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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-27886
WORLDTALK COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 77-0303581
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
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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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
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Indicate by check mark 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. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing price of such stock on February 27, 1998,
as reported by the Nasdaq National Market was approximately $20,728,704.
The number of outstanding shares of the Registrant's Common Stock, par
value $0.01 per share, on February 27, 1998 was 10,527,790 shares.
Portions of the Proxy Statement for Registrant's 1998 Annual Meeting of
Stockholders to be held on June 12, 1998, are incorporated by reference in Part
III of this Annual Report on Form 10-K.
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PART I
ITEM 1. BUSINESS
The discussion in this report on Form 10-K 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. Readers should pay particular attention to the risk factors
described in the "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and particularly under the heading "Additional
Factors That May Effect Future Results". Readers should also carefully review
the risk factors described in the other documents the Company files from time to
time with the Securities and Exchange Commission, specifically the Quarterly
Reports on Form 10-Q filed by the Company in 1997, any current Reports on Form
8-K filed by the Company and the Company's Registration Statement on Form S-1 as
declared effective by the Securities and Exchange Commission on April 11, 1996
(File No. 333-1482).
INTRODUCTION
Worldtalk Communications Corporation, and its subsidiary (collectively
"Worldtalk" or the "Company") is an Internet security company focused on
providing e-mail security and policy management solutions that enable
organizations to safely and efficiently use the Internet for global business
communication. The Company's products include WorldSecure Server, an e-mail
firewall and security policy manager, WorldSecure Client, a desktop e-mail
encryption product, NetTalk, a Windows NT-based e-mail and directory server, and
NetJunction, a UNIX-based directory and messaging switch.
During 1996, Worldtalk initiated a major product development program to
leverage the Company's technology base and expertise in UNIX-based e-mail
connectivity backbones and directory services to develop new Windows NT based
Internet e-mail security and connectivity products. These products, WorldSecure
Server and NetTalk, were released in 1997. During 1997, the Company experienced
a more rapid decline in its UNIX-based NetJunction product than had been
anticipated at the end of 1996. The Company believes that this was caused by a
combination of factors. These included a more rapid market shift from UNIX-based
systems to Windows NT-based systems and the desire of organizations to utilize
Internet standards-based technology to build corporate intranets in place of
private, proprietary network backbones. As a result, the Company experienced a
20.3% decline in revenue compared to 1996 and significant operating losses. The
Company's results improved by the fourth quarter of 1997 as a result of
increased revenue from the new Windows-NT based products and the implementation
of effective cost control measures. See Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operation - Overview."
The Company has experienced a significant shift in product mix from almost
100% of software license revenue coming from UNIX-based NetJunction products in
1996 to the majority of software license revenue coming from Windows NT-based
e-mail security and connectivity products in 1997. By the second half of 1998,
the Company anticipates that most of its development and marketing efforts will
be focused on the Windows NT-based security products. The Company also plans to
continue maintaining and supporting its NetJunction product line and believes
that there may be a continuing revenue stream from this activity for a limited
time in the future. Although the Company believes that the NetJunction product
line may continue to be viable in the marketplace, the Company plans to utilize
its resources to exploit the Internet security market.
During 1998 and beyond, the Company expects to deploy resources to support
its reseller channel strategy and anticipates that an increasing percentage of
revenue will be derived from those channels.
E-MAIL SECURITY
Worldtalk believes that business communications at all levels will
increasingly utilize the Internet to conduct day-to-day business communications.
The Company also believes that the majority of such communication will be made
via e-mail. Industry analysts estimate that e-mail accounts for about 70% of
network traffic.
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Unfortunately e-mail communication is not completely secure. Over the past
few years, the network firewall has served as the dominant solution to protect
networks from external attacks. But it has failed to fully protect e-mail
applications. This has made organizations vulnerable to attack from many
external sources. These organizations are equally vulnerable to malicious and
non-malicious attacks from inside their networks, since important corporate
information such as business plans, financial information, marketing and
engineering documents and other intellectual property can leave the organization
with the simple click of a mouse.
Today, organizations are increasingly concerned about confidential
information, which can be publicly exchanged by employees via e-mail. Further,
certain industries are required by governmental and industrial regulatory
agencies to control, monitor and archive e-mail traffic. Law firms are concerned
about issues relating to attorney-client privilege and health care firms are
concerned about confidential patient information. Organizations are also
increasingly concerned about potential liability and other problems associated
with the introduction of undesirable material from the Internet, as well as
unwanted SPAM e-mail, which can cripple networks. The Company believes that
e-mail security and policy management improvement are key elements of realizing
the productivity and cost-savings advantages available through the use of e-mail
over the Internet. Worldtalk refers to this type of e-mail as "business-grade
e-mail."
THE WORLDTALK SOLUTION
Worldtalk's products are aimed at providing a complete security and policy
management solution for e-mail systems allowing organizations to expand the
reach of their messaging systems and provide the necessary safety needed to
exchange e-mail across intranets, extranets and the public Internet. Worldtalk
solutions protect e-mail communication while attempting to guarantee privacy,
integrity and non-repudiation. Worldtalk solutions also provide the needed
directory and messaging connectivity to establish secure e-mail backbones.
Worldtalk's innovative WorldSecure product family offers organizations an
e-mail firewall and policy management engine to enforce e-mail access, security
and encryption policies. Worldtalk's software products are complemented by its
Professional Services Organization (PSO) which offers a complete package of
consulting, custom engineering, training and educational services to meet
customer needs from initial planning and network design to system testing and
production implementation.
Worldtalk's current product offerings include:
WorldSecure Server -- The E-mail Firewall. WorldSecure Server consolidates
several security countermeasures such as encryption and digital signature,
access and content control, virus detection and protection, and archival
functions. WorldSecure also provides a management interface to define and manage
e-mail security and encryption policies.
WorldSecure Client -- The Desktop to Desktop E-mail Security Solution.
WorldSecure Client provides S/MIME-based e-mail encryption and digital signature
for e-mail applications. Using the emerging S/MIME standards (endorsed by RSA,
Netscape, Microsoft, Worldtalk and VeriSign, among others), WorldSecure Client
encrypts and digitally signs e-mail messages to help ensure the authenticity and
privacy of the messages. Originators can gain assurance that only the intended
recipient(s) can read the message and recipients can validate that the message
is from the stated originator.
NetTalk -- The Intranet E-mail and Directory Solution. NetTalk provides
messaging and directory connectivity between different e-mail systems. It also
provides storage of X.509 digital certificates for security applications. A
digital certificate is a password-protected, encrypted data file that includes
the name of the holder and other identification information, a public key that
can be used to verify the digital signature, the name of the issuer or
certification authority and the certificate's validity period.
NetJunction -- The UNIX-based Enterprise Level Backbone and Directory
Solutions. NetJunction allows organizations to integrate all their proprietary
e-mail and directory applications and provide consolidated access to the
Internet and X.400 VANs.
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SALES CHANNELS
The Company's objective is to develop multiple channels of distribution
worldwide for its products. The Company has designed its distribution strategy
to address the specific requirements of small companies, departments and large
enterprises and matches the sales and distribution channels to each of the
Company's software product offerings. Historically, the Company has relied
primarily on its direct sales and service organization for the license and
installation of its products in North America. For international sales, the
Company has entered into non-exclusive distribution relationships with a number
of international distributors. In the future, the Company expects to utilize
resellers to a greater extent than in prior years. The Company's WorldSecure and
NetTalk products require significantly less consulting, integration and support
than the Company's NetJunction products. The Company believes, therefore, that
these products will appeal to various reseller channels. Of particular note, the
Company entered into reseller arrangements with Security Dynamics Technologies,
Inc. (SDTI), worldwide, ASCII Something Good Corporation (ASCII), in Japan and
The Peapod Group (Peapod) in Europe during 1997. In addition, the Company
recruited a number of VARs and other third-party resellers and plans to expand
these relationships in order to maximize sales of its new Windows NT products.
The Company also markets and sells its products through its telesales
organization.
The Company's direct sales force primarily targets medium to large-sized
organizations with enterprise-wide LAN implementations, across all vertical
markets. These organizations represent significant sales opportunities for the
Company's current and future products. The direct sales process involves the
generation of leads through a combination of industry trade show participation,
direct mail and telemarketing programs, requests for proposals from prospects or
customer and channel referrals. The field sales force conducts multiple
presentations and demonstrations of the Company's products to management at the
customer's site. During 1997, the direct sales force has begun working with the
resellers noted above, as well as other VARs and systems integrators to sell the
Company's Windows NT-based WorldSecure and NetTalk products. Typical sales
cycles range from several weeks to six months, but may be significantly longer
for very large sales. At times, potential customers enter into 30-day evaluation
agreements with the Company, during which time the customer can evaluate the
software without charge. The Company also sells software upgrades and annual
maintenance agreements directly to customers, as well as through its
international distributors.
During 1997, the Company utilized the Internet in a significant way to
market its Windows NT NetTalk and WorldSecure products. Potential customers can
now download 30-day evaluation copies of these products from the Company's web
site. Additionally, an increasing percentage of sales during 1997 came from the
Company's telesales group working in a team approach with the Company's direct
sales force.
The Company also targeted three key vertical market segments during 1997:
the legal industry, healthcare organizations and financial institutions for
sales of the Company's Windows NT products. The Company believes that those
vertical market segments are among the first to see the need for e-mail
Internet/intranet security and policy management products.
INTERNATIONAL SALES
International sales, which are denominated in U.S. dollars, accounted for
28%, 24% and 14% of the Company's total revenues in 1997, 1996 and 1995,
respectively. The Company has entered into distribution relationships with a
number of international distributors who do not have exclusive territories,
although, the reseller arrangements with both SDTI and ASCII have certain
exclusivity features. These distributors provide system installation, technical
support and systems integration services, as well as follow-on first-line
support to local customers. The Company expanded its international sales by
establishing a more extensive network of international distributors, entering
into agreements with third parties to provide customer service and support
internationally and develop localized versions of its products during 1997.
ASCII accounted for 10.2% of the Company's total revenues in 1997. No other
single international distributor or OEM accounted for greater than 10% of the
Company's revenues in 1997, 1996 or 1995.
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MARKETING
The Company uses its direct sales force, its internal telesales
organizations and resellers, in combination with a variety of marketing
programs, to stimulate demand for its software products. The Company seeks to
build awareness of its products through participation in industry trade shows
and conferences, publication of technical articles in the trade press and
communication with its installed base of customers. These programs are focused
on target markets and are supplemented by selected VARs, systems integrators and
international OEMs. In addition, the Company has developed domestic and
international co-marketing programs with key strategic partners designed to take
advantage of their complementary marketing capabilities. As noted above, the
Company launched a major vertical market initiative in the legal, healthcare and
financial industry segments during 1997. As of December 31, 1997, the Company
had 12 full-time personnel employed in sales and 10 full-time personnel employed
in marketing.
PROFESSIONAL SERVICES
The Company established a professional services organization in 1995 to
manage the Company's on-site installation services and custom development
programs, offering customer training and professional consulting services to its
customer base. These services are delivered by a combination of full-time
Company employees and third-party consultants trained on Worldtalk applications,
which are intended to complement related integration services performed by the
Company's VARs, distributors and systems integrators. Professional services are
performed for an additional fee, and are offered in conjunction with the
licensing or deployment of Worldtalk's software products.
INSTALLATION AND CONSULTING
The Company provides on-site installation and consulting services,
generally billing for such services on a time-and-materials basis. Standard
service contracts typically range from two to four weeks in duration and are
sold primarily to support the installation and initial deployment of Worldtalk
products. The Company also offers longer-term arrangements for those customers
interested in broader network planning or program management services.
TRAINING
The Company offers monthly customer training classes for Worldtalk network
administrators and authorized resellers at the Company's headquarters in Santa
Clara, California, as well as customized on-site classes for large customers.
CUSTOM DEVELOPMENT
From time to time, the Company provides custom development services to
customers who request unique or proprietary product extensions that enhance the
value of Worldtalk solutions in their networks. These services may be performed
by third-party integrators, consultants or Company employees, depending on the
nature and complexity of the request.
CUSTOMER MAINTENANCE AND SUPPORT
The Company's software is generally deployed in mission critical
environments, where a high degree of customer support is important for the
continuing success of product deployment. The Company maintains a centralized
technical support group that is responsible for first-line telephone support as
well as distribution of product and documentation updates. This group works
closely with the Company's professional services and product development
organizations in order to ensure continuity in the areas of problem resolution
and priority response.
Maintenance and support contracts, which are typically for twelve months,
are offered concurrently with the initial license of a Company product. These
contracts may be renewed annually and are generally priced at a fixed 15% to 20%
of the list price of the licensed software. In addition, per-incident and
service pack pricing
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is available for the NetTalk and WorldSecure products. The Company also offers
customer support 24 hours a day, seven days a week, for those customers
requiring around the clock support. Pricing for such support is negotiated
separately and is in addition to the standard fee.
The Company believes that customer support revenue will decline as a
percentage of total revenue during 1998 and beyond as the Company's new Windows
NT-based products require significantly less maintenance and support than the
more complex NetJunction products.
STRATEGIC RELATIONSHIPS
The Company believes that strategic relationships with other technology
vendors and channels of distribution are important to the Company's business.
Accordingly, the Company has entered into strategic relationships with various
companies such as SDTI, ASCII, Peapod, ICL, Inc., RSA Data Security, VeriSign,
Inc. and Trend Micro, Inc. The Company plans to continue and to expand the
utilization of strategic technology licensing, marketing, distribution and other
business partnerships in the future.
PRODUCT DEVELOPMENT
Since its inception, Worldtalk's product development efforts have focused
on developing a stable and robust core technology, such as the Worldtalk
directory and the surrounding architecture. Beginning in 1996, the Company began
a major product initiative to leverage its core technology to develop innovative
Internet e-mail security products. To accelerate this goal, the Company acquired
Deming Software, Inc. in November of 1996. Deming has significant expertise in
the area of cryptography and has played a key role in the development of the
WorldSecure product family.
The Company's product development organization is grouped by key product
areas and is comprised of development engineers, quality assurance engineers and
technical writers. The approach used in product development is a phase-oriented
development process that includes formal engineering specifications, design test
documents, milestone inspections and quality control. This process incorporates
the monitoring of quality, schedules, functionality, costs and customer
satisfaction. The markets addressed by the Company's products are very sensitive
to quality and, therefore, the Company focuses on continuously improving product
quality.
The Company continues to leverage its technical expertise and product
innovation capabilities to address user requirements for Internet e-mail
security products. While UNIX/NetJunction products have historically been the
core of the Company's business, the Company's new Windows NT-based Internet
e-mail security and connectivity products, which accounted for approximately 80%
of software license revenue in the fourth quarter of 1997. The Company believes
that this represents a positive trend relative to its product strategy and
direction.
As of December 31, 1997, the Company had 27 full-time personnel employed in
product development. During 1997, 1996 and 1995, product development expenses
were $4.3 million, $3.6 million and $2.4 million, or 37.9%, 25.1% and 36.0% of
total revenues, respectively.
COMPETITION
The market for the Company's products is intensely competitive and subject
to rapid change. The enterprise security market is targeted by various products
and solutions that compete with Worldtalk's e-mail security solutions. These
include products offered by Network Associates, Inc. and Integralis Technology,
Ltd.. The Company believes that its Windows NT product family competes favorably
with those products. With respect to the Company's NetJunction business, the
Company encounters competition principally from Control Data Systems, Inc. and
ISOCOR. The Company also anticipates competition in the future from other
companies in the enterprise security market as that industry continues to grow.
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The Company believes that the competitive factors affecting the market for
the Company's products and services include: product functionality and features;
product quality, performance and price; ease of product integration with
disparate e-mail and groupware solutions; quality of customer support services,
customer training and documentation; hardware platforms supported; vendor and
product reputation; and the strength of sales channels. The relative importance
of each of these factors depends upon the specific customer environment.
Although the Company believes that its products and services currently compete
favorably with respect to such factors, there can be no assurance that the
Company can maintain its competitive position against current and potential
competitors.
Many of the Company's current and potential competitors have longer
operating histories; significantly greater financial, technical, product
development and marketing resources; greater name recognition and larger
customer bases than the Company. The Company's present or future competitors may
be able to develop products comparable or superior to those developed by the
Company. They may also be able to adapt more quickly than the Company to new
technologies, evolving industry trends or customer requirements, or devote
greater resources to the development, promotion and license of their products
than the Company.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company's future success is dependent upon its proprietary software
technology. In addition, the Company licenses certain key technology from other
companies. The Company does not currently have any patents and relies
principally on trade secret, copyright and trademark laws, nondisclosure and
other contractual agreements and technical measures, to protect its technology.
The Company also believes that factors such as the technological and creative
skills of its personnel as well as new product developments and enhancements,
are essential to establishing and maintaining a technology leadership position.
The Company generally enters into confidentiality and/or license agreements with
its employees, distributors and customers. The Company limits access to and
distribution of its software, documentation and other proprietary information.
Much of the Company's software is shipped with a software security lock, which
initially limits software access to authorized users. In addition, the Company
restricts third party access to its source code, except in connection with
source code escrow arrangements. There can be no assurance that the steps taken
by the Company will prevent misappropriation of its technology, and such
protections do not preclude competitors from developing products with
functionality or features similar to the Company's products. Furthermore, there
can be no assurance that third parties will not independently develop competing
technologies that are substantially equivalent or superior to the Company's
technologies. The loss of any significant third-party license or the inability
to license additional technology as required, could have a material adverse
effect on the Company's results of operations until such time as the Company
could replace such technology.
EXPORT LICENSE REQUIREMENTS
Export of the Company's WorldSecure product family is restricted by various
United States laws and regulations governing the export of encryption technology
administered principally by the United States Department of Commerce, Bureau of
Export Administration. The Company currently holds approved export licenses for
40-bit encryption for general export with the exclusion of certain industries
and countries and for 128-bit encryption for 25% or more owned subsidiaries of
United States companies with the exclusion of certain industries and certain
countries. The Company is currently in the process of applying for an export
license for 56-bit general export. The Company is also responsible for
monitoring customer compliance with these laws and regulations. Failure to
obtain necessary export license approval or future adverse changes in United
States government policy relative to the export of encryption technology could
materially decrease the Company's ability to compete in foreign markets thereby
adversely affecting revenue.
YEAR 2000 COMPLIANCE
The Company believes that its products are or will be compliant with
customer requirements for operations through the year 2000 and beyond. Many
customers require such certification and warranties before purchasing products.
Failure of the Company's products to function through the year 2000 could cause
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material liabilities to the Company to correct such defects. The Company does
not believe that any significant internal systems will be adversely affected by
the transition to years following 1999.
EMPLOYEES
As of December 31, 1997, the Company had a total of 80 employees, of whom
22 were engaged in sales and marketing, 27 in research and development, 19 in
professional services and technical support and 12 in administration, finance,
MIS and operations. The Company's employees are not represented by labor unions,
nor are they generally bound by employment or noncompetition agreements or
covered by key-person life insurance policies. The Company has not experienced
any work stoppages and considers its relations with its employees to be good.
The Company intends to continue to hire sales, marketing and engineering
personnel in the future. Competition for such personnel is intense, and there
can be no assurance that the Company can hire and retain qualified personnel in
the future. If the Company is unable to hire required personnel on a timely
basis, the Company's business, operating results and financial condition could
be adversely affected.
ITEM 2. PROPERTIES
The Company's headquarters is located in Santa Clara, California, which
houses product development, sales, technical support and administrative
operations in approximately 30,000 square feet of space. This facility is under
lease through September 2005.
The Company has leased sales offices in San Ramon, California; Chicago,
Illinois; New York, New York; and McLean, Virginia. The Company, through its
subsidiary, Deming Software, also has a leased engineering office in Bellevue,
Washington.
ITEM 3. LEGAL PROCEEDINGS
The Company is engaged in certain legal actions arising in the ordinary
course of business. The Company believes that it has adequate legal defenses and
that ultimate outcome of these actions will not have a material effect on the
Company's financial position and results of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been included for quotation on the Nasdaq
National Market under the Nasdaq symbol "WTLK" since the Company's initial
public offering in April 1996. The following table sets forth, for the periods
indicated the range of high and low bid information for the Company's Common
Stock for 1997 and 1996.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1996:
Second Quarter................................... 15 8 1/4
Third Quarter.................................... 12 1/2 6 7/8
Fourth Quarter................................... 15 7
1997:
First Quarter.................................... 10 1/4 6
Second Quarter................................... 7 3 1/8
Third Quarter.................................... 8 1/8 3 3/8
Fourth Quarter................................... 8 1/8 3 1/8
</TABLE>
As of February 27, 1998, there were approximately 114 holders of record of
the Company's Common Stock. The number of record holders does not include those
beneficial owners who hold in street or nominee name. When such beneficial
owners are included, the Company believes the number of shareholders exceeds
500.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The Company
presently intends to retain all cash for use in the operation and expansion of
the Company's business and does not anticipate paying any cash dividends in the
near future. The Company's bank prohibits the payment of dividends without the
bank's written consent. See Item 8 "Financial Statements and Supplemental Data,
Note (6) of Notes to Consolidated Financial Statements."
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for each of the last
five fiscal years has been derived from the audited consolidated financial
statements of the Company. The selected consolidated financial data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and notes thereto included elsewhere in this report.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue............................... $11,327 $14,205 $ 6,705 $ 4,392 $ 1,958
Total cost of revenue....................... 3,991 3,438 1,828 1,552 997
Gross profit................................ 7,336 10,767 4,877 2,840 961
Total operating expense..................... 14,361 16,547 8,548 6,674 3,865
Net loss.................................... $(6,700) $(5,240)(1) $(3,640) $(3,903) $(2,922)
Basic and diluted loss per share............ $ (0.65) $ (0.68)(2) $ (3.59) $ (1.92) $(66.41)
Shares used in computing basic and diluted
loss per share............................ 10,355 7,669 1,014 2,038 44
Pro forma(3) net loss per share............. -- $ (0.57) $ (0.48) -- --
Shares used in computing pro forma(3) net
loss per share............................ -- 9,175 7,607 -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994 1993
------- -------- -------- ------- ------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET:
Working capital (deficit).................. $ 6,574 $ 12,581 $ 801 $(1,192) $ (187)
Total assets..................... 17,265 21,719 5,727 2,170 1,792
Redeemable convertible preferred stock..... -- -- 12,816 2,342 --
Stockholders' equity (deficit)............. $ 8,656 $ 14,396 $(11,405) $(3,058) $ 180
</TABLE>
- ---------------
(1) Includes in-process research and development of $4.5 million and
Deming-related integration expenses of $279,000.
(2) Exclusive of the expenses noted in footnote (1) above, net loss per share
would have been ($.06).
(3) Includes preferred stock using the if-converted method.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 is an Internet security company focused on providing e-mail
security and policy management solutions that enable organizations to safely and
efficiently use the Internet for global business communication. The Company's
products include WorldSecure Server, an e-mail firewall and security policy
manager, WorldSecure Client, a desktop e-mail encryption product, NetTalk, a
Windows NT-based e-mail and directory server, and NetJunction, a UNIX-based
directory and messaging switch. During 1996, Worldtalk initiated a major product
development program to leverage the Company's technology base and expertise in
UNIX-based e-mail connectivity backbones and directory services to develop new
Windows NT-based Internet e-mail security and connectivity products. These
products, WorldSecure Server and NetTalk, were released in 1997. During 1997,
the Company experienced a more rapid decline in its UNIX-based NetJunction
product than had been anticipated at the end of 1996. The Company believes that
this was caused by a combination of factors. These included a more rapid market
shift from UNIX-based systems to Windows NT-based systems and the desire of
organizations to utilize Internet standards-based technology to build corporate
intranets in place of private, proprietary network backbones. As a result, the
Company experienced a 20.3% decline in revenue compared to 1996 and significant
operating losses in 1997. The Company's results improved by the fourth quarter
of 1997 as a result of increased revenue from the new Windows-NT based products
and the implementation of effective cost control measures.
The Company has experienced a significant shift in product mix from almost
100% of software license revenue coming from UNIX-based NetJunction products in
1996 to the majority of software license revenue coming from Windows NT-based
e-mail security and connectivity products in 1997. However, a significant
portion of the revenue reported from these products during the fourth quarter
came from shipments of products pursuant to minimum non-refundable commitment
terms with two large resellers, which do not directly reflect sales to
end-users. During each quarter of 1998, the Company expects to report additional
revenue from the recognition of the balance of a non-refundable pre-paid
purchase commitment from one reseller based on product sell-through and
guaranteed quarterly minimum commitments from another reseller. The realization
of revenue in excess of the non-refundable prepaid amount noted above, will
depend on the success of these resellers in the marketplace. The Company
believes that a return to profitability will depend on increased market
acceptance of its new Windows NT-based e-mail security and policy management
products. Further revenue from these new Windows NT-based products will depend
increasingly on the success of third-party reseller channels. In this regard,
the Company entered into product distribution relationships in 1997 with Peapod
based in the United Kingdom, ASCII based in Japan, SDTI based in the United
States and various other resellers in the United States and in foreign markets.
A key element of the Company's future revenue growth will be the ability of the
Company's resellers to sell the Company's products in volume. There can be no
assurance that the Company's resellers will be successful in marketing these
products.
By the second half of 1998, the Company anticipates that most of its
development and marketing efforts will be focused on the Windows NT-based
security products. The Company also plans to continue maintaining and supporting
its NetJunction product line and believes that there may be a continuing revenue
stream from this activity for a limited time in the future. Although the Company
believes that these products may continue to be viable in the marketplace, the
Company plans to utilize its resources to exploit the Internet security market.
10
<PAGE> 12
During 1998 and beyond, the Company expects to deploy resources to support
its reseller channel strategy and anticipates that an increasing percentage of
revenue will be derived from those channels.
The Company's Windows NT-based Internet security and policy management
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;
success of the Company's resellers; 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 United
States government policy on encryption software; 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.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of
operations data for the periods indicated as a percentage of total revenues:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Revenue:
Software licenses................................. 60.6% 68.4% 62.8%
Maintenance, installation and training............ 39.4 31.6 27.9
Software development contracts.................... -- -- 9.3
----- ----- -----
Total revenue............................. 100.0 100.0 100.0
----- ----- -----
Cost of revenue:
Software licenses................................. 9.1 7.6 3.5
Maintenance, installation and training............ 26.1 16.6 18.4
Software development contracts.................... -- -- 5.4
----- ----- -----
Total cost of revenue..................... 35.2 24.2 27.3
----- ----- -----
Gross margin........................................ 64.8 75.8 72.7
----- ----- -----
Operating expenses:
Product development............................... 37.9 25.1 36.0
Sales and marketing............................... 65.1 47.5 70.9
General and administrative........................ 23.8 12.2 20.5
Purchased research and development................ -- 31.7 --
----- ----- -----
Total operating expense................... 126.8 116.5 127.5
----- ----- -----
Operating loss............................ (62.0) (40.7) (54.8)
Other income (expense), net......................... 4.5 3.8 0.5
----- ----- -----
Loss before income taxes.................. (57.5) (36.9) (54.3)
Income taxes........................................ 1.6 -- --
----- ----- -----
Net loss.................................. (59.1)% (36.9)% (54.3)%
===== ===== =====
</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
licenses of its software products, as well as subsequent purchases to expand
capacity or add functionality. Maintenance, installation and training revenues
relate to support contracts, installation and training services. Revenues from
software licenses are generally recognized upon shipment of
11
<PAGE> 13
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 also reported revenue
from shipments of products pursuant to minimum non-refundable commitment terms
with two large resellers.
The Company's total revenues historically have been higher in the fourth
quarter of each fiscal year than in the first quarter of the following fiscal
year. The Company's management believes that this may continue for the
foreseeable future and may intensify depending upon a variety of factors
including the timing of new product introductions by the Company.
The Company's total revenues were $11.3 million in 1997 as compared to
$14.2 million in 1996 and $6.7 million in 1995, representing a decrease of 20.3%
from fiscal 1996 to fiscal 1997 and an increase of 111.9% from fiscal 1995 to
fiscal 1996.
Software license and software development revenues were $6.9 million in
1997 as compared $9.7 million in 1996 and $4.8 million for 1995, representing a
decrease of 29.4% from fiscal 1996 to fiscal 1997 and an increase of 100.9% from
fiscal 1995 to fiscal 1996. The decrease in software license and software
development revenues from fiscal 1996 to fiscal 1997 was primarily due to the
decline in sales of NetJunction enterprise backbone products which was not
offset rapidly enough by increased sales of the Company's new Windows NT-based
products, WorldSecure and NetTalk. The increase in software license and software
development revenues from fiscal 1995 to fiscal 1996 was attributable to
increased sales volumes while average selling prices stayed constant, and also
as a result of increased market acceptance of the Company's product offerings,
offset by decreases in software development revenue as the Company transitioned
out of that line of business.
Maintenance, installation and training revenues were $4.5 million in 1997
as compared to $4.5 million in 1996 and $1.9 million in 1995, representing no
change from fiscal 1996 to fiscal 1997 and an increase of 140.2% from fiscal
1995 to fiscal 1996. Maintenance, installation and training revenue for fiscal
1997 was consistent with fiscal 1996 due 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. This increase was offset by weak
NetJunction sales in the second half of fiscal 1997, which resulted in reduced
consulting and integration services for the same period, along with an increase
in the percentage of total revenue from the sale of Windows NT-based products
which require less consulting and maintenance. The increase in maintenance,
installation and training revenues from fiscal 1995 to fiscal 1996 was
attributable to 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 Company expects that
maintenance, installation and training revenues will decline as a percentage of
revenue in the future as the Company increases sales of Windows NT-based e-mail
security and policy management products which require less maintenance,
installation and training.
COST OF REVENUES
The Company's total cost of revenues was $4.0 million in 1997 as compared
to $3.4 million in 1996 and $1.8 million in 1995, representing increases of
16.1% and 88.1% from fiscal 1996 to fiscal 1997 and from fiscal 1995 to fiscal
1996, respectively.
Cost of product revenues consists of the costs of royalties paid to
third-party vendors, product media and duplication, packaging materials and
shipping expenses. Cost of product revenues was $1.0 million in 1997, as
compared to $1.1 million in 1996 and $596,000 for 1995, representing a decrease
of 5.2% from fiscal 1996 to fiscal 1997 and an increase of 81.7% from fiscal
1995 to fiscal 1996. The slight decrease from fiscal 1996 to fiscal 1997 was due
to the decrease in license revenues, as the license costs fluctuate in direct
proportion to license revenues. This decrease was offset by certain fixed price
royalty arrangements with third-party vendors and other amortized costs related
to packaging materials, which do not fluctuate in direct proportion to license
revenues. The increase from fiscal 1995 to fiscal 1996 was due principally to
the mix of sales of royalty bearing software products and to the higher sales
volume in 1996.
12
<PAGE> 14
Maintenance, installation and training costs consist principally of
personnel-related costs for consulting, training and technical support.
Maintenance, installation and training costs were $3.0 million in 1997 as
compared to $2.4 million in 1996 and $1.2 million in 1995, representing
increases of 25.9% and 91.2% from fiscal 1996 to fiscal 1997 and from fiscal
1995 to fiscal 1996, respectively. These increases were due to the significant
expansion of the Company's customer service personnel across all categories,
including consulting, support and account management staff, offset by the
Company's later reduction of headcount early in the second half of 1997. The
Company expects that maintenance, installation and training costs will decline
as a percentage of revenue in the future, as the Company increases sales of
Windows NT-based e-mail security and policy management products which require
less maintenance, installation and training.
PRODUCT DEVELOPMENT
Product development expenses consist primarily of personnel-related costs,
including salaries and benefits of personnel, as well as equipment and facility
costs. Product development expenses are 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 were $4.3 million in 1997 as compared to $3.6 million in
1996 and $2.4 million in 1995, representing increases of 20.5% and 47.5% from
fiscal 1996 to fiscal 1997 and from fiscal 1995 to fiscal 1996, respectively.
Product development expenses represented 37.9%, 25.1% and 36.0% of total
revenues for fiscal 1997, 1996 and 1995, respectively. The increases in absolute
dollars in product development 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 fluctuations in product development expenses as a percentage of total
revenues were attributable to the fluctuations in revenues for the respective
periods and the fact that product development expenses do not fluctuate in
direct proportion to total revenues. The Company believes that continued
commitment to product development is required for the Company's products to
obtain a competitive advantage. The Company intends to continue to allocate
resources to product research and development. Consequently, such expenses may
increase in both dollar amounts and as a percentage of total revenues in the
future.
