CATAPULT COMMUNICATIONS CORP
1989 STOCK OPTION PLAN
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>4
<FILENAME>d27554_ex10-3.txt
<DESCRIPTION>1989 STOCK OPTION PLAN
<TEXT>

                       CATAPULT COMMUNICATIONS CORPORATION

                             1989 STOCK OPTION PLAN

                   (As Amended and Restated October 30, 2001)

     1. Purpose. The Catapult Communications Corporation 1989 Stock Option Plan
(the "Plan") is established to create additional incentive for key employees,
directors and consultants of Catapult Communications Corporation and any
successor corporation thereto (collectively referred to as the "Company"), and
any present or future parent and/or subsidiary corporations of such corporation
(all of whom along with the Company being individually referred to as a
"Participating Company" and collectively referred to as the "Participating
Company Group"), to promote the financial success and progress of the
Participating Company Group. For purposes of the Plan, a parent corporation and
a subsidiary corporation shall be as defined in sections 425(e) and 425(f) of
the Internal Revenue Code of 1986, as amended (the "Code").

     2. Administration. The Plan shall be administered by the Board of Directors
of the Company (the "Board") and/or by a duly appointed committee of the Board
having such powers as shall be specified by the Board. Any subsequent references
herein to the Board shall also mean the committee if such committee has been
appointed and, unless the powers of the committee have been specifically
limited, the committee shall have all of the powers of the Board granted herein,
including, without limitation, the power to terminate or amend the Plan at any
time, subject to the terms of the Plan and any applicable limitations imposed by
law. All questions of interpretation of the Plan or of any options granted under
the Plan (an "Option") shall be determined by the Board, and such determinations
shall be final and binding upon all persons having an interest in the Plan
and/or any Option. Options may be either incentive stock options as defined in
section 422A of the Code ("Incentive Stock Options") or nonqualified stock
options. Any officer of a Participating Company shall have the authority to act
on behalf of the Company with respect to any matter, right, obligation, or
election which is the responsibility of or which is allocated to the Company
herein, provided the officer has apparent authority with respect to such matter,
right, obligation, or election.

     3. Eligibility. The Options may be granted only to employees (including
officers) and directors of the Participating Company Group or to individuals who
are rendering services as consultants, advisors, or other independent
contractors to the Participating Company Group. The Board shall, in the Board's
sole discretion, determine which persons shall be granted Options (an
"Optionee"). A director of the Company shall be eligible to be granted only a
nonqualified stock option unless the director is also an employee of the
Company. An individual who is rendering services as a consultant, advisor, or
other independent contractor shall be eligible to be granted only a nonqualified
stock option. An Optionee may, if otherwise eligible, be granted additional
Options.

     4. Shares Subject to Option. Options shall be options for the purchase of
the authorized but unissued common stock of the Company (the "Stock"), subject
to adjustment as provided in

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paragraph 9 below. The maximum number of shares of Stock which may be issued
under the Plan shall be one million two hundred thousand (1,200,000) shares. In
the event that any outstanding Option for any reason expires or is terminated or
cancelled and/or shares of Stock subject to repurchase are repurchased by the
Company, the shares allocable to the unexercised portion of such Option, or such
repurchased shares, may again be subjected to an Option.

     5. Time for Granting Options. All Options shall be granted, if at all,
within ten (10) years from the earlier of the date the Plan is adopted by the
Board or the date the Plan is duly approved by the shareholders of the Company.

     6. Terms, Conditions and Form of Options. Subject to the provisions of the
Plan, the Board shall determine for each Option (which need not be identical)
the number of shares of Stock for which the Option shall be granted, the option
price of the Option, the exercisability of the Option, whether the Option is to
be treated as an Incentive Stock Option or as a nonqualified stock option and
all other terms and conditions of the Option not inconsistent with the Plan.
Options granted pursuant to the Plan shall be evidenced by written agreements
specifying the number of shares of Stock covered thereby, in such form as the
Board shall from time to time establish, and shall comply with and be subject to
the following terms and conditions:

