As filed with the Securities and Exchange Commission on September 8, 1999
Registration No. 333-______________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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WORLDTALK COMMUNICATIONS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 77-0303581
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
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5155 Old Ironsides Drive
Santa Clara, California 95054
(408) 567-1500
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
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James Heisch
Chief Financial Officer
Worldtalk Communications Corporation
5155 Old Ironsides Drive
Santa Clara, California 95054
(408) 567-1500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
Gail E. Suniga, Esq.
Tyler R. Cozzens, Esq.
Pamela A. Sergeeff, Esq.
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 94306
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Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement until July 7,
2001 or until the earlier sale of all shares registered hereunder.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| _____________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|_____________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
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<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
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Proposed Maximum Proposed Maximum
Title of Each Class of Securities Amount to be Offering Price per Aggregate Offering Amount of
to be Registered Registered (1) Share(2) Price(2) Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per
share 5,720,735 shares $3.61 $20,651,854 $5,742
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<FN>
(1) The shares of common stock set forth in this table, and which may be
offered pursuant to this Registration Statement, includes, pursuant to Rule
416 under the Securities Act of 1933, as amended, such additional number of
shares of common stock that may become issuable as a result of any stock
splits, stock dividends or similar events.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee, pursuant to Rule 457(c) under the Securities Act of 1933,
as amended, based on the average of the high and low prices of the common
stock on the Nasdaq National Market on September 1, 1999.
</FN>
</TABLE>
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED SEPTEMBER 8, 1999
PROSPECTUS
5,720,735 SHARES
WORLDTALK COMMUNICATIONS CORPORATION
COMMON STOCK
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The selling stockholders identified on page 14 of this prospectus are
offering these shares of common stock. For additional information on the methods
of sale, you should refer to the section entitled "Plan of Distribution" on page
15. We will not receive any proceeds from the sale of these shares.
The common stock is listed on the Nasdaq National Market under the
symbol "WTLK."
On September 7, 1999, the last sale price of the common stock on the
Nasdaq National Market was $3.625 per share.
Investing in the common stock involves risks. See "Risk Factors" on page 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is ________________, 1999.
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TABLE OF CONTENTS
Worldtalk Communications Corporation................. 3
Risk Factors......................................... 4
Forward-Looking Statements.......................... 13
Use of Proceeds..................................... 13
Selling Stockholders................................ 14
Plan of Distribution................................ 15
Legal Matters....................................... 17
Experts............................................. 17
Change in Management................................ 17
Documents Incorporated By Reference
In This Prospectus.................................. 17
Where You Can Find More Information................. 18
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WORLDTALK COMMUNICATIONS CORPORATION
Worldtalk Communications Corporation is a leading provider of Internet
content security and policy management solutions. Our WorldSecure policy
management platform enables organizations to define and manage electronic mail
and Web security and usage policies, reducing the risks, costs and liabilities
associated with Internet communications. We delivered the industry's first
solution for managing and enforcing e-mail security policies in September 1997.
Since then, organizations have deployed WorldSecure solutions to ensure
confidentiality of their external electronic mail communications, to protect
their intellectual property and to prevent unwanted electronic mail messages,
sometimes called spam, and viruses from entering their computer systems. Our
products include WorldSecure Server, also known as WorldSecure/Mail, software
that provides Windows NT-based electronic mail firewall and policy management,
WorldSecure Web, a Windows NT-based content security product, WorldSecure/ESP, a
surveillance program for Internet electronic mail, WorldSecure Client, a desktop
electronic mail encryption product and NetTalk, a Windows NT-based electronic
mail and directory solution.
We were incorporated in California in February 1992 and reincorporated
in Delaware in March 1996. Our principal executive offices are located at 5155
Old Ironsides Drive, Santa Clara, California, 95054. Our telephone number at
this location is (408) 567-1500. Our web site is located at
http://www.worldtalk.com. Information contained in our web site is not part of
this prospectus.
Worldtalk, WorldSecure, NetTalk and our company logo are our registered
trademarks. This prospectus also contains trademarks of other companies.
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RISK FACTORS
This offering and an investment in our common stock involve a high
degree of risk. You should carefully consider the following risk factors and the
other information in this prospectus before investing in our common stock. Our
business and operating results could be seriously harmed by any of the following
risks. The trading price of our common stock could decline due to any of these
risks, and you may lose all or part of your investment.
Our quarterly operating results are volatile and difficult to predict. If we
fail to meet the expectations of public market analysts or investors, the market
price of our common stock may decrease.
Our quarterly operating results have varied greatly in the past and
will likely vary greatly in the future depending upon a number of factors. Many
of these factors are beyond our control. Period to period comparisons of our
operating results are not indicators of future performance. Our operating
results may fall below the expectations of securities analysts or investors in
some future quarter or quarters. Our failure to meet these expectations would
likely cause the market price of our common stock to decline.
Our quarterly operating results may fluctuate significantly from
quarter to quarter due to, among other things:
- volume, size and timing of new licenses and renewals of existing
licenses;
- our distributor inventory levels;
- our ability to identify, engage and retain resellers of our
products;
- introduction of new products, product upgrades or updates by us or
our competitors;
- the mix of products we sell;
- the success of our WorldSecure products;
- our continued evolution as a provider of policy enforcement
software and the related impact on the length of our sales cycle;
- changes in product prices by us or our competitors or changes in
the way we set product prices;
- trends in the computer industry;
- delays or reductions in customer software purchases related to
their Year 2000 compliance issues;
- costs related to acquisitions of technology or businesses; and
- costs related to extraordinary events including litigation.
