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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM
_________ to ___________.
COMMISSION FILE NUMBER 0-25526
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C-ATS SOFTWARE INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0185283
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(State of incorporation) (I.R.S. Employer
Identification Number)
1870 EMBARCADERO ROAD
PALO ALTO, CALIFORNIA 94303
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (650) 321-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
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(Title of Each Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes X , No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. X
----
The aggregate market value of the voting stock held by non-affiliates as
of March 2, 1998 was approximately $17,000,000 (based upon the last sale
price for shares of the Registrants Common Stock as reported on the NASDAQ
National market).
As of March 2, 1998 the number of shares of common stock of the
Registrant outstanding was 6,855,874.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into the parts of
Form 10-K indicated: (1) C-ATS Software Inc.'s Annual Report to Stockholders
for the fiscal year ended December 31, 1997 for Parts I, II and IV; and (2)
Proxy Statement for Annual Meeting to be held on May 20, 1998 for Part III.
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PART I
ITEM 1: BUSINESS
THIS ITEM CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THE RESULTS ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT
OF CERTAIN FACTORS SET FORTH IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS REPORT.
A. BACKGROUND
Organizations face financial risks from changes in interest and foreign
exchange rates, changes in the commodity and equity markets, credit exposure
and liquidity. The risk exposure has increased with the globalization of the
world's economy and other factors. To help organizations manage these risks,
the financial industry has developed a variety of specialized financial
contracts, such as swaps, options, caps, floors, swaptions and futures,
collectively known as "derivative instruments." Interest rate swaps, for
example, allow a company to insure against unfavorable movements in interest
rates by exchanging variable interest rate exposure for a fixed interest
rate.
The need to manage financial risk has led to the development of software
products that serve the established market for derivatives risk management
and the markets for firm-wide or enterprise risk management.
C-ATS Software Inc., a Delaware corporation (the "Company" or "C-ATS")
is a supplier of client/server software products for financial risk
management. Since its inception in 1986, the Company has provided capital
markets software for derivatives risk management. In late 1994, the Company
introduced C-ATALYST, an enhanced version of its product family which
includes GLOBAL RISK MANAGER, a product for portfolio risk management. In
1996, the Company acquired LOR/Geske Bock Associates, Inc. ("LORGB" or
LOR/Geske Bock"), a provider of integrated market
and credit risk management software, and introduced an enhanced version of
its CARMA product line. These products serve the established market for
derivatives risk management and the growing market for enterprise risk
management. At the end of 1997, the Company's products were licensed to
leading financial institutions around the globe, including more than a third
of the world's 50 largest commercial banks.
C-ATS' C-ATALYST product line is used in derivatives risk management to
provide "front office" software for structuring, pricing, trading and
simulating complex derivative instruments such as swaps, options, caps,
floors, swaptions and futures, and "back office" software for processing,
settlement, accounting and reporting. C-ATS' GLOBAL RISK MANAGER supports
risk management of individual portfolios by allowing users to value their
portfolios and to analyze the sensitivity of those portfolios to interest
rates, foreign exchange rates and other risks. The Company's clients use
these products on UNIX workstations and on personal computers.
C-ATS' CARMA product line is a portfolio simulation system designed to
provide multiple market, credit, and liquidity risk measurement methodologies
within one consistent, integrated solution. CARMA enables financial
institutions to measure and control the change in value of financial
instruments, including complex derivative instruments, and to measure the
firm-wide
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exposure to market and credit risk. The software assists with the
determination of capital requirements and regulatory reporting of Value at
Risk (VaR) using both Monte Carlo and historical simulation techniques. In
addition, CARMA provides user-defined scenario analyses to realistically
forecast the effects on a portfolio subjected to a combination of multiple
types of financial risks. Users can graphically visualize the results of the
potential effects of any component on the entire portfolio in order to
understand more fully how to manage the risks involved.
The Company typically licenses its software products to clients for
one-year renewable terms. Beginning the fourth quarter of 1997, the Company
has begun offering multiyear (typically 5-year) term licenses for its
software products. With this new licensing model the Company will recognize
substantial revenues upon delivery of the products. In addition there may be
additional maintenance revenues, recognized ratably as such services are
provided.
C-ATS markets its products and services through its direct sales and
service organizations located in New York, Tokyo, London, Hong Kong and its
headquarters and financial engineering facilities in Palo Alto and Los
Angeles, California, respectively. Those clients whose use of Company's
products has been publicly disclosed include Bank of Montreal, Cassa di
Risparmio di Torino, Credit Suisse, Dai-ichi Kangyo Bank, Daiwa America
Corp., IMI Bank, Kleinwort-Benson, Long-Term Capital Management, Merrill
Lynch, Bank of Tokyo-Mitsubishi and Tokai Bank, each of which represented
more than $100,000 of annual contract value in 1997. In 1997, 82% of the
Company's revenues were derived from international clients.
In the Fall of 1997, the Company formed a new division C-ATS Consulting
Services to provide professional services to its clients. These services
will typically include project management and product integration services.
Consulting revenues are recognized when the services have been performed.
B. PRODUCTS.
C-atalyst is a family of integrated application software products and
tools used for financial risk management. All of these products were either
introduced or enhanced in 1997.
The Company's clients use its products on UNIX workstations and on
personal computers. FiCAD is used on the NEXTSTEP-TM- operating system to
design new financial instruments and applications. The Company licenses its
products on a per site basis, with the price per site varying based on the
selection of products licensed, the number of authorized users at each site,
and the number of licensed sites.
The Company's products, once installed, generally must be integrated
with the client's internal information systems, especially in the case of
large enterprise-wide implementations. This integration can be costly,
time-consuming and require significant technical expertise, particularly when
multiple sites, a variety of internal systems and/or international locations
are involved.
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The Company's products are summarized below in order of the date they were
first introduced:
<TABLE>
<CAPTION>
ENTERPRISE RISK
DERIVATIVES MANAGEMENT
DATE DATE LAST RISK MARKET
INTRODUCED ENHANCED MANAGEMENT APPLICATIONS
---------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
C-ATALYST PRODUCTS
SwapWare Plus . . . . . . . . . . . 1986 1997 X X
Market Data . . . . . . . . . . . . 1987 1997 X X
Global Risk Manager . . . . . . . . 1989 1997 X X
Data Tools. . . . . . . . . . . . . 1991 1997 X X
C-ATS Link. . . . . . . . . . . . 1991 1997 X X
SQL Mirror. . . . . . . . . . . . 1991 1997 X X
C-ATS-IQ Reports. . . . . . . . . 1995 1997 X X
Shadow Audit. . . . . . . . . . . 1991 1997 X X
Operations Manager-Accounting . . . 1991 1997 X
Operations Manager-
Cash Flow Organizer . . . . . . . 1991 1997 X
Options-CapWare . . . . . . . . . . 1992 1997 X X
Options-Strike. . . . . . . . . . . 1992 1997 X X
Futures and Bonds . . . . . . . . . 1992 1997 X X
C-ATS /GLI. . . . . . . . . . . . . 1997 1997 X X
C-ATS /FX . . . . . . . . . . . . . 1997 1997 X X
CARMA PRODUCTS
CARMA Explorer. . . . . . . . . . . 1996 1997 X
CARMA Risk Engine . . . . . . . . . 1993 1997 X
CARMA Connection. . . . . . . . . . 1996 1997 X
FiCAD. . . . . . . . . . . . . . . . . . 1995 1997 X X
</TABLE>
PRODUCTS FOR DERIVATIVES RISK MANAGEMENT
SWAPWARE PLUS. SWAPWARE PLUS prices and models a broad spectrum of
swaps, from the simplest interest rate swap to complex currency and commodity
swaps and highly sophisticated structures and basis swaps. Through its cash
flow architecture and six-level hierarchy for reset computations, SWAPWARE
PLUS also models foreign exchange, debt and cash transactions, while
providing accurate portfolio revaluations and risk management support.
SWAPWARE was the Company's first product and is used by substantially all of
its clients.
MARKET DATA. MARKET DATA provides the market and pricing data for
C-ATALYST software applications and can be used with applications developed
with FiCAD. MARKET DATA is a tool for inputing currency and interest rates as
well as bonds and futures prices, forward, equity and commodity prices, swap
spreads and money market rates needed to generate par, zero, synthetic
blended curves, and other price data. MARKET DATA contains a central archive
for international market prices and yields, multiple instrument support and a
historical database. In addition, MARKET DATA constructs open, flexible
yield curves which allow for user-definition.
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DATA TOOLS. DATA TOOLS is a set of data import and export utilities,
including a real-time data feed, tools to generate reports and protect
information, and an audit trail to increase control and includes the
following modules: C-ATS Link, SQL Mirror, C-ATS-IQ Reports and Shadow Audit.
OPERATIONS MANAGER-ACCOUNTING. ACCOUNTING works with SWAPWARE PLUS,
OPTIONS, and FUTURES AND BONDS to generate profit and loss statements.
Accounting can also be used to automate payment processing, counterparty
notifications and regulatory reports.
OPERATIONS MANAGER-CASH FLOW ORGANIZER. CASH FLOW ORGANIZER works with
SWAPWARE PLUS, OPTIONS, and FUTURES AND BONDS to define complex quote, reset
and fixing structures, and calculate and process bulk resets, rate fixings
and rate reset notifications.
OPTIONS-CAPWARE. CAPWARE prices and models an extensive selection of
options, including fixed and variable rate caps, floors and forward rate
agreements (FRAs). CAPWARE utilizes the Black-Scholes options pricing models.
OPTIONS-STRIKE. STRIKE prices and models "swaptions" (options to
execute a swap) and bond options. STRIKE also supports receiver and payor
swaptions, swap cancellations and puts and calls on fixed-income securities.
STRIKE utilizes the Black-Scholes, Black-Commodity and Hull-White options
pricing models.
FUTURES AND BONDS. FUTURES AND BONDS prices and models an array of
futures contracts, as well as a broad range of government and corporate bonds
and Eurobonds across international markets. FUTURES AND BONDS employs bond
definition characteristics that combine a flexible modeling capacity with
coverage of most major bond markets.
C-ATS/GLI. C-ATS/GENERAL LEDGER INTERFACE (GLI) is an open tool which
creates a complete accounting record for the C-ATALYST portfolio, and allows
the transfer of this information automatically to the general ledger.
C-ATS/GLI includes manual and system generated entries, a multi-currency
trial balance and a detail report.
C-ATS/FX. C-ATS/FX is a foreign exchange trading, marketing, risk
management and back office module. C-ATS/FX prices spots, forwards, and an
array of exotic options including Asian options, lookbacks, single and double
barriers. It also has extensive graphing capabilities for payout and
sensitivity analysis.
FiCAD. FiCAD is an object-oriented Financial CAD system which uses
advanced visual programming techniques. FiCAD enables users to design, model
and deploy new financial instruments that the user can logically define.
FiCAD is analogous to the mechanical CAD products and electronic design
automation ("EDA") products provided by independent software vendors for other
industries. With EDA, an engineer describes logic networks with graphic
symbols, and the software program automatically generates the layout for
semiconductor chips. FiCAD enables users to link together various financial
objects to describe a new financial instrument, and FiCAD automatically
creates the new application; there is no need to write traditional text-based
source code. As a result, the Company believes that new instruments can be
created much more rapidly than is possible with conventional techniques.
FiCAD allows its clients to extend the functionality of the C-ATALYST product
line in advance of new releases. GLOBAL RISK MANAGER and FiCAD, are also used
in derivatives risk management.
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PRODUCTS FOR ENTERPRISE RISK MANAGEMENT
GLOBAL RISK MANAGER. GLOBAL RISK MANAGER can be used both for
derivatives risk management and for firm-wide risk management. GLOBAL RISK
MANAGER allows the user to link standard and custom financial instruments to
evaluate risk levels for a single transaction or an entire portfolio. In
addition to evaluating interest rate and foreign exchange risks, GLOBAL RISK
MANAGER also evaluates new types of risk defined by users. GLOBAL RISK
MANAGER utilizes mathematical and database analysis techniques, accurate
mark-to-market and hedging capabilities and risk scenario analysis. GLOBAL
RISK MANAGER permits users to define their sensitivity to interest rates,
foreign exchange rates, delta, gamma/convexity, theta, vega and duration.
GLOBAL RISK MANAGER also manages funds liquidity.
GLOBAL RISK MANAGER links to the various position-keeping systems that
the client uses for different portions of its portfolio. These may include
C-ATALYST products such as SWAPWARE PLUS or other systems developed
internally or licensed from third parties.
CARMA. CARMA simulates a financial institution's exposure to market and
credit risk using multiple methodologies. Through Monte Carlo simulation or
historical simulation, CARMA measures and reports the financial institution's
exposure to changes in market prices and counterparty defaults. The system
is designed to comply with the standards for measurement of exposure to
market risk promulgated by the Bank for International Settlements (BIS).
CARMA became part of the Company's product line through the acquisition of
LOR/Geske Bock in February 1996. The Company has substantially enhanced
CARMA and released version 2.16 in 1997.
C. CLIENTS, MARKETING, SALES AND SERVICE
The Company's products are licensed to leading financial institutions
around the globe. These clients operate in a number of industries and include
more than a third of the world's 50 largest commercial and investment banks,
as well as securities firms, fund managers, and large industrial corporations
and insurance companies.
Those clients whose use of Company products has been publicly disclosed
include Bank of Montreal, Cassa di Risparmio di Torino, Credit Suisse,
Dai-ichi Kangyo Bank, Daiwa America Corp., IMI Bank, Kleinwort-Benson,
Long-Term Capital Management, Merrill Lynch, Bank of Tokyo-Mitsubishi, and
Tokai Bank, each of which represented more than $100,000 of annual contract
value in 1997. In 1997, 82% of the Company's revenues were derived from
international clients.
C-ATS employs a direct sales force and client services organization
located in New York, Tokyo, Hong Kong, and London. In support of its sales
force, the Company uses a variety of means to promote its software products
to potential clients, including advertising, articles in key publications,
direct mail, participation in major industry trade shows, and seminars.
Additionally, the Company is an associate member of the International Swaps
and Derivatives Association.
The Company previously did not utilize value-added resellers or other
third-party distributors. During 1997, the Company began evaluation of using
such services and commenced a relationship with two such parties. This
program is new and there are not yet conclusive results. The Company may
expand such efforts in 1998.
The Company's client services personnel provide pre-sale assistance in
applications engineering, product installation and client training, both on
the clients' premises and in classrooms, and provide post-sale service and
support in problem diagnosis. Product licenses also entitle clients to
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receive updates and minor enhancements. The Company typically supports prior
versions of its products for a reasonable period to allow clients to upgrade
at the time they deem most convenient for their installation. The Company
provides certain professional services to clients on a contract basis,
including financial engineering support, additional client training and
assistance in the generation of client-specific reports, database
integration, and system optimization. The Company also conducts periodic
client satisfaction surveys.
In the Fall of 1997, the Company formed a new division C-ATS Consulting
Services to provide a wide variety of services to ensure client success in
implementing risk management solutions. By leveraging project experiences
gained through delivering complete enterprise-wide risk management solutions,
this group provides clients with services specifically targeted at lowering
implementation risks.
C-ATS Consulting Services is responsible for CARMA implementation
projects globally for C-ATS Software. The group began providing its clients
with generic enterprise risk management implementation project plan
templates, integration tools and additional integration assistance and advice
in 1997 and is currently engaged in several ongoing risk management projects.
The operations in Tokyo and London are conducted by wholly-owned
subsidiaries incorporated in Japan and the United Kingdom, respectively. The
subsidiaries conduct sales representative activities under the direction of
the parent company. The subsidiaries also conduct some client training and
share responsibility with the parent for performing certain other client
service activities, although all software engineering is performed by the
parent company. All license agreements are entered into between the parent
company and the clients. All clients pay their license and service fees
directly to the parent company in U.S. dollars. All parent company revenues
are recognized as either domestic or export sales. Subsidiary revenues
consist solely of payments from the parent company for services performed for
the benefit of the parent company at a rate of cost plus 10%.
D. TECHNOLOGY
FINANCIAL TECHNOLOGIES, VALUE AT RISK. VALUE AT RISK has become an
industry standard for risk management and regulatory reporting. Value at Risk
represents the amount of money a portfolio may lose in a given period of time
at a specified probability level. This amount varies based on the instruments
in a portfolio, changes in market prices and volatilities. A firm's Value at
Risk is calculated using estimates of likely price fluctuations of its
portfolio. The Company's products can be used to perform the simulations
necessary to support Value at Risk analysis. This calculation can be
performed on a departmental or enterprise basis.
CASH FLOW ARCHITECTURE. In 1986, the Company introduced SWAPWARE, which
it believes was the first commercially available product that defined
financial instruments using cash flow architecture. The Company subsequently
enhanced its cash flow architecture by adding capability for six-level
hierarchical reset computations. This architecture can be used to calculate
the cash flows for a wide range of instruments across international markets,
and is fully integrated with the Company's products' pricing and risk
management functions.
COMPUTER TECHNOLOGIES, RELATIONAL AND OBJECT-ORIENTED DATABASES. The
C-ATALYST line of software applications read and write information from the
C-ATS database, the Sybase relational database and the Oracle relational
database. The component architecture of the Company's C-ATALYST and CARMA
product lines interoperate using, Orbix, CORBA-compliant middleware from
market leader, Iona Technologies Ltd.
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E. COMPETITION
The market for financial risk management software is intensely
competitive and is characterized by rapid technological change and frequent
introduction of new products and features. The Company competes generally on
the basis of product features and functions, product architecture, price, the
speed and accuracy of the product processing capability, client service, the
availability of sufficiently trained technical staff, and the vendor
financial stability. In order to maintain or improve its position in this
industry, the Company must continue to enhance its current products and
develop new products in a timely fashion. Because of the complexity of the
Company's products, from time to time development efforts have taken longer
than expected, causing delays in new products and enhancement releases, and
this may occur in the future. Any such delays could have a material adverse
effect on the Company's business, operating results or financial condition.
A major source of competition for the Company's products are
applications that are internally developed by the financial institutions
which are its potential clients. Many of these organizations have substantial
internal development resources with the capability to develop specific
products for their needs. Many of these organizations also value the ability
to control the source code for their software systems. The Company does not
typically make its source code available. The Company believes that its
products offer a number of advantages over internally developed alternatives,
including more rapid time-to-market, lower cost and more systematic and
complete reliability testing.
There are a significant number of independent commercial competitors for
the Company's products. In 1997, the competitive landscape was characterized
by significant consolidation by some of the larger competitors, these include
the recent merger of SunGard Data Systems Inc. with Infinity Financial
Technologies, Inc. and Renaissance Software, Inc., Misys Plc Group's
Midas-Kapiti International and Summit Systems, Inc. merger as well as ACT
Group plc., are much larger than the Company and have longer operating
histories and significantly greater financial, technical, sales and marketing
and other resources, greater name recognition and a larger installed client
base.
Other competitors offer products that support more financial instruments
or have more features than the Company's products, some offer more
customization services, some offer source code and programming tools for
internal application development. Many of the Company's existing competitors
could in the future introduce new products with more features and lower
prices than the Company's product offerings. Furthermore, if the market for
financial risk management software products continues to grow, a number of
additional companies with significantly greater resources than the Company
could attempt to establish or increase their presence in this market by
acquiring or forming strategic alliances with competitors of the Company, as
evidenced in 1997, or by developing and introducing products specifically
designed for these markets.
Despite this intensely competitive environment, the Company believes
that it competes favorably in its markets on the basis of product
functionality, price, performance characteristics, ease of product use, sales
and marketing expertise, financial stability, client support services and
corporate reputation.
F. PROPRIETARY RIGHTS
The Company relies on a combination of copyright, patent rights, trade
secret and trademark laws, license agreements and software security measures
to protect its proprietary technology and software products. The Company has
applied for a U.S. patent for its financial CAD technology. The Company's
patent application seeks protection for an object-oriented system for
creating, structuring,
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manipulating and evaluating financial instruments. However, there can be no
assurance that the patent will be granted.
Despite these precautions, it may be possible for a third party to
independently develop the same or similar technology or otherwise obtain
access to the Company's proprietary technology. In addition, the Company
does not currently possess, and has not applied for, any foreign patents.
Moreover, the Company cannot be certain that others will not independently
develop substantially equivalent or superseding proprietary technology, or
that an equivalent product will not be marketed in competition with the
Company's products, thereby substantially reducing the value of the Company's
proprietary rights. There can be no assurance that any confidentiality
agreements between the Company and its employees will provide meaningful
protection for the Company's proprietary information in the event of any
unauthorized use or disclosure of such proprietary information. Although most
all of the Company's software product license agreements with its clients
protect the Company's proprietary information under the laws and jurisdiction
of the State of California where significant case law exists to protect such
information, the local laws of certain countries in which the Company's
products are licensed do not protect the Company's products and intellectual
property rights to the same extent. The Company believes that, due to the
rapid pace of innovation within the industry, factors such as the
technological and creative expertise of its personnel, the quality of its
products, the quality of its technical support and training courses, and the
frequency of its software product enhancements are more important to
establishing and maintaining a technology leadership position within the
industry than the various legal protections for its products and technology.
