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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 12, 1996
WORLDTALK COMMUNICATIONS CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation)
0-27886 77-0303581
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(Commission (IRS Employer
File Number) Identification No.)
5155 OLD IRONSIDES DRIVE, SANTA CLARA, CA 95054
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code:(408) 567-1500
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ITEM 2: ACQUISITION OR DISPOSITION OF ASSETS.
On November 12, 1996, Worldtalk Communications Corporation, a Delaware
corporation ("Registrant" or "Worldtalk"), acquired control of Deming Software,
Inc., a privately held, Washington corporation ("Deming"), pursuant to the
merger ("Merger") of Registrant's wholly owned subsidiary, Worldtalk Merger
Corporation, a Washington corporation ("Sub"), with and into Deming. Deming is
in the business of developing, publishing, marketing, distributing and/or
supporting various consumer software products and will continue its historical
business subsequent to the Merger.
Tax and Accounting Treatment.
The Merger was structured to be a "tax-free" reorganization for federal
income tax purposes and will be accounted for as a purchase. Registrant 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 ending December 31,
1996. This charge will reflect the write-off of in-process research and
development associated with the acquisition.
Management Changes.
The directors and executive officers of Registrant were not changed as
a result of the Merger. The directors and executive officers of Deming were
changed as a result of the Merger so that they are the same as the President,
Secretary and Chief Financial Officer of Registrant.
Merger Agreements.
The Merger was effected pursuant to an Agreement and Plan of
Reorganization dated as of November 9, 1996 ("Plan") by and among Registrant,
Sub, Deming and the holders of all outstanding shares of Deming (Robert D.
Dickinson, Ronald Craswell, David S. Pratt, Jr. and Blake C. Ramsdell,
collectively the "Deming Shareholders"), and an Agreement and Plan of Merger
dated as of November 12, 1996 by and between Sub and Deming. As a result of
the Merger, all of the issued and outstanding shares of Sub prior to the Merger
were converted into 100 shares of Deming after the Merger and all of the issued
and outstanding shares of Deming prior to the Merger were converted into
546,537 shares of Registrant's Common Stock (the "Merger Shares") plus $225,000
in cash. The cash portion of the purchase price will be paid from Registrant's
working capital in calendar 1997. There were no outstanding options, warrants
or other rights to purchase any Deming Common Stock. The above exchange was
determined on the basis of discussions with senior management of Registrant and
Deming regarding the business and prospects of their respective companies.
Escrow Agreement.
In connection with the Merger, Registrant, Sub and the Deming
Shareholders also entered into an Escrow Agreement, pursuant to which 81,983
shares of Worldtalk Common Stock (or 15% of the Merger Shares) receivable by
the Deming Shareholders as a result of the Merger were deposited into escrow to
satisfy certain indemnification obligations of the Deming Shareholders
regarding the representations, warranties and covenants given by such
shareholders and Deming in
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the Plan. Such shares are to be released from escrow on the later of (a)
November 12, 1997, one year after the effective date of the Merger, or (b) the
date all claims against such shares, if any, are settled or otherwise
determined.
Shareholders' Agreement.
The shares of Registrant's Common Stock received by the former Deming
shareholders have not been registered under the Securities Act of 1933, as
amended (the "1933 Act"), in reliance upon the exemption from registration
provided by Section 4(2) thereof and, therefore, may not be sold to the public
for two years under the provisions of Rule 144 promulgated under the 1933 Act.
However, the Deming Shareholders (a) have agreed in a Shareholders' Agreement
to sell no more than one-fourth of the Merger Shares each year following the
effective date of the Merger, which period of restriction may be shortened or
extended depending upon the meeting of certain milestones and the duration of
the Deming Shareholders' employment with Deming after the effective date of the
Merger, and (b) have been granted certain Form S-3 and incidental registration
rights with respect to the Merger Shares. The Shareholders' Agreement also
contains a covenant not to compete with Registrant and Deming.
Employment Agreements.
Each of the Deming Shareholders has entered into a four-year
Employment Agreement with Deming, which provides that the Deming Shareholder's
employment may not be terminated for one year after the effective date of the
Merger.
ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS.
<TABLE>
<CAPTION>
(a) Financial Statements of Deming Software, Inc. Page Number
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<S> <C> <C>
The Registrant will file the required audited financial
information as soon as it is available, and in no event
later than January 27, 1997, as permitted by Item 7(b),
paragraph 2 of Form 8-K.
(b) Pro Forma Financial Information
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The Registrant will file the required pro forma financial
information as soon as it is available, and in no event later than
January 27, 1997, as permitted by Item 7(b), paragraph 2
of Form 8-K.
(c) Exhibits.
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</TABLE>
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
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<S> <C>
2.01* Agreement and Plan of Reorganization dated as of November 9,
1996 by and among Registrant, Deming Software, Inc. and the
Deming Shareholders.
</TABLE>
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<TABLE>
<S> <C>
2.02 Agreement and Plan of Merger dated as of November 12, 1996 by
and between Worldtalk Merger Corporation and Deming Software,
Inc.
2.03 Escrow Agreement dated November 12, 1996 among Registrant, the
Deming Shareholders, Robert D. Dickinson, as Representative,
and Harris Trust and Savings Bank, as Escrow Agent.
4.01* Shareholders' Agreement dated November 12, 1996 among
Registrant, Deming and the Deming Shareholders.
4.02 Form of Employment Agreement entered into by Deming with each
of the Deming Shareholders on November 12, 1996.
</TABLE>
_______________
* Confidential treatment requested for portions of this exhibit.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 25, 1996
WORLDTALK COMMUNICATIONS CORPORATION
By: /s/ Stephen R. Bennion
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Stephen R. Bennion
Vice President, Finance and Operations,
Chief Financial Officer and Secretary
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EXHIBIT 2.01
Agreement and Plan of Reorganization dated as of November 9, 1996 by
and among Registrant, Deming Software, Inc. and the Deming
Shareholders.
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CONFIDENTIAL TREATMENT REQUESTED
BY WORLDWIDE COMMUNICATIONS CORPORATION
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is
entered into as of this 9th day of November 1996, by and between Worldtalk
Communications Corporation, a Delaware corporation doing business as Worldtalk
Corporation ("Worldtalk"), and Deming Software, Inc., a Washington corporation
("Deming"), and the holders of all outstanding shares of Deming capital stock
(the "Deming Shareholders").
RECITALS
A. The parties intend that, subject to the terms and conditions
of this Agreement, a new Washington corporation that will be organized as a
wholly owned subsidiary of Worldtalk ("Newco") will merge with and into Deming
in a reverse triangular merger (the "Merger"), with Deming to be the surviving
corporation of the Merger, all pursuant to the terms and conditions of this
Agreement and an Agreement and Plan of Merger substantially in the form of
Exhibit A (the "Agreement of Merger") and the applicable provisions of the laws
of the State of Washington. Upon the effectiveness of the Merger, all the
outstanding capital stock of Deming, consisting only of Deming Common Stock,
$0.0001 par value (the "Deming Stock"), will be converted into capital stock of
Worldtalk (the "Worldtalk Stock"), as provided in this Agreement and the
Agreement of Merger.
B. The Merger is intended to be treated as a tax-free
reorganization pursuant to the provisions of Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "Code"), by virtue of the
provisions of Section 368(a)(2)(E) of the Code.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. PLAN OF REORGANIZATION.
1.1 THE MERGER. Subject to the terms and conditions of
this Agreement, Newco will be merged with and into Deming pursuant to this
Agreement and the Agreement of Merger and in accordance with applicable
provisions of the laws of the State of Washington as follows:
1.1.1 Conversion of Shares. Holders of shares of
Deming Stock issued and outstanding immediately prior to the filing of the
Agreement of Merger with the Secretary of State of Washington (the "Effective
Time") will receive in exchange for all of their shares of Deming Stock, by
virtue of the Merger, at the Effective Time and without further action on the
part of any holder thereof:
(a) an aggregate cash payment to all of
such shareholders of $225,000 (the "Cash Payment"), plus
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(b) a number of fully paid and
nonassessable shares of Worldtalk Common Stock, $0.01 par value
("Worldtalk Common Stock"), that is determined by dividing the amount of
the Cash Payment by the Average Price (defined below) of the Worldtalk
Common Stock and then subtracting the quotient obtained from the number
of Initial Shares (the "Stock Payment").
For purposes of this calculation, the "Average Price" will mean the average of
the closing sale prices of Worldtalk's Common Stock reported in the Western
Edition of The Wall Street Journal or, if not published therein, The San Jose
Mercury News, on the basis of information provided by the Nasdaq National
Market for each of the ten (10) trading days immediately preceding the day
prior to the date upon which the Closing described in Section 6.1 is held (the
"Closing Date"). The number of "Initial Shares" shall be (a) 565,000 if the
Average Price is greater than or equal to $9.00 but less than or equal to
$15.00, (b) 452,000 if the Average Price is greater than $15.00 and (c) 753,333
if the Average Price is less than $9.00.
1.1.2 Payment to each Deming Shareholder. Each
Deming Shareholder has elected to receive a proportion of the Cash Payment.
Accordingly, each Deming Shareholder will be entitled to receive (a) a cash
payment equal to the amount set forth in the last column of the table below,
titled "Cash Payment to be Received," plus (b) the number of shares of
Worldtalk Common Stock that is determined by dividing the amount of such
person's cash payment by the Average Price of the Worldtalk Common Stock and
then subtracting the quotient obtained from the applicable number of Initial
Shares obtained for such person from the table below.
<TABLE>
<CAPTION>
INITIAL SHARES INITIAL SHARES INITIAL SHARES
IF AP IS BETWEEN IF AP IS IF AP IS LESS
$15.00 AND $9.00 GREATER THAN THAN $9.00 PER CASH PAYMENT
NAME OF SHAREHOLDER PER SHARE $15.00 PER SHARE SHARE TO BE RECEIVED
------------------- ---------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C>
Ronald J. Craswell 114,142 91,313 152,189 $ 96,000
Robert D. Dickinson 222,574 178,061 296,766 0
David S. Pratt, Jr. 114,142 91,313 152,189 64,500
Blake C. Ramsdell 114,142 91,313 152,189 64,500
------- ------- ------- --------
Totals: 565,000 452,000 753,333 $225,000
</TABLE>
Each of the parties hereto agrees that the value of each Deming Shareholder's
portion of the Stock Payment plus the Cash Payment to each such shareholder as
a percentage of the total value of the Stock Payment plus Cash Payment to be
received by all such shareholders, is equal to the percent of Deming Stock held
by such shareholder.
1.1.3 Adjustments in Number of Shares. If, prior to
the Merger, Worldtalk or Deming recapitalizes through a split-up of its
outstanding shares into a greater number, or a combination of its outstanding
shares into a lesser number, reorganizes, reclassifies or otherwise changes its
outstanding shares into the same or a different number of shares of other
classes (other than through a split-up or combination of shares provided for in
the previous clause), or declares a dividend on its outstanding shares payable
in shares or securities convertible into shares, the number of shares of
Worldtalk Common Stock into which the shares of Deming Stock are to be
converted will be adjusted appropriately so as to maintain the proportionate
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interests of the holders of the shares of Deming Stock and the holders of the
shares of Worldtalk Common Stock.
1.1.4 Cash Payment. The Cash Payment to each Deming
Shareholder will be made on January 2, 1997 by Worldtalk's delivery to each
Deming shareholder, by personal delivery or by deposit in the United States
mail, postage prepaid, of a check made payable to such shareholder in the full
amount of the portion of the Cash Payment to be received by such shareholders
on the date of each payment.
1.1.5 Deming Shareholder Approval; Dissenting Shares.
Each Deming Shareholder hereby votes for, and approves, the terms of this
Agreement and the transactions contemplated hereby and such vote and approval
shall be deemed an action by unanimous written consent of the Deming
Shareholders and of the Board of Directors of Deming. As a result, no "fair
value" rights shall apply to the transactions contemplated hereby under RCW
23B.13 et seq. of the Washington Business Corporation Act (the "Washington
Law") and no holder of Deming Stock shall be a "Dissenter" thereunder.
1.2 FRACTIONAL SHARES. No fractional shares of Worldtalk
Common Stock will be issued in connection with the Merger, but in lieu thereof
each holder of Deming Stock who would otherwise be entitled to receive a
fraction of a share of Worldtalk Common Stock will receive from Worldtalk,
promptly after the Effective Time, an amount of cash equal to the Average Price
multiplied by the fraction of a share of Worldtalk Common Stock to which such
holder would otherwise be entitled.
1.3 ESCROW AGREEMENT. At the Closing of the Merger,
Worldtalk will withhold 15% of the shares of Worldtalk Common Stock to be
issued to the Deming Shareholders in accordance with Section 1.1 (rounded up to
the nearest whole number of shares to be issued to each Deming Shareholder),
and deliver such shares (the "Escrow Shares") to Harris Trust and Savings Bank
(the "Escrow Agent"), as escrow agent, to be held by Escrow Agent as collateral
for Deming's indemnification obligations under Section 10.2 and pursuant to the
provisions of an escrow agreement (the "Escrow Agreement") in substantially the
form of Exhibit 1.3. The Escrow Shares will be represented by a certificate or
certificates issued in the name of the Escrow Agent and will be held by the
Escrow Agent from the Closing, assuming no claim is made against such shares,
until one (1) year after the Closing Date (the "Escrow Period"). In the event
that the Merger is approved by the Deming Shareholders as provided herein, the
Deming Shareholders shall, without any further act of any Deming Shareholder,
be deemed to have consented to and approved (a) the use of the Escrow Shares as
collateral for Deming's indemnification obligations under Section 10.2 in the
manner set forth in the Escrow Agreement, (b) the appointment of Robert D.
Dickinson, III, as the representative of the Deming Shareholders (the
"Representative") under the Escrow Agreement and as the attorney-in-fact and
agent for and on behalf of each Deming Shareholder, and the taking by the
Representative of any and all actions and the making of any decisions required
or permitted to be taken by him under the Escrow Agreement (including, without
limitation, the exercise of the power to: authorize delivery to Worldtalk of
Escrow Shares in satisfaction of claims by Worldtalk; agree to, negotiate,
enter into settlements and compromises of and demand arbitration and comply
with
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orders of courts and awards of arbitrators with respect to such claims; resolve
any claim made pursuant to Section 10.2; and take all actions necessary in the
judgment of the Representative for the accomplishment of the foregoing) and (c)
to all of the other terms, conditions and limitations in the Escrow Agreement.
1.4 EFFECTS OF THE MERGER. At the Effective Time: (a) the
separate existence of Newco will cease and Newco will be merged with and into
Deming, and Deming will be the surviving corporation, pursuant to the terms of
the Agreement of Merger, (b) the Certificate of Incorporation and Bylaws of
Deming will continue, unchanged, to be the Certificate of Incorporation and
Bylaws of the surviving corporation, (c) each share of Newco Common Stock
outstanding immediately prior to the Effective Time will continue to be an
identical outstanding share of Common Stock of Deming as the surviving
corporation, (d) the Board of Directors and officers of Worldtalk will remain
unchanged, the directors of Newco immediately prior to the Effective Time will
become the directors of the surviving corporation and the officers of Newco
immediately prior to the Effective Time will become the officers of the
surviving corporation, (e) each share of Deming Stock outstanding immediately
prior to the Effective Time will be converted as provided in Sections 1.1 and
1.2; and (f) the Merger will, from and after the Effective Time, have all of
the effects provided by applicable law.
1.5 FURTHER ASSURANCES. Deming agrees that if, at any time
before or after the Effective Time, Worldtalk considers or is advised that any
further deeds, assignments or assurances are reasonably necessary or desirable
to vest, perfect or confirm in Worldtalk or Deming title to any property or
rights of Deming, Worldtalk and its proper officers and directors may execute
and deliver all such proper deeds, assignments and assurances and do all other
things necessary or desirable to vest, perfect or confirm title to such
property or rights in Worldtalk or Deming and otherwise to carry out the
purpose of this Agreement, in the name of Deming or otherwise.
1.6 TAX FREE REORGANIZATION. The parties intend to adopt
this Agreement as a tax-free plan of reorganization and to consummate the
Merger in accordance with the provisions of Section 368(a)(1)(A) of the Code.
The parties believe that the value of the Worldtalk Stock to be received in the
Merger, plus cash, is equal, in each instance, to the value of the Deming Stock
to be surrendered in exchange therefor. The Worldtalk Stock and cash issued in
the Merger will be issued solely in exchange for the Deming Stock, and no other
transaction other than the Merger represents, provides for or is intended to be
an adjustment to, the consideration paid for the Deming Stock. Except for the
Cash Payment and cash paid in lieu of fractional shares or for Dissenting
Shares, no consideration that could constitute "other property" within the
meaning of Section 356 of the Code is being paid by Worldtalk for the Deming
Stock in the Merger. The parties shall not take a position on any tax returns
inconsistent with this Section 1.6. In the event that such characterization is
contested by the Internal Revenue Service or other governmental authority, the
parties shall cooperate with one another in resisting any contrary position
concerning the characterization of the transaction asserted by the Internal
Revenue Service or other governmental authority in the course of such contest.
In addition, Worldtalk represents now, and as of the Closing Date, that it
presently intends to continue Deming's historic business or use a significant
portion of Deming's business assets in a business. The provisions and
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representations contained or referred to in this Section 1.6 shall survive
until the expiration of the applicable statute of limitations.
1.7 PURCHASE ACCOUNTING. The parties intend that the
Merger be treated as a purchase for accounting purposes.
2. REPRESENTATIONS AND WARRANTIES OF DEMING AND THE DEMING
SHAREHOLDERS. Each of Deming and the Deming Shareholders, jointly and
severally, hereby represents and warrants, except as set forth on the Deming
Schedule of Exceptions delivered to Worldtalk herewith as Exhibit 2.0, as
follows. As used herein, the term "knowledge" shall mean the actual knowledge
of the Deming Shareholders after reasonable inquiry.
2.1 ORGANIZATION AND GOOD STANDING. Deming is a
corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation, has the corporate power and authority
to own, operate and lease its properties and to carry on its business as now
conducted and is qualified as a foreign corporation in each jurisdiction in
which a failure to be so qualified could reasonably be expected to have a
material adverse effect on its present or expected operations or financial
condition.
2.2 POWER, AUTHORIZATION AND VALIDITY.
2.2.1 Deming has the right, power, legal capacity and
authority to enter into and perform its obligations under this Agreement, and
all agreements to which Deming is or will be a party that are required to be
executed pursuant to this Agreement (the "Deming Ancillary Agreements"). The
execution, delivery and performance of this Agreement and the Deming Ancillary
Agreements have been duly and validly approved and authorized by Deming's Board
of Directors.
2.2.2 No filing, authorization or approval,
governmental or otherwise, is necessary to enable Deming to enter into, and to
perform its obligations under, this Agreement and the Deming Ancillary
Agreements, except for (a) the filing of the Agreement of Merger with the
Washington Secretary of State and the filing of appropriate documents with the
relevant authorities of other states in which Deming is qualified to do
business, if any, and (b) such filings as may be required to comply with
federal and state securities laws.
2.2.3 This Agreement and the Deming Ancillary
Agreements are, or when executed by Deming will be, valid and binding
obligations of Deming enforceable in accordance with their respective terms,
except as to the effect, if any, of (a) applicable bankruptcy and other similar
laws affecting the rights of creditors generally, (b) rules of law governing
specific performance, injunctive relief and other equitable remedies and (c)
the enforceability of provisions requiring indemnification in connection with
the offering, issuance or sale of securities; provided, however, that the
Agreement of Merger will not be effective until filed with the Washington
Secretary of State.
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2.3 CAPITALIZATION.
2.3.1 The authorized capital stock of Deming consists
of 26,000,000 shares of Common Stock, $0.0001 par value, of which 495,000
shares are issued and outstanding, and 24,000,000 shares of Preferred Stock,
$0.0001 par value, none of which are issued and outstanding. All issued and
outstanding shares of Deming Stock have been duly authorized and validly
issued, are fully paid and nonassessable, are not subject to any right of
rescission, and have been offered, issued, sold and delivered by Deming in
compliance with all registration or qualification requirements (or applicable
exemptions therefrom) of applicable federal and state securities laws.
2.3.2 There are no options, warrants, calls,
commitments, conversion privileges or preemptive or other rights or agreements
outstanding to purchase any of Deming's authorized but unissued capital stock
or any securities convertible into or exchangeable for shares of Deming Stock
or obligating Deming to grant, extend, or enter into any such option, warrant,
call, right, commitment, conversion privilege or other right or agreement, and
there is no liability for dividends accrued but unpaid. There are no voting
agreements, rights of first refusal or other restrictions (other than normal
restrictions on transfer under applicable federal and state securities laws)
applicable to any of Deming's outstanding securities. Deming is not under any
obligation to register under the Securities Act of 1933, amended (the "1933
Act"), any of its presently outstanding securities or any securities that may
be subsequently issued.
2.3.3 A list of all Deming Shareholders and the
number of shares held by each has been delivered by Deming to Worldtalk
herewith as Exhibit 2.3. Each Deming Shareholder has good, valid and
marketable title to the issued and outstanding Deming Stock held by such
shareholder, free and clear of all liens, claims, pledges, options, security
interests, adverse claims, assessments or charges of any nature whatsoever, and
has full right, capacity and authority to vote such Deming Stock in favor of
the Merger and any other transactions contemplated by the Agreement of Merger.
2.4 SUBSIDIARIES. Deming does not have any subsidiaries or
any interest, direct or indirect, in any corporation, partnership, joint
venture or other business entity.
2.5 NO VIOLATION OF EXISTING AGREEMENTS. Neither the
execution and delivery of this Agreement nor any Deming Ancillary Agreement,
nor the consummation of the transactions contemplated hereby, will conflict
with, or (with or without notice or lapse of time, or both) result in a
termination, breach, impairment or violation of (a) any provision of the
Certificate of Incorporation or Bylaws of Deming, as currently in effect, (b)
in any material respect, any material instrument or contract to which Deming is
a party or by which Deming is bound or (c) any federal, state, local or foreign
judgment, writ, decree, order, statute, rule or regulation applicable to Deming
or its assets or properties. The consummation of the Merger will not require
the consent of any third party.
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2.6 LITIGATION. There is no action, proceeding, claim or
investigation pending against Deming before any court or administrative agency
that if determined adversely to Deming may reasonably be expected to have a
material adverse effect on the present or future operations or financial
condition of Deming, nor, to Deming's knowledge, has any such action,
proceeding, claim or investigation been threatened. There is, to Deming's
knowledge, no reasonable basis for any shareholder or former shareholder of
Deming, or any other person, firm, corporation or entity, to assert a claim
against Deming or Worldtalk based upon: (a) ownership or rights to ownership of
any shares of Deming Stock, (b) any rights as a Deming Shareholder, including
any option or preemptive rights or rights to notice or to vote or (c) any
rights under any agreement among Deming and its shareholders.
2.7 TAXES. Deming has filed all federal, state, local and
foreign tax returns required to be filed, has paid all taxes required to be
paid in respect of all periods for which returns have been filed, has
established an adequate accrual or reserve for the payment of all taxes payable
in respect of the periods subsequent to the periods covered by the most recent
applicable tax returns, has made all necessary estimated tax payments, and has
no material liability for taxes in excess of the amount so paid or accruals or
reserves so established. Deming is not delinquent in the payment of any tax
nor delinquent in the filing of any tax returns, and no deficiencies for any
tax have been threatened, claimed, proposed or assessed. No tax return of
Deming has ever been audited by the Internal Revenue Service or any state
taxing agency or authority. For the purposes of this Section 2, the terms
"tax" and "taxes" include all federal, state, local and foreign income, gains,
franchise, excise, property, sales, use, employment, license, payroll,
occupation, recording, value added or transfer taxes, governmental charges,
fees, levies or assessments (whether payable directly or by withholding), and,
with respect to such taxes, any estimated tax, interest and penalties or
additions to tax and interest on such penalties and additions to tax.