     (a) Option Price. The option price for each Option shall be established in
the sole discretion of the Board; provided, however, that (i) the option price
per share for an Incentive Stock Option shall be not less than the fair market
value, as determined by the Board, of a share of Stock on the date of the
granting of the Option, (ii) the option price per share for a nonqualified stock
option shall not be less than eighty-five percent (85%) of the fair market
value, as determined by the Board, of a share of Stock on the date of the
granting of the Option and (iii) no Option granted to an Optionee who at the
time the Option is granted owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of a Participating
Company within the meaning of section 422A(b)(6) of the Code and/or ten percent
(10%) of the total combined value of all classes of stock of a Participating
Company (a "Ten Percent Owner Optionee") shall have an option price per share
less than one hundred ten percent (110%) of the fair market value of a share of
Stock on the date the Option is granted. Notwithstanding the foregoing, an
Option (whether an Incentive Stock Option or a nonqualified stock option) may be
granted with an exercise price lower than the minimum exercise price set forth
above if such Option is granted pursuant to an assumption or substitution for
another option in a manner qualifying with the provisions of section 425(a) of
the Code.

     (b) Exercise Period of Options. The Board shall have the power to set the
time or times within which each Option shall be exercisable or the event or
events upon the occurrence of which all or a portion of each Option shall be
exercisable and the term of each Option; provided, however, that (i) no Option
shall be exercisable after the expiration of ten (10) years after the date such
Option is granted and (ii) no Option granted to a Ten Percent Owner Optionee
shall be exercisable after the expiration of five (5) years after the date such
Option is granted.

     (c) Payment of Option Price. Payment of the option price for the number of
shares of Stock being purchased pursuant to any Option shall be made (i) in
cash, by check, or cash equivalent, (ii) by tender to the Company of shares of
the Company's stock owned by the Optionee


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having a value, as determined by the Board (but without regard to any
restrictions on transferability applicable to such stock by reason of federal or
state securities laws or agreements with an underwriter for the Company), not
less than the option price, (iii) by the Optionee's recourse promissory note,
(iv) by the assignment of the proceeds of a sale of some or all of the shares
being acquired upon the exercise of an Option (including, without limitation,
through an exercise complying with the provisions of Regulation T as promulgated
from time to time by the Board of Governors of the Federal Reserve System), or
(v) by any combination thereof. The Board may at any time or from time to time,
by adoption of or by amendment to the form of Standard Option Agreement
described in paragraph 7 below, or by other means, grant Options which do not
permit all of the foregoing forms of consideration to be used in payment of the
option price and/or which otherwise restrict one (1) or more forms of
consideration. Notwithstanding the foregoing, an Option may not be exercised by
tender to the Company of shares of the Company's stock to the extent such tender
of stock would constitute a violation of the provisions of any law, regulation
and/or agreement restricting the redemption of the Company's stock. Furthermore,
no promissory note shall be permitted if an exercise using a promissory note
would be a violation of any law. Any permitted promissory note shall be due and
payable not more than five (5) years after the Option is exercised, and interest
shall be payable at least annually and be at least equal to the minimum interest
rate necessary to avoid imputed interest pursuant to all applicable sections of
the Code. The Board shall have the authority to permit or require the Optionee
to secure any promissory note used to exercise an Option with the shares of
Stock acquired on exercise of the Option and/or with other collateral acceptable
to the Company.

     (x) Unless otherwise provided by the Board, an Option may not be exercised
by tender to the Company of shares of the Company's stock unless such shares of
the Company's stock either have been owned by the Optionee for more than six (6)
months or were not acquired, directly or indirectly, from the Company.

     (y) Unless otherwise provided by the Board, in the event the Company at any
time becomes subject to the regulations promulgated by the Board of Governors of
the Federal Reserve System or any other governmental entity affecting the
extension of credit in connection with the Company's securities, any promissory
note shall comply with such applicable regulations, and the Optionee shall pay
the unpaid principal and accrued interest, if any, to the extent necessary to
comply with such applicable regulations.

     (z) The Company reserves, at any and all times, the right, in the Company's
sole and absolute discretion, to establish, decline to approve and/or terminate
any program and/or procedures for the exercise of Options by means of an
assignment of the proceeds of a sale of some or all of the shares of Stock to be
acquired upon such exercise.