G. EMPLOYEES
As of December 31, 1997, the Company and its subsidiaries had a total of
110 employees, including 40 in product development, 53 in sales, marketing
and client services, and 17 in finance and administration. None of the
Company's employees are represented by a labor union. The Company has
experienced no work stoppages and believes that its employee relationships
are good.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information with regard to executive
officers of the Company (ages are as of December 31, 1997):
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------- --- -------------------------------------------------------
<S> <C> <C>
Rod A. Beckstrom 36 Chief Executive Officer and Chairman of the Board
David Gilbert 51 President and Chief Operating Officer
James E. Graber 53 Vice President of Finance and Chief Financial Officer
Robert L. Geske 52 Vice President of Research and Development and Director
Finn Christensen 33 Vice President of Marketing
Amos Barzilay 43 Vice President of Capital Markets/Treasury
Jill Kulick 50 Vice President of Human Resources
</TABLE>
Rod A. Beckstrom has served as Chief Executive Officer and Chairman of
the Board of the Company since founding the Company in 1985.
David Gilbert has served as President and Chief Operating Officer of the
Company since August 1996. From January 1996 to July 1996, he served as Vice
President of Risk Management of
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the Company. From 1988 to December 1995, he served as the Senior Vice
President of Logica, Inc., a financial services company.
James E. Graber has served as Vice President of Finance and Chief
Financial Officer of the Company since November 1997. From June 1991 to
November 1997, he served as the principal financial consultant at Graber
Associates, a financial consulting company.
Robert L. Geske has served as Vice President of Research and Development
and director of the Company since February 1996. From 1986 to its
acquisition by the Company in February 1996, Mr. Geske served as Chairman of
the Board and Chief Executive Officer of LOR/Geske Bock Associates, Inc. Mr.
Geske has also served as Professor of Finance at the University of California
at Los Angeles since July 1977.
Finn Christensen has served as Vice President of Marketing since
February 1996. From March 1992 to January 1996, he served as Principal of
Risk Management and Derivatives Trading Systems at Fusion Systems Group,
Inc., a financial services company.
Amos Barzilay has served as Vice President of Capital Markets/Treasury
since March 1996. From January 1994 to February 1996, he served as Director
of Industry Marketing at Informix Corporation, a database software company.
From April 1991 to December 1993, Mr. Barzilay served as Vice President of
Application at Syntelligence Systems, Inc., a financial services company.
Jill Kulick has served as Vice President of Human Resources since July
1997. From 1994 to June 1997, she served as Vice President, Human Resources
Officer at Bank of America, N.A.
ITEM 2. PROPERTIES
C-ATS leases approximately 30,000 square feet of leased office space in
Palo Alto, California. This lease expires in April 2001. In addition, the
Company and its subsidiaries lease office space in New York, London, Tokyo
and Hong Kong. The Company believes that its current and proposed facilities
are adequate to meet its needs for the foreseeable future. The Company
believes that it can acquire additional space, if needed, on acceptable
terms.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not have any submissions of matters to a vote of security
holders during the fourth quarter of 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock has been traded in the Nasdaq National Market
under the symbol CATX since the Company's initial public offering on March
20, 1995. No public trading market in the Company's common stock existed
prior to fiscal 1995. Additional information is set forth under the caption
"Stock Trading Information" on page 33 of the Company's 1997 Annual Report
to Stockholders (the "Annual Report") and such information is hereby
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
This information is set forth under the caption "Selected Consolidated
Financial Data" on page 2 of the Annual Report and such information is hereby
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This information is set forth under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on pages 3
through 16 of the Annual Report and such information is hereby incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Company and the auditors'
report appearing on pages 17 through 34 of the Annual Report are hereby
incorporated herein by reference.
) Report of Independent Public Accountants
) Consolidated Balance Sheets as of December 31, 1997 and 1996
) Consolidated Statements of Operations for the years ended December 31,
1997, 1996, and 1995
) Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995
) Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996, and 1995
) Notes to Consolidated Financial Statements
The Company's 1997 Annual Report, except for those portions which are
expressly incorporated by reference in this filing, is furnished for the
information of the Securities and Exchange Commission and is not to be deemed
as filed as part of this Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
11
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVES OFFICERS OF THE REGISTRANT
(a) Executive Officers - See the section entitled "Executive Officers of the
Registrant" in Part I hereof.
(b) Directors - The information required by this Item is incorporated by
reference to the section entitled "Nominees for Director" in the Company's
Proxy Statement for its 1998 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
Information contained in the Company's Proxy Statement for its 1998
Annual Meeting of Stockholders under the caption "Executive Compensation" is
hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information contained in the Company's Proxy Statement for its 1998
Annual Meeting of Stockholders under the caption "Security Ownership of
Directors, Officers and Certain Beneficial Owners" is hereby incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information contained in the Company's Proxy Statement for its 1998
Annual Meeting of Stockholders under the caption "Certain Relationships and
Related Transactions" is hereby incorporated herein by reference.
12
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES AND REPORTS ON
FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS REPORT:
1. FINANCIAL STATEMENTS:
The following financial statements of the Company included in Part II,
Item 8 of this Report on Form 10-K are hereby incorporated by reference from
its 1997 Annual Report to Stockholders, filed as Exhibit 13.1 to this Report
on Form 10-K.
<TABLE>
<CAPTION>
Page(s) in 1997
Annual Report
---------------
<S> <C>
Report of Independent Public Accountants 17
Consolidated Balance Sheets as of 18
December 31, 1997 and 1996
Consolidated Statements of Operations 19
for the years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for 20
the years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows 21
for the years ended December 31, 1997,1996, and 1995
Notes to Consolidated Financial Statements 22-32
Stock Trading Information 33
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES:
The following financial statement schedules of the Company for the years
ended December 31, 1997, 1996 and 1995 is filed as part of this report and
should be read in conjunction with the Consolidated Financial Statements of
the Company:
<TABLE>
<CAPTION>
Page in this
Form 10-K
------------
<S> <C>
Report of Independent Accountants on Financial Statement Schedule S-1
Valuation and Qualifying Accounts S-2
</TABLE>
All other financial statements and schedules not listed above are
omitted as the information is not required or is not material to require
submission of the schedule or because information is presented in the
consolidated financial statements or related notes.
13
<PAGE>
3. EXHIBITS, EXHIBIT INDEX, AND FINANCIAL STATEMENT SCHEDULES:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------ -----------------------------------------------------
<S> <C>
3.1 Restated Certificate of Incorporation of Registrant,
as amended. (1)
3.2 Amended and Restated Bylaws of Registrant, as
amended on November 19, 1997.
4.1 Form of Common Stock certificate. (1)
4.2 Amended Registration Rights Agreement dated
September 13, 1990 between Registrant and certain
investors named therein, as amended. (1)
10.1 Amended and Restated 1988 Incentive Stock Plan and
forms of Stock Option Agreement thereunder. (4)
10.2 1995 Director Option Plan and form of option
agreement thereunder. (1) (4)
10.3 1995 Employee Stock Purchase Plan and forms of
subscription agreement and election thereunder. (1) (4)
10.4 Amended and Restated 1995 Stock Plan and forms of
option and stock purchase right agreements
thereunder. (4)
10.5 Form of Indemnification Agreement entered into
between Registrant and its directors and officers. (1)
10.6 Registrant's 401(k) Plan. (1) (4)
10.7 Lease dated March 30, 1995 for facilities located
at 1870 Embarcadero Road, Palo Alto, California. (2)
10.8 Agreement and Plan of Reorganization by and among
C-ATS Software, Inc., C-ATS Sub, Inc., and
LOR/Geske Bock Associates, Inc. dated as of
January 30, 1997 and filed under Form 8-K on
February 13, 1996, as amended on April 10, 1996. (3)
11.1 Calculation of Earnings Per Share.
13.1 1997 Annual Report to Shareholders.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Accountants.
27.1 Financial Data Schedule for Fiscal Year Ended 1997.
27.2 Financial Data Schedule for Fiscal Year Ended 1995.
</TABLE>
- ---------------
(1) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1 (File No. 33-89242) in the form
declared effective on March 20, 1995.
(2) Incorporated by reference to exhibits filed with the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
(3) Incorporated by reference to exhibits filed with the Registrant's Form
8-K filed on February 13, 1996, as amended April 10, 1996.
(4) Management contract or compensatory plan or arrangement.
(b) REPORTS FILED UNDER FORM 8-K:
No reports on Form 8-K were filed during the 4th quarter of fiscal 1997.
(c) EXHIBITS:
See Item 14(a)(3) above.
(d) FINANCIAL STATEMENT SCHEDULES:
See Item 14(a)(2) above.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Palo
Alto, State of California, on this 31st day of March, 1998.
C-ATS SOFTWARE INC.
By: /s/ James E. Graber
-------------------------------------------
CHIEF FINANCIAL OFFICER AND TREASURER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James E. Graber, his attorney-in-fact,
with the power of substitution, for him in any and all capacities, to sign
any amendments to this report on Form 10-K and to file the same, with
exhibits thereto other documents in connection therewith, with the Securities
and Exchange Commission, hereby ratifying and confirming all that said
attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of 1934
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- --------------------------------- --------------------
<S> <C> <C>
/s/ Rod A. Beckstrom Chief Executive Officer March 31, 1998
--------------------- and Director (Principal
Rod A. Beckstrom Executive Officer)
/s/ James E. Graber Chief Financial Officer and March 31, 1998
--------------------- Treasurer (Principal Financial
James E. Graber and Accounting Officer)
/s/ David Gilbert President, Chief Operating March 31, 1998
--------------------- Officer and Director
David Gilbert
/s/ Mario M. Rosati Director and Secretary March 31, 1998
---------------------
Mario M. Rosati
/s/ Robert Geske Director and Officer March 31, 1998
---------------------
Robert Geske
/s/ Manuel Correia Director March 31, 1998
---------------------
Manuel Correia
/s/ Mark P. Kalkus Director March 31, 1998
---------------------
Mark P. Kalkus
/s/ Andrew S. Rachleff Director March 31, 1998
---------------------
Andrew S. Rachleff
</TABLE>
15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
We have audited, in accordance with generally accepted auditing
standards, the financial statements included in C-ATS Software Inc.'s annual
report to shareholders, incorporated by reference in this Form 10-K, and have
issued our report thereon dated January 23, 1998. Our audit was made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule listed in the index above is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required
to be set forth therein in relation to the basic financial statements taken
as a whole.
ARTHUR ANDERSEN LLP
San Jose, California
January 23, 1998
S-1
<PAGE>
Schedule II
C-ATS SOFTWARE INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING OF CHARGED AGAINST BALANCE AT
DESCRIPTION YEAR REVENUE DEDUCTIONS END OF YEAR
- ------------------------------------------ ------------ --------------- ----------- --------------
<S> <C> <C> <C> <C>
Year ended December 31, 1995
Allowance for doubtful accounts. . . . . $100 $ 32 $ -- $132
Year ended December 31, 1996
Allowance for doubtful accounts. . . . . $132 $ -- $ 32 $100
Year ended December 31, 1997
Allowance for doubtful accounts. . . . . $100 $ 142 $ -- $242
</TABLE>
S-2
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
C-ATS SOFTWARE INC.
(A DELAWARE CORPORATION)
(AS AMENDED THROUGH NOVEMBER 19, 1997)
<PAGE>
AMENDED AND RESTATED BYLAWS OF
C-ATS SOFTWARE INC.
(a Delaware corporation)
(As amended through November 19, 1997)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
ARTICLE I - CORPORATE OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 REGISTERED OFFICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 OTHER OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - MEETINGS OF STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . 1
2.1 PLACE OF MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 SPECIAL MEETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.4 NOTICE OF STOCKHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . 2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS. . . . . 2
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE . . . . . . . . . . . . . . 3
2.7 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.8 ADJOURNED MEETING; NOTICE. . . . . . . . . . . . . . . . . . . . . . . . 4
2.9 VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. . . . . . . . . 5
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING . . . . . . . . . . . . . . . 5
2.12 PROXIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.13 ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE. . . . . . . . . . . . . . . . . . 6
2.15 WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III - DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.1 POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 NUMBER OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS . . . . . . . . . . . . . . . . 7
3.4 RESIGNATION AND VACANCIES. . . . . . . . . . . . . . . . . . . . . . . . 8
3.5 REMOVAL OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . 9
-i-
</TABLE>
<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE . . . . . . . . . . . . . . . . 9
3.7 FIRST MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.8 REGULAR MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.9 SPECIAL MEETINGS; NOTICE . . . . . . . . . . . . . . . . . . . . . . . . 10
3.10 QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.11 WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.12 ADJOURNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.13 NOTICE OF ADJOURNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING. . . . . . . . . . . . 11
3.15 FEES AND COMPENSATION OF DIRECTORS . . . . . . . . . . . . . . . . . . . 11
3.16 APPROVAL OF LOANS TO OFFICERS. . . . . . . . . . . . . . . . . . . . . . 11
3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION . . . . . . . . . 11
ARTICLE IV - COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1 COMMITTEES OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 MEETINGS AND ACTION OF COMMITTEES. . . . . . . . . . . . . . . . . . . . 12
4.3 COMMITTEE MINUTES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE V - OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.2 ELECTION OF OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.3 SUBORDINATE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.4 REMOVAL AND RESIGNATION OF OFFICERS. . . . . . . . . . . . . . . . . . . 14
5.5 VACANCIES IN OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.6 CHAIRMAN OF THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.7 PRESIDENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.8 VICE PRESIDENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.9 SECRETARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.10 CHIEF FINANCIAL OFFICER. . . . . . . . . . . . . . . . . . . . . . . . . 15
5.11 ASSISTANT SECRETARY. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.12 ADMINISTRATIVE OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . 16
5.13 AUTHORITY AND DUTIES OF OFFICERS . . . . . . . . . . . . . . . . . . . . 16
-ii-
</TABLE>
<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. . . . . . . . . . . . . . . . 17
6.2 INDEMNIFICATION OF OTHERS. . . . . . . . . . . . . . . . . . . . . . . . 18
6.3 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VII - RECORDS AND REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . 18
7.1 MAINTENANCE AND INSPECTION OF RECORDS. . . . . . . . . . . . . . . . . . 18
7.2 INSPECTION BY DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . 19
7.3 ANNUAL STATEMENT TO STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . 19
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS . . . . . . . . . . . . . 19
7.5 CERTIFICATION AND INSPECTION OF BYLAWS . . . . . . . . . . . . . . . . . 19
ARTICLE VIII - GENERAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. . . . . . . . . . 20
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS. . . . . . . . . . . . . . . . 20
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED . . . . . . . . . . . 20
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES . . . . . . . . . . . . 20
8.5 SPECIAL DESIGNATION ON CERTIFICATES. . . . . . . . . . . . . . . . . . . 21
8.6 LOST CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.7 TRANSFER AGENTS AND REGISTRARS . . . . . . . . . . . . . . . . . . . . . 22
8.8 CONSTRUCTION; DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE IX - AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
-iii-
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
C-ATS SOFTWARE INC.
(a Delaware corporation)
(As amended through November 19, 1997)
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be fixed in the
certificate of incorporation of the corporation.
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 II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place within or outside
the State of Delaware designated by the board of directors. In the absence
of any such designation, stockholders' meetings shall be held at the
principal executive office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date and
at a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the third
Tuesday in May in each year at 10:00 a.m. However, if such day falls on a
legal holiday, then the meeting shall be held at the same time and place on
the next succeeding full business day. At the meeting, directors shall be
elected, and any other proper business may be transacted.
<PAGE>
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or
by one or more stockholders holding shares in the aggregate entitled to cast
not less than ten percent (10%) of the votes of all shares of stock owned by
stockholders entitled to vote at that meeting.
If a special meeting is called by any person or persons other than the
board of directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the
general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the chairman of the board, the president, any vice
president or the secretary of the corporation. The officer receiving the
request shall cause notice to be promptly given to the stockholders entitled
to vote, in accordance with the provisions of Sections 2.4 and 2.6 of these
bylaws, that a meeting will be held at the time requested by the person or
persons calling the meeting, so long as that time is not less than
thirty-five (35) nor more than sixty (60) days after the receipt of the
request. If the notice is not given within twenty (20) days after receipt of
the request, then the person or persons requesting the meeting may give the
notice. Nothing contained in this paragraph of this Section 2.3 shall be
construed as limiting, fixing or affecting the time when a meeting of
stockholders called by action of the board of directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings of stockholders shall be sent or otherwise given
in accordance with Section 2.6 of these bylaws not less than ten (10) nor
more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date and hour of the meeting and (i) in the case of a
special meeting, the purpose or purposes for which the meeting is called (no
business other than that specified in the notice may be transacted) or (ii)
in the case of the annual meeting, those matters which the board of
directors, at the time of giving the notice, intends to present for action by
the stockholders (but any proper matter may be presented at the meeting for
such action). The notice of any meeting at which directors are to be elected
shall include the name of any nominee or nominees who, at the time of the
notice, the board intends to present for election.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
Subject to the rights of holders of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation,
(a) nominations for the election of directors, and
(b) business proposed to be brought before any stockholder meeting
-2-
<PAGE>
may be made by the board of directors or proxy committee appointed by the
board of directors or by any stockholder entitled to vote in the election of
directors generally if such nomination or business proposed is otherwise
proper business before such meeting. However, any such stockholder may
nominate one or more persons for election as directors at a meeting or
propose business to be brought before a meeting, or both, only if such
stockholder has given timely notice in proper written form of their intent to
make such nomination or nominations or to propose such business. To be
timely, such stockholder's notice must be delivered to or mailed and received
by the secretary of the corporation not less than ninety (90) days prior to
the meeting; provided, however, that in the event that less than one-hundred
(100) 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. To be in proper form, a stockholder's notice to
the secretary shall set forth:
(i) the name and address of the stockholder who intends to make the
nominations or propose the business and, as the case may be, of the person
or persons to be nominated or of the business to be proposed;
(ii) a representation that the stockholder is a holder of record of
stock of the corporation entitled to vote at such meeting and, if
applicable, intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder;
(iv) such other information regarding each nominee or each matter of
business to be proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or
intended to be nominated, or the matter been proposed, or intended to be
proposed by the board of directors; and
(v) if applicable, the consent of each nominee to serve as director
of the corporation if so elected.
The chairman of the meeting shall refuse to acknowledge the nomination
of any person or the proposal of any business not made in compliance with the
foregoing procedure.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent
-3-
<PAGE>
charges prepaid and shall be addressed to the stockholder at the address of
that stockholder appearing on the books of the corporation or given by the
stockholder to the corporation for the purpose of notice. Notice shall be
deemed to have been given at the time when delivered personally or deposited
in the mail or sent by telegram or other means of written communication.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.7 QUORUM
The holders of a majority in voting power of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman
of the meeting or (ii) the stockholders entitled to vote thereat, present in
person or represented by proxy, shall have power to adjourn the meeting in
accordance with Section 2.7 of these bylaws.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the
question is one upon which, by express provision of the laws of the State of
Delaware or of the certificate of incorporation or these bylaws, a different
vote is required, in which case such express provision shall govern and
control the decision of the question.
If a quorum be initially present, the stockholders may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by
a majority of the stockholders initially constituting the quorum.
2.8 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time and place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting
if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the corporation may transact
any business that might have been transacted at the original meeting. If the
adjournment is for more than thirty (30) days, or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
2.9 VOTING
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217
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and 218 of the General Corporation Law of Delaware (relating to voting rights
of fiduciaries, pledgors and joint owners, and to voting trusts and other
voting agreements).
Except as may be otherwise provided in the certificate of incorporation
or these bylaws, each stockholder shall be entitled to one vote for each
share of capital stock held by such stockholder.
At a stockholders' meeting at which directors are to be elected, and to
the extent permitted by the corporation's Certificate of Incorporation, each
stockholder shall be entitled to cumulate votes (i.e., cast for any candidate
a number of votes greater than the number of votes that such stockholder
normally is entitled to cast) if the candidates' names have been properly
placed in nomination (in accordance with these bylaws) prior to commencement
of the voting, and the stockholder requesting cumulative voting has given
notice prior to commencement of the voting of the stockholder's intention to
cumulate votes. If cumulative voting is properly requested, each holder of
stock, or of any class or classes or of a series or series thereof, who
elects to cumulate votes shall be entitled to as many votes as equals the
number of votes that (absent this provision as to cumulative voting) he or
she would be entitled to cast for the election of directors with respect to
his or her shares of stock multiplied by the number of directors to be
elected by him, and he or she may cast all of such votes for a single
director or may distribute them among the number to be voted for, or for any
two or more of them, as he or she may see fit.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the Certificate of Incorporation, any
action required or permitted to be taken at any annual or special meeting of
stockholders may be taken without a meeting, without prior notice and without
a vote, if a consent or consents in writing setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. Such consents shall be delivered to the corporation by
delivery to it registered office in the state of Delaware, its principal
place of business, or an officer or agent of the corporation having custody
of the book in which proceedings of meetings of stockholders are recorded.
Delivery made to a corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat, the board of directors may fix, in advance, a
record date, which shall not precede the date upon which the resolution
fixing the record date is adopted by the board of directors and which shall
not be more than sixty (60) days nor less than ten (10) days before the date
of any such meeting, and in such event only stockholders of record on the
date so fixed are entitled to notice and to vote, notwithstanding any
transfer of any shares on the books of the corporation after the record date.
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If the board of directors does not so fix a record date, 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.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting unless the board of directors fixes a new record date for the
adjourned meeting, but the board of directors shall fix a new record date if
the meeting is adjourned for more than thirty (30) days from the date set for
the original meeting.
The record date for any other purpose shall be as provided in Section
8.1 of these bylaws.
2.12 PROXIES
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the
secretary of the corporation, but no such proxy shall be voted or acted upon
after three (3) years from its date, unless the proxy provides for a longer
period. A proxy shall be deemed signed if the stockholder's name is placed
on the proxy (whether by manual signature, typewriting, telegraphic
transmission, telefacsimile or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on
its face that it is irrevocable shall be governed by the provisions of
Section 212(e) of the General Corporation Law of Delaware.