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 were $7.4 million in 1997 as
compared to $6.8 million in 1996 and $4.8 million in 1995, representing
increases of 9.3% and 41.9% from fiscal 1996 to fiscal 1997 and from fiscal 1995
to fiscal 1996, respectively. Sales and marketing expenses represented 65.1%,
47.5% and 70.9% of total revenues for fiscal 1997, 1996 and 1995, respectively.
The increases in absolute dollars were primarily the result of the expansion of
the Company's marketing personnel and the launch of the Company's new Windows
NT-based e-mail security and policy management products. The fluctuations in
sales and marketing expenses as a percentage of total revenues were attributable
to the fluctuations in revenues for the respective periods and the fact that
certain sales and marketing expenses do not fluctuate in direct proportion to
total revenues. In the future, the Company expects to continue hiring additional
sales and marketing personnel, increase promotion and advertising efforts and
expand internationally through a combination of distributors, VARs and direct
sales personnel. Consequently, such expenses may increase in both dollar amounts
and as a percentage of total revenues in the future.
GENERAL AND ADMINISTRATIVE
General and administrative expenses primarily consist of personnel costs
for finance and accounting, human resources and general management of the
Company. General and administrative expenses were $2.7 million in 1997 as
compared to $1.7 million in 1996 and $1.4 million in 1995, representing
increases of 55.2% and 25.9% from fiscal 1996 to fiscal 1997 and from fiscal
1995 to fiscal 1996, respectively. General and administrative expenses
represented 23.8%, 12.2% and 20.5% of total revenues for fiscal 1997, 1996 and
1995, respectively. The increases in absolute dollars were attributable
primarily to increased staffing and associated
13
<PAGE> 15
expenses necessary to manage and support the Company's business, which included
public company related expenses. 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 reseller arrangements. The fluctuations in general and administrative
expenses as a percentage of total revenues were attributable to the fluctuations
in revenue for the respective periods and the fact that general and
administrative expenses do not fluctuate in direct proportion to total revenues.
The Company believes that general and administrative expenses will continue to
increase in absolute dollar amounts in the future, as the Company expands its
staffing to handle increased infrastructure requirements.
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 develop and launch the Company's Windows NT-based products. The Company
reduced its headcount in the second half of 1997 due to the weak UNIX-based
NetJunction sales in the first half of 1997 and the transition of the Company's
business model to accommodate the new Windows NT-based e-mail security and
policy management products.
PURCHASED RESEARCH AND DEVELOPMENT
In November 1996, the Company acquired Deming Software, Inc. for a total
purchase price of approximately $4.8 million of which $4.5 million was allocated
to purchased research and development. For allocation of the purchase price, see
Item 8 "Financial Statements and Supplemental Data, Note (2) of Notes to
Consolidated Financial Statements."
NET INTEREST INCOME
Net interest income consists of interest income and expense and other
miscellaneous income and expense items. Net interest income was $508,000,
$544,000 and $31,000 for fiscal 1997, 1996 and 1995, respectively. The
fluctuations in net interest income from fiscal 1996 to fiscal 1997 and from
fiscal 1995 to fiscal 1996 were primarily attributable to fluctuations in the
Company's cash and cash equivalent and short-term investments balances, coupled
with interest rate fluctuations during the comparable periods.
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 December 31, 1997, the Company had
cash and cash equivalents of $4.7 million, short-term investments of $6.4
million and working capital of $6.6 million.
The Company has a $2.0 million bank line of credit, which expired on
January 9, 1998. As of March 31, 1998 the Company had not yet renewed this line
of credit agreement. As of December 31, 1997, the Company had utilized $243,000
of its available line of credit.
Net cash used in operating activities amounted to $2.5 million in 1997,
which was comprised principally of the Company's net loss of $6.7 million,
decreases in accounts payable, accrued expenses, and other liabilities of $1.2
million and an increase in prepaid expenses of $313,000, offset by an increase
in deferred revenue of $2.5 million, a decrease in accounts receivable of $2.5
million and depreciation and amortization of $745,000.
Net cash used in investing activities amounted to $661,000 in 1997, which
included maturities of short-term investments of $7.0 million and an increase in
other assets of $247,000, offset by the purchase of short-term investments of
$7.4 million and $520,000 for purchases of property and equipment. The Company
currently has no significant capital commitments for fiscal 1998.
14
<PAGE> 16
Net cash provided by financing activities amounted to $810,000 in 1997
which included repayments of stockholder receivables of $265,000, net proceeds
from the issuance of common stock of $653,000, proceeds from bank borrowings of
$243,000, offset by principal payments under capital lease obligations of
$351,000.
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 AFFECT 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
$23.7 million as of December 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 the quarter could result in substantial
fluctuations from period to period. 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 resellers and on managing the
distribution channel. In addition, significant revenue was reported during the
second half of 1997 from non-refundable minimum commitments from two large
resellers which do not directly reflect sales to end-users. During each quarter
of 1998, the Company expects to report additional revenue from the recognition
of the balance of a non-refundable pre-paid purchase commitment from one
reseller based on product sell-through and guaranteed quarterly minimum
commitments from another reseller. The realization of revenue in excess of the
non-refundable prepaid amount noted above, will depend on the success of these
resellers in the marketplace. The Company believes that a return to
profitability will depend on increased market acceptance of its new Windows
NT-based e-mail security and policy management products. Failure of the
Company's resellers to successfully market the Company's products would cause a
material adverse effect on the Company's anticipated future revenue, and there
can be no assurance that the Company's resellers will be successful in marketing
the Company's products. 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, product mix 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.
15
<PAGE> 17
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 e-mail security and policy
management products. The Company believes that the introduction of these new
products and the development of new sales channels during the second and third
quarters of fiscal 1997 began the process of restoring the Company to a pattern
of growth. However, there can be no assurance that the Company will be
successful in this regard in the future.
There are a number of factors that 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.
International sales accounted for 28% of the Company's total sales in 1997,
compared to 24% in 1996 and it is not certain that revenues from the licensing
and support of the Company's products in international markets will continue to
grow. 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. Exports of the Company's
WorldSecure products require export licenses from the United States Department
of Commerce, Bureau of Export Administration. These licenses contain certain
restrictions as well as administrative requirements which must be assumed by the
Company. Export of "strong encryption" products requires that the Company comply
with certain key recovery requirements imposed by the United States government.
There is no assurance that the Company will be successful in obtaining
additional licenses. Failure to do so would adversely affect international sales
of the Company's WorldSecure products. Additionally, United States government
policy relative to encryption software is subject to change and any change
resulting in increased restrictions could adversely affect sales of the
Company's WorldSecure products. Recently Network Associates, a competitor,
announced that it would allow its Dutch subsidiary to begin selling an
international version of a strong encryption program, which it maintains does
not require a Department of Commerce approved export license. To the extent that
Network Associates is successful with this position, other companies, including
Worldtalk, would be at a competitive disadvantage in foreign markets for some
period of time, possibly resulting in lower than anticipated sales. 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
results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
16
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Index to Consolidated Financial Statements:
Report of Independent Auditors.............................. 18
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... 19
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995.......................... 20
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1997, 1996 and 1995...... 21
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.......................... 23
Notes to Consolidated Financial Statements.................. 24
</TABLE>
17
<PAGE> 19
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
Worldtalk Corporation:
We have audited the accompanying consolidated balance sheets of Worldtalk
Corporation and subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the years in the three-year period ended December 31, 1997. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule listed in the Index at Item
14(a)(2). These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Worldtalk
Corporation and subsidiary as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
Mountain View, California
February 3, 1998
18
<PAGE> 20
WORLDTALK CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 4,662 $ 7,012
Short-term investments.................................... 6,415 6,027
Accounts receivable, net of allowance for doubtful
accounts of $121 and $149, respectively................ 3,039 5,524
Prepaid expenses.......................................... 935 622
-------- --------
Total current assets.............................. 15,051 19,185
Property and equipment, net................................. 1,658 1,731
Other assets................................................ 556 803
-------- --------
$ 17,265 $ 21,719
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 760 $ 1,601
Short-term debt........................................... 243 --
Current portion of capital lease obligations.............. 339 343
Accrued expenses.......................................... 3,041 3,094
Deferred revenue.......................................... 4,094 1,566
-------- --------
Total current liabilities......................... 8,477 6,604
Capital lease obligations, less current portion............. 132 369
Other liabilities........................................... -- 350
-------- --------
Total liabilities................................. 8,609 7,323
======== ========
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; 25,000 shares authorized,
10,487 and 10,290 shares issued and outstanding in 1997
and 1996, respectively................................. 105 103
Additional paid-in capital................................ 32,301 31,650
Stockholder notes receivable.............................. -- (265)
Deferred compensation..................................... (89) (131)
Accumulated deficit....................................... (23,661) (16,961)
-------- --------
Total stockholders' equity........................ 8,656 14,396
-------- --------
$ 17,265 $ 21,719
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 21
WORLDTALK CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Revenues:
Software licenses......................................... $ 6,860 $ 9,711 $ 4,213
Maintenance, installation, and training................... 4,467 4,494 1,871
Software development contracts............................ -- -- 621
------- ------- -------
Total revenues.................................... 11,327 14,205 6,705
------- ------- -------
Cost of revenues:
Software licenses......................................... 1,027 1,083 234
Maintenance, installation, and training................... 2,964 2,355 1,232
Software development contracts............................ -- -- 362
------- ------- -------
Total cost of revenues............................ 3,991 3,438 1,828
------- ------- -------
Gross profit........................................... 7,336 10,767 4,877
------- ------- -------
Operating expenses:
Product development....................................... 4,294 3,563 2,415
Sales and marketing....................................... 7,378 6,751 4,757
General and administrative................................ 2,689 1,733 1,376
Purchased research and development........................ -- 4,500 --
------- ------- -------
Total operating expenses.......................... 14,361 16,547 8,548
------- ------- -------
Operating loss.............................................. (7,025) (5,780) (3,671)
Interest income, net........................................ 508 544 31
------- ------- -------
Loss before income taxes.......................... (6,517) (5,236) (3,640)
------- ------- -------
Income taxes................................................ 183 4 --
------- ------- -------
Net loss.......................................... $(6,700) $(5,240) $(3,640)
======= ======= =======
Basic and diluted net loss per share........................ $ (0.65) $ (0.68) $ (3.59)
======= ======= =======
Shares used in computing basic and diluted net loss per
share..................................................... 10,355 7,669 1,014
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 22
WORLDTALK CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ADDITIONAL
SHARES AMOUNT PAID-IN CAPITAL
------ ------ ---------------
<S> <C> <C> <C>
Balances as of December 31, 1994............................ 3,463 $ 35 $ 4,988
Conversion of common stock to Series A redeemable preferred
stock..................................................... (3,000) (30) (4,741)
Exercise of common stock options............................ 1,027 10 240
Issuance of common stock for services rendered.............. 15 -- 8
Deferred compensation related to grant of stock options..... -- -- 175
Net loss.................................................... -- -- --
------ ---- -------
Balances as of December 31, 1995............................ 1,505 $ 15 $ 670
Issuance of common stock in initial public offering, net.... 2,000 20 13,812
Conversion of redeemable preferred stock to common stock.... 6,025 60 12,756
Exercise of common stock options and warrants............... 178 2 49
Purchases under the Employee Stock Purchase Plan............ 35 -- 238
Issuance of shareholders' notes receivable.................. -- -- --
Issuance of common stock in acquisition..................... 547 6 4,125
Amortization of deferred compensation....................... -- -- --
Net loss.................................................... -- -- --
------ ---- -------
Balances as of December 31, 1996............................ 10,290 $103 $31,650
Exercise of common stock options............................ 148 2 202
Purchases under the Employee Stock Purchase Plan............ 124 1 461
Repurchased common stock.................................... (75) (1) (12)
Repayment of shareholders' notes receivable................. -- -- --
Amortization of deferred compensation....................... -- -- --
Net loss.................................................... -- -- --
------ ---- -------
Balances as of December 31, 1997............................ 10,487 $105 $32,301
====== ==== =======
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 23
WORLDTALK CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
STOCKHOLDER STOCKHOLDERS'
NOTE DEFERRED ACCUMULATED EQUITY
RECEIVABLE COMPENSATION DEFICIT (DEFICIT)
----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Balances as of December 31, 1994.......... $ -- $ -- $ (8,081) $ (3,058)
Conversion of common stock to Series A
redeemable preferred stock.............. -- -- -- (4,771)
Exercise of common stock options.......... (194) -- -- 56
Issuance of common stock for services
rendered................................ -- -- -- 8
Deferred compensation related to grant of
stock options........................... -- (175) -- --
Net loss.................................. -- -- (3,640) (3,640)
----- ----- -------- --------
Balances as of December 31, 1995.......... $(194) $(175) $(11,721) $(11,405)
Issuance of common stock in initial public
offering, net........................... -- -- -- 13,832
Conversion of redeemable preferred stock
to common stock......................... -- -- -- 12,816
Exercise of common stock options and
warrants................................ -- -- -- 51
Purchases under the Employee Stock
Purchase Plan........................... -- -- -- 238
Issuance of shareholders' notes
receivable.............................. (68) -- -- (68)
Issuance of common stock in acquisition... (3) -- -- 4,128
Amortization of deferred compensation..... -- 44 -- 44
Net loss.................................. -- -- (5,240) (5,240)
----- ----- -------- --------
Balances as of December 31, 1996.......... $(265) $(131) $(16,961) $ 14,396
Exercise of common stock options.......... -- -- -- 204
Purchases under the Employee Stock
Purchase Plan........................... -- -- -- 462
Repurchased common stock.................. -- -- -- (13)
Repayment of shareholders' notes
receivable.............................. 265 -- -- 265
Amortization of deferred compensation..... -- 42 -- 42
Net loss.................................. -- -- (6,700) (6,700)
----- ----- -------- --------
Balances as of December 31, 1997.......... $ -- $ (89) $(23,661) $ 8,656
===== ===== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 24
WORLDTALK CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(6,700) $(5,240) $(3,640)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 703 452 253
Amortization of deferred compensation................... 42 44 --
Common stock issued for services........................ -- -- 8
Purchased research and development...................... -- 4,500 --
Changes in operating assets and liabilities:
Accounts receivable................................... 2,485 (3,957) (286)
Prepaid expenses...................................... (313) (507) (47)
Accounts payable...................................... (841) 647 120
Accrued expenses...................................... (53) 714 1,066
Deferred revenue...................................... 2,528 561 (120)
Other liabilities..................................... (350) (280) 185
------- ------- -------
Net cash used in operating activities.............. (2,499) (3,066) (2,461)
------- ------- -------
Cash flows from investing activities:
Restricted cash........................................... -- 2,000 (2,000)
Purchase of property and equipment........................ (520) (1,413) (92)
Purchase of short-term investments........................ (7,418) (9,469) --
Sales and maturities of short-term investments............ 7,030 3,442 --
Other assets.............................................. 247 39 (270)
------- ------- -------
Net cash used in investing activities.............. (661) (5,401) (2,362)
------- ------- -------
Cash flows from financing activities:
Net proceeds from issuance of common stock................ 653 14,053 56
Repayment of shareholder receivable....................... 265 -- --
Principal payments under capital lease obligations........ (351) (256) (150)
Proceeds from bank borrowings............................. 243 698 --
Net proceeds from issuance of redeemable convertible
preferred stock......................................... -- -- 4,703
Proceeds from issuance of convertible secured promissory
notes................................................... -- -- 1,000
------- ------- -------
Net cash provided by financing activities.......... 810 14,495 5,609
------- ------- -------
Change in unrestricted cash and cash equivalents............ (2,350) 6,028 786
Unrestricted cash and cash equivalents at beginning of
year...................................................... 7,012 984 198
------- ------- -------
Unrestricted cash and cash equivalents at end of year....... $ 4,662 $ 7,012 $ 984
======= ======= =======
Supplemental disclosures:
Cash paid for interest:................................... $ 92 $ 106 $ 39
======= ======= =======
Noncash investing and financing activities:
Common stock issued in acquisition of Deming Software,
Inc................................................... $ -- $ 4,131 $ --
======= ======= =======
Conversion of convertible preferred stock to common
stock................................................. $ -- $12,816 $ --
======= ======= =======
Notes receivable from stockholders...................... $ -- $ 68 $ 194
======= ======= =======
Equipment acquired under capital lease agreements....... $ 110 $ 506 $ 329
======= ======= =======
Conversion of Series AA redeemable preferred stock and
common stock into Series A redeemable convertible
preferred stock....................................... $ -- $ -- $ 7,113
======= ======= =======
Conversion of convertible secured promissory notes in
connection with sale of Series B redeemable
convertible preferred stock........................... $ -- $ -- $ 1,000
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 25
WORLDTALK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) SUMMARY OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
The Company
Worldtalk Corporation (the "Company") is an Internet security company
focused on providing e-mail security solutions that enable organizations to
safely and efficiently use the Internet for global business communication. The
Company's products include WorldSecure Server, an e-mail firewall and security
policy manager, WorldSecure Client, a desktop e-mail encryption product,
NetTalk, a Windows NT-based e-mail and directory server, and NetJunction, a
UNIX-based directory and messaging switch.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All significant intercompany
transactions and accounts have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Financial Instruments and Concentration of Credit Risk
Cash equivalents consist of highly liquid investments, principally money
market accounts and marketable debt securities, with maturities of three months
or less at the time of purchase.
The Company has classified its short-term marketable investments as
"available-for-sale." Available-for-sale securities are carried at fair market
value, with material unrealized gains and losses, net of tax, reported in a
separate component of stockholders' equity. Gains and losses on securities sold
are based on the specific identification method.
Fair values of short-term marketable investments are based on quoted market
values as of December 31, 1997 and 1996. As of December 31, 1997 and 1996, the
difference between the fair value and amortized cost of short-term marketable
investments was not material. As of December 31, 1997, short-term marketable
investments consisted of U.S. government securities due within one year or less.
Financial instruments, which potentially subject the Company to
concentrations of credit risk, are primarily cash equivalents, short-term
marketable investments and accounts receivable. The Company's cash equivalents
and short-term marketable investments are primarily in U.S. treasury notes and
federal government agency obligations that have various maturities during 1998.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Company's customer base and
their dispersion across different industries and geographic areas. Generally,
the Company requires no collateral on trade receivables. The Company believes
that its credit evaluation process substantially mitigates any credit risks.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the related assets,
generally three to five years. Equipment recorded under capital
24
<PAGE> 26
WORLDTALK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
leases and leasehold improvements are amortized using the straight-line method
over the shorter of the respective useful lives of the assets or the lease term.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 121 requires the
Company to review the recoverability of the carrying amount of its long-lived
assets whenever events or changes in circumstances indicate that the carrying
amount of an asset might not be recoverable. In the event that facts and
circumstances indicate that the carrying amount of long-lived assets may be
impaired, an evaluation of recoverability would be performed. If an evaluation
is required, the estimated future undiscounted cash flows associated with the
asset would be compared to the asset's carrying amount to determine if a
write-down is required. Long-lived assets would then be written down to the
amount determined by reference to discounted future cash flows over the
remaining useful life of the related asset. Adoption of SFAS No. 121 did not
have a material effect on the Company's consolidated financial position or
results of operations in 1996. To date, the Company has made no adjustments to
the carrying values of its long-lived assets.
Revenue Recognition
The Company's revenue recognition policies are in accordance with Statement
of Position 91-1 Software Revenue Recognition and are as follows:
- Software licenses revenues are recognized upon shipment of the software.
For licenses, which provide for a trial period using a temporary key,
revenue is recognized upon delivery of a permanent key. Software license
revenues are not recognized until there is a signed license agreement,
the sales price is collectible and the company has no remaining
significant vendor obligations.
- Maintenance revenues relating to contracts which entitle customers to
receive technical support and future enhancements of the computer
software are deferred and recognized ratably over the contract period.
- Installation and training revenues are recognized when the services are
performed.
- Software development contract revenues are recognized using the
percentage of completion method. The Company periodically evaluates
estimated costs of completion and accrues the excess of estimated costs
over anticipated contract revenue.
In October 1997, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 97-2, Software Revenue Recognition,
which supersedes SOP 91-1. SOP 97-2 is effective for transactions entered into
after December 31, 1997. SOP 97-2 generally requires revenue earned on software
arrangements involving multiple elements to be allocated to each element based
on the relative fair values of the elements. The fair value of an element must
be based on evidence that is specific to the vendor. If a vendor does not have
evidence of the fair value for all elements in a multiple-element arrangement,
all revenue from the arrangement is deferred until such evidence exists or until
all elements are delivered. The Company is still considering the effect of
adopting SOP 97-2; however, the Company generally does not anticipate that it
will have a material impact on the Company's consolidated results of operations
or financial position.
Research and Development
Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as incurred
until technological feasibility in the form of a
25
<PAGE> 27
WORLDTALK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
working model has been established. To date, the Company's software development
has been completed concurrent with the establishment of technological
feasibility, and, accordingly, no costs have been capitalized.
Stock-Based Compensation
The Company accounts for its stock option plans using the intrinsic value
method. As such, compensation expense is recorded if on the date of grant the
current market price of the underlying stock exceeds the exercise price.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which those temporary differences
are expected to be recovered or settled. Deferred tax assets are reduced by an
allowance to an amount whose realization is more likely than not.
Earnings per Share
Earnings per share (EPS) has been computed in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. SFAS No. 128
requires the presentation of basic and diluted EPS. Basic EPS is computed using
the weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed using the weighted average number of
potentially dilutive common equivalent shares outstanding for the period, if
any. For the years ending December 31, 1997, 1996 and 1995, common stock options
totaling 1,853, 1,251 and 827, respectively, were omitted from the computation,
as their impact would be antidilutive. Additionally, for the period ended
December 31, 1995, 6,025 shares of redeemable convertible preferred stock were
omitted from the computation, as their impact would be antidilutive.
Effective February 3, 1998, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin (SAB) No. 98, which changes the calculation of
earnings per share in periods prior to initial public offerings, as previously
applied under SAB No. 83. When a registrant issued common stock, warrants,
options or other potentially dilutive instruments for consideration or with
exercise prices below the initial public offering price, within a one-year
period prior to the initial filing of a registration statement relating to an
initial public offering, SAB No. 83 required such equity instruments to be
treated as outstanding for all periods presented in the filing using the
anticipated initial public offering price and the treasury stock method. Under
SAB No. 98, when common stock, options, warrants or other potentially dilutive
instruments have been issued for nominal consideration during the periods
covered by income statements in the filing, those nominal issuances are to be
reflected in earnings per share calculations for all periods presented. The
Company has concluded that during all periods prior to the Company's initial
public offering, no equity instruments were issued for nominal consideration.
Net loss per share for periods prior to the Company's initial public offering
have been restated in accordance with SAB No. 98 and SFAS No. 128.
Reclassifications
Certain reclassifications were made to the 1996 and 1995 consolidated
financial statements to conform to the 1997 presentation.
26
<PAGE> 28
WORLDTALK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(2) BUSINESS COMBINATION
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 $4,773, including 569 shares of the Company's common stock,
$225 in cash, and $418 of direct acquisition costs. The acquisition was
accounted for using the purchase 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. The purchase price has been allocated
as follows:
<TABLE>
<S> <C>
Net liabilities assumed..................................... $ (226)
Goodwill, covenant not to compete and workforce in place.... 499
Purchased research and development.......................... 4,500
------
$4,773
======
</TABLE>
The $4,500 allocated to purchased research and development was charged to
operations in the quarter ended December 31, 1996. The amount allocated to
goodwill, covenant not to compete and workforce in place will be amortized using
the straight-line method over 48 months.
The following pro forma combined results of operations for the years ended
December 31, 1996 and 1995 are presented as if the acquisition had occurred at
the beginning of each period. The pro forma results of operations for the year
ended December 31, 1995, include the results of operations of Deming from its
inception at December 11, 1995. The charge for in process research and
development has not been reflected in the following pro forma summary. The pro
forma summary does not necessarily reflect the results of operations as if the
Company and Deming had been consolidated during such periods:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Net revenues..................................... $14,734 $ 6,705
Net loss......................................... $(1,507) $(3,640)
Basic and diluted net loss per share............. $ (0.15) $ (3.58)
</TABLE>
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Equipment........................................ $ 2,515 $ 2,034
Furniture and fixtures........................... 655 567
Purchased software............................... 224 164
Leasehold improvements........................... 111 110
------- -------
3,505 2,875
Less accumulated depreciation and amortization... (1,847) (1,144)
------- -------
$ 1,658 $ 1,731
======= =======
</TABLE>
Equipment recorded under capital leases aggregated $1,533 and $1,423 with
related accumulated amortization of $997 and $657 for the years ended December
31, 1997 and 1996, respectively.
27
<PAGE> 29
WORLDTALK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(4) ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------ ------
<S> <C> <C>
Accrued employee compensation...................... $1,021 $ 797
Accrued commissions................................ 177 224
Other accrued liabilities.......................... 1,843 2,073
------ ------
$3,041 $3,094
====== ======
</TABLE>
(5) INCOME TAXES
The Company's effective tax rate differs from the federal income tax rate
of 34%, as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income tax benefit at statutory
rate................................ $ 2,216 $ 1,780 $ 1,238
Nondeductible purchased research and
development......................... -- (1,652) --
Losses for which no benefit is
currently realized.................. (2,157) (101) (1,238)
State income tax...................... (37) 4 --
Foreign withholding tax............... (115) -- --
Other................................. (90) (27) --
------- ------- -------
Actual tax expense.................... $ (183) $ (4) $ --
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Accruals and reserves............................ $ 923 431
Deferred research and development costs.......... 3,828 3,190
Net operating loss carryforward -- federal....... 2,313 1,274
Net operating loss carryforward -- state......... 131 59
Research and development credit carryforward..... 1,090 693
Other............................................ 34 98
------- -------
8,319 5,745
Less valuation allowance......................... (8,319) (5,745)
------- -------
Net deferred tax assets................ $ -- --
======= =======
</TABLE>
The net change in the valuation allowance for the year ended December 31,
1997 was an increase of $2,574. Deferred tax assets as of December 31, 1997
include approximately $303 relating to stock option compensation, which will be
credited to stockholders' equity when realized.
For federal income tax purposes, the Company has net operating loss
carryforwards of approximately $6,736, expiring in the tax years 2008 through
2011. For California income tax purposes, the Company has net operating loss
carryforwards of approximately $2,247, expiring in the tax years 1997 through
2002. The
28
<PAGE> 30
WORLDTALK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Company has a taxable year ending March 31 but reports on the calendar year for
financial statement purposes. The difference between the net operating loss
carryforward for federal income tax purposes and for state income tax purposes
results primarily from a 50% limitation on the California loss carryforwards.
The Company has research and development tax credit carryforwards for
federal and California tax purposes of approximately $633 and $457,
respectively.
Internal Revenue Code Section 382 limits the utilization of net operating
losses incurred prior to an "ownership change," as defined. The Company believes
an ownership change resulted from the issuance of the Series B preferred stock
on December 31, 1993.
The Company has not yet determined whether an ownership change occurred due
to an initial public offering in April 1996. If an ownership change has
occurred, utilization of the net operating loss carryforwards could be
significantly reduced.
(6) BANK BORROWINGS AND CONVERTIBLE SECURED PROMISSORY NOTES
On October 25, 1995, the Company entered into a loan and security agreement
comprised of a $500 line of credit, which expired on October 25, 1996 and a $250
term facility, which would have expired on October 15, 1998, bearing interest at
the prime rate plus 2% and prime rate plus 3%, respectively. On January 9, 1997,
the Company replaced the $500 line of credit and $250 term facility by entering
into a loan and security agreement comprised of a $2.0 million line of credit,
which expired on January 9, 1998, bearing interest at the prime rate (8.5%) plus
0.5%. The agreement is collateralized by the assets of the Company, contains
certain financial covenants and restricts the Company's ability to incur other
indebtedness and pay dividends. As of December 31, 1997, the balances
outstanding under the line of credit agreements was $243. The outstanding
balance under the term facility was $250 as of December 31, 1996 and this amount
was repaid in 1997. As of March 31, 1998, the Company had not yet renewed this
line of credit agreement.
(7) PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock
As of December 31, 1997, there were 6,500 authorized shares of preferred
stock, none of which are designated or outstanding, with a $0.01 per share par
value.
Stock Option and Purchase Plans
In February 1996, the Company adopted the 1996 Equity Incentive Plan (the
1996 Plan), under which 1,000 shares of common stock were reserved for issuance.
The 1996 Plan became effective in April 1996 on the effective date of the
Company's initial public offering. The 1996 Plan provides for the grant of
options, stock bonuses and restricted stock purchase rights. The compensation
committee of the Board of Directors has the authority to set exercise dates (no
longer than 10 years from date of grant), payment terms and other provisions for
each grant. Options are subject to vesting as determined by the compensation
committee, generally over 48 months. Vesting and exercisability of certain
outstanding options and other stock awards under the 1996 Plan will accelerate
upon certain change of control transactions. In August 1997, an additional 750
shares of common stock were reserved for issuance under the Company's 1996 Plan.
The Company's 1992 Stock Option Plan (the 1992 Plan) terminated at the
effective date of the Company's initial public offering, at which time the 1996
Plan became effective. As a result, no further options may be granted under the
1992 Plan. However, termination of the 1992 Plan does not affect outstanding
options, all of which remain outstanding until exercised or until they terminate
or expire. The terms of options granted under the 1992 Plan and the
administration of the 1992 Plan are substantially the same as the 1996 Plan,
except that vesting of options under the 1992 Plan does not accelerate upon an
acquisition.
29
<PAGE> 31
WORLDTALK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Activity under the option plans follows:
<TABLE>
<CAPTION>
SHARES WEIGHTED-
AVAILABLE AVERAGE
FOR OPTIONS EXERCISE
GRANT OUTSTANDING PRICE
--------- ----------- ---------
<S> <C> <C> <C>
Balances as of December 31, 1994.............. 660 827 0.20
Additional shares reserved.................... 500 -- --
Options granted............................... (1,327) 1,327 0.64
Options exercised............................. -- (1,027) 0.27
Options canceled.............................. 300 (300) 0.20
------ ------ -----
Balances as of December 31, 1995.............. 133 827 0.83
Additional shares reserved.................... 1,200 -- --
Options granted............................... (722) 722 9.23
Options exercised............................. -- (171) 0.33
Options canceled.............................. 127 (127) 3.62
------ ------ -----
Balances as of December 31, 1996.............. 738 1,251 $5.46
Additional shares reserved.................... 750 -- --
Options granted............................... (1,990) 1,990 4.74
Options exercised............................. -- (148) 1.38
Options canceled.............................. 1,240 (1,240) 7.42
------ ------ -----
Balances as of December 31, 1997.............. 738 1,853 $3.70
====== ====== =====
</TABLE>
The following table summarizes information about options outstanding under
the plans as of December 31, 1997:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------------- -----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OF SHARES CONTRACTUAL EXERCISE OF SHARES EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------------------------ ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.20......................... 205 7.19 years $0.20 140 $0.20
From $0.50 to $ 3.50............... 423 9.26 3.01 43 1.07
From $3.75 to $ 6.00............... 971 9.29 3.79 142 3.99
From $7.12 to $13.75............... 254 9.07 7.37 66 8.22
----- ---
1,853 391 3.04
===== ===
</TABLE>
Certain outstanding options under the stock option plan granted to officers
are immediately exercisable but subject to repurchase by the Company at a rate
equivalent to the current vesting schedule of each option. During 1997, the
Company repurchased 75 shares. As of December 31, 1997 and 1996, 82 and 454
shares were subject to repurchase, respectively.
The Company has recorded deferred compensation of $175 for the difference
between the grant price and the deemed fair value of the common stock underlying
the options granted in November and December 1995. This amount is being
amortized over the vesting period of the individual options, generally four
years.
In February 1996, the Company adopted the 1996 Employee Stock Purchase Plan
(the Purchase Plan) and reserved a total of 1,000 shares of common stock for
issuance thereunder. The Purchase Plan became effective in April 1996, on the
effective date of the Company's initial public offering and permitted eligible
30
<PAGE> 32
WORLDTALK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
employees to acquire shares of the Company's common stock through payroll
deductions at a price equal to 85% of the lower of the fair market value at the
beginning or end of each six-month offering period. As of December 31, 1997, a
cumulative total of 159 shares had been issued under the Purchase Plan.
