<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR,
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FROM THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-27012
INSIGNIA SOLUTIONS PLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ENGLAND AND WALES NOT APPLICABLE
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
----------------------
41300 CHRISTY STREET THE MERCURY CENTRE, WYCOMBE LANE
FREMONT WOOBURN GREEN
CALIFORNIA 94538 HIGH WYCOMBE, BUCKS HP10 0HH
UNITED STATES OF AMERICA UNITED KINGDOM
(510) 360-3700 (44) 1628-539500
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES
AND PRINCIPAL PLACES OF BUSINESS)
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 [ ]
As of May 12, 1999, there were 12,783,425 Ordinary shares of L 0.20 each
nominal value, outstanding.
<PAGE>
INSIGNIA SOLUTIONS PLC
PART 1 - FINANCIAL INFORMATION
<TABLE>
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheet at March 31, 1999
and December 31, 1998..............................................................3
Condensed Consolidated Statement of Operations for the three months
ended March 31, 1999 and 1998......................................................4
Condensed Consolidated Statement of Cash Flows for the three months
ended March 31, 1999 and 1998......................................................5
Notes to Unaudited Condensed Consolidated Financial Statements.....................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.........................................................10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................21
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.................................................................22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................................22
SIGNATURES..................................................................................23
</TABLE>
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INSIGNIA SOLUTIONS PLC
CONDENSED CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1999 1998
------------------- -------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,577 $ 6,798
Restricted cash 186 186
Cash and cash equivalents held in escrow 6,700 9,100
Accounts receivable, net of allowances
of $948 and $1,449, respectively 1,017 1,706
Prepaid and other current assets 1,423 1,515
------------------- -------------------
Total current assets 12,903 19,305
Property and equipment, net 928 1,074
Restricted cash 250 250
Other noncurrent assets 325 382
------------------- -------------------
$ 14,406 $ 21,011
=================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 847 $ 1,608
Accrued liabilities 2,267 2,265
Accrued royalties 1,597 4,309
Income taxes payable 960 994
Deferred revenue 228 262
Customer deposits 63 104
Capital lease obligations 37 51
------------------- -------------------
Total current liabilities 5,999 9,593
------------------- -------------------
Contingency (Note 6)
Shareholders' equity:
Preferred shares - -
Ordinary shares 4,225 4,164
Additional paid-in capital 34,769 34,725
Accumulated deficit (30,126) (27,010)
Cumulative currency translation adjustment (461) (461)
------------------- -------------------
Total shareholders' equity 8,407 11,418
------------------- -------------------
$ 14,406 $ 21,011
=================== ===================
</TABLE>
See accompanying notes
Page 3
<PAGE>
INSIGNIA SOLUTIONS PLC
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------------------------
1999 1998
---------------- ---------------
<S> <C> <C>
Net revenues:
License $ 2,180 $ 4,760
Service 128 222
---------------- ---------------
Total net revenues 2,308 4,982
---------------- ---------------
Cost of net revenues:
License 1,093 2,478
Service 178 441
---------------- ---------------
Total cost of net revenues 1,271 2,919
---------------- ---------------
Gross profit 1,037 2,063
---------------- ---------------
Operating expenses:
Sales and marketing 1,628 2,563
Research and development 1,615 1,496
General and administrative 978 1,361
---------------- ---------------
Total operating expenses 4,221 5,420
---------------- ---------------
Operating loss (3,184) (3,357)
Interest income, net 155 151
Other income (expense), net (47) 14,791
---------------- ---------------
Income (loss) before income taxes (3,076) 11,585
Provision for income taxes 40 3,953
---------------- ---------------
Net income (loss) $ (3,116) $ 7,632
================ ===============
Net income (loss) per share:
Basic $ (0.25) $ 0.63
================ ===============
Diluted $ (0.25) $ 0.62
================ ===============
Weighted average equivalent shares:
Basic 12,690 12,077
================ ===============
Diluted 12,690 12,404
================ ===============
</TABLE>
See accompanying notes
Page 4
<PAGE>
INSIGNIA SOLUTIONS PLC
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(AMOUNTS IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,116) $ 7,632
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation 176 236
Other - (14,731)
Net changes in assets and liabilities:
Accounts receivable, net 689 699
Prepaid and other current assets 92 (655)
Prepaid income taxes - 864
Other noncurrent assets 57 82
Accounts payable (761) 142
Accrued liabilities 2 (69)
Customer deposits (41) (182)
Accrued royalties (2,712) (1,491)
Deferred revenue (34) (335)
Income taxes (34) 3,316
Noncurrent liabilities - 98
------------- -------------
Net cash used in operating activities (5,682) (4,394)
------------- -------------
Cash flows from investing activities:
Purchases of property and equipment (50) (284)
Purchase of short-term investments, net - (2,237)
Proceeds from sale of product line 20 16,597
Product line sale proceeds held in escrow (100) (8,750)
Product line sale proceeds released from escrow 2,500 -
------------- -------------
Net cash provided by investing activities 2,370 5,326
------------- -------------
Cash flows from financing activities:
Payments made under capital leases (14) (76)
Proceeds from issuance of shares, net 105 188
------------- -------------
Net cash provided by financing activities 91 112
------------- -------------
Net increase (decrease) in cash and cash equivalents (3,221) 1,044
Cash and cash equivalents at beginning of the period 6,798 10,641
------------- -------------
Cash and cash equivalents at end of the period $3,577 $11,685
============= =============
</TABLE>
See accompanying notes
Page 5
<PAGE>
INSIGNIA SOLUTIONS PLC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The condensed consolidated financial statements are unaudited. However, in the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) which are necessary for a fair presentation of the financial
position and results for the interim period have been included.
The results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results to be expected for the entire fiscal year,
which ends on December 31, 1999.
These condensed consolidated financial statements should be read in conjunction
with the financial statements and notes thereto for the year ended December 31,
1998, included in Insignia's 1998 Annual Report and Insignia's Form 10-K.
NOTE 2. INCOME TAX PROVISION (BENEFIT)
Insignia's provision for income taxes for the three months ended March 31, 1999,
primarily represents certain non-U.S. taxes arising from sales to customers in
Japan. Insignia accounts for income taxes under an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in
Insignia's financial statements or tax returns. In estimating future tax
consequences, Insignia generally considers all expected future events other than
enactments of changes in the tax law or rates.
NOTE 3. NET INCOME (LOSS) PER SHARE
Net income (loss) per share ("EPS") is presented on a Basic and Diluted basis,
and is based upon the weighted average number of ordinary and ordinary
equivalent shares outstanding during the period. Ordinary equivalent shares
consist of warrants and stock options (using the modified treasury stock
method). Under the Basic method of calculation of EPS, ordinary equivalent
shares are excluded from the computation. Under the Diluted method of
calculation of EPS, ordinary share equivalents are excluded from the computation
if their effect is anti-dilutive.
NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133 "Accounting for Derivative Instruments and
Hedging Activities" ("FAS 133"). FAS 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities. This statement
becomes effective for all fiscal quarters of fiscal years beginning after June
15, 1999. Insignia will adopt FAS 133 in 2000. Insignia expects the adoption
of FAS 133 will not affect results of operations.
Page 6
<PAGE>
In March 1998, the AICPA issued Statement of Position No. 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP
98-1"). SOP 98-1 provides guidance on accounting for the costs of computer
software developed or obtained for internal use and is effective for financial
statements for fiscal years beginning after December 15, 1998. Insignia has
adopted SOP 98-1 in 1999. The adoption of SOP 98-1 did not have a material
impact on the results of operations.
NOTE 5. COMPREHENSIVE INCOME (LOSS)
In 1998, Insignia adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("FAS 130"). FAS 130 requires that all items
recognized under accounting standards as components of comprehensive earnings be
reported in an annual statement that is displayed with the same prominence as
other annual financial statements. FAS 130 also requires that an entity classify
items of other comprehensive earnings by their nature in an annual financial
statement. The accumulated other comprehensive loss at March 31, 1999 and
December 31, 1998 related to cumulative currency translation adjustments.
Total comprehensive income (loss) was not different from the net income (loss)
reported for the three months ended March 31, 1999.
NOTE 6. CONTINGENCIES
MICROSOFT
Insignia has a non-exclusive, worldwide license from Microsoft ("Microsoft
Distribution Agreement") to reproduce, adapt and distribute the currently
available versions of Windows and MS-DOS that are included as a component of
Insignia's SoftWindows products. Insignia pays Microsoft a per unit royalty for
copies of Insignia's products sold that include a version of Windows and MS-DOS.
The current royalty amounts are based upon certain estimates of the volume of
Insignia's sales of SoftWindows. The Microsoft Distribution Agreement expired on
March 31, 1997, but was extended until September 30, 1998 on substantially the
same terms. Insignia subsequently entered into a new distribution agreement
dated October 1, 1998 on substantially the same terms, effective for one year.
In January 1999, pursuant to this agreement, Microsoft began an audit of the
royalties paid in 1997 and 1998. Insignia has not been notified of the outcome
of the audit. If Microsoft claims underpayment of royalties, under this
agreement, Insignia may be subject to penalties in addition to the repayment of
the underpaid royalties.
Page 7
<PAGE>
CITRIX
In February 1998, Insignia disposed of its NTRIGUE technology for $17.687
million. A substantial portion of the total purchase price paid by the Buyer
("Citrix") was placed in escrow to secure Insignia's agreement to indemnify
Citrix with respect to certain matters.
On January 29, 1999, Insignia received an indemnity claim from Citrix for an
amount estimated by Citrix to not exceed $6.25 million. The claim was made
pursuant to the Asset Purchase Agreement between Insignia and Citrix under which
Citrix purchased Insignia's NTRIGUE product line in February 1998.
Citrix' indemnity claim is based on a declaratory relief action that Citrix
filed against GraphOn Corporation ("GraphOn") in November 1998 in the United
States District Court, Southern District of Florida. Citrix' action against
GraphOn seeks a declaratory judgement that Citrix does not infringe any GraphOn
proprietary rights and that Citrix has not misappropriated any trade secrets or
breached an agreement to which GraphOn is a party. Citrix filed the action in
response to and to resolve assertions first made by GraphOn, and disclosed to
Citrix in January 1998, that Insignia used GraphOn's confidential information to
develop certain of Insignia's products, possibly including products Insignia
sold to Citrix in February 1998. GraphOn has not filed an action against either
Insignia or Citrix relating to its assertions and Insignia believes such
assertions by GraphOn are without merit or basis. Accordingly, Insignia intends
to contest Citrix' indemnity claim.
NOTE 7. SEGMENT INFORMATION
In 1998, Insignia adopted Statement of Financial Accounting Standards 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131"). FAS 131 supersedes FAS 14, "Financial Reporting for Segments of a
Business Enterprise", replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of Insignia's reportable segments. FAS 131
also requires disclosures about products and services, geographic areas, and
major customers. The adoption of FAS 131 did not affect results of operations
but did affect the disclosure of segment information.
Insignia operates in a single industry segment providing virtual machine
technology which enables software applications and operating systems to be run
on various computer platforms. In the first quarter of 1999, Ingram Micro U.S.,
Software House International, and Mitsubishi accounted for 10%, 23% and 16% of
total revenues, respectively. In the first quarter of 1998, Ingram Micro U.S.,
Tech Data and Sun Microsystems, Inc. accounted for 25%, 13% and 17% of total
revenues, respectively. No other customer accounted for 10% or more of
Insignia's total revenues during the first quarter of 1999 and 1998.
Page 8
<PAGE>
GEOGRAPHIC INFORMATION
Financial information by geographical region is summarized below (in thousands):
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues from unaffiliated customers:
United States........................... $ 2,081 $ 4,666
International........................... 227 316
------------ ------------
Consolidated................................. $ 2,308 $ 4,982
============ ============
Intercompany revenues:
United States........................... $ 169 $ 465
International........................... 111 540
------------ ------------
Consolidated................................. $ 280 $ 1,005
============ ============
Operating loss:
United States........................... $(1,083) $ (536)
International........................... (2,101) (2,821)
------------ ------------
Consolidated................................. $(3,184) $(3,357)
============ ============
Identifiable assets:
United States........................... $ 3,603 $10,446
International........................... 24,210 33,798
Intercompany items and eliminations..... (13,390) (8,829)
------------ ------------
Consolidated................................. $14,406 $35,415
============ ============
</TABLE>
All of the international revenues and substantially all of the international
identifiable assets relate to Insignia's operations in the United Kingdom.
Intercompany sales are accounted for at prices intended to approximate those
that would be charged to unaffiliated customers.
Page 9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
unaudited condensed consolidated financial statements and notes thereto included
in Part I - Item 1 of this Form 10-Q and the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" set forth in
Insignia's Form 10-K for the year ended December 31, 1998 (the "Form 10-K").
FUTURE OPERATING RESULTS
This Form 10-Q contains forward looking statements. These forward looking
statements concern matters which include the revenue model and market for Jeode,
international sales, the availability of licenses to third-party proprietary
rights, Year 2000 compliance, exchange rate fluctuations and Insignia's
liquidity and capital needs and other statements regarding matters that are not
historical. These matters involve risks and uncertainties that could cause
actual results to differ materially from those in the forward looking
statements. In addition to the factors discussed above, among the other factors
that could cause actual results to differ materially are the following: the
demand for Jeode; Insignia's ability to deliver on time, and market acceptance
of new products or upgrades of existing products; the timing of, or delay in,
large customer orders; continued availability of technology and intellectual
property license rights; product life cycles; quality control of products sold;
competitive conditions in the industry; economic conditions generally or in
various geographic areas; and the risks listed from time to time in the reports
that Insignia files with the U.S. Securities and Exchange Commission.
