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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-27886
WORLDTALK COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0303581
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
5155 OLD IRONSIDES DRIVE
SANTA CLARA, CALIFORNIA 95054
(Address of principal executive offices)
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(408) 567-1500
(Registrant's telephone number, including area code)
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Indicate by check whether the registrant (1) has filed all reports required to
be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
(1) Yes X No
----- -----
(2) Yes X No
----- -----
As of October 31, 1997 there were 10,523,064 shares of the Registrant's common
stock outstanding.
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Exhibit Index on Page 17
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FORM 10-Q
WORLDTALK COMMUNICATIONS CORPORATION
INDEX
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<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of September
30, 1997 and December 31, 1996.............................. 3
Condensed Consolidated Statements of Operations for the
three and nine month periods ended September 30, 1997
and 1996.................................................... 4
Condensed Consolidated Statements of Cash Flows for the
nine month period ended September 30, 1997 and 1996......... 5
Notes to Condensed Consolidated Financial Statements........... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 8
ITEM 3. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 14
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings.............................................. 15
ITEM 4. Submission of Matters to a Vote of Security Holders............ 15
ITEM 6. Exhibits and Reports on Form 8-K............................... 15
Signature...................................................... 16
Exhibits....................................................... 17
</TABLE>
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
WORLDTALK COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 4,205 $ 7,012
Short-term investments 5,465 6,027
Accounts receivable, net of allowance for doubtful accounts
of $121 and $149, respectively 2,211 5,199
Prepaid expenses 820 622
-------- --------
Total current assets 12,701 18,860
Property and equipment, net 1,820 1,731
Other assets 863 1,128
-------- --------
$ 15,384 $ 21,719
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 850 $ 1,601
Current portion of capital lease obligations 344 343
Accrued expenses 2,966 3,094
Deferred revenue 1,516 1,566
-------- --------
Total current liabilities 5,676 6,604
Capital lease obligations, less current portion 212 369
Other liabilities 243 350
-------- --------
Total liabilities 6,131 7,323
-------- --------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock 104 103
Additional paid-in-capital 32,043 31,650
Stockholder notes receivable - (265)
Deferred compensation (99) (131)
Accumulated deficit (22,795) (16,961)
-------- --------
Total stockholders' equity 9,253 14,396
-------- --------
$ 15,384 $ 21,719
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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WORLDTALK COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Software licenses $ 2,089 $ 2,563 $ 4,509 $ 6,727
Maintenance, installation, and training 1,012 1,309 3,513 3,126
-------- -------- -------- --------
Total revenues 3,101 3,872 8,022 9,853
-------- -------- -------- --------
Cost of revenues:
Software licenses 322 309 821 751
Maintenance, installation, and training 656 601 2,307 1,630
-------- -------- -------- --------
Total cost of revenues 978 910 3,128 2,381
-------- -------- -------- --------
Gross profit 2,123 2,962 4,894 7,472
-------- -------- -------- --------
Operating expenses:
Product development 1,074 925 3,328 2,601
Sales and marketing 1,666 1,669 5,652 4,720
General and administrative 718 417 1,974 1,248
-------- -------- -------- --------
Total operating expenses 3,458 3,011 10,954 8,569
-------- -------- -------- --------
Operating loss (1,335) (49) (6,060) (1,097)
Other income (expense), net 110 212 365 355
-------- -------- -------- --------
Income (loss) before taxes (1,225) 163 (5,695) (742)
Income taxes 75 - 139 -
-------- -------- -------- --------
Net income (loss) $ (1,300) $ 163 $ (5,834) $ (747)
======== ======== ======== ========
Net income (loss) per share $ (0.12) $ 0.02 $ (0.56) $ (0.08)
======== ======== ======== ========
Shares used in computing net income
(loss) per share 10,480 10,335 10,387 8,896
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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WORLDTALK COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,834) $ (742)
Adjustments to reconcile net loss to net cash used
in operating
activities:
Depreciation and amortization 632 344
Amortization of deferred compensation 32 33
Changes in operating assets and liabilities:
Accounts receivable 2,988 (2,126)
Prepaid expenses (198) (469)
Accounts payable (751) 676
Accrued expenses (128) 781
Deferred revenue (50) 864
Other liabilities (100) -
-------- --------
Net cash used in operating activities (3,409) (639)
-------- --------
Cash flows from investing activities:
Restricted cash - 2,000
Purchase of property and equipment (603) (1,157)
Purchase of short-term investments (6,459) (11,007)
Sales/maturities of short-term investments 7,021 3,432
Other assets 147 34
-------- --------
Net cash provided by (used in)
investing activities 106 (6,698)
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of common stock 394 13,975
Principal payments under capital lease obligations (156) (216)
Proceeds from (payment of) bank borrowings (7) 250
Stockholder receivable note repayments (borrowings) 265 (68)
-------- --------
Net cash provided by financing activities 496 13,941
-------- --------
Net increase (decrease) in cash and cash equivalents (2,807) 6,604
Cash and cash equivalents at beginning of period 7,012 984
-------- --------
Cash and cash equivalents at end of period $ 4,205 $ 7,588
Supplemental disclosures:
Cash paid during the period:
Interest $ 73 $ 61
Noncash investing and financing activities:
Equipment acquired under capital lease obligations $ 110 $ -
-------- --------
Conversion of convertible preferred stock to common stock $ - $ 12,816
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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WORLDTALK COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) THE COMPANY AND BASIS OF PRESENTATION
THE COMPANY
Worldtalk Communications Corporation (the "Company") is a leading provider of
directory-based messaging and internet security software solutions that support
organizations in transforming local area networks ("LAN's") into secure, robust
and cost-effective platforms for business-critical applications and electronic
commerce. The Company's solutions are designed to enable organizations to build,
expand and secure full-service intranets, while leveraging existing
infrastructure investment.
PER SHARE DATA
Net loss per share for the three and nine month periods ended September 30,
1997, is based on the weighted average common shares outstanding during each
period.
Pro forma net income (loss) per share for the three and nine month periods ended
September 30, 1996, was computed using net income (loss) and was based on the
weighted average number of shares of common stock outstanding, convertible
preferred stock, on an "as if converted" basis, using the exchange rate in
effect at the initial public offering date and dilutive common equivalent shares
from stock options and warrants outstanding using the treasury stock method. In
accordance with certain Securities and Exchange Commission ("SEC") Staff
Accounting Bulletins, such computations include all common and common equivalent
shares issued within 12 months of the offering date as if they were outstanding
for all prior periods presented using the treasury stock method and the
anticipated initial public offering price.
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." SFAS No. 128 requires the
presentation of basic earnings per share ("EPS") and, for companies with complex
capital structures, diluted EPS. SFAS No. 128 is effective for annual and
interim periods ending after December 15, 1997. The Company expects that basic
and diluted net income (loss) per share will not differ materially from net
income (loss) per share as presented in the accompanying consolidated financial
statements.
RECLASSIFICATIONS
Certain reclassifications were made to the 1996 condensed consolidated financial
statements to conform to the 1997 presentation.
(2) SIGNIFICANT EVENTS
On April 17, 1996, the Company completed the initial public offering of 2.1
million shares of its Common Stock, of which 2.0 million shares were issued and
sold by the Company, and 100,000 shares were sold by a selling stockholder. On
May 8, 1996, an additional 315,000 shares were sold by selling stockholders upon
exercise of the underwriters' over-allotment option. Net proceeds to the Company
aggregated $13.8 million. The proceeds have been invested in accordance with the
Company's Board of Directors approved investment policy. As of the closing date
of the offering, all of the mandatorily redeemable convertible Preferred Stock
outstanding prior to such offering was automatically converted into an aggregate
of 6,025,000 shares of Common Stock.
In November 1996, the Company acquired all of the outstanding stock of Deming
Software, Inc. (Deming), a privately held company, specializing in the
development of electronic mail security software for the Internet, for a total
purchase price of $4.8 million including 569,000 shares of the Company's common
stock, $225,000 in cash, and $418,000 of direct acquisition costs. The
acquisition was accounted for using the purchase
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method and accordingly, the operating results of Deming have been included in
the consolidated financial statements of the Company from the date of the
acquisition.
(3) LITIGATION
In May 1996, an action was commenced against the Company by a subcontractor,
Salinas Group Limited, relating to a project by which the Company provided
software products and services to one of its customers. The complaint in the
U.S. District Court for the Southern District of New York (the "New York
Action"), sought payment for certain cost overruns and damages for an
unspecified breach of contract and set forth various claims, including breach of
alleged contracts and interference with certain contracts the subcontractor had
with the Company's customers. In June 1997, the contractor withdrew some of its
claims. The complaint sought over $12 million in damages, but did not specify
the basis, or the nature, of the alleged damages. The complaint also sought
unspecified punitive damages.
The Company filed a counterclaim against the subcontractor for amounts paid to
the subcontractor in excess of that called for by the subcontractor agreement.
In addition, the Company filed a separate action in California state courts
against both the subcontractor and its principal, setting forth claims for
breach of contract, conversion, fraud, breach of fiduciary duty, and their
failure to report and pay to the Company fees they received for licensing the
Company's products. The subcontractor filed cross-claims that appear to be
substantially similar to those asserted in the New York Action. After a
non-binding arbitrator award in favor of the Company, the parties settled both
actions in September 1997.
(4) REPRICING
In April 1997, the Company offered option holders under its stock option plans
the opportunity to have outstanding unvested options repriced to the then
current fair market value of the Company's common stock of $3.75 per share.
Employees electing to have options repriced were required to accept an extension
of their option vesting schedule. The other terms of the options remained
unchanged. On April 28, 1997, the Company amended options to purchase 851,584
shares in order to reprice the options pursuant to this offer.
(5) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This Statement establishes standards for reporting and displaying comprehensive
income and its components in the consolidated financial statements. It does not,
however, require a specific format for the statement, but requires the Company
to display an amount representing total comprehensive income for the period in
that financial statement. The Company is in the process of determining its
preferred format. This Statement is effective for fiscal years beginning after
December 15, 1997.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Statement establishes standards for the
way the public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to report
selected information about operating segments in interim financial reports
issued to shareholders. This Statement is effective for financial statements for
periods beginning after December 31, 1997. The Company does not believe it has
any separately reportable business segments.
The Securities and Exchange Commission has approved rule amendments to clarify
and expand existing disclosure requirements for derivative financial
instruments. The amendments require enhanced disclosure of accounting policies
for derivative financial instruments in the financial statements. In addition,
the amendments expand existing disclosure requirements to include quantitative
and qualitative information about market risk inherent in market sensitive
instruments. The required quantitative and qualitative information should be
disclosed outside the financial statements and related notes thereto. The
enhanced accounting policy disclosure requirements are effective for the
quarterly period ended September 30, 1997. As the Company does not engage in
derivative instruments, no further interim period disclosure has been provided.
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PART I: FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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OVERVIEW
This Discussion and Analysis of Financial Condition and Results of Operations
contains descriptions of the Company's expectations regarding future trends
affecting its business. These forward-looking statements and other
forward-looking statements made elsewhere in this document are made in reliance
upon the safe harbor provisions of the Securities Litigation Reform Act of 1995.
The discussion in this report contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ materially from
the results discussed in the forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed below and in "Additional Factors That May Affect Future Results".