Our business may also be affected by seasonal trends and global or
regional economic trends. For example, many companies in our industry recognize
higher revenues in the fourth quarter of each year, as customers complete annual
budgetary cycles, and lower revenues in the summer months when many businesses
experience lower sales.
Our future revenues are unpredictable because the timing and amount of revenues
are subject to a number of factors that make it difficult to estimate operating
results prior to the end of a quarter, which could cause our stock price to
decline.
We do not expect to maintain a significant level of backlog. As a
result, product revenues in any quarter are dependent on contracts entered into
or orders booked and shipped in that quarter. We have generally experienced a
trend toward higher order receipt, and therefore a higher percentage of revenue
shipments, toward the end of the last month of a quarter. This trend makes
predicting revenues more difficult. The timing of closing larger orders
increases the risk of quarter-to-quarter fluctuation. As we have continued with
our efforts to license our WorldSecure software to larger enterprises, in some
cases the size of our orders and the length of our sales cycle have increased
and may increase further. If orders projected for a specific customer for a
particular quarter are not realized or revenues are not otherwise recognized in
that quarter, our operating results for that quarter could be seriously harmed.
Our stock price has been volatile and is likely to remain volatile.
During the six months ended June 30, 1999, our stock price on the
Nasdaq National Market ranged from a high of $5.625 per share to a low of $2.625
per share. At the close of market on June 30, 1999, our stock price was
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$2.875 per share. Announcements, litigation developments, our ability to meet
the expectations of brokerage firms, industry analysts or investors with respect
to our operating and financial results and general fluctuations in the market
may contribute to this volatility. We may not discover, or be able to confirm,
revenue or earnings shortfalls until the end of a quarter, which could result in
an immediate drop in our stock price. In the past, following periods of
volatility in the market price of a company's securities, securities class
action litigation has often been instituted against companies with public traded
securities. Any litigation that is instituted could result in substantial costs
and a diversion of management's attention and resources.
We have a history of losses and we expect to incur additional operating losses.
We have a history of losses and we expect to incur additional operating
losses in the future. Our failure to significantly increase our revenues would
seriously harm our business. We have experienced operating losses in each
quarterly and annual period since inception and we expect to incur losses in the
future. As of June 30, 1999, we had an accumulated deficit of $31,323,000. We
expect to significantly increase our sales and marketing, product development
and general and administrative expenses. With these additional expenses, we must
significantly increase our revenues in order to become profitable. As a result,
we expect to incur losses for the foreseeable future. Our expense levels are
relatively fixed and are based, in part, on expectations as to future revenues.
We expect our revenues to vary. If revenue levels fall below our expectations,
our net loss will increase because only a small portion of our expenses varies
with our revenues. We may never achieve profitability, and if we do, we cannot
ensure that we will sustain or increase it.
Our business strategy relies heavily upon our WorldSecure products.
We have recently completed a significant transition from our prior
business of licensing UNIX-based NetJunction e-mail productivity products to
licensing our WorldSecure products, which operate principally on the Windows NT
platform. As a result, we experienced a shift in product mix from almost 100% of
software license revenue coming from NetJunction products in 1996 to over 90% of
software license revenue coming from Windows NT-based Internet content security,
policy management and e-mail directory products in the first six months of 1999.
We sold our NetJunction business in July 1999 and now intend to concentrate our
future sales efforts on our e-mail and Internet security products. The success
of our strategy of focusing our efforts on providing policy management software
and services to enterprise customers, targeting almost exclusively the Windows
NT-Intel platform, will depend, in part, on the following factors:
- our potential customers' need for, and willingness to purchase and
implement, Internet content security and policy management
software;
- market acceptance of our WorldSecure products;
- our ability to offer a cost-effective product to our customers
under terms acceptable to them;
- our ability to scale our products for the volume of e-mail and
Internet use within larger enterprises; and
- acceptance of the Windows NT platform by users and application
developers.
If our customers or potential customers do not budget funds for the purchase of
our e-mail and Internet security products, or if our products do not meet our
customers' needs, our business and operating results will suffer.
We expect that our market will be subject to rapid technological change and new
product introductions and enhancements that we may not be able to address. We
need to develop and introduce new products, technologies and services.
The markets for Internet content security, policy management and e-mail
directory products are highly fragmented and characterized by ongoing
technological developments, evolving industry standards and rapid changes in
customer requirements. Our success will depend on our ability to:
- offer a broad range of policy management products;
- continue to enhance existing products and expand product offerings;
- develop and introduce in a timely manner new products with
technological advances;
- respond promptly to new customer requirements;
- comply with evolving industry standards without delays in
compliance;
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- provide upgrades and updates to users frequently and at reasonable
cost; and
- remain compatible with Windows NT.
We may not be able to successfully develop and market, on a timely
basis, enhancements to our existing products or new products. In the third
quarter of 1999, we introduced our new WorldSecure/Web product for enforcement
and monitoring of Web usage policies. This new product or other new products or
enhancements may not adequately address the changing needs of the marketplace.