     7. Standard Form of Stock Option Agreement. Unless otherwise provided for
by the Board at the time an Option is granted or as otherwise provided for by
this paragraph 7, all Options shall comply with and be subject to the terms and
conditions set forth in the stock option agreement attached hereto as Exhibit A
and incorporated herein by reference (the "Standard Option Agreement").


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     (a) Modifications for Nonqualified Stock Options. In the event the Option
is designated as a nonqualified stock option, the Standard Option Agreement for
such Option shall be the Standard Option Agreement as modified as set forth
below unless otherwise specified by the Board:

          (i) The title and paragraph 2 of the Standard Option Agreement shall
     reflect the Option's status as a nonqualified stock option.

          (ii) A new paragraph 7(f) shall be added to the Standard Option
     Agreement providing that, in the event an Optionee is a director,
     consultant, or advisor but not an employee of a Participating Company at
     the time the Option is granted, termination of the Optionee's status as a
     director, consultant, or advisor of the Participating Company shall be
     deemed to be termination of the Optionee's employment for purposes of the
     Standard Option Agreement.

          (iii) Paragraph 14 of the Standard Option Agreement providing, among
     other things, that the Optionee give the Company notice of sales upon
     disqualifying dispositions of Incentive Stock Options shall be deleted and
     shall not apply to the Option.

          (iv) Paragraph 16(d) of the Standard Option Agreement regarding the
     stock certificate legend applicable to Incentive Stock Options shall be
     deleted and shall not apply to the Option.

          (v) Paragraph 19 of the Standard Option Agreement shall be modified to
     delete the provision that amendments to the Standard Option Agreement may
     be made without the Optionee's consent if such amendments are required to
     enable an Option designated as an Incentive Stock Option to qualify as an
     Incentive Stock Option.

          (vi) The remaining paragraphs of such modified Standard Option
     Agreement for nonqualified stock options shall be renumbered accordingly.

     (b) Standard Term for Options. Unless otherwise provided for by the Board
in the grant of an Option, any Option granted hereunder shall be exercisable for
a term of ten (10) years.

     8. Authority to Vary Terms. The Board shall have the authority from time to
time to vary the terms of the Standard Option Agreement either in connection
with the grant of an individual Option or in connection with the authorization
of a new standard form or forms; provided, however, that the terms and
conditions of such revised or amended standard form or forms of stock option
agreement shall be in accordance with the terms of the Plan. Such authority
shall include, but not by way of limitation, the authority to grant Options
which are immediately exercisable subject to the Company's right to repurchase
any unvested shares of Stock acquired by an Optionee on exercise of an Option in
the event such Optionee's employment with the Participating Company Group is
terminated for any reason, with or without cause.

     9. Effect of Change In Stock Subject to Plan. Appropriate adjustments shall
be made in the number and class of shares of Stock subject to the Plan and to
any outstanding Options and in the


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option price of any outstanding Options in the event of a stock dividend, stock
split, reverse stock split, combination, reclassification, or like change in the
capital structure of the Company.

     10. Transfer of Control. A "Transfer of Control" shall be deemed to have
occurred in the event any of the following occurs with respect to the Control
Company. For purposes of applying this paragraph 10, the "Control Company" shall
mean the Participating Company whose stock is subject to the Option.

     (a) the direct or indirect sale or exchange by the shareholders of the
Control Company of all or substantially all of the stock of the Control Company
where the shareholders of the Control Company before such sale or exchange do
not retain, directly or indirectly, at least a majority of the beneficial
interest in the voting stock of the Control Company;

     (b) a merger in which the shareholders of the Control Company before such
merger do not retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the Control Company; or

     (c) the sale, exchange, or transfer (including, without limitation,
pursuant to a liquidation or dissolution) of all or substantially all of the
Control Company's assets (other than a sale, exchange, or transfer to one (1) or
more corporations where the shareholders of the Control Company before such
sale, exchange, or transfer retain, directly or indirectly, at least a majority
of the beneficial interest in the voting stock of the corporation(s) to which
the assets were transferred).