The Company has experienced a reduction in revenues from the HP-UX product
family ("NetJunction products") and associated services over the past several
quarters which has resulted in operating losses. The Company believes the
primary reason for reduced revenues is that small to mid-sized organizations are
increasingly reluctant to make new investments in UNIX-based products. Those
products appeal to larger organizations which have both the resources to manage
UNIX applications and the need for the scalability and robustness of a UNIX
solution. Smaller organizations and departments within larger organizations
appear to be migrating to the Windows NT platform at a rapid pace. The Company
believes that future NetJunction/UNIX projects will be limited to projects
involving large organizations and will require significant consulting and
integration. In response, the Company has realigned resources to place the
NetJunction business in a dedicated business unit to better serve large
organizations. The Company believes that a return to historic growth patterns
will depend on market acceptance of its new Windows NT-based products as well as
a continuing contribution from the NetJunction product line. With respect to the
Windows NT-based products, Net Talk(TM), a directory/certificate server and
multi-vendor e-mail coexistence solution, and the WorldSecure(TM) Client, a
secure e-mail desktop plug-in, began shipping during the second quarter of 1997
and the WorldSecure(TM) Server began shipping during the third quarter of 1997.
The Company's future revenue will depend increasingly on these new Windows NT
messaging and internet security products. Further, revenue from these new
Windows NT-based products will depend increasingly on the development of third
party distribution channels and OEM relationships. In this regard, the Company
entered into product distribution relationships with The Peapod Group plc. based
in the United Kingdom, ASCII Something Good Corporation based in Japan and
Security Dynamics Technologies, Inc. based in the United States (Distributors).
Under the terms of these contracts, the Distributors will sell bundled versions
of the Company's WorldSecure(TM) and Net Talk(TM) products. Approximately 27.4%
of third quarter license revenue represented initial product shipments under one
of these Distributor agreements. A key element of the Company's future revenue
growth will be the ability of the Company's Distributors and resellers to sell
the Company's products in volume. There can be no assurance that the
Distributors and resellers will be successful in marketing these products.
The Company's Windows NT-based Internet security products will also place the
Company into competition with a new set of vendors, many of whom have
significantly greater resources than the Company. Accordingly, the Company
intends to invest significantly in its business. As a result, there can be no
assurance that the Company will be profitable on a quarterly or annual basis.
The Company's future operating results may fluctuate due to factors such as the
demand for the Company's products; size and timing of customer orders; the
introduction of new products and product enhancements by the Company or its
competitors; the budgeting cycles of customers; acceptance by the market of the
Company's products; changes in the proportion of revenue attributable to license
and service fees; changes in the level of operating expenses; the ability of the
Company to develop new distribution channels; and competitive conditions in the
industry.
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RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of earnings data
for the periods indicated as a percentage of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue
Software licenses 67.4% 66.2% 56.2% 68.3%
Maintenance, installation, and training 32.6 33.8 43.8 31.7
----- ----- ----- -----
Total revenue 100.0 100.0 100.0 100.0
Cost of revenue
Software licenses 10.4 8.0 10.2 7.6
Maintenance, installation, and training 21.1 15.5 28.8 16.6
----- ----- ----- -----
Total cost of revenue 31.5 23.5 39.0 24.2
Gross Margin 68.5 76.5 61.0 75.8
Operating expense
Product development 34.6 23.9 41.5 26.4
Sales and marketing 53.7 43.1 70.5 47.9
General and administrative 23.2 10.8 24.6 12.6
----- ----- ----- -----
Total operating expense 111.5 77.8 136.6 86.9
Operating loss (43.0) (1.3) (75.6) (11.1)
Interest and other income 3.5 5.5 4.6 3.6
----- ----- ----- -----
Income (loss) before taxes (39.5) 4.2 (71.0) (7.5)
Income taxes 2.4 - 1.7 -
----- ----- ----- -----
Net income (loss) (41.9)% 4.2% (72.7)% (7.5)%
===== ===== ===== =====
</TABLE>
REVENUES
The Company's total revenues are derived primarily from license fees for its
software and charges for services, including maintenance, customization
consulting, installation and training. License fees relate to both the initial
license of its software products, as well as subsequent purchases to expand
capacity or add additional functionality. Maintenance, installation and training
revenues relate to support contracts, installation and training services.
Revenues from software licenses are generally recognized upon shipment of
software. Revenues from maintenance contracts are recognized over the contract
term, which generally is one year, while installation and training revenues are
recognized when the services are performed. The Company has also received
revenue associated with certain Distribution arrangements.
The Company's total revenues for the three and nine month periods ended
September 30, 1997 were $3.1 million and $8.0 million, respectively,
representing decreases of $771,000 or 19.9% and $1.8 million or 18.6% when
compared to the same periods in 1996 and a quarterly increase of $841,000 or
37.2% when compared with the quarter ended June 30, 1997.
Software license revenues for the three and nine month periods ended September
30, 1997 were $2.1 million and $4.5 million, respectively, representing a
decrease of $474,000 or 18.5% and $2.2 million or 33.0% when compared to the
same periods in 1996 and a quarterly increase of $1 million or 97.8% when
compared to the quarter ended June 30, 1997. The decreases in revenue from the
same periods in 1996 are primarily due to the shift in product mix from
NetJunction enterprise backbone system to Windows NT-based messaging and
security products. The quarterly increase in revenue when compared to the
quarter ended June 30, 1997 is primarily due to the initial shipments of the
Company's WorldSecure product line through channel sales.
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Approximately 27.4% of third quarter license revenue represented initial product
shipments under one Distributor agreement.
Maintenance, installation and training revenues for the three and nine month
periods ended September 30, 1997 were $1.0 million and $3.5 million,
respectively, representing a decrease of $297,000 or 22.7% and an increase of
$387,000 or 12.4% when compared to the same periods in 1996 and a quarterly
decrease of $192,000 or 16.0% when compared to the quarter ended June 30, 1997.
The increases in maintenance, installation and training revenues from the
comparable periods in 1996 were attributable to an increase in the number of
maintenance contracts associated with new software licenses, the renewal of
maintenance contracts by existing customers, and increases in demand for
customization consulting and training services. The quarterly decrease in
maintenance, installation and training revenues from the quarter ended June 30,
1997 was primarily attributable to weak NetJunction sales in the quarter ended
June 30, 1997, which resulted in reduced consultant and integration services for
the current quarter, along with an increase in the percentage of total revenue
from the sale of Windows NT-based products which require less service and
maintenance.
COST OF REVENUES
The Company's total costs of revenues for the three and nine month periods ended
September 30, 1997 were $978,000 and $3.1 million, respectively, as compared to
$910,000 and $2.4 million for the same periods in 1996 and $1.0 million for the
quarter ended June 30, 1997, representing increases of 7.5% and 31.4% from the
same periods in 1996 and a quarterly decrease of 3.9% from the quarter ended
June 30, 1997.
Cost of product revenues, consisting of the costs of royalties paid to third
party vendors, product media and duplication, packaging materials, and shipping
expenses, were $322,000 and $821,000 for the three and nine month periods ended
September 30, 1997, as compared to $309,000 and $751,000 for the same periods in
1996 and $217,000 for the quarter ended June 30, 1997, representing increases of
4.2%, 9.3% and 48.4%, respectively. The increases in cost of product revenues
were attributable to the mix of royalty bearing software products, certain fixed
price royalty arrangements with third party vendors, and other amortized costs
related to packaging materials. The quarterly increase from the quarter ended
June 30, 1997 was due to the increase in license revenue as the license costs
fluctuate in direct proportion to license revenue.
Maintenance, installation and training costs, consisting principally of
personnel-related costs for consulting, training and technical support, were
$656,000 and $2.3 million for the three and nine month periods ended September
30, 1997, as compared to $601,000 and $1.6 million for the same periods in 1996
and $800,000 for the immediately preceding quarter ended June 30, 1997,
representing increases of 9.2% and 41.6%, and a decrease of 18.0%, respectively.
The increases from the same periods in 1996 were due to the significant
expansion of the Company's customer service personnel across all categories,
including consulting, support, and account management staff early in fiscal
1997, while the quarterly decrease from the quarter ended June 30, 1997 was due
primarily to a reduction of headcount early in the quarter ended September 30,
1997.
PRODUCT DEVELOPMENT
Product development expenses consisted primarily of personnel-related costs,
including salaries and benefits of personnel, as well as equipment and facility
costs. Product development expenses were incurred for the research, design and
development of new products, enhancements of existing products, and quality
assurance activities. Costs related to research, design and development of
products are charged to product development expenses as incurred. Product
development expenses for the three and nine month periods ended September 30,
1997 were $1.1 million and $3.3 million as compared to $925,000 and $2.6 million
for the same periods in 1996 and $1.2 million for the quarter ended June 30,
1997, representing increases of 16.1%, and 27.9% and a decrease of 8.0%,
respectively. Product development expenses represented 34.6% of total revenues
for the three month period ended September 30, 1997. The increases in absolute
dollars in product development expenses from the comparable periods in 1996,
were due to increased staffing and associated support costs of software
engineers and consultants required primarily to expand product lines but
secondarily to enhance the Company's existing product lines. The quarterly
decrease in absolute dollars from the quarter ended June 30, 1997 was due
primarily to headcount reductions during the quarter ended September 30, 1997.
The quarterly decrease in product development expenses as a percentage of total
revenues was attributable to the headcount
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reductions during the quarter ended September 30, 1997, the increase in
revenues, as well as the fact that certain product development expenses do not
fluctuate in direct proportion to total revenues.
SALES AND MARKETING
Sales and marketing expenses consist primarily of salaries, benefits, and
commissions of sales and marketing personnel, trade show expenses, and
promotional expenses. Sales and marketing expenses for the three and nine month
periods ended September 30, 1997 were $1.7 million and $5.7 million, as compared
to $1.7 million and $4.7 million for the same periods in 1996 and $2.2 million
for the quarter ended June 30, 1997, representing a decrease of 0.2%, an
increase of 19.8%, and a decrease of 23.9%, respectively. Sales and marketing
expenses represented 53.7% of total revenues for the three month period ended
September 30, 1997. The increase in absolute dollars from the comparable nine
month period in 1996 was primarily the result of the expansion of the Company's
marketing personnel and the launch of the Company's new Windows NT-based
messaging and internet security products. The quarterly decrease from the
quarter ended June 30, 1997 was due primarily to headcount reductions during the
quarter ended September 30, 1997, as well as the fact that the quarter ended
June 30, 1997 included higher than normal marketing expenses related to the
launch of the Company's new Windows NT-based messaging and Internet security
products. The quarterly decrease in sales and marketing expenses as a percentage
of total revenues was attributable to the headcount reductions during the
quarter ended September 30, 1997, the increase in revenues, as well as the fact
that certain sales and marketing expenses do not fluctuate in direct proportion
to total revenues.
GENERAL AND ADMINISTRATIVE
General and administrative expenses primarily consist of personnel costs for
finance and accounting, human resources and executive management of the Company.
General and administrative expenses for the three and nine month periods ended
September 30, 1997 were $718,000 and $2.0 million as compared to $417,000 and
$1.2 million for the same periods in 1996 and $657,000 for the quarter ended
June 30, 1997, representing increases of 72.2%, 58.2% and 9.3%, respectively.
General and administrative expenses represented 23.2% of total revenues for the
three month period ended September 30, 1997. The increases in absolute dollars
from the comparable periods in 1996 were attributable primarily to increased
staffing and associated expenses necessary to manage and support the Company's
business. A secondary factor for this increase in absolute dollars was the
continuing amortization of goodwill related to the acquisition of Deming
Software, Inc. which occurred in the fourth quarter of 1996, as well as legal
expenses and other costs associated with the negotiation of new Distribution
arrangements. The quarterly decrease in general and administrative expenses as a
percentage of total revenues was attributable to the increase in revenue and the
fact that certain general and administrative expenses do not fluctuate in direct
proportion to total revenues.