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 vesting schedule. The other terms of the options remained unchanged. On
April 28, 1997, the Company amended 852 options pursuant to this offer.
The per share weighted-average fair value of stock options granted during
1997, 1996 and 1995 was $2.12, $4.26 and $0.40, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions: 1997 expected dividend yield 0%, risk-free interest rate of 6.32%,
expected volatility of 57% and expected life of 3.2 years; 1996 expected
dividend yield 0%, risk-free interest rate of 6.25%, expected volatility of 57%,
and expected life of 4 years; 1995 expected dividend yield 0%, risk-free
interest rate of 6.10%, expected volatility of 57% and expected life of 4 years.
The per share weighted-average fair value of employees' stock purchase
rights under the Purchase Plan included in the pro forma amounts was estimated
using the Black-Scholes model with the following assumptions: 1997 dividend
yield of 0%, expected life of 6 months, expected volatility of 57% and risk-free
interest rate of 5.31%; 1996 expected dividend yield of 0%, expected life of 6
months, expected volatility of 57% and risk-free interest rate of 6.25%. The
weighted-average fair value of purchase rights granted in 1997 and 1996 was
$1.89 and $4.39, respectively.
The Company uses the intrinsic value method in accounting for its
stock-based compensation plans. Accordingly, no compensation cost has been
recognized for these plans in the financial statements. Had the Company
determined compensation cost for its stock-based compensation plans under SFAS
No. 123, the Company's net loss would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
------ ----- -----
<S> <C> <C> <C>
Net loss:
As reported.............................. $6,700 5,240 3,640
Pro forma................................ 8,146 5,870 3,654
Basic and diluted net loss per share:
As reported.............................. $ 0.65 0.68 3.59
Pro forma................................ 0.79 0.77 3.60
</TABLE>
Pro forma net income reflects only options granted in 1997, 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts presented
above because compensation cost is reflected over the options' vesting period of
three to four years and compensation cost for options granted prior to January
1, 1995, is not considered.
Warrants
In conjunction with various financing arrangements in 1994 and 1995, the
Company issued warrants to purchase 28 shares of common stock at prices ranging
from $1.50 per share to $18.16 per share and 7 shares of Series B redeemable
preferred stock now exercisable for Common Stock in lieu of the Preferred Stock
at $2.24 per share. These warrants expire at various dates through 2004.
31
<PAGE> 33
WORLDTALK CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(8) COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its facilities and certain equipment under operating
lease agreements. The equipment operating leases expire in 1998 and the
facilities lease expires in 2005. Additionally, the Company leases certain
equipment under capital lease agreements. These leases expire at various dates
through 2000. Future minimum lease payments as of December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1998.............................................. 368 527
1999.............................................. 121 470
2000.............................................. 15 480
2001.............................................. -- 499
2002.............................................. -- 517
Thereafter........................................ -- 1,465
---- ------
Future minimum lease payments..................... 504 $3,958
======
Less amount representing interest................. 33
----
Present value of future minimum lease payments.... 471
Less current portion.............................. 339
----
Long-term portion................................. $132
====
</TABLE>
Rent expense for the years ended December 31, 1997, 1996 and 1995 was
approximately $660, $367 and $392, respectively.
Employee Benefit Plan
The Company has a 401(k) plan that allows eligible employees to contribute
up to 20% of their compensation up to a statutory maximum amount. Employee
contributions and earnings thereon vest immediately. The Company may make
discretionary contributions to the 401(k) plan; none have been made to date.
Legal Actions
The Company is engaged in certain legal actions arising in the ordinary
course of business. The Company believes that it has adequate legal defenses and
that ultimate outcome of these actions will not have a material effect on the
Company's financial position and results of operation.
(9) INTERNATIONAL SALES AND MAJOR CUSTOMERS
International sales accounted for 28%, 24% and 14% of the Company's total
revenues in 1997, 1996 and 1995, respectively. Europe accounted for 11% and 22%
of the Company's total revenues in 1997 and 1996, respectively. Asia accounted
for 12% of the Company's total revenues in 1997. No international geographic
region accounted for greater than 10% of the Company's total revenues in 1995.
In 1997, sales to one customer, ASCII, accounted for 10.2% of the Company's
total revenue. No other single customer accounted for greater than 10% of the
Company's total revenue in 1997, 1996 or 1995.
32
<PAGE> 34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company, their ages and their
positions with the Company are provided in the table below. The other
information called for by Item 10 is incorporated by reference to the
Registrant's Proxy Statement being sent to stockholders in connection with the
1998 Annual Meeting of Stockholders to be held on June 12, 1998 (the "Proxy
Statement").
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Bernard J. Harguindeguy 39 President, Chief Executive Officer and Director
Stephen R. Bennion 54 Executive Vice President, Finance and
Administration, Chief Financial Officer and
Secretary
Sathvik Krishnamurthy 29 Vice President, Product Planning and
Development
Robert D. Dickinson 32 Vice President, Engineering -- Bellevue
John G. Weald 40 Vice President, Engineering -- Santa Clara
Simon Khalaf 32 Vice President, Marketing
Joseph Longo 44 Vice President, Consulting and Customer
Services
Max D. Hopper 63 Director
David J. Cowan 32 Director
Anthony Sun 45 Director
Wade Woodson 39 Director
</TABLE>
Executive officers serve at the pleasure of the Board of Directors of the
Company.
Mr. Harguindeguy has served as Worldtalk's President since April 1997 and
as Worldtalk's Chief Executive Officer and a director since July 1997. From
April 1997 to July 1997, Mr. Harguindeguy also served as the Company's Chief
Operating Officer. From December 1996 to March 1997, he served as Vice
President, Marketing and Business Development for Worldtalk. From August 1994 to
December 1996, Mr. Harguindeguy served as Vice President, Marketing of emotion
Inc., a company focused on the delivery of digital video and graphics over
public and private networks. From February 1989 to August 1994, he served at
Novell, Inc. in various management positions, including acting general manager
and Vice President of marketing for the Enterprise Division. Mr. Harguindeguy
holds a Masters in Engineering Management from Stanford University and a
Bachelor of Science in Electrical Engineering from University of California,
Irvine.
Mr. Bennion has served as Executive Vice President, Finance and
Administration, Chief Financial Officer and Secretary of Worldtalk from January
1996 to present. Previously, Mr. Bennion was the Vice President of Finance and
Operations from December 1995 to January 1996. From April 1995 to November 1995
he has served as the Chief Financial Officer and Assistant Secretary. From
September 1994 to March 1995, he was Vice President and Chief Financial Officer
of Catapult Entertainment, Inc., a developer of video game networks. From
September 1991 to September 1994, Mr. Bennion served as Vice President and Chief
Financial Officer of Molecular Dynamics, Inc., a manufacturer of life sciences
instrumentation. From October 1988 to September 1991, Mr. Bennion served as Vice
President and Treasurer of MIPS Computer Systems, Inc., a developer of RISC
microprocessors and computers. Mr. Bennion received his Bachelor of Science
degree in Accounting and Economics from Weber State University and is a
Certified Public Accountant.
Mr. Krishnamurthy has served as the Vice President, Product Planning and
Development from August 1997 to current. Previously, he was the Vice President,
General Manager Deming Internet Security
33
<PAGE> 35
from November 1996 to July 1997. From January 1996 to October 1996 he was the
Director of Product Marketing, Internet Security Products. Prior to that, he was
the Engineering Team Lead from November 1993
to December 1995. From November 1992 to October 1993, he was the Senior Software
Engineer. From April 1991 to October 1992, Mr. Krishnamurthy was a Software
Engineer at Retix Inc. Mr. Krishnamurthy has received a Bachelor of Science
degree in Computer Science and Engineering from the University of California,
Los Angeles.
Mr. Dickinson has served as Vice President, Engineering - Belleuve for
Worldtalk since December 1997. From November 1996 to December 1997, he served as
Director, Research and Development for the Deming Internet Security division of
the Company. In December 1995, Mr. Dickinson founded Deming Software, Inc., a
developer of electronic mail security solutions. He served as President, CEO and
Chairman of Deming Software, Inc. from December 1995 until its merger with
Worldtalk in November 1996. From June 1991 to November 1995, he served in
various executive positions and was a member of the board of directors of
ConnectSoft, Inc., a communications software development and consulting firm.
From June 1988 to May 1991, he held various product development positions at
Boeing. Mr. Dickinson received a Bachelor of Arts in Business Administration
from Washington State University
Mr. Weald has served as Vice President, Engineering - Santa Clara of
Worldtalk from July 1997 to current. Previously, he served as Vice President,
Development for the Company from April 1997 to June 1997. From April 1995 to
March 1997, he served as Worldtalk's Director of Software Engineering. From
April 1994 to March 1995 he served as a Software Development Manager for the
Company. Prior to that, Mr. Weald was a Senior Software Engineer for Worldtalk
from April 1992 to March 1994. From October 1988 to March 1992, he was a
Software Development Manager at Touch Communications Inc., a software company
that specializes in OSI Protocol Development. Mr. Weald received a Bachelor of
Science degree in Data Processing from Loughborough University (England).
Mr. Longo has served as Vice President, Consulting and Customer Services of
Worldtalk from Aprils 1997 to current. Previously, he served as Director of
Professional Services for the Company from January 1995 to April 1997. From May
1989 to January 1995, Mr. Longo held various positions including his last
position as the Director of Custom Engineering at The Santa Cruz Operation,
Inc., a supplier of UNIX operating systems for Intel PC's. Mr. Longo has a
Bachelor of Science degree in Applied Sciences and Computer Science from RMIT
(Melbourne, Australia).
Mr. Khalaf has served as Worldtalk's Vice President, Marketing from
November 1996 to current. Previously, he served as Director of Product Marketing
for the Company, from January 1996 to October 1996. From August 1994 to December
1995, Mr. Khalaf was a Product Line Manager for Worldtalk. Prior to that, he was
an Engineering Team Lead for the Company from October 1993 to July 1994. From
March 1992 to September 1993, he was a Senior Software Engineer for Worldtalk.
Before joining Worldtalk, Mr. Khalaf was a Senior Engineer at Touch
Communications Inc., a software company specializing in OSI Protocol
Development. Mr. Khalaf has received a Bachelor of Science degree in Engineering
from the American University of Beirut.
Mr. Hopper has served as a director of the Company since September 1995. He
has been Principal and Chief Executive Officer of Max D. Hopper & Associates, a
consulting and information management firm since January 1995. From November
1985 to January 1995, Mr. Hopper served AMR Corporation as Chairman of the SABRE
Group and Senior Vice President, Information Systems. Mr. Hopper holds a
Bachelor of Science in Mathematics from the University of Houston.
Mr. Cowan has served as a director of the Company since March 1993. He is a
general partner of Deer II & Co., a venture capital investment firm that is the
general partner of Bessemer Venture Partners III, L.P., with which he has been
affiliated since August 1992. Mr. Cowan is a director of Finjan, Inc., a
provider of Java security software, VeriSign, Inc., an Internet security
company, and Flycast, an Internet advertising exchange. Mr. Cowan received his
A.B. degree in Math and Computer Science and his Master of Business
Administration degree from Harvard University.
34
<PAGE> 36
Mr. Sun has served as a director of the Company since March 1995. He has
been a general partner of Venrock Associates, a venture capital firm, since
1979. He is a director of Award Software International, Inc., a computer systems
software company, Cognex Corporation, a computer systems company, Inference
Corporation, an Internet help desk software company, Komag Inc., a computer
storage component company and 3Dfx Interactive, Inc., a real time 3D
semiconductor company. He is also a director of several private companies. Mr.
Sun received S.B.E.E, S.M.E.E. and Engineer degrees from the Massachusetts
Institute of Technology and a Master of Business Administration degree from
Harvard University.
Mr. Woodson has served as a director of the Company since March 1993. He is
a general partner with Sigma Partners, a venture capital organization, with
which he has been affiliated since 1987. Mr. Woodson received his B.S. in
Electrical Engineering from Stanford University, his J.D. degree from Harvard
University and his Masters in Business Administration degree from the University
of California, Berkeley.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the information under the caption "Executive
Compensation" in the Company's Proxy Statement to be filed in connection with
the 1998 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the information under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the Company's Proxy
Statement to be filed in connection with the 1998 Annual Meeting of
Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the information under the caption "Certain
Transactions" in the Company's Proxy Statement to be filed in connection with
the 1998 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements and Financial Statement Schedules. The following
financial statements are filed as part of this report on Form 10-K
beginning on page 16 under the caption, "Item 8. Financial Statements and
Supplementary Data."
Independent Auditors' Report
Consolidated Balance Sheet as of December 31, 1997 and 1996
Consolidated Statements of Operation for the years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December 31
1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) Schedule II -- Valuation and Qualifying Accounts
(b) Report on Form 8-K
None
35
<PAGE> 37
(c) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
2.01 Agreement and Plan of Reorganization between Registrant and
Worldtalk Corporation, a California corporation, and
material exhibits thereto (A)
2.02 Agreement and Plan of Merger dated as of November 12, 1996
by and between Worldtalk Merger corporation and Deming
Software,, Inc. (B)
2.03 Escrow Agreement dated November 12, 1996 among Registrant,
the Deming Shareholders, Robert D. Dickinson, as
Representative, and Harris Trust and Savings Bank, as Escrow
Agent. (B)
3.01 Registrant's Certificate of Incorporation. (A)
3.02 Registrant's Certificate of Designation. (A)
3.03 Registrant's Certificate of Elimination. (A)
3.04 Registrant's Bylaws. (A)
4.01 Form of Specimen Certificate for Registrant's Common Stock.
(A)
4.02 Third Amended and Restated Registration Rights Agreements
between Registrant and certain investors dated March 3,
1996, as amended. (A)
4.03 Shareholders' Agreement dated November 12, 1996 among
Registrant, Deming and the Deming Shareholders. (B)(1)
10.01 Registrant's 1992 Stock Option Plan and related documents.
(A)(3)
10.02 Registrant's 1996 Equity Incentive Plan and related
documents. (A)(3)
10.03 Registrant's 1996 Directors Stock Option Plan and related
documents (A)(3
10.04 Registrant's 1996 Employee Stock Purchase Plan and related
documents (A)(3)
10.05 Form of Identification Agreement to be entered into by
Registrant with each of its directors and executive officer.
(A)(3)
10.06 Lease Agreement, dated June 15, 1995, between Registrant and
John Arrillaga. (A)
10.07 Consulting and Development Services Agreement and Copyright
Assignment between Microsoft Corporation and Registrant
dated September 7, 1995. (A)(1)
10.08 Restricted Stock Purchase Agreement, dated December 15,
1995, between Registrant and Max Hopper. (A)(3)
10.09 Secured Full Recourse Promissory Note and related Security
Agreement, dated October 24, 1996, between Registrant and
Christopher J. Andrews. (C)(3)
10.10 Agreement and Plan of Reorganization dated as of November 9,
1996 by and among Registrant, Deming Software, Inc. and the
Deming Shareholders. (B)(1)
10.11 Form of Employment Agreement entered into by Deming with
each of the Deming Shareholders on November 12, 1996. (B)
10.12 Amendment to Loan and Security Agreement, dated January 9,
1997, between Registrant and General Bank (D)
10.13 Form of Employment Agreement, dated January 23, 1997,
between Registrant and Christopher J. Andrews, Simon A.
Khalaf and Sathvik Krishnamurthy (D)(3)
10.14 Form of Employment Agreement, dated January 23, 1997,
between Registrant and Stephen R. Bennion, Steve M. Goldner
and Mark A. Jung (D)(3)
10.15 Separation, Consulting and Release Agreement dated July 23,
1997 between Mark A. Jung and the Registrant (E)(1)(3)
10.16 Settlement, Consulting and Release Agreement dated July 15,
1997 between Christopher Andrews and the Registrant
(E)(1)(3)
</TABLE>
36
<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.17 Settlement, Consulting and Release Agreement dated July 15,
1997 between Steven Goldner and the Registrant (E)(1)(3)
10.18 Secure Messaging Distribution Agreement between Registrant
and Security Dynamics Technologies, Inc., dated September 8,
1997 (F)(2)
10.19 License and Distribution Agreement between Registrant and
ASCII Something Good Corporation, dated September 8, 1997
(F)(2)
23.01 Consent of Independent Auditors (F)
27.01 Financial Data Schedule(F)
</TABLE>
- ---------------
(1) Confidential treatment has been granted with respect to certain portions of
this agreement. Such portions have been filed separately with the Securities
and Exchange Commission.
(2) Confidential treatment has been requested with respect to certain portions
of this agreement. Such portions have been filed separately with the
Securities and Exchange Commission.
(3) Management contract or compensatory plan.
(A) Incorporated by reference to the Exhibits to the Company's Registration
Statement on form S-1, as amended (File No. 333-1482) as declared effective
by the Securities and Exchange Commission.
(B) Incorporated by reference to the Exhibits to the Company's report on Form
8K, as amended (File No. 0-27886) filed with the Securities and Exchange
Commission on November 12, 1996.
(C) Incorporated by reference to the Exhibits to the Company's report on Form
10K (File No. 0-27886) filed with the Securities and Exchange Commission on
March 31, 1997.
(D) Incorporated by reference to the Exhibits to the Company's report on Form
10Q (File No. 0-27886) filed with the Securities and Exchange Commission on
May 14, 1997.
(E) Incorporated by reference to the Exhibits to the Company's report on Form
10Q (File No. 0-27886) filed with the Securities and Exchange Commission on
November 14, 1997.
(F) Filed herewith.
37
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Date: March 31, 1998
WORLDTALK COMMUNICATIONS
CORPORATION
By: /s/ STEPHEN R. BENNION
------------------------------------
Stephen R. Bennion
Vice President, Finance and
Operations,
Chief Financial Officer and
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of registrant and in
the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ BERNARD HARGUINDEGUY President and Chief Executive March 31, 1998
- ------------------------------------------------ Officer
/s/ STEPHEN R. BENNION Vice President, Finance and March 31, 1998
- ------------------------------------------------ Operations,
Chief Financial Officer and
Secretary
(Principal Accounting Officer)
/s/ WADE WOODSON Director March 31, 1998
- ------------------------------------------------
/s/ MAX HOPPER Director March 31, 1998
- ------------------------------------------------
/s/ DAVID COWAN Director March 31, 1998
- ------------------------------------------------
/s/ ANTHONY SUN Director March 31, 1998
- ------------------------------------------------
</TABLE>
38
<PAGE> 1
EXHIBIT 10.18
**CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
CONTAINED IN THIS DOCUMENT. CONFIDENTIAL PORTIONS (MARKED [ ** ]) HAVE BEEN
OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
SECURITY DYNAMICS TECHNOLOGIES, INC.
WORLDTALK COMMUNICATIONS CORPORATION
SECURE MESSAGING DISTRIBUTION AGREEMENT
This Agreement is made as of September 17, 1997 between Worldtalk
Communications Corporation, a Delaware corporation and its wholly-owned
subsidiaries (collectively referred to as "Worldtalk"), Security Dynamics
Technologies, Inc., a Delaware corporation ("SDTI").
RECITALS
A. Worldtalk develops and markets directory-based messaging and security
solutions that support organizations in transforming Intranets into secure,
robust and cost-effective platforms for business-critical applications and
electronic commerce.
B. SDTI designs, develops, markets and supports a family of security
products used to protect and manage access to computer-based information
resources.
C. Pursuant and subject to the terms and conditions of this Agreement,
Worldtalk will grant to SDTI the right to resell and distribute certain
Worldtalk products.
AGREEMENT
NOW, THEREFORE, Worldtalk and SDTI agree as follows:
1. CERTAIN DEFINITIONS.
(a) "Documentation" means the documentation for the Products as
provided by Worldtalk to SDTI.
(b) "End User" means a direct or indirect customer of SDTI who is
authorized by an end user license agreement included with the Product as in
Section 2(f) to use a Product for the End User's internal business purposes.
(c) "Effective Date" means the date this Agreement has been executed
by both parties.
(d) "Intellectual Property Rights" means patent rights, copyright
rights (including, but not limited to, rights in audiovisual works and moral
rights), trade secret rights, and any other intellectual property rights
recognized by the law of each applicable jurisdiction.
(e) "Products" means the object code version of computer software and
related documentation listed on Exhibit A.
(f) "Subdistributor" means a direct or indirect customer of SDTI,
except as provided in Section 2(c), who is authorized by SDTI as described in
Section 2(g) to distribute a Product for distribution to End Users or other
Subdistributors.
<PAGE> 2
(g) "Territory" means worldwide.
2. Appointment as Reseller.
(a) Appointment. Subject to the terms of this Agreement, Worldtalk
appoints SDTI, and SDTI accepts such appointment, as an independent reseller of
Products in and limited to the Territory.
(b) [ ** ]
(c) Limitations on Distribution. SDTI may distribute Products
directly via the SDTI direct sales organization in the Territory and indirectly
through SDTI's channel organization, including value added resellers, resellers
and systems integrators. [ ** ]
(d) Nature of Distribution. SDTI's appointment only grants to SDTI a
license to distribute Products, and does not transfer any right, title or
interest to any such Product to SDTI or SDTI's customers.
(e) Limited Rights. Except as set forth in this Agreement, SDTI will
not disassemble, decompile, or reverse engineer any Products, copy or otherwise
reproduce any Products, in whole or in part, modify the Product in any manner,
or use the Products in any manner to provide service bureau, time sharing, or
other computer services to third parties. SDTI's rights in the Products will be
limited to those expressly granted in this Agreement.
(f) End User Agreement. SDTI may not distribute any Products to any
End User unless such End User is subject to an end user software license
agreement with SDTI on terms and conditions equivalent to or more favorable to
Worldtalk than those of Worldtalk's standard Software License and Services
Agreement attached hereto as Exhibit H ("Worldtalk Agreement"), including
without limitation terms and conditions that:
2
<PAGE> 3
(i) protect Worldtalk's proprietary rights in the Products to at
least the same degree as the terms and conditions of the Worldtalk Agreement;
(ii) require that such End User not reverse engineer, reverse
compile or disassemble the object code for the Products;
(iii) make no representations or warranties on behalf of
Worldtalk;
(iv) precludes the use of the Products in a service bureau, time
sharing, or other non-licensed basis;
(v) do not grant any rights to such End User beyond the scope of
this Agreement;
(vi) to the extent permitted by applicable law, exclude liability
of SDTI and its suppliers (including Worldtalk) for consequential, incidental,
special and exemplary damages, including without limitation lost profits,
business interruption or loss of business information, even if such party has
been advised of the possibility of such damages; and
(vii) if the End User is or may be the United States Government
or an agency thereof, state that the Products (including software and related
documentation) are "commercial computer software" as that term is defined for
purposes of the Federal Acquisition Regulations (FARs) or the Department of
Defense Federal Acquisition Regulations Supplement (DFARS), as applicable, then
in effect. SDTI will promptly provide Worldtalk with copies of SDTI's End User
agreements following Worldtalk's request.
(g) Subdistributor Agreement. SDTI may distribute Products to
Subdistributors for distribution and sublicensing of Products to End Users,
provided that each such Subdistributor executes, or has already executed, a
written Subdistributor agreement with SDTI that:
(i) protects Worldtalk's proprietary rights in the Products to
at least the same degree as the terms and conditions of this Agreement;
(ii) requires that such Subdistributor not reverse engineer,
reverse compile or disassemble the object code for the Products;
(iii) makes no representations or warranties on behalf of
Worldtalk; and
(iv) precludes the use of the Products in a service bureau, time
sharing, or other non-licensed basis;
(v) does not permit distribution or sublicensing of the
Products beyond the scope of this Agreement;
3
<PAGE> 4
(vi) requires such Subdistributor to deliver an end user software
license agreement to each End User that is consistent with the terms and
conditions of the end user software license agreement specified in Section 2(f);
and
(vii) to the extent permitted by applicable law, excludes
liability of SDTI and its suppliers (including Worldtalk) for consequential,
incidental, special and indirect damages; and
(viii) includes a provision substantially similar to Section
12(d) hereof regarding advertising and use of Worldtalk's trademarks.
3. OBLIGATIONS OF SDTI.
(a) Promotion Efforts. SDTI will use its reasonable efforts to (i)
promote the distribution of Products in the Territory.
(b) Marketing. Worldtalk and SDTI will mutually agree upon a
marketing plan for the Products, including the terms described further in
Exhibit G.
(c) Inventory. At SDTI's option, SDTI may maintain an inventory of
Products and warehousing facilities sufficient to serve adequately the needs of
its customers on a timely basis.
(d) SDTI Personnel. SDTI will train and maintain a sufficient number
of capable technical and sales personnel having the knowledge and training
necessary to: (i) inform customers properly concerning the features and
capabilities of Products and, if necessary, competitive products; (ii) service
and support Products in accordance with SDTI's obligations under this Agreement;
and (iii) otherwise carry out the obligations and responsibilities of SDTI under
this Agreement. Such training will include the training described in Section
9(d) below.
(e) Technical Expertise. SDTI and its staff will be conversant with
the technical language conventional to Products and similar computer products in
general, and will develop sufficient knowledge of the industry, of Products and
of products competitive with Products (including specifications, features and
benefits) so as to be able to explain in detail to its customers the differences
between Products and competitive products.
(f) Worldtalk Packaging. SDTI will distribute Products with all
packaging, warranties and disclaimers and license agreements intact as shipped
from Worldtalk, and will instruct its customers as to the terms of such
documents applicable to Products.
(g) SDTI Covenants. SDTI will avoid deceptive, misleading or
unethical practices that are or might be detrimental to Worldtalk, Products or
the public; (i) make no false or misleading representations with regard to
Worldtalk or Products; (ii) not publish or employ, or cooperate in the
publication or employment of, any misleading or deceptive advertising material
with regard to Worldtalk or Products; (iii) make no representations, warranties
or guarantees to
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customers or to the trade with respect to the specifications, features or
capabilities of Products that are inconsistent with the literature distributed
by Worldtalk;
(h) Compliance with Law. SDTI will comply with all applicable
international, national, state, regional and local laws and regulations in
performing its duties hereunder and in any of its dealings with respect to
Products.
(i) Compliance with U.S. Export Laws. SDTI acknowledges that all
Products including documentation and other technical data are subject to export
controls imposed by the U.S. Export Administration Act of 1979, as amended (the
"Act"), and the regulations promulgated thereunder. SDTI will not export or
reexport (directly or indirectly) any Products or documentation or other
technical data therefor without complying with the Act and the regulations
thereunder.
(j) Costs and Expenses. Except as expressly provided herein or
agreed to in writing by Worldtalk and SDTI, SDTI will pay all costs and expenses
incurred in the performance of SDTI's obligations under this Agreement.
4. ORDER PROCEDURE.
(a) Worldtalk Acceptance. All orders for Products by SDTI shall be
subject to acceptance in writing by Worldtalk at its principal place of business
and shall not be binding until the earlier of such acceptance or shipment, and,
in the case of acceptance by shipment, only as to the portion of the order
actually shipped.
(b) Controlling Terms. The terms and conditions of this Agreement
and of the applicable Worldtalk invoice or confirmation will apply to each order
accepted or shipped by Worldtalk hereunder. The provisions of SDTI's form of
purchase order or other business forms will not apply to any order
notwithstanding Worldtalk's acknowledgment or acceptance of such order.
(c) Cancellation. Worldtalk reserves the right to cancel any orders
placed by SDTI and accepted by Worldtalk as set forth above, or to refuse or
delay shipment thereof, if SDTI fails to make any payment as provided in this
Agreement or under the terms of payment set forth in any invoice or otherwise
agreed to by Worldtalk and SDTI. Worldtalk also reserves the right to
discontinue the manufacture or distribution of all versions of the Products that
have been superseded by subsequent versions with equal or greater functionality.
Worldtalk will give SDTI at least 120 days notice before ceasing to make
available to SDTI for distribution hereunder a Major Release (as defined in
Exhibit A), it being understood that Worldtalk will continue to provide
maintenance for such Major Release as provided in Section 9(f). No such
cancellation, refusal or delay will apply to any Product subject to an
outstanding purchase order with a firm delivery schedule or be deemed a
termination (unless Worldtalk so advises SDTI) or breach of this Agreement by
Worldtalk.
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5. DEMONSTRATIONS, BENCHMARKS, AND EVALUATIONS.
(a) Demonstrations. SDTI will be responsible for demonstrations and
benchmarks of Products to, and evaluations by, its prospective customers.
Assistance by Worldtalk in any demonstrations or benchmarks will be at
Worldtalk's discretion and at Worldtalk's standard rates for its personnel.
(b) Evaluation Copies. Worldtalk will provide SDTI, at no charge,
with a reasonable number of copies of Products for use by SDTI solely for the
purpose of conducting demonstrations and benchmarks by SDTI personnel without
charge. Worldtalk will also provide SDTI and each Subdistributor up to five (5)
evaluation copies for internal use only. All demonstration and evaluation copies
will be prominently marked "NOT FOR RESALE". Worldtalk at its discretion may
include with any copies to be used for demonstration a distinct shrinkwrap
license agreement that further limits Worldtalk's liability. Any use of the
Products by SDTI or any SDTI personnel or customer will be subject to the terms
and conditions of the Worldtalk license agreement accompanying such Product,
provided that the use of any such copies provided to any prospective customer
will be limited to no more than 30 days. Upon Worldtalk's reasonable request,
SDTI shall provide Worldtalk with a copy of each executed evaluation agreement.
6. PRICES, LICENSE FEES AND PAYMENT.
(a) Prices and License Fees to SDTI. During the term of this
Agreement, SDTI will pay Worldtalk the fees set forth on Exhibit D for the
Products purchased by SDTI under this Agreement. Worldtalk shall inform SDTI as
to current prices and license fees to SDTI for Products. Worldtalk may change
its prices and license fees to SDTI from time to time upon at least ninety (90)
days' prior written notice. Prices for the Products shall not increase more than
[ ** ] per year; provided however that Worldtalk reserves the right to set
pricing for Major Upgrades as they occur.
(b) Price and License Fee Increase. In the event Worldtalk increases
the price or license fees to SDTI for any Product, the increase shall apply to:
any order received by Worldtalk after the effective date of the increase; and
any order or portion thereof to be shipped after the effective date of the
increase regardless of the date the order was received; provided, however, that
any order or portion thereof transmitted by SDTI prior to Worldtalk's
announcement of the increase and affected thereby, may be canceled without
penalty by SDTI by written notice to Worldtalk within ten (10) days of such
announcement.
(c) Price and License Fee Decrease. In the event that Worldtalk
decreases the price or license fees to SDTI for any Product, the decrease shall
apply to all units of such product in SDTI's inventory that are in an unopened
condition as of the effective date of the decrease, and that had been shipped to
SDTI no more than [ ** ] prior to such effective date. For each unit of product
as to which this section applies, SDTI will receive a credit against the price
or license fee of a subsequent unit purchased from Worldtalk within [ ** ] of
the effective date of the price or license fee decrease.
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(d) Taxes, Tariffs, Fees. Worldtalk's prices and license fees do not
include any national, state or local sales, use, value added or other taxes,
customs duties, or similar tariffs and fees which Worldtalk may be required to
pay or collect upon the delivery of Products or upon collection of the prices
and license fees or otherwise. Should any tax or levy be made, SDTI agrees to
pay such tax or levy and indemnify Worldtalk for any claim for such tax or levy
demanded. SDTI represents and warrants to Worldtalk that all Products acquired
hereunder are for redistribution in the ordinary course of SDTI's business, and
SDTI agrees to provide Worldtalk with appropriate resale certificate numbers and
other documentation satisfactory to the applicable taxing authorities to
substantiate any claim of exemption from any such taxes or fees. SDTI will pay
any withholding taxes required by applicable law. SDTI will supply Worldtalk
with evidence of such payment of withholding tax, in a form acceptable to
Worldtalk to meet the requirements for claiming foreign tax credits on
Worldtalk's federal income tax return.
(e) Payment Terms. All payments shall be made in United States
dollars, free of any currency control or other restrictions to Worldtalk at the
address designated by Worldtalk. Except as otherwise stated, fees are due within
30 days following the date of invoice (with respect to Product purchases) or
accrual (with respect to maintenance and support fees). Maintenance and support
fees accrue upon accrual of the underlying fees to SDTI. Interest shall accrue
on any delinquent amounts owed by SDTI for Products at the lesser of twelve
percent (12%) per annum or the maximum rate permitted by applicable usury law.