2.13 ORGANIZATION
The president, or in the absence of the president, the chairman of the
board, shall call the meeting of the stockholders to order, and shall act as
chairman of the meeting. In the absence of the president, the chairman of
the board, and all of the vice presidents, the stockholders shall appoint a
chairman for such meeting. The chairman of any meeting of stockholders shall
determine the order of business and the procedures at the meeting, including
such matters as the regulation of the manner of voting and the conduct of
business. The secretary of the corporation shall act as secretary of all
meetings of the stockholders, but in the absence of the secretary at any
meeting of the stockholders, the chairman of the meeting may appoint any
person to act as secretary of the meeting.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be
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held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
2.15 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any
written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and
to any limitations in the certificate of incorporation or these bylaws
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction
of the board of directors.
3.2 NUMBER OF DIRECTORS
The board of directors shall consist of eight (8) members. The number
of directors may be changed by an amendment to this bylaw, duly adopted by
the board of directors or by the stockholders, or by a duly adopted amendment
to the certificate of incorporation.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Each director, including a director elected or appointed to
fill a vacancy, shall hold office until the expiration of the term for which
elected and until a successor has been elected and qualified.
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3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the board of
directors, unless the notice specifies a later time for that resignation to
become effective. If the resignation of a director is effective at a future
time, the board of directors may elect a successor to take office when the
resignation becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote
of the stockholders or by court order may be filled only by the affirmative
vote of a majority of the shares represented and voting at a duly held
meeting at which a quorum is present (which shares voting affirmatively also
constitute a majority of the required quorum). Each director so elected
shall hold office until the next annual meeting of the stockholders and until
a successor has been elected and qualified.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from
any increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by
a sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions
of the certificate of incorporation, vacancies and newly created
directorships of such class or classes or series may be filled by a majority
of the directors elected by such class or classes or series thereof then in
office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders
in accordance with the provisions of the certificate of incorporation or
these bylaws, or may apply to the Court of Chancery for a decree summarily
ordering an election as provided in Section 211 of the General Corporation
Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten (10) percent of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors
then in office as aforesaid, which election shall be governed by the
provisions of Section 211 of the General Corporation Law of Delaware as far
as applicable.
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3.5 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the certificate of
incorporation or by these bylaws, any director or the entire board of
directors may be removed, with or without cause, by the holders of a majority
of the shares then entitled to vote at an election of directors; provided,
however, that, if and so long as stockholders of the corporation are entitled
to cumulative voting, if less than the entire board is to be removed, no
director may be removed without cause if the votes cast against his removal
would be sufficient to elect him if then cumulatively voted at an election of
the entire board of directors.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place
within or outside the State of Delaware that has been designated from time to
time by resolution of the board. In the absence of such a designation,
regular meetings shall be held at the principal executive office of the
corporation. Special meetings of the board may be held at any place within
or outside the State of Delaware that has been designated in the notice of
the meeting or, if not stated in the notice or if there is no notice, at the
principal executive office of the corporation.
Any meeting of the board, regular or special, may be held by conference
telephone or similar communication equipment, so long as all directors
participating in the meeting can hear one another; and all such participating
directors shall be deemed to be present in person at the meeting.
3.7 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be held
at such time and place as shall be fixed by the vote of the stockholders at
the annual meeting. In the event of the failure of the stockholders to fix
the time or place of such first meeting of the newly elected board of
directors, or in the event such meeting is not held at the time and place so
fixed by the stockholders, the meeting may be held at such time and place as
shall be specified in a notice given as hereinafter provided for special
meetings of the board of directors, or as shall be specified in a written
waiver signed by all of the directors.
3.8 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice at
such time as shall from time to time be determined by the board of directors.
If any regular meeting day shall fall on a legal holiday, then the meeting
shall be held at the same time and place on the next succeeding full business
day.
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3.9 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any
vice president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telecopy or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least
four (4) days before the time of the holding of the meeting. If the notice
is delivered personally or by telephone, telecopy or telegram, it shall be
delivered personally or by telephone or to the telegraph company at least
forty-eight (48) hours before the time of the holding of the meeting. Any
oral notice given personally or by telephone may be communicated either to
the director or to a person at the office of the director who the person
giving the notice has reason to believe will promptly communicate it to the
director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of
the corporation.
3.10 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in
Section 3.12 of these bylaws. Every act or decision done or made by a
majority of the directors present at a duly held meeting at which a quorum is
present shall be regarded as the act of the board of directors, subject to
the provisions of the certificate of incorporation and applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the quorum for that meeting.
3.11 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice, whether before or after the meeting, or (ii) who attends
the meeting other than for the express purposed of objecting at the beginning
of the meeting to the transaction of any business because the meeting is not
lawfully called or convened. All such waivers shall be filed with the
corporate records or made part of the minutes of the meeting. A waiver of
notice need not specify the purpose of any regular or special meeting of the
board of directors.
3.12 ADJOURNMENT
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting of the board to another time and place.
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3.13 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting of the
board need not be given unless the meeting is adjourned for more than
twenty-four (24) hours. If the meeting is adjourned for more than
twenty-four (24) hours, then notice of the time and place of the adjourned
meeting shall be given before the adjourned meeting takes place, in the
manner specified in Section 3.9 of these bylaws, to the directors who were
not present at the time of the adjournment.
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors
may be taken without a meeting, provided that all members of the board
individually or collectively consent in writing to that action. Such action
by written consent shall have the same force and effect as a unanimous vote
of the board of directors. Such written consent and any counterparts thereof
shall be filed with the minutes of the proceedings of the board of directors.
3.15 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.15 shall
not be construed to preclude any director from serving the corporation in any
other capacity as an officer, agent, employee or otherwise and receiving
compensation for those services.
3.16 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or any of
its subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with
or without interest and may be unsecured, or secured in such manner as the
board of directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing contained in this section shall
be deemed to deny, limit or restrict the powers of guaranty or warranty of
the corporation at common law or under any statute.
3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION
In the event only one director is required by these bylaws or the
certificate of incorporation, then any reference herein to notices, waivers,
consents, meetings or other actions by a majority or quorum of the directors
shall be deemed to refer to such notice, waiver, etc., by such sole director,
who shall have all the rights and duties and shall be entitled to exercise
all of the powers and shall assume all the responsibilities otherwise herein
described as given to the board of directors.
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ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board.
The board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting
of the committee. The appointment of members or alternate members of a
committee requires the vote of a majority of the authorized number of
directors. Any committee, to the extent provided in the resolution of the
board, shall have and may exercise all the powers and authority of the board,
but no such committee shall have the power or authority to (i) amend the
certificate 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
151(a) of the General Corporation Law of Delaware, 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), (ii) adopt an agreement of merger or
consolidation under Sections 251 or 252 of the General Corporation Law of
Delaware, (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
certificate of incorporation expressly so provide, no such committee shall
have the power or authority to declare a dividend, to authorize the issuance
of stock, or to adopt a certificate of ownership and merger pursuant to
Section 253 of the General Corporation Law of Delaware.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the following provisions of Article III of these bylaws:
Section 3.6 (place of meetings; meetings by telephone), Section 3.8 (regular
meetings), Section 3.9 (special meetings; notice), Section 3.10 (quorum),
Section 3.11 (waiver of notice), Section 3.12 (adjournment), Section 3.13
(notice of adjournment) and Section 3.14 (board action by written consent
without meeting), 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 the time of regular meetings of
committees may be determined either by resolution of the board of directors or
by resolution of the committee, that 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 the right to attend all
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meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
4.3 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
ARTICLE V
OFFICERS
5.1 OFFICERS
The Corporate Officers of the corporation shall be a president, a
secretary and a chief financial officer. The corporation may also have, at
the discretion of the board of directors, a chairman of the board, one or
more vice presidents (however denominated), one or more assistant
secretaries, a treasurer and one or more assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 5.3
of these bylaws. Any number of offices may be held by the same person.
In addition to the Corporate Officers of the Company described above,
there may also be such Administrative Officers of the corporation as may be
designated and appointed from time to time by the president of the
corporation in accordance with the provisions of Section 5.12 of these bylaws.
5.2 ELECTION OF OFFICERS
The Corporate Officers of the corporation, except such officers as may
be appointed in accordance with the provisions of Section 5.3 or Section 5.5
of these bylaws, shall be chosen by the board of directors, subject to the
rights, if any, of an officer under any contract of employment, and shall
hold their respective offices for such terms as the board of directors may
from time to time determine.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to
appoint, such other Corporate Officers as the business of the corporation may
require, each of whom shall hold office for such period, have such power and
authority, and perform such duties as are provided in these bylaws or as the
board of directors may from time to time determine.
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The president may from time to time designate and appoint Administrative
Officers of the corporation in accordance with the provisions of Section 5.12
of these bylaws.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of a Corporate Officer under any contract
of employment, any Corporate Officer may be removed, either with or without
cause, by the board of directors at any regular or special meeting of the
board or, except in case of a Corporate Officer chosen by the board of
directors, by any Corporate Officer upon whom such power of removal may be
conferred by the board of directors.
Any Corporate Officer may resign at any time by giving written notice to
the corporation. Any resignation shall take effect at the date of the
receipt of that notice or at any later time specified in that notice; and,
unless otherwise specified in that notice, the acceptance of the resignation
shall not be necessary to make it effective. Any resignation is without
prejudice to the rights, if any, of the corporation under any contract to
which the Corporate Officer is a party.
Any Administrative Officer designated and appointed by the president may
be removed, either with or without cause, at any time by the president. Any
Administrative Officer may resign at any time by giving written notice to the
president or to the secretary of the corporation.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed
in these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise such
other powers and perform such other duties as may from time to time be
assigned to him by the board of directors or as may be prescribed by these
bylaws. If there is no president, then the chairman of the board shall also
be the chief executive officer of the corporation and shall have the powers
and duties prescribed in Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the board
of directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction and control of the business and the officers of the corporation.
He or she shall preside at all meetings of the stockholders and, in the
absence or nonexistence of a chairman of the board, at all meetings of the
board of directors. He or she shall have the general powers and duties of
management usually vested
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in the office of president of a corporation, and shall have such other powers
and perform such other duties as may be prescribed by the board of directors
or these bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, and if there is no
chairman of the board, the vice presidents, if any, in order of their rank as
fixed by the board of directors or, if not ranked, a vice president
designated by the board of directors, shall perform all the duties of the
president and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the president. The vice presidents shall have
such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of the board of
directors, committees of directors and stockholders. The minutes shall show
the time and place of each meeting, whether regular or special (and, if
special, how authorized and the notice given), the names of those present at
directors' meetings or committee meetings, the number of shares present or
represented at stockholders' meetings and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register or a duplicate share register, showing the names
of all stockholders and their addresses, the number and classes of shares
held by each, the number and date of certificates evidencing such shares and
the number and date of cancellation of every certificate surrendered for
cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law
or by these bylaws. He or she shall keep the seal of the corporation, if one
be adopted, in safe custody and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or by these
bylaws.
5.10 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. The books of account shall at all reasonable
times be open to inspection by any director for a purpose reasonably related
to his position as a director.
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The chief financial officer shall deposit all money and other valuables
in the name and to the credit of the corporation with such depositaries as
may be designated by the board of directors. He or she shall disburse the
funds of the corporation as may be ordered by the board of directors, shall
render to the president and directors, whenever they request it, an account
of all of his or her transactions as chief financial officer and of the
financial condition of the corporation, and shall have such other powers and
perform such other duties as may be prescribed by the board of directors or
these bylaws.
5.11 ASSISTANT SECRETARY
The assistant secretary, if any, or, if there is more than one, the
assistant secretaries in the order determined by the board of directors (or
if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her
inability or refusal to act, perform the duties and exercise the powers of
the secretary and shall perform such other duties and have such other powers
as the board of directors may from time to time prescribe.
5.12 ADMINISTRATIVE OFFICERS
In addition to the Corporate Officers of the corporation as provided in
Section 5.1 of these bylaws and such subordinate Corporate Officers as may be
appointed in accordance with Section 5.3 of these bylaws, there may also be
such Administrative Officers of the corporation as may be designated and
appointed from time to time by the president of the corporation.
Administrative Officers shall perform such duties and have such powers as
from time to time may be determined by the president or the board of
directors in order to assist the Corporate Officers in the furtherance of
their duties. In the performance of such duties and the exercise of such
powers, however, such Administrative Officers shall have limited authority to
act on behalf of the corporation as the board of directors shall establish,
including but not limited to limitations on the dollar amount and on the
scope of agreements or commitments that may be made by such Administrative
Officers on behalf of the corporation, which limitations may not be exceeded
by such individuals or altered by the president without further approval by
the board of directors.
5.13 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing powers, authority and duties, all officers
of the corporation shall respectively have such authority and powers and
perform such duties in the management of the business of the corporation as
may be designated from time to time by the board of directors.
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ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner permitted
by the General Corporation Law of Delaware as the same now exists or may
hereafter be amended, indemnify any person 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 in which such person was or is a party
or is threatened to be made a party by reason of the fact that such person is
or was a director or officer of the corporation. For purposes of this
Section 6.1, a "director" or "officer" of the corporation shall mean any
person (i) who is or was a director or officer of the corporation, (ii) who
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) who 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 be required to indemnify a director or officer in
connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
Board of Directors of the corporation.
The corporation shall pay the expenses (including attorney's fees)
incurred by a director or officer of the corporation entitled to
indemnification hereunder in defending any action, suit or proceeding
referred to in this Section 6.1 in advance of its final disposition;
provided, however, that payment of expenses incurred by a director or officer
of the corporation in advance of the final disposition of such action, suit
or proceeding shall be made only upon receipt of an undertaking by the
director or officer to repay all amounts advanced if it should ultimately be
determined that the director of officer is not entitled to be indemnified
under this Section 6.1 or otherwise.
The rights conferred on any person by this Article shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the corporation's Certificate of
Incorporation, these bylaws, agreement, vote of the stockholders or
disinterested directors or otherwise.
Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
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6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware as the same now
exists or may hereafter be amended, to indemnify any person (other than
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, in which such person was or is a party or is threatened
to be made a party by reason of the fact that such person is or was an
employee or agent of the corporation. For purposes of this Section 6.2, an
"employee" or "agent" of the corporation (other than a director or officer)
shall mean any person (i) who is or was an employee or agent of the
corporation, (ii) who 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) who 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.
6.3 INSURANCE
The corporation may purchase and maintain insurance 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 against any liability asserted
against him or her and incurred by him or her in any such capacity, or
arising out of his or her status as such, whether or not the corporation
would have the power to indemnify him or her against such liability under the
provisions of the General Corporation Law of Delaware.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record
of its stockholders listing their names and addresses and the number and
class of shares held by each stockholder, a copy of these bylaws as amended
to date, accounting books and other records of its business and properties.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is
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the person who seeks the right to inspection, the demand under oath shall be
accompanied by a power of attorney or such other writing that authorizes the
attorney or other agent to so act on behalf of the stockholder. The demand
under oath shall be directed to the corporation at its registered office in
Delaware or at its principal place of business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine (and to make copies of) the
corporation's stock ledger, a list of its stockholders and its other books
and records for a purpose reasonably related to his or her position as a
director.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, if any, the president, any vice president,
the chief financial officer, the secretary or any assistant secretary of this
corporation, or any other person authorized by the board of directors or the
president or a vice president, is authorized to vote, represent and exercise
on behalf of this corporation all rights incident to any and all shares of
the stock of any other corporation or corporations standing in the name of
this corporation. The authority herein granted may be exercised either by
such person directly or by any other person authorized to do so by proxy or
power of attorney duly executed by such person having the authority.
7.5 CERTIFICATION AND INSPECTION OF BYLAWS
The original or a copy of these bylaws, as amended or otherwise altered
to date, certified by the secretary, shall be kept at the corporation's
principal executive office and shall be open to inspection by the
stockholders of the corporation, at all reasonable times during office hours.
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ARTICLE VIII
GENERAL MATTERS
8.1 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 change,
conversion or exchange of stock, or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which
shall not precede the date upon which the resolution fixing the record date
is adopted and 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 by 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 of directors adopts the applicable
resolution.
8.2 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.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws,
may authorize and empower 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 power and 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 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.
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares
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represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board
of directors, every holder of stock represented by certificates and, upon
request, every holder of uncertificated shares, shall be entitled to have a
certificate signed by, or in the name of the corporation by, the chairman or
vice-chairman of the board of directors, or the president or vice-president,
and by the treasurer or an assistant treasurer, or the secretary or an
assistant secretary of such corporation representing the number of shares
registered in certificate form. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the corporation with the same
effect as if he or she were such officer, transfer agent or registrar at the
date of issue.
Certificates for shares shall be of such form and device as the board of
directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of
shares for which it is issued; a summary statement or reference to the
powers, designations, preferences or other special rights of such stock and
the qualifications, limitations or restrictions of such preferences and/or
rights, if any; a statement or summary of liens, if any; a conspicuous notice
of restrictions upon transfer or registration of transfer, if any; a
statement as to any applicable voting trust agreement; if the shares be
assessable, or, if assessments are collectible by personal action, a plain
statement of such facts.
Upon surrender to the secretary or transfer agent of the corporation of
a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, or upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total
amount of the consideration to be paid therefor and the amount paid thereon
shall be stated. Upon the declaration of any dividend on fully paid shares,
the corporation shall declare a dividend upon partly paid shares of the same
class, but only upon the basis of the percentage of the consideration
actually paid thereon.
8.5 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences and the relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the
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corporation shall issue to represent such class or series of stock; provided,
however, that, except as otherwise provided in Section 202 of the General
Corporation Law of Delaware, in lieu of the foregoing requirements there may
be set forth on the face or back of the certificate that the corporation
shall issue to represent such class or series of stock a statement that the
corporation will furnish without charge to each stockholder who so requests
the powers, the designations, the preferences and the relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
8.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter
is surrendered to the corporation and cancelled at the same time. The board
of directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim
that may be made against it, including any expense or liability, on account
of the alleged loss, theft or destruction of the certificate or the issuance
of the replacement certificate.
8.7 TRANSFER AGENTS AND REGISTRARS
The board of directors may appoint one or more transfer agents or
transfer clerks, and one or more registrars, each of which shall be an
incorporated bank or trust company -- either domestic or foreign, who shall
be appointed at such times and places as the requirements of the corporation
may necessitate and the board of directors may designate.
8.8 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of
this provision, as used in these bylaws, the singular number includes the
plural, the plural number includes the singular, and the term "person"
includes both an entity and a natural person.
ARTICLE IX
AMENDMENTS
The original or other bylaws of the corporation may be adopted, amended
or repealed by the stockholders entitled to vote or by the board of directors
of the corporation. The fact that such power has been so conferred upon the
directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal bylaws.
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Whenever an amendment or new bylaw is adopted, it shall be copied in the
book of bylaws with the original bylaws, in the appropriate place. If any
bylaw is repealed, the fact of repeal with the date of the meeting at which
the repeal was enacted or the filing of the operative written consent(s)
shall be stated in said book.
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CATS SOFTWARE INC.
AMENDED AND RESTATED
1988 INCENTIVE STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this Incentive Stock Plan
are to attract and retain the best available personnel, to provide additional
incentive to the Employees of CATS Software Inc. (the "Company") and to
promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Board and as reflected
in the terms of the written option agreement. The Board also has the
discretion to grant Stock Purchase Rights.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" shall mean the Committee, if one has been appointed,
or the Board of Directors of the Company, if no Committee is appointed.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "COMMITTEE" shall mean the Committee appointed by the Board of
Directors in accordance with Section 4(a) of the Plan, if one is appointed.
(d) "COMMON STOCK" shall mean the Common Stock of the Company.
(e) "COMPANY" shall mean CATS Software Inc., a California
corporation.
(f) "CONSULTANT" shall mean any person who is engaged by the
Company or any Parent or Subsidiary to render consulting services and is
compensated for such consulting services, and any director of the Company
whether compensated for such services or not; provided that if and in the
event the Company registers any class of any equity security pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"),
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the term Consultant shall thereafter not include directors who are not
compensated for their services or are paid only a director's fee by the
Company.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" shall mean
the absence of any interruption or termination of service as an Employee or
Consultant, as applicable. Continuous Status as an Employee or Consultant
shall not be considered interrupted in the case of sick leave, military
leave, or any other leave of absence approved by the Board; provided that
such leave is for a period of not more than 90 days or reemployment upon the
expiration of such leave is guaranteed by contract or statute.
(h) "EMPLOYEE" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the
Company. The payment of a director's fee by the Company shall not be
sufficient to constitute "employment" by the Company.
(i) "INCENTIVE STOCK OPTION" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422A of
the Code.
(j) "NONSTATUTORY STOCK OPTION" shall mean an Option not intended
to qualify as an Incentive Stock Option.
(k) "OPTION" shall mean a stock option granted pursuant to the
Plan.
(l) "OPTIONED STOCK" shall mean the Common Stock subject to an
Option.
(m) "OPTIONEE" shall mean an Employee or Consultant who receives
an Option.
(n) "PARENT" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 425(e) of the Code.
(o) "PLAN" shall mean this Amended and Restated 1988 Incentive
Stock Plan.
(p) "PURCHASER" shall mean an Employee or Consultant who exercises
a Stock Purchase Right.
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(q) "SHARE" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(r) "STOCK PURCHASE RIGHT" shall mean a right to purchase Common
Stock pursuant to the Plan or the right to receive a bonus of Common Stock
for past services.