The Company's headcount increased rapidly from July 1996 through March 1997, as
the Company continued to make strategic investments in product development and
distribution channels. These strategic investments were made to meet the
anticipated increase in demand for technical services following the license
revenue growth in 1996 for the UNIX-based NetJunction products, as well as to
build the Company's Windows NT-based products. The Company reduced its headcount
in July 1997 due to the weakened UNIX-based NetJunction sales for the six month
period ended June 30, 1997.
NET INTEREST INCOME
Net interest income consists of interest income and expense and other
miscellaneous income and expense items. Net interest income for the three and
nine month periods ended September 30, 1997 was $110,000 and $365,000, as
compared to $212,000 and $355,000 for the same periods in 1996 and $135,000 for
the quarter ended June 30, 1997. The changes in net interest income for the
comparable periods in 1996, as well as from the quarter ended June 30, 1997 were
primarily attributable to decreases in the Company's average cash and cash
equivalent and short-term investment balances, coupled with interest rate
fluctuations during the comparable periods.
11
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
In April 1996, the Company completed its initial public offering of 2.1 million
shares of Common Stock. The Company received net proceeds of approximately $13.8
million, after deducting expenses which included underwriting discounts and
commissions. At September 30, 1997 the Company had cash and cash equivalents of
$4.2 million, short-term investments of $5.5 million and working capital of $7.0
million.
The Company has a $2.0 million bank line of credit, which expires on January 7,
1998. As of September 30, 1997, the Company had utilized $243,000 of its
available line of credit.
Net cash used in operating activities amounted to $3.4 million for the nine
month period ended September 30, 1997 and was comprised principally of the
Company's net loss of $5.8 million, decreases in accounts payable, accrued
expenses, deferred revenue, and other liabilities of $1.2 million and an
increase in prepaid expenses of $198,000, offset by a decrease in accounts
receivable of $3.0 million and depreciation and amortization of $664,000.
Net cash provided by investing activities amounted to $106,000 for the nine
month period ended September 30, 1997, which included maturities of short-term
investments of $7.0 million and an increase in other assets of $147,000, offset
by the purchase of short-term investments of $6.5 million and $603,000 for
purchases of property and equipment. The Company currently has no significant
capital commitments for the remainder of fiscal 1997.
Net cash provided by financing activities amounted to $496,000 for the nine
month period ended September 30, 1997 which included repayments of stockholder
receivables of $265,000 and net proceeds from the issuance of common stock of
$394,000, offset by principal payments under capital lease obligations of
$156,000.
The Company may, in the future, pursue acquisitions of complementary companies
or technologies, or divest certain products and related services, to further
strategic corporate objectives. Such transactions could result in a significant
use of cash and earnings per share dilution caused by reduced interest income
and/or the issuance of additional stock. Additionally, costs associated with the
acquisition or divestiture of companies, products and related services or
technologies could materially impact future operating results. Further, such
acquisitions could result in the immediate write-off of research and development
in process and expenses relating to integration costs. Such costs could result
in significant losses in one or more fiscal quarters.
The Company believes that its cash balances and credit facilities will be
sufficient to meet its anticipated cash needs to fund operating losses, working
capital requirements, capital expenditures and business expansion for at least
the next twelve months. Thereafter, if cash generated from operations is
insufficient to satisfy the Company's liquidity requirements, the Company may
seek to sell additional equity or convertible debt securities or obtain
additional credit facilities. The sale of additional equity or convertible debt
securities could result in additional dilution to the Company's stockholders and
may not be available on terms favorable to the Company if at all.
ADDITIONAL FACTORS THAT MAY EFFECT FUTURE RESULTS
The Company was founded in February 1992 and has incurred operating losses in
each of its fiscal years since inception and had an accumulated deficit of $22.8
million as of September 30, 1997. The Company's prospects must be considered in
light of the risks, expenses and difficulties frequently encountered by
companies in the early stage of development, particularly companies in new and
rapidly evolving markets. There can be no assurance that the Company will be
successful in addressing such risks.
The Company's quarterly and annual operating results have in the past, and may
in the future, vary significantly depending on many factors. Historically, a
substantial portion of the Company's revenues has been recognized in the last
two-weeks of the third month of the quarter as a result of many customers'
purchasing practices. The inability of the Company to recognize expected
revenues during the last month of
12
<PAGE> 13
the quarter, particularly due to delay in the timing or loss of large orders,
could result in substantial fluctuations from period to period. Additional
factors that may affect operating results include the timing of customers'
decision-making processes, the timing of research, development and marketing
expenses in relation to product releases, the timing of product introductions by
the Company and its competitors, market acceptance of new versions of the
Company's products, variations in the mix of the Company's license products, and
general economic factors. Any unfavorable changes in these or other factors
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's success also depends on the performance of management and key
personnel. There have been several executive level changes during 1997. A key
element in the Company's future success is the ability of the Company's
management team to implement the Company's business strategy.
The Company's success is also dependent upon market acceptance of its products
in preference to competing products and products that may be developed by
others. There can be no assurance that the Company will be successful in
developing and marketing product enhancements or new products that respond to
technological change, evolving industry standards and changing customer
requirements or that such new products will achieve a sufficient level of market
acceptance to result in profitable operations. In addition, the introduction or
announcement of new product offerings by the Company or its competitors could
cause customers to defer or cancel purchases of existing Company products.
Failure of the Company to develop and introduce new products and product
enhancements in a timely and cost-effective manner or to anticipate and respond
adequately to changing market conditions, as well as any significant delay in
product development or introduction, could cause customers to delay or decide
against purchases of the Company's product, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company's future operating results are significantly dependent upon market
acceptance of its new Windows NT-based products, along with a continued
contribution from the Company's NetJunction products and related services. The
market for the Company's NetJunction products has arisen in large part because
of the proliferation of numerous disparate e-mail systems and LAN environments
and the fact that, to date, no single vendor has dominated this market. There
can be no assurance that the NetJunction products will continue to be adequately
enhanced to achieve continued market acceptance or that competitive developments
out of the Company's control may substantially reduce or eliminate the Company's
principal market. Sales of NetJunction products during the first two quarters of
fiscal 1997 have been below the Company's expectations resulting in operating
losses. The Company believes that the principal reason for this shortfall is a
more rapid than anticipated shift from the UNIX platform to the Windows NT
platform in small and mid-sized organizations, as well as departments of large
organizations. While the Company believes that there continues to be market
demand for the NetJunction product line, this demand is limited to large
organizations. The Company believes that the introduction of its new Windows
NT-based products and the development of new sales channels during the second
and third quarters of fiscal 1997 will begin the process of restoring the
Company to its historic growth patterns. However, there can be no assurance that
the Company will be successful in this regard. Further, sales of NetJunction
products may continue to be below the Company's revised expectations resulting
in greater than anticipated operating losses during the second half of fiscal
1997.
The Company believes that its success is also dependent upon the successful
completion, introduction and market acceptance of its Window NT-based products.
In this regard, it should be noted that a significant percentage of revenue
reported in the third quarter of 1997 was derived from the Company's
WorldSecure(TM) product family. Further, the Company expects that future revenue
growth will depend largely on increased sales of WorldSecure(TM) products. There
are a number of factors which must be addressed for the Company's products to
achieve broad market acceptance. These factors include performance,
functionality, interoperability, price and the customer's assessment of the
Company's technical, managerial, service and support expertise and capability.
Failure to succeed with respect to any of these factors could result in the
Company failing to achieve broad market acceptance of its products which could
have a material adverse effect on the Company's future revenue growth.
The Company anticipates that its marketing strategy of its Windows NT-based
products will in the future depend more significantly on distribution by third
party Distributors, VARs and OEMs, and on managing the distribution channel.
There can be no assurance that expansion of the Company's channel sales efforts
will succeed or that such expansion will result in increased sales. If the
channel sales efforts fail, the Company's business, operating results and
financial condition could be materially and adversely affected.
13
<PAGE> 14
International sales accounted for 37.6% of the Company's total sales for the
three month period ended September 30, 1997, compared to 20.1% for the same
quarter in 1996 and 8.7% for the immediately preceding quarter ended June 30,
1997. International sales involve a number of risks, including the impact of
possible recessionary environments in economies outside of the United States,
longer receivables collection periods, unexpected changes in regulatory
requirements, reduced protection for intellectual property rights in some
countries, tariffs and other trade barriers. There can be no assurance that the
Company will be able to sustain or increase revenue derived from international
licensing and service. Any failure to expand sales in foreign markets, and the
risks of doing business in those markets, could have a material adverse effect
on the Company's business, financial condition and result of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
14
<PAGE> 15
- --------------------------------------------------------------------------------
PART II: OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
In May 1996, an action was commenced against the Company by a subcontractor,
Salinas Group Limited, relating to a project by which the Company provided
software products and services to one of its customers. The complaint in the
U.S. District Court for the Southern District of New York (the "New York
Action"), sought payment for certain cost overruns and damages for an
unspecified breach of contract and set forth various claims, including breach of
alleged contracts and interference with certain contracts the subcontractor had
with the Company's customers. In June 1997, the contractor withdrew some of its
claims. The complaint sought over $12 million in damages, but did not specify
the basis, or the nature, of the alleged damages. The complaint also sought
unspecified punitive damages.
The Company filed a counterclaim against the subcontractor for amounts paid to
the subcontractor in excess of that called for by the subcontractor agreement.
In addition, the Company filed a separate action in California state courts
against both the subcontractor and its principal, setting forth claims for
breach of contract, conversion, fraud, breach of fiduciary duty, and their
failure to report and pay to the Company fees they received for licensing the
Company's products. The subcontractor filed cross-claims that appear to be
substantially similar to those asserted in the New York Action. After a
non-binding arbitrator award in favor of the Company, the parties settled both
actions in September 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are being filed as part of this report:
10.01 Separation, Consulting and Release Agreement dated July 23, 1997
between Mark A. Jung and the Registrants**
10.02 Settlement, Consulting and Release Agreement dated July 15, 1997
between Christopher Andrews and the Registrants**
10.03 Settlement, Consulting and Release Agreement dated July 15, 1997
between Steven Goldner and the Registrants**
11.1 Statement re: Computation of Net Income (Loss) per Share
27.1 Financial Data Schedule
** Confidential treatment has been requested with respect to certain portions of
this exhibit. Confidential portions have been omitted from the public filing
and have been filed separately with the Securities and Exchange Commission.
(b) Reports on Form 8-K:
No reports were filed during the three month period ended
September 30, 1997.
15
<PAGE> 16
- --------------------------------------------------------------------------------
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
WORLDTALK COMMUNICATIONS CORPORATION
Date: November 14, 1997 By: /s/ STEPHEN R. BENNION
----------------------------------------
Stephen R. Bennion
Executive Vice President, Finance and
Administration and Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
16
<PAGE> 17
<TABLE>
<CAPTION>
Exhibit Index: Page
-------------- ----
<S> <C> <C>
10.01 Separation, Consulting and Release Agreement dated July 23, 1997
between Mark A. Jung and the Registrants** 18
10.02 Settlement, Consulting and Release Agreement dated July 15, 1997
between Christopher Andrews and the Registrants** 24
10.03 Settlement, Consulting and Release Agreement dated July 15, 1997
between Steven Goldner and the Registrants** 29
11.1 Statement re: Computation of Net Income (Loss) per Share 34
27.1 Financial Data Schedule 35
** Confidential treatment has been requested with respect to certain portions of
this exhibit. Confidential portions have been omitted from the public filing
and have been filed separately with the Securities and Exchange Commission.
