<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO __________
COMMISSION FILE NUMBER 0-25740
ACT NETWORKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0396887
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
188 CAMINO RUIZ, CAMARILLO, CALIFORNIA 93012
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 388-2474
FORMER NAME, FORMER ADDRESS AND FORMER NINE MONTHS, IF CHANGED SINCE LAST
REPORT: Not Applicable
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
------- ------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
INDICATED BY A CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTIONS 12, 13, OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT.
YES ____________ NO _______________
APPLICABLE ONLY TO CORPORATE ISSUERS:
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
AS OF MAY 9, 1997, THERE WERE 9,262,818 SHARES OF COMMON STOCK OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 1997 and June 30, 1996......................................3
Consolidated Statements of Operations
for the Nine Month Periods Ended
March 31, 1997 and 1996...............................................4
Consolidated Statements
of Cash Flows for the Nine Month Periods Ended
March 31, 1997 and 1996...............................................5
Notes to Condensed Consolidated
Financial Statements..................................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................8
PART II. OTHER INFORMATION
Item 1 Legal Proceedings............................................................13
Item 2 Changes in Securities........................................................13
Item 3 Defaults upon Senior Securities..............................................13
Item 4 Submission of Matters to a Vote of Securityholders...........................13
Item 5 Other Information. Risk Factors.............................................13
Item 6. Exhibits and Reports on Form 8-K.............................................20
SIGNATURE........................................................................................................23
EXHIBIT INDEX....................................................................................................24
</TABLE>
2
<PAGE> 3
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ACT NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
----------------------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 64,027,023 $ 70,374,310
Accounts receivable, less allowances of $287,000
in March and June 15,644,360 9,861,953
Inventory 10,899,687 7,409,459
Prepaid expenses 574,082 599,765
Deposits 100,517 65,659
----------------------------------
Total current assets 91,245,669 88,311,146
Plant, equipment and other improvements:
Machinery and equipment 4,543,189 3,017,720
Furniture and fixtures 533,733 379,386
Computer software 1,843,372 801,643
Leasehold improvements 653,940 528,527
----------------------------------
7,574,234 4,727,276
Accumulated depreciation and amortization 3,395,788 2,248,926
----------------------------------
4,178,446 2,478,350
Goodwill and intangible assets 4,051,518 1,882,455
Other assets 898,882 1,178,565
----------------------------------
Total assets $ 100,374,515 $ 93,850,516
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,104,676 $ 2,121,933
Accrued expenses 1,643,620 639,746
Accrued vacation 435,035 334,635
Accrued commissions 224,516 143,243
Income taxes payable 1,681,322 245,241
Deferred income taxes 77,624 78,803
----------------------------------
Total current liabilities 7,166,793 3,563,601
Long-term debt -- 147,294
Stockholders' equity:
Common stock and additional paid-in capital; $.001 par value:
Authorized - 40,000,000
Issued and outstanding 9,255,869 in March
and 9,117,329 in June 99,846,682 98,175,394
Accumulated deficit (6,638,960) (8,035,773)
----------------------------------
Total stockholders' equity 93,207,722 90,139,621
==================================
Total liabilities and stockholders' equity $ 100,374,515 $ 93,850,516
==================================
</TABLE>
See accompanying notes.
3
<PAGE> 4
ACT Networks, Inc.
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------------- -------------------------------
1997 1996 1997 1996
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 13,651,763 $8,030,487 $ 35,724,831 $19,299,372
Expenses:
Cost of goods sold 5,815,281 3,687,135 15,480,070 10,020,685
Research and development 2,223,629 1,271,054 5,536,821 3,550,015
Sales and marketing 2,900,728 1,910,100 7,443,401 5,068,552
General and administrative 1,248,647 904,226 3,410,307 2,311,262
In-process research and development
2,715,108 3,415,854 5,600,000
--------------------------------------------------------------------
Total operating expenses 14,903,393 7,772,515 35,286,453 26,550,514
--------------------------------------------------------------------
Income (loss) from operations (1,251,630) 257,972 438,378 (7,251,142)
Other:
Interest and other income, net 773,216 230,187 2,452,803 911,905
--------------------------------------------------------------------
Income (loss) before income taxes (478,414) 488,159 2,891,181 (6,339,237)
Provision for income taxes 557,570 93,567 1,521,760 132,997
--------------------------------------------------------------------
Net income (loss) $ (1,035,984) $ 394,592 $ 1,369,421 $(6,472,234)
====================================================================
Net income (loss) per share $ (0.11) $ 0.05 $ 0.14 $ (0.89)
====================================================================
Shares used in computing net income
(loss) per share 9,194,308 7,990,561 10,035,540 7,233,789
====================================================================
</TABLE>
See accompanying notes
4
<PAGE> 5
ACT Networks, Inc.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
---------
1997 1996
----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,369,421 $ (6,472,233)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 1,375,678 792,797
Write-off of in-process research and
development 3,415,854 5,600,000
Changes in operating assets and liabilities:
Accounts receivable (5,468,533) (2,201,182)
Inventory (1,922,192) (2,230,326)
Prepaid expenses and deposits 66,349 (776,803)
Accounts payable, accrued
expenses and income taxes payable 3,320,877 (263,982)
---------------------------------
Net cash (used in) provided by operations 2,157,454 (5,551,729)
INVESTING ACTIVITIES
Increase in short-term investments (6,596,398)
Purchase of fixed assets (2,467,762) (1,388,199)
Acquisition of DeltaComm Corporation (219,033)
Acquisition of DynaStar Assets (6,793,850)
Acquisition of Presticom, Inc. (6,880,470)
Other assets 214,518 97,012
---------------------------------
Net cash used in investing activities (9,266,127) (14,768,055)
FINANCING ACTIVITIES
Stock warrants and options 1,031,288 115,801
Repayment of notes payable (297,294) (124,900)
Borrowings on line of credit 75,675
Research & development deposit 45,000
---------------------------------
Net cash provided by financing activities 733,994 111,576
Translation adjustment 27,392 (10,302)
---------------------------------
Net (decrease) increase in cash (6,347,287) (20,218,510)
Cash and equivalents at beginning of the period 70,374,310 30,546,278
---------------------------------
Cash and equivalents at end of the period $ 64,027,023 $ 10,327,768
=================================
</TABLE>
See accompanying notes
5
<PAGE> 6
ACT NETWORKS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the nine-month period ended March 31, 1997 are
not necessarily indicative of the results that may be expected for future
periods. For further information, refer to the financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended June 30, 1996.
The balance sheet at June 30, 1996 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Certain June 30, 1996 balance sheet items have been
reclassified to conform with the March 31, 1997 presentation.
2. BUSINESS ACQUISITION
On March 11, 1997, the Company acquired the DynaStar family of products from
Dynatech Communications, Inc. ("DCI"), a wholly-owned subsidiary of Dynatech
Corporation, a Massachusetts corporation ("Dynatech"). The DynaStar product line
is a family of compact, flexible, integrated multi-service access switch
connectivity products that support extensive multi-protocol WAN connections
including TCP/IP, PPP, frame relay, X.25 and ATM. The cash purchase price paid
by the Company was $6,443,800. The Company assumed approximately $274,000 of
debt and recorded transaction expenses of approximately $350,000.
The acquisition was accounted for under the purchase method of accounting and,
accordingly, the acquired assets and liabilities were recorded at their
estimated fair market values at the date of acquisition. The purchase price plus
costs directly attributable to the completion of the acquisition have been
allocated to the assets and liabilities acquired. Of the total purchase price,
$2,715,108 represented the value of in-process research and development that had
not yet reached technological feasibility and was charged to the Company's
operations. Other intangibles and assets acquired were developed technology of
$1,527,248, which will be amortized over 7 years, and work force of $296,965,
trade mark of $42,424 and customer base of $254,541, which will be amortized
over 5 years. The fair market value of the in-process research and development
and other intangibles was determined by an independent appraiser. Developed
technology represents technology which has reached technological feasibility and
relates to products which have been generating revenues. Pro forma financial
information is not presented because the pro forma effect of the transaction is
not considered material to the Consolidated Statements of Operations.
3. INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
March 31, 1997 June 30, 1996
-------------- -------------
<S> <C> <C>
Purchased parts ................................... $ 5,339,118 $ 3,629,460
Sub-assemblies; finished goods....................... 5,560,569 3,779,999
------------- -------------
$ 10,899,687 $ 7,409,459
------------- -------------
</TABLE>
6
<PAGE> 7
ACT NETWORKS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS(CONTINUED)
(Unaudited)
4. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number of
shares of common stock outstanding. Common equivalent shares from stock options
and warrants (using the modified treasury stock method) have been included in
the computation when dilutive.
5. INCOME TAXES
The provision for income taxes for the nine months ended March 31, 1997 was
$1,521,760. The provision for income taxes for the nine months ended March 31,
1996 was $132,997. The provision for income taxes differs from the federal
statutory rate due primarily to the foreign income taxes related to the
Company's Canadian subsidiary and to federal and state net operating losses
carried forward from previous periods.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Report may contain forward-looking statements that involve a
number of risks and uncertainties including, without limitation, those set forth
in the "Risk Factors" section under "Other Information". The Company's actual
results may differ materially from any future performance discussed in
forward-looking statements and this Management's Discussion and Analysis of
Financial Condition and Results of Operations.
GENERAL
ACT was founded in May 1987 to design, manufacture and market wide area
network communication products incorporating advanced compression and
integration technologies. In the third quarter of fiscal 1989, the Company
shipped its first integrated product, a point-to-point multiplexer designed for
use on a voice-band analog circuit. In the third quarter of fiscal 1991, the
Company began shipping a point-to-point integrated multiplexer designed for use
over digital leased lines. In the third quarter of fiscal 1993, the Company
introduced its first integrated Frame Relay access product line (ACTNet). The
Company introduced its wireless Frame Relay access product line (SkyFrame) in
the first quarter of fiscal 1996. The multiprotocol data line of products was
acquired in the second quarter of fiscal 1996 with the acquisition of Presticom.
In the third quarter of fiscal 1997, the Company acquired a multi-service access
switch connectivity line of products with the acquisition of the DynaStar
product family from Dynatech.
The Company's future operating results will be dependent upon the
development and growth of the public and private wide area network
communications market for its Frame Relay access products. This market and
product applications within this market are currently emerging and may not
continue to develop, whether as a result of competition, technological change,
market forces or otherwise.
The Company anticipates that, in general, the average sales price for
its products will decrease over time due to competition and other factors. In
addition, the Company has from time to time introduced new products which are
less expensive alternatives to the Company's older products. In such instances,
the Company must sell more units to maintain the same level of aggregate net
sales. Price erosion of existing products and the Company's introduction of less
expensive networking alternatives could adversely affect the Company's margins
and results of operations.
Sales to customers outside of North America accounted for approximately
66% and 63% of the Company's net sales for the fiscal years ended June 30, 1995
and 1996, respectively, and approximately 76% for the nine months ended March
31, 1997. The Company expects that international sales will continue to account
for a significant portion of the Company's net sales in future periods. In
addition, the Company believes that a majority of its sales to customers inside
North America represent sales of products which are used or resold in markets
outside of North America. International sales are subject to certain inherent
risks, including unexpected changes in regulatory requirements and tariffs,
problems and delays in collecting accounts receivable and economic downturns in
foreign markets. A significant number of the Company's products are sold or
installed in countries, including several in South America, where political or
economic issues could adversely affect the purchasing decision of the customer.
In addition, fluctuations in currency exchange rates could cause the Company's
products to become relatively more expensive to customers in a particular
country, leading to a reduction in sales or profitability in that country.
A small number of customers have historically accounted for a
substantial portion of the Company's net sales. The Company's five largest
customers accounted for 43% and 46% of net sales for the fiscal years ended June
30, 1995 and 1996, respectively, and 41 % for the nine months ended March 31,
1997. Any reduction, delay or change in orders from such customers could have a
material adverse effect on the Company's business.