(s) "SUBSIDIARY" shall mean a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 425(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11
of the Plan, the maximum aggregate number of shares under the Plan is
1,883,700 shares of Common Stock. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right should expire or become
unexercisable for any reason without having been exercised in full, then the
unpurchased Shares which were subject thereto shall, unless the Plan shall
have been terminated, become available for future grant or sale under the
Plan. Notwithstanding any other provision of the Plan, shares issued under
the Plan and later repurchased by the Company shall not become available for
future grant or sale 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
Optionees.
(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
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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 all applicable laws.
(b) POWERS OF THE BOARD. Subject to the provisions of the Plan,
the Board shall have the authority, in its discretion: (i) to grant Incentive
Stock Options, Nonstatutory Stock Options or Stock Purchase Rights; (ii) to
determine, upon review of relevant information and in accordance with Section
7 of the Plan, the fair market value of the Common Stock; (iii) to determine
the exercise price per share of Options or Stock Purchase Rights, to be
granted, which exercise price shall be determined in accordance with Section
7 of the Plan; (iv) to determine the Employees or Consultants to whom, and
the time or times at which, Options or Stock Purchase Rights shall be granted
and the number of shares to be represented by each Option or Stock Purchase
Right; (v) to interpret the Plan; (vi) to prescribe, amend and rescind rules
and regulations relating to the Plan; (vii) to determine the terms and
provisions of each Option and Stock Purchase Right granted (which need not be
identical) and, with the consent of the holder thereof, modify or amend each
Option or Stock Purchase Right; (viii) to authorize any person to execute on
behalf of the Company any instrument required to effectuate the grant of an
Option or Stock Purchase Right previously granted by the Board; and (ix) to
make all other determinations deemed necessary or advisable for the
administration of the Plan.
(c) EFFECT OF BOARD'S DECISION. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees,
Purchasers and any other holders of any Options or Stock Purchase Rights
granted under the Plan.
5. ELIGIBILITY.
(a) Options and Stock Purchase Rights may be granted to Employees
and Consultants, provided that Incentive Stock Options may only be granted to
Employees. An Employee or Consultant who has been granted an Option or Stock
Purchase Right may, if such
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Employee or Consultant is otherwise eligible, be granted additional Option(s)
or Stock Purchase Right(s).
(b) No Incentive Stock Option may be granted to an Employee which,
when aggregated with all other incentive stock options granted to such
Employee by the Company or any Parent or Subsidiary, would result in Shares
having an aggregate fair market value (determined for each Share as of the
date of grant of the Option covering such Share) in excess of $100,000
becoming first available for purchase upon exercise of one or more incentive
stock options during any calendar year.
(c) Section 5(b) of the Plan shall apply only to an Incentive
Stock Option evidenced by an "Incentive Stock Option Agreement" which sets
forth the intention of the Company and the Optionee that such Option shall
qualify as an incentive stock option. Section 5(b) of the Plan shall not
apply to any Option evidenced by a "Nonstatutory Stock Option Agreement"
which sets forth the intention of the Company and the Optionee that such
Option shall be a Nonstatutory Stock Option.
(d) The Plan shall not confer upon any Optionee or holder of a
Stock Purchase Right any right with respect to continuation of employment by
or the rendition of consulting services to the Company, nor shall it
interfere in any way with his or her right or the Company's right to
terminate his or her employment or services at any time, with or without
cause.
6. 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 vote of
the holders of a majority of the outstanding shares of the Company entitled
to vote on the adoption of the Plan. It shall continue in effect for a term
of ten (10) years unless sooner terminated under Section 14 of the Plan.
7. EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option or Stock Purchase Right shall be such price
as is determined by the Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
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(A) granted to an Employee who, at the time of the
grant of such Incentive Stock Option, 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.
(B) granted to any Employee, 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
(A) granted to a person who, at the time of the
grant of such Option, 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 the grant.
(B) granted to any person, the per Share exercise
price shall be no less than 85% of the fair market value per Share on the
date of grant.
(iii) In the case of a Stock Purchase Right
(A) granted to any person who, at the time of the
grant of such Stock Purchase Right, 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.
(B) granted to any person, the per Share exercise
price shall be no less than 85% of the fair market value per Share on the
date of grant.
(iv) In the case of an Option or Stock Purchase Right
granted on or after the effective date of registration of any class of equity
security of the Company pursuant to Section 12 of the Exchange Act and prior
to six months after the termination of such registration, the per Share
exercise price shall be no less than 100% of the fair market value per Share
on the date of grant.
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(b) The fair market value shall be determined by the Board in its
discretion; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the mean of the bid
and asked prices (or the closing price per share if the Common Stock is
listed on the National Association of Securities Dealers Automated Quotation
("NASDAQ") National Market System of the Common Stock for the date of grant,
as reported in the Wall Street Journal (or, if not so reported, as otherwise
reported by the NASDAQ System) or, in the event the Common Stock is listed on
a stock exchange, the fair market value per Share shall be the closing price
on such exchange on the date of grant of the Option or Stock Purchase Right,
as reported in the Wall Street Journal.
(c) The consideration to be paid for the Shares to be issued upon
exercise of an Option or Stock Purchase Right, including the method of
payment, shall be determined by the Board and may consist entirely of cash,
check, promissory note, other Shares of Common Stock having 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, or any combination of such
methods of payment, or such other consideration and method of payment for the
issuance of Shares to the extent permitted under Sections 408 and 409 of the
California General Corporation Law. In making its determination as to the
type of consideration to accept, the Board shall consider if acceptance of
such consideration may be reasonably expected to benefit the Company (Section
315(b) of the California General Corporation Law).
8. OPTIONS.
(a) TERM OF OPTION. The term of each Incentive Stock Option shall
be ten (10) years from the date of grant thereof or such shorter term as may
be provided in the Incentive Stock Option Agreement. The term of each Option
that is not an Incentive Stock Option shall be ten (10) years and one (1) day
from the date of grant thereof or such shorter term as may be provided in the
Stock Option Agreement. However, in the case of an Option granted to an
Employee who, at the time the 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, (i) if the Option is an Incentive Stock
Option, the term of the Option shall be five (5) years from the date of grant
thereof or such
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shorter time as may be provided in the Stock Option Agreement, or (ii) if the
Option is not an Incentive Stock Option, the term of the Option shall be five
(5) years and one (1) day from the date of grant thereof or such other term
as may be provided in the Stock Option Agreement.
(b) EXERCISE OF OPTION.
(i) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any
Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Board, including performance criteria with
respect to the Company and/or the Optionee, and as shall be permissible under
the terms of the Plan; provided, however, that an Incentive Stock Option
granted prior to January 1, 1987 (the "Sequential Option") shall not be
exercisable while there is outstanding any Incentive Stock Option which was
granted, before the granting of the Sequential Option, to the same Optionee
to purchase stock of the Company, any Parent or Subsidiary, or any
predecessor corporation of such corporations. For purposes of this
provision, an Incentive Stock Option shall be treated as outstanding until
such Incentive Stock Option is exercised in full or expires by reason of
lapse of time.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms
of the Option by the person entitled to exercise the Option and full payment
for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may, as authorized by the Board,
consist of any consideration and method of payment allowable under Section 7
of the Plan. 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 stock certificate evidencing such 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 Company
shall issue (or cause to be issued) such stock certificate promptly upon
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 the
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stock certificate is issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be 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.
(ii) TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT.
In the event of termination of an Optionee's Continuous Status as an Employee
or Consultant (as the case may be), such Optionee may, but only within thirty
(30) days (or such other period of time not exceeding three (3) months in the
case of an Incentive Stock Option or six (6) months in the case of a
Nonstatutory Stock Option, as is determined by the Board, with such
determination in the case of an Incentive Stock Option being made at the time
of grant of the Option) after the date of such termination (but in no event
later than the date of expiration of the term of such Option as set forth in
the Option Agreement, exercise the Option to the extent that such Employee or
Consultant was entitled to exercise it at the date of such termination. To
the extent that such Employee or Consultant was not entitled to exercise the
Option at the date of such termination, or if such Employee or Consultant
does not exercise such Option (which such Employee or Consultant was entitled
to exercise) within the time specified herein, the Option shall terminate.
(iii) DISABILITY OF OPTIONEE. Notwithstanding the
provisions of Section 8(b)(ii) above, in the event of termination of an
Optionee's Continuous Status as an Employee or Consultant as a result of such
Employee's or Consultant's total and permanent disability (as defined in
Section 22(e)(3) of the Code), such Employee or Consultant may, but only
within six (6) months (or such other period of time not exceeding twelve (12)
months as is determined by the Board, with such determination in the case of
an Incentive Stock Option being made at the time of grant of the Option) from
the date of such termination (but in no event later than the date of
expiration of the term of such Option as set forth in the Option Agreement),
exercise the Option to the extent such Employee or Consultant was entitled to
exercise it at the date of such termination. To the extent that such
Employee or Consultant was not entitled to exercise the Option at the date of
termination, or if such Employee or Consultant does not exercise such Option
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(which such Employee or Consultant was entitled to exercise) within the time
specified herein, the Option shall terminate.
(iv) DEATH OF OPTIONEE. In the event of the death of an
Optionee:
(i) during the term of the Option who is at the time of his
or her death an Employee or Consultant of the Company and who shall
have been in Continuous Status as an Employee or Consultant since the
date of grant of the Option, the Option may be exercised, at any time
within six (6) months (or such other period of time as is determined
by the Board at the time of grant of the Option) following the date of
death (but in no event later than the date of expiration of the term
of such Option as set forth in the Option Agreement), by the
Optionee's estate or by a person who acquired the right to exercise
the Option by bequest or inheritance, but only to the extent of the
right to exercise that would have accrued had the Optionee continued
living and remained in Continuous Status as an Employee or Consultant
six (6) months (or such other period of time as is determined by the
Board at the time of grant of the Option) after the date of death,
subject to the limitation set forth in Section 5(b); or
(ii) within thirty (30) days (or such other period of time
not exceeding three (3) months as is determined by the Board, with
such determination in the case of an Incentive Stock Option being made
at the time of grant of the Option) after the termination of
Continuous Status as an Employee or Consultant, the Option may be
exercised, at any time within six (6) months (or such other period of
time as is determined by the Board at the time of grant of the Option)
following the date of death (but in no event later than the date of
expiration of the term of such Option as set forth in the Option
Agreement), by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of
termination.
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9. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. After the Board of Directors determines
that it will offer an Employee or Consultant a Stock Purchase Right, it shall
deliver to the offeree a stock purchase agreement or stock bonus agreement,
as the case may be, setting forth the terms, conditions and restrictions
relating to the offer, including the number of Shares which such person shall
be entitled to purchase, and the time within which such person must accept
such offer, which shall in no event exceed six (6) months from the date upon
which the Board of Directors or its Committee made the determination to grant
the Stock Purchase Right. The offer shall be accepted by execution of a
stock purchase agreement or stock bonus agreement in the form determined by
the Board of Directors.
(b) ISSUANCE OF SHARES. Forthwith after payment therefor, the
Shares purchased shall be duly issued; provided, however, that the Board may
require that the Purchaser make adequate provision for any Federal and State
withholding obligations of the Company as a condition to the Purchaser
purchasing such Shares.
(c) REPURCHASE OPTION. Unless the Board determines otherwise, the
stock purchase agreement or stock bonus agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination
of the Purchaser's employment with the Company for any reason (including
death or disability). If the Board so determines, the purchase price for
shares repurchased may be paid by cancellation of any indebtedness of the
Purchaser to the Company. The repurchase option shall lapse at such rate as
the Board may determine.
(d) OTHER PROVISIONS. The stock purchase agreement or stock bonus
agreement shall contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Board of Directors.
10. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. The
Options and Stock Purchase Rights 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 or Purchaser, only by the Optionee or Purchaser.
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11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. 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, or
repurchase of Shares from a Purchaser upon termination of employment, 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 of the Company or the payment of a stock
dividend with respect to 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.
In the event of the proposed dissolution or liquidation of the
Company, the Board shall notify the Optionee at least fifteen (15) days prior
to such proposed action. To the extent it has not been previously exercised,
the Option will terminate immediately prior to the consummation of such
proposed action. In the event of a merger of the Company with or into
another corporation, the Option shall be assumed or an equivalent option
shall be substituted by such successor corporation.
12. TIME OF GRANT. The date of grant of an Option or Stock Purchase
Right shall, for all purposes, be the date on which the Board makes the
determination granting such Option or Stock Purchase Right. Notice of the
determination shall be given to each Employee or Consultant to whom an Option
or Stock Purchase Right is so granted within a reasonable time after the date
of such grant.
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13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate
the Plan from time to time in such respects as the Board may deem advisable;
provided that, the following revisions or amendments shall require approval
of the shareholders of the Company in the manner described in Section 17 of
the Plan:
(i) any increase in the number of Shares subject to the Plan,
other than in connection with an adjustment under Section 11 of the
Plan;
(ii) any change in the designation of the class of persons
eligible to be granted Options and Stock Purchase Rights; or
(iii) if the Company has a class of equity securities registered
under Section 12 of the Exchange Act at the time of such revision or
amendment, any material increase in the benefits accruing to
participants under the Plan.
(b) SHAREHOLDER APPROVAL. If any amendment requiring shareholder
approval under Section 13(a) of the Plan is made subsequent to the first
registration of any class of equity securities by the Company under Section
12 of the Exchange Act, such shareholder approval shall be solicited as
described in Section 17 of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted and such Options or Stock Purchase Rights shall remain in
full force and effect as if this Plan had not been amended or terminated,
unless mutually agreed otherwise between the Optionee or Purchaser (as the
case may be) and the Board, which agreement must be in writing and signed by
the Optionee or Purchaser (as the case may be) and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Rights unless the
exercise of such Option or Stock Purchase Rights and the issuance and
delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without
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limitation, the Securities Act of 1933, as amended, the Exchange Act, 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 or Stock Purchase
Rights, the Company may require the person exercising such Option or Stock
Purchase Rights 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 relevant provisions of law.
15. 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.
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.
16. OPTION, STOCK PURCHASE AND STOCK BONUS AGREEMENTS. Options shall
be evidenced by written option agreements in such form as the Board shall
approve. Upon the exercise of Stock Purchase Rights, the Purchaser shall sign
a stock purchase agreement or stock bonus agreement in such form as the Board
shall approve.
17. SHAREHOLDER APPROVAL.
(a) Continuance of the Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months before or after the
date the Plan is adopted. If such shareholder approval is obtained at a duly
held shareholders' meeting, it must be obtained by the affirmative vote of
the holders of a majority of the outstanding shares of the Company, or if
such shareholder approval is obtained by written consent, it must be obtained
by the
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<PAGE>
unanimous written consent of all shareholders of the Company; provided,
however, that approval at a meeting or by written consent may be obtained by
a lesser degree of shareholder approval, if the Board determines, in its
discretion after consultation with the Company's legal counsel, that such a
lesser degree of shareholder approval will comply with all applicable laws
and will not adversely affect the qualification of the Plan under Section
422A of the Code.
(b) If and in the event that the Company registers any class of
equity securities pursuant to Section 12 of the Exchange Act, any required
approval of the shareholders of the Company obtained after such registration
shall be solicited substantially in accordance with Section 14(a) of the
Exchange Act and the rules and regulations promulgated thereunder.
(c) If any required approval by the shareholders of the Plan
itself or of any amendment thereto is solicited at any time otherwise than in
the manner described in Section 17(b) hereof, then the Company shall, at or
prior to the first annual meeting of shareholders held subsequent to the
later of (1) the first registration of any class of equity securities of the
Company under Section 12 of the Exchange Act or (2) the granting of an Option
hereunder to an officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled to vote for
the Plan substantially the same information which would be required (if
proxies to be voted with respect to approval or disapproval of the Plan or
amendment were then being solicited) by the rules and regulations in effect
under Section 14(a) of the Exchange Act at the time such information is
furnished; and
(ii) file with, or mail for filing to, the Securities and
Exchange Commission four copies of the written information referred to in
subsection (i) hereof not later than the date on which such information is
first sent or given to shareholders.
18. INFORMATION TO OPTIONEES AND PURCHASERS. The Company shall provide
to each Optionee and Purchaser, during the period for which such Optionee or
Purchaser has one or more Options or Stock Purchase Rights outstanding, a
balance sheet and an income state-
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ment at least annually. The Company shall not be required to provide such
information if the issuance of Options or Stock Purchase Rights under the
Plan is limited to key employees whose duties in connection with the Company
assure their access to equivalent information.
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CATS SOFTWARE INC.
AMENDED AND RESTATED
1995 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 CATS Software Inc., a Delaware 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;
(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.
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(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 CATS Software Inc. Amended and Restated 1995
Stock Plan.
(y) "RESTRICTED STOCK" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 below.
(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.
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(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 2,500,000 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.
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<PAGE>
(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.
(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;
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(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
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.
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(c) 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 500,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional
500,000 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 cancelled 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 cancelled 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. 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.
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(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, 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.
(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;
(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
-8-
<PAGE>
(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 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.
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 three (3) months following the Optionee's termination.
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.
-9-
<PAGE>
(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. 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. If, at the time of death, the Optionee
is not vested as to 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.
(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
-10-
<PAGE>
(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.
(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. 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.
-11-
<PAGE>
(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.
(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
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<PAGE>
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 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.
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<PAGE>
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.
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<PAGE>
CATS SOFTWARE, INC.
AMENDED AND RESTATED 1995 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:
[25% of the Shares subject to the Option shall vest twelve 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 _____ [days/months] after Optionee
ceases to be a Service Provider. Upon the death or Disability of the
Optionee, this Option may be exercised for such longer period as provided in
the Plan. 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
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<PAGE>
Market Value of the Exercised Shares on the date of exercise over their
aggregate Exercise Price. If 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.
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<PAGE>
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
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: CATS SOFTWARE INC.
- ----------------------------------- ---------------------------------------
Signature By
- ----------------------------------- ---------------------------------------
Print Name Title
- -----------------------------------
Residence Address
- -----------------------------------
-5-
<PAGE>
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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<PAGE>
EXHIBIT A
CATS SOFTWARE INC.
AMENDED AND RESTATED
1995 STOCK PLAN
EXERCISE NOTICE
CATS Software Inc.
1730 Embarcadero
Palo Alto, CA 94303
Attention: Secretary
1. EXERCISE OF OPTION. Effective as of today, ________________,
199__, the undersigned ("Purchaser") hereby elects to purchase ______________
shares (the "Shares") of the Common Stock of CATS Software Inc. (the
"Company") under and pursuant to the Amended and Restated 1995 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.
<PAGE>
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 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: CATS SOFTWARE INC.
- ----------------------------------- ---------------------------------------
Signature By
- ----------------------------------- ---------------------------------------
Print Name Its
ADDRESS: ADDRESS:
- ----------------------------------- 1730 Embarcadero
- ----------------------------------- Palo Alto, CA 94303
---------------------------------------
Date Received
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<PAGE>
EXHIBIT B
SECURITY AGREEMENT
This Security Agreement is made as of __________, 19___ between CATS
Software Inc., a Delaware 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 Amended and Restated 1995 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 here-
-2-
<PAGE>
under 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.
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" CATS SOFTWARE INC.
a Delaware corporation
---------------------------------
Signature
---------------------------------
Print Name
---------------------------------
Title
"PLEDGEHOLDER" ---------------------------------
Secretary of
CATS SOFTWARE INC.
-4-
<PAGE>
EXHIBIT C
NOTE
$_______________ [City, State]
______________, 19___
FOR VALUE RECEIVED, _______________ promises to pay to CATS Software
Inc., a Delaware corporation (the "Company"), or order, the principal sum of
_______________________ ($_____________), 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.
---------------------------------
---------------------------------
<PAGE>
CATS SOFTWARE INC.
AMENDED AND RESTATED
1995 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 Amended and Restated
1995 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: CATS SOFTWARE INC.
- --------------------------- --------------------------------
Signature By
- --------------------------- --------------------------------
<PAGE>
Print Name Title
EXHIBIT A-1
CATS SOFTWARE INC.
AMENDED AND RESTATED
1995 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 cancelling an amount of the Purchaser's
<PAGE>
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,
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 _________ after the Date of
Grant and __________________ percent (______%) of the Shares
[_________________________], 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
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<PAGE>
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 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.
-3-
<PAGE>
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 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
-4-
<PAGE>
Purchaser under this Agreement may only be assigned with the prior written
consent of the Company.
(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: CATS SOFTWARE INC.
- ------------------------------ ----------------------------------
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 CATS Software Inc. 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
CATS Software Inc.
1730 Embarcadero
Palo Alto, CA 94303
Dear _____________:
As Escrow Agent for both CATS Software Inc., a Delaware 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: CATS Software Inc.
1730 Embarcadero
Palo Alto, CA 94303
PURCHASER:
-----------------------------
-----------------------------
-----------------------------
ESCROW AGENT: Corporate Secretary
CATS Software Inc.
1730 Embarcadero
Palo Alto, CA 94303
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.
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<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
xchoice of law rules, of California.
Very truly yours,
CATS SOFTWARE INC.