</TABLE>
17
<PAGE> 1
EXHIBIT 10.01
[CONFIDENTIAL TREATMENT REQUESTED]
SEPARATION, CONSULTING AND RELEASE AGREEMENT
This Agreement ("AGREEMENT") is entered into as of July 23, 1997,
between Worldtalk Communications Corporation, a Delaware corporation doing
business as Worldtalk Corporation ("WORLDTALK"), and Mark A. Jung ("MR. JUNG")
(jointly referred to as the "PARTIES").
WHEREAS, Mr. Jung has been employed by Worldtalk as its President and
Chief Executive Officer and is a Director serving on the Board of Directors of
Worldtalk; and
WHEREAS, Mr. Jung and Worldtalk desire to discontinue the employment and
other relationships between them and to enter into a mutual general release and
a consulting arrangement on the terms and subject to the conditions described in
this Agreement;
NOW, THEREFORE, for and in consideration of the mutual promises
contained herein, the Parties agree as follows.
1. SEVERANCE OF EMPLOYMENT. Mr. Jung has submitted his resignation as
Chief Executive Officer and a Director of Worldtalk, and from all other offices
he holds, and Worldtalk has accepted such resignation, effective Wednesday, July
23, 1997. Mr. Jung has informed Worldtalk that he also has terminated his
employment effective October 31, 1997 (the "SEPARATION DATE"). The Parties agree
that Mr. Jung's resignation terminates, effective as of the date of this
Agreement, that certain Employment Agreement, dated January 23, 1997, between
the Parties. The Employment Agreement is hereby replaced by the following terms.
1.1 Continued Employment. During the period prior to the Separation
Date, Mr. Jung will make himself available to Worldtalk, at its request, to
perform duties relating to special projects, including but not limited to,
making himself available to assist Worldtalk and its successor Chief Executive
Officer in their transition, as well as making himself available to assist
Worldtalk in connection with the defense of the currently pending lawsuit by and
against Worldtalk (the "SALINAS LITIGATION"). Such services will be provided for
no greater than 10 hours per week at such times and places as shall be mutually
convenient to the Parties. During such period, Mr. Jung will have no right to
enter into contracts on behalf of, or otherwise bind, Worldtalk and will make no
representation to the contrary to any person or entity.
1.2 Continued Compensation. During the time prior to the Separation
Date (the "SEPARATION PERIOD") and as consideration for entering into this
Agreement, Mr. Jung will be paid his current base monthly salary, prorated for
any partial month, to be paid (less any applicable payroll deductions and
withholdings) in accordance with Worldtalk's normal payroll policies in effect
from time to time and will receive full employee benefits including, without
limitation, health insurance.
1.3 Employee Benefits. Worldtalk will provide Mr. Jung and any
dependents covered by Worldtalk's health insurance plan, continuation coverage
as provided by the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA"), at its expense for two calendar months after the Separation
Date, provided that Mr. Jung timely completes and submits the requisite forms to
Worldtalk in order to obtain such continuation coverage. After
<PAGE> 2
such time, Mr. Jung will be responsible for the payment of any COBRA
continuation coverage. Mr. Jung's participation in any employee benefit plans
that are sponsored by Worldtalk, other than the health plan, including, but not
limited to, the 401(k) plan, life and accidental death or dismemberment
insurance benefits, will cease as of the Separation Date.
1.4 Acknowledgment of Payment of Wages. On the Separation Date,
Worldtalk will deliver to Mr. Jung a final paycheck for all accrued wages,
salary, bonuses, reimbursable expenses and accrued but unused vacation pay due
and owing to him from Worldtalk as of the Separation Date.
1.5 Return of Company Property. Mr. Jung hereby represents and
warrants to Worldtalk that, at the date of this Agreement, he has returned to
Worldtalk any and all of Worldtalk's property or data of any type whatsoever
that was in his possession or control, other than those items of nominal value
that Mr. Jung will retain in accordance with discussions he has held with
Worldtalk's Chief Financial Officer.
2. CONSULTING AFTER SEPARATION DATE.
2.1 Duties. For a period of nine months after the Separation Date
through and including July 31, 1998 (the "CONSULTING PERIOD"), Mr. Jung will
continue to make himself available as a consultant to Worldtalk in charge of
special projects, as well as continue to make himself available to assist
Worldtalk in connection with the defense of the Salinas Litigation. Mr. Jung's
consulting services will be performed during the Consulting Period for no
greater than 10 hours in any one week at such times and places as shall be
mutually convenient to the Parties. Such services are to be performed in a
manner that will not interfere with Mr. Jung's then current employment.
2.2 Consulting Payments. As consideration for entering into this
Agreement and in return for Mr. Jung's consulting services, Worldtalk agrees to
pay Mr. Jung [ ** ] per hour for every hour that Worldtalk requests his services
during the Consulting Period and Mr. Jung performs services during such period,
with fractions of an hour compensated proportionately. Accrued but unpaid
consulting fees will be paid within 30 days after Worldtalk's receipt of Mr.
Jung's invoice for services rendered, detailing hours spent and tasks completed.
Each invoice will be sent to Worldtalk, Attn: Chief Financial Officer, at
Worldtalk's principal offices.
2.3 Termination of Consulting Period. Mr. Jung may terminate the
Consulting Period prior to the end of its term at any time upon delivering
written notice of termination to the Chief Financial Officer of Worldtalk at
Worldtalk's principal offices. Worldtalk may likewise terminate the Consulting
Period but only after a material breach of this Agreement or of the
Confidentiality Agreement by Mr. Jung that is not cured by Mr. Jung, if it is
possible of cure, within 30 days after Worldtalk's written notice of breach is
delivered to Mr. Jung at his last known address. All notices will be delivered
personally, by messenger or by certified mail, return receipt requested, postage
and fees prepaid.
2.4 Tax Liability. During the Consulting Period, Mr. Jung will be an
independent contractor. Accordingly, Mr. Jung agrees to indemnify and hold
Worldtalk harmless
2
[**Confidential treatment has been requested with respect to certain portions of
this Exhibit. Confidential portions have been omitted from the public filing and
have been filed separately with the Securities and Exchange Commission. ]
<PAGE> 3
from any and all tax obligations for withholding and payroll taxes payable as a
consequence of the payment of the consulting fees described above.
3. STOCK AND OPTIONS.
3.1 Stock Owned by Mr. Jung. Prior to the effective date of
Worldtalk's initial public offering of Common Stock (the "IPO") Worldtalk
granted Mr. Jung options to purchase Worldtalk Common Stock during his
employment with Worldtalk pursuant to several stock option agreements (the
"STOCK OPTION AGREEMENTS"), all of which have been exercised. As of July 31,
1998 the last day of the Consulting Period, Mr. Jung will hold 40,816 unvested
shares of Worldtalk Common Stock that are subject to repurchase by Worldtalk at
the original exercise price pursuant to the terms of the Stock Option Agreements
upon termination of Mr. Jung's relationship as a service provider as described
therein.
3.1.1 Repurchase of Shares. Worldtalk hereby exercises its right to
repurchase all of the unvested shares held by Mr. Jung as of July 23, 1998 for a
repurchase price of $0.20 per share ($8,163.20 in the aggregate) payable within
15 days after the date of this Agreement. Subsequent to such repurchase, stock
certificates representing all of the vested shares held by Mr. Jung will be
immediately released from escrow to Mr. Jung and the remaining 71,544 shares of
Worldtalk Common Stock will remain in escrow to vest in accordance with the
terms of the Stock Option Agreements until July 23, 1998. As such shares vest
and at Mr. Jung's request, certificates representing the shares that have vested
will be released to Mr. Jung out of escrow. Subject to the provisions of Section
3.1.2 below, if the employment and/or consulting arrangement provided for in
this Agreement is terminated prior to July 23, 1998, Worldtalk reserves the
right to repurchase all or part of the shares that remain unvested at the date
of termination in accordance with the exercise and payment terms set forth in
the most recent Stock Option Agreement
3.1.2 No Repurchase on Acquisition. In the event of an Acquisition
(defined below) and so long as Mr. Jung's employment or consulting arrangement
described above in this Agreement has not terminated, Worldtalk agrees not to
exercise its right of repurchase at any time following the Acquisition with
respect to any of the 71,544 shares that remain unvested as of the closing of
the Acquisition. The stock certificates representing such shares will be
released to Mr. Jung no later than the time the consideration to be received by
the stockholders of Worldtalk in connection with the Acquisition is released to
the stockholders. For purposes of this Section 3.1.2, an "ACQUISITION" means (a)
a merger or consolidation of Worldtalk in which Worldtalk is not the surviving
corporation (other than a merger or consolidation with a wholly owned subsidiary
or other transaction in which there is no substantial change in the stockholders
of Worldtalk or their relative holdings), (b) a merger in which Worldtalk is the
surviving corporation but after which the stockholders of Worldtalk cease to own
at least 50% of the issued and outstanding capital stock of Worldtalk or (c) the
sale, in one transaction or series of related transactions, of more than 50% of
the capital stock of Worldtalk, other than trades to unrelated purchasers on the
open market, or (d) the sale of all or substantially all of the assets of
Worldtalk.
3.2 Stock Option. Effective as of the effective date of the IPO,
Worldtalk granted Mr. Jung an option under Worldtalk's Equity Incentive Plan for
the purchase of up to
3
<PAGE> 4
30,000 shares of Worldtalk Common Stock at an exercise price of $8.00 per share
(the "Option"). During the Consulting Period, Mr. Jung will be performing
substantial services for Worldtalk and such option will continue to vest in
accordance with its terms. Mr. Jung acknowledges that if he does not exercise
such option as to all of the vested shares within the period ending three months
after the termination of Mr. Jung's services as a consultant, then the option
will expire as to the shares not purchased in accordance with the option's
terms.
4. CONTINUING OBLIGATIONS.
4.1 Continuing Obligations re Proprietary Information. Mr. Jung
hereby acknowledges that he is bound by the Proprietary Rights and
Confidentiality Agreement dated March 25, 1992 (the "CONFIDENTIALITY AGREEMENT")
between the Parties. Mr. Jung acknowledges and agrees that he will continue to
be bound by the Confidentiality Agreement in accordance with its terms during
the Consulting Period and thereafter. Mr. Jung further confirms that he has
delivered to Worldtalk all documents and data of any nature containing or
pertaining to such Confidential Information (as defined in such agreement) and
that he has not taken with him any such documents or data or any reproduction
thereof. Any breach of the Confidentiality Agreement shall be deemed a material
breach of this Agreement.
4.2 Restrictions on Employment. Mr. Jung acknowledges that his
position with Worldtalk has placed him in a position of trust and confidence
regarding the proprietary information of Worldtalk and that during the years of
his employment and as the principal founder of Worldtalk, Mr. Jung has been
integrally involved in the development of Worldtalk's products and marketplace.
Accordingly, Mr. Jung agrees that, until July 23, 1998 and in order to guard
against the inadvertent disclosure of Worldtalk's proprietary information, he
will not serve, directly or indirectly, as an employee, consultant, independent
contractor or other service provider for, or to, the principal competitors of
Worldtalk. Such competitors consist of Control Data Systems, ISOCOR and the
SoftSwitch division only of International Business Machines.