8
<PAGE> 9
ACQUISITIONS
In November 1995 the Company acquired all the outstanding shares of
Presticom, a developer of multiprotocol Frame Relay access devices. The Company
recorded an acquisition cost of approximately $9.1 million, of which
approximately $7.3 million in cash and 176,365 shares of Common Stock
represented the consideration paid to Presticom's shareholders and of which
approximately $0.6 million represented transaction expenses. As a result of the
acquisition, the Company expensed approximately $5.6 million in the quarter
ended December 31, 1995 as acquired in-process research and development and is
amortizing approximately $2.1 million of goodwill over seven years.
In December 1996 the Company acquired all the outstanding shares of
DeltaComm Corporation, a developer of bandwidth-efficient modems with expertise
in the satellite communications industry. The aggregate purchase price paid by
the Company was approximately $797,000 consisting of $158,000 paid in cash and
the issuance of 22,858 shares of Common Stock of the Company with an estimated
fair market value of $640,000. The Company recorded transaction expenses of
approximately $61,000. As a result of the acquisition, the Company expensed
approximately $701,000 in the quarter ended December 31, 1996 as acquired
in-process research and development and is amortizing approximately $236,000 of
goodwill over seven years.
In March 1997, the Company acquired the DynaStar family of products
from Dynatech Communications, Inc. The DynaStar product line is a family of
compact, flexible, integrated multi-service access switch connectivity products
that support extensive multi-protocol WAN connections including TCP/IP, PPP,
frame relay, X.25 and ATM. The cash purchase price paid by the Company was
$6,443,800. The Company assumed approximately $274,000 of debt and recorded
transaction expenses of approximately $350,000. As a result of the acquisition,
the Company expensed approximately $2,715,000 in the quarter ended March 31,
1997 as acquired in-process research and development and will amortize other
acquired intangibles of approximately $2,121,000 over five to seven years.
RESULTS OF OPERATIONS
The following table sets forth for the years indicated, the percentages
of net sales represented by each item in the Company's statement of operations.
<TABLE>
<CAPTION>
Three Months Ended March 31, Nine months Ended March 31,
---------------------------- ---------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales ............................ 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ................... 42.6% 45.9% 43.3% 51.9%
------------------------------------------------
Gross profit ......................... 57.4% 54.1% 56.7% 48.1%
Operating expenses:
Research and development .......... 16.3% 15.8% 15.5% 18.4%
Sales and marketing ............... 21.3% 23.8% 20.8% 26.2%
General and administrative ........ 9.1% 11.3% 9.6% 12.0%
In-process research and development 19.9% 0.0% 9.6% 29.0%
------------------------------------------------
Total operating expenses ............. 66.6% 50.9% 55.5% 85.6%
(Loss) income from operations ........ (9.2)% 3.2% 1.2% (37.5)%
Net interest and other income ........ 5.7% 2.9% 6.9% 4.7%
------------------------------------------------
(Loss) income before taxes ........... (3.5)% 6.1% 8.1% (32.8)%
Provision for income taxes ........... 4.1% 1.2% 4.3% 0.7%
------------------------------------------------
Net (loss) income .................... (7.6)% 4.9% 3.8% (33.5)%
================================================
</TABLE>
9
<PAGE> 10
Net sales
Net sales increased 70% to $13.7 million for the three months ended
March 31, 1997 from $8 million for the three months ended March 31, 1996. Net
sales increased 85.1% to $35.7 million for the nine months ended March 31, 1997
from $19.3 million for the nine months ended March 31, 1996.
The Company's customers may be divided into two categories, enterprise
and carrier. Carrier customers would include inter-exchange carriers, regional
Bell operating companies, competitive access providers, international record
carriers, satellite service providers, and Frame Relay service providers. For
the nine months ended March 31, 1997, sales to enterprise customers were
approximately $30.9 million, or 86.5%, and sales to carrier customers were
approximately $4.8 million, or 13.5%. For the nine months ended March 31, 1996,
sales to enterprise customers were approximately $15.2 million, or 78.8%, and
sales to carrier customers were approximately $4.1 million, or 21.2%.
The two categories of customers operate either terrestrial or wireless networks.
For the nine months ended March 31,1997, sales of products into terrestrial and
wireless networks were approximately $25.1 million, or 70.2%, and $10.6 million,
or 29.8%, respectively. For the nine months ended March 31,1996, sales of
products into terrestrial and wireless networks were approximately $11.7
million, or 60.6%, and $7.6 million, or 39.4%, respectively.
Gross Profit
Gross profit represents net sales less the cost of goods sold, which
includes cost of materials, manufacturing overhead costs and direct labor
expenses. The Company's gross profit was $7.8 million, or 57.4% of net sales,
for the three months ended March 31, 1997 compared to $4.3 million, or 54.1% of
net sales, for the three months ended March 31, 1996.
The Company's gross profit was $20.2 million, or 56.7% of net sales,
for the nine months ended March 31, 1997 compared to $9.3 million, or 48.1% of
net sales, for the nine months ended March 31, 1996. For the three month and
nine month periods ended March 31, 1997, the increase in gross profit as a
percentage of sales was primarily attributable to an increase in Frame Relay
product sales and a decrease in sales of OEM products which typically sell at a
lower gross margin, and to lower material cost and the efficiencies of increased
unit volume. In addition, the prior nine month period ended March 31, 1996
included a $0.7 million charge for obsolete inventory. The gross profit , not
including this charge, was $10 million, or 51.7 % of sales. In the future, gross
profit may be affected by price competition and discounts, product mix, product
configuration, changes in unit volume, cost of components and manufacturing and
other factors.
Operating Expenses
Research and development. Research and development expense increased to $2.2
million, or 16.3% of net sales, for the three months ended March 31, 1997 from
$1.3 million, or 15.8% of net sales, for the three months ended March 31, 1996.
Research and development expense increased to $5.5 million, or 15.5% of net
sales, for the nine months ended March 31, 1997 from $3.5 million, or 18.4% of
net sales, for the nine months ended March 31, 1996. These dollar increases were
primarily attributable to the cost of personnel for the development of new
products and enhancement of existing products including personnel added with the
DeltaComm and DynaStar product acquisitions. Other material components of these
increases were consultant fees, the cost of materials and depreciation expense.
While the actual amount expended will depend upon a variety of factors, the
Company anticipates increasing research and development expenses in the near
term.
Sales and marketing. Sales and marketing expense increased to $2.9 million, or
21.3% of net sales, for the three months ended March 31, 1997 from $1.9 million,
or 23.8% of net sales, for the three months ended March 31, 1996. Sales and
marketing expense increased to $7.4 million, or 20.8% of net sales, for the nine
10
<PAGE> 11
months ended March 31, 1997 from $5.1 million, or 26.2% of net sales, for the
nine months ended March 31, 1996. These dollar increases were primarily
attributable to the addition of personnel and increased marketing activities.
The Company anticipates continuing to add sales and marketing personnel and
increasing sales and marketing expenses in the near term.
General and administrative. General and administrative expense increased to $1.2
million, or 9.1% of net sales, for the three months ended March 31, 1997 from
$0.9 million, or 11.3% of net sales, for the three months ended March 31, 1996.
General and administrative expense increased to $3.4 million, or 9.6% of net
sales, for the nine months ended March 31, 1997 from $2.3 million, or 12% of net
sales, for the nine months ended March 31, 1996. General and administrative
expense will be impacted by approximately $424,000 per year for five years
commencing March 11, 1997 and by approximately $300,000 per year for seven years
commencing November 30, 1997 due to amortization of goodwill associated with the
acquisitions of the DynaStar product family and Presticom.
While the dollar amounts of operating expenses increased, the Company
was able to reduce expenses as a percentage of sales due primarily to an
increase in sales without a commensurate increase in expense levels. The Company
expects to continue to expand its operations, resulting in potentially
substantial dollar increases in each category of operating expenses. The
Company's operating results and net income will be adversely affected to the
extent that net sales and gross profits do not increase sufficiently to offset
such increased expenses.
Net interest and other income (expense)
Net interest income was $773,216 for the three months ended March
31,1997 compared to net interest income of $230,187 for the three months ended
March 31, 1996 Net interest income was $2,452,803 for the nine months ended
March 31,1997 compared to net interest income of $911,905 for the nine months
ended March 31, 1996. This change was primarily attributable to interest
received on the proceeds from the Company's secondary public offering in June
1996.
Income Taxes
The provision for income taxes for the nine months ended March 31, 1997
was $1,521,760. The provision for income taxes for the nine months ended March
31, 1996 was $132,997. The provision for income taxes differs from the federal
statutory rate due primarily to the foreign income taxes related to the
Company's Canadian subsidiary and to federal and state net operating losses
carried forward from previous periods. A portion of future reductions in the
valuation allowance attributed to tax deductions related to the exercise of
stock options will be recorded in equity and will not be reflected as a
reduction in the tax provision. Subject to certain limitations, the Company has
a research and development tax credit carryforward and federal and state
operating loss carryforwards, a portion of which it expects to apply against its
tax liability for fiscal 1997. If the Company generates profits, the net
operating loss carryforwards and research and development tax credit
carryforward will be utilized and the Company's effective tax rates will
increase.
Inflation/Accounting Pronouncements
Although management cannot accurately anticipate the effect of
inflation on its operations, to date inflation has not had a material effect on
product sales or results of operations. In February 1997, the Financial
Accounting Standards Board issued Statement No. 128, Earning per Share, which is
required to be adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options will be excluded. The
impact on primary and fully diluted earnings per share for the quarters ended
March 31, 1997 and 1996 is not expected to be material.
11
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations primarily from the sale of stock
and sales of the Company's products. Net proceeds from the sale of Common Stock
in the Company's secondary offering in June 1996 were approximately $53.7
million. For the nine months ended March 31, 1997, the Company's operating
activities provided cash of approximately $2.2 million. At March 31, 1997, the
Company had approximately $84 million in working capital, including $64 million
in cash and cash equivalents.
Capital expenditures relating primarily to the purchase of computer
equipment, test equipment, and computer software amounted to approximately $2.5
million for the nine months ended March 31, 1997. The Company currently has no
material commitments for capital expenditures. However, the Company anticipates
spending between $3.0 million and $4.0 million during the next 12 months to
acquire test equipment, computer equipment, and tooling.
The acquisition of the DynaStar product family used cash of
approximately $6,443,800 for the purchase. $350,050 of transaction expenses were
also recorded by the Company.
The Company has a loan and security agreement (the "Loan Agreement")
with Silicon Valley Bank (the "Bank"), which provides for aggregate borrowings
up to a maximum of $3,000,000. Under the Loan Agreement, the Company may borrow
up to the lesser of $3,000,000 or 75% of eligible accounts receivable (the "Line
of Credit"). The Line of Credit expires July 5, 1997. At March 31, 1997 there
was no outstanding balances under the Line of Credit. Interest on the Line of
Credit is payable monthly at a rate equal to the Bank's prime rate, which was
8.50% at March 31, 1997, plus 1.5%. The Loan Agreement provides for the issuance
of letters of credit in an aggregate amount outstanding up to $500,000. Letters
of credit outstanding reduce the amount available under the Line of Credit. At
March 31, 1997 and March 31, 1996, no letters of credit were outstanding.
The Loan Agreement contains certain covenants that, among other things,
require the Company to maintain certain financial ratios and limit the Company's
ability to obtain certain forms of additional debt to repurchase the Company's
stock and pay dividends. The Company believes that available cash, together with
amounts available under its credit facilities and internally generated cash
flow, will be adequate to satisfy its capital requirements for at least the next
twelve months.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. NONE.
ITEM 2. CHANGES IN SECURITIES. NONE.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. NONE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS. NONE
ITEM 5. OTHER INFORMATION.
This Report may contain forward-looking statements that involve a
number of risks and uncertainties including, without limitation, those set forth
in the "Risk Factors" section below. The Company's actual results may differ
materially from any future performance discussed in forward-looking statements.
