<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-27886
WORLDTALK COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0303581
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
5155 OLD IRONSIDES DRIVE
SANTA CLARA, CALIFORNIA 95054
(Address of principal executive offices)
(408) 567-1500
(Registrant's telephone number, including area code)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Sections 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.
(1) Yes X No
----- -----
(2) Yes X No
----- -----
As of October 31, there were 9,704,543 shares of the Registrant's common stock
outstanding.
Page 1 of 49
Exhibits Table on Page 14
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FORM 10-Q
WORLDTALK COMMUNICATIONS CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
PART I FINANCIAL INFORMATION NUMBER
<S> <C>
ITEM 1: Financial Statements
Condensed Balance Sheets as of September 30, 1996
and December 31, 1995.................................................... 3
Condensed Statements of Operations for the three and
nine months ended September 30, 1996 and 1995 ........................... 4
Condensed Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995................................. 5
Notes to Condensed Financial Statements...................................... 6
ITEM 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................... 8
PART II OTHER INFORMATION
ITEM 1: Legal Proceedings............................................................ 13
ITEM 5: Other Information............................................................ 13
ITEM 6: Exhibits and Reports on Form 8-K............................................. 14
Signature.................................................................... 15
Exhibits..................................................................... 16
</TABLE>
2
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WORLDTALK COMMUNICATIONS CORPORATION
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996 December 31,
(UNAUDITED) 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................................... $ 7,588 $ 984
Restricted cash ................................................ -- 2,000
Short-term Investments ......................................... 7,575 --
Accounts receivable, net of allowance for doubtful accounts of
$466 and $150, respectively ................................. 3,693 1,567
Prepaid expenses ............................................... 478 115
-------- --------
Total current assets ........................................... 19,334 4,666
Property and equipment, net ........................................ 1,535 707
Other assets ....................................................... 310 354
-------- --------
$ 21,179 $ 5,727
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK,
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ............................................... $ 1,355 $ 679
Current portion of capital lease obligations ................... 139 254
Accrued expenses ............................................... 2,793 1,927
Deferred revenue ............................................... 1,869 1,005
-------- --------
Total current liabilities ................................. 6,156 3,865
Capital lease obligations, less current portion .................... 165 266
Other liabilities .................................................. 100 185
Notes payable ...................................................... 250 --
-------- --------
6,671 4,316
-------- --------
Redeemable convertible preferred stock ............................. -- 12,816
Commitments and contingencies
Stockholders' equity (deficit):
Common stock ....................................................... 97 15
Additional paid-in capital ......................................... 27,278 670
Stockholder notes receivable ....................................... (262) (194)
Deferred compensation .............................................. (142) (175)
Accumulated deficit ................................................ (12,463) (11,721)
-------- --------
Total stockholders' equity (deficit) ...................... 14,508 (11,405)
-------- --------
$ 21,179 $ 5,727
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
3
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WORLDTALK COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED Nine Months Ended
SEPTEMBER 30, September 30,
----------------------- ----------------------
1996 1995 1996 1995
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Software licenses ................................ $ 2,563 $ 814 $ 6,727 $ 2,479
Maintenance, installation, and training .......... 1,309 554 3,126 1,364
Software development contracts ................... -- 446 -- 612
-------- ------- ------- -------
Total revenues ............................. 3,872 1,814 9,853 4,455
Cost of revenue:
Software licenses ................................ 309 92 751 191
Maintenance, installation, and training .......... 601 312 1,630 791
Software development contracts ................... -- -- -- 362
-------- ------- ------- -------
Total cost of revenues ..................... 910 404 2,381 1,344
Operating expenses:
Sales and marketing .............................. 1,669 1,377 4,720 3,501
Product development .............................. 925 639 2,601 1,823
General and administrative ....................... 417 505 1,248 1,078
-------- ------- ------- -------
Total operating expenses ................... 3,011 2,521 8,569 6,402
Operating loss ...................................... (49) (1,111) (1,097) (3,291)
Other income, net ................................... 212 4 355 26
-------- ------- ------- -------
Net income (loss) ................................... $ 163 $(1,107) $ (742) $(3,265)
======== ======= ======= =======
Pro Forma, net income (loss) per share .............. $ 0.02 $ (0.15) $ (0.08) $ (0.43)
-------- ------- ------- -------
Shares used in computing pro forma net loss per share 10,335 7,606 8,896 7,589
-------- ------- ------- -------
</TABLE>
See accompanying notes to condensed financial statements.
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WORLDTALK COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1996 1995
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss ....................................................................... $ (742) $(3,265)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization ............................................... 344 177
Amortization of deferred compensation ....................................... 33 --
Changes in operating assets and liabilities:
Accounts receivable ....................................................... (2,126) (349)
Prepaid expenses .......................................................... (469) 63
Accounts payable .......................................................... 676 198
Accrued expenses .......................................................... 781 799
Deferred revenue .......................................................... 864 166
-------- -------
Net cash used in operating activities .................................. (639) (2,211)
-------- -------
Cash flows from investing activities:
Restricted cash ................................................................ 2,000 --
Purchase of property and equipment ............................................. (1,157) (254)
Purchase of available-for-sale securities ...................................... (7,575) --
Other assets ................................................................... 34 (222)
-------- -------
Net cash used in investing activities .................................... (6,698) (476)
-------- -------
Cash flows from financing activities:
Net proceeds from issuance of common stock ..................................... 13,907 --
Proceeds from issuance of convertible secured promissory notes ................. -- 1,000
Net proceeds from issuance of redeemable preferred stock ....................... -- 2,753
Proceeds from bank borrowings .................................................. 250 --
Principal payments under capital lease obligations ............................. (216) (150)
-------- -------
Net cash provided in financing activities ................................ 13,941 3,603
-------- -------
Net increase in cash and cash equivalents ......................................... 6,604 916
Cash and cash equivalents at beginning of period .................................. 984 198
-------- -------
Cash and cash equivalents at end of period ........................................ $ 7,588 $ 1,114
======== =======
Supplemental disclosures:
Cash paid during the period:
Interest ..................................................................... $ 61 $ 27
-------- -------
Non cash investing and financing activities:
Conversion of convertible preferred stock to common stock .................... $ 12,816 $ --
-------- -------
Conversion of Series AA redeemable preferred stock and
common stock into Series A redeemable preferred stock ...................... $ -- $ 7,133
-------- -------
Conversion of convertible secured promissory notes in
connection with sale of Series B redeemable preferred stock................. $ -- $ 1,000
-------- -------
Equipment acquired under capital lease agreements ............................ $ -- $ 63
-------- -------
Exercise of common stock options in exchange for stockholder
notes receivable ........................................................... $ 68 $ --
-------- -------
</TABLE>
See accompanying notes to condensed financial statements.
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WORLDTALK COMMUNICATIONS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) THE COMPANY AND BASIS OF PRESENTATION
The Company
Worldtalk Communications Corporation, a Delaware corporation doing business
as Worldtalk Corporation (the "Company"), is a leading provider of
directory-based software solutions that support organizations in transforming
intranets into secure, robust and cost-effective platforms for business-critical
applications and electronic commerce. Worldtalk's solutions are designed to
enable these organizations to build, evolve and expand full service intranets,
while leveraging their existing infrastructure. The Company focuses on
electronic mail, groupware, directory and security applications.
The interim financial statements are unaudited and reflect all adjustments
(consisting only of normal recurring accruals) that, in the opinion of
management, are necessary for a fair presentation of the results for the interim
periods. The results of operations for current interim periods are not
necessarily indicative of results to be expected for the current year or any
other period.
The accompanying interim financial statements should be read in conjunction
with the Company's Registration Statement on Form S-1 declared effective by the
Securities and Exchange Commission on April 11, 1996 (File No. 333-1482).
Reclassifications
Certain reclassifications were made in the 1995 financial statements to
conform with 1996 presentation.
(2) SIGNIFICANT EVENT
On April 17, 1996, the Company completed the initial public offering of
2.1 million shares of its Common Stock, of which 2.0 million shares were issued
and sold by the Company, and 100,000 shares were sold by a selling stockholder.
On May 8, 1996, an additional 315,000 shares were sold by selling stockholders
upon exercise of the underwriters' over-allotment option. Net proceeds to the
Company aggregated approximately $14.0 million. The proceeds have been invested
in accordance with the Company's Board of Directors approved investment policy.
As of the closing date of the offering, all of the mandatorily redeemable
convertible Preferred Stock outstanding prior to such offering was automatically
converted into an aggregate of 6,025,000 shares of Common Stock.
(3) LITIGATION
In May 1996, an action was commenced against the Company by a
subcontractor, Salinas Group Limited, relating to a project by which the Company
provided software products and services to one of its customers. The complaint,
currently filed in the U.S. District Court for the Southern District of New
York, seeks payment for certain cost overruns and damages for an unspecified
breach of contract and sets forth various claims, including breach of alleged
contracts and interference with certain contracts the subcontractor had with the
Company's customers. The complaint seeks over $12 million in damages, but does
not
6
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specify the basis, or the nature, of the alleged damages. The complaint also
seeks unspecified punitive damages.
The Company intends to defend vigorously against the action. The
Company believes that: the subcontractor's claims are without merit and not
supported by the facts or the law; the subcontractor agreement expressly
disclaims the types of damages now being sought; the alleged reseller agreement
was superseded by a later agreement that also bars the types of damages being
sought; and the law prohibits punitive damages for breach of contract.
The Company has filed a counterclaim against the subcontractor for
amounts paid to the subcontractor in excess of that called for by the
subcontractor agreement. In addition, the Company has filed a separate action in
California state courts against both the subcontractor and its principal,
setting forth claims for breach of contract, conversion, fraud, breach of
fiduciary duty and their failure to report and pay to the Company fees they
received for licensing the Company's products.
(4) SUBSEQUENT EVENTS
In November 1996, the Company acquired Deming Software, Inc.
("Deming"), a developer of electronic mail security software for the Internet.
Approximately 547,000 shares of the Company's common stock and approximately
$225,000 in cash were exchanged for all outstanding shares of Deming common
stock. As a result of the acquisition, Deming, based in Bellevue, Washington,
has become a wholly owned subsidiary of the Company.
The acquisition will be accounted for as a purchase. As a result, the
Company expects to record a one-time, principally non-cash charge of
approximately $5.0 million, or approximately $0.50 per share, in the fourth
quarter ended December 31, 1996. This charge will reflect the write-off of
in-process research and development associated with the acquisition.
7
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PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The discussion in this Report contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in "Risk
Factors That May Affect Future Results" as well as those discussed in this
section and elsewhere in this Report, and the risks discussed in the "Risk
Factors" section included in the Company's Registration Statement on Form S-1 as
declared effective by the Securities and Exchange Commission on April 11, 1996
(File No. 333- 1482).
The Company's quarterly and annual operating results have, in the past, and
may, in the future, vary significantly, depending on many factors. Historically,
a substantial portion of the Company's revenues has been recognized in the last
month of the quarter as a result of many customers' purchasing practices and the
Company's compensation practices for its sales personnel. During the second half
1995, the Company changed its sales force compensation practices to encourage a
more even distribution of revenues throughout the quarter. However, the
inability of the Company to recognize expected revenues during the last month of
the quarter, particularly due to delay in the timing of large orders, could
result in substantial fluctuations from period to period. Additional factors
that may affect operating results include the timing of customers'
decision-making processes, the timing of expenses incurred by the Company in
anticipation of product releases or increased revenue, the timing of product
enhancements and product introductions by the Company and its competitors,
market acceptance of new and enhanced versions of the Company's products,
changes in pricing policies of the Company and its competitors, variations in
the mix of products the Company licenses, the mix of direct and indirect sales,
personnel changes and general economic factors. Any unfavorable changes in these
or other factors could have a material adverse effect on the Company's business,
financial condition and results of operations.
Revenue
The Company's revenues are derived primarily from license fees for its
software and charges for services, including maintenance, consulting and
training. License revenues consist of revenues received by the Company from both
the initial license of its software products as well as subsequent purchases to
expand capacity or add additional functionality. Maintenance, installation and
training revenues are received by the Company for support contracts and
consulting and training services. Software development contracts consist
principally of custom product development and non-recoverable engineering
charges for product integration and customization. Revenues from software
licenses are generally recognized upon shipment of software. Revenues from
maintenance contracts are recognized over the contract term, which generally is
one year, while installation and training revenues are recognized when the
services are performed. Software development contract revenues are recognized
using the percentage of completion method. Revenues from international
operations in the quarter ended September 30, 1996 were 20.1% and in prior
quarters ranged from approximately 15% to 30% of revenue.