Insignia's future performance depends upon sales of products within Insignia's
Jeode product line, which is a new product. Jeode may not achieve or sustain
market acceptance or provide the desired revenue levels. The failure of the
Jeode product to provide an adequate level of performance and functionality, or
the lack of market acceptance of this product for any reason, would have a
material adverse effect on Insignia's business, financial condition and results
of operations. If the Jeode product is successful and developed on a timely
basis, Insignia will be required to further develop direct sales channels in the
embedded systems market and to hire and train more direct sales personnel.
Competition for qualified sales personnel is intense and Insignia may not be
able to attract the personnel needed to market and sell products in the embedded
systems market. Insignia anticipates increased operating expenses as it
introduces the product and develops the organization to market, sell and support
the product, before any revenue is recognized from sales of the product. There
can be no assurance that Insignia will experience growth in revenues in any
particular period when compared to prior periods. Any quarterly or annual
shortfall in net revenues in relation to expectations would have a material
adverse effect on Insignia's business, operating results and financial
condition. Insignia may not be able to achieve or sustain profitability. If
Insignia's revenues grow more slowly than anticipated, or if Insignia's
operating expenses exceed expectations and cannot be adjusted, Insignia's
business, operating results and financial condition would be materially and
adversely affected. In future periods, Insignia's operating results may fall
below the levels expected by securities analysts and shareholders, which would
result in a substantial decline in the trading price of Insignia's shares and
could have an adverse effect on the liquidity of Insignia's shares.
Page 10
<PAGE>
Insignia's Annual Report on Form 10-K for 1998 includes an analysis of certain
risks of Insignia's business, including risks which are inherent to software
development, as well as specific risks relating to the competitive environment
in which Insignia operates. Although Insignia has sought to identify the most
significant risks to its business, Insignia cannot predict whether, or to what
extent any such risks may be realized, nor can there be any assurance that
Insignia has identified all possible issues which Insignia might face. Potential
risks and uncertainties include, without limitation, those mentioned in
Insignia's Form 10-K; and in particular the continued acceptance by the
marketplace of Insignia's products and Insignia's ability to successfully
develop new products in the future. Investors should carefully read Insignia's
filings with the Securities and Exchange Commission, together with this Form
10-Q, and consider all trends and uncertainties concerning Insignia's business
before making an investment decision with respect to Insignia's stock.
Page 11
<PAGE>
The following table sets forth the unaudited condensed consolidated results of
operations as a percentage of total revenues for the three month periods ended
March 31, 1999 and 1998.
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Net revenues:
License 94.5% 95.5%
Service 5.5% 4.5%
-------------- --------------
Total net revenues 100.0% 100.0%
-------------- --------------
Cost of net revenues:
License 47.4% 49.7%
Service 7.7% 8.9%
-------------- --------------
Total cost of net revenues 55.1% 58.6%
-------------- --------------
Gross margin 44.9% 41.4%
-------------- --------------
Operating expenses:
Sales and marketing 70.5% 51.5%
Research and development 70.0% 30.0%
General and administrative 42.4% 27.3%
-------------- --------------
Total operating expenses 182.9% 108.8%
-------------- --------------
Operating loss (138.0%) (67.4%)
Interest income, net 6.7% 3.0%
Other income (expense), net (2.0%) 296.9%
-------------- --------------
Income (loss) before income taxes (133.3%) 232.5%
Provision for income taxes 1.7% 79.3%
-------------- --------------
Net income (loss) (135.0%) 153.2%
============== ==============
</TABLE>
OVERVIEW
Insignia, which commenced operations in 1986, develops, markets and supports
virtual machine technology which enables software applications and operating
systems to be run on various computer platforms.
Insignia's principal product line in recent years has been SoftWindows -TM-.
This product enables Microsoft Windows ("Windows"-Registered Trademark-)
applications to be run on most Apple Computer Inc. ("Apple"-Registered
Trademark-) Macintosh computers and many UNIX workstations. Revenues from
this product line have been declining since 1995 as a result of two factors.
One factor is the declining Macintosh market. The other factor is increased
competition which has led to reduced prices and margins. In late 1997,
Insignia began a strategic review of its business and explored new markets
that would leverage Insignia's 10 years of emulation software development
experience.
Page 12
<PAGE>
In January 1998, Insignia announced its intention to launch a new product
line. This product line, called Jeode-TM-, is based on Insignia's Embedded
Virtual Machine ("EVM"-TM-) technology. Jeode is Insignia's implementation of
Sun Microsystems, Inc.'s ("Sun") Java-Registered Trademark- technology
developed specifically for embedded systems. The Jeode platform is enabled by
Insignia's EVM and is designed to enable software developers to create
reliable, efficient and predictable embedded products. In November 1998,
Insignia delivered beta versions of the Jeode platform. The product became
available for sale in March 1999 and is expected to be the principal product
line in 1999 and the foreseeable future. Insignia expects its Jeode product
line to generate revenue in 1999. Revenue from the Jeode product line will
initially be derived from three main sources: the sale of a development
license, the sale of annual maintenance and support, and a commercial use
royalty based on shipments of products that include Jeode technology.
Between December 1995 and May 1998, Insignia shipped NTRIGUE-TM-, a Windows
compatibility client/server product that supported multiple X-terminals,
workstation clients, Macintosh computers, PCs, network computers and Net PCs
from a Windows NT-based server. Insignia disposed of its NTRIGUE technology in
February 1998 for $17.687 million.
In the first quarter of 1999, Insignia shipped one principal product line:
SoftWindows. Insignia derived its revenue from the shipment of products and from
offering support services. The majority of revenues were derived from the
shipment of products.
REVENUES
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------------------
1999 1998
----------------- ---------------
(in thousands)
<S> <C> <C>
License revenue $ 2,180 $ 4,760
Service revenue 128 222
----------------- ---------------
Total net revenue $ 2,308 $ 4,982
----------------- ---------------
----------------- ---------------
</TABLE>
Insignia derives its SoftWindows revenues from the sale of packaged software
products and annual maintenance contracts. Revenues from the sale of packaged
products and royalties received from OEMs are classified as license revenue,
while revenues from customer-funded engineering activities and annual
maintenance contracts are classified as service revenue.
In the first quarter of 1999, total revenues and license revenues declined by
54% compared to the first quarter of 1998. The decline is primarily due to
increased competition in the Macintosh and UNIX markets, a declining market
share for Apple Macintosh compatible computers, and the sale of Insignia's
NTRIGUE business.
Service revenue in the first quarter of 1999 was 42% lower than service revenue
in the first quarter of 1998, primarily as a result of Insignia no longer
selling NTRIGUE maintenance or support contracts. Revenues from customer-funded
engineering activities under OEM contracts also declined.
Page 13
<PAGE>
Sales of Macintosh-based products decreased by 49% compared to sales in the
first quarter of 1998. Revenue from the sale of Insignia's products for
Macintosh computers accounted for 63% of total revenues in the three month
period ended March 31, 1999 and 57% of total revenues in the three month period
ended March 31, 1998.
Revenues from the sale of Insignia's products for UNIX computers accounted for
37% of total revenues in the three months ended March 31, 1999 and 31% of total
revenues in the three months ended March 31, 1998. Sales of UNIX-based products
decreased by 41% compared to sales in the first quarter of 1998.
In the three months ended March 31, 1998, revenue from the sale of NTRIGUE
products accounted for 12% of total revenue. There was no NTRIGUE revenue in the
first quarter of 1999 as a result of the sale of Insignia's NTRIGUE product
line.
Insignia distributes its SoftWindows packaged products within the United States
and internationally through multiple distributors and resellers. Insignia offers
certain return privileges to its customers including product exchange privileges
and price protection. Insignia recognizes revenues from packaged products upon
shipment with provisions for estimated future returns, exchanges and price
protection being recorded as a reduction of total revenues.
Page 14
<PAGE>
Sales to distributors and OEM's representing more than 10% of total revenue in
each period accounted for the following percentages of total revenues.
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------------------
1999 1998
----------------- ---------------
<S> <C> <C>
Distributors:
Software House International 23% *
Sun Microsystems * 17%
Mitsubishi 16% *
Ingram Micro 10% 25%
Tech Data * 13%
All Distributors: 66% 63%
</TABLE>
* Less than 10%
Sales to customers outside the United States, derived mainly from customers in
Europe and Asia, represented approximately 27% of total revenues in the three
months ended March 31, 1999 and 9% of total revenues in the three months ended
March 31, 1998. Movements in currency exchange rates did not have a material
impact on total revenues in the three months ended March 31, 1999 or March 31,
1998. However, there can be no assurance that movements in currency exchange
rates will not have a material adverse effect on Insignia's future revenues and
results of operations.
COST OF REVENUES AND GROSS MARGIN
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------------------
1999 1998
----------------- ---------------
(in thousands, except percentages)
<S> <C> <C>
Cost of license revenue $ 1,093 $ 2,478
Gross margin: license revenue 50% 48%
Cost of service revenue 178 441
Gross margin: service revenue (39%) (99%)
Total cost of revenues $ 1,271 $ 2,919
Gross margins: total revenues 45% 41%
</TABLE>
Cost of license revenue comprises mostly royalties to third parties, along with
the costs of documentation, duplication and packaging. Cost of service revenue
includes costs associated with customer-funded engineering activities and
end-user support under maintenance contracts.
Page 15
<PAGE>
Insignia's distribution agreement with Microsoft Corporation expired on March
31, 1997, but was extended until September 30, 1998 on substantially the same
terms. Insignia subsequently entered into a new distribution agreement dated
October 1, 1998 on substantially the same terms, effective for one year.
Termination or expiration without renewal of the Microsoft Distribution
Agreement would result in the inability of Insignia to sell its SoftWindows
products. However, since 1995, revenues and margins from SoftWindows have been
declining, primarily as a result of competitive pricing pressure. Revenues and
margins on the SoftWindows product line are at a level where Insignia's future
can no longer depend on them.
Insignia's gross margin for license revenue is significantly affected by many
factors, including pricing of Insignia's products, royalties paid to third
parties, the mix of products licensed, the channels through which Insignia's
products are distributed and product maturity. Insignia's gross margin for
license revenue can also be affected in particular periods by pricing strategies
and return privileges employed in connection with new product introductions and
upgrades. License gross margins in the quarter ended March 31, 1999 were 50%,
compared to 48% for the same period in 1998.
Insignia believes that the significant factors affecting the Jeode gross margin
will include pricing of the development license, pricing of the unit usage and
royalties to third parties such as Sun Microsystems. In early 1999, Insignia
signed a five-year agreement with Sun Microsystems under which Sun established
Insignia as an authorized Virtual Machine provider. Under this agreement
Insignia will pay Sun a per unit royalty on each Jeode-enabled embedded product
shipped by Insignia's customers, plus a royalty on all development licenses put
in place between Insignia and its customers.
Gross margin for service revenue increased in the first quarter of 1999 to (39%)
from (99%) in the same period of 1998 as a result of discontinuing the NTRIGUE
support costs.
Service revenue gross margins for 1999 are expected to increase due to the
required maintenance and upgrade contracts for each Jeode product sale.
OPERATING EXPENSES
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------------------
1999 1998
----------------- ---------------
(in thousands, except percentages)
<S> <C> <C>
Sales and marketing $ 1,628 $ 2,563
Percentage of total revenues 71% 51%
Research and development $ 1,615 $ 1,496
Percentage of total revenues 70% 30%
General and administrative $ 978 $ 1,361
Percentage of total revenues 42% 27%
</TABLE>
Page 16
<PAGE>
Sales and marketing expenses include advertising and promotional expenses, trade
shows, personnel and related overhead costs, and salesperson commissions. Sales
and marketing expenses decreased by 36% in the quarter ended March 31, 1999 from
the quarter ended March 31, 1998. The decrease is due to reduced spending on
advertising programs and staffing. Insignia anticipates sales and marketing
expenses to increase in the second quarter of 1999 as Insignia develops a
marketing and direct sales organization for its Jeode product line.
Research and development expenses consist primarily of personnel costs, overhead
costs relating to occupancy and equipment depreciation. Research and development
expenses increased by 8% in the three months ended March 31, 1999 over the same
period in 1998. The increase is due to Insignia's investment in the development
of the Jeode technology. Also, for the three months ended March 31, 1998,
Insignia decreased its development expenses due to staffing reductions
associated with the disposal of NTRIGUE. In accordance with Statement of
Financial Accounting Standards No. 86, software development costs are expensed
as incurred until technological feasibility is established, after which any
additional costs are capitalized. In 1999 and 1998, no development expenditures
were capitalized.
General and administrative expenses consist primarily of personnel and related
overhead costs for finance, information systems, human resources and general
management. General and administrative expenses decreased by 28% in the three
months ended March 31, 1999 over the same period in 1998. The decline is due to
reduced headcount and reduced legal fees.