2.8 DEMING FINANCIAL STATEMENTS. Deming has delivered to
Worldtalk as Exhibit 2.8 Deming's unaudited balance sheet as of November 5,
1996 (the "Balance Sheet") and profit and loss statements for the period
between January 1, 1996 and November 8, 1996 (collectively the "Financial
Statements"). The Financial Statements (a) are in accordance with the tax
books and records of Deming, and (b) fairly present the financial condition of
Deming on a tax basis at the date therein indicated and the results of
operations for the period therein specified. Deming has no material debt,
liability or obligation of any nature, whether accrued, absolute, contingent or
otherwise, and whether due or to become due, that is not reflected or reserved
against in the Financial Statements, except for those that may have been
incurred after the date of the Financial Statements in the ordinary course of
its business, consistent with past practice and that are not material in amount
either individually or collectively.
2.9 TITLE TO PROPERTIES. Deming has good and marketable
title to all of its assets as shown on the Balance Sheet, free and clear of all
liens, charges, restrictions or encumbrances (other than for taxes not yet due
and payable). All machinery and equipment included in such properties is in
good condition and repair, normal wear and tear excepted, and all leases of
real or personal property to which Deming is a party are fully effective and
afford Deming peaceful and undisturbed possession of the subject matter of the
lease. Deming is not in viola-
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tion of any zoning, building, safety or environmental ordinance,
regulation or requirement or other law or regulation applicable to the
operation of owned or leased properties (the violation of which would have a
material adverse effect on its business) or has received any notice of
violation with which it has not complied.
2.10 ABSENCE OF CERTAIN CHANGES. Since the date of the
Balance Sheet, there has not been with respect to Deming:
(a) any change in the financial condition,
properties, assets, liabilities, business or operations thereof which
change by itself or in conjunction with all other such changes, whether
or not arising in the ordinary course of business, has had or will have a
material adverse effect thereon;
(b) any contingent liability incurred thereby as
guarantor or otherwise with respect to the obligations of others;
(c) any mortgage, pledge, encumbrance, lien or
other security interest placed on any of the properties thereof;
(d) any material obligation or liability incurred
thereby;
(e) any purchase or sale or other disposition, or
any agreement or other arrangement for the purchase, sale or other
disposition, of any of the properties or assets thereof other than in the
ordinary course of business;
(f) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the properties,
assets or business thereof;
(g) any declaration, setting aside or payment of
any dividend on, or the making of any other distribution in respect of,
the capital stock thereof, any split, combination or recapitalization of
the capital stock thereof or any direct or indirect redemption, purchase
or other acquisition of the capital stock thereof;
(h) any labor dispute or claim of unfair labor
practices, any change in the compensation payable or to become payable to
any of its officers, employees or agents, or any bonus payment or
arrangement made to or with any of such officers, employees or agents;
(i) any change with respect to the management,
supervisory or other key personnel of Deming;
(j) any payment or discharge of a material lien or
liability thereof which lien was not either shown on the Balance Sheet;
or
(k) any obligation or liability incurred thereby to
any of its officers, directors or shareholders or any loans or advances
made thereby to any of its officers, directors or shareholders except
normal compensation and expense allowances payable to officers.
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2.11 CONTRACTS AND COMMITMENTS. Except as set forth on
Exhibit 2.0, Deming has no contract, obligation or commitment which is material
to the business of Deming or which involves a potential commitment in excess of
$25,000 or any stock redemption or purchase agreement, financing agreement,
license, lease or franchise. A copy of each agreement or document listed on
Exhibit 2.0 has been delivered to Worldtalk's counsel. Deming is not in
default in any material respect under any contract, obligation or commitment
listed on Exhibit 2.0 or that is otherwise material to the business of Deming.
Deming is not a party to any contract or arrangement which has had or could
reasonably be expected to have a material adverse effect on its business or
prospects.
2.12 INTELLECTUAL PROPERTY.
2.12.1 As used herein, the term "Intellectual Property
Rights" shall mean all worldwide industrial and intellectual property rights,
including, without limitation, patents, patent applications, patent rights,
trademarks, trademark applications, trade names, service marks, service mark
applications, copyright, copyright applications, franchises, licenses,
inventories, know-how, trade secrets, customer lists, proprietary processes and
formulae, all source and object code, algorithms, architecture, structure,
display screens, layouts, inventions, development tools and all documentation
and media constituting, describing or relating to the above, including, without
limitation, manuals, memoranda and records.
2.12.2 Deming owns, or has the right to use, sell or
license all material Intellectual Property Rights necessary or required for the
conduct of its business as presently conducted (such Intellectual Property
Rights being hereinafter collectively referred to as the "Deming IP Rights")
and such rights to use, sell or license are reasonably sufficient for such
conduct of its business.
2.12.3 The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
constitute a material breach of any instrument or agreement governing any
Deming IP Right (the "Deming IP Rights Agreements"), will not cause the
forfeiture or termination or give rise to a right of forfeiture or termination
of any Deming IP Right or materially impair the right of Deming to use, sell or
license any Deming IP Right or portion thereof (except where such breach,
forfeiture or termination would not have a material adverse effect on Deming).
There are no royalties, honoraria, fees or other payments payable by Deming to
any person by reason of the ownership, use, license, sale or disposition of the
Deming IP Rights.
2.12.4 Neither the manufacture, marketing, license,
sale or intended use of any product currently licensed or sold by Deming or
currently under development by Deming violates any license or agreement between
Deming and any third party or infringes any Intellectual Property Right of any
other party (provided that such representation and warranty as to violation or
infringement of patents or patent rights is made only to the knowledge of
Deming and the Deming Shareholders); and there is no pending or, to the
knowledge of Deming, threatened claim or litigation contesting the validity,
ownership or right to use, sell, license or dispose of any Deming IP Right nor,
to the knowledge of Deming, is there any basis for any such
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<PAGE> 11
claim. Deming has not received any notice asserting that any Deming IP Right
or the proposed use, sale, license or disposition thereof conflicts or will
conflict with the rights of any other party, nor, to the knowledge of Deming,
is there any basis for any such assertion.
2.12.5 Deming has taken reasonable and practicable
steps designed to safeguard and maintain the secrecy and confidentiality of,
and its proprietary rights in, all Deming IP Rights. All officers, employees
and consultants of Deming have executed and delivered to Deming an agreement
regarding the protection of proprietary information and the assignment to
Deming of all Intellectual Property Rights arising from the services performed
for Deming by such persons. Exhibit 2.0 contains a list of all applications,
registrations, filings and other formal actions made or taken pursuant to
federal, state and foreign laws by Deming to perfect or protect its interest in
Deming IP Rights, including, without limitation, all patents, patent
applications, trademarks, trademark applications and service marks.
2.13 COMPLIANCE WITH LAWS. Deming has complied, or prior to
the Closing will have complied, and is or will be at the Closing in full
compliance, in all material respects, with all applicable laws, ordinances,
regulations and rules, and all orders, writs, injunctions, awards, judgments
and decrees applicable to it or to the assets, properties and business thereof
(the violation of which would have a material adverse effect upon its
business), including, without limitation: (a) all applicable federal and state
securities laws and regulations, (b) all applicable federal, state and local
laws, ordinances, regulations and all orders, writs, injunctions, awards,
judgments and decrees pertaining to (i) the sale, licensing, leasing, ownership
or management of its owned, leased or licensed real or personal property,
products and technical data, (ii) employment and employment practices, terms
and conditions of employment, wages and hours and (iii) safety, health, fire
prevention, environmental protection, toxic waste disposal, building standards,
zoning and other similar matters (c) the Export Administration Act and
regulations promulgated thereunder and all other laws, regulations, rules,
orders, writs, injunctions, judgments and decrees applicable to the export or
re-export of controlled commodities or technical data and (d) the Immigration
Reform and Control Act. Deming has received all permits and approvals from,
and has made all filings with, third parties, including government agencies and
authorities, that are necessary in connection with its present business. There
are no legal or administrative proceedings or investigations pending or to
Deming's knowledge threatened, that, if enacted or determined adversely to
Deming, would result in any material adverse change in the present or future
operations or financial condition thereof.
2.14 CERTAIN TRANSACTIONS AND AGREEMENTS. None of the
officers of Deming, nor any member of their immediate families, has any direct
or indirect ownership interest in any firm or corporation that competes with
Deming (except with respect to any interest in less than one percent of the
stock of any corporation whose stock is publicly traded). None of said
officers or directors, or any member of their immediate families, is directly
or indirectly interested in any contract or informal arrangement with Deming,
except for normal compensation for services as an officer, director or employee
thereof. None of said officers or directors or family members has any interest
in any property, real or personal, tangible or intangible, including
inventions, patents, copyrights, trademarks or trade names or trade secrets,
used in or pertaining to the business of Deming, except for the normal rights
of a shareholder.
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2.15 EMPLOYEES, ERISA AND OTHER COMPLIANCE.
2.15.1 Deming has no employment contract or consulting
agreement currently in effect that is not terminable at will (other than
agreements with the sole purpose of providing for the confidentiality of
proprietary information or assignment of inventions). All officers, employees
and consultants of Deming having access to proprietary information have
executed and delivered to Deming an agreement regarding the protection of such
proprietary information and the assignment of inventions to Deming; copies of
the form of all such agreements have been delivered to Worldtalk's counsel.
2.15.2 Deming has no (a) "employee benefit plan," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), nor (b) any other written or formal plans or agreements
involving direct or indirect compensation or benefits (including any employment
agreements entered into between Deming and any employee of Deming, but
excluding workers' compensation, unemployment compensation and other
government-mandated programs) currently or previously maintained, contributed
to or entered into by Deming under which Deming or any ERISA Affiliate (as
defined below) thereof has any present or future obligation or liability
(collectively, the "Deming Employee Plans"). For purposes of this Section
2.15, "ERISA Affiliate" shall mean any entity which is a member of (a) a
"controlled group of corporations," as defined in Section 414(b) of the Code,
(b) a group of entities under "common control," as defined in Section 414(c) of
the Code, or (c) an "affiliated service group," as defined in Section 414(m) of
the Code, or treasury regulations promulgated under Section 414(o) of the Code,
any of which includes Deming.
2.15.3 Exhibit 2.0 lists each employment, severance or
other similar contract, arrangement or policy and each plan or arrangement
(written or oral) providing for insurance coverage (including any self-insured
arrangements), workers' benefits, vacation benefits, severance benefits,
disability benefits, death benefits, hospitalization benefits, retirement
benefits, deferred compensation, profit-sharing, bonuses or other forms of
incentive compensation or post-retirement insurance, compensation or benefits
for employees, consultants or directors which (a) is entered into, maintained
or contributed to, as the case may be, by Deming and (b) covers any employee or
former employee of Deming. Each such arrangement or plan has been maintained
in substantial compliance with its terms and with the requirements prescribed
by any and all statutes, orders, rules and regulations which are applicable
thereto. Deming has delivered to Worldtalk or its counsel a complete and
correct copy or description of each such arrangement or plan. Deming has no
current labor disputes and has no knowledge that any of its key employees
intends to leave its employ.
2.15.4 Deming is in compliance in all material
respects with all applicable laws, agreements and contracts relating to
employment, employment practices, wages, hours, and terms and conditions of
employment, including, but not limited to, employee compensation matters.
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<PAGE> 13
2.15.5 No employee of Deming is in violation of any
term of any employment contract, patent disclosure agreement, noncompetition
agreement, or any other contract or agreement, or any restrictive covenant
relating to the right of any such employee to be employed thereby, or to use
trade secrets or proprietary information of others, and the employment of such
employees does not subject Deming to any liability.
2.15.6 Deming is not a party to any (a) agreement with
any executive officer or other key employee thereof (i) the benefits of which
are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving Deming in the nature of any of the
transactions contemplated by this Agreement and the Agreement of Merger, (ii)
providing any term of employment or compensation guarantee, or (iii) providing
severance benefits or other benefits after the termination of employment of
such employee regardless of the reason for such termination of employment, or
(b) agreement or plan, any of the benefits of which will be materially
increased, or the vesting of benefits of which will be materially accelerated,
by the occurrence of any of the transactions contemplated by this Agreement and
the Agreement of Merger or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement and the Agreement of Merger.
2.16 CORPORATE DOCUMENTS. Deming has made available to
Worldtalk for examination all documents and information listed in the Deming
Schedule of Exceptions or other Exhibits called for by this Agreement or which
has been requested by Worldtalk's legal counsel, including, without limitation,
the following: (a) copies of Deming's and its predecessor's Certificate of
Incorporation and Bylaws as currently in effect; (b) its and its predecessor's
Minute Book containing all records of all proceedings, consents, actions, and
meetings of the shareholders, the board of directors and any committees
thereof; (c) its and its predecessor's stock ledger, journal and other records
reflecting all stock issuances and transfers; and (d) all permits, orders, and
consents issued by any regulatory agency with respect to Deming, or any
security of Deming and its predecessor, and all applications for any such
permits, orders and consents.
2.17 NO BROKERS. Neither Deming nor any of the Deming
Shareholders is obligated for the payment of fees or expenses of any investment
banker, broker or finder in connection with the origin, negotiation or
execution of this Agreement or the Agreement of Merger or in connection with
any transaction contemplated hereby or thereby.
2.18 MATERIAL AGREEMENTS. All oral or written material
agreements and commitments to which Deming is a party or subject to are listed
on Exhibit 2.0 hereto including, but not limited to any:
(a) Contract providing for payments by or to Deming
in an aggregate amount of $25,000 or more;
(b) License agreement as licensor or licensee
(except for standard non-exclusive hardware and software licenses granted
to end-user customers in the ordinary course of business the form of which
has been provided to Worldtalk's counsel);
(c) Material agreement for the lease of real or
personal property;
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<PAGE> 14
(d) Joint venture contract or arrangement or any
other agreement that involves a sharing of profits with other persons;
(e) Instrument evidencing or related in any way to
indebtedness for borrowed money by way of direct loan, sale of debt
securities, purchase money obligation, conditional sale, guarantee, or
otherwise, except for trade indebtedness incurred in the ordinary course
of business, and except as disclosed in the Financial Statements; or
(f) Contract containing covenants purporting to
limit Deming's freedom to compete in any line of business in any
geographic area.
All agreements, contracts, plans, leases, instruments, arrangements, licenses
and commitments listed in Exhibit 2.0 are valid and in full force and effect.
Deming is not, nor, to the knowledge of Deming, is any other party thereto, in
breach or default in any material respect under the terms of any such
agreement, contract, plan, lease, instrument, arrangement, license or
commitment, which breach or default may reasonably be expected to have a
material adverse effect on Deming.
2.19 BOOKS AND RECORDS. The books, records and accounts of
Deming (a) are in all material respects true, complete and correct, (b) have
been maintained in accordance with good business practices on a basis
consistent with prior years, (c) are stated in reasonable detail and accurately
and fairly reflect the transactions and dispositions of the assets of Deming,
and (d) accurately and fairly reflect the basis for the Financial Statements.
2.20 ENVIRONMENTAL MATTERS.
2.20.1 During the period that Deming has leased or
owned its properties or owned or operated any facilities, there have been no
disposals, releases or threatened releases of Hazardous Materials (as defined
below) on, from or under such properties or facilities. Deming has no
knowledge of any presence, disposals, releases or threatened releases of
Hazardous Materials on, from or under any of such properties or facilities,
which may have occurred prior to Deming having taken possession of any of such
properties or facilities. For the purposes of this Agreement, the terms
"disposal," "release," and "threatened release" shall have the definitions
assigned thereto by the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. Section 9601 et seq., as amended ("CERCLA").
For the purposes of this Agreement "Hazardous Materials" shall mean any
hazardous or toxic substance, material or waste which is or becomes prior to
the Closing regulated under, or defined as a "hazardous substance,"
"pollutant," "contaminant," "toxic chemical," "hazardous materials," "toxic
substance" or "hazardous chemical" under (1) CERCLA; (2) any similar federal,
state or local law; or (3) regulations promulgated under any of the above laws
or statutes.
2.20.2 None of the properties or facilities of
Deming is in violation of any federal, state or local law, ordinance,
regulation or order relating to industrial hygiene or to the environmental
conditions on, under or about such properties or facilities, including, but not
limited to, soil and ground water condition. During the time that Deming has
owned or leased its properties and facilities, Deming has not, nor, to Deming's
knowledge, any third party, used,
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<PAGE> 15
generated, manufactured or stored on, under or about such properties or
facilities or transported to or from such properties or facilities any
Hazardous Materials.
2.21 INTERESTED PARTY TRANSACTIONS. No officer or director
of Deming or any "affiliate" or "associate" (as those terms are defined in Rule
405 promulgated under the 1933 Act) of any such person has had, either
directory or indirectly, a material interest in: (a) any person or entity
which purchases from or sells, licenses or furnishes to Deming any goods,
property, technology or intellectual or other property rights or services; or
(b) any contract or agreement to which Deming is a party or by which it may be
bound or affected.
2.22 INVESTMENT REPRESENTATIONS.
2.22.1 Purchase for Own Account for Investment. Each
Deming Shareholder is acquiring the Worldtalk Common Stock for such Deming
Shareholder's own account for investment purposes only and not with a view to,
or for sale in connection with, a distribution of the Worldtalk Common Stock
within the meaning of the 1933 Act. Each Deming Shareholder has no present
intention of selling or otherwise disposing of all or any portion of the
Worldtalk Common Stock and no one other than such Deming Shareholder has any
beneficial ownership of any of the Worldtalk Common Stock.
2.22.2 Access to Information. Each Deming Shareholder
has had access to all information regarding Worldtalk and its present and
prospective business, assets, liabilities and financial condition that such
Deming Shareholder reasonably considers important in making the decision to
purchase the Worldtalk Common Stock, and such Deming Shareholder has had ample
opportunity to ask questions of Worldtalk's representatives concerning such
matters and this investment.
2.22.3 Understanding of Risks. Each Deming
Shareholder is fully aware of: (i) the highly speculative nature of the
investment in the Worldtalk Common Stock; (ii) the financial hazards involved;
(iii) the lack of liquidity of the Worldtalk Common Stock and the restrictions
on transferability of the Worldtalk Common Stock (e.g., that such Shareholder
may not be able to sell or dispose of the Worldtalk Common Stock or use them as
collateral for loans); (iv) the qualifications and backgrounds of the
management of Worldtalk; and (v) the tax consequences of investment in the
Worldtalk Common Stock.
2.22.4 Shareholder's Qualifications. Each Deming
Shareholder has a preexisting personal or business relationship with Worldtalk
and/or certain of its officers and/or directors of a nature and duration
sufficient to make such Deming Shareholder aware of the character, business
acumen and general business and financial circumstances of Worldtalk and/or
such officers and directors. By reason of Each Deming Shareholder's business
or financial experience, such Deming Shareholder is capable of evaluating the
merits and risks of this investment, has the ability to protect such Deming
Shareholder's own interests in this transaction and is financially capable of
bearing a total loss of this investment.
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<PAGE> 16
2.22.5 No General Solicitation. At no time was any
Shareholder presented with or solicited by any publicly issued or circulated
newspaper, mail, radio, television or other form of general advertising or
solicitation in connection with the offer, sale and purchase of the Worldtalk
Common Stock.
2.22.6 Compliance with Securities Laws. Each Deming
Shareholder understands and acknowledges that, in reliance upon the
representations and warranties made by such Deming Shareholder herein, the
Worldtalk Common Stock are not being registered with the Securities and
Exchange Commission ("SEC") under the 1933 Act or being qualified or registered
under any applicable state securities laws but instead are being issued under
an exemption or exemptions from the registration and qualification requirements
of the 1933 Act and applicable state securities laws which impose certain
restrictions on Shareholder's ability to transfer the Worldtalk Common Stock.
2.22.7 Restrictions on Transfer. Each Deming
Shareholder understands that such Deming Shareholder may not transfer any
Worldtalk Common Stock unless such Worldtalk Common Stock are registered under
the 1933 Act and qualified or registered under applicable state securities laws
or unless, in the opinion of counsel to Worldtalk, exemptions from such
registration and qualification requirements are available. Each Deming
Shareholder understands that only Worldtalk may file a registration statement
with the SEC or applicable state securities authorities and that Worldtalk is
under no obligation to do so with respect to the Worldtalk Common Stock, except
as set forth in the Shareholders' Agreement and that certain Second Amendment
to the Third Amended and Restated Registration Rights Agreement dated as of
November 8, 1996. Each Deming Shareholder has also been advised that
exemptions from registration and qualification may not be available or may not
permit such Deming Shareholder to transfer all or any of the Worldtalk Common
Stock in the amounts or at the times proposed by such Deming Shareholder. Each
Deming Shareholder further acknowledges that transfer of the Worldtalk Common
Stock is subject to the restrictions imposed under the Shareholders' Agreement.
2.22.8 Rules 144 and 145. In addition, Shareholder
has been advised that SEC Rule 144 promulgated under the 1933 Act, which
permits certain limited sales of unregistered securities, is not presently
available with respect to the Worldtalk Common Stock by virtue of Rule 145 and,
in any event, requires that the Worldtalk Common Stock be held for a minimum of
two years, and in certain cases three years, after they have been purchased and
paid for (within the meaning of Rule 144), before they may be resold under Rule
145 and Rule 144. Shareholder understands that Rule 145 and Rule 144 may
indefinitely restrict transfer of the Worldtalk Common Stock if Shareholder
remains an "affiliate" of Worldtalk and "current public information" about
Worldtalk (as defined in Rule 144) is not publicly available.
2.22.9 Legends and Stop-Transfer Orders. Each Deming
Shareholder understands that certificates or other instruments representing any
of the Worldtalk Common Stock acquired by such Shareholder will bear legends
substantially similar to the following, in addition to any other legends
required by federal or state laws:
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<PAGE> 17
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN
STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE
ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER
OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO RESTRICTIONS ON RESALE AND
TRANSFER AS SET FORTH IN THAT CERTAIN SHAREHOLDERS' AGREEMENT DATED AS OF
NOVEMBER 9, 1996 BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF SUCH SECURITIES
AND THAT CERTAIN THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, AS
AMENDED, BETWEEN THE ISSUER AND CERTAIN OF ITS SECURITYHOLDERS, COPIES OF WHICH
MAY BE OBTAINED AT NO CHARGE FROM THE ISSUER AT ITS PRINCIPAL EXECUTIVE
OFFICES.
The undersigned agrees that, in order to ensure and enforce compliance with the
restrictions imposed by applicable law and those referred to in the foregoing
legends, or elsewhere herein, Worldtalk may issue appropriate "stop transfer"
instructions to its transfer agent, if any, with respect to any certificate or
other instrument representing Worldtalk Common Stock, or if Worldtalk transfers
its own securities, that it may make appropriate notations to the same effect
in Worldtalk's records.
2.23 DISCLOSURE. Neither this Agreement, its exhibits, nor
any of the certificates or documents to be delivered by Deming to Worldtalk
under this Agreement, taken together, contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make
the statements contained herein and therein, in light of the circumstances
under which such statements were made, not misleading.
3. REPRESENTATIONS AND WARRANTIES OF WORLDTALK. Worldtalk hereby
represents and warrants, except as set forth on the Worldtalk Schedule of
Exceptions delivered to Deming as Exhibit 3.0 as follows.