-------------------------------------
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 CATS Software Inc., 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 CATS
Software Inc. (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>
EXHIBIT 11.1
CALCULATION OF EARNING PER SHARE
In the calculation of earning per share for the years ended December 31,
1997, 1996 and 1995, weighted shares outstanding have been computed as
follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
--------- ---------- ---------
<S> <C> <C> <C>
Weighted average shares outstanding -
Shares outstanding from beginning of period 6,639,587 5,548,402 4,212,499
Sale of 40,044, 34,062 and 19,007 shares of common stock
through Employee Stock Purchase plans, respectively 30,588 26,483 --
Acquisition of LOR/GB with issuance of 578,651 shares on
Common Stock on February 13, 1996 -- 509,086 --
Issuance of 1,300,000 shares of Common Stock for initial
public offering on March 20, 1995 -- -- 1,015,068
Weighted options outstanding (1) -- -- 621,175
Stock Options exercised during the period 73,824 144,003 213,544
--------- ---------- ---------
Weighted Average Common and Common equivalent shares
outstanding 6,743,999 6,527,974 6,062,288
</TABLE>
(1) Excludes anti-dilutive common share equivalents in the weighted average
shares outstanding calculation for 1997 and 1996.
<PAGE>
EXHIBIT 13.1
---------------------------------------------------------------------
C - A T S S O F T W A R E I N C.
---------------------------------------------------------------------
1 9 9 7
A N N U A L R E P O R T
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The statement of operations data set forth below for the three years
ended December 31, 1995 through 1997 and the balance sheet data at December
31, 1997 and 1996, are derived from, and are qualified by reference to, the
audited financial statements and should be read in conjunction with the
Consolidated Financial Statements and the Notes to the Consolidated Financial
Statements ("Notes"). Information for years ended December 31, 1993, 1994 and
1995 are derived from previously filed financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue:
License revenue $ 14,103 $17,342 $20,359 $19,322 $17,250
Service and other Revenue 200 1,120 1,939 823 1,204
------- ------- ------- ------- -------
Total revenues 14,303 18,462 22,298 20,145 18,454
------- ------- ------- ------- -------
Costs and expenses:
Cost of revenues 20 556 1,174 272 310
Research and development 2,452 3,117 3,582 6,166 6,723
Sales and marketing 6,965 8,551 10,273 11,084 11,386
General and administrative 1,958 2,533 2,838 2,617 2,991
Acquired in-process research
and development -- -- -- 7,066 585
------- ------- ------- ------- -------
Total costs and expenses 11,395 14,757 17,867 27,205 21,995
------- ------- ------- ------- -------
Operating income (loss) 2,908 3,705 4,431 (7,060) (3,541)
Interest income 174 269 931 863 960
------- ------- ------- ------- -------
Income (loss) before provision for income
taxes 3,082 3,974 5,362 (6,197) (2,581)
Provision for income taxes 1,602 1,391 1,877 0 0
------- ------- ------- ------- -------
Net income (loss) $ 1,480 $ 2,583 $ 3,485 $ (6,197) $ (2,581)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Net income (loss) per share - basic $ .33 $ .52 $ .64 $ (0.95) $ (0.38)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Net income (loss) per share - diluted $ .34 $ .52 $ .57 $ (0.95) $ (0.38)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Weighted average common share outstanding:
4,389 4,915 5,541 6,528 6,744
------- ------- ------- ------- -------
------- ------- ------- ------- -------
diluted 4,416 4,942 6,062 6,528 6,744
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments $8,585 $9,964 $26,701 $22,129 $20,153
Working capital 997 3,920 21,564 19,846 17,175
Total assets 15,321 18,906 38,500 32,999 30,640
Total stockholders' equity 2,094 5,002 22,892 21,911 19,684
</TABLE>
(1) See Note 2 of Notes to Consolidated Financial Statements for an
explanation of the determination of the number of shares used in
computing per share amounts.
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THIS REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THE RESULTS ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT
OF CERTAIN FACTORS SET FORTH IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS REPORT.
OVERVIEW
C-ATS Software Inc. (the "Company" or "C-ATS") was organized in 1988 as a
successor to a partnership formed in 1986. The Company's first product,
SWAPWARE-Registered Trademark-, was released in 1986. The Company has since
introduced additional products such as OPTIONS, FUTURES AND BONDS, MARKET
DATA, RISK MANAGER and OPERATIONS MANAGER. In late 1994, the Company
introduced C-ATALYST, an enhanced version of its product family which
includes multiple front, middle, and back office modules for capital markets,
derivatives trading, and risk management. These products serve the
established market for derivatives risk management and the emerging market
for enterprise-wide risk management. During February 1996, the Company
acquired the assets of LOR/Geske Bock Associates, Inc. ("LOR/Geske Bock" or
"LORGB") and developed and released an enhanced version of CARMA-Registered
Trademark-, which extends the Company's offerings for Enterprise-wide risk
management solutions. While the Company was profitable on an annual basis
from 1992 through 1995, R&D expenses associated with the acquisition of
LOR/Geske Bock resulted in a net loss for 1996. In 1997, the Company
acquired the rights to the software technology of International Risk Control,
Inc. ("International Risk Control") providing the Company with technology for
trading and risk management of foreign currency derivatives. This
acquisition and continued investment in R&D, Sales, Marketing, and
Administration resulted in a net loss in 1997. The Company's revenues are
derived primarily from annual renewable license fees. International revenues
accounted for 83%, 80% and 80% of total revenues in 1997, 1996 and 1995,
respectively.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
revenues represented by certain line items in the Company's Consolidated
Statements of Operations:
<TABLE>
<CAPTION>
PERCENT OF TOTAL REVENUE
YEAR ENDED DECEMBER 31,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
License revenue 91% 96% 93%
Service and other revenue; 9 4 7
---- ---- ----
Total revenues 100 100 100
---- ---- ----
Costs and expenses:
Cost of revenues 5 1 2
Research and development 16 31 36
Sales and marketing 46 55 62
General and administrative 13 13 16
Acquired in-process research and development -- 35 3
---- ---- ----
Total costs and expenses 80 135 119
---- ---- ----
Operating income (loss) 20 (35) (19)
Interest income 4 4 5
---- ---- ----
Income (loss) before provision for income taxes 24 (31) (14)
Provision for income taxes 8 0 0
---- ---- ----
Net income (loss) 16% (31)% (14)%
---- ---- ----
---- ---- ----
</TABLE>
3
<PAGE>
LICENSE AND SERVICE REVENUE
Total revenues were $18.5 million in 1997, down 8% from $20.1 million
in revenues in 1996 and 17% from the $22.3 million in 1995. The Company's
revenues are derived primarily from annual renewable license fees. These fees
are non-refundable, are typically payable in full at the beginning of the
annual term and are recognized pro-rata over the term of the license. The
annual renewable license fee includes rights to use the Company's software
products, updates to the products, if any, product installation, initial
client training, documentation and software support services for one year. In
addition to its annual licenses, the Company makes available its services on
a contract basis to assist clients with services beyond those included in its
licenses. These services typically include additional client training and
assisting clients in their generation of client-specific reports, data base
integration and system optimization. In the fall of 1997, the Company formed
a new division, the C-ATS Consulting Group, to provide consulting services
and assist clients in implementing risk management solutions. These services
include implementation planning, integration assistance (including
implementation tools) and project management expertise. Revenues from such
projects are included in service and other revenues. They are recognized
when delivered or based upon the percentage-of-completion method and are
typically affected by the commencement or completion of significant services
projects.
License revenue decreased to $17.3 million in 1997 from $19.3 million in
1996 and $20.4 million in 1995. License revenue decreased in both 1997 and
1996 as a result of the decisions of some clients to not renew annual
licenses. Such decisions are attributable to numerous factors, but
principally are the result of consolidations within the banking industry and
the election of several customers to utilize in-house developed programs.
The Company licenses its products on a per site basis with the price per
site varying based upon the selection of products licensed, the number of
authorized users for each product at each site and the number of licensed
sites. As a result, total revenues in any year depend upon the number of new
and renewed annual licenses, the number of sites which use the Company's
products, product prices, and the number of users per site. Average revenue
per site increased by 6% in 1997, 6% in 1996 and 8% in 1995. The Company
believes the average revenue per site has increased because the Company
continues to offer new products and enhancements to existing products, and
because clients have increased the number of users licensed per site, factors
which have been partially offset by declines in unit pricing per product.
Although the Company has historically been able to offset declines in unit
pricing with increases in functionality and new product introductions, there
can be no assurance that the Company will continue to introduce new products
or enhancements to existing products or that such products when introduced
will result in increased revenue per client site.
Service and other revenue increased to $1.2 million in 1997 from $0.8
million in 1996 but decreased from $1.9 million in 1995. Service and other
revenue increased in 1997 from 1996 primarily due to the initiation of trial
projects related to the Company's release of its CARMA products and to the
formation of the C-ATS Consulting Group. Service and other revenue decreased
in 1996 primarily due to completion in late 1995 of a $1.5 million systems
integration project that was undertaken and subcontracted by the Company in
the middle of 1994. Assuming customer acceptance of the CARMA products, the
Company anticipates that service revenue will continue to grow in
proportion to licensing opportunities of the CARMA products.
COST OF REVENUES
Cost of revenues includes the cost of documentation materials, royalties
and the cost of subcontracted services. Costs of revenues were $0.3 million,
$0.3 million and $1.2 million in 1997, 1996 and 1995, respectively. The
reduction in 1996 cost of revenues to $0.3 million from $1.2 million in 1995,
is attributable to reductions in the cost of subcontracted services for a
systems integration project that was completed in the fourth quarter of 1995.
4
<PAGE>
RESEARCH AND DEVELOPMENT
Most of the Company's research and development expenditures are
personnel related. Total expenditures for research and development increased
to $6.7 million in 1997 from $6.2 million in 1996 and $3.6 million in 1995.
The increase in research and development expenditures was due primarily to
increases in expenditures for continuation and completion of purchased
in-process research ($3.4 million in 1997 and $2.8 million in 1996), a one
time charge of $0.6 million in connection with the third quarter of 1997
acquisition of rights to the software of International Risk Control and new
product development. The increase in 1996 includes the addition of
research staff from the acquired firm of LOR/Geske Bock during the first
quarter of 1996. In connection with the LOR/Geske Bock acquisition, the
Company recognized a one-time expense amounting to $7.1 million of in process
research and development as the technology had not yet reached technological
feasibility and does not have alternative future uses (See Note 3 of the
Notes to the Consolidated Financial Statements). The amounts of ongoing
software development costs which could have been capitalized in accordance
with Statement of Financial Accounting Standards No. 86," were immaterial
and, therefore, no software development costs have been capitalized by the
Company to date. The Company believes that significant investment for product
research and development is essential to product and technical leadership,
and the Company anticipates that it will continue to commit substantial
resources to research and development in the future. The focus of this
increased research and development spending will be to expand the platforms
upon which the Company's products operate; to integrate the acquired products
from LORGB; and to continue to enhance the features and functionality of the
company's products. The Company anticipates that research and development
expenditures will increase in dollar amount in 1998.
SALES AND MARKETING
Sales and marketing expenses consist principally of salary, commissions
and facilities related costs. Sales and marketing expenditures increased to
$11.4 million in 1997 from $11.1 million in 1996 and $10.3 million in 1995.
The increase in sales and marketing in 1997 was primarily due to increases
associated with the sales and marketing of the Company's expanded product
line in the North American market. The increase in sales and marketing
expenditures in 1996 was due to increases in personnel, commissions,
marketing communication programs and the expansion of the Company's Hong Kong
office. The Company anticipates that sales and marketing expenses will
continue to increase in dollar amount in 1998 as it expands its sales and
consulting service organization and promotes its CARMA products.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of personnel costs
for finance, contract administration, human resources and general management,
as well as legal, accounting and auditing expenses. General and
administrative expenses increased to $3.0 million in 1997 from $2.6 million
in 1996 and $2.8 million in 1995. The increase in general and administrative
expenses in 1997 was due to additional executive staff to support the
expanding international sales and employee recruiting. The decrease in
general and administrative expenses in 1996 from 1995 was due to reduced
costs of professional services subsequent to becoming a publicly held
company. The Company anticipates that general and administrative expenses
will increase in dollar amount in 1998.
5
<PAGE>
INTEREST INCOME
Interest income is comprised primarily of interest earned on the
Company's surplus cash and short-term investment balances, net of interest
expense. Interest income increased to $1.0 million in 1997 from $0.9 million
in 1996 and 1995. Interest income increased in 1997 due to higher investment
yields on lower average cash and short-term investment balances.
PROVISION FOR INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
provides for a liability approach under which deferred income taxes are
provided based upon enacted laws and rates applicable to the periods in which
the taxes become payable. There was no provision for income taxes in 1997
and 1996 due to the Company's net operating loss position. The provision for
income taxes was 35% of income (loss) before the provision for income taxes
in 1995. The provision for income taxes takes into account the effects of
foreign income taxes and state income taxes, offset by utilization of
research and development and foreign tax credits.
As of December 31, 1997, the Company had $6.2 million of deferred tax
assets. Due to certain limitations of benefits related to tax carrybacks and
the current year net operating loss position, and the uncertainty of future
results, the Company has provided a valuation allowance of $3.6 million
related to the deferred tax asset. The Company's tax returns for 1990 through
1993 are currently being examined by the Internal Revenue Service relating to
the treatment of foreign withholding taxes on the Company's software license
revenue under tax treaties in effect during those years. Such examination may
result in adjustments to previously filed tax returns. The Company is
currently seeking competent authority relief, which, if successful, will
eliminate any potential double taxation. While the Company believes that it
has reserves sufficient to cover any actual tax liabilities as a result of
this examination, no assurance can be given that the reserves will be
adequate. See Note 6 of the Notes to Consolidated Financial Statements.
QUARTERLY INFORMATION
The following table presents unaudited quarterly financial information
for the eight quarters ended December 31, 1997. Management believes this
information has been prepared on the same basis as the audited Consolidated
Financial Statements and that all necessary adjustments (consisting only of
normal recurring adjustments) have been included to present fairly the
unaudited quarterly results. The following should be read in conjunction with
the audited Consolidated Financial Statements of the Company and the Notes
appearing elsewhere in these Consolidated Financial Statements. These
operating results are not necessarily indicative of results for any future
period.
6
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------
MAR. 31, 1996 JUNE 30, 1996 SEPT. 30, 1996 DEC. 31, 1996
--------------------------------------------------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
--------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
License revenue $ 5,386 $ 4,939 $ 4,599 $ 4,398
Service and other revenue 308 134 304 77
--------- ---------- ------------ -----------
Total revenues 5,694 5,073 4,903 4,475
--------- ---------- ------------ -----------
Costs and expenses:
Cost of revenues 54 74 78 66
Research and development 1,224 1,567 1,692 1,683
Sales and marketing 2,669 2,761 2,959 2,695
General and administrative 710 650 645 612
Acquired in-process research and development 7,066 -- -- --
--------- ---------- ------------ -----------
Total costs and expenses 11,723 5,052 5,374 5,056
--------- ---------- ------------ -----------
Operating income (loss) (6,029) 21 (471) (581)
Interest income 231 240 198 194
--------- ---------- ------------ -----------
Income (loss) before provision for taxes (5,798) 261 (273) (387)
Provision (benefit) for income taxes 469 97 (101) (465)
--------- ---------- ------------ -----------
Net income (loss) $ (6,267) $ 164 $ (172) $ 78
--------- ---------- ------------ -----------
--------- ---------- ------------ -----------
Net income (loss) per share - basic $ (1.00) $ $0.03 $ (0.03) $ 0. 01
--------- ---------- ------------ -----------
--------- ---------- ------------ -----------
Net income (loss) per share - diluted $ (1.00) $ $0.02 $ (0.03) $ 0. 01
--------- ---------- ------------ -----------
--------- ---------- ------------ -----------
Weighted average common shares outstanding -
basic 6,260 6,425 6,623 6,639
--------- ---------- ------------ -----------
--------- ---------- ------------ -----------
Weighted average common shares outstanding -
diluted 6,260 6,797 6,623 6,971
--------- ---------- ------------ -----------
--------- ---------- ------------ -----------
<CAPTION>
MAR. 31, 1997 JUNE 30, 1997 SEPT. 30, 1997 DEC. 31, 1997
------------- ------------- -------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues:
License revenue $ 4,238 $ 4,302 $ 4,311 $ 4,400
Service and other revenue 254 244 350 355
--------- ---------- ------------ -----------
Total revenues 4,492 4,546 4,661 4,755
--------- ---------- ------------ -----------
Costs and expenses:
Cost of revenues 93 71 72 74
Research and development 1,583 1,643 1,904 1,592
Sales and marketing 2,602 2,821 2,931 3,031
General and administrative 693 713 829 757
Acquired in-process research and development -- -- 585 --
--------- ---------- ------------ -----------
Total costs and expenses 4,971 5,248 6,321 5,454
--------- ---------- ------------ -----------
Operating income (loss) (479) (702) (1,660) (699)
Interest income 236 233 248 242
--------- ---------- ------------ -----------
Income (loss) before provision for taxes (243) (469) (1,412) (457)
Provision for income taxes -- -- -- --
--------- ---------- ------------ -----------
Net income (loss) $ (243) $ (469) $ (1,412) $ (457)
--------- ---------- ------------ -----------
--------- ---------- ------------ -----------
Net income (loss) per share - basic $ (0.04) $ (0.07) $ (0.21) $ (0. 07)
--------- ---------- ------------ -----------
--------- ---------- ------------ -----------
Net income (loss) per share - diluted $ (0.04) $ (0.07) $ (0.21) $ (0. 07)
--------- ---------- ------------ -----------
--------- ---------- ------------ -----------
Weighted average common shares outstanding -
basic 6,679 6,714 6,766 6,815
--------- ---------- ------------ -----------
--------- ---------- ------------ -----------
Weighted average common shares outstanding -
diluted 6,679 6,714 6,766 6,815
--------- ---------- ------------ -----------
--------- ---------- ------------ -----------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------
MAR. 31, 1996 JUNE 30, 1996 SEPT. 30, 1996 DEC. 31, 1996
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
License revenue 94% 97% 94% 98%
Service and other revenue 6 3 6 2
--------- ---------- ------------ -----------
Total revenues 100 100 100 100
--------- ---------- ------------ -----------
Costs and expenses:
Cost of revenues 1 1 2 1
Research and development 22 31 35 38
Sales and marketing 47 55 60 60
General and administrative 12 13 13 14
Acquired in-process research and development 124 -- -- --
--------- ---------- ------------ -----------
Total costs and expenses 206 100 110 113
--------- ---------- ------------ -----------
Operating income (loss) (106) 0 (10) (13)
Interest income 4 5 4 4
--------- ---------- ------------ -----------
Income (loss) before provision for taxes (102) 5 (6) (9)
Provision (benefit) for income taxes 8 2 (2) (11)
--------- ---------- ------------ -----------
Net income (loss) (110)% 3% (4)% 2%
--------- ---------- ------------ -----------
--------- ---------- ------------ -----------
<CAPTION>
MAR. 31, 1997 JUNE 30, 1997 SEPT. 30, 1997 DEC. 31, 1997
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
License revenue 94% 95% 92% 93%
Service and other revenue 6 5 8 7
--------- ---------- ------------ -----------
Total revenues 100 100 100 100
--------- ---------- ------------ -----------
Costs and expenses:
Cost of revenues 2 2 2 2
Research and development 35 36 41 33
Sales and marketing 58 62 63 64
General and administrative 16 15 17 16
Acquired in-process research and
development -- -- 12 --
--------- ---------- ------------ -----------
Total costs and expenses 111 115 135 115
--------- ---------- ------------ -----------
Operating income (loss) (11) (15) (35) (15)
Interest income 5 5 5 5
--------- ---------- ------------ -----------
Income (loss) before provision for taxes (6) (10) (30) (10)
Provision for income taxes 0 0 0 0
--------- ---------- ------------ -----------
Net income (loss) (6)% (10)% (30)% (10)%
--------- ---------- ------------ -----------
--------- ---------- ------------ -----------
</TABLE>
The Company's license revenue increased in each quarter of 1997.
Incremental sales to existing clients and new license agreements offset
non-renewing licenses during the year. The Company's historical practice has
been to recognize revenue from its annually renewable license fees pro-rata
over the license term. Therefore the revenue impact from adding new customers
has been reflected over several quarters following sales consummation. The
Company began offering multi-year (typically five year) term licenses in the
fourth quarter of 1997 with optional annual maintenance. With this new
licensing model, the Company will recognize substantial revenues upon
delivery of the product. In addition, there may be additional maintenance
revenues, recognized ratably as such services are provided. The Company has
not yet entered into any such multi-year term licenses. Service and other
revenue is recognized when delivered or using the
8
<PAGE>
percentage-of-completion method and is typically affected by the commencement
or completion of significant services projects.
Cost of revenues has been relatively minor. The Company has generally
increased operating expenses to support higher revenue levels and product
development efforts. Research and development costs were higher in 1997 as
compared to 1996 due to increases in staffing to support final development
and testing of the newest CARMA product line release. Sales and marketing
costs were higher in 1997 as compared to 1996 due to increases in staffing of
the North American office and the development of the Company's consulting
service. General and administrative costs were higher on a dollar basis in
1997 as compared to 1996 due to hiring of executive and human resource
personnel to support the staffing needs of the expanding international sales
and marketing and customer service offices.
Although the Company's installed base of C-ATALYST customers has
stabilized in terms of number of clients and number of client sites, there
can be no assurance that the Company will continue to be able to renew its
existing client base or expand the number of clients or client sites where
the Company's products are licensed. A number of factors affect a client's
decision to license or continue to license the Company's products. These
factors include the status of a client's internal systems development
programs, competitiveness of the Company's current product offerings,
pricing, and level of satisfaction with the Company's sales, service and
support staff. From time to time in the past, the Company has experienced
delays in developing and introducing new products, which has slowed the rate
of growth. There can be no assurance that similar delays may not occur in the
future. The Company's expense levels are based, in part, on expectations of
future revenues. If revenues do not meet expectations, operating results
could be adversely affected. Net income may be disproportionately affected
by a change in revenues because only a small portion of the Company's
expenses varies with revenues.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date through cash flow from
operations and its initial public offering of stock effective March 20, 1995.