New products with new technological capabilities could replace or shorten the
life cycle of our products or cause our customers to defer or cancel purchases
of our products.
Our long-term success depends on our ability to upgrade and update
existing product offerings, modify and enhance acquired products and introduce
new products that meet our customers' needs. Future upgrades and updates may
include additional functionality, may respond to user problems or may address
compatibility problems with changing operating systems and environments. We
believe that our ability to provide these upgrades and updates frequently and at
low costs is key to our success. Failure to release upgrades and updates could
harm our business, results of operations and financial condition. We may not be
successful in these efforts. In addition, future changes in Windows NT or other
popular operating systems could cause compatibility problems with our products.
Further, delays in the introduction of future versions of operating systems or
lack of market acceptance of these future versions would delay or reduce demand
for our future products that were designed to operate with these future
operating systems. Our failure to introduce in a timely manner new products that
are compatible with operating systems and environments preferred by desktop
computer users would harm our business and operating results.
Product development delays and errors in our software could harm our business.
We may continue to experience delays in software development as we have
at times in the past. Complex software products like ours may contain undetected
errors or version compatibility problems, particularly when first released,
which could delay or cost us our market acceptance. In the past we have
discovered errors in our software and some of our future releases and products
may also contain errors. Difficulties and delays associated with new product
introductions, performance or enhancements could seriously harm our business,
financial condition and results of operation.
If we do not comply with emerging industry standards, or if no standards
develop, our business could suffer.
Our product development efforts are impacted by the adoption or
evolution of industry standards. For example, no uniform industry standard has
developed in the market for encryption security products. As industry standards
are adopted or evolve, we may have to modify existing products or develop and
support new versions of existing products. In addition, if no industry standard
develops, our products and our competitors' products could be incompatible,
which could prevent or delay overall development of the market for a particular
product. If our products fail to comply with existing or evolving industry
standards in a timely fashion, our business, results of operation and financial
condition could be harmed.
We sell our products through intermediaries, who may not vigorously market our
products or may have difficulty in timely paying for purchased products. If our
relationships with these intermediaries are not successful, we may not generate
sufficient revenues to sustain or grow our business.
We market a significant portion of our products to end-users through
intermediaries, including distributors, resellers and value-added resellers.
Our distributors may sell other products that are complementary to, or
compete with, our products. While we encourage our distributors to focus on our
products through market and support programs, these distributors may give
greater priority to products of other suppliers, including competitors. We
generally record sales to distributors when the product is shipped.
Some of our distributors have experienced or are experiencing economic
difficulties, which may interfere with our collection of accounts receivable. We
regularly review the collectibility and credit worthiness of our distributors to
determine an appropriate allowance for doubtful accounts reserve. Our
uncollectible accounts could exceed our current or future allowance for doubtful
accounts reserve, which would harm our operating results.
In the fourth quarter of 1998, we terminated our relationship with the
distributor of our products in Japan. We have not yet engaged a new distributor
of our products in Japan. Identifying, engaging and training distributors of our
products is a long and difficult process and requires a commitment of
significant time by our management
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and employees. If we are unable to engage and retain distributors and resellers
of our products in the future, we may not be able to sustain or grow our
business.
We depend on revenue from our WorldSecure products. Variations in the volume of
sales will cause fluctuations in our operating results, which could cause our
stock price to decline.
We currently derive a majority of our revenues from our WorldSecure
product line. These products are expected to continue to account for a
significant portion of our net revenue for the foreseeable future. Because of
this concentration of revenue, a decline in demand for or in the prices of these
products as a result of competition, technological change, a change in our
pricing model, inclusion of Internet content security, policy management and
e-mail directory features as a standard part of hardware or operating system
software or other software, or a maturation in the markets for these products,
could harm our business.
We may in the future change the prices we charge for our products or
the manner and timing of license fees for our products. Changes in our product
pricing model could lead to significant decreases in our revenues in the short
term and could cause our stock price to decline. Customer resistance to any
future change in our prices or our pricing structures could also harm our
business and operating results.
If the markets for Internet content security, policy management and e-mail
directory products do not evolve as we anticipate, our business could suffer.
The markets for our Internet content security, policy management and
e-mail directory products are evolving, and their growth depends upon broader
market acceptance of this software. Although the number of personal computers,
or PCs, attached to large-area networks has increased dramatically, the Internet
security and policy management markets continue to be emerging markets. These
markets may not continue to develop or may not develop rapidly enough to benefit
our business significantly. If our customers or potential customers do not
budget sufficient resources to purchase and implement our products, our business
will suffer.
In addition, there are a number of potential approaches to Internet
security and policy management, including the incorporation of security and
management tools into network operating systems. Therefore, even if Internet
security and policy management tools gain broader market acceptance, our
products may not be selected by potential purchasers. To the extent that the
electronic mail and Internet security markets do continue to develop, we expect
that competition will increase.
We are subject to intense competition in the Internet content security and
policy management markets and we expect to face increased competition in the
future.
The markets for our products are intensely competitive, and we expect
competition to increase in the near-term. We believe that the principal
competitive factors affecting the markets for our products include:
- performance;
- functionality;
- scalability;
- customer support;
- breadth of product line;
- frequency of upgrades and updates;
- integration of products;
- manageability of products;
- brand name recognition; and
- price.