(f) SDTI Pricing. Although Worldtalk may publish suggested wholesale
or retail prices, these are suggestions only and SDTI will be entirely free to
determine the actual prices and license fees at which Products will be sold or
licensed to its customers.
7. SHIPMENT, RISK OF LOSS AND DELIVERY.
(a) Shipment. All Products will be shipped by Worldtalk Ex-Works
Factory, Worldtalk's point of shipment. Shipments will be made to SDTI's
identified location, subject to approval in writing by Worldtalk in advance of
shipment. Unless specified in SDTI's order, Worldtalk will select the mode of
shipment and the carrier. SDTI will be responsible for and pay all shipping,
freight and insurance charges, which charges Worldtalk may require SDTI to pay
in advance. Worldtalk will deliver the Products to SDTI with all packaging
intact and will pay all charges for packaging such Products.
(b) Title and Risk of Loss. Title, except to the extent Products
contain or consist of software, and all risk of loss of or damage to Products
will pass to SDTI upon delivery to SDTI.
(c) Partial Delivery. Unless SDTI clearly advises Worldtalk to the
contrary in writing, Worldtalk may make partial shipments on account of SDTI's
orders, to be separately invoiced and paid for when due. Delay in delivery of
any installment shall not relieve SDTI of its obligation to accept the remaining
deliveries.
(d) Delivery Schedule; Delays. Worldtalk will use reasonable efforts
to meet SDTI's requested delivery schedules for Products, but Worldtalk reserves
the right to refuse,
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cancel or delay shipment to SDTI when SDTI's credit is impaired, or SDTI is
delinquent in payments. Should orders for Products exceed Worldtalk's available
inventory, Worldtalk will allocate its available inventory and make deliveries
on a basis Worldtalk deems equitable, in its sole discretion, and without
liability to SDTI on account of the method of allocation chosen or its
implementation. In any event, Worldtalk will not be liable for any damages,
direct, consequential, special or otherwise, to SDTI or to any other person for
failure to deliver or for any delay or error in delivery of Products for any
reason whatsoever.
8. REPORTS AND AUDITS.
(a) SDTI will maintain complete records, during and for 1 year after
the termination or expiration of this Agreement, regarding the distribution of
Products. Worldtalk will maintain complete records, during and for 1 year after
the termination or expiration of this Agreement, regarding the pricing of
Products distributed to third parties. Each party may audit the records of the
other party once per year and at the requesting party's expense to verify
compliance with the foregoing and the other terms and conditions of this
Agreement. SDTI will use its best efforts to require any Subdistributors of the
Products to maintain records of the same nature and for the same period required
of SDTI under this Section 8.
(b) SDTI will provide a quarterly customer activity report showing
number of Products sold and Products returned for refund or exchange. SDTI will
use reasonable efforts to track the reasons for return of Products and
communicate such reasons to Worldtalk in such report.
9. MAINTENANCE, SUPPORT AND TRAINING.
(a) Upgrade for SecurID and Year 2000 Compliance. [ ** ]
(b) First, Second and Third Line Support. SDTI will provide first
and second line support for the Products. Worldtalk will provide third line
support as specified in Exhibit F. The parties agree to mutually establish a
process to provide expedited resolution to problems including access to
Worldtalk WorldSecure support engineers. Each party will assign a contact person
with respect to support issues. Worldtalk will include a limited warranty with
each Product as specified in Exhibit H. SDTI will be responsible vis a vis all
customer purchasing Products through SDTI for all warranty returns and claims
for the Products (notwithstanding that Worldtalk is specified therein as making
such warranty). Worldtalk will replace without charge to SDTI any Product
returned by SDTI that is specified to be a warranty exchange and verified by
Worldtalk to be in breach of warranty. In the event that as a result of a
warranty claim in accordance with such warranty verified by Worldtalk to be in
breach of warranty SDTI is required to refund amounts to any customer of SDTI,
SDTI will report such refund in the quarterly report specified in Section 8(b)
above, and Worldtalk will credit the amount paid by SDTI to Worldtalk for such
Product toward future orders for Products. SDTI will use at least the same
efforts to support the Products as it provides for its own products.
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(c) Support. Worldtalk will make available to SDTI a reasonable
number copies of Product solely for the purpose of providing support for the
Products as described in Exhibit F during the term of this Agreement and in
accordance with the provisions of this Section 9. Worldtalk will promptly
provide upgraded versions of the Product to SDTI for purposes of this Section 9
upon commercial release.
(d) Training. Worldtalk will use its best efforts to keep the SDTI
SE, sales and support staffs well-trained to effectively represent the Products
throughout the term of this Agreement, including training for up to 10 SDTI
internal support and sales support engineers at a time and including "train the
trainer" courses for the SDTI channel as reasonably agreed between the parties
at mutually agreed upon times, as indicated in Exhibit I. All Worldtalk training
described on Exhibit I will be provided by Worldtalk personnel without charge to
SDTI except as described below. Any additional training requested by SDTI will
be at SDTI's expense. Worldtalk will provide training materials at no charge to
SDTI for the initial training session described in Exhibit I. SDTI will be
responsible for all travel and living expenses for SDTI personnel attending
training. SDTI will ensure that a reasonable number of its technical and/or
sales personnel attend all such training, including (without limiting the
obligation to provide a reasonable number of such individuals) at least two
individuals for each Product for which SDTI has the right to distribute under
this Agreement. The amount of training time will be reasonable and appropriate
in Worldtalk's judgment.
(e) Sales Materials. Worldtalk will make available at no charge to
SDTI up to 2,000 copies of its sales and marketing kits for the Products.
Worldtalk will make available at SDTI's expense updated sales information as new
versions and options to the specified Products are released by Worldtalk.
(f) Maintenance. Worldtalk agrees to provide maintenance to SDTI in
the form of Major Releases and Minor Releases as set forth in Exhibit A in
consideration for the fees set forth in Exhibit D. Worldtalk agrees that for a
period of one year following the discontinuation of the last version of a Major
Release (as defined in Exhibit A) of a Product, that it will continue to provide
maintenance to SDTI for such version of such Product under the terms and
conditions of this Agreement. Worldtalk's maintenance and support obligations
with respect to the Products distributed by SDTI hereunder will be solely to
SDTI, and Worldtalk will have no obligation to any customer of SDTI or any other
party.
(g) Source Code Escrow. Upon execution of this Agreement, the
parties will execute the escrow agreement with Data Securities International
attached as Exhibit J. All fees and expenses of such escrow agent will be paid
by SDTI. Within ninety (90) days after the execution of this Agreement,
Worldtalk will place into the escrow account copies of the complete source code
for the Products (the "Source Materials"). Worldtalk will also deposit into the
escrow account the complete source code of any and all error corrections,
updates, enhancements, Major Releases, Minor Releases, and any other changes to
the Source Materials provided by Worldtalk to SDTI in accordance with this
Agreement, within ninety (90) days after
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Worldtalk provides any of the foregoing to SDTI hereunder. Worldtalk agrees
that, subject to the terms and conditions of the escrow agreement, SDTI will
have the right to obtain the Source Materials from escrow following the
occurrence of Worldtalk's material failure to support the Products in accordance
with Section 9(b) following written notice thereof from SDTI and a thirty-five
(35) day period to cure. Worldtalk hereby grants to SDTI a nonexclusive,
nontransferable royalty free license to use, copy, modify, and have modified,
the Source Materials in SDTI's possession following the release of the Source
Materials to SDTI pursuant to this Section 9(g) for the sole purpose of
maintaining the Products by SDTI in accordance with the terms of Section 9(b).
Such Source Materials as may be released to SDTI will be kept by SDTI in strict
confidence as Confidential Information of Worldtalk in accordance with the terms
of Section 10 below. The fees of the escrow agent will be paid by SDTI.
10. CONFIDENTIALITY.
(a) Obligations. Each party agrees that it will not disclose to any
third party or use any technical or other proprietary and confidential
information disclosed to it by the other (collectively, "Confidential
Information") except as expressly permitted in this Agreement and that it will
take all reasonable measures to maintain the confidentiality of all Confidential
Information in its possession or control, which will in no event be less than
the measures it uses to maintain the confidentiality of its own information of
similar importance.
(b) Nondisclosure of Terms of Agreement. Each party agrees that it
will not, without the prior written consent of the other party, disclose the
terms, or conditions of this Agreement except as required by applicable law or
regulation and then only after the party required to make such disclosure has
used reasonable efforts to maintain the confidentiality of all [ ** ] financial
and technical terms included within the scope of Confidential Information,
including without limitation the filing of a request for confidential treatment
with respect to such Confidential Information with the applicable government
authority and upon notice to the other party.
(c) Exceptions. "Confidential Information" will not include
information that:
(i) is in or enters the public domain without breach of this
Agreement;
(ii) a party lawfully receives from a third party without
restriction on disclosure and without breach of a nondisclosure
obligation; or
(iii) a party develops independently, which it can prove with
written evidence.
(iv) is already known to the receiving party prior to receipt of
such information.
11. TRADEMARKS, TRADE NAMES, LOGOS, DESIGNATIONS AND COPYRIGHTS.
(a) Use During Agreement. During the term of this Agreement, SDTI
is authorized by Worldtalk to use the trademarks, trade names, logos and
designations Worldtalk uses for Products in connection with SDTI's
advertisement, promotion and distribution of Products. SDTI's use of such
trademarks, trade names, logos and designations will be in accordance with
Worldtalk's policies in effect from time to time, including but not limited to
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trademark usage and cooperative advertising policies. SDTI agrees not to attach
any additional trademarks, trade names, logos or designations to any Product.
SDTI further agrees not to use any Worldtalk trademark, trade name, logo or
designation in connection with any non-Product.
(b) Copyright and Trademark Notices.
(i) SDTI will include on each Product that it distributes, and
on all containers and storage media therefor, all trademark, copyright and other
notices of proprietary rights included by Worldtalk on such Product.
(ii) SDTI will prominently include, and will cause each
Subdistributor to include, in a prominent location, the text "WorldSecure by
Worldtalk Corporation" and WorldSecure logo in 11 point type or larger on all
packaging, advertising, marketing and sales collateral and other promotional
materials relating to the Products used or produced by or for SDTI or any
Subdistributor.
(iii) SDTI agrees not to alter, erase, deface or overprint any
such notice on anything provided by Worldtalk. SDTI also will include the
appropriate trademark notices when referring to any Product in advertising and
promotional materials.
(c) SDTI Does Not Acquire Proprietary Rights. SDTI has paid no
consideration for the use of Worldtalk's trademarks, trade names, logos,
designations or copyrights, and nothing contained in this Agreement will give
SDTI any right, title or interest in any of them. SDTI acknowledges that
Worldtalk owns and retains all trademarks, trade names, logos, designations,
copyrights and other Intellectual Property Rights in or associated with
Products, and agrees that it will not at any time during or after this Agreement
assert or claim any interest in or do anything that may adversely affect the
validity of any trademark, trade name, logo, designation or copyright or other
Intellectual Property Right belonging to or licensed to Worldtalk and related to
the Products (including, without limitation any act or assistance to any act,
which may infringe or lead to the infringement of any of Worldtalk's proprietary
rights).
(d) No Continuing Rights. Upon expiration or termination of this
Agreement, SDTI will immediately cease all display, advertising and use of all
Worldtalk trademarks, trade names, logos and designations and will not
thereafter use, advertise or display any trademark, trade name, logo or
designation which is, or any part of which is, or any part of which is, similar
to or confusing with any trademark, trade name, logo or designation associated
with any Product.
(e) SDTI's Duties. SDTI will use its reasonable efforts to protect
Worldtalk's Intellectual Property Rights in the Products and will report
promptly to Worldtalk any infringement of such rights of which SDTI becomes
aware.
(f) Third Party Infringement. Worldtalk reserves the sole and
exclusive right at its discretion to assert claims against third parties for
infringement or misappropriation of its Intellectual Property Rights in the
Products.
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12. WARRANTY.
(a) Power and Authority. Worldtalk warrants to SDTI that it has
sufficient right and authority to grant to SDTI all rights that Worldtalk grants
under this Agreement.
(b) Limited Warranty. WORLDTALK MAKES NO WARRANTIES OR
REPRESENTATIONS AS TO PERFORMANCE OF PRODUCTS OR AS TO SERVICE TO SDTI OR TO ANY
OTHER PERSON, EXCEPT AS SET FORTH IN WORLDTALK'S LIMITED WARRANTY ACCOMPANYING
DELIVERY OF PRODUCTS AND EXCEPT WITH RESPECT TO THE PRODUCTS BEING YEAR 2000
COMPLIANT AS SPECIFIED IN EXHIBIT E HERETO. WORLDTALK RESERVES THE RIGHT TO
CHANGE THE WARRANTY AND SERVICE POLICY SET FORTH IN SUCH LIMITED WARRANTY, AT
ANY TIME, WITHOUT FURTHER NOTICE AND WITHOUT LIABILITY TO SDTI OR TO ANY OTHER
PERSON.
(c) Disclaimer of Warranties. TO THE EXTENT PERMITTED BY APPLICABLE
LAW, ALL IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT, ARE
HEREBY EXCLUDED BY WORLDTALK.
(d) SDTI Warranty. SDTI will make no warranty, guarantee or
representation, whether written or oral, on Worldtalk's behalf.
13. INDEMNITIES.
(a) Distribution Indemnity. Subject to the terms of Section 14(b),
SDTI agrees to indemnify Worldtalk against any third party claims against
Worldtalk for loss, damage, liability, or expense (including but not limited to
attorneys' fees) arising out of any acts or omissions of SDTI or any
Subdistributors in connection with their activities under this Agreement.
(b) Infringement Indemnity.
(i) Duty to Indemnify and Defend.
(A) Worldtalk will indemnify SDTI against, and will defend
or settle at Worldtalk's own expense, any claim, action or other proceeding
brought against SDTI to the extent that it is based on a claim that the use or
distribution of the Products as provided in this Agreement, as of the Effective
Date, infringes any patent issued as of the date of this Agreement or copyright
or that the Products incorporate any misappropriated trade secrets.
(B) Worldtalk will pay any and all costs, damages, and
expenses (including but not limited to reasonable attorneys' fees) awarded
against SDTI in any such action or proceeding attributable to any such claim.
(C) Worldtalk will have no obligation under this Section as
to any action, proceeding, or claim unless: (1) Worldtalk is notified of it
promptly; (2) Worldtalk
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has sole control of its defense and settlement; and (3) SDTI provides Worldtalk
with reasonable assistance in its defense and settlement at Worldtalk's expense.
(ii) Injunctions. If SDTI's use of any Products under the terms
of this Agreement is, or in Worldtalk's opinion is likely to be, enjoined due to
the type of infringement or misappropriation specified in subsection (i) above,
then Worldtalk shall, at its sole option and expense, either: (A) procure for
SDTI the right to continue using such Products under the terms of this
Agreement; or (B) replace or modify such Products so that they are noninfringing
and substantially equivalent in function to the enjoined Products; or (C) if
options (A) and (B) above cannot be accomplished despite the reasonable efforts
of Worldtalk, then Worldtalk may both terminate SDTI's rights and Worldtalk's
obligations under this Agreement with respect to such Products, and shall refund
to SDTI the license fees paid by SDTI to Worldtalk for such Products as SDTI is
required to refund to its customers.
(iii) Sole Remedy. THE FOREGOING ARE WORLDTALK'S SOLE AND
EXCLUSIVE OBLIGATIONS, AND SDTI'S SOLE AND EXCLUSIVE REMEDIES, WITH RESPECT TO
INFRINGEMENT OR MISAPPROPRIATION OF INTELLECTUAL PROPERTY RIGHTS.
(iv) Exclusions. Worldtalk will have no obligations under this
Section 14(b) with respect to infringement or misappropriation to the extent
arising from (A) modifications made by SDTI, (B) Product specifications
requested by SDTI, or (C) the use of the Products in combination with products
not provided by Worldtalk.
14. LIMITATIONS OF LIABILITY.
(a) Total Liability. Except as provided in Section 14 (Indemnities)
and except with respect to breaches by Worldtalk of the warranty that the
Products are Year 2000 Compliant as described in Exhibit E hereto, THE TOTAL
LIABILITY OF WORLDTALK UNDER THIS AGREEMENT WILL BE LIMITED TO THE PAYMENTS MADE
BY SDTI UNDER THIS AGREEMENT.
(b) Exclusion of Damages. IN NO EVENT WILL WORLDTALK BE LIABLE TO
SDTI, SUBDISTRIBUTORS OR ANY THIRD PARTY FOR ANY SPECIAL, INCIDENTAL, OR
CONSEQUENTIAL DAMAGES, WHETHER BASED ON BREACH OF CONTRACT, TORT (INCLUDING
NEGLIGENCE), PRODUCT LIABILITY, OR OTHERWISE, AND WHETHER OR NOT WORLDTALK HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. IN NO EVENT SHALL SDTI BE LIABLE
TO WORLDTALK FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
(c) Failure of Essential Purpose. The parties have agreed that the
limitations specified in this Section 15 will survive and apply even if any
limited remedy specified in this Agreement is found to have failed of its
essential purpose.
15. TERM AND TERMINATION.
(a) Term. The term of this Agreement will begin on the Effective
Date and will continue for three (3) years after the date for first commercial
availability of the last of the Products initially listed on Exhibit A hereof
("FCS") unless it is terminated earlier in accordance
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with the provisions hereof. This Agreement will be automatically renewed for
additional one-year periods unless terminated by either party in its sole
discretion at least thirty (30) days prior to the beginning of the renewal term.
(b) Events of Termination. Either party will have the right to
terminate this Agreement if:
(i) the other party breaches any material term or condition of
this Agreement and fails to cure such breach within thirty (30) days
after written notice;
(ii) the other party becomes the subject of a voluntary
petition in bankruptcy or any voluntary proceeding relating to
insolvency, receivership, liquidation, or composition for the benefit of
creditors; or
(iii) the other party becomes the subject of an involuntary
petition in bankruptcy or any involuntary proceeding relating to
insolvency, receivership, liquidation, or composition for the benefit of
creditors, if such petition or proceeding is not dismissed within sixty
(60) days of filing.
(c) Effect of Termination.
(i) Upon termination or expiration of this Agreement, SDTI
will (except as specified in subsection (ii) below) immediately return
to Worldtalk or (at Worldtalk's request) destroy all unlicensed copies
of the Products and Confidential Information in its possession or
control, and an officer of SDTI will certify to Worldtalk in writing
that SDTI has done so.
(ii) Upon termination or expiration of this Agreement,
Worldtalk will permit SDTI to continue to provide maintenance and
support for the Products to its End Users and/or Subdistributor upon the
terms and conditions of Section 10 (it being understood that Worldtalk
will continue to provide maintenance and support as provided in Section
10 in accordance with the terms of this Agreement so long as Worldtalk
is providing such maintenance and support to its customers generally)
and continue to use copies of the Products, subject to continued payment
by SDTI of the maintenance and support fees provided in Exhibit D, to
the extent needed to provide such services, pursuant to a limited
license agreement to be entered between Worldtalk and SDTI promptly
following such termination or expiration.
(d) No Damages for Termination. NEITHER PARTY WILL BE LIABLE TO THE
OTHER FOR DAMAGES OF ANY KIND, INCLUDING INCIDENTAL OR CONSEQUENTIAL DAMAGES, ON
ACCOUNT OF THE TERMINATION OR EXPIRATION OF THIS AGREEMENT IN ACCORDANCE WITH
ITS TERMS. DISTRIBUTOR WAIVES ANY RIGHT IT MAY HAVE TO RECEIVE ANY COMPENSATION
OR REPARATIONS ON TERMINATION OR EXPIRATION OF THIS AGREEMENT UNDER THE LAW OF
THE TERRITORY OR OTHERWISE, OTHER THAN FOR BREACH OF THIS AGREEMENT OR AS
EXPRESSLY PROVIDED IN THIS AGREEMENT. Neither party will be liable to the other
on account of termination or expiration of this Agreement in accordance with
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its terms for reimbursement or damages for the loss of goodwill, prospective
profits or anticipated income, or on account of any expenditures, investments,
leases or commitments made by either party or for any other reason whatsoever
based upon or growing out of such termination or expiration.
(e) Nonexclusive Remedy. The exercise by either party of any
remedy under this Agreement will be without prejudice to its other remedies
under this Agreement or otherwise.
(f) Survival. The rights and obligations of the parties contained
in Sections 11 (Confidentiality), 12 (Proprietary Rights), 13 (Warranty), 14
(Indemnities), 15 (Limitations of Liability), and 16(c) (Effect of Termination)
will survive the termination or expiration of this Agreement.
16. COMPLIANCE WITH LAW.
(a) Compliance with Law. Each party agrees to comply with all
applicable laws, rules, and regulations in connection with its activities under
this Agreement.
(b) Export Controls. This Agreement is subject to and conditioned
upon compliance with the U.S. Export Administration Act and the applicable
regulations thereunder (collectively, the "U.S. Export Laws"), as well as any
other laws of the U.S. affecting the export of technology. Worldtalk and SDTI
agree to comply fully with the U.S. Export Laws and to provide Worldtalk with
such documentation, assurances and access to records as may be required to
obtain licenses under the U.S. Export Laws. SDTI certifies that neither the
Products, the technical data relating to the Products, nor any direct product of
the Products: (a) are intended to be used for any purposes prohibited by the
U.S. Export Laws, including but not limited to nuclear proliferation; nor (b)
are intended to be shipped or exported either directly or indirectly to Albania,
Armenia, Azerbaijan, Belarus, Bulgaria, Cambodia, Cuba, Estonia, Georgia, Iran,
Iraq, Kazakhstan, Kyrgyzstan, Laos, Latvia, Libya, Lithuania, Moldova, Mongolia,
the People's Republic of China, North Korea, Romania, Russia, Rwanda, Syria,
Sudan, Tajikistan, Turkmenistan, Ukraine, Uzbekistan, and Vietnam. or to any
other country to which the U.S. has prohibited shipment.
17. GENERAL.
(a) Assignment. This Agreement will bind and inure to the benefit of
each party's permitted successors and assigns. SDTI may not assign this
Agreement, in whole or in part, without Worldtalk's written consent, which will
not be unreasonably withheld in connection with a sale of the business relating
to this Agreement. Any attempt to assign this Agreement without such consent
will be null and void.
(b) Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of California.
15
<PAGE> 16
(c) Severability. If any provision of this Agreement is found
invalid or unenforceable, that provision will be enforced to the maximum extent
permissible, and the other provisions of this Agreement will remain in force.
(d) Notices. All notices under this Agreement will be deemed given
when delivered personally, sent by confirmed facsimile transmission, or sent by
certified or registered U.S. mail or nationally-recognized express courier,
return receipt requested, to the address shown below or as may otherwise be
specified by either party to the other in accordance with this section.
(e) Independent Contractors. The parties to this Agreement are
independent contractors. There is no relationship of partnership, joint venture,
employment, franchise, or agency between the parties. Neither party will have
the power to bind the other or incur obligations on the other's behalf without
the other's prior written consent.
(f) Waiver. No failure of either party to exercise or enforce any of
its rights under this Agreement will act as a waiver of such rights.
(g) Publicity. SDTI and Worldtalk will each deliver announcement
press releases as mutually agreed between them. SDTI and Worldtalk will jointly
participate in an announcement event or events as mutually agreed between them.
(h) Entire Agreement. This Agreement and its exhibits are the
complete and exclusive agreement between the parties with respect to the subject
matter hereof, superseding and replacing any and all prior agreements,
communications, and understandings (both written and oral) regarding such
subject matter. This Agreement may only be modified, or any rights under it
waived, by a written document executed by both parties.
The parties have caused this Agreement to be executed by their
duly-authorized representatives as of the Effective Date.
WORLDTALK COMMUNICATIONS SECURITY DYNAMICS
CORPORATION TECHNOLOGIES, INC.
By: /s/ Bernard Harguindeguy By: /s/ A.W. Coviello Jr.
-------------------------- ------------------------------------
Name: Bernard Harguindeguy Name: A.W. Coviello Jr.
------------------------ -----------------------------------
Title: President and CEO Title: COO
----------------------- ---------------------------------
Date: 9/22/97 Date: 9/18/97
Address: 5155 Old Ironsides Drive Address: 20 Crosby Drive
Santa Clara, CA 95054 Bedford, MA 01730
Facsimile: Facsimile: 617-687-7010
-----------------------
16
<PAGE> 17
EXHIBIT A
PRODUCTS
WorldSecure Server Ver. 2.0
WorldSecure Client Ver. 2.0
NetTalk Ver. 4.3
Additional upgraded versions will be made available to SDTI under the terms of
this Agreement upon commercial release by Worldtalk.
SDTI will initially use WorldSecure administration to manage Worldtalk
WorldSecure components. At a later point in time, SDTI may desire to integrate
WorldSecure Server and Client administration with ACE/Server administration.
SDTI will initially use WorldSecure installation processes. In the future, SDTI
may wish to incorporate WorldSecure Products with other SDTI products and
provide a common installation and distribution. Examples may include WorldSecure
Server with ACE/Server, WorldSecure Client with SecurPC or SoftID, WorldSecure
Client distributed from ACE/Server.
Worldtalk will discuss with SDTI in good faith the foregoing changes proposed by
SDTI, which may be made at Worldtalk's sole discretion.
Worldtalk will make available to SDTI Major Releases and Minor Releases of the
Products as it makes such Major Releases and Minor Releases available to it
customers generally, under the terms and conditions of this Agreement as
follows: Worldtalk will make Minor Releases available to SDTI at no cost for
distribution solely to customers of SDTI for which SDTI has paid Worldtalk the
applicable maintenance fee hereunder. Minor Releases may not be distributed to
customers of SDTI for which SDTI has not paid such fees for the applicable time
period. Worldtalk will make Major Releases available to SDTI at the charge that
Worldtalk makes such Major Release available to its own customers as indicated
on the then current price list less a [ ** ] discount. Major Releases priced as
upgrades (i.e., a discount off of full price) may be distributed only to
customers of SDTI who have licensed the applicable prior version from SDTI. For
example, if the Worldtalk list price for a new Product version 3.0 is [ ** ] and
the price Worldtalk charges for version 3.0 to its customers who have licensed
version 2.0 is [ ** ] SDTI will pay Worldtalk [ ** ] for a new Product and [ **
] for such upgrade, provided that SDTI confirms that such version 3.0 will be
distributed only to a customer that has licensed version 2.0. SDTI will use
reasonable efforts to verify that a customer is in fact a licensee of a prior
version before distributing a version priced as an upgrade. As used herein,
"Minor Release" means an enhancement, improvement or upgrade to the Product
distributed by Worldtalk generally to its customers who have paid for periodic
maintenance which does not materially change the functionality of such Product,
and a "Major Release" means a significant modification or improvement to the
Product considered by Worldtalk to be a new product. In general, a Major Release
will be given a new product number by Worldtalk,
<PAGE> 18
although it may be labeled as a new version adding such modification or
improvement to an existing product.
Additional Worldtalk Products may be added under this Agreement in the future by
mutual agreement. Terms and conditions will be negotiated in good faith.
<PAGE> 19
EXHIBIT B
AUTHENTICATION TOKEN VENDORS
[**]
<PAGE> 20
EXHIBIT C
DISTRIBUTORS
[ ** ]
<PAGE> 21
EXHIBIT D
PRICING
Nonrefundable Prepaid Fees. SDTI will pay Worldtalk a one-time prepaid,
nonrefundable license fee of $3,000,000 on October 1st or when all Products are
available for shipment, whichever is later, to be applied toward fees due under
this Agreement to Worldtalk during the term of this Agreement.
SDTI may at its option elect to pay an additional one-time prepaid,
nonrefundable license fee of [ ** ] ("Second Year Prepayment") to Worldtalk on
or before the first anniversary of the date of this Agreement to maintain the
Discount at [ ** ] for the one year period beginning on the first anniversary of
FCS, which Second Year Prepayment will be applied toward fees due under this
Agreement to Worldtalk during the term of this Agreement. If SDTI fails to make
such Second Year Prepayment, the Discount will be [ ** ] for such period and
through the remaining term of the Agreement.
If SDTI has paid the Second Year Prepayment to Worldtalk in accordance
with the foregoing sentence, SDTI may at its option elect to pay an additional
one-time prepaid, nonrefundable license fee of [ ** ] ("Third Year Prepayment")
to Worldtalk on or before the second anniversary of the date of this Agreement
to maintain the Discount at [ ** ] for the one year period beginning on the
second anniversary of FCS, which Third Year Prepayment will be applied toward
fees due under this Agreement to Worldtalk during the term of this Agreement. If
SDTI does not make such Third Year Prepayment, the Discount will be [ ** ]
through the remaining term of the Agreement.
Discount. SDTI will pay Worldtalk a license fee equal to Worldtalk's
then-current List Price for each Product less the Discount. For purposes of this
Agreement, "List Price" means the price per unit set forth on Worldtalk's
then-current published U.S. price list; and "Discount" means initially [ ** ] as
adjusted in accordance with the provisions specified under the heading
"Nonrefundable Prepaid Fees" above. The prepaid royalty amount will be applied
against [ ** ] of the purchase price of any Product purchased under this
Agreement until such prepaid royalty has been recouped in full. Worldtalk's
current price list is attached hereto as Exhibit D-1.
Most-Favored Customer Pricing. Notwithstanding the foregoing, during the
term of this Agreement, Worldtalk will extend to SDTI discounts equivalent to
any more favorable discount off of List Price afforded to other distributors or
resellers for similar types and quantities of Products under terms and
conditions similar to those requested by SDTI in accordance with this Agreement.
Maintenance Fees. SDTI will pay Worldtalk a maintenance fee equal to
Worldtalk's standard maintenance fee ([ ** ] of the List Price) less a [ ** ]
discount for the first year of a maintenance contract entered into upon purchase
of the Product. SDTI will pay Worldtalk an amount equal to Worldtalk's standard
maintenance fee less a [ ** ] discount for
<PAGE> 22
each annual renewal of such contract after the initial year. Such fees will be
payable within 30 days following the calendar quarter in which such contract is
entered into.
Customer Support Fees. In addition, in consideration for providing third
line support under this Agreement, SDTI will pay Worldtalk [ ** ] of all
maintenance and support fees collected by SDTI for the Products. Notwithstanding
the foregoing, if SDTI has paid to Worltalk less than [ ** ] for such
maintenance and support fees during the 12 month period ending on any
anniversary following FCS, SDTI will pay to Worldtalk the sum calculated by
subtracting actual fees so paid from [ ** ] upon each such anniversary (so that
during any year SDTI will pay Worldtalk at least [ ** ] for such maintenance and
support fees).