RISK FACTORS
The following Risk Factors should be considered carefully in addition to the
other information contained in this Report:
Fluctuations in Quarterly Operating Results. The Company has
experienced and may in the future experience significant fluctuations in
revenues and operating results from quarter to quarter as a result of a number
of factors including, without limitation, the volume and timing of orders from,
and shipments to, major customers; market acceptance of the Company's products;
the rate of end-user adoption of voice over Frame Relay; the ability of the
Company's customers, particularly international customers, to obtain financing
for the purchase of the Company's products; changes in pricing policies or price
reductions by the Company or its competitors; variations in the Company's sales
channels or the mix of product sales; the timing of new product announcements
and product introductions by the Company or its competitors; product
obsolescence resulting from new product introductions or changes in customer
demand; the availability and cost of supplies; the financial stability of major
customers; expenses associated with the acquisition of technologies or
businesses; changes in regulatory requirements; the development of public
telecommunications infrastructures, particularly in international markets; and
currency fluctuations. While the Company regularly engages in price discounting,
significant discounts in a particular quarter could adversely affect the results
of operations for such quarter. In addition, significant and continuing
discounts due to competition or other factors could adversely affect the
Company's business, operating results and financial condition. The Company has
generally not experienced seasonality in its net sales, although the Company has
from time to time experienced decreased net sales to customers in Europe in the
third calendar quarter of each year and has experienced some decreases in net
sales in other international markets during certain periods during the year. Due
to all of the foregoing factors, it is likely that in some future periods the
Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
could be materially adversely affected. In the quarter ended March 31, 1996, the
Company's revenues decreased when compared to the preceding quarter, primarily
due to a reduced demand for certain point-to-point products. As a result, the
price of the Company's Common Stock was adversely affected. Quarterly results
are not necessarily indicative of future performance for any particular period,
and there can be no assurance that the Company will attain or sustain growth in
net sales or profitability on a quarterly or annual basis. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Company's sales are primarily through resellers and are typically
characterized by several large orders and a large number of small orders.
Resellers typically do not stock a supply of the Company's products and place
orders with the Company only after they have received orders from their
customers. In addition, the Company's backlog at the beginning of a quarter is
generally insufficient to achieve expected net sales for the quarter. While it
is difficult for the Company to accurately forecast the timing and quantity of
orders on a quarter to quarter basis, the Company intends to increase expenses
with the expectation of future sales. The failure of the Company to accurately
forecast the timing and volume of orders for a quarter would adversely affect
the results of operations for such quarter and, potentially, for future periods.
Fluctuations in quarterly results may result in significant volatility in the
market
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<PAGE> 14
price of the Company's Common Stock. In addition, sales of networking
products fluctuate from time to time based on numerous factors, including
capital spending levels and general economic and market conditions. Future
declines in networking product sales, as a result of general economic conditions
or for any other reason, could have a material adverse effect on the Company's
business, operating results and financial condition.
Limited History of Operations and Profitability. The Company was
organized in May 1987 and commenced shipments of its first product in October
1988. While the Company first achieved profitability in the fourth calendar
quarter of 1990, it incurred losses in periods subsequent to that time. Due to
the Company's limited history of profitable operations, there can be no
assurance that it will be profitable in future periods. The Company plans to
continue to expand its level of operations, resulting in increased fixed costs
and operating expenses. The Company's operating results and net income will be
adversely affected to the extent that net sales and gross profits do not
increase sufficiently to offset such increased expenses. There can be no
assurance that the Company will be able to maintain or increase net sales or
gross profits. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Technological Change, Changing Markets and New Products. The market
for the Company's products is characterized by rapid technological advances,
evolving industry standards, frequent new product introductions and
enhancements, and significant price competition. The introduction of products
involving superior or alternative technologies, the emergence of new industry
standards, governmental regulation or changes in a market's pricing structure
could render the Company's existing products, as well as products currently
under development, obsolete and unmarketable in one or more markets which could
adversely affect the Company's business, operating results and financial
condition. The Company has experienced instances where one or more of those
factors resulted in a significant decrease in sales of the Company's products in
particular markets. For example, a rapid decline in the market for certain
point-to-point products resulted in reduced sales and an inventory write-down in
the quarter ended December 31, 1995.
The market for Frame Relay products, especially access devices such as
those produced by the Company, is currently emerging and may not continue to
develop, whether as a result of competition, technological change, market forces
or otherwise. In addition, the transmission of voice over a Frame Relay network
is a new application that has not received widespread acceptance. The Company's
future operating results and ability to implement its strategy successfully will
be dependent in part upon the development and growth of the public Frame Relay
services market for voice, data and integrated applications. Public carriers
such as AT&T and MCI offer services which may adversely affect the adoption of
services and products based on Frame Relay technologies. For example, the
availability of inexpensive voice communications services in the United States
may reduce or eliminate the cost advantages of voice over Frame Relay services
in the United States. If the costs of telecommunications services in the United
States and other markets decline, the market for the Company's products may
either not materialize or could be adversely affected. There can be no assurance
that such markets will develop. Even if such markets develop, the Company's
success will depend, in part, on the viability of the Company's products in such
markets, and the ability of the Company to develop effective distribution
channels to address these markets. There can be no assurance that the Company's
products will be widely accepted in this market. In addition, the widespread
acceptance of Asynchronous Transfer Mode ("ATM"), an alternative fast packet
technology, could have a material adverse effect on the Company's ability to
obtain market acceptance of its Frame Relay products. Failure of the Company's
products to achieve market acceptance could have a material adverse effect on
the Company's business, operating results and financial condition.
The Company believes its future success will depend, in part, upon its
ability to expand and enhance the features of its existing products and to
develop or acquire and introduce new products designed to meet changing customer
needs on a cost-effective and timely basis. Failure by the Company to respond on
a timely basis to technological developments, changes in industry standards or
customer requirements, or any significant delay in product development or
introduction, could have a material adverse effect on the Company's business,
operating results and financial condition. There can be no assurance that the
Company will respond effectively to technological changes or new product
announcements by others or that the Company will be able to successfully develop
and market new products or product enhancements and that any new product or
product enhancement will gain market acceptance. The Company expects that the
average sales prices of its products will decline in the future primarily due to
increased competition and the introduction of new technologies. Accordingly, the
Company's ability to maintain or increase net sales and gross margins will
depend in part upon its ability to reduce its cost of sales, to increase unit
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<PAGE> 15
sales volumes of existing products and to introduce and sell new products. There
can be no assurance that the Company will be able to reduce its cost of sales in
the future to respond effectively to declining sales prices.
The Company budgets research and development expenditures based on
planned product introductions and enhancements; however, actual expenditures may
significantly differ from budgeted expenditures. Inherent in the product
development process are a number of risks. The development of new,
technologically advanced products and product enhancements is a complex and
uncertain process requiring high levels of innovation, as well as the accurate
anticipation of technological and market trends. There can be no assurance that
the Company will successfully identify, develop or introduce new products or
product enhancements. Products such as those offered by the Company may contain
undetected or unresolved software errors when they are first introduced or as
new versions are released. There can be no assurance that, despite extensive
testing by the Company, software errors will not be found in new products or
upgrades after commencement of commercial shipments, resulting in delay in or
loss of market acceptance. Future delays in the introduction or shipment of new
or enhanced products, the inability of such products to gain market acceptance
or problems associated with new product transitions could adversely affect the
Company's operating results, particularly on a quarterly basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Substantial Competition. The market for the Company's products is
highly competitive. The Company competes directly domestically and
internationally with a variety of companies offering Frame Relay access products
including FastComm, Memotec, MICOM, Motorola, Sync and other companies. The
Company anticipates competition from manufacturers of Frame Relay switches, such
as Cisco Systems Inc., which is also a supplier to and customer of the Company.
The Company expects substantial additional competition from existing
competitors and from a number of other companies which may enter the Company's
existing or future markets. Many of the Company's current and potential
competitors have substantially greater name recognition and financial,
marketing, technical and other resources than the Company. Many of these
companies sell directly to end-users, which the Company believes may provide a
competitive edge over the Company when marketing either similar products or
alternative networking solutions. Consolidations in the industry, such as the
acquisition of StrataCom by Cisco Systems Inc. and MICOM by Northern Telecom
Limited, could enhance the capabilities of the Company's competitors. There can
be no assurance that the Company will be able successfully to compete against
either current or potential competitors or that competition will not have a
material adverse effect on the Company's business, operation results and
financial condition.
Integration of Acquisitions. A component of the Company's strategy is
to acquire complementary technologies and businesses. Such acquisitions involve
significant risks. The Company acquired Presticom Inc. in November 1995,
DeltaComm Corporation in December 1996, and the DynaStar product family in March
1997. To obtain benefits from these acquisitions, the Company must successfully
integrate the acquired companies with the Company. Due in part to consolidation
in the Company's industry, the Company may in the future pursue acquisitions of
related businesses, products or technologies. Acquisitions by the Company may
result in potentially dilutive issuances of equity securities, the incurrence of
additional debt, the creation and amortization of goodwill and the incurrence of
acquisition related expenses, all of which could adversely affect the Company's
results of operations. In addition, acquisitions involve numerous risks,
including difficulties in the assimilation of the operations, technologies and
products of the acquired companies; the diversion of management's attention from
other business concerns; risks associated with the Company's entering markets in
which it has no or limited direct prior experience; and the potential loss of
key employees of the acquired company. In the event that an acquisition does
occur, no assurances can be given as to the effect thereof on the Company's
business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Customer Concentration. A small number of customers have historically
accounted for a substantial portion of the Company's net sales. The Company's
five largest customers accounted for 46% and 41% of the Company's net sales for
the fiscal year ended June 30, 1996 and the nine months ended March 31, 1997,
respectively. There can be no assurance that a major customer will not reduce or
delay the amount of products ordered from the Company or significantly change
the terms upon which the Company and such customer do business. Any such
reduction, delay or change could have a material adverse effect on the Company's
business. In general, the Company's major customers
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<PAGE> 16
either sell or deploy the Company's products outside the United States, which
subjects the Company to a variety of other risks. See "International Sales,
Tariffs and Regulatory Matters."
Management of Growth. The Company has recently experienced growth in
its operations, both internally and as a result of acquisitions. During the last
12 months, the Company has significantly increased the number of sales,
marketing, engineering and other personnel and expects to continue to increase
the number of its personnel. The Company's growth has placed, and will continue
to place, strain on the Company's managerial, operational and financial
resources and systems and controls. This is particularly true with respect to
sales in international markets since each specific international market has its
own unique regulatory, financial, technical, customer and other characteristics
which often require the Company to devote significant resources to sell products
in that country. In addition, the Company engages from time to time in customer
development activities for customers which require the allocation of significant
resources. The Company's future operating results will depend on its ability to
attract, hire and retain skilled employees, and to expand and improve the
Company's operational, product development, management information and financial
systems and controls. The Company continues to upgrade its management
information and product development systems. The Company's failure to manage
growth effectively, successfully upgrade its systems or to hire, retain and
integrate necessary qualified personnel could adversely affect the Company's
business, operating results and financial condition.
International Sales, Tariff and Regulatory Matters. Sales of the
Company's products to customers outside of North America accounted for
approximately 66% and 63% of the Company's net sales for the fiscal years ended
June 30, 1995 and June 30, 1996, respectively, and 76% for the nine months ended
March 31, 1997. In addition, the Company believes that a majority of its sales
to customers inside North America represent sales of products which are used or
resold in markets outside of North America. The Company expects that
international sales will continue to account for a significant portion of the
Company's net sales in future periods. International sales are subject to
certain inherent risks, including unexpected changes in regulatory requirements
and tariffs, difficulties in staffing and managing foreign operations,
potentially adverse tax consequences and problems in collecting accounts
receivable. A significant number of the Company's products are sold or installed
in countries, including several in South America, where political or economic
issues could adversely affect the purchasing decision of the customer. Although
the Company's sales are currently denominated in U.S. dollars, fluctuations in
currency exchange rates could cause the Company's products to become relatively
more expensive to customers in a particular country, leading to a reduction in
sales or profitability in that country. Furthermore, future international
activity may result in foreign currency denominated sales and, in such event,
gains and losses on the conversion to U.S. dollars of accounts receivable and
accounts payable arising from international operations may contribute to
fluctuations in the Company's results of operations. The financial stability of
foreign markets could also affect the Company's international sales. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"
Rates for telecommunications services are governed by tariffs of
licensed carriers that are subject to regulatory approval. Future changes in
these tariffs could have a material adverse effect on the Company's business.
