERAL AND ADMINISTRATIVE. General and administrative expenses include
costs associated with the Company's general management, human resources and
finance functions. General and administrative expenses remained constant at $1.0
million for the six months ended March 31, 1997 and the six months ended March
31, 1998. As a percentage of total revenues, general and administrative expenses
decreased from 13.2% to 12.4% over the same period. This decrease was due
primarily to lower executive bonuses, offset in part by personnel additions and
compensation expense related to employee stock option grants. The Company
anticipates hiring additional administrative personnel and incurring additional
costs as a public company, including directors' and officers' liability
insurance, investor relations programs and professional services fees.
Accordingly, the Company anticipates that general and administrative expenses
will increase for the foreseeable future.
In the six months ended March 31, 1998, the Company recorded amortization of
deferred compensation expense of $70,000 related to the issuance of options to
purchase the Company's Common Stock at exercise prices subsequently deemed to be
below fair market value. Total compensation expense related to options granted
in fiscal 1997 and 1998 aggregated $805,000, which will be amortized to general
and administrative expense over the respective four-year vesting periods of the
options.
INTEREST INCOME. Interest income consists primarily of interest earned on
cash balances. Interest income increased from $169,000 for the six months ended
March 31, 1997 to $249,000 for the six months ended March 31, 1998 due to an
increase in the Company's cash and cash equivalent balances and short-term
investments.
OTHER INCOME (EXPENSE). Other income (expense) represents gains and losses
from fluctuations in exchange rates on transactions denominated in foreign
currencies and other miscellaneous expenses. Other expense was $150,000 for the
six months ended March 31, 1997 and $137,000 for the six months ended March 31,
1998 due to exchange losses related to transactions denominated in foreign
currencies.
22
<PAGE>
PROVISION FOR INCOME TAXES. Provision for income tax consists of federal,
state and international income taxes. The Company's effective tax rate was 42.2%
for the six months ended March 31, 1997 and 42.9% for the six months ended March
31, 1998. These tax rates primarily reflect the significant percentage of
revenues derived by the Company from international operations, particularly its
operations in Japan, which has a relatively high tax rate. The Company expects
that its future tax rate may vary depending in part on the relative income
contribution by its domestic and foreign operations.
FISCAL YEARS ENDED SEPTEMBER 30, 1996 AND 1997
REVENUES. Revenues increased by approximately 44% from $9.3 million in
fiscal 1996 to $13.4 million in fiscal 1997. Over this period, product sales
increased by approximately 50% from $7.7 million in fiscal 1996 to $11.5 million
in fiscal 1997. The increase in product sales was primarily attributable to
increased sales to an expanded customer base in Japan and North America as well
as sales of the Company's MPI cards, which were introduced in late fiscal 1996.
Services revenue increased by approximately 17% from $1.6 million in fiscal 1996
to $1.8 million in fiscal 1997 due primarily to sales of software support
contracts associated with new system sales as well as contract renewals.
COST OF REVENUES. Cost of product sales increased by approximately 43% from
$1.1 million in fiscal 1996 to $1.6 million in fiscal 1997. Gross margin on
product sales increased slightly from 85.7% for fiscal 1996 to 86.3% for fiscal
1997 due primarily to increased sales of higher margin MPI cards, offset in part
by an increase in sales of lower margin workstations. Cost of services increased
by approximately 40% from $246,000 in fiscal 1996 to $344,000 in fiscal 1997.
Gross margin on services decreased from 84.3% in fiscal 1996 to 81.2% in fiscal
1997, reflecting increased lower margin services revenue from customers in Japan
and the addition of support personnel in anticipation of increased sales.
RESEARCH AND DEVELOPMENT. Research and development expenses increased by
approximately 56% from $908,000 in fiscal 1996 to $1.4 million in fiscal 1997.
Research and development expenses as a percentage of total revenues increased
from 9.8% in fiscal 1996 to 10.6% in fiscal 1997. These increases in research
and development expenses were due primarily to an increase in engineering
personnel.
SALES AND MARKETING. Sales and marketing expenses increased by
approximately 36% from $1.9 million in fiscal 1996 to $2.6 million in fiscal
1997. Sales and marketing expenses as a percentage of total revenues decreased
from 20.3% in fiscal 1996 to 19.1% in fiscal 1997. Sales and marketing expenses
increased in absolute dollars due primarily to additions in personnel to staff
the sales office in Japan and higher bonus payments to the Company's sales force
in fiscal 1997.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by approximately 49% from $1.4 million in fiscal 1996 to $2.1 million in fiscal
1997. General and administrative expenses as a percentage of total revenues
increased from 15.0% in fiscal 1996 to 15.5% in fiscal 1997. These increases in
general and administrative expenses were due primarily to an increase in
executive bonuses and personnel additions in fiscal 1997.
INTEREST INCOME. Interest income increased from $269,000 in fiscal 1996 to
$380,000 in fiscal 1997, reflecting an increase in the Company's cash and cash
equivalent balances and short-term investments.
OTHER INCOME (EXPENSE). Other expense was $209,000 in fiscal 1996 and
$6,000 in fiscal 1997, consisting primarily of exchange losses related to
transactions denominated in foreign currencies.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 39.6% in
fiscal 1996 and 42.2% in fiscal 1997. The increase in the tax rate primarily
reflects the higher percentage of revenues derived by the Company from
international operations in fiscal 1997, particularly its operations in Japan,
which has a relatively high tax rate.
23
<PAGE>
FISCAL YEARS ENDED SEPTEMBER 30, 1995 AND 1996
REVENUES. Revenues increased by approximately 35% from $6.9 million in
fiscal 1995 to $9.3 million in fiscal 1996. Over this same period, product sales
increased by approximately 31% from $5.9 million in fiscal 1995 to $7.7 million
in fiscal 1996. The increase in product sales was primarily attributable to an
increase in the number of system sales to customers in North America and Japan,
offset in part by decreased sales to customers in Europe. Over the same period,
services revenue increased approximately 54% from $1.0 million in fiscal 1995 to
$1.6 million in fiscal 1996. The increase in services revenue was primarily due
to sales of software support contracts associated with new system sales as well
as contract renewals.
COST OF REVENUES. Cost of product sales increased by approximately 37% from
$804,000 in fiscal 1995 to $1.1 million in fiscal 1996. Gross margin on product
sales decreased from 86.3% in fiscal 1995 to 85.7% in fiscal 1996, due primarily
to an increase in the fixed costs of manufacturing personnel. Cost of services
increased by approximately 86% from $132,000 in fiscal 1995 to $246,000 in
fiscal 1996. Gross margin on services decreased from 87.0% to 84.3%, reflecting
increased lower margin services revenue from customers in Japan and the addition
of support personnel in anticipation of increased sales.
RESEARCH AND DEVELOPMENT. Research and development expenses increased by
approximately 30% from $697,000 in fiscal 1995 to $908,000 in fiscal 1996.
Research and development expenses as a percentage of total revenues decreased
from 10.2% in fiscal 1995 to 9.8% in fiscal 1996. Research and development costs
increased in absolute dollars primarily due to an increase in engineering
personnel.
SALES AND MARKETING. Sales and marketing expenses increased by
approximately 45% from $1.3 million in fiscal 1995 to $1.9 million in fiscal
1996. Sales and marketing expenses as a percentage of total revenues increased
from 18.9% in fiscal 1995 to 20.3% in fiscal 1996. Sales and marketing expenses
increased primarily due to additions in personnel to staff the sales and support
offices in Japan and Chicago. These offices did not significantly contribute to
revenues until fiscal 1996.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by approximately 56% from $889,000 in fiscal 1995 to $1.4 million in fiscal
1996. General and administrative expenses increased as a percentage of total
revenues from 12.9% in fiscal 1995 to 15.0% in fiscal 1996. General and
administrative expenses increased due primarily to increases in executive
compensation and personnel additions.
INTEREST INCOME. Interest income increased from $224,000 in fiscal 1995 to
$269,000 in fiscal 1996 as the Company's cash and cash equivalent balances and
short-term investments increased over this period.
OTHER INCOME (EXPENSE). Other income was $126,000 in fiscal 1995 and other
expense was $209,000 in fiscal 1996, consisting primarily of exchange gains and
losses on transactions denominated in foreign currencies.
PROVISION FOR INCOME TAXES. The Company's effective tax rate increased from
36.1% in fiscal 1995 to 39.6% in fiscal 1996. The increase in the tax rate
primarily reflects the higher percentage of revenues derived by the Company from
international operations in fiscal 1996, particularly its operations in Japan,
which has a relatively high tax rate. The increase in the effective tax rate
reflects the Company's first full year of operations in Japan.
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated statements of
income data for each of the six quarters through the quarter ended March 31,
1998, as well as such data expressed as a percentage of total revenues for the
periods indicated. This unaudited quarterly information has been prepared on the
same basis as the audited Consolidated Financial Statements and Notes thereto
contained herein and, in management's opinion, includes all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information for the quarters presented when read in
conjunction with the Company's annual audited Consolidated Financial Statements
and Notes thereto presented elsewhere in this Prospectus. The results of
operations for any quarter are not necessarily indicative of results for any
subsequent period or for the entire fiscal year.
24
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1997 1997 1997 1997 1998
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME DATA:
Revenues:
Product sales...................................... $ 4,384 $ 2,333 $ 2,856 $ 1,946 $ 2,853 $ 4,440
Services........................................... 483 444 407 499 593 573
----------- ----------- ----------- ----------- ----------- -----------
Total revenues................................... 4,867 2,777 3,263 2,445 3,446 5,013
----------- ----------- ----------- ----------- ----------- -----------
Cost of revenues:
Product sales...................................... 652 250 364 310 310 379
Services........................................... 87 82 82 93 160 179
----------- ----------- ----------- ----------- ----------- -----------
Total cost of revenues........................... 739 332 446 403 470 558
----------- ----------- ----------- ----------- ----------- -----------
Gross profit......................................... 4,128 2,445 2,817 2,042 2,976 4,455
----------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and development........................... 324 359 387 349 414 471
Sales and marketing................................ 624 583 622 721 620 627
General and administrative......................... 530 475 510 548 450 597
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses......................... 1,478 1,417 1,519 1,618 1,484 1,695
----------- ----------- ----------- ----------- ----------- -----------
Operating income..................................... 2,650 1,028 1,298 424 1,492 2,760
Interest income...................................... 81 88 106 105 114 135
Other income (expense)............................... (55) (95) 153 (9) (100) (37)
----------- ----------- ----------- ----------- ----------- -----------
Income before taxes.................................. 2,676 1,021 1,557 520 1,506 2,858
Provision for taxes.................................. 1,129 431 657 219 646 1,226
----------- ----------- ----------- ----------- ----------- -----------
Net income........................................... $ 1,547 $ 590 $ 900 $ 301 $ 860 $ 1,632
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Earnings per share(1):
Basic.............................................. $ 0.16 $ 0.06 $ 0.09 $ 0.03 $ 0.08 $ 0.16
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Diluted............................................ $ 0.15 $ 0.06 $ 0.08 $ 0.03 $ 0.08 $ 0.15
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Weighted average shares:
Basic.............................................. 9,630 9,630 9,630 9,630 10,163 10,398
Diluted............................................ 10,332 10,667 10,697 10,724 10,809 10,925
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
----------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1997 1997 1997 1997 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product sales...................................... 90.1% 84.0% 87.5% 79.6% 82.8% 88.6%
Services........................................... 9.9 16.0 12.5 20.4 17.2 11.4
----------- ----------- ----------- ----------- ----------- -----------
Total revenues................................... 100.0 100.0 100.0 100.0 100.0 100.0
----------- ----------- ----------- ----------- ----------- -----------
Cost of revenues:
Product sales...................................... 13.4 9.0 11.2 12.7 9.0 7.5
Services........................................... 1.8 3.0 2.5 3.8 4.6 3.6
----------- ----------- ----------- ----------- ----------- -----------
Total cost of revenues........................... 15.2 12.0 13.7 16.5 13.6 11.1
----------- ----------- ----------- ----------- ----------- -----------
Gross profit......................................... 84.8 88.0 86.3 83.5 86.4 88.9
----------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and development........................... 6.7 12.9 11.8 14.3 12.0 9.4
Sales and marketing................................ 12.8 21.0 19.1 29.5 18.0 12.5
General and administrative......................... 10.9 17.1 15.6 22.4 13.1 11.9
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses......................... 30.4 51.0 46.5 66.2 43.1 33.8
----------- ----------- ----------- ----------- ----------- -----------
Operating income..................................... 54.4 37.0 39.8 17.3 43.3 55.1
Interest income...................................... 1.7 3.2 3.2 4.3 3.3 2.7
Other income (expense)............................... (1.1) (3.4) 4.7 (0.3) (2.9) (0.8)
----------- ----------- ----------- ----------- ----------- -----------
Income before taxes.................................. 55.0 36.8 47.7 21.3 43.7 57.0
Provision for taxes.................................. 23.2 15.5 20.1 9.0 18.7 24.4
----------- ----------- ----------- ----------- ----------- -----------
Net income........................................... 31.8% 21.3% 27.6% 12.3% 25.0% 32.6%
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
- ------------------------------
(1) See Note 1 of Notes to Consolidated Financial Statements for the method used
to calculate earnings per share.
Although the Company's total revenues have increased on an annual basis over
each of the last five years, the Company has experienced significant quarterly
fluctuations in total revenues. Total revenues in the quarter
25
<PAGE>
ended December 31, 1996 were unusually high due to a decision by the Company to
manage its growth in the prior quarter while it expanded customer support
operations. Revenues for the quarter ended December 31, 1997 were relatively
higher than the immediately preceding quarter for similar reasons. Quarterly
gross profits as a percentage of total revenues vary from quarter to quarter due
to changes in product mix, including variations in configurations of DCT
systems. During the quarter ended September 30, 1997, sales and marketing
expenses were relatively higher than in previous quarters, due primarily to an
increase in marketing personnel and related recruiting expenses.
The Company has experienced, and anticipates that it will continue to
experience, significant fluctuations in quarterly revenues and operating
results. The Company's revenues and operating results are relatively difficult
to forecast for a number of reasons, including (i) the variable size and timing
of individual purchases by customers, (ii) seasonal factors that may affect
capital spending by customers, such as the varying fiscal year ends of customers
and the reduction in business during the summer months, particularly in Europe,
(iii) the relatively long sales cycles for the Company's products, (iv) the
timing of hiring of sales and technical personnel, (v) changes in timing and
amount of incentive compensation, (vi) competitive conditions in the Company's
markets, (vii) exchange rate fluctuations, (viii) changes in the mix of products
sold, (ix) the timing of the introduction and market acceptance of new products
or product enhancements by the Company, its customers, competitors or suppliers,
(x) costs associated with developing and introducing new products, (xi) product
life cycles, (xii) changes in the level of operating expenses relative to
revenues, (xiii) software defects and other product quality problems, (xiv)
customer order deferrals in anticipation of new products, (xv) supply
interruptions, (xvi) changes in the regulatory environment and (xvii) changes in
global or regional economic conditions or in the telecommunications industry.
The Company's revenues in any period generally have been, and are likely to
continue to be, derived from relatively small numbers of sales and service
transactions with relatively high average revenues per order. Therefore, the
loss of any orders or delays in closing such transactions could have a more
significant impact on the Company's quarterly revenues and results of operations
than on those of companies with relatively high volumes of sales or low revenues
per order. The Company's products generally are shipped within 15 to 30 days
after orders are received and revenues are recognized upon shipment of the
products, provided no significant vendor obligations remain and collection of
the related receivable is deemed probable. As a result, the Company generally
does not have a significant backlog of orders, and revenues in any quarter are
substantially dependent on orders booked and shipped in that quarter.
A customer's decision to purchase the Company's products typically involves
a significant technical evaluation, internal procedural delays associated with
large capital expenditure approvals and testing and acceptance of new systems
that affect key operations. For these and other reasons, the sales cycle
associated with the Company's products is typically lengthy and subject to a
number of significant risks over which the Company has little or no control.
Historically, the period between initial customer contact and purchase of the
Company's products has typically ranged from two to nine months, with sales to
new customers (including new divisions within existing customers) at the longer
end of this range. Because of the lengthy sales cycle and the relatively small
number and large size of customers' orders, if revenues forecast from a specific
customer for a particular quarter are not realized in that quarter, the
Company's operating results for that quarter could be materially adversely
affected.
The Company's expectations for future revenues are predicated, to a large
extent, on the recruitment and hiring of a significant number of employees,
particularly experienced sales and technical personnel. Failure to hire, or
delays in hiring, sufficient sales and technical personnel could have a material
adverse effect on the Company's results of operations for any period.
Due to the relatively fixed nature of most of the Company's costs, including
personnel and facilities costs and because operating expenses are based on
anticipated revenue, a decline in revenue from even a limited number of
transactions, failure to achieve expected revenue in any fiscal quarter, or
unanticipated variations in the timing of recognition of specific revenues can
cause significant variations in operating results from quarter to quarter and
may in some future quarter result in losses or have a material adverse effect on
the Company's
26
<PAGE>
business, financial condition and results of operations. The Company believes,
therefore, that period-to-period comparisons of its operating results should not
be relied upon as an indication of future performance. For all of the foregoing
factors, as well as other unanticipated factors, it is possible that in some
future quarter the Company's results of operations could fail to meet the
expectations of public market analysts or investors. In such event, or in the
event that adverse conditions prevail or are perceived to prevail generally or
with respect to the Company's business, the price of the Company's Common Stock
will likely be materially adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations, including increases
in accounts receivable and capital equipment acquisitions, primarily through
cash generated from operations.
The Company's operating activities provided cash of $2.7 million, $2.3
million, $3.4 million and $1.9 million in fiscal 1995, 1996 and 1997 and the six
months ended March 31, 1998, respectively, principally from cash flow from
operations. Investment activities, consisting primarily of purchases and sales
of short-term investments and additions to property and equipment, used cash of
$1.0 million in fiscal 1995, provided cash of $257,000 and $167,000 in fiscal
1996 and 1997, respectively, and used cash of $188,000 in the six months ended
March 31, 1998.
As of March 31, 1998, the Company had working capital of $12.3 million and
cash and cash equivalents of $12.6 million. As of March 31, 1998, the Company
had no bank indebtedness and no long-term commitments other than operating lease
obligations. The Company expects that capital expenditures will total
approximately $800,000 through fiscal 1999.
The Company believes that the net proceeds from this offering, together with
existing cash, cash equivalents and short-term investments and funds generated
from operations, will provide the Company with sufficient funds to finance its
operations for at least the next 18 months. The Company may require additional
funds to support its working capital requirements or for other purposes. There
can be no assurance that additional financing will be available or that, if
available, such financing will be obtainable on terms favorable to the Company
or its stockholders.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). This statement will be effective for the Company's fiscal
year ending September 30, 1999. The statement establishes presentation and
disclosure requirements for reporting comprehensive income. Comprehensive income
includes charges or credits to equity that are not the result of transactions
with stockholders. The Company expects there will be no material impact on its
consolidated financial position or results of operations as a result of the
adoption of this new accounting standard.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). This statement will be effective for the Company's fiscal year
ending September 30, 1999. The statement requires the Company to report certain
financial information about operating segments. It also requires that the
Company report certain information about its services, the geographic areas in
which it operates and its major customers. The method specified in SFAS 131 for
determining information to be reported is referred to as the "management
approach." The management approach is based on the way that management organizes
the segments within the enterprise for making operating decisions and assessing
performance. The adoption of SFAS 131 is not expected to have a significant
impact on the Company's financial statement disclosures.
In October 1997 and March 1998, the American Institute of Certified Public
Accountants ("AICPA") issued Statements of Position ("SOP") 97-2 and 98-4,
"Software Revenue Recognition," which provide guidance on applying generally
accepted accounting principles in recognizing revenue on software transactions.
SOP 97-2 and 98-4 are effective for the Company's fiscal year ending September
30, 1999. Earlier application is encouraged as of the beginning of fiscal year
or interim periods for which financial statements or information
27
<PAGE>
have not been issued. Retroactive application of the provisions of this SOP is
prohibited. The Company has assessed the provisions of SOP 97-2 and 98-4 and
does not expect that adoption will have a material impact on its financial
statements.
In March 1998, the AICPA issued SOP 98-1, "Software for Internal Use," which
provides guidance in accounting for the costs of computer software developed or
obtained for internal use. SOP 98-1 is effective for the Company's fiscal year
ending September 30, 1999. The Company does not expect the adoption of SOP 98-1
to have a material impact on its financial statements.
28
<PAGE>
BUSINESS
OVERVIEW
Catapult Communications Corporation ("Catapult" or the "Company") designs,
develops, manufactures, markets and supports an advanced software-based test
system offering an integrated suite of testing applications for the global
telecommunications industry. Catapult's Digital Communications Tester ("DCT") is
a comprehensive test solution designed to enable equipment manufacturers and
network operators to deliver complex digital telecommunications equipment and
services more quickly and cost-effectively, while helping to ensure
interoperability and reliability. The Company's advanced software and hardware
assist customers in the design, integration, installation and acceptance testing
of a broad range of digital telecommunications equipment and services. The
Company markets its products through a direct sales force to industry leaders
such as Cable & Wireless Communications PLC ("Cable & Wireless"), LM Ericsson
("Ericsson"), Fujitsu Limited ("Fujitsu"), Lucent Technologies, Inc. ("Lucent"),
Motorola Inc. ("Motorola"), NEC Corporation ("NEC"), Northern Telecom Limited
("Nortel"), Nippon Telephone and Telegraph ("NTT") and Tellabs Inc. ("Tellabs").
INDUSTRY BACKGROUND
Consumer demand for new wireless telecommunications services and enhanced
wireline services has created significant need for new telecommunications
equipment and infrastructure. Technological advances have made wireless
telecommunications services more widely available and increasingly affordable,
resulting in the build-out of a significant number of new wireless networks to
meet consumer demand. At the same time, the explosive growth of the Internet and
the convergence of telephony and computing are driving demand for high-speed
telecommunications services, as well as enhanced services integrating voice
data, and video. In addition, the deregulation and the increasing privatization
and globalization of the telecommunications industry are intensifying
competition among existing operators of telecommunications networks and
promoting the entrance of new telecommunications equipment manufacturers and
service providers, such as Competitive Local Exchange Carriers (CLECs). The
entry of new market participants has resulted in an increased demand for more
equipment to satisfy infrastructure needs.
As a result of these trends, operators of telecommunications networks are
investing aggressively in new technologies such as SS7, CDMA, Frame Relay and
Asynchronous Transfer Mode (ATM); new services, including IN-based services such
as Caller ID, voice messaging and Local Number Portability (LNP); satellite
telecommunications services such as Iridium; and digital wireless services such
as Personal Communications Services (PCS). These new technologies and services
have led to a proliferation of standards, protocols (sets of rules relating to
transmissions between two devices) and protocol variants, making the design and
operation of telecommunications networks even more complex.
The technological advances in wireless and wireline telecommunications,
increasing competition between existing service providers and new entrants, and
the proliferation of standards, are fundamentally changing the
telecommunications industry. Historically, one equipment provider would
typically supply the network operator with most of the equipment necessary for
the network, with the result that interoperability problems were relatively
minimal. However, the recent entry of many new telecommunications equipment
manufacturers into the market has complicated the operation of
telecommunications networks, increasing the problem of interoperability among
equipment from multiple vendors. Today, network operators are able to choose
heterogeneous products from multiple equipment manufacturers to obtain the best
set of features and reduce network cost. Consequently, to remain competitive,
equipment manufacturers must be able to rapidly provide cost-effective equipment
with enhanced features. At the same time, manufacturers and operators are
required to ensure that these products satisfy the telecommunications industry's
rigorous standards of seamless interoperability and high reliability under
variable traffic conditions.
To address these needs, telecommunications equipment manufacturers and
network operators require versatile test systems that can help ensure the
interoperability of equipment from various vendors, identify and
29
<PAGE>
locate errors in network equipment, enhance the performance of the network and
verify conformance to industry standards. In order to address these requirements
effectively, test systems should:
- PROVIDE A COMPLETE SOLUTION. Equipment manufacturers must be able to test
their products efficiently and rigorously throughout design, development,
network integration, installation and acceptance testing. A single test
system that can be used in each of these phases can lower test costs and
allow personnel to develop familiarity with the test system, enabling them
to progress more efficiently through the entire development and testing
process.
- ACCELERATE TEST CYCLES. Because of customers' needs to develop and
introduce new products and services rapidly, test systems must perform a
wide variety of test functions quickly and reliably.
- RAPIDLY SUPPORT A BROAD RANGE OF NEW AND INCREASINGLY COMPLEX
PROTOCOLS. As the number of technologies, services, protocols and protocol
variants grows, equipment manufacturers and network operators increasingly
require a powerful and versatile test system capable of supporting a broad
range of testing applications. In addition, manufacturers and operators
require access to a broad range of protocols and protocol variants, as
well as timely support of new protocols and protocol variants.
- ADAPT TO A VARIETY OF TESTING ENVIRONMENTS. Because equipment
manufacturers and network operators may already use a variety of test
systems, any new test system must be sufficiently adaptable to function on
a stand-alone basis or to be integrated into customers' diverse test
environments.
- INCREASE PRODUCTIVITY AMONG A BROAD RANGE OF USERS. In view of the
increasing scarcity of skilled technical personnel, users with less
technical sophistication often become involved in the testing process. As
a result, test systems must be usable by personnel with varying degrees of
technical skills.
Although many equipment manufacturers and network operators have used
internally developed test systems, manufacturers and operators increasingly
recognize that developing these systems internally may not allow them to
introduce reliable new products and services as rapidly and cost effectively as
desired. The Company believes that the shortage of skilled and experienced
technical staff caused by the rapid growth of the telecommunications industry
has caused companies in this industry to utilize scarce personnel in design
rather than in testing of new products. In addition, internal development by the
same manufacturer of both the test system and the device under test may
perpetuate rather than reduce design error. As a result, network operators are
increasingly requesting equipment manufacturers to use independently developed
test systems. These and other factors are causing equipment manufacturers and
network operators to outsource their telecommunications test systems needs,
creating a growing market opportunity for companies that provide independently
developed test systems.
THE CATAPULT SOLUTION
Catapult designs, develops, manufactures, markets and supports an advanced
software-based test system offering an integrated suite of testing applications
for the global telecommunications industry. Catapult's DCT is a comprehensive
test solution designed to enable equipment manufacturers and network operators
to deliver complex digital telecommunications equipment and services faster and
more cost-effectively, while helping to ensure reliability and interoperability.
The Company's advanced software and hardware assist its customers in the design,
development, network integration, installation and acceptance testing of new and
existing telecommunications equipment and services. The DCT system is used
principally in the following applications: (i) simulation, which enables the DCT
system to emulate a networking environment; (ii) load and stress testing, which
tests the performance of a device under high traffic loads; (iii) feature
verification, which verifies that the features of a device function correctly;
(iv) conformance testing, which validates operation of a device to published
specifications; and (v) monitoring, which is used to determine whether devices
are functioning properly within a network.
30
<PAGE>
The DCT system provides the following key customer benefits:
- COMPREHENSIVE DIGITAL TELECOMMUNICATIONS TEST SOLUTION. With its extensive
library of software protocol modules, large selection of physical
interfaces and a platform designed to support multi-protocol, multi-user
testing, the DCT system is easily configured to support a wide variety of
digital testing needs. The DCT system can be used throughout the design,
development, network integration, installation and acceptance testing of
digital telecommunications equipment and services, thereby reducing a
customer's need for multiple test systems.
- IMPROVED TIME TO MARKET. The DCT system's multi-protocol, multi-user
capability allows multiple testing operations to be performed
simultaneously by different users, helping customers accelerate their
product development cycles. The system also supports automated testing,
further reducing development and test cycles.
- ACCESS TO AN EXTENSIVE RANGE OF PROTOCOLS AND VARIANTS. Catapult maintains
an extensive library of software modules that support more than 100
variants of approximately 30 protocols, with an emphasis on complex,
high-level and emerging protocols. Using its extensive library of software
protocol test modules, the technical expertise and know-how of its
engineers and its proprietary software development tools, the Company can
rapidly implement new protocols and protocol variants in response to the
needs of its customers.
- IMPROVED PRODUCT RELIABILITY. By simulating a wide range of operating
situations, including protocol errors, network failures and heavy network
traffic, the Company's products can help to detect, diagnose and isolate
network telecommunications problems. This simulation helps ensure that
telecommunications equipment will operate reliably, thereby reducing
costly failures after installation. In addition, the Company believes that
the independent development of test solutions can reduce errors that may
occur when the same manufacturer develops both the test system and the
device under test.
- ADAPTABILITY TO DIVERSE TESTING ENVIRONMENTS. While the DCT system can
serve as a powerful and versatile stand-alone test solution, the system's
UNIX-based platform and flexible design facilitate integration of the
system into customers' diverse test environments. The DCT system is also
designed to provide customers with a migration path to future testing
needs.
- FLEXIBLE PROGRAMMING CAPABILITIES. In order to run test scenarios,
particularly on advanced test systems, users may need to create customized
test scripts. To make the DCT system accessible to a broad range of users,
the Company offers a number of programming options. The Company's fully
featured Digital Communications Programming Language ("DCPL") allows users
to write their own code to customize their testing applications. The
Company also provides a Graphical User Interface ("GUI") to make it easier
and faster for customers to develop these applications. In addition, the
Company offers pre-programmed conformance test suites to reduce the amount
of programming required by its customers.
- COMPREHENSIVE TECHNICAL SUPPORT. The Company believes its high level of
customer support provides a key competitive advantage. Catapult employs
highly skilled applications engineers in each of its locations to provide
pre-and post-sales support to its customers. Applications engineers
provide on-site training and installation and assist customers in
developing test applications and troubleshooting problems. Further,
Catapult develops protocol variants at the request of existing customers
and typically releases several software updates per year.
31
<PAGE>
STRATEGY
The Company's objective is to become the leading supplier of advanced
software-based test systems for the global telecommunications industry.
Catapult's strategy to achieve this objective includes the following key
elements:
- EXPAND DIRECT SALES AND TECHNICAL SUPPORT PRESENCE. In order to increase
its market penetration and to capitalize on opportunities in the global
market, the Company plans to continue to expand its sales, marketing and
support capabilities. The Company believes that a physical presence in key
customer locations provides an important advantage in developing and
maintaining new and existing customer relationships. In addition to
expanding each of its current offices, the Company plans to open new
offices in North America and Europe. In January 1998, the Company opened
an office in Ottawa, Canada, and plans to open an office in Dallas, Texas
by the end of calendar 1998.
- CONTINUE TO SUPPORT NEW AND COMPLEX PROTOCOLS AND VARIANTS. Catapult plans
to continue to capitalize on its expertise and software development tools
to develop software modules rapidly as new and more complex protocols and
protocol variants are introduced. The Company believes that its extensive
library of software-based protocol modules, together with its proprietary
software development tools and extensive technical know-how, provide a
significant competitive advantage.
- BROADEN MARKET BY ENHANCING EASE OF USE. The Company is continually
seeking to make the DCT system easier to use in order to expand its market
to include a broader range of users. The Company recently introduced a GUI
to reduce the time and resources needed by customers to develop test
scripts. In addition, the Company has recently begun to develop
pre-programmed applications, such as load generators and network entity
simulators. Catapult believes that these additional product offerings will
appeal to companies with limited programming resources.
- LEVERAGE INSTALLED BASE OF CUSTOMERS. The Company intends to continue to
leverage its existing customer base not only for follow-on and upgrade
sales but also to gain access to new customers. For example, because users
of identical test systems can benefit from sharing test scripts and
results, an initial sale to one customer can facilitate subsequent sales
to other equipment manufacturers and network operators.
- PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES. The Company intends to pursue
strategic acquisitions of complementary businesses or technologies to
expand its product offerings, to obtain additional customer relationships
and to add technical and sales personnel, as appropriate opportunities are
identified. The Company may also seek to create alliances with companies
that supply technologies and products that are complementary to the
capabilities of the DCT system.
- SPECIALIZE IN PROVIDING TEST SOLUTIONS FOR THE TELECOMMUNICATIONS
INDUSTRY. The Company intends to continue its focus on providing
telecommunications test solutions. Some of the Company's competitors also
offer telecommunications equipment that, in many instances, competes with
their customers' products. Because some customers may prefer not to buy
products from competitors, the Company believes that its sole focus on
test solutions provides it with a competitive advantage.
THE CATAPULT DCT SYSTEM
Catapult designs, develops, manufactures, markets and supports an advanced
software-based digital telecommunications test system offering an integrated
suite of testing applications under the DCT system family name. The Company's
advanced software and hardware can be used both in the lab and in the field to
assist its customers in the design, development, network integration,
installation and acceptance testing of new and existing digital
telecommunications equipment and services. The DCT system's multi-protocol,
multi-user capability allows multiple testing operations to be performed
simultaneously by different users, helping customers to accelerate their product
development cycles.
32
<PAGE>
The DCT system consists of advanced software and hardware running on a
third-party UNIX-based workstation. In a system sale, customers typically
license one or more software modules and purchase hardware and ongoing software
support. Customers may upgrade their systems by purchasing additional software
protocol modules and hardware to meet future testing needs. Customers have the
option to purchase a third-party workstation from Catapult or provide a
workstation to the Company for configuration. Prices for the DCT system can
range from approximately $50,000 to as high as $1 million, depending on the
number and type of software protocol modules, the number of physical interfaces
required by the customer and the overall system configuration. A typical
configuration currently ranges in price from approximately $100,000 to $175,000.
APPLICATIONS
The principal applications of the DCT system are simulation, load and stress
testing, feature verification, conformance testing and monitoring.
SIMULATION. The simulation function of the DCT system enables it to act
like one or more network devices, emulating their actions and responses. By
simulating various network devices, such as digital switches, wireless base
stations, network access nodes and network databases, the Company's products
assist engineers to cost-effectively develop equipment that will be compatible
with the networks within which they will be deployed. This helps ensure that
equipment will interoperate reliably, thereby reducing costly failures after
installation.
LOAD AND STRESS TESTING. Load and stress testing enables the DCT system to
verify that a device under test can successfully handle its designed traffic
capacity and that its performance will degrade gradually, rather than fail
completely, when stressed beyond its specifications. Distributed interface
processing and a high-performance UNIX-based platform enable the DCT system to
initiate and maintain high traffic volumes.
FEATURE VERIFICATION. The DCT system performs feature verification by
simulating one or more network devices and testing a wide variety of possible
scenarios to verify that the device under test handles all features specified by
the protocol. The user is able to initiate multiple simultaneous calls across
one or many links, create correct call scenarios, send messages out of sequence
to verify error response mechanisms and use the DCT system's traffic channel
facilities to verify a voice or data path.
CONFORMANCE TESTING. The DCT system tests for conformance by enabling
manufacturers and network operators to verify that devices meet specified
standards. Conformance test suites validate the implementation of new features
and the functionality of existing features against a standardized set of
predefined criteria. Catapult provides pre-packaged V5 and SS7 conformance test
suites which assist in this testing.
MONITORING. The DCT system monitors network links and stores network
activity information for future analysis, typically without affecting network
traffic. By collecting and analyzing traffic, the DCT system helps ensure that
the link has been brought into service and that the devices connected by the
link are functioning properly. The DCT system also provides notice of network
device failure. The DCT system can be used to set traps and triggers, count
error messages and filter packets by address or selected field criteria. The DCT
system can simultaneously monitor multiple links, each of which may be using
different protocols.
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<PAGE>
DCT SYSTEM SOFTWARE
The DCT system software, based on a UNIX operating system, consists of
protocol encoders and decoders, protocol state machines, protocol validation
tests and conformance test suites. The DCT system supports more than 100
variants of approximately 30 protocols, enabling the DCT system to be configured
for many different test applications. The Company's customers can choose to
program the DCT system using Catapult's GUI or by writing their own code using
the Company's DCPL, a fully featured optimized communications language. Finally,
customers can also choose to integrate their own libraries of subroutines
written in industry standard programming languages such as C or C++.
Protocols supported by the DCT system software include:
<TABLE>
<S> <C> <C> <C>
SIGNALING SYSTEM 7 (SS7) ASYNCHRONOUS TRANSFER MODE (ATM)
Message Transfer Part (MTP) SSCOP/AAL5*
Signaling Connection Control Part (SCCP) SSCF-NNI*
Telephone User Part (TUP) ACCESS NETWORK--V5
ISDN User Part (ISUP) V5.1
Transaction Capabilities Application Part (TCAP) V5.2
SIGNALING SYSTEM 7 VALIDATION TESTS V5 VALIDATION TESTS
MTP Layer 2 (V5.1 and V5.2)
SCCP Layer 3 (V5.1 and V5.2)
ISUP DATA TELECOMMUNICATIONS
TUP Frame relay
TCAP* Data packet switching--X.25
INTELLIGENT NETWORK TRAFFIC CHANNEL
Intelligent Network Applications Part (INAP) CS1 VOX voice channel testing
Intelligent Network Applications Part (INAP) CS2 B-channel data piping
DIGITAL CELLULAR--GSM, CDMA, PDC, PCS AND IS-41 ISDN
Mobile Applications Part (MAP) Primary rate interface (PRI)
CAMEL Applications Part (CAP)* Basic rate interface (BRI)
Base Station Application Part (BSSAP)
Abis interface
IS-41A, B and C
EIA-TIA 41-D*
WACS-C
* IN DEVELOPMENT AND PLANNED FOR DELIVERY IN
CALENDAR 1998.
</TABLE>
DCT SYSTEM HARDWARE
The DCT system employs a modular hardware architecture that supports a wide
variety of physical interfaces which connect the DCT system to the device under
test. The Company provides this flexibility through its protocol-independent MPI
co-processor cards, which are inserted into the workstation or an expansion
chassis. The DCT system is hosted on a Sun or compatible workstation. Using up
to three expansion chassis, a single workstation may also support up to 19 MPI
cards or 76 signaling channels. The Company offers MPI cards for a variety of
physical interfaces, including industry standards such as E-1, T-1, serial port,
ISDN Basic Rate and Japanese CII.
The Company also offers a number of auxiliary cards to increase the
versatility of the DCT system. For example, the VOX card adds voice channel
testing capability on up to 64 channels of E-1 and T-1 links. The Timeslot
Interchange (TSI) card supports individual dynamic or static channel selection
for up to 240 timeslots.
34
<PAGE>
The Subscriber Line Interface Card (SLIC) converts two-wire analog subscriber
line interfaces to four-wire handset interfaces. Catapult provides a converter
for CMI, the Japanese physical interface.
CUSTOMERS
The Company's customers in the United States and Canada are primarily
telecommunications equipment manufacturers, and outside North America, its
customer base also includes network operators. The following is a list of the
Company's customers that accounted for an aggregate of at least $100,000 in
total revenues in either fiscal 1997 or the eight months ended May 31, 1998:
<TABLE>
<S> <C> <C> <C>
Cable & Wireless Communications PLC Nippon Telephone and Telegraph
DSC Communications Corporation Northern Telecom Limited.
LM Ericsson Orange Personal Communications Services
Fujitsu Limited Limited
GPT Limited Tandem Computers, Inc.
Lucent Technologies, Inc. (a division of Compaq Computer Corporation)
Motorola, Inc. Tellabs Inc.
NEC Corporation
</TABLE>
Revenues from the Company's top four customers represented approximately
75%, 54% and 60% of total revenues in fiscal 1995, 1996 and 1997, respectively.
The Company's largest customer over this period has been Motorola, which
accounted for approximately 37%, 23% and 28% of total revenues in fiscal 1995,
1996 and 1997, respectively. In the six months ended March 31, 1998, the
Company's top four customers represented approximately 66% of total revenues.
These customers, NTT, Motorola, Lucent and NEC, accounted for 26%, 18%, 13% and
10% of total revenues, respectively, in that period. In fiscal 1997, sales to
Motorola and NEC accounted for approximately 28% and 17% of total revenues,
respectively. In fiscal 1996, sales to Motorola, DDI Tokyo Pocket Telephone,
Inc. and Lucent accounted for approximately 23%, 12% and 10% of total revenues,
respectively. In fiscal 1995, sales to Motorola, Nortel and Lucent accounted for
approximately 37%, 17% and 12% of total revenues, respectively. Separate
engineering groups of the same customer at different locations generally make
independent decisions to purchase the Company's products. For example, several
divisions of one major customer have independently installed DCT systems at
multiple locations in the United States as well as in Ireland, the United
Kingdom, Israel, India and China.
The Company expects that it will continue to depend upon a relatively
limited number of customers for substantially all of its revenues in future
periods, although no customer is presently obligated either to purchase a
specific amount of products or to provide the Company with binding forecasts of
purchases for any period. The loss of a major customer or the reduction, delay
or cancellation of orders from one or more of the Company's significant
customers could materially adversely affect the Company's business, financial
condition and results of operations. See "Risk Factors--Dependence on Limited
Number of Customers."
SALES AND MARKETING
The Company markets its products and services through its direct sales
force, a majority of whom have technical degrees. As of May 31, 1998, Catapult's
direct sales force consisted of 10 employees (four in the United States, three
in Europe and three in Japan). The Company does not anticipate entering into
independent distributor arrangements for the foreseeable future and intends to
sell exclusively through direct sales personnel because of the high level of
technical expertise and support required by customers. Pursuant to a special
agreement, one of the Company's customers has the right to re-market the
Company's test systems as part of an integrated product sale.
The Company's sales strategy is to focus on the functional groups related to
the customer's product development cycle, including research and development,
network integration and final test. Sales to a new
35
<PAGE>
customer have often led to sales at other facilities of the customer, as often a
customer performs development at multiple sites in order to adapt its
telecommunications equipment to local requirements and standards. The Company
intends to continue to leverage its existing customer base not only for
follow-on and upgrade sales but also to gain access to new customers. For
example, because users of identical test systems can benefit from sharing test
scripts and results, an initial sale can facilitate a subsequent sale to other
equipment manufacturers and network operators.
The Company has implemented a number of marketing initiatives to support the
sales of its products and services. These efforts are intended to inform
customers of the capabilities and benefits of the Company's advanced
software-based test systems. Marketing programs include direct mail, on-site
customer seminars, limited participation in industry trade shows and forums, and
dissemination of information concerning products through the Company's website.
Customers generally purchase on an as-needed basis, and none of the
Company's customers has entered into agreements that require minimum purchases.
The Company's products generally are shipped within 15 to 30 days after orders
are received. As a result, the Company generally does not have a significant
backlog of orders, and revenues in any quarter are substantially dependent on
orders booked and shipped in that quarter.
A customer's decision to purchase the Company's products typically involves
a significant technical evaluation, internal procedural delays associated with
large capital expenditure approvals and testing and acceptance of new systems
that affect key operations. For these and other reasons, the sales cycle
associated with the Company's products is typically lengthy and subject to a
number of significant risks over which the Company has little or no control.
Historically, the period between initial customer contact and purchase of the
Company's products has typically ranged from two to nine months, with sales to
new customers (including new divisions within existing customers) at the longer
end of this range. Because of the lengthy sales cycle and the relatively small
number and large size of customers' orders, if revenues forecast from a specific
customer for a particular quarter are not realized in that quarter, the
Company's operating results for that quarter could be materially adversely
affected. See "Risk Factors--Fluctuations in Quarterly Operating Results;
Lengthy Sales Cycle."
International sales constituted approximately 54%, 55%, 53% and 66% of the
Company's total revenues in fiscal 1995, 1996 and 1997 and the six months ended
March 31, 1998, respectively. The Company expects that international sales will
continue to account for a significant portion of its revenues in future periods.
The Company sells its products worldwide through its direct sales force. In
addition, the Company has offices located in Ottawa, Canada, Chippenham, United
Kingdom and Tokyo, Japan and plans to open new offices in continental Europe.
International sales and operations are subject to inherent risks, including
difficulties in staffing and managing foreign operations, longer customer
payment cycles, greater difficulty in accounts receivable collection, changes in
regulatory requirements or in economic or trade policy, costs related to
localizing products for foreign countries, potentially weaker protection for
intellectual property in certain foreign countries, the burden of complying with
a wide variety of foreign laws and practices, tariffs and other trade barriers,
and potentially adverse tax consequences, including restrictions on repatriation
of earnings. In particular, during the last two fiscal years a significant
portion of the Company's sales have been to customers in Japan. If economic
conditions in Japan continue to deteriorate to a significant extent, the
Company's business, financial condition and results of operations would be
materially adversely affected. In addition, the Company cannot predict the
potential consequences to the Company's business of the adoption of the Euro as
a common currency in Europe. An inability to obtain necessary regulatory
approvals in foreign markets on a timely basis could also have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors--Risks Associated with International Sales and
Operations; Foreign Exchange Risk." For information regarding export sales and
international operations, see Note 7 of Notes to Consolidated Financial
Statements.
The Company's success depends in part on its ability to attract, hire,
train, retain and motivate qualified technical and sales personnel with
appropriate levels of managerial and technical capabilities. The Company
36
<PAGE>
believes that a significant level of expertise is required to develop and market
the Company's products and services effectively. The Company has in the past
experienced, and expects to continue to experience, difficulty in recruiting
qualified technical and sales personnel. The Company believes that the pool of
potential applicants with the requisite expertise is very limited. Recruiting
qualified personnel is an intensely competitive and time-consuming process. The
Company competes for such personnel with a number of other companies, many of
which have substantially greater resources than the Company. Such competition
has also resulted in demands for increased compensation from qualified
applicants, and the Company may not be able to compete effectively for such
personnel with companies that provide more attractive compensation arrangements.
Although the Company has not experienced significant turnover of technical and
sales personnel to date, due to the intense level of competition for such
personnel, the Company expects that it may experience greater turnover in
technical and sales personnel in the future. There can be no assurance that the
Company will be successful in attracting and retaining the technical and sales
personnel it requires to conduct and expand its operations successfully on a
timely basis. The failure to attract, hire, train, retain and motivate qualified
technical and sales personnel in the future would have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Risk Factors--Competitive Market for Technical and Sales Personnel."
DCT SYSTEM SUPPORT
Due to the complexity of its customers' testing needs, the Company offers
its customers support and training from highly skilled technical personnel. As
of May 31, 1998, the Company had 13 applications engineers worldwide who provide
full-time technical support to the Company's customers, including technical
assistance and development support. The Company provides ongoing training,
generally at the customer's site, and technical assistance from all of its
offices. Support is generally offered during normal business hours applicable to
each office. The Company also offers product warranties for various lengths of
time, depending on the product and country of purchase or operation.
The Company provides periodic software releases that contain new features,
new protocol variants and other improvements. Each new software release is
carefully designed not only to enhance performance and flexibility, but also to
maximize compatibility with the Company's earlier software releases, enabling
the DCT system to continue to be used as customer needs and applications evolve.
As part of its ongoing software support, the Company may also develop protocol
variants at the request of its customers.
PRODUCT DEVELOPMENT
The Company's development efforts are directed at improving the capability,
performance and ease of use of the DCT system. The Company intends to continue
to devote a large portion of its engineering resources to the enhancement of its
suite of software protocol modules in order to meet current and projected
customer requirements. The Company also intends to continue to develop and
enhance its proprietary internal tools and techniques for supporting new
protocols in the DCT system.
The Company is continually seeking to make the DCT system easier to use in
order to expand its market to include a broad range of users. In order to run
test scenarios, particularly on advanced test systems, users may need to create
customized test scripts, a process that may require significant technical
expertise. The Company has recently begun to develop pre-programmed
applications, such as load generators and network entity simulators. Catapult
believes that these additional product offerings will permit expansion of its
market to include companies with limited programming resources. The Company
plans to expand and refine its GUI and pre-programmed applications to continue
to improve the ease of use of the DCT system. In addition, the Company is
continuing to implement a number of test suites specified by telecommunications
standards bodies, such as ITU-T (International), ETSI (European) and EIA-TIA
(North American). The Company believes that these new solutions will provide the
opportunity to capture more revenues and sell to companies with fewer
programming resources.
37
<PAGE>
Most of the Company's hardware development program is directed towards
designing protocol co-processors and associated physical interfaces. The Company
has initiated these projects to increase the performance and capabilities of the
DCT system and expand the range of devices to which the DCT system can be
directly connected for testing purposes.
Research and product development expenses were approximately $697,000,
$908,000, $1.4 million and $885,000 in fiscal 1995, 1996 and 1997 and the six
months ended March 31, 1998, respectively. The Company's policy is to evaluate
software development projects for technological feasibility to determine if they
meet capitalization requirements. To date, all software development costs have
been expensed as research and development expenses as incurred. As of May 31,
1998, 14 of the Company's 27 engineers were engaged in research and development.
Since September 30, 1996, the Company has doubled the number of engineers
engaged in research and development. The Company believes that recruiting and
retaining highly skilled engineering personnel is essential to its continued
success. To the extent that the Company is not successful in attracting and
retaining a highly skilled technical staff, its business, financial condition
and results of operations would be materially adversely affected.
The Company's future success will depend in part on its ability to
anticipate and respond to changing industry standards and customer requirements
by enhancing its existing products and services and by developing and
introducing, on a timely and cost-effective basis, new products, features and
services that address the needs of its customer base. There can be no assurance
that the Company will be successful in identifying, developing and marketing new
products, product enhancements and related services that respond to
technological change or evolving industry standards or that adequately meet new
market demands. See "Risk Factors-- Rapid Technological Change; Uncertainty of
Acceptance of the Company's Products and Services."
Products as complex as those offered by the Company may contain undetected
errors or "bugs," particularly when first introduced or when new versions are
released. There can be no assurance that errors will not be found in future
releases of the Company's software or that any such errors will not generate
adverse publicity, impair the market acceptance of these products, create
customer concerns and adversely affect operating results due to product returns,
the costs of generating corrective releases or otherwise. See "Risk
Factors--Risk of Product Defects."
MANUFACTURING
The Company's manufacturing operations consist of the procurement and
inspection of components, final assembly, quality control tests and packaging.
Workstations that host the Company's products are either purchased by customers
directly or purchased by the Company on behalf of its customers. Printed circuit
boards, chassis and most of the other major components used in the Company's
products are sub-assembled to the Company's specifications by independent
contractors. The sub-assembled components are then delivered to the Company's
facilities for final assembly, quality control and testing against product
specifications and product configuration, including installation of the
Company's software and proprietary hardware. The Company believes that its use
of independent contractors for sub-assembly combined with in-house final
assembly improves production planning, increases efficiency, reduces costs and
improves quality.
The Company has a computerized manufacturing inventory control system that
is integrated with its financial bookkeeping system. This manufacturing control
system monitors purchasing, inventory control and production.
The Company purchases many key components, including certain
microprocessors, workstations, bus interface and other chips, connectors and
other hardware, from the sole supplier of a particular component. For other
components, even though multiple vendors may exist, the Company may purchase
components from only a single source. The Company does not have any long-term
supply agreements with these vendors to ensure uninterrupted supply of these
components. In the event of a reduction or interruption in the supply of a key
component, a significant amount of time could be required to qualify alternative
suppliers and receive an adequate flow of replacement components.
Reconfiguration of the Company's products to adapt to new
38
<PAGE>
components may also be required and could entail substantial time and expense.
In addition, the process of manufacturing certain of these components is
extremely complex, and the Company's reliance on the suppliers of these
components exposes the Company to potential production difficulties and quality
variations, which could negatively affect cost and timely delivery of the
Company's products. The Company has from time to time in the past experienced
supply problems as a result of financial or operational difficulties of its
suppliers, shortages, discontinuations resulting from component obsolescence or
other shortages or allocations of supplies. For example, the supplier for the
Company's portable workstation has recently advised the Company that it plans to
discontinue manufacturing this product in the near future. While the Company
intends to seek an alternative workstation for the portable DCT system, it may
be unable to provide portable systems until an alternative supplier is
qualified. To date, sales of the portable DCT system have not accounted for a
significant portion of the Company's revenues. Although the Company, to date,
has not experienced material delays in product deliveries to its customers
resulting from such supply problems, there can be no assurance that supply
problems will not recur or, if such problems do recur, that satisfactory
solutions would be found. Any prolonged inability to obtain adequate amounts of
fully functional components or any other circumstances that would require the
Company to seek alternative sources of supply could have a material adverse
effect on the Company's relationship with its customers as well as on its
business, financial condition and results of operations. See "Risk
Factors--Dependence on Sole and Single Source Suppliers."
The Company relies on a limited number of independent manufacturers, some of
which are small, privately held companies, to provide certain assembly services
to the Company's specifications. The Company does not have any long-term supply
agreements with any third-party manufacturer. In the event of a reduction or
interruption in assembly services to the Company, the Company's business,
financial condition and results of operations would be materially adversely
affected until the Company was able to establish sufficient assembly services
supply from alternative sources. There can be no assurance that alternative
manufacturing sources will be able to meet the Company's future requirements or
that existing or alternative sources will continue to be available to the
Company at favorable prices. See "Risk Factors--Dependence on Third-Party
Manufacturers."
COMPETITION
The market for telecommunications test systems is characterized by intense
competition. The Company believes that its ability to compete successfully
depends on several factors, both within and outside its control, including
availability of a broad range of protocols and protocol variants, system
performance, length of operating history and industry experience, product
reliability, ease of use, quality of service and support, status as an
independent vendor and price. In addition, the Company believes that potential
customers consider other factors, such as the number of protocols required and
whether the test system vendor sells competing telecommunications products.
The Company believes its principal competitors are Able, HP, IFR, INET,
Schlumberger, Tekelec, Tektronix and Wavetek. Many of the Company's existing and
potential competitors are large domestic and international companies that have
substantially greater financial, manufacturing, technological, marketing, sales,
distribution and other resources, larger installed customer bases, greater name
recognition and longer-standing customer relationships than the Company.
Accordingly, such competitors or potential competitors may be able to respond
more quickly to new or emerging technologies and changes in customer
requirements or to devote greater resources to the development, promotion and
sales of their products than the Company. The Company believes that the market
for high-end testing systems is fragmented geographically. For example, Tekelec,
INET, Tektronix and Schlumberger are the Company's primary competitors in North
America, while in Europe Tektronix, Wavetek, Schlumberger and IFR are the
Company's primary competitors. In Japan, Able and Tekelec are the Company's
primary competitors. The Company also faces competition from several relatively
small companies.
The Company also competes with internal test system groups of its customers
and potential customers. Many of the Company's existing and potential customers
have the technical capability and financial resources to produce their own test
systems and perform test services internally. These systems and services would
be
39
<PAGE>
competitive with the test systems offered by the Company. There can be no
assurance that the Company's customers will continue, or that new customers will
choose, to outsource any of their test systems and service requirements or that
the Company's products and services will be widely adopted. If the market for
telecommunications test systems and services, or the demand for outsourcing,
declines or fails to grow, or if the Company's products and services are not
widely adopted as a telecommunications test solution, the Company's business,
financial condition and results of operations would be materially adversely
affected.
The Company expects competition to increase in the future from existing
competitors and from other companies that may enter this market with solutions
that may be less costly or provide higher performance or offer more features
than the Company's solutions. Current and potential competitors have established
or may establish cooperative relationships among themselves or with third
parties to develop new test solutions for internal use or for sale to third
parties in the Company's markets. Accordingly, it is possible that new
competitors may emerge and acquire significant market share. Increased
competition may result in price reductions, reduced gross margins and loss of
market share, any of which would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk
Factors--Competition."
INTELLECTUAL PROPERTY
The Company relies on a combination of trademark, copyright and trade secret
laws, as well as nondisclosure agreements and other contractual restrictions, to
establish and protect its proprietary rights. The Company generally enters into
nondisclosure and invention assignment agreements with its employees and
consultants, and into nondisclosure agreements with its customers and suppliers.
The Company has not in the past and does not expect in the future to rely on
patent laws to protect its proprietary technology. However, the Company believes
that, because of the rapid pace of technological change in the
telecommunications test system market, patent protection may be a less
significant factor in the Company's success than the knowledge, ability and
experience of the Company's employees, the nature and frequency of product
enhancement and the quality of the Company's support services. There can be no
assurance that the measures the Company undertakes will be adequate to protect
its proprietary technology. Additionally, the Company may be subject to further
risks as it enters into transactions in countries where intellectual property
laws are unavailable, do not provide adequate protection or are difficult to
enforce. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to duplicate aspects of the Company's products
or to obtain and use information that the Company regards as proprietary. There
can be no assurance that the steps taken by the Company to protect its
proprietary technology will be adequate to prevent misappropriation of such
technology or that they will preclude competitors from independently developing
products with functionality or features similar to the Company's products. The
failure of the Company to protect its proprietary technology would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors-- Limited Protection of Proprietary
Rights; Enforcement of Rights."
While to date, the Company has not been subject to claims of infringement or
misappropriation of intellectual property of third parties, there can be no
assurance that third parties will not assert infringement claims against the
Company, that any such assertion of infringement will not result in litigation
or that the Company would prevail in such litigation. Furthermore, any such
claims, with or without merit, could result in substantial cost to the Company
and diversion of its personnel, require the Company to develop new technology,
or require the Company to enter into royalty or licensing arrangements. Such
royalty or licensing agreements, if required, may not be available on terms
acceptable to the Company or at all. Because the Company does not rely on
patents to protect its technology, the Company will not be able to offer a
license for patented technology in connection with any settlement of patent
infringement lawsuits. In the event of a successful claim of infringement or
misappropriation against the Company and failure or inability of the Company to
develop non-infringing technology or license the infringed, misappropriated or
similar technology at a reasonable cost, the Company's business, financial
condition and results of operations would be materially adversely affected. In
addition, the Company indemnifies its customers against claimed infringement of
patents, trademarks, copyrights and other proprietary rights of third parties.
Any requirement for the Company to indemnify a customer
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<PAGE>
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risks of Third Party Claims of
Infringement."
EMPLOYEES
As of May 31, 1998, the Company employed 56 full-time employees, including
15 in research and development, 13 in technical customer support, 17 in sales
and marketing, seven in administration and four in manufacturing. Of these
employees, 39 were employed in North America, eight in the United Kingdom and
nine in Japan. The Company is not subject to any collective bargaining agreement
and has not experienced any work stoppages. The Company believes that its
relations with its employees are good. See "Risk Factors-- Competitive Market
for Technical and Sales Personnel," and "--Dependence on Key Personnel."
FACILITIES
The Company's executive offices, product development, and primary support
and production operations are located in Mountain View, California, where the
Company occupies approximately 17,750 square feet pursuant to a lease that
expires early in 2002. The annual rent for the property is approximately
$165,000. The Company believes that this facility will be adequate for its
planned purposes.
In addition, the Company leases professional services office space in the
following locations with the following approximate square footage: 2,000 square
feet in Schaumburg, Illinois; 523 square feet in Ottawa, Canada; 1,950 square
feet in Chippenham, UK; and 2,000 square feet in Tokyo, Japan.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information, as of May 31, 1998, with
respect to the directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ----------------------------------- --- ----------------------------------------------------------------------
<S> <C> <C>
Richard A. Karp.................... 54 President, Chief Executive Officer and Chairman of the Board
Joan M. Varrone.................... 47 Vice President of Finance, Chief Financial Officer and Treasurer
Barry R. Hoglund................... 49 Vice President of Sales
Glenn Stewart...................... 48 Vice President of Engineering
Guy R. Simpson..................... 39 Vice President of Applications Development
Barbara J. Fairhurst............... 50 Director of Operations
Nancy H. Karp...................... 53 Secretary and Director
John M. Scandalios (1)(2).......... 67 Director
Charles L. Waggoner (1)(2)......... 58 Director
</TABLE>
- ------------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
RICHARD A. KARP founded the Company in 1985 and has served as President,
Chief Executive Officer and Chairman of the Board of the Company since
inception. Prior to founding Catapult in 1985, Dr. Karp was Vice President of
Software Development for Tri-Data, Inc., a supplier of protocol conversion
equipment, from 1982 to 1985. Previously, he was a founder and Vice President of
Software of Sequoia Systems, a fault-tolerant computer systems manufacturer. Dr.
Karp has also served as an independent software consultant, and he spent five
years as a systems programmer and project leader at Burroughs Corporation. Dr.
Karp holds a Ph.D. in computer science from Stanford University, an M.S. in
mathematics from the University of Wisconsin and a B.S. in science from the
California Institute of Technology.
JOAN M. VARRONE joined Catapult in September 1997 as Vice President,
Finance, Chief Financial Officer and Treasurer. From 1994 to 1997, Ms. Varrone
was Treasurer of Watkins-Johnson Company, a semiconductor equipment
manufacturer, where she was responsible for finance, real estate, employee
benefits and environmental compliance. From 1985 to 1993, she was employed by
Raychem Corporation, where she held a number of financial positions in the areas
of planning, international tax and treasury management. Prior to that, Ms.
Varrone was employed at Exxon Corporation. Ms. Varrone holds an M.B.A. in
finance and international business from New York University, an M.S. in
operations research from Purdue University and a B.A. in mathematics from the
College of New Rochelle.
BARRY R. HOGLUND joined Catapult in 1993 as Vice President of Sales. From
1992 to 1993, he was Vice President of North American Sales and Service at
Spectra-Physics Lasers. Prior to that, he was employed for 17 years by
Watkins-Johnson Company, where his last position was Vice President of Sales and
Marketing. Mr. Hoglund received an M.S. in physics from the University of
Illinois and a B.S. in physics from the University of Minnesota.