Some of our competitors have longer operating histories, greater name
recognition, larger technical staffs, established relationships with hardware
vendors and greater financial, technical and marketing resources. These factors
may provide our competitors with an advantage in penetrating the original
equipment manufacturer, or OEM, market with our competitors' electronic mail and
Internet security products. As is the case in many segments of the software
industry, we have been encountering, and we expect to further encounter,
increasing competition. This increased competition could reduce average selling
prices and could decrease our profit margins. Competitive pressures could result
not only in price reductions but also in a decline in sales volume, which could
cause our
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business to suffer. In addition, competitive pressures may make it difficult for
us to maintain or exceed our historic growth rate.
The markets for electronic mail and Internet security are fragmented,
and several companies offer products that attempt to address all or some of the
needs addressed by our products. Our principal competitors include Content
Technologies and Trend Micro, as well as numerous smaller companies and
shareware authors that may in the future develop into stronger competitors or be
acquired by larger companies or become consolidated into larger competitors.
As the electronic mail and Internet security markets develop, we may
face increased competition from these companies, as well as other companies
seeking to enter the market. There may be additional consolidation of the e-mail
and Internet security markets around a smaller number of companies who are able
to provide the necessary software and support capabilities. In addition, to the
extent that we are successful in developing our WorldSecure products designed
around a centralized management for the Windows NT platform, we will likely
compete with large computer systems management companies such as Computer
Associates, IBM and Microsoft. We may be unable to continue to compete
effectively against existing and potential competitors, many of whom have
substantially greater financial, technical, marketing and support resources and
name recognition than we do. In addition, software companies who currently use
traditional distribution methods may in the future decide to compete more
directly with us by utilizing electronic software distribution.
We have recently experienced significant turnover in senior management. We must
retain and attract key personnel.
In August 1999, Bernard Harguindeguy resigned as President and Chief
Executive Officer of Worldtalk, and we are currently engaged in a search for a
new Chief Executive Officer. Our ability to achieve our revenue and operating
performance objectives will depend in large part on our ability to attract and
retain a new Chief Executive Officer and other technically qualified and highly
skilled engineering, sales, consulting, marketing and management personnel.
Competition for people to fill these management and other positions is intense
and is expected to remain so for the foreseeable future. We may not be able to
attract or retain a new Chief Executive Officer with the appropriate skills to
achieve our corporate objectives. Our failure to hire and retain a new Chief
Executive Officer and other key employees could seriously harm our business and
operating results. In 1998 and 1999, we hired new executive officers to fill the
positions of Chief Financial Officer, Vice President, Engineering and Vice
President, Sales. Significant turnover of employees, particularly in key
positions, can be disruptive and can result in departures of other employees,
which could harm our business.
We rely, and will continue to rely, on a number of key technical and
management employees. While employees are required to sign standard agreements
concerning confidentiality and ownership of inventions, our employees are
generally not otherwise subject to employment agreements or to noncompetition
covenants. If any of our key employees leave, our business, results of
operations and financial condition could suffer. Furthermore, we do not maintain
life insurance policies on our key employees.
Competitors may include products similar to ours in their hardware or software
and render our products obsolete.
Vendors of hardware and of operating system software or other software
(such as firewall or e-mail software) may enhance their products or bundle
separate products to include policy management software similar to our products.
The widespread inclusion of products that perform the same or similar function
as our products within computer hardware or other software could render our
products obsolete and unmarketable. Furthermore, even if these incorporated
products are inferior or more limited than our products, customers may elect to
accept the incorporated products rather than purchase our products. If we are
unable to develop new products to further enhance operating systems or other
software and to successfully replace any obsolete products, our business could
suffer.
Our customers may cancel or delay their purchases of our products, which could
harm our business. Our lengthy sales cycle could harm our quarterly results.
Our products may be considered to be capital purchases by certain
customers or prospective customers. Capital purchases are often discretionary
and, therefore, are canceled or delayed if the customer experiences a downturn
in its business or prospects or as a result of economic conditions in general.
Any cancellation or delay could harm our results of operations.
In addition, the length of our sales cycle varies with the size of the
account. As we continue to focus a significant part of our sales efforts on the
sale of our WorldSecure products to larger companies, our sales cycle has
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lengthened and may continue to lengthen. Sales of large complex products
frequently require a long education process and significant technical evaluation
and commitment of capital and other resources. Moreover, these sales may be
subject to the risk of delays associated with customers' internal budget and
other procedures for approving large capital expenditures, deploying new
technologies within their network and testing and accepting new technologies
that affect key operations. Because of these longer sales cycles and the
potential large size of such orders to these larger enterprises, if anticipated
orders are not realized or revenues are not otherwise recognized in a particular
quarter, our operating results for that quarter could suffer.
If we are unable to attract, train and retain an effective sales force, our
business will suffer.
We need to expand our sales operations in order to increase market
acceptance and penetration of our WorldSecure product line. Competition for
qualified sales personnel is intense and we may not be able to hire enough
qualified sales personnel in the future. Our products and services require a
sophisticated sales effort targeted at senior management of our prospective
customers. New hires in our sales team require extensive training and typically
take at least six months to achieve full productivity. In addition, we have
limited experience marketing our products broadly to a large number of potential
partners. If we cannot attract, train and retain a strong sales force, our
business and operating results will be harmed.