4.3 Continued Cooperation re Litigation. Mr. Jung will continue to
cooperate with Worldtalk in every reasonable way and at Worldtalk's expense and
request, to testify and to make himself available for depositions, trials,
hearings and other proceedings held, or to be held, in connection with the
Salinas Litigation, at all times before, during and after the Consulting Period.
Mr. Jung acknowledges that this cooperation will include, but not be limited to,
reasonable travel to and from New York, if required by Worldtalk. Mr. Jung will
be compensated for his time in connection with services requested by Worldtalk
at [ ** ] per hour, payable as described in Section 2.2. Such services are to be
performed in a manner that will not interfere with Mr. Jung's then current
employment. Worldtalk agrees to use reasonable efforts to minimize the time to
be spent by Mr. Jung on the Salinas Litigation and, in each case, will attempt
to identify alternatives that lessen reliance on Mr. Jung's services.
5. GENERAL RELEASE.
5.1 Scope of Release. Worldtalk on the one hand, and Mr. Jung on the
other hand, on behalf of themselves, and their respective representatives,
heirs, executors, administrators, attorneys, partners, officers, directors,
agents, successors, assigns, shareholders and employ
4
[**Confidential treatment has been requested with respect to certain portions of
this Exhibit. Confidential portions have been omitted from the public filing and
have been filed separately with the Securities and Exchange Commission. ]
<PAGE> 5
ees (collectively, "AFFILIATES"), hereby forever mutually release and discharge
each other, and their respective Affiliates, of and from any and all causes of
action, suits, debts, liens, agreements, liabilities, claims, demands, losses,
damages, costs or expenses, including without limitation, court costs and
attorneys' fees, which either may have against the other as of the date hereof,
whether known or unknown, suspected or unsuspected, arising from any omission,
act or fact that has occurred up to and until the date of the execution of this
Agreement, including but not limited to:
(a) any and all claims relating to or arising from Mr.
Jung's employment relationship with Worldtalk, other than the right to
his vested retirement benefit under Worldtalk's 401(k) plan, his rights
under COBRA and his rights under the Indemnification Agreement;
(b) except as described in Section 3, any and all claims
relating to or arising from Mr. Jung's right to purchase or the actual
purchase of Worldtalk capital stock, or of any options, warrants or
other rights to purchase Worldtalk capital stock;
(c) any and all claims from wrongful discharge of
employment, breach of contract, both express and implied, negligent or
intentional infliction of emotional distress, negligent or intentional
misrepresentation, negligent or intentional interference with contract
or prospective economic advantage, negligence and defamation; and
(d) any and all claims arising out of any other laws and
regulations relating to employment or employment discrimination,
including, without limitation, for violations of the California Fair
Employment and Housing Act, California Government Code ss. 12900, et
seq.; the Employee Retirement Income Security Act (ERISA), 29 U.S.C. ss.
1001, et seq.; Title VII of the Civil Rights Act of 1964, 42 U.S.C. ss.
2000e, et seq.; and 42 U.S.C. ss. 1981.
Notwithstanding anything to the contrary in the preceding sentence, nothing
contained in this Section 5 shall release or terminate (a) the continuing
obligations of the parties under that certain Indemnification Agreement, dated
April 5, 1996, between Worldtalk and Mr. Jung (the "INDEMNIFICATION AGREEMENT"),
(b) the continuing obligations of Worldtalk and Mr. Jung under the
Confidentiality Agreement, (c) the consequences of any actions of Mr. Jung that
may constitute a misdemeanor or a felony, (d) the continuing obligations of
Worldtalk and Mr. Jung under the Stock Option Agreements and the Option referred
to in Section 3 above nor (e) the continuing obligations of Worldtalk and Mr.
Jung under this Agreement.
5.2 California Civil Code Section 1542. THIS RELEASE EXTENDS TO
CLAIMS THAT THE PARTIES DO NOT KNOW OR SUSPECT TO EXIST IN THEIR FAVOR, WHICH IF
KNOWN BY THE PARTY RELEASING THE SAME WOULD HAVE MATERIALLY AFFECTED THAT
PARTY'S DECISION TO ENTER INTO THIS RELEASE. THE PARTIES ACKNOWLEDGE THAT THEY
ARE FAMILIAR WITH SECTION 1542 OF THE CIVIL CODE OF THE STATE OF CALIFORNIA,
WHICH PROVIDES AS FOLLOWS:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
<PAGE> 6
THE PARTIES EXPRESSLY WAIVE AND RELINQUISH ANY RIGHT OR BENEFIT THAT THEY HAVE
OR MAY HAVE UNDER SECTION 1542 OF THE CIVIL CODE OF THE STATE OF CALIFORNIA, OR
ANY OTHER STATUTE OR LEGAL PRINCIPLE WITH SIMILAR EFFECT. In connection with
such waiver and relinquishment, the parties hereto acknowledge that, after
executing this Agreement, they may discover claims or facts in addition to, or
different from, those that they now know or believe to exist with respect to the
subject matter of this mutual release, but that, except as specifically provided
in this Section 5, it is their intention to settle and release all of the
claims, matters and differences known or unknown, suspected or unsuspected,
which now may exist or previously may have existed among them. The releases
given in this Section 5 shall remain in effect as full and complete mutual
releases notwithstanding the discovery or existence of any such additional or
different claim or fact.
6. UNDERSTANDING OF THIS AGREEMENT. Mr. Jung has been advised to consult
with an attorney prior to executing this Agreement. Mr. Jung represents and
agrees that he has availed himself of this right, that he has carefully read and
fully understands all of the provisions of this Agreement and that he is
voluntarily entering into this Agreement.
7. INDEMNITY. As a further material inducement to Worldtalk to enter
into this Agreement, Mr. Jung hereby indemnifies each of Worldtalk and its
Affiliates from and against any and all losses, costs, damages, or expenses,
including without limitation, attorneys' fees incurred by any of them, arising
out of any breach of this Agreement by Mr. Jung or the fact that any
representation made herein by Mr. Jung was false when made.
8. GENERAL PROVISIONS.
8.1 Successors and Assigns. The provisions of this Agreement
contained herein shall extend and inure to the benefit of and be binding upon,
in addition to the Parties hereto, just as if they had executed this Agreement,
the respective Affiliates of the Parties.
8.2 Representations as to Authority. Each of the Parties hereto
represents and warrants that he or it has the sole right and exclusive authority
to execute this Agreement and that such Party has not sold, assigned,
transferred, conveyed, or otherwise disposed of any claim or demand, or any
portion of or interest in any claim or demand, relating to any matter covered by
this Agreement.
8.3 Arbitration. Any dispute regarding any aspect of this Agreement
or any act which would violate any provision in this Agreement will be resolved
by an experienced employment law arbitrator licensed to practice law in
California and selected in accordance with the rules of the American Arbitration
Association, as the exclusive remedy for such dispute. Judgment on any award
rendered by the arbitrator may be entered in any court having proper
jurisdiction. Should Mr. Jung or Worldtalk institute any legal action or
administrative proceeding with respect to any claim waived by this Agreement or
pursue any dispute or matter covered by this Section 8.3 by any method other
than said arbitration, the responding party shall be entitled to recover from
the other party all damages, costs, expenses and attorneys' fees incurred as a
result of such action.
6
<PAGE> 7
8.4 Entire Agreement. This Agreement, the Confidentiality Agreement,
the Indemnification Agreement, the Stock Option Agreements and the Option
constitute the entire agreement between Mr. Jung and Worldtalk with respect to
the subject matter hereof and supersede all prior negotiations and agreements,
whether written or oral, relating to such subject matter. Mr. Jung acknowledges
that neither Worldtalk nor its agents or attorneys, have made any promise,
representation or warranty whatsoever concerning the future relationships among
the Parties or that is to survive this Agreement, whether written or oral, that
is not contained in the Agreements listed in this Section 8.4.
8.5 Modification. It is expressly agreed that this Agreement may not
be altered, amended, modified, or otherwise changed in any respect except by
another written agreement that specifically refers to this Agreement, duly
executed by authorized representatives of each of the Parties.
8.6 Severability. If any provision of this Agreement is held to be
void, voidable, unlawful or unenforceable, that part will be amended to achieve
as nearly as possible the same economic effect as the original provision, if in
so doing, neither of the Parties is deprived of the substantial benefit of its
bargain, and the remainder of this Agreement will remain in full force and
effect.
8.7 Interpretation. This Agreement is made, and will be construed,
under California law, as applied to contracts entered into in California by
California residents to be performed entirely within California. This Agreement
has been negotiated by the parties hereto, and its language shall not be
construed for or against any party due to any rule of construction, nor will the
terms of this Agreement be deemed a precedent or practice, or continuation of a
precedent or practice, respecting any officer, director or employee of
Worldtalk.
8.8 Counterparts. This Agreement may be executed in counterparts,
each of which will be deemed an original, but all of which, taken together, will
constitute one and the same agreement.
PLEASE READ THIS AGREEMENT CAREFULLY. THIS AGREEMENT INCLUDES A RELEASE OF
ALL KNOWN AND UNKNOWN CLAIMS.
IN ACKNOWLEDGMENT OF THE FOREGOING, each of the Parties has duly
executed this Agreement on the date set forth below but effective as of July 23,
1997.
Dated: July 24, 1997 /s/ MARK A. JUNG
----------------------------------
MARK A. JUNG
WORLDTALK COMMUNICATIONS
CORPORATION
Dated: July 24, 1997 By: /s/ Stephen R. Bennion
------------------------------
Title: Executive VP and CFO
---------------------------
7
<PAGE> 1
EXHIBIT 10.02
[Confidential Treatment Requested]
SETTLEMENT, CONSULTING AND RELEASE AGREEMENT
This Settlement, Consulting and Release Agreement (hereafter "Settlement
Agreement") is made as of the date of execution set forth below, by and between
Christopher Andrews ("Mr. Andrews") and Worldtalk Communications Corporation,
doing business as Worldtalk Corporation ("Worldtalk") (jointly referred to as
the "Parties").
RECITALS
WHEREAS, Mr. Andrews was employed by Worldtalk since December 27, 1995,
and held the position of Vice President, Sales.
WHEREAS, Mr. Andrews and Worldtalk have discontinued the employment
relationship between them and wish to set forth the terms of their agreement.
NOW, THEREFORE, for and in consideration of the mutual promises
contained herein, the Parties agree as follows:
1. Mr. Andrews has submitted his resignation as an employee of Worldtalk
and from all other positions at Worldtalk, and Worldtalk has accepted such
resignation, effective May 15, 1997. Mr. Andrews affirms and acknowledges
receipt of his regular salary payments through May 15, 1997 on the then-current
payroll schedule, and acknowledges and agrees that he has no unused vacation
balance as of May 15, 1997.
2. As consideration for the promises herein, and for other good and
valuable consideration, receipt of which is hereby acknowledged, Worldtalk
agrees as follows:
<PAGE> 2
(a) Worldtalk has engaged Mr. Andrews as a Consultant from May 16,
1997 through [ ** ] (the "Consulting Period") and Mr. Andrews will receive
[ ** ] payable semi-monthly on the 8th and 22nd of each month through the end of
his Consulting Period. Upon due execution of this Settlement Agreement by Mr.
Andrews, Worldtalk will promptly pay him the amount of [ ** ] by July 18, 1997,
representing payment for the period May 16, 1997 through July 15, 1997. Mr.
Andrews will not be obligated to provide consulting services of more than 5
hours in any one calendar week during the Consulting Period . Mr. Andrews will
be obligated to work only at such times as shall not interfere with his then
current employment, if any, and will perform such consulting services from his
home, or over the telephone.