GLENN STEWART joined the Company in 1992 as Vice President of Engineering.
Prior to joining the Company, he was Director of Engineering at Tektronix/LP
Com. Previously, he spent nine years at Bell Northern Research as a manager of
development of telecommunications products and services. Mr. Stewart holds an
M.Sc. and a B.Sc. in computer science from the University of Toronto.
GUY R. SIMPSON has served as Deputy Chairman of Catapult Communications
Ltd., the Company's UK subsidiary ("CCL"), since October 1996 and was elected
Vice President of Applications Development of the Company in May 1998. Mr.
Simpson joined the Company in 1989 and has held a number of technical and
management positions with the Company and CCL since that time. From October 1996
to April 1998,
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Mr. Simpson was the Director of Field Test Systems for the Company. From July
1994 to September 1996, Mr. Simpson was Managing Director of CCL. From July 1992
to June 1994, he was Secretary of CCL. Prior to joining the Company, Mr. Simpson
was employed for eight years by AT&T Bell Laboratories, where he held a variety
of engineering and management positions in the area of advanced digital
switching systems. Mr. Simpson holds a B.Sc. degree in computer science from
Hatfield Polytechnic at the University of Hertfordshire, United Kingdom.
BARBARA J. FAIRHURST joined Catapult in June 1995 as Director of Operations.
From 1994 to 1995, Ms. Fairhurst was Principal at BJF Consulting, a consulting
firm, where she developed business plans and implemented operating systems. From
1990 to 1993, Ms. Fairhurst was Corporate Vice President at Intersource
Technologies, Inc., where she was responsible for operations and manufacturing.
Prior to that time, Ms. Fairhurst spent 10 years as President and Chief
Operating Officer of Sequential Circuits, a manufacturer of electronic music
equipment. Ms. Fairhurst holds an M.B.A. from the University of Santa Clara and
a B.A. from San Jose State University.
NANCY H. KARP has served as director and Secretary of the Company since its
inception and served as the Company's Treasurer from inception to September
1997. In addition, from time to time during that period, she provided a variety
of services to the Company. Beginning in June 1998, she also entered into a
three-year consulting agreement with the Company. See "Certain Transactions."
Ms. Karp holds an M.B.A. from Claremont Graduate School, an M.A. in public
health from the University of California at Berkeley and a B.S. from Texas
Technical University.
JOHN M. SCANDALIOS has served as a director of the Company since November
1987. Since 1994, Mr. Scandalios has been a director and Vice President of Sales
at Flowpoint Corporation, a computer networking company ("Flowpoint"). From 1993
to 1994, he served as Vice President of Sales of Combinet Inc., a computer
networking company. From 1990 to 1993, Mr. Scandalios was President of LIR
Corporation ("LIR"). From 1987 to 1990, he served as Vice-President of Sales of
ARIX Corporation. Mr. Scandalios is also a director of Ancot Corporation. Mr.
Scandalios holds an M.B.A. and a B.A. from the University of Chicago.
CHARLES L. WAGGONER has served as a director of Catapult since January 1991.
Since 1993, Mr. Waggoner has served as President of Flowpoint. From 1992 to
1993, Mr. Waggoner was Vice President of Development of LIR. From 1990 to 1992,
he was an independent consultant at Waggoner Associates. From 1986 to 1990, Mr.
Waggoner served as Vice President of Operations of GRiD Systems, Inc., a
portable laptop computer company. Mr. Waggoner holds a B.S. in electrical
engineering from South Dakota State University.
Each director holds office until the next annual meeting of the stockholders
of the Company or until his or her successor is duly elected and qualified. Each
officer serves at the discretion of the Board of Directors. Richard A. Karp and
Nancy H. Karp are husband and wife and are in the process of seeking a divorce.
DIRECTOR COMPENSATION
The Company's non-employee directors do not currently receive any cash
compensation for service on the Company's Board of Directors or any committee
thereof, but directors may be reimbursed for certain expenses incurred in
connection with attendance at Board and committee meetings. Pursuant to the 1989
Stock Option Plan (the "1989 Plan"), in fiscal 1997 Messrs. Scandalios and
Waggoner were each granted an option to purchase 37,500 shares of Common Stock
at an exercise price of $0.83 per share. In addition, non-employee directors
will be eligible for option grants under the Company's 1998 Stock Plan (the
"1998 Plan"), which was adopted by the Board of Directors and approved by the
stockholders in June 1998. Beginning in June 1998, Ms. Karp entered into a
three-year consulting agreement with the Company. See "Management--Stock Plans"
and "Certain Transactions."
43
<PAGE>
BOARD OF DIRECTORS COMMITTEES
The Board of Directors has an Audit Committee and a Compensation Committee,
each consisting of Messrs. Waggoner and Scandalios. The Audit Committee was
formed in June 1998 and makes recommendations to the Company's Board of
Directors regarding the selection of independent auditors, reviews the results
and scope of annual audit and reviews and evaluates the Company's internal
control functions.
The Compensation Committee was formed in June 1998 and makes recommendations
to the Board of Directors concerning salaries and incentive compensation for the
Company's executive officers and administers the Company's Stock Plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is currently composed of Messrs. Scandalios and
Waggoner. Neither of these individuals has at any time been an officer or
employee of the Company. Prior to formation of the Compensation Committee,
determinations regarding compensation were made by the entire Board of
Directors. No member of the Compensation Committee of the Company serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee. Certain of the Company's directors have
engaged in transactions with the Company. See "Certain Transactions."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Articles of Incorporation limit, to the maximum extent
permitted by Section 78.751 of the Nevada General Corporation Law, the personal
liability of directors and officers for monetary damages for breach of their
fiduciary duties as directors and officers (other than liabilities arising from
acts or omissions which involve intentional misconduct, fraud or knowing
violations of law or the payment of distributions in violation of Nevada General
Corporation Law). The Articles of Incorporation provide further that the Company
shall indemnify to the fullest extent permitted by Nevada General Corporation
Law any person made a party to an action or proceeding by reason of the fact
such person was a director, officer, employee or agent of the Company. Subject
to the Company's Articles of Incorporation, the Bylaws provide that the Company
shall indemnify directors and officers for all costs reasonably incurred in
connection with any action, suit or proceeding in which such director or officer
is finally adjudged to have been derelict in the performance of his duties as
such director or officer. The Company has entered into indemnification
agreements with its officers and directors containing provisions which may
require the Company, among other things, to indemnify the officers and directors
against certain liabilities that may arise by reason of their status or service
as directors or officers (other than liabilities arising from willful misconduct
of a culpable nature), and to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified.
At the present time, there is no pending material litigation or proceeding
involving a director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of any
threatened material litigation or proceeding which may result in a claim for
such indemnification.
44
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
compensation earned by the Company's Chief Executive Officer and other executive
officers whose aggregate salary and bonus exceeded $100,000 during the fiscal
year ended September 30, 1997 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
------------------------ UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)(1) OPTIONS(#)(2)
- ------------------------------------------------------ ---------- ------------ -------------
<S> <C> <C> <C>
Richard A. Karp ...................................... $ 360,000 $ 1,050,000 --
President, Chief Executive Officer
and Chairman of the Board
Barry R. Hoglund ..................................... 132,533 156,122 75,000
Vice President of Sales
Glenn Stewart ........................................ 132,553 80,122 --
Vice President of Engineering
Barbara J. Fairhurst ................................. 88,000 46,122 --
Director of Operations
</TABLE>
- ----------------
(1) Includes bonuses paid in fiscal 1998 for services rendered in fiscal 1997.
(2) The Company has not granted any SARs.
OPTION GRANTS DURING FISCAL YEAR 1997
The following table sets forth certain information concerning the stock
option granted to the only Named Executive Officer who received an option in the
fiscal year ended September 30, 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED ANNUAL
SECURITIES PERCENT OF TOTAL RATES OF STOCK
UNDERLYING OPTIONS GRANTED EXERCISE DEEMED VALUE PER PRICE APPRECIATION($)(6)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION SHARE FOR DATE OF ------------------------
NAME GRANTED(#)(1) 1997(2) ($/SH)(3) DATE(4) GRANT(5) 0% 5%
- ------------------------ --------------- ---------------- ----------- ----------- ------------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Barry R. Hoglund........ 75,000 25.3% $ 1.27 05/14/07 $ 3.33 $ 155,000 $ 312,224
<CAPTION>
NAME 10%
- ------------------------ -----------
<S> <C>
Barry R. Hoglund........ $ 553,436
</TABLE>
- ----------------
(1) This option is an incentive stock option granted pursuant to the 1989 Stock
Plan and has a term of 10 years, subject to earlier termination in certain
events related to termination of employment. This option vests as to 1/8th
of the underlying shares six months after the date of grant, and as to
1/48th of the shares each month thereafter.
(2) Based on an aggregate of 296,475 shares subject to options granted in fiscal
1997.
(3) Exercise price is equal to fair market value as determined by the Board of
Directors at the time of grant. In determining the fair market value of the
Company's Common Stock, the Board of Directors considered various factors,
including the Company's financial condition and business prospects, its
operating results, the absence of a market for its Common Stock and the
risks normally associated with technology companies.
(4) Options may terminate before their expiration dates if the optionee's status
as an employee or consultant is terminated or upon the optionee's death or
disability.
45
<PAGE>
(5) The deemed value for the date of grant was determined after the date of
grant solely for financial accounting purposes.
(6) The potential realizable value is calculated based on the term of the option
(10 years) and assumes that the deemed value at the date of grant
appreciates at the indicated annual rate, compounded annually for the entire
term of the option, and that the option is exercised and sold on the last
day of its term for the appreciated stock price. The 0%, 5% and 10% assumed
annual rates of compounded stock price appreciation are mandated by rules of
the Commission and do not represent the Company's estimate or projection of
the Company's future Common Stock prices. The assumed rate of appreciation
of 0% indicates the value at the effective date of the offering based on the
deemed value for financial accounting purposes less the exercise price.
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding exercisable and
unexercisable stock options held by the Named Executive Officers as of September
30, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS AT
OPTIONS AT 9/30/97 (#) 9/30/97 ($)(2)
---------------------------- ----------------------------
NAME(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------------------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Barry R. Hoglund......................................... 390,000 75,000 $ $
Glenn Stewart............................................ 255,624 21,876
Barbara J. Fairhurst..................................... 23,435 21,565
</TABLE>
- ------------------------
(1) None of the Named Executive Officers exercised options in fiscal 1997.
(2) Value of unexercised in-the-money options is based on the assumed initial
public offering price of $ per share less the exercise price payable for
such shares.
STOCK PLANS
1989 STOCK OPTION PLAN. The Company's 1989 Stock Option Plan (the "1989
Plan") was adopted by the Board of Directors and approved by the stockholders of
the Company in August 1989. As of May 31, 1998, options to purchase a total of
874,072 shares of Common Stock had been exercised, options to purchase a total
of 602,350 shares at a weighted average exercise price of $1.17 per share were
outstanding and 323,578 shares remained available for future option grants.
The 1989 Plan provides for the grant to employees of the Company and its
subsidiaries (including officers and employee directors) of "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), and for the grant of options which do not so qualify
("nonstatutory stock options") to employees, officers, directors and
consultants, advisors and other independent contractors to the Company. The 1989
Plan is administered by the Board of Directors or a committee of the Board of
Directors (the "Administrator"). The exercise price of all incentive stock
options granted under the 1989 Plan must be at least equal to the fair market
value of the Common Stock of the Company on the date of grant. The exercise
price of nonstatutory stock options cannot be less than 85% of the fair market
value of the Common Stock of the Company on the date of grant. Generally,
options granted under the 1989 Plan provide that they must be exercised within
30 days of the end of optionee's status as an employee or consultant of the
Company, or within 12 months after such optionee's termination by death or
disability, but in no event later than the expiration of the option's 10-year
term. The term of any stock option granted under the 1989 Plan may not exceed 10
years. Options granted to employees under the 1989 Plan generally become
exercisable as to 1/8th of the total number of shares subject to the option six
months after the date of grant, and as to 1/48th of the shares each month
thereafter.
46
<PAGE>
In the event of certain changes in control of the Company, the 1989 Plan
requires that each outstanding option be assumed or substituted by the successor
corporation. If the successor corporation does not assume or substitute an
option, the vesting and exercise period of such option will be accelerated as of
a date prior to the change in control, as the Administrator so determines. Any
options not assumed or exercised as of the date of the change in control of the
Company will terminate, effective as of the date of such change in control. If
not terminated earlier, the 1989 Plan will terminate in 1999.
UK EXECUTIVE SHARE OPTION SCHEME. The Company's UK Executive Share Option
Scheme (the "UK Plan") was adopted by the Board of Directors and approved by the
stockholders of the Company in August 1989. As of May 31, 1998, no options to
purchase shares of Common Stock had been exercised, and options to purchase a
total of 154,500 shares at a weighted average exercise price of $0.22 per share
were outstanding. As of such date, the Board had authorized no additional shares
for future option grants under the UK Plan.
The UK Plan provides for the grant to employees of the Company and its
subsidiaries who satisfy certain criteria as set forth in the 1989 Plan. The UK
Plan contains restrictions intended to comply with UK taxation laws, including
restrictions on exercise, limitations on the size of option grants, requirements
with respect to changes in capitalization and other matters.
The UK Plan is administered by the Board of Directors or a committee of the
Board of Directors (the "Administrator"). The Administrator determines the terms
of options granted under the UK Plan, including the number of shares subject to
the option, exercise price, term and exercisability. Payment of the exercise
price may be made in cash or other consideration determined by the
Administrator. An option may not be transferred by the optionee. Options granted
to each employee under the UK Plan generally vest at the rate of 1/36th of the
total number of shares subject to such option each month, commencing on the
first anniversary of the date of grant. Options granted under the UK Plan must
generally be exercised at the end of the optionee's status as an employee of the
Company, or within 12 months after such optionee's termination by retirement,
disability or death but in no event after the 10-year term of the option.
In the event of certain changes in control of the Company, optionees under
the UK Plan have the right to exercise or substitute their options for six
months from the date of a change in control of the Company. The Administrator
has the authority to alter the UK Plan as long as such action does not adversely
affect any outstanding option, subject to approval of the Board of Inland
Revenue as well as stockholder approval for any amendment which materially
increases benefits accruing to participants.
1998 STOCK PLAN. The Company's 1998 Stock Plan (the "1998 Plan") was
adopted by the Board of Directors and approved by the stockholders of the
Company in June 1998. A total of 1,800,000 shares of Common Stock has been
reserved for issuance under the 1998 Plan. The 1998 Plan provides for the grant
to employees of the Company (including officers and employee directors) of
incentive stock options within the meaning of Section 422 of the Code, and for
the grant of nonstatutory stock options to employees, officers, directors
(including non-employee directors) and consultants of the Company. Stock
purchase rights may also be granted under the 1998 Plan.
The 1998 Plan is administered by the Board of Directors or a committee of
the Board of Directors (the "Administrator"). The Administrator determines the
terms of options and stock purchase rights granted under the 1998 Stock Option
Plan, including the number of shares subject to the option or right, exercise
price, term and exercisability. No employee may be granted options to purchase
more than 300,000 shares in any fiscal year. The exercise price of options and
stock purchase rights granted under the 1998 Plan must be at least equal to the
fair market value of the Common Stock of the Company on the date of grant. The
term of an incentive stock option granted under the 1998 Plan may not exceed 10
years. Options granted under the 1998 Plan must generally be exercised within 30
days of the end of optionee's status as an employee or consultant of the
Company, or within 12 months after such optionee's termination by death or
disability, but in no event later than the expiration of the option's 10-year
term. Options granted to employees under the 1998 Plan generally become
exercisable at the rate of 1/8th of the total number of shares subject to the
option six months after the date of grant, and as to 1/48th each month
thereafter. Stock purchased upon exercise of stock purchase rights is subject
47
<PAGE>
to repurchase upon the termination of the purchaser's employment with the
Company for any reason (including death or disability). The repurchase option
lapses at a rate determined by the Administrator.
The 1998 Plan provides that in the event of certain changes in control of
the Company, each option or right must be assumed or an equivalent option or
right substituted by the successor corporation. If the outstanding options or
rights are not assumed or substituted, the vesting and exercise period of such
option or stock purchase right will be accelerated for a period of 15 days, and
the option or stock purchase right will terminate upon the expiration of such
period. If not terminated earlier, the 1998 Plan will terminate in 2008.
1998 EMPLOYEE STOCK PURCHASE PLAN. The Company's 1998 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors and
the stockholders in June 1998. A total of 750,000 shares of Common Stock has
been reserved for issuance under the Purchase Plan plus annual increases equal
to the lesser of (i) 52,500 shares, (ii) 1% on the outstanding shares on such
date or (iii) a lesser amount determined by the Board. The Purchase Plan, which
is intended to qualify under Section 423 of the Code, has consecutive six-month
offering periods. The offering periods generally begin on the first trading day
on or after May 1 and November 1 of each year, except that the first offering
period commences 91 days after the effective date of this offering and ends on
the last trading day on or before April 30, 1999. The Purchase Plan will be
administered by the Board of Directors or by a committee appointed by the Board.
Employees will be eligible to participate if they are customarily employed by
the Company or any participating subsidiary for at least 30 hours per week and
more than five months in any calendar year. However, any employee who (i)
immediately after grant owns stock possessing 5% or more of the total combined
voting power or value of all classes of the capital stock of the Company, or
(ii) whose rights to purchase stock under all employee stock purchase plans of
the Company accrues at a rate which exceeds $25,000 for each calendar year may
not be granted an option to purchase stock under the Purchase Plan. The Purchase
Plan permits eligible employees to purchase Common Stock through payroll
deductions of up to 7% of an employee's total compensation. The price of stock
purchased under the Purchase Plan will generally be 85% of the lower of the fair
market value of the Common Stock at the beginning of the offering period or at
the end of the relevant purchase period. The maximum number of shares a
participant may purchase during a single offering period is 300 shares.
Employees may end their participation at any time during an offering period, and
they will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with the Company. The Purchase Plan
will terminate in 2008.
48
<PAGE>
CERTAIN TRANSACTIONS
Richard A. Karp and Nancy Hood Karp are currently involved in a divorce
proceeding. In connection with this proceeding, in June 1998, they entered into
a Voting Trust Agreement. Under the Agreement, Ms. Karp placed all shares of the
Company's Common Stock that she owned into a voting trust of which Dr. Karp is
the trustee. She also agreed to place shares that she acquires in the future
into the trust. The agreement gives Dr. Karp the power to vote the shares while
they are in the trust. Ms. Karp has the ability to sell the shares which are the
subject of the voting trust, which would terminate the voting trust as to any
shares sold. Unless sooner terminated by Dr. Karp's resignation as trustee, his
death or permanent disability, or a sale or merger of the Company, the voting
trust will expire in June 2013.
In early 1998, Ms. Karp asserted a claim against the Company for
compensation for past services rendered by her to the Company. In June 1998, to
settle these claims, the Company and Ms. Karp entered into a Severance Agreement
and Mutual Release under which the Company paid her (i) $80,000 in full and
complete settlement of her claims and (ii) payments totalling $17,500 for
attorney's fees and costs she may incur in retaining a career counseling firm.
The Company has also agreed to reimburse her up to $500 per month for up to one
year for expenses related to conversion of her health and life insurance
coverages to an individual plan.
The Company and Ms. Karp also concurrently entered into a Consulting and
Non-Competition Agreement under which Ms. Karp is retained as a consultant to
the Company for three years to assist in the areas of human resources,
facilities expansion and relocation, marketing and general business at a rate of
not less than $4,500 per month. She has agreed during this period in exchange
for a lump sum payment of $18,000 not to engage in certain activities which
would be competitive with the Company. She continues to serve as a director and
Secretary of the Company.
The Company will pay the expenses of the Selling Stockholders in connection
with the offering made by this Prospectus, excluding underwriting discounts and
commissions. Sales by Dr. and Ms. Karp will account for substantially all of the
shares to be sold by Selling Stockholders, including any shares that may be sold
by Ms. Karp upon exercise of the over-allotment option granted by her to the
Underwriters.
The Company has entered into indemnification agreements with its executive
officers and directors containing provisions that may require the Company, among
other things, to indemnify its executive officers and directors against certain
liabilities that may arise by reason of their status or service as executive
officers or directors (other than liabilities arising from willful misconduct of
a culpable nature) and to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified. The Company also
intends to execute such agreements with its future directors and executive
officers. See "Management--Limitation of Liability and Indemnification Matters."
49
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of May 31, 1998 (except as
indicated) and as adjusted to reflect the sale of Common Stock offered hereby
for (i) each person or entity who is known to the Company to beneficially own 5%
or more of the outstanding Common Stock of the Company; (ii) each of the
Company's directors; (iii) each of the Named Executive Officers; (iv) all
directors and executive officers of the Company as a group, and (v) the Selling
Stockholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY
PRIOR TO OFFERING(1) NUMBER OF OWNED AFTER OFFERING(1)
------------------------- SHARES ------------------------
DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------------------------------------------ ------------ ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Richard A. Karp(2).......................................... 9,000,000 86.3% -- %
Nancy H. Karp(2)............................................ 4,557,000 43.7 --
Barry R. Hoglund(3)......................................... 411,875 3.9 -- --
Glenn Stewart(3)............................................ 261,875 2.5 -- --
Barbara J. Fairhurst(3)..................................... 32,813 * -- -- *
John M. Scandalios(3)....................................... 23,906 * -- -- *
Charles L. Waggoner(3)...................................... 23,906 * -- -- *
All executive officers and directors as a group (9
persons)(3)............................................... 9,931,995 93.0 --
OTHER SELLING STOCKHOLDERS
- ------------------------------------------------------------
Katherine F. Dollard........................................ 60,000 * -- -- *
</TABLE>
- ------------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares beneficially owned by a person
and the percentage ownership of that person, shares of Common Stock subject
to options held by that person that are currently exercisable or are
exercisable within 60 days of May 31, 1998 are deemed outstanding. Such
shares, however, are not deemed outstanding for the purposes of computing
the percentage ownership of any other individual. Percentage ownership of
shares is based on 10,430,945 shares outstanding as of May 31, 1998 before
the offering and shares outstanding after the offering. Except as
indicated in the footnotes to this table and pursuant to applicable
community property laws, each stockholder named in the table has sole voting
and investment power with respect to the shares set forth opposite such
stockholder's name.
(2) Includes in the case of Dr. Karp 4,500,000 shares beneficially owned by Ms.
Karp with respect to which Dr. Karp has sole voting power pursuant to a
voting trust agreement. Ms. Karp has retained dispositive power over such
shares. See "Certain Transactions." The shares shown as beneficially owned
by Ms. Karp include 57,000 shares beneficially owned by Dr. Karp which he
will transfer to Ms. Karp for sale by her in the offering made by this
Prospectus. The information with respect to shares beneficially owned by Dr.
and Ms. Karp after the offering assumes no exercise of the Underwriters'
over-allotment option. The address for Dr. and Ms. Karp is c/o Catapult
Communications Corporation, 160 South Whisman Road, Mountain View,
California 94041.
(3) Includes the following shares subject to options exercisable within 60 days
of May 31, 1998: Barry R. Hoglund (21,875); Glenn Stewart (6,875); Barbara
J. Fairhurst (17,813); John M. Scandalios (16,406); Charles L. Waggoner
(23,906); and all executive officers and directors as a group (9 persons)
(244,808).
50
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock, $0.001 par value, and
5,000,000 shares of undesignated Preferred Stock, $0.001 par value.
COMMON STOCK
As of May 31, 1998, there were 10,430,945 shares of Common Stock outstanding
that were held of record by 20 stockholders. There will be shares of Common
Stock outstanding (assuming no exercise of the Underwriters' over-allotment
option and no exercise of outstanding options after May 31, 1998) after giving
effect to the sale of Common Stock offered hereby.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to any outstanding shares of Preferred Stock,
the holders of Common Stock are entitled to receive ratably such dividends, if
any, as may be declared by the Board of Directors out of funds legally available
for the payment of dividends. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to preferences of Preferred Stock then outstanding, if any.
The Common Stock has no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are fully paid and
non-assessable, and the shares of Common Stock to be issued upon completion of
this offering will be fully paid and non-assessable.
PREFERRED STOCK
Pursuant to the Company's Restated Certificate of Incorporation, the Board
of Directors has the authority, without further action by the stockholders, to
issue up to 5,000,000 shares of Preferred Stock in one or more series and to fix
the designations, powers, preferences, privileges, and relative participating,
optional or special rights and the qualifications, limitations or restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may be greater than
the rights of the Common Stock. The Board of Directors, without stockholder
approval, can issue Preferred Stock with voting, conversion or other rights that
could adversely affect the voting power and other rights of the holders of
Common Stock. Preferred Stock could thus be issued quickly with terms calculated
to delay or prevent a change in control of the Company or make removal of
management more difficult. Additionally, the issuance of Preferred Stock may
have the effect of decreasing the market price of the Common Stock, and may
adversely affect the voting and other rights of the holders of Common Stock.
Effective upon completion of this offering, there will be no shares of Preferred
Stock outstanding, and the Company has no plans to issue any Preferred Stock.
NEVADA ANTI-TAKEOVER STATUTES
The Company is subject to the provisions of Sections 78.411 through 78.444
of the General Corporation Law of Nevada. In general, this statute prohibits a
publicly held Nevada corporation from engaging in a "business combination" with
an "interested stockholder" for a period of three years after the date of the
transaction in which the person becomes an interested stockholder, unless the
business combination is approved in a prescribed manner. An "interested
stockholder" is a person who, directly or indirectly, owns (or within the prior
three years did own) 10% or more of the corporation's voting stock.
Nevada has also adopted a "control shares" statute which limits the
acquisition of a "controlling interest" in the corporation, as defined in the
statute. This statute is designed to prevent an "acquiring person" from gaining
voting control of the corporation without the approval of the corporation's
stockholders. It provides that an acquiring person obtains only such voting
rights in the control shares as are conferred by a resolution of the
51
<PAGE>
stockholders. Nevada's control shares statute applies to any issuing corporation
which has 200 or more stockholders, at least 100 of whom are stockholders of
record and residents of Nevada. The Company did not meet this requirement prior
to this offering.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock in
ChaseMellon Shareholder Services, L.L.C., and its telephone number is (415)
743-1444.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect market prices prevailing from time to time.
Furthermore, since only a limited number of shares will be available for sale
shortly after this offering because of certain contractual and legal
restrictions on resale described below, sales of substantial amounts of Common
Stock of the Company in the public market after the restrictions lapse could
adversely affect the prevailing market price and the ability of the Company to
raise equity capital in the future.
Upon completion of this offering, the Company will have an aggregate of
shares of Common Stock outstanding, assuming no exercise of options after
May 31, 1998. Of these shares, the shares sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act. The remaining shares outstanding upon completion of this offering will
be "restricted securities" as that term is defined under Rule 144 under the
Securities Act ("Restricted Shares"). Restricted Shares may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 promulgated under the Securities
Act, which are summarized below.
The Company's officers, directors, certain stockholders and all holders of
options to purchase Common Stock of the Company have agreed, during the 180-day
period after the date of this Prospectus (the "Lock-Up Period"), that they will
not, without the prior written consent of Hambrecht & Quist LLC, directly or
indirectly offer, sell, contract to sell or otherwise dispose of any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock. The Company has agreed that it will not, without the prior
written consent of Hambrecht & Quist LLC, directly or indirectly offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
during such 180-day period except for the sale of the shares of Common Stock in
this offering and the issuance of options and shares of Common Stock pursuant to
employee benefit plans described in this Prospectus. Any shares subject to the
lock-up agreements may be released at any time, without notice, by Hambrecht &
Quist LLC. See "Underwriting."
Taking into account the lock-up agreements, the number of shares that will
be available for sale in the public market under the provisions of Rules 144,
144(k) and 701, including certain shares issuable upon exercise of options, will
be as follows: (i) approximately Restricted Shares will be eligible for sale
immediately after the effective date of the registration statement, (ii)
approximately additional Restricted Shares (as well as an additional
shares issuable upon exercise of outstanding options) will be eligible for
public resale beginning 180 days after the effective date of the registration
statement, subject in some cases to vesting provisions and certain restrictions
on such sales by "affiliates" of the Company as that term is defined in Rule 144
of the Securities Act ("Affiliates"), and (iii) the remaining Restricted
Shares will become eligible for public resale following expiration of the
lock-up agreements at various times in the year following the completion of this
offering, subject in some cases to vesting provisions and the volume and manner
of sale restrictions of Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares at least one year
(including the holding period of any prior owner other than an Affiliate) is
entitled to sell in "broker's transactions" or to market makers, within any
three-month period commencing 90 days after the date of this Prospectus, a
number of shares that does not exceed the greater of (i) one percent of the
number of shares of Common Stock then outstanding (approximately shares
immediately after this offering) or (ii) the average weekly trading volume of
the Common Stock during the four calendar weeks preceding the required filing of
a Form 144 with respect to such sale. Sales under Rule 144 are generally subject
to certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an Affiliate at any time during the 90
days preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years (including the holding period of any prior owner
other than an Affiliate), is entitled to sell such shares without having to
comply with the manner of sale, public information, volume limitation or notice
provisions of Rule 144.
53
<PAGE>
Under Rule 701 promulgated under the Securities Act, employees, officers or
directors of or consultants to the Company who purchased or were awarded shares
or options to purchase shares pursuant to a written compensatory plan or
contract are entitled to sell such shares 90 days after the effective date of
this offering, without having to comply with the holding period requirements of
Rule 144 and, in the case of non-affiliates, without having to comply with the
public information, volume limitation or notice provisions of Rule 144.
The Company intends to file a registration statement on Form S-8 under the
Securities Act covering approximately shares of Common Stock reserved for
issuance under the Stock Plans. Such registration statement is expected to be
filed and become effective as soon as practicable after the effective date of
this offering. Accordingly, shares registered under such registration statement
will, subject to Rule 144 volume limitations applicable to Affiliates, be
available for sale in the open market 180 days after the effective date of the
offering, except to the extent that such shares are subject to vesting
restrictions. As of May 31, 1998, options to purchase 756,850 shares were issued
and outstanding under the Stock Plans. See "Management--Stock Plans."
54
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC,
CIBC Oppenheimer Corp. and C.E. Unterberg, Towbin, have severally agreed to
purchase from the Company and the Selling Stockholders the following respective
numbers of shares of Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---------------------------------------------------------------- -----------
<S> <C>
Hambrecht & Quist LLC...........................................
CIBC Oppenheimer Corp...........................................
C.E. Unterberg, Towbin..........................................
-----------
Total...........................................................
-----------
-----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company, its counsel and independent
auditors. The nature of the Underwriters' obligation is such that they are
committed to purchase all shares of Common Stock offered hereby if any of such
shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow and such dealers may reallow a
concession not in excess of $ per share to certain other dealers. After the
initial public offering of the shares, the offering price and other selling
terms may be changed by the Representatives of the Underwriters. The
Representatives have informed the Company that the Underwriters do not intend to
confirm discretionary sales in excess of 5% of the shares of Common Stock
offered hereby.
Nancy H. Karp, a Selling Stockholder, has granted to the Underwriters an
option, exercisable no later than 30 days after the date of this Prospectus, to
purchase up to additional shares of Common Stock at the initial public
offering price, less the underwriting discount, set forth on the cover page of
this Prospectus. To the extent that the Underwriters exercise this option, each
of the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof which the number of shares of Common Stock to be
purchased by it shown in the above table bears to the total number of shares of
Common Stock offered hereby. Ms. Karp will be obligated, pursuant to the option,
to sell shares to the Underwriters to the extent the option is exercised. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of shares of Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
The Selling Stockholders, certain other stockholders and certain holders of
options to purchase Common Stock of the Company, including the executive
officers and directors, who will own (or have the right to purchase) in the
aggregate shares (including shares issuable upon exercise of options to
purchase Common
55
<PAGE>
Stock) after the offering, have agreed that they will not, without the prior
written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of
any shares of Common Stock, options or warrants to acquire shares of Common
Stock or securities exchangeable for or convertible into shares of Common Stock
owned by them during the 180-day period following the date of this Prospectus.
The Company has agreed that it will not, without the prior written consent of
Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of Common
Stock, options or warrants to acquire shares of Common Stock or securities
exchangeable for or convertible into shares of Common Stock during the 180-day
period following the date of this Prospectus, except that the Company may issue
shares upon the exercise of options granted prior to the date hereof, and may
grant additional options under its stock option plans.
Prior to the offering, there has been no public market for the Common Stock.
The initial public offering price for the shares of Common Stock will be
determined by negotiation among the Company, the Selling Stockholders and the
Representatives. Among the factors to be considered in determining the initial
public offering price are prevailing market and economic conditions, revenues
and earnings of the Company, estimates of the business potential and prospects
of the Company, the present state of the Company's business operations, the
Company's management and other factors deemed relevant. The estimated initial
public offering price range set forth on the cover of this Preliminary
Prospectus is subject to change as a result of market conditions and other
factors.
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of Common Stock sold by the syndicate member are purchased
in syndicate covering transactions. Such transactions may be effected on the
Nasdaq Stock Market, in the over-the-counter market or otherwise. Such
stabilizing, if commenced, may be discontinued at any time.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the securities
being offered hereby will be passed upon for the Company and the Selling
Stockholders by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Cooley Godward LLP, San Francisco,
California.
EXPERTS
The consolidated financial statements of Catapult Communications Corporation
as of September 30, 1996 and 1997 and for each of the three years in the period
ended September 30, 1997 included in this Prospectus have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
CHANGE IN ACCOUNTANTS
In December 1997, the Company retained Price Waterhouse LLP as the Company's
independent accountants and replaced Ireland San Filippo, LLP ("Ireland San
Filippo"), the Company's former accountants. The decision to change independent
accountants was ratified by the Company's Board of Directors. During the periods
audited by Ireland San Filippo through December 1997, there were no
disagreements with Ireland San Filippo regarding any matters with respect to
accounting principles or practices, financial statement disclosure or audit
scope or procedure, which disagreements, if not resolved to the satisfaction of
the former accountants,
56
<PAGE>
would have caused Ireland San Filippo to make reference to the subject matter of
the disagreement in connection with its report. The former accountants reports
for the years audited by them are not a part of the financial statements of the
Company included in this Prospectus and the related financial statement
schedules included elsewhere in the Registration Statement. Such reports did not
contain an adverse opinion or disclaimer of opinion or qualifications or
modifications as to uncertainty, audit scope or accounting principles. Prior to
retaining Price Waterhouse LLP, the Company had not consulted with Price
Waterhouse LLP regarding the application of accounting principles.
57
<PAGE>
GLOSSARY
<TABLE>
<S> <C>
Asynchronous Transfer A cell-based network technology protocol that supports
Mode (ATM) simultaneous transmission of data, voice and video typically at
T1 or higher speeds.
Code Division Multiple A digital wireless technology that uses a modulation technique
Access (CDMA) in which many channels are independently coded for transmission
over a single wideband channel.
E-1 A digital transmission link used by European carriers to
transmit thirty-two 64 Kbps digital channels for voice or data.
Frame Relay An access standard which employs a form of packet switching to
facilitate high-speed data communications.
Global System for Mobile A digital wireless technology that is widely deployed in Europe
Communications (GSM) and, increasingly, in other parts of the world.
Graphical User Interface A graphics-based computer interface that usually incorporates
(GUI) icons, pull- down menus and a mouse.
Intelligent Network (IN) A network that allows functionality to be distributed flexibly
to a variety of nodes on and off the network and allows that
architecture to be modified to control network services.
Integrated Services An international telecommunications standard for transmitting
Digital Network (ISDN) voice, data and video over digital lines at transmission speeds
of up to 142 Kbps.
IS-41 (Interim Standard A signalling protocol used in the North American cellular
41) applications.
Personal Communication A digital cellular communication service offered by some North
Service (PCS) American operators.
Personal Digital A digital cellular communication service used in Japan.
Cellular (PDC)
Protocol A specific set of rules, procedures or conventions governing the
format, means and timing of transmissions between two devices.
System Signalling 7 A message-based protocol for exchanging signalling and control
(SS7) information between telephony network entities.
T-1 A point-to-point dedicated line with transmission speeds of up
to 1.544 Mbps widely used for private networks and high-speed
links to the Internet.
V5 A European standard protocol for the interface between the
access network and the carrier switch principally for basic
telephony.
Variant A specific implementation of a protocol, typically unique to a
country or region.
X.25 A switched communications protocol that defines how data streams
are to be assembled into packets, controlled, routed and
protected as they cross a network.
</TABLE>
G-1
<PAGE>
CATAPULT COMMUNICATIONS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets................................................................................ F-3
Consolidated Statements of Income.......................................................................... F-4
Consolidated Statements of Stockholders' Equity............................................................ F-5
Consolidated Statements of Cash Flows...................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Catapult Communications Corporation
THE REINCORPORATION AND RECAPITALIZATION DESCRIBED IN NOTE 1 TO THE FINANCIAL
STATEMENTS HAVE NOT BEEN CONSUMMATED AS OF JUNE 10, 1998. WHEN THEY HAVE BEEN
CONSUMMATED, WE WILL BE IN A POSITION TO FURNISH THE FOLLOWING REPORT:
"In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position
of Catapult Communications Corporation and its subsidiaries at September 30,
1996 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended September 30, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above."
PRICE WATERHOUSE LLP
San Jose, California
May 29, 1998, except as to Note 8,
which is as of June 10, 1998
F-2
<PAGE>
CATAPULT COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1997
--------- --------- MARCH 31,
-----------
1998
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................................................... $ 7,171 $ 10,672 $ 12,581
Short-term investments......................................................... 402 -- --
Accounts receivable, net of allowances of $0, $59 and $59 (unaudited).......... 495 892 3,565
Inventories.................................................................... 592 421 500
Prepaid expenses............................................................... 33 992 162
Deferred income taxes.......................................................... 494 556 659
--------- --------- -----------
Total current assets......................................................... 9,187 13,533 17,467
Property and equipment, net...................................................... 321 442 550
Other assets..................................................................... 34 60 57
--------- --------- -----------
Total assets................................................................. $ 9,542 $ 14,035 $ 18,074
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............................................................... $ 184 $ 150 $ 426
Accrued liabilities............................................................ 1,731 2,720 3,312
Deferred revenue............................................................... 776 965 1,426
--------- --------- -----------
Total current liabilities.................................................... 2,691 3,835 5,164
Deferred income taxes............................................................ 19 30 20
--------- --------- -----------
Total liabilities............................................................ 2,710 3,865 5,184
--------- --------- -----------
Commitments (Note 6)
Stockholders' Equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized; none issued and
outstanding.................................................................. -- -- --
Common stock, $0.001 par value, 40,000,000 shares authorized; 9,629,281,
9,629,443 and 10,397,568 (unaudited) issued and outstanding.................. 10 10 10
Additional paid-in capital..................................................... 48 264 1,020
Deferred compensation.......................................................... -- (196) (715)
Retained earnings.............................................................. 6,828 10,166 12,658
Cumulative translation adjustment.............................................. (54) (74) (83)
--------- --------- -----------
Total stockholders' equity................................................... 6,832 10,170 12,890
--------- --------- -----------
Total liabilities and stockholders' equity................................... $ 9,542 $ 14,035 $ 18,074
--------- --------- -----------
--------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
CATAPULT COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales............................................ $ 5,857 $ 7,690 $ 11,519 $ 6,717 $ 7,293
Services................................................. 1,012 1,562 1,833 927 1,166
--------- --------- --------- --------- ---------
6,869 9,252 13,352 7,644 8,459
--------- --------- --------- --------- ---------
Cost of revenues:
Product sales............................................ 804 1,103 1,576 902 689
Services................................................. 132 246 344 169 339
--------- --------- --------- --------- ---------
936...... 1,349 1,920 1,071 1,028
--------- --------- --------- --------- ---------
Gross profit........................................... 5,933 7,903 11,432 6,573 7,431
--------- --------- --------- --------- ---------
Operating expenses:
Research and development................................. 697 908 1,419 683 885
Sales and marketing...................................... 1,300 1,881 2,550 1,207 1,247
General and administrative............................... 889 1,384 2,063 1,005 1,047
--------- --------- --------- --------- ---------
2,886 4,173 6,032 2,895 3,179
--------- --------- --------- --------- ---------
Operating income........................................... 3,047 3,730 5,400 3,678 4,252
--------- --------- --------- --------- ---------
Other income and expense:
Interest income.......................................... 224 269 380 169 249
Other income (expense), net.............................. 126 (209) (6) (150) (137)
--------- --------- --------- --------- ---------
350 60 374 19 112
--------- --------- --------- --------- ---------
Income before provision for income taxes................... 3,397 3,790 5,774 3,697 4,364
Provision for income taxes................................. 1,225 1,502 2,436 1,560 1,872
--------- --------- --------- --------- ---------
Net income................................................. $ 2,172 $ 2,288 $ 3,338 $ 2,137 $ 2,492
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings per share:
Basic.................................................... $ 0.23 $ 0.24 $ 0.35 $ 0.22 $ 0.24
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted.................................................. $ 0.22 $ 0.22 $ 0.31 $ 0.20 $ 0.23
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Shares used in computing earnings per share:
Basic.................................................... 9,581 9,621 9,630 9,630 10,280
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted.................................................. 10,058 10,301 10,605 10,500 10,867
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CATAPULT COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE
------------------------- PAID-IN DEFERRED RETAINED TRANSLATION
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS ADJUSTMENT
------------ ----------- ----------- --------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1994............ 9,568,905 $ 10 $ 36 $ -- $ 2,368 $ (16)
Issuance of common stock................. 26,189 -- 5 -- -- --
Currency translation adjustment.......... -- -- -- -- -- (18)
Net income............................... -- -- -- -- 2,172 --
--
------------ ----------- ----- --------- ---
Balance at September 30, 1995............ 9,595,094 10 41 -- 4,540 (34)
Issuance of common stock................. 34,187 -- 7 -- -- --
Currency translation adjustment.......... -- -- -- -- -- (20)
Net income............................... -- -- -- -- 2,288 --
--
------------ ----------- ----- --------- ---
Balance at September 30, 1996............ 9,629,281 10 48 -- 6,828 (54)
Issuance of common stock................. 162 -- -- --
Deferred stock compensation.............. -- -- 216 (216) -- --
Amortization of deferred stock
compensation........................... -- -- -- 20 -- --
Currency translation adjustment.......... -- -- -- -- -- (20)
Net income............................... -- -- -- 3,338 --
--
------------ ----------- ----- --------- ---
Balance at September 30, 1997............ 9,629,443 10 264 (196) 10,166 (74)
Issuance of common stock (unaudited)..... 768,125 -- 167 -- -- --
Currency translation adjustment
(unaudited)............................ -- -- -- -- (9)
Deferred stock compensation
(unaudited)............................ -- -- 589 (589) -- --
Amortization of deferred stock
compensation (unaudited)............... -- -- -- 70 -- --
Net income (unaudited)................... -- -- -- -- 2,492 --
--
------------ ----------- ----- --------- ---
Balance at March 31, 1998 (unaudited).... 10,397,568 $ 10 $ 1,020 $ (715) $ 12,658 $ (83)
--
--
------------ ----------- ----- --------- ---
------------ ----------- ----- --------- ---
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
------------
<S> <C>
Balance at September 30, 1994............ $ 2,398
Issuance of common stock................. 5
Currency translation adjustment.......... (18)
Net income............................... 2,172
------------
Balance at September 30, 1995............ 4,557
Issuance of common stock................. 7
Currency translation adjustment.......... (20)
Net income............................... 2,288
------------
Balance at September 30, 1996............ 6,832
Issuance of common stock................. --
Deferred stock compensation.............. --
Amortization of deferred stock
compensation........................... 20
Currency translation adjustment.......... (20)
Net income............................... 3,338
------------
Balance at September 30, 1997............ 10,170
Issuance of common stock (unaudited)..... 167
Currency translation adjustment
(unaudited)............................ (9)
Deferred stock compensation
(unaudited)............................ --
Amortization of deferred stock
compensation (unaudited)............... 70
Net income (unaudited)................... 2,492
------------
Balance at March 31, 1998 (unaudited).... $ 12,890
------------
------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CATAPULT COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................................... $ 2,172 $ 2,288 $ 3,338 $ 2,137 $ 2,492
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 85 120 121 60 80
Amortization of deferred stock compensation................ -- -- 20 -- 70
Deferred income taxes...................................... (254) (184) (51) 11 (113)
Gain on sale of fixed assets............................... -- (4) (7) -- --
Change in current assets and liabilities:
Accounts receivable...................................... (244) (207) (397) (705) (2,673)
Inventories.............................................. (299) (172) 171 143 (79)
Prepaid expenses......................................... 3 (30) (959) (31) 830
Other assets............................................. (39) 5 (26) (49) 3
Accounts payable......................................... (1) 107 (34) (16) 276
Accrued liabilities...................................... 1,134 55 989 893 592
Deferred revenue......................................... 177 337 189 267 461
--------- --------- --------- --------- ---------
Net cash provided by operating activities.............. 2,734 2,315 3,354 2,710 1,939
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of investments, net..................... -- 425 402 402 --
Purchase of property and equipment......................... (185) (182) (242) (169) (188)
Purchase of investments, net............................... (827) -- -- -- --
Proceeds from sale of property and equipment............... -- 14 7 -- --
--------- --------- --------- --------- ---------
Net cash provided (used) by investing activities....... (1,012) 257 167 233 (188)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Stock issuances............................................ 5 7 -- -- 167
--------- --------- --------- --------- ---------
Effect of exchange rate changes.............................. (19) (19) (20) 7 (9)
--------- --------- --------- --------- ---------
Net change in cash and cash equivalents...................... 1,708 2,560 3,501 2,950 1,909
Cash and cash equivalents, beginning of year................. 2,903 4,611 7,171 7,171 10,672
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of year....................... $ 4,611 $ 7,171 $ 10,672 $ 10,121 $ 12,581
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental disclosures of cash flow information
Cash paid during the year for:
Income taxes............................................. $ 1,185 $ 1,666 $ 3,291 $ 661 $ 541
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CATAPULT COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Catapult Communications Corporation (the "Company") designs, develops,
manufactures, markets and supports an advanced software-based test system
offering an integrated suite of testing applications for the global
telecommunications industry. The Company's advanced test systems assist its
customers in the design, integration, installation and acceptance testing of a
broad range of digital telecommunications equipment and services. The Company
was incorporated in California in October 1985 and has operations in the United
States, the United Kingdom and Japan.
REINCORPORATION IN NEVADA AND RECAPITALIZATION
Prior to the effectiveness of the Company's initial public offering, the
Company intends to reincorporate in Nevada. In connection with the
reincorporation, the Company will authorize 45,000,000 shares of capital stock,
consisting of 40,000,000 shares of Common Stock, $0.001 par value, and 5,000,000
shares of undesignated Preferred Stock, $0.001 par value. In addition,
stockholders of the California corporation will receive three shares of common
stock of the Nevada corporation for every two shares of common stock of the
California corporation.
All share and per share amounts have been restated to give retroactive
effect to the changes in authorized shares and par values, and the three-for-two
stock exchange.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Catapult Communications Limited,
Catapult Communications K.K., and ISDN Technologies, Ltd. All significant
intercompany balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of 90 days or less to be cash equivalents. At September 30, 1996 and
1997, cash equivalents consisted principally of U.S. treasury bills with fair
values which approximate cost. The Company maintains its cash in bank deposit
accounts at high credit quality financial institutions in the United States,
United Kingdom and Japan, in amounts that exceed insured limits.
SHORT-TERM INVESTMENTS
The Company's investments are classified as available for sale and are
reported at fair market value which approximates cost. Investments consist of
U.S. treasury bills with maturities of less than one year at the balance
F-7
<PAGE>
CATAPULT COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
sheet date. Realized gains and losses are based on the book value of the
investments sold and have been immaterial.
REVENUE RECOGNITION
Product sales are recognized upon shipment provided that no significant
vendor obligations remain and collection is considered probable.
Services revenue consists primarily of post-contract customer support,
training, consulting and installation services. Post-contract customer support
revenues are recognized ratably over the support period, which is generally one
year. Revenues from training, consulting services and installation are
recognized as the services are performed.
FOREIGN CURRENCY TRANSLATION
The functional currencies of the Company's foreign subsidiaries are the
respective local currencies. In consolidation, assets and liabilities are
translated at year-end exchange rates and revenue and expense items are
translated at average rates prevailing during the year. Gains and losses from
foreign currency translation are accumulated as a separate component of
stockholders' equity. Gains and losses resulting from foreign currency
transactions are included in the consolidated statement of income.
FAIR VALUE
The carrying value of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable and accrued
liabilities approximate their fair values due to their relatively short
maturities. The Company does not hold or issue financial instruments for trading
purposes.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents, short-term
investments and accounts receivable. The Company's accounts receivable are
derived from revenue earned from customers located in the United States, Europe
and Japan. The Company performs ongoing credit evaluations of its customers'
financial condition and, generally, requires no collateral from its customers.
The Company maintains an allowance for doubtful accounts receivable based upon
the expected collectibility of its accounts receivable.
The following table summarizes the revenues from customers in excess of 10%
of total revenues:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
YEAR ENDED SEPTEMBER 30, -------------------
---------------------------------- 1998
1995 1996 1997 -------------------
---------- ---------- ---------- (UNAUDITED)
<S> <C> <C> <C> <C>
Customer A............................................................ 37% 23% 28% 18%
Customer B............................................................ -- -- 17% 10%
Customer C............................................................ -- 12% -- --
Customer D............................................................ 17% -- -- --
Customer E............................................................ 12% 10% -- 13%
Customer F............................................................ -- -- -- 26%
</TABLE>
F-8
<PAGE>
CATAPULT COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
At September 30, 1996, three customers accounted for 45%, 18% and 11% of
total accounts receivable, respectively. At September 30, 1997, three customers
accounted for 53%, 17% and 14% of total accounts receivable, respectively. At
March 31, 1998, two customers accounted for 69% and 11% of total accounts
receivable, respectively (unaudited).
INVENTORIES
Inventories are stated at the lower of cost or market, using the first-in
first-out ("FIFO") method.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Software development costs not qualifying for capitalization are included in
research and development and are expensed as incurred. After technological
feasibility is established, material software development costs are capitalized.
The capitalized cost is then amortized on a straight-line basis over the greater
of the estimated product life or on the ratio of current revenues to total
projected product revenues. The Company defines technological feasibility as the
establishment of a working model, which typically occurs upon completion of the
first beta version. To date, the period between achieving technological
feasibility, and the general availability of such software has been short and
software development costs qualifying for capitalization have been
insignificant. Accordingly, the Company has not capitalized any software
development costs.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over estimated useful lives, generally four years, or
the lease term of the respective assets.
WARRANTY
The Company provides a limited warranty for its products. A provision for
the estimated warranty cost is recorded at the time revenue is recognized based
on the Company's historical experience.
INCOME TAXES
The Company accounts for income taxes under the liability method, which
requires recognition of deferred tax assets and liabilities for the future tax
consequences of temporary differences between the tax bases of assets and
liabilities and their reported amounts.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB 25") and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation ("SFAS 123").
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard No. 128, "Earnings per Share" ("SFAS 128"). The
Company has presented earnings per share for all
F-9
<PAGE>
CATAPULT COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
periods in accordance with the new standard. SFAS 128 requires the presentation
of basic and diluted earnings per share. Basic earnings per share is computed
using the weighted average number of Common Shares outstanding during the
period. Diluted earnings per share includes the effect of dilutive potential
Common Shares (options) issued during the period (using the treasury stock
method). The following data is presented in thousands except per share data:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income....................................................... $ 2,172 $ 2,288 $ 3,338 $ 2,137 $ 2,492
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares outstanding.............................. 9,581 9,621 9,630 9,630 10,280
Dilutive options................................................. 477 680 975 870 587
--------- --------- --------- --------- ---------
Weighted average shares assuming dilution........................ 10,058 10,301 10,605 10,500 10,867
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings per share:
Basic.......................................................... $ 0.23 $ 0.24 $ 0.35 $ 0.22 $ 0.24
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted........................................................ $ 0.22 $ 0.22 $ 0.31 $ 0.20 $ 0.23
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income" ("SFAS 130"). This statement will be effective for the Company's fiscal
year ending September 30, 1999. The statement establishes presentation and
disclosure requirements for reporting comprehensive income. Comprehensive income
includes charges or credits to equity that are not the result of transactions
with shareholders. The Company expects there will be no material impact on its
consolidated financial position or results of operations as a result of the
adoption of this new accounting standard.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). This statement will be effective for the Company's fiscal year
ending September 30, 1999. The statement requires the Company to report certain
financial information about operating segments. It also requires that the
Company report certain information about its services, the geographic areas in
which it operates and its major customers. The method specified in SFAS 131 for
determining what information to report is referred to as the "management
approach". The management approach is based on the way that management organizes
the segments within the enterprise for making operating decisions and assessing
performance. The adoption of SFAS 131 is not expected to have a significant
impact on the Company's financial statement disclosures.
In October 1997 and March 1998, the American Institute of Certified Public
Accountants ("AICPA") issued Statements of Position ("SOP") 97-2 and 98-4, which
provide guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions. SOP 97-2 and 98-4 are effective
for the Company's fiscal year ending September 30, 1999. Earlier application is
encouraged as of the beginning of fiscal year or interim periods for which
financial statements or information have not been issued. Retroactive
F-10
<PAGE>
CATAPULT COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
application of the provisions of these SOP's is prohibited. The Company has
assessed the provisions of SOP 97-2 and 98-4 and does not expect that adoption
will have a material impact on its financial statements.
In March 1998, the AICPA issued SOP 98-1, "Software for Internal Use," which
provides guidance in accounting for the costs of computer software developed or
obtained for internal use. SOP 98-1 is effective for the Company's fiscal year
ending September 30, 1999. The Company does not expect the adoption of SOP 98-1
to have a material impact on its financial statements.
INTERIM RESULTS (UNAUDITED)
The accompanying consolidated balance sheet as of March 31, 1998, the
Consolidated Statements of Income and of Cash Flows for the six months ended
March 31, 1997 and 1998, and the Consolidated Statements of Stockholders' Equity
for the six months ended March 31, 1998 are unaudited.
In the opinion of management, these statements have been prepared on the
same basis as the audited consolidated financial statements and include all
adjustments, consisting only of usual recurring adjustments necessary for the
fair statement of the results of interim periods. The data disclosed in notes to
the consolidated financial statements for these periods are unaudited.
NOTE 2--BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1997
--------- ---------
MARCH 31,
-----------
1998
-----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
PREPAID EXPENSES:
Income taxes.................................................................... $ -- $ 874 $ --
Other........................................................................... 33 118 162
--------- --------- -----------
$ 33 $ 992 $ 162
--------- --------- -----------
--------- --------- -----------
INVENTORIES:
Raw materials................................................................... $ 441 $ 364 $ 343
Work-in-process................................................................. 1 21 49
Finished goods.................................................................. 150 36 108
--------- --------- -----------
$ 592 $ 421 $ 500
--------- --------- -----------
--------- --------- -----------
PROPERTY AND EQUIPMENT:
Equipment....................................................................... $ 847 $ 992 $ 1,153
Leasehold improvements.......................................................... 23 120 147
--------- --------- -----------
870 1,112 1,300
Less accumulated depreciation................................................... (549) (670) (750)
--------- --------- -----------
$ 321 $ 442 $ 550
--------- --------- -----------
--------- --------- -----------
ACCRUED LIABILITIES:
Payroll and related expenses.................................................... $ 1,075 $ 1,708 $ 1,728
Income taxes.................................................................... 548 666 1,236
Other........................................................................... 108 346 348
--------- --------- -----------
$ 1,731 $ 2,720 $ 3,312
--------- --------- -----------
--------- --------- -----------
</TABLE>
F-11
<PAGE>
CATAPULT COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--INCOME TAXES:
Consolidated income before income taxes includes non-U.S. income of
approximately $911,000, $807,000, $1,260,000 and $935,000 (unaudited) in fiscal
1995, 1996, 1997 and the six months ended March 31, 1998, respectively.
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1995 1996 1997
--------- --------- --------- SIX MONTHS ENDED
MARCH 31,
-----------------
1998
-----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT:
U.S. federal..................................................... $ 1,039 $ 1,100 $ 1,591 $ 1,208
State............................................................ 116 168 311 284
Foreign.......................................................... 324 418 585 493
--------- --------- --------- ------
1,479 1,686 2,487 1,985
--------- --------- --------- ------
DEFERRED:
U.S. federal..................................................... (254) (149) (21) (48)
Foreign.......................................................... -- (35) (30) (65)
--------- --------- --------- ------
(254) (184) (51) (113)
--------- --------- --------- ------
$ 1,225 $ 1,502 $ 2,436 $ 1,872
--------- --------- --------- ------
--------- --------- --------- ------
</TABLE>
A reconciliation of the U.S. federal income tax rate to the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------
1995 1996 1997
--- --- ---
<S> <C> <C> <C>
Tax at federal rate........................................................ 34% 34% 34%
State taxes, net of federal benefit........................................ 5 5 5
Excess (benefit) foreign tax rate.......................................... (1) 1 2
Other...................................................................... (2) -- 1
-- -- --
36% 40% 42%
-- -- --
-- -- --
<CAPTION>
MARCH 31,
---------------------
1998
<S> <C>
Tax at federal rate........................................................ 34%
State taxes, net of federal benefit........................................ 5
Excess (benefit) foreign tax rate.......................................... 3
Other...................................................................... 1
--
43%
--
--
</TABLE>
Deferred tax assets and liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1997
--------- --------- MARCH 31,
-------------
1998
-------------
(UNAUDITED)
<S> <C> <C> <C>
DEFERRED TAX ASSETS:
Accruals and reserves............................................................ $ 271 $ 426 $ 486
Other............................................................................ 223 130 173
--- --- ---
494 556 659
--- --- ---
DEFERRED TAX LIABILITIES:
Excess tax depreciation.......................................................... (19) (30) (20)
--- --- ---
Net deferred tax assets............................................................ $ 475 $ 526 $ 639
--- --- ---
--- --- ---
</TABLE>
F-12
<PAGE>
CATAPULT COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--STOCK OPTION PLANS:
At September 30, 1997, 1,800,000 shares and 154,500 shares of common stock
had been reserved for issuance to employees under the 1989 Incentive Stock
Option Plan (the "1989 Plan") and the UK Executive Share Option Scheme (the "UK
Scheme"), respectively. The Board of Directors has the authority to determine
optionees, the number of shares, the term of each option and the exercise price.
Options under the 1989 Plan generally become exercisable at a rate of 1/8th of
the option shares six months after the option grant date and then at a rate of
1/48th per month thereafter. Options under the UK Scheme become exercisable at
the rate of 1/36th of the option shares per month following twelve months after
the option grant date. Options will expire, if not exercised, upon the earlier
of 10 years from the date of grant or 30 days after termination as an employee
of the Company. Options are granted with exercise prices equal to the fair value
of the common stock as determined by the Board of Directors.
In the year ended September 30, 1997 and the six months ended March 31,
1998, the Company recorded deferred compensation expense of approximately
$216,000 and $589,000 (unaudited), respectively, related to the issuance of
stock options at prices subsequently determined to be below fair market value.
These expenses are being amortized over a period of four years from the date of
option issuance. Amortization of deferred compensation expense related to these
options of approximately $20,000 and $70,000 (unaudited) was included in general
and administrative expenses in the year ended September 30, 1997, and six months
ended March 31, 1998, respectively.
Information with respect to stock option activity during the year ended
September 30, 1997 is set forth below:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------- -------------------
<S> <C> <C>
Balance, September 30, 1994........................................................ 1,010,250 $ 0.19
Options granted.................................................................. 140,250 0.38
Options exercised................................................................ (26,188) 0.20
Options canceled................................................................. (45,062) 0.22
---------- -----
Balance, September 30, 1995........................................................ 1,079,250 0.22
Options granted.................................................................. 135,750 0.71
Options exercised................................................................ (34,456) 0.21
Options canceled................................................................. (24,044) 0.33
---------- -----
Balance, September 30, 1996........................................................ 1,156,500 0.27
Options granted.................................................................. 296,475 0.99
Options exercised................................................................ (162) 0.46
Options canceled................................................................. (94,713) 0.85
---------- -----
Balance, September 30, 1997........................................................ 1,358,100 0.39
Options granted (unaudited)...................................................... 185,250 1.39
Options exercised (unaudited).................................................... (768,124) 0.22
Options canceled (unaudited)..................................................... (750) 1.27
---------- -----
Balance, March 31, 1998 (unaudited)................................................ 774,476 $ 0.79
---------- -----
---------- -----
</TABLE>
As of March 31, 1998, 339,328 options remained available for grant
(unaudited).