As of December 31, 1997, the Company had $20.2 million in cash, cash
equivalents and short-term investments, and no long-term debt. Short-term
investments consist principally of auction market preferred stock and
tax-preferred securities.
Net cash utilized by operating activities totaled $1.8 million in 1997,
while $1.0 million in 1996 and approximately $3.1 million was provided by
operating activities in 1995. Investing activities used net cash of
approximately $1.9 million, $3.4 million and $21.0 million in 1997, 1996 and
1995, respectively. Inclusive within these uses were the purchase of
short-term investments of approximately $20.2 million in 1995, and the
subsequent sale in 1996 of $7.4 million of these short-term investments which
were used to help fund the approximately $3.3 million cash portion of the
investment in LORGB the same year. Net cash flows provided by financing
activities were approximately $0.5 million, $0.3 million and $14.3 million in
1997, 1996 and 1995, respectively with $13.8 million of the net cash in 1995
provided by the Company's initial public offering that year. The Company
purchased approximately $0.5 million of property and equipment in 1997, and
$0.7 million in both 1996 and 1995. The Company has no other significant
capital commitments.
On February 13, 1996, C-ATS Sub, Inc. (a wholly owned subsidiary of the
Company), merged with LOR/Geske Bock Associates, Inc. ("LORGB"), a California
Corporation, pursuant to an "Agreement and Plan of Reorganization" dated
January 30, 1996. LORGB designs, develops, and markets integrated,
organization-wide market and credit risk management software systems. As a
result of the merger, LORGB ceased to exist while C-ATS Sub, Inc. continued
as the surviving corporation. The transaction was accounted for as a
"purchase" and accordingly, the operating results of the acquired business
have been included in the consolidated statement of operations from the date
of the acquisition.
9
<PAGE>
At the consummation of the merger, the outstanding LORGB common stock
was exchanged for an aggregate of approximately 578,651 shares of the
Company's common stock (the stock price was valued at $7.00 as of the merger
date) and approximately $3,294,000 in cash. In addition, the Company assumed
all options, representing the right to purchase approximately 167,000 shares
of the Company's common stock.
Historically, more client licenses are due for renewal in the second and
fourth quarters of each year than in the first and third quarters. Because of
the Company's pro-rata revenue recognition policy, this pattern has not had a
significant impact on quarterly revenues. However, this pattern has and will
likely continue to impact the timing of cash flows and the Company's cash and
accounts receivable balances. Any decline or delay in contract renewals could
have a material adverse effect on the Company's cash balances.
The Company believes that available funds, and the cash flow expected to
be generated from operations will be adequate to meet the Company's
anticipated working capital and capital expenditure requirements for at least
the next twelve months.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's business, financial condition and results of operations
can be impacted by a number of factors including without limitation the
following factors.
CONTINUED DEPENDENCE ON DERIVATIVES RISK MANAGEMENT PRODUCT
C-ATS has derived substantially all of its revenues from the sale of
software products and services for derivatives risk management, and its
future growth is critically dependent on increased revenues from products for
this use. The target clients for the Company's products include large banks
and financial institutions, many of whom rely on internally developed
derivative risk management systems. Their acceptance of the Company's
products depends, among other things, on the products' functionality and
performance characteristics, the ability of these clients to achieve cost
savings by using third party software, the development time and cost of
internally developed software, the willingness of these institutions to rely
on third party software for mission critical financial applications, and
their assessment of C-ATS' financial resources as well as its technical,
managerial, service and support capabilities. The Company has generally found
that the costs of switching to a new derivatives risk management system are
so substantial that clients will generally not change systems unless they
perceive a significant deficiency with their existing system.
A number of factors could adversely affect market acceptance of the
Company's products for derivatives risk management applications. First,
although the Company's products include software applications for a number of
widely traded derivatives, such as swaps, options, swaptions and futures,
they do not include software applications for many other derivative
instruments. Although applications for these derivatives can be developed
using FiCAD or may be included in the Company's future products, the absence
of applications for specific derivatives may reduce market acceptance of the
Company's products. Second, some financial institutions may require a higher
level of product customization and technical support than is customarily
provided by C-ATS. To the extent these clients cannot obtain this support
from C-ATS or third party service organizations, they may be reluctant to
use the Company's products. Finally, C-ATALYST and CARMA have a long sales
cycle that can adversely affect sales and increase marketing costs. As a
result of these and other factors, there can be no assurance that C-ATALYST
and CARMA will achieve significant market acceptance.
EARLY STAGE OF DEVELOPMENT OF MARKET FOR ENTERPRISE-WIDE RISK MANAGEMENT; NO
ASSURANCE OF MARKET ACCEPTANCE OF ENTERPRISE-WIDE RISK MANAGEMENT PRODUCTS
The market for enterprise-wide risk management software products is in
an early stage of development. Although many financial institutions and
organizations are exploring enterprise-wide risk
10
<PAGE>
management, C-ATS believes that only a small number of enterprises have
actually implemented enterprise-wide risk management systems. A number of
factors will determine when and if a significant market for enterprise-wide
risk management software products develops, including regulatory actions,
client education and awareness of the need for enterprise-wide risk
management and the availability of commercially accepted enterprise-wide risk
management systems. Even if a significant market develops, there can be no
assurance that the Company's products will achieve commercial acceptance.
First, there can be no assurance that the Company's approach to
enterprise-wide risk management will be accepted in the marketplace. Although
several companies are using prior versions of the Company's products for
site-wide or enterprise-wide risk management, the newest version of CARMA
was released for commercial sales in December 1996. This product is a
substantial enhancement of the product obtained in the acquisition of
LOR/Geske Bock, designed for enterprise-wide market and credit risk
management. While financial institutions are potentially subject to
regulatory guidelines to implement a enterprise-wide market risk management
system, there can be no assurance that the Company's products will achieve
substantial acceptance in the marketplace.
Second, although the Company's products facilitates enterprise-wide risk
management, the process of creating a enterprise-wide risk management system
can be extremely complex and in most cases requires substantial additional
software engineering and integration in order to connect the many independent
systems in place at most institutions and to link these systems to the
Company's products. The cost of such a process is likely to far exceed the
cost of licensing the Company's products. There is no assurance that a
significant number of institutions will be willing to undertake such a large
project or to incur such costs. Third, many institutions implementing
enterprise-wide risk management will require substantial outside assistance
in software engineering. The Company intends primarily to provide standard
products and to rely on third parties to provide such assistance. Revenues
from enterprise-wide risk management products will be limited if such
third-party support is not readily available. Fourth, the development of
sophisticated enterprise-wide risk management systems will depend on the
availability of extensive transaction and counterparty data which the client
must provide for portfolios not managed with the Company's products. Lack of
access to such data may restrict an institution's ability to perform
enterprise-wide risk management.
Finally, many of the factors that affect market acceptance of the
Company's products for derivatives risk management, such as the decision to
develop software internally or rely on third-party software, also will affect
market acceptance of the Company's products for enterprise-wide risk
management. See "Factors That May Affect Future Results -- Continued
Dependence on Derivatives Risk Management Products." Failure of a significant
market for enterprise-wide risk management products to develop or, if it
does, failure of the Company's products to achieve broad market acceptance
could have a material adverse affect on the Company's business, operating
results and financial condition.
LIMITED SUPPORT, TRAINING AND CUSTOMIZATION
Some financial institutions may require a higher level of product
customization and technical support and training than the Company customarily
provides or can provide. The Company intends primarily to rely on third
parties to provide such customization and support. Additionally, the Company
has limited resources to devote to training. To the extent financial
institutions cannot obtain desired levels of customization, support and
training, they may be reluctant to use the Company's products, which could
slow market acceptance of the Company's products. This could impede the
Company's growth and could have a material adverse effect on the Company's
business, operating results and financial condition.
11
<PAGE>
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company's quarterly operating results may fluctuate substantially as
a result of a variety of factors including the volume and timing of license
renewals by existing clients, license agreements with new clients, the timing
and market acceptance of new products or technological advances by the
Company or its competitors, price levels, and unexpected expenses. The
Company's expense levels are based, in part, on expectations of future
revenues. If revenues in a particular quarter do not meet expectations,
operating results could be adversely affected. The Company expects that its
operating results will fluctuate in the future as a result of these and other
factors. Additionally, the Company has accrued a reserve for tax liabilities
in connection with an Internal Revenue Service examination. There can be no
assurance that such reserve will be adequate to cover all potential
liabilities. Results of past quarters should not be relied on as an
indication of future results. See Note 6 of the Notes to Consolidated
Financial Statements.
DEPENDENCE ON RENEWABLE LICENSES; SIGNIFICANT POTENTIAL PRICE COMPETITION
The Company's revenues are derived primarily from annual renewable
license fees. These fees are non-refundable, typically paid in full at the
beginning of the annual term and recognized as revenue pro-rata over the term
of license. The Company has been successful to date in negotiating renewable
licenses. Beginning in the fourth quarter of 1997, the Company began offering
multi-year term licenses. The Company believes this choice will be favorably
received by its clients. Many of the Company's competitors offer multi-year
licenses. Although no clients have as yet selected the multi-year term
license in 1997, the Company expects some clients will do so in 1998. A
multi-year term license may result in larger fluctuations in revenues than
the Company has historically experienced as multi-year term license revenue
will be recognized at the time of delivery and completion of customer
commitment and there will be no future license revenue amortization. A
significant decline in the percentage of clients who renew their license or
the failure of the Company to continue to enter into renewable or limited
term licenses would have a material adverse effect on the business, operating
results and financial condition of the Company.
Because the software industry is intensely competitive, software
products have often experienced price erosion. As is typical in the industry,
the Company's fixed costs as a percentage of revenues are high, and
significant price erosion could have a material adverse effect on the
Company's business, operating results and financial condition. Although to
date any price decline in unit prices of the Company's products has been
offset by the introduction of new or enhanced products, there can be no
assurance that significant price erosion will not occur in the future.
DEPENDENCE ON INTERNATIONAL OPERATIONS AND SALES
Clients outside the United States accounted for approximately 83%, 80%
and 80% of the Company's revenues in 1997, 1996 and 1995, respectively. The
Company anticipates that its revenues for the next several years will also
substantially derive from international sales. The Company markets and
licenses its products outside the United States through its international
branch offices and subsidiaries. The Company has offices in Tokyo, London,
and Hong Kong as well as the United States, and the Company has licensed
clients in 19 countries. International sales and operations may be limited or
disrupted by the imposition of government controls, export license
requirements, political instability, trade restrictions, changes in tariffs
and exchange rates, difficulties in staffing, coordinating communications,
managing international operations and other factors. The Company normally
prices its products in U.S. dollars, but it incurs expenses in local
currencies for its overseas operations.
The Company attempts to reduce its exposure to exchange rate
fluctuations by purchasing foreign currencies every several months in amounts
equal to the operating expenses estimated to be payable in such currencies
during the next one to three months. As of December 31, 1997, the Company
held cumulative
12
<PAGE>
foreign currencies available in the amount of approximately $280,000 to fund
future expected operating expenses. However, no assurance can be given that
this strategy will be sufficient to offset any dramatic declines in the value
of the U.S. dollar. Regulatory compliance requirements differ among foreign
countries and are also different from those established in the United States,
and any inability to obtain necessary foreign regulatory approvals on a
timely basis could have an adverse effect on the Company's international
sales, and thereby on its business, financial condition and results of
operations. Additionally, the Company's business, financial condition and
international operating results may be adversely affected by fluctuations in
currency exchange rates as well as increases in duty rates, difficulties in
obtaining export licenses, ability to maintain or increase prices and
competition.
DEPENDENCE ON KEY PERSONNEL; SUBSTANTIAL EXECUTIVE COMPENSATION
The Company's success depends to a significant extent upon the
contributions of its executive officers, and key sales, marketing, technical
service and engineering personnel. None of the Company's personnel are
subject to a noncompetition agreement or other long-term employment contract
with the Company. Further, in order to attract and retain its executive
officers, the Company has in the past paid to its executive officers
substantial compensation and bonuses. In addition, the Company's future
success will depend significantly on its continuing ability to attract and
retain highly qualified technical, sales and marketing personnel. Because the
Company's business requires that many of these personnel have specialized
knowledge of advanced computer programming and financial theory, and because
the pool of such qualified personnel is extremely limited, competition for
such personnel is intense, particularly among the Company's clients who have
substantially greater financial resources than the Company. Failure to
attract and retain such personnel could have a material adverse affect on the
Company's business, operating results and financial condition.
NEW MANAGEMENT RESPONSIBILITIES; GROWTH
Many of the Company's executive officers have joined the Company in the
last twenty- four months. Although each of the new executives brings
significant prior experience to the Company, some are new to the Company's
specific business segment. In addition, future growth will require increased
personnel, expanded information systems and additional financial and
administrative control procedures, particularly because the Company has
significant international operations. There can be no assurance that the
Company would be able to attract and retain additional qualified personnel or
successfully manage expanding operations, including an increasing number of
client relationships and geographically dispersed locations or maintain
adequate managerial, financial and operating systems and controls
DEPENDENCE ON DIRECT SALES FORCE; ABSENCE OF INDIRECT SALES CHANNELS.
C-ATS currently distributes its products exclusively through its direct
sales force. As is typical of many companies, the Company has experienced
turnover of its sales force in the past, and there can be no assurance that
the Company will be able to attract and retain adequate sales and marketing
personnel. During 1997, the Company began evaluation of indirect distribution
channels such as distributors, value-added resellers and systems integrators.
The Company has selected two such organizations to work with and to expand
access to its markets. During 1997 these efforts did not generate material
revenues. The Company may expand such efforts in 1998, however, there can be
no assurances that these channels will provide effective sales and marketing
support for the Company. Failure to increase the Company's direct sales force
or establish effective indirect sales channels could have a material adverse
effect on the Company's business, operating results or financial condition.
13
<PAGE>
DEPENDENCE ON FINANCIAL INDUSTRY; CHANGE IN DERIVATIVES AND RISK MANAGEMENT
MARKET, AND REGULATORY ENVIRONMENT
Substantially all of the Company's current clients are domestic and
international financial institutions. An economic downturn in the commercial
and investment banking industries or in the level of derivatives trading
could have a material adverse effect on the Company's business, operating
results and financial condition. Any adverse change in the derivatives market
affecting demand for the Company's products, whether by regulation,
consolidation within the financial industry, negative publicity or otherwise,
could have a material adverse effect on the Company's business, operating
results and financial condition.
Derivative instruments have been involved in a number of well-publicized
financial losses, including those involving Barings Bank and Orange County of
California. Such losses have led to increasing governmental scrutiny and
potential regulation of derivatives markets generally. Current legislative
and regulatory measures reportedly being considered include additional
reporting requirements pertaining to the current values of and risks
associated with derivatives positions, and regulation of the mathematical
models used to measure such values and risks. The Company believes that
regulations which impose requirements of increased management controls or
increased reporting may increase the demand for the Company's products.
However, some legislators have questioned whether certain types of
derivatives trading should be prohibited. Prohibitions on trading activities
could reduce the size of the Company's markets.
COMPETITION
The market for financial risk management software is intensely
competitive and is characterized by rapid technological change and frequent
introduction of new products and features. The Company competes generally on
the basis of product features and functions, product architecture, price, the
speed and accuracy of the product processing capability, client service, the
availability of sufficiently trained technical staff, and the vendor
financial stability. In order to maintain or improve its position in this
industry, the Company must continue to enhance its current products and
develop new products in a timely fashion. There can be no assurance that the
Company will succeed in this effort.
A major source of competition for the Company's products are
applications that are internally developed by the financial institutions
which are its potential clients, as well as institutions that are current
clients. Even those financial institutions, including the Company's clients,
that use the Company's products or other third-party software for some
applications usually use internally developed software for the same or
related applications. Many of these organizations have substantial internal
development resources with the capability to develop specific products for
their needs. Many of these organizations also value the ability to control
the source code for their software systems. The Company does not typically
make its source code available. There can be no assurance that the Company
will successfully market its products to these organizations.
There are a significant number of independent commercial competitors for
the Company's products. Some of these competitors, including SunGard Data
Systems Inc., Infinity, Inc., and ACT Group plc., are larger than the
Company and have longer operating histories and significantly greater
financial, technical, sales and marketing and other resources, greater name
recognition and a larger installed client base.
TECHNOLOGICAL CHANGE
The financial risk management software industry is characterized by rapid
technological advances, changes in client requirements and preferences, and
frequent new product introductions and enhancements. Historically, the Company
has released product enhancements at intervals of one to three years. The
Company's future success will depend, in significant part, upon its ability to
enhance its current products and to
14
<PAGE>
develop and market new products on a timely basis that keep pace with
technological developments, respond to evolving client requirements and
achieve market acceptance. In particular, the Company believes it must
continue to respond quickly to users' needs for additional functionality and
to advances in hardware and software platforms. Any failure by the Company to
anticipate or respond adequately to technological developments and client
requirements, or any significant delays or excessive costs in product
development or introduction, could have a material adverse effect on the
Company's operating results and financial condition. Because of the
complexity of the Company's products, from time to time development efforts
have taken longer than expected, causing delays in the release of new
products and product enhancements, and this may occur again in the future.
Any such delays could have a material adverse effect on the Company's
business, operating results or financial condition. There can be no assurance
that the Company will be successful in developing and marketing new products
or product enhancements on a timely basis or that the Company will not
experience significant delays or excessive costs in the future that could
have a material adverse effect on the Company's operating results and
financial condition.
Because the Company has limited resources, the Company must restrict its
product development efforts and its porting efforts to a relatively small
number of products and operating platforms. There can be no assurance that
these efforts will be successful or, even if they are successful, that any
resulting products or operating platforms will achieve market acceptance.
Additionally, the Company offers standardized products designed for use
worldwide. These products do not include general ledger systems or certain
other product features tailored for specific regional markets or industry
segments. The failure to include these features may adversely affect market
acceptance of the Company's products. Furthermore, there can be no assurance
that the cost of research and development efforts required to keep pace with
technological changes will not have an adverse effect on the Company's
business, operating results or financial condition.
New software products often contain undetected defects, or "bugs," that
can adversely affect the performance of the product or otherwise disrupt a
user's operations. If the Company's products contain material defects, client
acceptance of such products could be adversely affected. Further, the Company
could be subject to liability claims (for which it may not carry adequate
insurance) that could have a material adverse effect on the Company's
operating results and financial condition.
LIMITED INTELLECTUAL PROPERTY PROTECTION
The Company's ability to compete effectively depends in large part on
its ability to develop and maintain proprietary aspects of its technology.
The Company relies on a combination of trade secret, copyright and trademark
law, nondisclosure agreements and various measures including physical and
logical access controls, to protect its proprietary rights in its software
products. Despite these precautions it may be possible for unauthorized third
parties to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. Moreover, the laws of
some foreign countries do not protect the Company's proprietary rights in its
products to the same extent as do the laws of the United States. In addition,
some aspects of the Company's products are not subject to intellectual
property protection.
There can be no assurance that others may not independently develop the
same or similar technology or otherwise obtain access to the Company's
proprietary technology. In addition, the Company cannot be certain that
others will not independently develop substantially equivalent or superseding
proprietary technology, or that an equivalent product will not be marketed in
competition with the Company's products, thereby substantially reducing the
value of the Company's proprietary rights. There can be no assurance that any
confidentiality agreements between the Company and its employees will provide
adequate protection for the Company's proprietary information in the event of
any unauthorized use or disclosure of such proprietary information.
15
<PAGE>
While the Company is not currently engaged in any intellectual property
litigation or proceedings, there can be no assurance that the Company will
not become involved in such proceedings. An adverse outcome in litigation or
similar adversarial proceedings could subject the Company to significant
liabilities to third parties, require disputed rights to be licensed from
others or require the Company to cease the marketing or use of certain
products, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company may be
required to obtain licenses to patents or proprietary rights of others, and
there can be no assurance that any licenses required under any patents or
proprietary rights would be made available on terms acceptable to the
Company, if at all. In January 1995, the Company received a letter claiming
infringement of trademark with regard to its use of the C-atalyst name in the
United Kingdom; however, although the Company does not believe that the
outcome of the claim will have a material adverse effect on its business,
there can be no assurance as to how the matter will be resolved.
YEAR 2000 COMPLIANCE
The Company believes that all of its most current versions of its
products will not cease to perform nor generate incorrect or ambiguous data
or results due to a change in date on or after January 1, 2000, and will
calculate any information dependent on such dates in the same manner, and
with the same functionality, data integrity and performance, as such product
do on or before December 31, 1999 (collectively, "Year 2000 Compliance").
Year 2000 Compliance issues may arise with respect to any modifications made
to the product by a party other than the Company or from a combination or
use of the Company's products with any other software programs or hardware
device not provided by the Company and therefore may result in unforeseen
Year 2000 Compliance problems for some of the Company's customers which may
have an adverse effect on the Company.
Additionally, like any company with a computing infrastructure and
utilizing business-application software programs written over many years, the
Company's internal operations may be subject to year 2000 Compliance issues.
The Company has been implementing enterprise wide information systems which
support a majority of the Company's world-wide operations. These systems are
considered to currently be Year 2000 Compliant. Based solely due to a change
in date to or after January 1, 2000 thereon, the Company believes that its
internal operations will not be materially adversely impacted.