3.1 ORGANIZATION AND GOOD STANDING. Worldtalk is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the corporate power and authority to own,
operate and lease its properties and to carry on its business as now conducted.
3.2 POWER, AUTHORIZATION AND VALIDITY.
3.2.1 Worldtalk has the right, power, legal capacity
and authority to enter into and perform its obligations under this Agreement,
and all agreements to which Worldtalk is or will be a party that are required
to be executed pursuant to this Agreement (the
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"Worldtalk Ancillary Agreements"). The execution, delivery and performance of
this Agreement and the Worldtalk Ancillary Agreements have been duly and
validly approved and authorized by Worldtalk's Board of Directors.
3.2.2 No filing, authorization or approval,
governmental or otherwise, is necessary to enable Worldtalk to enter into, and
to perform its obligations under, this Agreement and the Worldtalk Ancillary
Agreements, except for (a) the filing of the Agreement of Merger with the
Washington Secretary of State, and (b) such filings as may be required to
comply with federal and state securities laws.
3.2.3 This Agreement and the Worldtalk Ancillary
Agreements are, or when executed by Worldtalk will be, valid and binding
obligations of Worldtalk enforceable in accordance with their respective terms,
except as to the effect, if any, of (a) applicable bankruptcy and other similar
laws affecting the rights of creditors generally, (b) rules of law governing
specific performance, injunctive relief and other equitable remedies and (c)
the enforceability of provisions requiring indemnification in connection with
the offering, issuance or sale of securities; provided, however, that the
Agreement of Merger will not be effective until filed with the Washington
Secretary of State.
3.3 NO VIOLATION OF EXISTING AGREEMENTS. Neither the
execution and delivery of this Agreement nor any Worldtalk Ancillary Agreement,
nor the consummation of the transactions contemplated hereby, will conflict
with, or (with or without notice or lapse of time, or both) result in a
termination, breach, impairment or violation of (a) any provision of the
Certificate of Incorporation or Bylaws of Worldtalk, as currently in effect,
(b) in any material respect, any material instrument or contract to which
Worldtalk is a party or by which Worldtalk is bound, or (c) any federal, state,
local or foreign judgment, writ, decree, order, statute, rule or regulation
applicable to Worldtalk or its assets or properties. The consummation of the
Merger on the part of Worldtalk will not require the consent of any third
party.
3.4 DISCLOSURE. Worldtalk has made available to Deming an
investor disclosure package consisting of Worldtalk's Registration Statement on
Forms S-1, and all Forms 10-Q filed by Worldtalk with the SEC since the
effective date of such Registration Statement and up to the date of this
Agreement and to be filed with respect to the period ended September 30, 1996
(the "Worldtalk Disclosure Package"). The Worldtalk Disclosure Package, this
Agreement, the exhibits and schedules hereto, and any certificates or documents
to be delivered to Deming pursuant to this Agreement, when taken together, do
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements contained herein and
therein, in light of the circumstances under which such statements were made,
not misleading.
3.5 ABSENCE OF CERTAIN CHANGES. Since the date of the
financial statements included in the Form 10-Q filed with the SEC for the
period ended June 30, 1996, (the "Quarter End") and except as disclosed in the
Worldtalk Disclosure Package, there has not been any change in the financial
condition, properties, assets, liabilities, business or operations of World-
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talk which change by itself or in conjunction with all other such changes,
whether or not arising in the ordinary course of business, has had or will have
a material adverse effect thereon.
3.6 NO BROKERS. Worldtalk is not obligated for the payment
of fees or expenses of any investment banker, broker or finder in connection
with the origin, negotiation or execution of this Agreement or the Agreement of
Merger or in connection with any transaction contemplated hereby or thereby.
4. DEMING PRECLOSING COVENANTS. During the period from the date of
this Agreement until the Effective Time, Deming covenants and agrees as
follows:
4.1 ADVICE OF CHANGES. Deming will promptly advise
Worldtalk in writing (a) of any event occurring subsequent to the date of this
Agreement that would render any representation or warranty of Deming contained
in this Agreement, if made on or as of the date of such event or at the
Closing, untrue or inaccurate in any material respect and (b) of any material
adverse change in Deming's business, results of operations or financial
condition.
4.2 MAINTENANCE OF BUSINESS. Deming will use its best
efforts to carry on and preserve its business and its relationships with
customers, suppliers, employees and others in substantially the same manner as
it has prior to the date hereof. If Deming becomes aware of a material
deterioration in the relationship with any customer, supplier or key employee,
it will promptly bring such information to the attention of Worldtalk in
writing and, if requested by Worldtalk, will exert its best efforts to restore
the relationship.
4.3 CONDUCT OF BUSINESS. Deming will continue to conduct
its business and maintain its business relationships in the ordinary and usual
course and will not, without the prior written consent of the President of
Worldtalk:
(a) borrow any money;
(b) enter into any transaction not in the ordinary
course of business;
(c) encumber or permit to be encumbered any of its
assets except in the ordinary course of its business consistent with past
practice and to an extent which is not material;
(d) dispose of any of its assets except in the
ordinary course of business consistent with past practice and to an extent
that is not material;
(e) enter into any material lease or contract for
the purchase or sale of any property, real or personal, except in the
ordinary course of business consistent with past practice;
(f) fail to maintain its equipment and other assets
in good working condition and repair according to the standards it has
maintained to the date of this Agreement, subject only to ordinary wear
and tear;
(g) pay any bonus, increased salary or special
remuneration to any officer, employee or consultant (except for normal
salary increases consistent with past prac-
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<PAGE> 20
tices not to exceed 5% per year and except pursuant to existing
arrangements previously disclosed to and approved in writing by Worldtalk)
or enter into any new employment or consulting agreement with any such
person;
(h) change accounting methods;
(i) declare, set aside or pay any cash or stock
dividend or other distribution in respect of capital stock, or redeem or
otherwise acquire any of its capital stock except through a contribution
of stock to Deming in cancellation thereof resulting in the percentage
ownership set forth in Section 1.1 hereof;
(j) amend or terminate any contract, agreement or
license to which it is a party except those amended or terminated in the
ordinary course of business, consistent with past practice, and which are
not material in amount or effect;
(k) lend any amount to any person or entity, other
than advances for travel and expenses which are incurred in the ordinary
course of business consistent with past practice, not material in amount
and documented by receipts for the claimed amounts;
(l) guarantee or act as a surety for any obligation
except for the endorsement of checks and other negotiable instruments in
the ordinary course of business, consistent with past practice, which are
not material in amount or effect;
(m) waive or release any material right or claim;
(n) issue or sell any shares of its capital stock of
any class, or any other of its securities, or issue or create any
warrants, obligations, subscriptions, options, convertible securities, or
other commitments to issue shares of capital stock or accelerate the
vesting of any outstanding security;
(o) split or combine the outstanding shares of its
capital stock of any class or enter into any recapitalization affecting
the number of outstanding shares of its capital stock of any class or
affecting any other of its securities;
(p) merge, consolidate or reorganize with, or
acquire any entity;
(q) amend its Certificate of Incorporation or
Bylaws;
(r) license any of its technology or intellectual
property except in the ordinary course of business consistent with past
practice;
(s) agree to any audit assessment by any tax
authority or file any federal or state income or franchise tax return
unless copies of such returns have been delivered to Worldtalk for its
review prior to filing; or
(t) agree to do, or permit any Subsidiary to do or
agree to do, any of the things described in the preceding clauses 4.3(a)
through 4.3(s).
4.4 REGULATORY APPROVALS. Deming will execute and file, or
join in the execution and filing of, any application or other document that may
be necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign which may be reasonably
required, or which Worldtalk may reasonably request, in connection
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with the consummation of the transactions contemplated by this Agreement.
Deming will use its best efforts to obtain all such authorizations, approvals
and consents.
4.5 NECESSARY CONSENTS. Deming will use its best efforts
to obtain such written consents and take such other actions as may be necessary
or appropriate in addition to those set forth in Section 4.4 to allow the
consummation of the transactions contemplated hereby and to allow Worldtalk to
carry on Deming's business after the Closing.
4.6 LITIGATION. Deming will notify Worldtalk in writing
promptly after learning of any material action, suit, proceeding or
investigation by or before any court, board or governmental agency, initiated
by or against it, or known by it to be threatened against it.
4.7 NO OTHER NEGOTIATIONS. From the date hereof until the
earlier of termination of this Agreement or consummation of the Merger, Deming
will not, and will not authorize or permit any officer, director, employee or
affiliate of Deming, or any other person, on its behalf, directly or
indirectly, to solicit or encourage any offer from any party or, consider any
inquiries or proposals received from any other party, participate in any
negotiations regarding, or furnish to any person any information with respect
to, or otherwise cooperate with, facilitate or encourage any effort or attempt
by any person (other than Worldtalk), concerning the possible disposition of
all or any substantial portion of Deming's business, assets or capital stock by
merger, sale or any other means. Deming will promptly notify Worldtalk orally
and in writing of any such inquiries or proposals.
4.8 ACCESS TO INFORMATION. Until the Closing, Deming will
allow Worldtalk and its agents reasonable access the files, books, records and
offices of Deming, including, without limitation, any and all information
relating to Deming's taxes, commitments, contracts, leases, licenses, real,
personal and intangible property and financial condition. Deming will cause
its accountants to cooperate with Worldtalk and its agents in making available
all financial information reasonably requested, including without limitation
the right to examine all working papers pertaining to all financial statements
prepared or audited by such accountants.
4.9 SATISFACTION OF CONDITIONS PRECEDENT. Deming will use
its best efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Section 8, and Deming will use its best
efforts to cause the transactions contemplated by this Agreement to be
consummated, and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties that may be necessary or reasonably
required on its part in order to effect the transactions contemplated hereby.
4.11 SHAREHOLDER AND EMPLOYMENT AGREEMENTS. Deming shall
obtain from each of the Deming Shareholders an agreement, in form substantially
as attached hereto as Exhibit 4.11A (the "Shareholders' Agreement"). Deming
shall also obtain from each of the Deming Shareholders Employment Agreements in
substantially the form attached hereto as Exhibit 4.11B (the "Employment
Agreements").
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<PAGE> 22
4.12 BLUE SKY LAWS. Deming shall use its best efforts to
assist Worldtalk to the extent necessary to comply with the securities and Blue
Sky laws of all jurisdictions which are applicable in connection with the
Merger.
5. WORLDTALK PRECLOSING COVENANTS. During the period from the date
of this Agreement until the Effective Time, Worldtalk covenants and agrees as
follows:
5.1 ADVICE OF CHANGES. Worldtalk will promptly advise
Deming in writing (a) of any event occurring subsequent to the date of this
Agreement that would render any representation or warranty of Worldtalk
contained in this Agreement, if made on or as of the date of such event or at
the Closing, untrue or inaccurate in any material respect and (b) of any
material adverse change in Worldtalk's business, results of operations or
financial condition.
5.2 REGULATORY APPROVALS. Worldtalk will execute and file,
or join in the execution and filing of, any application or other document that
may be necessary in order to obtain the authorization, approval or consent of
any governmental body, federal, state, local or foreign, which may be
reasonably required, or which Deming may reasonably request, in connection with
the consummation of the transactions contemplated by this Agreement. Worldtalk
will use its best efforts to obtain all such authorizations, approvals and
consents.
5.3 SATISFACTION OF CONDITIONS PRECEDENT. Worldtalk will
use its best efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Section 7, and Worldtalk will use its best
efforts to cause the transactions contemplated by this Agreement to be
consummated, and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties that may be necessary or reasonably
required on its part in order to effect the transactions contemplated hereby.
5.4 BLUE SKY LAWS. Worldtalk shall take such steps as
may be necessary to comply with the securities and Blue Sky laws of all
jurisdictions which are applicable in connection with the Merger.
6. CLOSING MATTERS.
6.1 THE CLOSING. Subject to termination of this Agreement
as provided in Section 9 below, the closing will take place at the offices of
Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California 94306 at 10:00
a.m., Pacific Standard Time on November 12, 1996, or, if all conditions to
closing have not been satisfied or waived by such date, such other place, time
and date as Deming and Worldtalk may mutually select (the "Closing").
Concurrently with the Closing, the Agreement of Merger will be filed in the
office of the Washington Secretary of State. The Merger shall become effective
upon such filing.
6.2 EXCHANGE OF CERTIFICATES.
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<PAGE> 23
6.2.1 As of the Effective Time, all shares of Deming
Stock that are outstanding immediately prior thereto will, by virtue of the
Merger and without further action, cease to exist and will be converted,
subject to Section 1.2, into the right to receive from Worldtalk the number of
shares of Worldtalk Common Stock and cash determined as set forth in Section
1.1.
6.2.2 As soon as practicable after the Effective Time,
each holder of shares of Deming Stock will surrender the certificate(s) for
such shares (the "Deming Certificates"), duly endorsed as requested by
Worldtalk, to Worldtalk for cancellation. Promptly after the Effective Time
and receipt of such Deming Certificates, Worldtalk will issue to each tendering
holder a certificate for the number of shares of Worldtalk Common Stock to
which such holder is entitled pursuant to Section 1.1 hereof, less the shares
of Worldtalk Common Stock deposited into escrow pursuant to Section 1.3 hereof,
and distribute any cash payable under Section 1.2.
6.2.3 No dividends or distributions payable to holders
of record of Worldtalk Common Stock after the Effective Time, or cash payable
in lieu of fractional shares or otherwise, will be paid to the holder of any
unsurrendered Deming Certificate(s) until the holder of the Deming
Certificate(s) surrenders such Deming Certificate(s). Subject to the effect,
if any, of applicable escheat and other laws, following surrender of any Deming
Certificate, there will be delivered to the person entitled thereto, without
interest, the amount of any dividends and distributions therefor paid with
respect to Worldtalk Common Stock so withheld as of any date subsequent to the
Effective Time and prior to such date of delivery.
6.2.4 All Worldtalk Common Stock and cash delivered
upon the surrender of Deming Stock in accordance with the terms hereof will be
deemed to have been delivered in full satisfaction of all rights pertaining to
such Deming Stock. There will be no further registration of transfers on the
stock transfer books of Deming or its transfer agent of the Deming Stock. If,
after the Effective Time, Deming Certificates are presented for any reason,
they will be canceled and exchanged as provided in this Section 6.2.
6.2.5 Until certificates representing Deming Stock
outstanding prior to the Merger are surrendered pursuant to Section 6.2.2
above, such certificates will be deemed, for all purposes, to evidence
ownership of the number of shares of Worldtalk Stock into which the Deming
Stock will have been converted, reduced by the number of shares withheld as
Escrow Shares.
6.2.6 The Cash Payment will be made as specified in
Section 1.1.3 above.
7. CONDITIONS TO OBLIGATIONS OF DEMING. Deming's obligations
hereunder are subject to the fulfillment or satisfaction, on and as of the
Closing, of each of the following conditions (any one or more of which may be
waived by Deming, but only in a writing signed by Deming):
7.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of Worldtalk set forth in Section 3 shall be
true and accurate in every material respect on and as of the Closing with the
same force and effect as if they had been made at the Closing, Worldtalk shall
have performed and complied in all material respects with all of its covenants
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<PAGE> 24
contained in Section 5 on or before the Closing and Deming shall receive a
certificate to such effect executed by Worldtalk's President and Chief
Financial Officer.
7.2 ABSENCE OF MATERIAL ADVERSE CHANGE. There shall not
have been, in the reasonable judgment of the Board of Directors of Deming, any
material adverse change in the business or financial condition of Worldtalk;
provided, however, that a decline in revenues or profitability due to customer
cancellation or delays in orders or delays in accepting orders or failure to
place orders which are attributable to the public announcement or consummation
of the Merger shall not be deemed to be a material adverse change.
7.3 COMPLIANCE WITH LAW. There shall be no order, decree
or ruling by any court or governmental agency, or threat thereof, or any other
fact or circumstance that would prohibit or render illegal the transactions
contemplated by this Agreement.
7.4 EMPLOYMENT AND SHAREHOLDER AGREEMENTS. Worldtalk shall
have entered into the Employment Agreements and the Shareholder Agreement.
7.5 DOCUMENTS. Deming shall have received all written
consents, assignments, waivers, authorizations or other certificates reasonably
deemed necessary by Deming's legal counsel for Deming to consummate the
transactions contemplated hereby.
7.6 CONSENTS. Deming shall have received duly executed
copies of all material third-party consents and approvals contemplated by this
Agreement or the Deming Schedule of Exceptions in form and substance reasonably
satisfactory to Deming, except for such consents and approvals as Worldtalk and
Deming shall have agreed shall not be obtained, as contemplated by the Deming
Schedule of Exceptions.
7.7 NO LITIGATION. No litigation or proceeding shall be
threatened or pending for the purpose or with the probable effect of enjoining
or preventing the consummation of any of the transactions contemplated by this
Agreement, or which could be reasonably expected to have a material adverse
effect on the present or future operations or financial condition of Worldtalk.
8. CONDITIONS TO OBLIGATIONS OF WORLDTALK. The obligations of
Worldtalk hereunder are subject to the fulfillment or satisfaction, on and as
of the Closing, of each of the following conditions (any one or more of which
may be waived by Worldtalk, but only in a writing signed by Worldtalk):
8.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of Deming set forth in Section 2 shall be true
and accurate in every material respect on and as of the Closing with the same
force and effect as if they had been made at the Closing, Deming shall have
performed and complied in all material respects with all of its covenants
contained in Section 4 on or before the Closing and Worldtalk shall receive a
certificate to such effect executed by Deming's President and Chief Financial
Officer.
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<PAGE> 25
8.2 ABSENCE OF MATERIAL ADVERSE CHANGE. There shall not
have been, in the reasonable judgment of the Board of Directors of Worldtalk,
any material adverse change in the business or financial condition of Deming.
8.3 COMPLIANCE WITH LAW. There shall be no order, decree
or ruling by any court or governmental agency, or threat thereof, or any other
fact or circumstance, that would prohibit or render illegal the transactions
contemplated by this Agreement.
8.4 OPINION OF DEMING'S COUNSEL. Worldtalk shall have
received from counsel to Deming, an opinion substantially in the form of
Exhibit 8.4.
8.5 CONSENTS. Worldtalk shall have received duly executed
copies of all material third-party consents, approvals, assignments, waivers,
authorizations or other certificates contemplated by this Agreement or the
Worldtalk Schedule of Exceptions or reasonably deemed necessary by Worldtalk's
legal counsel to provide for the continuation in full force and effect of any
and all material contracts and leases of Deming and for Worldtalk to consummate
the transactions contemplated hereby in form and substance reasonably
satisfactory to Worldtalk, except for such thereof as Worldtalk and Deming
shall have agreed shall not be obtained, as contemplated by the Worldtalk
Schedule of Exceptions.
8.6 CONSENTS OF WORLDTALK BOARD AND REGISTRATION RIGHTS
HOLDERS. Worldtalk shall have received the approval of its Board of Directors
to this Agreement and the transactions contemplated hereby, as well as the
agreement of the current holders of registration rights to waive such rights,
if any, to participate in the S-3 registration rights to be granted to the
Deming Shareholders and to include the Deming Shareholders in the piggyback
registration rights currently applicable to shares of Worldtalk's Common Stock.
8.7 NO LITIGATION. No litigation or proceeding shall be
threatened or pending for the purpose or with the probable effect of enjoining
or preventing the consummation of any of the transactions contemplated by this
Agreement, or which could be reasonably expected to have a material adverse
effect on the present or future operations or financial condition of Deming.
8.8 ESCROW. Worldtalk shall have received an Escrow
Agreement, in substantially the form of Exhibit 1.4, executed by Deming, Robert
D. Dickinson, III, as the Representative for all Deming Shareholders and Harris
Trust and Savings Bank as the Escrow Agent, providing for the escrow of the
Escrow Shares on the terms and conditions of the Escrow Agreement.
8.9 SHAREHOLDER AND EMPLOYMENT AGREEMENTS. Worldtalk shall
have received copies of the Shareholder Agreement and the Employment Agreements
executed by the Deming Shareholders, and any other employment agreements
applicable to the Deming Shareholders shall have been terminated.
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<PAGE> 26
8.10 SATISFACTORY FORM OF LEGAL AND ACCOUNTING MATTERS.
The form, scope and substance of all legal and accounting matters contemplated
hereby and all closing documents and other papers delivered hereunder shall be
acceptable to Worldtalk's counsel.
9. TERMINATION OF AGREEMENT.
9.1 PRIOR TO CLOSING. This Agreement may be terminated at
any time prior to the Closing by the mutual written consent of each of the
parties hereto. Unless otherwise agreed by the parties hereto, this Agreement
will be terminated if all conditions to the Closing have not been satisfied or
waived on or before January 31, 1997.
9.2 AT THE CLOSING. At the Closing, this Agreement may
be terminated and abandoned: (a) by Worldtalk if any of the conditions
precedent to Worldtalk's obligations set forth in Section 8 above have not been
fulfilled or waived at and as of the Closing; or (b) by Deming if any of the
conditions precedent to Deming's obligations set forth in Section 7 above have
not been fulfilled or waived at and as of the Closing. Any termination of this
Agreement under this Section 9.2 will be effective by the delivery of notice of
the terminating party to the other party hereto.
9.3 NO LIABILITY. Any termination of this Agreement
pursuant to this Section 9 will be without further obligation or liability upon
any party in favor of the other party hereto other than the obligations
provided in Sections 10.2 and 11.16 which will survive termination of this
Agreement; provided, however, that nothing herein will limit the obligation of
Deming and Worldtalk to use their best efforts to cause the Merger to be
consummated, as set forth in Sections 4.11 and 5.3 hereof, respectively.
10. SURVIVAL, INDEMNIFICATION, REMEDIES; CONTINUING COVENANTS.
10.1 SURVIVAL OF REPRESENTATIONS. All representations,
warranties and covenants of Worldtalk contained in this Agreement will remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of the parties to this Agreement, until the earlier of the
termination of this Agreement or one (1) year after the Closing Date, whereupon
such representations, warranties and covenants will expire (except for
covenants that by their terms survive for a longer period). Unless otherwise
specified herein, all representations, warranties and covenants of Deming and
the Deming Shareholders will survive the Effective Time and will continue until
the expiration of the period set forth above and covenants that by their terms
survive thereafter will continue to survive in accordance with their terms.
10.2 AGREEMENT TO INDEMNIFY. Subject to the limitations
set forth in this Section 10, the Deming Shareholders, jointly and severally,
hereby indemnify and hold harmless Worldtalk and its officers, directors,
agents and employees, and each person, if any, who controls or may control
Worldtalk within the meaning of the 1933 Act (hereinafter referred to
individually as an "Indemnified Person" and collectively as "Indemnified
Persons") from and against any and all claims, demands, actions, causes of
actions, losses, costs, damages, liabilities and expenses including, without
limitation, reasonable legal fees (hereinafter referred to as "Damages")
arising
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<PAGE> 27
out of any untruth, misrepresentation or breach of, or default in connection
with, any of the representations, warranties and covenants given or made by
Deming in this Agreement or any certificate, document or instrument delivered
by or on behalf of Deming pursuant hereto.
10.2.1 Except as provided for in Section 11.8 below,
the indemnification provided for in this Section 10.2 shall not apply unless
the aggregate Damages for which one or more Indemnified Persons seeks
indemnification exceeds $100,000 (the "Basket"). The escrow provided for in
Exhibit 8.10 hereto is not exclusive but shall be in addition to any other
rights or remedies available to any Indemnified Person.