F-13
<PAGE>
CATAPULT COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--STOCK OPTION PLANS: (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AT
SEPTEMBER 30, 1997 OPTIONS EXERCISABLE AT
--------------------------------------- SEPTEMBER 30, 1997
WEIGHTED ------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICE OUTSTANDING LIFE PRICE OUTSTANDING PRICE
- ---------------------------------------------------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$0.19 - $0.23....................................... 939,000 5.26 $ 0.19 895,751 $ 0.19
$0.46............................................... 154,500 8.06 0.46 70,468 0.46
$0.83 - $1.27....................................... 264,600 9.22 1.02 51,710 0.83
----------- -----------
1,358,100 0.39 1,017,929 0.24
----------- -----------
----------- -----------
</TABLE>
FAIR VALUE DISCLOSURES
The Company calculated the fair value of each option grant on the date of
grant using the minimum value method with the following assumptions: dividend
yield at 0%; weighted average expected option life of five years; and risk free
interest rate of 6.6%, 6.1% and 6.2% for the years ended September 30, 1995,
1996 and 1997, respectively. The weighted average fair value of options granted
during 1995, 1996 and 1997 was $0.10, $0.17 and $1.21 per share, respectively.
Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant dates for the awards under the
minimum value method prescribed by SFAS No. 123, the Company's net income would
not have been materially different.
NOTE 5--PROFIT-SHARING PLAN:
The Company maintains a qualified profit-sharing plan for eligible
employees. Contributions to the profit-sharing plan are discretionary and are
determined by the Board of Directors. There were no contributions to the plan
during the years ended September 30, 1995, 1996 and 1997 and the six months
ended March 31, 1998.
NOTE 6--COMMITMENTS:
The Company leases its facility in Mountain View, California under a
noncancelable operating lease agreement which expires in 2002. The lease
agreement provides for minimum annual rent of $90,000. Under this agreement, the
Company pays certain shared operating expenses of the facility. The agreement
provides for rent increases at scheduled intervals. The Company leases other
facilities in Illinois, Japan and the United Kingdom under leases that expire
through January 1999.
Rent expense for all facilities for the years ended September 30, 1995, 1996
and 1997 and the six months ended March 31, 1998 was approximately $73,000,
$123,000, $197,000 and $111,000 (unaudited), respectively.
F-14
<PAGE>
CATAPULT COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--COMMITMENTS: (CONTINUED)
Future minimum annual rental payments under noncancelable operating leases as of
September 30, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998................................................................ $ 283
1999................................................................ 269
2000................................................................ 208
2001................................................................ 212
2002................................................................ 62
---------
$ 1,034
---------
---------
</TABLE>
NOTE 7--SEGMENT REPORTING:
The Company operates in one industry segment: the design, development
manufacture, marketing and support of digital telecommunications test equipment.
The Company's operations and assets by geographical region as of and for
each fiscal year end were as follows (in thousands):
<TABLE>
<CAPTION>
UNITED UNITED CONSOLIDATED
STATES KINGDOM JAPAN TOTAL
--------- ----------- --------- ------------
<S> <C> <C> <C> <C>
1995
- -------------------------------------------------
Sales to unaffiliated customers.................. $ 3,190 $ 3,370 $ 309 $ 6,869
Net income....................................... 1,572 625 (25) 2,172
1996
- -------------------------------------------------
Sales to unaffiliated customers.................. $ 4,136 $ 1,719 $ 3,397 $ 9,252
Net income....................................... 1,868 298 122 2,288
Total assets..................................... 7,640 1,745 157 9,542
1997
- -------------------------------------------------
Sales to unaffiliated customers.................. $ 6,261 $ 2,716 $ 4,375 $ 13,352
Net income....................................... 2,642 405 291 3,338
Total assets..................................... 9,714 2,669 1,652 14,035
</TABLE>
The Company's operations and assets by geographical region as of and for the
six months ended March 31, 1998 were as follows (in thousands) (unaudited):
<TABLE>
<CAPTION>
UNITED UNITED CONSOLIDATED
STATES KINGDOM JAPAN TOTAL
--------- ----------- --------- ------------
<S> <C> <C> <C> <C>
1998 (UNAUDITED)
- ------------------------------------------------
Sales to unaffiliated customers................. $ 2,841 $ 1,779 $ 3,839 $ 8,459
Net income...................................... 1,959 209 324 2,492
Total assets.................................... 11,039 2,849 4,186 18,074
</TABLE>
F-15
<PAGE>
CATAPULT COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--SUBSEQUENT EVENTS:
REDEEMABLE SECURITIES
In connection with the settlement on June 10, 1998 of a claim by an officer
and director, the Company agreed that, if it does not complete its planned
initial public offering by December 31, 1998, it will repurchase common stock
held by this individual at a rate of up to 50,000 shares per annum, in quarterly
installments of up to 12,500 shares, beginning on March 31, 1999, until the
earliest of certain events, including the cumulative receipt of $5 million by
the individual from sales of the individual's stock, an initial public offering
of stock by the Company, an acquisition of the Company or 12 years from March
31, 1999. The repurchase price will be the fair market value of the shares as
determined by the Board of Directors. As a result of this agreement, shares with
a fair market value of $5 million will be reflected as redeemable securities
beginning as of the date of this settlement.
1998 STOCK PLAN
In June 1998, the Board of Directors and stockholders adopted the 1998 Stock
Plan and the 1998 Employee Stock Purchase Plan under which 1,800,000 shares and
750,000 shares of common stock, respectively, have been reserved for issuance.
F-16
<PAGE>
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION, MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information.................................................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 15
Dividend Policy........................................................... 15
Capitalization............................................................ 16
Dilution.................................................................. 17
Selected Consolidated Financial Data...................................... 18
Management's Discussion and
Analysis of Financial Condition and
Results of Operations................................................... 19
Business.................................................................. 29
Management................................................................ 42
Certain Transactions...................................................... 49
Principal and Selling Stockholders........................................ 50
Description of Capital Stock.............................................. 51
Shares Eligible for Future Sale........................................... 53
Underwriting.............................................................. 55
Legal Matters............................................................. 56
Experts................................................................... 56
Change in Accountants..................................................... 56
Glossary.................................................................. G-1
Index to Consolidated Financial Statements................................ F-1
</TABLE>
--------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
SHARES
[LOGO]
COMMON STOCK
--------------
PROSPECTUS
--------------
HAMBRECHT & QUIST
CIBC OPPENHEIMER
C.E. UNTERBERG, TOWBIN
, 1998
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, including all costs
and expenses of the Selling Stockholders, other than underwriting discounts and
commissions, payable by the Registrant in connection with the sale of Common
Stock being registered. All amounts are estimates except the SEC registration
fee, the NASD filing fee and the Nasdaq National Market filing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
-----------
<S> <C>
SEC Registration Fee.............................................................. $12,511
NASD Filing Fee................................................................... 4,741
Nasdaq National Market Filing Fee................................................. *
Blue Sky Fees and Expenses........................................................ *
Printing and Engraving Expenses................................................... *
Legal Fees and Expenses........................................................... *
Accounting Fees and Expenses...................................................... *
Transfer Agent, Registrar's and Custodian Fees.................................... *
Miscellaneous Expenses............................................................ *
-----------
Total........................................................................... $ *
-----------
-----------
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.751 of the Nevada General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act"). The Registrant's Bylaws provide that the Registrant shall indemnify its
directors and officers to the fullest extent permitted by Nevada law, including
circumstances in which indemnification is otherwise discretionary under Nevada
law. The Registrant has entered into indemnification agreements with its
directors and officers containing provisions which are in some respects broader
than the specific indemnification provisions contained in the Nevada General
Corporation Law. The indemnification agreements may require the Registrant,
among other things, to indemnify its directors and officers against certain
liabilities that may arise by reason of their status or service as directors or
officers (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to obtain directors' and
officers' insurance if available on reasonable terms. Article VI of the
Registrant's Articles of Incorporation (Exhibit 3.1 hereto) provides for
indemnification of its directors and officers to the maximum extent permitted by
the Nevada General Corporation Law and Article 26 of the Registrant's Bylaws
(Exhibit 3.2 hereto) provides for indemnification of its directors, officers,
employees and other agents to the maximum extent permitted by the Nevada General
Corporation Law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since June 1995, the Registrant has issued and sold 835,850 shares of Common
Stock to employees at prices ranging from $0.19 to $8.00 per share, in cash,
upon exercise of stock options pursuant to the 1989 Plan. The sales of the above
securities were deemed to be exempt from registration under the Securities Act
in reliance on Section 4(2) of the Securities Act or Rule 701 promulgated under
Section 3(b) of the Securities Act as transactions by an issuer not involving a
public offering or transactions pursuant to the compensatory benefit
II-1
<PAGE>
plans and contracts relating to compensation as provided under such Rule 701.
The recipients of securities in each such transaction represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were attached to the share certificates issued in such transactions. All
recipients had adequate access to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement by and among the Registrant and Hambrecht & Quist
LLC, CIBC Oppenheimer Corp. and C.E. Unterberg, Towbin.
2.1 Agreement and Plan of Merger dated June 10, 1998 between Catapult Communications
Corporation, a California corporation, and Registrant.
3.1 Articles of Incorporation of Registrant.
3.2 Bylaws of Registrant.
4.1 Specimen Common Stock Certificate of Registrant.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati regarding the legality of the securities
being issued.
9.1 Voting Trust Agreement dated June 8, 1998 between Nancy Hood Karp, Richard A. Karp,
the Registrant and a depositary.
10.1 Form of Indemnification Agreement entered into by Registrant with each of its
directors and executive officers.
10.2 Form of Restricted Stock Purchase Agreement.
10.3 1989 Stock Option Plan and related agreements.
10.4 UK Executive Share Option Scheme and related agreements.
10.5 1998 Stock Plan and related agreements.
10.6 1998 Employee Stock Purchase Plan and related agreements.
10.7+ Fiscal 1998 Officer and Key Employee Profit Sharing Plan.
10.8 Lease for office space located at 160 Whisman Road, Mountain View, CA.
10.9 Form of Software Support Agreement.
10.10 Severance Agreement and Mutual Release of All Claims dated June 8, 1998 between
Nancy Hood Karp and Registrant.
10.11 Consulting and Non-Competition Agreement dated June 9, 1998 between Nancy Hood Karp
and Registrant.
11.1 Computation of Earnings per Common Share.
16.1 Letter dated June 11, 1998 from Ireland San Filippo, LLP.
21.1 Subsidiaries of the Registrant.
23.1* Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1).
23.2 Consent of Price Waterhouse LLP, Independent Accountants (see page II-5).
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule (Fiscal 1997).
27.2 Financial Data Schedule (First half 1998).
</TABLE>
- ------------------------
* To be filed by amendment.
+ Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed
II-2
<PAGE>
separately with the Securities and Exchange Commission pursuant to the
application for confidential treatment.
(b) Financial Statement Schedule.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions of this Registration
Statement, or otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director, officer
or controlling person of the Company in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(b) The Company hereby understands that it will:
(1) For the purpose of determining any liability under the Securities
Act of 1933, treat the information omitted from the form of prospectus filed
as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Company under Rule 424(b)(1)
or (4) or 497(h) under the Securities Act of 1933 as part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered in the
Registration Statement, and that offering of such securities at that time
shall be deemed to be as the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Mountain
View, State of California, on June 11th, 1998.
CATAPULT COMMUNICATIONS CORPORATION
By: /s/ RICHARD A. KARP
--------------------------------------
Richard A. Karp
President, Chief Executive Officer
and Chairman
of the Board
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints, jointly and severally, Richard A. Karp and Joan
M. Varrone, and each of them, as his true and lawful attorneys-in-fact and
agents, each acting alone, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement filed under Securities and
Exchange Commission Rule 462 and to file the same, with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------ -------------------------------------------- -----------------
<C> <S> <C>
/s/ RICHARD A. KARP President, Chief Executive Officer and
-------------------------------------- Chairman of the Board June 11, 1998
Richard A. Karp (Principal Executive Officer)
/s/ JOAN M. VARRONE Vice President of Finance, Chief Financial
-------------------------------------- Officer and Treasurer (Principal Financial June 11, 1998
Joan M. Varrone and Accounting Officer)
/s/ CHARLES L. WAGGONER
-------------------------------------- Director June 11, 1998
Charles L. Waggoner
/s/ JOHN M. SCANDALIOS
-------------------------------------- Director June 11, 1998
John M. Scandalios
/s/ NANCY H. KARP
-------------------------------------- Director June 11, 1998
Nancy H. Karp
</TABLE>
II-4
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated May 29, 1998, except as
to Note 8 which is as of June 10, 1998, relating to the financial statements of
Catapult Communications Corporation, which appears in such Prospectus. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
/S/ PRICE WATERHOUSE LLP
San Jose, California
June 10, 1998
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement by and among the Registrant and Hambrecht & Quist
LLC, CIBC Oppenheimer Corp. and C.E. Unterberg, Towbin.
2.1 Agreement and Plan of Merger dated June 10, 1998 between Catapult Communications
Corporation, a California corporation, and Registrant.
3.1 Articles of Incorporation of Registrant.
3.2 Bylaws of Registrant.
4.1 Specimen Common Stock Certificate of Registrant.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati regarding the legality of the securities
being issued.
9.1 Voting Trust Agreement dated June 8, 1998 between Nancy Hood Karp, Richard A. Karp,
the Registrant and a depositary.
10.1 Form of Indemnification Agreement entered into by Registrant with each of its
directors and executive officers.
10.2 Form of Restricted Stock Purchase Agreement.
10.3 1989 Stock Option Plan and related agreements.
10.4 UK Executive Share Option Scheme and related agreements.
10.5 1998 Stock Plan and related agreements.
10.6 1998 Employee Stock Purchase Plan and related agreements.
10.7+ Fiscal 1998 Officer and Key Employee Profit Sharing Plan.
10.8 Lease for office space located at 160 Whisman Road, Mountain View, CA.
10.9 Form of Software Support Agreement.
10.10 Severance Agreement and Mutual Release of All Claims dated June 8, 1998 between
Nancy Hood Karp and Registrant.
10.11 Consulting and Non-Competition Agreement dated June 9, 1998 between Nancy Hood Karp
and Registrant.
11.1 Computation of Earnings per Common Share.
16.1 Letter dated June 11, 1998 from Ireland San Filippo, LLP.
21.1 Subsidiaries of the Registrant.
23.1* Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1).
23.2 Consent of Price Waterhouse LLP, Independent Accountants (see page II-5).
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule (Fiscal 1997).
27.2 Financial Data Schedule (First half 1998).
</TABLE>
- ------------------------
* To be filed by amendment.
+ Confidential treatment has been requested for certain portions which have
been blacked out in the copy of the exhibit filed with the Securities and
Exchange Commission. The omitted information has been filed separately with
the Securities and Exchange Commission pursuant to the application for
confidential treatment.
<PAGE>
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
OF
CATAPULT COMMUNICATIONS CORPORATION,
A CALIFORNIA CORPORATION
WITH AND INTO
CATAPULT COMMUNICATIONS CORPORATION,
A NEVADA CORPORATION
THIS AGREEMENT AND PLAN OF MERGER dated as of June 10, 1998 (the
"Agreement") is between Catapult Communications Corporation, a Nevada
corporation having its principal place of business at 160 South Whisman Road,
Mountain View, California 94041 ("Catapult Nevada"), and Catapult
Communications Corporation, a California corporation having its principal
place of business at 160 South Whisman Road, Mountain View, California 94041
("Catapult California"). Catapult Nevada and Catapult California are
sometimes referred to herein as the "Constituent Corporations."
RECITALS
A. Catapult Nevada is a corporation duly organized and existing under
the laws of the State of Nevada and has an authorized capital of 30,000,000
shares, $0.001 par value, 25,000,000 of which are designated "Common Stock,"
and 5,000,000 of which are designated "Preferred Stock." As of June 10,
1998, 100 shares of Common Stock were issued and outstanding, all of which
are held by Catapult California, and no shares of Preferred stock were issued
and outstanding.
B. Catapult California is a corporation duly organized and existing
under the laws of the State of California and has an authorized capital of
10,000,000 shares, all of which are designated "Common Stock."
C. The Board of Directors of Catapult California has determined that,
for the purpose of effecting the reincorporation of Catapult California into
the State of Nevada, it is advisable and in the best interests of Catapult
California and its shareholders that Catapult California merge with and into
Catapult Nevada upon the terms and conditions herein provided.
D. The respective Boards of Directors of Catapult Nevada and Catapult
California have approved this Agreement and have directed that this Agreement
be submitted to a vote of their respective shareholders and executed by the
undersigned officers.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, Catapult Nevada and Catapult California hereby agree,
subject to the terms and conditions hereinafter set forth, as follows:
<PAGE>
I.
MERGER
A. MERGER. In accordance with the provisions of this Agreement, the
Nevada General Corporation Law and the California General Corporation Law,
Catapult California shall be merged with and into Catapult Nevada (the
"Merger"), the separate existence of Catapult California shall cease and
Catapult Nevada shall be, and is herein sometimes referred to as, the
"Surviving Corporation," and the name of the Surviving Corporation shall be
Catapult Communications Corporation, and the surviving corporation shall be a
Nevada corporation under the Nevada General Corporation Law.
B. FILING AND EFFECTIVENESS. The Merger shall become effective when
the following actions shall have been completed:
1. This Agreement and the Merger shall have been adopted and
approved by the shareholders of each Constituent Corporation in
accordance with the requirements of the Nevada General Corporation Law
and the California General Corporation Law;
2. All of the conditions precedent to the consummation of the
Merger specified in this Agreement shall have been satisfied or duly
waived by the party entitled to satisfaction thereof; and
3. Executed Articles of Merger meeting the requirements of the
Nevada General Corporation Law shall have been filed with the Secretary
of State of the State of Nevada.
The date and time when the Merger shall become effective, as aforesaid,
is herein called the "Effective Date of the Merger."
C. EFFECT OF THE MERGER. Upon the Effective Date of the Merger, the
separate existence of Catapult California shall cease and Catapult Nevada, as
the Surviving Corporation, (i) shall continue to possess all of its assets,
rights, powers and property as constituted immediately prior to the Effective
Date of the Merger, (ii) shall be subject to all actions previously taken by
its and Catapult California's Boards of Directors, (iii) shall succeed,
without other transfer, to all of the assets, rights, powers and property of
Catapult California in the manner as more fully set forth in Section 92A.250
of the Nevada General Corporation Law, (iv) shall continue to be subject to
all of its debts, liabilities and obligations as constituted immediately
prior to the Effective Date of the Merger, and (v) shall succeed, without
other transfer, to all of the debts, liabilities and obligations of Catapult
California in the same manner as if Catapult Nevada had itself incurred them,
all as more fully provided under the applicable provisions of the Nevada
General Corporation Law and the California General Corporation Law.
-2-
<PAGE>
II.
CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
A. ARTICLES OF INCORPORATION. The articles of incorporation of
Catapult Nevada as in effect immediately prior to the Effective Date of the
Merger shall be amended to increase the authorized capital to 45,000,000
shares, $0.001 par value, and to increase the number of shares authorized
which are designated as "Common Stock," to 40,000,000. The number of shares
authorized which are designated "Preferred Stock" shall remain at 5,000,000.
In all other respects, the articles of incorporation of Catapult Nevada shall
continue in full force and effect as the articles of incorporation of the
Surviving Corporation.
B. BYLAWS. The bylaws of Catapult Nevada as in effect immediately
prior to the Effective Date of the Merger shall continue in full force and
effect as the bylaws of the Surviving Corporation until duly amended in
accordance with the provisions thereof and applicable law.
III.
MANNER OF CONVERSION OF STOCK
A. CATAPULT CALIFORNIA COMMON STOCK. Upon the Effective Date of the
Merger, every two shares of Catapult California Common Stock issued and
outstanding immediately prior thereto shall, by virtue of the Merger and
without any action by the Constituent Corporations, the holder of such shares
or any other person, be converted into and exchanged for three fully paid and
nonassessable shares of Common Stock, $0.001 par value, of the Surviving
Corporation.
B. CATAPULT CALIFORNIA OPTIONS, STOCK PURCHASE RIGHTS AND CONVERTIBLE
SECURITIES. Upon the Effective Date of the Merger, the Surviving Corporation
shall assume and continue any stock option plans (including the 1989 Stock
Option Plan and the UK Executive Share Option Scheme) and all other employee
benefit plans of Catapult California. As of the date hereof there are options
outstanding under the 1989 Stock Option Plan to purchase a total of 401,566
shares of Common Stock of Catapult California and options outstanding under
the UK Executive Share Option Scheme to purchase a total of 103,000 shares of
Common Stock of Catapult California. As of the date hereof, there are no
other options, purchase rights for or securities convertible into Common
Stock of Catapult California. Every two outstanding and unexercised options,
other rights to purchase or securities convertible into Catapult California
Common Stock shall become three options, rights to purchase or a securities
convertible into the Surviving Corporation's Common Stock on the basis of
three shares of the Surviving Corporation's Common Stock for every two shares
of Catapult California Common Stock issuable pursuant to any such option,
stock purchase right or convertible security, on the same terms and
conditions and at an exercise price per share equal to the exercise price
applicable to any such Catapult California option, stock purchase right or
other convertible security at the Effective Date of the Merger divided by
three and multiplied by two.
A number of shares of the Surviving Corporation's Common Stock shall be
reserved for issuance upon the exercise of options, stock purchase rights and
convertible securities (including
-3-
<PAGE>
Preferred Stock) equal to the number of shares of Catapult California Common
Stock so reserved immediately prior to the Effective Date of the Merger
multiplied by three and divided by two.
C. CATAPULT NEVADA COMMON STOCK. Upon the Effective Date of the
Merger, each share of Common Stock, $0.001 par value, of Catapult Nevada
issued and outstanding immediately prior thereto shall, by virtue of the
Merger and without any action by Catapult Nevada, the holder of such shares
or any other person, be canceled and returned to the status of authorized but
unissued shares.
D. EXCHANGE OF CERTIFICATES. After the Effective Date of the Merger,
each holder of an outstanding certificate representing shares of Catapult
California capital stock may, at such shareholder's option, surrender the
same for cancellation to the transfer agent and registrar for the Common
Stock of the Surviving Corporation, as exchange agent (the "Exchange Agent"),
and each such holder shall be entitled to receive in exchange therefor a
certificate or certificates representing the number of shares of the
appropriate class and series of the Surviving Corporation's capital stock
into which the surrendered shares were converted as herein provided. Until
so surrendered, each outstanding certificate theretofore representing shares
of Catapult California capital stock shall be deemed for all purposes to
represent the number of whole shares of the appropriate class and series of
the surviving corporation's capital stock into which such shares of Catapult
California capital stock were converted in the Merger.
The registered owner on the books and records of the Surviving
Corporation or the Exchange Agent of any such outstanding certificate shall,
until such certificate shall have been surrendered for transfer or conversion
or otherwise accounted for to the surviving Corporation or the Exchange
Agent, have and be entitled to exercise any voting and other rights with
respect to and to receive dividends and other distributions upon the shares
of capital stock of the Surviving Corporation represented by such outstanding
certificate as provided above.
Each certificate representing capital stock of the Surviving Corporation
so issued in the Merger shall bear the same legends, if any, with respect to
the restrictions on transferability as the certificates of Catapult
California so converted and given in exchange therefor, unless otherwise
determined by the Board of Directors of the Surviving Corporation in
compliance with applicable laws.
If any certificate for shares of Catapult Nevada stock is to be issued
in a name other than that in which the certificate surrendered in exchange
therefor is registered, it shall be a condition of issuance thereof that the
certificate so surrendered shall be properly endorsed and otherwise in proper
form for transfer, that such transfer otherwise be proper and that the person
requesting such transfer pay to the Exchange Agent any transfer or other
taxes payable by reason of the issuance of such new certificate in a name
other than that of the registered holder of the certificate surrendered or
establish to the satisfaction of Catapult Nevada that such tax has been paid
or is not payable.
IV.
GENERAL
-4-
<PAGE>
A. COVENANTS OF CATAPULT NEVADA. Catapult Nevada covenants and agrees
that it will, on or before the Effective Date of the Merger:
1. Qualify to do business as a foreign corporation in the State
of California and in connection therewith irrevocably consent to service
of process directed to it upon its designated agent as required under
the provisions of Section 2105 of the California General Corporation Law;
2. File any and all documents with the California Franchise Tax
Board necessary for the assumption by Catapult Nevada of all of the
franchise tax liabilities of Catapult California; and
3. Take such other actions as may be required by the California
General Corporation Law.
B. FURTHER ASSURANCES. From time to time, as and when required by
Catapult Nevada or by its successors or assigns, there shall be executed and
delivered on behalf of Catapult California such deeds and other instruments,
and there shall be taken or caused to be taken by Catapult Nevada and
Catapult California such further and other actions, as shall be appropriate
or necessary in order to vest or perfect in or conform of record or otherwise
by Catapult Nevada the title to and possession of all the property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of Catapult California and otherwise to carry out the purposes of
this Agreement, and the officers and directors of Catapult Nevada are fully
authorized in the name and on behalf of Catapult California or otherwise to
take any and all such action and to execute and deliver any and all such
deeds and other instruments.
C. ABANDONMENT. At any time before the Effective Date of the Merger,
this Agreement may be terminated and the Merger may be abandoned for any
reason whatsoever by the Board of Directors of either Catapult California or
Catapult Nevada, or both, notwithstanding the approval of this Agreement by
the shareholders of Catapult California or by the sole stockholder of
Catapult Nevada, or by both.
D. AMENDMENT. The Boards of Directors of the Constituent Corporations
may amend this Agreement at any time prior to the filing of this Agreement
with the Secretaries of State of the States of California and Nevada,
provided that an amendment made subsequent to the adoption of this Agreement
by the shareholders of either Constituent Corporation shall not: (1) alter or
change the amount or kind of shares, securities, cash, property and/or rights
to be received in exchange for or on conversion of all or any of the shares
of any class or series thereof of such Constituent Corporation, (2) alter or
change any term of the articles of incorporation of the Surviving Corporation
to be effected by the Merger, or (3) alter or change any of the terms and
conditions of this Agreement if such alteration or change would adversely
affect the holders of any class of shares or series thereof of such
Constituent Corporation.
E. REGISTERED OFFICE. The registered office of the Surviving
Corporation in the State of Nevada is located at 1100 East William Street,
Suite 207, Carson City, Nevada 89701, and GKL
-5-
<PAGE>
Statutory Agent & Filing Services, Inc. is the registered agent of the
Surviving Corporation at such address.
F. FIRPTA NOTIFICATION. (a) On the Effective Date, Catapult California
shall deliver to Catapult Nevada, as agent for the shareholders of Catapult
California, a properly executed statement (the "Statement") substantially in
the form attached hereto as EXHIBIT A. Catapult Nevada shall retain the
Statement for a period of not less than seven years and shall, upon request,
provide a copy thereof to any person that was a shareholder of Catapult
California immediately prior to the Merger. In consequence of the approval
of the Merger by the shareholders of Catapult California, as provided in
Recital D hereof, (i) such shareholders shall be considered to have requested
that the Statement be delivered to Catapult Nevada as their agent and (ii)
Catapult Nevada shall be considered to have received a copy of the Statement
at the request of the Catapult California shareholders for purposes of
satisfying Catapult Nevada's obligations under Treasury Regulation Section
1.1445-2(c)(3).
(b) Catapult California shall deliver to the Internal Revenue
Service a notice regarding the Statement in accordance with the requirements
of Treasury Regulation Section 1.897-2(h)(2).
G. EXPENSES. Each party to the transactions contemplated by this
Agreement (including, without limitation, Catapult California, Catapult
Nevada and their respective shareholders) shall pay its own expenses, if any,
incurred in connection with such transactions.
H. AGREEMENT. Executed copies of this Agreement will be on file at the
principal place of business of the Surviving Corporation at 160 South Whisman
Road, Mountain View, California 94041, and copies thereof will be furnished
to any shareholder of either Constituent Corporation, upon request and
without cost.
I. GOVERNING LAW. This Agreement shall in all respects be construed,
interpreted and enforced in accordance with and governed by the laws of the
State of Nevada and, so far as applicable, the merger provisions of the
California General Corporation Law.
J. COUNTERPARTS. In order to facilitate the filing and recording of
this Agreement, the same may be executed in any number of counterparts, each
of which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.
-6-
<PAGE>
IN WITNESS WHEREOF, this Agreement, having first been approved by
resolutions of the Boards of Directors of Catapult Nevada and Catapult
California, is hereby executed on behalf of each of such two corporations by
their respective officers thereunto duly authorized.
CATAPULT COMMUNICATIONS CORPORATION,
a California corporation
/s/ Richard A. Karp
------------------------------------
Richard A. Karp, President
/s/ Nancy Karp
------------------------------------
Nancy Karp, Secretary
CATAPULT COMMUNICATIONS CORPORATION,
a Nevada corporation
/s/ Richard A. Karp
------------------------------------
Richard A. Karp, President
/s/ Nancy Karp
------------------------------------
Nancy Karp, Secretary
<PAGE>
EXHIBIT A
<PAGE>
Catapult Communications Corporation
160 South Whisman Road
Mountain View, California 94041
June 10, 1998
Assistant Commissioner (International)
Director, Office of Compliance
OP:I:C:E:666
950 L'Enfant Plaza South, S.W.
COMSAT Building
Washington, D.C. 20024
Re: Notice Required Under Treasury Regulation Section 1.897-2(h)(2)
---------------------------------------------------------------
Ladies and Gentlemen:
At the request of Catapult Communications Corporation, a Nevada
corporation ("Catapult Nevada"), in connection with the reincorporation
merger of Catapult Communications Corporation, a California corporation
("Catapult California"), with and into Catapult Nevada in which Catapult
Nevada shall continue as the surviving corporation, we provided the attached
statement to Catapult Nevada on June 10, 1998.
(i) This notice is provided pursuant to the requirements of Treasury
Regulation Section 1.897-2(h)(2);
(ii) The following information relates to the corporation providing
the notice:
Name Catapult Communications Corporation
Address 160 South Whisman Road
Mountain View, CA 94041
Taxpayer Identification Number 77-0086010
(iii) The attached statement was not requested by a foreign interest
holder. It was voluntarily provided by Catapult California in
response to a request from Catapult Nevada in accordance with
Treasury Regulation Section 1.1445-2(c)(3)(i). The following
information relates to Catapult Nevada which requested the
attached statement:
Name Catapult Communications Corporation
Address 160 South Whisman Road
Mountain View, CA 94041
Taxpayer Identification Number 77-0086010
<PAGE>
(iv) The interest in question (capital stock and rights to acquire
capital stock of Catapult California) is not a U.S. real property
interest.
Under penalties of perjury, the undersigned declares that the above
notice (including the attachment hereto) is correct to my knowledge and
belief.
Sincerely,
/s/ Richard A. Karp
Richard A. Karp,
President
Enclosure
<PAGE>
Catapult Communications Corporation
160 South Whisman Road
Mountain View, California 94041
June 10, 1998
Catapult Communications Corporation
160 South Whisman Road
Mountain View, California 94041
Ladies and Gentlemen:
In connection with the reincorporation merger of Catapult Communications
Corporation, a California corporation ("Catapult California"), with and into
Catapult Communications Corporation, a Nevada corporation ("Catapult
Nevada"), in which Catapult Nevada shall continue as the surviving
corporation, we are providing this representation letter and the attached
notice to you in order to establish that the shares and rights to acquire
shares of Catapult California are not a U.S. real property interest and
accordingly no withholding is required pursuant to Section 1445 of the
Internal Revenue Code of 1986, as amended (the "Code"). We represent that,
as of the date of this letter, no interest in Catapult California (other than
interests solely as a creditor) constitutes a United States real property
interest, as defined in Section 897 of the Code. This notice is provided to
you in accordance with Treasury Regulation Section 1.897-2(h) in response to
your request made pursuant to Treasury Regulation Section 1.1445-2(c)(3)(i).
This letter constitutes authorization for Catapult Nevada, as agent for
Catapult California, to deliver a copy of this letter, along with the
appropriate notification, to the Internal Revenue Service on behalf of
Catapult California.
Under penalties of perjury, the undersigned declares that the above
information is correct to the best of my knowledge and belief.
Sincerely,
/s/ Richard A. Karp
Richard A. Karp,
President
<PAGE>
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
CATAPULT COMMUNICATIONS CORPORATION
I.
The name of this corporation is Catapult Communications Corporation.
II.
The address of the corporation's resident agent in the State of Nevada is
1100 East William Street, Suite 207, Carson City, Nevada 89701. The name of its
resident agent at that address is GKL Statutory Agent & Filing Services, Inc.
III.
The corporation is authorized to issue two classes of stock, designated,
respectively, "Common Stock" and "Preferred Stock." The total number of shares
of Common Stock authorized to be issued is Twenty-Five Million (25,000,000),
$.001 par value per share. The total number of shares of Preferred Stock
authorized to be issued is Five Million (5,000,000), $.001 par value per share.
The undesignated shares of Preferred Stock may be issued from time to time
in one or more series pursuant to a resolution or resolutions providing for such
issue duly adopted by the Board of Directors (authority to do so being hereby
expressly vested in the Board). The Board of Directors is further authorized to
determine or alter the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock and, to fix the
number of shares of any series of Preferred Stock and the designation of any
such series of Preferred Stock. The Board of Directors, within the limits and
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series, may increase or
decrease (but not below the number of shares in any such series then
outstanding) the number of shares of any series subsequent to the issue of
shares of that series.
IV.
The governing board of this corporation shall be known as directors, and
the number of directors may from time to time be increased or decreased in such
manner as shall be provided by the bylaws of this corporation. The current Board
of Directors consists of four (4) members, and the names and addresses of such
directors are as follows:
<PAGE>
NAME ADDRESS
Richard A. Karp c/o Catapult Communications Corporation
160 South Whisman Road
Mountain View, CA 94041
John M. Scandalios 79 Lane Place
Atherton, CA 94027
Chuck Waggoner 185 Berwick Way
Sunnyvale, CA 94087
Nancy Karp c/o Catapult Communications Corporation
160 South Whisman Road
Mountain View, CA 94041
V.
The name and address of the incorporator signing the articles of
incorporation is Henry P. Massey, Jr., c/o Wilson Sonsini Goodrich & Rosati,
650 Page Mill Road, Palo Alto, CA 94304-1050.
VI.
To the fullest extent permitted by the Nevada General Corporation Law
as the same exists or as may hereafter be amended, a director or officer of the
corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director or
officer, provided that such shall not eliminate or limit the liability of a
director or officer for (i) acts or omissions which involve intentional
misconduct, fraud or knowing violations of law or (ii) the payment of
distributions in violation of Nevada General Corporation Law.
The corporation shall indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer, employee or
agent of the corporation or any predecessor of the corporation or serves or
served at any other enterprise as a director, officer, employee or agent at the
request of the corporation or any predecessor to the corporation.
Neither any amendment nor repeal of this Article 6, nor the adoption
of any provision of this corporation's articles of incorporation inconsistent
with this Article 6, shall eliminate or reduce the effect of this Article 6 in
respect of any matter occurring, or any action or proceeding accruing or arising
or that, but for this Article 6, would accrue or arise, prior to such amendment,
repeal or adoption of an inconsistent provision.
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<PAGE>
THE UNDERSIGNED, being the sole incorporator for the purpose of forming a
corporation in pursuance of the General Corporation Law of Nevada, being Chapter
78 of the Nevada Revised Statutes, and the Acts amendatory thereof and
supplemental thereto, does make and file this certificate, hereby declaring and
certifying that the facts herein stated are true.
/s/ Henry P. Massey, Jr.
----------------------------------------
Henry P. Massey, Jr., Incorporator
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<PAGE>
STATE OF CALIFORNIA )
)
County of Santa Clara )
On this ______ day of________________, before me,_______________________,
a Notary Public, State of California, duly commissioned and sworn, personally
appeared Henry P. Massey, Jr., personally known to me to be the person whose
name is subscribed to this instrument, and acknowledged that he executed it.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal in the Santa Clara County of California on the date set forth above on this
certificate.
________________________________________
Notary Public, State of California
My commission expires __________________
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<PAGE>
CERTIFICATE OF ACCEPTANCE
The GKL STATUTORY AGENT & FILING SERVICES, INC. hereby accepts appointment
as Resident Agent for Catapult Communications Corporation, a Nevada corporation.
_______________________ GKL STATUTORY AGENT & FILING
Date SERVICES, INC.
By: ______________________________
Title: ___________________________
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<PAGE>
Exhibit 3.2
BYLAWS
OF
CATAPULT COMMUNICATIONS CORPORATION
<PAGE>
TABLE OF CONTENTS
PAGE
Article 1 - Corporate Offices. . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Principal Office. . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Article 2 - Stockholders' Meetings . . . . . . . . . . . . . . . . . . . . . .1
Article 3 - Annual Meetings. . . . . . . . . . . . . . . . . . . . . . . . . .1
Article 4 - Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . .2
Article 5 - Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
5.1 Notice of Stockholders' Meetings. . . . . . . . . . . . . . . . . .2
5.2 Advance Notice of Stockholder Nominees. . . . . . . . . . . . . . .2
5.3 Advance Notice of Stockholder Business. . . . . . . . . . . . . . .3
Article 6 - Waiver; Consent; Ratification. . . . . . . . . . . . . . . . . . .4
6.1 Waiver of Notice. . . . . . . . . . . . . . . . . . . . . . . . . .4
6.2 No Consent of Stockholders In Lieu of Meeting . . . . . . . . . . .4
6.3 Ratification and Approval of Actions at Special Meetings. . . . . .4
Article 7 - Quorum of Stockholders . . . . . . . . . . . . . . . . . . . . . .5
Article 8 - Proxy and Voting . . . . . . . . . . . . . . . . . . . . . . . . .5
Article 9 - Board of Directors . . . . . . . . . . . . . . . . . . . . . . . .5
Article 10 - Powers of Directors . . . . . . . . . . . . . . . . . . . . . . .6
Article 11 - Meetings and Consents . . . . . . . . . . . . . . . . . . . . . .6
11.1 Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
11.2 Telephonic/Electronic Meetings. . . . . . . . . . . . . . . . . . .6
11.3 Consent to Action . . . . . . . . . . . . . . . . . . . . . . . . .7
Article 12 - Quorum of Directors . . . . . . . . . . . . . . . . . . . . . . .7
Article 13 - Limitations of Power. . . . . . . . . . . . . . . . . . . . . . .7
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
Article 14 - Committees. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
14.1 Committees of Directors . . . . . . . . . . . . . . . . . . . . . .7
14.2 Committee Minutes . . . . . . . . . . . . . . . . . . . . . . . . .8
14.3 Meetings and Action of Committees . . . . . . . . . . . . . . . . .8
Article 15 - Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Article 16 - Eligibility of Officers . . . . . . . . . . . . . . . . . . . . .9
Article 17 - Additional Officers and Agents. . . . . . . . . . . . . . . . . .9
Article 18 - Chief Executive Officer . . . . . . . . . . . . . . . . . . . . .9
Article 19 - Chief Financial Officer . . . . . . . . . . . . . . . . . . . . 10
Article 20 - Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Article 21 - Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Article 22 - Resignations and Removals . . . . . . . . . . . . . . . . . . . 11
Article 23 - Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Article 24 - Certificates of Stock . . . . . . . . . . . . . . . . . . . . . 11
Article 25 - Transfer of Stock . . . . . . . . . . . . . . . . . . . . . . . 12
Article 26 - Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
26.1 Indemnification of Officers and Directors in Advance. . . . . . . 12
26.2 Indemnification of Employees and Agents . . . . . . . . . . . . . 13
26.3 Indemnity Not Exclusive . . . . . . . . . . . . . . . . . . . . . 13
26.4 Indemnification for Successful Defense. . . . . . . . . . . . . . 13
26.5 Continuing Right to Indemnification . . . . . . . . . . . . . . . 14
26.6 Insurance and Other Financial Arrangements. . . . . . . . . . . . 14
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
Article 27 - Transfer Books and Record Dates . . . . . . . . . . . . . . . . 14
27.1 Record Date for Notice and Voting . . . . . . . . . . . . . . . . 14
27.2 Record Date for Purposes Other Than Notice and Voting . . . . . . 15
Article 28 - Loss of Certificates. . . . . . . . . . . . . . . . . . . . . . 15
Article 29 - Corporate Authority . . . . . . . . . . . . . . . . . . . . . . 15
29.1 Checks; Drafts; Evidences of Indebtedness . . . . . . . . . . . . 15
29.2 Corporate Contracts and Instruments; How Executed. . . . . . . . 15
Article 30 - Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-iii-
<PAGE>
BYLAWS
OF
CATAPULT COMMUNICATIONS CORPORATION,
A NEVADA CORPORATION
ARTICLE 1
CORPORATE OFFICES
1.1 PRINCIPAL OFFICE
The principal office of the corporation shall be located at 160 South
Whisman Road, Mountain View, CA 94041, unless and until otherwise decided by
the Board of Directors, who may fix the location of the principal office of
the corporation at any place within or outside the State of Nevada. If the
principal office is located outside the State of Nevada and the corporation
has one or more business offices in the State of Nevada, then the board of
directors shall fix and designate a principal business office in the State of
Nevada.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE 2
STOCKHOLDERS' MEETINGS
All meetings of stockholders shall be held either at the principal office
of the corporation or at any other place within or without the State of Nevada
or the United States as the Board of Directors or any person authorized to call
such meeting or meetings may designate.
ARTICLE 3
ANNUAL MEETINGS
The annual meeting of the stockholders of the corporation shall be held on
the first [ ] of [May] in each year at [2:00 p.m.], or on such other date
and time designated by the Board of Directors. In the event that such annual
meeting is omitted by oversight or otherwise on the date herein provided for,
the directors shall cause a meeting in lieu thereof to be held as soon
thereafter as conveniently may be, and any business transacted or elections held
at such meeting shall be as valid as if transacted or held
<PAGE>
at the annual meeting. Such subsequent meeting shall be called in the same
manner as provided for the annual stockholders' meeting.
ARTICLE 4
SPECIAL MEETINGS
Except as otherwise provided by law, special meetings of the stockholders
of this corporation shall be held whenever called by the president or by a
majority of the Board of Directors or whenever one or more stockholders who are
entitled to vote and who hold at least ten percent (10%) of the capital stock
issued and outstanding shall make written application therefor to the secretary
stating the time, place, and purpose of the meeting called for.
ARTICLE 5
NOTICE
5.1 NOTICE OF STOCKHOLDERS' MEETINGS
Notice of all stockholders' meetings stating the time and the place, and
the objects for which such meetings are called, shall be given by the president
or secretary or by any one or more stockholders entitled to call a special
meeting of the stockholders or any such other person or persons as the Board may
designate, by mail not less than ten (10), nor more than sixty (60) days prior
to the date of the meeting, to each stockholder of record at his or her address
as it appears on the stock books of the corporation, unless he or she shall have
filed with the secretary of the corporation a written request that notice
intended for him or her be mailed to some other address, in which case it shall
be mailed to the address designated in such request. The person giving such
notice shall make an affidavit in relation thereto.
Any meeting of which all stockholders shall at any time waive or have
waived notice in writing shall be a legal meeting for the transaction of
business, notwithstanding that notice has not been given as hereinbefore
provided.
5.2 ADVANCE NOTICE OF STOCKHOLDER NOMINEES
Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the discretion of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of directors at the meeting who complies with the notice
procedures set forth in this Section. Such nominations, other than those made
by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the secretary of the corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the corporation not less than twenty (20) days
nor more than sixty (60)
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<PAGE>
days prior to the meeting; provided, however, that in the event less than
thirty (30) days notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must
be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the meeting was mailed
or such public disclosure was made. Such stockholder's notice shall set
forth (a) as to each person, if any, whom the stockholder proposes to
nominate for election or re-election as a director: (i) the name, age,
business address and residence address of such person, (ii) the principal
occupation or employment of such person, (iii) the class and number of shares
of the corporation which are beneficially owned by such person, (iv) any
other information relating to such person that is required by law to be
disclosed in solicitations of proxies for election of directors, and
(v) such person's written consent to being named as a nominee and to serving
as a director if elected; and (b) as to the stockholder giving the notice:
(i) the name and address, as they appear on the corporation's books, of such
stockholder, and (ii) the class and number of shares of the corporation which
are beneficially owned by such stockholder, and (iii) a description of all
arrangements or understandings between such stockholder and each nominee and
any other person or persons (naming such person or persons) relating to the
nomination. At the request of the Board of Directors any person nominated by
the Board for election as a director shall furnish to the secretary of the
corporation that information required to be set forth in the stockholder's
notice of nomination which pertains to the nominee. No person shall be
eligible for election as a director of the corporation unless nominated in
accordance with the procedures set forth in this Section. The chairman of
the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed
by these Bylaws, and if he or she should so determine, he or she shall so
declare at the meeting and the defective nomination shall be disregarded.
5.3 ADVANCE NOTICE OF STOCKHOLDER BUSINESS
At the annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (a) as specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (b) otherwise properly brought before the
meeting by or at the direction of the Board of Directors, or (c) otherwise
properly brought before the meeting by a stockholder. Business to be brought
before an annual meeting by a stockholder shall not be considered properly
brought if the stockholder has not given timely notice thereof in writing to the
secretary of the corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation not less than twenty (20) nor more than sixty (60) days prior to the
meeting; provided, however, that in the event that less than thirty (30) days
notice or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the secretary shall set forth as
to each matter the stockholder proposes to bring before the annual meeting:
(i) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting,
(ii) the name and address of the stockholder proposing such business, (iii) the
class and number of shares of the corporation, which are beneficially owned by
the stockholder, (iv) any material interest of the stockholder in such business,
and (v) any other information that is required by law to be provided by the
stockholder in his or her capacity as a
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<PAGE>
proponent of a stockholder proposal. Notwithstanding anything in these Bylaws
to the contrary, no business shall be conducted at any annual meeting except
in accordance with the procedures set forth in this Section. The chairman of
the annual meeting shall, if the facts warrant, determine and declare at the
meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section, and, if he or she should so
determine, he or she shall so declare at the meeting that any such business
not properly brought before the meeting shall not be transacted.
ARTICLE 6
WAIVER; CONSENT; RATIFICATION
6.1 WAIVER OF NOTICE
Whenever any notice whatsoever is required to be given by these Bylaws, or
the Articles of Incorporation of this corporation, or any of the corporation
laws of the State of Nevada, a waiver thereof in writing, signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
6.2 NO CONSENT OF STOCKHOLDERS IN LIEU OF MEETING
No action which may be taken by the vote of stockholders at a meeting may
be taken without a meeting by the written consent of stockholders.
6.3 RATIFICATION AND APPROVAL OF ACTIONS AT SPECIAL MEETINGS
Whenever all persons entitled to vote at any meeting, whether of directors
or stockholders, consent, either by a writing on the record of the meeting or
filed with the secretary, or presence at such meeting and oral consent entered
on the minutes, or taking part in the deliberations at such meeting without
objection, the doings of such meeting shall be valid as if such meeting was
regularly called and noticed. At such meeting any business may be transacted
which is not excepted from the written consent or to the consideration of which
no objection for want of notice is made at the time.
If any meeting be irregular for want of notice or of consent, provided a
quorum was present at such meeting, the proceedings of the meeting may be
ratified and approved and rendered likewise valid
-4-
<PAGE>
and the irregularity or defect therein waived by a writing signed by all
parties having the right to vote at such meeting. Such consent or approval
of stockholders or creditors may be by proxy or attorney, but all such
proxies and powers of attorney must be in writing.
ARTICLE 7
QUORUM OF STOCKHOLDERS
Except as hereinafter provided or otherwise provided by the Articles of
Incorporation or bylaw, at any meeting of the stockholders, the holders of a
majority of the stock issued, outstanding and entitled to vote thereat,
represented by stockholders in person or by proxy, shall constitute a quorum.
When a quorum is present at any meeting, a majority vote of the shares present
shall decide any question brought before such meeting, unless the question is
one upon which by express provision of law or of the Articles of Incorporation
or of these Bylaws a larger or different vote is required, in which case such
express provision shall govern and control the decision of such question.
ARTICLE 8
PROXY AND VOTING
Stockholders of record may vote at any meeting either in person or by proxy
or proxies appointed by a signed and executed instrument in writing, or by
telegram, cablegram, or other means of electronic transmission or copy thereof,
provided that the validity of such transmission can be determined by reference
to information set forth thereon. Such instrument or transmission shall be
filed with the secretary of the meeting before being voted. In the event that
any such instrument or transmission shall designate two or more persons to act
as proxies, a majority of such persons present at the meeting, or, if only one
shall be present, then that one, shall have and may exercise all of the powers
conferred by such instrument or transmission upon all of the persons so
designated unless such instrument or transmission shall otherwise provide.
No proxy shall be valid after the expiration of six (6) months from the
date of its execution unless coupled with an interest, or unless the person
executing it specifies therein the length of time for which it is to continue in
force, which in no case shall exceed seven (7) years from the date of its
execution. Subject to the above, any proxy duly executed is not revoked and
continues in full force and effect until an instrument revoking it or a duly
executed proxy bearing a later date is filed with the secretary of the
corporation.
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<PAGE>
ARTICLE 9
BOARD OF DIRECTORS
The Board of Directors shall be chosen by ballot at the annual meeting of
the stockholders or at any meeting held in place thereof as provided by law.
The authorized number of directors of this corporation shall be five (5).
Subject to any limitation set forth in the provisions of the Articles of
Incorporation, the Board of Directors may, by resolution adopted, increase or
decrease the number of the directors of this corporation, provided that no such
reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
Each director shall serve until the next annual meeting of the stockholders
and until his or her successor is duly elected and qualified. Directors need
not be stockholders in the corporation. Directors shall be over the age of
eighteen (18).
ARTICLE 10
POWERS OF DIRECTORS
In the management and control of the property, business, and affairs of the
corporation, the Board of Directors is hereby vested with all the powers
possessed by the corporation itself, so far as this delegation of authority is
not inconsistent with the Nevada General Corporation Law, with the Articles of
Incorporation of the corporation, or with these Bylaws. The Board of Directors
may fix the compensation of directors for services in any capacity.
ARTICLE 11
MEETINGS AND CONSENTS
11.1 MEETINGS
Regular meetings of the Board of Directors shall be held at such places and
at such times as the Board by vote may determine, and if so determined no notice
thereof need be given. Special meetings of the Board of Directors may be held
at any time or place, whenever called by the president, a vice-president, the
treasurer, the secretary, an assistant secretary or two directors, notice
thereof being given to each director by the secretary or an assistant secretary
or an officer calling the meeting, or at any time without formal notice provided
all the directors are present or those not present shall waive or have waived
notice thereof. Notice of special meetings, stating the time and place thereof,
shall be given by mailing the same to each director at his or her residence or
business address at least four (4) days before the meeting, or by delivering the
same to him or her personally or telegraphing the same to him or her at his or
her residence or business address not later than forty-eight (48) hours before
the time at which the meeting is to be held, unless, in case of emergency, the
chairman of the Board of Directors or the
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<PAGE>
president shall prescribe a shorter notice to be given personally or by
telegraphing each director at his or her residence or business address.
11.2 TELEPHONIC/ELECTRONIC MEETINGS
Members of the Board of Directors or the governing body of the corporation,
or of any committee designated by such Board or body, may participate in a
meeting of such Board, body, or committee by means of a conference telephone
network, or a similar communications method by which all persons participating
in the meeting can hear each other. Participation in a meeting pursuant to this
subsection constitutes presence in person at such meeting.
11.3 CONSENT TO ACTION
Any action required or permitted to be taken at any meeting of the Board,
body or committee may be taken without a meeting if, before or after such
action, a written consent thereto is signed by all members of the Board, body,
or committee. Such written consent shall be filed with the minutes of the
proceedings of the Board, body, or committee.
ARTICLE 12
QUORUM OF DIRECTORS
Unless the Articles of Incorporation or these Bylaws provide for a
different proportion, a majority of members of the Board of Directors of the
corporation, at a meeting duly assembled, shall constitute a quorum for the
transaction of business. When a quorum is present at any meeting, the act of
directors holding a majority of the voting power of the directors present shall
be the act of the Board of Directors.
ARTICLE 13
LIMITATIONS OF POWER
The enumeration of the powers and duties of the directors in these Bylaws
shall not be construed to exclude all or any powers and duties, except insofar
as the same are expressly prohibited or restricted by the provisions of these
Bylaws or the Articles of Incorporation. The directors may exercise all other
powers and perform all such duties as may be granted by the Nevada General
Corporation Law and as do not conflict with the provisions of these Bylaws or
the Articles of Incorporation.
ARTICLE 14
COMMITTEES
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<PAGE>
14.1 COMMITTEES OF DIRECTORS
The Board of Directors may, by resolution passed by a majority of the whole
Board, designate one or more committees, and each committee shall have as a
member at least one (1) director and such other natural persons as the Board of
Directors may select. The Board may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he, she or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors or
in these Bylaws of the corporation, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers that may require it; but no such committee shall have the
power or authority to (i) amend the Articles of Incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
as provided in Section 78.195 of the Nevada General Corporation Law, fix the
designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any series),
(ii) adopt an agreement or plan of merger, consolidation or share exchange under
the Nevada General Corporation Law, (iii) recommend to the stockholders the
sale, lease or exchange of all or substantially all of the corporation's
property and assets, (iv) recommend to the stockholders a dissolution of the
corporation or a revocation of a dissolution, or (v) amend the Bylaws of the
corporation; and, unless the Board resolution establishing the committee, the
Bylaws or the Articles of Incorporation expressly so provide, no such committee
shall have the power or authority to declare a dividend, or to authorize the
issuance of stock.
14.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the Board of Directors when required.
14.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of these Bylaws applicable to the full Board
of Directors, with such changes in the context of those Bylaws as are necessary
to substitute the committee and its members for the Board of Directors and its
members; provided, however, that (i) the time of regular meetings of committees
may be determined either by resolution of the Board of Directors or by
resolution of the committee, and (ii) special meetings of committees may also be
called by resolution of the Board of Directors and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have
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<PAGE>
the right to attend all meetings of the committee. The Board of Directors
may adopt rules not inconsistent with the provisions of these Bylaws for the
government of any committee.
ARTICLE 15
OFFICERS
The officers of this corporation shall include, without limitation, a
president, a secretary, and a treasurer. The Board of Directors, in its
discretion, may elect a chairman of the Board of Directors, who, when present,
shall preside at all meetings of the Board of Directors, and who shall have such
other powers as the Board shall prescribe.
The officers of the corporation shall be elected by the Board of Directors
after its election by the stockholders, and a meeting may be held without notice
for this purpose immediately after the annual meeting of the stockholders and at
the same place. Any person may hold two or more offices at once.
ARTICLE 16
ELIGIBILITY OF OFFICERS
The chairman of the Board of Directors need not be a stockholder. The
president, secretary, treasurer, and such other officers as may be elected or
appointed need not be stockholders or directors of the corporation. Any person
may hold more than one office, provided the duties thereof can be consistently
performed by the same person.
ARTICLE 17
ADDITIONAL OFFICERS AND AGENTS
The Board of Directors, at its discretion, may appoint one or more vice
presidents, assistant secretaries, assistant treasurers, and such other officers
or agents as it may deem advisable, and prescribe the duties thereof.
ARTICLE 18
CHIEF EXECUTIVE OFFICER
The chief executive officer shall be the president of the corporation and,
when present, shall preside at all meetings of the stockholders and, unless a
chairman of the Board of Directors has been elected and is present, shall
preside at meetings of the Board of Directors. The president, unless some other
person is specifically authorized by vote of the Board of Directors, shall sign
all certificates of
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stock, bonds, deeds, mortgages, extension agreements, modification of
mortgage agreements, leases, and contracts of the corporation. He or she
shall perform all of the duties commonly incident to his or her office and
shall perform such other duties as the Board of Directors shall designate.
ARTICLE 19
CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. He or she shall perform all of the duties
commonly incident to his or her office and such other duties as the Board of
Directors shall designate. The books of account shall at all reasonable times
be open to inspection by any director.
ARTICLE 20
SECRETARY
The secretary shall keep accurate minutes of all meetings of the
stockholders and the Board of Directors, and shall perform all the duties
commonly incident to his or her office, and shall perform such other duties and
have such other powers as the Board of Directors shall designate. The secretary
shall have power, together with the president, to sign certificates of stock of
the corporation. In his or her absence at the meeting an assistant secretary or
a secretary pro tempore shall perform his or her duties.
ARTICLE 21
TREASURER
The treasurer, subject to the order of the Board of Directors, shall have
the care and custody of the money, funds, valuable papers, and documents of the
corporation (other than his or her own bond, if any, which shall be in the
custody of the president), and shall have and exercise, under the supervision of
the Board of Directors, all the powers and duties commonly incident to his or
her office, and shall give bond in such form and with such sureties as shall be
required by the Board of Directors. He or she shall deposit all funds of the
corporation in such bank or banks, trust company or trust companies, or with
such firm or firms, doing a banking business, as the directors shall designate.
He or she may endorse for deposit or collection all checks and notes payable to
the corporation or to its order, may accept drafts on behalf of the corporation,
and together with the president may sign certificates of stock. He or she shall
keep accurate books of account of the corporation's transactions which shall be
the property of the corporation, and, together with all property in his or her
possession, shall be subject at all times to the inspection and control of the
Board of Directors.
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<PAGE>
All checks, drafts, notes, or other obligations for the payment of money
shall be signed by such officer or officers or agent or agents as the Board of
Directors shall by general or special resolution direct. The Board of Directors
may also in its discretion require, by general or special resolutions, that
checks, drafts, notes, and other obligations for the payment of money shall be
countersigned or registered as a condition to their validity by such officer or
officers or agent or agents as shall be directed in such resolution.
ARTICLE 22
RESIGNATIONS AND REMOVALS
Any director or officer of the corporation may resign at any time by giving
written notice to the corporation, to the Board of Directors, or to the chairman
of the Board, or to the president, or to the secretary of the corporation. Any
such resignation shall take effect at the time specified therein, or, if the
time be not specified therein, upon its acceptance by the Board of Directors.
Any director may be removed from office by the vote of stockholders
representing not less than two-thirds (2/3) of the issued and outstanding
capital stock entitled to voting power.
ARTICLE 23
VACANCIES
Vacancies in the Board of Directors, including those caused by an increase
in the number of directors, may be filled by a majority of the remaining
directors, though less than a quorum. Vacancies in the Board of Directors may
be filled for the unexpired term by the stockholders at a meeting called for
that purpose, unless such vacancy shall have been filled by the directors.
Vacancies resulting from an increase in the number of directors may be filled in
the same manner.
ARTICLE 24
CERTIFICATES OF STOCK
Every stockholder shall be entitled to a certificate or certificates of the
capital stock of the corporation in such form as may be prescribed by the Board
of Directors, duly numbered and sealed with the corporate seal of the
corporation and setting forth the number and kind of shares. Such certificates
shall be signed by the president and by the treasurer or an assistant treasurer
or the secretary or an assistant secretary.
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<PAGE>
ARTICLE 25
TRANSFER OF STOCK
Unless further limited by the Articles of Incorporation, shares of stock
may be transferred by delivery of the certificate accompanied either by an
assignment in writing on the back of the certificate or by a written power of
attorney to sell, assign, and transfer the same on the books of the corporation,
signed by the person appearing by the certificate to be the owner of the shares
represented thereby, together with all necessary federal and state transfer tax
stamps affixed and shall be transferable on the books of the corporation upon
surrender thereof so assigned or endorsed. The person registered on the books
of the corporation as the owner of any shares of stock shall be entitled to all
the rights of ownership with respect to such shares. It shall be the duty of
every stockholder to notify the corporation of his or her post office address.
ARTICLE 26
INDEMNITY
26.1 INDEMNIFICATION OF OFFICERS AND DIRECTORS IN ADVANCE
The corporation shall, to the maximum extent and in the manner permitted by
Section 78.751 of the Nevada General Corporation Law, indemnify each of its
directors and officers against expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, except an action by or
in the right of the corporation. For purposes of this Article, an "officer" or
"director" of the corporation includes any person (i) who is or was a director
or officer of the corporation, (ii) is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
The corporation shall, to the maximum extent permitted by Section 78.751 of
the Nevada General Corporation Law, indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or was a director or officer of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation against expenses, including amounts paid
in settlement and attorneys' fees.
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<PAGE>
The corporation shall pay the expenses of officers and directors incurred
in defending a civil or criminal action, suit or proceeding as they are incurred
and in advance of the final disposition of the action, suit or proceeding, upon
receipt of an undertaking by or on behalf of the director or officer to repay
the amount if it is ultimately determined by a court of competent jurisdiction
that he or she is not entitled to be indemnified by the corporation.
26.2 INDEMNIFICATION OF EMPLOYEES AND AGENTS
The corporation shall have the power, to the maximum extent and in the
manner permitted by Section 78.751 of the Nevada General Corporation Law, to
indemnify each of its employees and agents against expenses, including
attorneys' fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, except an action by or in the right of the corporation. For
purposes of this Article, an "employee" or "agent" of the corporation includes
any person (i) who is or was an employee or agent of the corporation, (ii) is or
was serving at the request of the corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or (iii) was
an employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
The corporation shall have the power, to the maximum extent and in the
manner permitted by Section 78.751 of the Nevada General Corporation Law, to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was an employee or agent of the corporation, or is or was serving at the
request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or was an employee or
agent of a corporation which was a predecessor corporation of the corporation or
of another enterprise at the request of such predecessor corporation against
expenses, including amounts paid in settlement and attorneys' fees.
26.3 INDEMNITY NOT EXCLUSIVE
The indemnification provided by this Article shall not be deemed exclusive
of any other rights to which those seeking indemnification may be entitled under
the Articles of Incorporation, any Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in an official capacity
and as to action in another capacity while holding such office.