<PAGE> 23
EXHIBIT D-1
PRICE LIST
EFFECTIVE SEPTEMBER 1, 1997
ALL PRICES IN US DOLLARS ($)
NetTalk - Version 4.3
Platform: Windows NT
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION SRP SDTI PRICE
<S> <C> <C> <C>
200-0001 NetTalk Server ([**] Users) [**] [**]
LICENSE PACKS
200-0002 [**] User License Packs [**] [**]
200-0003 [**] User License Pack [**] [**]
200-0004 [**] User License Pack [**] [**]
200-0005 [**] User License Pack [**] [**]
200-0006 [**] User License Pack [**] [**]
200-0007 [**] User License Pack [**] [**]
200-0008 [**] User License Pack [**] [**]
200-0009 [**] User License Pack [**] [**]
DOCUMENTATION
TBD NetTalk Concepts Guide [**] [**]
* There is no discount for resellers on
documentation
</TABLE>
WorldSecure Client -- Version 2.0 (formerly Secure Messenger)
Platform: Windows '95 or Windows NT
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION SRP SDTI PRICE
<S> <C> <C> <C>
SD196-0901 WorldSecure Client Personal
Edition (1 User) [**] [**]
LICENSE PACKS
SD196-0902 WorldSecure Client [**] User Pack [**] [**]
SD196-0903 WorldSecure Client [**] User Pack [**] [**]
SD196-0904 WorldSecure Client [**] User Pack [**] [**]
SD196-0905 WorldSecure Client [**] User Pack [**] [**]
SD196-0906 WorldSecure Client [**] User Pack [**] [**]
</TABLE>
<PAGE> 24
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION SRP SDTI PRICE
<S> <C> <C> <C>
>500 Users Call
</TABLE>
WorldSecure Server -- Version 2.0
Platform: Windows NT
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION SRP SDTI PRICE
<S> <C> <C> <C>
200-0020 WorldSecure Server -- Base E-mail Firewall w/50 Users [**] [**]
MODULES
200-0021 WorldSecure Server -- S/MIME Module [**] [**]
o Supports up to 5 Remote Servers and 50 Remote
Client Connections
o S/MIME Module comes with 5 licenses of
WorldSecure Client
200-0022 WorldSecure Server -- Anti-Virus Module [**] [**]
o Includes 90-day Virus Pattern Subscription
200-0023 WorldSecure Server -- Anti-Virus Module Upgrade [**] [**]
o Customers that do not buy the Anti-Virus
Module at the time of original purchase are subject to
the Upgrade Price
LICENSE PACKS FOR BASE E-MAIL FIREWALL AND ANTI-VIRUS MODULE
200-0024 WorldSecure Server -- [**] User Pack [**] [**]
200-0025 WorldSecure Server -- [**] User Pack [**] [**]
200-0026 WorldSecure Server -- [**] User Pack [**] [**]
200-0027 WorldSecure Server -- [**] User Pack [**] [**]
200-0028 WorldSecure Server -- [**] User Pack [**] [**]
200-0029 WorldSecure Server -- [**] User Pack [**] [**]
200-0030 WorldSecure Server -- [**] User Pack [**] [**]
200-0031 WorldSecure Server -- [**] User Pack [**] [**]
200-0032 WorldSecure Server -- [**] User Pack [**] [**]
S/MIME REMOTE USER CONNECTION PACKS
o Allows additional S/MIME Clients and Servers to communicate with the S/MIME
Module
200-0033 WorldSecure S/MIME Module -- [**] User Connection Pack [**] [**]
200-0034 WorldSecure S/MIME Module -- [**] User Connection Pack [**] [**]
200-0035 WorldSecure S/MIME Module -- [**] User Connection Pack [**] [**]
200-0036 WorldSecure S/MIME Module -- [**] User Connection Pack [**] [**]
200-0037 WorldSecure S/MIME Module -- [**] User Connection Pack [**] [**]
200-0038 WorldSecure S/MIME Module -- [**] User Connection Pack [**] [**]
200-0039 WorldSecure S/MIME Module -- [**] User Connection Pack [**] [**]
200-0040 WorldSecure S/MIME Module -- Additional Remote Server [**] [**]
Connection
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION SRP SDTI PRICE
<S> <C> <C> <C>
UPDATES
200-0041 Virus Pattern Updates -- Annual Subscription (per [**] [**]
server)
* There is no discount for resellers on virus patter
updates
</TABLE>
<PAGE> 26
EXHIBIT E
UPGRADES
Worldtalk will use its best efforts to integrate SecurID identification and
authentication agents in the WorldSecure Server, WorldSecure Client and NetTalk
as an upgrade to such Products in the ordinary course of development on or
before January 1, 1998. The intent of the upgrade is to require SecurID
authentication for the WorldSecure Server, WorldSecure Client and NetTalk
Products to access the server. The upgraded WorldSecure Client would require
users to SecurID authenticate to send secure messages and to decrypt secure
messages. SecurID authentication is intended to be configurable within the
WorldSecure Server, Client and NetTalk.
Worldtalk will warrant that the Products distributed by Worldtalk to SDTI under
this Agreement will be Year 2000 Compliant, as defined below, with respect to
Products delivered by Worldtalk to SDTI, on a best efforts basis on or before
January 1, 1998 but no later than March 31, 1998. Upon release by Worldtalk of
the upgrades of the Products that make such Products Year 2000 Compliant,
Worldtalk will make available to SDTI without charge an upgrade for distribution
by SDTI to its customers for which SDTI has paid for maintenance to allow the
Products distributed under this Agreement by SDTI to be Year 2000 Compliant and
will warrant that the Products delivered by Worldtalk to SDTI will be Year 2000
Compliant.
For purposes hereof, "Year 2000 Compliant" means that the Products, when used in
accordance with their applicable documentation and the hardware and operating
system software with which they are designed to function, will correctly manage,
calculate, compare and sequence data involving dates between January 1, 1970 and
December 31, 2036, inclusive, including but not limited to single century
formulas and multi-century formulas, provided that all products not supplied as
part of the Products which exchange date data with the Products do so properly
and accurately and in a form compatible with the Products. Worldtalk assumes no
liability of any kind with respect to any interruption of service, impairment of
function or erroneous results in the operation of the Products directly or
indirectly caused by any date processing of any other software, by the failure
of any hardware or other software or by failure to supply date data to the
Products in a form and format compatible with the Products.
SDTI will provide such assistance as Worldtalk reasonably requires to enable
Worldtalk to effect such upgrades.
<PAGE> 27
EXHIBIT F
MAINTENANCE
This Exhibit F addresses SDTI's and Worldtalk's responsibilities for resolving
SDTI customer remedial problems with respect to the Distributed Products, all in
accordance with this Agreement.
CONTACT PERSONS
SDTI:
Primary: Wayne Day
Tel.: 781-687-7448
email: [email protected]
Backup: Rich McMahon
Tel.: 781-687-7466
email: [email protected]
WORLDTALK:
Primary: Angel Bocanegra
Tel.: 408-567-5081
email: [email protected]
Backup: Manish Goel
Tel.: 408-567-5074
email: [email protected]
PROBLEM REPORTING AND RESOLUTION
SDTI's Responsibilities
SDTI is responsible for providing technical resources with the ability to
provide problem management and technical resolution activities directly to their
customers. SDTI technical activity responsibilities during an escalation
include:
I. Setting SDTI's customer expectations, communication with its
customers, and customer account management. SDTI retains sole responsibility for
its customers throughout the problem escalation and resolution process.
II. Ensuring a customer's problem is not generated by an unsupported system
configuration or third party cause.
<PAGE> 28
III. Setting the initial level of severity based on the impact to its customers.
IV. Duplicating the problem to the best of its ability for isolation and testing
purposes.
V. Determining and documenting the operational steps needed to reproduce the
problem.
VI. Isolating the cause of the problem: A. Determining the product and module,
if possible; B. Determining what actions are causing the problem.
VII. Resolving the problem:
A. Providing a workaround, where possible, to alleviate the impact on a
customer's operations. Another solution may be provided at a later time.
When SDTI must escalate a problem to Worldtalk, SDTI is responsible for:
I. Escalating only problems that have been determined to be, or are
highly probable to be, the result of a design or implementation defect in the
Product that cannot be resolved by SDTI.
II. Providing clear, accurate, and complete problem statements with symptoms and
environment information which includes but is not limited to:
A. Date customer initially reported problem;
B. Concise customer impact statement;
C. Vendor or third party information if appropriate;
D. Configuration data;
E. Pointers to supporting information on frequency, error logs, dump
files;
F. Steps taken to correct the problem; G. Current status of problem.
III. Ensuring highly qualified resources are available to assist Worldtalk.
These resources will be involved in:
A. On-site information gathering;
B. Testing solutions at the customer site;
C. Troubleshooting the problem;
D. Assisting with any phase of solution development when necessary;
E. Duplicating the problem, where possible.
IV. Ensuring that any workaround or final resolution provided is usable and
acceptable in the customer's environment.
<PAGE> 29
V. Delivery of all Worldtalk lab tested solutions to the customer in an
expeditious fashion and verifying that they work in the customer's environment.
VI. Promptly reporting any problems with the solutions to Worldtalk.
Worldtalk's Responsibilities
Worldtalk's responsibilities include:
I. Ensuring timely resolution of problems properly escalated to
Worldtalk.
II. Isolation and management of all escalated problems that are "undefined," or
can be labeled "other" (i.e., interoperability or multivendor).
III. Defining the communications, via the Internet, between Worldtalk and SDTI
on all problems.
IV. Ensuring Worldtalk resources are available to address problems at all levels
of Severity (see below).
V. Further isolating the detailed cause of the escalated problem.
VI. Providing a work-around until a permanent solution is available, as
appropriate.
VII. Creating a technical solution where appropriate.
VIII. Properly testing the solution:
A. Ensuring that the solution is fully tested and that the solution does not
create other problems. B. Properly testing reproducible problems to ensure that
the escalated remedial problems have been addressed.
IX. Ensuring the solution is documented and considered for incorporation into
future versions of the Products.
Problem Resolution
For Severity 1 problems, the objective is to get the customer's operation back
on line within twenty-four (24) hours and to downgrade the problem accordingly.
Severity 1 problems will not be considered closed until one of the following
activities has been completed:
<PAGE> 30
1. A code change in the form of a "patch," a formal engineering
change order, a new image, or new revision that corrects the problem without
causing additional problems has been delivered to the customer, successfully
installed and is working.
2. A work-around is delivered to and accepted by the customer as a final
solution.
3. To correct the problem within a named specific update of the
product. This applies when the problem cannot be economically or feasibly
solved, and requires a redesign of the product or rewrite of the segment of code
or image.
4. A policy or position statement is issued by Worldtalk that explains why
Worldtalk does not intend to take any further action.
Communications
The primary method of communications between Worldtalk and SDTI shall be via the
Internet. Worldtalk will provide support by telephone as reasonably necessary.
Upon execution of this agreement, Worldtalk and SDTI shall prepare a
communications document detailing the methodology and specific addresses
necessary to implement the problem reporting and resolution process.
REMEDIAL PROBLEM DEFINITION
Severity Definitions
The escalation process incorporated in this Exhibit F categorizes problems into
three levels of severity. This section contains definitions, response
requirements and implementation guidelines for SDTI and Worldtalk.
The severity levels set by SDTI and as agreed by Worldtalk must reflect the
total situation from both the technical and customer impact aspects.
These levels of severity drive the goals for both SDTI and Worldtalk.
1. Severity 1
"Severity 1" problems (a) prevent installation of the Product, (b) cause the
Product, the SDTI product in which such Product is incorporated or the
customer's operating system to fail completely, (c) require constant restarting
of the Product, the SDTI product in which such Product is incorporated or the
customer's operating system, (d) result in irretrievable corruption or loss of
data or (e) result in severe customer dissatisfaction. With Severity 1 problems,
there is no known work-around or solution to the problem. The customer is unable
to use the Product.
<PAGE> 31
When working a "Severity 1" problem, the goal is to drive its level of severity
to "2" so that usefulness of the system is regained by the customer.
2. Severity 2
"Severity 2" problems prevent the use of a documented function of the Product,
preventing or inhibiting the Product from accomplishing the task for which it
was designed. There is no known work-around to such problem and SDTI's
customer's use of the Product is severely restricted.
Efforts to isolate, diagnose, and effect a work-around or repair to a Severity 2
problem may be discontinuous. A work-around should be provided within two (2)
business days. Worldtalk will work with SDTI until both Worldtalk and SDTI agree
that the call should be closed. A permanent correction should be incorporated
into the next update of the Product. Within ten (10) calendar days of
Worldtalk's receipt of an error notification, Worldtalk will provide a plan for
fixing the error.
3. Severity 3
"Severity 3" will be assigned to (a) general usage questions, (b)
recommendations for Software enhancements or modifications and (c) calls that
are passed on to Worldtalk for informational purposes. The impact on the
Customer is non-critical.
If SDTI's sole reason for escalating a "Severity 3" call is to submit a draft
symptom/resolution for consideration by Worldtalk then Worldtalk will
acknowledge receipt and respond accordingly with recommendations.
Problem Response Criteria
Worldtalk shall acknowledge receipt of SDTI's problem report. Subject to the
coverage hours specified herein, on receipt of a problem from SDTI, Worldtalk
will respond as follows:
1. Severity 1: Respond within one (1) working hour of receipt;
2. Severity 2: Reasonable efforts to respond within four (4) business hours, but
not later than one (1) business day of receipt;
3. Severity 3: Respond within five (5) working days of receipt.
Coverage Hours
Support will be provided by Worldtalk to SDTI on a five (5) day by nine (9) hour
basis. Call hours are Monday through Friday 9:00 a.m. to 6:00 p.m. Pacific Time,
excluding locally observed holidays.
<PAGE> 32
Worldtalk will make support available to SDTI beginning January 1, 1998 at all
times not specified above, for which SDTI will pay Worldtalk [**] per hour
(other than the hours of 6:00 a.m. to 9:00 a.m. Pacific Time on nonholiday
weekdays, when such additional support will be provided without additional
charge), except that where a Severity 1 problem cannot be resolved with a
workaround and requires a code fix by Worldtalk, SDTI will not be billed for
off-hours charges. Worldtalk and SDTI will mutually agree upon a reasonable
procedure for accessing such support, it being understood that Worldtalk may not
be able to respond within the timeframes specified above for Severity 1 errors
during off-hours.
On-Site Support
Either Worldtalk or SDTI may provide on-site support to address Severity 1 level
problems. If a Severity 1 problem occurs and SDTI desires to provide on-site
support itself, it may contact Worldtalk. Worldtalk may at its discretion
confirm in writing that SDTI may provide its own on-site support, in which case
Worldtalk will reimburse SDTI for expenses reasonably incurred by SDTI in
providing such support to the extent the problem requires a code fix by
Worldtalk under this Agreement and no workaround exists. Worldtalk will not be
responsible for reimbursing SDTI if SDTI has not contacted and received written
confirmation from Worldtalk for SDTI to provide its own on-site support. If upon
contact by SDTI Worldtalk in its discretion determines to provide on-site
support itself, Worldtalk will do so at its expense, provided that if the
problem is not a Severity 1 problem for which Worldtalk is obligated to provide
a code fix under this Agreement or if a workaround existed, SDTI will reimburse
Worldtalk for expenses reasonably incurred in providing such support.
<PAGE> 33
EXHIBIT G
MARKETING
SDTI will advertise Products in the Territory in accordance with this Agreement,
provided that SDTI will not use advertisements for the Products that have not
been approved in writing by Worldtalk. SDTI will at its expense: (i) attend, and
promote Products in, such trade shows, conventions and exhibits as Worldtalk
reasonably requests; (ii) attend any sales meetings held by Worldtalk to which
Worldtalk invites SDTI with reasonable notice; and (iii) notify Worldtalk of
SDTI's sales meetings and provide Worldtalk personnel adequate opportunity to
provide sales and promotion information regarding Products in such meetings.
SDTI and Worldtalk also contemplate conducting joint seminars with respect to
the Products.
<PAGE> 34
EXHIBIT H
SOFTWARE LICENSE AND SERVICES AGREEMENTS
1. WORLDSECURE SERVER (U.S. AND CANADA)
NOTICE TO USERS:
THIS IS A CONTRACT BY INSTALLING THIS SOFTWARE YOU ACCEPT ALL THE TERMS AND
CONDITIONS OF THIS WORLDTALK COMMUNICATIONS CORPORATION ("WORLDTALK") LICENSE
AGREEMENT. CAREFULLY READ THIS WORLDTALK LICENSE AGREEMENT BEFORE PROCEEDING.
TO ACCEPT THIS AGREEMENT, CLICK ON THE "ACCEPT" BUTTON.
TO DECLINE THIS AGREEMENT, CLICK ON THE "DO NOT ACCEPT" BUTTON.
This is a legal agreement between you (either an individual or an entity) and
Worldtalk. By installing and/or using the SOFTWARE, you agree to be bound by the
terms of this Worldtalk License Agreement. If you do not agree to the terms of
this Agreement, promptly cancel the installation.
SOFTWARE: WorldSecure Server
WORLDTALK COMMUNICATIONS CORPORATION LICENSE AGREEMENT
1. GRANT OF LICENSE. This Worldtalk Communications Corporation License Agreement
("License") permits you to use the Worldtalk software identified above, which
includes software that provides services on a computer called a server ("Server
Software") and which may include documentation provided in "online" or
electronic form ("Documentation"). Worldtalk grants you the following rights to
the Server Software and Documentation (collectively called the "SOFTWARE"), for
internal purposes only.
You may install the Server Software on one computer ("Server") and on
the platform indicated on the proof of purchase. The Server Software is
"Installed" on a computer when it is loaded into the temporary memory (e.g.,
RAM) or installed into the permanent memory (e.g., hard disk, CD-ROM, or other
storage device) of that computer.
The number of computers or workstations attached to a network that can
access or otherwise utilize the services provided by the Server Software is
limited to the user and module license identified on the proof of purchase.
2. COPYRIGHT. The SOFTWARE is owned by Worldtalk or its suppliers and is
protected by United States copyright laws and international treaty provisions.
Therefore, you may not use, copy, or distribute the SOFTWARE without
authorization. Your use of the Software and the associated documentation is
subject to the applicable copyright laws and the express rights and restrictions
of this License Agreement.
3. OTHER RESTRICTIONS. You may not use the Server Software as part of or as the
basis for a commercial public access data network consisting of one or more
servers that carries end-to-end electronic information traffic unless you obtain
a separate commercial-use license from Worldtalk. You may not rent, lease, or
loan the SOFTWARE. You may not reverse engineer, decompile, or disassemble the
SOFTWARE, except to the extent the foregoing restriction is expressly prohibited
by applicable law. You may not modify, or create derivative works based upon the
SOFTWARE in whole or in part. You may not remove any copyright, trademark, or
other proprietary notices from the Software.
<PAGE> 35
LIMITED WARRANTY. Worldtalk warrants that the media on which the SOFTWARE is
furnished under normal use will be free from defects in materials and
workmanship and that the SOFTWARE under normal use will perform substantially in
accordance with the accompanying documentation for a period of ninety (90) days
from the date of delivery. This Warranty is valid only for the original
purchaser. Any implied warranties on the Software are limited to ninety (90)
days. Some states do not allow limitations on duration of an implied warranty,
so the above limitation may not apply to you.
CUSTOMER REMEDIES. Worldtalk's and its suppliers' entire liability and your
exclusive remedy under this Warranty shall be replacement of the defective media
or SOFTWARE that does not meet Worldtalk's Limited Warranty and that is returned
to Worldtalk or an authorized Worldtalk representative with a copy of your
receipt. This Limited Warranty is void if failure of the SOFTWARE has resulted
from accident, abuse, or misapplication. Any replacement SOFTWARE will be
warranted for the remainder of the original warranty period or thirty (30) days,
whichever is longer.
OUTSIDE THE UNITED STATES, NEITHER THESE REMEDIES NOR ANY PRODUCT SUPPORT
SERVICES OFFERED BY WORLDTALK ARE AVAILABLE WITHOUT PROOFOF PURCHASE FROM AN
AUTHORIZED SOURCE.
NO OTHER WARRANTIES. YOU ASSUME THE ENTIRE COST OF ANY DAMAGE RESULTING FROM THE
INFORMATION CONTAINED IN OR COMPILED BY THE PRODUCT. YOU ASSUME ALL
RESPONSIBILITIES FOR SELECTION OF THE PRODUCT TO ACHIEVE YOUR INTENDED RESULTS,
AND FOR THE INSTALLATION OF, USE OF, AND RESULTS OBTAINED FROM THE PRODUCT.
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, WORLDTALK DISCLAIMS ALL OTHER
WARRANTIES AND CONDITIONS, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED
TO IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
SATISFACTION, AND NONINFRINGEMENT WITH RESPECT TO THE SOFTWARE. SOME STATES DO
NOT ALLOW LIMITATIONS ON IMPLIED WARRANTIES, SO THE ABOVE LIMITATION MAY NOT
APPLY TO YOU. THIS WARRANTY GIVES YOU SPECIFIC LEGAL RIGHTS. YOU MAY HAVE OTHERS
WHICH VARY FROM STATE TO STATE.
NO LIABILITY FOR CONSEQUENTIAL DAMAGES. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, IN NO EVENT SHALL WORLDTALK OR ITS SUPPLIERS BE LIABLE FOR ANY
DAMAGES WHATSOEVER (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS
PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, OR OTHER PECUNIARY
LOSS) ARISING OUT OF THE USE OR INABILITY TO USE THIS WORLDTALK PRODUCT, EVEN IF
WORLDTALK HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. BECAUSE SOME
STATES DO NOT ALLOW THE EXCLUSION OR LIMITATION OF LIABILITY FOR CONSEQUENTIAL
OR INCIDENTAL DAMAGES, THE ABOVE LIMITATION MAY NOT APPLY TO YOU. IN NO EVENT
SHALL WORLDTALK'S TOTAL LIABILITY TO LICENSEE FOR ALL DAMAGES IN ANY ONE OR MORE
CAUSE OF ACTION EXCEED THE AMOUNT PAID BY LICENSEE FOR THE SOFTWARE.
U.S. GOVERNMENT RESTRICTED RIGHTS
The SOFTWARE and documentation are provided with RESTRICTED RIGHTS. Use,
duplication, or disclosure by the Government is subject to restrictions as set
forth in subparagraph (c)(1)(ii) of the Rights in Technical Data and Computer
Software clause at DFARS 252.227-7013 or subparagraphs (c)(1) and (2) of the
Commercial Computer Software-Restricted Rights of FAR 52.227-19 or FAR
52.227-14, Rights in Data-General, or in the case of NASA of FAR 18-52.227-86(d)
of the NASA supplement to the FAR, as applicable. Manufacturer is Worldtalk
Communications Corporation.
<PAGE> 36
EXPORT LAW ASSURANCES
You acknowledge and agree that the Program is subject to restrictions and
controls imposed by the United States Export Administration Act (the "Act") and
the regulations thereunder. You agree and certify that neither the Program nor
any direct product thereof is being or will be acquired, shipped, transferred or
reexported, directly or indirectly, into any country prohibited by the Act and
the regulations thereunder or will be used for any purpose prohibited by the
same. You agree that you will not export or reexport the Program without
obtaining the licenses or approvals, if any, required by the U.S. government.
EXCEPT FOR EXPORT TO CANADA FOR USE IN CANADA BY CANADIAN CITIZENS, THE PROGRAM
AND ANY UNDERLYING TECHNOLOGY MAY NOT BE EXPORTED OUTSIDE THE UNITED STATES OR
TO ANY FOREIGN ENTITY OR "FOREIGN PERSON" AS DEFINED BY U.S. GOVERNMENT
REGULATIONS, INCLUDING WITHOUT LIMITATION, ANYONE WHO IS NOT A CITIZEN OR
PERMANENT RESIDENT (GREEN CARD HOLDER) OF THE UNITED STATES.
This Agreement is governed by the laws of the United States and the State of
California, without reference to conflict of laws principle. This Agreement is
the entire agreement between Licensee and Worldtalk and supersedes any other
communications or advertising with respect to the SOFTWARE and documentation. If
any provision of this Agreement is held invalid, the remainder of this Agreement
shall continue in full force and effect.
Should you have any questions concerning this Agreement, or if you desire to
contact Worldtalk for any reason, please contact the Worldtalk subsidiary
serving your country, or write:
Worldtalk Customer Sales and Service
5155 Old Ironsides Drive
Santa Clara, CA 95054
By clicking on the "Accept" button you acknowledge that you have read this
Agreement, understand it, and agree to be bound by its terms and conditions.
TO ACCEPT THIS AGREEMENT, CLICK ON THE "ACCEPT" BUTTON.
TO DECLINE THIS AGREEMENT, CLICK ON THE "DO NOT ACCEPT" BUTTON.
Copyright (C) Worldtalk Corporation, 1997. All rights reserved. Windows is a
registered trademark of Microsoft Corporation. Windows NT is a trademark of
Microsoft Corporation. Worldtalk and the Worldtalk logo, WorldSecure and
WorldSecure Server are trademarks of Worldtalk Communications Corporation.
<PAGE> 37
2. WORLDSECURE SERVER (WORLDWIDE)
NOTICE TO USERS:
THIS IS A CONTRACT. BY INSTALLING THIS SOFTWARE YOU ACCEPT ALL THE TERMS AND
CONDITIONS OF THIS WORLDTALK COMMUNICATIONS CORPORATION ("WORLDTALK") LICENSE
AGREEMENT. CAREFULLY READ THIS WORLDTALK LICENSE AGREEMENT BEFORE PROCEEDING.
TO ACCEPT THIS AGREEMENT, CLICK ON THE "ACCEPT" BUTTON.
TO DECLINE THIS AGREEMENT, CLICK ON THE "DO NOT ACCEPT" BUTTON.
This is a legal agreement between you (either an individual or an entity) and
Worldtalk. By installing and/or using the SOFTWARE, you agree to be bound by the
terms of this Worldtalk License Agreement. If you do not agree to the terms of
this Agreement, promptly cancel the installation.
SOFTWARE: WorldSecure Server
WORLDTALK COMMUNICATIONS CORPORATION LICENSE AGREEMENT
1. GRANT OF LICENSE. This Worldtalk Communications Corporation License Agreement
("License") permits you to use the Worldtalk software identified above, which
includes software that provides services on a computer called a server ("Server
Software") and which may include documentation provided in "online" or
electronic form ("Documentation"). Worldtalk grants you the following rights to
the Server Software and Documentation (collectively called the "SOFTWARE"), for
internal purposes only.
You may install the Server Software on one computer ("Server") and on the
platform indicated on the proof of purchase. The Server Software is "Installed"
on a computer when it is loaded into the temporary memory (e.g., RAM) or
installed into the permanent memory (e.g., hard disk, CD-ROM, or other storage
device) of that computer.
The number of computers or workstations attached to a network that can access or
otherwise utilize the services provided by the Server Software is limited to the
user and module license identified on the proof of purchase.
2. COPYRIGHT. The SOFTWARE is owned by Worldtalk or its suppliers and is
protected by United States copyright laws and international treaty provisions.
Therefore, you may not use, copy, or distribute the SOFTWARE without
authorization. Your use of the Software and the associated documentation is
subject to the applicable copyright laws and the express rights and restrictions
of this License Agreement.
3. OTHER RESTRICTIONS. You may not use the Server Software as part of or as the
basis for a commercial public access data network consisting of one or more
servers that carries end-to-end electronic information traffic unless you obtain
a separate commercial-use license from Worldtalk. You may not rent, lease, or
loan the SOFTWARE. You may not reverse engineer, decompile, or disassemble the
SOFTWARE, except to the extent the foregoing restriction is expressly prohibited
by applicable law. You may not modify, or create derivative works based upon the
SOFTWARE in whole or in part. You may not remove any copyright, trademark, or
other proprietary notices from the Software.
LIMITED WARRANTY. Worldtalk warrants that the media on which the software is
furnished under normal use will be free from defects in materials and
workmanship and that the SOFTWARE under normal use will perform substantially in
accordance with the accompanying documentation for a period of ninety (90) days
from the date of delivery. This Warranty is valid only for the original
purchaser. Any implied warranties on the Software are
<PAGE> 38
limited to ninety (90) days. Some states do not allow limitations on duration of
an implied warranty, so the above limitation may not apply to you.
CUSTOMER REMEDIES. Worldtalk's and its suppliers' entire liability and your
exclusive remedy under this Warranty shall be replacement of the defective media
or SOFTWARE that does not meet Worldtalk's Limited Warranty and that is returned
to Worldtalk or an authorized Worldtalk representative with a copy of your
receipt. This Limited Warranty is void if failure of the SOFTWARE has resulted
from accident, abuse, or misapplication. Any replacement SOFTWARE will be
warranted for the remainder of the original warranty period or thirty (30) days,
whichever is longer.
OUTSIDE THE UNITED STATES, NEITHER THESE REMEDIES NOR ANY PRODUCT SUPPORT
SERVICES OFFERED BY WORLDTALK ARE AVAILABLE WITHOUT PROOF OF PURCHASE FROM AN
AUTHORIZED SOURCE.
NO OTHER WARRANTIES. YOU ASSUME THE ENTIRE COST OF ANY DAMAGE RESULTING FROM THE
INFORMATION CONTAINED IN OR COMPILED BY THE PRODUCT. YOU ASSUME ALL
RESPONSIBILITIES FOR SELECTION OF THE PRODUCT TO ACHIEVE YOUR INTENDED RESULTS,
AND FOR THE INSTALLATION OF, USE OF, AND RESULTS OBTAINED FROM THE PRODUCT.
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, WORLDTALK DISCLAIMS ALL OTHER
WARRANTIES AND CONDITIONS, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED
TO IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
SATISFACTION, AND NONINFRINGEMENT WITH RESPECT TO THE SOFTWARE. SOME STATES DO
NOT ALLOW LIMITATIONS ON IMPLIED WARRANTIES, SO THE ABOVE LIMITATION MAY NOT
APPLY TO YOU. THIS WARRANTY GIVES YOU SPECIFIC LEGAL RIGHTS. YOU MAY HAVE OTHERS
WHICH VARY FROM STATE TO STATE.
NO LIABILITY FOR CONSEQUENTIAL DAMAGES. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, IN NO EVENT SHALL WORLDTALK OR ITS SUPPLIERS BE LIABLE FOR ANY
DAMAGES WHATSOEVER (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS
PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, OR OTHER PECUNIARY
LOSS) ARISING OUT OF THE USE OR INABILITY TO USE THIS WORLDTALK PRODUCT, EVEN IF
WORLDTALK HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. BECAUSE SOME
STATES DO NOT ALLOW THE EXCLUSION OR LIMITATION OF LIABILITY FOR CONSEQUENTIAL
OR INCIDENTAL DAMAGES, THE ABOVE LIMITATION MAY NOT APPLY TO YOU. IN NO EVENT
SHALL WORLDTALK'S TOTAL LIABILITY TO LICENSEE FOR ALL DAMAGES IN ANY ONE OR MORE
CAUSE OF ACTION EXCEED THE AMOUNT PAID BY LICENSEE FOR THE SOFTWARE.
U.S. GOVERNMENT RESTRICTED RIGHTS
The SOFTWARE and documentation are provided with RESTRICTED RIGHTS. Use,
duplication, or disclosure by the Government is subject to restrictions as set
forth in subparagraph (c)(1)(ii) of the Rights in Technical Data and Computer
Software clause at DFARS 252.227-7013 or subparagraphs (c)(1) and (2) of the
Commercial Computer Software-Restricted Rights of FAR 52.227-19 or FAR
52.227-14, Rights in Data-General, or in the case of NASA of FAR 18-52.227-86(d)
of the NASA supplement to the FAR, as applicable. Manufacturer is Worldtalk
Communications Corporation.
EXPORT LAW ASSURANCES
You acknowledge and agree that the Program is subject to restrictions and
controls imposed by the United States Export Administration Act (the "Act") and
the regulations thereunder. You agree and certify that neither the Program nor
any direct product thereof is being or will be acquired, shipped, transferred or
reexported, directly or indirectly, into any country prohibited by the Act and
the regulations thereunder or will be used for any purpose
<PAGE> 39
prohibited by the same. You agree that you will not export or reexport the
Program without obtaining the licenses or approvals, if any, required by the
U.S. government.
This Agreement is governed by the laws of the United States and the State of
California, without reference to conflict of laws principle. This Agreement is
the entire agreement between Licensee and Worldtalk and supersedes any other
communications or advertising with respect to the SOFTWARE and documentation. If
any provision of this Agreement is held invalid, the remainder of this Agreement
shall continue in full force and effect.
Should you have any questions concerning this Agreement, or if you desire to
contact Worldtalk for any reason, please contact the Worldtalk subsidiary
serving your country, or write:
Worldtalk Customer Sales and Service
5155 Old Ironsides Drive
Santa Clara, CA 95054
By clicking on the "Accept" button you acknowledge that you have read this
Agreement, understand it, and agree to be bound by its terms and conditions.
TO ACCEPT THIS AGREEMENT, CLICK ON THE "ACCEPT" BUTTON.
TO DECLINE THIS AGREEMENT, CLICK ON THE "DO NOT ACCEPT" BUTTON.
Copyright (C) Worldtalk Corporation, 1997. All rights reserved. Windows is a
registered trademark of Microsoft Corporation. Windows NT is a trademark of
Microsoft Corporation. Worldtalk and the Worldtalk logo, WorldSecure and
WorldSecure Server are trademarks of Worldtalk Communications Corporation.
<PAGE> 40
3. NETTALK[TM]
NOTICE TO USERS:
THIS IS A CONTRACT. BY INSTALLING THIS SOFTWARE YOU ACCEPT ALL THE TERMS AND
CONDITIONS OF THIS WORLDTALK COMMUNICATIONS CORPORATION ("WORLDTALK") LICENSE
AGREEMENT. CAREFULLY READ THIS WORLDTALK LICENSE AGREEMENT BEFORE PROCEEDING.