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The Company's total revenues for quarter ended September 30, 1996
included a sale to one customer which comprised 18.2% of total revenues for the
period. The Company's contract with this customer was under the ordinary course
of business and is not a continuing contract. It is the nature of the Company's
business that it experience fluctuations in its customer base from quarter to
quarter. No other customer accounted for more than 10% of the Company's total
revenues for the three months ended September 30, 1996.
The Company's total revenues for the three and nine months ended
September 30, 1996 were $3.9 million and $9.9 million, respectively, an increase
of $2.1 million and $5.4 million when compared with the comparable periods last
year and an increase of $600,000 when compared with the immediately preceding
quarter ended June 30, 1996. Software license and software development revenues
for the quarter ended September 30, 1996 were $2.6 million as compared with $1.3
million for the comparable year-ago quarter, and $2.2 million for the
immediately preceding quarter ended June 30, 1996. Software license and software
development revenues for the nine months ended September 30, 1996 and 1995 were
$6.7 million and $3.1 million, respectively. The increase in software license
and software development revenues from the comparable year-ago quarter and the
comparable nine month period last year was largely attributable to sales of
NetJunction on Hewlett Packard products to both new and existing accounts, as
well as generally increased market acceptance of the Company's new and existing
products and the continued expansion of the Company's direct sales force.
Maintenance, installation and training revenues for the quarter ended September
30, 1996 were $1.3 million as compared with $554,000 for the comparable year-ago
quarter, and $1.1 million for the immediately preceding quarter ended June 30,
1996. Maintenance, installation and training revenues for the nine months ended
September 30, 1996 and 1995 were $3.1 million and $1.4 million , respectively.
The three and nine month increases were primarily attributable to maintenance
contracts associated with new software licenses and the renewal of maintenance
contracts by existing customers. The Company expects that maintenance,
installation and training revenues will continue to increase in absolute amounts
as its customer base grows. In 1995, the Company formed its Professional
Services organization to assume the responsibility for providing installation,
training, and consulting services to its customer base. Revenues for consulting
services are included in maintenance, installation and training revenues.
Future growth in revenues will be dependent on several factors,
including the following: the Company's ability to add enhanced features and
functionality to its NetJunction on Hewlett Packard products, growth of both
direct and indirect sales resources, market acceptance of the NetConnex product,
and the Company's ability to successfully port its NetJunction products to the
Window NT operation system on a timely basis. The latter two factors are
directly related to the increasing popularity of the Window NT operating system.
Cost of Revenue
The Company's total cost of revenue for the three and nine months ended
September 30, 1996 were $910,000 and $2.4 million , respectively, an increase of
$506,000 and $1.0 million when compared with the same periods last year and an
increase of $58,000 when compared with the immediately preceding quarter ended
June 30, 1996. Software license costs, which primarily consist of media and
documentation, increased from $92,000 in the third quarter of 1995, and from
$296,000 in the second quarter of 1996 to $309,000 in the third quarter of 1996.
The increases in software license costs were due to higher sales volume. Costs
were lower in the first nine months of 1995 due to the granting of customer site
licenses where media and documentation costs are minimal since the customer
purchases one product master of the software and documentation. Maintenance,
installation and training
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costs, which consist primarily of labor and overhead, increased from $312,000 in
the third quarter of 1995 and from $556,000 in the second quarter of 1996 to
$601,000 in the third quarter of 1996. The increases in maintenance,
installation and training costs were due primarily to the increase in the number
of customer support and training personnel, and related overhead costs necessary
to support a larger installed customer base and product upgrades. The Company
recognizes software development costs as incurred, while related revenue is
recognized as contract milestones are achieved. Gross margin as a percentage of
total revenues was 76.5% and 75.8% for the three and nine months ended September
30, 1996, respectively, compared with 77.7% and 69.8% for the comparable periods
last year and 74.0% for the immediately preceding quarter. The decrease in gross
margin as a percentage of total revenues for the comparable three month period a
year ago was due to recent increases in outsourcing of software development to
third-party contractors and the expansion of the professional services
organization. The increase in gross margin as a percentage of total revenues
from the comparable nine month period a year ago and the immediately preceding
quarter was a result of the change towards software licensing, which has higher
gross margins.
Sales and Marketing
Sales and marketing expenses consist primarily of salaries, sales
commissions and promotional expenses. Sales and marketing expenses for the three
and nine months ended September 30, 1996 were $1.7 million and $4.7 million
respectively, an increase of $292,000 and $1.2 million when compared with the
comparable periods last year and an increase of $25,000 when compared with the
immediately preceding quarter ended June 30, 1996. Sales and marketing expenses
represented 43.1% and 47.9% of total revenues for the three and nine months
ended September 30, 1996 compared with 75.9% and 78.6%, respectively, for the
comparable year-ago periods and 50.2% for the immediately preceding quarter. The
increase in absolute dollars reflects the hiring of additional sales and
marketing personnel in connection with the building of the Company's direct
sales force, higher sales commissions associated with increased sales volume and
increased promotional expenses. The decrease in sales and marketing expenses as
a percentage of total revenues is attributable to the increase in revenues and
the fact that sales and marketing expenses do not fluctuate in direct proportion
to total revenues. In the near future, the Company expects to continue hiring
additional sales and marketing personnel, increase promotion and advertising
efforts and to expand internationally through a combination of distributors,
VARs and direct sales personnel.
Product Development
Product development expenses associated with the development of new
products, enhancements of existing products and quality assurance activities,
consist principally of personnel costs, overhead costs relating to occupancy,
equipment depreciation and supplies. Costs related to research, design and
development of products are charged to product development expenses as incurred.
Product development expenses for the three and nine months ended September 30,
1996 were $925,000 and $2.6 million respectively, an increase of $286,000 and
$778,000 when compared with the same periods last year and an increase of
$73,000 when compared with the immediately preceding quarter ended June 30,
1996. Product development expenses represented 23.9% and 26.4% of total revenues
for the three and nine months ended September 30, 1996 compared with 35.2% and
40.9%, respectively, for the comparable year-ago periods and 26.0% for the
immediately preceding quarter. The increase in absolute dollars in product
development expenses occurred as the Company built its product development
organization and was comprised of additional expenses relating to
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headcount. The decrease in product development expenses as a percentage of total
revenues is attributable to the increase in revenues and the fact that product
development expenses do not fluctuate in direct proportion to total revenues.
The Company believes that a significant level of investment in product
development is required to remain competitive. The Company anticipates for the
foreseeable future, that these expenses will continue to increase in absolute
dollars.
General and Administrative
General and administrative expenses consist primarily of salaries and
occupancy costs for administrative, executive and finance personnel. General and
administrative expenses for the three and nine months ended September 30, 1996
were $417,000 and $1.2 million respectively, a decrease of $88,000 from the
comparable three months ended September 30, 1995 and an increase of $170,000
from the comparable nine months ended September 30, 1995 and an increase of
$32,000 when compared with the immediately preceding quarter ended June 30,
1996. General and administrative expenses represented 10.8% and 12.7% of total
revenues for the three and nine months ended September 30, 1996 compared with
27.8% and 24.2%, respectively, for the comparable year-ago periods and 11.8% for
the immediately preceding quarter. The decrease in absolute dollars from the
comparable three months ended September 30, 1995 relates to approximately
$135,000 of facility relocation costs incurred in that quarter. The decrease in
general and administrative expenses as a percentage of total revenues is
attributable to the increase in revenue and the fact that general and
administrative expenses do not fluctuate in direct proportion to total revenues.
The Company believes that general and administrative expenses will increase in
absolute dollar amounts for the near term as the Company expands its
administrative staff, adds infrastructure and incurs additional costs related to
being a public company.
As of September 30, 1996, the Company had deferred compensation of $142,000
for the difference between the grant price and the deemed fair value of the
Company's Common Stock for shares subject to options granted during the last two
months of 1995. The deferred compensation is being amortized over the four-year
vesting period of the options.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations and met its capital
expenditure requirements primarily from proceeds of private sales of Preferred
Stock and Common Stock. Through September 30, 1996, the Company had raised $27.3
million from the sale of Preferred Stock and Common Stock. At September 30,
1996, the Company had $7.6 million in cash and cash equivalents. In April and
May 1996, the Company closed its initial public offering with net proceeds to
the Company of approximately $14.0 million.
The Company has a $750,000 bank credit facility which is comprised of a
$500,000 line of credit that expired on October 15, 1996 and a $250,000 term
loan facility that expires on October 15, 1998. The $500,000 line of credit has
been extended until December 15, 1998. As of September 30, 1996, the Company had
borrowed $250,000 of the term loan facility and had not borrowed against the
line of credit.
Net cash used by operating activities was $639,000 and $2.2 million in the
first nine months of 1996 and 1995, respectively. The net cash used during these
periods was primarily due to net losses and increases in accounts receivable,
which were partially offset by increases in accrued liabilities, accounts
payable and deferred revenue. Net cash used by investing activities was $6.7
million and $476,000 in the first nine months of 1996 and 1995,
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respectively. This was primarily due to purchase property and equipment and
marketable securities. Financing activities generated cash of $13.9 million and
$3.6 million in the first nine months of 1996 and 1995, respectively, primarily
from the issuance of Preferred Stock, Common Stock and promissory notes that
were later converted into capital stock and from capital leases and bank
borrowings.
As of September 30, 1996, the Company's principal commitments consisted of
obligations under operating and capital leases, comprised of $4.4 million and
$304,000, respectively.
Capital expenditures have been, and near-term future expenditures are
anticipated to be, primarily for facilities and equipment to support expansion
of the Company's operations and management information systems. While the
Company currently has no material capital commitments, the Company anticipates
that its planned purchases of capital equipment in 1996 will require additional
expenditures of approximately $100,000.
The Company may, in the future, pursue acquisitions of complimentary
companies or technologies to further strategic corporate objectives. Such
acquisitions could result in a significant use of cash and earnings per share
dilution caused by reduced interest income and/or the issuance of additional
stock. Additionally, future operating costs associated with the acquisition of
companies or technologies could materially impact future operating results.
Further, such acquisitions could result in the immediate write-off of research
and development in process and expenses relating to acquisition and integration
costs. Accordingly, accounting charges related to such transactions could result
in significant losses in one or more fiscal quarters.
The Company believes that the net proceeds from its initial public offering,
together with its cash balance, credit facilities and cash flow generated from
future operations, will be sufficient to meet its anticipated cash needs for
working capital, capital expenditures and business expansion for at least the
next twelve months. Thereafter, if cash generated from operations is
insufficient to satisfy the Company's liquidity requirements, the Company may
seek to sell additional equity or convertible debt securities or obtain
additional credit facilities. The sale of additional equity or convertible debt
securities could result in additional dilution to the Company's stockholders and
may not be available on terms favorable to the Company, if at all.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control. These are
included in the "Risk Factors" section of the Company's Registration Statement
on Form S-1 as declared effective by the Securities and Exchange Commission on
April 11, 1996 (File No. 333-1482).
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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In May 1996, an action was commenced against the Company by a
subcontractor, Salinas Group Limited, relating to a project by which the Company
provided software products and services to one of its customers. The complaint,
currently filed in the U.S. District Court for the Southern District of New
York, seeks payment for certain cost overruns and damages for an unspecified
breach of contract and sets forth various claims, including breach of alleged
contracts and interference with certain contracts the subcontractor had with the
Company's customers. The complaint seeks over $12 million in damages, but does
not specify the basis, or the nature, of the alleged damages. The complaint also
seeks unspecified punitive damages.
The Company intends to defend vigorously against the action. The
Company believes that: the subcontractor's claims are without merit and not
supported by the facts or the law; the subcontractor agreement expressly
disclaims the types of damages now being sought; the alleged reseller agreement
was superseded by a later agreement that also bars the types of damages being
sought; and the law prohibits punitive damages for breach of contract.
The Company has filed a counterclaim against the subcontractor for amounts paid
to the subcontractor in excess of that called for by the subcontractor
agreement. In addition, the Company has filed a separate action in California
state courts against both the subcontractor and its principal, setting forth
claims for breach of contract, conversion, fraud, breach of fiduciary duty and
their failure to report and pay to the Company fees they received for licensing
the Company's products.
ITEM 5. OTHER INFORMATION
In November 1996, the Company acquired Deming Software, Inc.
("Deming"), a developer of electronic mail security software for the Internet
that has delivered one of the first commercially available Secure Multipurpose
Internet Mail Extensions ("SMIME") tool kits. Approximately 547,000 shares of
the Company's common stock and approximately $225,000 in cash were exchanged for
all outstanding shares of Deming common stock by way of merger. As a result of
the acquisition, Deming, based in Bellevue, Washington, has become a wholly
owned subsidiary of the Company. As the Company's subsidiary, Deming is expected
to develop off-the-shelf client and server Internet security solutions, to be
marketed by the Company with its suite of managed intranet application software.