26.4 INDEMNIFICATION FOR SUCCESSFUL DEFENSE
To the extent that a director, officer, employee or agent of the
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections 1 and 2 of Section 78.751
of the Nevada General Corporation Law, or in defense of any claim, issue or
matter therein, he or she must be indemnified by the corporation against
expenses, including attorneys' fees, actually and reasonably incurred by him or
her in connection with the defense.
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<PAGE>
26.5 CONTINUING RIGHT TO INDEMNIFICATION
The indemnification and advancement of expenses authorized in or ordered by
a court pursuant to Section 78.751 of the Nevada General Corporation Law
continues for a person who has ceased to be a director, officer, employee or
agent and inures to the benefit of the heirs, executors and administrators of
such a person.
26.6 INSURANCE AND OTHER FINANCIAL ARRANGEMENTS
The corporation shall have the power, to the maximum extent and in the
manner permitted by Section 78.752 of the Nevada General Corporation Law, to
purchase and maintain insurance or make other financial arrangements on behalf
of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or was a director, officer, employee or
agent of a corporation which was a predecessor corporation of the corporation or
of another enterprise at the request of such predecessor corporation for any
liability asserted against him and liability and expenses incurred by him in his
capacity as a director, officer, employee or agent, or arising out of his status
as such, whether or not the corporation has the authority to indemnify him
against such liability and expenses.
ARTICLE 27
TRANSFER BOOKS AND RECORD DATES
27.1 RECORD DATE FOR NOTICE AND VOTING
The Board of Directors may prescribe a period not exceeding sixty (60) days
before any meeting of the stockholders during which no transfer of stock on the
books of the corporation may be made, or may fix a day not more than sixty (60)
days before the holding of any such meeting as the day as of which stockholders
entitled to notice of and to vote at such meetings must be determined. Only
stockholders of record on that day are entitled to notice or to vote at such
meeting.
If the Board of Directors does not so fix a record date:
(1) the record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the business day next preceding the day on which notice is given or, if notice
is waived, at the close of business on the business day next preceding the day
on which the meeting is held; and
(2) the record date for determining stockholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action by the board has been taken,
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<PAGE>
shall be at the close of business on the day on which the board adopts the
resolution relating to that action, or the sixtieth (60th) day before the
date of such other action, whichever is later.
27.2 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any other lawful
action (other than action by stockholders by written consent without a meeting),
the Board of Directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action. In that case, only
stockholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided in the Nevada General Corporation Law. If the Board of
Directors does not so fix a record date, then the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the board adopts the applicable resolution or the sixtieth (60th) day
before the date of that action, whichever is later.
ARTICLE 28
LOSS OF CERTIFICATES
In case of loss, mutilation, or destruction of a certificate of stock, a
duplicate certificate may be issued upon such terms as the Board of Directors
shall prescribe.
ARTICLE 29
CORPORATE AUTHORITY
29.1 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
29.2 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED
The board of directors, except as otherwise provided in these Bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent
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or employee shall have any power or authority to bind the corporation by any
contract or engagement or to pledge its credit or to render it liable for any
purpose or for any amount.
ARTICLE 30
AMENDMENTS
The Bylaws of the corporation, regardless of whether made by the
stockholders or by the Board of Directors, may be amended, added to, or repealed
by the stockholders of the issued and outstanding capital stock of this
corporation, at any meeting of the stockholders, provided notice of the proposed
change is given in the notice of meeting, or notice thereof is waived in
writing.
Subject to the Bylaws, if any, adopted by the stockholders of the issued
and outstanding capital stock of this corporation, the Board of Directors may
amend, add to, or repeal the Bylaws of the corporation.
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<PAGE>
COMMON STOCK COMMON STOCK
NUMBER SHARES
------------ ------------
------------ ------------
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR CERTAIN DEFINITIONS
THE STATE OF NEVADA AND A STATEMENT AS TO THE RIGHTS,
PREFERENCES, PRIVILEGES AND
RESTRICTIONS ON SHARES
[CATAPULT COMMUNICATIONS LOGO]
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $__ PAR VALUE, OF
CATAPULT COMMUNICATIONS CORPORATION
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This
Certificate is not valid unless countersigned and registered by the Transfer
Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
[CATAPULT COMMUNICATIONS CORPORATION CORPORATE SEAL NEVADA]
/s/ Joan M Varrone /s/ Richard A. Karp
Chief Financial Officer and Vice President Chief Executive Officer
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
AUTHORIZED SIGNATURE
- --------------------------------------------------
AMERICAN BANK NOTE COMPANY MAY 14, 1998 fm
3504 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90807 056776fc
(562) 989-2333
(FAX) (562) 426-7450 42X Proof [illegible] NEW
-----------
- --------------------------------------------------
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S><C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ........... Custodian ............
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act .............................
in common (State)
UNIF TRF MIN ACT -- ....... Custodian (until age ....)
(Cust)
........... under Uniform Transfers
(Minor)
to Minors Act .....................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ___________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
--------------------------------
X
--------------------------------------
X
--------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAMES(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
------------------------------------------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT
UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. Rule 17Ad-15.
- ---------------------------------------------------
AMERICAN BANK NOTE COMPANY MAY 14, 1998 fm
3504 ATLANTIC AVENUE
SUITE 12
LONG BEACH, CA 90807 056776bk
(562) 989-2333
(FAX) (562) 426-7450 Proof [illegible] NEW
-----------
- ----------------------------------------------------
<PAGE>
Exhibit 9.1
CATAPULT COMMUNICATIONS CORPORATION
VOTING TRUST AGREEMENT
This Voting Trust Agreement ("Agreement") is made as of June 8, 1998 by and
among Richard A. Karp, as trustee ("Trustee"), Nancy Hood-Karp, as grantor and
beneficiary (the "Beneficiary"), Catapult Communications Corporation, a Nevada
corporation (the "Company") and Wilson Sonsini Goodrich & Rosati, Professional
Corporation (the "Depositary").
RECITAL
WHEREAS, the Company will shortly acquire by merger (the "Merger") the
assets and liabilities of Catapult Communications Corporation, a California
corporation ("Catapult California"), and in connection therewith will issue
shares of its Common Stock to the former shareholders of such corporation;
WHEREAS, Beneficiary desires to transfer and assign shares of the capital
stock of the Company to be acquired by her in such Merger and thereafter to a
voting trust to be held and administered by Trustee upon the terms and
conditions set forth herein pursuant to Section 365 of the General Corporation
Law of Nevada; and
WHEREAS, the voting trust created under this Agreement is being established
by Beneficiary and Trustee in connection with and as a part of a partial marital
settlement, division of their community property and dissolution of their
marriage.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration receipt of which is
hereby acknowledged, Beneficiary hereby creates, and Trustee hereby accepts, a
trust on the terms and conditions stated herein, and the parties hereto agree as
follows:
1. ESTABLISHMENT, ADMINISTRATION AND TERMINATION OF VOTING TRUST.
1.1 DEFINITION. As used in this Agreement the term "Shares" shall
include all Beneficiary's shares of Common Stock of Catapult California held on
the date hereof, and upon consummation of the Merger (and taking into account
the stock split contemplated in connection therewith), "Shares" shall include
the 4,500,000 shares of Common Stock of the Company to be acquired in the Merger
by Beneficiary or, pursuant to this Agreement, Trustee, as well as (a) any
securities of the Company distributed with respect to or on account of such
shares pursuant to any stock dividend, stock split or similar recapitalization
of the Company and (b) any other shares of capital stock of the Company the
beneficial ownership of which is otherwise acquired directly or
<PAGE>
indirectly by Beneficiary during the term of this Agreement. Shares received
by Beneficiary pursuant to clause (a) or (b) above are also referred to
herein as "Additional Shares". The term "Shares" shall not be deemed to
include shares held by Richard A. Karp ("RAK") in any capacity other than as
Trustee. In the event that the Merger is not completed prior to or
concurrently with the execution of this Agreement, the term "Shares" shall
refer to shares of the capital stock of Catapult California until the
effective time of the Merger, and the parties intend that the terms of this
Agreement shall apply MUTATIS MUTANDIS to any such capital stock.
1.2 TRANSFER OF UNENCUMBERED SHARES TO TRUSTEE.
(a) Beneficiary hereby assigns and transfers all the Shares
to Trustee to be held by Trustee pursuant to this Agreement and shall
surrender to the Company, and the Company shall cancel, any and all stock
certificates representing Shares held and/or beneficially owned by Beneficiary
as of the date hereof. Beneficiary also assigns and transfers and shall
surrender promptly to the Company, and Company shall so cancel, all
certificates for Additional Shares acquired during the term of this Agreement
and/or beneficially owned by Beneficiary. Beneficiary hereby authorizes the
Company to issue, in the name of "Richard A. Karp, Trustee under Voting Trust
Agreement dated June 8, 1998", new certificates representing said Shares and
Additional Shares, as the case may be, to which there shall be affixed the
legend set forth in Section 2.1. hereto and any additional legends required to
comply with applicable securities laws or to evidence other applicable
restrictions. Beneficiary hereby agrees to deliver to Trustee all further
documents necessary or desirable to substantiate and complete the delivery and
transfer of the Shares and any additional Shares to Trustee hereunder. The
trust created under this agreement shall be irrevocable and may not be
terminated except as provided in Section 1.9 of this Agreement. Without
limiting the foregoing, to the extent the Shares transferred to the Trustee as
of the date hereof constitute shares of Catapult California, Beneficiary
hereby authorizes the Trustee to effect cancellation of such Shares upon
consummation of the Merger and authorizes and instructs the Company to cancel
such Shares and reissue certificates for Shares of the Company in the name of
"Richard A. Karp, Trustee under Voting Trust Agreement dated June 8, 1998."
Beneficiary may at any time thereafter surrender her Trust Certificate(s)
issued pursuant to Section 1.3 below evidencing her interest in the Shares of
Catapult California held pursuant to this Agreement in exchange for new Trust
Certificate(s) reflecting her interest in Shares of the Company held pursuant
to this Agreement.
(b) Promptly upon receipt by Trustee of certificates
representing the Shares issued in the name of Trustee, he shall transmit such
certificates, together with proper instruments of assignment and transfer for
each of such certificates duly endorsed by Trustee in blank, with signatures
guaranteed, to the Depositary, which shall hold and deliver such certificates in
accordance with this Agreement.
1.3 ISSUANCE OF TRUST CERTIFICATES. Trustee shall, concurrently
with any transfer provided for in Section 1.2 hereof, issue and deliver to
Beneficiary a certificate or certificates signed by him for the Shares
transferred by Beneficiary to the Trust in the form of the certificate attached
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<PAGE>
hereto as EXHIBIT A (the "Trust Certificate"). Trustee shall issue and deliver
new Trust Certificates in lieu of lost, stolen or destroyed Trust Certificates,
or in exchange for mutilated Trust Certificates, upon such terms and conditions
as to indemnification or otherwise as Trustee in his discretion may impose.
1.4 DIVIDENDS.
(a) Beneficiary shall be entitled to receive, from time to
time, payment of any dividends or distributions paid, other than in the form of
voting securities of the Company, and collected by Trustee upon the number of
Shares represented by said Trust Certificate. Trustee hereby directs the
Company to make direct payment or delivery thereof to Beneficiary.
(b) In the event that any dividend or distribution paid in
the form of voting securities of the Company shall be received by Trustee,
Beneficiary shall be entitled to receive from Trustee new or additional Trust
Certificates in the amount of the securities received by Trustee as such
dividend or distribution upon the number of the Shares represented by said Trust
Certificate held by Beneficiary.
1.5 TRUSTEE.
(a) Except as provided in this Agreement, Trustee may adopt
his own rules of procedure. Trustee may at any time or from time to time
appoint an agent or agents and may delegate to such agent or agents the
performance of any administrative duty of Trustee (other than voting), provided
that the responsibility for all matters requiring substantive decisions shall
not be delegated.
(b) Trustee may act as a director and/or officer of the
Company or of any subsidiary or controlled or affiliated corporation, and may
vote the Shares held hereunder in favor of his election as such.
1.6 LIABILITIES AND EXPENSES OF TRUSTEE.
(a) Trustee assumes no liability with respect to the Shares
as a stockholder, his interest hereunder being solely that of Trustee. In
voting the Shares represented by the stock certificates issued to him hereunder
(which he may do in his sole discretion and either in person or by proxy to any
other person or persons or his or their substitute or substitutes, provided that
a proxy given to any person may be voted only in accordance with specific
instructions given by Trustee), Trustee will act in all matters in accordance
with this Agreement; but he assumes no responsibility or liability in respect of
any action taken by him in accordance herewith or taken as a result of his vote
so cast, and Trustee shall not incur any responsibility as Trustee or otherwise
by reason of any error of fact or law, mistake of judgment, or of any matter or
thing done or suffered or omitted to be done in accordance with this Agreement,
except for Trustee's willful misconduct.
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(b) The duties and responsibilities of Trustee shall be
limited to those expressly set forth in this Agreement and any amendment hereto
which has been executed by Trustee, and Trustee shall not be obligated to
recognize any other agreement whether or not he has knowledge thereof.
(c) All expenses paid or incurred by Trustee in the
administration of his trust hereunder (including without limitation all counsel
and advisers' and agents' fees and the expenses of preparing all Trust
Certificates) shall be borne by Trustee; provided, however, that nothing
contained in this Agreement shall obligate Trustee to pay Beneficiary's legal
fees or other expenses incurred in connection with the negotiation and execution
of this Agreement. All taxes or other governmental charges involved in the
sale, transfer or issuance of any Shares or Trust Certificates or in respect of
the ownership of the Shares held by Trustee or in respect of any dividends,
distributions or rights in respect of the Shares shall be borne by Beneficiary.
1.7 TRUSTEE'S RIGHTS AS STOCKHOLDER OF THE COMPANY. Until the
termination of this Agreement as hereinafter provided and except as otherwise
specifically provided herein, Trustee shall possess legal title to the Shares
and shall be entitled in his discretion, and not subject to any review, to
exercise in person or by proxy in respect of any and all Shares at any time
deposited under this Agreement, all rights and powers to vote the Shares in any
corporate or stockholders' action of any kind, with or without a meeting,
including but not limited to the election of directors, amendment of the
articles of incorporation or bylaws of the Company, a proposed dissolution
and/or liquidation of the Company, a merger or consolidation of the Company, the
sale of all or substantially all of the Company's assets and the issuance or
creation of additional securities of the Company. Except as provided in this
Agreement, Trustee will have no authority to sell, pledge, encumber,
hypothecate, or otherwise dispose of any of the Shares deposited pursuant to
this Agreement.
1.8 RESIGNATION. Trustee may at any time resign by giving notice
in writing to Beneficiary, the Company and the party holding the certificates
representing the Shares pursuant to Section 1.2(b) above , and such resignation
shall be effective without any acceptance thereof. Upon such resignation, the
trust created hereunder shall terminate as provided in Section 1.9 below.
1.9 TERMINATION.
(a) This Agreement and the trust created hereunder shall
terminate, without any action or notice by Trustee or Beneficiary, with respect
to the Shares upon the earlier of (i) the effective date of a merger or
consolidation of the Company (other than a merger effected for the purpose of
changing the Company's jurisdiction of incorporation) or the sale of all or
substantially all of the Company's assets (other than the sale of inventory in
the ordinary course of business) where the shareholders of the Company
immediately prior to the merger or sale do not hold a majority of the voting
securities of the surviving corporation; (ii) the death or permanent and total
disability (as defined in Section 22(e)(3) of the Internal Revenue Code of 1986)
of Trustee; (iii) the
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resignation of Trustee pursuant to Section 1.8 above; or (iv) the fifteenth
(15th) anniversary of the date of this Agreement first set forth above (the
"Expiration Date").
(b) At any time within the two (2) years immediately
preceding the Expiration Date or the expiration of any extension of this
Agreement, the parties hereto, or their successors in interest, may enter into a
written agreement to extend the duration of this Agreement with respect to the
Shares for a period of time not to exceed fifteen (15) years from the Expiration
Date or the date of the last extension of this Agreement. Trustee shall file a
duplicate copy of any agreement providing for an extension of this Agreement in
the registered office of the Company upon execution thereof. Except as
otherwise provided in this Agreement, the trust created by this Agreement is
irrevocable.
(c) Upon termination of this Agreement pursuant to Section
1.9(a) above, Trustee, in exchange for and upon surrender or cancellation of any
Trust Certificates representing Shares, shall, in accordance with the terms
hereof, deliver or cause to be delivered certificates for such Shares to the
registered holders thereof in the amounts called for by such Trust Certificates
either registered in the name of the holder or duly endorsed in blank or
accompanied by a proper instrument of assignment and transfer thereof duly
executed in blank to the holder thereof, and Trustee may require the holders of
such Trust Certificates to surrender the same for, or may cancel such
certificate upon, such exchange. If any registered Trust Certificate holder
cannot be located or fails or refuses to surrender its Trust Certificate(s) in
exchange for a certificate or certificates representing the Shares as stated
above, Trustee may, at his option, deliver the certificate or certificates
representing the Shares to the Company or to any bank or trust company in
California to be held subject to the surrender of such Trust Certificate(s) for
the benefit of the person or persons entitled thereto. Upon any such delivery,
Trustee shall be fully acquitted and discharged with respect to the Shares.
(d) In the event a Trust Certificate is canceled pursuant to
this Agreement, Trustee shall promptly inform the holder thereof of such
cancellation and shall direct the tender thereof to Trustee, but in no event is
such tender necessary for the cancellation of such Trust Certificate to be
effective.
(e) After the termination of this Agreement as herein
provided with respect to all of the Shares and delivery by Trustee of any Shares
then held hereunder in exchange for or upon cancellation of all outstanding
Trust Certificates as provided herein, all further obligations or duties of
Trustee under this Agreement or any provision thereof shall cease.
2. TRANSFER RESTRICTIONS; TRANSFER OF TRUST INTERESTS; RIGHT OF FIRST
REFUSAL.
2.1 RESTRICTIONS ON TRANSFER. Sales, assignments or transfers of
Trust Certificates may be made only upon compliance with all of the provisions
of this Agreement. Beneficiary agrees that Trust Certificate(s) and
certificate(s) representing the Shares shall have printed thereon such
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legends as may be required by federal or state securities laws together with
a legend to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THIS
CERTIFICATE ARE SUBJECT TO, AND MAY BE TRANSFERRED ONLY IN
COMPLIANCE WITH, A VOTING TRUST AGREEMENT DATED JUNE 8, 1998
WHICH CONTAINS CERTAIN TRANSFER RESTRICTIONS AND RIGHTS OF FIRST
REFUSAL, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF
THE CATAPULT COMMUNICATIONS CORPORATION."
2.2 TRANSFER OF TRUST INTERESTS.
(a) Beneficiary may sell, assign or transfer Trust
Certificates representing any or all of the Shares at any time or from time to
time, subject to the provisions of this Section 2. Prior to any such sale,
assignment or transfer, Beneficiary shall provide written notice to Trustee and
Richard A. Karp individually (the "Transfer Notice"), in substantially the form
attached hereto as EXHIBIT B, informing Trustee and RAK of the intended sale,
assignment or transfer (a "Transfer").
(b) Upon receipt by RAK of a Transfer Notice, he shall have
an irrevocable right to purchase the Trust Certificates which are the subject of
the Transfer Notice (the "Subject Certificates") for ten (10) calendar days from
actual receipt of such Transfer Notice at the price and on the same terms as
stated in the Transfer Notice. This right may be exercised by written notice to
Beneficiary, signed by RAK, stating that he desires to purchases the Subject
Certificates and tendering the purchase price therefor. If the Transfer Notice
specifies consideration other than cash, then the Subject Certificates may be
purchased for cash at the net fair market value of such consideration, as
determined in good faith by an independent appraiser mutually acceptable to and
Beneficiary, and the payment date shall be extended appropriately to permit such
appraisal. If RAK does not elect to purchase the Subject Certificates as set
forth above, Trustee shall promptly take any actions necessary to effect the
transfer of such Subject Certificates to the third party named in the Transfer
Notice. The right of first refusal contained in this Section 2.2(b) shall
terminate and be of no further force or effect upon the closing the Company's
initial public offering of its Common Stock pursuant to a firm commitment
underwriting.
(c) A Trust Certificate may be transferred by endorsement
by Beneficiary, Beneficiary's attorney-in-fact, or by the administrator,
executor or guardian of Beneficiary's estate, and delivery of such Trust
Certificate to Trustee; but such transfer shall not be evidence to or binding
upon Trustee until such Trust Certificate is surrendered to Trustee and the
transfer is entered upon records to be kept by Trustee. Shares represented by a
Trust Certificate which is transferred to any third party ("Transferee")
pursuant to this Section 2 shall remain subject to the terms of this Agreement,
provided, however, that if such Trust Certificate is transferred to RAK, the
Shares shall
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no longer be subject to the terms of this Agreement. A condition
precedent to the transfer of any Trust Certificates to any Transferee, other
than to RAK, is that such Transferee shall become party to this Agreement, and
shall execute any and all instruments, and take all other actions, necessary to
carry out the purposes of this Agreement. Upon Beneficiary's endorsement and
surrender of a Trust Certificate to Trustee in connection with a transfer,
Trustee shall promptly issue and deliver to the Transferee a new Trust
Certificate for the number of Shares to be transferred. If applicable, Trustee
shall issue and deliver to Beneficiary a new Trust Certificate representing the
balance of Shares upon such transfer to transferee. Beneficiary shall transfer
a Trust Certificate only if the Transfer is in compliance with all applicable
securities laws and rules, and Beneficiary shall be responsible for providing
Trustee with any and all documents necessary to substantiate and complete the
intended Transfer.
2.3 EXCEPTIONS. Notwithstanding anything to the contrary in this
Section 2, Beneficiary may, without complying with Section 2.2(b) hereof,
transfer any or all Trust Certificates to her ancestors, descendants, siblings,
or spouse, or to a custodian, executor, or other fiduciary primarily for the
account of Beneficiary or her ancestors, descendants, siblings, or spouse.
3. SALE OF SHARES.
(a) At any time or from time to time after the closing of the
initial public offering by the Company of its Common Stock in a firm commitment
underwriting (the "IPO"), Beneficiary may sell all or a portion of the Shares
upon compliance with the procedures set forth in this Section 3(a). Any such
sale shall be initiated by Beneficiary by written instructions to the
Depositary, with a copy to the Trustee (the "Sale Notice"), in substantially the
form attached hereto as EXHIBIT C. Upon receipt of a Sale Notice, the
Depositary shall immediately deliver to Beneficiary, or to such recipient as
Beneficiary may instruct, at the address specified in the Sale Notice,
certificates representing a sufficient number of Shares to permit the sale of
the number of Shares specified in the Sale Notice together with proper and
sufficient instruments of assignment or transfer duly endorsed by Trustee in
blank. Beneficiary shall have thirty (30) days from the date the certificates
representing the Shares are delivered by Trustee to effect the sale. Such sale
must be effected in a "broker's transaction" as that term is defined in Rule 144
promulgated under the Securities Act of 1933, as amended, shall not be intended
by Beneficiary to result in acquisition of such Shares by a party related to or
affiliated with Beneficiary, and must be effected otherwise in accordance with
the provisions set forth on Exhibit C hereto. Upon expiration of such period,
Beneficiary shall return, or cause to be returned, to the Depositary any Shares
which remain unsold, and such Shares shall remain subject to all the terms of
this Agreement. All taxes, commissions and other expenses incident to any such
sale shall be paid by Beneficiary. Any such sale by Beneficiary or any other
seller shall be made only in compliance with all applicable securities laws and
rules, including, without limitation, Rules 144 (if applicable) and 10b-5
promulgated by the Securities and Exchange Commission.
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(b) Notwithstanding the first sentence of Section 3(a) above,
Beneficiary shall have the right to sell Shares held in the trust created under
this Agreement in the following circumstances:
(1) Beneficiary may sell in the IPO, including pursuant to
any exercise of an over-allotment option that may be granted to the underwriters
of the IPO, such number of Shares as the Company, RAK and Beneficiary may
otherwise agree upon, and the parties to this Agreement shall cooperate in all
reasonable respects to allow any such sale to proceed in an orderly manner; and
(2) Prior to the IPO, Beneficiary may sell Shares to the
Company pursuant to that certain Severance Agreement and Mutual Release of All
Claims executed by the Catapult California and Beneficiary concurrently with
this Agreement.
(c) Shares sold pursuant to this Section 3 shall no longer be
subject to the terms of this Agreement unless reacquired by Beneficiary during
the term of this Agreement.
4. PROVISIONS REGARDING THE DEPOSITARY.
(a) The Depositary shall be obligated only for the performance of
such duties as are specifically set forth in this Agreement and may rely and
shall be protected in relying or refraining from acting on any instrument
reasonably believed by it to be genuine and to have been signed or presented by
the proper party or parties. The Depositary shall not be liable for any act it
may do or omit to do hereunder as Depositary while acting in good faith, and any
act done or omitted by it pursuant to the advice of its own attorneys shall be
conclusive evidence of such good faith.
(b) The Depositary is hereby expressly authorized to disregard any
and all warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Depositary obeys or complies with any such order, judgment
or decree, it shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
(c) The Depositary shall not be liable in any respect on account
of the identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
(d) If the Depositary reasonably requires other or further
instruments in connection with the performance of its duties under this
Agreement, the necessary parties hereto shall join in furnishing such
instruments.
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(e) Should any dispute arise with respect to the delivery and/or
ownership or right of possession of the securities held by the Depositary
hereunder, the Depositary is authorized and directed to retain in its possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but the Depositary shall be under no duty whatsoever to
institute or defend any such proceedings.
5. MISCELLANEOUS.
5.1 ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement of the parties with respect to the subject matter hereof and, except
as otherwise set forth herein, may not be amended or modified, and no rights or
provisions herein may be waived, without the written approval of the parties
hereto, or their successors in interest.
5.2 GOVERNING LAW. This Agreement shall be construed under and
governed by the laws of the State of Nevada except that, to the extent that this
Agreement applies to shares of Catapult California by virtue of the last
sentence of Section 1.1, it shall be construed under and governed by the laws of
the State of California and the maximum duration of the trust created hereunder
shall be ten (10) years.
5.3 NOTICES, ETC. All notices and other communications required or
permitted hereunder, shall be in writing and shall be sent by facsimile,
personally delivered, mailed by registered or certified mail, postage prepaid,
return receipt requested, or otherwise delivered by a nationally recognized
courier service, addressed to the party's facsimile number or address as set
forth opposite there respective signatures hereto, or to such other address or
facsimile number as such party shall have furnished to the other parties hereto
in writing. Any such notice or communication shall be deemed to have been
received (i) in the case of personal delivery, on the date of such delivery,
(ii) in the case of a commercial overnight courier, on the next business day
after the date when sent; (iii) in the case of mailing, on the third business
day following that on which the piece of mail containing such communication is
posted and (iv) in the case of delivery via facsimile, one (1) business day
after the date of transmission provided that said transmission is confirmed
telephonically on the date of transmission.
5.4 ARBITRATION. Any controversy, claim, or dispute arising out
of or relating to this contract, or any breach thereof, including without
limitation any dispute concerning the scope of this arbitration clause, shall be
settled by final and binding arbitration pursuant to the American Arbitration
Association ("AAA") and the rules promulgated by the AAA. At the request of any
party, the arbitrator, attorneys, parties to the arbitration, witnesses,
experts, court reporters, or other persons present at the arbitration shall
agree in writing to maintain the strict confidentiality of the arbitration
proceedings. Arbitration shall be conducted by a single, neutral arbitrator,
or, at the election of any party, three neutral arbitrators, appointed in
accordance with the AAA. The award of
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the arbitrator(s) shall be enforceable according to the applicable provisions
of the California Code of Civil Procedure. The arbitrator(s) may award
damages and/or permanent injunctive relief, but in no event shall the
arbitrator(s) have the authority to award punitive or exemplary damages.
Notwithstanding the foregoing, a party may apply to a court of competent
jurisdiction for relief in the form of a temporary restraining order or
preliminary injunction, or other provisional remedy pending final
determination of a claim through arbitration in accordance with this
paragraph. If proper notice of any hearing has been given, the arbitrator(s)
will have full power to proceed to take evidence or to perform any other acts
necessary to arbitrate the matter in the absence of any party who fails to
appear. The arbitrator(s) shall also have the authority to award attorneys
fees, expert witness fees and costs to the prevailing party.
5.5 ENFORCEMENT. The parties acknowledge and agree that in the
event of any breach of this Agreement, including, without limitation, any
transfer of Shares or Trust Certificates by Beneficiary contrary to the
provisions of this Agreement, remedies at law will be inadequate, and each of
the parties hereto shall be entitled to specific performance of the obligations
of the other parties hereto and to such appropriate injunctive relief as may be
granted by a court of competent jurisdiction.
5.6 SUCCESSORS AND ASSIGNS. This agreement and all of the terms,
covenants, and conditions herein contained, including any amendment or waiver of
the provisions hereof effected in accordance with Section 3.7, shall be binding
upon and inure to the benefit of all of the parties hereto and their respective
transferees, successors, heirs, executors, administrators and assigns.
5.7 SEVERABILITY. Wherever there is any conflict between any
provision of this agreement and any statute, law, regulation or judicial
precedent, the latter shall prevail, but in such event each provision of this
agreement thus affected shall be limited only to the extent necessary to bring
it within the requirement of the law. In the event that any part, section,
paragraph, or clause of this agreement shall be held by a court of proper
jurisdiction to be indefinite, invalid or otherwise unenforceable, this entire
agreement shall not fail as a result, but the balance of this agreement shall
continue in full force and effect unless such construction would clearly be
contrary to the intentions of the parties. The parties agree that whenever they
become aware of any conflict or event referred to in the preceding two
sentences, they shall promptly thereafter, to the extent permissible under
applicable law, amend this agreement or enter into another form of voting trust
agreement or a voting agreement, or take such other reasonable actions, so as to
make effective and enforceable the intent of the provisions affected.
5.8 WAIVERS AND AMENDMENTS. With the written consent of all the
parties to this Agreement, this Agreement may be amended and the obligations of
the parties under this agreement may be waived (either generally or in a
particular instance, either retroactively or prospectively, and either for a
specified period of time or indefinitely).
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5.9 HEADINGS. The paragraph headings herein have been inserted
for convenience only, and are not intended to restrict, construe, or modify in
any manner any of the terms or provisions hereof.
5.10 DELAYS OR OMISSIONS. The parties agree that no delay or
omission to exercise any right, power or remedy accruing to any party hereto,
upon any breach or default of any other party hereto, shall impair any such
right, power or remedy, nor shall it be construed to be a waiver of, or
acquiescence in, any such breach or default or any similar breach or default
thereafter occurring. The parties further agree that any waiver, permit,
consent or approval of any kind or character on the part of a party hereto of
any breach or default under this agreement, or any waiver of any provisions or
conditions of this agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing and that all remedies, either
under this agreement, or by law or otherwise afforded to such party, shall be
cumulative and not alternative.
5.11 NO THIRD PARTY BENEFICIARIES. Except as otherwise
specifically provided herein, no provision of this agreement is intended, nor
shall be interpreted, to provide or create any third party beneficiary or other
rights in any person or entity that is not a party to this agreement.
5.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which taken together
shall constitute one agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
Address and Facsimile Number Signatures
---------------------------- ----------
160 South Whisman Road CATAPULT COMMUNICATIONS CORPORATION
Mountain View, CA 94041
Facsimile No. (650) 960-1029
By: /s/ Richard A. Karp
---------------------------
Title: President
------------------------
221 Parkside Dr. /s/ Nancy Hood-Karp
Palo Alto, CA 94306 ---------------------------
Facsimile No. (650) Nancy Hood-Karp, Beneficiary
334 Diablo Court /s/ Richard A. Karp
Palo Alto, CA 94306 ---------------------------
Facsimile No. (650) 856-8806 Richard A. Karp, Trustee
650 Page Mill Road WILSON SONSINI GOODRICH & ROSATI
Palo Alto, CA 94304-1050 Professional Corporation (Depositary)
Attention: Henry P. Massey, Jr.
Facsimile No. (650) 493-6811 By: /s/ Henry P. Massey, Jr.
---------------------------
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EXHIBIT A
TRUST CERTIFICATE
SPECIMEN
No.____ _______Shares
Richard A. Karp, the voting trustee of certain of the shares of capital
stock of Catapult Communications Corporation, a California [Nevada]
corporation (the "Company"), under a certain Voting Trust Agreement dated as
of June____, 1998 (the "Agreement"), having received a certificate
for__________ shares of_______________Stock of the Company pursuant to the
Agreement, hereby certifies that Nancy Hood-Karp, as the registered holder
hereof, shall be entitled to receive a certificate issued in her name or at
her direction for fully paid shares of the Common Stock of the Company on the
expiration of the Agreement with respect to such shares as provided in the
Agreement, and until that time shall be entitled, pursuant to the terms of
the Agreement, to receive payments equal to such dividends or distributions
in cash or other property other than voting securities of the Company as may
be collected by Trustee upon a like number of such shares held by him under
the terms of the Agreement.
This certificate is transferable only on the books of such trustee or his
successor, and only in accordance with the terms of the Agreement by the
registered holder in person or by her or his duly authorized attorney, and the
holder hereof, by accepting this certificate, manifests her or his consent that
such trustee or his successor may treat the registered holder hereof as the true
owner for all purposes, except the delivery of share certificates, which
delivery shall not be made without the surrender hereof.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT
FOR THE SECURITIES UNDER THE SECURITIES ACT OR, AT THE REQUEST OF THE COMPANY,
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER SAID ACT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THIS CERTIFICATE ARE
SUBJECT TO, AND MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH, A vOTING tRUST
aGREEMENT DATED JUNE __, 1998, WHICH CONTAINS CERTAIN TRANSFER RESTRICTIONS AND
A RIGHT OF FIRST REFUSAL, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF
THE COMPANY.
<PAGE>
IN WITNESS WHEREOF, Richard A. Karp, the voting trustee, has executed this
certificate this___________day of_______________________, 199_.
________________________________
Richard A. Karp, Trustee
<PAGE>
EXHIBIT B
TRANSFER NOTICE
Pursuant to that certain Voting Trust Agreement dated as of June__, 1998
(the "Agreement"), Nancy Hood-Karp, the beneficiary of the voting trust created
under the Agreement with respect to shares of the capital stock of Catapult
Communications Corporation (the "Company"), hereby notifies Richard A. Karp, as
trustee of said voting trust ("Trustee"), and Richard A. Karp, in his
individual capacity ("RAK"), of Beneficiary's intention to transfer to
_________________________ ("Transferee") Trust Certificates pertaining to
___________Shares of the Common Stock of the Company represented by Trust
Certificate No(s). ____ for a price per share of $_________. Beneficiary
authorizes and directs Trustee to issue and deliver a Trust Certificate to
Transferee at the address set forth below and a Trust Certificate to Beneficiary
for the balance of the Shares, if any, and to take any and all actions necessary
to effect such transfer.
Beneficiary acknowledges that this transfer is subject to certain
restrictions in the Agreement, including, without limitation, the right of first
refusal of RAK set forth in Section 2.2 thereof. Beneficiary understands that a
condition precedent to the transfer of the interest in the trust which is the
subject of this notice to any third party is that such third party shall become
a party to the Agreement, and shall execute any and all instrument, and take all
other actions, necessary to carry out the purposes of the Agreement.
Beneficiary understands that she may suffer adverse tax consequences as a result
of her decision to transfer the Subject Certificates. Beneficiary represents
that she has consulted with any tax consultants she deems advisable in
connection with this transfer of the Subject Certificates and that she is not
relying on Trustee, the Company or RAK for any tax advice.
Beneficiary agrees to transfer the Subject Certificate(s) only in
compliance with all applicable securities laws and rules, and Beneficiary shall
be responsible for providing Trustee with any and all documents reasonably
required by Trustee to substantiate and complete the intended transfer.
All terms used in this notice and not otherwise defined shall have the
respective meanings given them in the Agreement.
This Transfer Notice is effective as of ___________________.
_______________________________
Beneficiary
<PAGE>
EXHIBIT C
SALE NOTICE
________________, ____
_________________________(Depositary)
_________________________
_________________________
Ladies and Gentlemen:
Pursuant to that certain Voting Trust Agreement dated June__, 1998 among
Richard A. Karp, as Trustee, Nancy Hood-Karp, as Beneficiary, Catapult
Communications Corporation and you as the Depositary (the "Agreement"), the
undersigned Beneficiary hereby gives notice that she desires to sell_______
Shares of the Common Stock of the Company (the "Subject Shares") in a public
sale on the open market and requests immediate delivery to the address set forth
below of (i) certificates representing not less than the number of Subject
Shares and (ii) proper instruments of assignment and transfer duly endorsed in
blank by the Trustee. All terms used herein which are not defined shall have
the respective meanings given them in the Agreement.
________________________
________________________
________________________
________________________
In connection with the request contained herein, Beneficiary agrees as
follows:
1. The Subject Shares will be sold in the open market and will not be
sold in a transaction which is intended to circumvent the provisions of the
Agreement and the voting trust created thereby.
2. The Subject Shares will only be sold in compliance with all applicable
securities laws and rules, including, without limitation, Rules 144 (if
applicable) and 10b-5 promulgated by the Securities and Exchange Commission, if
applicable. Beneficiary shall indemnify the Company, Trustee and Depositary for
any breach of this paragraph.
3. If any portion of the Shares representing by the certificates
delivered in response to this notice remains unsold after thirty (30) days from
the date the Subject Shares are delivered pursuant to this Notice, Beneficiary
shall promptly redeliver, or cause to be redelivered, to the Depositary the
certificates representing such Shares together with any unused instruments of
assignment and transfer that were delivered with such Shares.
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______________________________
cc. Richard A. Karp, Trustee Beneficiary
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Exhibit 10.1
CATAPULT COMMUNICATIONS CORPORATION
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made effective as of
_______________ by and between Catapult Communication Corporation, a Nevada
corporation (the "Company"), and ____________________ ("Indemnitee").
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and
its related entities;
WHEREAS, the Company and Indemnitee recognize the substantial increase
in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks; and
WHEREAS, in view of the considerations set forth above, the Company
desires that Indemnitee shall be indemnified by the Company as set forth
herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth
below.
1. CERTAIN DEFINITIONS.
(a) "Change in Control" shall mean, and shall be deemed to have
occurred if, on or after the date of this Agreement, (i) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company acting in such
capacity or a corporation owned directly or indirectly by the stockholders of
the Company in substantially the same proportions as their ownership of stock
of the Company, becomes the "beneficial owner" (as defined in Rule 13d-3
under said Act), directly or indirectly, of securities of the Company
representing more than 20% of the total voting power represented by the
Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by
the Board of Directors or nomination for election by the Company's
stockholders was approved by a vote of at least two thirds (2/3) of the
directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof, or (iii) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation other than a merger or consolidation which would
result in the Voting Securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity) at least 80% of the
total voting power represented by the Voting Securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
<PAGE>
the Company of (in one transaction or a series of related transactions) all
or substantially all of the Company's assets.
(b) "Claim" shall mean any threatened, pending or completed
action, suit, proceeding or alternative dispute resolution mechanism, or any
hearing, inquiry or investigation that Indemnitee in good faith believes
might lead to the institution of any such action, suit, proceeding or
alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other.
(c) References to the "Company" shall include, in addition to
Catapult Communications Corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger to
which Catapult Communications Corporation (or any of its wholly owned
subsidiaries) has been or becomes a party which, if its separate existence
had continued, would have had power and authority to indemnify its directors,
officers, employees, agents or fiduciaries, so that if Indemnitee is or was a
director, officer, employee, agent or fiduciary of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee, agent or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust or
other enterprise, Indemnitee shall stand in the same position under the
provisions of this Agreement with respect to the resulting or surviving
corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(d) "Expenses" shall mean any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending, being a witness in or participating
in (including on appeal), or preparing to defend, to be a witness in or to
participate in, any action, suit, proceeding, alternative dispute resolution
mechanism, hearing, inquiry or investigation), judgments, fines, penalties
and amounts paid in settlement (if such settlement is approved in advance by
the Company, which approval shall not be unreasonably withheld) of any Claim
regarding any Indemnifiable Event and any federal, state, local or foreign
taxes imposed on the Indemnitee as a result of the actual or deemed receipt
of any payments under this Agreement.
(e) "Expense Advance" shall mean an advance payment of Expenses to
Indemnitee pursuant to Section 3(a).
(f) "Indemnifiable Event" shall mean any event or occurrence
related to the fact that Indemnitee is or was a director, officer, employee,
agent or fiduciary of the Company, or any subsidiary of the Company, or any
predecessor of the Company or subsidiary, or is or was serving at the request
of the Company or a predecessor of the Company as a director, officer,
employee, agent or fiduciary of another corporation, partnership, joint
venture, trust or other enterprise, or by reason of any action or inaction on
the part of Indemnitee while serving in such capacity.
(g) "Independent Legal Counsel" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2(c) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning
the rights of Indemnitee under this Agreement, or of other indemnitees under
similar indemnity agreements).
-2-
<PAGE>
(h) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed
on Indemnitee with respect to an employee benefit plan; and references to
"serving at the request of the Company" shall include any service as a
director, officer, employee, agent or fiduciary of the Company which imposes
duties on, or involves services by, such director, officer, employee, agent
or fiduciary with respect to an employee benefit plan, its participants or
its beneficiaries.
(i) "Reviewing Party" shall mean (i) the Company's Board of
Directors by majority vote of a quorum consisting of directors who were not
parties to the particular Claim for which Indemnitee is seeking
indemnification, (ii) or, if so ordered by the Company's Board of Directors
by majority vote of a quorum consisting of directors who were not parties to
the particular Claim for which Indemnitee is seeking indemnification,
Independent Legal Counsel in a written opinion, or (iii) if a quorum
consisting of directors who were not parties to the particular Claim for
which Indemnitee is seeking indemnification cannot be found, then Independent
Legal Counsel in a written opinion.
(j) "Voting Securities" shall mean any securities of the Company
that vote generally in the election of directors.
2. INDEMNIFICATION.
(a) INDEMNIFICATION OF EXPENSES. The Company shall indemnify
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any Claim by reason of
(or arising in part out of) any Indemnifiable Event against Expenses,
including all interest, assessments and other charges paid or payable in
connection with or in respect of such Expenses. Such payment of Expenses
shall be made by the Company as soon as practicable but in any event no later
than thirty (30) business days after written demand by Indemnitee therefor is
presented to the Company (or, if demand is made pursuant to Section 3(a)
hereof, then no later than the date set forth in such section).
(b) REVIEWING PARTY. Notwithstanding the foregoing, (i) the
obligations of the Company under Section 2(a) shall be subject to the
condition that, unless ordered by a court or advanced pursuant to Section
3(a) hereof, the Reviewing Party shall have determined that indemnification
is proper in the circumstances, and (ii) the obligation of the Company to
make an Expense Advance shall be conditioned upon receipt by the Company of
an undertaking by or on behalf of Indemnitee to repay the amount advanced if
it is ultimately determined by a court of competent jurisdiction (in a final
judicial determination as to which all rights of appeal have been exhausted
or lapsed) that Indemnitee is not entitled to be indemnified by the Company.
Indemnitee's obligation to reimburse the Company for any Expense Advance
shall be unsecured and no interest shall be charged thereon. If there has
not been a Change in Control, the Reviewing Party shall be determined by the
Board of Directors as set forth in Section 1(i) above, and if there has been
such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be
the Independent Legal Counsel. If there has been no determination by the
Reviewing Party or if the Reviewing Party determines that Indemnitee
substantively would not be permitted to be indemnified in whole or in part
under applicable law,
-3-
<PAGE>
Indemnitee shall have the right to commence litigation seeking an initial
determination by the court or challenging any such determination by the
Reviewing Party or any aspect thereof, including the legal or factual bases
therefor, and the Company hereby consents to service of process and to appear
in any such proceeding. Absent such litigation, any determination by the
Reviewing Party shall be conclusive and binding on the Company and Indemnitee.
(c) INDEPENDENT LEGAL COUNSEL. With respect to all matters
arising concerning the rights of Indemnitee to payments of Expenses and
Expense Advances under this Agreement or any other agreement or under the
Company's articles of incorporation or bylaws as now or hereafter in effect,
Independent Legal Counsel, if called for under this Agreement, shall be
selected by Indemnitee and approved by the Company (which approval shall not
be unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what
extent Indemnitee would be permitted to be indemnified under applicable law
and the Company agrees to abide by such opinion. The Company agrees to pay
the reasonable fees of the Independent Legal Counsel referred to above and to
indemnify fully such counsel against any and all expenses (including
attorneys' fees), claims, liabilities and damages arising out of or relating
to this Agreement or its engagement pursuant hereto. Notwithstanding any
other provision of this Agreement, the Company shall not be required to pay
Expenses of more than one Independent Legal Counsel in connection with all
matters concerning a single Indemnitee, and such Independent Legal Counsel
shall be the Independent Legal Counsel for any or all other Indemnitees
unless (i) the Company otherwise determines or (ii) any Indemnitee shall
provide a written statement setting forth in detail a reasonable objection to
such Independent Legal Counsel representing other Indemnitees.
(d) CHANGE IN CONTROL. The Company agrees that if there is a
Change in Control of the Company (other than a Change in Control which has
been approved by a majority of the Company's Board of Directors who were
directors immediately prior to such Change in Control), then, if desired by
Indemnitee, Indemnitee shall have the right to choose Independent Legal
Counsel as provided for in Section 2(c) above.
(e) MANDATORY PAYMENT OF EXPENSES. Notwithstanding any other
provision of this Agreement other than Section 9 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
Claim regarding any Indemnifiable Event, Indemnitee shall be indemnified
against all Expenses incurred by Indemnitee in connection therewith.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all
Expenses incurred by Indemnitee. The advances to be made hereunder shall be
paid by the Company to Indemnitee as soon as practicable but in any event no
later than twenty (20) business days after written demand by Indemnitee
therefor to the Company.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as
-4-
<PAGE>
soon as practicable of any Claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
Company shall be directed to the Chief Executive Officer of the Company at
the address or facsimile number shown on the signature page of this Agreement
(or such other address or facsimile number as the Company shall designate in
writing to Indemnitee). In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be
within Indemnitee's power.
(c) NO PRESUMPTIONS; BURDEN OF PROOF. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement
(whether with or without court approval) or conviction, or upon a plea of
NOLO CONTENDERE, or its equivalent, shall not, of itself, create a
presumption that Indemnitee did not meet any particular standard of conduct
or have any particular belief or that a court has determined that
indemnification is not permitted by applicable law. In addition, neither the
failure of the Reviewing Party to have made a determination as to whether
Indemnitee has met any particular standard of conduct or had any particular
belief, nor an actual determination by the Reviewing Party that Indemnitee
has not met such standard of conduct or did not have such belief, prior to
the commencement of legal proceedings by Indemnitee to secure a judicial
determination that Indemnitee should be indemnified under applicable law,
shall be a defense to Indemnitee's claim or create a presumption that
Indemnitee has not met any particular standard of conduct or did not have any
particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether the Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
(d) NOTICE TO INSURERS. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 3(b) hereof, the Company
has liability insurance in effect which may cover such Claim, the Company
shall give prompt notice of the commencement of such Claim to the insurers in
accordance with the procedures set forth in the respective policies. The
Company shall thereafter take all necessary or desirable action to cause such
insurers to pay, on behalf of the Indemnitee, all amounts payable as a result
of such Claim in accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim the Company, if
appropriate, shall be entitled to assume the defense of such Claim with
counsel approved by Indemnitee (not to be unreasonably withheld) upon the
delivery to Indemnitee of written notice of the Company's election so to do.
After delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred
by Indemnitee with respect to the same Claim; provided that, (i) Indemnitee
shall have the right to employ Indemnitee's separate counsel in any such
Claim at Indemnitee's expense and (ii) if (A) the employment of separate
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such
defense, or (C) the Company shall not continue to retain such counsel to
defend such Claim, then the fees and expenses of Indemnitee's separate
counsel shall be at the expense of the Company.
-5-
<PAGE>
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. The Company hereby agrees to indemnify the Indemnitee
to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of
this Agreement, the Company's articles of incorporation or bylaws (as now or
hereafter in effect), or by statute. In the event of any change after the
date of this Agreement in any applicable law, statute or rule which expands
the right of a Nevada corporation to indemnify a member of its board of
directors or an officer, employee, agent or fiduciary, it is the intent of
the parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits afforded by such change. In the event of any change in any
applicable law, statute or rule which narrows the right of a Nevada
corporation to indemnify a member of its board of directors or an officer,
employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 9(a) hereof.
(b) NONEXCLUSIVITY. The indemnification provided by this
Agreement shall be in addition to any rights to which Indemnitee may be
entitled under the Company's articles of incorporation or its bylaws (as now
or hereafter in effect), any other agreement, any vote of stockholders or
disinterested directors, the Nevada General Corporation Law, or otherwise.
The indemnification provided under this Agreement shall continue as to
Indemnitee for any action taken or not taken while serving in an indemnified
capacity even though Indemnitee may have ceased to serve in such capacity.
5. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's articles of
incorporation, bylaws (as now or hereafter in effect) or otherwise) of the
amounts otherwise indemnifiable hereunder.
6. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however,
for all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
7. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
that in certain instances, federal law or applicable public policy may
prohibit the Company from indemnifying its directors, officers, employees,
agents or fiduciaries under this Agreement or otherwise. Indemnitee
understands and acknowledges that the Company has undertaken or may be
required in the future to undertake with the Securities and Exchange
Commission to submit the question of indemnification to a court in certain
circumstances for a determination of the Company's right under public policy
to indemnify Indemnitee.
8. LIABILITY INSURANCE. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided to the most
-6-
<PAGE>
favorably insured of the Company's directors, if Indemnitee is a director; or
of the Company's officers, if Indemnitee is not a director of the Company but
is an officer; or of the Company's key employees, agents or fiduciaries, if
Indemnitee is not an officer or director but is a key employee, agent or
fiduciary.
9. EXCEPTIONS. Notwithstanding any other provision of this Agreement,
the Company shall not be obligated pursuant to the terms of this Agreement:
(a) EXCLUDED ACTION OR OMISSIONS. To indemnify Indemnitee for
acts, omissions or transactions from which Indemnitee may not be relieved of
liability under applicable law.
(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance
expenses to Indemnitee with respect to Claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except (i) with respect
to actions or proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other agreement or insurance
policy or under the Company's articles of incorporation or bylaws now or
hereafter in effect relating to Claims for Indemnifiable Events, (ii) in
specific cases if the Board of Directors has approved the initiation or
bringing of such Claim, or (iii) as otherwise required under the Nevada
General Corporation Law, regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, advance expense payment or
insurance recovery, as the case may be.
(c) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous.
(d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
10. PERIOD OF LIMITATIONS. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or
legal representatives after the expiration of two years from the date of
accrual of such cause of action, and any claim or cause of action of the
Company shall be extinguished and deemed released unless asserted by the
timely filing of a legal action within such two-year period; PROVIDED,
HOWEVER, that if any shorter period of limitations is otherwise applicable to
any such cause of action, such shorter period shall govern.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original and all of which
taken together shall constitute one instrument.
12. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs
and personal and legal
-7-
<PAGE>
representatives. The Company shall require and cause any successor (whether
direct or indirect, and whether by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement
shall continue in effect regardless of whether Indemnitee continues to serve
as a director, officer, employee, agent or fiduciary (as applicable) of the
Company or of any other enterprise at the Company's request.
13. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the
advancement of Expenses with respect to such action, unless as a part of such
action a court of competent jurisdiction over such action determines that
each of the material assertions made by Indemnitee as a basis for such action
were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled
to be paid all Expenses incurred by Indemnitee in defense of such action
(including costs and expenses incurred with respect to Indemnitee's
counterclaims and cross-claims made in such action), and shall be entitled to
the advancement of Expenses with respect to such action, unless as a part of
such action a court having jurisdiction over such action determines that each
of Indemnitee's material defenses to such action were made in bad faith or
were frivolous.
14. NOTICE. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i)
if delivered by hand and signed for by the party addressed, on the date of
such delivery, (ii) if sent by facsimile with written evidence of successful
transmission, on the date of such transmission, or (iii) if mailed by
domestic certified or registered mail with postage prepaid, on the third
business day after the date postmarked. Addresses for notice to either party
are as shown on the signature page of this Agreement, or as subsequently
modified by written notice.
15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Nevada
for all purposes in connection with any action or proceeding which arises out
of or relates to this Agreement and agree that any action instituted under
this Agreement shall be commenced, prosecuted and continued only in the state
courts of the State of Nevada.
16. SEVERABILITY. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself
-8-
<PAGE>
invalid, void or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or unenforceable.
17. CHOICE OF LAW. This Agreement shall be governed by and its
provisions construed and enforced in accordance with the laws of the State of
Nevada as applied to contracts between Nevada residents entered into and to
be performed entirely within the State of Nevada, without regard to conflict
of laws provisions which would otherwise require application of the
substantive law of another jurisdiction.
18. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless it is in writing
signed by both the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed to be or shall constitute a waiver of any
other provisions hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver.
19. INTEGRATION AND ENTIRE AGREEMENT. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
20. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
CATAPULT COMMUNICATIONS CORPORATION
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Address: 160 South Whisman Road
Mountain View, CA 94041
Tel: 650-960-1025
Fax: 650-960-1029
AGREED TO AND ACCEPTED
INDEMNITEE:
-----------------------------------
(signature)
-----------------------------------
(name of Indemnitee)
-----------------------------------
-----------------------------------
(address)
-10-
<PAGE>
Exhibit 10.2
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of the ___ day of ________, 19__, by and between
RELIABILITY ASSOCIATES, a California corporation (the "Corporation"), and
________________ _________________________ ("Purchaser").
WITNESSETH:
WHEREAS, the Corporation desires to issue and Purchaser desires to
acquire stock of the Corporation as herein described, on the terms and
conditions hereinafter set forth, pursuant to the Corporation's Stock Purchase
Plan.
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. Purchaser hereby agrees to purchase from the Corporation and the
Corporation agrees to sell to Purchaser _______________________________
(___________) shares of its Common Stock (the "Stock"), at a price per share of
$_______, for an aggregate purchase price of $__________________ payable in cash
at the closing. The closing hereunder shall occur at the offices of the
Corporation within ten business days after the later of (i) the date hereof and
(ii) the date the Corporation receives any necessary authorization for the offer
and sale of the Stock from state securities authorities, or at such other time
and place as shall be mutually agreed between Purchaser and the Corporation. The
Stock to be sold and purchased pursuant to this Agreement, and Purchaser's
rights with respect thereto, shall be subject to all the terms and conditions of
the Corporation's Stock Purchase Plan, a copy of which may be obtained by
Purchaser, or Purchaser's successors and assigns, from the Secretary of the
Corporation.
2. (a) The Stock being purchased by Purchaser pursuant to this Agreement
shall be subject to the option ("Purchase Option") set forth in this Paragraph
2. In the event Purchaser shall cease to be employed by the Corporation
(including a parent or subsidiary of the Corporation) for any reason, or no
reason, with or without cause, the Purchase Option may be exercised. The
Corporation shall have the right at any time within sixty (60) days after the
date Purchaser ceases to be employed by the Corporation, or a parent or
subsidiary of the Corporation, to purchase from the Purchaser or his personal
representative, as the case may be, at the lower of (i) the price per share paid
by Purchaser under this Agreement, subject to adjustment pursuant to Paragraph 5
and (ii) the fair market value on the date of
1.
<PAGE>
repurchase as determined by the Corporation's Board of Directors ("Option
Price") up to but not exceeding the number of shares of Stock specified in
subparagraph (b) below.
(b) If Purchaser ceases to be employed by the Corporation for any
reason other than those reasons set forth in subparagraph (c) below at any time
prior to the completion of forty-eight (48) months after the Commencement Date
(as hereinafter defined), the Corporation may exercise the Purchase Option as to
the maximum portion of the Stock specified in the following table:
<TABLE>
<CAPTION>
Portion of the Stock
If Termination Occurs Subject to Purchase Option
- --------------------- --------------------------
<S> <C>
Within 6 months after All of the Stock
the Commencement Date
After 6 months and within 7/8 of the Stock less 1/42 of
48 months after the the Stock for each full month
Commencement Date after the initial six months
subsequent to the Commencement
Date
After 48 months after the None of the Stock
Commencement Date
</TABLE>
(c) In the event of death or permanent disability of Purchaser at
any time after the Commencement Date and prior to the completion of forty-eight
(48) months after the Commencement Date, such event shall be treated as having
occurred six (6) months after its actual occurrence, for purposes of determining
the portion of the Stock subject to the Purchase Option in Paragraph 2(b) above.
(d) Nothing in this Agreement shall affect in any manner whatsoever
the right or power of the Corporation, or a parent or subsidiary of the
Corporation, to terminate Purchaser's employment, for any reason or no reason,
with or without cause.
(e) For purposes of this Agreement, Commencement Date shall mean
________________, 19__.
3. The Purchase Option shall be exercised by written notice signed by an
officer of the Corporation and delivered or mailed as provided in Paragraph 15.
The Option Price shall be payable, at the option of the Corporation, in
cancellation of all or a portion of any outstanding indebtedness of Purchaser to
the Corporation or in cash (by check) or both.
2.
<PAGE>
4. The Corporation may assign its rights under Paragraphs 2, 3 and 6
hereof, to one or more persons, who shall have the right to so exercise such
rights in his own name and for his own account. If the exercise of any such
right requires the consent of the California Commissioner of Corporations, the
parties agree to cooperate in requesting such consent.
5. If, from time to time during the term of the Purchase Option, there is
any merger of the Corporation or any similar transaction in which the
Corporation is not the survivor, or sale of all or substantially all of the
assets of the Corporation, or any stock dividend or liquidating dividend of cash
and/or property, stock split or other change in the character or amount of any
of the outstanding securities of the Corporation, then, in such event any and
all new, substituted or additional securities or other property to which
Purchaser is entitled by reason of his ownership of Stock shall be immediately
subject to the Purchase Option and be included in the word "Stock" for all
purposes of the Purchase Option with the same force and effect as the shares of
Stock presently subject to the Purchase Option. While the total Option Price
shall remain the same after each such event, the Option Price per share of Stock
upon exercise of the Purchase Option shall be appropriately adjusted.
6. Before any shares of Stock registered in the name of Purchaser and not
subject to the Purchase Option may be sold or transferred (including transfer by
operation of law) other than to Purchaser's parents, spouse, brothers, sisters,
or children, or trusts for their or Purchaser's benefit, such shares shall first
be offered to the Corporation in the following manner:
(a) The Purchaser shall first deliver a written notice ("Notice") to
the Corporation stating (i) his bona fide intention to sell or transfer such
shares, (ii) the number of such shares to be sold or transferred, (iii) the
price for which he proposes to sell or transfer such shares.
(b) Within thirty (30) days after receipt of the Notice, the
Corporation or its assignee(s) may elect to purchase any or all shares to which
the Notice refers, at the price per share specified in the Notice.
(c) In the event the Corporation or the assignee(s) of the
Corporation elect to acquire any of the shares of the Purchaser as specified in
Purchaser's Notice, the Secretary of the Corporation shall so notify the
Purchaser and settlement thereof shall be made in cash within forty-five (45)
days after the Corporation receives the Purchaser's Notice; provided that if the
terms of payment set
3.
<PAGE>
forth in Purchaser's Notice were other than cash against delivery, the
Corporation or the assignee(s) of the Corporation shall pay for said shares on
the same terms and conditions set forth in Purchaser's Notice.
(d) If all of the shares to which the Notice refers are not elected
to be purchased, as provided in subparagraphs 6(b) and (c) hereof, the Purchaser
may sell the remaining shares to any person at the price and on the terms
specified in the Notice or at a higher price or on terms more favorable to the
Purchaser, provided that such sale or transfer is consummated within six (6)
months of the date of said Notice to the Corporation, and provided, further,
that any such sale is in accordance with all the terms and conditions hereof.
(e) Purchaser's obligations under this Paragraph 6 shall terminate
upon the first sale of Common Stock of the Corporation to the public which is
effected pursuant to a registration statement filed with, and declared effective
by, the Securities and Exchange Commission under the Securities Act of 1933.
7. If Purchaser is married on the date of this Agreement, Purchaser's
spouse shall execute a Consent of Spouse in the form of Exhibit A hereto,
effective on the date hereof. Such consent shall not be deemed to confer or
convey to the spouse any rights in the Stock that do not otherwise exist by
operation of law or the agreement of the parties. If Purchaser should marry or
remarry subsequent to the date of this Agreement, Purchaser shall within thirty
(30) days thereafter obtain his new spouse's acknowledgment of and consent to
the existence and binding effect of all restrictions contained in this Agreement
by signing an additional Consent of Spouse in the form of Exhibit A.
8. All certificates representing any shares of Stock subject to the
provisions of this Agreement shall have endorsed thereon the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
PURCHASE OPTION SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE
REGISTERED HOLDER, OR HIS PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL OFFICE OF THIS CORPORATION."
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND ITS ASSIGNEES SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR HIS
PREDECESSOR IN INTEREST. A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF
THIS CORPORATION."
4.
<PAGE>
(c) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS
MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY
TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER. ASSIGNMENT OR HYPOTHECATION
IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH
ACT."