10.2.2 In seeking indemnification for Damages under
this Section, the Indemnified Persons shall exercise their remedies with
respect to the Escrow Shares and any other assets deposited in escrow pursuant
to the Escrow Agreement prior to proceeding against any Deming Shareholder;
provided, however, that no such claim for Damages will be asserted after the
expiration of one (1) year after the Closing Date. Except for fraud, each
Deming Shareholder's liability under this Agreement shall be limited to the
value as of the Closing of the Worldtalk Common Stock and cash received by such
shareholder, including, without limitation, the value of the Worldtalk Common
Stock deposited in escrow on his behalf.
10.3 ARBITRATION. Any dispute arising out of or in
connection with this Agreement, the Escrow Agreement, the Shareholders'
Agreement, any Employment Agreement or any of the other documents referred to
herein (the "Merger Documents") will be resolved by binding arbitration subject
to the following rules.
10.3.1 Rules; Jurisdiction. Any such dispute shall
be settled pursuant to an arbitration in the County of Santa Clara, California
and, except as herein specifically stated, in accordance with the commercial
arbitration rules of the American Arbitration Association ("AAA Rules") then in
effect, subject to the provisions of Title 9 of the California Code of Civil
Procedure ("Title 9"). To the extent the AAA Rules conflict with, or are
supplemented by, the provisions of Title 9, the provisions of Title 9 shall
govern and be applicable. However, in all events the arbitration provisions of
this Agreement shall govern over any conflicting rules which may now or
hereafter be contained in either the AAA Rules or Title 9. Any judgment upon
the award rendered by the arbitrators may be entered in any court having
jurisdiction of the subject matter thereof. The arbitrators shall have the
authority to grant any claim for damages (other than punitive damages) that
would be available in any judicial proceeding instituted to resolve the dispute
under the Merger Documents. The parties hereto submit to the jurisdiction of
the Superior Court of the State of California and the United States District
Court for the Northern District of California for purposes of obtaining
equitable relief confirming any award for damages and entering into judgment
thereon.
10.3.2 Compensation of Arbitrators. The
arbitrator(s) shall be compensated for his/her/their services at a rate to be
determined by the parties or by the American Arbitration Association, but based
upon reasonable hourly or daily consulting rates for the arbitrator in the
event the parties are not able to agree upon his/her/their rate of
compensation.
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<PAGE> 28
10.3.3 Selection of Arbitrator. The arbitration
shall be conducted before a single arbitrator if Worldtalk and the
Representative agree on a mutually acceptable arbitrator within ten business
days after the receipt by either party of a written suggestion of an arbitrator
from the other party. If Worldtalk and the Representative are unable to agree
on the arbitrator, the arbitration shall be conducted before a panel of three
arbitrators selected in the following manner: each party will deliver to the
other by that date the name of their designated arbitrator. If any party fails
to deliver the name of such designated arbitrator to the other, then the
arbitrator selected by the party that complied with the terms of this Section
10.3.3 will be the sole arbitrator of the dispute. If Worldtalk and the
Representative deliver the name of their designated arbitrator to each other as
required hereunder, such designated arbitrators will, within ten business days
after being so designated, appoint a third, mutually acceptable arbitrator.
10.3.4 Payment of Costs. Each of Worldtalk on the
one hand and the Deming Shareholders on the other hand shall pay one-half (1/2)
of the compensation to be paid to the arbitrator(s) in any such arbitration and
one-half (1/2) of the costs of transcripts and other expenses of the
arbitration proceedings; provided, however, that in the event that the
arbitrator(s) finds that one party has substantially prevailed in the
arbitration, the prevailing party shall be entitled to an award of attorney's
fees and costs, arbitrator's fees and costs, and all other costs of arbitration
to be paid by the losing party.
10.3.5 Burden of Proof. For any claim submitted to
arbitration, the burden of proof shall be as it would be if the claim were
litigated in a judicial proceeding.
10.3.6 Judgment. Upon the conclusion of any
arbitration proceedings hereunder, the arbitrator(s) shall render findings of
fact and conclusions of law and a written opinion setting forth the basis and
reason for any decision reached by him or her and shall deliver such documents
to each party to this Agreement along with a signed copy of the award in
accordance with Section 1283.6 of Title 9.
10.3.7 Intentionally Left Blank.
10.3.8 Exclusive Remedy; Equitable Relief. Except
as specifically provided in this Agreement, arbitration shall be the sole and
exclusive remedy of the parties for any dispute arising out of or in connection
with this Agreement or the agreements and documents referred to in this Section
10.3 above. Notwithstanding the provisions of this Section 10.3, either party
may resort to the U.S. District Court for the Northern District of California
to seek and obtain relief through equitable remedies.
10.3.9 Attorneys' Fees. Should suit be brought in
accordance with the terms of this Agreement to enforce or interpret any part of
the Merger Documents, the prevailing party will be entitled to recover, as an
element of the costs of suit and not as damages, reasonable attorneys' fees to
be fixed by the court (including without limitation, costs, expenses and fees
on any appeal). The prevailing party will be entitled to recover its costs of
suit, regardless of whether such suit proceeds to final judgment.
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11. GENERAL PROVISIONS.
11.1 GOVERNING LAW. The internal laws of the State of
California (irrespective of its choice of law principles) will govern the
validity of this Agreement, the construction of its terms and the
interpretation and enforcement of the rights and duties of the parties hereto.
11.2 ASSIGNMENT; BINDING UPON SUCCESSORS AND ASSIGNS.
Neither party hereto may assign any of its rights or obligations hereunder
without the prior written consent of the other party hereto. This Agreement
will be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
11.3 SEVERABILITY. If any provision of this Agreement, or
the application thereof, will for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of the void or unenforceable provision.
11.4 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which will be an original as regards any party
whose signature appears thereon and all of which together will constitute one
and the same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures
of all parties reflected hereon as signatories.
11.5 OTHER REMEDIES. Except as otherwise provided herein,
any and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby or by
law on such party, and the exercise of any one remedy will not preclude the
exercise of any other.
11.6 AMENDMENT AND WAIVERS. Any term or provision of this
Agreement may be amended, and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either
retroactively or prospectively) only by a writing signed by the party to be
bound thereby. The waiver by a party of any breach hereof or default in the
performance hereof will not be deemed to constitute a waiver of any other
default or any succeeding breach or default. The Agreement may be amended by
the parties hereto at any time before or after approval of the Deming
Shareholders, but, after such approval, no amendment will be made which by
applicable law requires the further approval of the Deming Shareholders without
obtaining such further approval.
11.7 NO WAIVER. The failure of any party to enforce any
of the provisions hereof will not be construed to be a waiver of the right of
such party thereafter to enforce such provisions.
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<PAGE> 30
11.8 EXPENSES. Each party will bear its respective
expenses and legal fees incurred with respect to this Agreement and the
transactions contemplated hereby; provided, however, that if the Merger is
consummated, Deming may pay promptly the reasonable legal and accounting fees
and expenses incurred by Deming in this transaction, not to exceed in the
aggregate $38,000. Any such fees and expenses of Deming in excess of that
amount shall be recoverable by Worldtalk on Deming's behalf from the Escrow
Shares in accordance with Section 10.2 and without regard to the Basket.
11.9 NOTICES. Any notice or other communication required
or permitted to be given under this Agreement will be in writing, will be
delivered personally or by certified mail, postage prepaid, return receipt
requested, and will be deemed given upon delivery, if delivered personally, or
three days after deposit in the mails, if mailed, to the following addresses:
If to Worldtalk and/or Newco:
Worldtalk Communications Corporation
5155 Old Ironsides Drive
Santa Clara, California 95054
Attention: President
If to Deming and/or the Deming Shareholders:
Deming Software, Inc.
13122 NE 20th Street, Suite C
Bellevue, Washington 98005
Attention: President
or to such other address as a party may have furnished to the other parties in
writing pursuant to this Section 11.10.
11.10 CONSTRUCTION OF AGREEMENT. This Agreement has been
negotiated by the respective parties hereto and their attorneys and the
language hereof will not be construed for or against either party. A reference
to a Section or an exhibit will mean a Section in, or exhibit to, this
Agreement unless otherwise explicitly set forth. The titles and headings
herein are for reference purposes only and will not in any manner limit the
construction of this Agreement, which will be considered as a whole.
11.11 NO JOINT VENTURE. Nothing contained in this
Agreement will be deemed or construed as creating a joint venture or
partnership between any of the parties hereto. No party is by virtue of this
Agreement authorized as an agent, employee or legal representative of any other
party. No party will have the power to control the activities and operations
of any other and their status is, and at all times will continue to be, that of
independent contractors with respect to each other. No party will have any
power or authority to bind or commit any other. No party will hold itself out
as having any authority or relationship in contravention of this Section.
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11.12 FURTHER ASSURANCES. Each party agrees to cooperate
fully with the other parties and to execute such further instruments, documents
and agreements and to give such further written assurances as may be reasonably
requested by any other party to evidence and reflect the transactions described
herein and contemplated hereby and to carry into effect the intents and
purposes of this Agreement.
11.13 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No
provisions of this Agreement are intended, nor will be interpreted, to provide
or create any third party beneficiary rights or any other rights of any kind in
any client, customer, affiliate, shareholder or partner of any party hereto or
any other person or entity unless specifically provided otherwise herein, and,
except as so provided, all provisions hereof will be personal solely among the
parties to this Agreement.
11.14 PUBLIC ANNOUNCEMENT. Upon execution of this
Agreement Worldtalk and Deming will issue a press release approved by both
parties announcing the Merger. Thereafter, Worldtalk may issue such press
releases, and make such other disclosures regarding the Merger, as it
determines are required under applicable securities laws or regulatory rules.
11.15 CONFIDENTIALITY. Deming and Worldtalk each recognize
that they have received and will receive confidential information concerning
the other during the course of the Merger negotiations and preparations.
Accordingly, Worldtalk and Deming each agrees (a) to use its respective best
efforts to prevent the unauthorized disclosure of any confidential information
concerning the other that was or is disclosed during the course of such
negotiations and preparations, and is clearly designated in writing as
confidential at the time of disclosure, and (b) to not make use of or permit to
be used any such confidential information other than for the purpose of
effectuating the Merger and related transactions. The obligations of this
Section will not apply to the extent the receiving party can document that such
information (i) is part of the public domain, having entered the public domain
without the fault of receiving party or its officers, directors or agents, (ii)
is disclosed by the disclosing party to third parties without restrictions on
disclosure or (iii) is received by the receiving party from a third party
without breach of a nondisclosure obligation to the other party. If this
Agreement is terminated, all copies of documents containing confidential
information shall be returned by the receiving party to the disclosing party.
11.16 ENTIRE AGREEMENT. This Agreement and the exhibits
hereto constitute the entire understanding and agreement of the parties hereto
with respect to the subject matter hereof and supersede all prior and
contemporaneous agreements or understandings, inducements or conditions,
express or implied, written or oral, between the parties with respect hereto.
The express terms hereof control and supersede any course of performance or
usage of the trade inconsistent with any of the terms hereof.
- 30 -
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
"WORLDTALK" "DEMING"
WORLDTALK COMMUNICATIONS DEMING SOFTWARE, INC. CORPORATION
BY: /s/ STEPHEN R. BENNION BY: /s/ ROBERT D. DICKINSON, III
------------------------------- -----------------------------
VICE PRESIDENT, FINANCE AND
OPERATIONS, CHIEF FINANCIAL
ITS: OFFICER AND SECRETARY ITS: PRESIDENT
------------------------------- -----------------------------
"DEMING SHAREHOLDERS"
/s/ RONALD J. CRASWELL /s/ ROBERT D. DICKINSON, III
- ------------------------------------ ----------------------------------
RONALD J. CRASWELL ROBERT D. DICKINSON, III
/s/ DAVID S. PRATT, JR. /s/ BLAKE C. RAMSDELL
- ------------------------------------ ----------------------------------
DAVID S. PRATT, JR. BLAKE C. RAMSDELL
LIST OF EXHIBITS AND ATTACHMENTS
<TABLE>
<CAPTION>
EXHIBIT NUMBER TITLE
- -------------- -----------------------
<S> <C>
A Agreement of Merger
1.3 The Escrow Agreement
2.0 Deming Schedule of Exceptions
2.3 List of Deming Shareholders
2.8 Deming Financial Statements
3.0 Worldtalk Schedule of Exceptions
4.11A Form of Employment Agreements
4.11B The Shareholder Agreement
8.4 Opinion of Deming's Counsel
</TABLE>
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF NOVERMBER 9, 1996]
- 31 -
<PAGE> 33
Exhibit 2.0: Deming Schedule of Exceptions
<PAGE> 34
Exhibit 2.0
SCHEDULE OF EXCEPTIONS
DEMING SOFTWARE, INC. (THE "COMPANY")
Any disclosures made under the heading of one section of this Schedule may
apply to and/or qualify disclosures made under one or more other sections.
Unless otherwise defined, any capitalized terms in this Schedule shall have the
same meanings assigned to such terms in the Agreement and Plan of
Reorganization entered into as of November 9, 1996 by and among Worldtalk
Communications Corporation, the Company and the Company's shareholders.
Nothing in this Schedule constitutes an admission of any liability or
obligation of the Company to any third party, nor an admission against the
Company's interests.
Section 2.5 [** ]
Section 2.8 Off balance sheet liabilities, except in the ordinary course
of business are an approximately $38,000 payment due to RSA
Data Security, Inc., and an approximately $4,000 payment due
to Kaufer Miller, both of which are reflected in the notes
to the financial statements.
Section 2.11 1. A Software License Agreement between the Company and FTP
Software, dated as of August 22, 1996, grants FTP certain
non- exclusive rights to the Secure Messenger Toolkit.
2. An OEM Master License Agreement between the Company and
RSA Data Security, Inc., dated as of December 29, 1995 and
January 8, 1996, grants the Company a license to use BSAFE
and TIPEM.
3. An agreement between the Company and Secure
Distribution, Inc., dated as of April 25, 1996, grants
certain exclusive and non-exclusive distribution rights to
Secure Distribution. [** ]
4. Non-reimbursable Space Act Agreement between Nasa Ames
Research Center and Deming Software for Secure E-mail
collaboration, between the Company and Ames Research Center,
dated August 19, 1996.
5. An Entrust Software Evaluation Agreement between
Northern Telecom and the Company, dated as of July 29, 1996,
expires in one month.[** ]
Section 2.14 Robert Dickinson and his wife, Kathy Dickinson, are both
signatories to, and guarantors of, the Company's Plaza 520
lease (discussed below).
Section 2.15.3 1. Employment Agreement between the Company and Robert
Dickinson, dated as of December 12, 1995.
** Confidential treatment has been requested for this portion.
<PAGE> 35
2. Employment Agreement between the Company and Ronald
Craswell, dated as of December 12, 1995.
3. Employment Agreement between the Company and David
Pratt, Jr., dated as of December 12, 1995.
4. Employment Agreement between the Company and Blake
Ramsdell, dated as of December 12, 1995.
Section 2.18(a) 1. See Section 2.11.
2. Subscription Agreement between the Company and American
United Global, Inc., dated as of August 16, 1996.
Section 2.18(b) 1. Software License Agreement between the Company and FTP
Software, dated as of August 22, 1996, granting FTP certain
non- exclusive rights to the Secure Messenger Toolkit.
2. OEM Master License Agreement between the Company and RSA
Data Security, Inc., dated as of December 29, 1995 and
January 8, 1996, granting the Company a license to use BSAFE
and TIPEM.
3. Agreement between the Company and Secure Distribution,
Inc., dated as of April 25, 1996, granting certain exclusive
and non-exclusive distribution rights to Secure
Distribution. [** ]
4. Software Integration and Technology License Agreement
for SDK Software between the Company and America Online
Inc., dated as of March 11, 1996, granting the Company the
right to use certain AOL software in order to develop a
software product that interfaces with the AOL service. [**]
Section 2.18(c) Lease between Robert Dickinson III and Kathy Dickinson,
d.b.a. Deming Software, Inc., and Peter T. Jouflas, dated as
of February 10, 1996, for property located at 13122 N.E.
20th Street, Bellevue, Washington 98005. Monthly rent is
$2,983.33, plus operating expenses. Mr. and Mrs. Dickinson
are guarantors of the lease pursuant to a guaranty executed
by them on February 10, 1996.
Section 2.18(d) 1. The agreement with Secure Distribution provides for
sharing of profits. [** ]
2. The agreement with AOL provides for sharing of revenues
related to integrated products developed by the Company.
Section 2.18(e) The Company has entered Demand Promissory Notes ("Notes")
with each of Ronald Craswell, David Pratt, Jr., and Blake
Ramsdell. Each of the Notes is dated as of May 9, 1996, for
$1,000.00, with interest at 8% per annum. Craswell, Pratt
and Ramsdell have been informed that these Notes will be
called due in connection with the Acquisition.
** Confidential treatment has been requested for this portion.
<PAGE> 36
Section 2.18(f) 1. The agreement with Secure Distributions contains certain
exclusive rights. [** ]
2. A Software Development and Consulting Agreement, between
the Company and Vista Development Corporation ("Vista"),
dated December 21, 1995, Vista to provide consulting and
software development to the Company contains an agreement by
the Company not to hire any officer, employee, shareholder,
consultant, independent contractor, present or former
employee, independent contractor, consultant, etc., of Vista
or Raima Corporation for two years after the Company's last
payment to Vista for services provided under this agreement.
** Confidential treatment has been requested for this portion.
<PAGE> 37
Exhibit 2.3: List of Deming Shareholders
<PAGE> 38
EXHIBIT 2.3
DEMING SOFTWARE, INC. SHAREHOLDERS
<TABLE>
<CAPTION>
SHAREHOLDER NAME SHARES OF COMMON STOCK
---------------- ----------------------
<S> <C>
Ronald J. Craswell 100,000
Robert D. Dickinson, III 195,000
David S. Pratt, Jr. 100,000
Blake C. Ramsdell 100,000
Total: 495,000
</TABLE>
<PAGE> 39
Exhibit 2.8: Deming Financial Statements
<PAGE> 40
DEMING SOFTWARE, INC.
PROFIT AND LOSS
JANUARY 1 THROUGH MAY 8, 1996
<TABLE>
<CAPTION>
Jan. 1 - May 8, '96
--------------------------
<S> <C> <C>
Ordinary Income/Expense
Income
Consulting Income 369,152.56
Reimbursed Expenses 7,014.13
-----------
Total Income 376,166.69
Expense
Bank Service Charges
Wire Fee 129.00
Bank Service Charges - Other 70.87
---------
Total Bank Service Charges 199.87
Contractor Services 126,624.98
Equipment Rental 2,320.89
Insurance
Dental Insurance 493.60
Health Insurance 3,013.56
Insurance - Other 5,316.12
---------
Total Insurance 8,823.28
Miscellaneous 19,938.12
Office Supplies 200.15
Postage and Delivery 21.00
Printing and Reproduction 530.05
Professional Fees
Public Relations 4,421.55
---------
Total Professional Fees 4,421.55
Rent 12,752.97
Telephone
Internet Access 1,600.00
Telephone - Other 2,584.67
---------
Total Telephone 4,184.67
Travel & Entertainment 7,014.13
Utilities
Gas and Electric 401.60
---------
Total Utilities 401.60
-----------
Total Expense 187,433.26
-----------
Net Ordinary Income 188,733.43
Other Income/Expense
Other Income
Interest Income 24.59
-----------
Total Other Income 24.59
-----------
Net Other Income 24.59
-----------
Net Income 188,758.02
===========
</TABLE>
- 1 -
<PAGE> 41
DEMING SOFTWARE, INC.
PROFIT AND LOSS
MAY 9 THROUGH NOVEMBER 8, 1996
<TABLE>
<CAPTION>
May 9 - Nov. 8, '96
--------------------------
<S> <C> <C>
Ordinary Income/Expense
Income
Consulting Income 9,835.00
Other Regular Income 150,100.00
Reimbursed Expenses 0.00
-----------
Total Income 159,935.00
Expense
Bank Service Charges
Account Setup 445.00
Bank Service Charges - Other 97.75
---------
Total Bank Service Charges 542.75
Dues and Subscriptions 312.95
Insurance
Dental Insurance 1,480.80
Health Insurance 9,040.68
Insurance - Other 5,565.00
---------
Total Insurance 16,086.48
Licenses and Permits 2,364.78
Miscellaneous 1,359.22
Office Supplies 83.93
Payroll Expenses 226,199.17
Postage and Delivery 322.13
Printing and Reproduction 246.04
Professional Fees
Accounting 2,125.00
Legal Fees 8,407.80
Public Relations 12,926.02
---------
Total Professional Fees 23,458.82
Rent 22,698.31
Taxes 3,519.06
Telephone
Internet Access 2,900.00
Telephone - Other 7,516.25
---------
Total Telephone 10,416.25
Travel & Ent
Meals 14.56
Travel & Ent - Other 7,492.96
---------
Total Travel & Ent 7,507.52
Utilities
Gas and Electric 1,008.47
---------
-----------
Total Utilities 1,008.47
-----------
Total Expense 316,125.88
-----------
Net Ordinary Income -156,190.88
-----------
Net Income -156,190.88
===========
</TABLE>
- 2 -
<PAGE> 42
DEMING SOFTWARE, INC.
PROFIT AND LOSS
JANUARY 1 THROUGH NOVEMBER 8, 1996
<TABLE>
<CAPTION>
Jan. 1 - Nov. 8, 1996
--------------------------
<S> <C> <C>
Ordinary Income/Expense
Income
Consulting Income 378,987.56
Other Regular Income 150,100.00
Reimbursed Expenses 7,014.13
----------
Total Income 536,101.69
Expense
Bank Service Charges
Account Setup 445.00
Wire Fee 129.00
Bank Service Charges - Other 168.62
---------
Total Bank Service Charges 742.62
Contractor Services 126,624.98
Dues and Subscriptions 312.95
Equipment Rental 2,320.89
Insurance
Dental Insurance 1,974.40
Health Insurance 12,054.24
Insurance - Other 10,881.12
---------
Total Insurance 24,909.76
Licenses and Permits 2,364.78
Miscellaneous 21,297.34
Office Supplies 284.08
Payroll Expenses 226,199.17
Postage and Delivery 343.13
Printing and Reproduction 776.09
Professional Fees
Accounting 2,125.00
Legal Fees 8,407.80
Public Relations 17,347.57
---------
Total Professional Fees 27,880.37
Rent 35,451.28
Taxes 3,519.06
Telephone
Internet Access 4,500.00
Telephone - Other 10,100.92
Total Telephone 14,600.92
Travel & Ent
Meals 14.56
Travel & Ent - Other 14,507.09
---------
Total Travel & Ent 14,521.65
Utilities
Gas and Electric 1,410.07
---------
----------
Total Utilities 1,410.07
----------
Total Expense 503,559.14
----------
Net Ordinary Income 32,542.55
----------
Other Income/Expense
Other Income
Interest Income 24.59
----------
Total Other Income 24.59
----------
Net Other Income 24.59
----------
Net Income 32,567.14
==========
</TABLE>
- 3 -
<PAGE> 43
DEMING SOFTWARE, INC.
BALANCE SHEET
AS OF NOVEMBER 5, 1996
<TABLE>
<CAPTION>
November 5, 1996
----------------
<S> <C>
ASSETS
Current Assets
Checking/Savings
Business Checking 37,107.18
Personal Checking 153.22
----------
Total Checking/Savings 37,260.40
Other Current Assets
Prepaid Royalties 15,000.00
Software Maintenance 5,000.00
----------
Total Other Current Assets 20,000.00
Total Current Assets 57,260.40
Fixed Assets
Equipment 72,617.26
Fixed Assets 1,077.48
Investment 7,995.00
----------
Total Fixed Assets 81,689.74
Other Assets
Deposit 3,000.00
Organization Costs 295.00
----------
Total Other Assets 3,295.00
TOTAL ASSETS 142,245.14
==========
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Other Current Liabilities
Shareholder Loans 100.00
----------
Total Other Current Liabilities 100.00
----------
Total Current Liabilities 100.00
Long Term Liabilities
Loan Payable 75,000.00
----------
Total Long Term Liabilities 75,000.00
----------
Total Liabilities 75,100.00
Equity
Net Income 67,145.14
----------
Total Equity 67,145.14
TOTAL LIABILITIES & EQUITY 142,245.14
==========
</TABLE>
- 4 -
<PAGE> 44
DEMING SOFTWARE, INC.