(b) Mr. Andrews may terminate his relationship with Worldtalk at any
time by sending written notice of termination to a Worldtalk Officer. Worldtalk
may likewise terminate Mr. Andrews's relationship, but only subsequent to a
material breach of this Agreement by Mr. Andrews that is not cured by Mr.
Andrews within 30 days after Worldtalk's written notice of such breach is sent
pursuant to Paragraph 14 to Mr. Andrews. Mr. Andrews will continue to be paid
per the above during the cure period, subject to Worldtalk's rights to recover
any overpayment or its rights of setoff. Termination by Worldtalk or Mr. Andrews
will also terminate Mr. Andrews's right to receive the compensation provided for
this in this Section 2 for any period after the effective date of notice, May
15, 1997.
2
[**Confidential treatment has been requested with respect to certain portions of
this Exhibit. Confidential portions have been omitted from the public filing and
have been filed separately with the Securities and Exchange Commission. ]
<PAGE> 3
(c) Through Cobra, Worldtalk will continue to pay the cost of
medical, dental and vision benefit premiums through August 31, 1997 or, if Mr.
Andrews is not employed and offered medical benefits through a future employer,
Worldtalk will extend payment of Cobra coverage until the earlier of his
obtaining a position with a new employer or until November 30, 1997.
(d) Mr. Andrews acknowledges receipt of $16,562.50, net of
withholding, as full and complete payment of any and all commissions, bonus
payment, or related compensation.
(e) Pursuant to the provisions of Worldtalk's Incentive Stock Option
Plan, Mr. Andrews acknowledges he had until July 14, 1997, sixty (60) days after
termination of his employment relationship described above) to exercise his
vested stock options. All vesting ceased as of Mr. Andrews' last date of
employment, May 15, 1997.
(f) Under Section 6 of the Secured Full Recourse Promissory Note
issued on October 24, 1996 to Mr. Andrews and Heidi Andrews in connection with a
loan of $325,000 from Worldtalk, the principal sum of the Promissory Note,
together with all interest accrued, is due and payable three (3) months
following the date of termination of Mr. Andrews' employment. Notwithstanding
the provisions of Section 6 of the Promissory Note, Worldtalk and Mr. Andrews'
agree that the principal amount of the Promissory Note, together with accrued
interest, will be due and payable in full on December 1, 1997. Failure to repay
all amounts owed under the Promissory Note by December 1, 1997 will constitute
an event of default under the Promissory Note.
3
<PAGE> 4
(g) Worldtalk hereby reaffirms any indemnity obligation it may owe
Mr. Andrews by virtue of his having been an officer of Worldtalk.
3. Mr. Andrews acknowledges and agrees that the payments set forth in
the preceding paragraphs and any other consideration provided to him in
accordance with this Settlement Agreement shall constitute a retainer for Mr.
Andrews' consulting services to be rendered to Worldtalk as needed through and
until [ ** ] ("the Consulting Period"). Mr. Andrews agrees that during the
Consulting Period, he shall not become employed by or render consulting services
to any entity or individual in competition with Worldtalk in any respect. Mr.
Andrews and Worldtalk agree that Mr. Andrews may, during the Consultation
Period, seek employment in competition with Worldtalk to the extent the
employment would commence after the termination of the Consulting Period and be
consistent with Mr. Andrews' duties of confidentiality to Worldtalk.
4. Release: Mr. Andrews, on behalf of himself, his representatives,
heirs, executors, attorneys, agents, and each of the foregoing, hereby forever
releases and discharges Worldtalk and its representatives, attorneys, agents,
partners, officers, shareholders, directors, employees, parents, subsidiaries,
affiliates, divisions, successors and assigns, and each of the foregoing, of and
from any and all manner of action, claim or cause of action, in law or in
equity, suits, debts, liens, contracts, agreements, promises, liabilities,
demands, losses, damages, costs or expenses, including without limitation court
costs and attorneys' fees, which Mr. Andrews may have against them at the time
of the
4
[**Confidential treatment has been requested with respect to certain portions of
this Exhibit. Confidential portions have been omitted from the public filing and
have been filed separately with the Securities and Exchange Commission. ]
<PAGE> 5
execution of this Settlement Agreement, arising out of, or in connection with,
or relating directly or indirectly to Mr. Andrews' employment with Worldtalk
and/or the termination of Mr. Andrews' employment with Worldtalk, with the
exception of any obligations created by this Settlement Agreement ("Andrews
Released Matters").
5. Release: Worldtalk, on behalf of itself, hereby forever releases and
discharges Mr. Andrews and his representatives, attorneys, agents, partners,
successors and assigns, and each of the foregoing, of and from any and all
manner of action, claim or cause of action, in law or in equity, suits, debts,
liens, contracts, agreements, promises, liabilities, demands, losses, damages,
costs or expenses, including without limitation court costs and attorneys' fees,
which Worldtalk may have against them at the time of the execution of this
Settlement Agreement, arising out of, or in connection with, or relating
directly or indirectly to Mr. Andrews' employment with Worldtalk and/or the
termination of Mr. Andrews' employment with Worldtalk, with the exception of any
obligations created by this Settlement Agreement and any obligations of
confidentiality ("Worldtalk Released Matters").
6. Return of Property: Mr. Andrews understands and agrees that he will
identify to Worldtalk and turn over to Worldtalk no later than five (5) days
after his execution of this Settlement Agreement any and all files, memoranda,
records, credit cards, and other documents and physical or personal property
which Mr. Andrews received from Worldtalk and which are the property of
Worldtalk, along with any and all copies thereof in any medium or form, to the
extent the property has not already been
5
<PAGE> 6
turned over. This property includes but is not limited to the following; one (1)
HP Omnibook 500C 5/90 VL 8/810, one (1) EtherlinkIII Lan & Modem 28.8/V.34M,
three (3) HP Omnibook Rechargeable Batteries, and one (1) Fax Machine. If Mr.
Andrews would like to purchase the HP Omnibook, the net book value amount of
$2,866.15 should be submitted to Worldtalk no later than July 30, 1997 should he
decide to make this purchase.
7. Worldtalk will also provide a voice mail box for Mr. Andrews for
three (3) months following his termination date which will enable him to receive
forwarded messages from internal personnel at Worldtalk. This voice mail box
number will be 6194 and the password will also be 6194.
8. Trade Secrets: Mr. Andrews understands and agrees that in the course
of his employment with Worldtalk, he acquired confidential or proprietary
information and trade secrets concerning Worldtalk's operations, its future
plans and its methods of doing business, including by way of example, but by no
means limited to, information about Worldtalk's customers, product development,
research, technology, financial, marketing, pricing, costs, compensation and
other matters (hereinafter collectively "Trade Secrets"), all of which
information Mr. Andrews understands and agrees would be extremely damaging to
Worldtalk if disclosed to a competitor or made available to any other person or
corporation. As used herein, the term "Competitor" includes but is not limited
to any corporation, firm or business engaged in a business similar to that of
Worldtalk or its subsidiary companies. Mr. Andrews understands and agrees that
Trade Secrets have been divulged to Mr. Andrews in confidence, and Mr. Andrews
understands and agrees that he
6
<PAGE> 7
will keep such information secret and confidential. Mr. Andrews further
understands and agrees that, at all times, he will not disclose or communicate
Trade Secrets to either a Competitor or any other person or in any way make such
information available to others, or make use of such information on Mr. Andrews'
own behalf, or on behalf of any Competitor. In view of the nature of Mr.
Andrews' employment and the Trade Secrets which Mr. Andrews has received during
the course of his employment, Mr. Andrews likewise agrees that Worldtalk would
be irreparably harmed by any violation or threatened violation of this Paragraph
and that, therefore, Worldtalk shall be entitled to an injunction prohibiting
Mr. Andrews from any violation or threatened violation of this Paragraph. The
undertakings set forth in this paragraph shall survive the termination of other
arrangements contained in this Settlement Agreement and is in addition to the
terms and conditions of any Proprietary Rights and Confidentiality Agreement Mr.
Andrews may have entered into with Worldtalk, which Agreement shall also survive
such termination.
Mr. Andrews further represents that he has not shown, transferred or
disclosed without authorization the contents of any Worldtalk documents to any
individual or entity. Mr. Andrews further represents that he has not disclosed
and will not disclose any of Worldtalk's Trade Secrets to any individual or
entity nor has he used or will he use such information for his or any other
individual's or entity's benefit.
9. Waiver: Mr. Andrews understands that various federal, state and local
laws prohibit age, sex, race, disability, benefits, pension, health and other
forms of discrimination and that these laws can be enforced
7
<PAGE> 8
through the U.S. Equal Employment Opportunity Commission, California state and
local human rights agencies and federal and state courts. Mr. Andrews
understands that if he believes his treatment by Worldtalk was discriminatory,
he has the right to consult with these agencies and to file a charge with them
or file a lawsuit. After consultation with counsel of his choosing, Mr. Andrews
has decided voluntarily to enter into this Settlement Agreement, and hereby
expressly waives the right to recover any amounts to which he may have been
entitled under such laws, including, but not limited to: the California Fair
Employment and Housing Act, California Government Code ss.12900 et seq.; the Age
Discrimination in Employment Act, 42 U.S.C. ss.621-634; the Employee Retirement
Income Security Act (ERISA), 29 U.S.C. ss.1001 et seq.; Title VII of the Civil
Rights Act of 1964, 42 U.S.C. ss.2000e et seq.; and 42 U.S.C. ss.1981.
10. Successors and Assigns: The provisions of this Settlement Agreement
and the release contained herein shall extend and inure to the benefit of and be
binding upon, in addition to the Parties hereto, just as if they had executed
this Settlement Agreement, the respective legal heirs and assigns of each of the
Parties hereto and their spouses, descendants, ancestors, dependents, heirs,
executors, administrators, directors, officer, partners, attorneys, agents,
servants, employees, representative, affiliates, parents, subsidiaries,
shareholders, predecessors, successors and assigns, and each of the foregoing.
11. Representations as to Authority: Each of the Parties hereto
represents and warrants that he or it has the sole right and exclusive authority
to execute this Settlement Agreement and that he or it has not
8
<PAGE> 9
sold, assigned, transferred, conveyed, or otherwise disposed of any claim or
demand, or any portion of or interest in any claim or demand, relating to any
matter covered by this Settlement Agreement.
12. Entire Agreement: This Settlement Agreement constitutes the entire
agreement among the Parties hereto with respect to the subject matter hereof and
supersedes all prior negotiations and agreements, whether written or oral,
relating to such subject matter. Each of the Parties acknowledges to the other
that neither one, nor his or its agent or attorney, has made any promise,
representation or warranty whatsoever, either express or implied, written or
oral, which is not contained in this Settlement Agreement for the purpose of
inducing that Party to execute the Settlement Agreement, and each of the Parties
acknowledges that he or it has executed this Settlement Agreement in reliance
only upon such promises, representations and warranties as are contained herein.
13. Modification: It is expressly agreed that this Settlement Agreement
may not be altered, amended, modified, or otherwise changed in any respect
except by another written agreement that specifically refers to this Settlement
Agreement, duly executed by authorized representatives of each of the Parties
hereto.
14. Notices: Any notices required or permitted hereunder shall be in
writing and will be effective when personally delivered or when deposited in the
U.S. mails, certified mail return receipt requested, postage prepaid, to the
address specified for the receiving party on the signature page hereto, or to
such other address as may be noted to the sending party hereafter.