(d) "IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
(e) Any legend required to be placed thereon by state securities
authorities.
9. In connection with the proposed purchase of the Stock, Purchaser
hereby agrees, represents and warrants as follows;
(a) Purchaser is purchasing the stock solely for his or her own
account for investment and not with a view to, or for resale in connection with,
any distribution thereof within the meaning of the Securities Act of 1933, as
amended (the "Act"). Purchaser further represents that Purchaser does not have
any present intention of selling, offering to sell or otherwise disposing of or
distributing the Stock or any portion thereof; and that the entire legal and
beneficial interest of the Stock Purchaser is purchasing is being purchased for,
and will be held for the account of, the Purchaser only and neither in whole nor
in part for any other person.
(b) Purchaser is aware of the Corporation's business affairs and
financial condition and has acquired sufficient information about the
Corporation to reach an informed and knowledgeable decision to acquire the
Stock. Purchaser further represents and warrants that Purchaser has discussed
the Corporation and its plans, operations and financial condition with its
officers, has received all such information as Purchaser deems necessary and
appropriate to enable Purchaser to evaluate the financial risk inherent in
making an investment in the stock and has received satisfactory and complete
information concerning the business and financial condition of the Corporation
in response to all inquiries in respect thereof.
5.
<PAGE>
(c) Purchaser realizes that Purchaser's purchase of the Stock will be
a highly speculative investment, and Purchaser is able, without impairing
Purchaser's financial condition, to hold the Stock for an indefinite period of
time and to suffer a complete loss on Purchaser's investment.
(d) The Corporation has disclosed to Purchaser that:
(i) the sale of the Stock has not been registered under the
Act, and the Stock must be held indefinitely unless a transfer of it is
subsequently registered under the Act or an exemption from such registration is
available, and that the Corporation is under no obligation to register the
Stock;
(ii) the Corporation will make a notation in its records of
the aforementioned restrictions on transfer and legends.
(e) Purchaser is aware of the provisions of Rule 144, promulgated
under the Act, which, in substance, permit, limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or an affiliate of such issuer), in a non-public offering, subject
to the satisfaction of certain conditions, including among other things: the
resale occurring not less than two years after the date Purchaser has
purchased and paid for the Stock; the availability of certain public
information concerning the Corporation; the sale being through a broker in an
unsolicited "broker's transaction" or in a transaction directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934);
and that any sale of the Stock may be made by Purchaser only in limited
amounts, not exceeding specified limitations, during any three-month period.
Purchaser further represents that Purchaser understands that at the time
Purchaser wishes to sell the Stock there may be no public market upon which
to make such a sale, and that, even if such a public market then exists, the
Corporation may not be satisfying the current public information requirements
of Rule 144, and that, in such event, Purchaser would be precluded from
selling the Stock under Rule 144 even if the two-year minimum holding period
had been satisfied, unless Purchaser had held the Stock for more than three
years and was not an affiliate. Purchaser represents that Purchaser
understands that in the event all of the requirements of Rule 144 are not
satisfied, registration under the Act or compliance with an exemption from
registration will be required; and that, notwithstanding the fact that Rule
144 is not exclusive, the Staff of the SEC has expressed its opinion that
persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 will have a
6.
<PAGE>
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales, and that such persons and their
respective brokers who participate in such transactions do so at their own risk.
(f) Without in any way limiting Purchaser's representations and
warranties set forth above, Purchaser further agrees that Purchaser shall in no
event make any disposition of all or any portion of the Stock which Purchaser is
purchasing unless:
(i) There is then in effect a Registration Statement under
the Act covering such proposed disposition and such disposition is made in
accordance with said Registration Statement; or
(ii) Such disposition is effected in compliance with all the
terms and conditions of Rule 144; or
(iii) Purchaser shall have (1) notified the Corporation of the
proposed disposition and furnished the Corporation with a detailed statement of
the circumstances surrounding the proposed disposition, and (2) furnished the
Corporation with an opinion of Purchaser's own counsel to the effect that such
disposition will not require registration of such shares under the Act, and such
opinion of Purchaser's counsel shall have been concurred in by counsel for the
Corporation and the Corporation shall have advised Purchaser of such
concurrence.
10. As security for Purchaser's faithful performance of the terms of this
Agreement and to insure the availability for delivery of Purchaser's Stock upon
exercise of the Purchase Option herein provided for, Purchaser agrees to deliver
to and deposit with Ware & Freidenrich, A Professional Corporation, counsel to
the Corporation (the "Escrow Agent"), as Escrow Agent in this transaction, two
Stock Assignments duly endorsed (with date and number of shares blank) in the
form attached hereto as Exhibit B, together with the certificate or certificates
evidencing the Stock; said documents are to be held by the Escrow Agent pursuant
to the Joint Escrow Instructions of the Corporation and Purchaser set forth in
Exhibit C attached hereto and incorporated by this reference, which instructions
shall also be delivered to the Escrow Agent at the closing hereunder.
11. Purchaser shall not sell, transfer, pledge, hypothecate or otherwise
dispose of any shares of the Stock still subject to the Purchase Option.
12. The Corporation shall not be required (i) to transfer on its books any
shares of Stock of the Corporation
7.
<PAGE>
which shall have been sold or transferred in violation of any of the provisions
set forth in this Agreement or (ii) to treat as owner of such shares or to
accord the right to vote as such owner or to pay dividends to any transferee to
whom such shares shall have been so transferred.
13. Subject to the provisions of Paragraphs 11 and 12 above, Purchaser
shall, during the term of this Agreement, exercise all rights and privileges of
a stockholder of the Corporation with respect to the Stock deposited in said
escrow.
14. The parties agree to execute such further instruments and to take such
further action as may reasonably be necessary to carry out the intent of this
Agreement.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to the other party hereto at its, his or her address
hereinafter shown below its, his or her signature or at such other address as
such party may designate by ten (10) days' advance written notice to the other
party hereto.
16. This Agreement shall inure to the benefit of the successors and
assigns of the Corporation and, subject to the restrictions on transfer herein
set forth, be binding upon Purchaser, Purchaser's heirs, executors,
administrators, successors and assigns. Purchaser's rights under this Agreement
shall not be transferable except by will or by the laws of descent and
distribution.
17. This Agreement, together with the Exhibits hereto, shall be construed
under the laws of the State of California, and constitutes the entire agreement
of the parties with respect to the subject matter hereof, superseding all prior
written or oral agreements, and no amendment or addition hereto shall be deemed
effective unless agreed to in writing by the parties hereto.
18. Purchaser agrees that the Corporation shall be entitled to a decree of
specific performance of the terms hereof or an injunction restraining violation
of this Agreement, said right to be in addition to any other remedies available
to the Corporation.
19. If any provision of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions
shall nevertheless continue in full force and effect without being impaired or
invalidated in any way and shall be construed in accordance with the purposes
and tenor and effect of this Agreement.
8.
<PAGE>
20. Purchaser shall notify the Corporation in writing if Purchaser files
an election pursuant to Section 83(b) of the Internal Revenue Code of 1954, as
amended, and Section 17122.7 of the California Revenue and Taxation Code, to be
filed with the Internal Revenue Service and the California Franchise Tax Board,
respectively, within thirty (30) days after the date of the sale herein
contemplated. The Corporation intends, in the event it does not receive from
Purchaser evidence of such filing, to claim a tax deduction for any amount which
would otherwise be taxable to Purchaser in the absence of such an election.
21. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS
NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA AND THE ISSUANCE or SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY
PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL,
UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100,
25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES
TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING
OBTAINED, UNLESS THE SALE IS SO EXEMPT
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
RELIABILITY ASSOCIATES
ISDN TECHNOLOGIES CORPORATION By
4151 Middlefield Road -------------------------------------
Suite 101 Title
Palo Alto, CA 94303 ----------------------------------
Address: 885 North San Antonio Road
Suite H
Los Altos, CA 94022
PURCHASER:
----------------------------------------
Signature
----------------------------------------
(Name -- Please Print)
Address:
------------------------------
------------------------------
------------------------------
9.
<PAGE>
EXHIBIT A
CONSENT OF SPOUSE
I, __________________, spouse of ______________________, acknowledge that I
have read the Stock Purchase Agreement dated as of __________, 19__ to which
this consent is attached as Exhibit A (the "Agreement") and that I know its
contents. I am aware that by its provisions Reliability Associates (the
"Company") and its assigns have the option to purchase certain shares of Stock
of the Company which my spouse owns pursuant to the Agreement including any
interest I might have therein, upon termination of his or her employment under
circumstances set forth in the Agreement, and certain other restrictions are
imposed upon the sale or other disposition of the Stock.
I hereby agree that my interest, if any, in the Stock subject to the
Agreement shall be irrevocably bound by the Agreement and further understand and
agree that any community property interest I may have in the Stock shall be
similarly bound by the Agreement.
I AM AWARE THAT THE LEGAL, FINANCIAL AND RELATED MATTERS CONTAINED IN THE
AGREEMENT ARE COMPLEX AND THAT I AM FREE TO SEEK INDEPENDENT PROFESSIONAL
GUIDANCE OR COUNSEL WITH RESPECT TO THIS CONSENT. I HAVE EITHER SOUGHT SUCH
GUIDANCE OR COUNSEL OR DETERMINED AFTER REVIEWING THE AGREEMENT CAREFULLY THAT I
WILL WAIVE SUCH RIGHT.
Dated as of the _____ day of ________________, 19__.
----------------------------------------
Signature
----------------------------------------
(Name -- Please Print)
<PAGE>
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, __________________ hereby sells, assigns and transfers unto
______________________, ____________________________________ (_________________)
shares of the Common stock of RELIABILITY ASSOCIATES, a California
corporation, standing in the undersigned's name an the books of said corporation
represented by Certificate No. _________ herewith, and does hereby irrevocably
constitute and appoint ______________________________________ attorney to
transfer the said Stock on the books of the said corporation with full
power of substitution in the premises.
Dated: , 19
--------------- --- ---------------------------------------
<PAGE>
EXHIBIT C
JOINT ESCROW INSTRUCTIONS
__________, 19__
Ware & Freidenrich
A Professional Corporation
400 Hamilton Avenue
Palo Alto, CA 94301
Gentlemen:
As Escrow Agent for both RELIABILITY ASSOCIATES, a California corporation
("Corporation"), and the undersigned purchaser of stock (the "Stock") of the
Corporation ("Purchaser"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Stock Purchase
Agreement ("Agreement"), dated as of the date hereof, to which a copy of these
Joint Escrow Instructions is attached as Exhibit C, in accordance with the
following instructions:
1. In the event the Corporation and/or any assignee of the Corporation
(referred to collectively for convenience herein as the "Corporation") shall
elect to exercise the Purchase Option set forth in the Agreement, the
Corporation shall give to Purchaser and you a written notice specifying the
number of shares of Stock to be purchased, the purchase price, and the time for
a closing hereunder at the principal office of the Corporation. Purchaser and
the Corporation hereby irrevocably authorize and direct you to close the
transaction contemplated by such notice in accordance with the terms of said
notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares of
Stock being transferred, and (c) to deliver same, together with the certificates
evidencing the shares of Stock to be transferred, to the corporation against the
simultaneous delivery to you of the purchase price (by check or evidence of
cancellation of indebtedness of Purchaser to the Corporation) for the number of
shares of Stock being purchased pursuant to the exercise of the Purchase Option.
3. Purchaser irrevocably authorizes the Corporation to deposit with you
any certificates evidencing shares of Stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
1.
<PAGE>
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all stock certificates, stock assignments, or other documents
necessary or appropriate to make such securities negotiable and complete any
transaction herein contemplated, including but not limited to the filing with
the Department of Corporations of the State of California of an Application for
Consent to Transfer Securities Subject to Legend or Escrow Condition Pursuant to
Section 25151 of the California Corporate Securities Law of 1968 as presently in
existence, or any successor form. Subject to the provisions of this paragraph 3,
Purchaser shall exercise all rights and privileges of a stockholder of the
Corporation while the Stock is held by you.
4. This escrow shall terminate at such time as there are no longer any
shares of Stock subject to the Purchase Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith and
in the exercise of your own good judgment, and any act done or omitted by you
pursuant to the advice of your own attorneys shall be conclusive evidence to
such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree of any court,
you shall not be liable to any of the parties hereto or to any other person,
firm or corporation by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed,
2.
<PAGE>
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary or proper to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be counsel to the Corporation or if you shall resign by written
notice to each party. In the event of any such termination, the Corporation
shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instructions in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or rights of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
dispute shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree, or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses, or at such other addresses as a party may designate by ten
(10) days' advance written notice to each of the other parties hereto.
3.
<PAGE>
CORPORATION: RELIABILITY ASSOCIATES
885 North San Antonio Road
Suite H
Los Altos, CA 94022
PURCHASER:
-------------------------
-------------------------
-------------------------
ESCROW AGENT: Ware & Freidenrich
A Professional Corporation
400 Hamilton Avenue
Palo Alto, California 94301
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
Very truly yours,
RELIABILITY ASSOCIATES, a
California corporation
By:
-------------------------------------
Title.
----------------------------------
Agreed to and accepted as of PURCHASER:
the date set forth above.
ESCROW AGENT: ----------------------------------------
Signature
WARE & FREIDENRICH
A Professional Corporation
----------------------------------------
(Name -- Please Print)
By:
---------------------------
4.
<PAGE>
Exhibit 10.3
ISDN TECHNOLOGIES CORPORATION
1989 STOCK OPTION PLAN
1. PURPOSE. The ISDN Technologies Corporation 1989 Stock Option Plan
(the "Plan") is established to create additional incentive for key employees,
directors and consultants of ISDN Technologies Corporation and any successor
corporation thereto (collectively referred to as the "Company"), and any present
or future parent and/or subsidiary corporations of such corporation (all of whom
along with the Company being individually referred to as a "Participating
Company" and collectively referred to as the "Participating Company Group"), to
promote the financial success and progress of the Participating Company Group.
For purposes of the Plan, a parent corporation and a subsidiary corporation
shall be as defined in sections 425(e) and 425(f) of the Internal
Revenue Code of 1986, as amended (the "Code").
2. ADMINISTRATION. The Plan shall be administered by the Board of
Directors of the Company (the "Board") and/or by a duly appointed committee of
the Board having such powers as shall be specified by the Board. Any subsequent
references herein to the Board shall also mean the committee if such committee
has been appointed and, unless the powers of the committee have been
specifically limited, the committee shall have all of the powers of the Board
granted herein, including, without limitation, the power to terminate or amend
the Plan at any time, subject to the terms of the Plan and any applicable
limitations imposed by law. All questions of interpretation of the Plan or of
any options granted under the Plan (an "Option") shall be determined by the
Board, and such determinations shall be final and binding upon all persons
having an interest in the Plan and/or any Option. Options may be either
incentive stock options as defined in section 422A of the Code ("Incentive Stock
Options") or nonqualified stock options. Any officer of a Participating Company
shall have the authority to act on behalf of the Company with respect to any
matter, right, obligation, or election which is the responsibility of or which
is allocated to the Company herein, provided the officer has apparent authority
with respect to such matter, right, obligation, or election.
3. ELIGIBILITY. The Options may be granted only to employees
(including officers) and directors of the Participating Company Group or to
individuals who are rendering services as consultants, advisors, or other
independent contractors to the Participating Company Group. The Board shall, in
the Board's sole discretion, determine
1.
<PAGE>
which persons shall be granted Options (an "Optionee"). A director of the
Company shall be eligible to be granted only a nonqualified stock option unless
the director is also an employee of the Company. An individual who is rendering
services as a consultant, advisor, or other independent contractor shall be
eligible to be granted only a nonqualified stock option. An Optionee may, if
otherwise eligible, be granted additional Options.
4. SHARES SUBJECT TO OPTION. Options shall be options for the purchase
of the authorized but unissued common stock of the Company (the "Stock"),
subject to adjustment as provided in paragraph 9 below. The maximum number of
shares of Stock which may be issued under the Plan shall be one million two
hundred thousand (1,200,000) shares. In the event that any outstanding Option
for any reason expires or is terminated or cancelled and/or shares of Stock
subject to repurchase are repurchased by the Company, the shares allocable to
the unexercised portion of such Option, or such repurchased shares, may again be
subjected to an Option.
5. TIME FOR GRANTING OPTIONS. All Options shall be granted, if at all,
within ten (10) years from the earlier of the date the Plan is adopted by the
Board or the date the Plan is duly approved by the shareholders of the Company.
6. TERMS, CONDITIONS AND FORM OF OPTIONS. Subject to the provisions of
the Plan, the Board shall determine for each Option (which need not be
identical) the number of shares of Stock for which the Option shall be granted,
the option price of the Option, the exercisability of the Option, whether the
Option is to be treated as an Incentive Stock Option or as a nonqualified stock
option and all other terms and conditions of the Option not inconsistent with
the Plan. Options granted pursuant to the Plan shall be evidenced by written
agreements specifying the number of shares of Stock covered thereby, in such
form as the Board shall from time to time establish, and shall comply with and
be subject to the following terms and conditions:
(a) OPTION PRICE. The option price for each Option shall be
established in the sole discretion of the Board; provided, however, that (i)
the option price per share for an Incentive Stock Option shall be not less
than the fair market value, as determined by the Board, of a share of Stock
on the date of the granting of the Option, (ii) the option price per share
for a nonqualified stock option shall not be less than eighty-five percent
(85%) of the fair market value, as determined by the Board, of a share of
Stock on the date of the granting of the Option and (iii) no Option granted
to an Optionee who at the time the Option is granted owns stock possessing
more than ten percent (10%) of the total combined
2.
<PAGE>
voting power of all classes of stock of a Participating Company within the
meaning of section 422A(b)(6) of the Code and/or ten percent (10%) of the total
combined value of all classes of stock of a Participating Company (a "Ten
Percent Owner Optionee") shall have an option price per share less than one
hundred ten percent (110%) of the fair market value of a share of Stock on the
date the Option is granted. Notwithstanding the foregoing, an Option (whether
an Incentive Stock Option or a nonqualified stock option) may be granted with an
exercise price lower than the minimum exercise price set forth above if such
Option is granted pursuant to an assumption or substitution for another option
in a manner qualifying with the provisions of section 425(a) of the Code.
(b) EXERCISE PERIOD OF OPTIONS. The Board shall have the power
to set the time or times within which each Option shall be exercisable or the
event or events upon the occurrence of which all or a portion of each Option
shall be exercisable and the term of each Option; provided, however, that (i)
no Option shall be exercisable after the expiration of ten (10) years after
the date such Option is granted and (ii) no Option granted to a Ten Percent
Owner Optionee shall be exercisable after the expiration of five (5) years
after the date such Option is granted.
(c) PAYMENT OF OPTION PRICE. Payment of the option price for
the number of shares of Stock being purchased pursuant to any Option shall be
made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company
of shares of the Company's stock owned by the Optionee having a value, as
determined by the Board (but without regard to any restrictions on
transferability applicable to such stock by reason of federal or state
securities laws or agreements with an underwriter for the Company), not less
than the option price, (iii) by the Optionee's recourse promissory note, (iv)
by the assignment of the proceeds of a sale of some or all of the shares
being acquired upon the exercise of an Option (including, without limitation,
through an exercise complying with the provisions of Regulation T as
promulgated from time to time by the Board of Governors of the Federal
Reserve System), or (v) by any combination thereof. The Board may at any time
or from time to time, by adoption of or by amendment to the form of Standard
Option Agreement described in paragraph 7 below, or by other means, grant
Options which do not permit all of the foregoing forms of consideration to be
used in payment of the option price and/or which otherwise restrict one (1)
or more forms of consideration. Notwithstanding the foregoing, an Option may
not be exercised by tender to the Company of shares of the Company's stock to
the extent such tender of stock would constitute a violation of the
provisions of any law,
3.
<PAGE>
regulation and/or agreement restricting the redemption of the Company's stock.
Furthermore, no promissory note shall be permitted if an exercise using a
promissory note would be a violation of any law. Any permitted promissory note
shall be due and payable not more than five (5) years after the Option is
exercised, and interest shall be payable at least annually and be at least equal
to the minimum interest rate necessary to avoid imputed interest pursuant to all
applicable sections of the Code. The Board shall have the authority to permit
or require the Optionee to secure any promissory note used to exercise an Option
with the shares of Stock acquired on exercise of the Option and/or with other
collateral acceptable to the Company.
(x) Unless otherwise provided by the Board, an Option may not be
exercised by tender to the Company of shares of the Company's stock unless
such shares of the Company's stock either have been owned by the Optionee for
more than six (6) months or were not acquired, directly or indirectly, from
the Company.
(y) Unless otherwise provided by the Board, in the event the
Company at any time becomes subject to the regulations promulgated by the
Board of Governors of the Federal Reserve System or any other governmental
entity affecting the extension of credit in connection with the Company's
securities, any promissory note shall comply with such applicable
regulations, and the Optionee shall pay the unpaid principal and accrued
interest, if any, to the extent necessary to comply with such applicable
regulations.
(z) The Company reserves, at any and all times, the right, in the
Company's sole and absolute discretion, to establish, decline to approve
and/or terminate any program and/or procedures for the exercise of Options by
means of an assignment of the proceeds of a sale of some or all of the shares
of Stock to be acquired upon such exercise.
7. STANDARD FORM OF STOCK OPTION AGREEMENT. Unless otherwise provided
for by the Board at the time an Option is granted or as otherwise provided for
by this paragraph 7, all Options shall comply with and be subject to the terms
and conditions set forth in the stock option agreement attached hereto as
Exhibit A and incorporated herein by reference (the "Standard Option
Agreement").
(a) MODIFICATIONS FOR NONQUALIFIED STOCK OPTIONS. In the event
the Option is designated as a nonqualified stock option, the Standard Option
Agreement for such Option shall be the Standard Option Agreement as modified
as set forth below unless otherwise specified by the Board:
4.
<PAGE>
(i) The title and paragraph 2 of the Standard Option
Agreement shall reflect the Option's status as a nonqualified stock option.
(ii) A new paragraph 7(f) shall be added to the Standard
Option Agreement providing that, in the event an Optionee is a director,
consultant, or advisor but not an employee of a Participating Company at the
time the Option is granted, termination of the Optionee's status as a
director, consultant, or advisor of the Participating Company shall be deemed
to be termination of the Optionee's employment for purposes of the Standard
Option Agreement.
(iii) Paragraph 14 of the Standard Option Agreement providing,
among other things, that the Optionee give the Company notice of sales upon
disqualifying dispositions of Incentive Stock Options shall be deleted and
shall not apply to the Option.
(iv) Paragraph 16(d) of the Standard Option Agreement
regarding the stock certificate legend applicable to Incentive Stock Options
shall be deleted and shall not apply to the Option.
(v) Paragraph 19 of the Standard Option Agreement shall be
modified to delete the provision that amendments to the Standard Option
Agreement may be made without the Optionee's consent if such amendments are
required to enable an Option designated as an Incentive Stock Option to
qualify as an Incentive Stock Option.
(vi) The remaining paragraphs of such modified Standard Option
Agreement for nonqualified stock options shall be renumbered accordingly.
(b) STANDARD TERM FOR OPTIONS. Unless otherwise provided for by
the Board in the grant of an Option, any Option granted hereunder shall be
exercisable for a term of ten (10) years.
8. AUTHORITY TO VARY TERMS. The Board shall have the authority from
time to time to vary the terms of the Standard Option Agreement either in
connection with the grant of an individual Option or in connection with the
authorization of a new standard form or forms; provided, however, that the terms
and conditions of such revised or amended standard form or forms of stock option
agreement shall be in accordance with the terms of the Plan. Such authority
shall include, but not by way of limitation, the authority to grant Options
which are immediately exercisable subject to the Company's right to repurchase
any unvested shares of Stock acquired by an Optionee on exercise of an Option in
the event such
5.
<PAGE>
Optionee's employment with the Participating Company Group is terminated for any
reason, with or without cause.
9. EFFECT OF CHANGE IN STOCK SUBJECT TO PLAN. Appropriate adjustments
shall be made in the number and class of shares of Stock subject to the Plan
and to any outstanding Options and in the option price of any outstanding
Options in the event of a stock dividend, stock split, reverse stock split,
combination, reclassification, or like change in the capital structure of the
Company.
10. TRANSFER OF CONTROL. A "Transfer of Control" shall be deemed to
have occurred in the event any of the following occurs with respect to the
Control Company. For purposes of applying this paragraph 10, the "Control
Company" shall mean the Participating Company whose stock is subject to the
Option.
(a) the direct or indirect sale or exchange by the shareholders
of the Control Company of all or substantially all of the stock of the
Control Company where the shareholders of the Control Company before such
sale or exchange do not retain, directly or indirectly, at least a majority
of the beneficial interest in the voting stock of the Control Company;
(b) a merger in which the shareholders of the Control Company
before such merger do not retain, directly or indirectly, at least a majority
of the beneficial interest in the voting stock of the Control Company; or
(c) the sale, exchange, or transfer (including, without limitation,
pursuant to a liquidation or dissolution) of all or substantially all of the
Control Company's assets (other than a sale, exchange, or transfer to one (1)
or more corporations where the shareholders of the Control Company before
such sale, exchange, or transfer retain, directly or indirectly, at least a
majority of the beneficial interest in the voting stock of the corporation(s)
to which the assets were transferred).
In the event of a Transfer of Control, the surviving, continuing,
successor, or purchasing corporation, as the case may be (the "Acquiring
Corporation"), shall either assume the Company's rights and obligations under
outstanding stock option agreements or substitute options for the Acquiring
Corporation's stock for such outstanding Options. In the event the Acquiring
Corporation elects not to assume or substitute for such outstanding Options in
connection with a merger described in (b) above or a sale of assets described in
(c) above, the Board shall provide that any unexercisable and/or unvested
portion of the outstanding Options shall be
6.
<PAGE>
immediately exercisable and vested as of a date prior to the Transfer of
Control, as the Board so determines. The exercise and/or vesting of any Option
that was permissible solely by reason of this paragraph 10 shall be conditioned
upon the consummation of the Transfer of Control. Any Options which are neither
assumed by the Acquiring Corporation nor exercised as of the date of the
Transfer of Control shall terminate effective as of the date of the Transfer of
Control.
11. PROVISION OF INFORMATION. Each Optionee shall be given access to
information concerning the Company equivalent to that information generally made
available to the Company's common shareholders.
12. OPTIONS NON-TRANSFERABLE. During the lifetime of the Optionee, the
Option shall be exercisable only by the Optionee. No Option shall be assignable
or transferable by the Optionee, except by will or by the laws of descent and
distribution.
13. TRANSFER OF COMPANY'S RIGHTS. In the event any Participating
Company assigns, other than by operation of law, to a third person, other than
another Participating Company, any of the Participating Company's rights to
repurchase any shares of Stock acquired on the exercise of an Option, the
assignee shall pay to the assigning Participating Company the value of such
right as determined by the Company in the Company's sole discretion. Such
consideration shall be paid in cash. In the event such repurchase right is
exercisable at the time of such assignment, the value of such right shall be not
less than the fair market value of the shares of Stock which may be repurchased
under such right (as determined by the Company) minus the repurchase price of
such shares. The requirements of this paragraph 13 regarding the minimum
consideration to be received by the assigning Participating Company shall not
inure to the benefit of the Optionee whose shares of Stock are being
repurchased. Failure of a Participating Company to comply with the provisions
of this paragraph 13 shall not constitute a defense or otherwise prevent the
exercise of the repurchase right by the assignee of such right.
14. TERMINATION OR AMENDMENT OF PLAN. The Board, including any duly
appointed committee of the Board, may terminate or amend the Plan at any time;
provided, however, that without the approval of the Company's shareholders,
there shall be (a) no increase in the total number of shares of Stock covered by
the Plan (except by operation of the provisions of paragraph 9 above), (b) no
change in the class of persons eligible to receive Incentive Stock Options and
(c) no expansion in the class of persons eligible to receive nonqualified stock
options. In any event, no amendment may
7.
<PAGE>
adversely affect any then outstanding Option or any unexercised portion thereof,
without the consent of the Optionee, unless such amendment is required to enable
an Option designated as an Incentive Stock Option to qualify as an Incentive
Stock Option.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that
the foregoing ISDN Technologies Corporation 1989 Stock Option Plan was duly
adopted by the Board of Directors of the Company on the day of
, 1989 ---------
- ---------------
------------------------------
8.
<PAGE>
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST
THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT
AS PERMITTED IN THE COMMISSIONER'S RULES.
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
ISDN TECHNOLOGIES
CORPORATION ISDN TECHNOLOGIES CORPORATION
HAS CHANGED ITS NAME TO
CATAPULT COMMUNICATIONS
CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
ISDN Technologies Corporation (the "Company"), granted to the individual
named below an option to purchase certain shares of common stock of the Company,
in the manner and subject to the provisions of this Option Agreement.
1. DEFINITIONS:
(a) "Optionee" shall mean _________________________________________
______________________________________________ .
(b) "Date of Option Grant" shall mean______________________________
______________________________________________ .
(c) "Number of Option Shares" shall mean __________________________
______________________________________________ shares of common stock of the
Company as adjusted from time to time pursuant to paragraph 9 below.
(d) "Exercise Price" shall mean S__________________ per share as
adjusted from time to time pursuant to paragraph 9 below.
(e) "Initial Exercise Date" shall be the date occurring six (6) months
after the Date of Option Grant.
(f) "Initial Vesting Date" shall be the date occurring six (6) months
after the Date of Option Grant.
(g) Determination of "Vested Ratio":
1.
<PAGE>
Vested Ratio
------------
Prior to Initial Vesting Date 0
On Initial Vesting Date, 1/8
provided the Optionee is
continuously employed by a
Participating Company from the
Date of Option Grant until the
Initial Vesting Date
Plus
----
For each full month 1/48
of the Optionee's
continuous employment by a
Participating Company from
the Initial Vesting Date
In no event shall the Vested
Ratio exceed 1/1.
(h) "Option Term Date" shall mean the date ten (10) years after the
Date of Option Grant.
(i) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(j) "Company" shall mean ISDN Technologies Corporation, a California
corporation, and any successor corporation thereto.
(k) "Participating Company" shall mean (i) the Company and (ii) any
present or future parent and/or subsidiary corporation of the Company while such
corporation is a parent or subsidiary of the Company. For purposes of this
Option Agreement, a parent corporation and a subsidiary corporation shall be as
defined in sections 425(e) and 425(f) of the Code.
(l) "Participating Company Group" shall mean at any point in time all
corporations collectively which are then a Participating Company.
(m) "Plan" shall mean the ISDN Technologies Corporation 1989 Stock
Option Plan.
2. STATUS OF THE OPTION. This Option is intended to be an incentive
stock option as described in section 422A of the Code, but the Company does not
represent or warrant that this Option qualities as such. The Optionee should
consult with the Optionee's own tax advisors regarding the tax
ISDN TECHNOLOGIES
CORPORATION
HAS CHANGED ITS NAME TO
CATAPULT COMMUNICATIONS
CORPORATION
2.
<PAGE>
effects of this Option and the requirements necessary to obtain favorable income
tax treatment under section 422A of the Code, including, but not limited to,
holding period requirements. (NOTE: If the Exercise Price multiplied by the
Number of Option Shares is greater than ______________________ (_________), the
Optionee should contact the Chief Financial Officer of the Company to ascertain
whether the entire Option qualifies as an incentive stock option.)
3. ADMINISTRATION. All questions of interpretation concerning this
Option Agreement shall be determined by the Board of Directors of the Company
(the "Board") and/or by a duly appointed committee of the Board having such
powers as shall be specified by the Board. Any subsequent references herein to
the Board shall also mean the committee if such committee has been appointed
and, unless the powers of the committee have been specifically limited, the
committee shall have all of the powers of the Board granted in the Plan,
including, without limitation, the power to terminate or amend the Plan at any
time, subject to the terms of the Plan and any applicable limitations imposed by
law. All determinations by the Board shall be final and binding upon all
persons having an interest in the Option. Any officer of a Participating
Company shall have the authority to act on behalf of the Company with respect to
any matter, right, obligation, or election which is the responsibility of or
which is allocated to the Company herein, provided the officer has apparent
authority with respect to such matter, right, obligation, or election.
4. EXERCISE OF THE OPTION.
(a) RIGHT TO EXERCISE. The Option shall first become exercisable on
the Initial Exercise Date. The Option shall be exercisable on and after the
Initial Exercise Date and prior to the termination of the Option in the amount
equal to the Number of Option Shares multiplied by the Vested Ratio as set forth
in Paragraph 1 above less the number of shares previously acquired upon exercise
of the Option subject to the Optionee's agreement that any shares purchased upon
exercise are subject to the Company's repurchase rights set forth in paragraph
11 below. In no event shall the Option be exercisable for more shares than the
Number of Option Shares.
(b) METHOD OF EXERCISE. The Option shall be exercisable by written
notice to the Company which shall state the election to exercise the Option, the
number of shares for which the Option is being exercised and such other
representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option
ISDN TECHNOLOGIES
CORPORATION
HAS CHANGED ITS NAME TO
CATAPULT COMMUNICATIONS
CORPORATION
3.
<PAGE>
Agreement. Such written notice shall be signed by the Optionee and shall be
delivered in person or by certified or registered mail, return receipt
requested, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in paragraph 6 below, accompanied by (i) full payment of
the exercise price for the number of shares being purchased on (ii) an
executed copy, if required herein, of the then current form of joint
escrow instructions and/or security agreement referenced below.
(c) FORM OF PAYMENT OF OPTION PRICE. Such payment shall be shall
be made (i) in cash, by check, or cash equivalent, (ii) by tender to the
Company of shares of the Company's common stock owned by the Optionee having
a value not less than the option price, which either have been owned by the
Optionee for more than six (6) months or were not acquired, directly or
indirectly, from the Company, (iii) by the Optionee's promissory note for the
option price, (iv) by Immediate Sales Proceeds, as defined below, or (v) by
any combination of the foregoing. Notwithstanding the foregoing, the Option
may not be exercised by tender to the Company of shares of the Company's
common stock to the extent such tender of stock would constitute a violation
of the provisions of any law, regulation and/or agreement restricting the
redemption of the Company's common stock. Unless otherwise specified by the
Board at the time the Option is granted, the promissory note permitted in
clause (iii) above shall not exceed the amount permitted by law to be paid by
a promissory note and shall be a full recourse note in a form satisfactory to
the Company, with principal payable in equal annual installments with the
last installment due four (4) years from the date the Option is exercised.
Interest on the principal balance of the promissory note shall be payable in
annual installments at the minimum interest rate necessary to avoid imputed
interest pursuant to all applicable sections of the Code. Such recourse
promissory note shall be secured by the shares of stock acquired pursuant to
the then current form of security agreement as approved by the Company. In
the event the Company at any time becomes subject to the regulations
promulgated by the Board of Governors of the Federal Reserve System or any
other governmental entity affecting the extension of credit in connection
with the Company's securities, any promissory note shall comply with such
applicable regulations, and the Optionee shall pay the unpaid principal and
accrued interest, if any, to the extent necessary to comply with such
applicable regulations. Except as the Company in its sole discretion shall
determine, the Optionee shall pay the unpaid principal balance of the
promissory note and any accrued interest thereon upon
ISDN TECHNOLOGIES
CORPORATION
HAS CHANGED ITS NAME TO
CATAPULT COMMUNICATIONS
CORPORATION
4.
<PAGE>
termination of the Optionee's employment with the Participating Company Group
for any reason, with or without cause. "Immediate Sales Proceeds" shall mean the
assignment in form acceptable to the Company of the proceeds of a sale of some
or all of the shares acquired upon the exercise of the Option pursuant to a
program and/or procedure approved by the Company (including, without limitation,
through an exercise complying with the provisions of Regulation T as promulgated
from time to time by the Board of Governors of the Federal Reserve System). The
Company reserves, at any and all times, the right, in the Company's sole and
absolute discretion, to decline to approve any such program and/or procedure.
(d) WITHHOLDING. At the time the Option is exercised, in whole or in
part, or at any time thereafter as requested by the Company, the Optionee shall
make adequate provision for foreign, federal and state tax withholding
obligations of the Company, if any, which arise in connection with the Option,
including, without limitation, obligations arising upon (i) the exercise, in
whole or in part, of the Option, (ii) the transfer, in whole or in part, of any
shares acquired on exercise of the Option, (iii) the operation of any law or
regulation providing for the imputation of interest, or (iv) the lapsing of any
restriction with respect to any shares acquired on exercise of the Option.
(e) CERTIFICATE REGISTRATION. The certificate or certificates for
the shares as to which the Option shall be exercised shall be registered in
the name of the Optionee, or, if applicable, the heirs of the Optionee.
(f) RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES.
The grant of the Option and the issuance of the shares upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal or state law with respect to such securities. The Option may not be
exercised if the issuance of shares upon such exercise would constitute a
violation of any applicable federal or state securities laws or other law or
regulations. IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE
STATE Of CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
Section 260.141.11 of the Rules of the Commissioner of Corporations of the
State of California is set forth in paragraph 15 herein. In addition, no
Option may be exercised unless (i) a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), shall at the time
of exercise of the Option be in effect with respect to the shares issuable
upon exercise of the Option or (ii) in the opinion
ISDN TECHNOLOGIES
CORPORATION
HAS CHANGED ITS NAME TO
CATAPULT COMMUNICATIONS
CORPORATION
5.
<PAGE>
of legal counsel to the Company, the shares issuable upon exercise of the Option
may be issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT
THE OPTION MAY NOT BE EXERCISABLE UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.
ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED
EVEN THOUGH THE OPTION IS VESTED. As a condition to the exercise of the Option,
the Company may require the Optionee to satisfy any qualifications that may be
necessary or appropriate, to evidence compliance with any applicable law or
regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
(g) FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NON-TRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee and may not be assigned or
transferred in any manner except by will or by the laws of descent and
distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no
longer be exercised on the first to occur of (a) the Option Term Date as defined
above, (b) the last date for exercising the Option following termination of
employment as described in paragraph 7 below, or (c) upon a Transfer of Control
as described in paragraph 8 below.
7. TERMINATION OF EMPLOYMENT.
(a) TERMINATION OF THE OPTION. If the Optionee ceases to be an
employee of the Participating Company Group for any reason except death or
disability within the meaning of section 422A(c) of the Code, the Option, to
the extent unexercised and exercisable by the Optionee on the date on which
the Optionee ceased to be an employee, may be exercised by the Optionee
within thirty (30) days after the date on which the Optionee's employment
terminates, but in any event no later than the Option Term Date. If the
Optionee's employment with the Company is terminated because of the death of
the Optionee or disability of the Optionee within the meaning of section
422A(c) of the Code, the Option may be exercised by the Optionee (or the
Optionee's legal representative) at any time prior to the expiration of
twelve (12) months from the date the Optionee's employment terminated, but in
any event no later than the Option Term Date. The Optionee's employment
shall be deemed to have terminated on account of death if the Optionee dies
within three (3) months after the Optionee's termination of employment.
Except as the Company and the Optionee otherwise
ISDN TECHNOLOGIES
CORPORATION
HAS CHANGED ITS NAME TO
CATAPULT COMMUNICATIONS
CORPORATION
6.
<PAGE>
agree, exercise of the Option pursuant to this paragraph 7(a) may not be made by
delivery of a promissory note as provided in paragraph 4(c)(iii) above.
(b) TERMINATION OF EMPLOYMENT DEFINED. For purposes of this
paragraph 7, the Optionee's employment shall be deemed to have terminated either
upon an actual termination of employment or upon the Optionee's employer ceasing
to be a Participating Company.
(c) EXERCISE PREVENTED BY LAW. Except as provided in this paragraph
7, the Option shall terminate and may not be exercised after the Optionee's
employment with the Participating Company Group terminates unless the exercise
of the Option in accordance with this paragraph 7 is prevented by the provisions
of paragraph 4(f) above. If the exercise of the Option is so prevented, the
Option shall remain exercisable until three (3) months after the date the
Optionee is notified by the Company that the Option is exercisable, but in any
event no later than the Option Term Date.
(d) OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth above would subject the Optionee to suit under Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which the Optionee would no longer be subject to such
suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's
termination of employment, or (iii) the Option Term Date.
(e) LEAVE OF ABSENCE. For purposes hereof, the Optionee's
employment with the Participating Company Group shall not be deemed to terminate
if the Optionee takes any military leave, sick leave, or other bona fide leave
of absence approved by the Company of ninety (90) days or less. In the event of
a leave in excess of ninety (90) days, the Optionee's employment shall be deemed
to terminate on the ninety-first (91st) day of the leave unless the Optionee's
right to reemployment with the Participating Company Group remains guaranteed by
statute or contract. Notwithstanding the foregoing, however, a leave of absence
shall be treated as employment for purposes of determining the Optionee's Vested
Ratio if and only if the leave of absence is designated by the Company as (or
required by law to be) a leave for which vesting credit is given.
ISDN TECHNOLOGIES
CORPORATION
HAS CHANGED ITS NAME TO
CATAPULT COMMUNICATIONS
CORPORATION
7.
<PAGE>
8. OWNERSHIP CHANGE AND TRANSFER OF CONTROL. For purposes hereof, the
"Control Company" shall mean the Participating Company whose stock is subject
to the Option. An "Ownership Change" shall be deemed to have occurred in the
event any of the following occurs with respect to the Control Company:
(a) the direct or indirect sale or exchange by the shareholders of
the Control Company of all or substantially all of the stock of the Control
Company;
(b) a merger in which the Control Company is a party; or
(c) the sale, exchange, or transfer (including, without limitation,
pursuant to a liquidation or dissolution) of all or substantially all of the
Control Company's assets (other than a sale, exchange, or transfer to one (1) or
more corporations where the shareholders of the Control Company before such
sale, exchange, or transfer retain, directly or indirectly, at least a majority
of the beneficial interest in the voting stock of the corporation(s) to which
the assets were transferred).
A "Transfer of Control" shall mean an Ownership Change in which the
shareholders of the Control Company before such Ownership Change do not retain,
directly or indirectly, at least a majority of the beneficial interest in the
voting stock of the Control Company.
In the event of a Transfer of Control, the surviving, continuing,
successor, or purchasing corporation, as the case may be (the "Acquiring
Corporation"), shall assume the Company's rights and obligations under this
Option Agreement or substitute an option for the Acquiring Corporation's stock
for the Option. In the event the Acquiring Corporation elects not to assume the
Company's rights and obligations under this Option Agreement or substitute for
the Option in connection with a Transfer of Control involving an Ownership
Change described in (b) or (c) above, the Board shall provide that any
unexercised portion of the Option shall be fully exercisable as of a date prior
to the Transfer of Control, as the Board so determines. The Option shall
terminate effective as of the date of the Transfer of Control to the extent that
the Option is neither assumed by the Acquiring Corporation nor exercised as of
the date of the Transfer of Control.
9. EFFECT OF CHANGE IN STOCK SUBJECT TO THE OPTION. Appropriate
adjustments shall be made in the number, exercise price and class of shares of
stock subject to the Option in the event of a stock dividend, stock split,
reverse stock
ISDN TECHNOLOGIES
CORPORATION
HAS CHANGED ITS NAME TO
CATAPULT COMMUNICATIONS
CORPORATION
8.
<PAGE>
split, combination, reclassification, or like change in the capital structure of
the Company. In the event a majority of the shares which are of the same class
as the shares that are subject to the Option are exchanged for, converted into,
or otherwise become (whether or not pursuant to an Ownership Change) shares of
another corporation (the "New Shares"), the Company may unilaterally amend the
Option to provide that the Option is exercisable for New Shares. In the event
of any such amendment, the number of shares and the exercise price shall be
adjusted in a fair and equitable manner.
10. RIGHTS AS A SHAREHOLDER OR EMPLOYEE. The Optionee shall have no
rights as a shareholder with respect to any shares covered by the Option until
the date of the issuance of a certificate or certificates for the shares for
which the Option has been exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
such certificate or certificates are issued, except as provided in paragraph 9
above. Nothing in the Option shall confer upon the Optionee any right to
continue in the employ of a Participating Company or interfere in any way with
any right of the Participating Company Group to terminate the Optionee's
employment at any time.
11. RIGHT OF FIRST REFUSAL.
(a) RIGHT OF FIRST REFUSAL. Before any Vested Shares (the "Transfer
Shares") may be sold or transferred (including a transfer by operation of law)
to any person or entity, including, without limitation, any shareholder of the
Participating Company Group, the Transfer Shares shall first be offered to the
Company under the terms and subject to the conditions set forth in this
paragraph 11 (the "Right of First Refusal").
(b) NOTICE OF PROPOSED TRANSFER. The Optionee shall first deliver a
written notice (the "Transfer Notice") to the Company stating (i) the Optionee's
bona fide intention to sell or transfer the Transfer Shares, (ii) the number of
the Transfer Shares to be sold or transferred and (iii) the price for which the
Optionee proposes to sell or transfer such shares.
(c) EXERCISE OF THE RIGHT OF FIRST REFUSAL. Within thirty (30) days
after the date of receipt of the Transfer Notice, the Company may elect to
exercise the Right of First Refusal and purchase any or all of the Transfer
Shares to which the Transfer Notice refers, at the price specified in the
Transfer Notice. In the event the Company elects to acquire any of the Transfer
Shares as specified in the Transfer Notice, the Secretary of the Company shall
so notify the Optionee and settlement thereof shall be made in
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CORPORATION
HAS CHANGED ITS NAME TO
CATAPULT COMMUNICATIONS
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9.
<PAGE>
cash within forty-five (45) days after the Company receives the Transfer
Notice; provided, however, that if the terms of payment set forth in the
Transfer Notice were other than cash against delivery, the Company shall pay for
such Transfer Shares on the same terms and conditions set forth in the Transfer
Notice. For purposes of the foregoing, cancellation of any indebtedness of the
Optionee to any Participating Company shall be treated as payment to the
Optionee in cash to the extent of the unpaid principal and any accrued
interest cancelled.
(d) FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. If the Company
elects not to exercise the Right of First Refusal in full and acquire all of
the Transfer Shares as specified in the Transfer Notice within the period
specified in paragraph 11(c) above, the Optionee may sell or transfer the
remaining Transfer Shares to any person or entity at the price and on the
terms and conditions described in the Transfer Notice or at a higher price or
on terms more favorable to the Optionee; provided, however, that such sale or
transfer occurs within ninety (90) days of the date of receipt by the Company
of the Transfer Notice; and provided, further, that any such sale or transfer
is in accordance with all of the terms and conditions of this paragraph 11.
Any proposed sale or transfer on terms and conditions different from those
described in the Transfer Notice, as well as any subsequent proposed transfer
by the Optionee, shall again be subject to the Right of First Refusal and
shall require compliance by the Optionee with the procedure described in this
paragraph 11.
(e) TRANSFERS NOT SUBJECT TO THE RIGHT OF FIRST REFUSAL. The
Right of First Refusal shall not apply to any sale or transfer to the
Optionee's parents, spouse, brothers, sisters, or children or to a trustee
solely for the benefit of the Optionee or the Optionee's parents, spouse,
brothers, sisters, or children; provided, however, that such transferee shall
agree in writing (in a form satisfactory to the Company) to take the stock
subject to all the terms and conditions of this paragraph 11 providing for a
Right of First Refusal with respect to any subsequent transfer.
(f) ASSIGNMENT OF THE RIGHT OF FIRST REFUSAL. The Company shall have
the right to assign the Right of First Refusal at any time, whether or not the
Optionee has attempted a sale or transfer, to one (1) or more persons as may to
selected by the Company.
(g) EARLY TERMINATION OF THE RIGHT OF FIRST REFUSAL. The other
provisions of this paragraph 11 notwithstanding, the Right of First Refusal
shall terminate, and be of no further force and effect upon the first sale of
ISDN TECHNOLOGIES
CORPORATION
HAS CHANGED ITS NAME TO
CATAPULT COMMUNICATIONS
CORPORATION
10.
<PAGE>
common stock of the Company to the public which is effected pursuant to a
registration statement filed with, and declared effective by, the Securities and
Exchange Commission under the Securities Act.
12. ESCROW.
(a) ESTABLISHMENT OF ESCROW. To insure shares subject to the Right
of First Refusal and/or security for any promissory note will be available for
repurchase, the Company may require the Optionee to deposit the certificate or
certificates evidencing the shares which the Optionee purchases upon exercise of
the Option with an agent designated by the Company under the terms and
conditions of escrow and security agreements approved by the Company. If the
Company does not require such deposit as a condition of exercise of the Option,
the Company reserves the right at any time to require the Optionee to so
deposit the certificate or certificates in escrow. The Company shall bear the
expenses of the escrow.
(b) DELIVERY OF SHARES TO OPTIONEE. As soon as practicable after the
expiration of the Right of First Refusal and after full repayment on any
promissory note secured by the shares in escrow, but not more frequently than
twice each calendar year, the agent shall deliver to the Optionee the shares no
longer subject to such restriction and no longer security for any promissory
note.
(c) NOTICES AND PAYMENTS. In the event the shares held in escrow are
subject to the Company's exercise of the Right of First Refusal, the notices
required to be given to the Optionee shall be given to the escrow agent and any
payment required to be given to the Optionee shall be given to the escrow agent.
Within thirty (30) days after payment by the Company, the escrow agent shall
deliver the shares which the Company has purchased to the Company and shall
deliver the payment received from the Company to the Optionee.
13. STOCK DIVIDENDS SUBJECT TO OPTION AGREEMENT. If, from time to time,
there is any stock dividend, stock split, or other change in the character or
amount of any of the outstanding stock of the corporation the stock of which is
subject to the provisions of this Option Agreement, then in such event any and
all new substituted or additional securities to which the Optionee is entitled
by reason of the Optionee's ownership of the shares acquired upon exercise of
the Option shall be immediately subject to the Right of First Refusal and/or any
security interest held by the Company with the same force and effect as the
shares subject to the Right of First Refusal and such security interest
immediately before such event.
ISDN TECHNOLOGIES
CORPORATION
HAS CHANGED ITS NAME TO
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CORPORATION
11.
<PAGE>
14. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION. The Optionee shall
dispose of the shares acquired pursuant to the Option only in accordance with
the provisions of this Option Agreement. In addition, the Optionee shall
promptly notify the Chief Financial Officer of the Company if the Optionee
disposes of any of the shares acquired pursuant to the Option within one (1)
year from the date the Optionee exercises all or part of the Option or within
two (2) years of the date of grant of the Option. Until such time as the
Optionee disposes of such shares in a manner consistent with the provisions of
this Option Agreement, the Optionee shall hold all shares acquired pursuant to
the Option in the Optionee's name (and not it% the name of any nominee) for the
one-year period immediately after exercise of the Option and the two-year period
immediately after grant of the Option. At any time during the one-year or
two-year periods set forth above, the Company may place a legend or legends on
any certificate or certificates representing shares acquired pursuant to the
Option requesting the transfer agent for the Company's stock to notify the
Company of any such transfers. The obligation of the Optionee to notify the
Company of any such transfer shall continue notwithstanding that a legend has
been placed on the certificate or certificates pursuant to the preceding
sentence.
15. RULES OF THE COMMISSIONER OF CORPORATIONS. The Optionee is hereby
delivered a copy of Section 260.141.11 of the Rules of the Commissioner of
Corporations of the State of California, adopted pursuant to the California
Corporate Securities Act of 1968. References to the "Code" in the following
text are references to the California Corporations Code.
260.141.11. Restriction on Transfer.
(a) The issuer of any security upon which a restriction on transfer
has been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall
cause a copy of this section to be delivered to each issuee or transferee of
such security at the time the certificate evidencing the security is delivered
to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
ISDN TECHNOLOGIES
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(3) to any person described in Subdivision (i) of Section
25102 of the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or
any custodian or trust account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or
custodian for the account of the transferee or the transferee's ancestors,
descendants, or spouse;
(5) to holders of securities of the same class of the same
issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code
(either acting as such or as a finder) to a resident of a foreign state,
territory or country who is neither domiciled in this state to the knowledge
of the broker-dealer,nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign state,
territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other
lien given by the purchaser to the seller upon a sale of the security for
which the Commissioner's written consent is obtained or under this rule not
required;
(10) by way of a sale qualified under Sections 25111, 25112,
25113, or 25121 of the Code, of the securities to be transferred, provided
that no order under Section 25140 or subdivision (a) of Section 25143 is in
effect with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111,
25112 or 25113 of the Code, provided that no order under Section 25140 or
subdivision (a) of Section 25143 is in effect with respect to such
qualification;
(13) between residents of foreign states, territories or
countries who are neither domiciled nor actually present in this state;
ISDN TECHNOLOGIES
CORPORATION
HAS CHANGED ITS NAME TO
CATAPULT COMMUNICATIONS
CORPORATION
13.
<PAGE>
(14) to the State Controller pursuant to the Unclaimed
Property Law or to the administrator of the unclaimed property law of another
state;
(15) by the State Controller pursuant to the Unclaimed
Property Law or by the administrator of the unclaimed property law of another
state if, in either such case, such person (i) discloses to potential
purchasers at the sale that transfer of the securities is restricted under
this rule, (ii) delivers to each purchaser a copy of this rule, and (iii)
advises the Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer
does not involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in
an issuer transaction that is subject to the qualification requirement of
Section 25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102; provided that any such transfer is on the
condition that any certificate evidencing the security issued to such
transferee shall contain the legend required by this section.
(c) The certificates representing all such securities subject to
such a restriction on transfer, whether upon initial issuance or upon any
transfer thereof, shall bear on their face a legend prominently stamped or
printed thereon in capital letters of not less than 10-point size reading as
follows: "IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
16. LEGENDS. The Company may at any time place legends referencing the
Right of First Refusal set forth in paragraph 11 above and any applicable
federal or state securities law restrictions on all certificates representing
shares of stock subject to the provisions of this Option Agreement. The
Optionee shall, at the request of the Company, promptly present to the Company
any and all certificates representing shares acquired pursuant to the Option in
the possession of the Optionee in order to effectuate the provisions of this
paragraph. Unless otherwise specified by the Company, legends placed on such
certificates may include, but shall not be limited to, the following:
ISDN TECHNOLOGIES
CORPORATION
HAS CHANGED ITS NAME TO
CATAPULT COMMUNICATIONS
CORPORATION
14.
<PAGE>
(a) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS
MADE IN ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY
RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT."
(b) Any legend required to be placed thereon by the Commissioner of
Corporations of the State of California.
(c) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR
SUCH HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THIS CORPORATION."
(d) "THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK
OPTION AS DEFINED IN SECTION 422A OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED. THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY SHALL NOTIFY THE
CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES BY THE REGISTERED
HOLDER HEREOF MADE ON OR BEFORE ____________. THE REGISTERED HOLDER SHALL
HOLD ALL SHARES PURCHASED UNDER THE OPTION IN THE REGISTERED HOLDER'S NAME
(AND NOT IN THE NAME OF ANY NOMINEE) PRIOR TO THIS DATE."
17. INITIAL PUBLIC OFFERING. The Optionee hereby agrees that in the
event of an initial public offering of stock made by the Company under the
Securities Act, the Optionee shall not offer, sell, contract to sell, pledge,
hypothecate, grant any option to purchase or make any short sale of, or
otherwise dispose of any shares of stock of the Company or any rights to
acquire stock of the Company for such period of time as may be established by
the underwriter for such initial public offering; provided, however, that
such period of time shall not exceed one hundred eighty (180) days from the
effective date of the registration statement to be filed in connection with
such initial public offering. The foregoing limitation shall not apply to
shares registered under the Securities Act and shall cease to apply once a
registration statement is effective covering shares issuable pursuant to
options granted pursuant to the Plan, whether or not such registration
statement applies to any of the shares issued or issuable pursuant to the
Option.
ISDN TECHNOLOGIES
CORPORATION
HAS CHANGED ITS NAME TO
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CORPORATION
15.
<PAGE>
18. BINDING EFFECT. This Option Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
19. TERMINATION OR AMENDMENT. The Board, including any duly appointed
committee of the Board, may terminate or amend the Plan and/or the Option at
any time; provided, however, that no such termination or amendment may
adversely affect the Option or any unexercised portion hereof without the
consent of the Optionee unless such amendment is required to enable the
Option to qualify as an Incentive Stock Option.
20. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Participating Company
Group with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties
among the Optionee and the Company other than those as set forth or provided
for herein. To the extent contemplated herein, the provisions of this Option
Agreement shall survive any exercise of the Option and shall remain in full
force and effect.
21. APPLICABLE LAW. This Option Agreement shall be governed by the laws
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
ISDN TECHNOLOGIES CORPORATION
ISDN TECHNOLOGIES
CORPORATION By:
HAS CHANGED ITS NAME TO ----------------------------
CATAPULT COMMUNICATIONS
CORPORATION Title:
-------------------------
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement, including the Right of First Refusal set
forth in paragraph 11, and hereby accepts the Option subject to all of the terms
and provisions thereof. The Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Option Agreement.
16.
<PAGE>
The undersigned acknowledges receipt of a copy of the Plan and a copy of
Section 260.141.11 of the Rules of the Commissioner of Corporations of the
State of California regarding restriction on transfer.
Date:
----------------------- ---------------------------------
ISDN TECHNOLOGIES
CORPORATION
HAS CHANGED ITS NAME TO
CATAPULT COMMUNICATIONS
CORPORATION
17.
<PAGE>
Exhibit 10.4
ISDN TECHNOLOGIES
UK EXECUTIVE SHARE OPTION SCHEME
<PAGE>
Written approval of a majority of the shareholders of
ISDN Technologies Corp.
in lieu of a shareholder's meeting
The undersigned, who constitute a majority of the shareholders of ISDN
Technologies Corp. (the "Corporation"), have examined a copy of the proposed
rules for the company's UK Executive Share Option Scheme (the "Scheme").
As permitted in the bye-laws of the Corporation, the undersigned hereby
approve the Scheme, permit their adoption by the Corporation, and instruct
Arthur Young, the Corporation's UK accountants, to submit the Scheme rules for
formal approval of the UK Inland Revenue.
This action is taken under section 2.9 of the byelaws of the Corporation,
which permit written approval by a majority of the shareholders in lieu of a
shareholder's meeting.
Approved:
/s/ Richard A. Karp /s/ Nancy H. Karp
Richard A. Karp Nancy H. Karp
Date: 9 Aug 89 Date: 10 Aug '89
<PAGE>
RULES OF THE ISDN TECHNOLOGIES UK EXECUTIVE SHARE OPTION SCHEME
1. The Scheme will be known as the ISDN Technologies UK Executive Share Option
Scheme ("the Scheme").
DEFINITIONS
2. For the purposes of the Scheme, unless the context otherwise requires, the
following words and expressions shall have the following meanings:
"the Adoption Date" means the date on which the company in a general
meeting passes an ordinary resolution adopting the
Scheme;
"the Auditors" means the auditors for the time being of the
Company (acting as experts and not as
arbitrators);
"the Board" means the Board of Directors of the Company or the
directors present at a duly convened meeting of
the directors at which a quorum is present or the
persons appointed by the Board of Directors to act
as a committee of the Board of Directors of the
Company for all or any matters relating to the
Scheme;
"the Company" means ISDN Technologies Corporation;
"Date of Grant" in relation to an Option shall be the date on
which the Offer shall have been accepted by the
Eligible Employee;
"Eligible Employee" means a Full time Employee of the Group (including
any such employee who is an executive director of
the Group) selected by the Board to participate in
the Scheme and is not precluded by paragraph 8 of
Schedule 9 from participating in the Scheme;
"Exercise Price" in relation to any Scheme Share means the Market
Value of such Share;
"Full time Employee" means a director or employee whose contract with
the Group as to his employment provides that he
will work for 25 hours (or in the case of an
employee who is not a director of the Group, 20
hours) or more weekly (excluding meal breaks);
"the Group" means the Company or the Subsidiary or any other
subsidiary of the Company within the meaning of
Section 736, Companies Act 1985 of which the
Company has control as defined in Section 840 of
the Taxes Act;
"Market Value" in relation to a Scheme Share shall be the market
value thereof as defined in Part VIII of the
Capital Gains Tax Act 1979 on the Offer Date as
agreed in advance for the purpose of this Scheme
with the Shares Valuation Division of the Inland
Revenue;
<PAGE>
"Offer" means an offer to grant an Option under the
provisions of this Scheme;
"Offer Date" in relation to an Option means the date on which
the Offer thereof is made;
"Option" means an option to subscribe for Scheme Shares
granted pursuant to the Scheme;
"Option Period" in relation to an Option means a period beginning
on the first anniversary of the Date of Grant
thereof and ending on (and including) the tenth
anniversary of that date;
"Participant" means any person who for the time being
participates in the Scheme;
"Relevant Emoluments" in relation to a Participant means such of the
emoluments from any office or employment held by
him with the Group as are liable to be paid under
deduction of tax pursuant to Section 203 of the
Taxes Act, after deducting from them amounts
included by virtue of Chapter II of Part V of the
Taxes Act;
"Scheme Period" means the period of 10 years commencing on the
Adoption Date;
"Scheme Shares" means Shares to be issued to a Participant on the
exercise by him of an Option;
"Shares" means Common stock of the Company which satisfy
the conditions of paragraphs 10 to 14 of
Schedule 9;
"the Subsidiary" means ISDN Technologies Limited, of which the
Company has control for the purposes of S. 840 of
the Taxes Act;
"Year of Assessment" means a year beginning on any April 6 and ending
on the following April 5;
"Taxes Act" Income and Corporation Taxes Act 1988;
"Schedule 9" Schedule 9 to the Taxes Act;
Where the context so permits the singular shall include the plural and vice
versa and the masculine shall include the feminine.