For example, should tariffs for public switched digital services increase in the
future relative to tariffs for private leased services, the cost-effectiveness
of certain of the Company's products would be reduced, and its business and
results of operations could be adversely affected. In addition, the Company's
products must meet standards and receive certification for connection with the
public telecommunications networks of a country prior to their sale in such
country. In the United States, for example, the Company's products must comply
with certain regulations promulgated by the Federal Communications Commission,
and to date all of the Company's products have so complied. The Company's
products must also be certified by domestic telecommunications carriers. In
foreign countries, the Company's products are subject to a wide variety of
governmental review and certification requirements. From time to time, foreign
governments have altered certification or regulatory requirements which has
adversely impacted the Company's ability to sell products in such markets. Any
future inability to obtain on a timely basis or retain domestic certificate or
foreign regulatory approvals could have a material adverse effect on the
Company's business, operating results and financial condition.
Reliance on Third Party Suppliers. The Company relies on third party
suppliers who supply the components used in the Company's products. The
unavailability of certain components from current suppliers, especially
components custom designed for the Company, could result in delays in the
shipment of the Company's products as
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<PAGE> 17
well as additional expenses associated with obtaining and qualifying a new
supplier. In addition, certain key components used in the Company's products are
available only from single sources and the Company does not have long term
contracts ensuring the supply of such components. As the Company typically
maintains less than 90 days supply of such components, there can be no assurance
that components will be available to meet the Company's future requirements at
favorable prices, if at all. The Company's inability to obtain components in a
timely manner would materially and adversely affect the Company's business and
financial condition. In addition, any significant increase in component prices
could also adversely affect the Company's results of operations.
The Company resells Frame Relay switches purchased from Cascade.
Although the Company believes similar products can be purchased from other
sources, the process of qualifying replacement suppliers, generating the
supporting documentation, performing system level integration, obtaining
standards-compliant approval for its products, and retraining sales and
marketing channels would require a significant amount of time and expense. The
Company's ability to offer an integrated, cost-effective networking solution is
based, in part, on its ability to sell such products as part of its present
line. The Company's inability to source these products at satisfactory quality
and quantity levels and with the appropriate lead time would adversely affect
the Company's business and operations.
Reliance on Indirect Distribution. The Company markets and sells
products domestically and internationally primarily through resellers, such as
distributors, value-added resellers and system integrators. The number of
qualified resellers in certain countries is limited. Resellers typically are not
effective at selling the Company's products until they have been trained and
have successfully completed several sales. The Company's performance depends in
part on attracting, retaining and motivating such resellers. Certain of the
Company's resellers also act as resellers for competitors of the Company and
could devote greater effort and resources to marketing competitive products. The
Company's resellers are generally provided discounts and, occasionally, are
entitled to special pricing or distribution arrangements, the effect of which is
to decrease the Company's gross margins. While the Company has contractual
relationships with many of its resellers, these agreements do not require the
resellers to purchase the Company's products and can generally be terminated on
short notice by the reseller. Resellers in many countries have title to the
governmental authorizations and certifications necessary to market the Company's
products in such country, and there is no assurance that, in the event a
reseller ceased marketing the Company's products, the reseller would transfer
such authorization or certification to the Company or that the expense and delay
associated with obtaining a new authorization or certification would not
adversely affect the Company's business and operations in such country. There
can be no assurance that resellers will continue to market the Company's
products or devote the resources necessary to provide effective sales and
marketing support to the Company. In addition, the Company is dependent on the
continued viability and financial stability of its resellers, many of which are
small organizations with limited capital. The loss of any key reseller could
adversely affect the Company's business.
The Company's sales through OEMs who purchase custom products
decreased from 17.7% for the fiscal year ended June 30, 1996 to 4.3% for the
nine months ended March 31, 1997. The Company does not classify private label
sales of standard products as OEM sales. In fiscal 1996, virtually all of the
Company's OEM sales were generated by sales of custom voice cards to Scientific
Atlanta for use in its satellite based communication system. The Company does
not believe it will sell additional OEM voice cards to Scientific Atlanta. OEM
and private label business is subject to risks such as contract termination,
products developed by a third party or by the third party's internal development
team, change in corporate ownership, business direction or product mix by the
third party, and assumption of manufacturing rights by the third party. There
can be no assurance that these factors will not adversely affect the Company's
business, operating results and financial condition.
Dependence on Proprietary Technology. The Company's future success
will depend in part on its proprietary technology. In addition, certain
technology licensed from third parties is incorporated in the Company's
products. In particular, the Company licenses certain of its voice compression
algorithms, the right to commercialize its SkyFrame products, components of its
network management system software and other software and technology embedded in
the hardware incorporated into the Company's products pursuant to nonexclusive
license agreements. The failure of the Company to retain such licenses or obtain
new licenses as improvements in such technology are developed and new technology
is introduced could adversely affect the Company's business. The Company does
not currently hold any patents. The Company relies principally on copyright,
trade secret and contract law to protect its proprietary technology. There can
be no assurance that such measures are adequate to protect the Company's
proprietary technology. The Company has substantial international operations and
the laws of foreign countries treat
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the protection of proprietary rights differently from, and may not protect the
Company's proprietary rights to the same extent as do, laws in the United
States.
Since patent applications in the United States are not publicly
disclosed until the patent is issued, applications may have been filed which, if
issued as patents, would relate to the Company's products. In addition, the
Company has never conducted a comprehensive patent search relating to the
technology used in its products. Accordingly, there can be no assurance that
third parties will not assert infringement claims against the Company in the
future or that such claims will not be successful. The Company could incur
substantial costs in defending itself and its customers against any such claims,
regardless of the merits of such claims. Parties making such claims may be able
to obtain injunctive or other equitable relief which could effectively block the
Company's ability to sell its products in the United States and abroad, and
could result in an award of substantial damages. In the event of a successful
claim of infringement, the Company, its customers and end-users may be required
to obtain one or more licenses from third parties. The Company has in the past,
and may in the future, pay significant sums to obtain licenses from third
parties to avoid the costs and uncertainties associated with defending a
potential claim. There can be no assurance that the Company or its customers
could obtain necessary licenses from third parties at a reasonable cost or at
all. The defense of any lawsuit could result in time consuming and expensive
litigation, damages, license fees, royalty payments and restrictions on the
Company's ability to sell its products, any of which could have a material
adverse effect on the Company's business, operating results and financial
condition.
Dependence on Key Personnel. The success of the Company is dependent
in large part on its ability to retain its executive officers, the loss of one
or more of whom could adversely affect the Company's business. The Company is
also dependent on other members of management and its sales and technical
personnel. The Company believes that its future success will depend in large
part upon its continued ability to attract, retain and motivate highly skilled
employees, who are in great demand. There can be no assurance that the Company
will be able to do so.
Future Capital Needs; Uncertainty of Additional Funding. The Company
anticipates that available cash together with amounts available under its credit
facilities and cash flow from operations, will be adequate to satisfy its
capital requirements through at least the next 12 months. The Company's future
capital requirements will depend on many factors including, but not limited to,
the cost of acquisitions of businesses, products and technologies, the levels at
which the Company maintains inventory, the market acceptance of the Company's
products, the levels of promotion and advertising required to launch such
products and attain a competitive position in the marketplace, and the extent to
which the Company invests in new technology and improvements to its existing
technology. To the extent that existing resources and future earnings are
insufficient to fund the Company's activities, the Company may need to raise
additional funds through public or private financings including equity
financings. If additional funds are raised through the issuance of equity
securities, the percentage ownership of then current stockholders of the Company
will be reduced and such equity securities may have rights, preferences or
privileges senior to those of the holders of the Company's Common Stock. No
assurance can be given that additional financing will be available or that, if
available, it can be obtained on terms favorable to the Company and its
stockholders. The Company's lack of authorized Preferred Stock could hinder the
Company's ability to obtain financing. If adequate funds are not available, the
Company may be required to delay, scale back or eliminate some or all of its
research and development, to curtail its operations significantly or to obtain
funds through arrangements with strategic partners or others that may require
the Company to relinquish rights to certain of its technologies or potential
markets. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Volatility of Stock Price. The trading price of the Common Stock has
undergone significant fluctuations and is expected to continue to be subject to
significant fluctuations in response to variations in quarterly operating
results, the gain or loss of significant contracts, changes in management,
announcements of technological innovations or new products by the Company or its
competitors, legislative or regulatory changes, general trends in the industry
and other events or factors. In addition, the stock market has experienced
extreme price and volume fluctuations which have particularly affected the
market price for many high technology companies and which have often been
unrelated to the operating performance of these companies. These broad market
fluctuations may adversely affect the market price of the Company's Common
Stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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Potential Effect of Anti-Takeover Provisions. The Company's
Certificate of Incorporation provides for a Board of Directors with staggered
terms which may discourage or prevent certain types of transactions involving an
actual or potential change in control of the Company, including transactions in
which the stockholders might otherwise receive a premium for their shares over
then current market prices. Certain provisions of Delaware law applicable to the
Company, including Section 203 of the Delaware General Corporation Law, could
have the effect of delaying, deferring or preventing a change of control of the
Company. It is possible that the staggered board and Section 203 of the Delaware
General Corporation Law may have the effect of delaying, deferring or preventing
a change of control of the Company, may discourage bids for the Company's Common
Stock at a premium over the market price of the Common Stock and may adversely
affect the market price of the Common Stock.
Lack of Dividends. The Company has never paid cash dividends on shares
of its capital stock. The Company currently intends to retain any future
earnings in its business and does not anticipate paying any cash dividends in
the future. Furthermore the Company's agreement with its lender currently limits
the Company's ability to pay cash dividends.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS:
<TABLE>
<CAPTION>
Exhibit No.
<S> <C>
3.1 Certificate of Incorporation of the Company. Incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1, Registration No. 33-90394.
3.2 Bylaws of the Company. Incorporated by reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1, Registration No. 33-90394
4.1 Specimen certificate representing shares of Common Stock of the Company. Incorporated by reference
to Exhibit 4.1 to the Company's Registration Statement on Form S-1, Registration No. 33-90394.
10.1 Standard Industrial/Commercial Multi-Tenant Lease-Modified Net dated May 23, 1994 by and between
Herman Bennett and the Company. Incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.
10.2 Master Lease Agreement dated January 11, 1994 by and between the Company and Leasetec Corporation,
as amended and supplemented. Incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.
10.3 Loan and Security Agreement dated March 23, 1993, as amended, between Silicon Valley Bank and the
Company and related agreements and documents. Incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.
10.4 Loan and Security Agreement (Exim) dated May 11, 1994, as amended, between Silicon Valley Bank and the
Company and related agreements and documents. Incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.
10.5 Form of Indemnification Agreement. Incorporated by reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.
10.6 1987 Stock Option Plan (the "1987 Plan"). Incorporated by reference to Exhibit 10.7 to the
Company's Registration Statement on Form S-1, Registration No. 33-90394.
10.7 1993 Stock Option Plan as amended (the "1993 Plan"). Incorporated by reference to Exhibit 10.11 to
the Company's Registration Statement on Form S-1, Registration No. 33-90394.
10.8 Form of Notice of Grant of Stock Option generally used in connection with the 1993 Plan.
Incorporated by reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1,
Registration No. 33-90394.
10.9 Form of 1993 Stock Option Agreement generally used in connection with the 1993 Plan. Incorporated by
reference to Exhibit 10.13 to the Company's Registration Statement on Form S-1, Registration No. 33-90394.
10.10 Form of 1993 Stock Purchase Agreement generally used in connection with the 1993 Plan. Incorporated by
reference to Exhibit 10.14 to the Company's Registration Statement on Form S-1, Registration No. 33-90394.
</TABLE>
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<TABLE>
<S> <C>
10.11* Cooperation and Supply Agreement dated as of November 19, 1993 by and between StrataCom, Inc. and
the Company. Incorporated by reference to Exhibit 10.15 to the Company's Registration Statement on
Form S-1, Registration No. 33-90394.
10.12 Technical Information Escrow Agreement dated July 18, 1994 by and between StrataCom, Inc., the
Indianapolis Vault Company and the Company. Incorporated by reference to Exhibit 10.16 to the
Company's Registration Statement on Form S-1, Registration No. 33-90394.