Notes to financial statements (11/5/96):
1. All amounts are preliminary, and none have been reviewed by our
accountants.
2. No categorization of expenses reported here has been reviewed by our
accountants.
3. All numbers here are on a cash basis, not an accrual basis. Also, there
are several cashless transactions and future commitments that are not
represented here.
# There is an outstanding payable to RSA Data Security for roughly $35,000
for trade show participation. This payment has been deferred to
November 30, 1996. We also have a commitment to RSA Place at Fall
COMDEX, which is an additional $10,000 due in January of 1997. We also
have a commitment to legal consulting services (crypto distribution and
export) that will total an additional $4,000.
# On May 9th, 1996, the company received promissory notes from Mr. Pratt,
Mr. Ramsdell and Mr. Craswell in the amount of $1,000 each as payment
for their shares in the company.
# Based on the contemplated redemption plan, Mr. Dickinson will hold a
promissory note issued by the company in the amount of $120,000.
# There is still $100,000 of income to be earned and recognized under the
FTP Software license agreement. $50,000 is based on our delivery of a
final version of the Secure Messenger Toolkit (with requested API's) and
$50,000 is due upon initial external release (including any public test
release) by FTP Software of any product that uses the toolkit.
# Excise tax returns are currently being prepared for August and September,
and should total between $5,000 and $10,000.
# There are very probably employee expenses that have not yet been
submitted on expense reports. This amount should be less than $5,000 (as
expense reports are submitted regularly and there have been no long-term
deferrals of expense reimbursements).
4. Our payroll for the month of October will be processed on November 6th and
distributed on November 7th at a total expense of approximately $35,000.
5. All current employees of Deming were employed as independent contractors
from December 12, 1995 to April 30, 1996. $126,624.98 was paid over that
period, and is classified as "Contractor Services" on our income statement.
The company will be required to issue 1099 income statements at year end
for tax purposes.
- 5 -
<PAGE> 45
Exhibit 3.0: Worldtalk Schedule of Exceptions
<PAGE> 46
Exhibit 3.0
SCHEDULE OF EXCEPTIONS
WORLDTALK COMMUNICATIONS CORPORATION (THE "COMPANY")
Any disclosures made under the heading of one section of this Schedule may
apply to and/or qualify disclosures made under one or more other sections.
Unless otherwise defined, any capitalized terms in this Schedule shall have the
same meanings assigned to such terms in the Agreement and Plan of
Reorganization entered into as of November 9, 1996 by and among Worldtalk
Communications Corporation, the Deming Software, Inc. ("Deming") and Deming's
shareholders. Nothing in this Schedule constitutes an admission of any
liability or obligation of the Company to any third party, nor an admission
against the Company's interests.
Section 3.3 1. Consent of General Bank to enter this Agreement is
required by the Company.
2. Consent of certain of the Company's shareholders is
required to amend the Third Amended and Restated
Registration Rights Agreement to add the Deming shareholders
as parties entitled to piggyback registration rights.
<PAGE> 47
Exhibit 8.4: Opinion of Deming's Counsel
<PAGE> 48
[FOSTER PEPPER & SHEFELMAN LETTERHEAD]
November 12, 1996
Worldtalk Communications Corporation
5155 Old Ironsides Drive
Santa Clara, California 95054
Re: Agreement and Plan of Reorganization between Worldtalk
Communications Corporation ("Worldtalk") and Deming Software,
Inc.
Ladies and Gentlemen:
We have acted as counsel to Deming Software, Inc., a Washington
corporation ("Deming"), in connection with the transactions contemplated by the
Agreement and Plan of Reorganization dated November 9, 1996 between Worldtalk
Communications Corporation and Deming (the "Agreement"). This opinion is
provided pursuant to Section 8.4 of the Agreement. Capitalized terms not
otherwise defined herein shall have the meanings given them in the Agreement.
I.
In connection with this opinion, we have examined the Agreement
(including the Exhibits and Schedules thereto), the Deming Ancillary Documents
(as defined below), including without limitation the Shareholders' Agreement
dated November 12, 1996 among Worldtalk, Deming and the Deming Shareholders
(the "Shareholders' Agreement"), and the Employment Agreements between
Worldtalk and each of the Deming Shareholders (the "Employment Agreements"),
and such other agreements, instruments, certificates, documents and records of
Deming and Newco as we have deemed necessary for purposes of this opinion.
As to certain questions of fact material to the following opinions, we
have relied upon certificates of public officials and upon representations of
officers of Deming, without independently verifying the accuracy of such
representations.
Where we render an opinion "to our knowledge," our opinion is based
solely upon (i) the conscious awareness of facts or other information, after
reasonable investigation, by the attorneys within the firm who have had active
involvement in representing Deming, provided that reasonable investigation
shall not include a canvass of all lawyers in the firm or a search of all the
firm's files, and (ii) written certifications of officers of Deming.
<PAGE> 49
Worldtalk Communications Corporation
November 12, 1996
Page 2
II.
In connection with the opinions expressed in this letter, we have made
the following assumptions, without making any inquiry into the reasonableness
or validity thereof:
(a) The genuineness of all signatures, authenticity of all
documents provided to us as originals, and the conformity of the authentic
original documents to all documents provided to us as certified, conformed or
photostatic copies or as drafts.
(b) The legal capacity of all individuals executing documents in
their individual capacity or on behalf of the parties to the Agreement.
(c) All parties to the Agreement and the Deming Ancillary
Agreements (as defined below) other than Deming and Worldtalk Merger Corp., a
Washington corporation ("Newco"), have all requisite power and authority and
have taken all necessary action to execute and deliver such agreements and to
effect the transactions contemplated thereby.
(d) The Agreements and the Deming Ancillary Agreements constitute
the valid and binding obligations of, and are enforceable against, each of the
parties thereto other than Deming and the Deming Shareholders.
III.
Based upon the foregoing, and subject to the further qualifications
set forth below, we are of the opinion that:
1. Deming is a corporation duly organized and validly existing
under the laws of the state of Washington. Deming has the requisite corporate
power and authority to execute and enter into the Agreement, and all agreements
and instruments to which Deming is a party or which Deming has executed
pursuant to the Agreement (the "Deming Ancillary Agreements") and to perform
its obligations thereunder. Deming has the requisite corporate power and
authority to own and operate its properties and assets and carry on its
business as currently conducted.
2. To our knowledge, Deming does not currently own or control,
directly or indirectly, any interest in any other corporation, partnership,
trust, joint venture, association or other entity, except as disclosed on the
Schedule of Exceptions attached to the Agreement.
3. Deming is qualified as a foreign corporation in each
jurisdiction in which a failure to be so qualified could reasonably be expected
to have a material adverse effect on its present or expected operations or
financial condition.
<PAGE> 50
Worldtalk Communications Corporation
November 12, 1996
Page 3
4. The Agreement of Merger has been duly adopted by all necessary
corporate action on the part of Deming. The execution, delivery and
performance of the Agreement and each of the Deming Ancillary Agreements by
Deming has been duly authorized by all requisite corporate action of Deming.
The Agreement and each of the Deming Ancillary Agreements has been duly
executed and delivered on behalf of Deming and the Deming Shareholders.
5. The Shareholders Agreement and the Employment Agreements
constitute the valid and binding obligations of Deming and the Deming
Shareholders who are party thereto, enforceable against Deming and such Deming
Shareholders in accordance with their terms; provided that we render no
opinion as to the enforceability of the Non-Competition provision set forth in
Section 1 of the Shareholders' Agreement to the extent such enforceability is
based upon the reasonableness of the provision as to scope, duration or
geographical extent of the activities restricted. We advise you further that
as a general rule, if a Washington court were to determine, in an action
brought to enforce the Non-Competition Provisions against the Deming
Shareholders, that any provision thereof was unreasonable, the court would not
hold that such provision was unenforceable in its entirety, but instead would
construe such provision to contain only such terms as the court determined were
reasonable under the circumstances and would enforce such provision to such
extent. The Agreement and each of the Deming Ancillary Agreements (other than
the Shareholders Agreement) constitutes the valid and binding obligation of
Deming and each of the Deming Shareholders, enforceable against Deming and each
of the Deming Shareholders in accordance with its terms.
6. Newco is a corporation duly incorporated and validly existing
under the laws of the state of Washington. Newco has the requisite corporate
power and authority to execute and enter into the all agreements and
instruments to which Newco is a party or which Newco has executed pursuant to
the Agreement (the "Newco Instruments") and to perform its obligations
thereunder.
7. The Agreement of Merger has been duly adopted by all necessary
corporate action on the part of Newco. The execution, delivery and performance
of the Newco Instruments has been duly authorized by all requisite corporate
action of Newco.
8. The execution, delivery and performance of the Agreement and
the Deming Ancillary Agreements by Deming do not conflict with or violate any
federal or state law, rule or regulation, or any provision of the Articles of
Incorporation or bylaws of Deming, or to our knowledge, any judgment, order or
decree of any court or arbitrator to which Deming is a party or is subject. To
our knowledge, except as disclosed on the Schedules of Exceptions attached to
the Agreement, the consummation of the merger contemplated by the Agreement
(the "Merger") will not require the consent of any third party.
9. The authorized capital stock of Deming consists of 26,000,000
shares of Common Stock, $0.0001 par value, of which 495,000 shares are issued
and outstanding immediately
<PAGE> 51
Worldtalk Communications Corporation
November 12, 1996
Page 4
before the Merger, and 24,000,000 shares of Preferred Stock, $0.0001 par value,
none of which are issued and outstanding. All issued and outstanding shares of
Deming capital stock have been duly authorized and validly issued, are fully
paid and nonassessable, have been offered, issued, sold and delivered by Deming
in compliance with all registration or qualification requirements (or
applicable exemptions therefrom) of applicable federal and state securities
laws and, to our knowledge, are not subject to any right of rescission. To our
knowledge, there are not outstanding any options, warrants, rights (including
conversion or preemptive rights) or agreements for the purchase or acquisition
from Deming of any shares of its capital stock or any securities convertible
into or ultimately exchangeable or exercisable for any shares of Deming's
capital stock. To our knowledge, there are no voting agreements, rights of
first refusal or other restrictions (other than normal restrictions on transfer
under applicable federal and state securities laws) applicable to any of
Deming's outstanding shares of capital stock.
10. To our knowledge, there is no suit, action or proceeding
against Deming now pending before any court or administrative agency, nor, to
our knowledge, is there any suit, action or proceeding overtly threatened in
writing against Deming, which if determined adversely to Deming would, either
individually or in the aggregate, result in any material adverse change in the
business, prospects, financial condition or assets of Deming or in any material
liability of Deming.
11. No filing, authorization or approval, governmental or
otherwise, is necessary to enable Deming to enter into, and to perform its
obligations under, the Agreement and the Deming Ancillary Agreements, except
for (a) the filing of the Agreement of Merger with the Washington Secretary of
State and the filing of appropriate documents with the relevant authorities of
other states in which Deming is qualified to do business, if any, and (b) such
filings as may be required to comply with federal and state securities laws.
Upon the filing of the Agreement and Plan of Merger with the Secretary of State
of the State of Washington, the Merger will be effective under Washington law.
IV.
In addition to the qualifications, assumptions and other limitations
set forth above, and without limiting the effect of such qualifications,
assumptions and other limitations, our opinion is further qualified as follows:
(a) Enforcement of remedies may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, or
similar laws affecting the enforcement of creditors' rights generally and
subject to equitable principles (whether such enforcement is considered in a
proceeding in equity or at law). Without limiting the foregoing, we express no
opinion as to the availability of equitable remedies such as specific
performance or injunctive relief.
<PAGE> 52
Worldtalk Communications Corporation
November 12, 1996
Page 5
(b) The courts of the state of Washington will consider extrinsic
evidence of circumstances surrounding the making of the Agreement and the
Ancillary Agreements to ascertain the intent of the parties in using the
language employed in such agreements, regardless of whether or not the language
used in such agreements is plain and unambiguous on its face, and may
incorporate additional or supplementary terms into such agreements.
(c) We call to your attention that, under Washington law, where a
provision of a contract permits one party to the contract to recover attorneys'
fees, such provision will be construed to permit the prevailing party in any
action to enforce the contract to recover its reasonable attorneys' fees.
(d) With respect to the second sentence of paragraph 5, we have
assumed that the Agreement and each of the Deming Ancillary Agreements (other
than the Shareholders Agreement and the Employment Agreements) are governed by
the internal laws of the State of Washington, and we render no opinion
regarding the enforceability of the choice of law provisions of such
agreements.
(e) With respect to paragraph 7, we have assumed that the officers
of Worldtalk who have executed instruments on behalf of Worldtalk in its
capacity as the sole shareholder of Newco, or in their individual capacities as
Directors of Newco, are thereunto duly authorized by Worldtalk.
V.
The opinions expressed in this letter are solely with respect to the
federal laws of the United States and the laws of the state of Washington.
The foregoing opinion is being delivered solely to you in connection
with the execution and delivery of the Agreement and may not be relied on by
you for any other purpose or by any other person for any purpose without our
written consent.
Very truly yours,
FOSTER PEPPER & SHEFELMAN
<PAGE> 1
EXHIBIT 2.02
Agreement and Plan of Merger dated as of November 12, 1996 by and
between Worldtalk Merger Corporation and Deming Software, Inc.
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
OF
WORLDTALK MERGER CORPORATION, A WASHINGTON CORPORATION
INTO
DEMING SOFTWARE, INC., A WASHINGTON CORPORATION
This Agreement and Plan of Merger is made by and between Worldtalk
Merger Corporation, a Washington corporation ("Worldtalk MC"), and Deming
Software, Inc., a Washington corporation ("Deming"). Worldtalk MC proposes to
merge with and into Deming, with Deming being the surviving corporation. The
Boards of Directors and shareholders of both Worldtalk MC and Deming have
approved the merger upon the terms set forth herein and have authorized the
execution hereof.
NOW THEREFORE, the parties agree as follows:
1. MERGER. Upon the terms of this Agreement and Plan of Merger,
on the Effective Date (as defined below) in accordance with the Washington
Business Corporation Act, Worldtalk MC shall be merged with and into Deming
(the "Merger") and the separate existence of Worldtalk MC shall thereupon
cease. Deming shall be the surviving corporation in the Merger (hereinafter
sometimes referred to as the "Surviving Corporation").
2. EFFECTIVE DATE. The Merger shall become effective as of the
date of the filing of the articles of merger and this Agreement, pursuant to
RCW 23B.11.050, with the Secretary of State of the State of Washington (the
"Effective Date").
3. CONVERSION OF SHARES. On the Effective Date:
3.1 Conversion of Worldtalk MC Shares. Each share of
common stock of Worldtalk MC that is outstanding immediately prior to the
Effective Date shall be converted to one share of Common Stock, $.0001 par
value, of Deming ("Deming Stock").
3.2 Exchange of Deming Common Stock. Holders of shares
of Deming Stock ("Deming Shareholders") issued and outstanding immediately
prior to the Effective Date will receive the following in exchange for all of
their shares of Deming Stock:
(a) an aggregate cash payment to all of such
shareholders of $225,000 (the "Cash Payment"), plus
(b) a number of fully paid and nonassessable
shares of Common Stock, $.01 par value, of Worldtalk Communications
Corporation ("Worldtalk"), a Delaware corporation that is the parent
of Worldtalk MC ("Worldtalk Common Stock"), that is determined by
dividing the amount of the Cash Payment by the Average Price (defined
below) of the Worldtalk Common Stock and then subtracting the quotient
obtained from the number of Initial Shares (the "Stock Payment").
<PAGE> 3
For purposes of this calculation, the "Average Price" will mean the average of
the closing sale prices of Worldtalk's Common Stock reported in the Western
Edition of The Wall Street Journal or, if not published therein, The San Jose
Mercury News, on the basis of information provided by the Nasdaq National
Market for each of the ten (10) trading days immediately preceding the day
prior to the date upon which the Closing is held. The number of "Initial
Shares" shall be (a) 565,000 if the Average Price is greater than or equal to
$9.00 but less than or equal to $15.00, (b) 452,000 if the Average Price is
greater than $15.00 and (c) 753,333 if the Average Price is less than $9.00.
4. ADDITIONAL PROVISIONS RELATED TO THE CONVERSION OF SHARES.
4.1 Payment to each Deming Shareholder. Each Deming
Shareholder has elected to receive a proportion of the Cash Payment.
Accordingly, each Deming Shareholder will be entitled to receive (a) a cash
payment equal to the amount set forth in the last column of the table below,
titled "Cash Payment to be Received," plus (b) the number of shares of
Worldtalk Common Stock that is determined by dividing the amount of such
person's cash payment by the Average Price of the Worldtalk Common Stock and
then subtracting the quotient obtained from the applicable number of Initial
Shares obtained for such person from the table below.
<TABLE>
<CAPTION>
INITIAL SHARES
INITIAL SHARES IF IF AP IS INITIAL SHARES
AP IS BETWEEN GREATER THAN IF AP IS LESS
$15.00 AND $9.00 $15.00 PER THAN $9.00 PER CASH PAYMENT
NAME OF SHAREHOLDER PER SHARE SHARE SHARE TO BE RECEIVED
------------------- ----------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Ronald J. Craswell 114,142 91,313 152,189 $ 96,000
Robert D. Dickinson 222,574 178,061 296,766 0
David S. Pratt, Jr. 114,142 91,313 152,189 64,500
Blake C. Ramsdell 114,142 91,313 152,189 64,500
------- ------- ------- --------
Totals: 565,000 452,000 753,333 $225,000
</TABLE>
Each of the parties hereto agrees that the value of each Deming Shareholder's
portion of the Stock Payment plus the Cash Payment to each such shareholder as
a percentage of the total value of the Stock Payment plus Cash Payment to be
received by all such shareholders, is equal to the percent of Deming Stock held
by such shareholder.
4.2 Adjustments in Number of Shares. If, prior to the
Merger, Worldtalk or Deming recapitalizes through a split-up of its outstanding
shares into a greater number, or a combination of its outstanding shares into a
lesser number, reorganizes, reclassifies or otherwise changes its outstanding
shares into the same or a different number of shares of other classes (other
than through a split-up or combination of shares provided for in the previous
clause), or declares a dividend on its outstanding shares payable in shares or
securities convertible into shares, the number of shares of Worldtalk Common
Stock into which the shares of Deming Stock are to be converted will be
adjusted appropriately so as to maintain the proportionate interests of the
holders of the shares of Deming Stock and the holders of the shares of
Worldtalk Common Stock.
- 2 -
<PAGE> 4
4.3 Cash Payment. The Cash Payment to each Deming
Shareholder will be made on January 2, 1997, by Worldtalk's delivery to each
Deming Shareholder, by personal delivery or by deposit in the United States
mail, postage prepaid, of a check made payable to such shareholder in the full
amount of the portion of the Cash Payment to be received by such shareholder on
the date of each payment.
4.4 Fractional Shares. No fractional shares of Worldtalk
Common Stock will be issued in connection with the Merger, but in lieu thereof
each holder of Deming Stock who would otherwise be entitled to receive a
fraction of a share of Worldtalk Common Stock will receive from Worldtalk,
promptly after the Effective Date, an amount of cash equal to the Average Price
multiplied by the fraction of a share of Worldtalk Common Stock to which such
holder would otherwise be entitled.
4.5 Escrow Agreement. At the Closing of the Merger,
Worldtalk will withhold 15% of the shares of Worldtalk Common Stock to be
issued to the Deming Shareholders in accordance with Section 3.2 (rounded up to
the nearest whole number of shares to be issued to each Deming Shareholder),
and deliver such shares (the "Escrow Shares") to Harris Trust and Savings Bank
(the "Escrow Agent"), as escrow agent, to be held by Escrow Agent as collateral
for Deming's and the Deming shareholders' indemnification obligations. The
Escrow Shares will be represented by a certificate or certificates issued in
the name of the Escrow Agent and, assuming no claim is made against such
shares, will be held by the Escrow Agent from the Closing until one (1) year
after the Effective Date pursuant to the terms of a certain Escrow Agreement of
even date herewith among Worldtalk, Deming, the shareholders of Deming and the
Escrow Agent.
4.6 Conversion Procedure.
(a) As of the Effective Date, all shares of
Deming Stock that are outstanding immediately prior thereto will, by virtue of
the Merger and without further action, cease to exist and will be converted,
subject to Section 4.4, into the right to receive from Worldtalk the number of
shares of Worldtalk Common Stock and cash determined as set forth in Section 3.
(b) As soon as practicable after the Effective
Date, each holder of shares of Deming Stock will surrender the certificate(s)
for such shares (the "Deming Certificates"), duly endorsed as requested by
Worldtalk, to Worldtalk for cancellation. Promptly after the Effective Date
and receipt of such Deming Certificates, Worldtalk will issue to each tendering
holder a certificate for the number of shares of Worldtalk Common Stock to
which such holder is entitled pursuant to Section 3 hereof, less the shares of
Worldtalk Common Stock deposited into escrow pursuant to Section 4.5 hereof,
and distribute any cash payable under Section 4.4.
(c) No dividends or distributions payable to
holders of record of Worldtalk Common Stock after the Effective Date, or cash
payable in lieu of fractional shares or otherwise, will be paid to the holder
of any unsurrendered Deming Certificate(s) until the holder of the Deming
Certificate(s) surrenders such Deming Certificate(s). Subject to the effect,
if any,
- 3 -
<PAGE> 5
of applicable escheat and other laws, following surrender of any Deming
Certificate, there will be delivered to the person entitled thereto, without
interest, the amount of any dividends and distributions therefor paid with
respect to Worldtalk Common Stock so withheld as of any date subsequent to the
Effective Date and prior to such date of delivery.
(d) All Worldtalk Common Stock and cash delivered
upon the surrender of Deming Stock in accordance with the terms hereof will be
deemed to have been delivered in full satisfaction of all rights pertaining to
such Deming Stock. There will be no further registration of transfers on the
stock transfer books of Deming or its transfer agent of the Deming Stock. If,
after the Effective Date, Deming Certificates are presented for any reason,
they will be canceled and exchanged as provided in this Section 4.6.
(e) Until certificates representing Deming Stock
outstanding prior to the Merger are surrendered pursuant to Section 4.6(b)
above, such certificates will be deemed, for all purposes, to evidence
ownership of the number of shares of Worldtalk Common Stock into which the
Deming Stock will have been converted, reduced by the number of shares withheld
as Escrow Shares.
(f) The Cash Payment will be made as specified in
Section 4.3 above.
5. ASSETS AND LIABILITIES. On the Effective Date:
5.1 Assets. Deming shall thereupon and thereafter
possess all the rights, privileges, and immunities, and all property, real,
personal and mixed, and all debts due on whatever account, and other choses in
action, and all and every other interest of or belonging to Worldtalk MC, all
of which shall be taken and deemed to be transferred to Deming without further
act or deed; and
5.2 Liabilities. Deming shall be responsible and liable
for all the liabilities and obligations of Worldtalk MC.
6. NAME. The name of the Surviving Corporation shall be:
DEMING SOFTWARE, INC.