FUTURE ACQUISITIONS
Future acquisitions by the Company may result in potentially dilutive
issuances of equity securities, the incurrence of additional debt and
amortization expenses related to goodwill and other intangible assets, which
could adversely affect the Company's profitability. For example, the Company
acquired LOR/Geske Bock Associates, Inc. on February 13, 1996. In addition,
acquisitions involve numerous risks, including difficulties in the
assimilation of the operations, products and personnel of the acquired
company, the diversion of management's attention from other business
concerns, risks of entering markets in which the Company has little or no
direct prior experience, and the potential loss of key employees of the
acquired company. The Company has, from time to time, engaged in discussions
with a number of parties to acquire products complementary to its existing
products, and may in the future pursue acquisitions of complementary
products, technologies or businesses. While there are currently no
commitments or agreements with respect to any acquisition, in the event that
such an acquisition does occur, there can be no assurance as to the effect
thereof on the Company's business, operating results or financial condition.
16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To C-ATS Software Inc.:
We have audited the accompanying consolidated balance sheets of C-ATS
Software Inc. (a Delaware corporation) and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of C-ATS
Software Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
San Jose, California
January 23, 1998
17
<PAGE>
C-ATS SOFTWARE INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
ASSETS 1997 1996
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 3,707 $ 7,041
Short-term investments. . . . . . . . . . . . . . . . . . . . . . . 16,446 15,088
Accounts receivable, net of accounts receivable allowance
of $242 and $100 in 1997 and 1996, respectively . . . . . . . . . 5,100 4,558
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 271 457
Income tax refund receivable - current. . . . . . . . . . . . . . . --- 1,670
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . 2,607 2,120
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 28,131 30,934
--------- ---------
PROPERTY AND EQUIPMENT:
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,809 2,754
Leasehold improvements. . . . . . . . . . . . . . . . . . . . . . . 125 134
Furniture and fixtures. . . . . . . . . . . . . . . . . . . . . . . 403 457
3,337 3,345
Less- Accumulated depreciation and amortization . . . . . . . . . . (2,486) (2,367)
--------- ---------
Net Property and equipment . . . . . . . . . . . . . . . . . . 851 978
--------- ---------
Purchase software, at cost. . . . . . . . . . . . . . . . . . . . . . 1,516 1,464
Less- Accumulated amortization. . . . . . . . . . . . . . . . . . . (879) (660)
--------- ---------
Net purchased software . . . . . . . . . . . . . . . . . . . . . 637 804
--------- ---------
Income tax refund receivable - long term. . . . . . . . . . . . . . . 686 ---
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335 283
--------- ---------
$30,640 $32,999
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . $ 390 $ 573
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . 674 720
Accrued compensation. . . . . . . . . . . . . . . . . . . . . . . . 1,604 1,217
Accrued taxes payable . . . . . . . . . . . . . . . . . . . . . . . 281 37
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . 8,007 8,541
--------- ---------
Total current liabilities. . . . . . . . . . . . . . . . . . . . 10,956 11,088
--------- ---------
COMMITMENTS (see Note 4)
STOCKHOLDERS' EQUITY:
Preferred stock, 5,000,000 shares authorized , no par value . . . . --- ---
Common stock, $.001 par value
Authorized 40,000,000 shares
Outstanding 6,817,744 shares in 1997 and 6,639,587 shares in 1996 7 7
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . 23,282 22,758
Accumulated translation adjustment. . . . . . . . . . . . . . . . . 228 398
Retained earnings (deficit) . . . . . . . . . . . . . . . . . . . . (3,833) (1,252)
--------- ---------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . 19,684 21,911
--------- ---------
$ 30,640 $ 32,999
--------- ---------
--------- ---------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE CONSOLIDATED BALANCE SHEETS.
18
<PAGE>
C-ATS SOFTWARE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
--------- --------- ----------
<S> <C> <C> <C>
REVENUES:
License revenue. . . . . . . . . . . . . . . . . . . . . . . . $ 17,250 $ 19,322 $ 20,359
Service and other revenue. . . . . . . . . . . . . . . . . . . 1,204 823 1,939
--------- --------- ----------
Total revenues. . . . . . . . . . . . . . . . . . . . . . . 18,454 20,145 22,298
--------- --------- ----------
COSTS AND EXPENSES:
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . 310 272 1,174
Research and development . . . . . . . . . . . . . . . . . . . 6,723 6,166 3,582
Sales and marketing. . . . . . . . . . . . . . . . . . . . . . 11,386 11,084 10,273
General and administrative . . . . . . . . . . . . . . . . . . 2,991 2,617 2,838
Acquired in-process research and development . . . . . . . . . 585 7,066 --
--------- --------- ----------
Total costs and expenses. . . . . . . . . . . . . . . . . . 21,995 27,205 17,867
--------- --------- ----------
Operating income (loss) . . . . . . . . . . . . . . . . . . (3,541) (7,060) 4,431
INTEREST INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 960 863 931
--------- --------- ----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES. . . . . . . . . (2,581) (6,197) 5,362
PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . . . . 0 0 1,877
--------- --------- ----------
NET INCOME (LOSS). . . . . . . . . . . . . . . . . . . . . . . . $ (2,581) $ (6,197) $ 3,485
--------- --------- ----------
--------- --------- ----------
NET INCOME (LOSS) PER SHARE
BASIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.38) $ (0.95) $ 0.64
--------- --------- ----------
--------- --------- ----------
DILUTED. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.38) $ (0.95) $ 0.57
--------- --------- ----------
--------- --------- ----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,744 6,528 5,441
--------- --------- ----------
--------- --------- ----------
DILUTED. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,744 6,528 6,062
--------- --------- ----------
--------- --------- ----------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE CONSOLIDATED STATEMENTS.
19
<PAGE>
C-ATS SOFTWARE INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Common Common Additional Accumulated Retained
Stock Stock Paid-in Translation Earnings
Shares Amount Capital Adjustment (Deficit) Total
--------- --------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 . . . . . . . . . . . . . . 4,212,499 $ 4 $ 3,899 $ 222 $ 877 $ 5,002
Exercise of stock options for cash at
$0.10 to $5.00 per share. . . . . . . . . . . . . . 268,159 -- 290 -- -- 290
Exercise of warrants at $3.10 per share. . . . . . . . 67,744 -- 210 -- -- 210
Issuance of common stock in initial public
offering for cash at $12.00 per share, net of
offering costs of $1,792. . . . . . . . . . . . . . 1,300,000 2 13,806 -- -- 13,808
Foreign currency translation adjustment. . . . . . . . -- -- -- 97 -- 97
Net income . . . . . . . . . . . . . . . . . . . . . . -- -- -- -- 3,485 3,485
--------- --------- ------- ---------- --------- --------
BALANCE, DECEMBER 31, 1995 . . . . . . . . . . . . . . 5,848,402 6 18,205 319 4,362 22,892
Tax benefit related to employee stock options. . . . . -- -- -- -- 583 583
Stock issued for LORGB acquisition . . . . . . . . . . 578,651 1 4,206 -- -- 4,207
Exercise of stock options for cash at
$0.10 to $8.00 per share. . . . . . . . . . . . . . 178,472 -- 156 -- -- 156
Issuance of common stock from ESPP for cash at
$5.10 to $6.06 per share. . . . . . . . . . . . . . 34,062 -- 191 -- -- 191
Foreign currency translation adjustment. . . . . . . . -- -- -- 79 -- 79
Net (loss). . . . . . . . . . . . . . . . . . . . . . -- -- -- -- (6,197) (6,197)
--------- --------- ------- ---------- --------- --------
BALANCE, DECEMBER 31, 1996 . . . . . . . . . . . . . . 6,639,587 7 22,758 398 (1,252) 21,911
Exercise of stock options for cash at
$0.10 to $4.69 per share. . . . . . . . . . . . . . 137,290 -- 372 -- -- 372
Issuance of common stock from ESPP for cash at
$3.72 to $3.88 per share. . . . . . . . . . . . . . 40,867 -- 152 -- -- 152
Foreign currency translation adjustment. . . . . . . . -- -- -- (170) -- (170)
Net (loss). . . . . . . . . . . . . . . . . . . . . . -- -- -- -- (2,581) (2,581)
--------- --------- ------- ---------- --------- --------
BALANCE, DECEMBER 31, 1997 . . . . . . . . . . . . . . 6,817,744 $ 7 $23,282 $ 228 $ (3,833) $ 19,684
--------- --------- ------- ---------- --------- --------
--------- --------- ------- ---------- --------- --------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE CONSOLIDATED STATEMENTS.
20
<PAGE>
C-ATS SOFTWARE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,581) $ (6,197) $ 3,485
Adjustments to reconcile net income (loss) to net cash provided (used) by
operating activities-
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 832 919 582
Acquired in-process research and development. . . . . . . . . . . . . -- 7,066 --
Change in assets and liabilities-
(Increase) decrease in accounts receivable. . . . . . . . . . . . . (542) 2,595 (2,072)
(Increase) decrease in prepaid expenses . . . . . . . . . . . . . . 186 556 (34)
(Increase) decrease in deferred tax asset and income tax refunds. . 497 (902) (473)
(Increase) decrease in other assets . . . . . . . . . . . . . . . . (52) 35 (127)
Increase (decrease) in accounts payable . . . . . . . . . . . . . . (183) (520) 731
Increase (decrease) in accrued liabilities and accrued compensation 319 (241) 339
Increase (decrease) in accrued taxes payable. . . . . . . . . . . . 244 (1,604) (42)
Increase (decrease) in deferred revenue . . . . . . . . . . . . . . (534) (2,738) 676
------- ------- -------
Net cash provided (used) by operating activities. . . . . . . . . (1,814) (1,031) 3,065
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale short-term investments. . . . . . . . . . (28,079) (15,479) (20,227)
Proceeds from sales and maturities of available-for-sale
short-term investments. . . . . . . . . . . . . . . . . . . . . . . 26,721 22,893 --
Investment in acquisition of LORGB . . . . . . . . . . . . . . . . . . . -- (3,294) --
Purchases of property and equipment. . . . . . . . . . . . . . . . . . . (516) (673) (733)
------- ------- -------
Net cash used by investing activities . . . . . . . . . . . . . . (1,874) (3,447) (20,960)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . 524 347 16,100
Common stock offering costs. . . . . . . . . . . . . . . . . . . . . . . -- -- (1,792)
------- ------- -------
Net cash provided by financing activities . . . . . . . . . . . . 524 347 14,308
------- ------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (170) 79 97
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . (3,334) 2,842 (3,490)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . . . 7,041 4,199 7,689
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . $ 3,707 $ 7,041 $ 4,199
------- ------- -------
------- ------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . $ 761 $ 818 $ 1,417
------- ------- -------
------- ------- -------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE CONSOLIDATED STATEMENTS.
21
<PAGE>
C-ATS SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. NATURE OF OPERATIONS:
C-ATS Software Inc. (the "Company") was organized in 1988 as a successor
to a partnership formed in 1986. The Company develops and markets
client/server software for financial risk management. The majority of the
Company's current clients are domestic and international financial
institutions. On March 20, 1995, the Company completed an initial public
offering of 1,300,000 shares of common stock at $12.00 per share. Total
proceeds to the Company (net of offering costs) were $13.8 million.
On February 13, 1996, C-ATS Sub, Inc. (a wholly owned subsidiary of the
Company), merged with LOR/Geske Bock Associates, Inc. ("LORGB"), a California
Corporation, pursuant to an "Agreement and Plan of Reorganization" dated
January 30, 1996. LORGB designs, develops, and markets integrated,
organization-wide market and credit risk management software systems. As a
result of the merger, LORGB, Inc. ceased to exist while C-ATS Sub continued
as the surviving corporation. The transaction was accounted for as a
"purchase." Accordingly, the operating results of the acquired business have
been included in the consolidated statement of operations from the date of
the acquisition (See Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
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 reporting
periods. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company licenses its products to end users under annual license
agreements which include rights to maintenance support services and product
upgrades. Accordingly, license revenues are recognized ratably over twelve
months. In addition, the Company provides training and consulting services
to its clients. Revenue from such services is generally recognized as the
services are performed.
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes software development costs incurred after
technological feasibility has been demonstrated. To date, amounts that could
have been capitalized have been immaterial and, therefore, no software
development costs have been capitalized.
22
<PAGE>
NET INCOME (LOSS) PER SHARE
In 1997, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128 "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 requires
companies to complete net income or loss per share under two different
methods, "basic" and "diluted". "Basic" net income or loss per share for
each period is calculated by dividing the net income or loss by the weighted
average shares of common stock outstanding during the period. Diluted net
income or loss per share includes the impact of "potential" common shares
from the exercise of stock options using the treasury stock method.
As a result, 1996 and 1995 net income or loss per share has been
restated to conform to the new standard. "Potential" common shares included
in the 1995 "diluted" earnings per share calculation consist of dilutive
shares issuable upon the exercise of outstanding common stock. "Potential"
common shares were not included in the 1997 and 1996 "diluted" earnings per
share calculation as the effects would be anti-dilutive.
The following is a reconciliation of the weighted average common shares
used to calculate Basic and Diluted net income or loss per share for the
years 1997, 1996, and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Weighted average common shares used to
Calculate "basic" net income or loss per share . . . . 6,744 6,528 5,441
Options outstanding. . . . . . . . . . . . . . . . . . --- --- 621
------ ------ ------
Weighted average common shares used to
Calculate "diluted" net income or loss per share . . . 6,744 6,528 6,062
------ ------ ------
------ ------ ------
</TABLE>
Options to purchase 1,836,115, 1,374,394 and 46,740 shares of common
stock at the weighted average prices of $4.10, $4.61 and $11.87 per share
were outstanding during 1997, 1996 and 1995, respectively, but were not
included in the computation of diluted net income or loss per share because
the options' exercise prices were greater than the annual average market
price of the common stock, and would have an anti-dilutive effect on the net
loss per share calculation.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash investments,
short-term investments and trade receivables. The Company has investment
policies that limit most investments to short-term low risk instruments.
The Company provides credit, in the normal course of business to a
limited number of financial institutions. The Company performs ongoing credit
evaluations of its customers and maintains an allowance for potential credit
risk.
CASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company considers all highly liquid investments including treasury
bills and money market fund investments purchased with an original maturity
of three months or less to be cash equivalents.
The Company classifies its investments pursuant to the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Debt and marketable securities
are classified in one of three categories: trading, available-for-sale, or
held to maturity. The Company has no investment securities held for
"trading". Securities classified as "available-for-sale" are primarily
investment grade municipal and corporate bonds, amounting to $16.4 million
and $15.1
23
<PAGE>
million as of December 31, 1997 and December 31, 1996, respectively, and
recorded at fair value. Unrealized holding gains and losses, if any, net of
the related tax effect, are reported as a separate component of shareholders
equity until realized. At December 31, 1997 and 1996, amortized cost was
approximately equal to fair value for these securities.
FOREIGN CURRENCY TRANSLATION
The functional currency of foreign operations is deemed to be the local
country's currency. Consequently, assets and liabilities of the Company's
foreign operations are translated at each balance sheet date into United
States dollars using exchange rates in effect at that date in accordance with
Statement of Financial Accounting Standards No. 52. Income and expenses of
the foreign operations are translated at average exchange rates for the
period. Company revenues and corresponding receivables are typically U.S.
dollar denominated and therefore are not impacted by translation adjustments.
The effects of foreign currency translation adjustments are included as a
component of shareholders' equity.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The cost of equipment and
furniture and fixtures is depreciated using the straight-line method over the
estimated useful lives of the assets, ranging from three to five years.
Betterments, renewals and extraordinary repairs that extend the life of the
asset are capitalized; other repairs and maintenance are expensed. Leasehold
improvements are amortized using the straight-line method over the lesser of
the remaining term of the lease or the estimated economic life of the
improvement. The cost and accumulated depreciation applicable to assets
retired are removed from the accounts and the gain or loss on disposition
recognized in income.
ACCOUNTING FOR STOCK BASED COMPENSATION
The Company has two stock option plans which reserve shares of common
stock for issuance to executives, key employees, consultants and directors.
The Company accounts for stock-based compensation under the provisions of
Accounting Board Opinion No. 25 "Accounting for Stock Issued to Employees"
("APB 25"). The exercise price of options granted under these plans is equal
to the market price of the Company's stock on the date of grant, and
accordingly, no compensation cost is recorded under APB 25. The Company has
adopted the disclosure only provisions of Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation," effective
January 1, 1996. Note 5 of the Consolidated Financial Statements contains a
summary of the pro forma effects to reported net income and earnings per
share for 1997 and 1996 as if the Company had elected to recognize
compensation expense based upon the fair value of the options granted at
grant date as prescribed by SFAS No. 123.
RECLASSIFICATIONS
Certain reclassifications have been made to 1996 and 1995 amounts to
conform to the current year presentation. These classifications did not
change the previously reported net income/(loss), total assets or total cash
flows of the Company for those years.
24
<PAGE>
NEW ACCOUNTING STANDARDS
In 1997, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 129, "Disclosure of Information About Capital Structure." SFAS
No. 129 requires companies to disclose certain information about their
capital structure. SFAS No. 129 did not have a material impact on the
Company's consolidated financial statement disclosures.
In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," which will be adopted by the
Company in the first quarter of 1998. SFAS No. 130 requires companies to
report a new, additional measure of income on the income statement or to
create a new financial statement that has the new measure of income on it.
"Comprehensive Income" is to include foreign currency translation gains and
losses and other unrealized gains and losses that have been previously
excluded from net income or loss and reflected instead in equity. The
Company anticipates that SFAS No.130 will not have a material impact on the
Company's consolidated financial statements.
In 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which will be adopted by the Company in
the 1998 annual consolidated financial statements. SFAS No. 131 requires
companies to report financial and descriptive information about its
reportable operating segments, including segment profit or loss, certain
specific revenue and expense items and segment assets as well as information
about revenues derived from the Company's products and services, the
countries in which the Company earns revenues and holds assets and major
customers. The Company currently provides much of this information in its
current consolidated financial statements and anticipates that SFAS No. 131
will not have a material impact on the Company's consolidated financial
statements.
In 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position
("SOP") 97-2, "Software Revenue Recognition," which will be adopted by the
Company in the first quarter of 1998. SOP 97-2 provides guidance on applying
generally accepted accounting principles in recognizing revenue on software
transactions. The Company anticipates that SOP 97-2 will not have a material
impact on the Company's consolidated financial statements.
3. ACQUISITIONS:
On February 13, 1996, the Company completed the acquisition of all the
outstanding common stock of LORGB. The purchase price of approximately $8.2
million included an issuance of 578,651 shares of the Company's common stock,
approximately $3.3 million in cash and the assumption of options to purchase
approximately 167,000 shares of the Company's common stock. The acquisition
has been recorded using the purchase method of accounting. The aggregate
purchase price has been allocated to the acquired assets and liabilities of
LORGB, of which the net tangible assets were not significant. The allocation
resulted in $8,044,000 allocated to purchased technology, $7,066,000 of which
represented in process research and development. The $7,066,000 was expensed
in the accompanying statements of operations as the technology had not yet
reached technological feasibility and does not have alternative future uses.
The capitalized amount of $977,000 is included in "Purchased software" in the
accompanying balance sheets and is amortized over four years.
25
<PAGE>
The following unaudited pro forma results of operations assume the
acquisition occurred as of January 1, 1995 (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995
----------------------- ------- -------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . $20,254 $25,006
Net income (loss). . . . . . . . . . . . . . . . . . (6,664) 2,884
Income (loss) per share. . . . . . . . . . . . . . . (1.01) 0.43
</TABLE>
In the third quarter of 1997, the Company acquired the rights to the
software technology of International Risk Control, Inc. ("IRC") for $585,000
in cash. The Company funded additional development of the software acquired
and released a version of C-ATS FX in late 1997.
4. COMMITMENTS:
The Company and its subsidiaries lease facilities under certain
noncancellable lease agreements accounted for as operating leases with future
minimum rental payments as follows:
<TABLE>
<CAPTION>
Amount
Year Ending December 31, (in thousands)
------------------------ --------------
<S> <C>
1998 . . . . . . . . . . . . . . . . . . . . . . . . $888
1999 . . . . . . . . . . . . . . . . . . . . . . . . 707
2000 . . . . . . . . . . . . . . . . . . . . . . . . 641
2001 . . . . . . . . . . . . . . . . . . . . . . . . 246
------
$2,482
------
------
</TABLE>
Total rental expense was approximately $974,000, $1,061,000 and $898,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
5. COMMON STOCK:
As of December 31, 1997, the Company had reserved shares of its common
stock for the following outstanding commitments of both current and available
future unexercised grants and stock issues under the plans:
<TABLE>
<CAPTION>
Number
of Shares
-----------
<S> <C>
1988 Incentive Stock Plan. . . . . . . . . . . . . . 324,250
1995 Stock Plan. . . . . . . . . . . . . . . . . . . 2,386,962
1995 Employee Stock Purchase Plan. . . . . . . . . . 125,071
1995 Director Option Plan. . . . . . . . . . . . . . 105,000
-----------
2,941,283
-----------
-----------
</TABLE>
1988 INCENTIVE STOCK PLAN
The Company's 1988 Incentive Stock Plan (the "1988 Plan") provided for
the grant of incentive stock options to employees of the Company, and for the
grant of nonstatutory stock options or stock purchase rights to employees and
consultants of the Company. The exercise price of all incentive stock options
granted under the 1988 Plan are at least equal to the fair market value (as
determined by the Board of Directors) of the
26
<PAGE>
common stock on the date of grant, subject to subsequent repricing actions.