10.13 Memorandum of Agreement dated January 19, 1995 by and between the Company, Promon International,
Inc. and Pacific Technology Fund. Incorporated by reference to Exhibit 10.17 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.
10.14 Shareholder Rights Agreement dated as of April 23, 1992, as amended by Amendment No. 1 to
Shareholder Rights Agreement dated as of August 11, 1992, Amendment No. 2 to Shareholder Rights
Agreement dated as of October 19, 1992, Amendment No. 3 to Shareholder Rights Agreement dated as of
December 18, 1992, Amendment No. 4 to Shareholder Rights Agreement dated as of March 15, 1993,
Amendment No. 5 to Shareholder Rights Agreement dated as of November 16, 1993, and Amendment No. 6
to Shareholder Rights Agreement dated as of December 15, 1994. Incorporated by reference to Exhibit
10.18 to the Company's Registration Statement on Form S-1, Registration No. 33-90394.
10.15 Virtual DAMA Agreement dated December 31, 1993, by and between the Company and Promon Technical
Services, Inc., as amended. Incorporated by reference to Exhibit 10.19 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.
10.16 1995 Stock Option/Stock Issuance Plan (the "1995 Plan"). Incorporated by reference to Exhibit 99.1
to the Company's Registration Statement on Form S-8, Registration No. 33-80007.
10.17 Form of Stock Option Agreement generally used in connection with the Discretionary Option Grant
Program of the 1995 Plan. Incorporated by reference to Exhibit 99.3 to the Company's Registration
Statement on Form S-8, Registration No. 33-80007.
10.18 Form of Addendum to Stock Option Agreement (Limited Stock Appreciation Right). Incorporated by
reference to Exhibit 99.4 to the Company's Registration Statement on Form S-8, Registration No.
33-80007.
10.19 Form of Addendum to Stock Option Agreement (Involuntary Termination Following Change of Control).
Incorporated by reference to Exhibit 99.5 to the Company's Registration Statement on Form S-8,
Registration No. 33-80007.
10.20 Form of Addendum to Stock Option Agreement (Special Tax Elections). Incorporated by reference to
Exhibit 99.6 to the Company's Registration Statement on Form S-8, Registration No. 33-80007.
10.21 Form of Automatic Stock Option Agreement. Incorporated by reference to Exhibit 99.9 to the
Company's Registration Statement on Form S-8, Registration No. 33-80007.
10.22 Form of Stock Issuance Agreement generally used in connection with the Discretionary Option Grant
Program of the 1995 Plan. Incorporated by reference to Exhibit 99.10 to the Company's Registration
Statement on Form S-8, Registration No. 33-80007.
10.23 Form of Addendum to Stock Issuance Agreement (Involuntary Termination Following Change of Control).
Incorporated by reference to Exhibit 99.11 to the Company's Registration Statement on Form S-8,
Registration No. 33-80007.
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C>
10.24 Form of Addendum to Stock Issuance Agreement (Special Tax Elections). Incorporated by reference to
Exhibit 99.12 to the Company's Registration Statement on Form S-8, Registration No. 33-80007.
10.25 Employee Stock Purchase Plan. Incorporated by reference to Exhibit 99.13 to the Company's
Registration Statement on Form S-8, Registration No. 33-80007.
10.26 The Share Purchase Agreement By and Among the Company, Canada Inc. and Certain Presticom
Stockholders, dated as of November 24, 1995. Incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K, dated November 30, 1995.
10.27 License Agreement dated May 8, 1996, by and between the Company and SkyData, Inc. Incorporated by
reference to Exhibit 10.32 to the Company's Registration Statement on Form S-3, Registration
No. 333-04183.
10.28 1997 Non-Executive Officer Stock Option/Stock Issuance Plan.
10.29 Form of Notice of Grant of Stock Option generally used in connection with 1997 Plan.
10.30 Form of Stock Option Agreement generally used in connection with 1997 Plan.
10.31 Form of Addendum to Stock Option Agreement.
11.1 Statement Regarding Computation of Earnings Per Share.
27.1 Financial Data Schedule.
</TABLE>
*The Company has received confidential treatment for portions of this document
previously filed with the Commission.
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the quarter ended March
31, 1997
22
<PAGE> 23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Report on Form 10-Q to be signed on
its behalf by the undersigned, thereunto duly authorized
Date: May 15, 1997 ACT NETWORKS, INC.
/s/ Melvin L Flowers
--------------------
Melvin L. Flowers
Vice President, Finance and Administration,
and Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
23
<PAGE> 24
EXHIBIT INDEX
EXHIBIT NO.
<TABLE>
<S> <C>
10.28 1997 Non-Executive Officer Stock Option/Stock Issuance Plan.
10.29 Form of Notice of Grant of Stock Option generally used in connection with 1997 Plan.
10.30 Form of Stock Option Agreement generally used in connection with 1997 Plan.
10.31 Form of Addendum to Stock Option Agreement.
11.1 Statement Regarding Computation of Earnings Per Share.
27.1 Financial Data Schedule.
</TABLE>
24
<PAGE> 1
Exhibit 10.28
ACT NETWORKS, INC.
1997 NON-EXECUTIVE OFFICER STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1997 Non-Executive Officer Stock Option/Stock Issuance
Plan is intended to promote the interests of ACT Networks, Inc., a Delaware
corporation, by providing eligible persons with the opportunity to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Corporation as an incentive for them to remain in the service of the
Corporation.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two separate equity
programs:
(i) the Discretionary Option Grant Program under
which eligible persons may, at the discretion of the Plan
Administrator, be granted options to purchase shares of Common
Stock, and
(ii) the Stock Issuance Program under which eligible
persons may, at the discretion of the Plan Administrator, be
issued shares of Common Stock directly, either through the
immediate purchase of such shares or as a bonus for services
rendered the Corporation (or any Parent or Subsidiary).
B. The provisions of Articles One and Four shall apply
to all equity programs under the Plan and shall accordingly govern the interests
of all persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Committee or
the Board may retain the power to administer the Plan.
<PAGE> 2
B. Members of the Committee shall serve for such period
of time as the Board may determine and may be removed by the Board at any time.
The Board may also at any time terminate the functions of any Committee and
reassume all powers and authority previously delegated to such committee.
C. The Plan Administrator shall have full power and
authority (subject to the provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for proper administration of the Plan and
to make such determinations under, and issue such interpretations of, the
provisions of such programs and any outstanding options or stock issuances
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator within the scope of its administrative functions under the Plan
shall be final and binding on all parties who have an interest in the Plan under
its jurisdiction or any option or stock issuance thereunder.
D. Service on the Committee shall constitute service as
a Board member, and members of such committee shall accordingly be entitled to
full indemnification and reimbursement as Board members for their service on
such committee. No member of the Committee shall be liable for any act or
omission made in good faith with respect to the Plan or any option grants or
stock issuances under the Plan.
IV. ELIGIBILITY
A. The persons eligible to participate in the Plan are
as follows:
(i) Employees (other than officers of the
Corporation), and
(ii) consultants and other independent advisors who
provide services to the Corporation (or any Parent or
Subsidiary).
B. The Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority (subject to the
provisions of the Plan) to determine, (i) with respect to the option grants
under the Discretionary Option Grant Program, which eligible persons are to
receive option grants, the time or times when such option grants are to be made,
the number of shares to be covered by each such grant, the time or times when
each option is to become exercisable, the vesting schedule (if any) applicable
to the option shares and the maximum term for which the option is to remain
outstanding and (ii) with respect to stock issuances under the Stock Issuance
Program, which eligible persons are to receive stock issuances, the time or
times when such issuances are to be made, the number of shares to be issued to
each Participant, the vesting schedule (if any) applicable to the issued shares
and the consideration to be paid for such shares.
2.
<PAGE> 3
C. The Plan Administrator shall have the absolute
discretion either to grant options in accordance with the Discretionary Option
Grant Program or to effect stock issuances in accordance with the Stock Issuance
Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. The maximum number of shares of Common
Stock reserved for issuance over the term of the Plan shall not exceed 250,000
shares.
B. Shares of Common Stock subject to outstanding options
shall be available for subsequent issuance under the Plan to the extent those
options expire or terminate for any reason prior to exercise in full. Unvested
shares issued under the Plan and subsequently cancelled or repurchased by the
Corporation, at the original issue price paid per share, pursuant to the
Corporation's repurchase rights under the Plan, shall be added back to the
number of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent option
grants or direct stock issuances under the Plan. However, should the exercise
price of an option under the Plan be paid with shares of Common Stock or should
shares of Common Stock otherwise issuable under the Plan be withheld by the
Corporation in satisfaction of the withholding taxes incurred in connection with
the exercise of an option or the vesting of a stock issuance under the Plan,
then the number of shares of Common Stock available for issuance under the Plan
shall be reduced by the gross number of shares for which the option is exercised
or which vest under the stock issuance, and not by the net number of shares of
Common Stock issued to the holder of such option or stock issuance.
C. Should any change be made to the Common Stock by
reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of securities
issuable under the Plan and (ii) the number and/or class of securities and the
exercise price per share in effect under each outstanding option in order to
prevent the dilution or enlargement of benefits thereunder. The adjustments
determined by the Plan Administrator shall be final, binding and conclusive.
3.
<PAGE> 4
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be a Non-Statutory Option and shall be
evidenced by one or more documents in the form approved by the Plan
Administrator; provided, however, that each such document shall comply with the
terms specified below.
A. Exercise Price.
1. The exercise price per share shall be fixed
by the Plan Administrator but shall not be less than eighty-five percent (85%)
of the Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately
due upon exercise of the option and shall, subject to the provisions of Section
I of Article Four and the documents evidencing the option, be payable in one or
more of the forms specified below:
(i) cash or check made payable to the
Corporation,
(ii) shares of Common Stock held for the
requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting
purposes and valued at Fair Market Value on the
Exercise Date, or
(iii) to the extent the option is exercised
for vested shares, through a special sale and
remittance procedure pursuant to which the Optionee
shall concurrently provide irrevocable written
instructions to (a) a Corporation-designated
brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of
the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise
price payable for the purchased shares plus all
applicable Federal, state and local income and
employment taxes required to be withheld by the
Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in
order to complete the sale transaction.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. Exercise and Term of Options. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by
4.
<PAGE> 5
the Plan Administrator and set forth in the documents evidencing the option.
However, no option shall have a term in excess of ten (10) years measured from
the option grant date.
C. Effect of Termination of Service.
1. The following provisions shall govern the exercise
of any options held by the Optionee at the time of cessation of Service or
death:
(i) Any option outstanding at the time of
the Optionee's cessation of Service for any reason
shall remain exercisable for such period of time
thereafter as shall be determined by the Plan
Administrator and set forth in the documents
evidencing the option, but no such option shall be
exercisable after the expiration of the option term.
(ii) Any option exercisable in whole or in
part by the Optionee at the time of death may be
subsequently exercised by the personal representative
of the Optionee's estate or by the person or persons
to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of
descent and distribution.
(iii) During the applicable post-Service
exercise period, the option may not be exercised in
the aggregate for more than the number of vested
shares for which the option is exercisable on the
date of the Optionee's cessation of Service. Upon the
expiration of the applicable exercise period or (if
earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding
for any vested shares for which the option has not
been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service,
terminate and cease to be outstanding to the extent
it is not exercisable for vested shares on the date
of such cessation of Service.
(iv) Should the Optionee's Service be
terminated for Misconduct, then all outstanding
options held by the Optionee shall terminate
immediately and cease to be outstanding.
(v) In the event of an Involuntary
Termination following a Corporate Transaction, the
provisions of Section III of this Article Two shall
govern the period for which the outstanding options
are to remain exercisable following the Optionee's
cessation of Service and shall supersede any
provisions to the contrary in this section.
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
5.
<PAGE> 6
(i) extend the period of time for which the
option is to remain exercisable following the
Optionee's cessation of Service from the period
otherwise in effect for that option to such greater
period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of
the option term, and/or
(ii) permit the option to be exercised,
during the applicable post-Service exercise period,
not only with respect to the number of vested shares
of Common Stock for which such option is exercisable
at the time of the Optionee's cessation of Service
but also with respect to one or more additional
installments in which the Optionee would have vested
under the option had the Optionee continued in
Service.