7. DIRECTORS AND PRINCIPAL OFFICERS. The directors and the
principal officers of Worldtalk MC immediately prior to the Effective Date
shall serve as directors and officers of the Surviving Corporation on and after
the Effective Date.
8. ARTICLES OF INCORPORATION AND BYLAWS. On and after the
Effective Date, the Articles of Incorporation of Deming and the Bylaws of
Worldtalk MC in effect immediately prior to the Effective Date shall be the
Articles of Incorporation and the Bylaws of the Surviving Corporation.
- 4 -
<PAGE> 6
9. COUNTERPARTS. This Agreement and Plan of Merger may be
executed in any number of counterparts each of which shall be deemed an
original and all of such counterparts shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
and Plan of Merger as of the 12th day of November, 1996.
WORLDTALK MERGER CORPORATION,
a Washington corporation
/s/ Stephen R. Bennion
--------------------------------------
Stephen R. Bennion
Vice President
DEMING SOFTWARE, INC.,
a Washington corporation
/s/ Robert D. Dickinson, III
--------------------------------------
Robert D. Dickinson, III
President
- 5 -
<PAGE> 1
EXHIBIT 2.03
Escrow Agreement dated November 12, 1996 among Registrant, the
Deming Shareholders, Robert D. Dickinson, as Representative, and
Harris Trust and Savings Bank, as Escrow Agent.
<PAGE> 2
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is entered into as of November
12, 1996 by and among Worldtalk Communications Corporation, a Delaware
corporation ("Worldtalk"), Harris Trust and Savings Bank, as Escrow Agent
("Escrow Agent"), and Robert D. Dickinson, III as representative
("Representative") of the holders of Common Stock ("Deming Shareholders") of
Deming Software, Inc., a Washington corporation ("Deming").
RECITALS
A. Deming and Worldtalk have entered into an Agreement and Plan
of Reorganization dated as of November 9, 1996 ("Plan of Reorganization")
pursuant to which a wholly owned subsidiary of Worldtalk will be merged with
and into Deming in a reverse triangular merger, with Deming to be the surviving
corporation of the merger ("Merger"). Unless otherwise specified herein, all
capitalized terms used herein shall have the meaning given to such terms in the
Plan of Reorganization.
B. Pursuant to the Plan of Reorganization, Worldtalk will issue
shares of Worldtalk Common Stock, $0.01 par value per share ("Worldtalk Common
Stock") to the Deming Shareholders in exchange for their shares of Deming
Common Stock.
C. The Plan of Reorganization provides that 15% of the shares of
Worldtalk Common Stock to be issued to the Deming Shareholders ("Escrow
Shares") will be withheld from the shares of Worldtalk Common Stock issued to
the Deming Shareholders at the Closing of the Merger, and will be placed in an
escrow account ("Escrow Account") to secure the indemnification obligations of
the Deming Shareholders to Worldtalk and other Indemnified Persons under the
Plan of Reorganization on the terms and conditions set forth herein. Those
Escrow Shares required to be deposited in the Escrow Account upon the Closing
of the Merger pursuant to this Agreement and the Plan of Reorganization are
shown on Exhibit A attached hereto.
D. The parties hereto desire to establish the terms and
conditions pursuant to which the Escrow Shares will be deposited, held in, and
disbursed from the Escrow Account.
NOW, THEREFORE, the parties agree as follows:
1. ESCROW AND INDEMNIFICATION.
1.1 DEPOSIT OF ESCROW SHARES. At the Closing, Worldtalk
shall cause its transfer agent to deliver to the Escrow Agent certificates
representing the Escrow Shares. The Escrow Shares will be represented by
certificates issued in the name of the Escrow Agent and will be held by the
Escrow Agent from the Closing until the expiration of the Escrow Period (as
defined in Section 3.2 below). The Escrow Shares shall include Additional
Escrow Shares (as defined in Section 3.1). The Escrow Agent need not inquire
into whether or not the correct
<PAGE> 3
number of Escrow Shares have been delivered to it and may assume that the
certificates delivered to it are all that it is required to receive.
1.2 INDEMNIFICATION. Worldtalk and the other Indemnified
Persons are indemnified pursuant to the terms of Section 10 of the Plan of
Reorganization (which terms are incorporated herein by reference) from and
against any Damages, subject to the limitations set forth in Section 10 of the
Plan of Reorganization and herein. For the purposes of this Agreement,
references to Worldtalk will include all other Indemnified Persons, as
applicable. The Escrow Shares will be security for this indemnity obligation,
subject to the limitations, and in the manner provided, in Section 10.2 of the
Plan of Reorganization and in this Agreement. Robert D. Dickinson III shall
act as Representative of the Deming Shareholders for purposes of this
Agreement, and is duly authorized to be such Representative and may bind the
Deming Shareholders as provided herein.
1.3 ACCEPTANCE OF SHARES BY THE ESCROW AGENT. The Escrow
Shares will be held in escrow by the Escrow Agent and will be available to
satisfy the indemnification obligations of the Indemnified Persons as specified
above and in the Plan of Reorganization. The Escrow Agent agrees to accept
delivery of the Escrow Shares delivered to it and to hold such Escrow Shares in
escrow in the Escrow Account in accordance with the terms and conditions of
this Agreement and to release the Escrow Shares out of escrow in accordance
with the terms and conditions of this Agreement.
2. REPRESENTATIVE. For purposes of this Agreement, the Deming
Shareholders, without any further act of any Deming Shareholder, shall be
deemed to have consented to and approved (a) the use of the Escrow Shares as
collateral for Deming's and the Deming Shareholders' indemnification
obligations under Section 10 of the Plan of Reorganization in the manner set
forth in this Agreement, (b) the appointment of Robert D. Dickenson III as the
Representative of the Deming Shareholders under this Agreement and as the
attorney-in-fact and agent for and on behalf of each Deming Shareholder, and
the taking by the Representative of any and all actions and the making of any
decisions required or permitted to be taken by him under this Agreement
(including, without limitation, the exercise of the power to: authorize
delivery to Worldtalk of Escrow Shares in satisfaction of claims by Worldtalk;
agree to, negotiate, enter into settlements and compromises of and demand
arbitration and comply with orders of courts and awards of arbitrators with
respect to such claims; resolve any claim made pursuant to Section 10 of the
Plan of Reorganization; and take all actions necessary in the judgment of the
Representative for the accomplishment of the foregoing) and (c) all of the
other terms, conditions and limitations in the Escrow Agreement. Accordingly,
the Representative has unlimited authority and power to act on behalf of each
Deming Shareholder with respect to this Agreement and the disposition,
settlement or other handling of all claims, rights or obligations arising under
this Agreement, so long as all Deming Shareholders are treated in material
respects in the same manner. The Deming Shareholders will be bound by all
actions taken by the Representative in connection with this Agreement, and
Worldtalk and the Escrow Agent shall be entitled to rely on any action or
decision of the Representative as constituting the actions of the Deming
Shareholders. In performing such functions, the Representative will not be
liable to the Deming Shareholders in the absence of gross negligence or willful
misconduct. All actions and notices by the Representative hereunder shall be
signed by the Representative. The Representative may resign from such
position, effective upon a new Representative being appointed to act as the
-2-
<PAGE> 4
Representative by the written consent of Deming Shareholders who beneficially
own at least a majority of the Escrow Shares. The Deming Shareholders must
elect a new Representative, and such written consent must be given, within
thirty days after the date of the Representative's notice of intended
resignation. Deming Shareholders who beneficially own at least a majority of
the Escrow Shares may at any time and from time to time appoint by written
consent a new representative to act as the Representative in place of the
then-current Representative. The Representative shall not be entitled to
receive any compensation or reimbursement of expenses for his or her actions
taken with respect to this Agreement, either from Worldtalk or the Escrow
Account, unless and until there are Escrow Shares to be distributed to the
Deming Shareholders at the expiration of the Escrow Period ("Distributed
Shares"). Any out-of-pocket costs and expenses incurred by the Representative
in connection with actions taken pursuant to the terms of this Agreement will
be paid by the Deming Shareholders to the Representative in proportion to their
percentage interests in the Escrow Shares set forth on Exhibit A hereto.
3. RIGHTS IN ESCROW SHARES; RELEASE FROM ESCROW.
3.1 DIVIDENDS, VOTING AND RIGHTS OF OWNERSHIP. Any shares
of Worldtalk Common Stock issued as a result of, or issued upon the conversion
or exercise of any security issued as a result of, any stock dividend,
reclassification, stock split, subdivision or combination of shares,
recapitalization, merger or other events made with respect to the Escrow Shares
while in escrow under this Agreement ("Additional Escrow Shares") will be held
in Escrow and distributed to the Deming Shareholders or returned to Worldtalk
in the same manner and in the same proportions as the Escrow Shares. For all
purposes of this Agreement, Additional Escrow Shares issued with respect to
Escrow Shares will be treated the same as (and will be considered to be) Escrow
Shares. Any cash dividends, dividends payable in property other than Worldtalk
securities, or other distributions of any kind (other than Additional Escrow
Shares) made in respect of the Escrow Shares, if received by the Escrow Agent,
will be delivered by the Escrow Agent directly to the Deming Shareholders in
proportion to their percentage interests set forth on Exhibit A; provided that
in the event of a merger, tender offer or other exchange of the Escrow Shares
where the holders of Worldtalk Common Stock are to receive cash or other
property in exchange for such Worldtalk Common Stock, any cash or other
property received or receivable upon exchange of the Escrow Shares will remain
in the Escrow Account and will be held or released in the same manner and in
the same proportions as the Escrow Shares would have been had such exchange not
occurred. Each Deming Shareholder will have voting rights with respect to the
Escrow Shares (and Additional Escrow Shares) beneficially owned by such Deming
Shareholder deposited in the Escrow Account so long as such Escrow Shares (and
Additional Escrow Shares) are held in escrow. While the Escrow Shares remain
in the Escrow Agent's possession pursuant to this Agreement, the Deming
Shareholders will retain and will be able to exercise all other incidents of
ownership of said Escrow Shares which are not inconsistent with the terms and
conditions hereof, including the right to cause the tender of such Escrow
Shares in a tender offer for Worldtalk Common Stock, subject to the inclusion
of the consideration paid upon exchange of such Escrow Shares in the Escrow
Account as provided above.
-3-
<PAGE> 5
3.2 DISTRIBUTION OF ESCROW SHARES.
(a) Escrow Period. Unless held longer due to any
pending but unresolved Claim, the Escrow Shares will be held in escrow until
the date that is one year following the Closing, as defined in the Plan of
Reorganization ("Escrow Period").
(b) Expiration. Upon written notification to the
Escrow Agent by Worldtalk and the Representative that the Escrow Period has
expired, on which notification the Escrow Agent may rely without inquiry, the
Escrow Agent shall release from the Escrow Account to the Deming Shareholders
in accordance with their percentage interests set forth in Exhibit A, the
Escrow Shares, less (i) any shares delivered to Worldtalk in accordance with
Section 5 hereof in satisfaction of claims made by Worldtalk pursuant to
Section 1.2 above, and (ii) any shares held by the Escrow Agent in accordance
with Section 5 hereof with respect to pending but unresolved claims of
Worldtalk pursuant to Section 1.2 above. Any Escrow Shares held as a result of
clause (ii) of the preceding sentence shall be released to the Deming
Shareholders or to Worldtalk for cancellation, as appropriate, promptly upon
resolution of each specific Claim involved, when such resolution has been
notified to the Escrow Agent by the Representative and Worldtalk in writing or
upon the delivery to the Escrow Agent of the appropriate order by a court of
competent jurisdiction or upon delivery to the Escrow Agent of a copy of the
final award of an arbitrator or court as described in Section 10.3 of the Plan
of Reorganization. Any court order or final award of any arbitrator referred
to above shall be accompanied by a legal opinion of counsel for the presenting
party satisfactory to the Escrow Agent to the effect that said court order or
final award of such arbitrator is final and enforceable and is not subject to
further appeal. The Escrow Agent shall act on such court order or final award
of such arbitrator and legal opinion without further question.
3.3 RELEASE OF SHARES. The Escrow Shares will be held by
the Escrow Agent until required to be released pursuant to Section 3.2 above.
Within five (5) business days after the applicable release condition is met and
(if necessary) the requisite share certificates have been reissued by the
transfer agent, the Escrow Agent will deliver to the Deming Shareholders the
requisite number of Escrow Shares to be released on such date in the form of
stock certificates issued in the name of each Deming Shareholder according to
the percentage of Escrow Shares each Deming Shareholder is entitled to receive.
Worldtalk will take such action as may be necessary to cause such certificates
to be issued in the name of the appropriate Deming Shareholder within such
period. Certificates representing Escrow Shares so issued that are subject to
SEC Rule 144 or 145 resale restrictions will bear a legend to that effect and
any other legend that counsel to Worldtalk reasonably determines is necessary
or appropriate. Cash will be paid by Worldtalk in lieu of any fractions of
Escrow Shares in an amount equal to the product determined by multiplying such
fraction by the value of an Escrow Share as determined in accordance with
Section 5.4 below.
3.4 NO ENCUMBRANCE. No Escrow Shares or any beneficial
interest therein may be pledged, sold, assigned, transferred, or otherwise
encumbered, including by operation of law, by the Deming Shareholders or be
taken or reached by any legal or equitable process in satisfaction of any debt
or other liability of the Deming Shareholders, prior to the delivery to the
Deming Shareholders of the Escrow Shares by the Escrow Agent upon the release
of such Escrow Shares in accordance with the provisions of Section 3.3 above.
-4-
<PAGE> 6
4. NOTICE OF CLAIM.
4.1 IN GENERAL. Promptly after the receipt by Worldtalk
of notice or discovery of any claim, damage or legal action or proceeding
giving rise to indemnification rights under the Plan of Reorganization or this
Agreement, Worldtalk will give the Representative and the Escrow Agent written
notice of its claim for indemnification of such claim, damage, legal action or
proceeding ("Claim") in accordance with the following provisions. Failure to
provide such notice in a timely manner shall not, however, reduce Worldtalk's
indemnification rights or the indemnification obligations of the Deming
Shareholders hereunder or under the Plan of Reorganization, unless the failure
to provide such notice materially impairs the indemnifying party's ability to
defend the Claim or mitigate damages, and then only to the extent of such
impairment.
4.2 CONTENTS. Each written notice of a Claim by
Worldtalk ("Notice of Claim") shall contain the following information to the
extent it is reasonably available to Worldtalk:
(a) Worldtalk's current good faith estimate of
the amount of the alleged Damages if reasonably determinable
("Worldtalk Valuation");
(b) A brief description of the circumstances
giving rise to the Claim and, if applicable, specific references to
the provisions of the Plan of Reorganization alleged to have been
breached; and
(c) A statement that the Notice of Claim has been
sent simultaneously to both the Escrow Agent and the Representative.
4.3 NO TRANSFER OR SALE. The Escrow Agent will not
transfer or sell any of the Escrow Shares held in the Escrow Account, as
provided in Section 5.4, pursuant to a Notice of Claim until such Notice of
Claim has been resolved in accordance with Section 5 below.
5. RESOLUTION OF NOTICE OF CLAIM AND TRANSFER OF ESCROW SHARES.
Any Notice of Claim received by the Escrow Agent will be resolved as follows:
5.1 UNCONTESTED CLAIMS. If the Representative does not,
within fifteen (15) calendar days after receipt by the Escrow Agent of a Notice
of Claim, either contest the Notice of Claim in writing to the Escrow Agent and
Worldtalk, or authorize the payment of the amount demanded (together with a
designation of the manner of payment as provided in Section 5.4 below), then
the Escrow Agent will promptly deliver to Representative and Worldtalk written
notice of such fact. If Representative does not, within five (5) calendar days
after receipt by the Representative of such notice contest the Notice of Claim
in writing to the Escrow Agent and Worldtalk, or authorize the payment of the
amount demanded (together with a designation of the manner of payment as
provided in Section 5.4 below), then Worldtalk may deliver notice of such fact,
on which notice the Escrow Agent may rely without inquiry, and the Escrow Agent
shall immediately transfer to Worldtalk that number of Escrow Shares having an
aggregate value (determined at a per share price equal to the Average Price)
equal to the amount specified in the Notice of Claim in the manner specified in
Section 5.4(a) hereof and notify the Representative in writing of such
transfer.
-5-
<PAGE> 7
5.2 CONTESTED CLAIM. If the Representative gives a
written notice ("Contested Claim Notice") contesting all, or a portion of, a
Notice of Claim to Worldtalk and the Escrow Agent ("Contested Claim") and such
Contested Claim Notice is deemed, under the provisions of Section 11 hereof, to
have been delivered to Worldtalk and the Escrow Agent within the 15-day period
or 5-day period described in Section 5.1 above, then the Representative and a
representative from Worldtalk will attempt in good faith to resolve the
dispute, and if such representatives are not able to do so within 10 days after
receipt by Worldtalk of the Contested Claim Notice then the Contested Claim
will be promptly settled by binding arbitration or litigation as provided in
Section 10.3 of the Plan of Reorganization. Any portion of the Notice of Claim
that is not contested, or the uncontested amount of any Contested Claim, will
be resolved as an uncontested claim as set forth in Section 5.1 above. The
final decision of the arbitrator or the court shall be furnished to the
Representative, Worldtalk and the Escrow Agent in writing and will constitute a
conclusive determination of the issue in question, binding upon the Deming
Shareholders, Worldtalk and the Escrow Agent and shall not be contested by any
of them; provided that in no event will the Escrow Agent be a party to such
arbitration.
5.3 SETTLED CLAIMS. If a Claim (including a Contested
Claim) is settled by a written settlement agreement executed by the
Representative and Worldtalk, then the Representative and Worldtalk shall
promptly deliver such executed settlement agreement to the Escrow Agent with
written instructions as to the manner of payment with respect to such Claim in
accordance with Section 5.4 below. Upon its receipt of such settlement
agreement and instructions, the Escrow Agent shall either (a) immediately
release from escrow and transfer to Worldtalk for cancellation the number of
Escrow Shares determined as provided in Section 5.4; (b) sell the number of
Escrow Shares determined as provided in Section 5.4; and/or (c) to the extent
the Deming Shareholders have paid to Worldtalk the amount of the Claim in cash,
distribute to the Deming Shareholders that number of Escrow Shares that are
equal in value to the agreed upon amount based upon the Average Price, all as
specified in such settlement agreement and instructions.
5.4 DETERMINATION OF AMOUNT AND MANNER OF PAYMENT OF
CLAIMS. Any amount owed to Worldtalk hereunder determined pursuant to Section
5.1, 5.2 or 5.3 or Section 7, will be immediately payable to Worldtalk, at the
option of the Representative, which option will be exercised by delivery of a
written notice to Worldtalk with the Contested Claim Notice or, if pursuant to
Section 5.3 in the settlement agreement: (a) out of the Escrow Shares then held
by the Escrow Agent at a per-share value equal to the Average Price payable by
release from escrow and transfer of such Escrow Shares to Worldtalk, which
transferred and forfeited Escrow Shares will be taken from each of the Deming
Shareholders in proportion to their respective percentage interest in the
Escrow Shares then outstanding as such percentage is specified on Exhibit A;
(b) in cash payable by each of the Deming Shareholders in proportion to their
respective percentage interest in the Escrow Shares then outstanding as such
percentage is specified on Exhibit A within ninety (90) days following the date
on which the determination of liability is made; provided that the number of
Escrow Shares having a value (at the per share price equal to the Average
Price) equal to the amount of such cash payment will remain in escrow until
such cash payment (together with the interest described in the last sentence of
this Section 5.4) is made in full; or (c) subject to the availability of and to
compliance with Rules 144 and 145, by sale of the number of Escrow Shares by
the Escrow Agent in the public market sufficient to recover the amount of the
Claim. In the event the Representative elects to pay in cash pursuant
-6-
<PAGE> 8
to clause (b) above, the Deming Shareholders shall also remit interest on the
amount owed from the date on which determination of liability is made to the
date of payment, calculated at the U.S. Treasury Bill rate then in effect.
5.5 NO ELECTION OF REMEDIES. Worldtalk may institute
claims against the Escrow Shares and in satisfaction thereof may retake Escrow
Shares, after any notice to the Representative required hereunder, without
making any other claims directly against Deming or the Deming Shareholders and
without rescinding or attempting to rescind the transactions consummated
pursuant to the Plan of Reorganization. The assertion of any single claim for
indemnification hereunder will not bar Worldtalk from asserting other claims
hereunder. Worldtalk need not exhaust any other remedies that may be available
to it but may proceed directly in accordance with the provisions of this
Agreement.
6. LIMITATION OF ESCROW AGENT'S LIABILITY.
6.1 CONDUCT. The Escrow Agent will be indemnified and
will incur no liability with respect to any action taken or suffered by it in
reliance upon any notice, direction, instruction, consent, statement or other
documents believed by it to be genuine and duly authorized, nor for other
action or inaction except its own willful misconduct or gross negligence. The
Escrow Agent will not be responsible for the validity or sufficiency of this
Agreement. In all questions arising under this Agreement, the Escrow Agent may
rely on the advice of counsel, and for anything done, omitted or suffered in
good faith by the Escrow Agent based on such advice the Escrow Agent will not
be liable to anyone. The Escrow Agent will not be required to take any action
hereunder involving any expense unless the payment of such expense is made or
provided for in a manner satisfactory to it.
6.2 CONFLICTING DEMANDS. In the event conflicting
demands are made or conflicting notices served upon the Escrow Agent with
respect to the Escrow Account, the Escrow Agent will have the absolute right,
at the Escrow Agent's election, to do either or both of the following: (a)
withhold and stop all further proceedings pursuant to, and performance under,
this Agreement; or (b) file a suit in interpleader and obtain an order from any
court of competent jurisdiction an order requiring the parties to interplead
and litigate in such court conflicting demands or claims. In the event such
interpleader suit is brought, the Escrow Agent will thereby be fully released
and each discharged from all further obligations imposed upon it under this
Agreement with respect to the Claim(s) that are the subject of such
interpleader suit, and Worldtalk and the Deming Shareholders will each pay
(subject to reimbursement pursuant to Section 7 hereof) one-half (1/2) of all
costs, expenses and reasonable attorney's fees expended or incurred by the
Escrow Agent pursuant to the exercise of Escrow Agent's rights under this
Section 6, the amount thereof to be fixed and a judgment therefor to be
rendered by the court in such suit.
7. EXPENSES. All fees and expenses of the Escrow Agent incurred
in the ordinary course of performing its responsibilities hereunder will be
paid by Worldtalk, upon receipt of a written invoice by Escrow Agent. Except
as set forth in the last clause of Section 10.3.4 of the Plan of
Reorganization, any extraordinary fees and expenses arising under this
Agreement, including without limitation any fees or expenses related to
arbitrators under Section 10 of the Plan of Reorganization or incurred by the
Escrow Agent in connection with a dispute over the
-7-
<PAGE> 9
distribution of Escrow Shares or the validity of a Notice of Claim, will be
paid one-half (1/2) by Worldtalk and one-half (1/2) by the Deming Shareholders,
and the Deming Shareholders' liability therefor may, but need not, be satisfied
as an undisputed claim hereunder out of the Escrow Shares. Worldtalk will
advance the cash value of such shares and pay Worldtalk's portion of the fees
and expenses of the Escrow Agent upon receipt of a written invoice from the
Escrow Agent. The amounts payable by the Deming Shareholders under this
Section 7 may be paid according to the procedure specified with respect to
Claims as provided in Section 5 above upon demand by Worldtalk by complying
with the provisions of Section 5 with respect thereto.