The acquisition will be accounted for as a purchase. As a result, the
Company expects to record a one-time, principally non-cash charge of
approximately $5.0 million, or approximately $0.50 per share, in the fourth
quarter ended December 31, 1996. This charge will reflect the write-off of
in-process research and development associated with the acquisition.
13
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
<S> <C>
(a) The following exhibits are being filed as part of this report:
10.1 1996 Directors' Stock Option Plan 16
10.2 1996 Equity Incentive Plan 24
10.3 1996 Employee Stock Purchase Plan 39
11.1 Statement re: Computation of Net Income (Loss) per Share 48
27.1 Financial Data Schedule 49
(b) Reports on Form 8-K. No reports were filed during the three months ended
September 30, 1996.
</TABLE>
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
WORLDTALK
COMMUNICATIONS CORPORATION
Date: November , 1996 By: /s/ STEPHEN BENNION
--- ---------------------------------------
Stephen R. Bennion
Vice President, Finance and Operations
and Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
15
<PAGE> 16
EXHIBIT INDEX
10.1 1996 Directors' Stock Option Plan
10.2 1996 Equity Incentive Plan
10.3 1996 Employee Stock Purchase Plan
11.1 Statement re: Computation of Net Income (Loss) per Share
27.1 Financial Data Schedule
<PAGE> 1
WORLDTALK COMMUNICATIONS CORPORATION EXHIBIT 10.1
1996 Directors' Stock Option Plan,
As adopted on February 7, 1996
and Amended Through October 18, 1996
WORLDTALK CORPORATION
1996 DIRECTORS STOCK OPTION PLAN
As Adopted February 7, 1996
and Amended through October 18, 1996
1. PURPOSE. This 1996 Directors Stock Option Plan (this "PLAN") is
established to provide equity incentives for members of the Board of Directors
of Worldtalk Communications Corporation, dba Worldtalk Corporation (the
"COMPANY"), who are described in Section 6.1 below, by granting such persons
options to purchase shares of the Common Stock of the Company.
2. ADOPTION AND STOCKHOLDER APPROVAL. After this Plan is adopted by the
Board of Directors of the Company (the "BOARD"), this Plan will become effective
on the time and date (the "EFFECTIVE DATE") on which the registration statement
that has been or will be filed by the Company with the Securities and Exchange
Commission ("SEC") under the Securities Act of 1933, as amended (the "SECURITIES
ACT"), to register the Company's Common Stock in an initial public offering
thereof, is declared effective by the SEC; provided, however, that if the
Effective Date does not occur on or before December 31, 1996, this Plan will
terminate as of December 31, 1996 having never become effective. This Plan shall
be approved by the stockholders of the Company, consistent with applicable laws,
prior to a date twelve (12) months after the date this Plan is adopted by the
Board. Options may be granted under this Plan after the Effective Date provided
that, in the event that stockholder approval is not obtained within the time
period provided herein, this Plan, and all options granted hereunder (each an,
"OPTION"), shall terminate. No Option that is issued as a result of any increase
in the number of shares authorized to be issued under this Plan shall be
exercised prior to the time such increase has been approved by the stockholders
of the Company and all such Options granted pursuant to such increase shall
similarly terminate if such stockholder approval is not obtained. So long as the
Company is subject to Section 16(b) of the Securities Exchange Act of 1934, as
amended, (the "EXCHANGE ACT") the Company will comply with the requirements of
Rule 16b-3 with respect to stockholder approval.
3. TYPES OF OPTIONS AND SHARES. Options granted under this Plan shall
be nonqualified stock options ("NQSOS"). The shares of stock that may be
purchased upon exercise of Options granted under this Plan (the "SHARES") are
shares of the Common Stock of the Company.
4. NUMBER OF SHARES. The maximum number of Shares that may be issued
pursuant to Options granted under this Plan (the "MAXIMUM NUMBER") is 200,000
Shares (post 1-for-2 1996 reverse stock split), subject to adjustment as
provided in this Plan. If any Option is terminated for any reason without being
exercised in whole or in part, the Shares thereby released from such Option
shall be available for purchase under other Options subsequently granted under
this Plan. At all times during the term of this Plan, the Company shall reserve
and keep available such number of Shares as shall be
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<PAGE> 2
required to satisfy the requirements of outstanding Options granted under this
Plan; provided, however that if the aggregate number of Shares subject to
outstanding Options granted under this Plan plus the aggregate number of Shares
previously issued by the Company pursuant to the exercise of Options granted
under this Plan equals or exceeds the Maximum Number of Shares, then
notwithstanding anything herein to the contrary, no further Options may be
granted under this Plan until the Maximum Number is increased or the aggregate
number of Shares subject to outstanding Options granted under this Plan plus the
aggregate number of Shares previously issued by the Company pursuant to the
exercise of Options granted under this Plan is less than the Maximum Number.
5. ADMINISTRATION. This Plan shall be administered by the Board or
by a committee of not less than two members of the Board appointed to administer
this Plan (the "COMMITTEE"). As used in this Plan, references to the Committee
shall mean either such Committee or the Board if no Committee has been
established to administer this Plan. The interpretation by the Committee of any
of the provisions of this Plan or any Option granted under this Plan shall be
final and binding upon the Company and all persons having an interest in any
Option or any Shares purchased pursuant to an Option.
6. ELIGIBILITY AND AWARD FORMULA.
6.1 Eligibility. Options may be granted only to members of the
Board who are not employees of, or consultants to, the Company or any Parent,
Subsidiary or Affiliate of the Company, as those terms are defined in Section 17
below (each an "ELIGIBLE DIRECTOR").
6.2 Initial Grant. Each Eligible Director who is a member of
the Board on the Effective Date and has not previously been granted an option
under the Company's 1992 Stock Option Plan will automatically be granted an
option for 15,000 Shares on the Effective Date. Each Eligible Director who after
the Effective Date becomes a member of the Board will automatically be granted
an Option for 15,000 Shares on the date such individual first becomes a member
of the Board or on the date such individual returns as a Board member after a
break in service, as applicable. Each grant provided for in this Section 6.2
shall be referred to herein as an "INITIAL GRANT" and each individual who holds
one or more Options, whether Initial Grants or otherwise, shall be referred to
herein as an "OPTIONEE."
6.3 Succeeding Grants. Each Eligible Director will automatically
be granted an Option for 5,000 Shares (a "SUCCEEDING GRANT") five (5) days after
each annual meeting of the Company's stockholders beginning with the second such
meeting following the Effective Date; provided that the Eligible Director is
still a member of the Board on the date of grant and has served continuously as
a member of the Board since:
(a) the date of the Eligible Director's Initial Grant occurring
at least one year prior to the date such Succeeding Grant is to be made
(for those who received an Initial Grant under Section 6.2 above); or
(b) the Effective Date (for those who were members of the Board
on the Effective Date but were ineligible to receive an Initial Grant
under Section 6.2 on the Effective Date due to the fact that they had
previously been granted one or more options under the Company's 1992
Stock Option Plan).
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<PAGE> 3
If there is no annual meeting of the Company's stockholders in any one calendar
year after 1996, Succeeding Grants in that year shall occur, subject to the
preceding sentence, on December 31 of that calendar year.
7. TERMS AND CONDITIONS OF OPTIONS. Subject to the following and to
Section 6 above:
7.1 Form of Option Grant. Each Option granted under this Plan
shall be evidenced by a written Stock Option Grant ("GRANT") in such form (which
need not be the same for each Optionee) as the Committee shall from time to time
approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
7.2 Vesting. Options granted under this Plan shall be
exercisable as they vest. The date an Optionee receives an Initial Grant or a
Succeeding Grant is referred to in this Plan as the "START DATE" for such
Option. Subject to the terms and conditions of the Plan and the Grant, each such
Option shall vest as to twenty-five percent (25%) of the Shares subject thereto
on the fifth (5th) day after each annual stockholders meeting of the Company to
be held in each of the four (4) calendar years after the Start Date, but as to
each such vesting period, only so long as the Optionee continuously remains a
member of the Board through the date of vesting. However, if there is no annual
stockholders' meeting in any calendar year after the Start Date for any Option,
the annual vesting date for that Option and for that year shall be December 31
of such calendar year.
7.3 Exercise Price. The exercise price of an Option shall be
the Fair Market Value (as defined in Section 17.4) of the Shares, at the time
that the Option is granted.
7.4 Termination of Option. Except as provided below in this
Section, each Option shall expire ten (10) years after its Start Date (the
"EXPIRATION DATE"). The Option shall cease to vest if the Optionee ceases to be
a member of the Board. The date on which the Optionee ceases to be a member of
the Board shall be referred to as the "TERMINATION DATE." An Option may be
exercised after the Termination Date only as set forth below:
7.4.1 Termination Generally. If the Optionee ceases
to be a member of the Board for any reason except death or disability, then each
Option then held by such Optionee, to the extent (and only to the extent) that
it would have been exercisable by the Optionee on the Termination Date, may be
exercised by the Optionee within seven (7) months after the Termination Date,
but in no event later than the Expiration Date.
7.4.2 Death or Disability. If the Optionee ceases to
be a member of the Board because of the death of the Optionee or the disability
of the Optionee within the meaning of Section 22(e)(3) of the Internal Revenue
Code of 1986, as amended (the "CODE"), then each Option then held by such
Optionee, to the extent (and only to the extent) that it would have been
exercisable by the Optionee on the Termination Date, may be exercised by the
Optionee (or the Optionee's legal representative) within twelve (12) months
after the Termination Date, but in no event later than the Expiration Date.
8. EXERCISE OF OPTIONS.
8.1 Notice. Options may be exercised only by delivery to the
Company of an exercise agreement in a form approved by the Committee stating the
number of Shares being purchased, the restrictions imposed on the Shares and
such representations and agreements regarding the Optionee's investment intent
and access to information as may
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<PAGE> 4
be required by the Company to comply with applicable securities laws, together
with payment in full of the exercise price for the number of Shares being
purchased.
8.2 Payment. Payment for the Shares purchased upon exercise of
an Option may be made (a) in cash or by check; (b) by surrender of shares of
Common Stock of the Company that have been owned by the Optionee for more than
six (6) months (and which have been paid for within the meaning of SEC Rule 144
and, if such shares were purchased from the Company by use of a promissory note,
such note has been fully paid with respect to such shares) or were obtained by
the Optionee in the open public market, having a Fair Market Value equal to the
exercise price of the Option; (c) by waiver of compensation due or accrued to
the Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Secu rities
Dealers (an "NASD DEALER") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
exercise price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the exercise price directly to the Company; (e) provided
that a public market for the Company's stock exists, through a "margin"
commitment from the Optionee and a NASD Dealer whereby the Optionee irrevocably
elects to exercise the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the exercise price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the exercise price directly to the
Company; (f) if approved by the Board at any time, by tender of a full recourse
promissory note having such terms as may be approved by the Committee and
bearing interest at a rate sufficient to avoid imputation of income under
Sections 483 and 1274 of the Code and secured by a pledge agreement in form
approved by the Committee under which the Shares shall serve as collateral;
provided, however, that the portion of the Exercise Price equal to the par value
of the Shares purchased must be paid in cash; or (g) by any combination of the
foregoing.
8.3 Withholding Taxes. Prior to issuance of the Shares upon
exercise of an Option, the Optionee shall pay or make adequate provision for any
federal or state withholding obligations of the Company, if applicable.
8.4 Limitations on Exercise. Notwithstanding the exercise
periods set forth in the Grant, exercise of an Option shall always be subject to
the following limitations:
8.4.1 Stockholder Approval. An Option shall not be
exercisable until such time as this Plan (or, in the case of Options granted
pursuant to an amendment increasing the number of shares that may be issued
pursuant to this Plan, such amendment) has been approved by the stockholders of
the Company in accordance with Section 15 hereof.
8.4.2 Compliance with Laws. An Option shall not be
exercisable unless such exercise is in compliance with the Securities Act and
all applicable state securities laws, as they are in effect on the date of
exercise.
8.4.3 Minimum Exercise. The Committee may specify a
reasonable minimum number of Shares that may be purchased upon any exercise of
an Option, provided that such minimum number will not prevent the Optionee from
exercising the full number of Shares as to which the Option is then exercisable.
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<PAGE> 5
9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
an Option shall be exercisable only by the Optionee or by the Optionee's
guardian or legal representative, unless otherwise permitted by the Committee.
No Option may be sold, pledged, assigned, hypothecated, transferred or disposed
of in any manner other than by will or by the laws of descent and distribution.
10. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the
rights of a stockholder with respect to any Shares subject to an Option until
the Option has been validly exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
of exercise, except as provided in this Plan. The Company shall provide to each
Optionee a copy of the annual financial statements of the Company, at such time
after the close of each fiscal year of the Company as they are released by the
Company to its stockholders.
11. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration,
the number of Shares available under this Plan and the number of Shares subject
to outstanding Options and the exercise price per share of such outstanding
Options shall be proportionately adjusted, subject to any required action by the
Board or stockholders of the Company and compliance with applicable securities
laws; provided, however, that no fractional shares shall be issued upon exercise
of any Option and any resulting fractions of a Share shall be rounded up to the
nearest whole Share.
12. NO OBLIGATION TO CONTINUE AS DIRECTOR. Nothing in this Plan or any
Option granted under this Plan shall confer on any Optionee any right to
continue as a director of the Company.
13. COMPLIANCE WITH LAWS. The grant of Options and the issuance of
Shares upon exercise of any Options shall be subject to and conditioned upon
compliance with all applicable requirements of law, including without limitation
compliance with the Securities Act, compliance with all other applicable state
securities laws and compliance with the requirements of any stock exchange or
national market system on which the Shares may be listed. The Company shall be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration or qualification requirement of any state securities laws,
stock exchange or national market system.
14. CORPORATE TRANSACTIONS.
14.1 Assumption or Replacement of Options by Successor. In the
event of:
(a) a dissolution or liquidation of the Company;
(b) a merger or consolidation in which the Company is not
the surviving corporation (other than a merger or consolidation with a
wholly owned subsidiary, a reincorporation of the Company in a
different jurisdiction, or other transaction in which there is no
substantial change in the stockholders of the Company or their relative
stock holdings and the Options granted under this Plan are assumed,
converted or replaced by the successor corporation, which assumption
will be binding on all Optionees);
(c) a merger in which the Company is the surviving
corporation but after which the stockholders of the Company (other than
any stockholder which merges (or which owns or controls another
corporation which merges) with the
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<PAGE> 6
Company in such merger) cease to own at least 90% of the issued and
outstanding capital stock or other equity interests in the Company;
(d) the sale of all or substantially all of the assets of
the Company; or
(e) any other transaction which qualifies as a "corporate
transaction" under Section 424(a) of the Code wherein the stockholders
of the Company give up all of their equity interest in the Company
(except for the acquisition, sale or transfer of all or substantially
all of the outstanding shares of the Company from or by the
stockholders of the Company),
then, subject to Section 14.3 below, any or all outstanding Options may be
assumed, converted or replaced by the successor corporation (if any), which
assumption, conversion or replacement will be binding on all Optionees. In the
alternative and subject to Section 14.3 below, the successor corporation may
substitute equivalent Options or provide substantially similar consideration to
Optionees as was provided to stockholders (after taking into account the
existing provisions of the Options). The successor corporation may also issue,
in place of outstanding Shares of the Company held by the Optionee,
substantially similar shares or other property subject to repurchase
restrictions no less favorable to the Optionee.
14.2 Termination of Options. In the event of a transaction
described in clauses (a) through (e) of Section 14.1 and provided that the
successor corporation (if any) does not assume or substitute all outstanding
Options as provided above, such Options will expire on (and if the Company has
reserved to itself a right to repurchase shares issued upon exercise of Options
at the original purchase price of such shares, such right shall terminate upon)
such event at such time and on such conditions as the Board shall determine upon
twenty (20) days advance written notice to Optionees holding outstanding
Options.
14.3 Acceleration of Vesting. In the event of a merger
described in either clause (b) or (c) of Section 14.1 above, the sale of all or
substantially all of the assets of the Company as a going concern in a single
transaction or series of related transactions or the sale or transfer of a
majority of the outstanding shares of the Company by the stockholders of the
Company in a single transaction or a series of related transactions other than
market transactions to unrelated purchasers (an "ACQUISITION") and:
(a) if the successor corporation, if any (the
"SUCCESSOR"), does not assume or substitute Options as provided above
in Section 14.1, then each outstanding Option granted on or after
October 18, 1996 that is not totally "Vested" (as defined in the Option
or Exercise Agreement) shall immediately accelerate and become
exercisable as to the number of shares that is equal to (i) the number
of shares then "Vested" at the closing of the Acquisition, plus (ii)
the number of shares that would have "Vested" had the Option been held
for the year after such closing. Options granted before October 18,
1996 will accelerate and become exercisable in full. Such acceleration
shall be under the terms described by the Board in the notice described
in the last sentence of Section 14.2; or
(b) if the Successor assumes or substitutes Options
as provided above in Section 14.1, but any Optionee's status as a
director with the Successor or any Parent, Subsidiary of Affiliate of
the Successor (as the definitions for such terms shall be revised to
substitute the Successor for the Company) is terminated by the
Successor, such Parent, Subsidiary or Affiliate without "cause" within
one year after the Acquisition, then the outstanding Options held by
the terminated director, as so substituted or assumed, and granted on
or after October 18, 1996, shall provide that they will likewise
immediately accelerate and become exercisable on the date of such
termination such that they are exercisable for (i) the number of shares
then "Vested"
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<PAGE> 7
at the date of such termination, plus (ii) the number of shares that
would have "Vested" had the Option been held for the year after such
termination. Options granted before October 18, 1996 will accelerate
vesting and become exercisable in full upon such termination. For
purposes hereof "cause" for termination of any Optionee's status as a
director will exist at any time after the happening of one or more of
the following events: (i) Optionee's conviction of a felony involving
moral turpitude; (ii) any willful act or acts of dishonesty undertaken
by the Optionee and intended to result in substantial gain or personal
enrichment of Optionee, directly or indirectly, at the expense of the
Successor, such Parent, Subsidiary or Affiliate; (iii) any willful act
or misconduct which is materially and demonstrably injurious to the
Successor, such Parent, Subsidiary or Affiliate; (iv) substantial and
repeated neglect of Optionee's responsibility, or malfeasance thereof,
that remains uncured after thirty (30) days written notice of such
neglect; or (v) the death or disability (within the meaning of Section
22(e)(3) of the Code) of the Optionee.
14.4 Other Treatment of Options. Subject to any greater rights
granted to Optionees under the foregoing provisions of this Section 14, in the
event of the occurrence of any transaction described in Section 14.1, any
outstanding Options will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction."
15. AMENDMENT OR TERMINATION OF PLAN. The Committee may at any time
terminate or amend this Plan (but may not terminate or amend the terms of any
outstanding option without the consent of the Optionee); provided, however, that
the Committee shall not, without the approval of the stockholders of the
Company, increase the total number of Shares available under this Plan (except
by operation of the provisions of Sections 4 and 11 above) or change the class
of persons eligible to receive Options. Further, the provisions in Sections 6
and 7 of this Plan shall not be amended more than once every six (6) months,
other than to comport with changes in the Code, the Employee Retirement Income
Security Act or the rules thereunder. In any case, no amendment of this Plan may
adversely affect any then outstanding Options or any unexercised portions
thereof without the written consent of the Optionee.
16. TERM OF PLAN. Options may be granted pursuant to this Plan from
time to time within a period of ten (10) years from the date this Plan is
adopted by the Board.
17. CERTAIN DEFINITIONS. As used in this Plan, the following terms
shall have the following meanings:
17.1 "PARENT" means any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company if, at the time of
the granting of the Option, each of such corporations other than the Company
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
17.2 "SUBSIDIARY" means any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company if, at the time
of granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
17.3 "AFFILIATE" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, another corporation, where "control" (including
the terms "controlled by" and "under
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<PAGE> 8
common control with") means the possession, direct or indirect, of the power to
cause the direction of the management and policies of the corporation, whether
through the own ership of voting securities, by contract or otherwise.
17.4 "FAIR MARKET VALUE" shall mean, as of any date, the value
of a share of the Company's Common Stock determined by the Board in its sole
discretion, exercised in good faith; provided, however, that where there is a
public market for the Common Stock, the Fair Market Value per share shall be the
average of the closing bid and asked prices of the Common Stock on the last
trading day prior to the date of determination as reported in The Wall Street
Journal (or, if not so reported, as otherwise reported by the Nasdaq Stock
Market) or, in the event the Common Stock is listed on a stock exchange or on
the Nasdaq National Market, the Fair Market Value per share shall be the closing
price on the exchange or on the Nasdaq National Market on the last trading date
prior to the date of determination as reported in The Wall Street Journal;
provided, however, that notwithstanding the foregoing, with respect to the
Initial Grants that are granted on the Effective Date, the "FAIR MARKET VALUE"
shall mean the price per share at which shares of the Company's Common Stock are
initially offered for sale to the public by the Company's underwriters in the
initial public offering of the Company's Common Stock pursuant to a registration
statement filed with the SEC under the Securities Act.
-----------------------------------------------------------
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<PAGE> 1
WORLDTALK COMMUNICATIONS CORPORATION EXHIBIT 10.2
1996 Equity Incentive Plan,
As adopted on February 7, 1996
and Amended Through October 18, 1996
WORLDTALK CORPORATION
1996 EQUITY INCENTIVE PLAN
As adopted on February 7, 1996
and Amended Through October 18, 1996
1. PURPOSE. The purpose of this Plan, as amended herein (the
"PLAN"), is to provide incentives to attract, retain and motivate eligible
persons whose present and potential contributions are important to the success
of the Company, its Parent, Subsidiaries and Affiliates, by offering them an
opportunity to participate in the Company's future performance through awards of
Options, Restricted Stock and Stock Bonuses. Capitalized terms not defined in
the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares Available. Subject to Sections
2.2 and 18, the total number of Shares reserved and available for grant and
issuance pursuant to this Plan will be 1,000,000 Shares (post 1-for-2 1996
reverse stock split). Subject to Sections 2.2 and 18, Shares that: (a) are
subject to issuance upon exercise of an Option but cease to be subject to such
Option for any reason other than exercise of such Option; (b) are subject to an
Award granted hereunder but are forfeited or are repurchased by the Company at
the original issue price; or (c) are subject to an Award that otherwise
terminates without Shares being issued; will again be available for grant and
issuance in connection with future Awards under this Plan. At all times the
Company shall reserve and keep available a sufficient number of Shares as shall
be required to satisfy the requirements of all outstanding Options granted under
this Plan and all other outstanding but unvested Awards granted under this Plan.
2.2 Adjustment of Shares. In the event that the
number of outstanding Shares is changed by a stock dividend, recapitalization,
stock split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the stockholders of the
Company and compliance with applicable securities laws; provided, however, that
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be
granted only to employees (including officers and directors who are also
employees but are not members of the Compensation Committee of the Board) of the
Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors, consultants, independent contractors
and advisors of the Company or any Parent, Subsidiary or Affiliate of the
Company; provided such consultants, contractors and advisors
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<PAGE> 2
render bona fide services not in connection with the offer and sale of
securities in a capital-raising transaction. No person will be eligible to
receive more than 500,000 Shares in any calendar year under this Plan pursuant
to the grant of Awards hereunder, other than new employees of the Company or of
a Parent, Subsidiary or Affiliate of the Company (including new employees who
are also officers and directors of the Company or any Parent, Subsidiary or
Affiliate of the Company but are not members of the Compensation Committee of
the Board) who are eligible to receive up to a maximum of 750,000 Shares in the
calendar year in which they commence their employment. A person may be granted
more than one Award under this Plan.
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be
administered by the Committee or by the Board acting as the Committee. Subject
to the general purposes, terms and conditions of this Plan, and to the direction
of the Board, the Committee will have full power to implement and carry out this
Plan. Without limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement
and any other agreement or document executed pursuant
to this Plan;
(b) prescribe, amend and rescind rules and regulations
relating to this Plan;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration
subject to Awards;
(f) determine whether Awards will be granted singly, in
combination with, in tandem with, in replacement of,
or as alternatives to, other Awards under this Plan
or any other incentive or compensation plan of the
Company or any Parent, Subsidiary or Affiliate of the
Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of
Awards;
(i) correct any defect, supply any omission or reconcile
any inconsistency in this Plan, any Award or any
Award Agreement;
(j) determine whether an Award has been earned; and
(k) make other determinations necessary or advisable for
the administration of this Plan.
4.2 Committee Discretion. Any determination made by
the Committee with respect to any Award will be made in its sole discretion at
the time of grant of the Award or, unless in contravention of any express term
of this Plan or Award, at any later time, and such determination will be final
and binding on the Company and on all persons having an interest in any Award
under this Plan. The Committee may delegate to one or more officers of the
Company the authority to grant an Award under this Plan to Participants who are
not Insiders of the Company.
4.3 Exchange Act Requirements. If two or more members
of the Board are Outside Directors, the Committee will be comprised of at least
two (2) members of
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the Board, all of whom are Outside Directors and Disinterested Persons. During
all times that the Company is subject to Section 16 of the Exchange Act, the
Company will take appropriate steps to comply with the disinterested
administration requirements of Section 16(b) of the Exchange Act, which will
consist of the appointment by the Board of a Committee consisting of not less
than two (2) members of the Board, each of whom is a Disinterested Person.