INTEREST INCOME, NET
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------------------
1999 1998
----------------- ---------------
(in thousands, except percentages)
<S> <C> <C>
Interest income, net $ 155 $ 151
Percentage of total revenues 7% 3%
</TABLE>
Interest income, net increased from $151,000 in the three months ended March 31,
1998 to $155,000 in the three months ended March 31, 1999 due primarily to
increased interest income earned on Insignia's cash and cash equivalents.
OTHER INCOME (EXPENSE), NET
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------------------
1999 1998
----------------- ---------------
(in thousands, except percentages)
<S> <C> <C>
Other income (expense), net $ (47) $ 14,791
Percentage of total revenues (2%) 297%
</TABLE>
Other income (expense), net decreased from income of $14.791 million to an
expense of $47,000. The income in the first quarter of 1998 was a result of the
gain on disposal of the
Page 17
<PAGE>
NTRIGUE product line of $14.731 million. This gain comprised gross disposal
proceeds of $17.687 million less $2.956 million of transaction expenses,
employment termination costs and losses related to the property and equipment
sold or written down in value.
In the three months ended March 31, 1999, Insignia realized a foreign exchange
loss of $47,000 compared to a gain of $60,000 in the three months ended March
31, 1998.
Over 90% of Insignia's total revenues and approximately 47% of its operating
expenses are denominated in United States dollars. Most of the remaining
revenues and expenses of Insignia are pound sterling denominated and
consequently Insignia is exposed to fluctuations in pound sterling exchange
rates. To hedge against this currency exposure, Insignia enters into foreign
currency options and forward exchange contracts for periods and amounts
consistent with the amounts and timing of its anticipated pound sterling
denominated operating cash flow requirements. Unrealized gains and losses on
foreign currency option contracts are deferred and were not material at March
31, 1999 and December 31, 1998. There can be no assurance that such fluctuations
will not have a material effect on Insignia's results of operations in the
future.
Insignia has, at times, an investment portfolio of fixed income securities that
are classified as "available-for-sale-securities." These securities, like all
fixed income instruments, are subject to interest rate risk and will fall in
value if market interest rates increase. Insignia attempts to limit this
exposure by investing primarily in short-term securities.
PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------------------
1999 1998
----------------- ---------------
(in thousands)
<S> <C> <C>
Provision for income taxes $ 40 $ 3,953
Effective income tax rate - -
</TABLE>
Insignia's provision for income taxes for the three months ended March 31, 1999
primarily represents certain non-U.S. taxes arising from sales to Japan.
Insignia has recorded a full valuation allowance against all deferred tax
assets, primarily comprising net operating losses, on the basis that significant
uncertainty exists with respect to realization.
Page 18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
March 31,
--------------------------------------
1999 1998
----------------- ---------------
(in thousands)
<S> <C> <C>
Cash, cash equivalents and investments $ 4,013 $ 17,742
Cash and cash equivalents held in escrow $ 6,700 $ 8,750
Working capital $ 6,904 $ 10,818
Net cash used by operating activities $ (5,682) $ (4,394)
</TABLE>
Insignia is in the process of transitioning its product focus from Windows
emulation and compatibility products to its Jeode product line based on
Insignia's EVM technology. This change in product focus has resulted in a
redirection of available resources from Insignia's historical revenue base
towards the development and marketing efforts associated with the Jeode
platform, which was not released for general availability until March 1999. As a
result of this change in product strategy and associated redirection of
resources to new product development, Insignia's financial position weakened
during the first quarter of 1999.
At March 31, 1999, Insignia's working capital totaled $6.9 million, of which
$6.7 million was restricted and held in escrow, as compared to working capital
of $10.8 million at March 31, 1998. During the first quarter of 1999, cash used
in operating activities totaled $5.7 million and the principle source of cash
funding came from the sale in February 1998 of the NTRIGUE product line for
$17.687 million. $8.937 million of the NTRIGUE sales proceeds was received in
February 1998, $2.5 million was received in February 1999 and the remaining
$6.25 million, plus interest, is being held in escrow pending resolution of the
Citrix indemnity claim.
Insignia continues to face significant risks associated with the successful
execution of its new product strategy. These risks include, but are not limited
to continued technology and product development, introduction and market
acceptance of new products, changes in the marketplace, liquidity, competition
from existing and new competitors which may enter the marketplace and retention
of key personnel. Due to the generally longer sales cycles expected to be
associated with the Jeode platform, Insignia does not currently have accurate
visibility of future order rates and demand for its products generally. There
can be no assurance that Jeode platform products will achieve market acceptance.
Insignia believes that additional financing will be necessary before December
31, 1999, as its existing cash and cash equivalents are insufficient to meet
Insignia's operating and capital requirements for the next nine months. Insignia
to date has made no commitments nor agreed to any arrangements to obtain
additional financing, but is currently considering various financing
alternatives. There can be no assurance that Insignia will be able to obtain
such funding when needed, on acceptable terms or at all. The failure to raise
additional funds on a timely basis and on sufficiently favorable terms could
have a material adverse effect on Insignia's business, operating results and
financial condition.
Insignia's liquidity may be adversely affected in the future by factors such as
higher interest rates, inability to borrow without collateral, availability of
capital financing and continued operating losses. Further, significant
fluctuations in quarterly operating results has had and, in the future, may
continue to have a negative affect on Insignia's liquidity. Factors such as
price reductions,
Page 19
<PAGE>
the introduction and market acceptance of new products and product returns
have contributed to this quarterly variability. Moreover, Insignia's expense
levels are based in part on expectations of future sales levels, and a
shortfall in expected sales could thererfore result in a disproportionate
decrease in results of operations. As such, the results of operations in some
future period may be below the expectations of investors, which would likely
result in a significant reduction in the market price of Insignia's shares. A
decline in the market price of Insignia's shares would have a negative effect
on Insignia's ability to raise needed capital on terms and conditions
acceptable to management.
YEAR 2000 COMPLIANCE
It is generally anticipated that many organizations will experience operational
difficulties at the beginning of the Year 2000 as a result of the fact that many
currently installed computer systems, embedded systems, and software products
are coded to accept only two digit entries in the date code field. Significant
uncertainty exists in the software and other industries concerning the scope and
magnitude of problems associated with the century change.
Insignia's assessment of the impact of this issue has encompassed 1) software
held for resale; 2) internally utilized systems; 3) computerized information and
software provided by third parties which might be integral to customer usage of
Insignia's products; 4) compliance issues related entirely to the state of
readiness by customers and vendors and 5) Year 2000 cost. Set forth below is the
status of each review and the estimated impact, to the extent management can
determine at this time.
SOFTWARE HELD FOR RESALE
Based on Insignia's assessment to date, Insignia believes that all versions of
Jeode, SoftWindows 98 products, SoftWindows95 products, RealPC and NTRIGUE, a
product Insignia no longer ships, are Year 2000 compliant. Earlier versions of
SoftWindows and all versions of Soft PC, a product Insignia no longer ships, are
not Year 2000 compliant, but all such versions are upgradable to Year 2000
compliant products. However, there can be no assurance that all of Insignia's
customers will install the Year 2000 compliant version of Insignia's products in
a timely manner, which could lead to failure of customer systems and product
liability claims against Insignia. Even if Insignia's products are Year 2000
compliant, Insignia may in the future be subject to claims based on Year 2000
issues in the products of other companies, or issues arising from the
integration of multiple products within a system. The costs of defending and
resolving Year 2000 related disputes, and any liability of Insignia for Year
2000 damages, including consequential damages, could have a material adverse
effect on Insignia's business, financial condition and results of operations.
INTERNAL SYSTEMS
Insignia has carried out an assessment of its own internal systems and believes
that they are all Year 2000 compliant.
Page 20
<PAGE>
THIRD-PARTY SYSTEMS
Insignia has reviewed its material third-party relationships such as key
suppliers and distributors. Insignia believes all computerized information and
software provided by third parties that might be integral to customer usage of
Insignia's products is Year 2000 compliant.
Although Insignia believes that its internal critical processes are Year 2000
ready, Insignia also recognizes that it is vulnerable, as are most
organizations, to the inability of third-party external interface suppliers and
utility organizations to achieve Year 2000 readiness. The most reasonable worst
case scenario could include failure of power and water supplies, major
transportation disruptions, and failures of communications and financial systems
- - any one of which could have a major and material effect on Insignia's ability
to produce its products and deliver services to its customers. While Insignia
has contingency plans in place to address most issues under its control, a
problem outside its control could result in a delay in product shipments
depending on the nature and severity of the problems.
CUSTOMERS AND VENDORS
Insignia's products are generally used with systems and software involving
complicated software products developed by other vendors, which may not be Year
2000 compliant. Failure of the information systems of Insignia's customers
because of the failure of such noncompliant systems or software or for any other
reason, could also affect the perceived performance of Insignia's products,
which could have a negative effect on Insignia's competitive position. In
addition, Insignia believes that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues as companies expend
significant resources to correct or patch their current software systems for
Year 2000 compliance. These expenditures may result in reduced funds available
to purchase software products such as those offered by Insignia, which could
result in a material adverse effect on Insignia's business, financial condition
and results of operations.
YEAR 2000 COST
The total cost associated with preparation for the Year 2000 has not been, and
is not expected to be, material to Insignia's business, financial condition or
results of operations. Nevertheless, Insignia may not timely identify and
remediate all significant Year 2000 problems and remedial efforts may involve
significant time and expense. There can be no assurance that any Year 2000
compliance problems of Insignia or its customers or suppliers will not have a
material adverse effect on Insignia's business, financial condition and results
of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Insignia enters into derivative financial instruments such as currency option
contracts to hedge certain anticipated, but not yet committed, transactions
expected to be denominated in foreign currencies. Insignia does not use
derivative financial instruments for trading or speculative purposes.
Insignia's downside risk with respect to currency option contracts (British
pounds) is limited to the premium paid for the right to exercise the option.
Premiums paid for options outstanding as of March 31, 1999 were not material.
Page 21
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this Report:
<TABLE>
<S> <C>
Exhibit 10.46 Technology License and Distribution Agreement between
Sun Microsystems, Inc. and Insignia Solutions, plc dated
March 3, 1999*
Exhibit 11.1 Statement Regarding Computation of Earnings (Loss) Per Share
Exhibit 27.1 Financial Data Schedule
</TABLE>
*Confidential treatment has been requested with respect to certain portions of
this Exhibit. Such portions have been omitted from this filing and have been
filed separately with the Commission.
(b) Reports on Form 8-K
None
Page 22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
INSIGNIA SOLUTIONS PLC
(Registrant)
Date: May 13, 1999
/s/ Stephen M. Ambler
-----------------------
Stephen M. Ambler
Chief Financial Officer
Page 23
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER EXHIBIT TITLE NUMBER
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Exhibit 10.46 Technology License and Distribution Agreement between Sun
Microsystems, Inc. and Insignia Solutions, plc dated March 3, 1999*
Exhibit 11.1 Statement Regarding Computation of Earnings (Loss) Per Share
Exhibit 27.1 Financial Data Schedule
</TABLE>
* Confidential treatment has been requested with respect to certain portions of
this Exhibit. Such portions have been omitted from this filing and have been
filed separately with the Commission.
Page 24
<PAGE>
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
TECHNOLOGY LICENSE
AND
DISTRIBUTION AGREEMENT
This Technology License and Distribution Agreement ("the Agreement") is
entered into this _______ day of March, 1999 (the Effective Date") between
Sun Microsystems, Inc., ("Sun") with its principal place of business at 901
San Antonio Road, Palo Alto, California 94303 and Insignia Solutions, Plc.,
an English company with its principal place of business at 41300 Christy
Street, Fremont, California 94538 ("Insignia").
RECITALS
WHEREAS Sun wishes to license its Java-TM- Environments, while maintaining
compatibility among Java language based products; and
WHEREAS Sun wishes to protect and promote certain trademarks used in
connection with Java Environments; and
WHEREAS Insignia has independently developed its own implementation of
certain Java Environments and wishes to develop and distribute to Java
Environments licensees products incorporating elements of Sun's Java
Environments and trademarks;
NOW THEREFORE, Sun and Insignia enter into this Agreement on the following
terms.
1. DEFINITIONS
1.1 "AFFILIATE(S)" means any company which as of the Effective Date or
during the Term, Insignia directly or indirectly holds greater than
fifty percent (50%) of the voting power at general meetings or has the
power to appoint a majority of the directors, or otherwise directs the
activities thereof and such companies agree in writing to be bound by
the terms of this Agreement
1.2 "APPLET" means a Java application which (i) runs on the Java
Environments and (ii) consists of Java byte codes executable by the Java
Runtime Interpreter (but does not include or incorporate the Java
Runtime Interpreter or the Java class libraries).
1.3 "APPLICATION PROGRAMMING INTERFACES" or "APIS" means the names of class
library calls and the number and types of arguments they take in
invoking the functionality of such class libraries.
1.4 "BUG FIXES" means correction of errors in either the Shared Part or
Platform Dependent Part of the Java Environments.
1.5 "EMBEDDED CLASS LIBRARIES" means Insignia's implementation of the
Modifiable Part (excluding the Java Virtual Machine) whether modified
wholly or in part by Insignia.