TO ACCEPT THIS AGREEMENT, CLICK ON THE "ACCEPT" BUTTON
TO DECLINE THIS AGREEMENT, CLICK ON THE "DO NOT ACCEPT" BUTTON, AND THE
INSTALLATION PROCESS WILL NOT CONTINUE.
This is a legal agreement between you (either an individual or an entity) and
Worldtalk. By installing and/or using the SOFTWARE, you agree to be bound by the
terms of this Worldtalk License Agreement. If you do not agree to the terms of
this Agreement, promptly cancel the installation.
SOFTWARE: NetTalk[TM]
WORLDTALK COMMUNICATIONS CORPORATION LICENSE AGREEMENT
1. GRANT OF LICENSE. This Worldtalk Communications Corporation License Agreement
("License") permits you to use the Worldtalk software identified above, which
includes software that provides services on a computer called a server ("Server
Software") and which may include documentation provided in "online" or
electronic form ("Documentation"). Worldtalk grants you the following rights to
the Server Software and Documentation (collectively called the "SOFTWARE"), for
internal purposes only.
You may install the Server Software on one computer ("Server") and on the
platform indicated on the proof of purchase. The Server Software is "Installed"
on a computer when it is loaded into the temporary memory (e.g., RAM) or
installed into the permanent memory (e.g., hard disk, CD-ROM, or other storage
device) of that computer.
The number of computers or workstations attached to a network that can access or
otherwise utilize the services provided by the Server Software is limited to the
quantity of User Licenses identified on the proof of purchase.
2. COPYRIGHT. The SOFTWARE is owned by Worldtalk or its suppliers and is
protected by United States copyright laws and international treaty provisions.
Therefore, you may not use, copy, or distribute the SOFTWARE without
authorization. Your use of the Software and the associated documentation is
subject to the applicable copyright laws and the express rights and restrictions
of this License Agreement.
3. OTHER RESTRICTIONS. You may not use the Server Software as part of or as the
basis for a commercial public access data network consisting of one or more
servers that carries end-to-end electronic information traffic unless you obtain
a separate commercial-use license from Worldtalk. You may not rent, lease, or
loan the SOFTWARE. You may not reverse engineer, decompile, or disassemble the
SOFTWARE, except to the extent the foregoing restriction is expressly prohibited
by applicable law. You may not modify, or create derivative works based upon the
SOFTWARE in whole or in part. You may not remove any copyright, trademark, or
other proprietary notices from the Software.
LIMITED WARRANTY
LIMITED WARRANTY. Worldtalk warrants that the media on which the software is
furnished under normal use will be free from defects in materials and
workmanship [TO BE ADDED AT NEXT PRINTING: and that the
<PAGE> 41
SOFTWARE under normal use will perform substantially in accordance with the
accompanying documentation] for a period of ninety (90) days from the date of
delivery. This Warranty is valid only for the original purchaser. Any implied
warranties on the Software are limited to ninety (90) days. Some states do not
allow limitations on duration of an implied warranty, so the above limitation
may not apply to you.
CUSTOMER REMEDIES. Worldtalk's and its suppliers' entire liability and your
exclusive remedy under this Warranty shall be replacement of the defective media
or SOFTWARE that does not meet Worldtalk's Limited Warranty and that is returned
to Worldtalk or an authorized Worldtalk representative with a copy of your
receipt. This Limited Warranty is void if failure of the SOFTWARE has resulted
from accident, abuse, or misapplication. Any replacement SOFTWARE will be
warranted for the remainder of the original warranty period or thirty (30) days,
whichever is longer.
OUTSIDE THE UNITED STATES, NEITHER THESE REMEDIES NOR ANY PRODUCT SUPPORT
SERVICES OFFERED BY WORLDTALK ARE AVAILABLE WITHOUT PROOF OF PURCHASE FROM AN
AUTHORIZED SOURCE.
NO OTHER WARRANTIES. YOU ASSUME THE ENTIRE COST OF ANY DAMAGE RESULTING FROM THE
INFORMATION CONTAINED IN OR COMPILED BY THE PRODUCT. YOU ASSUME ALL
RESPONSIBILITIES FOR SELECTION OF THE PRODUCT TO ACHIEVE YOUR INTENDED RESULTS,
AND FOR THE INSTALLATION OF, USE OF, AND RESULTS OBTAINED FROM THE PRODUCT.
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, WORLDTALK DISCLAIMS ALL OTHER
WARRANTIES AND CONDITIONS, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED
TO IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
SATISFACTION, AND NONINFRINGEMENT WITH RESPECT TO THE SOFTWARE. SOME STATES DO
NOT ALLOW LIMITATIONS ON IMPLIED WARRANTIES, SO THE ABOVE LIMITATION MAY NOT
APPLY TO YOU. THIS WARRANTY GIVES YOU SPECIFIC LEGAL RIGHTS. YOU MAY HAVE OTHERS
WHICH VARY FROM STATE TO STATE.
NO LIABILITY FOR CONSEQUENTIAL DAMAGES. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, IN NO EVENT SHALL WORLDTALK OR ITS SUPPLIERS BE LIABLE FOR ANY
DAMAGES WHATSOEVER (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS
PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, OR OTHER PECUNIARY
LOSS) ARISING OUT OF THE USE OR INABILITY TO USE THIS WORLDTALK PRODUCT, EVEN IF
WORLDTALK HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. BECAUSE SOME
STATES DO NOT ALLOW THE EXCLUSION OR LIMITATION OF LIABILITY FOR CONSEQUENTIAL
OR INCIDENTAL DAMAGES, THE ABOVE LIMITATION MAY NOT APPLY TO YOU. IN NO EVENT
SHALL WORLDTALK'S TOTAL LIABILITY TO LICENSEE FOR ALL DAMAGES IN ANY ONE OR MORE
CAUSE OF ACTION EXCEED THE AMOUNT PAID BY LICENSEE FOR THE SOFTWARE.
U.S. GOVERNMENT RESTRICTED RIGHTS
The SOFTWARE and documentation are provided with RESTRICTED RIGHTS. Use,
duplication, or disclosure by the Government is subject to restrictions as set
forth in subparagraph (c)(1)(ii) of the Rights in Technical Data and Computer
Software clause at DFARS 252.227-7013 or subparagraphs (c)(1) and (2) of the
Commercial Computer Software-Restricted Rights of FAR 52.227-19 or FAR
52.227-14, Rights in Data-General, or in the case of NASA of FAR 18-52.227-86(d)
of the NASA supplement to the FAR, as applicable. Manufacturer is Worldtalk
Communications Corporation.
This Agreement is governed by the laws of the United States and the State of
California, without reference to conflict of laws principle. This Agreement is
the entire agreement between Licensee and Worldtalk and supersedes any other
communications or advertising with respect to the SOFTWARE and documentation. If
any provision of this Agreement is held invalid, the remainder of this Agreement
shall continue in full force and effect.
<PAGE> 42
Should you have any questions concerning this Agreement, or if you desire to
contact Worldtalk for any reason, please contact the Worldtalk subsidiary
serving your country, or write:
Worldtalk Customer Sales and Service
5155 Old Ironsides Drive
Santa Clara, CA 95054
By clicking on the "Accept" button you acknowledge that you have read this
Agreement, understand it, and agree to be bound by its terms and conditions.
TO ACCEPT THIS AGREEMENT, CLICK ON THE "ACCEPT" BUTTON
TO DECLINE THIS AGREEMENT, CLICK ON THE "DO NOT ACCEPT" BUTTON, AND THE
INSTALLATION PROCESS WILL NOT CONTINUE.
Copyright (C) Worldtalk Corporation, 1997. All right reserved. Windows is a
registered trademark of Microsoft Corporation. Windows NT is a trademark of
Microsoft Corporation. Digital, the Digital logo, AltaVista Mail, and AltaVista
are trademarks of Digital Equipment Corporation. ICL, I500 and the I500 logo are
trademarks of International Computers Limited (ICL). Worldtalk, the Worldtalk
logo, NetTalk and the NetTalk logo are trademarks of Worldtalk Communications
Corporation.
<PAGE> 43
4. WORLDSECURE CLIENT (U.S. AND CANADA)
This is a downloadable disk image of a 30-day evaluation version of WorldSecure
Client
If you like it call +1 800 454 4674 to order and receive an activation key for a
fully functional version.
Please note that by installing this product or acquiring a Worldtalk activation
key you are agreeing to the terms of the software license agreement below.
WORLDTALK COMMUNICATIONS CORPORATION
Software License Agreement
PLEASE READ THIS DOCUMENT CAREFULLY BEFORE INSTALLING THIS PRODUCT AND FOR BY
ACQUIRING A WORLDTALK ACTIVATION KEY BY INSTALLING THIS PRODUCT AND ACQUIRING A
WORLDTALK ACTIVATION KEY AND FOR USING THE ENCLOSED SOFTWARE YOU AGREE TO BECOME
BOUND BY THE TERMS AND CONDITIONS OF THIS AGREEMENT.
IF YOU DO NOT AGREE WITH THESE TERMS AND CONDITIONS UNINSTALL PACKAGE AND RETURN
TO WORLDTALK FOR A FULL REFUND OF ANY FEES PAID INVOICE ONLY IF PRODUCT WAS
DOWNLOADED.
Important Export Law Notice and Agreement. EXCEPT FOR EXPORT TO CANADA FOR USE
IN CANADA BY CANADIAN CITIZENS THE PROGRAM AND ANY UNDERLYING TECHNOLOGY MAY NOT
BE EXPORTED OUTSIDE THE UNITED STATES OR TO ANY FOREIGN ENTITY OR FOREIGN PERSON
AS DEFINED BY U.S. GOVERNMENT REGULATIONS INCLUDING WITHOUT LIMITATION ANYONE
WHO IS NOT A CITIZEN OR PERMANENT RESIDENT GREEN CARD HOLDER OF THE UNITED
STATES BY DOWNLOADING OR USING THE SOFTWARE YOU ARE AGREEING TO THE FOREGOING
AND YOU ARE WARRANTING THAT YOU ARE A CITIZEN OR PERMANENT RESIDENT AND ARE NOT
A FOREIGN PERSON OR UNDER THE CONTROL OF A FOREIGN PERSON.
Worldtalk Communications Corporation. Worldtalk grants you Licensee a
non-exclusive, non-transferable license to use the identified WorldSecure Client
product and accompanying documentation the Program within a single enterprise
according to the following terms.
SOFTWARE LICENSE
For a period of thirty (30) days following the date the Program is first
installed Licensee may install the Program on computers within the single
enterprise for evaluation purposes only Licensee acknowledges that unless you
acquire a Worldtalk Activation Key the Program will cease to operate and the
license hereunder will terminate at the end of such thirty (30) day period. Upon
obtaining a Worldtalk Activation Key, Licensee may (a) install one copy of the
Program on only one computer; (b) make one copy of the Program in machine
readable form solely for backup purposes provided that Licensee reproduce all
proprietary notices on the copy and (c) physically transfer the Program from one
computer to another provided that the Program is used on only one computer at a
time.
Licensee may not transfer the Program beyond the initial licensed working group
or enterprise without Worldtalk's prior written consent. Licensee agrees not to
use a Worldtalk Activation Key on any copy of the Program other than the two
copies specified at (a) and (b) above. Licensee agrees that all copies made of
the Program and related documentation shall include the same proprietary
notices, labels and marks as the originals.
<PAGE> 44
Licensee may not (a) install the Program on more than one computer or
workstation at a time in a network or multi-user system (b) modify translate,
reverse engineer, decompile, disassemble, create, derivative works based on, or
copy except for the backup copy, the Program or the accompanying documentation
(c) rent transfer or grant any rights in the Program or accompanying
documentation in any form to any person without the prior written consent of
Worldtalk, which consent will not be unreasonably withheld or (d) remove or
destroy any proprietary, trademark or copyright notices, labels or marks on the
Program and the accompanying documentation. The Program is protected by United
States copyright law and international treaties. Worldtalk retains all right,
title and ownership interest in the Program and accompanying documentation and
any copy made by you remain the sole property of Worldtalk. Unauthorized copying
of the Program or the accompanying documentation or failure to comply with the
above restrictions will result in automatic termination of this license and will
make available to Worldtalk other legal remedies. Upon termination, Licensee
agrees to destroy the Program and all copies thereof.
LIMITED WARRANTY AND DISCLAIMER
Provided that you have purchased a Worldtalk Activation Key, Worldtalk warrants
that for a period of ninety (90) days from the date of delivery or acquisition
of such Worldtalk Activation Key, whichever is later, diskettes, tapes or other
media on which the Program is furnished will be free from defects in materials
and workmanship and the Program under normal use will perform substantially in
accordance with the accompanying documentation and any hardware accompanying the
Program shall be subject to the manufacturer's warranty and shall not be
warranted by Worldtalk. Worldtalk and for its suppliers entire liability and
Licensee's exclusive remedy under this warranty which is subject to receipt of
the returned Program along with a copy of the invoice will be at Worldtalk's
option to attempt to correct errors with efforts which Worldtalk believes
suitable to the problem to replace the Program or media with functionally
equivalent software or media as applicable or to refund the purchase price and
terminate this Agreement.
EXCEPT FOR THE ABOVE EXPRESSED LIMITED WARRANTIES, WORLDTALK MAKES NO WARRANTIES
OR REPRESENTATIONS, EXPRESSED, IMPLIED STATUTORY OR IN ANY OTHER MANNER AND
SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY FITNESS FOR A
PARTICULAR PURPOSE OR NONINFRINGEMENT WORLDTALK DOES NOT WARRANT THAT THE
OPERATION OF THE PROGRAM WILL BE UNINTERRUPTED OR ERROR FREE. SOME STATES DO NOT
ALLOW THE EXCLUSION OF IMPLIED WARRANTIES SO THE ABOVE EXCLUSIONS MAY NOT APPLY
TO LICENSEE. THIS WARRANTY PROVIDES SPECIFIC LEGAL RIGHTS LICENSEE MAY ALSO HAVE
OTHER RIGHTS UNDER STATE LAW.
LIMITATION OF LIABILITY.
REGARDLESS OF WHETHER ANY REMEDY SET FORTH HEREIN FAILS OF ITS ESSENTIAL PURPOSE
IN NO EVENT WILL WORLDTALK COMMUNICATION CORP BE LIABLE FOR ANY DAMAGES
INCLUDING LOSS OF DATA, BREACH OF SECURITY, LOST PROFITS, BUSINESS INTERRUPTION,
COST OF COVER OR OTHER SPECIAL, INCIDENTAL, CONSEQUENTIAL, EXEMPLARY OR INDIRECT
DAMAGES ARISING FROM THE USE OF THE PROGRAM OR ACCOMPANYING DOCUMENTATION.
HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, THIS LIMITATION WILL APPLY EVEN
IF WORLDTALK OR AN AUTHORIZED DEALER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGE.
LICENSEE ACKNOWLEDGES THAT THE LICENSE FEE REFLECTS THIS ALLOCATION OF RISK.
SOME STATES DO NOT ALLOW THE LIMITATION OR EXCLUSION OF LIABILITY FOR INCIDENTAL
OR CONSEQUENTIAL DAMAGES SO THE ABOVE EXCLUSIONS MAY NOT APPLY TO LICENSEE.
GOVERNMENT USE
Use duplication or disclosure by the United States Government is subject to
restrictions set forth in subparagraphs (a) through (d) of the Commercial
Computer-Restricted Rights clause at FAR 52.227-19 when applicable or in
subparagraph (c)(1)(ii) of the Rights in Technical Data and Computer Program
clause at DFARS 252.227-7013
<PAGE> 45
and in similar clauses in the NASA FAR Supplement Contractor. Manufacturer is
Worldtalk Communications Corp., 5155 Old Ironsides Drive, Santa Clara CA 95054.
EXPORT LAW ASSURANCES
Licensee acknowledges and agrees that the Program is subject to restrictions and
controls imposed by the United States Export Administration Act (the "Act") and
the regulations thereunder. Licensee agrees and certifies that neither the
Program nor any direct product thereof is being or will be acquired, shipped,
transferred or reexported, directly or indirectly into any country prohibited by
the Act and the regulations thereunder or will be used for any purpose
prohibited by the same. Licensee agrees that it will not export or reexport the
Program without obtaining the licenses or approvals, if any, required by the
U.S. government.
EXCEPT FOR EXPORT TO CANADA FOR USE IN CANADA BY CANADIAN CITIZENS THE PROGRAM
AND ANY UNDERLYING TECHNOLOGY MAY NOT BE EXPORTED OUTSIDE THE UNITED STATES OR
TO ANY FOREIGN ENTITY OR FOREIGN PERSON AS DEFINED U.S. BY GOVERNMENT
REGULATIONS, INCLUDING WITHOUT LIMITATION, ANYONE WHO IS NOT A CITIZEN OR
PERMANENT RESIDENT GREEN CARD HOLDER OF THE UNITED STATES.
GENERAL
This Agreement will be governed by the laws of the State of Washington, except
for that body of law dealing with conflicts of law. The Agreement is the entire
agreement held between us and supersedes any other communications or advertising
with respect to the Program and accompanying documentation. If any provision of
this Agreement is held invalid, the remainder of this Agreement shall continue
in full force and effect. If you have any questions, please contact: Worldtalk
Customer Sales and Service, 5155 Old Ironsides Drive, Santa Clara CA 95054.
Worldtalk and the Worldtalk logo, WorldSecure and WorldSecure Client are
trademarks of Worldtalk Communications Corporation. All other brands and
products are trademarks of their respective holders. Specifications subject to
change without notice. Copyright 1996-1997 Worldtalk Corporation. All rights
reserved. Printed in US.
<PAGE> 46
5. WORLDSECURE CLIENT (WORLDWIDE)
This is a downloadable disk image of a 30-day evaluation version of WorldSecure
Client. If you like it call +1 800 454 4674 to order and receive an activation
key for a fully functional version. Please note that by installing this product
or acquiring a Worldtalk activation key you are agreeing to the terms of the
software license agreement below.
WORLDTALK COMMUNICATIONS CORPORATION
Software License Agreement
PLEASE READ THIS DOCUMENT CAREFULLY BEFORE INSTALLING THIS PRODUCT AND ACQUIRING
BY A WORLDTALK ACTIVATION KEY BY INSTALLING THIS PRODUCT AND FOR ACQUIRING A
WORLDTALK ACTIVATION KEY AND FOR USING THE ENCLOSED SOFTWARE YOU AGREE TO BECOME
BOUND BY THE TERMS AND CONDITIONS OF THIS AGREEMENT.
IF YOU DO NOT AGREE WITH THESE TERMS AND CONDITIONS UNINSTALL PACKAGE AND RETURN
TO WORLDTALK FOR A FULL REFUND OF ANY FEES PAID, INVOICE ONLY IF PRODUCT WAS
DOWNLOADED.
Worldtalk Communications Corporation, Worldtalk grants you Licensee a
non-exclusive non-transferable license to use the identified WorldSecure Client
product and accompanying documentation the Program within a single enterprise
according to the following terms.
SOFTWARE LICENSE
For a period of thirty (30) days following the date the Program is first
installed Licensee may install the Program on computers within the single
enterprise for evaluation purposes only. Licensee acknowledges that unless you
acquire a Worldtalk Activation Key, the Program will cease to operate and the
license hereunder will terminate at the end of such thirty (30) day period.
Upon obtaining a Worldtalk Activation Key, Licensee may (a) install one copy of
the Program on only one computer (b) make one copy of the Program in machine
readable form solely for backup purposes provided that Licensee reproduce all
proprietary notices on the copy and (c) physically transfer the Program from one
computer to another provided that the Program is used on only one computer at a
time. Licensee may not transfer the Program beyond the initial licensed working
group or enterprise without Worldtalk's prior written consent. Licensee agrees
not to use a Worldtalk Activation Key on any copy of the Program other than the
two copies specified at (a) and (b) above.
Licensee agrees that all copies made of the Program and related documentation
shall include the same proprietary notices labels and for marks as the
originals. Licensee may not (a) install the Program on more than one computer or
workstation at a time in a network or multi-user system, (b) modify, translate,
reverse engineer, decompile, disassemble, create, derivative works based on or
copy except for the backup copy the Program or the accompanying documentation
(c) rent, transfer or grant any rights in the Program or accompanying
documentation in any form to any person without the prior written consent of
Worldtalk which consent will not be unreasonably withheld (d) remove or destroy
any proprietary, trademark, or copyright notices labels or marks on the Program
and the accompanying documentation. The Program is protected by United States
copyright law and international treaties. Worldtalk retains all right title and
ownership interest in the Program and accompanying documentation and any copy
made by you remain the sole property of Worldtalk. Unauthorized copying of the
Program or the accompanying documentation or
<PAGE> 47
failure to comply with the above restrictions will result in automatic
termination of this license and will make available to Worldtalk other legal
remedies. Upon termination, Licensee agrees to destroy the Program and all
copies thereof.
LIMITED WARRANTY AND DISCLAIMER
Provided that you have purchased a Worldtalk Activation Key, Worldtalk warrants
that (a) for a period of ninety (90) days from the date of delivery or
acquisition of such Worldtalk Activation Key whichever is later, diskettes,
tapes or other media on which the Program is furnished will be free from defects
in materials and workmanship and the Program under normal use will perform
substantially in accordance with the accompanying documentation and (b) any
hardware accompanying the Program shall be subject to the manufacturer's
warranty and shall not be warranted by Worldtalk. Worldtalk and for its
suppliers entire liability and Licensee's exclusive remedy under this warranty
which is subject to receipt of the returned Program along with a copy of the
invoice will be at Worldtalk's option, to attempt to correct errors with efforts
which Worldtalk believes suitable to the problem to replace the Program or media
with functionally equivalent software or media, as applicable, or to refund the
purchase price and terminate this Agreement.
EXCEPT FOR THE ABOVE EXPRESSED LIMITED WARRANTIES WORLDTALK MAKES NO WARRANTIES
OR REPRESENTATIONS, EXPRESSED, IMPLIED,STATUTORY, OR IN ANY OTHER MANNER AND
SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY FITNESS FOR A
PARTICULAR PURPOSE OR NONINFRINGEMENT. WORLDTALK DOES NOT WARRANT THAT THE
OPERATION OF THE PROGRAM WILL BE UNINTERRUPTED OR ERROR FREE. SOME STATES DO NOT
ALLOW THE EXCLUSION OF IMPLIED WARRANTIES SO THE ABOVE EXCLUSIONS MAY NOT APPLY
TO LICENSEE THIS WARRANTY PROVIDES SPECIFIC LEGAL RIGHTS. LICENSEE MAY ALSO HAVE
OTHER RIGHTS UNDER STATE LAW.
LIMITATION OF LIABILITY
REGARDLESS OF WHETHER ANY REMEDY SET FORTH HEREIN FAILS OF ITS ESSENTIAL PURPOSE
IN NO EVENT WILL WORLDTALK COMMUNICATION CORP BE LIABLE FOR ANY DAMAGES
INCLUDING LOSS OF DATA BREACH OF SECURITY, LOST PROFITS, BUSINESS INTERRUPTION,
COST OF COVER OR OTHER SPECIAL, INCIDENTAL, CONSEQUENTIAL, EXEMPLARY, OR
INDIRECT DAMAGES ARISING FROM THE USE OF THE PROGRAM OR ACCOMPANYING.
DOCUMENTATION HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY. THIS LIMITATION
WILL APPLY EVEN IF WORLDTALK OR AN AUTHORIZED DEALER HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGE. LICENSEE ACKNOWLEDGES THAT THE LICENSE FEE REFLECTS
THIS ALLOCATION OF RISK. SOME STATES DO NOT ALLOW THE LIMITATION OR EXCLUSION OF
LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES SO THE ABOVE EXCLUSIONS MAY
NOT APPLY TO LICENSEE.
GOVERNMENT USE
Use duplication or disclosure by the United States Government is subject to
restrictions set forth in subparagraphs (a) through (d) of the Commercial
Computer-Restricted Rights clause at FAR 52.227-19 when applicable or in
subparagraph (c)(1)(ii) of the Rights in Technical Data and Computer Program
clause at DFARS 252.227-7013, and in similar clauses in the NASA FAR Supplement.
Contractor Manufacturer is Worldtalk Communications Corp., 5155 Old Ironsides
Drive, Santa Clara CA 95054.
EXPORT LAW ASSURANCES
Licensee acknowledges and agrees that the Program is subject to restrictions and
controls imposed by the United States Export Administration Act (the "Act") and
the regulations thereunder. Licensee agrees and
<PAGE> 48
certifies that neither the Program nor any direct product thereof is being or
will be acquired, shipped, transferred or reexported, directly or indirectly
into any country prohibited by the Act and the regulations thereunder or will be
used for any purpose prohibited by the same Licensee agrees that it will not
export or reexport the Program without obtaining the licenses or approvals, if
any, required by the US government.
GENERAL
This Agreement will be governed by the laws of the State of Washington, except
for that body of law dealing with conflicts of law. This Agreement is the entire
agreement held between us and supersedes any other communications or advertising
with respect to the Program and accompanying documentation. If any provision of
this Agreement is held invalid, the remainder of this Agreement shall continue
in full force and effect. If you have any questions, please contact:
Worldtalk Customer Sales and Service
5155 Old Ironsides Drive
Santa Clara, CA 95054
Worldtalk and the Worldtalk logo, WorldSecure and WorldSecure Client are
trademarks of Worldtalk Communications Corporation. All other brands and
products are trademarks of their respective holders. Specifications subject to
change without notice.
Copyright 1996-1997 Worldtalk Corporation. All rights reserved. Printed in US.
<PAGE> 49
EXHIBIT I
TRAINING SCHEDULE
The following is an expected schedule of training activities. Actual times and
locations may change as determined by Worldtalk in consultation with SDTI.
DATE ACTIVITY
[**] o SDI SE training on [**],[**]
o SDI support training
[**] o SDI SE training in UK on [**]
[**] o Support training for U.S. and Canadian support staff
(need-based after 10/20-10/24 training)
[**] o SDI Worldwide sales meeting participation;
sales training
[**] per quarter o SDI regional sales meetings; sales training
Q4 of each year o US/CAN, European regional sales meetings; sales
training (best efforts)
Twice per year (at o WorldTalk Worldwide sales meetings; sales training/
a minimum) corporate update
Once per Year o Support training for each Major Release released
during such year
<PAGE> 50
EXHIBIT J
ESCROW AGREEMENT
PREFERRED ESCROW AGREEMENT
Account Number ______________________
This Agreement is effective September __, 1997 among Data Securities
International, Inc. ("DSI"), Worldtalk Communications Corporation, a Delaware
corporation ("Depositor") and Security Dynamics Technologies, Inc., a Delaware
corporation ("Preferred Beneficiary"), who collectively may be referred to in
this Agreement as "the parties."
A. Depositor and Preferred Beneficiary have entered or will enter into a license
agreement, development agreement, and/or other agreement regarding certain
proprietary technology of Depositor (referred to in this Agreement as "the
license agreement").
B. Depositor desires to avoid disclosure of its proprietary technology except
under certain limited circumstances.
C. The availability of the proprietary technology of Depositor is critical to
Preferred Beneficiary in the conduct of its business and, therefore, Preferred
Beneficiary needs access to the proprietary technology under certain limited
circumstances.
D. Depositor and Preferred Beneficiary desire to establish an escrow with DSI to
provide for the retention, administration and controlled access of the
proprietary technology materials of Depositor.
E. The parties desire this Agreement to be supplementary to the license
agreement pursuant to 11 United States [Bankruptcy] Code, Section 365(n).
ARTICLE 1 -- DEPOSITS
1.1 Obligation to Make Deposit. Upon the signing of this Agreement by the
parties, Depositor shall deliver to DSI the proprietary information and other
materials ("deposit materials") required to be deposited by the license
agreement.
1.2 Identification of Tangible Media. Prior to the delivery of the deposit
materials to DSI, Depositor shall conspicuously label for identification each
document, magnetic tape, disk, or other tangible media upon which the deposit
materials are written or stored. Additionally, Depositor shall complete Exhibit
A to this Agreement by listing each such tangible media by the item label
description, the type of media and the quantity. The
<PAGE> 51
Exhibit A must be signed by Depositor and delivered to DSI with the deposit
materials. Unless and until Depositor makes the initial deposit with DSI, DSI
shall have no obligation with respect to this Agreement, except the obligation
to notify the parties regarding the status of the deposit account as required in
Section 2.2 below.
1.3 Deposit Inspection. When DSI receives the deposit materials and the Exhibit
A, DSI will conduct a deposit inspection by visually matching the labeling of
the tangible media containing the deposit materials to the item descriptions and
quantity listed on the Exhibit A. In addition to the deposit inspection,
Preferred Beneficiary may elect to cause a verification of the deposit materials
in accordance with Section 1.6 below.
1.4 Acceptance of Deposit. At completion of the deposit inspection, if DSI
determines that the labeling of the tangible media matches the item descriptions
and quantity on Exhibit A, DSI will date and sign the Exhibit A and mail a copy
thereof to Depositor and Preferred Beneficiary. If DSI determines that the
labeling does not match the item descriptions or quantity on the Exhibit A, DSI
will (a) note the discrepancies in writing on the Exhibit A; (b) date and sign
the Exhibit A with the exceptions noted; and (c) provide a copy of the Exhibit A
to Depositor and Preferred Beneficiary. DSI's acceptance of the deposit occurs
upon the signing of the Exhibit A by DSI. Delivery of the signed Exhibit A to
Preferred Beneficiary is Preferred Beneficiary's notice that the deposit
materials have been received and accepted by DSI.
1.5 Depositor's Representations. Depositor represents as follows:
a. Depositor lawfully possesses all of the deposit materials
deposited with DSI;
b. With respect to all of the deposit materials, Depositor has the
right and authority to grant to DSI and Preferred Beneficiary
the rights as provided in this Agreement;
c. The deposit materials are not subject to any lien or other
encumbrance;
d. The deposit materials consist of the proprietary information and
other materials identified in the license agreement; and
e. The deposit materials are readable and useable in their current
form or, if the deposit materials are encrypted, the decryption
tools and decryption keys have also been deposited.
1.6 Verification. Preferred Beneficiary shall have the right, at Preferred
Beneficiary's expense, to cause a verification of any deposit materials. A
verification determines, in different levels of detail, the accuracy,
completeness, sufficiency and quality of the deposit materials. If a
verification is elected after the deposit materials have been
<PAGE> 52
delivered to DSI, then only DSI, or at DSI's election an independent person or
company selected and supervised by DSI, may perform the verification.
1.7 Deposit Updates. Unless otherwise provided by the license agreement,
Depositor shall update the deposit materials within 90 days of each release of a
new version of the product which is subject to the license agreement. Such
updates will be added to the existing deposit. All deposit updates shall be
listed on a new Exhibit A and the new Exhibit A shall be signed by Depositor.
Each Exhibit B will be held and maintained separately within the escrow account.
An independent record will be created which will document the activity for each
Exhibit A. The processing of all deposit updates shall be in accordance with
Sections 1.2 through 1.6 above. All references in this Agreement to the deposit
materials shall include the initial deposit materials and any updates.
1.8 Removal of Deposit Materials. The deposit materials may be removed and/or
exchanged only on written instructions signed by Depositor and Preferred
Beneficiary, or as otherwise provided in this Agreement.
ARTICLE 2 -- CONFIDENTIALITY AND RECORD KEEPING
2.1 Confidentiality. DSI shall maintain the deposit materials in a secure,
environmentally safe, locked facility which is accessible only to authorized
representatives of DSI. DSI shall have the obligation to reasonably protect the
confidentiality of the deposit materials. Except as provided in this Agreement,
DSI shall not disclose, transfer, make available, or use the deposit materials.
DSI shall not disclose the content of this Agreement to any third party. If DSI
receives a subpoena or other order of a court or other judicial tribunal
pertaining to the disclosure or release of the deposit materials, DSI will
immediately notify the parties to this Agreement. It shall be the responsibility
of Depositor and/or Preferred Beneficiary to challenge any such order; provided,
however, that DSI does not waive its rights to present its position with respect
to any such order. DSI will not be required to disobey any court or other
judicial tribunal order. (See Section 7.5 below for notices of requested
orders.)
2.2 Status Reports. DSI will issue to Depositor and Preferred Beneficiary a
report profiling the account history at least semi-annually. DSI may provide
copies of the account history pertaining to this Agreement upon the request of
any party to this Agreement.