5. OPTIONS. The Committee may grant Options to eligible persons
and will determine whether such Options will be Incentive Stock Options within
the meaning of the Code ("ISOS") or Nonqualified Stock Options ("NQSOS"), the
number of Shares subject to the Option, the Exercise Price of the Option, the
period during which the Option may be exercised, and all other terms and
conditions of the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under
this Plan will be evidenced by an Award Agreement which will expressly identify
the Option as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in such
form and contain such provisions (which need not be the same for each
Participant) as the Committee may from time to time approve, and which will
comply with and be subject to the terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option
will be the date on which the Committee makes the determination to grant such
Option, unless otherwise specified by the Committee. The Stock Option Agreement
and a copy of this Plan will be delivered to the Participant within a reasonable
time after the granting of the Option.
5.3 Exercise Period. Options will be exercisable
within the times or upon the events determined by the Committee as set forth in
the Stock Option Agreement governing such Option; provided, however, that no
Option will be exercisable after the expiration of ten (10) years from the date
the Option is granted; and provided further that no ISO granted to a person who
directly or by attribution owns more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any Parent or
Subsidiary of the Company ("TEN PERCENT STOCKHOLDER") will be exercisable after
the expiration of five (5) years from the date the ISO is granted. The Committee
also may provide for the exercise of Options to become exercisable at one time
or from time to time, periodically or otherwise, in such number of Shares or
percentage of Shares as the Committee determines.
5.4 Exercise Price. The Exercise Price of an Option
will be determined by the Committee when the Option is granted and may be not
less than 85% of the Fair Market Value of the Shares on the date of grant;
provided that: (a) the Exercise Price of an ISO will be not less than 100% of
the Fair Market Value of the Shares on the date of grant; and (b) the Exercise
Price of any ISO granted to a Ten Percent Stockholder will not be less than 110%
of the Fair Market Value of the Shares on the date of grant. Payment for the
Shares purchased may be made in accordance with Section 8 of this Plan.
5.5 Method of Exercise. Options may be exercised only
by delivery to the Company of a written stock option exercise agreement (the
"EXERCISE AGREEMENT") in a form approved by the Committee (which need not be the
same for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
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<PAGE> 4
5.6 Termination. Notwithstanding the exercise periods
set forth in the Stock Option Agreement, exercise of an Option will always be
subject to the following:
(a) If the Participant is Terminated for any reason
except death or Disability, then the Participant may exercise such
Participant's Options only to the extent that such Options would have
been exercisable upon the Termination Date no later than three (3)
months after the Termination Date (or such shorter or longer time
period not exceeding five (5) years as may be determined by the
Committee, with any exercise beyond three (3) months after the
Termination Date deemed to be an NQSO), but in any event, no later than
the expiration date of the Options.
(b) If the Participant is Terminated because of
Participant's death or Disability (or the Participant dies within three
(3) months after a Termination other than because of Participant's
death or disability), then Participant's Options may be exercised only
to the extent that such Options would have been exercisable by
Participant on the Termination Date and must be exercised by
Participant (or Partici pant's legal representative or authorized
assignee) no later than twelve (12) months after the Termination Date
(or such shorter or longer time period not exceeding five (5) years as
may be determined by the Committee, with any such exercise beyond (a)
three (3) months after the Termination Date when the Termination is for
any reason other than the Participant's death or Disability, or (b)
twelve (12) months after the Termination Date when the Termination is
for Participant's death or Disability, deemed to be an NQSO), but in
any event no later than the expiration date of the Options.
5.7 Limitations on Exercise. The Committee may
specify a reasonable minimum number of Shares that may be purchased on any
exercise of an Option, provided that such minimum number will not prevent
Participant from exercising the Option for the full number of Shares for which
it is then exercisable.
5.8 Limitations on ISOs. The aggregate Fair Market
Value (determined as of the date of grant) of Shares with respect to which ISOs
are exercisable for the first time by a Participant during any calendar year
(under this Plan or under any other incentive stock option plan of the Company
or any Affiliate, Parent or Subsidiary of the Company) will not exceed $100,000.
If the Fair Market Value of Shares on the date of grant with respect to which
ISOs are exercisable for the first time by a Participant during any calendar
year exceeds $100,000, then the Options for the first $100,000 worth of Shares
to become exercisable in such calendar year will be ISOs and the Options for the
amount in excess of $100,000 that become exercisable in that calendar year will
be NQSOs. In the event that the Code or the regulations promulgated thereunder
are amended after the Effective Date of this Plan to provide for a different
limit on the Fair Market Value of Shares permitted to be subject to ISOs, such
different limit will be automatically incorporated herein and will apply to any
Options granted after the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee
may modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not, without
the written consent of a Participant, impair any of such Participant's rights
under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered will be treated in accordance with
Section 424(h) of the Code. The Committee may reduce the Exercise Price of
outstanding Options without the consent of Participants affected by a written
notice to them; provided, however, that the Exercise Price may not be reduced
below the minimum Exercise Price that would be permitted under Section 5.4 of
this Plan for Options granted on the date the action is taken to reduce the
Exercise Price.
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5.10 No Disqualification. Notwithstanding any other
provision in this Plan, no term of this Plan relating to ISOs will be
interpreted, amended or altered, nor will any discretion or authority granted
under this Plan be exercised, so as to disqualify this Plan under Section 422 of
the Code or, without the consent of the Participant affected, to disqualify any
ISO under Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee will determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the "PURCHASE PRICE"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases
under a Restricted Stock Award made pursuant to this Plan will be evidenced by
an Award Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such
form (which need not be the same for each Participant) as the Committee will
from time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. The offer of Restricted Stock will be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
and full payment for the Shares to the Company within thirty (30) days from the
date the Restricted Stock Purchase Agreement is delivered to the person. If such
person does not execute and deliver the Restricted Stock Purchase Agreement
along with full payment for the Shares to the Company within thirty (30) days,
then the offer will terminate, unless otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold
pursuant to a Restricted Stock Award will be determined by the Committee and
will be at least 85% of the Fair Market Value of the Shares on the date the
Restricted Stock Award is granted, except in the case of a sale to a Ten Percent
Stockholder, in which case the Purchase Price will be 100% of the Fair Market
Value. Payment of the Purchase Price may be made in accordance with Section 8 of
this Plan.
6.3 Restrictions. Restricted Stock Awards will be
subject to such restrictions (if any) as the Committee may impose. The Committee
may provide for the lapse of such restrictions in installments and may
accelerate or waive such restrictions, in whole or part, based on length of
service, performance or such other factors or criteria as the Committee may
determine.
7. STOCK BONUSES.
7.1 Awards of Stock Bonuses. A Stock Bonus is an
award of Shares (which may consist of Restricted Stock) for services rendered to
the Company or any Parent, Subsidiary or Affiliate of the Company. A Stock Bonus
may be awarded for past services already rendered to the Company, or any Parent,
Subsidiary or Affiliate of the Company (provided that the Participant pays the
Company the par value of the Shares awarded by such Stock Bonus in cash)
pursuant to an Award Agreement (the "STOCK BONUS AGREEMENT") that will be in
such form (which need not be the same for each Participant) as the Committee
will from time to time approve, and will comply with and be subject to the terms
and conditions of this Plan. A Stock Bonus may be awarded upon satisfaction of
such performance goals as are set out in advance in the Participant's individual
Award Agreement (the "PERFORMANCE STOCK BONUS AGREEMENT") that will be in such
form (which need not be the same for each Partici pant) as the Committee will
from time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. Stock Bonuses may vary from
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<PAGE> 6
Participant to Participant and between groups of Participants, and may be based
upon the achievement of the Company, Parent, Subsidiary or Affiliate and/or
individual performance factors or upon such other criteria as the Committee may
determine.
7.2 Terms of Stock Bonuses. The Committee will
determine the number of Shares to be awarded to the Participant and whether such
Shares will be Restricted Stock. If the Stock Bonus is being earned upon the
satisfaction of performance goals pursuant to a Performance Stock Bonus
Agreement, then the Committee will determine: (a) the nature, length and
starting date of any period during which performance is to be measured (the
"PERFORMANCE PERIOD") for each Stock Bonus; (b) the performance goals and
criteria to be used to measure the performance, if any; (c) the number of Shares
that may be awarded to the Participant; and (d) the extent to which such Stock
Bonuses have been earned. Performance Periods may overlap and Participants may
participate simultaneously with respect to Stock Bonuses that are subject to
different Performance Periods and different performance goals and other
criteria. The number of Shares may be fixed or may vary in accordance with such
performance goals and criteria as may be determined by the Committee. The
Committee may adjust the performance goals applicable to the Stock Bonuses to
take into account changes in law and accounting or tax rules and to make such
adjustments as the Committee deems necessary or appropriate to reflect the
impact of extraordinary or unusual items, events or circumstances to avoid
windfalls or hardships.
7.3 Form of Payment. The earned portion of a Stock
Bonus may be paid currently or on a deferred basis with such interest or
dividend equivalent, if any, as the Committee may determine. Payment may be made
in the form of cash, whole Shares, including Restricted Stock, or a combination
thereof, either in a lump sum payment or in installments, all as the Committee
will determine.
7.4 Termination During Performance Period. If a
Participant is Terminated during a Performance Period for any reason, then such
Participant will be entitled to payment (whether in Shares, cash or otherwise)
with respect to the Stock Bonus only to the extent earned as of the date of
Termination in accordance with the Performance Stock Bonus Agreement, unless the
Committee will determine otherwise.
8. PAYMENT FOR SHARE PURCHASES.
8.1 Payment. Payment for Shares purchased pursuant to
this Plan may be made in cash (by check) or, where expressly approved for the
Participant by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been owned
by Participant for more than six (6) months and have been paid for
within the meaning of SEC Rule 144 (and, if such shares were purchased
from the Company by use of a promissory note, such note has been fully
paid with respect to such shares); or (2) were obtained by Participant
in the public market;
(c) by tender of a full recourse promissory note having
such terms as may be approved by the Committee and bearing interest at
a rate sufficient to avoid imputation of income under Sections 483 and
1274 of the Code; provided, however, that Participants who are not
employees or directors of the Company will not be entitled to purchase
Shares with a promissory note unless the note is adequately secured by
collateral other than the Shares; provided, further, that the portion
of the Purchase Price equal to the par value of the Shares, if any,
must be paid in cash;
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<PAGE> 7
(d) by waiver of compensation due or accrued to the
Participant for services rendered; provided, further, that the portion
of the Purchase Price equal to the par value of the Shares, if any,
must be paid in cash;
(e) with respect only to purchases upon exercise of an
Option, and provided that a public market for the Company's stock
exists:
(1) through a "same day sale" commitment from the
Participant and a broker-dealer that is a member of the
National Association of Securities Dealers (an "NASD DEALER")
whereby the Participant irrevocably elects to exercise the
Option and to sell a portion of the Shares so purchased to pay
for the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the
Exercise Price directly to the Company; or
(2) through a "margin" commitment from the
Participant and a NASD Dealer whereby the Participant
irrevocably elects to exercise the Option and to pledge the
Shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the
Exercise Price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the Exercise
Price directly to the Company; or
(f) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the Participant
pay for Shares purchased under this Plan by authorizing a guarantee by the
Company of a third-party loan to the Participant.
9. WITHHOLDING TAXES.
9.1 Withholding Generally. Whenever Shares are to be issued
in satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan, payments
in satisfaction of Awards are to be made in cash, such payment will be net of an
amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2 Stock Withholding. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may allow the
Participant to satisfy the minimum withholding tax obligation by electing to
have the Company withhold from the Shares to be issued that number of Shares
having a Fair Market Value equal to the minimum amount required to be withheld,
determined on the date that the amount of tax to be withheld is to be determined
(the "TAX DATE"). All elections by a Participant to have Shares withheld for
this purpose will be made in writing in a form acceptable to the Committee and
will be subject to the following restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
(b) once made, then except as provided below, the election
will be irrevocable as to the particular Shares as to which the
election is made;
(c) all elections will be subject to the consent or
disapproval of the Committee;
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(d) if the Participant is an Insider and if the Company is
subject to Section 16(b) of the Exchange Act: (1) the election may not
be made within six (6) months of the date of grant of the Award, except
as otherwise permitted by SEC Rule 16b-3(e) under the Exchange Act, and
(2) either (A) the election to use stock withholding must be
irrevocably made at least six (6) months prior to the Tax Date
(although such election may be revoked at any time at least six (6)
months prior to the Tax Date) or (B) the exercise of the Option or
election to use stock withholding must be made in the ten (10) day
period beginning on the third day following the release of the
Company's quarterly or annual summary statement of sales or earnings;
and
(e) in the event that the Tax Date is deferred until six (6)
months after the delivery of Shares under Section 83(b) of the Code,
the Participant will receive the full number of Shares with respect to
which the exercise occurs, but such Participant will be unconditionally
obligated to tender back to the Company the proper number of Shares on
the Tax Date.