9
<PAGE> 10
15. No Evidence of Liability: This Settlement Agreement is not intended
to be and should not be construed as an admission of liability on the part of
the Parties, or any of them. This Settlement Agreement shall be afforded the
maximum protection allowable under California Evidence Code Section 1152 and/or
any other state or federal provisions of similar effect.
16. Representation by Counsel: Each of the Parties hereto acknowledges
that he or it has been represented by counsel or has had the opportunity to
consult with counsel throughout all negotiations which preceded the execution of
this Settlement Agreement. Each Party further acknowledges that he or it and/or
counsel have had adequate opportunity to make whatever investigation or inquiry
deemed necessary or desirable in connection with the subject matter of this
Settlement Agreement prior to the execution hereof and the acceptance of the
consideration specified herein.
17. Interpretation: This Settlement Agreement shall be enforced,
interpreted and construed in accordance with California law. Counsel for the
Parties have negotiated, read and approved the language of this Settlement
Agreement, which language shall be construed in its entirety according to its
fair meaning and not strictly for or against either of the Parties.
18. Confidentiality: The contents, terms and conditions of this
Settlement Agreement shall be kept confidential by the Parties and shall not be
disclosed by the Parties except pursuant to subpoena or court order or to their
respective tax or financial advisors or spouse for the sole purpose of
10
<PAGE> 11
preparing tax returns. However, Worldtalk reserves the right to disclose the
contents of this Settlement Agreement to potential investors or buyers of
Worldtalk or to any person or entity when necessary to comply with federal
securities laws. In addition, liquidated damages in the amount of $2,500 will be
assessed for each violation of this provision upon an adequate showing of proof
to an arbitration judge. This provision shall be enforced by binding arbitration
by a judge appointed by JAMS/Endispute, or any successor body. The arbitration
Judge shall have the authority to award liquidated damages as set forth above
and, in the arbitration judge's discretion, to provide injunctive relief to
prevent further breach. A decision by the arbitration judge awarding either
liquidated damages or injunctive relief or both may be enforced as a judgment in
any court of competent jurisdiction.
19. Non-disparagement: The Parties each agree not to engage in conduct
or undertake speech derogatory about or detrimental to the other.
20. Counterparts: This Settlement Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute one and the same document. A photocopy of the Settlement Agreement
may be used in lieu of an original in any proceeding or action brought to
enforce or construe this Settlement Agreement.
21. Attorney's Fees: If any action at law or in equity is brought to
enforce the terms of this Settlement Agreement, the prevailing party shall be
entitled to recover its reasonable attorneys' fees, costs and expenses from the
other party, in addition to any other relief to which such prevailing party may
be entitled.
11
<PAGE> 12
22. Expenses: Worldtalk will reimburse Mr. Andrews for reasonable
business expenses incurred during business activities through May 15, 1997. Mr.
Andrews agrees to submit all receipts for such expenses upon execution of this
Agreement. Worldtalk agrees to reimburse Mr. Andrews for these expenses within
ten (10) business days of receipt by Worldtalk.
23. Mr. Andrews understands that he has been given twenty one (21) days
to review and consider this Agreement before signing it. Mr. Andrews further
understands that he may use as much of this 21-day period as he wishes prior to
signing it. Mr. Andrews acknowledges that he has consulted as attorney before
signing this Agreement.
24. Mr. Andrews acknowledges that he may revoke this Agreement within
seven (7) days of signing it. Revocation can be made by delivering a written
notice of revocation to Stephen Bennion. For this revocation to be effective,
written notice must be received by Stephen Bennion no later than the close of
business on the seventh day after Mr. Andrews signs the Agreement. If Mr.
Andrews revokes this Agreement, it shall not be effective or enforceable, Mr.
Andrews will not receive the benefits described herein, and will be obligated to
return any payments previously made pursuant to this Settlement Agreement.
12
<PAGE> 13
IN WITNESS WHEREOF, each of the Parties hereto has duly executed this
Settlement Agreement as of the date and year set forth below.
Executed at Santa Clara, California, this 15th day of July, 1997.
By: /s/ Christopher Andrews
--------------------------------
Christopher Andrews
Address: 16230 Oakhurst Drive
Monte Sereno, CA 95030
Executed at Santa Clara, California, this 15th day of July, 1997.
By: /s/ Bernard Harguindeguy
--------------------------------
Worldtalk Corporation
Address: 5155 Old Ironsides Drive
Santa Clara, CA 95054
13
<PAGE> 1
EXHIBIT 10.03
[Confidential Treatment Requested]
SETTLEMENT, CONSULTING AND RELEASE AGREEMENT
This Settlement and Release Agreement (hereafter "Settlement Agreement")
is made as of the date of execution set forth below, by and between Steven
Goldner ("Mr. Goldner") and Worldtalk Communications Corporation, doing business
as Worldtalk Communications Corporation ("Worldtalk") (jointly referred to as
the "Parties").
RECITALS
WHEREAS, Mr. Goldner was employed by Worldtalk since October 17, 1994,
and currently holds the position of Vice President, Engineering.
WHEREAS, Mr. Goldner and Worldtalk now desire to discontinue the
employment relationship between them.
NOW, THEREFORE, for and in consideration of the mutual promises
contained herein, the Parties agree as follows:
1. Mr. Goldner has submitted his resignation as an employee of Worldtalk
and from all other positions at Worldtalk, and Worldtalk has accepted such
resignation, effective July 14, 1997. Mr. Goldner affirms and acknowledges that
he has received payment for all salary, bonuses, and other compensation,
including accrued but unused vacation, owed to him as of July 14, 1997. Mr.
Goldner acknowledges that Worldtalk has fully paid on a timely basis all amounts
owed to him as of July 14, 1997.
2. As consideration for the promises herein, Worldtalk agrees as
follows:
(a) Worldtalk will engage Mr. Goldner as a Consultant through [ ** ].
From July 15, 1996 through [ ** ], (the First Period), Mr. Goldner will perform
such consulting services, consisting of no more than 5 hours per week, in the
area of his expertise as are reasonably requested in writing by Worldtalk's
President. For his services during the First Period, Mr. Goldner will receive
consulting fees equal to [ ** ] semi-monthly (subject to reduction due to
applicable tax and other normal payroll withholdings), paid on the 8th and the
22nd of each month. Worldtalk will continue to employ Mr. Goldner
[**Confidential treatment has been requested with respect to certain portions of
this Exhibit. Confidential portions have been omitted from the public filing and
have been filed separately with the Securities and Exchange Commission. ]
<PAGE> 2
as a consultant in the area of his expertise from [ ** ] through [ ** ] (the
Second Period) at an hourly rate of [ ** ]/hour, payable for actual hours worked
at the written request of Worldtalk's President, payable in each case,
semi-monthly as earned. However, Mr. Goldner will not be obligated to work more
than 5 hours in any one calendar week during the Second Period, and will be
obligated to work only at such times and places as shall not interfere with his
then current employment, if any.
(b) Mr. Goldner may terminate his relationship with Worldtalk at any
time by sending written notice of termination to a Worldtalk Officer. Worldtalk
may likewise terminate Mr. Goldner's relationship, but only subsequent to a
material breach of this Agreement by Mr. Goldner that is not cured by Mr.
Goldner within 30 days after Worldtalk's written notice of such breach is sent
or personally delivered to Mr. Goldner. Termination by Worldtalk or Mr. Goldner
will also terminate Mr. Goldner's right to receive the compensation provided for
in this Section 2 for any period after the effective date of notice, July 14,
1997.
Worldtalk will pay the cost of COBRA continuation coverage through
October 31, 1997 under Worldtalk's medical/dental benefit plans, should Mr.
Goldner elect such coverage. Any additional coverage will be at Mr.
Goldner's expense.
Mr. Goldner understands and agrees that he will continue to comply with
the Statement of Company Policy on Securities Trades by Company Personnel
throughout the duration of his Consulting Services.
(e) Mr. Goldner has been granted options for the purchase of Worldtalk
Common Stock and has no other right to purchase or acquire, and has not
purchased or acquired from Worldtalk any capital stock of Worldtalk or any
securities convertible into, or exercisable for, any capital stock of Worldtalk.
2
[**Confidential treatment has been requested with respect to certain portions of
this Exhibit. Confidential portions have been omitted from the public filing and
have been filed separately with the Securities and Exchange Commission. ]
<PAGE> 3
Since Mr. Goldner will be performing substantial services on Worldtalk's behalf,
his existing options will continue to vest in accordance with their terms
through the termination of Mr. Goldner's consulting relationship with Worldtalk.
Mr. Goldner will have until 60 days after termination of his consulting
relationship described above in this Section 2 to exercise his vested and
unexercised options.
3. Mr. Goldner acquired 149,377 shares of the Company's Common Stock
(computed on a post-split basis) on November 29, 1995 pursuant to two Stock
Option Exercise Agreements. Under Section 9 of each Stock Option Agreement, the
Company retained a Repurchase Option with respect to certain of these shares.
The Company hereby exercises its Repurchase Option to repurchase an aggregate of
35,168 shares at the original exercise price of $0.20 per share (17,269 shares
from Mr. Goldner's Stock Option Grant dated October 25, 1994 and 17,899 shares
from the Stock Option Grant dated March 28, 1995. Mr. Goldner acknowledges and
consents to this repurchase.
The Company will pay the repurchase price for the 35,168 shares by
canceling a portion of the principal amount of the Secured Full Recourse
Promissory Note dated December 29, 1996 (the "Note") equal to $7,033.60 The
remaining $21,966.40 of principal plus all accrued interest on the Note will be
due and payable on November 15, 1997 in accordance with Section 3 of the Note.
4. Mr. Goldner agrees that the payments set forth in the preceding
paragraph and other consideration given to him his pursuant to this Settlement
Agreement, shall constitute a retainer for Mr. Goldner's consulting services to
be rendered to Worldtalk as needed through and until [ ** ] ("the Consulting
Period). Mr. Goldner agrees that during the Consulting Period, he shall not
become employed by or render consulting services to Control Data Systems,
ISOCOR, Netscape, Microsoft/Linkage or IBM/Softswitch, which Worldtalk considers
entities in competition with Worldtalk. Mr. Goldner and Worldtalk agree that Mr.
Goldner may, during the Consultation Period, seek employment in competition with
Worldtalk to the extent the employment would commence after the termination of
the Consulting Period.
5. Release: Mr. Goldner, on behalf of himself, his representatives,
heirs, executors, attorneys, agents, and each of the foregoing, hereby forever
releases and
3
[**Confidential treatment has been requested with respect to certain portions of
this Exhibit. Confidential portions have been omitted from the public filing and
have been filed separately with the Securities and Exchange Commission. ]
<PAGE> 4
discharges Worldtalk and its representatives, heirs, executors, attorneys,
agents, partners, officers, shareholders, directors, employees, parents,
subsidiaries, affiliates, divisions, successors and assigns, and each of the
foregoing, of and from any and all manner of action, claim or cause of action,
in law or in equity, suits, debts, liens, contracts, agreements, promises,
liabilities, demands, losses, damages, costs or expenses, including without
limitation court costs and attorneys' fees, which they may have against each
other at the time of the execution of this Settlement Agreement, known or
unknown, arising out of, or in connection with, or relating directly or
indirectly to Mr. Goldner's employment with Worldtalk and/or the termination of
Mr. Goldner's employment with Worldtalk ("Released Matters").
6. Unknown Claims: The release set forth above shall extend to claims
which Mr. Goldner does not know or suspect to exist in his favor, which if known
by him would have materially affected his decision to enter into this release.