1.6 "EMBEDDED VIRTUAL MACHINE" OR "EVM" means Insignia's implementation of
the specifications of the Java Virtual Machine (JVM) as delivered by
Sun, which complies with the TCK, and which allows developers to run
Java applications on target hardware or software systems.
1.7 "EXHIBIT C" means collectively Exhibits C-1 through C-n, which
incorporate into the Agreement the specific terms and conditions for
each Java Environments licensed hereunder.
1.8 "FCS" means first commercial shipment of a production version of a
software or hardware product or technology.
1.9 "INSIGNIA" means both Insignia Solutions, Plc. and its corporate
subsidiary Insignia Solutions Inc., a Delaware corporation.
1.10 "INSIGNIA DOCUMENTATION" means the materials which Insignia provides for
use with Insignia Products.
1.11 "INSIGNIA EXTENSION(S)" means any additional Java classes developed by
or for Insignia which: (i) are designed for use with the Java
Environments; (ii) constitute an API for a library of computing
functions or services; and (iii) are disclosed to third party software
developers for the purpose of developing software which invokes such
additional classes. The foregoing shall not apply to software
development by Insignia subcontractors to be exclusively used by
Insignia.
1 of 26
<PAGE>
1.12 "INSIGNIA LICENSEE(S)" means Sun Licensees who are further licensed by
Insignia to: (i) use Insignia Products in whole or in part; and (ii)
subsequently distribute in whole or in part Insignia Products in binary
form within such an Insignia Licensee Product either a) directly within
such Insignia Licensee's own proprietary hardware or software product,
or b) through the licensing of such Insignia Licensee Product(s) to OEMs
for inclusion with a hardware or software product.
1.13 "INSIGNIA LICENSEE PRODUCT(S)" means an Insignia Licensee product into
which an Insignia Product is implemented or integrated in whole or in
part. An Insignia Licensee Product must: (i) have a principal purpose
which is substantially different from that of the stand-alone Insignia
Product; (ii) represent a significant functional and value enhancement
to the Insignia Product; (iii) operate in conjunction with the Insignia
Product; and (iv) not be marketed as a technology which replaces or
substitutes for the Insignia Product or Java Environments.
1.14 "INSIGNIA PRODUCT(S)" means any product based on the Insignia
Technology. An Insignia Product may: (i) have a principal purpose which
is substantially different from or similar to that of any Java
Environments; (ii) represent a significant functional and value
enhancement to any Java Environments; (iii) operate in conjunction with
any Java Environments; and (iv) be marketed as a technology which
replaces or substitutes for any Java Environments.
1.15 "INSIGNIA ROYALTIES" means, for each individual Insignia Licensee
Product, the sum of money denominated in U.S. dollars, which is payable
by Insignia to Sun pursuant to Section 4.2.
1.16 "INSIGNIA TECHNOLOGY" means the Embedded Virtual Machine and Embedded
Class Libraries which implement the Sun Specifications in whole or in
part, and related software development tools, produced by Insignia and
marketed by Insignia and all future products or components relating
thereto that Insignia may decide to include.
1.17 "JAVA CLASSES" means the specific class libraries associated with each
Java Environment defined in Exhibit C, as may be revised by Sun during
the Term.
1.18 "JAVA ENVIRONMENT(S)" means each or all the Java Application Environment
("JAE"), Personal Java Environment ("pJava"), Embedded Java Environment
("eJava"), and future Sun Java Environments, (excluding Sun Tools),
described in specifications from Sun, as may be introduced or revised by
Sun during the Term, and Sun Upgrades thereto.
1.19 "JAVA PARTNER(S)" means those companies who have developed and market
clean room Virtual Machine technologies which implement the Java Virtual
Machine Specification in whole or in part, and who have entered into an
agreement with Sun to distribute such technologies under the Sun
Certified Virtual Machine Logo.
1.20 "JAVA RUNTIME INTERPRETER" means the program(s) which implement the Java
Virtual Machine for a particular Java Environment as specified in the
Java Virtual Machine Specification from Sun, as may be revised by Sun
during the Term.
1.22 "LEGAL PROCEEDING" means any action, suit, litigation, arbitration
proceeding or other proceeding of any nature (including any civil,
criminal, administrative or appellate proceeding).
1.22 "MODIFIABLE PART" means the Sun Java Virtual Machine and those Sun
Source Code files (and the corresponding binary code) of the Java
Environments that are identified in Exhibit C, and additions thereto
which Sun from time to time specifies in the Sun Source Code, or Sun
otherwise authorizes pursuant to Exhibit D.
1.23 "NET REVENUE" means the actual revenue attributable to the EVM and Java
Classes distributed within an Insignia Product.
1.24 "OEM" means an original equipment manufacturer of hardware and/or
software, who integrates product into its own valued added products or
technologies which represent a significant functional and value
enhancement to the original products, and which are distributed through
its established distribution channels.
1.25 "PLATFORM DEPENDENT PART" means those Sun Source Code files (and
corresponding binary code) of the Java Environments that are not in a
"share" directory or subdirectory.
2 of 26
<PAGE>
1.26 "SUN COMMUNITY SOURCE LICENSE" or "SCSL" means a Sun Source Code license
which can be obtained by accessing Sun's community source code website
located at http://sunwww.ebay/software/communitysource, or such other
url that Sun may designate from time to time.
1.27 "SUN DOCUMENTATION" means the materials which Sun provides for use with
the Java Environments, as more particularly identified in Exhibit C, as
may be revised by Sun during the Term.
1.28 "SCSL LICENSEE(S)" means a licensee of a Java Environments through the
SCSL.
1.29 "SHARED PART" means those Sun Source Code files (and corresponding
binary code) of the Java Environments that are in any "share" directory
or subdirectory thereof, as identified within the Sun Source Code.
1.30 "STANDARD EXTENSIONS" means the additional classes and associated APIs
specified in Exhibit C.
1.31 "SUN LICENSEE(S)" means either a TLDA Licensee or a SCSL Licensee.
1.32 "SUN CERTIFIED VIRTUAL MACHINE LOGO" means the specific Java logo
authorized for use pursuant to a license from Sun substantially similar
to the Trademark License.
1.33 "SUN SOURCE CODE" means the code, in whole or in part, of the Java
Environments supplied to Insignia that is not executable by a computer
system directly but must be converted into binary code by compilers,
assemblers, and/or interpreters, as well as Sun Documentation, release
notes, or other specifications that describe the content, organization,
and structure of the Source Code included therein.
1.34 "SUN SPECIFICATION(S)" means the individual specification associated
with each Java Environments identified in Exhibit C as may be revised by
Sun from time to time.
1.35 "SUN TOOLS" means the TCK, and other development tools, in source or
binary code form specified in Exhibit C, as may be revised by Sun during
the Term.
1.36 "SUN UPGRADES" means bug fixes, modifications, variations, and
enhancements, to the extent included in a patch or release of the Java
Environments, which Sun generally licenses as part of the Java
Environments.
1.37 "TECHNOLOGY COMPATIBILITY KIT" or "TCK" means the set of tests and
requirements, and revisions thereto, associated with each Java
Environments, that verify the compatibility of a product with such Java
Environments, consistent with the requirements of the User's Guide.
1.38 "TERM" means the term of the Agreement as specified in Section 10.1.
1.39 "TLDA LICENSEE(S)" means a party who has executed a Technology License
and Distribution Agreement for a Java Environments with rights to
distribute value added products that are fully compatible with such Java
Environments, including licensing of such products to their OEM
customers for further integration into their own products.
1.40 "TRADEMARK LICENSE" means the separate agreement entered into by the
parties that specifies the terms and conditions related to the use of
trademarks, logos and branding in connection with Insignia Products, and
when executed will be attached hereto for reference as Exhibit E.
1.41 "User's Guide" means the users guide for the TCK which Sun makes
available to Sun Licensees to provide direction in how to run the TCK
and properly interpret the results, as may be revised by Sun from time
to time during the Term.
1.42 "VIRTUAL MACHINE" means an abstract specification for a computing device
that can be implemented in different ways, in software or hardware,
consisting of a bytecode instruction set, a set of registers, a stack, a
garbage-collected heap, and an area for storing methods. The Virtual
Machine developed by Sun is the Sun Java Virtual Machine, and the
Virtual Machine developed by Insignia is the EVM.
2. LICENSE GRANTS
2.1 SUN SOURCE CODE PRODUCT DEVELOPMENT LICENSE.
2.1.1 INSIGNIA PRODUCT DEVELOPMENT. Subject to the terms and conditions
contained in this Agreement, Sun hereby grants to Insignia, without any
obligation that Insignia license to Sun any Insignia Technology, a
worldwide, non-exclusive, non-transferable license to use and modify the
Sun Source Code and the Sun
3 of 26
<PAGE>
Specifications for the purposes of:
(i) porting the Sun Platform Dependent Part to any platform;
(ii) development of Bug Fixes;
(iii) integration of the Sun Source Code, and Bug Fixes with Insignia
Technology and other source code of Insignia;
(iv) modification, replacement, and/or improvement of the Source Code
files within the Modifiable Part; and
(v) compiling all of the foregoing to create Insignia Products;
2.1.2 INSIGNIA PRODUCT DEVELOPMENT RESTRICTIONS. In the exercise of the rights
granted in Section 2.1.1. above, Insignia:
(i) must include the Shared Part, complete and unmodified (except those
portions designated as Modifiable Part) in the Insignia Product;
(ii) must include Insignia's implementation of a Java Runtime
Interpreter that conforms to the OEM Java Virtual Machine Specification;
(iii) may not modify, subset or superset the published interfaces of the
Java Classes;
(iv) may not modify or extend the required public class or public
interface declarations whose names begin with "sun", java", "javax",
sun.hotjava", COM.sun" or their equivalents in any subsequent naming
convention; and
(v) may not sublicense or distribute the Sun Source Code to third
parties, except as provided in Sections 2.4, 2.7, and 2.9.
2.1.3 BUG FIXES. Insignia will inform Sun promptly, and no later than it
informs any third party, of any bugs identified in the Java
Environments, and to the extent that Insignia elects to correct such
bugs in the Java Environments, Insignia will make such Bug Fixes
promptly available to Sun free of all restrictions as they are
implemented.
2.1.4 PROPRIETARY RIGHTS NOTICES.
a) Insignia shall not remove any copyright notices, trademark notices or
other proprietary legends of Sun or its suppliers contained on or in the
Java Environments or Sun Documentation, and shall incorporate such
notices in all Insignia Products and related documentation as
applicable. Insignia shall comply with all reasonable requests by Sun to
include additional copyright or other proprietary rights notices of Sun
or third parties from time to time.
b) Insignia shall incorporate its own copyright notices, trademark
notices or other proprietary legends on or in the Insignia Products and
all such notices or legends shall in all cases be of equal placement,
dimension, and promotion to any such notices or legends included
pursuant to the preceding subsection a).
2.1.5 APPLET TAGS. Any Insignia Product that reads or writes hypertext markup
language (HTML) or standard generalized markup language (SGML) shall use
the Document Type Definition ("DTD") as specified in Exhibit A when
referencing the Applet tag, unless another DTD is defined for the Applet
tag by an industry standard.
2.2 SUN SOURCE CODE RESEARCH LICENSE.
2.2.1 Subject to the terms and conditions contained in this Agreement, Sun
hereby grants to Insignia, without the right to sublicense, a worldwide,
non-exclusive, non-transferable license to use and modify the Sun Source
Code for internal research and development, to facilitate the
development of Insignia Products. This research license is not subject
to the restrictions set forth in Section 2.1.2 above, provided that
Insignia may not incorporate any of the Sun Source Code or Insignia
Technology created pursuant to this research license into Insignia
Products or any other products.
2.2.2 If Insignia identifies any changes which are necessary to the Shared
Part to enable porting to other plat-
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forms, Sun will make reasonable efforts to evaluate the feasibility of
implementing such changes or reclassifying the necessary code as
Platform Dependent Part or Modifiable Part.
2.2.3 For the purposes of clarification, the restrictions in this Section 2.2
do not apply to changes to Platform Dependent Part and to Modifiable
Part.
2.3 SUN DOCUMENTATION LICENSE. Subject to the terms and conditions contained
in this Agreement, Sun hereby grants to Insignia, a worldwide, non-
exclusive, non-transferable license to use, copy, modify, translate and
subset the Sun Documentation to create technically accurate Insignia
Documentation associated with the Insignia Products. The foregoing shall
not include the right to modify the Sun Specifications.
2.4 SUBLICENSING OF SUN SOURCE CODE.
2.4.1 SUBCONTRACTORS. In addition to the provisions of Section 2.9
(Distribution License) below, Insignia may deliver and sublicense the
Sun Source Code to third parties located in the countries specified at
http://sunwww.ebay/software/communitysource, for the sole purpose of
furnishing services to Insignia in connection with the rights granted in
Section 2.1 above; provided that all such third parties shall execute
appropriate documents acknowledging their work-made-for-hire status
and/or effecting assignments of all intellectual property rights with
respect to such work to Insignia or Sun, as appropriate, and undertaking
obligations of confidentiality and non-use with respect to such work.
Sun may, upon its request, review and approve or reject any documents
proposed for use by Insignia prior to any use of such contractors.