10. PRIVILEGES OF STOCK OWNERSHIP.
10.1 Voting and Dividends. No Participant will have any
of the rights of a stockholder with respect to any Shares until the Shares are
issued to the Participant. After Shares are issued to the Participant, the
Participant will be a stockholder and have all the rights of a stockholder with
respect to such Shares, including the right to vote and receive all dividends or
other distributions made or paid with respect to such Shares; provided, that if
such Shares are Restricted Stock, then any new, additional or different
securities the Participant may become entitled to receive with respect to such
Shares by virtue of a stock dividend, stock split or any other change in the
corporate or capital structure of the Company will be subject to the same
restrictions as the Restricted Stock; provided, further, that the Participant
will have no right to retain such stock dividends or stock distributions with
respect to Shares that are repurchased at the Participant's original Purchase
Price pursuant to Section 12.
10.2 Financial Statements. The Company will provide
financial statements to each Participant prior to such Participant's purchase of
Shares under this Plan (if requested by the Participant), and to each
Participant annually during the period such Participant has Awards outstanding;
provided, however, the Company will not be required to provide such financial
statements to Participants whose services in connection with the Com pany assure
them access to equivalent information.
11. TRANSFERABILITY. Awards granted under this Plan, and any
interest therein, will not be transferable or assignable by Participant, and may
not be made subject to execution, attachment or similar process, otherwise than
by will or by the laws of descent and distribution or as consistent with the
specific Plan and Award Agreement provisions relating thereto. During the
lifetime of the Participant an Award will be exercisable only by the
Participant, and any elections with respect to an Award, may be made only by the
Participant.
12. RESTRICTIONS ON SHARES. At the discretion of the Committee,
the Company may reserve to itself and/or its assignee(s) in the Award Agreement
(a) a right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party, and/or (b) a
right to repurchase a portion of or all Shares held by a Participant following
such Participant's Termination at any time within ninety (90) days after the
later of Participant's Termination Date and the date Participant purchases
Shares under this Plan, for cash and/or cancellation of purchase money
indebtedness, at: (A) with respect to Shares that are "Vested" (as defined in
the Award or Exercise Agreement), the
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<PAGE> 9
higher of Participant's original Purchase Price or the Fair Market Value of such
Shares on Participant's Termination Date; or (B) with respect to Shares that are
not "Vested" (as defined in the Award or Exercise Agreement), at the
Participant's original Purchase Price.
13. CERTIFICATES. All certificates for Shares or other
securities delivered under this Plan will be subject to such stock transfer
orders, legends and other restrictions as the Committee may deem necessary or
advisable, including restrictions under any applicable federal, state or foreign
securities law, or any rules, regulations and other requirements of the SEC or
any stock exchange or automated quotation system upon which the Shares may be
listed or quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any
time or from time to time, authorize the Company, with the consent of the
respective Participants, to issue new Awards in exchange for the surrender and
cancellation of any or all outstanding Awards. The Committee may at any time buy
from a Participant an Award previously granted with payment in cash, Shares
(including Restricted Stock) or other consideration, based on such terms and
conditions as the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award
will not be effective unless such Award is in compliance with all applicable
federal and state securities laws, rules and regulations of any governmental
body, and the requirements of any stock exchange or automated quotation system
upon which the Shares may then be listed or quoted, as they are in effect on the
date of grant of the Award and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have no
obligation to issue or deliver certificates for Shares under this Plan prior to:
(a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable; and/or (b) completion of any registration
or other qualification of such Shares under any state or federal law or ruling
of any governmental body that the Company determines to be necessary or
advisable. The Company will be under no obligation to register the Shares with
the SEC or to effect compliance with the registration, qualification or listing
requirements of any state securities laws, stock exchange or automated quotation
system, and the Company will have no liability for any inability or failure to
do so.
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17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award
granted under this Plan will confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Company or any Parent, Subsidiary or Affiliate of the Company or limit
in any way the right of the Company or any Parent, Subsidiary or Affiliate of
the Company to terminate Participant's employment or other relationship at any
time, with or without cause.
18. CORPORATE TRANSACTIONS.
18.1 Assumption or Replacement of Awards by
Successor. In the event of:
(a) a dissolution or liquidation of the
Company,
(b) a merger or consolidation in which the
Company is not the surviving corporation (other than a merger or
consolidation with a wholly owned subsidiary, a reincorporation of the
Company in a different jurisdiction, or other transaction in which
there is no substantial change in the stockholders of the Company or
their relative stock holdings and the Awards granted under this Plan
are assumed, converted or replaced by the successor corporation, which
assumption will be binding on all Participants),
(c) a merger in which the Company is the
surviving corporation but after which the stockholders of the Company
(other than any stockholder which merges (or which owns or controls
another corporation which merges) with the Company in such merger)
cease to own at least 90% of the issued and outstanding capital stock
or other equity interests in the Company,
(d) the sale of all or substantially all of
the assets of the Company; or
(e) any other transaction which qualifies as
a "corporate transaction" under Section 424(a) of the Code wherein the
stockholders of the Company give up all of their equity interest in the
Company (except for the acquisition, sale or transfer of all or
substantially all of the outstanding shares of the Company from or by
the stockholders of the Company),
then, subject to Section 18.3 below, any or all outstanding Awards may be
assumed, converted or replaced by the successor corporation (if any), which
assumption, conversion or replacement will be binding on all Participants. In
the alternative and subject to Section 18.3 below, the successor corporation may
substitute equivalent Awards or provide substantially similar consideration to
Participants as was provided to stockholders (after taking into account the
existing provisions of the Awards). The successor corporation may also issue, in
place of outstanding Shares of the Company held by the Participant,
substantially similar shares or other property subject to repurchase
restrictions no less favorable to the Participant.
18.2 Termination of Awards. In the event of a
transaction described in clauses (a) through (e) of Section 18.1 and provided
that the successor corporation (if any) does not assume or substitute all
outstanding Awards as provided above, such Awards will expire on (and if the
Company has reserved to itself a right to repurchase shares issued upon exercise
of Awards at the original purchase price of such shares, such right shall
terminate upon) such event at such time and on such conditions as the Board
shall determine upon twenty (20) days advance written notice to Participants
holding outstanding Awards.
18.3 Acceleration of Vesting. In the event of a
merger described in either clause (b) or (c) of Section 18.1 above, the sale of
all or substantially all of the assets
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of the Company as a going concern in a single transaction or series of related
transactions or the sale or transfer of a majority of the outstanding shares of
the Company by the stockholders of the Company in a single transaction or a
series of related transactions other than market transactions to unrelated
purchasers (an "ACQUISITION") and:
(a) if the successor corporation, if any (the "SUCCESSOr"),
does not assume or substitute Awards as provided above in Section 18.1,
then each outstanding Award granted on or after October 18, 1996 that
is not totally "Vested" (as defined in the Award or Exercise Agreement)
shall immediately accelerate and become exercisable as to the number of
shares that is equal to (i) the number of shares then "Vested" at the
closing of the Acquisition, plus (ii) the number of shares that would
have "Vested" had the Award been held for the year after such closing.
Awards granted before October 18, 1996 will accelerate and become
exercisable in full. Such acceleration shall be under the terms
described by the Board in the notice described in the last sentence of
Section 18.2; or
(b) if the Successor assumes or substitutes Awards as provided
above in Section 18.1, but any Participant's employment with the
Successor or any Parent, Subsidiary of Affiliate of the Successor (as
the definitions for such terms shall be revised to substitute the
Successor for the Company) is terminated by the Successor, such Parent,
Subsidiary or Affiliate without "cause" within one year after the
Acquisition, then the outstanding Awards held by the terminated
employee, as so substituted or assumed, and granted on or after October
18, 1996 shall provide that they will likewise immediately accelerate
and become exercisable on the date of such termination such that they
are exercisable for (i) the number of shares then "Vested" at the date
of such termination, plus (ii) the number of shares that would have
"Vested" had the Award been held for the year after such termination.
Awards granted before October 18, 1996 will accelerate vesting and
become exercisable in full upon such termination. For purposes hereof
"cause" for termination of any Participant's employment will exist at
any time after the happening of one or more of the following events:
(i) Participant's conviction of a felony involving moral turpitude;
(ii) any willful act or acts of dishonesty undertaken by the
Participant and intended to result in substantial gain or personal
enrichment of Participant, directly or indirectly, at the expense of
the Successor, such Parent, Subsidiary or Affiliate; (iii) any willful
act or misconduct which is materially and demonstrably injurious to the
Successor, such Parent, Subsidiary or Affiliate; (iv) substantial and
repeated neglect of Participant's responsibility, or malfeasance
thereof, that remains uncured after thirty (30) days written notice of
such neglect; or (v) the death or disability (within the meaning of
Section 22(e)(3) of the Code) of the Participant.
18.3 Other Treatment of Awards. Subject to any
greater rights granted to Participants under the foregoing provisions of this
Section 18, in the event of the occurrence of any transaction described in
Section 18.1, any outstanding Awards will be treated as provided in the
applicable agreement or plan of merger, consolidation, dissolution, liquidation,
sale of assets or other "corporate transaction."
18.4 Assumption of Awards by the Company. The
Company, from time to time, also may substitute or assume outstanding awards
granted by another company, whether in connection with an acquisition of such
other company or otherwise, by either; (a) granting an Award under this Plan in
substitution of such other company's award; or (b) assuming such award as if it
had been granted under this Plan if the terms of such assumed award could be
applied to an Award granted under this Plan. Such substitution or assumption
will be permissible if the holder of the substituted or assumed award would have
been eligible to be granted an Award under this Plan if the other company had
applied the
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rules of this Plan to such grant. In the event the Company assumes an award
granted by another company, the terms and conditions of such award will remain
unchanged (except that the exercise price and the number and nature of Shares
issuable upon exercise of any such option will be adjusted appropriately
pursuant to Section 424(a) of the Code). In the event the Company elects to
grant a new Option rather than assuming an existing option, such new Option may
be granted with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become
effective on the date on which the registration statement filed by the Company
with the SEC under the Securities Act registering the initial public offering of
the Company's Common Stock is declared effective by the SEC (the "EFFECTIVE
DATE"); provided, however, that if the Effective Date does not occur on or
before December 31, 1996, this Plan will terminate as of December 31, 1996
having never become effective. This Plan shall be approved by the stockholders
of the Company (excluding Shares issued pursuant to this Plan), consistent with
applicable laws, within twelve (12) months before or after the date this Plan is
adopted by the Board. Upon the Effective Date, the Board may grant Awards
pursuant to this Plan; provided, however, that: (a) no Option may be exercised
prior to initial stockholder approval of this Plan; (b) no Option granted
pursuant to an increase in the number of Shares subject to this Plan approved by
the Board will be exercised prior to the time such increase has been approved by
the stockholders of the Company; and (c) in the event that stockholder approval
of such increase is not obtained within the time period provided herein, all
Awards granted hereunder will be canceled, any Shares issued pursuant to any
Award will be canceled, and any purchase of Shares hereunder will be rescinded.
So long as the Company is subject to Section 16(b) of the Exchange Act, the
Company will comply with the requirements of Rule 16b-3 (or its successor), as
amended, with respect to stockholder approval.
20. TERM OF PLAN. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years after the date this Plan is
adopted by the Board or, if earlier, the date of stockholder approval.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; provided, however, that the Board will not, without the approval
of the stockholders of the Company, amend this Plan in any manner that requires
such stockholder approval pursuant to the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans or (if the Company is subject
to the Exchange Act or Section 16(b) of the Exchange Act) pursuant to the
Exchange Act or Rule 16b-3 (or its successor), as amended, thereunder,
respectively.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this
Plan by the Board, the submission of this Plan to the stockholders of the
Company for approval, nor any provision of this Plan will be construed as
creating any limitations on the power of the Board to adopt such additional
compensation arrangements as it may deem desirable, including, without
limitation, the granting of stock options and bonuses otherwise than under this
Plan, and such arrangements may be either generally applicable or applicable
only in specific cases.
23. DEFINITIONS. As used in this Plan, the following terms
will have the following meanings:
"AFFILIATE" means any corporation that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with, another
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corporation, where "control" (including the terms "controlled by" and "under
common control with") means the possession, direct or indirect, of the power to
cause the direction of the management and policies of the corporation, whether
through the ownership of voting securities, by contract or otherwise.
"AWARD" means any award under this Plan, including any Option, Restricted Stock
or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the signed written
agreement between the Company and the Participant setting forth the terms and
conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee appointed by the Board to administer this Plan,
or if no such committee is appointed, the Board.