8. INDEMNIFICATION. The Escrow Agent shall be indemnified,
jointly and severally, and saved harmless by the undersigned, from and against
any and all liability, including all expenses reasonably incurred in its
defense, to which the Escrow Agent shall be subject by reason of any action
taken or omitted or disbursement of any part of the Escrow Shares made by the
Escrow Agent pursuant to this Escrow Agreement, except as a result of the
Escrow Agent's own gross negligence or willful misconduct. The costs and
expenses of enforcing this right of indemnification shall also be paid by the
undersigned. This right of indemnification shall survive the termination of
this Escrow Agreement, and the removal or resignation of the Escrow Agent.
9. SUCCESSOR ESCROW AGENT. If the Escrow Agent becomes
unavailable or unwilling to continue in its capacity herewith, the Escrow Agent
may resign and be discharged from its duties or obligations hereunder by giving
written notice of resignation to the parties to this Agreement, specifying not
less than sixty (60) days' prior notice of the date when such resignation will
take effect. Worldtalk shall designate a successor Escrow Agent prior to the
expiration of such sixty-day period by giving written notice to the Escrow
Agent and the Representative. Worldtalk may appoint a successor Escrow Agent
without the consent of the Representative so long as such successor is a bank
with assets of at least $50 million, and may appoint any other successor Escrow
Agent with the consent of the Representative, which will not be unreasonably
withheld. Upon payment of its outstanding invoices for fees and expenses,
Escrow Agent will promptly transfer the Escrow Shares to such designated
successor.
10. LIMITATION OF RESPONSIBILITY; NOTICES. Escrow Agent's duties
are limited to those set forth in this Agreement and Escrow Agent may rely upon
the written notices delivered to Escrow Agent hereunder.
11. NOTICES. Any notice or other communication required or
permitted to be given under this Agreement will be in writing, will be
delivered personally or by certified mail, postage prepaid, return receipt
requested, and will be deemed given upon delivery, if delivered personally, or
three days after deposit in the mails, if mailed, to the following addresses:
If to Worldtalk:
Worldtalk Communications Corporation
5155 Old Ironsides Drive
Santa Clara, California 95054
Attention: President
-8-
<PAGE> 10
If to the Escrow Agent:
Harris Trust and Savings Bank
311 West Monroe Street
Chicago, Illinois 60606
Attention: Sue Shadel/Shareholder Services
If to the Representative:
Robert D. Dickinson, III
23621 NE 45th Place
Redmond, WA 98053
or to such other address as a party may have furnished to the other parties in
writing pursuant to this Section 11.
12. GENERAL.
12.1 GOVERNING LAW. The internal laws of the State of
California (irrespective of its choice of law principles) will govern the
validity of this Agreement, the construction of its terms, and the
interpretation and enforcement of the rights and duties of the parties hereto.
12.2 ASSIGNMENT; BINDING UPON SUCCESSORS AND ASSIGNS.
Except as provided in Section 9, the parties hereto may not assign any of their
rights or obligations hereunder without the prior written consent of the other
parties hereto. This Agreement will be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
12.3 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which will be an original as regards any party
whose signature appears thereon and all of which together will constitute one
and the same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures
of Worldtalk and the Deming Shareholders.
12.4 ENTIRE AGREEMENT. This Agreement and the exhibits
hereto constitute the entire understanding and agreement of the parties hereto
with respect to the subject matter hereof and supersede all prior and
contemporaneous agreements or understandings, inducements or conditions,
express or implied, written or oral, between the parties with respect hereto.
The express terms hereof control and supersede any course of performance or
usage of the trade inconsistent with any of the terms hereof.
12.5 NO WAIVER. The failure of any party to enforce any
of the provisions hereof will not be construed to be a waiver of the right of
such party thereafter to enforce such provisions. No waiver of any kind shall
be effective or binding, unless it is in writing and is signed by the party
against whom such waiver is sought to be enforced.
12.6 AMENDMENT. This Agreement may be amended by the
written agreement of Worldtalk, the Escrow Agent and the Representative;
provided that, if the Escrow Agent does
-9-
<PAGE> 11
not agree to an amendment agreed upon by Worldtalk and the Representative, the
Escrow Agent will resign and Worldtalk will appoint a successor Escrow Agent in
accordance with Section 9 above. No amendment of the Plan of Reorganization
will increase Escrow Agent's responsibilities or liability hereunder without
Escrow Agent's written agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 12
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first set forth above.
WORLDTALK COMMUNICATIONS CORPORATION HARRIS TRUST AND SAVINGS BANK,
AS ESCROW AGENT
By: /s/ Mark A. Jung By: /s/ Susan M. Shadel
------------------------------------- ----------------------------
Mark A. Jung
President and Chief Executive Officer Name: Susan M. Shadel
--------------------------
Title: Assistant Vice President
--------------------------
ROBERT D. DICKINSON, III, AS REPRESENTATIVE
/s/ Robert D. Dickinson, IIII
- -------------------------------------------
Each of the undersigned holders of Worldtalk Common Stock received or to be
received as a result of the Merger hereby consents to and approves the
appointment of Robert D. Dickinson, III as their Representative and agrees to
be bound by, and have all Worldtalk securities owned by the undersigned as a
result of the Merger subject to, all of the terms and conditions of this
Agreement.
/s/ Ronald J. Craswell /s/ Robert D. Dickinson, III
- ------------------------------- ---------------------------------
RONALD J. CRASWELL ROBERT D. DICKINSON, III
/s/ David S. Pratt, Jr. /s/ Blake C. Ramsdell
- ------------------------------- ---------------------------------
DAVID S. PRATT, JR. BLAKE C. RAMSDELL
Exhibit A: List of Deming Shareholders
[SIGNATURE PAGE TO ESCROW AGREEMENT]
-11-
<PAGE> 13
EXHIBIT A
LIST OF DEMING SHAREHOLDERS
<TABLE>
<CAPTION>
SHAREHOLDER NAME NUMBER OF ESCROW PERCENTAGE OF
AND ADDRESS SHARES DEPOSITED ESCROW SHARES
<S> <C> <C>
Ronald J. Craswell 15,940 19.44%
20939 NE 78th Street
Redmond, WA 98053
Robert D. Dickinson, III 33,387 40.72%
23621 NE 45th Place
Redmond, WA 98053
David S. Pratt, Jr. 16,328 19.92%
2348 N. 50th Street
Seattle, WA 98103
Blake C. Ramsdell 16,328 19.92%
P.O. Box 2818
Kirkland, WA 98083
TOTAL: 81,983 100.00%
</TABLE>
-12-
<PAGE> 1
EXHIBIT 4.01
Shareholders' Agreement dated November 12, 1996 among Registrant,
Deming and the Deming Shareholders.
<PAGE> 2
CONFIDENTIAL TREATMENT REQUESTED
BY WORLDWIDE COMMUNICATIONS CORPORATION
SHAREHOLDERS' AGREEMENT
This Shareholders' Agreement (this "Agreement") is made and entered
into as of November 12, 1996 (the "Effective Date"), by and among Worldtalk
Communications Corporation, a Delaware corporation ("Worldtalk"), Deming
Software, Inc., a Washington corporation that is, or is to become, a wholly
owned subsidiary of Worldtalk ("Deming"), and the individual shareholders of
Deming listed on the signature page hereto (each a "Shareholder" and
collectively the "Shareholders").
A. Worldtalk and Deming have entered into an Agreement and Plan
of Reorganization dated as of November 9, 1996 (the "Plan of Reorganization"),
pursuant to which a wholly owned subsidiary of Worldtalk ("Newco") will merge
with and into Deming in a reverse triangular merger (the "Merger"), with Deming
to be the surviving corporation of the Merger, pursuant to the terms and
conditions set forth in the Plan of Reorganization, the Agreement of Merger to
be entered into by and between Deming and Newco pursuant to the Plan of
Reorganization (the "Agreement of Merger") and the applicable provisions of the
laws of the State of Washington. Upon the effectiveness of the Merger, all
outstanding capital stock of Deming will be converted into shares of Worldtalk
Common Stock or cash in the manner and on the basis set forth in the Plan of
Reorganization and in the Agreement of Merger.
B. The Shareholders constitute all of the shareholders of Deming.
C. One of the conditions precedent to the obligations of
Worldtalk to consummate the Merger under the Plan of Reorganization is that
each of the Shareholders shall have executed and entered into this Agreement
with Worldtalk. The Shareholders are therefore entering into this Agreement as
a material inducement to Worldtalk to issue the consideration to the
Shareholders in the Merger, and to effectuate the Merger pursuant to the Plan
of Reorganization.
NOW, THEREFORE, in consideration of the facts stated in the foregoing
recitals and the promises made herein, Worldtalk, Deming and the Shareholders
each hereby agrees as follows:
1. NON-COMPETITION COVENANTS
1.1 NON-COMPETITION. Each Shareholder hereby covenants
and agrees with Worldtalk and Deming that, during the Non-Competition Period
(as defined below), such Shareholder shall not, directly or indirectly, carry
on any business that is, directly or indirectly, competitive with the business
conducted by Worldtalk or any of its subsidiaries (including without limitation
Deming), as conducted on or before the effective date of the Merger or
following the effective date of the Merger to the date of termination of such
Shareholder's employment with Worldtalk, in any state, territory or possession
of the United States or any country in which Deming has conducted business, or
in which Worldtalk conducts, or has conducted business to the date of
termination of such Shareholder's employment with Worldtalk (including, without
limitation, any county, state, territory, possession or country in which any
<PAGE> 3
customer of Deming or Worldtalk is located or in which Deming or Worldtalk has
solicited business).
1.2 NON-COMPETITION PERIOD. For purposes of this
Agreement, the "NON-COMPETITION PERIOD" shall be that period of time beginning
on the effective date of the Merger and ending four (4) years after the
effective date of the Merger; provided that if Worldtalk terminates the
employment of any Shareholder, for any reason or no reason, with or without
cause, the Non-Competition Period will survive with respect to such Shareholder
until the earlier of two (2) years following the effective date of such
termination or the expiration of four (4) years after the date of the Merger.
1.3 SCOPE OF NON-COMPETITION COVENANTS.
(a) Carrying on a Business. For purposes of this
Agreement, each of the following activities, without limitation, shall be
deemed to constitute "carrying on any business": to engage in, work with, be
employed by, consult for, provide service to, invest in, have an interest in,
advise, lend money to, guarantee the debts or obligations of, contribute, sell
or license intellectual property to, or permit one's name or any part thereof
to be used in connection with, any enterprise or endeavor, either individually,
in partnership or in conjunction with any person, firm, association, company or
corporation, whether as principal, agent, shareholder, partner, director,
officer, employee, consultant, or in any other manner whatsoever. Nothing
contained in this Agreement shall prohibit Shareholder from being employed by
or serving as a consultant to Worldtalk or Deming (or any wholly owned
subsidiary of Worldtalk) or prohibit any Shareholder from acquiring or holding
at any one time less than one percent (1%) of the outstanding securities of any
publicly traded company.
(b) Businesses of Deming and Worldtalk. For
purposes of this Agreement, the business conducted by Deming shall be deemed to
include, but not be limited, to the business of developing, marketing,
distributing and/or supporting security software products and services. For
purposes of this Agreement, the business conducted by Worldtalk shall be deemed
to include, but not be limited to, the business of developing, marketing,
distributing and/or supporting software products and services relating to
application routing, electronic mail and groupware systems and Internet and
intranet access control.
2. NON-SOLICITATION COVENANTS
2.1 NON-SOLICITATION OF CUSTOMERS. Each Shareholder
hereby agrees with Worldtalk and Deming that, during the Non-Competition
Period, such Shareholder will not, either for himself or for any other person
or entity, directly or indirectly, solicit business from, or attempt to sell,
license or provide the same or similar products or services as are now provided
or proposed to be provided by Worldtalk or Deming to, any clients or customers
or potential clients or customers of Worldtalk or Deming. Each Shareholder
hereby acknowledges that the identities, addresses, and business needs of the
clients and customers of Worldtalk and Deming are confidential and proprietary
information and trade secrets of Worldtalk and Deming respectively, and that
this Agreement confers on such Shareholder a duty not to disclose such
information or use such information to the detriment of Worldtalk or Deming.
<PAGE> 4
2.2 NON-SOLICITATION OF EMPLOYEES. Each Shareholder
agrees with Worldtalk and Deming that, during the Non-Competition Period, such
Shareholder will not, either for himself or for any other person or entity,
directly or indirectly, solicit, induce or attempt to induce any employee of
Worldtalk or Deming to terminate his or her employment with Worldtalk or
Deming, respectively.
3. CONFIDENTIALITY. Each Shareholder agrees with Worldtalk and
Deming not to disclose, communicate, use to the detriment of Worldtalk, or any
affiliate of Worldtalk (including but not limited to Deming), or for the
benefit of any other person, or misuse in any way, any confidential information
or trade secrets of Worldtalk or any affiliate of Worldtalk (including but not
limited to confidential information and trade secrets of Deming acquired by
Worldtalk in the Merger), including, without limitation, personnel information,
secret processes, software, know-how, customer or supplier lists, formulae, or
other technical data. Each Shareholder acknowledges and agrees with Worldtalk
and Deming that all such confidential information and trade secrets previously
received or to be received by such Shareholder from Deming, Worldtalk or any
affiliate of Worldtalk or Deming, was or will be received by such Shareholder
in confidence and as a fiduciary. Nothing in this Section 3 will affect the
rights of any Shareholder to disclose, communicate or use any information that
is or becomes part of the public domain or is received by such Shareholder from
a third party without breach of nondisclosure obligation to the other party.
4. COVENANT NOT TO SELL.
4.1 AGREEMENT NOT TO TRANSFER OR ENCUMBER. Each
Shareholder hereby covenants and agrees not to pledge, sell, assign, transfer,
or otherwise encumber, including without limitation by operation of law, any
shares of Worldtalk Common Stock or any beneficial interest therein received by
him in or through the Merger (the "Merger Shares") for a period of 4 years
after the Closing (as defined in the Plan of Reorganization), subject to the
remaining terms and conditions of this Section 4. Notwithstanding anything to
the contrary in this Section 4, the following transfers of Merger Shares will
be exempt from the foregoing agreement and covenant under this Section 4.1 (the
"No- Sale Covenant"): (a) the transfer of any or all of the Merger Shares
during a Shareholder's lifetime by gift or on such Shareholder's death by will
or intestacy to such Shareholder's "immediate family" (as defined below) or to
a trust for the benefit of such Shareholder or such Shareholder's immediate
family, provided that each transferee or other recipient agrees in a writing
satisfactory to Worldtalk that the provisions of this Section will continue to
apply to the transferred Merger Shares in the hands of such transferee or other
recipient; and (b) any transfer of Merger Shares made pursuant to a statutory
merger or statutory consolidation of Worldtalk with or into another corporation
or corporations (except that this No-Sale Covenant will continue to apply
thereafter to such Merger Shares, in which case the surviving corporation of
such merger or consolidation shall succeed to the rights of Worldtalk under
this Section). As used herein, the term "immediate family" will mean a
Shareholder's spouse, the parent, grandparent, child, brother or sister,
adopted child or grandchild of the Shareholder or the Shareholder's spouse, or
the spouse of any child, adopted child, grandchild or adopted grandchild of the
Shareholder or the Shareholder's spouse.
- 3 -
<PAGE> 5
4.2 RELEASE FROM NO-SALE COVENANT.
(a) First Year Milestones. [** ]
(b) Time-Based Release. [** ]
(c) Additional Milestones. [** ]
(d) Examples. [** ]
5. SHAREHOLDER REPRESENTATIONS.
5.1 TAX FREE REORGANIZATION. Each Shareholder
understands and agrees that it is intended that the Merger will be treated as a
tax-free reorganization for federal income tax purposes and that such treatment
requires that a sufficient number of former Shareholders of Deming maintain a
meaningful continuing equity ownership interest in Worldtalk after the Merger.
Each Shareholder understands that the treatment of the Merger as a
"reorganization" for federal income tax purposes is dependent upon the accuracy
of the representations, warranties and covenants set forth herein, and that
such representations, warranties and covenants will be relied upon by Worldtalk
and Deming and their respective counsel and accounting firms and by the
Shareholders. Each Shareholder will rely on such Shareholder's own tax
advisers as to the tax attributes of the Merger to such Shareholder and
understands that neither Worldtalk, nor Worldtalk's counsel, Deming or Deming's
counsel has guaranteed nor will guarantee to such Shareholder that the Merger
will be a tax-free reorganization. Each Shareholder understands that counsel
to Worldtalk and counsel to Deming have not acted as counsel for such
Shareholder with respect to any matter related to the Merger, and that such
Shareholder has not relied on Worldtalk or its counsel, or Deming or its
counsel, with respect to any legal matter related to the Merger or its tax
consequences, including, without limitation, any U.S. federal income tax
consequences.
5.2 SHAREHOLDER REPRESENTATIONS. Each Shareholder
represents, warrants and covenants that such Shareholder does not now have, and
as of the Effective Time of the Merger will not have, any present plan or
intention ("Plan of Transfer") to engage in a sale, exchange, transfer,
distribution, pledge, disposition or any other transaction which would result
in a direct or indirect disposition (a "Sale") of more than 25% of the shares
of Worldtalk Common Stock that such Shareholder may acquire in connection with
the Merger, or any securities that may be paid as a dividend or otherwise
distributed thereon or with respect thereto or issued or delivered in exchange
or substitution therefor or upon conversion thereof ("Derivative Securities").
Each Shareholder is not aware of, nor is such Shareholder participating in, any
Plan of Transfer to engage in a Sales of shares of Worldtalk Common Stock to be
issued in the Merger (including Derivative Securities) such that the aggregate
fair market value, as of the Effective Time of the Merger (as defined in the
Plan of Reorganization), of the shares subject to such Sales would exceed 25%
of the aggregate fair market value of all shares of outstanding Deming Common
Stock immediately prior to the Merger. For purposes of this representation,
shares of Deming Common Stock (or the portion thereof) (a) with respect to
which a Shareholder receives consideration in the Merger other than Worldtalk
Common Stock (including, without limitation, any Cash Payment received in the
Merger pursuant to Section
__________________________________
** Confidential treatment has been requested for this portion.
- 4 -
<PAGE> 6
1.1.1 of the Plan of Reorganization and cash received in lieu of fractional
shares) and/or (b) with respect to which a Sale occurs during the period
beginning with the commencement of negotiations (whether formal or informal)
between Deming and Worldtalk regarding the Merger and ending on the Effective
Time of the Merger, shall be considered shares of outstanding Deming Common
Stock exchanged for Worldtalk Common Stock received in the Merger and then
disposed of pursuant to a Plan of Transfer.
6. S-3 REGISTRATION RIGHTS.
6.1 DEFINITIONS. For purposes of this Section 6:
(a) Registration. The terms "register,"
"registered," and "registration" refer to a registration effected by preparing
and filing a registration statement in compliance with the Securities Act of
1933, as amended (the "Securities Act"), and the declaration or ordering of
effectiveness of such registration statement.
(b) Registrable Securities. The term
"Registrable Securities" means: (1) such portion of the Merger Shares that have
been released from the No-Sale Covenant under Section 4.2 above with respect to
the first year following the Closing within one year following the Closing of
the Merger; provided that only Merger Shares that were issued in the Merger to
Shareholders who are employees of Worldtalk on the date the Form S-3 is
declared effective (including Merger Shares held by such Shareholders or a
permitted Holder) will be deemed Registrable Securities and (2) any shares of
Worldtalk Common Stock issued as (or issuable upon the conversion or exercise
of any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, all such
Merger Shares described in clause (1) of this subsection (b); excluding in all
cases, however, any Registrable Securities sold by a person in a transaction in
which rights under this Section 6 are not assigned in accordance with this
Agreement or sold pursuant to Rule 144 promulgated under the Securities Act.
(c) Holder. For purposes of this Section 6 the
term "Holder" means any Shareholder owning of record Registrable Securities
that have not been sold pursuant to Rule 144 promulgated under the Securities
Act or any assignee of record of such Registrable Securities to whom rights
under this Section 6 have been duly assigned in accordance with this Agreement.
(d) Form S-3. The term "Form S-3" means such
form under the Securities Act as is in effect on the date hereof or any
successor registration form under the Securities Act subsequently adopted by
the SEC which permits inclusion or incorporation of substantial information by
reference to other documents filed by Worldtalk with the SEC.
(e) SEC. The term "SEC" means the U.S.
Securities and Exchange Commission.
(f) Securities Act. The term "Securities Act"
means the Securities Act of 1933, as amended.
6.2 FORM S-3 REGISTRATION. If all of the First Year
Milestones have been achieved within the first year following the Closing of
the Merger and Worldtalk receives from a
- 5 -
<PAGE> 7
Holder or Holders holding at least fifty percent (50%) of all Registrable
Securities a written request that Worldtalk effect a registration on Form S-3
and any related qualification or compliance with respect to the Registrable
Securities owned by such Holders, which request is received by Worldtalk on or
before October 1, 1997, then Worldtalk will:
(a) Notice. Promptly give written notice of the
proposed registration and the Holder's or Holders' request therefor, and any
related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) Registration. Effect such registration and
all such qualifications and compliance as may be so requested and as would
permit or facilitate the sale and distribution of all of the Registrable
Securities within the periods described in Section 6.3 below; provided,
however, that Worldtalk shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 6.2:
(1) if Form S-3 is not available for
such offering by the Holders as a result of acts or omissions of one or more of
the Holders;
(2) if Worldtalk shall furnish to the
Holders a certificate signed by the President or Chief Executive Officer of
Worldtalk stating that in the good faith judgment of the Board of Directors of
Worldtalk, it would be inadvisable from a liability standpoint for such Form
S-3 Registration to be effected at such time, in which event Worldtalk shall
have the right to defer the filing of the Form S-3 registration statement not
more than 180 days after receipt of the request of the Holder or Holders under
this Section 6.2;
(3) in any particular jurisdiction in
which Worldtalk would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance;
(4) if all of the First Year Milestones
have not been achieved in full for any reason; or
(5) with respect to any Merger Shares
issued in the Merger to a Shareholder who is not an employee of Worldtalk on
the date the Form S-3 is declared effective (whether such Merger Shares are
held by such Shareholders or any other Holder); or the number of Registrable
Securities is less than 10% of the total number of Merger Shares.
(c) Expenses. Subject to the foregoing,
Worldtalk shall file a Form S-3 registration statement covering the Registrable
Securities to be registered pursuant to this Section 6.2 as soon as practicable
after receipt of the request or requests of the Holders for such registration.
Worldtalk shall pay all expenses incurred in connection with the registration
requested pursuant to this Section 6.2, (excluding underwriters' or brokers'
discounts and commissions), including without limitation all filing,
registration and qualification, printers' and accounting fees and the
reasonable fees and disbursements of one counsel for the selling Holder or
Holders and counsel for Worldtalk.
6.3 OBLIGATIONS OF WORLDTALK. If Worldtalk is required
to effect the registration of any Registrable Securities under this Agreement,
Worldtalk shall:
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<PAGE> 8
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and, subject to the SEC's
review requirements, use its best efforts to cause such registration statement
to become effective on or before November 1, 1997 (or such later date as may be
determined under Section 6.2(b)(2)), and keep such registration statement
effective for ninety (90) days (the "Registration Period"); provided that
Worldtalk may terminate the registration statement during any period in which
Worldtalk's insider trading window ("Window"), as described in its Insider
Trading Policy dated April 26, 1996, as may be amended, is closed, and
Worldtalk will, as necessary to maintain an effective registration statement
under this Section 6.3 during the portions of the Registration Period in which
the Window is open, refile the registration statement with respect to such
Registrable Securities that have not yet been sold pursuant to a prior
registration statement filed under this Section 6.3 and use its best efforts to
cause such registration statement to become effective no later than the opening
of the Window and keep such registration statement effective for the duration
of the Registration Period.