2.4.2 AFFILIATES. Insignia may provide the Sun Source Code to its Affiliates
located in those countries specified in Section 2.4.1 above, for use
pursuant to the terms of this Agreement, provided that Insignia shall
remain responsible for compliance with this Agreement by such
Affiliates.
2.5 INSIGNIA EXTENSIONS. Subject to the terms and conditions contained in
this Agreement, Sun hereby grants to Insignia, solely for use with
Insignia Products, a worldwide, non-exclusive, non-transferable license
to use information gained from access to the Java Environments to
develop Insignia Extensions, provided that:
(i) Insignia may not include any of the Java Environments in such
Insignia Extension;
(ii) Insignia uses only names for Insignia Extensions that begin with
COM.Insignia" or such other convention as Sun may reasonably require,
and shall make commercially reasonable efforts to ensure that other
software which Insignia develops relating to the Java Environments
conforms to this convention;
(iii) Insignia publishes to the industry, on a non-confidential basis
and free of all copyright restrictions, the external specification for
any Insignia Extension no later than the date on which Insignia first
distributes such Insignia Extension for commercial use. Insignia must
make available an appropriate test suite, pursuant to the same rights as
the specification, sufficiently detailed to allow any third party
reasonably skilled in the technology to produce implementations of the
Insignia Extension compatible with the specification. Such test suites
must be made available as soon as reasonably practicable but, in no
event, later than ninety (90) days after FCS of the Insignia Extension.
Insignia shall use its reasonable commercial efforts to clarify and
correct the specification or the test suite upon written request by Sun.
2.5.1 Insignia agrees to refrain from enforcing any intellectual property
rights it may have covering any external interface(s) of the Insignia
Extension, which would prevent the implementation of such interface(s)
by Sun or any third party. This obligation does not prevent Insignia
from enforcing any intellectual property right it might have that would
otherwise be infringed by an implementation of the Insignia Extension.
2.5.2 Insignia hereby grants to Sun a non-exclusive, worldwide, fully-paid-up
license to use an unlimited number of copies of the Insignia Extension,
in binary form, for Sun's internal use for evaluation and demonstration
only; and
2.5.3 Insignia agrees to negotiate in good faith with Sun the terms of a
commercial license for the source code of the Insignia Extension.
2.6. SUN TOOLS LICENSE GRANT. Subject to the terms and conditions contained
in this Agreement, Sun hereby grants to Insignia, a worldwide, non-
exclusive, non-transferable license to use the Sun Tools solely for the
purpose of developing and testing Insignia Products and Insignia
Licensee Products. Insignia may not sublicense the Sun Tools unless
specifically provided in Exhibit C and Section 2.9 (Distribution
License) below.
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2.7 TCK LICENSE GRANTS.
a. Subject to the terms and conditions contained in this Agreement,
Sun hereby grants to Insignia, a worldwide, non-exclusive, non-
transferable license to:
(i) use the TCK in source and binary code form only to test
Insignia Products for compatibility with the Java Technology;
(ii) modify the TCK to improve testing performance without
compromising the function of the TCK as delivered by Sun, and
subject to written approval by Sun prior to use of such modified
TCK for compatibility testing authorized under this Agreement.
b. Subject to the terms and conditions contained in this Agreement,
Sun and Insignia expressly affirm their intent to establish, as
soon as reasonably possible, a mechanism, satisfactory to both,
whereby Insignia Licensee Product(s) may be tested in accordance
with the TCK at all stages during development and prior to
distribution.
2.8 CLASSIFICATION OF JAVA ENVIRONMENTS. Subject to the terms and conditions
of the Consultation Procedures for Reclassifying Java Environments,
attached hereto as Exhibit D, Insignia may request of Sun that certain
specific files or groups of files be transferred from the Shared Part to
the Modifiable Part.
2.9 DISTRIBUTION LICENSE. Subject to the terms and conditions contained in
this Agreement, Sun hereby grants to Insignia, a non-exclusive,
nontransferable, worldwide, right to license the Java Environments in
whole or in part within the Insignia Product(s) (in source and/or binary
forms) to Insignia Licensees, subject to the following:
2.9.1 Insignia Licensees may, subject to an appropriate agreement with
Insignia, be authorized to modify such portion(s) of the Insignia
Product(s) created by Insignia, provided that any Insignia Licensees
shall not be authorized to modify any of the Shared Part, except as
authorized by Sun pursuant to their SCSL. Insignia Licensees shall be
obligated to abide by the relevant terms in this Agreement governing
use, distribution, compatibility, and confidentiality. Insignia
Licensees shall be authorized to subset the Insignia Product(s).
2.9.2 Insignia Licensees shall be required to enter into the SCSL for the same
Java Environments.
2.9.3 Insignia shall require an end user license agreement for all Insignia
Product(s) distributed, which includes the minimum terms specified in
Exhibit C for each Java Environment, unless it is not customary in the
industry to include an end user license with such Insignia Products;
2.9.4 Insignia shall include the Sun Certified Virtual Machine Logo on
Insignia Product(s) distributed hereunder, subject to the Trademark
License, to indicate that such Insignia Products meet the applicable
compatibility requirements specified in Section 2.11 below.
2.9.5 Insignia may release Insignia Products based on pre-FCS versions of the
Java Environments, if clearly labeled as a pre-release version and only
for beta testing purposes.
2.10 AUTHORIZATION OF COMMERCIAL USE. Subject to the terms and conditions of
this Agreement, Sun hereby grants to Insignia the right to present the
SCSL, Commercial Use Attachment, TCK Attachment and Trademark License
specified in Exhibit F, to potential SCSL Licensees for execution by
authorized representatives of Sun and each such potential SCSL Licensee.
Concurrent with the foregoing, Insignia shall negotiate appropriate
fees, royalties and license terms consistent with the rights granted
herein with such SCSL Licensees to be paid to Insignia, subject to the
requirement to pass-through the royalty percentages and fees to Sun
specified in Exhibit C.
2.11 COMPATIBILITY REQUIREMENTS.
2.11.1 On an ongoing basis during the term of the Agreement, Sun will make
available to Insignia pursuant to Section 3.1, the TCK for verifying
that Insignia Products (and Insignia Licensee Products pursuant to
Section 2.7), are compatible with the then-current version of the
applicable Java Environment and Standard Extensions.
2.11.2 Each release of an Insignia Product or Insignia Licensee Product must
pass, (in accordance with the User's Guide), the most current applicable
TCK that was available from Sun one hundred twenty (120) days (two
hundred forty [240] days in the case of silicon implementations) before
FCS of such version of such Insignia
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Product or Insignia Licensee Product. In the event that Insignia or an
Insignia Licensee elects to use a version of the Java Environments
and/or Standard Extension(s) that is newer than that which is required
under this Section 2.11, then Insignia agrees that Insignia Products
and Insignia Licensee Products will pass the TCK that corresponds to
such newer version.
2.11.3 Any potential bugs in a current TCK will be dealt with pursuant to the
process specified in the Certification chapter of User's Guide.
2.11.4 Sun retains the right to require that each Insignia Licensee obtain
certification of compatibility or verification of proper compatibility
testing, by a third party test facility designated by Sun.
2.11.5 Upon request by Sun, Insignia shall promptly make any modifications to
any Insignia Product necessary for it to meet the compatibility
requirements set out in this Section 2.11.
2.11.6 Notwithstanding Section 2.1.2(i) or this Section 2.11, Insignia may
elect to distribute its initial release of Insignia Products without
incorporating the required Shared Part. In such event, Insignia may not
utilize the Sun Certified Virtual Machine Logo until the forgoing
requirements have been met. Insignia agrees to meet the foregoing
requirements and to update all Insignia Licensees with fully compliant
code within 60 days after Sun delivers the necessary TCK to Insignia.
This waiver for Insignia Products shall not apply to Insignia Licensee
Products, which must in all respects comply with the terms of the Sun
agreement entered into pursuant to Section 2.10 above.
2.12 OWNERSHIP
2.12.1 OWNERSHIP BY SUN. Sun retains all right, title and interest in the Java
Environments, Sun Documentation, Sun Tools, Bug Fixes, and modifications
to the TCK and Shared Part. Insignia agrees to execute (in recordable
form where appropriate) any instruments and/or documents as Sun may
reasonably request to verify and maintain Sun's ownership rights in the
foregoing, or to transfer any part of the same which may vest in
Insignia for any reason.
2.12.2 OWNERSHIP BY INSIGNIA. Insignia retains all right, title and interest in
the Insignia Technology, Insignia Products, Insignia Documentation,
implementations of and/or modifications to the Modifiable Part(s), and
any Insignia Extensions (excluding Bug Fixes to the Java Environments
and modifications to the TCK and Shared Part), created by or for
Insignia as authorized under the terms of this Agreement, subject to
Sun's underlying ownership rights identified in Section 2.12.1.
2.13 NO OTHER GRANT. Each party agrees that this Agreement does not grant
any right or license, under any intellectual property rights of the
other party, or otherwise, except as expressly provided in this
Agreement, and no other right or license is to be implied by or inferred
from any provision of this Agreement or by the conduct of the parties.
2.14 In consideration for the licenses granted herein, Insignia agrees that
for the term of this Agreement, for any product or service Insignia
distributes that implements the Sun Specification in whole or in part,
Insignia shall only provide Insignia Technology.
3. SUPPORT AND UPGRADES
3.1. INSIGNIA SUPPORT AND UPGRADES. Sun shall provide Sun Upgrades, the TCK,
training and support to Insignia under the terms and conditions
specified in Exhibit C, and payment terms specified in Section 4.1. The
frequency of Sun Upgrades and the TCK shall be at Sun's sole discretion
provided that any Sun Upgrades and the TCK will be made available to
Insignia no later than the time that Sun makes such Sun Upgrades and the
TCK generally available to any Java Partner and/or Sun Licensees.
3.2 CUSTOMER SUPPORT. Neither party is authorized to make any representation
or warranty on behalf of the other party to Insignia Licensees or third
parties. Insignia shall provide technical and maintenance support
service for the Insignia Products (including any components that may
contain Java Environments) to Insignia Licensees in accordance with
Insignia's standard support practices. Sun shall not be responsible for
providing any support directly to Insignia Licensees for the Java
Environments or the Insignia Products. Sun shall, however, be
responsible for providing second-level and third-level support for the
Java Environments to Insignia, subject to the requirements of Exhibit C.
3.3 TCK TRAINING AND SUPPORT. To the extent that an Insignia Licensee
licenses the TCK pursuant to Section
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2.7(iii) above, Insignia shall provide training and support to each
such Insignia Licensee consistent with the TCK training and support
provided by Sun to Insignia under Section 3.1 above. The fees
associated with such licensing are specified in Exhibit C.
4. PAYMENT
4.1 LICENSE AND SUPPORT FEES. Insignia shall pay to Sun the First Year
Technical Support fees set forth in Exhibit C-1 within thirty (30) days
from the Effective Date of this Agreement or as otherwise specified in
Exhibit C.
4.2 ROYALTY PAYMENTS.
a) ROYALTY PAYMENTS.
(i) The royalty owed to Sun is calculated by multiplying the
Royalty Bearing Revenue times the Royalty Rate attributable to the
applicable Java Environments in Exhibit C-1, C-2, and C-3, incorporated
in the respective Insignia Licensee Product. The Royalty Bearing
Revenue is defined as the greater of a) [*] of Reported Revenue or b)
[*] of Net Revenue. Sun and Insignia agree that the Royalty Bearing
Revenue percentage as well as the Royalty Rate may be increased or
decreased by mutual consent on an annual basis.
(ii) "Reported Revenue" means revenue associated with the EVM,
Class Libraries, Insignia Tools, Porting Fees and NRE Fees. The
following list exemplifies items that are not included in Reported
Revenue and do not relate to the royalty calculation: Tools supplied by
third parties, maintenance and or support provided by Insignia, and
other consulting services.
(iii) Payment of royalties shall be made quarterly, shall be due
thirty (30) days following the end of the calendar quarter to which they
relate and shall be submitted with a written statement documenting the
basis for the royalty calculation. No royalty buyouts or subscriptions
may be negotiated with Insignia Licensees without the prior written
approval of Sun, such approval not to be unreasonably withheld or
delayed.
b) COMPETITIVE BIDS. To the extent Insignia identifies a volume
licensing opportunity which requires a reduction in the royalty rates
specified in Exhibit C in order to be competitive with technologies
other than the Java Environments, Sun agrees to negotiate in good faith
with Insignia to allow Insignia to compete on such bids.
c) TLDA LICENSEES. Insignia shall have no obligation to pass through
any royalties to Sun for Insignia Licensee Products distributed by a
TLDA Licensee who is paying royalties directly to Sun for distribution
of Insignia Licensee Products incorporating the same Java Environments.
d) PRICING AUDIT. Sun will have the right to audit the records of
Insignia pursuant to Section 4.5 of this Agreement to verify that the
relative pricing of the Java Environment as a percentage of the
associated product and services is reasonable based upon the percentage
value thereof, and is not priced as a loss leader.