D. Stockholder Rights. The holder of an option shall
have no stockholder rights with respect to the shares subject to the option
until such person shall have exercised the option, paid the exercise price and
become a holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have
the discretion to grant options which are exercisable for unvested shares of
Common Stock. Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right to repurchase, at the exercise
price paid per share, any or all of those unvested shares. The terms upon which
such repurchase right shall be exercisable (including the period and procedure
for exercise and the appropriate vesting schedule for the purchased shares)
shall be established by the Plan Administrator and set forth in the document
evidencing such repurchase right.
F. Limited Transferability of Options. During the
lifetime of the Optionee, Options shall be exercisable only by the Optionee and
shall not be assignable or transferable other than (i) by will or by the laws of
descent and distribution following the Optionee's death or (ii) to one or more
members of the Optionee's immediate family or to a trust established exclusively
for one or more such family members in connection with the Optionee's estate
plan. The assigned portion may only be exercised by the person or persons who
acquire a proprietary interest in the option pursuant to the assignment. The
terms applicable to the assigned portion shall be the same as those in effect
for the option immediately prior to such assignment and shall be set forth in
such documents issued to the assignee as the Plan Administrator may deem
appropriate.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each
outstanding option shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Corporate Transaction,
become fully exercisable for all of the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. However, an outstanding option shall
6.
<PAGE> 7
NOT so accelerate if and to the extent: (i) such option is, in connection with
the Corporate Transaction, either to be assumed by the successor corporation (or
parent thereof) or to be replaced with a comparable option to purchase shares of
the capital stock of the successor corporation (or parent thereof), (ii) such
option is to be replaced with a cash incentive program of the successor
corporation which preserves the spread existing on the unvested option shares at
the time of the Corporate Transaction and provides for subsequent payout in
accordance with the same vesting schedule applicable to such option or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant. The determination of option
comparability under clause (i) above shall be made by the Plan Administrator,
and its determination shall be final, binding and conclusive.
B. All outstanding repurchase rights shall also
terminate automatically, and the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event of any Corporate
Transaction, except to the extent: (i) those repurchase rights are to be
assigned to the successor corporation (or parent thereof) in connection with
such Corporate Transaction or (ii) such accelerated vesting is precluded by
other limitations imposed by the Plan Administrator at the time the repurchase
right is issued.
C. Immediately following the consummation of the
Corporate Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to (i) the number and
class of securities available for issuance under the Plan on both an aggregate
and per Optionee basis following the consummation of such Corporate Transaction
and (ii) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
the same.
E. Any options which are assumed or replaced in the
Corporate Transaction and do not otherwise accelerate at that time shall
automatically accelerate (and any of the Corporation's outstanding repurchase
rights which do not otherwise terminate at the time of the Corporate Transaction
shall automatically terminate and the shares of Common Stock subject to those
terminated rights shall immediately vest in full) in the event the Optionee's
Service should subsequently terminate by reason of an Involuntary Termination
within eighteen (18) months following the effective date of such Corporate
Transaction. Any options so accelerated shall remain exercisable for
fully-vested shares until the earlier of (i) the expiration of the option term
or (ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination.
7.
<PAGE> 8
F. The Plan Administrator shall have the discretion,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to (i) provide for the automatic acceleration of one
or more outstanding options (and the automatic termination of one or more
outstanding repurchase rights with the immediate vesting of the shares of Common
Stock subject to those rights) in connection with a Change in Control or (ii) to
condition such acceleration upon the Involuntary Termination of the Optionee's
Service within a specified period (not to exceed eighteen (18) months) following
the effective date of a Change in Control. Any options so accelerated shall
remain fully exercisable until the expiration or sooner termination of the
option term.
G. The grant of options under the Discretionary Option
Grant Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
III. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected option holders,
the cancellation of any or all outstanding options under the Discretionary
Option Grant Program and to grant in substitution new options covering the same
or different number of shares of Common Stock but with an exercise price per
share based on the Fair Market Value per share of Common Stock on the new option
grant date.
IV. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and
authority to grant to selected Optionees tandem stock appreciation rights.
B. The following terms shall govern the grant and
exercise of tandem stock appreciation rights:
(i) One or more Optionees may be granted the
right, exercisable upon such terms as the Plan
Administrator may establish, to elect between the
exercise of the underlying option for shares of
Common Stock and the surrender of that option in
exchange for a distribution from the Corporation in
an amount equal to the excess of (a) the Fair Market
Value (on the option surrender date) of the number of
shares in which the Optionee is at the time vested
under the surrendered option (or surrendered portion
thereof) over (b) the aggregate exercise price
payable for such shares.
(ii) No such option surrender shall be
effective unless it is approved by the Plan
Administrator, either at the time of the option
surrender or at any earlier time. If the surrender is
so approved, then the
8.
<PAGE> 9
distribution to which the Optionee shall be entitled
may be made in shares of Common Stock valued at Fair
Market Value on the option surrender date, in cash,
or partly in shares and partly in cash, as the Plan
Administrator shall in its sole discretion deem
appropriate.
(iii) If the surrender of an option is
rejected by the Plan Administrator, then the Optionee
shall retain whatever rights the Optionee had under
the surrendered option (or surrendered portion
thereof) on the option surrender date and may
exercise such rights at any time prior to the later
of (a) five (5) business days after the receipt of
the rejection notice or (b) the last day on which the
option is otherwise exercisable in accordance with
the terms of the documents evidencing such option,
but in no event may such rights be exercised more
than ten (10) years after the option grant date.
9.
<PAGE> 10
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below.
A. Purchase Price.
1. The purchase price per share shall be fixed
by the Plan Administrator, but shall not be less than one hundred percent (100%)
of the Fair Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of
Article Four, shares of Common Stock may be issued under the Stock Issuance
Program for any of the following items of consideration which the Plan
Administrator may deem appropriate in each individual instance:
(i) cash or check made payable to the
Corporation, or
(ii) past services rendered to the
Corporation (or any Parent or Subsidiary).
B. Vesting Provisions.
1. Shares of Common Stock issued under the
Stock Issuance Program may, in the discretion of the Plan Administrator, be
fully and immediately vested upon issuance or may vest in one or more
installments over the Participant's period of Service or upon attainment of
specified performance objectives. The elements of the vesting schedule
applicable to any unvested shares of Common Stock issued under the Stock
Issuance Program, namely:
(i) the Service period to be completed by
the Participant or the performance objectives to be
attained,
(ii) the number of installments in which the
shares are to vest,
10.
<PAGE> 11
(iii) the interval or intervals (if any)
which are to lapse between installments, and
(iv) the effect which death, Permanent
Disability or other event designated by the Plan
Administrator is to have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.
2. Any new, substituted or additional
securities or other property (including money paid other than as a regular cash
dividend) which the Participant may have the right to receive with respect to
the Participant's unvested shares of Common Stock by reason of any stock
dividend, stock split, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration shall be issued subject to (i) the
same vesting requirements applicable to the Participant's unvested shares of
Common Stock and (ii) such escrow arrangements as the Plan Administrator shall
deem appropriate.
3. The Participant shall have full stockholder
rights with respect to any shares of Common Stock issued to the Participant
under the Stock Issuance Program, whether or not the Participant's interest in
those shares is vested. Accordingly, the Participant shall have the right to
vote such shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in
Service while holding one or more unvested shares of Common Stock issued under
the Stock Issuance Program or should the performance objectives not be attained
with respect to one or more such unvested shares of Common Stock, then those
shares shall be immediately surrendered to the Corporation for cancellation, and
the Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to such surrendered shares.
5. The Plan Administrator may in its discretion
waive the surrender and cancellation of one or more unvested shares of Common
Stock (or other assets attributable thereto) which would otherwise occur upon
the cessation of the Participant's Service or the non-completion of the vesting
schedule applicable to such shares. Such waiver shall result in the immediate
vesting of the Participant's interest in the shares of Common Stock as to which
the waiver applies. Such waiver may be effected at any time,
11.
<PAGE> 12
whether before or after the Participant's cessation of Service or the attainment
or non-attainment of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent (i) those
repurchase rights are assigned to the successor corporation (or parent thereof)
in connection with such Corporate Transaction or (ii) such accelerated vesting
is precluded by other limitations imposed in the Stock Issuance Agreement.
B. Any repurchase rights that are assigned in the
Corporate Transaction shall automatically terminate, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event the Participant's Service should subsequently terminate by reason
of an Involuntary Termination within eighteen (18) months following the
effective date of such Corporate Transaction.
C. The Plan Administrator shall have the discretion,
exercisable either at the time the unvested shares are issued or at any time
while the Corporation's repurchase right remains outstanding, to provide for the
automatic termination of one or more outstanding repurchase rights and the
immediate vesting of the shares of Common Stock subject to those rights upon a
Change in Control or upon the Involuntary Termination of the Participant's
Service within a specified period (not to exceed eighteen (18) months) following
the effective date of any Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion,
be held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
12.
<PAGE> 13
ARTICLE FOUR
MISCELLANEOUS
I. FINANCING
A. The Plan Administrator may permit any Optionee or
Participant to pay the option exercise price under the Discretionary Option
Grant Program or the purchase price for shares issued under the Stock Issuance
Program by delivering a promissory note payable in one or more installments. The
terms of any such promissory note (including the interest rate and the terms of
repayment) shall be established by the Plan Administrator in its sole
discretion. Promissory notes may be authorized with or without security or
collateral. In all events, the maximum credit available to the Optionee or
Participant may not exceed the sum of (i) the aggregate option exercise price or
purchase price payable for the purchased shares plus (ii) any Federal, state and
local income and employment tax liability incurred by the Optionee or the
Participant in connection with the option exercise or share purchase.
B. The Plan Administrator may, in its discretion,
determine that one or more such promissory notes shall be subject to forgiveness
by the Corporation in whole or in part upon such terms as the Plan Administrator
may deem appropriate.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of
Common Stock upon the exercise of options or stock appreciation rights or upon
the issuance or vesting of such shares under the Plan shall be subject to the
satisfaction of all applicable Federal, state and local income and employment
tax withholding requirements.
B. The Plan Administrator may, in its discretion,
provide any or all holders of options or unvested shares of Common Stock under
the Plan with the right to use shares of Common Stock in satisfaction of all or
part of the Taxes incurred by such holders in connection with the exercise of
their options or the vesting of their shares. Such right may be provided to any
such holder in either or both of the following formats:
(i) Stock Withholding: The election to have the
Corporation withhold, from the shares of Common Stock
otherwise issuable upon the exercise of such option or the
vesting of such shares, a portion of those shares with an
aggregate Fair Market Value equal to the percentage of the
Taxes (not to exceed one hundred percent (100%)) designated by
the holder.
13.
<PAGE> 14
(ii) Stock Delivery: The election to deliver to the
Corporation, at the time the option is exercised or the shares
vest, one or more shares of Common Stock previously acquired
by such holder (other than in connection with the option
exercise or share vesting triggering the Taxes) with an
aggregate Fair Market Value equal to the percentage of the
Taxes (not to exceed one hundred percent (100%)) designated by
the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective on the Effective
Date.
B. The Plan shall terminate upon the earliest of (i)
April 1, 2007, (ii) the date on which all shares available for issuance under
the Plan shall have been issued pursuant to the exercise of the options or the
issuance of shares (whether vested or unvested) under the Plan or (iii) the
termination of all outstanding options in connection with a Corporate
Transaction. Upon such Plan termination, all options and unvested stock
issuances outstanding on such date shall thereafter continue to have force and
effect in accordance with the provisions of the documents evidencing such
options or issuances.
IV. AMENDMENT OF THE PLAN
The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with
respect to stock options, stock appreciation rights or unvested stock issuances
at the time outstanding under the Plan unless the Optionee or the Participant
consents to such amendment or modification.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any
option or stock appreciation right under the Plan and the issuance of any shares
of Common Stock (i) upon the exercise of any option or stock appreciation right
or (ii) under the Stock Issuance Program shall be subject to the Corporation's
procurement of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the options and stock appreciation rights
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be
issued or delivered under the Plan unless and until there shall have been
compliance with all applicable requirements of Federal and state securities
laws, including the filing and effectiveness of
14.