Changing regulatory and other requirements in the healthcare and financial
industries could harm our business.
Our success at licensing our products to large organizations in the
healthcare and financial industries depends, in part, on our ability to respond
to regulations and standards governing these industries. If new regulations or
standards are imposed that affect the use of electronic communications or the
Internet within these industries, we may be required to modify our products to
incorporate these new regulations and standards. If we are unable to respond to
these changes, or if our response is too slow or is inadequate, we may lose
customers in these industries and our business would be harmed.
We rely on the continued prominence of Microsoft technology and the Windows NT
platform.
Although we may support other operating systems in the future, the
majority of our revenues comes from sales of our products for Windows NT-Intel
based networks. Sales of our products would be seriously harmed by any market
developments that decrease the use of Windows operating environments, including
the failure of users and application developers to accept Windows NT. In
addition, our ability to develop products using the Windows operating
environments is dependent on our ability to receive access to, and to develop
expertise in, current and future developments by Microsoft. We may not be able
to gain the necessary access from Microsoft in the future.
We must effectively manage future growth and expansion.
Any future growth of our business would continue to place, a
significant strain on our limited personnel, management and other resources. Our
ability to manage any future growth, particularly with the anticipated expansion
of our international business and growth in distribution business, will require
us to:
- attract, train, motivate and manage new employees successfully;
- effectively integrate new employees into our operations; and
- continue to improve our operational, financial, management and
information systems and controls.
If we grow, our management systems currently in place may be inadequate
or we may not be able to effectively manage this growth.
We face risks associated with acquisition transactions.
The software industry has experienced, and is expected to continue to
experience, a significant amount of consolidation. As part of our growth
strategy, we may buy or make investments in, complementary companies, products
and technologies.
The integration of transactions involves a complex, time consuming and
expensive process. Acquisitions involve a number of risks such as geographic
distance between the companies, the complexity of the technologies and
operations being integrated, the consolidation of duplicative facilities, the
ability to attract and retain key management and other personnel and the ability
to combine disparate corporate cultures. If we cannot successfully integrate any
acquisition, we may lose all or a portion of our investment, which could harm
our business.
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In 1997, 1998 and 1999, we incurred charges associated with our
acquisition of Deming Software Inc. We will continue to incur a portion of these
charges through the year 2000. Our available cash and our securities may be used
to buy or invest in companies or products, which could result in significant
acquisition-related charges to earnings and dilution to our stockholders.
Moreover, if we buy a company, we may have to incur or assume that company's
liabilities, including liabilities that are unknown at the time of acquisition,
which may result in serious harm to our business.
We rely heavily on our intellectual property rights which offer only limited
protection against potential infringers.
Our success depends significantly upon our proprietary software
technology. We rely on a combination of contractual rights, trademarks, trade
secrets, patents and copyrights to establish and protect proprietary rights in
our software. However, these protections may be inadequate or competitors may
independently develop technologies or products that are substantially equivalent
or superior to our products. We do not typically obtain signed license
agreements from our corporate, government and institutional customers who
license products directly from us. Rather, we include an electronic version of a
shrink-wrap license in all of our electronically distributed software and a
printed license in the box for our products distributed through traditional
distributors in order to protect our copyrights and trade secrets in those
products. Since none of these licenses are signed by the licensee, many legal
authorities believe that such licenses may not be enforceable under the laws of
many states and foreign jurisdictions. In addition, the laws of some foreign
countries either do not protect these rights at all or offer only limited
protection for these rights. The steps taken by us to protect our proprietary
software technology may be inadequate to deter misuse or theft of this
technology. Changing legal interpretations of liability for unauthorized use of
the our software, or lessened sensitivity by corporate, government or
institutional users to avoiding infringement of intellectual property, could
harm our business, results of operations and financial condition.
We may be found to infringe proprietary rights of others and therefore face
litigation related to our proprietary technology and rights.
There has been substantial litigation regarding intellectual property
rights of technology companies. Any litigation to which we may become a party
could harm our business, results of operation and financial condition. Adverse
determinations in any litigation could:
- result in the loss of our proprietary rights;
- subject us to significant liabilities;
- require us to seek licenses from third parties; or
- prevent us from producing or selling our products.
The litigation process is subject to inherent uncertainties and we may
not prevail in these matters, or we may be unable to obtain licenses with
respect to any patents or other intellectual property rights that may be held
valid or infringed upon by us or our products. Uncertainties inherent in the
litigation process involve, among other things, the complexity of the
technologies involved, potentially adverse changes in the law and discovery of
facts unfavorable to us.
In addition, as we may acquire a portion of software included in our
products from third parties, our exposure to infringement actions may increase
because we must rely upon such third parties as to the origin and ownership of
any software being acquired. Similarly, exposure to infringement claims will
increase to the extent that we employ or hire additional software engineers
previously employed by competitors, notwithstanding measures taken by these
competitors to protect their intellectual property. In the future, litigation
may be necessary to enforce and protect trade secrets and other intellectual
property rights that we own. We may also be subject to litigation to defend
against claimed infringement of the rights of others or determine the scope and
validity of the proprietary rights of others. This litigation could be costly
and cause diversion of management's attention, either of which could harm our
business, results of operations and financial condition.