4.3 TAXES. All payments required by this Agreement shall be made in
United States dollars, are exclusive of taxes, and Insignia agrees to
bear and be responsible for the payment of all such taxes, including,
but not limited to, all sales, use, rental receipt, personal property or
other taxes and their equivalents which may be levied or assessed in
connection with this Agreement (excluding only taxes based on Sun's net
income). To the extent Insignia is required to withhold taxes based upon
Sun's income in any country, Insignia shall provide Sun with written
evidence of such withholding, suitable for Sun to obtain a tax credit in
the United States.
4.4 RECORDS. Both parties shall maintain account books and records
consistent with Generally Accepted Accounting Principles appropriate to
their respective domicile, as may be in effect from time to time,
sufficient to allow the correctness of the royalties required to be paid
pursuant to this Agreement to be determined.
4.5 AUDIT RIGHTS. Each party shall have the right to audit such accounts
upon reasonable prior notice using an independent auditor of the
auditing party's choice (the Auditor"). The Auditor shall be bound to
keep confidential the details of the business affairs of the audited
party and to limit disclosure of the results of any audit to the
sufficiency of the accounts and the amount, if any, of a payment
adjustment that should be made. Such audits shall not occur more than
once each year (unless discrepancies are discovered in excess of the
five
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION, CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
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[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION, CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
percent (5%) threshold set forth in Section 4.6, in which case two
consecutive quarters per year may be audited). Except as set forth in
Section 4.6 below, the auditing party shall bear all costs and expenses
associated with the exercise of its rights to audit.
4.6 PAYMENT ERRORS. In the event that any errors in payments shall be
determined, such errors shall be corrected by appropriate adjustment in
payment for the quarterly period during which the error is discovered.
In the event of an underpayment of more than five percent (5%) of the
proper amount owed, upon such underpayment being properly determined by
the Auditor, the audited party shall reimburse the other party the
amount of said underpayment and all reasonable costs and expenses
associated with the exercise of its rights to audit, and interest on the
overdue amount at the maximum allowable interest rate from the date of
accrual of such obligation. In the event of any overpayment, the obliged
party shall promptly credit the other party in such amount.
5. ADDITIONAL AGREEMENT OF PARTIES
5.1 NOTICE OF BREACH OR INFRINGEMENT. Each party shall notify the other
immediately in writing when it becomes aware of any breach or violation
of the terms of this Agreement by the other party. In such case, the
parties agree to use all reasonable efforts to resolve the breach or
violation in good faith before resorting to other dispute resolution
alternatives. Each party shall notify the other immediately in writing
when either becomes aware of any potential or actual infringement by a
third party of the Insignia Technology, the Java Environments, or either
party's intellectual property rights therein.
5.2 JAVA PARTNERS. It is Sun's intent to maintain parity among its Java
Partners. In addition, access to Sun personnel and to new designs and
specifications will be made available to Java Partners on equal footing
with respect to their applicable market focus.
6. LIMITED WARRANTY AND DISCLAIMER
6.1 LIMITED WARRANTY. Sun represents and warrants that the media, if any, on
which the Java Environments is recorded will be free from defects in
materials and workmanship for a period of ninety (90) days after
delivery. Sun's sole liability with respect to breach of this warranty
is to replace the defective media. Except as expressly provided in this
Section 6.1, Sun licenses the Java Environments, Sun Documentation, Sun
Specifications, and Sun Tools to Insignia on an "AS IS" basis.
6.2 GENERAL DISCLAIMER. EXCEPT AS SPECIFIED IN THIS AGREEMENT, ALL OTHER
REPRESENTATIONS AND WARRANTIES, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT OF
THE JAVA ENVIRONMENTS, SUN TOOLS, AND SUN DOCUMENTATION ARE HEREBY
DISCLAIMED.
6.3 LIMITATION. The limited warranty set forth in this Section 6 is
expressly subject to Section 9.0 (Limitation of Liability).
7. CONFIDENTIAL INFORMATION
7.1 CONFIDENTIAL INFORMATION. For the purposes of this Agreement,
"Confidential Information" means the Insignia Technology, Insignia
Documentation, Java Environments, Sun Tools, Sun Documentation and that
information which relates to (i) either party's hardware or software,
(ii) the customer lists, business plans and related information of
either party, and (iii) any other technical or business information of
the parties, including the terms and conditions of this Agreement and
the Trademark License. In all cases, information which a party wishes to
be treated as Confidential Information shall be marked as "confidential"
or "proprietary" (or with words of similar import) in writing by the
disclosing party on any tangible manifestation of the information
transmitted in connection with the disclosure, or, if disclosed orally,
designated as "confidential" or "proprietary" (or with words of similar
import) at the time of disclosure. Sun has no obligation of
confidentiality to Insignia with respect to Bug Fixes to the Java
Environments, modifications to the TCK, Shared Part, or the
specifications for any Insignia Extension.
7.2 PRESERVATION OF CONFIDENTIALITY. The parties agree that all disclosures
of Confidential Information (as defined under Section 7.1 above) shall
be governed by and treated in accordance with the terms of the
Confidential Disclosure Agreement (the "CDA") attached hereto as Exhibit
B and incorporated herein by reference, modified as follows:
7.2.1 the definition of Confidential Information shall be as set forth in
Section 7.1 above notwithstanding any def-
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inition provided in the CDA;
7.2.2 the use of Confidential Information shall be limited to the scope of
this Agreement;
7.2.3 the obligations of confidentiality expressed in the CDA shall extend
three (3) years from the date of disclosure, except with respect to Sun
Source Code and Insignia Source Code, both of which shall be held
confidential in perpetuity unless disclosed to a third party under
suitable confidentiality requirements; and
7.2.4 the CDA shall remain in effect for a period ending two (2) years beyond
the term (including renewals) of this Agreement.
8. LIMITED INDEMNITY
8.1 Sun will defend, at its expense, any Legal Proceeding brought against
Insignia, to the extent it is based on a claim that use of the FCS or
subsequent production version(s) of the Java Environments, Sun
Documentation or Sun Tools is an infringement of a third party trade
secret or a copyright in a country that is a signatory to the Berne
Convention, and will pay all damages awarded or such settlement amount
negotiated by Sun, attributable to such claim, provided that Insignia:
(i) provides notice of the claim promptly to Sun; (ii) gives Sun sole
control of the defense and settlement of the claim; (iii) provides to
Sun, at Sun's expense, all available information, assistance and
authority to defend; and (iv) has not compromised or settled such
proceeding without Sun's prior written consent.
8.2 Should any Java Environments, Sun Documentation or Sun Tools or any
portion thereof become, or in Sun's opinion be likely to become, the
subject of a claim of infringement for which indemnity is provided under
Section 8.1, Sun shall, in addition to the obligations specified in
Section 8.1, as Insignia's sole and exclusive remedy, elect to: (i)
obtain for Insignia the right to use such Java Environments; (ii)
replace or modify the Java Environments, Sun Documentation or Sun Tools
so that it becomes non-infringing; or if alternatives (i) or (ii) are
not commercially practicable; (iii) accept the return of the Java
Environments, Sun Documentation or Sun Tools and grant Insignia a refund
of all applicable License fees required to be refunded by Insignia to
its customers due to such infringement.
8.3 THIS SECTION 8 STATES THE ENTIRE LIABILITY OF SUN WITH RESPECT TO
INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS BY THE JAVA
ENVIRONMENTS AND SUN TOOLS. SUN SHALL HAVE NO OTHER LIABILITY WITH
RESPECT TO INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD
PARTY AS A RESULT OF USE, LICENSE, OR SALE OF JAVA ENVIRONMENTS OR SUN
TOOLS.
8.4 INDEMNITY BY INSIGNIA. Except for claims for which Sun is obligated to
indemnify Insignia under Section 8.1 or elects to indemnify under the
Trademark License, Insignia shall defend, at Insignia's expense, any and
all Legal Proceedings brought against Sun by third parties, and shall
pay all damages awarded by a court of competent jurisdiction, or such
settlement amount negotiated by Insignia, arising out of or in
connection with Insignia Technology, Insignia's modification of the Java
Environments or Sun Documentation, Insignia Products, or Insignia
Extensions. Insignia's obligation to provide indemnification under this
Section 8.5 shall arise provided that Sun: (i) provides notice of the
claim promptly to Insignia; (ii) gives Insignia sole control of the
defense and settlement of the claim; (iii) provides to Insignia, at
Insignia's expense, all available information, assistance and authority
to defend; and (iv) has not compromised or settled such proceeding
without Insignia's prior written consent.
9. LIMITATION OF LIABILITY
9.1 LIMITATION OF LIABILITY. Except for express undertakings to indemnify
under this Agreement and/or breach of Sections 2.1.2, 2.4, 2.10, 7.0 or
9.2:
9.1.1 Each party's liability to the other for claims relating to this
Agreement, whether for breach or in tort, shall be limited to an amount
equal to the royalties paid by such party to the other for the Java
Environments related to the claims within the preceding twelve months
(except for breach of an obligation to pay royalties).
9.1.2 IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY INDIRECT, INCIDENTAL,
SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH OR ARISING
OUT OF THIS
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AGREEMENT (INCLUDING LOSS OF PROFITS, USE, DATA, OR OTHER ECONOMIC
ADVANTAGE), NO MATTER WHAT THEORY OF LIABILITY, EVEN IF EITHER PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OR PROBABILITY OF SUCH DAMAGES.
FURTHER, LIABILITY FOR SUCH DAMAGE SHALL BE EXCLUDED, EVEN IF THE
EXCLUSIVE REMEDIES PROVIDED FOR IN THIS AGREEMENT FAIL OF THEIR
ESSENTIAL PURPOSE. The provisions of this Section 9 allocate the risks
under this Agreement between Sun and Insignia and the parties have
relied upon the limitations set forth herein in determining whether to
enter into this Agreement.
9.2 HIGH RISK ACTIVITIES. The Java Environments are not designed or intended
for use in on-line control of aircraft air traffic, aircraft navigation
or aircraft communications; or in the design, construction, operation or
maintenance of any nuclear facility. Sun disclaims any express or
implied warranty of fitness for such uses.
10. TERM AND TERMINATION
10.1 TERM. The Term of this Agreement shall begin on the Effective Date and
shall continue for a period of five (5) years, or until terminated as
provided below. Termination is permitted either for breach of this
Agreement, upon ninety (90) days written notice to the other party and
an opportunity to cure within such ninety (90) day period (unless the
breaching party is making reasonable progress toward such a cure, in
which case the cure period may be extended by mutual agreement of the
parties), or upon any action by Insignia alleging that use or
distribution of the Java Environments by Sun or any Sun Licensees of the
Java Environments, infringes a copyright or patent of Insignia.
10.2 RENEWAL. Each year for five (5) consecutive years following expiration
of the initial five (5) year term, this Agreement shall be renewed
automatically for successive one (1) year periods, unless Insignia
notifies Sun of Insignia's intention not to renew in writing at least
thirty (30) days prior to the end of such period.
10.3 EFFECT OF EXPIRATION. Upon expiration of this Agreement, Sun shall
retain use, under the terms of this Agreement, of the rights received
hereunder, and Insignia shall be authorized to: (i) distribute Insignia
Products containing the version of the Java Environments incorporated
therein at the time of expiration, subject to Insignia's continued
compliance with this Agreement including the TCK current at the time of
expiration, and payment of royalties, and (ii) retain one (1) copy of
the Sun Source Code to support Insignia Licensees having copies of
Insignia Products. The retention by Insignia of Sun Source Code after
expiration shall not be considered with regard to Insignia's post-
expiration clean room development activity. All other rights of Insignia
shall terminate upon such expiration.
10.4 EFFECT OF TERMINATION. In the event of termination of this Agreement by
either party in accordance with Section 10.1 above, the breaching party
shall promptly: (i) return to the other all copies of the other party's
Technology, Documentation, and other Confidential Information of such
party in the breaching party's possession or control; or (ii)
permanently destroy or disable all copies of the property in the
breaching party's possession or control, except as specifically
permitted in writing by the non-breaching party; and (iii) provide the
non-breaching party with a written statement certifying that the
breaching party has complied with the foregoing obligations. All rights
and licenses granted to the breaching party shall terminate upon such
expiration or termination.
10.5 RETENTION OF SUN SOURCE CODE. The retention by Insignia of Sun Source
Code after expiration or termination by Insignia, shall not give rise to
a claim by Sun of trade secret misappropriation with regard to
Insignia's post-termination clean room development activity.
10.6 NO LIABILITY FOR EXPIRATION OR LAWFUL TERMINATION. Neither party shall
have the right to recover damages or to indemnification of any nature,
whether by way of lost profits, expenditures for promotion, payment for
goodwill or otherwise made in connection with the business contemplated
by this Agreement, due to the expiration or permitted or lawful
termination of this Agreement. EACH PARTY WAIVES AND RELEASES THE OTHER
FROM ANY CLAIM TO COMPENSATION OR INDEMNITY FOR TERMINATION OF THE
BUSINESS RELATIONSHIP UNLESS TERMINATION IS IN MATERIAL BREACH OF THIS
AGREEMENT.
10.7 NO WAIVER. The failure of either party to enforce any provision of this
Agreement shall not be deemed a waiver of that provision. The rights of
the parties under this Section 10.0 are in addition to any other rights
and remedies permitted by law or under this Agreement.