     In the event of a Transfer of Control, the surviving, continuing,
successor, or purchasing corporation, as the case may be (the "Acquiring
Corporation"), shall either assume the Company's rights and obligations under
outstanding stock option agreements or substitute options for the Acquiring
Corporation's stock for such outstanding Options.

     In the event the Acquiring Corporation elects not to assume or substitute
for such outstanding Options in connection with a merger described in (b) above
or a sale of assets described in (c) above, the Board shall provide that any
unexercisable and/or unvested portion of the outstanding Options shall be
immediately exercisable and vested as of a date prior to the Transfer of
Control, as the Board so determines. If an Option becomes immediately
exercisable and vested in lieu of assumption or substitution in the event of a
merger or sale of assets, the Administrator shall notify the Optionee in writing
or electronically that the Option shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice. The exercise and/or
vesting of any Option that was permissible solely by reason of this paragraph 10
shall be conditioned upon the consummation of the Transfer of Control. Subject
to Section 10(d) below, any Options which are neither assumed by the Acquiring
Corporation nor exercised as of the date of the Transfer of Control shall
terminate effective as of the date of the Transfer of Control.

     (d) Additional Vesting for Certain Directors. Unless the Option shall have
become fully exercisable in connection with a merger or sale of assets described
in Section 10(b) or Section 10(c) above, in the event of a Change in Control, as
defined in the Catapult Communications Corporation 1998 Stock Plan, each
outstanding option granted to a member of the Board who is not an employee (an
"Outside Director") shall become vested and exercisable as to an additional
number


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of shares of Stock equal to the number of shares which had become vested and
exercisable immediately prior to the Change in Control; provided, however, that
in no event shall the Option become vested and exercisable pursuant to this
provision for a number of shares of Stock greater in the aggregate than the
number of shares of Stock subject to the Option. The Administrator shall notify
the Outside Director in writing or electronically not less than fifteen (15)
days prior to the Change in Control that the vesting of the Option shall
accelerate and the Outside Director shall be entitled to exercise the Option as
to the additional shares of Stock concurrently with the Change in Control.

     11. Provision of Information. Each Optionee shall be given access to
information concerning the Company equivalent to that information generally made
available to the Company's common shareholders.

     12. Options Non-Transferable. During the lifetime of the Optionee, the
Option shall be exercisable only by the Optionee. No Option shall be assignable
or transferable by the Optionee, except by will or by the laws of descent and
distribution.

     13. Transfer of Company's Rights. In the event any Participating Company
assigns, other than by operation of law, to a third person, other than another
Participating Company, any of the Participating Company's rights to repurchase
any shares of Stock acquired on the exercise of an Option, the assignee shall
pay to the assigning Participating Company the value of such right as determined
by the Company in the Company's sole discretion. Such consideration shall be
paid in cash. In the event such repurchase right is exercisable at the time of
such assignment, the value of such right shall be not less than the fair market
value of the shares of Stock which may be repurchased under such right (as
determined by the Company) minus the repurchase price of such shares. The
requirements of this paragraph 13 regarding the minimum consideration to be
received by the assigning Participating Company shall not inure to the benefit
of the Optionee whose shares of Stock are being repurchased. Failure of a
Participating Company to comply with the provisions of this paragraph 13 shall
not constitute a defense or otherwise prevent the exercise of the repurchase
right by the assignee of such right.

     14. Termination or Amendment of Plan. The Board, including any duly
appointed committee of the Board, may terminate or amend the Plan at any time;
provided, however, that without the approval of the Company's shareholders,
there shall be (a) no increase in the total number of shares of Stock covered by
the Plan (except by operation of the provisions of paragraph 9 above), (b) no
change in the class of persons eligible to receive Incentive Stock Options and
(c) no expansion in the class of persons eligible to receive nonqualified stock
options. In any event, no amendment may adversely affect any then outstanding
Option or any unexercised portion thereof, without the consent of the Optionee,
unless such amendment is required to enable an Option designated as an Incentive
Stock Option to qualify as an Incentive Stock Option.

     IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that
the foregoing Catapult Communications Corporation 1989 Stock Option Plan was
duly amended and restated by the Board of Directors of the Company on the 30th
day of October, 2001.

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