Reference to any Act shall include any statutory modification, amendment or
re-enactment thereof.
<PAGE>
GRANT OF OPTIONS
3. (a) The Board may from time to time during the Scheme Period, at its
discretion offer an Option to an Eligible Employee to be selected in
each case at the discretion of the Board on the terms set out in the
Rules of the Scheme.
(b) Any such Offer may be made at any time following the date of the
approval of this Scheme by the Inland Revenue.
4. (a) Subject to the limitations referred to herein the Board shall
determine the number of Scheme Shares to be included in an Option to
be offered to an Eligible Employee.
(b) An Offer must be accepted in writing in such manner as the Board may
prescribe within 28 days of the Offer Date and if not so accepted
shall lapse. An Offer may be accepted in part.
(c) An Option and an Offer shall be personal to the Eligible Employee to
whom it is granted or made and shall not be capable of assignment.
Any purported assignment, transfer or charge shall cause the Option to
lapse forthwith.
(d) The amount payable for the grant of an Option shall be the sum of L1.
This consideration shall not be returnable to the Participant and
shall not be deemed to be a part payment of the Exercise Price.
(e) The amount payable for each Scheme Share in the event of the Option
being exercised shall be the Exercise Price.
(f) No Option shall be offered to an Eligible Employee if this would, at
the date of grant of such Option, cause the aggregate of (a) the
amount which would be subscribed for Scheme Shares on the exercise of
such Option and (b) the amount which would be subscribed for Scheme
Shares on the exercise of any other unexercised Options held by that
Eligible Employee and granted under the Scheme or any other scheme
approved under Schedule 9 and established by the Group to exceed or
further exceed whichever is the greater of the dollar equivalent of
L100,000, converted at the highest buying rate shown in the spread of
the day in the Financial Times for the date of grant, or four times
the amount of the Relevant Emoluments for the current or preceding
Year of Assessment (whichever of those years gives the greater
amount).
(g) Options shall be evidenced by certificates in such form as the Board
shall from time to time determine.
EXERCISE OF AN OPTION
5. (a) An Option may be exercised at any time during the Option Period by
delivering to the Secretary of the Company or of the Subsidiary a
notice duly signed by the Participant in a form approved by the Board
together with payment of the Exercise Price for each Scheme Share to
be subscribed and delivery of the Option certificate for amendment or
cancellation as the case may be.
<PAGE>
(b) An Option may be exercised in whole or in part save that the
cumulative number of Shares which have been acquired under the Scheme
and which would be acquired on the said exercise shall not exceed the
portion of the Shares which are the subject of the Option specified in
Appendix A. The number of shares acquired on exercise will be rounded
down to the nearest whole number. The Board may at its discretion
allow a Participant to exceed the limits laid down in Appendix A by
notice in writing.
(c) Subject to any necessary consents and to an Option having been
exercised in accordance with the provisions of paragraph (a) and (b)
of this Rule, the Company shall as soon as practicable and in any
event not later than 28 days after the exercise of an Option make an
allotment to the Participant of the number of Scheme Shares specified
in the notice exercising the Option and shall deliver to the
Participant a definitive share certificate in respect thereof.
(d) An option may not be exercised if the Participant is precluded from
exercising that Option by paragraph 8 of Schedule 9.
LAPSE OF OPTION AND PROVISIONS FOR PARTICIPANTS LEAVING THE GROUP
6. (a) If a Participant ceases to be an employee of the Group by reason of:
(i) his retirement on attaining normal retirement age or at a younger
age with the express consent of the Board in writing for the
purpose of this paragraph;
(ii) ill health or disability recognised as such expressly by the
Board in writing for the purpose of this paragraph;
he may, within 12 months of such cessation, exercise the Option as
regards all or any of the Scheme Shares comprised therein, save that
he may not exercise the Option in respect of more shares than he would
have been entitled to acquire under Rule 5(b) if he had exercised the
Option on the date of ceasing to be an employee of the Group.
(b) In the event of the death of a Participant his personal
representatives may within 12 months of his death exercise any such
Option in respect of all or any of the Scheme Shares comprised
therein, save that they may not exercise the Option in respect of more
shares than he would have been entitled to acquire under Rule 5(b) if
he had exercised the Option on the date of ceasing to be an employee
of the Group.
(c) If a Participant ceases to be employed by the Group for any reason
other than those specified in paragraphs (a) or (b) of this Rule the
Participant shall cease to have any rights to exercise his Option upon
such cessation provided that the Board at its discretion may allow
such a Participant to exercise his Option during a period not
exceeding 12 months from the date of such cessation, save that the
Option may not be exercised in respect of more Shares than he would
have been entitled to acquire under Rule 5(b) if he had exercised the
Option on the date of ceasing to be an employee of the Group.
(d) If a Participant shall cease to have any rights to exercise an Option
under this Rule such Option shall lapse and the Board shall notify the
Participant in writing of such cessation and forthwith upon such
notification the Participant shall be bound to surrender to the
Company the certificate evidencing such Option.
<PAGE>
(e) For the purposes of this Rule, no person shall be treated as ceasing
to be a director or employee if he continues to be a director or
employee of any company within the Group.
VARIATION OF CAPITAL
7. In the event of any variation in the share capital of the Company by way of
capitalisation or rights issue or sub-division or consolidation of shares
or reduction of the share capital of the Company then:
(i) the number of Shares in respect of which Options may be granted;
(ii) the Exercise Price in respect of any Options granted pursuant to the
Scheme; and/or
(iii) the number of Scheme Shares subject to any such Option;
shall be varied by resolution of the Board in such manner as the Board may
determine and such decision of the Board shall be final and binding on the
Participants and the Company provided that no adjustment shall be made
pursuant to this paragraph unless and until the Auditors shall have
reported to the Board in writing that such adjustment is in their opinion
fair and reasonable and the adjustment has been approved by the Inland
Revenue.
CHANGES IN CONTROL
8. (a) If before the expiry of the Option Period of an Option any person
(either alone or in concert with others) obtains control of the
Company as a result of making:
(i) a general offer to acquire the whole of the issued share
capital of the Company (or the whole other than any such share
capital already held at the date of the offer by, or by a
nominee for, the offeror or any subsidiary thereof), which
offer is made on a condition such that if it is satisfied the
person making the offer will have control of the Company, or
(ii) a general offer to acquire all the Shares in the Company (or
all other than any such Shares already held at the date of the
offer by, or by a nominee for, the offeror or any subsidiary
thereof).
the Option holder shall be entitled to exercise that Option only
within six months after the time when the person making the offer
has obtained control of the Company and any condition subject to
which the offer is made has been satisfied.
(b) An exercise of an Option pursuant to this Rule 8 may take place before
the commencement of the Option Period of that Option but no exercise
of an Option pursuant to this Rule 8 may take place after the expiry
of the Option Period of that Option.
<PAGE>
(c) (1) If an Option holder does not exercise or notifies the Company in
writing that he does not wish to exercise his Option pursuant to
the provisions of paragraphs (a) or (b) of this Rule 8 then if
any company (in this Rule referred to as "the acquiring company")
obtains control of the Company as a result of making:
(i) a general offer to acquire the whole of the issued share
capital of the Company which is made on a condition such
that if it is satisfied the person making the offer will
have control of the Company or
(ii) a general offer to acquire all the shares in the Company
which are of the same class as the Shares
any Option holder may at any time within the appropriate period
by agreement with the acquiring company release his rights under
the Scheme (in this Rule referred to as "the old rights") in
consideration of the grant to him of rights (in this Rule
referred to as "the new rights") which are equivalent to the old
rights but relate to shares in a different company (whether the
acquiring company itself or some other company falling within
sub-paragraphs 10(b) or (c) of Schedule 9.
(2) In sub-paragraph (c) (1) of this Rule 8 "the appropriate period"
means the period referred to in paragraph 15(2) of Schedule 9.
(3) The new rights shall not be equivalent to the old rights unless:
(i) the shares to which they relate satisfy the conditions
specified in relation to scheme shares in paragraphs 10 to
14 of Schedule 9 and
(ii) the new rights will be exercisable in the same manner as
the old rights and subject to the provisions of the Scheme
as it had effect immediately before the release of the old
rights and
(iii) the total market value immediately before the release of
the shares which were subject to the Option holder's old
rights is equal to the total market value immediately
after the grant of the shares in respect of which the new
rights are granted to the Option holder and
(iv) the total amount payable by the Option holder for the
acquisition of shares in pursuance of the new rights is
equal to the total amount that would have been payable for
the acquisition of shares in pursuance of the old rights.
(4) Where any new rights are granted pursuant to this Rule 8 they
shall be regarded:
(i) for the purposes of Section 185 of the Taxes Act and
Schedule 9 and
(ii) for the purposes of the subsequent application of the
provisions of the Scheme
as having been granted at the time when the corresponding
old rights were granted.
<PAGE>
(5) Where any new rights are granted pursuant to this Rule 8 "the
Company" shall for the purposes only of Rules 5, 7, 8, 9, 11,
13, 16 and 17 mean in relation to the new rights the Company the
share capital of which includes shares which may be acquired on
exercise of the new rights.
WINDING UP
9. If an order is made or an effective resolution is passed for the winding up
of the Company all Options still unexercised or only partially exercised at
the date of such order or resolution shall forthwith lapse provided that:
(a) If the Company shall be wound up for the purpose only of amalgamation
or reconstruction the Board shall use its best endeavours to procure
that Option holders shall be granted comparable options outside the
provisions of this Scheme in the amalgamated or reconstructed company
on the same terms and conditions mutatis mutandis as herein contained
and;
(b) In the event of a members voluntary winding up of the Company (other
than for the purpose of amalgamation or reconstruction) an Option
holder may exercise an Option within six months after the commencement
of the winding up provided that such exercise may take place before
the commencement of the Option period of that Option but may not take
place after the expiry of the Option period of that Option.
RIGHTS ATTACHING TO SHARES ALLOTTED PURSUANT TO AN OPTION
10. All shares allotted pursuant to the exercise of any Option shall as to
voting, dividend, transfer and other rights including those arising in the
liquidation of the Company, rank pari passu in all respects and as to one
class with the Shares of the Company in issue as at the date of such
allotment.
AVAILABILITY OF SHARES
11. The Company will at all times keep sufficient authorised but unissued
Shares to permit the exercise of all unexercised Options.
GENERAL
12. The terms of employment of any Participant shall not be affected in any way
by his participation in the Scheme which shall not form part of such terms
(either expressly or impliedly) nor in any way entitle him to take into
account such participation in calculating any compensation or damages on
the termination of his employment for whatever reason which might otherwise
be payable to him.
13. The Company shall maintain all necessary books of account and records
relating to the Scheme.
14. The Scheme shall in all respects be administered by the Board which may
make such Rules not being inconsistent with the terms and conditions hereof
for the conduct of the Scheme as the Board thinks fit. Any dispute
regarding the interpretation of the Rules or the terms of any Option shall
be determined by the Board (upon such advice as it shall consider
necessary) and its decision shall be final and binding.
<PAGE>
15. The Board may alter this Scheme in any respect except that:
(i) no amendment may materially affect an Option holder as regards an
Option granted prior to the amendment being made;
(ii) no amendment may be made which would make the terms on which Options
may be granted materially more generous without the prior approval
of the Company in general meeting;
(iii) no amendment shall have effect until approved by the Board of Inland
Revenue.
16. A Participant who is a director of the Company may, notwithstanding his
interest, vote on any Board resolution concerning the Scheme (other than in
respect of his own participation therein) and may retain any benefits under
the Scheme.
17. The Company shall not be responsible for any failure by a Participant to
obtain any consent, or for any tax or other liability to which the
Participant may become subject as a result of his participation in the
scheme.
<PAGE>
ISDN TECHNOLOGIES UK EXECUTIVE SHARE OPTION APPENDIX A
<TABLE>
<CAPTION>
Complete Months Since Portion
Date of Grant of Shares
- --------------------- ---------
<S> <C>
13 1/36th
14 2/36ths
15 3/36ths
16 4/36ths
17 5/36ths
18 6/36ths
19 7/36ths
20 8/36ths
21 9/36ths
22 10/36ths
23 11/36ths
24 12/36ths
25 13/36ths
26 14/36ths
27 15/36ths
28 16/36ths
29 17/36ths
30 18/36ths
31 19/36ths
32 20/36ths
33 21/36ths
34 22/36ths
35 23/36ths
36 24/36ths
37 25/36ths
38 26/36ths
39 27/36ths
40 28/36ths
41 29/36ths
42 30/36ths
43 31/36ths
44 32/36ths
45 33/36ths
46 34/36ths
47 35/36ths
48 36/36ths
</TABLE>
<PAGE>
DRAFT OFFER LETTER
[to be prepared on ISDN Technologies Corporation notepaper]
Dear [ ],
THE ISDN TECHNOLOGIES UK EXECUTIVE SHARE OPTION SCHEME ("THE SCHEME")
You are hereby invited to apply for an Option under the Scheme to acquire
[ ] Common Stock in the Company, at a price of [ ] per
Share, upon the terms set out in the Scheme.
In accordance with the terms of the Scheme, if you wish to accept this
invitation, you should sign and return the attached Agreement together with the
sum of Ll to the Company at the above address, so as to be received by
[ ].
Please note that this invitation is personal to you and is not capable of
transfer or assignment or of acceptance by any other person.
The invitation is made subject to the Rules of the Scheme, a copy of which is
included with this letter.
Yours faithfully,
Richard A. Karp
Managing Director
<PAGE>
DATED 198
-----------------------------
ISDN TECHNOLOGIES CORPORATION
UK EXECUTIVE SHARE OPTION SCHEME AGREEMENT
<PAGE>
THIS AGREEMENT is made 198
BETWEEN: (1) ISDN TECHNOLOGIES CORPORATION whose
registered office is at 1940 Colony
Street, Mountain View, CA 94043 ("the
Company").
AND (2) THE PERSON whose name and address is set
out in Part I of the Schedule hereto
("the Option Holder").
1. INTERPRETATION
In this Agreement and in the Schedule hereto (except where inconsistent
with the subject matter or the context) words and expressions the meanings
of which are defined in the Rules of the ISDN Technologies UK Executive
Share Option Scheme approved and adopted at the Extraordinary General
Meeting of the Company held on 198 ("the Rules") shall
be construed as having the meanings from time to time thereby attributed
to them.
2. GRANT OF OPTION
In consideration of the payment of Ll (the receipt of which the Company
hereby acknowledges) the Company hereby grants to the Option Holder in
accordance with and subject to the Rules the option to subscribe for the
number of Shares each specified in Part 2 of the Schedule hereto at the
price per share specified in Part 3 thereof.
3. INCORPORATION OF THE RULES
(a) This Agreement is entered into pursuant to the Rules which shall apply
to the option hereby granted and (so far as applicable) shall be
deemed incorporated herein.
(b) The Option Holder hereby agrees to observe and comply with the Rules
AS WITNESS whereof the hands of the parties or their duly authorised
representatives.
<PAGE>
THE SCHEDULE
PART I
("the Option Holder")
NAME ADDRESS
PART 2
(Number of Shares)
PART 3
(the Exercise Price)
SIGNED by )
for and on behalf of )
ISDN TECHNOLOGIES CORPORATION )...............
signature
...............
capacity (e.g. Director)
SIGNED by the Option Holder ...............
signature
<PAGE>
THE ISDN TECHNOLOGIES UK EXECUTIVE SHARE OPTION SCHEME ("THE SCHEME")
OPTION CERTIFICATE
THIS DOCUMENT IS IMPORTANT. A form of notice for use by the Participant for the
exercise of the option is enclosed with this Certificate.
Name of Participant:
........................................
Address of Participant:
........................................
........................................
........................................
Date of Grant:
........................................
Exercise Price:
........................................
Last date for exercise
of option:
........................................
The Participant named above is hereby granted on option under the Scheme to
acquire the above number of Shares in the Company, at the above price per Share,
upon the terms set out in the Scheme.
THE COMMON SEAL OF ISDN ) Dated
TECHNOLOGIES CORPORATION ) ...............
was hereunto affixed in the )
presence of: )
<PAGE>
NOTICE OF EXERCISE
THE ISDN TECHNOLOGIES UK EXECUTIVE SHARE OPTION SCHEME ("THE SCHEME")
NOTICE OF EXERCISE
NOTE: The tax consequences of exercising your option may vary according to the
time of exercise. Furthermore, if you exercise your option after the record
date for a variation of capital (such as a capitalisation or rights issue) but
before it has been adjusted in respect thereof, your rights may be adversely
affected: YOU ARE THEREFORE ADVISED TO CONSULT YOUR PROFESSIONAL ADVISERS BEFORE
EXERCISING YOUR OPTION.
To: ISDN Technologies Corporation
1. I hereby exercise the option referred to in the enclosed Option Certificate
in respect of .............. [Note (a)] Shares in the Company.
2. I am, and have at all times since the grant of the said option been, an
Eligible Employee (as defined in the Scheme).
3. I enclose a cheque payable to the Company for L.....[Note (b)]
[Note (C)]
Full Name: .................................
.................................
Address
.................................
.................................
.................................
Signature
.................................
Date:
.................................
NOTES
(a) Insert the number of Shares in respect of which the option is exercised.
(b) Insert the price of the Shares in respect of which the option is exercised;
this can be found be multiplying the price per Share stated in the Option
Certificate by the number of Shares stated in paragraph 1 above.
(c) This form of exercise should be signed by the Option folder personally.
(d) Shares are defined In the Option Scheme rules.
<PAGE>
CATAPULT COMMUNICATIONS CORPORATION
1998 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are:
- to attract and retain the best available personnel for positions
of substantial responsibility,
- to provide additional incentive to Employees, Directors and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "COMMON STOCK" means the common stock of the Company.
(g) "COMPANY" means Catapult Communication Corporation, a Nevada
corporation.
(h) "CONSULTANT" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.
<PAGE>
(i) "DIRECTOR" means a member of the Board.
(j) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
THE WALL STREET JOURNAL or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in THE WALL STREET JOURNAL or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
-2-
<PAGE>
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "NOTICE OF GRANT" means a written or electronic notice evidencing
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(q) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "OPTION" means a stock option granted pursuant to the Plan.
(s) "OPTION AGREEMENT" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(u) "OPTIONED STOCK" means the Common Stock subject to an Option or
Stock Purchase Right.
(v) "OPTIONEE" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(w) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(x) "PLAN" means this 1998 Stock Plan.
(y) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant
to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written agreement
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(aa) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "SECTION 16(b)" means Section 16(b) of the Exchange Act.
-3-
<PAGE>
(cc) "SERVICE PROVIDER" means an Employee, Director or Consultant.
(dd) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(ee) "STOCK PURCHASE RIGHT" means the right to purchase Common Stock
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 1,800,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); PROVIDED, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.
(ii) SECTION 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) RULE 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) OTHER ADMINISTRATION. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
-4-
<PAGE>
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be
-5-
<PAGE>
withheld. The Fair Market Value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be
determined. All elections by an Optionee to have Shares withheld for this
purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. ELIGIBILITY. Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. LIMITATIONS.
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) On the date grants of Options under the Plan are required to
comply with Section 162(m) of the Code, the following limitations shall apply to
grants of Options:
(i) No Service Provider shall be granted, in any fiscal year
of the Company, Options to purchase more than 225,000 Shares.
-6-
<PAGE>
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 225,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the canceled Option will be counted against the limits
set forth in subsections (i) and (ii) above. For this purpose, if the exercise
price of an Option is reduced, the transaction will be treated as a cancellation
of the Option and the grant of a new Option.
7. TERM OF PLAN. Subject to Section 19 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect
for a term of ten (10) years unless terminated earlier under Section 15 of the
Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the Option
Agreement, provided, however, that prior to the date the Common Stock is listed
on a national securities exchange or a national market system which qualifies
under Section 25100(o) of the Corporations Code of California, the term of each
Option shall be no more than ten (10) years from the date of grant. In the case
of an Incentive Stock Option, the term shall be ten (10) years from the date of
grant or such shorter term as may be provided in the Option Agreement.
Moreover, in the case of an Incentive Stock Option granted to an Optionee who,
at the time the Incentive Stock Option is granted, owns stock representing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Incentive
Stock Option shall be five (5) years from the date of grant or such shorter term
as may be provided in the Option Agreement.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
-7-
<PAGE>
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option granted:
(A) prior to the date the Common Stock is listed on a
national securities exchange or a national market system which qualifies under
Section 25100(o) of the Corporations Code of California:
(1) to a Service Provider who, at the time the
Nonstatutory Stock Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of grant.
(2) granted to any other Service Provider the per
Share exercise price shall be no less than 85% of the Fair Market Value per
Share on the date of grant.
(B) on or after the date the Common Stock is listed on
a national securities exchange or a national market system which qualifies under
Section 25100(o) of the Corporations Code of California to any Service Provider,
the per Share exercise price shall be determined by the Administrator. In the
case of a Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised; provided, however, that prior to the date the Common
Stock is listed on a national securities exchange or a national market system
which qualifies under Section 25100(o) of the Corporations Code of California,
except in the case of Options granted to Officers, Directors, and Consultants,
Options shall become exercisable at a rate of no less than 20% per year over
five (5) years from the date the Options are granted.
(c) FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
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(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted to Officers and Directors hereunder shall be tolled
during any unpaid leave of absence. An Option may not be exercised for a
fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
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Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence
of a specified time in the Option Agreement, the Option shall remain exercisable
for thirty (30) days following the Optionee's termination. Prior to the date
the Common Stock is listed on a national securities exchange or a national
market system which qualifies under Section 25100(o) of the Corporations Code of
California, such Option must remain exercisable for a period of at least thirty
(30) days after the Optionee ceases to be a Service Provider. If, on the date
of termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. Prior to the date the Common Stock is listed on a national
securities exchange or a national market system which qualifies under Section
25100(o) of the Corporations Code of California, such Option must remain
exercisable for a period of at least six (6) months after the Optionee ceases to
be a Service Provider due to Optionee's disability. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is
specified in the Option Agreement (but in no event later than the expiration
of the term of such Option as set forth in the Notice of Grant), by the
Optionee's estate or by a person who acquires the right to exercise the
Option by bequest or inheritance, but only to the extent that the Option is
vested on the date of death. In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's termination. Prior to the date the Common Stock is
listed on a national securities exchange or a national market system which
qualifies under Section 25100(o) of the Corporations Code of California, such
Option must remain exercisable for a period of at least six (6) months after
the Optionee ceases to be a Service Provider. If, at the time of death, the
Optionee is not vested as to
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his or her entire Option, the Shares covered by the unvested portion of the
Option shall immediately revert to the Plan. The Option may be exercised by
the executor or administrator of the Optionee's estate or, if none, by the
person(s) entitled to exercise the Option under the Optionee's will or the
laws of descent or distribution. If the Option is not so exercised within
the time specified herein, the Option shall terminate, and the Shares covered
by such Option shall revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator. Prior to the date the Common Stock is listed
on a national securities exchange or a national market system which qualifies
under Section 25100(o) of the Corporations Code of California, the terms of the
offer of Stock Purchase Rights under the Plan shall comply in all respects with
Section 260.140.42 of Title 10 of the California Code of Regulations.
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator; provided, however, that prior to the date the Common Stock is
listed on a national securities exchange or a national market system which
qualifies under Section 25100(o) of the Corporations Code of California, that
except with respect to Shares purchased by Officers, Directors and Consultants,
the repurchase option shall in no case lapse at a rate of less than 20% per year
over five (5) years from the date of purchase.
(c) OTHER PROVISIONS. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company.
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No adjustment will be made for a dividend or other right for which the record
date is prior to the date the Stock Purchase Right is exercised, except as
provided in Section 13 of the Plan.
12. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
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 of Common Stock subject to an Option or Stock
Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
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<PAGE>
(c) MERGER OR ASSET SALE. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the
event that the successor corporation refuses to assume or substitute for the
Option or Stock Purchase Right, the Optionee shall fully vest in and have the
right to exercise the Option or Stock Purchase Right as to all of the Optioned
Stock, including Shares as to which it would not otherwise be vested or
exercisable. If an Option or Stock Purchase Right becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee in writing or
electronically that the Option or Stock Purchase Right shall be fully vested and
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option or Stock Purchase Right shall terminate upon the expiration of such
period. For the purposes of this paragraph, the Option or Stock Purchase Right
shall be considered assumed if, following the merger or sale of assets, the
option or right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger or sale of assets, the consideration (whether stock, cash, or
other securities or property) received in the merger or sale of assets by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
14. DATE OF GRANT. The date of grant of an Option or Stock Purchase Right
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the
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<PAGE>
Optionee and the Company. Termination of the Plan shall not affect the
Administrator's ability to exercise the powers granted to it hereunder with
respect to Options granted under the Plan prior to the date of such
termination.
16. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
20. INFORMATION TO OPTIONEES AND PURCHASERS. Prior to the date the Common
Stock is listed on a national securities exchange or a national market system
which qualifies under Section 25100(o) of the Corporations Code of California,
the Company shall provide to each Optionee and to each individual who acquires
Shares pursuant to the Plan, not less frequently than annually during the period
such Optionee or purchaser has one or more Options or Stock Purchase Rights
outstanding, and, in the case of an individual who acquires Shares pursuant to
the Plan, during the period such individual owns such Shares, copies of annual
financial statements. The Company shall not be required to provide such
statements to key employees whose duties in connection with the Company assure
their access to equivalent information.
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[PUBLIC COMPANY FORM]
CATAPULT COMMUNICATIONS CORPORATION
1998 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted _________________________
Total Exercise Price $_________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
VESTING SCHEDULE:
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
12.5% of the Shares subject to the Option shall vest six months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter, subject to the Optionee continuing to be a Service
Provider on such dates.
<PAGE>
TERMINATION PERIOD:
This Option may be exercised for thirty (30) days after Optionee ceases to
be a Service Provider. Upon the death or Disability of the Optionee, this
Option may be exercised for one year after Optionee ceases to be a Service
Provider. In no event shall this Option be exercised later than the
Term/Expiration Date as provided above.
II. AGREEMENT
1. GRANT OF OPTION. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 15(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option is exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and
the applicable provisions of the Plan and this Option Agreement.
(b) METHOD OF EXERCISE. This Option is exercisable by delivery of
an exercise notice, in the form attached as Exhibit A (the "Exercise
Notice"), which shall state the election to exercise the Option, the number
of Shares in respect of which the Option is being exercised (the "Exercised
Shares"), and such other representations and agreements as may be required by
the Company pursuant to the provisions of the Plan. The Exercise Notice
shall be completed by the Optionee and delivered to [Title] of the Company.
The Exercise Notice shall be accompanied by payment of the aggregate Exercise
Price as to all Exercised Shares. This Option shall be deemed to be
exercised upon receipt by the Company of such fully executed Exercise Notice
accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
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<PAGE>
3. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash; or
(b) check; or
(c) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, AND (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares; or
(e) with the Administrator's consent, delivery of Optionee's
promissory note (the "Note") in the form attached hereto as Exhibit C, in the
amount of the aggregate Exercise Price of the Exercised Shares together with the
execution and delivery by the Optionee of the Security Agreement attached hereto
as Exhibit B. The Note shall bear interest at the "applicable federal rate"
prescribed under the Code and its regulations at time of purchase, and shall be
secured by a pledge of the Shares purchased by the Note pursuant to the Security
Agreement.
4. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The
terms of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. TERM OF OPTION. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. TAX CONSEQUENCES. Some of the federal tax consequences relating to
this Option, as of the date of this Option, are set forth below. THIS SUMMARY
IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO
CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION
OR DISPOSING OF THE SHARES.
(a) EXERCISING THE OPTION.
(i) NONSTATUTORY STOCK OPTION. The Optionee may incur regular
federal income tax liability upon exercise of a NSO. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price. If
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<PAGE>
the Optionee is an Employee or a former Employee, the Company will be
required to withhold from his or her compensation or collect from Optionee
and pay to the applicable taxing authorities an amount in cash equal to a
percentage of this compensation income at the time of exercise, and may
refuse to honor the exercise and refuse to deliver Shares if such withholding
amounts are not delivered at the time of exercise.
(ii) INCENTIVE STOCK OPTION. If this Option qualifies as an
ISO, the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise. In the event that the Optionee ceases to be an Employee but remains a
Service Provider, any Incentive Stock Option of the Optionee that remains
unexercised shall cease to qualify as an Incentive Stock Option and will be
treated for tax purposes as a Nonstatutory Stock Option on the date three (3)
months and one (1) day following such change of status.
(b) DISPOSITION OF SHARES.
(i) NSO. If the Optionee holds NSO Shares for at least one
year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one
year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
7. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the
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Company and Optionee with respect to the subject matter hereof, and may not
be modified adversely to the Optionee's interest except by means of a writing
signed by the Company and Optionee. This agreement is governed by the
internal substantive laws, but not the choice of law rules, of California.
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and
governed by the terms and conditions of the Plan and this Option Agreement.
Optionee has reviewed the Plan and this Option Agreement in their entirety,
has had an opportunity to obtain the advice of counsel prior to executing
this Option Agreement and fully understands all provisions of the Plan and
Option Agreement. Optionee hereby agrees to accept as binding, conclusive and
final all decisions or interpretations of the Administrator upon any
questions relating to the Plan and Option Agreement. Optionee further agrees
to notify the Company upon any change in the residence address indicated
below.
OPTIONEE: CATAPULT COMMUNICATIONS
CORPORATION
____________________________________ ______________________________________
Signature By
____________________________________ ______________________________________
Print Name Title
____________________________________
Residence Address
____________________________________
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CATAPULT COMMUNICATIONS CORPORATION
CONSENT OF SPOUSE
The undersigned spouse of __________, ("Optionee") has read and hereby
approves the terms and conditions of the Plan and this Option Agreement. In
consideration of the Company's granting his or her spouse the right to purchase
Shares as set forth in the Plan and this Option Agreement, the undersigned
hereby agrees to be irrevocably bound by the terms and conditions of the Plan
and this Option Agreement and further agrees that any community property
interest shall be similarly bound. The undersigned hereby appoints the
undersigned's spouse as attorney-in-fact for the undersigned with respect to any
amendment or exercise of rights under the Plan or this Option Agreement.
_______________________________________
Spouse of Optionee
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EXHIBIT A
1998 STOCK PLAN
EXERCISE NOTICE
Catapult Communications Corporation
160 South Whisman Road
Mountain View, CA 94041
Attention: [Title]
1. EXERCISE OF OPTION. Effective as of today, ________________,
199__, the undersigned ("Purchaser") hereby elects to purchase ______________
shares (the "Shares") of the Common Stock of Catapult Communications
Corporation (the "Company") under and pursuant to the 1998 Stock Plan (the
"Plan") and the Stock Option Agreement dated __________, 19___ (the "Option
Agreement"). The purchase price for the Shares shall be $___________, as
required by the Option Agreement.
2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
3. REPRESENTATIONS OF PURCHASER. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. RIGHTS AS SHAREHOLDER. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.
5. TAX CONSULTATION. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. ENTIRE AGREEMENT; GOVERNING LAW. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing
<PAGE>
signed by the Company and Purchaser. This agreement is governed by the
internal substantive laws, but not the choice of law rules, of California.
Submitted by: Accepted by:
PURCHASER: CATAPULT COMMUNICATIONS
CORPORATION:
- ---------------------------------- -------------------------------------
Signature By
- ---------------------------------- -------------------------------------
Print Name Its
ADDRESS: ADDRESS:
- --------------------------------- Catapult Communications Corporation
- --------------------------------- 160 South Whisman Road
Mountain View, CA 94041
-------------------------------------
Date Received
-2-
<PAGE>
EXHIBIT B
SECURITY AGREEMENT
This Security Agreement is made as of __________, 19___ between Catapult
Communications Corporation, a Nevada corporation ("Pledgee"), and
_________________________ ("Pledgor").
RECITALS
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated ________ (the "Option"), between Pledgor and Pledgee under
Pledgee's 1998 Stock Plan, and Pledgor's election under the terms of the Option
to pay for such shares with his promissory note (the "Note"), Pledgor has
purchased _________ shares of Pledgee's Common Stock (the "Shares") at a price
of $________ per share, for a total purchase price of $__________. The Note and
the obligations thereunder are as set forth in Exhibit C to the Option.
NOW, THEREFORE, it is agreed as follows:
1. CREATION AND DESCRIPTION OF SECURITY INTEREST. In consideration of
the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the California Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number ______, duly endorsed in blank or with executed stock powers, and
herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"),
who shall hold said certificate subject to the terms and conditions of this
Security Agreement.
The pledged stock (together with an executed blank stock assignment for use
in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option, and the
Pledgeholder shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
2. PLEDGOR'S REPRESENTATIONS AND COVENANTS. To induce Pledgee to enter
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
a. PAYMENT OF INDEBTEDNESS. Pledgor will pay the principal sum of
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
b. ENCUMBRANCES. The Shares are free of all other encumbrances,
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
<PAGE>
c. MARGIN REGULATIONS. In the event that Pledgee's Common Stock is
now or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the meaning of the regulations under Part 207 of
Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to
cooperate with Pledgee in making any amendments to the Note or providing any
additional collateral as may be necessary to comply with such regulations.
3. VOTING RIGHTS. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. STOCK ADJUSTMENTS. In the event that during the term of the pledge
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. OPTIONS AND RIGHTS. In the event that, during the term of this
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. DEFAULT. Pledgor shall be deemed to be in default of the Note and of
this Security Agreement in the event:
a. Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
b. Pledgor fails to perform any of the covenants set forth in the
Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall have
the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee
shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. RELEASE OF COLLATERAL. Subject to any applicable contrary rules under
Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by Pledgeholder hereunder upon payments of the principal of the
Note. The number of the pledged Shares which shall be
-2-
<PAGE>
released shall be that number of full Shares which bears the same proportion
to the initial number of Shares pledged hereunder as the payment of principal
bears to the initial full principal amount of the Note.
8. WITHDRAWAL OR SUBSTITUTION OF COLLATERAL. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. TERM. The within pledge of Shares shall continue until the payment of
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
a portion of the Collateral as provided in paragraph 7 above.
10. INSOLVENCY. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. PLEDGEHOLDER LIABILITY. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. INVALIDITY OF PARTICULAR PROVISIONS. Pledgor and Pledgee agree that
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. SUCCESSORS OR ASSIGNS. Pledgor and Pledgee agree that all of the
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. GOVERNING LAW. This Security Agreement shall be interpreted and
governed under the internal substantive laws, but not the choice of law rules,
of California.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"PLEDGOR" ---------------------------------
Signature
---------------------------------
Print Name
Address: ---------------------------------
---------------------------------
"PLEDGEE" CATAPULT COMMUNICATIONS CORPORATION,
a Nevada corporation
---------------------------------
Signature
---------------------------------
Print Name
---------------------------------
Title
"PLEDGEHOLDER" ---------------------------------
Secretary of
Catapult Communications Corporation
-4-
<PAGE>
EXHIBIT C
NOTE
$_______________ Mountain View, CA
______________, 19___
FOR VALUE RECEIVED, _______________ promises to pay to Catapult
Communications Corporation, a Nevada corporation (the "Company"), or order, the
principal sum of _______________________ ($_____________), together with
interest on the unpaid principal hereof from the date hereof at the rate of
_______________ percent (____%) per annum, compounded semiannually.
Principal and interest shall be due and payable on __________, 19___.
Payment of principal and interest shall be made in lawful money of the United
States of America.
The undersigned may at any time prepay all or any portion of the principal
or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of
________________. This Note is secured in part by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith and
is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this Note
in the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
---------------------------------
Signature
---------------------------------
Print Name
<PAGE>
CATAPULT COMMUNICATIONS CORPORATION
1998 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Notice of Grant.
[Grantee's Name and Address]
You have been granted the right to purchase Common Stock of the Company,
subject to the Company's Repurchase Option and your ongoing status as a Service
Provider (as described in the Plan and the attached Restricted Stock Purchase
Agreement), as follows:
Grant Number
-------------------------
Date of Grant
-------------------------
Price Per Share $
------------------------
Total Number of Shares Subject
to This Stock Purchase Right -------------------------
Expiration Date:
-------------------------
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE OR
IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES. By
your signature and the signature of the Company's representative below, you and
the Company agree that this Stock Purchase Right is granted under and governed
by the terms and conditions of the 1998 Stock Plan and the Restricted Stock
Purchase Agreement, attached hereto as Exhibit A-1, both of which are made a
part of this document. You further agree to execute the attached Restricted
Stock Purchase Agreement as a condition to purchasing any shares under this
Stock Purchase Right.
GRANTEE: CATAPULT COMMUNICATIONS CORPORATION
- --------------------------- -----------------------------------
Signature By
___________________________ ________________________________
Print Name Title
<PAGE>
EXHIBIT A-1
CATAPULT COMMUNICATIONS CORPORATION
1998 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is
an Service Provider, and the Purchaser's continued participation is
considered by the Company to be important for the Company's continued growth;
and
WHEREAS in order to give the Purchaser an opportunity to acquire an
equity interest in the Company as an incentive for the Purchaser to
participate in the affairs of the Company, the Administrator has granted to
the Purchaser a Stock Purchase Right subject to the terms and conditions of
the Plan and the Notice of Grant, which are incorporated herein by reference,
and pursuant to this Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. SALE OF STOCK. The Company hereby agrees to sell to the Purchaser
and the Purchaser hereby agrees to purchase shares of the Company's Common
Stock (the "Shares"), at the per Share purchase price and as otherwise
described in the Notice of Grant.
2. PAYMENT OF PURCHASE PRICE. The purchase price for the Shares may
be paid by delivery to the Company at the time of execution of this Agreement
of cash, a check, or some combination thereof.
3. REPURCHASE OPTION.
(a) In the event the Purchaser ceases to be a Service Provider for
any or no reason (including death or disability) before all of the Shares are
released from the Company's Repurchase Option (see Section 4), the Company
shall, upon the date of such termination (as reasonably fixed and determined
by the Company) have an irrevocable, exclusive option (the "Repurchase
Option") for a period of sixty (60) days from such date to repurchase up to
that number of shares which constitute the Unreleased Shares (as defined in
Section 4) at the original purchase price per share (the "Repurchase Price").
The Repurchase Option shall be exercised by the Company by delivering
written notice to the Purchaser or the Purchaser's executor (with a copy to
the Escrow Holder) AND, at the Company's option, (i) by delivering to the
Purchaser or the Purchaser's executor a check in the amount of the aggregate
Repurchase Price, or (ii) by canceling an amount of the Purchaser's
indebtedness to the Company equal to the aggregate Repurchase Price, or (iii)
by a combination of (i) and (ii) so that the combined payment and
cancellation of indebtedness equals the aggregate Repurchase Price. Upon
delivery of such notice and the payment of the aggregate Repurchase Price,
<PAGE>
the Company shall become the legal and beneficial owner of the Shares being
repurchased and all rights and interests therein or relating thereto, and the
Company shall have the right to retain and transfer to its own name the
number of Shares being repurchased by the Company.
(b) Whenever the Company shall have the right to repurchase Shares
hereunder, the Company may designate and assign one or more employees,
officers, directors or shareholders of the Company or other persons or
organizations to exercise all or a part of the Company's purchase rights
under this Agreement and purchase all or a part of such Shares. If the Fair
Market Value of the Shares to be repurchased on the date of such designation
or assignment (the "Repurchase FMV") exceeds the aggregate Repurchase Price
of such Shares, then each such designee or assignee shall pay the Company
cash equal to the difference between the Repurchase FMV and the aggregate
Repurchase Price of such Shares.
4. RELEASE OF SHARES FROM REPURCHASE OPTION.
(a) _______________________ percent (______%) of the Shares shall
be released from the Company's Repurchase Option [ONE YEAR] after the
Date of Grant and __________________ percent (______%) of the Shares
[AT THE END OF EACH MONTH THEREAFTER], provided that the Purchaser does not
cease to be a Service Provider prior to the date of any such release.
(b) Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase Option
shall be delivered to the Purchaser at the Purchaser's request (see Section
6).
5. RESTRICTION ON TRANSFER. Except for the escrow described in
Section 6 or the transfer of the Shares to the Company or its assignees
contemplated by this Agreement, none of the Shares or any beneficial interest
therein shall be transferred, encumbered or otherwise disposed of in any way
until such Shares are released from the Company's Repurchase Option in
accordance with the provisions of this Agreement, other than by will or the
laws of descent and distribution.
6. ESCROW OF SHARES.
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Unreleased Shares, together with the
stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Purchaser
attached hereto as Exhibit A-3, until such time as the Company's Repurchase
Option expires. As a further condition to the Company's obligations under
this
-2-
<PAGE>
Agreement, the Company may require the spouse of Purchaser, if any, to
execute and deliver to the Company the Consent of Spouse attached hereto as
Exhibit A-4.
(b) The Escrow Holder shall not be liable for any act it may do or
omit to do with respect to holding the Unreleased Shares in escrow while
acting in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase Option
hereunder, the Escrow Holder, upon receipt of written notice of such exercise
from the proposed transferee, shall take all steps necessary to accomplish
such transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate
to be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all the
rights of a shareholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during
the term of the Repurchase Option, there is (i) any stock dividend, stock
split or other change in the Shares, or (ii) any merger or sale of all or
substantially all of the assets or other acquisition of the Company, any and
all new, substituted or additional securities to which the Purchaser is
entitled by reason of the Purchaser's ownership of the Shares shall be
immediately subject to this escrow, deposited with the Escrow Holder and
included thereafter as "Shares" for purposes of this Agreement and the
Repurchase Option.
7. LEGENDS. The share certificate evidencing the Shares, if any,
issued hereunder shall be endorsed with the following legend (in addition to
any legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN
AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE
WITH THE SECRETARY OF THE COMPANY.
8. ADJUSTMENT FOR STOCK SPLIT. All references to the number of Shares
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
9. TAX CONSEQUENCES. The Purchaser has reviewed with the Purchaser's
own tax advisors the federal, state, local and foreign tax consequences of
this investment and the transactions contemplated by this Agreement. The
Purchaser is relying solely on such advisors and not on any
-3-
<PAGE>
statements or representations of the Company or any of its agents. The
Purchaser understands that the Purchaser (and not the Company) shall be
responsible for the Purchaser's own tax liability that may arise as a result
of the transactions contemplated by this Agreement. The Purchaser
understands that Section 83 of the Internal Revenue Code of 1986, as amended
(the "Code"), taxes as ordinary income the difference between the purchase
price for the Shares and the Fair Market Value of the Shares as of the date
any restrictions on the Shares lapse. In this context, "restriction"
includes the right of the Company to buy back the Shares pursuant to the
Repurchase Option. The Purchaser understands that the Purchaser may elect to
be taxed at the time the Shares are purchased rather than when and as the
Repurchase Option expires by filing an election under Section 83(b) of the
Code with the IRS within 30 days from the date of purchase. The form for
making this election is attached as Exhibit A-5 hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER
SECTION 83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS
REPRESENTATIVES TO MAKE THIS FILING ON THE PURCHASER'S BEHALF.
10. GENERAL PROVISIONS.
(a) This Agreement shall be governed by the internal substantive
laws, but not the choice of law rules of California. This Agreement, subject
to the terms and conditions of the Plan and the Notice of Grant, represents
the entire agreement between the parties with respect to the purchase of the
Shares by the Purchaser. Subject to Section 15(c) of the Plan, in the event
of a conflict between the terms and conditions of the Plan and the terms and
conditions of this Agreement, the terms and conditions of the Plan shall
prevail. Unless otherwise defined herein, the terms defined in the Plan
shall have the same defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be
given by either the Company or the Purchaser pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid,
and addressed to the parties at the addresses of the parties set forth at the
end of this Agreement or such other address as a party may request by
notifying the other in writing.
Any notice to the Escrow Holder shall be sent to the Company's
address with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the
Purchaser under this Agreement may only be assigned with the prior written
consent of the Company.
-4-
<PAGE>
(d) Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such
provision, nor prevent that party from thereafter enforcing any other
provision of this Agreement. The rights granted both parties hereunder are
cumulative and shall not constitute a waiver of either party's right to
assert any other legal remedy available to it.
(e) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A
SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING
HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND
AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE
VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED
PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD,
FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR
THE COMPANY'S RIGHT TO TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE
PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Agreement
and fully understands all provisions of this Agreement. Purchaser agrees to
accept as binding, conclusive and final all decisions or interpretations of
the Administrator upon any questions arising under the Plan or this
Agreement. Purchaser further agrees to notify the Company upon any change in
the residence indicated in the Notice of Grant.
DATED:
-----------------------
PURCHASER: CATAPULT COMMUNICATIONS
CORPORATION:
- ------------------------------ ----------------------------------
Signature By
- ------------------------------ ----------------------------------
Print Name Title
-5-
<PAGE>
EXHIBIT A-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign
and transfer unto _________________________________________________________
(__________) shares of the Common Stock of Catapult Communications
Corporation standing in my name of the books of said corporation represented
by Certificate No. _____ herewith and do hereby irrevocably constitute and
appoint ____________________________________________ to transfer the said
stock on the books of the within named corporation with full power of
substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement (the "Agreement") between________________________
and the undersigned dated ______________, 19__.
Dated: , 19
---------------- --
Signature:
------------------------------
INSTRUCTIONS: Please do not fill in any blanks other than the signature
line. The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring
additional signatures on the part of the Purchaser.
<PAGE>
EXHIBIT A-3
JOINT ESCROW INSTRUCTIONS
_____, 19__
Corporate Secretary
Catapult Communications Corporation
160 South Whisman Road
Mountain View, CA 94041
Dear _______________:
As Escrow Agent for both Catapult Communications Corporation, a Nevada
corporation (the "Company"), and the undersigned purchaser of stock of the
Company (the "Purchaser"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Restricted
Stock Purchase Agreement ("Agreement") between the Company and the
undersigned, in accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company
(referred to collectively as the "Company") exercises the Company's
Repurchase Option set forth in the Agreement, the Company shall give to
Purchaser and you a written notice specifying the number of shares of stock
to be purchased, the purchase price, and the time for a closing hereunder at
the principal office of the Company. Purchaser and the Company hereby
irrevocably authorize and direct you to close the transaction contemplated by
such notice in accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you
any certificates evidencing shares of stock to be held by you hereunder and
any additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with
respect to such securities all documents necessary or appropriate to make
such securities negotiable and to complete any transaction herein
contemplated, including but not limited to the filing with any applicable
state blue sky authority of any required applications for consent to, or
notice of transfer of, the securities. Subject to the provisions of this
paragraph 3, Purchaser shall exercise all rights and privileges of a
shareholder of the Company while the stock is held by you.
<PAGE>
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within 90 days after Purchaser ceases to be a Service Provider, you shall
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased
by the Company or its assignees pursuant to exercise of the Company's
Repurchase Option.
5. If at the time of termination of this escrow you should have in
your possession any documents, securities, or other property belonging to
Purchaser, you shall deliver all of the same to Purchaser and shall be
discharged of all further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed by
you to be genuine and to have been signed or presented by the proper party or
parties. You shall not be personally liable for any act you may do or omit to
do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while
acting in good faith, and any act done or omitted by you pursuant to the
advice of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are
hereby expressly authorized to comply with and obey orders, judgments or
decrees of any court. In case you obey or comply with any such order,
judgment or decree, you shall not be liable to any of the parties hereto or
to any other person, firm or corporation by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently
reversed, modified, annulled, set aside, vacated or found to have been
entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or
called for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with
your obligations hereunder, may rely upon the advice of such counsel, and may
pay such counsel reasonable compensation therefor.
-2-
<PAGE>
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be an officer or agent of the Company or if you shall
resign by written notice to each party. In the event of any such
termination, the Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such
instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain
in your possession without liability to anyone all or any part of said
securities until such disputes shall have been settled either by mutual
written agreement of the parties concerned or by a final order, decree or
judgment of a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but you shall be under no duty
whatsoever to institute or defend any such proceedings.
15. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail
with postage and fees prepaid, addressed to each of the other parties
thereunto entitled at the following addresses or at such other addresses as a
party may designate by ten days' advance written notice to each of the other
parties hereto.
COMPANY: Catapult Communications Corporation
160 South Whisman Road
Mountain View, CA 94041
PURCHASER:
-----------------------------------
-----------------------------------
-----------------------------------
ESCROW AGENT: Corporate Secretary
Catapult Communications Corporation
160 South Whisman Road
Mountain View, CA 94041
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not
become a party to the Agreement.
-3-
<PAGE>
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the internal substantive laws, but not the
choice of law rules, of California.
Very truly yours,
CATAPULT COMMUNICATIONS CORPORATION
-------------------------------------
By
-------------------------------------
Title
PURCHASER:
-------------------------------------
Signature
-------------------------------------
Print Name
ESCROW AGENT:
- ---------------------------------------
Corporate Secretary
-4-
<PAGE>
EXHIBIT A-4
CONSENT OF SPOUSE
I, ____________________, spouse of ___________________, have read and
approve the foregoing Restricted Stock Purchase Agreement (the "Agreement").
In consideration of the Company's grant to my spouse of the right to purchase
shares of Catapult Communications Corporation, as set forth in the Agreement,
I hereby appoint my spouse as my attorney-in-fact in respect to the exercise
of any rights under the Agreement and agree to be bound by the provisions of
the Agreement insofar as I may have any rights in said Agreement or any
shares issued pursuant thereto under the community property laws or similar
laws relating to marital property in effect in the state of our residence as
of the date of the signing of the foregoing Agreement.
Dated: , 19
---------------- --
-------------------------------------
Signature of Spouse
<PAGE>
EXHIBIT A-5
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross
income for the current taxable year the amount of any compensation taxable to
taxpayer in connection with his or her receipt of the property described
below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: _________ shares (the "Shares") of the Common Stock of Catapult
Communications Corporation (the "Company").
3. The date on which the property was transferred is: ___________, 19__.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon certain
events. This right lapses with regard to a portion of the Shares based on
the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is:
$_______________.
6. The amount (if any) paid for such property is:
$_______________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
THE UNDERSIGNED UNDERSTANDS THAT THE FOREGOING ELECTION MAY NOT BE REVOKED
EXCEPT WITH THE CONSENT OF THE COMMISSIONER.
Dated: ___________________, 19______________________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, 19______________________________________________
Spouse of Taxpayer
<PAGE>
[PRIVATE COMPANY FORM]
CATAPULT COMMUNICATIONS CORPORATION
1998 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the 1998 Stock Plan
shall have the same defined meanings in this Stock Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[OPTIONEE'S NAME AND ADDRESS]
The undersigned Optionee has been granted an Option to purchase Common
Stock of the Company, subject to the terms and conditions of the Plan and this
Option Agreement, as follows:
Grant Number
-------------------------
Date of Grant
-------------------------
Vesting Commencement Date
-------------------------
Exercise Price per Share $
-------------------------
Total Number of Shares Granted
-------------------------
Total Exercise Price $
-------------------------
Type of Option: Incentive Stock Option
---
Nonstatutory Stock Option
---
Term/Expiration Date:
-------------------------
VESTING SCHEDULE:
This Option shall be exercisable, in whole or in part, according to the
following vesting schedule:
<PAGE>
12.5% of the Shares subject to the Option shall vest six months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter, subject to Optionee's continuing to be a Service
Provider on such dates.
TERMINATION PERIOD:
This Option shall be exercisable for thirty (30) days after Optionee ceases
to be a Service Provider. Upon Optionee's death or Disability, this Option may
be exercised for one year after Optionee ceases to be a Service Provider. In no
event may Optionee exercise this Option after the Term/Expiration Date as
provided above.
II. AGREEMENT
1. GRANT OF OPTION. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the number of Shares set forth in the Notice of Grant, at
the exercise price per Share set forth in the Notice of Grant (the "Exercise
Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to Section 15(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and this Option
Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an Incentive Stock Option as defined in
Section 422 of the Code. Nevertheless, to the extent that it exceeds the
$100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option shall be exercisable during its
term in accordance with the Vesting Schedule set out in the Notice of Grant and
with the applicable provisions of the Plan and this Option Agreement.
(b) METHOD OF EXERCISE. This Option shall be exercisable by
delivery of an exercise notice in the form attached as EXHIBIT A (the
"Exercise Notice") which shall state the election to exercise the Option, the
number of Shares with respect to which the Option is being exercised, and
such other representations and agreements as may be required by the Company.
The Exercise Notice shall be accompanied by payment of the aggregate Exercise
Price as to all Exercised Shares. This Option shall be deemed to be
exercised upon receipt by the Company of such fully executed Exercise Notice
accompanied by the aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option
unless such issuance and such exercise complies with Applicable Laws.
Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
-2-
<PAGE>
3. OPTIONEE'S REPRESENTATIONS. In the event the Shares have not been
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if required by the Company, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his or
her Investment Representation Statement in the form attached hereto as
EXHIBIT B.
4. LOCK-UP PERIOD. Optionee hereby agrees that, if so requested by the
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
5. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash or check;
(b) consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan; or
(c) surrender of other Shares which, (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
(d) with the Administrator's consent, delivery of Optionee's
promissory note (the "Note") in the form attached hereto as Exhibit D, in the
amount of the aggregate Exercise Price of the Exercised Shares together with the
execution and delivery by the Optionee of the Security Agreement attached hereto
as Exhibit C. The Note shall bear interest at the "applicable federal rate"
prescribed under the Code and its regulations at time of purchase, and shall be
secured by a pledge of the Shares purchased by the Note pursuant to the Security
Agreement.
6. RESTRICTIONS ON EXERCISE. This Option may not be exercised until such
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.
7. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the
-3-
<PAGE>
lifetime of Optionee only by Optionee. The terms of the Plan and this Option
Agreement shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
8. TERM OF OPTION. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
9. TAX CONSEQUENCES. Set forth below is a brief summary as of the date
of this Option of some of the federal tax consequences of exercise of this
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD
CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) EXERCISE OF NSO. There may be a regular federal income tax
liability upon the exercise of an NSO. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price. If Optionee is an Employee or a former Employee, the
Company will be required to withhold from Optionee's compensation or collect
from Optionee and pay to the applicable taxing authorities an amount in cash
equal to a percentage of this compensation income at the time of exercise, and
may refuse to honor the exercise and refuse to deliver Shares if such
withholding amounts are not delivered at the time of exercise.
(b) EXERCISE OF ISO. If this Option qualifies as an ISO, there will
be no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
(c) DISPOSITION OF SHARES. In the case of an NSO, if Shares are held
for at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and of at least two years after the Date of Grant, any
gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal income tax purposes. If Shares purchased under an ISO
are disposed of within one year after exercise or two years after the Date of
Grant, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the difference
between the Exercise Price and the lesser of (1) the Fair Market Value of the
Shares on the date of exercise, or (2) the sale price of the Shares. Any
additional gain will be taxed as capital gain, short-term or long-term depending
on the period that the ISO Shares were held.
(d) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the Option
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in
-4-
<PAGE>
writing of such disposition. Optionee agrees that Optionee may be subject to
income tax withholding by the Company on the compensation income recognized
by the Optionee.
10. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws but not
the choice of law rules of California.
11. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
OPTIONEE CATAPULT COMMUNICATIONS CORPORATION
- ------------------------ -------------------------------
Signature By
- ------------------------ ---------------------------------
Print Name Title
- -------------------------
- -------------------------
Residence Address
-5-
<PAGE>
EXHIBIT A
1998 STOCK PLAN
EXERCISE NOTICE
Catapult Communications Corporation
160 South Whisman Road
Mountain View, CA 94041
Attention: [TITLE]
1. EXERCISE OF OPTION. Effective as of today, ___________, 19__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of Catapult Communications
Corporation (the "Company") under and pursuant to the 1998 Stock Plan (the
"Plan") and the Stock Option Agreement dated ________, 19___ (the "Option
Agreement").
2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the
full purchase price of the Shares, as set forth in the Option Agreement.
3. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. RIGHTS AS SHAREHOLDER. Until the issuance of the Shares (as evidenced
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Shares shall be issued to the
Optionee as soon as practicable after the Option is exercised. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in Section 13 of the Plan.
5. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Shares held by Optionee
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii)
the name of each proposed purchaser or other transferee ("Proposed
Transferee"); (iii) the number of Shares to be transferred to each Proposed
Transferee; and (iv) the bona fide cash price or other consideration for
which the Holder proposes to transfer the Shares (the "Offered Price"), and
the Holder shall offer the Shares at the Offered Price to the Company or its
assignee(s).
<PAGE>
(b) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty
(30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not
less than all, of the Shares proposed to be transferred to any one or more of
the Proposed Transferees, at the purchase price determined in accordance with
subsection (c) below.
(c) PURCHASE PRICE. The purchase price ("Purchase Price") for the
Shares purchased by the Company or its assignee(s) under this Section shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(d) PAYMENT. Payment of the Purchase Price shall be made, at the
option of the Company or its assignee(s), in cash (by check), by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the
Company (or, in the case of repurchase by an assignee, to the assignee), or
by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(e) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in
the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section, then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee
at the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 120 days after the date of the Notice, that
any such sale or other transfer is effected in accordance with any applicable
securities laws and that the Proposed Transferee agrees in writing that the
provisions of this Section shall continue to apply to the Shares in the hands
of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, a new Notice shall
be given to the Company, and the Company and/or its assignees shall again be
offered the Right of First Refusal before any Shares held by the Holder may
be sold or otherwise transferred.
(f) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the
contrary contained in this Section notwithstanding, the transfer of any or
all of the Shares during the Optionee's lifetime or on the Optionee's death
by will or intestacy to the Optionee's immediate family or a trust for the
benefit of the Optionee's immediate family shall be exempt from the
provisions of this Section. "Immediate Family" as used herein shall mean
spouse, lineal descendant or antecedent, father, mother, brother or sister.
In such case, the transferee or other recipient shall receive and hold the
Shares so transferred subject to the provisions of this Section, and there
shall be no further transfer of such Shares except in accordance with the
terms of this Section.
(g) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First
Refusal shall terminate as to any Shares upon the first sale of Common Stock
of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended.
-2-
<PAGE>
6. TAX CONSULTATION. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
7. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. Optionee understands and agrees that the Company
shall cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the
Shares together with any other legends that may be required by the Company or
by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR,
IN THE OPINION OF COMPANY COUNSEL SATISFACTORY TO THE ISSUER
OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST
REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH
IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL
HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT
THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.
(b) STOP-TRANSFER NOTICES. Optionee agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Exercise Notice or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
8. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Exercise Notice to single or multiple assignees, and this Exercise
Notice shall inure to the benefit of the successors and assigns of the Company.
Subject to the restrictions on transfer herein set forth,
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<PAGE>
this Exercise Notice shall be binding upon Optionee and his or her heirs,
executors, administrators, successors and assigns.
9. INTERPRETATION. Any dispute regarding the interpretation of this
Exercise Notice shall be submitted by Optionee or by the Company forthwith to
the Administrator which shall review such dispute at its next regular meeting.
The resolution of such a dispute by the Administrator shall be final and binding
on all parties.
10. GOVERNING LAW; SEVERABILITY. This Exercise Notice is governed by the
internal substantive laws but not the choice of law rules, of California.
11. ENTIRE AGREEMENT. The Plan and Option Agreement are incorporated
herein by reference. This Exercise Notice, the Plan, the Option Agreement
and the Investment Representation Statement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in
their entirety all prior undertakings and agreements of the Company and
Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee's interest except by means of a writing signed by
the Company and Optionee.
Submitted by: Accepted by:
OPTIONEE CATAPULT COMMUNICATIONS CORPORATION
- --------------------------- ------------------------------------
Signature By
- --------------------------- -------------------------------------
Print Name Title
ADDRESS: ADDRESS:
- --------------------------- 160 South Whisman Road
- --------------------------- Mountain View, CA 94041
---------------------------
Date Received
-4-
<PAGE>
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE:
COMPANY: CATAPULT COMMUNICATIONS CORPORATION
SECURITY: COMMON STOCK
AMOUNT:
DATE:
In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, and any other legend
required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and
Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the Optionee,
the exercise will be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or
such longer period as any market stand-off agreement may require) the Securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of
the conditions specified by Rule 144, including: (1) the resale being made
through a broker in an unsolicited "broker's transaction" or in
<PAGE>
transactions directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the
availability of certain public information about the Company, (3) the amount
of Securities being sold during any three month period not exceeding the
limitations specified in Rule 144(e), and (4) the timely filing of a Form
144, if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Option, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires the
resale to occur not less than one year after the later of the date the
Securities were sold by the Company or the date the Securities were sold by an
affiliate of the Company, within the meaning of Rule 144; and, in the case of
acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than two years, the satisfaction of the
conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that
any such other registration exemption will be available in such event.
Signature of Optionee:
----------------------------------------------
Date: , 19
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<PAGE>
EXHIBIT C
SECURITY AGREEMENT
This Security Agreement is made as of __________, 19___ between
Catapult Communications Corporation, a Nevada corporation ("Pledgee"), and
_________________________ ("Pledgor").
RECITALS
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated ________ (the "Option"), between Pledgor and Pledgee under
Pledgee's 1998 Stock Plan, and Pledgor's election under the terms of the Option
to pay for such shares with his promissory note (the "Note"), Pledgor has
purchased _________ shares of Pledgee's Common Stock (the "Shares") at a price
of $________ per share, for a total purchase price of $__________. The Note and
the obligations thereunder are as set forth in Exhibit D to the Option.