"COMPANY" means Worldtalk Communications Corporation, dba Worldtalk Corporation,
a corporation organized under the laws of the State of Delaware, or any
successor corporation.
"DISABILITY" means a disability, whether temporary or permanent, partial or
total, within the meaning of Section 22(e)(3) of the Code, as determined by the
Committee.
"DISINTERESTED PERSON" means a director who has not, during the period that
person is a member of the Committee and for one year prior to commencing service
as a member of the Committee, been granted or awarded equity securities pursuant
to this Plan or any other plan of the Company or any Parent, Subsidiary or
Affiliate of the Company, except in accordance with the requirements set forth
in Rule 16b-3(c)(2)(i) (and any successor regulation thereto) as promulgated by
the SEC under Section 16(b) of the Exchange Act, as such rule is amended from
time to time and as interpreted by the SEC.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXERCISE PRICE" means the price at which a holder of an Option may purchase the
Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share of the Company's
Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the last
trading day prior to the date of determination as reported in The Wall
Street Journal;
(b) if such Common Stock is publicly traded and is then listed
on a national securities exchange, its closing price on the last
trading day prior to the date of determination on the principal
national securities exchange on which the Common Stock is listed or
admitted to trading as reported in The Wall Street Journal;
(c) if such Common Stock is publicly traded but is not quoted
on the Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and asked
prices on the last trading day prior to the date of determination as
reported in The Wall Street Journal; or
(d) if none of the foregoing is applicable, by the
Committee in good faith.
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"INSIDER" means an officer or director of the Company or any other person whose
transactions in the Company's Common Stock are subject to Section 16 of the
Exchange Act.
"OUTSIDE DIRECTOR" means any director who is not; (a) a current employee of the
Company or any Parent, Subsidiary or Affiliate of the Company; (b) a former
employee of the Company or any Parent, Subsidiary or Affiliate of the Company
who is receiving compensation for prior services (other than benefits under a
tax-qualified pension plan); (c) a current or former officer of the Company or
any Parent, Subsidiary or Affiliate of the Company; or (d) currently receiving
compensation for personal services in any capacity, other than as a director,
from the Company or any Parent, Subsidiary or Affiliate of the Company;
provided, however, that at such time as the term "Outside Director", as used in
Section 162(m) of the Code is defined in regulations promulgated under Section
162(m) of the Code, "Outside Director" will have the meaning set forth in such
regulations, as amended from time to time and as interpreted by the Internal
Revenue Service.
"OPTION" means an award of an option to purchase Shares pursuant to Section 5.
"PARENT" means any corporation (other than the Company) in an unbroken chain of
corporations ending with the Company, if at the time of the granting of an Award
under this Plan, each of such corporations other than the Company owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this Plan.
"PLAN" means this Worldtalk Corporation 1996 Equity Incentive Plan, as amended
from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to Section 6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for issuance under
this Plan, as adjusted pursuant to Sections 2 and 18, and any successor
security.
"STOCK BONUS" means an award of Shares, or cash in lieu of Shares, pursuant to
Section 7.
"SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain
of corporations beginning with the Company if, at the time of granting of the
Award, each of the corporations other than the last corporation in the unbroken
chain owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan with respect to a
Participant, that the Participant has for any reason ceased to provide services
as an employee, director, consultant, independent contractor or advisor to the
Company or a Parent, Subsidiary or Affiliate of the Company, except in the case
of sick leave, military leave, or any other leave of absence approved by the
Committee, provided that such leave is for a period of not more than ninety (90)
days, or reinstatement upon the expiration of such leave is guaranteed by
contract or statute. The Committee will have sole discretion to determine
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whether a Participant has ceased to provide services and the effective date on
which the Participant ceased to provide services (the "TERMINATION DATE").
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<PAGE> 1
WORLDTALK COMMUNICATIONS CORPORATION EXHIBIT 10.3
1996 Employee Stock Purchase Plan,
As adopted on February 7, 1996
and Amended March 23, 1996
and Amended August 22, 1996
WORLDTALK CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
As Adopted on February 7, 1996
and Amended March 23, 1996
and Amended August 22, 1996
1. ESTABLISHMENT OF PLAN. Worldtalk Communications Corporation, a
Delaware corporation dba Worldtalk Corporation (the "COMPANY"), proposes to
grant options for purchase of the Company's Common Stock to eligible employees
of the Company and its Subsidiaries (as hereinafter defined) pursuant to this
Employee Stock Purchase Plan (this "PLAN"). For purposes of this Plan, "PARENT
CORPORATION" and "SUBSIDIARY" (collectively, "SUBSIDIARIES") shall have the same
meanings as "parent corporation" and "subsidiary corporation" in Sections 424(e)
and 424(f), respectively, of the Internal Revenue Code of 1986, as amended (the
"CODE"). The Company intends this Plan to qualify as an "employee stock purchase
plan" under Section 423 of the Code (including any amendments to or replacements
of such Section), and this Plan shall be so construed. Any term not expressly
defined in this Plan but defined for purposes of Section 423 of the Code shall
have the same definition herein. A total of 1,000,000 shares of the Company's
Common Stock (post 1-for-2 1996 reverse stock split) is reserved for issuance
under this Plan. Such number shall be subject to adjustments effected in
accordance with Section 14 of this Plan.
2. PURPOSE. The purpose of this Plan is to provide employees of the
Company and Subsidiaries designated by the Board of Directors of the Company
(the "BOARD") as eligible to participate in this Plan with a convenient means of
acquiring an equity interest in the Company through payroll deductions, to
enhance such employees' sense of participation in the affairs of the Company and
Subsidiaries, and to provide an incentive for continued employment.
3. ADMINISTRATION. This Plan shall be administered by a committee
appointed by the Board (the "COMMITTEE") consisting of at least two (2) members
of the Board, each of whom is a Disinterested Person as defined in Rule 16b-3(d)
of the Securities Exchange Act of 1934 (the "EXCHANGE ACT"). As used in this
Plan, references to the "Committee" shall mean either such committee or the
Board if no committee has been established. After registration of the Company
under the Exchange Act, Board members who are not Disinterested Persons may not
vote on any matters affecting the administration of this Plan, but any such
member may be counted for determining the existence of a quorum at any meeting
of the Board. Subject to the provisions of this Plan and the limitations of
Section 423 of the Code or any successor provision in the Code, all questions of
interpretation or application of this Plan shall be determined by the Board and
its decisions shall be final and binding upon all participants. Members of the
Board shall receive no compensation for their services in connection with the
administration of this Plan, other than standard fees as established from time
to time by the Board for services
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rendered by Board members serving on Board committees. All expenses incurred in
connection with the administration of this Plan shall be paid by the Company.
4. ELIGIBILITY. Any employee of the Company or the Subsidiaries is
eligible to participate in an Offering Period (as hereinafter defined) under
this Plan except the following:
(a) employees who are not employed by the Company or Subsidiaries on
the day before the first business day of an Offering Period;
(b) employees who are customarily employed for less than twenty (20)
hours per week;
(c) employees who are customarily employed for less than five (5)
months in a calendar year;
(d) employees who, together with any other person whose stock would be
attributed to such employee pursuant to Section 424(d) of the Code, own stock or
hold options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Subsidiaries or who, as a result of being granted an option under this Plan
with respect to such Offering Period, would own stock or hold options to
purchase stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or any of its
Subsidiaries.
5. OFFERING DATES. The offering periods of this Plan (each, an
"OFFERING PERIOD") shall be of twenty-four (24) months duration commencing on
November 1 and May 1 of each year and ending on April 30 and October 31 of each
year; provided, however, that notwithstanding the foregoing, (a) the first such
Offering Period shall commence on the first business day after the date on which
the registration statement filed by the Company with the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"SECURITIES ACT") registering the initial public offering of the Company's
Common Stock is declared effective by the SEC (the "FIRST OFFERING DATE") and
shall end on April 30, 1998, and (b) the second such Offering Period shall
commence on November 1, 1996 and shall end on October 31, 1998. Except for the
first Purchase Period in the first Offering Period (which shall terminate on
October 31, 1996), each Offering Period shall consist of four (4) six-month
purchase periods (individually, a "PURCHASE PERIOD") during which payroll
deductions of the participants are accumulated under this Plan. The first
business day of each Offering Period is referred to as the "OFFERING DATE." The
last business day of each Purchase Period is referred to as the "PURCHASE DATE."
The Board shall have the power to change the duration of Offering Periods or
Purchase Periods with respect to future offerings without stockholder approval
if such change is announced at least fifteen (15) days prior to the scheduled
beginning of the first Offering Period or Purchase Period to be affected.
6. PARTICIPATION IN THIS PLAN. Eligible employees may become
participants in an Offering Period under this Plan on the first Offering Date
after satisfying the eligibility requirements by delivering a subscription
agreement to the Company's accounting department (the "TREASURY DEPARTMENT") not
later than the last business day of the month before such Offering Date unless a
later time for filing the subscription agreement authorizing payroll deductions
is set by the Board for all eligible employees with respect to a given Offering
Period. An eligible employee who does not deliver a subscription agreement to
the Treasury Department by such date after becoming eligible to participate in
such Offering Period shall not participate in that Offering Period or any
subsequent Offering Period unless such employee enrolls in this Plan by filing a
subscription agreement with the Treasury Department not later than the last
business day of the month preceding a subsequent Offering Date. Once an employee
becomes a participant in an Offering Period, such employee will automatically
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participate in the Offering Period commencing immediately following the last day
of the prior Offering Period unless the employee withdraws or is deemed to
withdraw from this Plan or terminates further participation in the Offering
Period as set forth in Section 11 below. Such participant is not required to
file any additional subscription agreement in order to continue participation in
this Plan.
7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee in
this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Purchase Period by (b) the lower of (i)
eighty-five percent (85%) of the fair market value of a share of the Company's
Common Stock on the Offering Date (but in no event less than the par value of a
share of the Company's Common Stock), or (ii) eighty-five percent (85%) of the
fair market value of a share of the Company's Common Stock on the Purchase Date
(but in no event less than the par value of a share of the Company's Common
Stock); provided, however, that the number of shares of the Company's Common
Stock subject to any option granted pursuant to this Plan shall not exceed the
lesser of (a) the maximum number of shares set by the Board pursuant to Section
10(c) below with respect to the applicable Offering Period, or (b) the maximum
number of shares which may be purchased pursuant to Section 10(b) below with
respect to the applicable Offering Period. The fair market value of a share of
the Company's Common Stock shall be determined as provided in Section 8 hereof.
8. PURCHASE PRICE. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be eighty-five percent
(85%) of the lesser of:
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date;
provided, however, that in no event may the purchase price per share of the
Company's Common Stock be below the par value per share of the Company's Common
Stock.
For purposes of this Plan, the term "FAIR MARKET VALUE" on a
given date shall mean the fair market value of the Company's Common Stock as
determined by the Board in its sole discretion, exercised in good faith;
provided, however, that where there is a public market for the Common Stock, the
fair market value per share shall be the average of the last reported bid and
asked prices of the Common Stock on the last trading day prior to the date of
determination (or the average closing price over the number of consecutive
trading days preceding the date of determination as the Board shall deem
appropriate), or, in the event the Common Stock is listed on a stock exchange or
on the Nasdaq National Market, the fair market value per share shall be the
closing price on such exchange or quotation system on the date of determination
or the last trading date prior to the date of determination if there are no
trades in the Company's Common Stock on the date of determination (or the
average closing price over the number of consecutive trading days preceding the
date of determination as the Board shall deem appropriate); and provided
further, that notwithstanding the foregoing, the fair market value of the
Company's Common Stock on the First Offering Date (which is the first business
day of the first Offering Period under this Plan) shall be deemed to be the
price per share at which shares of the Company's Common Stock are initially
offered for sale to the public in the Company's initial public offering of its
Common Stock pursuant to a registration statement filed with the SEC under the
Securities Act.
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE
OF SHARES.
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(a) The purchase price of the shares is accumulated by regular
payroll deductions made during each Offering Period. The deductions are made as
a percentage of the participant's compensation in one percent (1%) increments
not less than two percent (2%), nor greater than ten percent (10%) or such lower
limit set by the Committee. Compensation shall mean all W-2 compensation,
including, but not limited to base salary, wages, commissions, overtime, shift
premiums and bonuses, plus draws against commissions; provided, however, that
for purposes of determining a participant's compensation, any election by such
participant to reduce his or her regular cash remuneration under Sections 125 or
401(k) of the Code shall be treated as if the participant did not make such
election. Payroll deductions shall commence on the first payday following the
Offering Date and shall continue to the end of the Offering Period unless sooner
altered or terminated as provided in this Plan.