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<PAGE>
10.8 SURVIVAL. The parties' rights and obligations under Sections 2.0, 4.0,
7.0, 8.0, 9.0, 10.0, and 11.0 shall survive expiration or termination of
this Agreement, except in the event of termination by Sun under Section
10.1, in which case Insignia's rights under Section 2.0 (except for
those in 2.1.4) shall not survive.
10.9 IRREPARABLE HARM. Any cure period specified in Section 10.1
notwithstanding, the parties acknowledge that breach of Sections 2.0,
7.0, 9.2, 11.5 and 11.8 would cause irreparable harm, the extent of
which would be difficult to ascertain. Accordingly, they agree that, in
addition to any other legal remedies to which a non- breaching party
might be entitled, such party shall be entitled to obtain immediate
injunctive relief in the event of a breach of the provisions of such
Sections.
11. MISCELLANEOUS
11.1 NOTICES. All written notices required by this Agreement must be
delivered in person or by means evidenced by a delivery receipt and will
be effective upon receipt by the persons at the addresses specified
below.
<TABLE>
<S> <C>
Sun Insignia
Sun Microsystems, Inc. Insignia Solutions, Inc.
901 San Antonio Road 41300 Christy Street
Palo Alto, California 94303 Fremont, California 94538
Attn.: President, Java Software Attn.: President
cc: General Counsel, Java Software cc: Legal Department
</TABLE>
11.2 MARKETING AND PRESS ANNOUNCEMENTS. Each party's initial press
announcement concerning execution of this Agreement must be reviewed by
the other party prior to its release. Insignia hereby authorizes Sun to
include Insignia in a published list of licensees of the Java
Environments. Each party shall also be authorized to use the other
party's name in advertising, marketing collateral, and customer success
stories prepared by or on behalf of such party for the respective
technology, subject to prior approval by the referenced party, such
approval not to be unreasonably withheld or delayed.
11.3 LIAISON AND QUARTERLY REVIEWS. The parties shall each provide to the
other the name, title, and contact information for an individual within
their respective organizations. These two persons shall serve as the
principal liaisons between the parties for the management of this
Agreement. The liaisons shall also be responsible for coordinating
quarterly meetings between the parties concerning the operation of the
Agreement and any other related matters of mutual interest.
11.4 PARTIAL INVALIDITY. If any of the above provisions are held to be in
violation of applicable law, void, or unenforceable in any jurisdiction,
then such provisions are herewith waived or amended to the extent
necessary for the License to be otherwise enforceable in such
jurisdiction. However, if in either party's opinion deletion or
amendment of any provisions of the License by operation of this
paragraph unreasonably compromises the rights or increases the
liabilities of such party or its licensors, that party reserves the
right to terminate the License.
11.5 U.S. GOVERNMENT RESTRICTED RIGHTS. If Insignia is licensing a product or
accompanying documentation to or on behalf of the U.S. Government, it
shall be made subject to Restricted Rights", as that term is defined in
the Federal Acquisition Regulations (FARs") in paragraph 52.227-19(c)(2),
or its equivalent paragraph in the DOD Supplement to the FARs.
Contractor/Manufacturer is: Sun Microsystems Inc., 901 San Antonio Road,
Palo Alto, California 94303.
11.6 LANGUAGE. This Agreement is in the English language only, which language
shall be controlling in all respects, and all versions of this Agreement
in any other language shall be for accommodation only and shall not be
binding on the parties to this Agreement. All communications and notices
made or given pursuant to this Agreement, and all documentation and
support to be provided, unless otherwise noted, shall be in the English
language.
11.7 GOVERNING LAW. This Agreement is made under and shall be governed by and
construed under the laws of the State of California, regardless of its
choice of laws provisions.
11.8 COMPLIANCE WITH LAWS. The Java Environments and Sun Documentation,
including technical data, is subject to U.S. export control laws,
including the U.S. Export Administration Act and its associated
regulations, and may be subject to export or import regulations in other
countries. Insignia agrees to comply strictly with all such regulations
and acknowledges that it has the responsibility to obtain such licenses
to export, re-
12 of 26
<PAGE>
export or import the Java Environments, Sun Documentation or Insignia
Products as may be required after delivery to Insignia. Insignia shall
make reasonable efforts to notify and inform its employees having
access to the Java Environments of Insignia's obligation to comply with
the requirements stated in this Section.
11.9 DISCLAIMER OF AGENCY. The relationship created hereby is that of
licensor and Insignia and the parties hereby acknowledge and agree that
nothing herein shall be deemed to constitute Insignia as a franchisee of
Sun. Insignia hereby waives the benefit of any state or federal statutes
dealing with the establishment and regulation of franchises.
11.10 DELIVERY. As soon as practicable after the Effective Date, Sun shall
deliver to Insignia one (1) copy of each of the deliverables set forth
in Exhibit C. Insignia acknowledges that certain of the deliverables are
in various stages of completion and agrees to accept the deliverables as
and to the extent completed as of the date of delivery and "AS IS." In
the event any deliverable is already in the possession or custody of
Insignia, such item(s) shall, to the extent used in connection with the
rights granted in Section 2.0 above, be subject to the terms of this
Agreement, notwithstanding any pre-existing agreement or understanding
between Insignia and Sun with respect to such items.
11.11 CONSTRUCTION. This Agreement has been negotiated by Sun and Insignia
and by their respective counsel. This Agreement will be fairly
interpreted in accordance with its terms and without any strict
construction in favor of or against either party.
11.12 FORCE MAJEURE. Except for the obligation to pay money, neither party
shall be liable to the other party for non-performance of this
Agreement, if the non-performance is caused by events or conditions
beyond that party's control and the party gives prompt notice under
Section 11.1 and makes all reasonable efforts to perform.
11.13 CHANGE OF CONTROL. This Agreement may not be assigned or transferred by
either party without the prior written consent of the other party, which
consent shall not be unreasonably withheld or delayed, except that: (i)
Sun may assign or transfer this Agreement to a majority-owned
subsidiary; (i) Insignia may assign or transfer this Agreement to a
majority-owned subsidiary which is not a direct computer hardware or
software competitor of Sun; and (iii) Insignia may transfer this
Agreement to an acquiror of substantially all of the assets or shares of
Insignia provided that such acquiring entity is not a direct computer
hardware or software competitor of Sun.
11.14 EXHIBITS.
The following are included herein by reference as integral parts of this
Agreement:
<TABLE>
<C> <S>
Exhibit A - Document Type Definition
Exhibit B - Confidential Disclosure Agreement
Exhibit C - Java Environments Specific Terms and Conditions
Exhibit D - Consultation Procedures for Reclassifying Java
Environments
Exhibit E - Trademark License
Exhibit F - Pro forma Insignia Licensee Agreement and
Trademark License
</TABLE>
To the extent the terms and conditions of Exhibit C are contrary to the terms
and conditions of this Agreement, the terms and conditions of the Exhibit C
shall govern.
11.15 SECTION REFERENCES. Any reference contained herein to a section of this
Agreement shall be meant to refer to all subsections of the section.
11.16 NO COMPETITIVE RESTRICTIONS. The Parties agree that nothing in this
Agreement is intended to prohibit Insignia either party from
independently developing or acquiring technology that is the same as or
similar to the other party's technology, provided that Insignia does not
do so in breach of Exhibit B to this Agreement.
11.17 COMPLETE UNDERSTANDING. This Agreement and the Exhibits hereto
constitute and express the final, complete and exclusive agreement and
understanding between the parties with respect to its subject matter and
supersede all previous communications, representations or agreements,
whether written or oral, with respect to the subject matter hereof. No
terms of any purchase order or similar document issued by Insignia shall
be deemed to add to, delete or modify the terms and conditions of this
Agreement. This Agreement may not be modified, amended, rescinded,
canceled or waived, in whole or part, except by a written instrument
signed by the parties.
13 of 26
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
Sun: Insignia:
By: /s/ Lee Patch By: /s/ Richard M. Noling
----------------------- ----------------------
Name: Lee Patch Name: Richard M. Noling
--------------------- --------------------
(Print or Type) (Print or Type)
Title: Vice President Title: C.E.O.
-------------------- -------------------
Date: March 3, 1999 Date:
--------------------- --------------------
14 of 26
<PAGE>
EXHIBIT A
DOCUMENT TYPE DEFINITION
In order to ensure interoperability between all Java compliant browsers,
Sun needs to define the exact notation of applets in HTML documents. The format
of the
APPLET tag shall be implementation language independent and SGML
compliant. SGML compliance is important if the APPLET tag is to be
accepted as part of the HTML standard in the future.
Example:
< applet codebase= http://java.sun.com/people/avh/classes"
code= BounceItem.java" width=400 height=300 > < /applet >
The applet tag has the following attributes:
CODEBASE The base url of the applet. The applet's code is located relative to
this URL. If this attribute is not specified, it defaults to the
document's URL.
CODE The file in which the applet is located. This file is relative to base
URL of the applet. It cannot be absolute.
ALT Alternate text which can be displayed by text only browsers.
NAME The symbolic name of the applet. This name can be used by applets in
the same page to locate each other.
WIDTH Required attribute which specifies the initial width of the applet in
pixels.
HEIGHT Required attribute which specifies the initial height of the applet in
pixels.
ALIGN The alignment of the applet, similar to the img tag.
VSPACE The vertical space around the applet, similar to the img tag.
HSPACE The horizontal space around the applet, similar to the img tag.
Note that the position of the applet in the page is determined by the width,
height, align, vspace and hspace attributes just like the img tag.
Applets can access the above attributes using the getParameter() method call
defined in the Applet class. All attribute/parameter names are automatically
folded to lower
case. Applets that require parameters in addition to the
predefined ones need to use the param tag. It is unfortunately not
legal in SGML for a tag to have an arbitrary list of attributes.
That is why additional applet parameters explicitly using the
PARAM tag have to be named. For example:
< applet code= DateItem.class" alt= The Date" width=200 height=40 >
< param name= speaker" value= avh" >
< param name= translator" value= DutchTime" >
< /applet >
In addition to the ALT tag, Insignia can include additional text and markup
before the applet end tag. Java compliant browsers will ignore this text, but
browsers that do
not understand the applet tag will display it instead of the
applet. For example:
< applet codebase=classes code=ImageLoop.class width=100 height=100 >
< param name=imgs value= images/duke" >
If Insignia were using a Java enabled browser, Insignia would see an animation
instead of this static image. < p >
< img src=images/duke/T1.gif" >
< /applet >
Below is the formal SGML DTD for the APPLET and PARAM tags.
< !ELEMENT APPLET - - (PARAM*, (%text;)*) >
< !ATTLIST APPLET
CODEBASE CDATA #IMPLIED -- code base --
CODE CDATA #REQUIRED -- code file --
ALT CDATA #IMPLIED -- alternative string --
NAME CDATA #IMPLIED -- the applet name --
HEIGHT NUMBER #REQUIRED
ALIGN (left|right|top|texttop|middle|
absmiddle|baseline|bottom|absbottom) baseline
VSPACE NUMBER #IMPLIED
HSPACE NUMBER #IMPLIED
< !ELEMENT PARAM - O EMPTY >
< !ATTLIST PARAM
NAME NAME #REQUIRED -- The name of the parameter --
VALUE CDATA #IMPLIED -- The value of the parameter --
15 of 26
<PAGE>
EXHIBIT B
CONFIDENTIAL DISCLOSURE AGREEMENT
(to be attached)
16 of 26
<PAGE>
EXHIBIT C
JAVA ENVIRONMENTS SPECIFIC TERMS AND CONDITIONS
The technologies licensed hereunder are those initialled by both parties below:
Exhibit Java Environments Insignia Sun
C-1: Java Application Environment ______ ______
C-2: Personal Java Environment ______ ______
C-3: Embedded Java Environment ______ ______
17 of 26
<PAGE>
EXHIBIT C-1
JAVA APPLICATION ENVIRONMENT (JAE)
I. Description of Technology and Documentation
The Java Application Environment consists of the following source code:
a. All the .java files from the following Java packages:
Modifiable Part:
<TABLE>
<C> <S>
java.lang Language Classes
java.lang.reflect Reflection: programmatic access to classes,
methods and fields
java.io Stream I/O
java.net Networking Classes
java.util General utilities
java.util.zip Java archive file format
</TABLE>
Non-Modifiable except for Platform Dependent Part:
<TABLE>
<C> <S>
java.applet Applet Classes
java.awt Abstract Window Toolkit
java.awt.image Image Handling Classes
java.awt.event Delegation event model
java.awt.peer Implementation Classes for awt
java.awt.datatransfer Data transfer
java.rmiRemote Method Invocation
java.rmi.dgcRMI Distributed Garbage Collection
java.rmi.registry RMI Registry
java.rmi.server RMI Server
java.sql Java database connectivity
java.math Math package
java.text Internationalization
java.security Security and signed applets
java.security.acl Access Control List
java.security.interfaces Interfaces to algorithm-specific objects for
signing/encryption
java.beans Java native component model
java.text.resources Locale data
</TABLE>
b.Supporting .java files in packages with names beginning with "sun." or "sunw."
c.Supporting C (.c), C++ (.cpp) and "include" (.h) files.
d.The Source Code for the Java Runtime Interpreter constitutes Modifiable Part.
e. Sun Documentation:
OEM Java Language Specification
OEM Java API Specification
OEM Java Virtual Machine Specification
II. SCHEDULE OF FEES AND ROYALTIES
18 of 26
<PAGE>
a. Annual Support and Upgrade Fees:
<TABLE>
<S> <C>
First year-Full Technical Support [*]
Each subsequent year- Full Technical Support or
Optional Limited Support [*]
Subject to annual review of actual utilization of Sun engineering staff.