NOW, THEREFORE, it is agreed as follows:
1. CREATION AND DESCRIPTION OF SECURITY INTEREST. In consideration
of the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the California Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number ______, duly endorsed in blank or with executed stock powers, and
herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"),
who shall hold said certificate subject to the terms and conditions of this
Security Agreement.
The pledged stock (together with an executed blank stock assignment
for use in transferring all or a portion of the Shares to Pledgee if, as and
when required pursuant to this Security Agreement) shall be held by the
Pledgeholder as security for the repayment of the Note, and any extensions or
renewals thereof, to be executed by Pledgor pursuant to the terms of the Option,
and the Pledgeholder shall not encumber or dispose of such Shares except in
accordance with the provisions of this Security Agreement.
2. PLEDGOR'S REPRESENTATIONS AND COVENANTS. To induce Pledgee to
enter into this Security Agreement, Pledgor represents and covenants to Pledgee,
its successors and assigns, as follows:
(a) PAYMENT OF INDEBTEDNESS. Pledgor will pay the principal sum
of the Note secured hereby, together with interest thereon, at the time and in
the manner provided in the Note.
(b) ENCUMBRANCES. The Shares are free of all other
encumbrances, defenses and liens, and Pledgor will not further encumber the
Shares without the prior written consent of Pledgee.
(c) MARGIN REGULATIONS. In the event that Pledgee's Common
Stock is now or later becomes margin-listed by the Federal Reserve Board and
Pledgee is classified as a "lender" within the meaning of the regulations under
Part 207 of Title 12 of the Code of Federal Regulations
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<PAGE>
("Regulation G"), Pledgor agrees to cooperate with Pledgee in making any
amendments to the Note or providing any additional collateral as may be
necessary to comply with such regulations.
3. VOTING RIGHTS. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. STOCK ADJUSTMENTS. In the event that during the term of the
pledge any stock dividend, reclassification, readjustment or other changes are
declared or made in the capital structure of Pledgee, all new, substituted and
additional shares or other securities issued by reason of any such change shall
be delivered to and held by the Pledgee under the terms of this Security
Agreement in the same manner as the Shares originally pledged hereunder. In the
event of substitution of such securities, Pledgor, Pledgee and Pledgeholder
shall cooperate and execute such documents as are reasonable so as to provide
for the substitution of such Collateral and, upon such substitution, references
to "Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. OPTIONS AND RIGHTS. In the event that, during the term of this
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. DEFAULT. Pledgor shall be deemed to be in default of the Note
and of this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be
delinquent for a period of 10 days or more; or
(b) Pledgor fails to perform any of the covenants set forth in
the Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. RELEASE OF COLLATERAL. Subject to any applicable contrary rules
under Regulation G, there shall be released from this pledge a portion of the
pledged Shares held by Pledgeholder hereunder upon payments of the principal of
the Note. The number of the pledged Shares which shall be released shall be
that number of full Shares which bears the same proportion to the initial number
of Shares pledged hereunder as the payment of principal bears to the initial
full principal amount of the Note.
8. WITHDRAWAL OR SUBSTITUTION OF COLLATERAL. Pledgor shall not
sell, withdraw, pledge, substitute or otherwise dispose of all or any part of
the Collateral without the prior written consent of Pledgee.
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<PAGE>
9. TERM. The within pledge of Shares shall continue until the
payment of all indebtedness secured hereby, at which time the remaining pledged
stock shall be promptly delivered to Pledgor, subject to the provisions for
prior release of a portion of the Collateral as provided in paragraph 7 above.
10. INSOLVENCY. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. PLEDGEHOLDER LIABILITY. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. INVALIDITY OF PARTICULAR PROVISIONS. Pledgor and Pledgee agree
that the enforceability or invalidity of any provision or provisions of this
Security Agreement shall not render any other provision or provisions herein
contained unenforceable or invalid.
13. SUCCESSORS OR ASSIGNS. Pledgor and Pledgee agree that all of the
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. GOVERNING LAW. This Security Agreement shall be interpreted and
governed under the internal substantive laws, but not the choice of law rules,
of California.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"PLEDGOR"
----------------------------------
Signature
----------------------------------
Print Name
----------------------------------
----------------------------------
"PLEDGEE" CATAPULT COMMUNICATIONS CORPORATION,
a Nevada corporation
----------------------------------
Signature
----------------------------------
Print Name
----------------------------------
Title
"PLEDGEHOLDER"
----------------------------------
Secretary of
Catapult Communications Corporation
-6-
<PAGE>
EXHIBIT D
NOTE
$_______________ Mountain View, CA
______________, 19___
FOR VALUE RECEIVED, _______________ promises to pay to Catapult
Communications Corporation, a Nevada corporation (the "Company"), or order, the
principal sum of _______________________ ($_____________), together with
interest on the unpaid principal hereof from the date hereof at the rate of
_______________ percent (____%) per annum, compounded semiannually.
Principal and interest shall be due and payable on __________, 19___.
Payment of principal and interest shall be made in lawful money of the United
States of America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of
________________. This Note is secured in part by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith and
is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the
undersigned, and shall not be required to proceed against the collateral
securing this Note in the event of default.
In the event the undersigned shall cease to be an employee, director
or consultant of the Company for any reason, this Note shall, at the option of
the Company, be accelerated, and the whole unpaid balance on this Note of
principal and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
----------------------------------
Signature
----------------------------------
Print Name
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<PAGE>
Exhibit 10.6
CATAPULT COMMUNICATIONS CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1998 Employee Stock Purchase
Plan of Catapult Communications Corporation.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "employee stock purchase
plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. DEFINITIONS.
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" shall mean the common stock of the Company.
(d) "COMPANY" shall mean Catapult Communications Corporation, and any
Designated Subsidiary of the Company.
(e) "COMPENSATION" shall mean all base straight time gross earnings,
exclusive of payments for overtime, commission, shift premium, incentive
compensation, incentive payments, bonuses and other compensation.
(f) "DESIGNATED SUBSIDIARY" shall mean any Subsidiary which has been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "EMPLOYEE" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is at least
thirty (30) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "ENROLLMENT DATE" shall mean the first Trading Day of each
Offering Period.
(i) "EXERCISE DATE" shall mean the last Trading Day of each Offering
Period.
(j) "FAIR MARKET VALUE" shall mean, as of any date, the value of
Common Stock determined as follows:
<PAGE>
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on the date of such determination, as reported in
THE WALL STREET JOURNAL or such other source as the Board deems reliable, or;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(k) "OFFERING PERIOD" shall mean a period of approximately six (6)
months during which an option granted pursuant to the Plan may be exercised,
commencing on the first Trading Day on or after May 1 and terminating on the
last Trading Day in the period ending the following October 31, or commencing on
the first Trading Day on or after November 1 and terminating on the last Trading
Day in the period ending the following April 30; provided, however, that the
first Offering Period under the Plan shall commence with the first Trading Day
on or after the 91st day after the date on which the Securities and Exchange
Commission declares the Company's Registration Statement effective and ending on
the last Trading Day on or before April 30, 1999. The duration of Offering
Periods may be changed pursuant to Section 4 of this Plan.
(l) "PLAN" shall mean this 1998 Employee Stock Purchase Plan.
(m) "PURCHASE PRICE" shall mean an amount equal to 85% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower; provided, however, that the Purchase Price
may be adjusted by the Board pursuant to Section 20.
(n) "RESERVES" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(o) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(p) "TRADING DAY" shall mean a day on which national stock exchanges
and the Nasdaq System are open for trading.
2
<PAGE>
3. ELIGIBILITY.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive
six-month Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after
the 91st day after the date on which the Securities and Exchange Commission
declares the Company's Registration Statement effective and ending on the
last Trading Day on or before April 30, 1999. The Board shall have the power
to change the duration of Offering Periods (including the commencement dates
thereof) with respect to future offerings without stockholder approval if
such change is announced at least five (5) days prior to the scheduled
beginning of the first Offering Period to be affected thereafter.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not
3
<PAGE>
exceeding seven percent (7%) of the Compensation which he or she receives on
each pay day during the Offering Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during an
Offering Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. GRANT OF OPTION. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Offering Period more than 200
shares (subject to any adjustment pursuant to Section 19), and provided further
that such purchase shall be subject to the limitations set forth in
Sections 3(b) and 12 hereof. Exercise of the option shall occur as provided in
Section 8 hereof, unless the participant has withdrawn pursuant to Section 10
hereof. The Option shall expire on the last day of the Offering Period.
4
<PAGE>
8. EXERCISE OF OPTION. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be rolled over to the next Offering Period. During a
participant's lifetime, a participant's option to purchase shares hereunder is
exercisable only by him or her.
9. DELIVERY. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, the shares purchased upon exercise of his or
her option.
10. WITHDRAWAL.
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. TERMINATION OF EMPLOYMENT. Upon a participant's ceasing to be an
Employee for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her death, to the person
or persons entitled thereto under Section 15 hereof, and such participant's
option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee for
the participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.
5
<PAGE>
12. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. STOCK.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 500,000 shares, plus an annual increase to be added on the first day
of the Company's fiscal year beginning in 2000 equal to the lesser of (i)
35,000 shares, (ii) 1% of the outstanding shares on such date or (iii) a
lesser amount determined by the Board. If, on a given Exercise Date, the
number of shares with respect to which options are to be exercised exceeds
the number of shares then available under the Plan, the Company shall make a
pro rata allocation of the shares remaining available for purchase in as
uniform a manner as shall be practicable and as it shall determine to be
equitable.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the
participant and his or her spouse.
14. ADMINISTRATION. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full
extent permitted by law, be final and binding upon all parties.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required
for such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
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<PAGE>
deliver such shares and/or cash to the executor or administrator of the
estate of the participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its discretion,
may deliver such shares and/or cash to the spouse or to any one or more
dependents or relatives of the participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company
may designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option
or to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds from an Offering Period in accordance with Section 10 hereof.
17. USE OF FUNDS. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose,
and the Company shall not be obligated to segregate such payroll deductions.
18. REPORTS. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to
participating Employees at least annually, which statements shall set forth
the amounts of payroll deductions, the Purchase Price, the number of shares
purchased and the remaining cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, LIQUIDATION,
MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by
the stockholders of the Company, the Reserves, the maximum number of shares
each participant may purchase per Offering Period (pursuant to Section 7), as
well as the price per share and the number of shares of Common Stock covered
by each option under the Plan which has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration". Such adjustment
shall be made by the Board, whose determination in that respect shall be
final, binding and conclusive. 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 of Common Stock subject to an option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in
progress shall be shortened by setting a new Exercise Date (the "New Exercise
Date"), and shall terminate immediately prior to the consummation of such
proposed dissolution or liquidation, unless provided otherwise by the Board.
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<PAGE>
The New Exercise Date shall be before the date of the Company's proposed
dissolution or liquidation. The Board shall notify each participant in
writing, at least ten (10) business days prior to the New Exercise Date, that
the Exercise Date for the participant's option has been changed to the New
Exercise Date and that the participant's option shall be exercised
automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 10
hereof.
(c) MERGER OR ASSET SALE. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each outstanding option shall be
assumed or an equivalent option substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the option, the
Offering Period then in progress shall be shortened by setting a new Exercise
Date (the "New Exercise Date"). The New Exercise Date shall be before the
date of the Company's proposed sale or merger. The Board shall notify each
participant in writing, at least ten (10) business days prior to the New
Exercise Date, that the Exercise Date for the participant's option has been
changed to the New Exercise Date and that the participant's option shall be
exercised automatically on the New Exercise Date, unless prior to such date
the participant has withdrawn from the Offering Period as provided in Section
10 hereof.
20. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination can affect options previously granted, provided
that an Offering Period may be terminated by the Board of Directors on any
Exercise Date if the Board determines that the termination of the Offering
Period or the Plan is in the best interests of the Company and its
stockholders. Except as provided in Section 19 and Section 20 hereof, no
amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Section 423 of the Code (or any other applicable law, regulation
or stock exchange rule), the Company shall obtain shareholder approval in
such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods,
limit the frequency and/or number of changes in the amount withheld during an
Offering Period, establish the exchange ratio applicable to amounts withheld
in a currency other than U.S. dollars, permit payroll withholding in excess
of the amount designated by a participant in order to adjust for delays or
mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or
accounting and crediting procedures to ensure that amounts applied toward the
purchase of Common Stock for each participant properly correspond with
amounts withheld from the participant's Compensation, and establish such
other limitations or procedures as the Board (or its committee) determines in
its sole discretion advisable which are consistent with the Plan.
-8-
<PAGE>
(c) In the event the Board determines that the ongoing operation
of the Plan may result in unfavorable financial accounting consequences, the
Board may, in its discretion and, to the extent necessary or desirable,
modify or amend the Plan to reduce or eliminate such accounting consequence
including, but not limited to:
(1) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(2) shortening any Offering Period so that Offering Period
ends on a new Exercise Date, including an Offering Period underway at the
time of the Board action; and
(3) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. NOTICES. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any
of the aforementioned applicable provisions of law.
23. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten
(10) years unless sooner terminated under Section 20 hereof.
-9-
<PAGE>
EXHIBIT A
CATAPULT COMMUNICATIONS CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: __________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in the
Catapult Communications Corporation 1998 Employee Stock Purchase Plan (the
"Employee Stock Purchase Plan") and subscribes to purchase shares of the
Company's Common Stock in accordance with this Subscription Agreement and
the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 1 to 7%) during the Offering
Period in accordance with the Employee Stock Purchase Plan. (Please note
that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):__________.
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares), I will be treated
for federal income tax purposes as having received ordinary income at the
time of such disposition in an amount equal to the excess of the fair
market value of the shares at the time such shares were purchased by me
over the price which I paid for the shares. I HEREBY AGREE TO NOTIFY THE
COMPANY IN WRITING WITHIN 30 DAYS AFTER THE DATE OF ANY DISPOSITION OF
SHARES AND I WILL MAKE ADEQUATE PROVISION FOR FEDERAL, STATE OR OTHER TAX
WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE UPON THE DISPOSITION OF THE
COMMON STOCK. The
<PAGE>
Company may, but will not be obligated to, withhold from my compensation
the amount necessary to meet any applicable withholding obligation
including any withholding necessary to make available to the Company
any tax deductions or benefits attributable to sale or early disposition
of Common Stock by me. If I dispose of such shares at any time after
the expiration of the 2-year holding period, I understand that I will
be treated for federal income tax purposes as having received income only
at the time of such disposition, and that such income will be taxed as
ordinary income only to the extent of an amount equal to the lesser of
(1) the excess of the fair market value of the shares at the time of such
disposition over the purchase price which I paid for the shares, or (2) 15%
of the fair market value of the shares on the first day of the Offering
Period. The remainder of the gain, if any, recognized on such disposition
will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)
----------------------------------------------------
(First) (Middle) (Last)
- ------------------------- -----------------------------------------------
Relationship
-----------------------------------------------
(Address)
Employee's Social
Security Number:
-----------------------------------------------
Employee's Address:
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-2-
<PAGE>
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
--------------- -----------------------------------------------------
Signature of Employee
----------------------------------------------------
Spouse's Signature (If beneficiary other than spouse)
-3-
<PAGE>
EXHIBIT B
CATAPULT COMMUNICATIONS CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Catapult
Communications Corporation 1998 Employee Stock Purchase Plan which began on
___________________, 19___ (the "Enrollment Date") hereby notifies the
Company that he or she hereby withdraws from the Offering Period. He or she
hereby directs the Company to pay to the undersigned as promptly as
practicable all the payroll deductions credited to his or her account with
respect to such Offering Period. The undersigned understands and agrees that
his or her option for such Offering Period will be automatically terminated.
The undersigned understands further that no further payroll deductions will
be made for the purchase of shares in the current Offering Period and the
undersigned shall be eligible to participate in succeeding Offering Periods
only by delivering to the Company a new Subscription Agreement.
Name and Address of Participant:
------------------------------------
------------------------------------
------------------------------------
Signature:
------------------------------------
Date:
------------------------------
-4-
<PAGE>
Exhibit 10.7
Confidential Treatment
Requested
FY '98 Officer and Key Employee Profit Sharing Plan
As approved by the board of directors on November 21, 1997
Note: These policies are intended as a guideline to management.
Management at its sole discretion may modify these policies in situations
which it believes are exceptional. There is no implication that this profit
sharing plan will be continued in this or any form in any subsequent year.
Unless otherwise stated, date references in this plan are to the fiscal year
beginning October 1, 1997, and ending September 30, 1998.
PURPOSE
We think that our stock, in the long run, is the best hope for
significant capital appreciation. However, in a company of our size, officer
and key employee compensation is tied strongly to the growth of the company,
and management is often unable as a result to connect salary actions to
individual performance at the officer/key employee level as aggressively as it
would like. As a result, this plan has been adopted to redress the balance
by providing additional compensation if the company has a good year.
HOW THE PLAN WORKS
To receive payment under this plan, an employee must be qualified, by
meeting all of the following requirements:
1. Except for vacation, sick leave, and other authorized leaves of
absence, the employee must be on staff continually from October 1 or date of
hire (whichever is later).
2. The employee must not have beneficial ownership of 10% or more of
the stock of the corporation (or hold options that, if exercised, would give
that employee such ownership) during any part of the fiscal year.
3. While on staff, the employee must be a full-time employee or officer
of the corporation or one of its majority owned subsidiaries, and be
specifically included under this plan by action of the board of directors.
November 21, 1997
<PAGE>
- 2 -
GENERAL CONDITIONS
All bonuses under this plan will be based on company wide consolidated
income and gross revenue, after removing the effect of any intra-company
transfers between parent and subsidiaries, or between subsidiaries.
Payments under this plan shall be in addition to any payments under the
company-wide bonus plan.
There will be no bonus payments unless the company achieves a gross
revenue of at least [*] (the lower accrual limit). Bonus accrual will cease
once the company's sales reach a total of at least [*] (the upper accrual
limit).
Between the upper and lower accrual limits, the bonus will be accrued
linearly. For example, if the company's sales are halfway between the lower
and upper accrual limits, 50% of the total possible bonus will be paid.
General conditions for bonuses to be paid:
If the targets above are met, bonuses will be paid provided that
aftertax profits remain at least [*] of gross revenues. Otherwise, the
amount payable as bonus will be reduced (possibly to 0) on a basis
proportional to each individual's bonus, until after tax profit is [*].
Payments called for under this plan shall be made before any payments under
the company-wide bonus plan.
No bonus will be paid to an employee who is otherwise qualified, unless
the employee is still on staff at the time that the bonus is scheduled to be
paid (except for vacation, sick leave, and other authorized leaves of
absence).
Foreign currency conversions in all directions shall be done using a
factor that closely approximates the actual exchange rate at the time the
bonus pool and its division is determined (some time between the end of the
fiscal year and the distribution date).
Bonuses shall be distributed at a time convenient to the company, but no
later than January 31 of the calendar year following the end of the fiscal
year.
All bonus payments to officers and key employees will follow the rules
in this policy, but will be further specified on an individual basis.
November 21, 1997
* Confidential Treatment Requested
<PAGE>
Exhibit 10.8
LEASE AGREEMENT
THIS LEASE, dated October 9, 1996, by and between: JACK DYMOND LATHING
COMPANY, LLC ("Lessor") and CATAPULT COMMUNICATIONS, A California Corporation
("Lessee"), is made with reference to the following facts:
A. Lessor is the owner of certain industrial property (the "Industrial
Center") located at 240 South Whisman, and 190 South Whisman Road (Buildings A,
B, C, D, E, F, G, and I) Mountain View, California, consisting of (8) eight
buildings having a floor area of approximately 106,132 square feet and related
parking facilities and landscaped areas.
B. Lessee desires to rent a portion of the Industrial Center and Lessor
has agreed to lease the same to Lessee, on the terms and conditions hereinafter
set forth.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
ARTICLE 1. DEMISED PREMISES AND COMMON AREAS
1.01 Lessor does hereby lease to Lessee, and Lessee does hereby rent from
Lessor, that portion of the Industrial Center consisting of approximately 10,000
plus an additional 7,500 square feet as shown in Article 3. Rent., for a total
of 17,750 square feet, as shown on the drawing attached hereto as Exhibit "A"
and made a part hereof, commonly referred to as 160 South Whisman Road, Suites A
& B (the "Demised Premises"), together with the right to use the Common Areas of
the Industrial Center as hereinafter described. The parties hereby stipulate
and agree that the Demised Premises constitutes 9.42% initially and 16.72%
subsequently of the total leasable floor area of the Industrial Center.
1.02 Lessee shall have the non-exclusive right to use the Common Areas of
the Industrial Center, subject to any reasonable rules and regulations
concerning such use as may be adopted from time to time by Lessor. The term
"Common Areas" shall mean those areas within the Industrial Center provided and
designated by Lessor for the general non-exclusive use by the occupants of the
Industrial Center and their respective employees, customers and invitees,
including parking areas, loading and unloading areas, trash areas, roadways,
sidewalks, walkways, driveways, and landscaped areas. Lessor reserves the right
of exclusive control and management of the Common Areas, including the right, in
Lessor's sole discretion:
1
<PAGE>
(a) To make alterations or construct additional improvements within the
Common Areas;
(b) To temporarily close any of the Common Areas for maintenance purposes,
so long as reasonable access to the Demised Premises remains
available; and
(c) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any
portion thereof.
ARTICLE 2. TERM
2.01 The term of this Lease shall be a period of five (5) years,
commencing on February 10, 1997, and ending on February 9, 2002, unless
sooner terminated as provided herein.
2.02 If Lessor, for any reason whatsoever, is unable to deliver possession
of the Demised Premises to Lessee on the commencement date specified in Section
2.01 above, Lessor shall not be liable to Lessee for any loss or damage
resulting therefrom, nor shall this Lease be void or voidable, but in such event
Lessee shall not be liable for rent or other sums due Lessor until possession of
the Demised Premises is offered to Lessee. No delay in delivery of possession
shall operate to extend the term hereof unless otherwise stipulated in writing
by the parties. Notwithstanding the above, lessor will make every effort to
enable Lessee to occupy premise no later than ninety days from City Permit
approval.
2.03 Provided that Lessee is not then in default in the performance of any
of Lessee's obligations hereunder, Lessee shall have the option to extend the
term for an additional period of one (1) three (3) year term. Such option can
only be exercised by Lessee giving written notice thereof to Lessor at least one
hundred twenty (120) days prior to expiration of the initial term of the lease.
The rent during the option period shall be as follows:
Year 1: 17,750 sq.ft.@$.85 NNN/sq.ft./mo
($15,087.50 per month)
Year 2: 17,750 sq.ft.@$.87 NNN/sq.ft./mo
($15,442.50 per month)
Year 3: 17,750 sq.ft.@$.89 NNN/sq.ft./mo
($15,797.50 per month)
ARTICLE 3. RENT
3.01 Lessee shall pay to Lessor as Base Rent for the Demised Premises, in
lawful money of the United States, payable in
2
<PAGE>
advance on or before the first day of each calendar month without any deduction,
offset or demand, the following amounts:
Year 1: 10,000 sq.ft. @$.75 NNN/sq.ft./mo
($7500.00 per month)
Year 2: (Months 13-15) 10,000 sq.ft.@$.75 NNN/sq.ft./mo
($7,500.00 per month)
(Months 16-24) *17,750 sq.ft.@$.77 NNN/sq.ft./mo
($13,667.50 per month)
*Assumes improvements for 7,750 square feet expansion space are in place and
delivered by 16th month of the lease term.
Year 3: 17,750 sq.ft.@$.79 NNN/sq.ft./mo
($14,022.50 per month)
Year 4: 17,750 sq.ft.@$.81 NNN/sq.ft./mo
($14,377.50 per month)
Year 5: 17,750 sq.ft.@$.83 NNN/sq.ft./mo
($14,732.50 per month)
3.02 If the commencement date is not the first day of a calendar month, or
if the termination date is not the last day of a calendar month, the monthly
rental for the fractional month shall be prorated on the basis of a thirty (30)
day month.
3.03 Lessee acknowledges that late payment of rent and any other charges
provided herein will cause Lessor to incur costs not contemplated by this Lease,
the exact amount of such costs being extremely difficult and impracticable to
determine. Such costs include, without limitation, processing and accounting
charges, late charges that may be imposed on Lessor by the terms of any
encumbrances against the Industrial Center and penalties on delinquent tax
payments. Lessee therefore agrees that if any installment of rent or other
charge payable by Lessee hereunder is not received by Lessor within ten (10)
days after the same becomes due, Lessor shall be entitled to collect an
additional sum equal to one percent (1.%) of the delinquent payment for each
month or fraction thereof that the rent or other charge remains unpaid.
Acceptance of any late charge shall not constitute a waiver of Lessee's default
with respect to the overdue amount, nor prevent Lessor from exercising any other
rights and remedies available to Lessor hereunder or provided by law.
ARTICLE 4. SECURITY DEPOSIT
4.01 Lessee has deposited with Lessor the sum of Three Thousand Three
Hundred Thirty Two and 45/100 Dollars ($3,332.45) as and for a security deposit.
Upon adjustment of the Base Rent in accordance with Section 3.01 (b), the
security deposit shall be increased to an amount equal to the Adjusted Base Rent
for one
3
<PAGE>
amount equal to the Adjusted Base Rent for one (1) month and Lessee shall
promptly deposit the increase with Lessor.
4.02 If Lessee defaults with respect to any provision of this Lease, Lessor
may use, apply or retain all or any part of the security deposit to cure such
default or to compensate Lessor for all damages sustained by Lessor resulting
from Lessee's default. If any portion of said deposit is so used or applied,
Lessee shall within ten (10) days after written demand therefor, deposit cash
with Lessor in an amount sufficient to restore the security deposit to its
original amount, and Lessee's failure to do so shall constitute a material
breach of this Lease. Lessor's obligations with respect to the security deposit
are those of a debtor and not a trustee. Lessor shall not be required to
segregate the security deposit as a separate fund and Lessee shall not be
entitled to any interest thereon. If Lessee shall fully and faithfully perform
every provision of this Lease to be performed by Lessee, the security deposit or
any balance thereof shall be returned to Lessee within thirty (30) days after
termination of the Lease.
ARTICLE 5. USE
5.01 The Demised Premises shall be used and occupied by Lessee solely for
Office, Electronic R&D, Distribution and Warehouse and for no other or
additional purpose without the prior written consent of Lessor.
5.02 Lessee shall not use the Demised Premises or permit anything to be
done in or about the Demised Premises which is prohibited by or will in any way
conflict with any law, statute, ordinance or governmental rule or regulation now
in force or which may hereafter be in force, or which is prohibited by the
standard form of fire insurance policy, or will in any way increase the existing
rate of any fire or other insurance covering the Industrial Center or any of its
contents, or cause any change or cancellation of such insurance. The judgment
of any court of competent jurisdiction or the admission of Lessee in any action
against Lessee, whether Lessor be a party thereto or not, that Lessee has
violated any law, statute, ordinance or governmental rule, regulation or
requirement, shall be conclusive of that fact as between Lessor and Lessee.
Lessee shall not do or permit anything to be done in or about the Demised
Premises which will in any way obstruct or interfere with the rights of other
tenants in the Industrial Center, or injure or annoy them, or use or allow the
Demised Premises to be used for any improper, immoral, unlawful or objectionable
purpose, nor shall Lessee cause, maintain or permit any nuisance in, on or about
the Demised Premises or commit or suffer to be committed any waste in, on or
about the Demised Premises.
ARTICLE 6. LEASEHOLD IMPROVEMENTS
4
<PAGE>
6.01 Lessor shall perform, at Lessor's own expense, the alterations and
improvements to the Demised Premises as described in Article 30. Acceptance of
the Demised Premises shall constitute acceptance of any alterations and
improvements therein performed by Lessor and shall further constitute an
acknowledgment by Lessee that the Demised Premises are in good order, condition,
and repair.
6.02 Lessee may perform, at Lessee's own expense, the alterations and
improvements to the Demised Premises as described in Exhibit "B", attached
hereto and made a part hereof, and Lessor hereby consents to the performance of
such work. Lessee may have access to the Demised Premises prior to the
commencement of the lease term for the purpose of installing Lessee's
improvements, provided that such work does not obstruct or interfere with the
work being performed therein by Lessor. No delay by Lessee in the completion of
Lessee's work, shall delay commencement of the lease term on the date specified
in Section 2.01, unless such delay was directly and primarily caused by Lessor.
Lessor may submit a bid to Lessee for performance of the work described in
Exhibit "B" by Lessor, but Lessee shall not be obligated to utilize the services
of Lessor and may select any licensed contractor to perform such work. Lessee
shall not be required to remove lease hold improvements at the end of the lease
term.
6.03 Except as expressly provided herein, Lessor shall have no obligation
to make any alterations or improvements to the Demised Premises for the benefit
of Lessee. Lessee acknowledges that neither Lessor nor anyone acting on
Lessor's behalf has made any representation or warranty as to the suitability or
fitness of the Demised Premises for the conduct of Lessee's business or for any
other purpose.
ARTICLE 7. UTILITIES AND SERVICES
7.01 Lessor shall provide separate electricity and gas meters for the
Demised Premises. Lessee shall establish its own account with the utility
company to provide electricity and gas service to the Demised Premises and shall
pay all fees and charges for such services directly to the utility company.
7.02 Lessee shall pay, as additional rent, the cost of the following
utilities and services furnished to the Demised Premises:
(a) 9.42% initially and 16.72% subsequently of all water, sewer, and
Common Area maintenance charges for the Industrial Center, as billed to Lessee
by Lessor, including but not limited
5
<PAGE>
to, landscape maintenance, lighting maintenance, utility charges, and parking
lot sweeping.
(b) Garbage collection charges attributable to the Demised Premises, as
billed to Lessee by Lessor according to Lessee's actual usage thereof.
The foregoing charges shall be due and payable to Lessor within ten (10) days
after receipt of a billing therefor by Lessee. Billing shall occur on a monthly
basis. If requested, lessor shall provide lessee copies of the actual bills for
charges lessee is responsible to pay his pro rata share of. (See paragraph 31
below)
7.03 Lessor shall maintain the Common Areas of the Industrial Center in
good condition and repair, except for damage occasioned by the act of Lessee or
Lessee's agents or invitees, which damage shall be repaired by Lessor at
Lessee's expense. Lessor shall have no obligation to provide janitorial service
for the Demised Premises.
7.04 Lessor shall not be in default hereunder or be liable for any damages
directly or indirectly resulting from, nor shall the rent provided herein be
abated by reason of Lessor's failure to furnish or delay in furnishing any
utilities or services when such failure or delay is caused by accident,
breakage, repairs, strikes, lockouts or other labor dispute, or by limitation,
curtailment, rationing or restrictions on use of electricity, gas, water or
other utility, or any other cause, similar or dissimilar, beyond the reasonable
control of Lessor.
ARTICLE 8. INDEMNITY AND INSURANCE
8.01 Lessee hereby waives any and all claims against Lessor for damage to
any property or injury to or death of any person in, upon or about the Demised
Premises, arising at any time and from any cause other than solely by reason of
the negligence or willful misconduct of Lessor. Lessee further expressly
indemnifies and holds Lessor harmless from and against any and all claims,
demands, causes of action, liabilities, costs or expenses, including attorney's
fees, occasioned by or in any way connected with the condition, use or misuse of
the Demised Premises, or occasioned by any act or omission of Lessee and
Lessee's agents, servants, employees, invitees or other persons who may come
upon the Demised Premises, except for damage to any property or injury to or
death of any person caused solely by the negligence or willful misconduct of
Lessor.
8.02 Lessee hereby agrees to maintain in full force and effect at all times
during the term of this Lease, at Lessee's expense, a policy or policies of
comprehensive general liability insurance, insuring against all liability of
Lessee and Lessee's
6
<PAGE>
authorized representatives, agents and invitees arising out of or in connection
with Lessee's use and occupancy of the Demised Premises and also insuring
performance by Lessee of the indemnity provisions set forth in Section 8.01. The
initial amount of such insurance shall be at least $1,000,000.00, and shall be
subject to periodic increase based upon inflation, provided increased amount is
commercially reasonable and available, recommendations by Lessor's insurance
advisors, and other relevant factors. However, the amount of such general
liability insurance shall not limit Lessee's liability nor relieve Lessee of any
obligations under this Lease. The general liability insurance policy shall name
Lessor as an insured party thereunder, and no cancellation or reduction in
coverage will be made without thirty (30) days prior written notice by Lessee to
Lessor unless lessee is prevented from giving thirty (30) days notice due to
circumstances beyond lessee's control. A copy of the policy or a certificate of
insurance shall be furnished to Lessor.
8.03 Lessor shall maintain in full force and effect a policy or policies
covering loss or damage to the Industrial Center, to the extent of the
replacement value thereof. Such policy or policies shall provide protection
against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, and any other perils (excluding flood
and earthquake) which Lessor deems necessary. Lessor shall also maintain in
full force and effect a rental income insurance policy, with loss payable to
Lessor, in an amount equal to one year's gross rent from the Industrial Center,
which insurance shall also cover all real estate taxes and insurance costs for
said period. Lessee shall pay to Lessor, as additional rent, an amount equal to
9.42% initially and 16.72% subsequently of the premiums paid by Lessor for the
hazard and rental income insurance policies described herein, such amount to be
paid within ten (10) days after Lessee's receipt of a billing therefor from
Lessor. Lessee shall be responsible for maintaining its own insurance covering
the personal property, trade fixtures and removable leasehold improvements owned
by Lessee and located upon the Demised Premises.
8.04 Lessor and Lessee each hereby waive any and all rights of recovery
against the other, or against the agents, employees or representatives of the
other, on account of loss or damage to the property of the waiving party to the
extent that such loss or damage is insured against under any insurance policies
which either Lessor or Lessee may have in force at the time of such loss or
damage. Lessee shall, upon obtaining the insurance required hereunder, give
notice to the insurance carrier that the foregoing mutual waiver of subrogation
is contained in this Lease and Lessee shall cause each insurance policy obtained
by Lessee to provide that the insurance company waives all right of recovery by
way of subrogation against either Lessor or Lessee in connection with any damage
covered by such policy.
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<PAGE>
ARTICLE 9. REPAIRS AND MAINTENANCE
9.01 Lessee shall, at all times during the term hereof and at Lessee's own
expense, keep and maintain the Demised Premises and every part thereof in good
condition and repair. Lessee hereby waives all rights to make repairs at the
expense of Lessor or in lieu thereof to vacate the Demised Premises as provided
by California Civil Code Section 1942 or any other law, statute or ordinance now
or hereafter in effect. (see paragraph 31 below)
9.02 The obligations of Lessee to maintain the Demised Premises shall not
include the roof or structural components of the building or any replacement of
the air conditioning units or replacement of the compressor or heat exchanger
within such units. Moreover, Lessor hereby warrants to Lessee that all
mechanical, electrical, plumbing and other systems within the Demised Premises
are in good operating condition and repair and Lessor will be responsible for
any necessary repairs or replacements thereof, beyond normal maintenance, for a
period of one (1) year from the commencement of the lease term, provided such
repair or replacement is not the result of any failure to maintain or any
negligent act or omission by Lessee. (see paragraph 31 below)
ARTICLE 10. TAXES AND ASSESSMENTS
10.01 Lessee shall pay to Lessor, as additional rent, 9.42% initially and
16.72% subsequently of all real property taxes levied or assessed against the
Industrial Center during the Lease term, except that:
(a) Lessee shall pay 100% of any increase in real property taxes
attributable to the alterations and improvements described in Exhibits "A" and
"B" attached hereto, and any other alterations or improvements to the
Demised Premises constructed by or for the benefit of Lessee;
(b) Lessee shall not be charged for any increase in real property
taxes after the date hereof solely attributable to alterations or improvements
constructed or installed within the Industrial Center as leasehold improvements
for the use and benefit of any other tenant or tenants.
(c) Lessee shall not be responsible for tax increases associated with
a sale or transfer of the property.
10.02 Payment by Lessee of the real property taxes referred to herein shall
be made within ten (10) days after Lessor furnishes to Lessee a copy of the tax
bill showing the total amount of property taxes levied or assessed against the
Industrial Center,
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the amount thereof payable by Lessee, and the calculation utilized by Lessor to
determine such amount. Billing shall be in two installments made by Lessor on
or about February 1, and November 1, of each year of the Lease.
10.03 As used herein, the term "real property taxes" shall include any form
of real estate tax or assessment, general, special, ordinary or extraordinary,
and any license fee, commercial rental tax, improvement bond or bonds, levy or
tax imposed on the Industrial Center by any authority having the direct or
indirect power to tax, including any city, state or federal agency, or any
school, sanitary, fire, street, drainage, or other improvement district. The
term shall also include any tax, fee, levy, assessment, or charge imposed by any
taxing authority upon Lessor's right to receive, or the receipt of, rent or
income from the Industrial Center, or against Lessor's business of leasing the
Industrial Center. However, the term "real property taxes" does not include
Lessor's federal or state personal income or franchise taxes.
10.04 Lessee shall pay prior to delinquency all taxes levied or assessed
against the trade fixtures, equipment, furnishings, and other personal property
of Lessee located upon the Demised Premises or elsewhere. When possible, Lessee
shall cause said trade fixtures, equipment, furnishings, and other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee within ten
(10) days after Lessor furnishes to Lessee a written statement describing the
property in question and showing the amount of tax thereon payable by Lessee.
ARTICLE 11. ALTERATIONS AND IMPROVEMENTS
11.01 Except for the leasehold improvements authorized to be performed by
Lessee under Section 6.02, Lessee shall not, without the prior written
consent of Lessor (which consent shall not be unreasonably withheld), make
any alterations, additions or improvements in, on or about the Demised
Premises, if the alterations and improvements exceed $10,000.00 in cost. As
a condition to giving such consent, Lessor may require Lessee to provide
Lessor a surety bond or other security satisfactory to Lessor to insure
Lessor against mechanics' and materialmen's liens and to insure completion of
the work.
11.02 All alterations, additions and improvements, whether temporary or
permanent in character, made by Lessee in, on or about the Demised Premises,
except movable trade fixtures installed at the expense of Lessee, shall, in the
absence of a written request by Lessor, which written request shall be given at
the time Lessee requests permission to make improvement, for their removal,
become the property of Lessor and shall remain
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upon and be surrendered with the Demised Premises at the termination of this
Lease by lapse of time or otherwise without compensation to Lessee.
ARTICLE 12. DAMAGE OR DESTRUCTION
12.01 If the demised Premises, or other portion of the Industrial Center of
which the Demised Premises constitute a part, are damaged, by fire or other
casualty, Lessor shall forthwith repair the same, provided such repairs can, in
Lessor's opinion, be completed within ninety (90) days. In such event, this
Lease shall remain in full force and effect except that if there is damage to
the Demised Premises and such damage was not the result of negligence or willful
misconduct of Lessee or Lessee's employees or invitees, the rent payable by
Lessee shall be abated while the repairs are being made by the extent to which
the Demised Premises are unusable by Lessee in the normal conduct of Lessee's
business. If the repairs cannot, in Lessor's opinion, be completed within
ninety (90) days, Lessor may, at Lessor's option, make the repairs and this
Lease shall continue in full force and effect, subject to abatement of rental as
hereinabove in this Section provided. In the event Lessor does not elect to
make the repairs which cannot be completed within ninety (90) days, and provided
the damage affects the Demised Premises or common areas necessary to Lessee's
use, Lessor shall give written notice of such fact to Lessee within thirty (30)
days after the date on which the damage occurred and either Lessor or Lessee
may, within thirty (30) days after the giving of such notice, terminate this
Lease. Lessee shall have the right to make improvements and continue the lease,
subject to abatement of rental as provided in this section, if Lessor does not
elect to make the repairs which cannot be completed within ninety (90) days.
2.02 Notwithstanding the provisions of Section 12.01 above, Lessor shall
have the option of terminating this Lease in any of the following circumstances:
(a) Where the damage or destruction arises from a casualty or cause
not covered by Lessor's insurance then in force.
(b) Where the building in which the Demised Premises are located is
damaged or destroyed to the extent of 33-1/3 percent or more of the replacement
cost thereof, whether the Demised Premises be insured or not.
(c) Where the repairs cannot be made by reason of any statute,
ordinance, rule or regulation of any governmental authority.
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12.03 If Lessor is obligated or elects to repair any damage pursuant to this
Article, Lessor shall not be required to repair or replace any improvements
installed in the Demised Premises by Lessee, other than building standard tenant
improvements made by Lessor, and Lessee shall, at Lessee's own expense, repair
and restore Lessee's portion of such improvements.
12.04 A total destruction of the entire building in which the Demised
Premises are located shall automatically terminate this Lease.
12.05 Except as otherwise expressly provided in this Article, Lessee hereby
waives the provisions of California Civil Code Sections 1932(2) and 1933(4).
ARTICLE 13. CONDEMNATION
13.01 If all of the Demised Premises or so much thereof is taken by right of
eminent domain, or purchase in lieu thereof, such that the Demised Premises are
no longer reasonably suitable for Lessee's use, this Lease shall terminate as of
the date that possession of the Demised Premises or part thereof is taken.
13.02 If any part of the Demised Premises is taken and the remaining part
thereof (after reconstruction of the then existing building) is reasonably
suitable for Lessee's use, this Lease shall, as to the part so taken, terminate
as of the date that possession of such part is taken and the rent payable
hereunder shall be reduced in the same proportion that the floor area of the
portion of the Demised Premises so taken (less any addition thereto by reason
of any reconstruction) bears to the original floor area of the Demised Premises
immediately prior to the taking. Lessor shall, at Lessor's expense, make all
necessary repairs or alterations to restore the remaining Demised Premises to a
complete architectural unit.
13.03 No award for any partial or entire taking shall be apportioned and
Lessee hereby assigns to Lessor all of Lessee's interest therein, except that
Lessee shall be entitled to any portion of the award specifically designated as
compensation for the taking of personal property belonging to Lessee, for the
interruption of Lessee's business, for Lessee's moving costs or loss of goodwill
suffered by Lessee and for the cost of improvements to the premises paid by
Lessee. No temporary taking of the Demised Premises shall terminate this Lease
or give Lessee any right to abatement of rent hereunder; any award recovered by
Lessee for such temporary taking shall belong entirely to Lessee and Lessor
shall have no interest therein. Each party agrees to execute and deliver to the
other all instruments and documents that may be required to implement the
provisions of this Section.
ARTICLE 14. ASSIGNMENT AND SUBLETTING
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14.01 Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage, sublet, pledge, hypothecate or encumber all or any part of Lessee's
interest in this Lease or in the Demised Premises or any part thereof, without
Lessor's prior written consent and any attempt to do so without such consent
being first had and obtained shall be wholly void and shall constitute a breach
of this Lease. If Lessee is a corporation, or partnership any transfer of a
controlling ownership interest in the stock of Lessee shall constitute an
assignment hereunder.
14.02 If Lessee complies with the following conditions, Lessor shall not
unreasonably withhold Lessor's consent to the assignment of this Lease or the
subletting of the Demised Premises or any portion thereof. Lessee shall submit
in writing to Lessor:
(a) The name and legal composition of the proposed Assignee or
Sublessee;
(b) The terms and provisions of the proposed Assignment or Sublease;
and
(c) Such financial information as Lessor may reasonably request
concerning the proposed Assignee or Sublessee.
14.03 No consent by Lessor to any assignment or subletting by Lessee shall
relieve Lessee of any obligation to be performed by Lessee under this Lease,
whether occurring before or after such consent, assignment or subletting. The
consent by Lessor to any assignment or subletting shall not relieve Lessee from
the obligation to obtain Lessor's express written consent to any other
assignment or subletting. The acceptance of rent by Lessor from any other
person shall not be deemed to be a waiver by Lessor of any provisions of this
Lease or to be a consent to any assignment, subletting or other transfer.
Consent to one assignment, subletting or other transfer shall not be deemed to
constitute consent to any subsequent assignment, subletting or other transfer.
ARTICLE 15. TRANSFER OF LESSOR'S INTEREST
15.01 Lessor shall have the right at any time to sell, transfer, assign,
pledge, hypothecate or otherwise dispose of Lessor's interest in the Demised
Premises and in this Lease. In the event of any such sale, transfer,
assignment, pledge, hypothecation or other disposition, all obligations of
Lessor hereunder shall devolve upon the transferee and Lessor shall be released
and discharged from all further obligation or liability hereunder; provided,
that Lessor shall be responsible for any funds in the hands of Lessor in which
Lessee has an interest
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until such funds have been delivered to the transferee. Lessee agrees to attorn
to the transferee provided all of Lessor's obligations hereunder are assumed by
the transferee in writing for the benefit of Lessee.
ARTICLE 16. MECHANICS' LIENS
16.01 Lessee shall keep the Demised Premises free and clear of all
mechanics' liens resulting from any construction work done by or for Lessee.
Lessee shall have the right to contest the correctness or validity of any such
lien if, immediately on demand by Lessor, Lessee procures and records a lien
release bond issued by a corporation authorized to issue surety bonds in
California in an amount equal to one and one-half (1-1/2) times the amount of
the claim of lien or other security satisfactory to Lessor. If used, the bond
shall meet the requirements of Section 3143 of the California Civil Code and
shall provide for the payment of any sum that the claimant may recover on the
claim, together with costs of suit. Should Lessee fail to discharge any such
lien or cause the same to be released within sixty (60) days from the date the
lien is filed, Lessor may, without inquiring into the validity thereof, cause
the same to be discharged and all amounts so expended by Lessor, together with
reasonable attorney's fees and expenses, shall be paid by Lessee to Lessor as
additional rent hereunder, together with interest thereon at the rate of
fifteen percent (15%) per annum. Lessee shall give ten (10) days prior
written notice to Lessor of the date on which any construction work will be
commenced so as to afford Lessor the opportunity to post a notice of
nonresponsibility.
ARTICLE 17. ENTRY BY LESSOR
17.01 Lessor and Lessor's authorized representatives shall have the right to
enter the Demised Premises with 24 hour prior verbal notice unless in cases of
emergency at reasonable hours for any of the following purposes:
(a) To examine and inspect the Demised Premises;
(b) To supply any service to be provided by Lessor to Lessee
hereunder;
(c) To perform any necessary maintenance or repairs that Lessor is
required or permitted to perform hereunder;
(d) To serve, post or keep posted any notices required or allowed
under the provisions of this Lease;
(e) To post "for sale" signs at any time during the term, to post
"for rent" or "for lease" signs during the last one hundred
twenty (120) days of
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the Lease term, or during any period while Lessee is in default;
(f) To show the Demised Premises to prospective tenants, buyers,
lenders or other persons at any time during the Lease term;
(g) To do any other act or thing necessary for the safety or
preservation of the Demised Premises or the Industrial Center.
17.02 Lessor shall at all times have and retain a key with which to unlock
all of the doors in, on or about the Demised Premises (excluding Lessee's
vaults, safes and other secured areas designated in writing by Lessee in
advance); and Lessor shall have the right to use any and all means which Lessor
may deem proper to open said doors in an emergency in order to obtain entry to
the Demised Premises, and any entry to the Demised Premises obtained by Lessor
by any of said means, or otherwise, shall not under any circumstances be
construed or deemed to be a forcible or unlawful entry into or a detainer of the
Demised Premises, or an eviction, actual or constructive, of Lessee from the
Demised Premises, or any portion thereof.
ARTICLE 18. DEFAULT BY LESSEE
18.01 The occurrence of any one or more of the following events ("Events of
Default") shall constitute a material default and breach of this Lease by
Lessee:
(a) Unless cured within ten day period following due date, any
failure by Lessee to pay any rental or any other sum required to
be paid by Lessee hereunder, as and when the same becomes due and
payable.
(b) Any failure by Lessee to observe and perform any other provision
of this Lease to be observed or performed by Lessee, where such
failure continues for ten (10) days after written notice thereof
by Lessor to Lessee; provided, however, that if the nature of
such default is such that it cannot reasonably be cured within
such ten (10) day period, Lessee shall not be deemed to be in
default if Lessee shall within such period commence such cure and
thereafter diligently prosecute the same to completion.
(c) The making by Lessee of any general assignment or general
arrangement for the benefit of creditors; the filing by or
against Lessee of a petition to have Lessee adjudged a bankrupt
or a petition for
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reorganization or arrangement under any law relating to
bankruptcy (unless, in the case of a petition filed against
Lessee, the same is dismissed within ninety (90) days); the
appointment of a trustee or receiver to take possession of
substantially all of Lessee's interest in this Lease, where
possession is not restored to Lessee within sixty (60) days; or
the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Demised
Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within forty-five (45) days.
18.02 Any notice given under this Article shall specify the Event of Default
and the applicable lease provisions, and shall demand that Lessee perform the
provisions of this Lease, within the applicable period of time. No such notice
shall be deemed a forfeiture or a termination of this Lease provided Lessee
cures the default within the applicable period of time.
ARTICLE 19. LESSOR'S REMEDIES UPON DEFAULT
19.01 Lessor shall have the following remedies upon the occurrence of an
Event of Default, such remedies being cumulative and not exclusive and in
addition to any other remedies available to Lessor as now or hereafter provided
by law:
(a) Lessor can continue this Lease in full force and effect, and the
Lease will continue in effect as long as Lessor does not
terminate Lessee's right to possession, and Lessor shall have the
right to collect rent when due, irrespective of whether Lessee
shall have abandoned the Demised Premises. During the period
Lessee is in default, Lessor can enter the Demised Premises and
relet them, or any part of them, to third parties for Lessee's
account. Lessee shall be liable immediately to Lessor for all
costs Lessor incurs in such reletting, including, without
limitation, broker's commissions and like costs. Reletting can
be for a period shorter or longer than the remaining term of this
Lease. Lessee shall pay to Lessor the rent specified in this
Lease on the dates when the same becomes due, less the rent
Lessor receives from any reletting. No act by Lessor allowed by
this paragraph shall terminate this Lease unless Lessor notifies
Lessee that Lessor elects to terminate this Lease. After
Lessee's default and for as long as Lessor does not terminate
Lessee's right to possession of the Demised Premises, Lessee
shall have the right to assign or sublet Lessee's interest in
this Lease pursuant to Article 14, but Lessor's consent may be
conditioned upon all
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defaults by Lessee being fully cured at the time of assignment or
subletting.
(b) Lessor can terminate Lessee's right to possession of the Demised
Premises at any time during Lessee's default. No act by Lessor
other than giving written notice to Lessee shall terminate this
Lease. Acts of maintenance, efforts to relet the Demised
Premises, or the appointment of a receiver on Lessor's initiative
to protect Lessor's interest under this Lease shall not
constitute a termination of Lessee's right to possession. On
termination, Lessor has the right to recover from Lessee:
(1) The worth, at the time of the award, of the unpaid rent that
has been earned at the time of termination of this Lease;
plus
(2) The worth, at the time of the award, of the amount by which
the unpaid rent that would have been earned after the date
of termination of this Lease until the time of award exceeds
the amount of the loss of rent that Lessee proves could have
been reasonably avoided; plus
(3) The worth, at the time of the award, of the amount by which
the unpaid rent for the balance of the term after the time
of award exceeds the amount of the loss of rent that Lessee
proves could have been reasonably avoided; and
(4) Any other amount, and court costs, necessary to compensate
Lessor for all detriment proximately caused by Lessee's
default.
"The worth, at the time of the award," as used in (1) and (2)
above, is to be computed by allowing interest at the rate of ten percent (10%)
per annum from the date of default. "The worth, at the time of the award" as
used in (3) above is to be computed by discounting the amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of the award, plus
one percent (1%). The term "rent," as used in this Article shall be deemed to
include all monetary sums required to be paid by Lessee pursuant to the terms of
this Lease.
ARTICLE 20. LESSOR'S RIGHT TO CURE DEFAULTS
20.01 If Lessee shall fail to pay any sum of money, other than rent,
required to be paid by Lessee hereunder, or shall fail to perform any other act
on Lessee's part to be performed hereunder, and such failure shall continue for
ten (10) days after notice
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thereof by Lessor, Lessor may, but shall not be obligated to do so, and without
waiving or releasing Lessee from any obligations of Lessee, make such payment or
perform any such other act on Lessee's part to be made or performed hereunder.
All sums expended by Lessor, including necessary incidental costs, shall be
deemed additional rent hereunder and shall be payable to Lessor immediately upon
demand, together with interest thereon at the rate of fifteen percent (15%) per
annum from the date of expenditure to the date of reimbursement.
ARTICLE 21. COSTS OF SUIT
21.01 In the event legal action between Lessor and Lessee shall become
necessary in order to enforce or interpret this Lease, or any provision
contained herein, the prevailing party shall be entitled to recover all costs
and expenses as may be incurred in connection therewith, including reasonable
attorney's fees.
21.02 Should Lessor, without fault on Lessor's part, be made a party to any
litigation instituted by Lessee or by any third party against Lessee, or by or
against any person holding under or using the Demised Premises by license of
Lessee, or for the foreclosure of any lien for labor or materials furnished to
or for Lessee or any such other person or otherwise arising out of or resulting
from any act or transaction of Lessee or of any such other person, Lessee
covenants to save and hold Lessor harmless from any judgment rendered against
Lessor or the Demised Premises or any part thereof, and all costs and expenses,
including reasonable attorney's fees, incurred by Lessor in connection with such
litigation.
ARTICLE 22. SUBORDINATION
22.01 In the event the holder of any deed of trust hereafter to be placed
against the Demised Premises requires that this Lease be subordinate to any such
encumbrance, this Lease shall be subordinate to that encumbrance if Lessor first
obtains from the holder of the deed of trust a written agreement providing that
for so long as Lessee shall perform all of Lessee's duties and obligations
hereunder, no foreclosure, deed given in lieu of foreclosure or sale under such
deed of trust shall affect Lessee's rights under this Lease. Lessee shall
attorn to any purchaser at any foreclosure sale, or to any grantee or transferee
designated in any deed given in lieu of foreclosure. Lessee shall execute the
written agreement and any other documents required by the holder of the deed of
trust to accomplish the purposes of this Article, and upon Lessee's failure or
refusal to do so within five (5) days after demand, Lessee hereby appoints
Lessor as Lessee's attorney-in-fact to execute such agreement or other documents
for and on behalf of Lessee. The power of attorney granted herein shall be
deemed to be coupled with an interest and to be irrevocable.
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ARTICLE 23. ESTOPPEL CERTIFICATE
23.01 Each party, within ten (10) days after notice from the other, shall
execute and deliver to the other, in recordable form, a certificate provided by
Lessor at no cost to Lessee stating that this Lease is unmodified and in full
force and effect, or in full force and effect as modified stating the
modifications. The certificate also shall state the amount of monthly rent, the
dates to which the rent has been paid in advance, the amount of any security
deposit or prepaid rent, and shall further certify that there is no incurred
default by the other party under the Lease, or specify such default, if any is
claimed. Failure to deliver the certificate within the ten (10) days, shall be
conclusive upon the party failing to deliver the certificate for the benefit of
the party requesting the certificate, and any successor to the party requesting
the certificate, that this Lease is in full force and effect and has not been
modified except as may be represented by the party requesting the certificate,
that there are no incurred defaults by the party requesting the certificate and
that not more than one (1) month's rent has been paid in advance.
ARTICLE 24. HOLDING OVER
24.01 If Lessee remains in possession of all or any part of the Demised
Premises after the expiration of the term hereof, with the express or implied
consent of Lessor, such tenancy shall be from month to month only, and not a
renewal hereof or an extension for any further term and in such case rent and
other monetary sums due hereunder shall be the amount payable at the expiration
of the term of this Lease and such month to month tenancy shall be subject to
every other term, covenant and agreement contained herein.
ARTICLE 25. SURRENDER
25.01 Upon the expiration or earlier termination of this Lease, Lessee shall
surrender the Demised Premises in the same condition as received, ordinary wear
and tear and damage by fire, earthquake, act of God or the elements alone
excepted. Lessee shall remove all of Lessee's personal property and trade
fixtures and shall repair, at Lessee's expense, any damage to the Demised
Premises or the Industrial Center caused by such removal, including, without
limitation, repair of floors and patching and repainting of walls where
required, all to Lessor's reasonable satisfaction. Any personal property or
trade fixtures not removed at the expiration or earlier termination of this
Lease shall be deemed abandoned by Lessee. If Lessor so elects, Lessee shall
also remove any alterations or improvements installed by or for Lessee which
would otherwise remain as part of the Demised
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Premises and Lessee shall restore the Demised Premises to their condition prior
to such installation.
25.02 Should Lessee fail to remove any personal property or trade fixtures,
or fail to remove any alterations or improvements as requested by Lessor, Lessee
shall be liable to Lessor for any and all removal costs, transportation and
storage expenses, and the cost of restoring the Demised Premises as required
herein. Lessee shall indemnify Lessor against any loss, damage or liability
resulting from delay by Lessee in so surrendering the Demised Premises,
including, without limitation, any claims made by any succeeding tenants founded
on such delay.
ARTICLE 26. WAIVER
26.01 No covenant, term or condition or the breach thereof shall be deemed
waived, except by written consent of the party against whom the waiver is
claimed, and any waiver of any covenant, term or condition shall not be deemed
to be a waiver of any preceding or succeeding breach of the same or any other
covenant, term or condition. Acceptance by Lessor of any performance by Lessee
after the time the same shall have become due shall not constitute a waiver by
Lessor of the breach or default of any covenant, term or condition unless
otherwise expressly agreed to by Lessor in writing. The receipt and acceptance
by Lessor of delinquent rent shall constitute only a waiver of timely payment
for the particular rent payment involved.
ARTICLE 27. QUIET ENJOYMENT
Lessor hereby covenants with Lessee that upon payment by Lessee of the
rent as aforesaid and upon observance and performance of the terms of this Lease
by Lessee, Lessee shall peaceably hold and enjoy the Demised Premises for the
term hereby demised without hindrance or interruption by Lessor or any person or
persons lawfully or equitably claiming by, through or under Lessor.
ARTICLE 28. NOTICES
28.01 All notices or demands required or permitted to be given hereunder
shall be in writing and shall be either personally served or mailed by certified
mail, return receipt requested, to the other party at the following addresses:
To Lessor: To Lessee:
JACK DYMOND LATHING COMPANY CATAPULT COMMUNICATIONS
201 San Antonio Circle, #172 160 S. Whisman Road Suites A&B
Mountain View, CA 94040 Mountain View, CA 94043
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8.02 Either party may change the foregoing address by giving notice to the
other in the manner provided herein. Any notice sent by mail shall be deemed
received on the second business day following deposit of the notice in the
United States Mail, with proper postage prepaid thereon.
ARTICLE 29. MISCELLANEOUS PROVISIONS
29.01 CAPTIONS. The captions used in this Lease are for convenience only
and shall not be deemed to be relevant in resolving any question of
interpretation or construction of any provision contained herein.
29.02 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes and cancels any prior agreements or
understandings, whether written or oral. This Agreement can only be modified by
a written amendment hereto executed by both parties.
29.03 SEVERABILITY. If any term or provision of this Lease shall, to any
extent, be determined by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of this Lease shall not be affected thereby, and
each term and provision of this Lease shall be valid and enforceable to the
fullest extent permitted by law.
29.04 TIME. Time is hereby declared to be of the essence of this Lease and
each and every provision hereof.
29.05 CORPORATE AUTHORITY. If Lessee is a corporation, each of the persons
executing this Lease on behalf of Lessee does hereby represent and warrant that
Lessee currently is in good standing in the state of its incorporation, that
Lessee is qualified to do business in California, that the corporation has full
right and authority to enter into this Lease, and that each person executing
this Lease on behalf of the corporation is duly authorized and empowered to do
so.
29.06 CALENDAR DAYS. All references herein to any acts or obligations to be
performed within a certain number of days shall mean calendar days, unless
otherwise specified.
29.07 EFFECTIVE DATE. Submission of this instrument for examination or
signature by Lessee does not constitute a reservation of or option for lease,
and this instrument is not effective as a lease or otherwise until execution and
delivery by both Lessor and Lessee, in which event this Lease shall become
effective on the date of execution or such other date as may be specified in
writing signed by Lessor and Lessee.
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29.08 CHOICE OF LAW. This Lease shall be governed by and interpreted in
accordance with the laws of the State of California.
29.09 MEMORANDUM OF LEASE. This Lease Agreement shall not be recorded but
the parties may agree to execute and record a Memorandum of Lease, in form
satisfactory to Lessor and Lessee.
29.10 SUCCESSORS AND ASSIGNS. Subject to the restrictions against
assignment and subletting by Lessee, this Lease shall be binding upon and inure
to the benefit of the respective heirs, executors, administrators, personal
representatives, successors and assigns of the parties hereto.
ARTICLE 30. LESSEE IMPROVEMENTS
30.01 Lessor, at Lessor's sole cost and expense shall provide the following
tenant improvement modifications:
(a) Paint newly constructed areas.
(b) Repaint area within existing 8,000 sq. ft. premises as required for
delivery of a fresh clean Premises.
(c) Assure that all existing electrical and mechanical is in good
condition with a useful life remaining of at least five (5) years. Assure
that the building exterior paint including building exterior doors, roof,
foundation and general building condition is good with no responsibility
for Lessee to bear costs of replacing such.