<PAGE> 15
the Form S-8 registration statement for the shares of Common Stock issuable
under the Plan, and all applicable listing requirements of any stock exchange
(or the Nasdaq National Market, if applicable) on which Common Stock is then
listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
15.
<PAGE> 16
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CHANGE IN CONTROL shall mean a change in ownership or control
of the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any
person or related group of persons (other than the Corporation
or a person that directly or indirectly controls, is
controlled by, or is under common control with, the
Corporation), of beneficial ownership (within the meaning of
Rule 13d-3 of the 1934 Act) of securities possessing more than
fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation's
stockholders, or
(ii) a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that
a majority of the Board members ceases, by reason of one or
more contested elections for Board membership, to be comprised
of individuals who either (A) have been Board members
continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during
such period by at least a majority of the Board members
described in clause (A) who were still in office at the time
the Board approved such election or nomination.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMITTEE shall mean the committee of two (2) or more Board
members appointed by the Board to administer the Plan.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined
voting power of the Corporation's outstanding securities are
transferred to a person or persons different from the persons
holding those securities immediately prior to such
transaction; or
A-1.
<PAGE> 17
(ii) the sale, transfer or other disposition of all
or substantially all of the Corporation's assets in complete
liquidation or dissolution of the Corporation.
G. CORPORATION shall mean ACT Networks, Inc., a Delaware
corporation.
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under the Plan.
I. EFFECTIVE DATE shall mean April 2, 1997, the date on which the
Plan was adopted by the Board.
J. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
K. EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.
L. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be
the closing selling price per share of Common Stock on the
date in question, as such price is reported by the National
Association of Securities Dealers on the Nasdaq National
Market or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question on the Stock Exchange determined by the Plan
Administrator to be the primary market for the Common Stock,
as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling
price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
M. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:
A-2.
<PAGE> 18
(i) such individual's involuntary dismissal or
discharge by the Corporation for reasons other than
Misconduct, or
(ii) such individual's voluntary resignation
following (A) a change in his or her position with the
Corporation which materially reduces his or her level of
responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and
target bonuses under any corporate-performance based bonus or
incentive programs) by more than fifteen percent (15%) or (C)
a relocation of such individual's place of employment by more
than fifty (50) miles, provided and only if such change,
reduction or relocation is effected by the Corporation without
the individual's consent.
N. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
O. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
P. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
Q. OPTIONEE shall mean any person to whom an option is granted
under the Discretionary Option Grant Program.
R. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
S. PARTICIPANT shall mean any person who is issued shares of
Common Stock under the Stock Issuance Program.
T. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more.
A-3.
<PAGE> 19
U. PLAN shall mean the Corporation's 1997 Non-Executive Officer
Stock Option/Stock Issuance Plan, as set forth in this document.
V. PLAN ADMINISTRATOR shall mean the particular entity, whether
the Committee or the Board, which is authorized to administer the Plan to the
extent such entity is carrying out its administrative functions thereunder.
W. SERVICE shall mean the performance of services for the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.
X. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
Y. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into
by the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
Z. STOCK ISSUANCE PROGRAM shall mean the stock issuance program
in effect under the Plan.
AA. SUBSIDIARY shall mean any corporation, partnership, joint
venture or other business entity in which the Corporation owns, directly or
indirectly, stock or a capital or profit interest.
AB. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over.
AC. TAXES shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of options or unvested shares
of Common Stock in connection with the exercise of those options or the vesting
of those shares.
A-4.
<PAGE> 1
Exhibit 10.29
ACT NETWORKS, INC.
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the
"Option") to purchase shares of the Common Stock of ACT Networks, Inc. (the
"Corporation"):
Optionee: ___________________________________________________
Grant Date: _________________________________________________
Vesting Commencement Date: __________________________________
Exercise Price: $_________________ per share
Number of Option Shares:_______________ shares
Expiration Date: ____________________________________________
Type of Option: Non-Statutory Stock Option
Exercise Schedule: The Option shall become exercisable with
respect to (i) twenty-four percent (24%) of the Option Shares
upon Optionee's completion of one (1) year of Service measured
from the Vesting Commencement Date and (ii) the balance of the
Option Shares in successive equal monthly installments upon
Optionee's completion of each of the next thirty-eight (38)
months of Service measured from and after the first
anniversary of the Vesting Commencement Date. In no event
shall the Option become exercisable for any additional Option
Shares after Optionee's cessation of Service.
Optionee understands and agrees that the Option is granted
subject to and in accordance with the terms of the ACT Networks, Inc. 1997
Nonexecutive Officer Stock Option/Stock Issuance Plan (the "Plan"). Optionee
further agrees to be bound by the terms of the Plan and the terms of the Option
as set forth in the Stock Option Agreement attached hereto as Exhibit A.
A copy of the Plan is available upon request made to the
Corporate Secretary at the Corporation's principal offices.
<PAGE> 2
No Employment or Service Contract. Nothing in this Notice or
in the attached Stock Option Agreement or Plan shall confer upon Optionee any
right to continue in Service for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Corporation (or any
Parent or Subsidiary employing or retaining Optionee) or of Optionee, which
rights are hereby expressly reserved by each, to terminate Optionee's Service at
any time for any reason, with or without cause.
Definitions. All capitalized terms in this Notice shall have
the meaning assigned to them in this Notice or in the attached Stock Option
Agreement.
_____________________ , 199__
Date
ACT NETWORKS, INC.
By: _________________________________
Title: _________________________________
________________________________________
OPTIONEE
Address: _______________________________
________________________________________
ATTACHMENTS
Exhibit A - Stock Option Agreement
2.
<PAGE> 3
EXHIBIT A
STOCK OPTION AGREEMENT
<PAGE> 1
Exhibit 10.30
ACT NETWORKS, INC.
STOCK OPTION AGREEMENT
RECITALS
A. The Board has adopted the Plan for the purpose of retaining
the services of selected Employees and consultants and other independent
advisors who provide services to the Corporation (or any Parent or Subsidiary).
B. Optionee is to render valuable services to the Corporation (or
a Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of, the Plan in connection with the
Corporation's grant of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to
Optionee, as of the Grant Date, an option to purchase up to the number of Option
Shares specified in the Grant Notice. The Option Shares shall be purchasable
from time to time during the option term specified in Paragraph 2 at the
Exercise Price.
2. OPTION TERM. This option shall have a term of ten
(10) years measured from the Grant Date and shall accordingly expire at the
close of business on the Expiration Date, unless sooner terminated in accordance
with Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY. This option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee. However, this option may also, in
connection with the Optionee's estate plan, be assigned in whole or in part
during Optionee's lifetime to one or more members of Optionee's immediate family
or to a trust established exclusively for one or more such family members. The
assigned portion shall be exercisable only by the person or persons who acquire
a proprietary interest in the option pursuant to such assignment. The terms
applicable to the assigned portion shall be the same as those in effect for this
option immediately prior to such assignment and shall be set forth in such
documents issued to the assignee as the Plan Administrator may deem appropriate.
<PAGE> 2
4. DATES OF EXERCISE. This option shall become
exercisable for the Option Shares in one or more installments as specified in
the Grant Notice. As the option becomes exercisable for such installments, those
installments shall accumulate and the option shall remain exercisable for the
accumulated installments until the Expiration Date or sooner termination of the
option term under Paragraph 5 or 6.
5. CESSATION OF SERVICE. The option term specified in
Paragraph 2 shall terminate (and this option shall cease to be outstanding)
prior to the Expiration Date should any of the following provisions become
applicable:
(i) Should Optionee cease to remain in Service for
any reason (other than death, Permanent Disability or
Misconduct) while this option is outstanding, then Optionee
shall have a period of three (3) months (commencing with the
date of such cessation of Service) during which to exercise
this option, but in no event shall this option be exercisable
at any time after the Expiration Date.
(ii) Should Optionee die while this option is
outstanding, then the personal representative of Optionee's
estate or the person or persons to whom the option is
transferred pursuant to Optionee's will or in accordance with
the laws of descent and distribution shall have the right to
exercise this option. Such right shall lapse and this option
shall cease to be outstanding upon the earlier of (A) the
expiration of the twelve (12)- month period measured from the
date of Optionee's death or (B) the Expiration Date.
(iii) Should Optionee cease Service by reason of
Permanent Disability while this option is outstanding, then
Optionee shall have a period of twelve (12) months (commencing
with the date of such cessation of Service) during which to
exercise this option. In no event shall this option be
exercisable at any time after the Expiration Date.
(iv) Should Optionee's Service be terminated for
Misconduct, then this option shall terminate immediately and
cease to remain outstanding.
(v) During the limited period of post-Service
exercisability, this option may not be exercised in the
aggregate for more than the number of vested Option Shares for
which the option is exercisable at the time of Optionee's
cessation of Service. Upon the expiration of such limited
exercise period or (if earlier) upon the Expiration Date, this
option shall terminate and cease to be outstanding for any
vested Option Shares for which the option has not been
exercised. To the extent Optionee is not vested in the Option
Shares at the time of Optionee's cessation of Service, this
option
2.
<PAGE> 3
shall immediately terminate and cease to be outstanding with
respect to those shares.
(vi) In the event of a Corporate Transaction, the
provisions of Paragraph 6 shall govern the period for which
this option is to remain exercisable following Optionee's
cessation of Service and shall supersede any provisions to the
contrary in this paragraph.
6. SPECIAL ACCELERATION OF OPTION.
(a) In the event of a Corporate Transaction,
the exercisability of this option, to the extent outstanding at such time but
not otherwise fully exercisable, shall automatically accelerate so that this
option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for any or all of the Option Shares at the time
subject to this option as fully-vested shares of Common Stock. No such
acceleration of this option, however, shall occur if and to the extent: (i) this
option is, in connection with the Corporate Transaction, either to be assumed by
the successor corporation (or parent thereof) or to be replaced with a
comparable option to purchase shares of the capital stock of the successor
corporation (or parent thereof) or (ii) this option is to be replaced with a
cash incentive program of the successor corporation which preserves the spread
existing on the Option Shares for which this option is not exercisable at the
time of the Corporate Transaction (the excess of the Fair Market Value of such
Option Shares over the aggregate Exercise Price payable for such shares) and
provides for subsequent pay-out in accordance with the same exercise schedule in
effect for the option pursuant to the option exercise schedule set forth in the
Grant Notice. The determination of option comparability under clause (i) shall
be made by the Plan Administrator, and such determination shall be final,
binding and conclusive.
(b) Immediately following the Corporate
Transaction, this option, to the extent not previously exercised, shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) in connection with the Corporate
Transaction.
(c) If this option is assumed in connection with
a Corporate Transaction, then this option shall be appropriately adjusted,
immediately after such Corporate Transaction, to apply to the number and class
of securities which would have been issuable to Optionee in consummation of such
Corporate Transaction had the option been exercised immediately prior to such
Corporate Transaction, and appropriate adjustments shall also be made to the
Exercise Price, provided the aggregate Exercise Price shall remain the same.
(d) Upon an Involuntary Termination of
Optionee's Service within eighteen (18) months following a Corporate Transaction
in which this option is assumed or replaced, the exercisability of this option,
to the extent outstanding at such time but not
3.
<PAGE> 4
otherwise fully exercisable, shall automatically accelerate so that this option
shall immediately become fully exercisable for all the Option Shares at the time
subject to this option as fully-vested shares of Common Stock and may be
exercised for any or all of those shares at any time prior to the earlier of (i)
the Expiration Date or (ii) the expiration of the one (1)-year period measured
from the effective date of the Involuntary Termination.
(e) This Agreement shall not in any way affect
the right of the Corporation to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES. Should any change be
made to the Common Stock by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration, appropriate adjustments shall be made to (i) the total
number and/or class of securities subject to this option and (ii) the Exercise
Price in order to reflect such change and thereby preclude a dilution or
enlargement of benefits hereunder.