Annual Support Fees are due in four equal quarterly installments beginning on
the Effective Date.
b. Binary Distribution Royalties per unit or concurrent user for Insignia
Licensee Product:
Royalty rate: [*] Minimum Royalty: $ [*]
c. TCK Support Program Discount: [*]%
(Based upon Sun's published TCK Licensing and Support Fees)
</TABLE>
III. COMPATIBILITY REQUIREMENTS
Insignia Products must fully comply with the Sun Documentation specified in
Section I.e above, and pass the TCK for the Java Application Environment and
any included Standard Extensions available under the SCSL License, pursuant
to the requirements of Section 2.11 of the Agreement. Licensee may not
incorporate or otherwise distribute an Extension which implements
functionality substantially similar to any Java Classes required in another
Java Environment.
IV. COMPATIBILITY LOGO
Sun Certified Virtual Machine (with Coffee Cup/Java logo)
V. DESCRIPTION OF SUPPORT AND UPGRADES
a. UPGRADES AND BUG TRACKING. Subject to payment of the Support Fees,
Licensee shall have access to the JavaSoft commercial licensee FTP site for the
purpose of downloading the Technology and Upgrades, including early access
versions thereof, as Sun makes such versions generally available to licensees.
Licensee shall be included on Sun's commercial licensee general support alias,
and shall have access to the JavaSoft bug tracking database for the purpose of
reporting bugs and receiving information regarding correction of known bugs.
b. FULL TECHNICAL SUPPORT. In addition to the Upgrades and bug tracking
specified above, Sun shall assign a JavaSoft support engineer as a primary point
of contact to Licensee. Licensee may designate up to three (3) points of contact
within Licensee's organization to contact the assigned engineer via email,
facsimile and telephone. The selection of the support engineer shall be at Sun's
discretion, subject to Licensee's reasonable approval. The support engineer will
provide the following services:
i) arrange meetings or discussions with Sun technical and management
personnel;
ii) provide technical assistance for TCK testing;
iii) review requests for Shared Part changes pursuant to Exhibit D;
iii) respond to bug reports from Insignia;
iv) develop bug fixes and/or workarounds;
v) bug tracking for releases; and
vi) provide Source Code patches and "diffs" if the need arises.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION, CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
19 of 26
<PAGE>
EXHIBIT C-2
PERSONALJAVA ENVIRONMENT
I. Description of Technology and Documentation
a. Required components:
The PersonalJava Environment consists of the following source code:
i) All the .java files from the following Java packages:
Modifiable Part:
<TABLE>
<C> <S>
java.lang Language Classes
java.lang.reflect
java.io Stream I/O
java.net Networking Classes
java.util General utilities
java.util.zip java archive file format
</TABLE>
Non-Modifiable except for Platform Dependent Part:
<TABLE>
<C> <S>
java.applet Applet Classes
java.awt* Abstract Window Toolkit
java.awt.image Image Handling Classes
java.awt.event Delegation event model
java.awt.peer Implementation Classes for awt
java.awt.datatransfer Data transfer
java.rmi Remote Method Invocation
java.rmi.dgc RMI Distributed Garbage Collection
java.rmi.registry RMI Registry
java.rmi.server RMI Server
java.sql Java database connectivity
java.math Math package
java.text Internationalization
java.beans Java native component model
java.text.resources Locale data
</TABLE>
*Note: java.awt provided hereunder is a subset of the full java.awt. Details can
be found in the PersonalJava Application Environment Specification.
ii) Associated sun.* files.
Supporting .java files in packages with names beginning with "sun." or
"sunw."
Supporting C (.c), C++ (.cpp) and "include" (.h) files.
iii) The Source Code for the Java Runtime Interpreter constitutes Modifiable
Part.
b. Sun Tools:
Source Code for JavaDataCompact
Source Code for JavaCodeCompact
20 of 26
<PAGE>
c. Sun Documentation:
OEM Java Language Specification
OEM Personal Java API Specification
OEM Java Virtual Machine Specification
Porting Guide
II. SCHEDULE OF FEES AND ROYALTIES
a. Binary Distribution Royalties per unit or concurrent user for Insignia
Licensee Product:
Royalty Rate: [*] Minimum Royalty: $[*]
b. Annual Support and Upgrade Fees: Not Separately Priced (See Exhibit C-1)
c. TCK Support Program Discount: [*]%
(Based upon Sun's published TCK Licensing and Support Fees)
III. COMPATIBILITY REQUIREMENTS
Insignia Products must fully comply with the Sun Documentation specified in
Section I.c. above, and pass the TCK for the PersonalJava Environment and any
included Standard Extensions, pursuant to the requirements of Section 2.11 of
the Agreement. Insignia may self-certify such compatibility unless Sun policy
requires verification of compatibility by an independent test facility
designated by Sun, at Licensee's expense. Insignia may not incorporate or
otherwise distribute an Extension which implements functionality substantially
similar to any Java Classes required in another Java Environment.
IV. COMPATIBILITY LOGO
Sun Certified Virtual Machine (with Coffee Cup/Java logo)
V. DESCRIPTION OF SUPPORT AND UPGRADES
Same as Exhibit C-1.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION, CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
21 of 26
<PAGE>
EXHIBIT C-3
EMBEDDED JAVA ENVIRONMENT
(eJava)
I. Description of Technology and Documentation
a. BASE COMPONENTS.
The Embedded Java Application Environment consists of the following source
code:
i) All of the .java files from the following Java packages:
Modifiable Part:
<TABLE>
<C> <S>
java.lang Language Classes
java.lang.reflect
java.io Stream I/O
java.net Networking Classes
java.util General utilities
java.util.zip java archive file format
</TABLE>
Non-Modifiable except for Platform Dependent Part:
<TABLE>
<C> <C>
java.awt* Abstract Window Toolkit
java.awt.image Image Handling Classes
java.awt.event Delegation event model
java.awt.peer Implementation Classes for awt
java.awt.datatransfer Data transfer
java.rmi Remote Method Invocation
java.rmi.dgc RMI Distributed Garbage Collection
java.rmi.registry RMI Registry
java.rmi.server RMI Server
java.sql Java database connectivity
java.math Math package
java.text Internationalization
java.beans Java native component model
java.text.resources Locale data
</TABLE>
*Note: java.awt provided hereunder is a subset of the full java.awt. Details
can be found in the PersonalJava Application Environment Specification.
ii) Associate sun.* files.
Supporting .java files in packages with names beginning with "sun." or "sunw."
Supporting C (.c), C++ (.cpp) and "include" (.h) files.
iii) The Source Code for the Java Runtime Interpreter constitutes Modifiable
Part.
(iv) All Source Code which implements the Truffle Graphical Tool Kit.
b. SUN TOOLS.
Source Code for JavaDataCompact
22 of 26
<PAGE>
Source Code for JavaCodeCompact
Source Code for the Java Filter Tool
c. SUN DOCUMENTATION:
i) OEM Embedded Application Environment Specification
OEM Java Language Specification
OEM Java Virtual Machine Specification
ii) Additional Documentation:
Porting guide
Touchable Look-and-Feel Guide
II. SCHEDULE OF FEES AND ROYALTIES
a. Binary Distribution Royalties per unit or concurrent user for Insignia
Licensee Product:
Royalty Rate: [*] Minimum Royalty: $ [*]
b. Annual Support and Upgrade Fees: Not Separately Priced (See Exhibit C-1)
c. TCK Support Program Discount: [*]%
(Based upon Sun's published TCK Licensing and Support Fees)
III.COMPATIBILITY REQUIREMENTS
Insignia Products must fully comply with the Sun Documentation specified in
Section I.c. above, and pass the TCK for the Embedded Java Environment and any
included Standard Extensions or such other tests or compatibility requirements
as Sun reasonably requires, pursuant to the requirements of Section 2.11 of the
Agreement. Insignia may self-certify such compatibility unless Sun policy
requires verification of compatibility by an independent test facility
designated by Sun, at Licensee's expense. Insignia may not incorporate or
otherwise distribute an Extension which implements functionality substantially
similar to any Java Classes required in another Java Environment.
IV. COMPATIBILITY LOGO
Sun Certified Virtual Machine (with Coffee Cup/Java logo)
V. DESCRIPTION OF SUPPORT AND UPGRADES
Same as Exhibit C-1.
VI. SUPPLEMENTAL LICENSE TERMS
Notwithstanding any other restriction in the Agreement, Insignia may configure
the Java Classes pursuant to the Documentation in connection with Insignia
Products only. Insignia must use the Java Filter Tool in connection with any
such configuration of the Java Classes, and for no other purpose. Insignia
agrees and acknowledges that nothing in this Section VII shall otherwise change,
eliminate or minimize the restrictions on modification of the Technology under
the Agreement. No redistribution license is granted herein for the Java Filter
Tool.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION, CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
23 of 26
<PAGE>
EXHIBIT D
CONSULTATION PROCEDURES FOR RECLASSIFYING JAVA ENVIRONMENTS
In recognition of the fact that Insignia Product(s) have been specifically
developed for the embedded systems market, and there are special requirements
of Java in these systems for a highly configurable product with small memory
size, predictability, reliability, the parties acknowledge that Insignia may,
from time to time, desire that files within the Shared Part of the Java
Environments be reclassified to the Modifiable Part for projects within the
Insignia technology space. Given the full cooperative spirit of this
Agreement and the future coordination of the parties regarding the Java
space, Sun and Insignia hereby outline the procedures necessary for such
consultation and reclassification.
Insignia may, upon its reasonable determination that Insignia Technology,
Insignia Products, work in progress or general research and development would
be aided by Sun's reclassification of certain files from the Shared Part to
the Modifiable Part, deliver a written request ("Reclassification Request")
to Sun concerning such proposed reclassification. The request shall be
sufficiently detailed so that the identification of the specific files and
Insignia's technical and commercial reasons for seeking such reclassification
are clear.
The Reclassification Request shall be delivered by the Insignia liaison to
the Sun liaison.
Sun Review and Consultation
The respective liaisons at Sun and Insignia shall be responsible for
maintaining regular communication regarding the Reclassification Request,
including any questions, clarifications, or other issues that either party
may raise. The review and consultancy process is intended to be fully
cooperative between Sun and Insignia.
Within ninety (90) days of delivery of the Reclassification Request, Sun,
through its liaison, shall deliver a written reply to Insignia.
Conclusion
Sun's response to the Reclassification Request shall be in writing and shall
be signed by an authorized officer.
If Sun decides to approve the Reclassification Request, then Sun shall
provide, as an attachment to its response, a revised Exhibit C to this
Agreement reflecting such reclassification. Sun shall also provide whatever
reasonable technical assistance Insignia may reasonably require with regard
to the reclassification.
If Sun chooses to decline the Reclassification Request, then the bases for
such must be clearly identified and explained addressing, as necessary,
technical and commercial reasons.
24 of 26
<PAGE>
EXHIBIT E
TRADEMARK LICENSE
25 of 26
<PAGE>
EXHIBIT F
PROFORMA INSIGNIA LICENSEE AGREEMENT AND TRADEMARK LICENSE
26 of 26
<PAGE>
EXHIBIT 11.1
INSIGNIA SOLUTIONS PLC
STATEMENT REGARDING COMPUTATION OF EARNINGS (LOSS) PER SHARE
(IN THOUSANDS EXCEPT PER SHARE DATA, UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
1999 1998
---------- -------
<S> <C> <C>
Net income (loss) $ (3,116) $ 7,632
---------- -------
---------- -------
CALCULATION OF BASIC EARNINGS (LOSS) PER SHARE:
Weighted average number of ordinary shares
outstanding used in computation 12,690 12,077
---------- -------
---------- -------
Basic earnings (loss) per share $ (0.25) $ 0.63
---------- -------
---------- -------
CALCULATION OF DILUTED EARNINGS (LOSS) PER SHARE:
Weighted average number of ordinary shares
outstanding used in computation 12,690 12,077
---------- -------
Net effect of dilutive stock options outstanding - 327
---------- -------
12,690 12,404
---------- -------
---------- -------
Diluted earnings (loss) per share $ (0.25) $ 0.62
---------- -------
---------- -------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 10,713
<SECURITIES> 0
<RECEIVABLES> 1,965
<ALLOWANCES> (948)
<INVENTORY> 2
<CURRENT-ASSETS> 12,903
<PP&E> 3,248
<DEPRECIATION> (2,320)
<TOTAL-ASSETS> 14,406
<CURRENT-LIABILITIES> 5,999
<BONDS> 0
0
0
<COMMON> 4,225
<OTHER-SE> 4,182
<TOTAL-LIABILITY-AND-EQUITY> 14,406
<SALES> 2,180
<TOTAL-REVENUES> 2,308
<CGS> 1,093
<TOTAL-COSTS> 5,492
<OTHER-EXPENSES> (108)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,076)
<INCOME-TAX> 40
<INCOME-CONTINUING> (3,116)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,116)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