(d) Provide space planning service to modify existing plan and to
establish electrical requirements for lab and open office areas for
purposes of refining the bid and architectural fees associated with
Lessee's improvements, permitting, etc., not to exceed $ 6000.00
(e) Repairing, recurbing and restriping as required by city of Mt. View
during permitting process for ADA compliance Lessor shall also be
responsible for costs associated with ADA compliance of existing restrooms
and entry, exit doors required by city during Permitting process.
Lessee at Lessee's sole cost shall pay for improvements to be undertaken as
outlined on exhibit B. Except as noted above.
ARTICLE 31. CAP ON UTILITIES, TAXES, INSURANCE, COMMON AREA MAINTENANCE
21
<PAGE>
31.01 Lessee's obligation to pay charges as described in paragraphs 7.02,
8.03, 9.01, 9.02, and 10.01 shall not exceed 7 cents per square foot per month
over the term of the base Lease.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease the day and year
first above written.
LESSOR:
JACK DYMOND LATHING COMPANY, LLC
By /s/ [ILLEGIBLE]
---------------------------------
LESSEE:
CATAPULT COMMUNICATIONS, a
California Corporation
By /s/ Richard A. Karp
---------------------------------
22
<PAGE>
EXHIBIT "A"
CATAPULT COMMUNICATIONS
[FLOORPLAN]
<PAGE>
EXHIBIT "B"
CATAPULT COMMUNICATIONS
TENANT IMPROVEMENTS
[FLOORPLAN]
<PAGE>
Exhibit 10.9
SOFTWARE LICENSE, SOFTWARE SUPPORT and HARDWARE WARRANTY AGREEMENT
Revision 6: 5 January, 1998
An agreement is entered into between:
Catapult Communications and/or Catapult Communications
Corporation (CCC) Limited (also CCC)
160 South Whisman Road 17 Cavalier Court, Bumpers Farm
Mountain View, CA 94041 Chippenham Wiltshire 9N14 6LH UK
and
(LICENSEE)
---------------------------------------------------------------------
Referenced Purchase Order Number(s):
-------------------------------
Effective Date of Agreement:
---------------------------------------
DESIGNATED COUNTRY:
------------------------------------------------
DEFINITIONS Terms in this agreement which are in capital letters shall have
the meanings specified below:
LICENSED SOFTWARE means all or any portion of the source code or object code,
or derivatives thereof, for controlling the operation of a central processing
unit (CPU), and other information and documentation specifically listed in
the Schedule of Licensed Software (Appendix A).
OBJECT CPU(s) means the CPU(s) on which the LICENSED SOFTWARE will operate,
as specified in Appendix A.
DESIGNATED COUNTRY means the country in which the LICENSED SOFTWARE is
licensed to operate.
1. SOFTWARE LICENSE
GRANT OF LICENSE CCC, at the request of LICENSEE, grants to LICENSEE a
nontransferable and non-exclusive right to use the LICENSED SOFTWARE in the
DESIGNATED COUNTRY, solely for LICENSEE's own internal business purposes
and solely on or in conjunction with OBJECT CPU(s). No right is granted for
the use of the LICENSED SOFTWARE directly for any third party, or for any use
by any third party of the LICENSED SOFTWARE. CCC shall furnish the LICENSED
SOFTWARE in machine readable form to LICENSEE. If an OBJECT CPU becomes
inoperable, LICENSEE may use LICENSED SOFTWARE on a replacement CPU.
LICENSE RESTRICTIONS The Grant of License is subject to restrictions as
stated below.
- - LICENSEE agrees that it will not use the LICENSED SOFTWARE except as
authorized herein.
- - LICENSED SOFTWARE is copyrighted and title to all copies is retained by CCC.
No rights, title or interest in and to any trademarks or trade names of CCC is
granted hereunder. Nothing in this agreement grants to the LICENSEE any
rights to sell, lease, or otherwise dispose of the LICENSED SOFTWARE.
- - LICENSEE agrees that it will not make, or permit to be made, any copies of
the LICENSED SOFTWARE except that LICENSEE may make one copy of the LICENSED
SOFTWARE solely for backup or archival purposes.
- - LICENSEE agrees not to attempt and to use best efforts to prevent LICENSEE's
employees and contractors from attempting to reverse engineer, reverse
compile, modify, translate or disassemble the LICENSED SOFTWARE or any
complete or partial copy.
- - LICENSEE agrees that it will not without the prior written consent of CCC
transmit directly or indirectly the LICENSED SOFTWARE to any country outside
the DESIGNATED COUNTRY. If the LICENSED SOFTWARE is transmitted outside
of DESIGNATED COUNTRY, LICENSED SOFTWARE is subject to additional
fees as stated in the Fees section, and subject to the terms stated in the
Export Control section.
- - Restrictions related to using the LICENSED SOFTWARE only on the OBJECT
CPU(s) and to making copies of the LICENSED SOFTWARE only for backup and
archival purposes do not apply to the compiler of the LICENSED SOFTWARE.
LIMITED SOFTWARE WARRANTY CCC warrants only that LICENSED SOFTWARE will, if
properly installed by LICENSEE, substantially conform with the published
documentation and specifications for such LICENSED SOFTWARE. The foregoing
warranty shall apply to LICENSED SOFTWARE for a period of ninety (90) days
from the date of receipt. During this 90 day period, LICENSEE is entitled to
the same level of support service specified in the following Software Support
Section.
WARRANTY EXCEPTIONS The software warranty set forth above shall not apply to
any defects or problems caused in whole or in part by (i) any defect in any
portion of any hardware or equipment; (ii) the failure of any portion of any
hardware or equipment to function in accordance with applicable manufacturer's
specifications; (iii) any modification or enhancement made to the LICENSED
SOFTWARE by LICENSEE or any third person or entity other than CCC; (iv) any
software program, hardware, firmware, peripheral or communication device used
in connection with the LICENSED SOFTWARE; (v) the failure of LICENSEE or any
third person or entity to follow the most current instructions provided by
CCC from time to time with respect to proper use of the LICENSED SOFTWARE;
or (vi) the negligence of LICENSEE or any other third party or entity.
NO OTHER WARRANTIES EXCEPT AS EXPLICITLY STATED IN THIS AGREEMENT, CCC MAKES NO
OTHER WARRANTIES OR REPRESENTATIONS, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT
NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, WITH REGARD TO LICENSED SOFTWARE AND SUPPORT SERVICES, THE
ACCOMPANYING WRITTEN MATERIALS, AND ANY ACCOMPANYING HARDWARE.
2. SOFTWARE SUPPORT LICENSEE wishes to have CCC provide Software Support
Services for the LICENSED SOFTWARE. The Software Support Services will begin
after the expiration of the 90 day warranty of LICENSED SOFTWARE, and will
continue for 1 year. The Software Support Services will automatically renew
for an additional year on each anniversary date upon receipt of the fees for
the services described in the Fees section, unless the services are
terminated by either party pursuant to the Termination section of this
Agreement. The Software Support Services apply only to the most current
release of LICENSED SOFTWARE.
CCC agrees to provide LICENSEE with Software
Support Services as stated below:
- - CCC will send to LICENSEE any new releases of the LICENSED SOFTWARE which
CCC has scheduled for release during the term of this agreement.
- - In the event that CCC makes available problem fixes, enhancements and
upgrades (which are not separately licensed) to other Licensees of CCC, CCC
shall provide the same to LICENSEE at no additional cost.
- - CCC will fix problems in the LICENSED SOFTWARE reported to CCC by LICENSEE
during the term of this agreement.
- - CCC shall provide LICENSEE with technical support during normal business
hours to help answer or solve technical inquiries and problems. Technical
support services are provided via telephone, e-mail and fax.
- - For emergency problems, CCC will provide the staff time necessary to fix the
problem and LICENSEE will cover any of CCC's reasonable travel expenses.
LICENSEE agrees to the following regarding CCC Software Support Services:
- - LICENSEE accepts the responsibility for upgrading to the most current
release of LICENSED SOFTWARE provided by CCC.
- - LICENSEE agrees that it will appoint at most one point of contact to work
with CCC on support issues for each DCT-S system covered under this
Agreement, and that this point of contact will participate in the full
training course for the LICENSED SOFTWARE offered by CCC.
<PAGE>
2
- - LICENSEE will report problems in accordance with the Problem Reporting
System described in Appendix C. Most importantly, LICENSEE will (i) identify,
document and report each problem with the Licensed Software necessitating
support service (using the Problem Report form), and (ii) supply CCC with
all reasonable documentation and assistance necessary to demonstrate and allow
CCC to diagnose the problem.
3. HARDWARE DCT-S hardware is warranted as described in Appendix B.
4. FEES AND REPORTS
LICENSED SOFTWARE FEES LICENSEE shall, within thirty days after receipt of
LICENSED SOFTWARE by LICENSEE, pay to CCC the fees for the rights granted
hereunder with respect to the LICENSED SOFTWARE and OBJECT CPU(s). The
software license fees are stated in the above-referenced Purchase Order.
If LICENSEE needs to use the software outside of the DESIGNATED COUNTRY and
CCC approves such use, LICENSEE will be responsible for paying to CCC the
difference between the purchase price of the LICENSED SOFTWARE and the list
price of the LICENSED SOFTWARE in the country into which it is being
transferred. The payment is due at the time of the transfer, and export laws
of the DESIGNATED COUNTRY are in effect. If the period of use in the other
country will be less than thirty (30) days, LICENSEE is exempted from paying
the additional software fees.
SOFTWARE SUPPORT FEES LICENSEE shall, before the software warranty expires,
pay to CCC at the address specified above the then-current published annual
Software Support Services fees for the LICENSED SOFTWARE. The support fee for
the first year for LICENSED SOFTWARE is stated in the above-referenced
Purchase Order. To renew the Software Support Services for an additional
year, LICENSEE shall pay to CCC at the address specified above the
then-current published annual support fees before the expiration of the then
current term of the annual Software Support Services. Failure to pay the full
annual fees within said periods may cause immediate termination of the
Software Support Services by CCC.
REPORTS CCC may request (but not more frequently than annually) that LICENSEE
furnish to CCC a statement, certified by an authorized representative of
LICENSEE, that the LICENSED SOFTWARE is being used by LICENSEE solely on
appropriate OBJECT CPU(s).
TAXES Except for taxes imposed on CCC's income, LICENSEE shall bear all taxes
imposed as a result of the existence or operation of this agreement, and any
tax which LICENSEE is required to withhold or deduct from payments to CCC.
5. OTHER TERMS
CONFIDENTIAL INFORMATION The party that is disclosing confidential
information shall clearly identify such information as confidential
information when furnishing it to the receiving party. In the case of
information transmitted in writing, such identification will be made by
marking such information clearly as confidential information; and in the case
of information transmitted orally, the disclosing party shall provide, within
thirty (30) days after the disclosure, a written communication clearly
identifying such confidential information as it has provided. All
confidential information shall be kept in confidence by the receiving party,
the measure of that confidence being that the receiving party shall use the
same degree of care, but no less than a reasonable degree of care, to prevent
and avoid unauthorized disclosure of its own information of a similar nature.
All confidential information may be used by the receiving party solely for
the purposes contemplated in the Agreement. The receiving party shall not be
liable for any disclosure of such confidential information if the information
at the time of disclosure:
(a) was in the receiving party's possession before receipt from the disclosing
party; b) is a matter of public knowledge through no fault of the receiving
party; c) has been rightfully received by the receiving party from a third
party without a duty of confidentiality; d) has been disclosed by the
disclosing party to a third party without duty of confidentiality on the
third party; e) has been independently developed by the receiving party; f)
has been disclosed under operation of law; or g) is disclosed by the
receiving party with the disclosing party's prior written approval.
IF LICENSEE purchases the rights to any source code, LICENSEE acknowledges
and agrees that use of this code is on a confidential basis for the sole and
exclusive use of LICENSEE, and not for sale, sub license or disclosure to
third parties. LICENSEE agrees that it will not (i) publish, disclose or
otherwise divulge the source of the LICENSED SOFTWARE to any person except to
employees and independent contractors of LICENSEE who have entered into
nondisclosure agreements containing obligations at least as restrictive as
the nondisclosure terms contained in the Confidential Information section of
this Agreement, either during the term or after termination of this
Agreement, nor (ii) permit its employees or independent contractors to so
divulge any such source, without the prior written consent of CCC. LICENSEE
agrees to take all necessary steps to prevent unauthorized disclosure of
such source code. In some cases, CCC may impose additional restrictions
regarding the use and safekeeping of its source code, and will require
LICENSEE to execute a more restrictive agreement.
TERMINATION Unless canceled pursuant to its terms, this Agreement shall be in
effect for so long as customer rightfully retains possession of the LICENSED
SOFTWARE. Either party may terminate this agreement in the event of a breach
by the other party which is not cured following thirty (30) days written
notice from the non-breaching party. Upon termination, customer must destroy
all copies of LICENSED SOFTWARE. If the termination of Software Support
Services is caused by breach of contract by CCC, CCC shall not have any
obligation to LICENSEE except to refund to LICENSEE a pro-rata portion of the
support fee paid.
PROPRIETARY RIGHTS INDEMNITY CCC shall defend at CCC's expense any claim,
suit or proceeding brought against LICENSEE insofar as it is based on a claim
that the LICENSED SOFTWARE constitutes a direct infringement of a US or UK
copyright of a third party. To qualify for such a defense and payment
LICENSEE must: (i) give CCC prompt written notice of any such claim; and (ii)
allow CCC to control and fully cooperate with CCC in the defense and all
related settlement negotiations. CCC shall pay to LICENSEE all damages
finally awarded to third parties which LICENSEE is obligated to pay but shall
not be responsible for any compromise made without its consent. Upon notice
of an alleged infringement or if in CCC's opinions such a claim is likely,
CCC shall have the right, at its option, to obtain the right to continue
licensing the LICENSED SOFTWARE; in the event that this option is not
reasonably available in CCC's opinion, LICENSEE's sole and exclusive remedy
shall be to terminate this Agreement, to return the LICENSED SOFTWARE to CCC
and to obtain a refund from CCC of the fee paid by LICENSEE for such LICENSED
SOFTWARE.
NO LIABILITY FOR CONSEQUENTIAL DAMAGES IN NO EVENT SHALL CCC BE LIABLE FOR
ANY LOST REVENUE, PROFIT OR DATA, OR FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL,
INCIDENTAL, OR PUNITIVE DAMAGES (HOWEVER CAUSED AND REGARDLESS OF THEORY OF
LIABILITY) ARISING OUT OF THE USE OF OR INABILITY TO USE LICENSED SOFTWARE,
EVEN IF CCC HAS BEEN ADVISED OF THE POSSIBILITY OF DAMAGES.
FORCS MAJEURE Except for payment, neither LICENSEE nor CCC shall be liable
for any failure to perform its obligations under this agreement if such
failure arises from any act of god, war, strike, lockout, or other labor
dispute, riot, civil commotion, fire, flood, earthquake, drought, legislation
or other causes beyond the parties' control.
<PAGE>
3
US. GOVERNMENT RESTRICTED RIGHTS The LICENSED SOFTWARE is provided with
RESTRICTED RIGHTS. Use, duplication, or disclosure by the Government is
subject to restrictions as set forth in subparagraph (c)(l)(ii) of the
Rights in Technical Data and Computer Software clause at DFARS 252.227-7013
or subparagraphs (c)(1) and (2) of the Commercial Computer Software -
Restricted Rights at 48 CFR 52.227-19, as applicable. Manufacturer is CCC as
listed above.
EXPORT CONTROL LICENSEE acknowledges that the laws and regulations of the
DESIGNATED COUNTRY may restrict the export and re-export of certain
commodities and technical data, including the LICENSED SOFTWARE. LICENSEE
agrees that it will not export or re-export the LICENSED SOFTWARE without the
appropriate license from the DESIGNATED COUNTRY and foreign government.
GOVERNING LAW For goods shipped to North America and the Far East, this
contract is deemed made in the state of California and shall be interpreted
under the Uniform Commercial Code and other laws of the state of California
in force at the date of the contract. For goods shipped to Europe and Israel,
this contract is deemed made in England and shall be interpreted under the
laws of England in force at the date of the contract. The parties agree that
the United Nations Convention on Contracts for the International Sale of
Goods (1980) is specifically excluded from application to this Agreement.
ATTORNEY'S FEES If either LICENSEE or CCC employs attorneys to enforce any
rights arising out of or relating to this Agreement, the prevailing party
shall be entitled to recover its reasonable attorney's fees, costs and other
expenses.
WAIVER The failure of either party to exercise any right hereunder shall not
be deemed to be a waiver of such right. The failure of either party to
require performance by the other party of any provision of this Agreement
shall not affect the full right to require such performance at any time
thereafter; nor shall the waiver by either party of a breach or any provision
hereof be taken or held to be a waiver of the provision itself.
SURVIVAL Rights to payment, indemnity, confidentiality, limits to liability,
and except as otherwise expressly provided herein, any right of action for
breach of this Agreement prior to termination shall survive any termination
of this Agreement.
NOTICE Notices under this Agreement shall be sufficient only if personally
delivered or delivered by a major commercial rapid delivery courier service
to a party at its address stated above, or as amended pursuant to this
subsection.
HEADINGS Headings are for convenience only and are not to be used in the
interpretation of this agreement.
GENERAL This agreement and CCC's Terms and Conditions set forth the entire
agreement and understanding between the parties as to the subject matter
hereof. This agreement shall prevail notwithstanding any conflicting terms or
legends which may appear in LICENSED SOFTWARE. This Agreement may not be
modified except in writing signed by a duly authorized representative of each
party. If any provision of this Agreement is held to be illegal or
unenforceable, that provision shall be limited or eliminated to the minimum
extent necessary so that this Agreement shall otherwise remain in full force
and effect and enforceable. Failure of one party to require the other party
to adhere to any of the terms of this Agreement in no way alters the
enforceability of any of the terms in this Agreement. Neither this agreement
nor any rights hereunder, in whole or in part, shall be assignable or
otherwise transferable by LICENSEE without written permission from CCC.
IN WITNESS WHEREOF, each party has caused this agreement to be executed in
duplicate originals by its duly authorized representatives on the dates
entered below.
CATAPULT COMMUNICATION LICENSEE:
CORPORATION / LIMITED ------------------------
By Date By Date
---------------------- -------- -------------------- --------
Name Name
---------------------------------- ------------------------------
Title Title
--------------------------------- ------------------------------
<PAGE>
4
APPENDIX A
SCHEDULE OF LICENSED SOFTWARE
The LICENSED SOFTWARE includes all software modules purchased with LICENSEE
Purchase Order referenced above, and also includes all associated on-line
documentation.
License of software for each DCT-S system is based on the size of the system.
Each DCT-S system consists of hardware (one or more workstations and one or
more DCT8000 Modular Physical Interface Host cards and/or one or more DCT8210
TSC co-processor cards)
Some of software is licensed on a per-Workstation basis (e.g., D-driver Base
Software, VOX, Test Suites), and some software is licensed based on the total
number of MPI and TSC co-processor cards ("Software Units"). MPI and TSC
cards may not be moved between DCT-S systems.
The LICENSED SOFTWARE for each DCT-S system is listed below:
DCT-S System #
----------------------
OBJECT CPU Configuration [e.g., Workstation with 3 MPIs, 1 TSC, 1 VOX]
----------
OBJECT CPU Serial Number
-------------------------------
Total Number Software Units:
---------------------------
DCPL2000 D-driver Base Software
-------- ----------------------
-------- ----------------------
-------- ----------------------
-------- ----------------------
-------- ----------------------
-------- ----------------------
-------- ----------------------
DCT-S System #
----------------------
OBJECT CPU Configuration [e.g., Workstation with 3 MPIs, 1TSC]
-----------------
OBJECT CPU Serial Number
-------------------------------
Total Number Software Units:
---------------------------
DCPL2000 D-driver Base Software
-------- ----------------------
-------- ----------------------
-------- ----------------------
-------- ----------------------
-------- ----------------------
-------- ----------------------
-------- ----------------------
<PAGE>
5
APPENDIX B
DCT-S HARDWARE WARRANTIES
DCT-S HARDWARE
The following hardware has a 180-day warranty:
DCT8000 Modular Physical Interface with a mezzanine card (DCT8001,
DCT8002, DCT8003, DCT8004 or DCT8005)
DCT8010 E1 Mezzanine and Modular Physical Interface Host Card
DCT8020 T1 Mezzanine and Modular Physical Interface Host Card
DCT8030 Serial Mezzanine and Modular Physical Interface Host Card
DCT8040 S/T Mezzanine and Modular Physical Interface Host Card
DCT8050 CII Mezzanine and Modular Physical Interface Host Card
DCT8210 Time Slot Controller
DCT8601 E1 VOX
DCT8602 T1 VOX
DCT8800 Primary Rate Interface
DCT8500 ISDN BRI Interface
DCT8700 Codec to SLIC Conversion
DCT8880 Time Slot Interchange Card (TSI)
DCT8888 CMI/E1 Translator Card
SP2403 1-Slot VME Cage with Power Supply
SP2406 SBus Extender Chassis
SP2407 7-Slot VME CAge with Power Supply
SP2308 8 Serial Port Extender
During the warranty periods, failed products may be returned to CCC for repair
or replacement (at CCC's discretion). Customer must obtain from CCC a return
material authorization number (RMA Number) prior to returning products to CCC.
All products must be returned freight pre-paid. Products purchased in North
America and the Far East outside of Japan and Israel must be returned to the
CCC office in Mountain View, California; products purchased in Europe must be
returned to the CCC office in England; products purchased in Japan must be
returned to the CCC office in Japan. After the warranty period, failed
products may be returned to CCC for repairs; these repairs are chargeable to
LICENSEE.
SUN PRODUCTS
The warranty period for Sun software is 90 days. For workstations and
accessory products, the warranty period is one year. For products purchased
in North America, the customer should call 1-800-872-4786 and provide their
CPU System Serial Number to Sun support. Sun will generally be able to
diagnose the problem over the phone and send replacement or loaner hardware
to the customer within 48 hours.
Products purchased in Europe must be returned to the CCC office in England.
Products purchased in Japan must be returned to the CCC office in Japan.
Products purchased in Israel must be returned to the CCC office in North
America
After the warranty periods, customers should work directly with Sun
Microsystems.
RDI PRODUCTS
RDI products come with a one-year warranty for parts and labor. For Products
purchased in North America, customer should contact RDI at 1-800-734-7030
between 7 AM and 6 PM Pacific Time. European customers should contact CCC in
England; Japanese customers should contact CCC in Japan. RDI global support
can also be reached at 1-760-930-0762 via fax or [email protected] via email.
NO OTHER WARRANTIES
EXCEPT AS EXPLICITLY STATED IN THIS AGREEMENT, CCC MAKES NO OTHER WARRANTIES
OR REPRESENTATIONS, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO
IMPLIED WARRANTIES OR MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE,
WITH REGARD TO DCT-S HARDWARE.
<PAGE>
6
APPENDIX C
DCT-S SOFTWARE PROBLEM REPORTING SYSTEM
The Problem Reporting System is designed to insure that all DCT-S D-driver
software problems uncovered by customers are reported in sufficient detail
to allow Catapult Communications Corporation ("CCC") to determine their
causes and implement their fixes.
The customer will submit each Problem Report to CCC in writing. Though
electronic mail is the preferred means of communication, fax and
non-electronic mail will also be considered in writing.
The customer will (i) identify, document and report each problem with the
Licensed Software necessitating support service (using the Problem Report
form), and (ii) supply CCC with all reasonable documentation and assistance
necessary to demonstrate and allow CCC to diagnose the problem.
Each Problem Report must contain the information required in the DCT Problem
Report, which is available electronically in the /doc/common subdirectory
with the filename "prform.txt".
NUMBERING SCHEME for their own records, customers should assign unique
numbers to each Problem Report given to CCC. Problem report numbers should
consist of the following fields, separated by dashes:
1. Customer ID consisting of the characters: "ABC".
2. [Release number].v[ersion number].b[ranch number] of the software
3. Three digit sequential number - to be recycled with each new copy of
the D-driver software released to the customer.
For example, the first problem noted in release 10, version 2 of D-driver is
numbered "ABC-10v4-001", the second one noted for this same version is
"ABC-10v4-002", etc. When a new version of D-driver is released to the
customer, the Problem Report sequence numbers recycle, so that the first
problem encountered in the next version is numbered "ABC-10v5-001".
CLASSIFICATION SCHEME Each Problem Report will be classified as to the
severity of the problem. The classifications are:
CLASS 1 - Critical bug. Brings the entire D-driver system to a halt. No
progress is possible until the problem is fixed, and there is no way to work
around the problem.
CLASS 2 - Severe bug. Although some functions continue to work, substantial
parts of the system do not operate, and there is no way to work around the
inoperable portions of the system.
CLASS 3 - Specific bug. System works except for the specific feature for
which the problem is being reported, and there is no way to work around the
problem.
CLASS 4 - Critical bug (same as Class 1), except there is a way to work
around the problem so that the systems functions properly.
CLASS 5 - Severe bug (same as Class 2), except there is a way to work around
the problem so that the system functions properly.
CLASS 6 - Specific bug (same as Class 3), except there is a way to work
around the problem so that the system functions properly.
CLASS 7 - Cosmetic bug. System performance is fine, but presentation to the
user is incorrect.
CLASS 8 - Not a bug, but a request for software modification (i.e. software
works as specified, but a change in specification is desired).
When the customer submits a Problem Report, the customer will propose an
initial classification to the report. However, CCC retains final authority
for Problem Report classification.
PROBLEM FIXES CCC will make its best efforts to provide very timely
responses to all Problem Reports, especially those in Classes 1, 2, and 3. In
order to insure prompt responses to Problem Reports, CCC will supply an
Acknowledgment to each Report within 5 working days. CCC will use its best
efforts to fix all Class 1-7 problems by the next software release. Next
software release means the next scheduled release of the software (provided
the Problem Report is received at least 60 days prior to schedule release
date).
<PAGE>
Exhibit 10.10
SEVERANCE AGREEMENT
AND MUTUAL RELEASE OF ALL CLAIMS
This Severance Agreement and Mutual Release of All Claims ("Agreement")
is made this 8th day of June, 1998 by and between Nancy Hood Karp ("NHK")
and Catapult Communications Corporation, a California corporation,
("Company"). The "Effective Date" of this Agreement shall be June 15th,
1998.
WITNESSETH:
WHEREAS, during the period 1985 to December 1997, NHK performed various
valuable services to the Company in the areas of human resources, business
planning, accounting management, bookkeeping, office manager, facilities
management, customer relations in support of sales/marketing, corporate
communications/operations, corporate secretary and director (the collective
valuable services referenced hereinabove shall hereinafter be referred to as
the "Services").
WHEREAS, NHK and the Company desire to settle fully and finally all
differences between them, including, but in no way limited to, those
differences related to NHK's claim that she is owed past due bonus and
compensation for all Services performed by her during the period 1985 to 1997
and that she had an implied in fact employment contract that guaranteed her
continued employment with the Company absent a good cause termination;
WHEREAS, the Company expects shortly to change its state of
incorporation from California to Nevada by merging into a wholly-owned
subsidiary incorporated in Nevada ("Catapult Nevada") and this Agreement is
intended to apply equally to such successor corporation;
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained and other good and valuable consideration, receipt of which
is hereby acknowledged, it is hereby agreed by and among the parties as
follows:
1. OBLIGATIONS OF THE COMPANY
The parties agree that references in this Agreement to the Company shall
include Catapult Nevada to the extent necessary to bind Catapult Nevada to
perform the obligations of the Company under this Agreement and to give
Catapult Nevada the full benefit of NHK's obligations and agreements under
this Agreement.
(a) SEVERANCE COMPENSATION: The Company agrees to make a general
severance payment to NHK in a lump sum of eighty thousand dollars
($80,000) (subject to withholding) in return for the general
release and waiver of claims contained in paragraph 3 below;
1
<PAGE>
(b) The Company agrees to pay to NHK, without deduction, a one time
fee of seven thousand five hundred dollars ($7,500) as an expense
reimbursement to defer any costs incurred by NHK in retaining a
career counseling and employment transition consulting firm;
(c) Upon authorization and instruction from NHK, the Company will pay
a portion of NHK's attorneys fees, in the amount of $10,000,
directly to Flicker & Kerin, LLP;
(d) All payments set forth in paragraph 2(a) through 2(c) inclusive
shall be due and payable by the Company to NHK on the Effective
Date of this Agreement;
(e) The Company will reimburse NHK up to five hundred dollars $500 per
month (or the actual cost, whichever is less) for the cost of
converting her medical, dental and life insurance to an individual
coverage plan. Said health insurance and life insurance premium
reimbursements shall be paid for a period of one year from the
Effective Date of this Agreement.
(f) The Company agrees to permit NHK to include her shares among the
shares to be sold by selling shareholders in any initial public
offering ("IPO") initiated by the Company to the extent of (i) 75%
of the maximum amount allocated to NHK and Richard A. Karp, (ii)
an additional 38,000 shares (pre-split) to be received by NHK from
Richard A. Karp pursuant to the terms of NHK and Richard A. Karp's
Partial Marital Settlement Agreement executed concurrently
herewith and (iii) the entire amount of any shares sold pursuant
to an exercise of the underwriters' over-allotment option. NHK
agrees to sell the foregoing shares in the IPO to the extent
permitted by the underwriters.
(g) The Company further agrees that if the IPO is not completed by
December 31st, 1998, it will commence a program of repurchasing
NHK's shares at the rate of up to 50,000 shares per annum, in
quarterly installments of up to 12,500 shares, beginning on March
31st, 1999 and continuing for each calendar quarter thereafter
until the earlier of (i) the death of NHK or Richard A. Karp,
(ii) NHK receives a cumulative five million dollars ($5,000,000)
(pre-tax) from sales of her stock, (iii) NHK remarries, (iv) the
Company's IPO, (v) the Company is acquired or (vi) twelve (12)
years have elapsed from March 31st, 1999.
The repurchase price will be the fair market value of the Common
Stock as determined in good faith by the Board of Directors at
least on an annual basis. Repurchase will be effected on the last
day of each fiscal quarter provided NHK gives notice to the
Company not less than ten (10) days before each such date that she
elects to sell her shares on that date. The
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Company will not be obligated to repurchase shares on any date
except to the extent that (i) the repurchase may be made in
compliance with applicable California and Nevada statutes
governing distributions to shareholders and (ii) the amount to be
paid will not exceed thirty percent (30%) of the difference
between (a) the Company's cash and cash equivalents, short-term
investments and accounts receivable (net of allowance for doubtful
accounts) and (b) current liabilities excluding deferred revenue,
all as set forth on the Company's balance sheet at the end of the
prior fiscal quarter immediately preceding the quarter for which
the repurchase is being effected.
2. (a) NHK agrees that the foregoing payments shall constitute the entire
amount of monetary consideration provided to her under this Agreement
and that she will not seek any further compensation for any other
claimed damage, costs, or attorney's fees in connection with the matters
encompassed in this Agreement. NHK further expressly agrees in light of
the payment (as set forth in paragraph l(a)) by the Company to NHK that
all wages, bonuses, accrued vacation, commissions and any and all other
benefits due her of any kind have been paid and that California Labor
Code Section 206.5 is not applicable to her and the Company.
California Labor Code Section 206.5 provides as follows:
NO EMPLOYER SHALL REQUIRE THE EXECUTION OF ANY RELEASE OF ANY
CLAIM OR RIGHT ON ACCOUNT OF WAGES DUE, OR TO BECOME DUE, OR MADE
AS AN ADVANCE ON WAGES TO BE EARNED, UNLESS PAYMENT OF SUCH WAGES
HAS BEEN MADE. ANY RELEASE REQUIRED OR EXECUTED IN VIOLATION OF
THE PROVISIONS OF THIS SECTION SHALL BE NULL AND VOID AS BETWEEN
THE EMPLOYER AND THE EMPLOYEE AND THE VIOLATION OF THE PROVISIONS
OF THIS SECTION SHALL BE A MISDEMEANOR.
(b) NHK acknowledges and agrees that the Company has made no
representations to her regarding the tax consequences of any
amounts received by her pursuant to this Agreement. NHK agrees to
pay federal or state taxes, if any, which are required by law to
be paid by her with respect to this settlement. NHK further agrees
to indemnify and hold the Company harmless from any claims,
demands, deficiencies, levies, assessments, executions, judgments
or recoveries by any governmental entity against the Company on
account of any failure to pay any tax required to be paid for any
amounts claimed due on account of this Agreement or pursuant to
claims made under any federal or state tax laws sustained by the
Company by reason of any such claims, including any amounts paid
as taxes, attorney's fees, deficiencies, levies, assessments,
fines, penalties, or interest. Notwithstanding the foregoing, the
Company
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shall be responsible for paying any amounts due with respect to
the employer's liability for social security.
3. GENERAL RELEASE AND WAIVER OF CLAIN4S
a. RELEASED CLAIMS. For value received, the adequacy and sufficiency
of which is hereby acknowledged, each of NHK and the Company, on behalf
of themselves and their respective officers, directors, supervisors,
agents, representatives, employees, executors, attorneys,
administrators, successors in interest and assigns, fully release and
discharge the other, including their predecessors, successors, assigns,
shareholders, affiliates, partners, officers, directors, supervisors,
employees, agents, underwriters and attorneys, past and present, and
each of them, from:
(i) any and all CLAIMS, liens, demands, causes of action,
obligations, damages and liabilities of any nature whatsoever,
known or unknown, that each has had in the past or now has or may
have in the future against the other, or any other persons or
entities, arising directly or indirectly out of, or related in any
way to the Services performed by NHK, NHK's employment with the
Company or related in any way to NHK's status, duties or actions as
an officer, director, employee and/or shareholder of the Company
from approximately 1985 to June 8th, 1998. It is the intent of the
undersigned to release each other to the fullest extent possible as
to all Claims.
The undersigned agree and understand that the word "CLAIMS" shall
include, without limitation, any claims related to any wrongful discharge
claims, any claims based on contracts of employment, express or implied, any
covenant of good faith and fair dealing, express or implied, any tort of any
nature, sexual harassment claims, breach of fiduciary duty claims, claims of
interference with prospective economic advantage, lost earnings and benefits
claims, defamation claims, punitive damages claims, claims for intentional or
negligent infliction of emotional distress, negligence claims, any claims or
actions based upon any federal, state or local laws, statutes or ordinances,
including but not limited to any claims arising under the Fair Employment and
Housing Act (Ca. Govt. Code Sections 12900 et seq., the Age Discrimination in
Employment Act of 1967 (29 U.S.C. Sections 129 et seq.), the 1991 Civil
Rights Act, the Americans with Disabilities Act, the California Health and
Safety Code, the California Constitution and the Unruh Civil Rights Act,
California Workers' Compensation laws, and all other statutes, regulations,
ordinances or case law relating to employment, shareholders, officers or
directors in any way whatsoever.
All such "CLAIMS" (including related attorney's fees and costs) are
forever barred by this Agreement.
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(ii) Any and all other claims, liens, demands, causes of action,
obligations, damages and liabilities of any nature whatsoever,
known or unknown, that each has had in the past or now has against
the other, whether related or unrelated to the above-referenced
CLAIMS. Both NHK on the one hand and the Company on the other hand
expressly understand and acknowledge that it is possible that
unknown losses or claims exist or that present losses may have been
underestimated in amount or severity, and both parties hereto
explicitly took into account in agreeing to execute this Agreement
and the covenants contained herein, having been bargained for
between the parties with the knowledge of the possibility of such
unknown claims, were given in exchange for a full accord,
satisfaction and discharge of all such claims. Consequently, NHK on
the one hand and the Company on the other hand each knowingly waive
all rights under Section 1542 of the Civil Code of the State of
California, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED
HIS SETTLEMENT WITH THE DEBTOR.
b. RELEASE EXCLUSIVE OF OBLIGATIONS UNDER THIS AGREEMENT.
Notwithstanding the above, the Parties expressly agree that this release
does not extend to the legal obligations created by this Agreement, the
Consulting and Non-Competition Agreement dated June 8th, 1998, the
Catapult Communications Corporation Voting Trust Agreement dated June
8th, 1998 and the Partial Marital Settlement Agreement dated June 8th,
1998 (collectively referred to as the "Other Agreements") and shall not
constitute a defense to any action to enforce such obligations.
4. DENIAL AND COMPROMISE OF CLAIMS. It is understood and agreed that this
Agreement is a compromise of disputed claims and that the liability for
any Claims is denied by the parties herein released. This Agreement is
not intended to nor will it be alleged to constitute evidence or be an
admission by any party of any liability, omission or wrongdoing of any
kind whatever, nor shall this Agreement be offered or received into
evidence or otherwise filed or lodged in any proceeding against any
party hereto, except as may be necessary to prove the terms of the
Agreement or to enforce the same.
5. NHK represents she has not filed any complaints, claims, or actions
against the Company, its officers, agents, directors, supervisors,
employees, or representatives with any state, federal, or local agency
or court, and that she will not do so at any time hereafter.
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6. Each Party hereto agrees that she/it will keep the facts, terms, and
amount of this Agreement completely confidential and that each Party
will not hereafter disclose any information concerning this Agreement to
anyone except their spouse, professional advisors and attorneys,
provided that any Party hereto may make such disclosures as are required
by law and as are necessary for legitimate law enforcement or compliance
purposes. The parties acknowledge that the material terms of this
Agreement will be disclosed by the Company in a registration statement
to be filed under the Securities Act of 1933 and that a copy of this
Agreement will be publicly filed with the Securities and Exchange
Commission.
7. NHK understands and agrees that she:
(a) Has been given the opportunity to have a full twenty-one (21)
days within which to consider this Agreement before executing it
but may choose to waive the right to take the full twenty-one (21)
days and in fact has knowingly waived her opportunity to have a
full twenty-one (21) days to consider this Agreement.
(b) Has carefully read and fully understands all of the provisions of
this Agreement.
(c) Knowingly and voluntarily agrees to all of the terms set forth in
this Agreement.
(d) Knowingly and voluntarily intends to be legally bound by the same.
(e) Was advised and hereby is advised in writing to consider the terms
of this Agreement and consult with her attorney of record prior to
executing this Agreement.
(f) Acknowledges and warrants to the Company that she has a full seven
(7) days following her execution of this Agreement on June 8th,
1998 to revoke this Agreement and has been and is hereby advised
in writing that this Agreement shall not become effective or
enforceable until the revocation period has expired, which is June
15th, 1998.
(g) INTEGRATION. This Agreement and the Other Agreements,
collectively, sets forth the entire agreement between the parties
and supersedes any and all prior agreements or understandings,
written or oral, between the parties pertaining to the subject
matter of this Agreement and/or the Other Agreements. The Parties
agree that except as expressly set forth herein, neither Party has
made any representation or promise to the other that was material
to the decision to enter into this Agreement or the Other
Agreements, or upon which the other Party relied in any way.
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(h) NON-ASSIGNMENT OF CLAIMS. Each Party represents that it has not
assigned any claim relating to NHK's employment with the Company
to any third party.
8. COVENANT NOT TO SUE. As of the effective date of this Agreement, the
Parties each covenant and agree not to assert in any procedural form or
forum, whether initially or by way of defense, offset, cross-, counter-
or third-party claim, any Released Claim against any person or entity
then entitled to a release hereunder. The Parties shall indemnify,
defend and hold harmless every person and entity then entitled to a
release hereunder from and against any and all claims resulting from its
own actual or alleged breach of this covenant not to sue.
9. CONSULTATION WITH COUNSEL. Each Party represents and acknowledges that
it has discussed this Agreement with its counsel, and has read carefully
and fully understands the provisions of this Agreement.
10. ATTORNEYS' FEES. Each Party will bear its own attorneys' fees and costs
except as otherwise provided for in this Agreement.
11. INTERPRETATION OF AGREEMENT. This Agreement shall be construed without
regard to the drafter of same and shall be construed as though both
Parties participated equally in the drafting of the Agreement.
12. AMENDMENTS. This Agreement may be modified or amended only by a writing
signed by the Party to be charged.
13. WAIVER OF BREACH. The waiver by one Party of any breach of this
Agreement by the other Party shall not be deemed a waiver of any prior
or subsequent breach of this Agreement.
14. RELIEF FOR VIOLATION. The Parties agree that if, at any time, a
violation of any term of this Agreement is asserted by any Party hereto,
that Party shall have the right to seek specific performance of that
term and/or any other necessary and proper relief, including but not
limited to damages, from any court of competent jurisdiction, and the
prevailing party shall be entitled to recover its reasonable costs and
attorney's fees.
15. SEVERABILITY. Should any provision of this Agreement be declared or be
determined by any court of competent jurisdiction to be wholly or
partially illegal, invalid, or unenforceable, the legality, validity,
and enforceability of the remaining parts, terms, or provisions shall
not be affected thereby, and said illegal, unenforceable, or invalid
part, term, or provision shall be deemed not to be a part of this
Agreement.
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16. AUTHORIZATION. Each person or entity signing this Agreement represents
and warrants that he or she is duly authorized and has legal capacity to
execute and deliver this Agreement. Each Party represents and warrants
to the other that the execution and delivery of the Agreement and the
performance of such party's obligations hereunder have been duly
authorized and that the Agreement is a valid and legal Agreement binding
on such Party and enforceable in accordance with its terms.
17. EXECUTION IN COUNTERPARTS AND BY FACSIMILE. This Agreement may be
executed in counterparts. Executed signature pages exchanged by
facsimile transmission shall have the same force and effect as the
original executed signature pages.
18. CHOICE OF LAW AND EXCLUSIVE VENUE. The interpretation or performance of
this Agreement shall be construed and enforced in accordance with the
laws of the State of California. The parties hereto agree that all
actions or proceedings arising in connection with this Agreement shall
be tried and litigated exclusively in the State and Federal courts
located in the County of Santa Clara, State of California. The
aforementioned choice of venue is intended by the parties to be
mandatory and not permissive in nature, thereby precluding the
possibility of litigation between the parties with respect to or
arising out of this Agreement in any jurisdiction other than that
specified in this paragraph. Each party hereby waives any right it may
have to assert the doctrine of forum non conveniens or similar doctrine
or to object to venue with respect to any proceeding brought in
accordance with this paragraph, and stipulates that the State and
Federal courts located in the County of Santa Clara, State of California
shall have in personam jurisdiction and venue over each of them for the
purpose of litigating any dispute, controversy, or proceeding arising
out of or related to this Agreement. Each party hereby authorizes and
accepts service of process sufficient for personal jurisdiction in any
action against it as contemplated by this paragraph by registered or
certified mail, return receipt requested, postage prepaid, to its
address for the giving of notices as set forth in this Agreement. Any
final judgment rendered against a party in any action or proceeding
shall be conclusive as to the subject of such final judgment and may be
enforced in other jurisdictions in any manner provided by law.
WHEREFORE, the undersigned have executed this Agreement on the date and
year first written above.
/s/ Nancy Hood Karp
- ------------------------------
NANCY HOOD KARP
CATAPULT COMMUNICATIONS CORP.
By: /s/ Richard A. Karp
---------------------------
Title: President
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Exhibit 10.11
CONSULTING AND NON-COMPETITION AGREEMENT
The Consulting and Non-Competition Agreement (the "Agreement') is made
as of June 9th, 1998, between Nancy Hood Karp (the "Consultant") and Catapult
Communications Corporation, a California corporation which is in the process
of changing its state of incorporation to Nevada (the "Company").
RECITALS
WHEREAS, Consultant is presently a Director and Corporate Secretary to
the Company and has since the Company's formation in 1985 performed
substantive services for the Company, for example, and not by way of
limitation, in the areas of business planning, accounting services, officer
manager, facilities management, human resources, customer relations support
for sales and marketing and corporate communications/operations;
WHEREAS, the Company desires to assure itself of the continued
availability and support of the Consultant.
AGREEMENT
ACCORDINGLY, IT IS AGREED between the parties as follows:
1. ENGAGEMENT OF THE CONSULTANT. The Company hereby engages the
Consultant as an independent contractor, and the Consultant accepts such
engagement. The Consultant shall perform such research, projects and work
"Projects") as are assigned to her by the President of the Company
"President") from time to time consistent with the scope of work as
described in Exhibit A. The Consultant and the President shall mutually agree
to a scope of work for each Project, which shall describe the Project, the
services to be performed and set a schedule for completing the services (the
"Scope of Work"). The initial Scope of Work is attached hereto as Exhibit A.
The manner and method of performance of each Project shall be at the
discretion of the Consultant and shall not be subject to the control of the
Company.
2. COMPENSATION.
2.1 DAILY RATE. The Company shall pay (subject to applicable
withholdings) the Consultant for services rendered a rate of $1,500 per day.
A day shall consist of an eight-hour period within a standard twenty-four
hour period, and should any Project require more or less than eight hours to
perform, the applicable rate shall be pro-rated over an eight-hour period.
2.2 MINIMUM MONTHLY PROJECTS. The Company shall, during the term
of the Agreement, assign Projects to Consultant which result in
compensation,to Consultant under the Agreement of not less than $4,500 per
calendar month (subject to applicable withholdings). Should the Company fail
to provide such minimum level of Projects, then, within thirty (30)days of
the end of the month in which such minimum level was not satisfied, the
Company
<PAGE>
shall pay to Consultant the difference between the amount actually earned by
Consultant during such month hereunder and $4,500.
2.3 PAYMENT FOR SERVICES. The Consultant shall submit to the
Company written invoices on a monthly basis for services rendered, describing
the Project, the services performed and the total hours spent. The Consultant
shall be paid within thirty (30) days from the date each invoice. Consultant
agrees that she will not be entitled to payment for services she may render
to the Company as Corporate Secretary.
3. TERM AND TERMINATION.
3.1 TERM. Subject to Section 7.4 below, the Agreement shall be
effective for a period of three years from the date of the Agreement unless
earlier terminated in accordance with Section 3.2.
3.2 TERMINATION.
a. The Company shall have the right to terminate the Agreement
only for a Material Breach (defined below) upon two weeks' written notice
("Termination Notice"). Upon receipt of the Termination Notice, the
Consultant shall perform only such services necessary to wind up or complete
any outstanding Project in an orderly manner and shall perform no further
services.
b. "Material Breach" shall mean any one or more of the
following actions or events: (i) the Consultant's gross or continuing
negligence in the performance of her services, provided that such negligence
shall have been continuing for a period of thirty (30)days after delivery to
Consultant by the Company of notice of such negligence; (ii)Consultant's
refusal to perform such Projects as are reasonably assigned by the Company,
provided that such refusal shall have been continuing for a period of thirty
(30) days after delivery to Consultant by the Company of notice of such
refusal; (iii) embezzlement or attempted embezzlement from Company, its
successors, assigns, affiliates or clients; (iv) dishonesty with respect to
the Company, its operation or finances or its successors, assigns, affiliates
and clients; (v) commission of a felony violation under federal or state law;
(vi) commission of any act involving willful or intentional injury to the
Company or its reputation; or (vii) a material breach of this Agreement.
4. EXPENSES. The Consultant shall be reimbursed for all reasonable
expenses incurred by her in connection with performing a Project which are
approved by the President in advance. For all expenses, the Consultant shall
furnish to the Company detailed statements, receipts and vouchers to verify
the expenses, and shall submit the expenses with the monthly invoices for
services rendered in Section 2.3 of the Agreement. The Consultant shall use
all forms required by the Company for submission of expenses.
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5. INDEPENDENT CONTRACTOR.
5.1 NATURE OF RELATIONSHIP. It is specifically understood agreed
that the Consultant is an independent contractor with respect to all services
performed for the Company, and the Consultant shall be responsible to Company
only for completion of a Project in compliance with the Scope of Work.
Nothing in the Agreement is intended to or should be construed to create a
partnership, joint venture or employment relationship. Since the Consultant
will not be an employee of Company, the Consultant will not be entitled to
any of the benefits which the Company provides to its employees, including,
without limitation, group health or life insurance, profit-sharing or
retirement benefits. The Consultant is not an agent of Company as a result of
the Agreement, and the Consultant is not authorized to make any
representation, contract or commitment on behalf of Company as a consequence
of the Agreement. If Consultant is reclassified by a state or federal agency
or court as an employee, Consultant will become a reclassified employee and
will receive no benefits except those mandated by state or federal law, even
if by the terms of the Company's benefit plans in effect at the time of such
reclassification Consultant would otherwise be eligible for such benefit.
5.2 RESPONSIBILITY FOR TAXES. The Consultant will be solely
responsible for and will file, on a timely basis, all tax returns and
payments required to be filed and paid as a result of the services the
Consultant performs under the Agreement and all compensation received for
such services performed. Company shall report amounts paid to the Consultant
by filing form 1099-MISC with the Internal Revenue Services, as required by
law.
6. CONFIDENTIAL INFORMATION. The Consultant recognizes that in the
course of performing one or more Project(s) and rendering services under the
Agreement, she will have access to and she may develop confidential and
proprietary information, and trade secrets concerning the Company's business
and operations, including, without limitation, financial and tax information,
customer lists and data bases, business plans and development strategy, price
lists, marketing methodology, marketing research, salary data and other
information regarding the Company's employees, technical and engineering data
and software and production, manufacturing and engineering processes
(collectively referred to as "Confidential Information"). Confidential
Information does not include any information which is or becomes part of the
public domain not as a result of any violation by Consultant of any agreement
with the Company. The Consultant recognizes that unauthorized use by
Consultant or others or disclosure of the Confidential Information to
competitors, non-authorized third parties or the general public would be
detrimental to the Company. Accordingly, the Consultant covenants and agrees
with the Company that she will keep secret and treat confidentially the
Confidential Information, and she will not, either during the term of the
Agreement or thereafter, disclose any of the Confidential Information to any
person or entity nor shall she use the Confidential Information for any
purpose other than purposes expressly authorized by the Company. The
Consultant agrees that all restrictions contained in this paragraph are
reasonable and valid under the circumstances and all defenses to the strict
enforcement of the provision by the Company are hereby waived by the
Consultant. Upon termination of the Agreement, the Consultant agrees to
surrender promptly to the Company all software, databases, figures,
calculations, reports, papers, documents, writings and other property
produced by her or coming into her possession as a
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result of her services under the Agreement and relating to the Confidential
Information, and the Consultant understands and agrees that all such
materials will at all times remain the exclusive property of the Company.
Consultant hereby agrees that her obligations and agreements with respect to
Confidential Information in this paragraph shall apply equally to
Confidential Information to which she has had access in the course of
rendering services to the Company prior to the date of this Agreement.
7. NON-COMPETITION COVENANTS
7.1 RESTRICTIONS. In consideration for a lump sum cash payment of
$18,000 payable upon execution of this Agreement, for a period of three (3)
years from the date of this Agreement, the Consultant agrees that she will
not, directly or indirectly, in the capacity of sole proprietor or
independent contractor or as a member of a partnership or as an officer,
director, employee, or shareholder of or investor of 3% or more in a
corporation or other business entity or otherwise, do any of the following:
a. perform services or offer advice or technical expertise
involving, or for any entity involved in, the research, development,
marketing, sale, installation or performance of software based test systems
for the telecommunications marketplace, including but not limited to
manufacturers of telecommunications equipment and network providers in the
United States of America and the other geographic locations where the Company
conducts its business between the date of the Agreement and the date of
termination; or
b. solicit or encourage any customer of the Company either
(i) to purchase products, technology or services from an entity other than
the Company ("customer" defined as any person or entity to whom the Company
has sold products or for which the Company has performed services during the
three (3) years preceding the date of this Agreement or from the date of the
Agreement to the date of termination), or (ii) to cease conducting business
with the Company; or
c. induce, solicit or encourage an employee of the Company to
terminate his or her employment with the Company.
7.2 MODIFICATION BY COURT. The parties hereto agree that in the
event that either the length of time or the geographical area is deemed
unenforceable in any court proceeding, the court may reduce such restrictions
to those which it deems enforceable and consistent with the intent of the
parties insofar as possible.
7.3 CONFLICT WITH EXISTING AGREEMENTS. The Consultant warrants
and represents to Company that she is not party to or obligated by any other
contract, agreement or duty of any nature which conflicts with or is
inconsistent with the Agreement. The Agreement will not cause a default under
any agreement or obligation to which the Consultant is bound.
8. DISCOVERIES AND INVENTIONS. The Consultant assigns and agrees to
assign to Company all her right, title, and interest worldwide in and to any
and all inventions, copyright works, discoveries, developments,
modifications, improvements, ideas, service marks,
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trademarks, copyrights know-how, techniques, designs, data, programs,
processes, manufacturing techniques, formulae, computer programs, software
and all other work product relating to the business of the Company
(collective, "Work Product"), whether tangible or intangible, which the
Consultant conceives, reduces to practice, reduces to writing, creates in
software form, or other storage media either alone or jointly with others in
the course of performing services for Company. The Work Product need not be
subject to federal or state patent, copyright or trade mark protection to be
subject to the provision. The Consultant agrees and acknowledges that the
Work Product is the exclusive property of the Company.
The Consultant agrees to perform all acts necessary to enable the
Company to learn of, understand and protect the Work Product, including
making full and immediate disclosure to Company of the Work Product, and
assisting in preparation and execution of documents required to vest in
Company patent and copyright protection. The Consultant agrees to execute
upon request patent, copyright or similar applications and assignments to the
Company as needed to vest title in the Company of the Work Product. In the
event that the Company is unable for any reason whatsoever to secure the
Consultant's signature to documentation required to apply for any patent,
copyright or other applications regarding the Work Product, the Consultant
hereby irrevocably designates and appoints Company and its duly authorized
officers as her agent to act for and in her behalf and instead of the
Consultant, to execute and file any such application and to do all other
lawfully permitted acts to further the prosecution and issuance of patent
copyrights or other rights thereon with the same legal force and effect as if
executed by the Consultant.
The Consultant warrants and represents that Work Product which the
Consultant has developed, conceived or reduced to practice in the course of
performing services for the Company prior to the date of the Agreement
(collectively, "Prior Work Product") has been disclosed to Company prior to
the execution of the Agreement. The Consultant hereby assigns and transfers
to the Company all Prior Work Product (if not already assigned) as of the
date hereof.
9. REMEDIES. The Consultant acknowledges that the provisions of
Sections 6, 7 and 8 are necessary for the protection of Company. Company and
its affiliates would be irreparably damaged in the event any of the
provisions contained in these Sections were not performed in accordance with
their specific terms or were to be otherwise breached. It is accordingly
agreed that Company shall be entitled to temporary restraining orders and
temporary and permanent injunction or injunctions to specifically enforce the
restrictions and obligations of Section 6, 7 and 8 in any court, without the
necessity of proving actual damages, in addition to any other remedy to which
Company may be entitled, at law or in equity.
10. VALIDITY OF COVENANTS. If any covenant or provision of the
Agreement is determined to be void or unenforceable in whole or in part, it
shall be deleted from the remaining Agreement shall be modified so as to
render it enforceable in a manner consistent with the intent of the parties
insofar as possible, and shall not affect or impair the validity of any other
covenant or provision of the Agreement. The Consultant hereby agrees that all
restrictions in the Agreement are reasonable and valid and defenses to the
strict enforcement thereof by the
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Company are hereby waived by her. NOTICE. Any notice required by the
Agreement shall be sent by certified U.S. mail, correctly addressed and
postage prepaid, return receipt requested, or by facsimile transmission, or
by overnight courier or hand delivery, to the addresses set forth below:
Company: Catapult Communications Corporation
160 Whisman Road
Mountain View, CA 94041
phone:
fax:
The Consultant: Nancy Hood Karp
221 Parkside Drive
Palo Alto, CA 94306
phone: 650-493-3595
fax: 650-493-2228
11. WAIVER. A waiver by any party of any breach of the Agreement shall
not constitute a waiver of future recurrences of such breach or other
breaches. A waiver by any party of any terms, conditions, rights or
obligations under the Agreement shall not constitute a waiver of such term,
condition, rights or obligation in the future.
12. GOVERNING LAW. THE PROVISIONS OF the AGREEMENT SHALL BE
GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
13. SUCCESSORS AND ASSIGN. The provisions hereof, where the context
permits, shall inure to the benefit of and be binding upon the heirs,
executors, administrators or other legal representatives of the Consultant
and the successors and assigns of the Company, respectively, including in the
case of the company its anticipated successor Nevada corporation, provided
that the obligations of the Consultant hereunder may not be assigned without
the express prior written consent of the Company.
14. Entire Agreement; Amendment; Headings. The Agreement constitutes
the entire understanding between the parties with reference to the subject
matter hereof, supersedes all prior or contemporaneous promises or
representations, written or oral; and shall not be changed or modified except
by written instrument signed by each party. The Consultant agrees that all
provisions of confidentiality, or assignment of inventions which may be
applicable to her under agreements between Consultant and the Company
existing on the date of the Agreement shall continue in full force and effect
to the extent there is no conflict with the Agreement. The headings used in
the Agreement are solely for convenience and are not to be used in construing
or interpreting the Agreement.
6
<PAGE>
15. SURVIVAL OF COVENANTS. The parties expressly agree the provisions
of Sections 6, 7.3 and 8 shall survive the termination of the Agreement, and
shall continue to bind the Consultant as stated therein.
Dated: June 9th, 1998
CATAPULT COMMUNICATIONS
CORPORATION
By: /s/ Richard A. Karp
-----------------------------
Richard A. Karp, President
By: /s/ Nancy Hood Karp
-----------------------------
Nancy Hood Karp
7
<PAGE>
EXHIBIT A
SCOPE OF WORK
Consulting Projects in the following areas:
HUMAN RESOURCES
- - Employee relocation
- - Interface with employee/INS immigration processes
FACILITIES
- - Assist in Company facilities expansion and relocation on a worldwide basis
MARKETING
- - Assist sales/marketing in customer relations and corporate event planning
- - Assist in developing end-user surveys to determine required features,
packaging and new product improvements
- - Assist in developing surveys for application specific products
- - Assist in developing surveys of "installed base" for other product
improvements and needs for new products
- - Perform strategic market analysis of new ventures/acquisitions
GENERAL BUSINESS
- - Assist in developing Company's ongoing business plan
<PAGE>
EXHIBIT 11.1
CATAPULT COMMUNICATIONS CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income....................................................... $ 2,172 $ 2,288 $ 3,338 $ 2,137 $ 2,492
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares outstanding.............................. 9,581 9,621 9,630 9,630 10,280
Dilutive options................................................. 477 680 975 870 587
--------- --------- --------- --------- ---------
Weighted average shares assuming dilution........................ 10,058 10,301 10,605 10,500 10,867
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings per share:
Basic.......................................................... $ 0.23 $ 0.24 $ 0.35 $ 0.22 $ 0.24
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted........................................................ $ 0.22 $ 0.22 $ 0.31 $ 0.20 $ 0.23
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<PAGE>
Exhibit 16.1
[LETTERHEAD OF IRELAND SAN FILIPPO, LLP]
June 11, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
CATAPULT COMMUNICATIONS CORPORATION
We have read the "Change in Accountants" section included in Form S-1 of
Catapult Communications Corporation to be dated June 11, 1998 and are in
agreement with the statements contained therein.
Yours very truly,
/s/ Ireland San Filippo, LLP
Ireland San Filippo, LLP
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
SUBSIDIARY LEGAL NAME JURISDICTION OF INCORPORATION
- --------------------- -----------------------------
Catapult Communications Limited United Kingdom
Catapult Communications K.K. Japan
All subsidiaries of the registrant are wholly owned and do business
under their legal names.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS ON PAGES F-3 AND F-4 IN THE COMPANY'S FORM S-1
REGISTRATION STATEMENT FOR THE YEAR ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 10,672
<SECURITIES> 0
<RECEIVABLES> 951
<ALLOWANCES> 59
<INVENTORY> 421
<CURRENT-ASSETS> 13,533
<PP&E> 1,112
<DEPRECIATION> 670
<TOTAL-ASSETS> 14,035
<CURRENT-LIABILITIES> 3,835
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 10,160
<TOTAL-LIABILITY-AND-EQUITY> 14,035
<SALES> 11,519
<TOTAL-REVENUES> 13,352
<CGS> 1,576
<TOTAL-COSTS> 344
<OTHER-EXPENSES> 6,032
<LOSS-PROVISION> 59
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,774
<INCOME-TAX> 2,436
<INCOME-CONTINUING> 3,338
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,338
<EPS-PRIMARY> .35
<EPS-DILUTED> .31
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS ON PAGES F-3 AND F-4 IN THE COMPANY'S FORM S-1
REGISTRATION STATEMENT FOR THE YEAR ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 12,581
<SECURITIES> 0
<RECEIVABLES> 3,624
<ALLOWANCES> 59
<INVENTORY> 500
<CURRENT-ASSETS> 17,467
<PP&E> 1,300
<DEPRECIATION> 750
<TOTAL-ASSETS> 18,074
<CURRENT-LIABILITIES> 5,164
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 12,880
<TOTAL-LIABILITY-AND-EQUITY> 18,074
<SALES> 7,293
<TOTAL-REVENUES> 8,459
<CGS> 689
<TOTAL-COSTS> 339
<OTHER-EXPENSES> 3,179
<LOSS-PROVISION> 59
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,364
<INCOME-TAX> 1,872
<INCOME-CONTINUING> 2,492
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,492
<EPS-PRIMARY> .24
<EPS-DILUTED> .23
</TABLE>