Our international operations subject us to a number of risks inherent in doing
business in foreign countries.
Net revenue from international licenses represented approximately 18%
of our net revenue in the first six months of 1999, 39% of our net revenue in
1998 and 19% of our net revenue in 1997. Historically, we have relied upon
independent agents and distributors to market our products internationally. We
expect that international revenues will continue to account for a significant
percentage of net revenue. Although sales of our products are
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typically denominated in U.S. dollars, there are a number of other risks
inherent in international operations. These risks include:
- lengthy payment cycles;
- greater difficulty in accounts receivable collection;
- unexpected changes in regulatory requirements;
- seasonality due to the slowdown in European business activities
during the third quarter;
- tariffs and other trade barriers;
- export restrictions on our encryption and other security products;
- uncertainties relative to regional economic circumstances,
including the current economic turbulence in Asia;
- political instability in emerging markets and difficulties in
staffing; and
- managing foreign operations.
These factors may harm our future international license revenue.
Further, in countries with a high incidence of software piracy, we may
experience a higher rate of piracy of our products.
In addition, a portion of our international revenue is expected to
continue to be generated through independent agents. Since these agents are not
our employees and are not required to offer our products exclusively, they may
discontinue marketing our products entirely. Also, we may have limited control
over these agents, limited access to the names of the customers to whom these
agents sell its products and limited knowledge of the information provided by,
or representations made by, these agents to its customers. We terminated our
relationship with our Japanese distributor in 1998 and have not yet engaged a
new distributor in Japan.
Actual or perceived security breaches could harm our business.
The secure transmission and management of proprietary or confidential
information over the Internet and via e-mail is essential to establish and
maintain confidence in the WorldSecure product line. Therefore, security
concerns and security breaches of our and our customers' network or computer
security may impair the perceived reliability of our products and could harm our
business and operating results. We cannot guarantee that our security measures
will prevent security breaches. In the event that a party is able to circumvent
our security systems and cause interruptions in ours and our customers'
operations by creating viruses to sabotage or otherwise attack our products or
steal digital content, customers' computer systems could be damaged and demand
for our software products may suffer. In addition, we may be subject to
litigation claiming damages related to an actual or perceived security breach in
the future. Our insurance policies carry low coverage limits, which may not be
adequate to reimburse us for losses caused by security breaches. Any security
breach could harm our business and operating results.
The cryptography technology in our products is subject to security risks and
export restrictions and may become obsolete.
Certain of our network security products, technology and associated
assistance are subject to export restrictions imposed by the U.S. Department of
State and the U.S. Department of Commerce. These restrictions permit the export
of encryption products so long as certain requirements are met, but prohibit the
export of these products to countries deemed hostile by the U.S. Government.
U.S. export regulations regarding the export of encryption technology require
either a transactional export license or the granting of Department of Commerce
Commodity jurisdiction. As result of this regulatory regime, foreign competitors
facing less stringent controls may be able to compete more effectively than we
can in the global market. While we have obtained approval from the Department of
Commerce to export to certain end users, the U.S. Government may not approve
pending or future export license requests. Further, the list of products and
countries for which export approval is required, and the regulatory policies
with respect thereto, may be revised from time to time. Failure to obtain the
required licenses or the costs of compliance could diminish our international
revenues.
In addition, some of our network security products are dependent on the
use of public key cryptography technology. This technology depends in part upon
the application of certain mathematical principles. The security afforded by
public key cryptography technology is based on our belief that circumvention or
compromise of this technology is difficult. Should an easy method be developed
for circumventing or compromising the encryption techniques, the security
afforded by encryption products using public key cryptography technology would
be
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reduced or eliminated. Furthermore, any significant advance in techniques for
attacking cryptographic systems could also render some or all of our existing
products and services obsolete or unmarketable.
Product liability claims asserted against us in the future could harm our
business.
Our software products are used to protect and manage computer systems
and networks that may be critical to organizations. As a result, our sale and
support of these products involves the risk of potential product liability and
related claims. Our license agreements with our customers typically contain
provisions designed to limit our exposure to potential product liability claims.
It is possible, however, that the limitation of liability provisions contained
in these license agreements may not be effective under the laws of certain
jurisdictions, particularly in circumstances involving unsigned licenses. A
product liability claim brought against us could harm our business, results of
operations and financial condition.
We face risks associated with U.S. government contracting.
We expect that in the near term, a portion of our revenues will result
from contracts with agencies of the U.S. government. We believe that the
willingness of these government agencies to enter into future contracts with us
will in part be dependent upon our continued ability to meet their standards and
expectations. However, we may be unable to procure additional government
contracts. In addition, our products must be certified by the U.S. government
prior to their adoption or use by certain government agencies or departments. If
we fail to receive government certification of our products, we will have
limited opportunities to sell to government agencies and our business and
operating results may be harmed.
Year 2000 issues could harm our business.
Many currently installed computer systems and software products are
coded to accept, store, or report only two digit year entries in date code
fields. Beginning in the year 2000, these date code fields will need to accept
four digit entries to distinguish 21st century dates from 20th century dates.