(b) Prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such number of copies
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.
(d) Use its best efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that Worldtalk shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
6.4 FURNISH INFORMATION. It shall be a condition
precedent to the obligations of Worldtalk to take any action pursuant to
Sections 6.2 that the selling Holders shall furnish to Worldtalk such
information regarding themselves, the Registrable Securities held by them, and
the intended method of disposition of such securities as shall be required to
timely effect the registration of their Registrable Securities.
6.5 DELAY OF REGISTRATION. No Holder shall have any
right to obtain or seek an injunction restraining or otherwise delaying any
such registration as the result of any controversy that might arise with
respect to the interpretation or implementation of this Section 6.
6.6 INDEMNIFICATION. In the event any Registrable
Securities are included in a registration statement under Sections 6.2:
(a) By Worldtalk. To the extent permitted by
law, Worldtalk will indemnify and hold harmless each Holder, the partners,
officers and directors of each Holder, any underwriter (as defined in the
Securities Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Securities Act or the
Securities
- 7 -
<PAGE> 9
Exchange Act of 1934, as amended, (the "1934 Act"), against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Securities Act, the l934 Act or other federal or state law, insofar
as such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"):
(1) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto;
(2) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or
(3) any violation or alleged violation
by Worldtalk of the Securities Act, the 1934 Act, any federal or state
securities law or any rule or regulation promulgated under the Securities Act,
the 1934 Act or any federal or state securities law in connection with the
offering covered by such registration statement;
and Worldtalk will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating or defending
any such loss, claim, damage, liability or action; provided however, that the
indemnity agreement contained in this subsection 6.6 shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of Worldtalk (which consent shall
not be unreasonably withheld), nor shall Worldtalk be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
(b) By Selling Holders. To the extent permitted
by law, each selling Holder will indemnify and hold harmless Worldtalk, each of
its directors, each of its officers who have signed the registration statement,
each person, if any, who controls Worldtalk within the meaning of the
Securities Act, any underwriter and any other Holder selling securities under
such registration statement or any of such other Holder's partners, directors
or officers or any person who controls such Holder within the meaning of the
Securities Act or the 1934 Act, against any losses, claims, damages or
liabilities (joint or several) to which Worldtalk or any such director,
officer, controlling person, underwriter or other such Holder, partner or
director, officer or controlling person of such other Holder may become subject
under the Securities Act, the 1934 Act or other federal or state law, insofar
as such losses, claims, damages or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly for use
in connection with such registration; and each such Holder will reimburse any
legal or other expenses reasonably incurred by Worldtalk or any such director,
officer, controlling person, underwriter or other Holder, partner, officer,
director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection
6.6(b) shall not apply to amounts paid in settlement of
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<PAGE> 10
any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Holder, which consent shall not be
unreasonably withheld; and provided further, that the total amounts payable in
indemnity by a Holder under this Section 6.6(b) in respect of any Violation
shall not exceed the net proceeds received by such Holder in the registered
offering out of which such Violation arises.
(c) Notice. Promptly after receipt by an
indemnified party under this Section 6.6 of notice of the commencement of any
action (including any governmental action), such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under
this Section 6.6, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party shall have the right to retain its own counsel, with
the fees and expenses to be paid by the indemnifying party, if representation
of such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential conflict of interests between
such indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Section 6.6, but the omission
so to deliver written notice to the indemnifying party will not relieve it of
any liability that it may have to any indemnified party otherwise than under
this Section 6.6.
(d) Defect Eliminated in Final Prospectus. The
foregoing indemnity agreements of Worldtalk and Holders are subject to the
condition that, insofar as they relate to any Violation made in a preliminary
prospectus but eliminated or remedied in the amended prospectus on file with
the SEC at the time the registration statement in question becomes effective or
the amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the
"Final Prospectus"), such indemnity agreement shall not inure to the benefit of
any person if a copy of the Final Prospectus was furnished to the indemnified
party and was not furnished to the person asserting the loss, liability, claim
or damage at or prior to the time such action is required by the Securities
Act.
(e) Contribution. In order to provide for just
and equitable contribution to joint liability under the Securities Act in any
case in which either (1) any Holder exercising rights under this Agreement, or
any controlling person of any such Holder, makes a claim for indemnification
pursuant to this Section 6.6 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 6.6 provides for indemnification in such case, or (2)
contribution under the Securities Act may be required on the part of any such
selling Holder or any such controlling person in circumstances for which
indemnification is provided under this Section 6.6; then, and in each such
case, Worldtalk and such Holder will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that such Holder is responsible for the
portion represented by the percentage that the public offering price of its
Registrable Securities offered by and sold under the registration statement
bears to the public offering price of all securities
- 9 -
<PAGE> 11
offered by and sold under such registration statement, and Worldtalk and other
selling Holders are responsible for the remaining portion; provided, however,
that, in any such case, (A) no such Holder will be required to contribute any
amount in excess of the public offering price of all such Registrable
Securities offered and sold by such Holder pursuant to such registration
statement; and (B) no person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
(f) Survival. The obligations of Worldtalk and
Holders under this Section 6.6 shall survive the completion of any offering of
Registrable Securities in a registration statement, and otherwise.
6.7 NO OTHER REGISTRATION RIGHTS. By approving this
Agreement, each Shareholder accepts the rights granted in this Section 6 in
lieu of, and hereby waives, any other registration rights such Shareholder may
have under any agreements with Deming, other than the registration rights
granted under the Second Amendment to the Third Amended and Restated
Registration Rights Agreement dated as of November 8, 1996 between Worldtalk
and certain of its stockholders (the "Second Amendment").
7. SEVERABILITY. The scope and effect of the covenants contained
in this Agreement shall be as broad in time (but not, as regards the covenants
contained in Sections 1 and 2 of this Agreement, beyond the Non-Competition
Period), geography and in all other respects as is permitted by applicable law.
Should a court or other body of competent jurisdiction determine that any term
or provision of this Agreement is excessive in scope or duration, then such
term or provision shall be modified so as to be enforceable (rather than
voided), in accordance with the purposes stated in the preceding sentence and
with applicable law, and all other terms and provisions of this Agreement shall
be deemed valid and enforceable to the fullest extent possible. The parties
intend that the non-competition and non-solicitation provisions of this
Agreement shall be deemed to be a series of separate covenants, one for each
and every county of each and every state of the United States of America and
each and every political subdivision of each and every country outside the
United States of America where this provision is intended to be effective.
8. REMEDIES. The restrictions contained in this Agreement are
necessary for the protection of the business and goodwill of Worldtalk and
Deming and are considered by each Shareholder to be reasonable for such
purpose. Each Shareholder acknowledges and agrees with Worldtalk and Deming
that damages would not adequately compensate Worldtalk or Deming if such
Shareholder were to breach any of covenants of such Shareholder contained in
this Agreement. Consequently, each Shareholder agrees that in the event of any
such breach, Worldtalk and Deming shall be entitled, in addition to any other
remedies, to enforce this Agreement by means of an injunction or other
equitable relief.
9. ASSIGNMENT.
9.1 ASSIGNMENT. Notwithstanding anything herein to the
contrary, the registration rights of a Holder under Section 6 hereof may be
assigned only to a party to whom a Shareholder may transfer Merger Shares
pursuant to Section 4.1; provided, however that no party may be assigned any of
the foregoing rights unless Worldtalk is given written notice by the
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<PAGE> 12
assigning party at the time of such assignment stating the name and address of
the assignee and identifying the securities of Worldtalk as to which the rights
in question are being assigned; and provided further that any such assignee
shall receive such assigned rights subject to all the terms and conditions of
this Agreement, including without limitation the provisions of this Section 9.
Except as set forth in this Section 9.1, no Shareholder may assign or transfer
its rights or obligations under this Agreement. Subject to the foregoing, this
Agreement and the obligations and rights hereunder will be binding upon and
will inure to the benefit of the parties' successors, representatives, heir and
permitted assigns.
9.2 AMENDMENT AND WAIVER OF REGISTRATION RIGHTS. Any
provision of Section 6 of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of Worldtalk,
Deming and Shareholders (and/or any of their permitted successors or assigns)
holding Merger Shares representing a majority of all the shares of Merger Stock
then held by all such Shareholders (and any of their permitted successors or
assigns). Any amendment or waiver effected in accordance with this Section 9.2
shall be binding upon each Shareholder, each Holder, each permitted successor
or assignee of such Shareholder or Holder and Worldtalk.
9.3 OTHER AMENDMENTS AND WAIVERS. Except as set forth in
Section 9.2. any term or provision of this Agreement may be amended, and the
observance of any term of this Agreement may be waived (either generally or in
a particular instance and either retroactively or prospectively) only by a
writing signed by the party to be bound thereby. The waiver by a party of any
breach hereof or default in the performance hereof will not be deemed to
constitute a waiver of any other default or any succeeding breach or default.
10. GENERAL PROVISIONS.
10.1 GOVERNING LAW. The internal laws of the State of
Washington (irrespective of its choice of law principles) will govern the
validity of this Agreement, the construction of its terms and the
interpretation and enforcement of the rights and duties of the parties hereto.
10.2 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which will be an original as regards any party
whose signature appears thereon and all of which together will constitute one
and the same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures
of both parties reflected thereon as signatories.
11.3 NO WAIVER. The failure of any party to enforce any
of the provisions hereof will not be construed to be a waiver of the right of
such party thereafter to enforce such provisions.
11.4 NOTICES. Any notice or other communication required
or permitted to be given under this Agreement will be in writing, will be
delivered personally or by certified mail, postage prepaid, return receipt
requested, and will be deemed given upon delivery, if delivered personally, or
three days after deposit in the mails, if mailed, to the following addresses:
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<PAGE> 13
If to Worldtalk or Deming:
Worldtalk Communications Corporation
5155 Old Ironsides Drive
Santa Clara, California 95054
Attention: President
with copy to:
Fenwick & West LLP
Two Palo Alto Square, Suite 800
Palo Alto, California 94306
Attention Gail E. Suniga, Esq.
If to a Shareholder:
At the address set forth opposite such Shareholder's
name on Attachment 2
or to such other address as a party may have furnished to the other parties in
writing pursuant to this Section 11.4.
11.5 CONSTRUCTION OF AGREEMENT. This Agreement has been
negotiated by the respective parties hereto and their attorneys and the
language hereof will not be construed for or against either party. A reference
to a Section or an exhibit will mean a Section in, or exhibit to, this
Agreement unless otherwise explicitly set forth. The titles and headings
herein are for reference purposes only and will not in any manner limit the
construction of this Agreement, which will be considered as a whole.
11.6 FURTHER ASSURANCES. Each party agrees to cooperate
fully with the other parties and to execute such further instruments, documents
and agreements and to give such further written assurances as may be reasonably
requested by any other party to evidence and reflect the transactions described
herein and contemplated hereby and to carry into effect the intents and
purposes of this Agreement.
11.7 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No
provisions of this Agreement are intended, nor will be interpreted, to provide
or create any third party beneficiary rights or any other rights of any kind in
any client, customer, affiliate, shareholder or partner of any party hereto or
any other person or entity unless specifically provided otherwise herein, and,
except as so provided, all provisions hereof will be personal solely among the
parties to this Agreement.
11.8 ENTIRE AGREEMENT. This Agreement, the Attachments
hereto and the Second Amendment constitute the entire understanding and
agreement of the parties hereto with respect to the subject matter hereof and
supersede all prior and contemporaneous agreements or understandings,
inducements or conditions, express or implied, written or oral, between the
parties with respect hereto. The express terms hereof control and supersede
any course of performance or usage of the trade inconsistent with any of the
terms hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 14
IN WITNESS WHEREOF, each Shareholder, Worldtalk and Deming have
executed this Agreement as of the date set forth in the first paragraph of this
Agreement.
WORLDTALK COMMUNICATIONS SHAREHOLDERS
CORPORATION
By: /s/ Mark A. Jung /s/ Ronald J. Craswell
------------------------------- -------------------------------------
RONALD J. CRASWELL
Name: Mark A. Jung
-----------------------------
/s/ Robert D. Dickinson, III
-------------------------------------
Title: President ROBERT D. DICKINSON, III
and Chief Executive Officer
----------------------------
/s/ David S. Pratt, Jr.
-------------------------------------
DAVID S. PRATT, JR.
DEMING SOFTWARE, INC.
/s/ Blake C. Ramsdell
-------------------------------------
BLAKE C. RAMSDELL
By: Mark A. Jung
-------------------------------
Name: Mark A. Jung
-----------------------------
Title: President
----------------------------
Attachments
- -----------
Attachment 1: Milestones for First Year
Attachment 2: Names and Addresses of Shareholders
[SIGNATURE PAGE FOR SHAREHOLDERS' AGREEMENT]
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<PAGE> 15
Worldtalk/Deming Milestones - Attachment 1
(11/7/96)
The milestones for year 1 are as follows:
[** ]
** Confidential treatment has been requested for this portion.
<PAGE> 16
ATTACHMENT 2
SHAREHOLDER NAMES
AND ADDRESSES
Ronald J. Craswell
20939 NE 78th Street
Redmond, VA 98053
Robert D. Dickinson, III
23621 NE 45th Place
Redmond, WA 98053
David S. Pratt, Jr.
2348 N. 50th Street
Seattle, WA 98103
Blake C. Ramsdell
P.O. Box 2818
Kirkland, WA 98083
<PAGE> 1
EXHIBIT 4.02
Form of Employment Agreement entered into by Deming with each of the
Deming Shareholders on November 12, 1996.
<PAGE> 2
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as
of November 12, 1996 (the "Effective Date") between Deming Software, Inc., a
Washington corporation located at 13122 NE 20th Street, Suite C, Bellevue,
Washington 98005 (the "Company"), and __________________, a resident of the
State of Washington ("Employee").
The Company is entering into an Agreement and Plan of
Reorganization dated as of November 9, 1996 ("Plan of Reorganization") with
Worldtalk Communications Corporation, a Delaware corporation ("Worldtalk") and
the shareholders of the Company including Employee. It is understood that this
Employment Agreement is a material inducement for the Company to enter into
such Plan of Reorganization and that but for this Agreement, the Company would
not enter into such Plan of Reorganization.
In consideration of the promises and the terms and conditions
set forth in this Agreement, the parties agree as follows:
1. POSITION. During the term of this Agreement, Company
will employ Employee, and Employee will serve Company as _____________________.
Employee will report directly to __________________________________________.
2. DUTIES. Employee will serve the Company in such
capacities and with such duties and responsibilities as the Board of Directors
of Company may from time to time determine. Employee will comply with and be
bound by Company's operating policies, procedures, and practices from time to
time in effect during Employee's employment. Employee hereby represents and
warrants that he is free to enter into and fully perform this Agreement and the
agreements referred to herein without breach of any agreement or contract to
which he is a party or by which he is bound.
3. EXCLUSIVE SERVICE. Employee will devote his full time
and efforts exclusively to this employment and apply all his skill and
experience to the performance of his duties and advancing the Company's
interests in accordance with Employee's experience and skills. In addition,
Employee will not engage in any consulting activity except with the prior
written approval of Company, or at the direction of Company, and Employee will
otherwise do nothing inconsistent with the performance of his duties hereunder.
4. TERM OF AGREEMENT. This Agreement will commence on the
Effective Date, and will continue until the earlier of five (5) years after the
Effective Date or when terminated pursuant to Section 7 hereof.
<PAGE> 3
5. COMPENSATION AND BENEFITS.
5.1 BASE SALARY. The Company agrees to pay Employee
an initial minimum salary of _______________________ ($_____________) per year.
Employee's salary will be payable as earned in accordance with Company's
customary payroll practice. Employee's salary and performance will be reviewed
annually. Employee's salary is subject to change as determined by the Company's
Board of Directors in its discretion.
5.2 ADDITIONAL BENEFITS. Employee will be eligible
to participate in Company's employee benefit plans of general application,
including without limitation those plans covering pension and profit sharing,
stock purchases, and those plans covering life, health, and dental insurance in
accordance with the rules established for individual participation in any such
plan and applicable law. Employee will receive such other benefits, including
vacation, holidays and sick leave, as the Company generally provides to its
employees holding similar positions as that of Employee.
5.3 STOCK OPTIONS. Effective at the next Company
Compensation Committee meeting following the Effective Date, Employee shall be
granted under Worldtalk's 1996 Equity Incentive Plan an incentive stock option
to purchase _____________ shares of Worldtalk Common Stock at the fair market
value as determined by Worldtalk's Compensation Committee on the date of grant.
Such options shall become exercisable ("vest") on substantially the terms set
forth in the form of Option Grant attached hereto as Exhibit A and shall have a
10 year term from the Effective Date.
5.4 EXPENSES. The Company will reimburse Employee
for all reasonable and necessary expenses incurred by Employee in connection
with the Company's business, provided that such expenses are deductible to the
Company, are in accordance with the Company's applicable policy and are
properly documented and accounted for in accordance with the requirements of
the Internal Revenue Service.
6. PROPRIETARY RIGHTS. Employee hereby agrees to execute
an Employee Invention Assignment and Confidentiality Agreement with the Company
in substantially the form attached hereto as Exhibit B.
7. TERMINATION.
7.1 EVENTS OF TERMINATION. Employee's employment
with the Company shall terminate upon any one of the following:
(a) immediately upon notice from the Company, which
may be given at any time with or without cause; or
(b) upon three months written notice from Employee,
which notice may not be given until the first day of the tenth
month following the Effective Date, it being understood and
agreed that Employee will not terminate his employment with
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<PAGE> 4
the Company within the first year following the Effective Date
("First Year") other than by death or disability within the
meaning of Internal Revenue Code Section 22(e)(3).
8. EFFECT OF TERMINATION.
8.1 EFFECT OF TERMINATION GENERALLY. In the event of
any termination of this Agreement, and except as set forth below in this
Section 8, the Company shall pay Employee the compensation and benefits
otherwise payable to Employee under Section 5 through the date Employee ceases
to perform services for the Company plus an amount equal to 30 days' salary at
the Employee's then current salary. In addition, Employee's rights under the
Company's benefit plans of general application shall be determined under the
provisions of those plans.
8.2 EFFECT OF TERMINATION BY COMPANY WITHIN FIRST
YEAR. If the Company terminates this Agreement under Section 7(a) above during
the First Year, the Company will pay to Employee an amount equal to the
remaining base salary as established in Section 5.1 during the First Year
payable over the remaining First Year Period in accordance with the Company's
normal payroll policies.
8.3 EFFECT OF TERMINATION BY EMPLOYEE WITHIN FIRST
YEAR. If Employee terminates this Agreement under Section 7(b) above during
the First Year, the provisions of Section 4.1 of that certain Shareholder's
Agreement dated as of even date herewith shall apply.
9. MISCELLANEOUS.
9.1 ARBITRATION. Any dispute arising out of or in
connection with this Agreement shall be resolved in accordance with Section
10.3 of the Plan of Reorganization.
9.2 SEVERABILITY. If any provision of this Agreement
shall be found by any arbitrator or court of competent jurisdiction to be
invalid or unenforceable, then the parties hereby waive such provision to the
extent that it is found to be invalid or unenforceable and to the extent that
to do so would not deprive one of the parties of the substantial benefit of its
bargain. Such provision shall, to the extent allowable by law and the
preceding sentence, be modified by such arbitrator or court so that it becomes
enforceable and, as modified, shall be enforced as any other provision hereof,
all the other provisions continuing in full force and effect.
9.3 REMEDIES. The Company and Employee acknowledge
that the service to be provided by Employee is of a special, unique, unusual,
extraordinary and intellectual character, which gives it peculiar value the
loss of which cannot be reasonably or adequately compensated in damages in an
action at law. Accordingly, Employee hereby consents and agrees that for any
breach or violation by Employee of any of the provisions of this Agreement
including, without limitation, Section 3, a restraining order and/or injunction
may be issued against Employee, in addition to any other rights and remedies
the Company may have, at law or equity, including without limitation the
recovery of money damages.
- 3 -
<PAGE> 5
9.4 NO WAIVER. The failure by either party at any
time to require performance or compliance by the other of any of its
obligations or agreements shall in no way affect the right to require such
performance or compliance at any time thereafter. The waiver by either party
of a breach of any provision hereof shall not be taken or held to be a waiver
of any preceding or succeeding breach of such provision or as a waiver of the
provision itself. No waiver of any kind shall be effective or binding, unless
it is in writing and is signed by the party against whom such waiver is sought
to be enforced.
9.5 ASSIGNMENT. This Agreement and all rights
hereunder are personal to Employee and may not be transferred or assigned by
Employee at any time. The Company may assign its rights, together with its
obligations hereunder, to any parent, subsidiary, affiliate or successor, or in
connection with any sale, transfer or other disposition of all or substantially
all of its business and assets, provided, however, that any such assignee
assumes the Company's obligations hereunder.
9.6 WITHHOLDING. All sums payable to Employee
hereunder shall be reduced by all federal, state, local and other withholding
and similar taxes and payments required by applicable law.
9.7 ENTIRE AGREEMENT; TERMINATION OF PRIOR EMPLOYMENT
AGREEMENTS. This Agreement constitutes the entire and only agreement between
the parties relating to employment of Employee with the Company or any
subsidiary or other affiliated entity of the Company, and this Agreement
supersedes and cancels any and all previous contracts, arrangements or
understandings with respect thereto, including without limitation that certain
Employment Agreement between Employee and the Company dated as of ____________;
provided that any amounts owing to the Company as a result of loans by the
Company to Employee under or in connection with such agreement will survive and
remain payable in accordance with their terms.
9.8 AMENDMENT. This Agreement may be amended,
modified, superseded, canceled, renewed or extended only by an agreement in
writing executed by both parties hereto.
9.9 NOTICES. Any notice or other communication
required or permitted to be given under this Agreement will be in writing, will
be delivered personally or by certified mail, postage prepaid, return receipt
requested, and will be deemed given upon delivery, if delivered personally, or
three days after deposit in the mails, if mailed, to the following addresses:
If to the Company:
Deming Software, Inc.
13122 NE 20th Street, Suite C
Bellevue, Washington 98005
Attention: President
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<PAGE> 6
With a copy to:
Worldtalk Communications Corporation
5155 Old Ironsides Drive
Santa Clara, California 95054
Attention: President
If to Employee:
________________________________
________________________________
________________________________
________________________________
or to such other address as a party may have furnished to the other parties in
writing pursuant to this Section 9.9.
9.10 BINDING NATURE. This Agreement shall be binding
upon, and inure to the benefit of, the successors and personal representatives
of the respective parties hereto.
9.11 HEADINGS. The headings contained in this
Agreement are for reference purposes only and shall in no way affect the
meaning or interpretation of this Agreement. In this Agreement, the singular
includes the plural, the plural included the singular, the masculine gender
includes both male and female referents, and the word "or" is used in the
inclusive sense.
9.12 COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed to be an original but
all of which, taken together, constitute one and the same agreement.
9.13 GOVERNING LAW. This Agreement and the rights and
obligations of the parties hereto shall be construed in accordance with the
laws of the State of Washington, without giving effect to the principles of
conflict of laws.
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IN WITNESS WHEREOF, the Company and Employee have executed this
Agreement as of the date first above written.
DEMING SOFTWARE, INC. "EMPLOYEE"
By:_______________________________ ___________________________________
Name:_____________________________
Title:____________________________
EXHIBITS
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Exhibit A Form of Option Grant
Exhibit B Form of Proprietary Rights and Confidentiality Agreement
[SIGNATURE PAGE FOR EMPLOYMENT AGREEMENT]
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