8. STOCKHOLDER RIGHTS. The holder of this option shall
not have any stockholder rights with respect to the Option Shares until such
person shall have exercised the option, paid the Exercise Price and become a
holder of record of the purchased shares.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with
respect to all or any part of the Option Shares for which this option is at the
time exercisable, Optionee (or any other person or persons exercising the
option) must take the following actions:
(i) Execute and deliver to the Corporation a Notice
of Exercise for the Option Shares for which the option is
exercised.
(ii) Pay the aggregate Exercise Price for the
purchased shares in one or more of the following forms:
(A) cash or check made payable to the Corporation;
(B) a promissory note payable to the Corporation,
but only to the extent authorized by the Plan Administrator in
accordance with Paragraph 13;
4.
<PAGE> 5
(C) shares of Common Stock held by Optionee (or any
other person or persons exercising the option) for the
requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and
valued at Fair Market Value on the Exercise Date; or
(D) through a special sale and remittance procedure
pursuant to which Optionee (or any other person or persons
exercising the option) shall concurrently provide irrevocable
written instructions (I) to a Corporation-designated brokerage
firm to effect the immediate sale of the purchased shares and
remit to the Corporation, out of the sale proceeds available
on the settlement date, sufficient funds to cover the
aggregate Exercise Price payable for the purchased shares plus
all applicable Federal, state and local income and employment
taxes required to be withheld by the Corporation by reason of
such exercise and (II) to the Corporation to deliver the
certificates for the purchased shares directly to such
brokerage firm in order to complete the sale.
Except to the extent the sale and remittance
procedure is utilized in connection with the option exercise,
payment of the Exercise Price must accompany the Notice of
Exercise delivered to the Corporation in connection with the
option exercise.
(iii) Furnish to the Corporation appropriate
documentation that the person or persons exercising the option
(if other than Optionee) have the right to exercise this
option.
(iv) Make appropriate arrangements with the
Corporation (or Parent or Subsidiary employing or retaining
Optionee) for the satisfaction of all Federal, state and local
income and employment tax withholding requirements applicable
to the option exercise.
(b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares,
with the appropriate legends affixed thereto.
(c) In no event may this option be exercised for any
fractional shares.
5.
<PAGE> 6
10. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance
of the Option Shares upon such exercise shall be subject to compliance by the
Corporation and Optionee with all applicable requirements of law relating
thereto and with all applicable regulations of any stock exchange (or the Nasdaq
National Market, if applicable) on which the Common Stock may be listed for
trading at the time of such exercise and issuance.
(b) The inability of the Corporation to obtain
approval from any regulatory body having authority deemed by the Corporation to
be necessary to the lawful issuance and sale of any Common Stock pursuant to
this option shall relieve the Corporation of any liability with respect to the
non-issuance or sale of the Common Stock as to which such approval shall not
have been obtained. The Corporation, however, shall use its best efforts to
obtain all such approvals.
11. SUCCESSORS AND ASSIGNS. Except to the extent
otherwise provided in Paragraphs 3 and 6, the provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and Optionee, Optionee's assigns and the legal representatives,
heirs and legatees of Optionee's estate.
12. NOTICES. Any notice required to be given or delivered
to the Corporation under the terms of this Agreement shall be in writing and
addressed to the Corporation at its principal corporate offices. Any notice
required to be given or delivered to Optionee shall be in writing and addressed
to Optionee at the address indicated below Optionee's signature line on the
Grant Notice. All notices shall be deemed effective upon personal delivery or
upon deposit in the U.S. mail, postage prepaid and properly addressed to the
party to be notified.
13. FINANCING. The Plan Administrator may, in its
absolute discretion and without any obligation to do so, permit Optionee to pay
the Exercise Price for the purchased Option Shares by delivering a promissory
note. The terms of any such promissory note (including the interest rate, the
requirements for collateral and the terms of repayment) shall be established by
the Plan Administrator in its sole discretion.
14. CONSTRUCTION. This Agreement and the option evidenced
hereby are made and granted pursuant to the Plan and are in all respects limited
by and subject to the terms of the Plan. All decisions of the Plan Administrator
with respect to any question or issue arising under the Plan or this Agreement
shall be conclusive and binding on all persons having an interest in this
option.
15. GOVERNING LAW. The interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
California without resort to that State's conflict-of-laws rules.
6.
<PAGE> 7
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify ACT Networks, Inc. (the "Corporation") that I
elect to purchase _____________ shares of the Corporation's Common Stock (the
"Purchased Shares") at the option exercise price of $ ___________ per share (the
"Exercise Price") pursuant to that certain option (the "Option") granted to me
under the Corporation's 1997 Non-Executive Officer Stock Option/Stock Issuance
Plan on ____________ , 199__ .
Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a condition
for exercise. Alternatively, I may utilize the special broker-dealer sale and
remittance procedure specified in my agreement to effect payment of the Exercise
Price.
______________________ , 199
Date
________________________________________
Optionee
Address: _______________________________
________________________________________
Print name in exact manner
it is to appear on the
stock certificate: ________________________________________
Address to which certificate
is to be sent, if different
from address above: ________________________________________
________________________________________
Social Security Number: ________________________________________
Employee Number: ________________________________________
<PAGE> 8
APPENDIX
The following definitions shall be in effect under the
Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
F. CORPORATION shall mean ACT Networks, Inc., a Delaware
corporation.
G. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
H. EXERCISE DATE shall mean the date on which the option shall
have been exercised in accordance with Paragraph 9 of the Agreement.
I. EXERCISE PRICE shall mean the exercise price per share as
specified in the Grant Notice.
J. EXPIRATION DATE shall mean the date on which the option
expires as specified in the Grant Notice.
K. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
A-1.
<PAGE> 9
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as the
price is reported by the National Association of Securities Dealers on
the Nasdaq National Market or any successor system. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
L. GRANT DATE shall mean the date of grant of the option as
specified in the Grant Notice.
M. GRANT NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
N. INVOLUNTARY TERMINATION shall mean the termination of
Optionee's Service which occurs by reason of:
(i) Optionee's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) Optionee's voluntary resignation following (A) a change
in Optionee's position with the Corporation (or Parent or Subsidiary
employing Optionee) which materially reduces Optionee's level of
responsibility, (B) a reduction in Optionee's level of compensation
(including base salary, fringe benefits and participation in
corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of Optionee's place of
employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected by the Corporation without
Optionee's consent.
A-2.
<PAGE> 10
O. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by
Optionee of confidential information or trade secrets of the Corporation (or any
Parent or Subsidiary), or any other intentional misconduct by Optionee adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
Optionee or any other individual in the Service of the Corporation (or any
Parent or Subsidiary).
P. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
Q. NOTICE OF EXERCISE shall mean the notice of exercise in the
form attached hereto as Exhibit I.
R. OPTION SHARES shall mean the number of shares of Common Stock
subject to the option as specified in the Grant Notice.
S. OPTIONEE shall mean the person to whom the option is granted
as specified in the Grant Notice.
T. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. PERMANENT DISABILITY shall mean the inability of Optionee to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which is expected to result in death
or has lasted or can be expected to last for a continuous period of twelve (12)
months or more.
V. PLAN shall mean the Corporation's 1997 Non-Executive Officer
Stock Option/Stock Issuance Plan.
W. PLAN ADMINISTRATOR shall mean either the Board or a committee
of Board members, to the extent the committee is at the time responsible for the
administration of the Plan.
X. SERVICE shall mean the Optionee's performance of services for
the Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor.
A-3.
<PAGE> 11
Y. STOCK EXCHANGE shall mean the American Stock Exchange or the
New York Stock Exchange.
Z. SUBSIDIARY shall mean any corporation, partnership, joint
venture or other business entity in which the Corporation owns, directly or
indirectly, stock or a capital or profit interest.
A-4.
<PAGE> 1
Exhibit 10.31
ADDENDUM
TO
STOCK OPTION AGREEMENT
The following provisions are hereby incorporated into, and are
hereby made a part of, that certain Stock Option Agreement dated 2~ (the "Option
Agreement") by and between ACT Networks, Inc. (the "Corporation") and 1~
("Optionee") evidencing the stock option granted on such date to Optionee under
the terms of the Corporation's 1997 Non-Executive Officer Stock Option/Stock
Issuance Plan, and such provisions shall be effective immediately. All
capitalized terms in this Addendum, to the extent not otherwise defined herein,
shall have the meanings assigned to them in the Option Agreement.
INVOLUNTARY TERMINATION FOLLOWING
CHANGE IN CONTROL
1. The exercisability of the option shall not accelerate upon
the occurrence of a Change in Control, and the option shall, over Optionee's
continued period of Service after the Change in Control, continue to become
exercisable for the Option Shares in accordance with the provisions of the
Option Agreement. However, immediately upon an Involuntary Termination of
Optionee's Service within eighteen (18) months following the Change in Control,
the exercisability of this option, to the extent the option is at the time
outstanding but not otherwise fully exercisable, shall automatically accelerate
so that the option shall immediately become fully exercisable for all the Option
Shares at the time subject to the option and may be exercised for any or all of
those shares as fully vested shares of Common Stock at any time prior to the
earlier of (i) the Expiration Date or (ii) the expiration of the one (1)-year
period measured from the date of the Involuntary Termination.
2. For purposes of this Addendum, a CHANGE IN CONTROL shall be
deemed to occur in the event of a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as
amended) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the
Corporation's stockholders, or
<PAGE> 2
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period or
(B) have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in
clause (A) who were still in office at the time such election or
nomination was approved by the Board.
3. The provisions of Paragraph 1 of this Addendum shall govern
the period for which the option is to remain exercisable following the
Involuntary Termination of Optionee's Service within eighteen (18) months after
the Change in Control and shall supersede any provisions to the contrary in the
Option Agreement.
IN WITNESS WHEREOF, ACT Networks, Inc. has caused this
Addendum to be executed by its duly-authorized officer, and Optionee has
executed this Addendum, all as of the Effective Date specified below.
ACT NETWORKS, INC.
By: ____________________________________
Title: _________________________________
________________________________________
1~, OPTIONEE
EFFECTIVE DATE:_______________ , 199__
2.
<PAGE> 1
Exhibit 11.1 Statement Re: Computation of Per-Share Earnings
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary
Average common shares outstanding 9,194,308 7,344,287 9,159,335 7,233,789
Net effect of dilutive options and warrants-
based on treasury stock method (or modified
treasury method if applicable) using average
market price 596,274 876,205
-----------------------------------------------------------
9,194,308 7,940,561 10,035,540 7,233,789
-----------------------------------------------------------
Net Loss (income) $(1,035,984) $ 394,592 $ 1,369,421 $(6,472,234)
-----------------------------------------------------------
Per Share amount $ (0.11) $ 0.05 $ 0.14 $ (0.89)
-----------------------------------------------------------
Fully Diluted
Average common shares outstanding 9,194,308 7,344,287 9,159,335 7,233,789
Net effect of dilutive options and warrants-
based on treasury stock method (or modified treasury
method if applicable) using year-end market price 717,372 872,653
------------------------------------------------------------
9,194,308 8,111,654 10,131,988 7,233,789
------------------------------------------------------------
Net (Loss) income $(1,035,984) $ 394,592 $ 1,369,421 $(6,472,234)
------------------------------------------------------------
Per Share amount $ (0.11) $ 0.05 $ 0.14 $ (0.89)
------------------------------------------------------------
</TABLE>
25
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 36,172,150
<SECURITIES> 27,854,873
<RECEIVABLES> 15,931,342
<ALLOWANCES> 286,982
<INVENTORY> 10,899,687
<CURRENT-ASSETS> 91,245,669
<PP&E> 9,882,088
<DEPRECIATION> 5,703,642
<TOTAL-ASSETS> 100,374,515
<CURRENT-LIABILITIES> 7,166,793
<BONDS> 0
0
0
<COMMON> 9,256
<OTHER-SE> 99,837,426
<TOTAL-LIABILITY-AND-EQUITY> 100,374,515
<SALES> 35,724,831
<TOTAL-REVENUES> 35,724,831
<CGS> 15,480,070
<TOTAL-COSTS> 31,870,599
<OTHER-EXPENSES> 3,415,854
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,452,803)
<INCOME-PRETAX> 2,891,181
<INCOME-TAX> 1,521,760
<INCOME-CONTINUING> 1,369,421
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,369,421
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