The year 2000 problem arises in programs that were written with two digits
instead of four. As a result, computer systems and software used by companies,
including us and our vendors and customers, will need to operate properly in the
year 2000 and beyond. Although we have tested our software and believe that it
is year 2000 compliant, we may in the future detect problems relating to the
year 2000, which could seriously harm our business.
In addition, we and the third parties with whom we conduct business may
utilize equipment or software that may not be year 2000 compliant. Failure of
our or any of this equipment or software to operate properly in the year 2000
and beyond could result in, among other things, unanticipated expenses or
efforts to remedy any problems, which could harm our or such third party's
respective business. Furthermore, companies may spend more money to evaluate and
correct their own equipment or software for year 2000 compliance. These
increased expenditures may result in fewer funds available to purchase products
and services such as those offered by us, which could harm our business.
We rely on a limited number of third-party suppliers, who may not consistently
meet our business needs.
We rely on third-party suppliers to provide certain technology
components that we incorporate into our products. In particular, the encryption
and anti-virus technology in our products come from third parties. If we were
unable to obtain licenses to the technologies or to future versions or upgrades
of these technologies, we would have to identify and license new technologies
and would potentially have to redesign portions of our products around these new
technologies. Substitute technologies may not be available upon commercially
reasonable terms, and our failure to obtain licenses to necessary third-party
software could seriously harm our business.
Provisions of Delaware law may inhibit potential acquisition bids which could
decrease the market price for our common stock and prevent changes in our
management.
Our board of directors has the authority to issue up to 6,500,000
shares of preferred stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote of action by its stockholders. The issuance of preferred stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more difficult
for a third party to acquire a majority of the outstanding voting stock.
Certain provisions of Delaware law and our certificate of incorporation
and bylaws, such as a classified board, could delay or make a merger, tender
offer or proxy contest involving Worldtalk more difficult. While these
provisions are intended to enable our board of directors to maximize stockholder
value, they may have the effect of
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discouraging takeovers which may not be in the best interest of certain
stockholders. These provisions could cause a decline in the market value of our
common stock.
We are significantly influenced by our existing stockholders.
Stockholders who own in excess of 5% of our stock together with our
executive officers and directors and their affiliates, beneficially own, in the
aggregate, approximately 55% of our outstanding common stock. As a result, these
stockholders will be able to control or exercise significant influence over all
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions, which could have the effect of
delaying or preventing a third party from acquiring control over us.
Our prospects for obtaining additional financing, if required, are uncertain and
failure to obtain needed financing could affect our ability to pursue future
growth.
We believe that our cash balances and credit facilities will be
sufficient to meet our anticipated working capital and capital expenditure needs
for at least the next 12 months. After that, we may need to raise additional
funds, and additional financing may not be available on terms that are
acceptable to us, if at all. This could seriously harm our business and
operating results. Furthermore, if we raise additional funds through the
issuance of equity or convertible debt securities, the percentage ownership of
our stockholders would be reduced and these securities might have rights,
preferences and privileges senior to those of our current stockholders. If
adequate funds are not available on acceptable terms, we may not be able to
develop or enhance our products or services, fund our expansion, take advantage
of future opportunities, or respond to competitive pressures or unanticipated
requirements.
If we do not remain listed on the Nasdaq Stock Market, our stock price could
decline.
In the first half of 1999, Worldtalk was temporarily out of compliance
with the criteria for continued listing of our common stock on the Nasdaq
National Market. Following the closing of a private placement of our common
stock in July 1999 and a hearing before Nasdaq, we received confirmation from
Nasdaq that we have returned to compliance with the National Market listing
criteria. Although we are currently in compliance with these criteria, we may in
the future fall out of compliance and have our common stock delisted from the
National Market. Any future delisting action could harm our business and cause
our stock price to decline.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act
relating to future events or financial results. These forward-looking statements
include statements indicating that we believe, we expect or we anticipate that
events may occur or trends may continue, and similar statements relating to
future events or financial results. These forward-looking statements are subject
to material risks and uncertainties as indicated under the caption "Risk
Factors." Actual results could vary materially as a result of a number of
factors including those disclosed in "Risk Factors" and elsewhere in this
prospectus.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares by the
selling stockholders.
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SELLING STOCKHOLDERS
The following table sets forth certain information we know with respect
to the beneficial ownership by the selling stockholders our common stock as of
August 10, 1999. Except as discussed below, the selling stockholders have not
had any position, office or other material relationship with us within the past
three years.
Applicable percentage ownership in the following table is based on
14,286,772 shares of common stock outstanding as of August 10, 1999 and treats
as outstanding all warrants held by the particular stockholder since each
warrant is currently exercisable. The table also treats as outstanding, for
purposes of calculating each specific stockholder's percent ownership, all
options held by the stockholder that are exercisable within 60 days after August
10, 1999.
The table assumes that the selling stockholders sell all of the shares
offered by them in this offering. However, we are unable to determine the exact
number of shares that will actually be sold or when or if such sales will occur.
We will not receive the proceeds of any shares sold under this prospectus. The
selling stockholders have advised us that they are the beneficial owners of the
shares being offered.
<TABLE>
Unless otherwise indicated, the address of each selling stockholder is
c/o Hilal Capital Management LLC, 60 East 42nd Street, Suite 1946, New York, NY
10165.