2.3 Audit Rights. During the term of this Agreement, Depositor and Preferred
Beneficiary shall each have the right to inspect the written records of DSI
pertaining to this Agreement. Any inspection shall be held during normal
business hours and following reasonable prior notice.
<PAGE> 53
ARTICLE 3 -- GRANT OF RIGHTS TO DSI
3.1 Title to Media. Depositor hereby transfers to DSI the title to the media
upon which the proprietary information and materials are written or stored.
However, this transfer does not include the ownership of the proprietary
information and materials contained on the media such as any copyright, trade
secret, patent or other intellectual property rights.
3.2 Right to Make Copies. DSI shall have the right to make copies of the deposit
materials as reasonably necessary to perform this Agreement. DSI shall copy all
copyright, nondisclosure, and other proprietary notices and titles contained on
the deposit materials onto any copies made by DSI. With all deposit materials
submitted to DSI, Depositor shall provide any and all instructions as may be
necessary to duplicate the deposit materials including but not limited to the
hardware and/or software needed.
3.3 Right to Transfer Upon Release. Depositor hereby grants to DSI the right to
transfer the deposit materials to Preferred Beneficiary upon any release of the
deposit materials for use by Preferred Beneficiary in accordance with Section
4.5. Except upon such a release or as otherwise provided in this Agreement, DSI
shall not transfer the deposit materials.
ARTICLE 4 -- RELEASE OF DEPOSIT
4.1 Release Conditions. As used in this Agreement, "Release Conditions" shall
mean the occurrence of Depositor's material failure to support the Products (as
defined in the license agreement) in accordance with Section 9(b) of the license
agreement following written notice thereof from SDTI and a thirty-five (35) day
period to cure, as set forth in Section 9(g) of the license agreement.
4.2 Filing For Release. If Preferred Beneficiary believes in good faith that a
Release Condition has occurred, Preferred Beneficiary may provide to DSI written
notice of the occurrence of the Release Condition and a request for the release
of the deposit materials. Upon receipt of such notice, DSI shall provide a copy
of the notice to Depositor, by certified mail, return receipt requested, or by
commercial express mail.
4.3 Contrary Instructions. From the date Depositor receives the notice
requesting release of the deposit materials, Depositor shall have ten business
days to deliver to DSI Contrary Instructions. "Contrary Instructions" shall mean
the written representation by Depositor that a Release Condition has not
occurred or has been cured. Upon receipt of Contrary Instructions, DSI shall
send a copy to Preferred Beneficiary by certified mail, return receipt
requested, or by commercial express mail. Additionally, DSI shall notify both
Depositor and Preferred Beneficiary that there is a dispute to be resolved
pursuant to the Dispute Resolution section (Section 7.3) of this Agreement.
Subject to Section 5.2, DSI will continue to store the deposit materials without
release pending (a) joint
<PAGE> 54
instructions from Depositor and Preferred Beneficiary; (b) resolution pursuant
to the Dispute Resolution provisions; or (c) order of a court.
4.4 Release of Deposit. If DSI does not receive Contrary Instructions from the
Depositor, DSI is authorized to release the deposit materials to the Preferred
Beneficiary or, if more than one beneficiary is registered to the deposit, to
release a copy of the deposit materials to the Preferred Beneficiary. However,
DSI is entitled to receive any fees due DSI before making the release. This
Agreement will terminate upon the release of the deposit materials held by DSI.
4.5 Right to Use Following Release. Unless otherwise provided in the license
agreement, upon release of the deposit materials in accordance with this Article
4, Preferred Beneficiary shall have the right to use the deposit materials for
the sole purpose of continuing the benefits afforded to Preferred Beneficiary by
Section 9(b) of the license agreement. Preferred Beneficiary shall be obligated
to maintain the confidentiality of the released deposit materials.
ARTICLE 5 -- TERM AND TERMINATION
5.1 Term of Agreement. The initial term of this Agreement is for a period of one
year. Thereafter, this Agreement shall automatically renew from year-to-year
unless (a) Depositor and Preferred Beneficiary jointly instruct DSI in writing
that the Agreement is terminated; or (b) the Agreement is terminated by DSI for
nonpayment in accordance with Section 5.2. If the deposit materials are subject
to another escrow agreement with DSI, DSI reserves the right, after the initial
one year term, to adjust the anniversary date of this Agreement to match the
then prevailing anniversary date of such other escrow arrangements.
5.2 Termination for Nonpayment. In the event of the nonpayment of fees owed to
DSI, DSI shall provide written notice of delinquency to all parties to this
Agreement. Any party to this Agreement shall have the right to make the payment
to DSI to cure the default. If the past due payment is not received in full by
DSI within one month of the date of such notice, then DSI shall have the right
to terminate this Agreement at any time thereafter by sending written notice of
termination to all parties. DSI shall have no obligation to take any action
under this Agreement so long as any payment due to DSI remains unpaid.
5.3 Disposition of Deposit Materials Upon Termination. Upon termination of this
Agreement by joint instruction of Depositor and Preferred Beneficiary, DSI shall
destroy, return, or otherwise deliver the deposit materials in accordance with
Depositor's instructions. Upon termination for nonpayment, DSI may, at its sole
discretion, destroy the deposit materials or return them to Depositor. DSI shall
have no obligation to return or destroy the deposit materials if the deposit
materials are subject to another escrow agreement with DSI.
<PAGE> 55
5.4 Survival of Terms Following Termination. Upon termination of this
Agreement, the following provisions of this Agreement shall survive:
a. Depositor's Representations (Section 1.5);
b. The obligations of confidentiality with respect to the deposit
materials;
c. The rights granted in the sections entitled Right to Transfer
Upon Release (Section 3.3) and Right to Use Following Release
(Section 4.5), if a release of the deposit materials has
occurred prior to termination;
d. The obligation to pay DSI any fees and expenses due;
e. The provisions of Article 7; and
f. Any provisions in this Agreement which specifically state they
survive the termination or expiration of this Agreement.
ARTICLE 6 -- DSI'S FEES
6.1 Fee Schedule. DSI is entitled to be paid its standard fees and expenses
applicable to the services provided. DSI shall notify the party responsible for
payment of DSI's fees at least 90 days prior to any increase in fees. For any
service not listed on DSI's standard fee schedule, DSI will provide a quote
prior to rendering the service, if requested.
6.2 Payment Terms. DSI shall not be required to perform any service unless the
payment for such service and any outstanding balances owed to DSI are paid in
full. All other fees are due upon receipt of invoice. If invoiced fees are not
paid, DSI may terminate this Agreement in accordance with Section 5.2. Late fees
on past due amounts shall accrue at the rate of one and one-half percent per
month (18% per annum) from the date of the invoice.
ARTICLE 7 -- LIABILITY AND DISPUTES
7.1 Right to Rely on Instructions. DSI may act in reliance upon any instruction,
instrument, or signature reasonably believed by DSI to be genuine. DSI may
assume that any employee of a party to this Agreement who gives any written
notice, request, or instruction has the authority to do so. DSI shall not be
responsible for failure to act as a result of causes beyond the reasonable
control of DSI.
7.2 Indemnification. DSI shall be responsible to perform its obligations under
this Agreement and to act in a reasonable and prudent manner with regard to this
escrow
<PAGE> 56
arrangement. Provided DSI has acted in the manner stated in the preceding
sentence, Depositor and Preferred Beneficiary each agree to indemnify, defend
and hold harmless DSI from any and all claims, actions, damages, arbitration
fees and expenses, costs, attorney's fees and other liabilities incurred by DSI
relating in any way to this escrow arrangement.
7.3 Dispute Resolution. Any dispute relating to or arising from this Agreement
shall be resolved by arbitration under the Commercial Rules of the American
Arbitration Association. Unless otherwise agreed by Depositor and Preferred
Beneficiary, arbitration will take place in San Diego, California, U.S.A. Any
court having jurisdiction over the matter may enter judgment on the award of the
arbitrator(s). Service of a petition to confirm the arbitration award may be
made by First Class mail or by commercial express mail, to the attorney for the
party or, if unrepresented, to the party at the last known business address.
7.4 Controlling Law. This Agreement is to be governed and construed in
accordance with the laws of the State of California, without regard to its
conflict of law provisions.
7.5 Notice of Requested Order. If any party intends to obtain an order from the
arbitrator or any court of competent jurisdiction which may direct DSI to take,
or refrain from taking any action, that party shall:
a. Give DSI at least two business days' prior notice of the hearing;
b. Include in any such order that, as a precondition to DSI's
obligation, DSI be paid in full for any past due fees and be paid
for the reasonable value of the services to be rendered pursuant
to such order; and
c. Ensure that DSI not be required to deliver the original (as
opposed to a copy) of the deposit materials if DSI may need to
retain the original in its possession to fulfill any of its other
duties.
ARTICLE 8 -- GENERAL PROVISIONS
8.1 Entire Agreement. This Agreement, which includes the Exhibits described
herein, embodies the entire understanding among the parties with respect to its
subject matter and supersedes all previous communications, representations or
understandings, either oral or written. No amendment or modification of this
Agreement shall be valid or binding unless signed by all the parties hereto,
except that Exhibit A need not be signed by DSI, Exhibit B need not be signed by
Preferred Beneficiary and Exhibit C need not be signed.
8.2 Notices. All notices, invoices, payments, deposits and other documents and
communications shall be given to the parties at the addresses specified in the
attached Exhibit C. It shall be the responsibility of the parties to notify each
other as provided in this Section in the event of a change of address. The
parties shall have the right to rely on
<PAGE> 57
the last known address of the other parties. Unless otherwise provided in this
Agreement, all documents and communications may be delivered by First Class
mail.
8.3 Severability. In the event any provision of this Agreement is found to be
invalid, voidable or unenforceable, the parties agree that unless it materially
affects the entire intent and purpose of this Agreement, such invalidity,
voidability or unenforceability shall affect neither the validity of this
Agreement nor the remaining provisions herein, and the provision in question
shall be deemed to be replaced with a valid and enforceable provision most
closely reflecting the intent and purpose of the original provision.
8.4 Successors. This Agreement shall be binding upon and shall inure to the
benefit of the successors and assigns of the parties. However, DSI shall have no
obligation in performing this Agreement to recognize any successor or assign of
Depositor or Preferred Beneficiary unless DSI receives clear, authoritative and
conclusive written evidence of the change of parties.
____________________________________ ________________________________________
Depositor Preferred Beneficiary
By: ________________________________ By: ____________________________________
Name:_______________________________ Name:___________________________________
Title:______________________________ Title:__________________________________
Date:_______________________________ Date:___________________________________
Data Securities International, Inc.
By:_______________________________________________
Name:_____________________________________________
Title:____________________________________________
Date:_____________________________________________
<PAGE> 58
EXHIBIT A
DESCRIPTION OF DEPOSIT MATERIALS
Depositor Company Name Worldtalk Communications Corporation_____________________
Account Number _________________________________________________________________
PRODUCT DESCRIPTION:
Product Name______________________________Version_______________________________
Operating System________________________________________________________________
Hardware Platform_______________________________________________________________
DEPOSIT COPYING INFORMATION:
Hardware required:______________________________________________________________
Software required:______________________________________________________________
DEPOSIT MATERIAL DESCRIPTION:
<TABLE>
<CAPTION>
Qty Media Type & Size Label Description of Each Separate
Item
(excluding documentation)
<S> <C> <C>
________ Disk 3.5" or ____
________ DAT tape ____mm
________ CD-ROM
________ Data cartridge tape ____
________ TK 70 or ____ tape
________ Magnetic tape ____
________ Documentation
________ Other ______________________
</TABLE>
I certify for the Depositor that the DSI has inspected and accepted the
above described deposit materials above materials (any exceptions are
have been transmitted to DSI: noted above):
Signature___________________________ Signature_____________________________
Print Name__________________________ Print Name____________________________
<PAGE> 59
Date________________________________ Date Accepted_________________________
Exhibit B#_____________________________
Send materials to: DSI, 9555 Chesapeake Dr. #200, San Diego, CA 92123
<PAGE> 60
PREFERRED ESCROW AGREEMENT
DESIGNATED CONTACT
Account Number ______________________
<TABLE>
<S> <C>
Notices, deposit material returns and
communications to Depositor Invoices to Depositor should be
should be addressed to: addressed to:
Company Name: Worldtalk Communications Feed paid by Preferred Beneficiary
Corporation
Address: 5155 Old Ironsides Drive
Santa Clara, CA 95054
Contact:___________________________
Designated Contact: Chief Financial Officer
Telephone: (408) 567-5000
Facsimile:
Notices and communications to Invoices to Preferred Beneficiary
Preferred Beneficiary should be addressed to: should be addressed to:
Company Name: Security Dynamics Technologies, Security Dynamics Technologies, Inc.
Inc.
Address:
Contact:____________________________
Designated Contact:
Telephone:
Facsimile:
Requests from Depositor or Preferred Beneficiary to change the designated
contact should be given in writing by the designated contact or an authorized
employee of Depositor or Preferred Beneficiary.
Contracts, deposit materials and notices to Invoice inquiries and fee remittances
DSI should be addressed to: to DSI should be addressed to:
DSI DSI
Contract Administration Accounts Receivable
Suite 200 Suite 1450
9555 Chesapeake Drive 425 California Street
San Diego, CA 92123 San Francisco, CA 94104
Telephone: (619) 694-1900 (415) 398-7900
</TABLE>
<PAGE> 61
Facsimile: (619) 694-1919 (415) 398-7914
Date:_________________________________
<PAGE> 1
EXHIBIT 10.19
[** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN
INFORMATION CONTAINED IN THIS DOCUMENT. CONFIDENTIAL PORTIONS (MARKED [**]) HAVE
BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.]
LICENSE AND DISTRIBUTION AGREEMENT
This License And Distribution Agreement ("Agreement") is made and
entered into as of September 8, 1997, by and between the following Parties:
Worldtalk Communications Corporation, d/b/a Worldtalk Corporation, a
Delaware corporation having its principal place of business at 5155 Old
Ironsides Drive, Santa Clara, CA 95054; and its wholly-owned subsidiary,
Deming Software Inc., d/b/a Deming Internet Security (hereinafter
collectively "Licensor"), and
ASCII Something Good Corporation, a Japanese corporation having its
principal place of business at 2-24-9 Kamiosaki, Shinagawa-ku, Tokyo
141, Japan (hereinafter "Distributor").
RECITALS
A. Licensor has developed, owns, markets and licenses the Software (defined
below) world-wide.
B. Licensor desires to grant Distributor, and Distributor desires to
receive from Licensor, the right to market and distribute the Software
in the form of Products (as hereinafter defined) in the Territory (as
hereinafter defined).
NOW, THEREFORE, the parties hereto agree as follows.
ARTICLE 1. DEFINITIONS
The following terms shall have the meanings indicated when used in this
Agreement:
"Confidential Information" shall have the meaning given in Section 12.1.
"Documentation means the manuals, user guides, and other materials
providing information about the Product, including all modifications, updates,
derivations thereof and changes thereto, whether in written, graphical, human
readable or machine readable form.
"End User" means customers of Distributor in the Territory to whom
Products are furnished for their own use, and not for resale, distribution,
marketing, or any other use.
"End User Agreement" means the written agreement pursuant to which an
End User obtains from Distributor the personal, non-transferable and
non-exclusive right to use the Products furnished to the End User, as modified
from time to time, which shall include all of the restrictions set forth in
Exhibit E. An example of the End User Agreement is attached as Exhibit "A" to
this Agreement. The End User Agreement may be changed from time to time by
Licensor with prior notification to Distributor.
"Improvements" means any improvements, updates and changes made to the
Software.
"Initial Term" means the initial term of this Agreement, as defined in
Article 4,
<PAGE> 2
2
Paragraph 4.1.
"Marks" means Licensor's trademarks, as defined in Exhibit "A", and any
translation of such trademarks into Japanese that Licensor and Distributor deem
advisable.
"Product" means an embodiment of the Software together with Additional
Materials, which has been produced, distributed, and/or sold by Distributor in
the Territory, and which includes:
(a) a computer diskette, CD-ROM, or other suitable media;
(b) a complete and correct copy of the Software on such
media;
(c) a complete and correct copy of the Documentation in the
language of the Territory;
(d) a complete and correct copy of the End User Agreement in
the language of the Territory;
(e) a copy protection feature requiring an activation key
for use of the Software beyond an evaluation period of
thirty days; and
(f) a unique serial number assigned to each Product.
"Software" means Licensor's WorldSecure client software, an S/MIME
client that sits on the desktop and allows users to securely transmit and
receive S/MIME messages over a variety of e-mail transport applications, which
has been specially adapted by Distributor and Licensor for use in the Territory
and approved for export by the U.S. government, together with any Improvements
thereto. The term "Software" specifically excludes all other versions of
Licensor's WorldSecure software or any other computer software.
"Subdistributors" means those among Distributor's representatives,
agents and subcontractors whom Distributor has authorized to carry out all or
some of Distributor's obligations under this Agreement as provided in section
3.3, including OEM manufacturers.
"Territory" means Japan.
ARTICLE 2. REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS
2.1 Distributor will assist Licensor in obtaining appropriate Japanese
intellectual property protection ("IPR") for the Software and registering the
same in Licensor's name in the Territory.
2.2 Distributor will assist Licensor in registering the Marks in
Licensor's name in the Territory.
2.3 Licensor will bear all costs for applying for and prosecuting the
application for and registration of such IPR and Marks in the Territory.
<PAGE> 3
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2.4 Distributor acknowledges Licensor to be the rightful owner of all
IPR and other rights in and to the Software, including without limitation any
and all Improvements and/or other changes made in preparing localized versions
for use in the Territory.
ARTICLE 3. GRANT OF RIGHTS
3.1 Subject to the terms and conditions of this Agreement, Licensor
hereby grants Distributor and Distributor accepts from Licensor the
non-transferable right to market, distribute, furnish to End Users, and support
the use of the Software in the Territory.
3.2 The foregoing right shall include, insofar as the same may be
necessary for the purpose of producing, distributing, furnishing to End Users,
and supporting the use of the Software in the Territory, the rights to:
3.2.1 copy and distribute the Software in accordance with the
provisions of this Agreement;
3.2.2 copy, translate into Japanese, and use any written materials
owned by Licensor, including without limitation the End User Agreement,
Documentation, etc.; and
3.2.3 copy, translate into Japanese, and use for the promotion and
packaging of Products, any and all of the Marks, provided that such use in
accordance with Licensor's guidelines provided from time to time to Distributor,
and which shall be subject to change at Licensor's discretion.
3.2.4 furnish Products to End Users and enter into End User
Agreements with End Users.
3.3 Distributor may distribute Products to Subdistributors for the
purpose of furnishing Products to End Users, provided that each such
Subdistributor executes, or has already executed, a written Subdistributor
agreement with Distributor that includes all of the restrictions listed in
Exhibit D.
3.4 Neither Distributor nor any Subdistributor shall furnish any
Products to any End User unless such End User is subject to an end user
agreement with Distributor on terms and conditions equivalent to or more
favorable to Licensor than those of the End User Agreement, including without
limitation the terms and conditions specified in Exhibit E.
3.5 During the [ ** ] of this Agreement, Licensor shall not provide the
Software to any other distributor or End User in the Territory; provided that
Distributor complies with all of the terms and conditions hereof. After the [ **
] of the Initial Term, and [ ** ] thereafter that this Agreement remains in
effect, Licensor and Distributor shall mutually discuss and consider the most
effective ways to continue building a successful business in the Territory.
ARTICLE 4. TERM AND RENEWAL
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4
4.1 The Initial Term of this Agreement shall commence upon the date
first set forth above, and continue for a period of three (3) years, unless
terminated earlier as provided in Article 9, below.
4.2 In the event either party desires NOT to renew this Agreement, such
party shall give notice thereof in writing at least ninety (90) days prior to
the expiration of the then-current term. If no such notice is given, this
Agreement shall be renewed for additional Terms of one year until such notice is
given or the agreement is terminated as provided in Article 9.
ARTICLE 5. DISTRIBUTOR'S OBLIGATIONS
5.1 Distributor will furnish Products, either directly or through its
Subdistributors, only to End Users in the Territory, and shall use its best
efforts to promote the market for Products and the use of the Software in the
Territory.
5.2 Distributor shall not furnish Products to End Users outside the
Territory, nor to End Users in the Territory whom Distributor reasonably
believes will primarily use the Software outside of the Territory. Distributor
shall refer to Licensor all requests to use the Software outside of the
Territory.
5.3 Distributor shall not furnish or distribute the Software except in
the form of Products as described herein. Each Product manufactured or furnished
by Distributor MUST include all of the elements described in the definition of
"Products."
5.4 Distributor shall not permit any other party to do any of the acts
described herein, except for Distributor's authorized Subdistributors.
Distributor shall immediately terminate any such sublicense upon the termination
of such agreement between Distributor and such Subdistributor, or upon the
termination of this Agreement.
5.5 Distributor shall advertise the Software and Products in the
Territory as it deems most effective in accordance with Licensor's reasonable
marketing guidelines. Distributor may include Licensor's suggested list price in
such advertisements, but Distributor is free to charge whatever price it may
determine for furnishing the Products. Provided, however, that Distributor shall
not make any statement as to the technical features or capabilities of the
Software and Products beyond the information provided by Licensor without
Licensor's specific written approval thereof.
5.6 Distributor shall not furnish or otherwise provide Products or the
Software to any person or entities whom Distributor has reason to believe will
decompile, disassemble, or reverse-engineer the Software, or make copies of the
Software or Products in violation of the End User License.
5.7 Distributor hereby acknowledges receipt of the current version of
the End User License and Documentation, including translations of such documents
into the Japanese language. Distributor shall review and correct any errors in
such translations, and notify Licensor of any necessary corrections. Licensor
shall be the copyright owner of all such translations. If Licensor desires to
register such copyrights in Japan, Distributor shall assist Licensor, provided
that Licensor shall pay all necessary registration fees and related
<PAGE> 5
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expenses.
5.8 Distributor will support Licensor in the development of required
modifications to and support for End Users of the Software by all reasonable
means. If the necessary information and support is not available in English,
Distributor shall translate at its own cost the necessary materials from
Japanese to English for Licensor's use.
5.9 Distributor shall use its best efforts to promote, market, support,
service, and distribute the Products and Software, and to promote the goodwill
of Licensor in Territory. The foregoing includes the obligation to provide,
either directly or indirectly, installation and operating support to all End
Users of the Software on reasonable terms.
5.10 Distributor shall promptly notify Licensor of any errors in the
Software which come to Distributor's attention, and shall work with Licensor to
remedy any such errors in future Improvements.
5.11 Distributor shall maintain a reasonable run-time inventory of
Products, for demonstration to prospective End Users and to meet sales orders in
a timely manner.
5.12 Distributor acknowledges that the Software is not specifically
designed, manufactured or intended for sale as parts, components or assemblies
for the planning, construction, maintenance, operation or use of any nuclear
facility nor for the flight, navigation or communication of aircraft or ground
support equipment, nor in applications where the failure or inaccuracy of the
Products carries a risk of causing death or serious bodily injury. Distributor
agrees that Licensor and its suppliers are not liable, in whole or in part, for
any claims or damages arising from such applications. Distributor shall not
knowingly provide Software directly or indirectly to an End User for use in such
application, and Distributor agrees to indemnify and hold Licensor and its
suppliers harmless from any claims for loss, cost, damage, expense or liability
arising out of or in connection with the use and performance of the Software in
such application.
5.13 Distributor shall obtain at its own expense any import license,
foreign exchange permit, or other permit or approval it may need for the
performance of its obligations under this Agreement.
5.14 Distributor shall indemnify and hold Licensor harmless from all
loss or damages (including reasonable attorneys' fees and costs of litigation)
in connection with claims by any third party related to or arising out of
Distributor's acts, omissions, or misrepresentation.
ARTICLE 6. LICENSOR'S OBLIGATIONS
6.1 Licensor shall use its best efforts to assist Distributor in
promoting, marketing, servicing and supporting the Software for the End Users.
Licensor shall supply Distributor with on-going software maintenance, in
exchange for the Software Maintenance Fees to be paid by Distributor. Such
software maintenance support shall include, inter alia, training materials and
training courses (in English), marketing materials and product documentation.
Any extraordinary costs incurred for such software maintenance, including the
cost of
<PAGE> 6
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sending any of Licensor's personnel to the Territory, shall be fairly
apportioned between the parties in good faith.
6.2 Licensor shall provide Distributor with new Improvements as they are
developed, and shall work with Distributor to ensure that improvements, updates
and changes to Licensor's WorldSecure client software are incorporated as
Improvements into future versions of the Software.
6.4 Licensor acknowledges that the parties have a mutual understanding
that Distributor should become Licensor's distributor in the Territory for two
other software products that will soon be released, WorldSecure Server and
NetTalk, and that Distributor should assist in the localization of these
products for the Territory, all to be on terms and conditions to be mutually
decided by the parties through good faith negotiations. Licensor further
acknowledges its sincere commitment to working with Distributor build a
successful business in the Territory for Licensor's software products.
ARTICLE 7. WARRANTIES, REPRESENTATIONS, AND LIMITATION OF LIABILITY.
7.1 Distributor warrants that it has and will maintain at its own
expense adequate marketing and service facilities, sales and distribution
channels, engineers, and other personnel reasonably required to carry out its
duties and obligations under this Agreement.
7.2 Distributor warrants that it has and will maintain the financial and
managerial capabilities necessary to vigorously promote the distribution and use
of the Products, and provide service and support to the End Users.
7.3 Licensor warrants the Software to End Users in accordance with the
End User Agreement. This warranty does not extend to the Distributor.
7.4 Licensor does NOT warrant any portion of the Software or Products
not provided by Licensor.
7.5 Distributor is NOT authorized to make any representation or warranty
on behalf of Licensor, except for the End User Agreement or as specifically
indicated in the Documentation. Distributor shall not expand, supplement, or
waive any provisions of the End User Agreement or any limited warranty contained
therein, nor make any claim for the Software or the Products other than those
specifically set forth in the documentation provided by Licensor.
7.6 The Software shall be provided to Distributor AS IS. Licensor does
NOT warrant that the Software is error-free, or that any errors will be
corrected. Licensor will make commercially reasonable efforts to correct any
errors that become known to Licensor.
7.7 Licensor warrants that it has sufficient right and authority to
grant to Distributor all of the licenses and rights granted under this
Agreement.
7.8 THE WARRANTIES CONTAINED IN THIS AGREEMENT ARE THE ONLY WARRANTIES
APPLICABLE TO THE PRODUCTS OR THE SOFTWARE, AND
<PAGE> 7
7
ARE IN LIEU OF ALL OTHER WARRANTIES NOT EXPRESSLY SET FORTH HEREIN. LICENSOR AND
DISTRIBUTOR EACH DISCLAIM ALL OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, AND NON-INFRINGEMENT.
7.9 Each party represents and warrants that it is authorized to enter
into this Agreement, and to fully perform the undertakings set forth herein, and
that it is not a party to any other agreement or under any obligation or
restriction which would prevent it from entering into this Agreement or which
would adversely affect this Agreement or the performance of the obligations and
undertakings set forth herein.
7.10 The parties expressly agree that they shall in no event be liable
to each other or to any End User for any loss of profit, or any incidental,
special, exemplary, or consequential damages claimed against the other,
regardless of whether such party has been previously advised of the possibility
of such claims or demands.
ARTICLE 8. PAYMENT OF FEES
8.1 For each quarter during the term of this Agreement, Distributor
shall make a non-refundable payment of Product Fees to Licensor according to the
schedule shown in Exhibit C. The parties acknowledge that the amount of such
fees is based on the Licensor's list price. From time to time Licensor may deem
it necessary to change the list price of Products, and the amount of license
fees shall be changed accordingly; provided that Licensor shall give Distributor
upon at least ninety (90) days' prior written notice of such change unless
otherwise agreed. Licensor shall not raise prices more than 10% in any given
calendar year. In the event of any change in prices, the amount of Product Fees
shall be calculated by applying the percentage discounts indicated in Exhibit C,
and shall apply to all orders received by Licensor after the effective date of
such price change. Additional Product Fees accrued in any quarter in excess of
the amount of pre-payment to be credited will be due within 30 days of the
monthly report for the month in which they were accrued.
8.2 In addition to the Product Fees described in the preceding
paragraph, Distributor shall pay to Licensor a non-refundable Software
Maintenance Fee in the amount of [ ** ] per quarter during both the Initial Term
and renewed Terms of this Agreement. Such payments shall commence from Q4 1997
and shall be made each quarter within 45 days from the start of the quarter. The
Software Maintenance Fee shall cover services such as bug fixes, technical
support, and minor revisions of the Software. Major upgrades of Software are not
covered by the Software Maintenance Fee, but shall be treated as separate
Products subject to a Product Fee, which shall be calculated at the percentages
shown for Volume Discounts of Products in Exhibit C, based on the Licensor's
list price charged for such upgrade.
8.3 Should Distributor begin charging support fees to its customers,
Licensor and Licensee shall discuss in mutual good faith an equitable
apportionment of such fees to be paid to Licensor.
8.4 Although Licensor may publish suggested wholesale or retail prices,
these are
<PAGE> 8
8
suggestions only, and Distributor will be entirely free to determine the actual
prices and license fees at which Products will be furnished to End Users.
8.5 In addition to the payment schedule for Product Fees shown in
Exhibit C, Distributor shall have the right to negotiate either a "Site License"
or "Large Volume Deal" involving more than [ ** ] units up to [ ** ] times per
year. The Product Fee for such transactions shall be separately agreed between
the parties. Such transactions shall not be credited in computing any applicable
Volume Discounts.
8.6 All amounts payable to Licensor under this Agreement are exclusive
of all national, state or local sales, use, value added or other taxes, customs
duties, or similar tariffs and fees. Distributor will pay all taxes and duties
assessed by any authority in connection with this Agreement and its performance,
except for taxes payable on Licensor's net income. Distributor represents and
warrants to Licensor that all Products acquired hereunder are for redistribution
in the ordinary course of Distributor's business, and Distributor agrees to
provide Licensor with appropriate resale certificate numbers and other
documentation satisfactory to the applicable taxing authorities to substantiate
any claim of exemption from any such taxes or fees. Distributor will pay any
withholding taxes required by applicable law and supply Licensor with evidence
of payment of such withholding tax, in a form acceptable for Licensor to meet
the requirements for claiming foreign tax credits on Licensor's U.S. income tax
return. The Parties acknowledge that certain payments may be subject to reduced
withholding tax rates under applicable tax treaties, and each shall made its
best efforts to take all reasonable steps and obtain all necessary documents and
approvals so that the payments under this Agreement will be subject only to such
reduced withholding rates.
8.7 All payments shall be made in United States dollars, free of any
currency control or other restrictions to Licensor by wire transfer to an
account designated by Licensor. Interest shall accrue on any delinquent amounts
owed by Distributor for Products at the lesser of eighteen percent (18%) per
annum or the maximum rate permitted by applicable usury law.
ARTICLE 9. TERMINATION
9.1 If either party wishes to terminate this Agreement for a material
breach of any of the terms or obligations herein, such party shall first notify
the other of the breach and discuss how the breach may be remedied. If the
breach is not remedied within 30 days after notice has been given and a
discussion has been made in good faith, the party giving notice of the breach
may then terminate the agreement by giving written notice of termination.
9.2 If this Agreement is terminated, Distributor shall remain liable to
pay the Product Fees on any and all Products sold prior to or after such
termination, except as provided in the following paragraph.
9.3 In the event that Licensor enters into a new distribution agreement
for the Software in Territory with a party other than Distributor upon the
termination or expiration of this Agreement, Licensor or such third party shall
be entitled to purchase any Products remaining unsold in Distributor's
possession, for Distributor's actual cost of production, plus any applicable
handling, transportation, or other costs. Distributor shall be relieved of the
obligation to pay royalties on such Products sold to a new distributor.
Provided, however, that
<PAGE> 9
9
if Licensor enters into such a new distribution agreement notwithstanding the
fact Distributor has fulfilled all of its obligations under this Agreement, then
Licensor or such third party shall be required to purchase all Products
remaining unsold in Distributor's possession as described above.
9.4 Upon expiration or termination of this Agreement, Distributor shall
cease using the Marks, and shall remove any Marks from its cards, stationery, or
other materials.