(b) A participant may lower (but not increase) the rate of
payroll deductions during an Offering Period by filing with the Treasury
Department a new authorization for payroll deductions, in which case the new
rate shall become effective for the next payroll period commencing more than
fifteen (15) days after the Treasury Department's receipt of the authorization
and shall continue for the remainder of the Offering Period unless changed as
described below. Such change in the rate of payroll deductions may be made at
any time during an Offering Period, but not more than one (1) change may be made
effective during any Offering Period. A participant may increase or decrease the
rate of payroll deductions for any subsequent Offering Period by filing with the
Treasury Department a new authorization for payroll deductions not later than
the last business day of the month before the beginning of such Offering Period.
(c) All payroll deductions made for a participant are credited
to his or her account under this Plan and are deposited with the general funds
of the Company. No interest accrues on the payroll deductions. All payroll
deductions received or held by the Company may be used by the Company for any
corporate purpose, and the Company shall not be obligated to segregate such
payroll deductions.
(d) On each Purchase Date, so long as this Plan remains in
effect and provided that the participant has not submitted a signed and
completed withdrawal form before that date which notifies the Company that the
participant wishes to withdraw from that Offering Period under this Plan and
have all payroll deductions accumulated in the account maintained on behalf of
the participant as of that date returned to the participant, the Company shall
apply the funds then in the participant's account to the purchase of whole
shares of Common Stock reserved under the option granted to such participant
with respect to the Offering Period to the extent that such option is
exercisable on the Purchase Date. The purchase price per share shall be as
specified in Section 8 of this Plan. Any cash remaining in a participant's
account after such purchase of shares shall be refunded to such participant in
cash, without interest. In the event that this Plan has been oversubscribed, all
funds not used to purchase shares on the Purchase Date shall be returned to the
participant, without interest. No Common Stock shall be purchased on a Purchase
Date on behalf of any employee whose participation in this Plan has terminated
prior to such Purchase Date.
(e) As promptly as practicable after the Purchase Date, the
Company shall arrange the delivery to each participant of a certificate
representing the shares purchased upon exercise of his option.
(f) During a participant's lifetime, such participant's option
to purchase shares hereunder is exercisable only by him or her. The participant
will have no interest or voting right in shares covered by his or her option
until such option has been exercised. Shares to be
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delivered to a participant under this Plan will be registered in the name of the
participant or in the name of the participant and his or her spouse.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
(a) No employee shall be entitled to purchase stock under this
Plan at a rate which, when aggregated with his or her rights to purchase stock
under all other employee stock purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in this Plan.
(b) No more than two hundred percent (200%) of the number of
shares determined by using eighty-five percent (85%) of the fair market value of
a share of the Company's Common Stock on the Offering Date as the denominator
may be purchased by a participant on any single Purchase Date.
(c) No employee shall be entitled to purchase more than the
Maximum Share Amount (as defined below) on any single Purchase Date. Not less
than thirty (30) days prior to the commencement of any Offering Period, the
Board may, in its sole discretion, set a maximum number of shares which may be
purchased by any employee at any single Purchase Date (hereinafter the "MAXIMUM
SHARE AMOUNT"). In no event shall the Maximum Share Amount exceed the amounts
permitted under Section 10(b) above. If a new Maximum Share Amount is set, then
all participants must be notified of such Maximum Share Amount not less than
fifteen (15) days prior to the commencement of the next Offering Period. Once
the Maximum Share Amount is set, it shall continue to apply with respect to all
succeeding Purchase Dates and Offering Periods unless revised by the Board as
set forth above.
(d) If the number of shares to be purchased on a Purchase Date by
all employees participating in this Plan exceeds the number of shares then
available for issuance under this Plan, then the Company will make a pro rata
allocation of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Board shall determine to be equitable. In such event, the
Company shall give written notice of such reduction of the number of shares to
be purchased under a participant's option to each participant affected thereby.
(e) Any payroll deductions accumulated in a participant's account
which are not used to purchase stock due to the limitations in this Section 10
shall be returned to the participant as soon as practicable after the end of the
applicable Purchase Period, without interest.
11. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under
this Plan by signing and delivering to the Treasury Department a written notice
to that effect on a form provided for such purpose. Such withdrawal may be
elected at any time at least fifteen (15) days prior to the end of an Offering
Period.
(b) Upon withdrawal from this Plan, the accumulated payroll
deductions shall be returned to the withdrawn participant, without interest, and
his or her interest in this Plan shall terminate. In the event a participant
voluntarily elects to withdraw from this Plan, he or she may not resume his or
her participation in this Plan during the same Offering Period, but he or she
may participate in any Offering Period under this Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth above for initial participation in
this Plan.
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(c) If the purchase price on the first day of any current Offering
Period in which a participant is enrolled is higher than the purchase price on
the first day of any subsequent Offering Period, the Company will automatically
enroll such participant in the subsequent Offering Period. A participant does
not need to file any forms with the Company to automatically be enrolled in the
subsequent Offering Period.
12. TERMINATION OF EMPLOYMENT. Termination of a participant's
employment for any reason, including retirement, death or the failure of a
participant to remain an eligible employee, immediately terminates his or her
participation in this Plan. In such event, the payroll deductions credited to
the participant's account will be returned to him or her or, in the case of his
or her death, to his or her legal representative, without interest. For purposes
of this Section 12, an employee will not be deemed to have terminated employment
or failed to remain in the continuous employ of the Company in the case of sick
leave, military leave, or any other leave of absence approved by the Board;
provided that such leave is for a period of not more than ninety (90) days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's interest
in this Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event this Plan is terminated by the Board, the Company
shall promptly deliver to the participant all payroll deductions credited to
such participant's account. No interest shall accrue on the payroll deductions
of a participant in this Plan.
14. CAPITAL CHANGES. Subject to any required action by the stockholders
of the Company, the number of shares of Common Stock covered by each option
under this Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under this Plan but have
not yet been placed under option (collectively, the "RESERVES"), as well as the
price per share of Common Stock covered by each option under this Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock of the
Company resulting from a stock split or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued and outstanding shares of Common Stock effected without receipt of any
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration"; and provided further, that the price per
share of Common Stock shall not be reduced below its par value per share. Such
adjustment shall be made by the Board, whose determination shall be final,
binding and conclusive. Except as expressly provided herein, no issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.
In the event of the proposed dissolution or liquidation of the Company,
the Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. The Board may, in the
exercise of its sole discretion in such instances, declare that the options
under this Plan shall terminate as of a date fixed by the Board and give each
participant the right to exercise his or her option as to all of the optioned
stock, including shares which would not otherwise be exercisable. In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger or consolidation of the Company with or into another corporation,
each option under this Plan shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, that the participant
shall have the right to exercise the option as to all of the optioned stock. If
the Board makes an option exercisable in lieu of
- 44 -
<PAGE> 7
assumption or substitution in the event of a merger, consolidation or sale of
assets, the Board shall notify the participant that the option shall be fully
exercisable for a period of twenty (20) days from the date of such notice, and
the option will terminate upon the expiration of such period.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, or in the event of the Company being consolidated with or merged into any
other corporation; provided, that the price per share of Common Stock shall not
be reduced below its par value per share.
15. NONASSIGNABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.
16. REPORTS. Individual accounts will be maintained for each
participant in this Plan. Each participant shall receive promptly after the end
of each Purchase Period a report of his or her account setting forth the total
payroll deductions accumulated, the number of shares purchased, the per share
price thereof and the remaining cash balance, if any, carried forward to the
next Purchase Period or Offering Period, as the case may be.
17. NOTICE OF DISPOSITION. Each participant shall notify the Company if
the participant disposes of any of the shares purchased in any Offering Period
pursuant to this Plan if such disposition occurs within two (2) years from the
Offering Date or within one (1) year from the Purchase Date on which such shares
were purchased (the "NOTICE PERIOD"). Unless such participant is disposing of
any of such shares during the Notice Period, such participant shall keep the
certificates representing such shares in his or her name (and not in the name of
a nominee) during the Notice Period. The Company may, at any time during the
Notice Period, place a legend or legends on any certificate representing shares
acquired pursuant to this Plan requesting the Company's transfer agent to notify
the Company of any transfer of the shares. The obligation of the participant to
provide such notice shall continue notwithstanding the placement of any such
legend on the certificates.
18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the grant
of any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Subsidiary, or restrict the right of the Company or
any Subsidiary to terminate such employee's employment.
19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have
equal rights and privileges with respect to this Plan so that this Plan
qualifies as an "employee stock purchase plan" within the meaning of Section 423
or any successor provision of the Code and the related regulations. Any
provision of this Plan which is inconsistent with Section 423 or any successor
provision of the Code shall, without further act or amendment by the Company or
the Board, be reformed to comply with the requirements of Section 423. This
Section 19 shall take precedence over all other provisions in this Plan.
20. NOTICES. All notices or other communications by a participant to
the Company under or in connection with this Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
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<PAGE> 8
21. TERM; STOCKHOLDER APPROVAL. After this Plan is adopted by the
Board, this Plan will become effective on the date that is the First Offering
Date (as defined above); provided, however, that if the First Offering Date does
not occur on or before December 31, 1996, this Plan will terminate as of
December 31, 1996 having never become effective. This Plan shall be approved by
the stockholders of the Company, in any manner permitted by applicable corporate
law, within twelve (12) months before or after the date this Plan is adopted by
the Board. No purchase of shares pursuant to this Plan shall occur prior to such
stockholder approval. Thereafter, no later than twelve (12) months after the
Company becomes subject to Section 16(b) of the Exchange Act, the Company will
comply with the requirements of Rule 16b-3 with respect to stockholder approval.
This Plan shall continue until the earlier to occur of (a) termination of this
Plan by the Board (which termination may be effected by the Board at any time),
(b) issuance of all of the shares of Common Stock reserved for issuance under
this Plan, or (c) ten (10) years from the adoption of this Plan by the Board.
22. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under this Plan in the event of such participant's death
subsequent to the end of an Purchase Period but prior to delivery to him of such
shares and cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account under this
Plan in the event of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under this
Plan who is living at the time of such participant's death, the Company shall
deliver such shares or cash to the executor or administrator of the estate of
the participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its discretion, may deliver such
shares or cash to the spouse or to any one or more dependents or relatives of
the participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, and the requirements of any
stock exchange or automated quotation system upon which the shares may then be
listed, and shall be further subject to the approval of counsel for the Company
with respect to such compliance.
24. APPLICABLE LAW. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time
amend, terminate or the extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the stockholders of the Company obtained in accordance with
Section 21 hereof within twelve (12) months of the adoption of such amendment
(or earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under this Plan;
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<PAGE> 9
(b) change the designation of the employees (or class of employees)
eligible for participation in this Plan; or
(c) constitute an amendment for which stockholder approval is required
in order to comply with Rule 16b-3 (or any successor rule) of the
Exchange Act.
-----------------------------------------------------
- 47 -
<PAGE> 1
WORLDTALK COMMUNICATIONS CORPORATION EXHIBIT 11.1
Computation of Net Income (Loss)Per Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------- ----------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) ......................................... $ 163 $(1,107) $ (742) $(3,265)
Weighted average common shares outstanding ................ 9,668 498 6,888 1,170
Number of common share equivalents resulting from
option and warrants, computed using the treasury stock
method .................................................... 667 -- -- --
Preferred stock, on an "as if converted basis" using the
exchange rate in effect at the initial public offering date -- 3,000 2,008 2,311
Staff Accounting Bulletin No. 83 issuances and grants(1). . -- 4,108 -- 4,108
------- ------- ------- -------
Number of common shares and common share
equivalents used in computation ........................... 10,335 7,606 8,896 7,589
======= ======= ======= =======
Net income (loss) per share ............................... $ 0.02 $ (0.15) $ (0.08) $ (0.43)
======= ======= ======= =======
</TABLE>
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, common stock warrants, options and other potentially dilutive securities
issued during the 12 month period preceding the date of initial filing of the
Company's Registration Statement on Form S-1 (File No. 333-1482), have been
included in the calculation of common equivalent shares, using the treasury
stock method, as if they were outstanding for all periods presented, even if
anti-dilutive.
- 48 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 7,588
<SECURITIES> 7,575
<RECEIVABLES> 4,159
<ALLOWANCES> 466
<INVENTORY> 0
<CURRENT-ASSETS> 19,334
<PP&E> 2,544
<DEPRECIATION> 1,009
<TOTAL-ASSETS> 21,179
<CURRENT-LIABILITIES> 6,156
<BONDS> 0
0
0
<COMMON> 97
<OTHER-SE> 14,411
<TOTAL-LIABILITY-AND-EQUITY> 21,179
<SALES> 9,853
<TOTAL-REVENUES> 9,853
<CGS> 2,381
<TOTAL-COSTS> 2,381
<OTHER-EXPENSES> 8,569
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 355
<INCOME-PRETAX> (742)
<INCOME-TAX> 0
<INCOME-CONTINUING> (742)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (742)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