The exercise price of all nonstatutory stock options granted under the 1988
Plan is required to be at least 85% of the fair market value of the common
stock on the date of grant. The term of options granted under the 1988 Plan
shall be ten years for an incentive stock option and ten years and one day
for a nonstatutory stock option
As of November 7, 1996, the Board of Directors authorized a repricing of
the 1988 Plan. All stock options granted under the Plan with an option
exercise price greater than 85% of the fair market value of the Company's
stock on November 7, 1996 were repriced. There were 85,292 stock options
under the 1988 Plan with an exercise prices of $5.00 - $8.00 that were
canceled and repriced at an exercise price of $4.69. No further grants will
be made under this plan.
Option activity under the 1988 Plan was as follows:
<TABLE>
<CAPTION>
Options
Available Number Weighted
for Grant of Shares Range Average
------------ --------- -------------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1994. . . . . 139,168 988,417 $0.10 - $5.00 $1.74
-------- -------- ------------- -----
Granted . . . . . . . . . . . . . (120,242) 120,242 $3.10 - $8.00 $5.24
Canceled. . . . . . . . . . . . . 169,758 (169,758) $0.70 - $8.00 $3.79
Exercised . . . . . . . . . . . . -- (335,903) $0.10 - $8.00 $1.49
-------- -------- ------------- -----
Balance, December 31, 1995. . . . . 188,684 602,998 $0.10 - $8.00 $2.03
-------- -------- ------------- -----
Granted . . . . . . . . . . . . . -- -- -- --
Canceled. . . . . . . . . . . . . 64,555 (64,555) $1.00 - $8.00 $3.88
Exercised . . . . . . . . . . . . -- (178,430) $0.10 - $8.00 $0.90
Repriced grants . . . . . . . . . (85,292) 85,292 $4.69 $4.69
Repriced canceled . . . . . . . . 85,292 (85,292) $5.00 - $8.00 $5.58
-------- -------- ------------- -----
Balance, December 31, 1996. . . . . 253,239 360,013 $0.20 - $4.69 $2.03
-------- -------- ------------- -----
Granted . . . . . . . . . . . . . -- -- -- --
Canceled. . . . . . . . . . . . . 11,469 (11,469) $0.70 - $4.69 $4.41
Exercised . . . . . . . . . . . . -- (24,294) $0.70 - $4.69 $1.56
-------- -------- ------------- -----
Balance, December 31, 1997. . . . . 264,708 324,250 $0.20 - $4.69 $2.00
-------- -------- ------------- -----
-------- -------- ------------- -----
</TABLE>
At December 31, 1997, options to purchase 313,717 shares were
exercisable at a weighted average share price of $1.91 under the 1988 Plan.
1995 STOCK PLAN
In January 1995, the Company adopted the 1995 Stock Plan (the "1995
Plan"). The Company had initially reserved 500,000 common shares for issuance
under the 1995 Plan and in May 1996 and again in May 1997, shareholders
approved 1,000,000 additional shares to the 1995 Plan. Under the 1995 Plan,
the Company may grant incentive stock options or grant nonstatutory stock
options and stock purchase rights (SPR) to employees, officers and
consultants. Nonqualified options and SPRs granted under the 1995 Plan have a
term of ten years and will be issued at a price determined by the Company's
Board of Directors at the date of grant. Incentive stock options granted
under the 1995 Plan may be granted only to employees of the Company, may have
a term of up to ten years, and must be issued at a price equal to the fair
market value of the Company's common stock at the date of grant.
As of November 7, 1996, the Board of Directors authorized a repricing
of the 1995 Plan. All stock options granted under the Plan with an option
exercise price greater than 85% of the fair market value of the
27
<PAGE>
Company's stock on November 7, 1996 were repriced. There were 699,100 stock
options under the 1995 Plan with an exercise prices of $5.50-$12.00 that were
canceled and repriced at an exercise price of $4.69.
Option activity under the 1995 Plan was as follows:
<TABLE>
<CAPTION>
Options
Available Number Weighted
for Grant of Shares Range Average
---------- --------- -------------- --------
<S> <C> <C> <C> <C>
Balance, January 1, 1995. . . . . . 500,000 -- -- --
Authorized. . . . . . . . . . . . 1,000,000 -- -- --
Granted . . . . . . . . . . . . . (397,000) 397,000 $6.88 -$12.00 $8.09
Canceled. . . . . . . . . . . . . 5,937 (5,937) $11.75 -$12.00 $11.83
Exercised . . . . . . . . . . . . -- -- -- --
---------- --------- -------------- ------
Balance, December 31,1995 . . . . . 1,108,937 391,063 $6.88 - $12.00 $8.03
---------- --------- -------------- ------
Granted . . . . . . . . . . . . . (1,032,200) 1,032,200 $4.69 - $7.13 $5.52
Granted (LORGB assumed options) . (167,861) 167,861 $0.08 - $0.16 $0.08
Canceled. . . . . . . . . . . . . 202,020 (202,020) $4.69 - $12.00 $6.96
Exercised . . . . . . . . . . . . -- (42) $7.13 $7.13
Repriced grants . . . . . . . . . (699,100) 699,100 $4.69 $4.69
Repriced canceled . . . . . . . . 699,100 (699,100) $5.50 - $12.00 $7.02
---------- --------- -------------- ------
Balance, December 31, 1996. . . . . 110,896 1,389,062 $0.08 - $4.69 $4.13
---------- --------- -------------- ------
Authorized. . . . . . . . . . . . 1,000,000 -- -- --
Granted . . . . . . . . . . . . . (650,500) 650,500 $4.25 -$8.00 $5.53
Canceled. . . . . . . . . . . . . 327,684 (327,684) $4.25 -$7.13 $4.58
Exercised . . . . . . . . . . . . -- (112,996) $0.08 -$4.87 $2.97
---------- --------- -------------- ------
Balance, December 31, 1997. . . . . 788,080 1,598,882 $0.08 - $8.00 $4.69
---------- --------- -------------- ------
---------- --------- -------------- ------
</TABLE>
At December 31, 1997, options to purchase 517,638 shares were
exercisable at a weighted average share price of $3.63 under the 1995 Plan.
1995 EMPLOYEE STOCK PURCHASE PLAN
In January 1995, the Company adopted the 1995 Employee Stock Purchase
Plan and reserved 200,000 shares of the Company's common stock for issuance
under this plan. Under the terms of this plan, the Company allows eligible
employees to purchase shares of common stock at 85% of the lower of the fair
market value of the common stock at the beginning or at the end of each
offering period. Offering periods under this plan will commence on January 1
and July 1 of each year and end on June 30 and December 31, respectively.
The first offering commenced on July 3, 1995. During 1995, 19,007 shares
were subscribed under the plan and issued on January 1, 1996 at an average
purchase price of $6.06 per share. During 1996, 15,055 and 20,815 shares were
subscribed under the plan and issued on July 1, 1996 and January 1, 1997 at
average purchase prices of $5.10 and $4.375 per share, respectively. During
1997, 20,052 and 22,971 shares were subscribed under the plan and issued on
July 1, 1997 and January 1, 1998 at purchase prices of $3.72 and $4.04 per
share, respectively.
1995 DIRECTOR OPTION PLAN
In January 1995, the Company adopted the 1995 Director Option Plan. The
Company has authorized 105,000 shares of the Company's common stock for
issuance under the 1995 Director Option Plan, and 80,000
28
<PAGE>
options were granted under this plan at an exercise price of $8.00 per share.
Options must be issued at the fair market value of the Company's common stock
at date of grant, have a term of ten years and vest 33% each year following
the date of grant. At December 31, 1997, options to purchase 60,000 shares
were exercisable at $8.00 per share under the 1995 Director Option Plan.
During 1997, options to purchase 20,000 shares were canceled under the
Director Option Plan.
OPTION FAIR VALUE
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation," issued in
October 1995. In accordance with the provisions of SFAS No. 123, the
Company applies Opinion 25 and related interpretations in accounting for its
stock option plans and, accordingly, does not recognize compensation cost as
the exercise price equals the fair value of common stock at the date of
grant. If the Company had elected to recognize compensation cost based on
the fair value of the options granted at grant date as prescribed by SFAS No.
123, net income (loss) and income (loss) per share would have been changed to
the pro forma amounts indicated in the table below.
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
(in thousands, except per share amounts)
------------------------------------------
<S> <C> <C> <C>
Net income (loss) - as reported. . . . . . . . . . . . . . . $ (2,581) $ (6,197) $ 3,485
Net income (loss) - pro forma. . . . . . . . . . . . . . . . $ (3,994) $ (6,985) $ 3,309
Basic income (loss) per share - as reported. . . . . . . . . $ (0.38) $ (0.95) $ 0.64
Basic income (loss) per share - pro forma. . . . . . . . . . $ (0.59) $ (1.07) $ 0.61
Diluted income (loss) per share - as reported. . . . . . . . $ (0.38) $ (0.95) $ 0.57
Diluted income (loss) per share - pro forma. . . . . . . . . $ (0.59) $ (1.07) $ 0.55
</TABLE>
The fair value of each grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: a
weighted average risk-free interest rate of 5.80% corresponding to government
securities with original maturities similar to the estimated option life of
approximately one year beyond vest date; annual volatility of the Company's
stock price of 65%; and a dividend yield of 0.0%. The effects of applying
the provisions of SFAS No. 123 are not likely to be representative of the
effects on the pro forma net income (loss) in future years. The weighted
average of fair values of options granted during 1997 and 1996 were
approximately $2.34 for both years. The options outstanding and exercisable
under all option plans are as follows:
<TABLE>
<CAPTION>
Options Outstanding at December 31, 1997 Options exercisable at December 31, 1997
---------------------------------------------- ------------------------------------------------
Weighted Number Weighted
Number Weighted Average Exercisable as of Average
Range of of Shares Average Remaining December 31, Exercise
Exercise Price Outstanding Exercise Price Contract Life 1997 Price
-------------- ------------ --------------- ------------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
$0.08 - $2.00 322,132 $0.46 4.44 321,077 $0.46
$2.01 - $4.00 53,146 $3.00 6.07 52,302 $3.00
$4.01 - $6.00 1,378,854 $4.81 8.72 451,601 $4.69
$6.01 - $8.00 249,000 $7.16 7.78 66,375 $7.84
------------- --------- ----- ---- ------- -----
$0.08 - $8.00 2,003,132 $4.35 7.84 891,355 $3.30
------------- --------- ----- ---- ------- -----
------------- --------- ----- ---- ------- -----
</TABLE>
29
<PAGE>
6. INCOME TAXES:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." This
statement provides for a liability approach under which deferred income taxes
are provided based upon enacted tax laws and rates applicable to the periods
in which the taxes become payable.
The provision for income taxes consisted of the following components for
the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- --------
<S> <C> <C> <C>
Current provision:
Federal. . . . . . . . . . . . . . $ --- $ --- $ 1,034
State and local. . . . . . . . . . --- --- 312
Foreign. . . . . . . . . . . . . . 936 902 1,004
-------- --------- --------
936 902 2,350
Deferred benefit:
Federal. . . . . . . . . . . . . . (865) (818) (426)
State and local. . . . . . . . . . . . (71) (84) (47)
-------- --------- --------
(936) (902) (473)
Total provision for income taxes . . . . $ --- $ --- $ 1,877
-------- --------- --------
-------- --------- --------
</TABLE>
The provision for income taxes for the years ended December 31, 1997,
1996 and 1995 differs from the amount obtained by applying the statutory
Federal income tax rate to income before taxes as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- --------- --------
<S> <C> <C> <C>
Federal tax expense (benefit) at statutory rate. . . . . . $ (903) $ (2,169) $ 1,877
State income taxes, net of Federal benefit . . . . . . . . (351) -- 166
Foreign income taxes incurred. . . . . . . . . . . . . . . 761 902 799
Foreign tax credits utilized . . . . . . . . . . . . . . . (761) (818) (763)
Change in valuation allowance. . . . . . . . . . . . . . . 1,925 (171) ---
FSC benefit. . . . . . . . . . . . . . . . . . . . . . . . -- -- (73)
Non-deductible write-off of in-process research and development -- 2,473 --
Tax credits. . . . . . . . . . . . . . . . . . . . . . . . (630) (234) (137)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . (41) 17 8
------- --------- --------
Total provision for income taxes . . . . . . . . . . . . . . $ -- $ -- $ 1,877
------- --------- --------
------- --------- --------
</TABLE>
30
<PAGE>
The components of the net deferred tax asset at December 31, 1997 and
1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ -------
<S> <C> <C>
Revenue deferred for financial reporting purposes. . $3,087 $3,156
Items not currently deductible for tax purposes. . . 501 171
Foreign tax credits. . . . . . . . . . . . . . . . . 761 --
General business credits . . . . . . . . . . . . . . 909 --
Net operating loss carryforward. . . . . . . . . . . 931 --
------ -------
6,189 3,327
Valuation allowance. . . . . . . . . . . . . . . . . (3,582) (1,657)
------ -------
Net deferred tax asset . . . . . . . . . . . . . . . $2,607 $1,670
------ -------
------ -------
</TABLE>
For income tax reporting purposes, the Company has Federal and State net
operating loss carryforwards of approximately $2,500,000 and $1,000,000,
respectively, and Federal and State research and development tax credit
carryforwards of approximately $110,000 and $124,000, respectively, all of
which will expire on various dates through 2012. The Internal Revenue Code
contains provisions which may limit the amount of tax carryforwards available
to be used in any given year upon the occurrence of certain events, including
changes in ownership interests. Due to certain limitations of the benefits
related to tax carrybacks, the current year operating loss and the
uncertainty of future results, the Company has provided a valuation allowance
related to a portion of the deferred tax asset.
The Company's tax returns for 1990 through 1993 are currently being
examined by the Internal Revenue Service ("IRS") which has issued a notice of
assessment related to its position on foreign tax credits related to foreign
withholding taxes on the Company's software license revenue. If the IRS
position were to prevail in full, the net tax cost for this assessment at
December 31, 1997 would be approximately $2.3 million, excluding interest and
penalties. The Company is currently seeking competent authority relief,
which, if successful, will eliminate any potential double taxation. In
management's opinion the ultimate resolution of this matter will not have a
material adverse effect on the results of operations.
31
<PAGE>
7. WORLDWIDE OPERATIONS:
The Company operates in a single industry segment and has wholly-owned
foreign subsidiaries in the United Kingdom and Switzerland that conduct sales
representative activities in Europe and a wholly-owned subsidiary that
conducts sales representative activities in Japan. All license agreements are
entered into between the parent company and the clients, and all license and
service fees are paid directly to the parent company in U.S. dollars. United
States operations include revenue and results of operations in the United
States as well as export revenue from all clients recognized on a worldwide
basis. Subsidiary revenues consist solely of payments from the parent company
for services performed for the benefit of the parent company at a rate of
cost plus 10%. Such transfers are eliminated in the consolidated financial
statements. Identifiable assets are those assets that can be directly
associated with a particular geographic area and subsidiary. The Company's
operations by geographic area were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenue:
United States . . . . . . . . . . . . . . . . . . . . $ 18,454 $ 20,145 $ 22,298
United Kingdom. . . . . . . . . . . . . . . . . . . . 2,784 2,405 2,050
Japan . . . . . . . . . . . . . . . . . . . . . . . . 1,954 1,723 2,059
Switzerland . . . . . . . . . . . . . . . . . . . . . 288 450 798
Eliminations. . . . . . . . . . . . . . . . . . . . . $(5,026) $(4,578) $(4,907)
-------- -------- ---------
Consolidated. . . . . . . . . . . . . . . . . . . . . . . $ 18,454 $ 20,145 $ 22,298
-------- -------- ---------
-------- -------- ---------
Operating income/(loss):
United States . . . . . . . . . . . . . . . . . . . . (3,952) (7,377) 4,000
United Kingdom. . . . . . . . . . . . . . . . . . . . 186 162 190
Japan . . . . . . . . . . . . . . . . . . . . . . . . 173 117 134
Switzerland . . . . . . . . . . . . . . . . . . . . . 52 38 107
-------- -------- ---------
Consolidated. . . . . . . . . . . . . . . . . . . . . . . $ (3,541) $ (7,060) $ 4,431
-------- -------- ---------
-------- -------- ---------
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
Identifiable assets:
United States . . . . . . . . . . . . . . . . . . . . $ 29,816 $ 32,079 $ 37,418
United Kingdom. . . . . . . . . . . . . . . . . . . . 796 1,048 1,045
Japan . . . . . . . . . . . . . . . . . . . . . . . . 610 587 560
Switzerland . . . . . . . . . . . . . . . . . . . . . 102 79 79
Eliminations. . . . . . . . . . . . . . . . . . . . . (684) (794) (602)
-------- -------- ---------
Consolidated. . . . . . . . . . . . . . . . . . . . . . . $ 30,640 $ 32,999 $ 38,500
-------- -------- ---------
-------- -------- ---------
</TABLE>
The Company's export sales to unaffiliated non-U.S. customers are as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
Japan . . . . . . . . . . . . . . . . . . . . . . . . $ 6,269 $ 7,269 $ 7,468
United Kingdom. . . . . . . . . . . . . . . . . . . . 3,722 3,915 4,006
Europe, excluding United Kingdom. . . . . . . . . . . 3,472 3,571 4,460
Other . . . . . . . . . . . . . . . . . . . . . . . . 1,861 1,671 1,864
-------- -------- ---------
$ 15,324 $ 16,426 $ 17,798
-------- -------- ---------
-------- -------- ---------
</TABLE>
Sales to a major client accounted for 10% of revenues in 1995. No major
client accounted for more than 10% of revenues in 1997 or 1996.
32
<PAGE>
********************************************************************************
STOCK The Company's common stock is traded on the Nasdaq National
TRADING Market under the symbol CATX. C-ATS Software Inc. completed
INFORMATION its initial public offering on March 20, 1995. The quarterly
high and low bid prices over the past eight quarters were as
follows
<TABLE>
<CAPTION>
High Low
-------- -------
Fiscal 1997
<S> <C> <C>
Fourth Quarter 5 7/8 5
Third Quarter 7 1/4 4 1/2
Second Quarter 5 1/8 4 1/8
First Quarter 5 3/4 4 3/8
Fiscal 1996
Fourth Quarter 5 1/8 4 3/8
Third Quarter 6 1/4 4 7/8
Second Quarter 7 1/2 5 5/8
First Quarter 7 7/8 6 1/8
</TABLE>
BID PRICE QUOTATIONS ARE AS REPORTED BY THE NATIONAL ASSOCIATION OF SECURITY
DEALERS, INC. ALL BID PRICES REFLECT INTERDEALER PRICES, WITHOUT RETAIL MARKUP,
MARKDOWN, OR COMMISSION AND MAY NOT REPRESENT ACTUAL TRANSACTIONS.
AS OF MARCH 2, 1998, THERE WERE APPROXIMATELY 750 SHAREHOLDERS OF RECORD OF
COMMON STOCK OF THE COMPANY. C-ATS SOFTWARE INC. HAS NEVER PAID DIVIDENDS AND
HAS NO PRESENT PLANS TO DO SO. ON MARCH 2, 1998, THE CLOSING BID PRICE WAS
$4.688 PER SHARE.
********************************************************************************
33
<PAGE>
EXHIBIT 21.1
C-ATS SOFTWARE INC.
LIST OF SUBSIDIARIES
C-ATS Software UK Ltd.
Roman House
Wood Street
London, EC2Y SBA UK
C-ATS Software AG
10 Route de L'Englise
CH-1291 Commungny, Switzerland
C-ATS Software Japan K.K.
NTF Takebashi Bldg., 8th Floor
3-15 Kanda-Nishikicho
Chlyode-ku, Tokyo 101 Japan
C-ATS Sub, Inc.
1825 Century Park East
Suite 2120
Los Angeles, CA 90067
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our reports included in this Form 10-K into the
Company's previously filed Registration Statements on Form S-8 (File No.
33-94956 and 33-33609).
/s/ ARTHUR ANDERSEN LLP
- ------------------------
ARTHUR ANDERSEN LLP
San Jose, California
March 26, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997<F1>
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-01-1997
<CASH> 3,707
<SECURITIES> 16,446
<RECEIVABLES> 5,100
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28,131
<PP&E> 4,853
<DEPRECIATION> 3,365
<TOTAL-ASSETS> 30,640
<CURRENT-LIABILITIES> 10,956
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 19,677
<TOTAL-LIABILITY-AND-EQUITY> 30,640
<SALES> 18,454
<TOTAL-REVENUES> 18,454
<CGS> 310
<TOTAL-COSTS> 21,410
<OTHER-EXPENSES> 585
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 960
<INCOME-PRETAX> 2,581
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,581
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,124
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
<FN>
<F1>In the fiscal year ended December 31, 1997 common share equivalents, if
included, would have an anti-dilutive effect on the net loss per share
calculation and are therefore excluded from the fully diluted calculation.
If included, the net loss per share would be $0.36 per share.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,199
<SECURITIES> 22,502
<RECEIVABLES> 7,153
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 37,172
<PP&E> 3,624
<DEPRECIATION> 2,614
<TOTAL-ASSETS> 38,500
<CURRENT-LIABILITIES> 15,608
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 22,886
<TOTAL-LIABILITY-AND-EQUITY> 38,500
<SALES> 22,298
<TOTAL-REVENUES> 22,298
<CGS> 1,174
<TOTAL-COSTS> 17,867
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 931
<INCOME-PRETAX> 5,362
<INCOME-TAX> 1,877
<INCOME-CONTINUING> 3,485
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,485
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.57
</TABLE>