ARTICLE 10. NO DAMAGES ON TERMINATION OR EXPIRATION; GOOD FAITH DISCUSSIONS
10.1 Neither party shall be liable to the other for damages of any kind,
including incidental or consequential damages, on account of the termination or
expiration of this Agreement in accordance with its terms. Such waiver includes
without limitation any claim of reimbursement or damages for the loss of good
will, prospective profits, or anticipated income, or on account of any
expenditures, investments, leases, or commitments made by either party based on
this Agreement; or any right either party may have to receive compensation or
reparations under the law of the Territory or otherwise upon the termination ore
expiration of this Agreement; except as specifically included herein.
10.2 In the event that this Agreement expires or is terminated through
no fault of Distributor, the parties shall discuss, in good faith and without
obligation, possible ways in which Distributor may continue to participate in
the distribution of Software in the Territory. Such discussions should include
such alternatives as whether Distributor might participate in a joint venture,
offer consulting services, enter into a non-exclusive distribution arrangement,
and any other reasonable possibilities that are worthy of consideration at that
time.
10.3 The provisions of this Section 10 shall survive the expiration or
termination of this Agreement.
ARTICLE 11. USE OF THE MARKS
11.1 Distributor may use the Marks only in accordance with Licensor's
guidelines for the purpose of identifying and marketing the Products, and on
business cards and stationery indicating that Distributor is an authorized
distributor of Licensor's software, including the Software. The Marks shall be
included in the packaging of the Products in accordance with Licensor's
marketing guidelines.
11.2 Distributor shall not apply to register any trademarks, trade
names, service marks, symbols, or logos that are the same or similar to those of
Licensor. Distributor shall not use the Marks or any similar Marks after the
termination or expiration of this Agreement.
ARTICLE 12. CONFIDENTIALITY
12.1 Confidential Information means both (i) the terms and conditions of
this Agreement, and (ii) any and all proprietary information and data furnished
to Distributor by Licensor, whether in oral, written, graphic, or
machine-readable form, and whether protected by patents or other trade secret
laws.
<PAGE> 10
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(a) For the purpose of examples only, Confidential Information
includes, but is not limited to, the Software, any other of Licensor's
computer software, designs for Products or components thereof,
documents, system descriptions and manuals, designs, flow-charts, source
and object media and listings, technical and other data, drawings,
manufacturing processes, specifications, customer or sales data, etc.
(b) Confidential Information shall not include any information or
data which (i) was in the Distributor's possession prior to receipt from
Licensor, (ii) was in the public domain at the time of receipt from
Licensor, (iii) becomes part of the public domain through no fault on
the part of Distributor, or (iv) was lawfully received by the
Distributor from a third party having a right of further disclosure.
12.2 Each party will maintain all Confidential Information it receives
from the other in confidence and shall not disclose the same to any third party
without the other party's written consent, except for (a) disclosures to
Subdistributors as needed to fulfill the purpose of this Agreement, subject to
appropriate confidentiality provisions; (b) such information as becomes public
knowledge through no fault of the party charged with keeping such information
confidential; (c) such information as is required by law to be disclosed.
12.3 The obligations of this Article shall survive the expiration or
termination of this Agreement and continue for a period of three (3) years from
such expiration or termination.
12.4 Upon termination or expiration of this Agreement, each party shall
return to the other party or destroy all Confidential Information in written or
tangible form, including computer disks, and all copies thereof that it has
received from such party.
ARTICLE 13. RELATIONSHIP OF PARTIES
13.1 This Agreement has been reached as the result of an arm's-length
negotiation between independent parties, and it shall be construed and
interpreted accordingly.
13.2 Nothing in this Agreement shall be construed to create any sort of
partnership, joint venture, employer-employee, or agency relationship between
the parties. Except for the required End User License, neither party shall have,
or represent itself to have, any power or authority to enter into any agreement
or obligation on behalf of the other, or legally to bind the other, without
first receiving express authorization therefor.
ARTICLE 14. GOVERNMENT CONSENT
14.1 The obligations to be performed under this Agreement are subject to
the condition of receiving all necessary governmental approvals.
14.2 Distributor shall notify Licensor of any changes to the Products,
the End User Licenses, documentation, or other materials that must be made to
comply with the applicable laws and regulations. In the event that the changes
required by such laws or regulations are so significant as to require
substantial costs for compliance which materially affect the price of the
Products, the parties shall meet and confer in good faith as to how such costs
shall be
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apportioned.
ARTICLE 15. RECORD-KEEPING
Distributor shall keep complete records of its distribution of all
Products, including the End User name, ultimate destination, version of the
Software, serial numbers, and the date of sale, lease, or other disposition.
Distributor will make such records available to Licensor upon reasonable
request.
ARTICLE 16. NOTICE
16.1 All notices required to be given under this Agreement shall be
given in writing, and delivered by mail (postage prepaid), confirmed facsimile
transmission, or personal delivery to the addresses first set forth above or
which from time to time notice is given by each party to the other.
16.2 For the purposes of this Agreement, notices given by mail shall be
deemed effective ten (10) days after sending; notices given by confirmed
facsimile shall be deemed effective on the first business day following the date
of receipt; and notices given by personal delivery shall be effective upon
receipt.
16.3 In addition to the methods of notice required by this Article, the
parties shall use their best efforts to utilize the telephone, electronic mail,
and other means of communication to promptly and effectively communicate
concerning their responsibilities, duties and obligations under this Agreement.
ARTICLE 17. INJUNCTIVE RELIEF
The parties each acknowledge that they will be irreparably harmed if the
other fails to comply with its obligations under this Agreement, and that it
would not have an adequate remedy at law in the event of an actual or threatened
breach of this Agreement. Each party therefore agrees that the other may seek
injunctive relief or other order for specific performance for any actual or
threatened violations without the need to first post a bond therefor.
ARTICLE 18. FORCE MAJEURE
18.1 Neither Party shall be responsible or liable for any failure to
perform attributable to any cause beyond its reasonable control, including
without limitation fire, explosion, windstorm, decree or act of any government,
work stoppage, lockout or any labor disturbance, riots, revolution, war or
warlike activities, the inability to obtain fuel, raw materials, components,
transportation or utilities on commercially practical terms, or other conditions
amounting to force majeure.
18.2 The Parties shall use their best efforts to promptly resolve or
cure any matter excusing performance under this Article
ARTICLE 19. GOVERNING LAW AND JURISDICTION
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This Agreement shall be governed by and construed in accordance with the
laws of California, excluding the choice of law provisions. Any dispute shall be
resolved in the Federal Courts for the district of Northern California, and the
parties each consent to jurisdiction in such courts for all purposes in
connection with any matters related to or arising out of this Agreement.
ARTICLE 20. GENERAL PROVISIONS
20.1 A waiver by either party of any term or condition of this Agreement
in any instance shall not be deemed or construed to be a waiver of such term or
condition of the future, or of any subsequent breach thereof. All rights,
remedies, undertakings or obligations contained in this Agreement shall be
cumulative and none of them shall be in limitation of any other right, remedy,
undertaking or obligation of either party.
20.2 Time is of the essence in performing each of the obligations
described in this Agreement.
20.3 This Agreement may be executed in counterparts, each of which shall
be deemed an original and all of which together shall constitute one and the
same document.
20.4 The headings included in this Agreement are for convenience of
reference only and shall not affect the meaning and interpretation of this
Agreement or any of its provisions.
20.5 Neither this Agreement nor any of the rights or obligations
included herein may be assigned by either party without the express written
consent of the other party. This Agreement and the rights and obligations
hereunder shall, however, be binding upon and inure to the benefit of each
party's successors and permitted assigns.
20.6 If any part of this Agreement is found to be invalid or
unenforceable, the remainder of the Agreement shall continue in full force and
effect consistent with the intent of the parties.
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20.7 This Agreement incorporates the parties' entire agreement and
supersedes all prior understandings or agreements between the parties as to the
subject matter hereof. This Agreement may only be altered or amended by a
writing of subsequent date signed by all parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives.
Worldtalk Communications Corporation ASCII Something Good Corporation
d/b/a Worldtalk Corporation
By: /s/ Bernard Harguindeguy By:/s/ Koichi Takazawa
--------------------------------- --------------------------------
Its: CEO and President Its: Vice President
-------------------------------- -------------------------------
Date: September 19, 1997 Date: September 16, 1997
Deming Software Inc., d/b/a Deming Internet Security
By: /s/ Bernard Harguindeguy
-------------------------------
Its: CEO and President
-------------------------------
Date: September 19, 1997
<PAGE> 14
List of Exhibits
Exhibit A Example End User Agreement
Exhibit B List of Marks
Exhibit C Payment Schedule
Exhibit D Mandatory Terms for End User Agreement
Exhibit E Mandatory Terms for Subdistributor Agreement
<PAGE> 15
EXHIBIT A
END USER AGREEMENT
This is a downloadable disk image of a 30-day evaluation version of Worldtalk's
WorldSecure(TM) client software for Microsoft Exchange.
If you like it, call +1 800 454 4674 to order and receive a Worldtalk activation
key for a fully functional version.
Please note that by installing this product or acquiring a activation key, you
are agreeing to the terms of the End User Agreement below:
WORLDTALK CORPORATION - End User Agreement
PLEASE READ THIS DOCUMENT CAREFULLY BEFORE INSTALLING THIS PRODUCT AND ACQUIRING
A WORLDTALK ACTIVATION KEY. BY INSTALLING THIS PRODUCT, AND/OR BY ACQUIRING A
WORLDTALK ACTIVATION KEY, AND/OR USING THE ENCLOSED SOFTWARE, YOU AGREE TO
BECOME BOUND BY THE TERMS AND CONDITIONS OF THIS AGREEMENT. IF YOU DO NOT AGREE
WITH THESE TERMS AND CONDITIONS, UNINSTALL THE SOFTWARE AND RETURN THE PACKAGE
TO WORLDTALK FOR A FULL REFUND OF ANY FEES PAID (RETURN ONLY INVOICE IF PRODUCT
WAS DOWNLOADED).
Worldtalk Communications Corporation, d/b/a Worldtalk Corporation, grants you
("End User") a non-exclusive, non-transferable right to use the identified
WorldSecure client software product, and accompanying documentation (the
"Program") within a single enterprise, according to the following terms:
SOFTWARE LICENSE
For a period of thirty (30) days following the date the Program is first
installed, End User may install the Program on computers within the single
enterprise for evaluation purposes only. End User acknowledges that unless you
acquire a Worldtalk Activation Key, the Program will cease to operate and the
right of use granted hereunder will terminate at the end of such thirty (30) day
period.
Upon obtaining a Worldtalk Activation Key, End User may:
a. install one (1) copy of the Program on only one computer for use by End User;
b. make one (1) copy of the Program in machine readable form solely for backup
purposes, provided that End User shall reproduce all proprietary notices on the
copy; and
c. physically transfer the Program from one computer to another, provided that
the Program is used on only one computer at a time. End User may not transfer
the Program beyond the initial licensed working group or enterprise without
Worldtalk's prior written consent.
End User agrees not to use a Worldtalk Activation Key on any copy of the Program
other than the two copies specified at "a." and "b." above.
<PAGE> 16
End User may not:
a. install the Program on more than one computer or workstation at a time in a
network or multi-user system;
b. modify, translate, reverse engineer, decompile, disassemble, create
derivative works based on, or copy (except for the backup copy) the Program or
the accompanying documentation;
c. rent, transfer or grant any rights in the Program or accompanying
documentation in any form to any person without the prior written consent of
Worldtalk, which consent will not be unreasonably withheld;
d. remove any proprietary notices, labels, or marks on the Program or the
accompanying documentation; or
e. run Applications on any computer on which a copy of the Program has not been
legally installed under the terms of this Software License Agreement.
The Program is protected by United States copyright law and international
treaties. Title and copyrights to the Program, accompanying documentation, and
any copy made by you remain the sole property of Worldtalk. Unauthorized copying
of the Program or the accompanying documentation, or failure to comply with the
above restrictions, will result in automatic termination of this license and
will make other legal remedies available to Worldtalk. Upon termination, End
User agrees to destroy the Program and all copies thereof.
LIMITED WARRANTY AND DISCLAIMER
Provided that you have purchased a Worldtalk Activation Key, Worldtalk warrants
that, (a) for a period of thirty (30) days from the date of delivery or
acquisition of such Worldtalk Activation Key, whichever is later, diskettes,
tapes or other media on which the Program is furnished will be free from defects
in materials and workmanship, and the Program under normal use will perform
substantially in accordance with the accompanying documentation. Notwithstanding
the foregoing warranty, any hardware accompanying the Program or on which the
Program is used will be subject only to the applicable manufacturer's or
vendor's warranty and shall not be warranted by Worldtalk. Worldtalk's, and/or
its supplier's entire liability and End User's exclusive remedy under this
warranty (which is subject to receipt of the returned Program along with a copy
of the invoice) will be, at Worldtalk's option, to attempt to correct errors
with efforts which Worldtalk believes suitable to the problem, to replace the
Program or media with functionally equivalent software or media, as applicable,
or to refund the purchase price and terminate this Agreement.
EXCEPT FOR THE ABOVE EXPRESSED LIMITED WARRANTIES, WORLDTALK MAKES NO WARRANTIES
OR REPRESENTATIONS, EXPRESSED, IMPLIED, STATUTORY, OR IN ANY OTHER MANNER, AND
SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR NONINFRINGEMENT. WORLDTALK DOES NOT WARRANT THAT THE
OPERATION OF THE PROGRAM WILL BE UNINTERRUPTED OR ERROR FREE.
<PAGE> 17
LIMITATION OF LIABILITY
REGARDLESS OF WHETHER ANY REMEDY SET FORTH HEREIN FAILS OF ITS ESSENTIAL
PURPOSE, IN NO EVENT WILL WORLDTALK CORPORATION BE LIABLE FOR ANY DAMAGES,
INCLUDING LOSS OF DATA, BREACH OF SECURITY, LOST PROFITS, COST OF COVER OR OTHER
SPECIAL, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES ARISING FROM THE USE OF
THE PROGRAM OR ACCOMPANYING DOCUMENTATION, HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY. THIS LIMITATION WILL APPLY EVEN IF WORLDTALK OR AN AUTHORIZED DEALER
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. END USER ACKNOWLEDGES THAT
THE FEE PAID FOR THIS SOFTWARE PRODUCT REFLECTS THIS ALLOCATION OF RISK.
GOVERNMENT USE
Use, duplication or disclosure by the United States Government is subject to
restrictions set forth in subparagraphs (a) through (d) of the Commercial
Computer-Restricted Rights clause at FAR 52.227-19 when applicable, or in
subparagraph (C)(1)(ii) of the Rights in Technical Data and Computer Program
clause at DFARS 252.227-7013, and in similar clauses in the NASA FAR Supplement.
Contractor/Manufacturer is Worldtalk Communications Corporation, 5155 Old
Ironsides Drive, Santa Clara, CA 95054.
EXPORT LAW ASSURANCES
End User acknowledges and agrees that the Program are subject to restrictions
and controls imposed by the United States Export Administration Act (the "Act")
and the regulations thereunder. End User agrees and certifies that neither the
Program nor any direct product thereof is being or will be acquired, shipped,
transferred or re-exported, directly or indirectly, into any country prohibited
by the Act and the regulations thereunder or will be used for any purpose
prohibited by the same.
GENERAL
This Agreement will be governed by the laws of the State of California, except
for that body of law dealing with conflicts of law. This Agreement is the entire
agreement held between us and supersedes any other communications or advertising
with respect to the Program or accompanying documentation. If any provision of
this Agreement is held invalid, the remainder of this Agreement shall continue
in full force and effect.
If you have any questions, please contact: Worldtalk Software, Inc., Customer
Service, 5155 Old Ironsides Drive, Santa Clara, CA 95054.
Worldtalk and WorldSecure are trademarks of Worldtalk Communication Corporation.
All other brands and products are trademarks of their respective holders.
Specifications subject to change without notice.
Copyright (c) 1997 Worldtalk Communications Corporation.
<PAGE> 18
EXHIBIT B
LIST OF MARKS
Worldtalk
WorldSecure Client
WorldSecure Server
WorldSecure
<PAGE> 19
EXHIBIT C
SCHEDULE OF FEE PAYMENTS
I. VOLUME DISCOUNT STRUCTURE (PRODUCT FEES)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NUMBER OF UNITS AMOUNT OF PRODUCT FEE
- --------------------------------------------------------------------------------
<S> <C>
0 - [ ** ] [ ** ] of List Price
- --------------------------------------------------------------------------------
[ ** ] [ ** ] of List Price
- --------------------------------------------------------------------------------
[ ** ] [ ** ] of List Price
- --------------------------------------------------------------------------------
[ ** ] [ ** ] of List Price
- --------------------------------------------------------------------------------
</TABLE>
As of the date of the Agreement, the List Price for the Software is
$89/user license.
II. PREPAYMENT SCHEDULE FOR PRODUCT FEES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
FINANCIAL QUARTER PAYMENT DATE AMOUNT OF PREPAYMENT
- -----------------------------------------------------------------------------------
<S> <C> <C>
Q3 1997* On or before Sept. 26, 1997 [ ** ]
- -----------------------------------------------------------------------------------
Q4 1997 Dec. 1, 1997 [ ** ]
- -----------------------------------------------------------------------------------
Q1 1998 Jan. 31, 1998 [ ** ]
- -----------------------------------------------------------------------------------
Mar 31, 1998 [ ** ]
- -----------------------------------------------------------------------------------
Q2 1998 and thereafter Forty-fifth day of each [ ** ]
quarter, or the next
business day if it falls on
a holiday
- -----------------------------------------------------------------------------------
</TABLE>
* With respect to the [ ** ] prepayment of Product Fees in Q3 1997, [ ** ] of
the Product Fees accrued in that quarter may be offset against the amount of the
pre-payment until the prepayment has been exhausted.
For all other quarterly prepayments, the full amount of Product Fees accrued in
that quarter may be offset against the amount of the pre-payment in that quarter
until the prepayment has been exhausted.
<PAGE> 20
EXHIBIT D
MANDATORY SUBDISTRIBUTOR AGREEMENT TERMS
All agreements under which Distributor appoints Subdistributors must
include all of the following restrictions:
1. The agreement will protect Worldtalk's proprietary rights in the
Software to at least the same degree as the terms and conditions of this
Agreement. The Subdistributor agreement will grant rights no broader than those
granted to Distributor under this Agreement.
2. The Subdistributor will agree not to remove or destroy any
proprietary, trademark or copyright markings or confidentiality legends placed
upon or contained within the Software or any related materials or documentation.
4. The Subdistributor will agree not to use the Software in a service
bureau, time sharing or other non-licensed basis.
5. The Subdistributor will agree not to export or re-export any Software
or any part thereof or information pertaining thereto to any country for which a
U.S. government agency requires an export license or other governmental approval
without first obtaining such license or approval.
6. The Subdistributor will agree that, except for the limited rights
granted under the Subdistributor agreement, Licensor will retain full and
exclusive right, title and ownership interest in and to the Software and in any
and all related patents, trademarks, copyrights or proprietary or trade secret
rights.
7. Distributor will have the right to terminate the Subdistributor
agreement for the Subdistributor's breach of a material term. The Subdistributor
will agree that, upon termination of the Subdistributor agreement, the
Subdistributor will return to Distributor all copies of the Software, including
all Products, and the Documentation or certify to Distributor that the
Subdistributor has destroyed all such copies.
8. The Subdistributor will agree not to reverse compile, reverse
engineer, disassemble or modify the Software.
9. The Subdistributor will agree not to distribute the Software or any
part thereof except pursuant to a End User Agreement meeting the requirements of
Exhibit E of the Agreement.
10. The Subdistributor agreement will state that in no event will
Distributor or its licensors (including Worldtalk) be liable for indirect,
incidental, special, consequential or exemplary damages arising out of or
related to the Software, including but not limited to lost profits, business
interruption or loss of business information, even if such party has been
advised of the possibility of such damages.
11. The Subdistributor agreement will make no representations and
warranties on behalf of Worldtalk.
12. The Subdistributor agreement will include a provision substantially
similar to
<PAGE> 21
Article 11 of the Agreement regarding advertising and use of the Marks..
<PAGE> 22
EXHIBIT E
MANDATORY END USER AGREEMENT TERMS
All End User Agreements under whichDistributor furnishes Products to End
Users must include all of the following restrictions:
1. The End User will receive only a non-exclusive, non-transferable
right to use the Software for personal or internal purposes.
2. The End User will agree not to remove or destroy any proprietary,
trademark or copyright markings or confidentiality legends placed upon or
contained within the Software or any related materials or documentation.
3. The End User will agree not to use the Software in a service bureau,
time sharing or other non-licensed basis.
4. The End User may not copy the Software except to make the number of
copies permitted for use and for backup purposes, and all copies will include
the legends and notices referred to in paragraph 2.
5. The End User will agree not to export or re-export any Software or
information pertaining thereto to any country for which a U.S. government agency
requires an export license or other governmental approval, without first
obtaining such license or approval.
6. The End User will agree that, except for the limited rights granted
under the End User Agreement, Licensor will retain full and exclusive right,
title and ownership interest in and to the Software and in any and all related
patents, trademarks, copyrights or proprietary or trade secret rights.
7. Licensor will have the right to terminate the End User Agreement for
the End User's breach of a material term. The End User will agree that, upon
termination of the End User Agreement, the End User will return to Licensor all
copies of the Software or certify to Licensor that the End User has destroyed
all such copies.
8. The End User will agree not to reverse engineer, reverse compile or
disassemble the Software.
9. The End User Agreement shall state that in no event shall Licensee be
liable to the End User for indirect, incidental, special, consequential or
exemplary damages arising out of or related to the transactions contemplated by
the End User Agrement agreement, including but not limited to lost profits,
business interruption or loss of business information, even if such party has
been advised of the possibility of such damages. In addition, Distributor shall
use its reasonable efforts to limit liability under each such End User Agreement
to the amount received by Distributor from the End User for furnishing the
Product to the End User.
10. The End User Agreement shall contain no representations on behalf of
Worldtalk or its licensors of any implied or statutory warranties with respect
to the Software, including waivers of the implied warranties of merchantability,
fitness for a particular purpose and non-infringement of third-party rights.
<PAGE> 23
AMENDMENT 1
TO THE
LICENSE AND DISTRIBUTION AGREEMENT
BETWEEN
WORLDTALK COMMUNICATIONS CORPORATION
AND
ASCII SOMETHING GOOD CORPORATION
<PAGE> 24
This Amending Agreement 1 ("Amendment 1") to the License and Distribution
Agreement ("Agreement") dated September 19, 1997 is made and entered into as of
February 25, 1998, by and between the following parties:
Worldtalk Communications Corporation, d/b/a Worldtalk Corporation, a
Delaware corporation `having its principal place of business at 5155 Old
Ironsides Drive, Santa Clara, CA 95054; and its wholly-owned subsidiary,
Deming Software, Inc., d/b/a Deming Internet Security (hereinafter
collectively "Licensor"), and
ASCII Something Good Corporation, a Japanese corporation having its
principal place of business at 2-24-9 Kamiosaki, Shinagawa-ku, Tokyo
141, Japan (hereinafter "Distributor").
RECITALS
1. Licensor entered into the Agreement with Distributor pursuant to which
Licensor granted Distributor certain rights to market and distribute
Software in the form of Products as defined in Article 1. of the
Agreement.
2. Licensor desires to grant, and Distributor desires to receive from
Licensor, the right to market and distribute additional Software in the
form of Products (as hereinafter defined) in the Territory (as defined
in Article 1 of the Agreement).
NOW, THEREFORE, the parties hereto agree to amend the Agreement as follows:
ARTICLE 1. DEFINITIONS
Amend the definition of "Software" to the following:
"Software" means Licensor's WorldSecure client and WorldSecure server software,
SMIME client and server software that sits on the desktop (in the case of client
software) or sits on a server (in the case of server software) and allows users
to securely transmit and receive S/MIME messages over a variety of e-mail
transport applications, which has been or will be specially adapted by
Distributor and Licensor for use in the Territory and approved for export by the
U.S. government, together with any Improvements thereto. The term "Software"
specifically excludes any other computer software.
Amend "End User Agreement" to the following:
"End User Agreements" means the written agreements pursuant to which an End User
obtains from Distributor the personal, non-transferable and non-exclusive right
to use the Products furnished to the End User, as modified from time to time,
which shall include all of the restrictions set forth in Exhibit E. Examples of
the End User Agreements are attached as Exhibit "A" to this Agreement. The End
User Agreements may be changed from time to time by Licensor with prior
notification to Distributor.
ARTICLE 3. GRANT OF RIGHTS
Add new Article 3.6 as follows:
<PAGE> 25
3.6 Distributor may prepare localized versions of the Software
customized to meet the requirements of specific customers.
Distributor shall be responsible for performing custom
modifications under the supervision of Licensor. Licensor will
work with Distributor to facilitate custom modifications. All
such custom versions shall be subject to the provisions of
Article 2.4 of the Agreement.
Add new Article 3.7 as follows:
3.7 Licensor and Distributor agree that the parties will comply with
all United States export laws and regulations, including, but
not limited to the Export Administration Act and Export
Administration Regulations in preparing localized and customized
versions of the Software.
ARTICLE 4. TERMS AND RENEWAL
Add new Article 4.1 as follows:
4.1 The Initial Terms of this Agreement shall commence upon
September 8, 1997 and continue to March 31, 2001, unless
terminated earlier as provided in Article 9 of the Agreement.
ARTICLE 8. PAYMENT OF FEES
8.1 Exhibit C of the Agreement is amended and replaced by Exhibit
C-1, attached and made part of this Amendment 1.
8.2 Delete Section 8.2 and replace with terms set forth on Exhibit
C-1, attached and made part of this Amendment 1.
8.5 Delete Section 8.5 and replace with terms set forth on Exhibit
C-1, attached and made part of this Amendment 1.
GENERAL PROVISIONS
1. Except as provided herein, all provisions of the Agreement remain in
force and effect, unamended.
2. A waiver by either party of any terms or conditions of this Amendment 1
in any instance shall not be construed to be a waiver of such term or
condition of the future, or any subsequent breach thereof. All rights,
remedies, undertakings or obligations contained in this Amendment 1
shall be cumulative and none of them shall be in limitation of any other
right, remedy, undertaking or obligation of either party.
3. Time is of the essence in performing each of the obligations described
in this Amendment 1.
4. This Amendment 1 may be executed in counterparts, each of which shall be
deemed an original and all of which together shall constitute one and
the same document.
5. The headings included in this Amendment 1 are for convenience or
reference only and shall not affect the meaning and interpretation of
this Amendment 1 or any of its provisions.
6. Either party without the express written consent of the other party may
assign neither this Amendment 1 nor any of the rights or obligations
included herein. This Amendment and the
<PAGE> 26
rights and obligations hereunder shall, however, be binding upon and
inure to the benefit of each party's successors and permitted assigns.
7. This Amendment 1 shall be governed by and construed in accordance with
the laws of California, excluding the choice of law provisions. Any
dispute shall be resolved in the Federal Courts for the district of
Northern California, and the parties shall consent to jurisdiction in
such courts for all purposes in connection with any matters relative to
or arising out of this Amendment 1.
8. If any part of this Amendment 1 is found to be invalid or unenforceable,
the remainder of the Amendment shall continue in full force and effect
consistent with the intent of the parties.
9. This Amendment incorporates the parties' entire agreement and supersedes
all prior understandings or agreements between the parties as to the
subject matter hereof. This Amendment may only be altered or amended by
a writing of subsequent date signed by all parties.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized representatives.
Worldtalk Communications Corporation ASCII Something Good Corporation
d/b/a Worldtalk Corporation
By: /s/ Bernard Harguindeguy By: /s/ Koichi Takazawa
--------------------------------- ---------------------------
Its: President and CEO Its: Vice President
-------------------------------- ---------------------------
Date: February 25, 1998 Date: February 27, 1998
Deming Software Inc., d/b/a Deming Internet Security
By: /s/ Bernard Harguindeguy
------------------------------
Its: President and CEO
-----------------------------
Date: February 25, 1998
<PAGE> 27
AMENDMENT 1
EXHIBIT C-1
WORLDTALK COMMUNICATIONS CORPORATION/ASCII SOMETHING GOOD CORPORATION
SCHEDULE OF FEE PAYMENTS
DISCOUNT STRUCTURE DISCOUNT
WorldSecure Server [ ** ] of List Price
WorldSecure Client Volume Discount Structure
<TABLE>
<CAPTION>
Number of Units: Amount of Product Fee:
- ---------------- ----------------------
<S> <C>
[ ** ] [ ** ] of List Price
[ ** ] [ ** ] of List Price
[ ** ] [ ** ] of List Price
[ ** ] [ ** ] of List Price
</TABLE>
PREPAYMENT SCHEDULE FOR PRODUCT FEES
<TABLE>
<CAPTION>
04/10/98 07/10/9 10/10/98 01/10/99
<S> <C> <C> <C> <C>
Non-refundable prepaid
Product Fees [ ** ] [ ** ] [ ** ] [ ** ]
<CAPTION>
04/10/99 07/10/99 10/10/99 01/10/00
<S> <C> <C> <C> <C>
Non-refundable prepaid
Product Fees [ ** ] [ ** ] [ ** ] [ ** ]
<CAPTION>
04/10/00 07/10/00 10/10/00 01/10/01
<S> <C> <C> <C> <C>
Non-refundable prepaid
Product Fees [ ** ] [ ** ] [ ** ] [ ** ]
</TABLE>
PAYMENT TERMS:
1. Non-refundable prepayment as noted above to be credited against
Product Fees due based on Distributors Sales of Products.1
2. MAINTENANCE & SUPPORT PRICING POLICY:
In addition to the Product Fees Distributors shall pay to Licensor, a
non-refundable Software Maintenance Fee in the amount of [ ** ] per
quarter paid each quarter within 45 days following the commencement of
each calendar quarter. These prepayments will offset subsequent
maintenance and support payments due under this contract. Additional
maintenance fees will be due within 45 days following the end of the
quarter in which they were accrued.
- --------
1 Product Fees due in excess of non-refundable prepaid amounts are due within 30
days of the monthly report for month in which there were accrued.
<PAGE> 28
AMENDMENT 1
EXHIBIT C-1 (CONTINUED)
3. OTHER TERMS:
With respect to the [ ** ] non-refundable prepayment under the Agreement
paid during Q3 1997 and the [ ** ] non-refundable prepayment under the
Agreement paid during Q1 1998 and all payments per the above schedule,
100% of these amounts may be credited against Product Fees due under the
Agreement and Amendment 1.
4. ASCII may offset all non-refundable prepaid Product Fees against Product
Fees due for "Software" as defined under Article 1, until all prepaid
amounts are utilized in full.
5. If and when Worldtalk releases a product that will provide Certificate
Storage Services, ASCII will be given the right to resell this product
with no additional prepayment.
<PAGE> 1
EXHIBIT 23.01
WORLDTALK COMMUNICATIONS CORPORATION
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Worldtalk Corporation:
We consent to incorporation by reference in the registration statement (No.
333-32925) on Form S-8 of Worldtalk Corporation of our report dated February 3,
1998, relating to the consolidated balance sheets of Worldtalk Corporation and
subsidiary as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the years in the three-year period ended December 31, 1997, and the
related schedule, which report appears in the December 31, 1997, annual report
on Form 10-K of Worldtalk Corporation.
KPMG Peat Marwick LLP
Mountain View, California
March 27, 1998
2
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,662
<SECURITIES> 6,415
<RECEIVABLES> 3,160
<ALLOWANCES> 121
<INVENTORY> 0
<CURRENT-ASSETS> 15,051
<PP&E> 3,505
<DEPRECIATION> 1,847
<TOTAL-ASSETS> 17,265
<CURRENT-LIABILITIES> 8,477
<BONDS> 0
0
0
<COMMON> 105
<OTHER-SE> 8,551
<TOTAL-LIABILITY-AND-EQUITY> 17,265
<SALES> 6,860
<TOTAL-REVENUES> 11,327
<CGS> 1,027
<TOTAL-COSTS> 3,991
<OTHER-EXPENSES> 14,361
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 508
<INCOME-PRETAX> (6,517)
<INCOME-TAX> 183
<INCOME-CONTINUING> (6,700)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,700)
<EPS-PRIMARY> (0.65)
<EPS-DILUTED> (0.65)
</TABLE>