Mr. Goldner acknowledges that he is familiar with Section 1542 of the Civil Code
of the State of California, which provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
Mr. Goldner expressly waives and relinquishes any right or benefit which
he has or may have under Section 1542 of the Civil Code of the State of
California, or any other statute or legal principle with similar effect.
In connection with such waiver and relinquishment, Mr. Goldner
acknowledges that he is aware that, after executing this Settlement Agreement,
he or his attorneys or agents may discover claims or facts in addition to or
different from those which he now knows or believes to exist with respect to the
Released Matters, this Settlement Agreement, or the parties hereto but that it
is his intention hereby fully, finally and forever to settle and release all of
the claims, matters, disputes, and differences known or unknown, suspected or
unsuspected, which
4
<PAGE> 5
now exist, may exist, or heretofore may have existed against Worldtalk in
connection with the Released Matters. In furtherance of this intention, the
release herein given shall be and remain in effect as a full and complete
release notwithstanding the discovery or existence of any such additional or
different claim or fact.
Mr. Goldner acknowledges that he was offered a period of at least
twenty-one (21) days to consider the terms of this Agreement. For a period of
seven (7) days following execution of this Agreement, Mr. Goldner may revoke
said Agreement. This Agreement shall not become effective or enforceable until
the seven (7) day period has expired.
7. Return of Property: Mr. Goldner understands and agrees that prior to
the legal effective date of this Settlement Agreement he will identify to
Worldtalk and turn over to Worldtalk any and all files, memoranda, records,
credit cards, and other documents and physical or personal property, including
one Macintosh Laptop, which Mr. Goldner received from Worldtalk and which are
the property of Worldtalk, along with any and all copies thereof in any medium
or form. Worldtalk agrees to lend Mr. Goldner a Deskpro XL560 computer and a
Nanao Flex Scan monitor for a period of up to four (4) months. Both PC and
monitor shall be returned to Worldtalk on or before November 15, 1997.
Worldtalk will also provide a voice mail box for Mr. Goldner for a
period of one (1) month following his termination date.
8. Trade Secrets: Mr. Goldner understands and agrees that in the course
of his employment with Worldtalk, he acquired confidential or proprietary
information and trade secrets concerning Worldtalk's operations, its future
plans and its methods of doing business, including by way of example, but by no
means limited to, information about Worldtalk's customers, product development,
research, technology, financial, marketing, pricing, costs, compensation and
other matters (hereinafter collectively "Trade Secrets"), all of which
information Mr. Goldner understands and agrees would be extremely damaging to
Worldtalk if disclosed to a competitor or made available to any other person or
corporation. As used herein, the term "Competitor" includes but is not limited
to any corporation, firm or business engaged in a business similar to that of
Worldtalk or its subsidiary
5
<PAGE> 6
companies. Mr. Goldner understands and agrees that Trade Secrets have been
divulged to Mr. Goldner in confidence, and Mr. Goldner understands and agrees
that he will keep such information secret and confidential. Mr. Goldner further
understands and agrees that, at all times, he will not disclose or communicate
Trade Secrets to either a Competitor or any other person or in any way make such
information available to others, or make use of such information on Mr.
Goldner's own behalf, or on behalf of any Competitor. In view of the nature of
Mr. Goldner's employment and the Trade Secrets which Mr. Goldner has received
during the course of his employment, Mr. Goldner likewise agrees that Worldtalk
would be irreparably harmed by any violation or threatened violation of this
Paragraph and that, therefore, Worldtalk shall be entitled to an injunction
prohibiting Mr. Goldner from any violation or threatened violation of this
Paragraph. The undertakings set forth in this paragraph shall survive the
termination of other arrangements contained in this Settlement Agreement and is
in addition to the terms and conditions of any Proprietary Rights and
Confidentiality Agreement Mr. Goldner may have entered into with Worldtalk,
which Agreement shall also survive such termination.
Mr. Goldner further represents that he has not shown, transferred or
disclosed the contents of any Worldtalk documents to any individual or entity.
Mr. Goldner further represents that he has not disclosed any of Worldtalk's
Trade Secrets to any individual or entity or used such information for his or
any other individual's or entity's benefit.
9. Waiver: Mr. Goldner understands that various federal, state and local
laws prohibit age, sex, race, disability, benefits, pension, health and other
forms of discrimination and that these laws can be enforced through the U.S.
Equal Employment Opportunity Commission, California state and local human rights
agencies and federal and state courts. Mr. Goldner understands that if he
believes his treatment by Worldtalk was discriminatory, he has the right to
consult with these agencies and to file a charge with them or file a lawsuit.
Mr. Goldner has decided voluntarily to enter into this Settlement Agreement, and
waive the right to recover any amounts to which he may have been entitled under
such laws, including, but not limited to: the California Fair Employment and
Housing Act, California Government Code * 12900 et seq.; the Employee Retirement
Income
6
<PAGE> 7
Security Act (ERISA), 29 U.S.C. * 1001 et seq.; Title VII of the Civil Rights
Act of 1964, 42 U.S.C. * 2000e et seq.; and 42 U.S.C. * 1981.
10. Successors and Assigns: The provisions of this Settlement Agreement
and the release contained herein shall extend and inure to the benefit of and be
binding upon, in addition to the Parties hereto, just as if they had executed
this Settlement Agreement, the respective legal heirs and assigns of each of the
Parties hereto and their spouses, descendants, ancestors, dependents, heirs,
executors, administrators, directors, officers, partners, attorneys, agents,
servants, employees, representatives, affiliates, parents, subsidiaries,
shareholders, predecessors, successors and assigns, and each of the foregoing.
11. Representations as to Authority: Each of the Parties hereto
represents and warrants that he or it has the sole right and exclusive authority
to execute this Settlement Agreement and that he or it has not sold, assigned,
transferred, conveyed, or otherwise disposed of any claim or demand, or any
portion of or interest in any claim or demand, relating to any matter covered by
this Settlement Agreement.
12. Entire Agreement: This Settlement Agreement constitutes the entire
agreement among the Parties hereto with respect to the subject matter hereof and
supersedes all prior negotiations and agreements, whether written or oral,
relating to such subject matter. Each of the Parties acknowledges to the other
that neither one, nor his or its agent or attorney, has made any promise,
representation or warranty whatsoever, either express or implied, written or
oral, which is not contained in this Settlement Agreement for the purpose of
inducing that Party to execute the Settlement Agreement, and each of the Parties
acknowledges that she or it has executed this Settlement Agreement in reliance
only upon such promises, representations and warranties as are contained herein.
13. Modification: It is expressly agreed that this Settlement Agreement
may not be altered, amended, modified, or otherwise changed in any respect
except by another written agreement that specifically refers to this Settlement
Agreement, duly executed by authorized representatives of each of the Parties
hereto.
7
<PAGE> 8
14. Notices: Any notices required or permitted hereunder shall be in
writing and will be effective when personally delivered or when deposited in the
U.S. mails, certified mail return receipt requested, postage prepaid, to the
address specified for the receiving party on the signature page hereto, or to
such other address as may be noted to the sending party hereafter.
15. No Evidence of Liability: This Settlement Agreement shall be
afforded the maximum protection allowable under California Evidence Code Section
1152 and/or any other state or federal provisions of similar effect.
16. Representation by Counsel: Each of the Parties hereto acknowledges
that she or it has been represented by counsel or has had the opportunity to
consult with counsel throughout all negotiations which preceded the execution of
this Settlement Agreement. Each Party further acknowledges that she or it and/or
counsel have had adequate opportunity to make whatever investigation or inquiry
deemed necessary or desirable in connection with the subject matter of this
Settlement Agreement prior to the execution hereof and the acceptance of the
consideration specified herein.
17. Interpretation: This Settlement Agreement shall be enforced,
interpreted and construed in accordance with California law. Counsel for the
Parties have negotiated, read and approved the language of this Settlement
Agreement, which language shall be construed in its entirety according to its
fair meaning and not strictly for or against either of the Parties.
18. Confidentiality: The contents, terms and conditions of this
Settlement Agreement shall be kept confidential by the Parties and shall not be
disclosed by the Parties except pursuant to subpoena or court order or to their
respective tax or financial advisors for the sole purpose of preparing tax
returns. However, Worldtalk reserves the right to disclose the contents of this
Settlement Agreement to potential investors or buyers of Worldtalk or to any
person or entity when necessary to comply with federal securities laws. In
addition, liquidated damages in the amount of $2,500 will be assessed for each
violation of this provision upon an adequate showing of proof to an arbitration
judge. This provision shall be enforced by binding arbitration by a judge
appointed by Judicial Arbitration and Mediation Services, Inc. The arbitration
Judge shall have the
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<PAGE> 9
authority to award liquidated damages as set forth above and, in the arbitration
judge's discretion, to provide injunctive relief to prevent further breach. A
decision by the arbitration judge awarding either liquidated damages or
injunctive relief or both may be enforced as a judgment in any court of
competent jurisdiction.
19. Non-disparagement: The Parties each agree not to engage in conduct
or undertake speech derogatory about or detrimental to the other.
20. Counterparts: This Settlement Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute one and the same document. A photocopy of the Settlement Agreement
may be used in lieu of an original in any proceeding or action brought to
enforce or construe this Settlement Agreement.
21. Attorney's Fees: If any action at law or in equity is brought to
enforce the terms of this Settlement Agreement, the prevailing party shall be
entitled to recover its reasonable attorneys' fees, costs and expenses from the
other party, in addition to any other relief to which such prevailing party may
be entitled.
IN WITNESS WHEREOF, each of the Parties hereto has duly executed this
Settlement Agreement as of the date and year set forth below.
Executed at Santa Clara, California, this 15 day of July, 1997.
By: /s/ Steven M. Goldner
----------------------------------
Steven Goldner
Executed at Santa Clara, California, this 15 day of July, 1997.
By: /s/ Bernard Harguindeguy
----------------------------------
Bernard Harguindeguy
Worldtalk Communications Corporation
9
<PAGE> 1
- --------------------------------------------------------------------------------
WORLDTALK COMMUNICATIONS CORPORATION EXHIBIT 11.1
Computation of Net Income (Loss) Per Share
(in thousands, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) $ (1,300) $ 163 $ (5,834) $ (742)
Weighted average common shares outstanding 10,480 9,668 10,387 6,888
Number of common share equivalents resulting
from option and warrants, computed using the
treasury stock method - 667 - -
Preferred stock, on an "as if converted basis"
using the exchange rate in effect at the
initial public offering date - - - 2,008
-------- -------- -------- --------
Number of common shares and common share
equivalents used in computation 10,480 10,335 10,387 8,896
-------- -------- -------- --------
Net income (loss) per share $ (0.12) $ 0.02 $ (0.56) $ (0.08)
======== ======== ======== ========
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,205
<SECURITIES> 5,465
<RECEIVABLES> 2,211
<ALLOWANCES> 121
<INVENTORY> 0
<CURRENT-ASSETS> 12,701
<PP&E> 1,820
<DEPRECIATION> 178
<TOTAL-ASSETS> 15,384
<CURRENT-LIABILITIES> 5,676
<BONDS> 0
0
0
<COMMON> 104
<OTHER-SE> 9,149
<TOTAL-LIABILITY-AND-EQUITY> 16,657
<SALES> 3,101
<TOTAL-REVENUES> 3,101
<CGS> 978
<TOTAL-COSTS> 978
<OTHER-EXPENSES> 3,458
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110
<INCOME-PRETAX> (1,225)
<INCOME-TAX> 75
<INCOME-CONTINUING> (1,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,300)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