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Before Offering Owned After Offering
-------------------- --------------------
Shares Being
Name Number Percent Offered Number Percent
- ---- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Hilal Capital Associates LLC (1) 1,792,000 12.0% 1,792,000 0 0
Highbridge International (2) 986,000 6.7 969,500 16,500 0.1%
Hilal Capital International, Ltd. (3) 920,500 6.3 904,000 16,500 0.1
Hilal Capital QP, L.P. (4) 683,500 4.7 671,500 12,000 0.1
Hilal Capital, L.P. (5) 268,000 1.9 263,000 5,000 0
Narragansett I, LP (6) 197,500 1.4 197,500 0 0
c/o Narragansett Asset Management LLC
375 Park Avenue, Suite 1404
New York, New York 10152
Philip Hilal (7) 150,000 1.0 150,000 0 0
Narragansett Offshore, Ltd. (8) 52,500 0.4 52,500 0 0
c/o Leo Holdings, LLC
375 Park Avenue, Suite 1404
New York, New York 10152
Sigma Partners II, L.P. (9) 707,056 4.9 670,458 36,598 0.3
2884 Sand Hill Road, Suite 121
Menlo Park, CA 94025
Sigma Associates II, L.P. (9) 86,875 0.6 50,277 36,598 0.3
2884 Sand Hill Road, Suite 121
Menlo Park, CA 94025
<FN>
- ------------------------------------
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<PAGE>
(1) This number includes 597,333 shares of common stock issuable upon exercise
of a warrant. Paul Hilal, a member of our board of directors and the
Chairman of the Board of Worldtalk, is a non-managing member of Hilal
Capital Partners LLC, which is the general partner of Hilal Capital
Associates LLC, Hilal Capital QP, L.P. and Hilal Capital, L.P. Peter K.
Hilal, M.D., the brother of Paul Hilal, is the managing member of Hilal
Capital Partners LLC.
(2) This number Includes 323,167 shares of common stock issuable upon exercise
of a warrant. Hilal Capital Management LLC is the investment manager for
Highbridge International, Ltd. and Hilal Capital International, Ltd. Peter
K. Hilal, M.D. is the managing member of Hilal Capital Management LLC.
(3) This number includes 301,333 shares of common stock issuable upon exercise
of a warrant.
(4) This number includes 223,833 shares of common stock issuable upon exercise
of a warrant. Paul Hilal is a non-managing member of Hilal Capital Partners
LLC, which is the general partner of Hilal Capital QP, L.P.
(5) This number includes 87,667 shares shares of common stock issuable upon
exercise of a warrant. Paul Hilal is a non-managing member of Hilal Capital
Partners LLC, which is the general partner of Hilal Capital, L.P.
(6) This number includes 65,833 shares of common stock issuable upon exercise
of a warrant.
(7) This number includes 50,000 shares of common stock issuable upon exercise
of a warrant. Philip Hilal is the brother of Paul Hilal.
(8) This number includes 17,500 shares of common stock issuable upon exercise
of a warrant.
(9) These figures include 24,098 shares held by Wade Woodson and 12,500 shares
subject to options held by Mr. Woodson that are exercisable within 60 days
after August 10, 1999. Mr. Woodson, a director of Worldtalk, is a general
partner of Sigma Management II, L.P., the general partner of Sigma Partners
II, L.P. and Sigma Associates II, L.P.
</FN>
</TABLE>
Paul Hilal does not hold voting or dispositive control over any shares
or warrants owned of record by Hilal Capital Associates LLC, Highbridge
International, Hilal Capital International, Ltd., Hilal Capital QP, L.P., Hilal
Capital, L.P. or Philip Hilal. Paul Hilal disclaims beneficial ownership of all
of these shares and warrants.
PLAN OF DISTRIBUTION
Through a private placement in July 1999, the selling stockholders
acquired the shares of common stock and the common stock issuable upon exercise
of warrants. Each selling stockholder is bound by a registration rights
agreement with Worldtalk. To our knowledge, none of the selling stockholders has
entered into any agreement, arrangement or understanding with any particular
broker or market maker with respect to the shares offered under this prospectus,
nor do we know the identity of the brokers or market makers that will
participate in the offering.
The shares of common stock may be offered and sold from time to time by
the selling stockholders or by their pledgees, donees, transferees and other
successors in interest. The selling stockholders will act independently of us in
making decisions with respect to the timing, manner and size of each sale. Such
sales may be made over the Nasdaq National Market or otherwise, at then
prevailing market prices, at prices related to prevailing market prices or at
negotiated prices. The shares may be sold by one or more of the following:
o a block trade in which the broker-dealer engaged by a selling
stockholder will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate the
transaction;
o purchases by the broker-dealer as principal and resale by such broker
or dealer for its account pursuant to this prospectus; and
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers.
Each selling stockholder has advised Worldtalk that it has not, as of
the date hereof, entered into any arrangement with a broker-dealer for the sale
of shares through a block trade, special offering, or secondary distribution of
a purchase by a broker-dealer. In effecting sales, broker-dealers engaged by a
selling stockholder may arrange for other broker-dealers to participate.
Broker-dealers will receive commissions or discounts from a selling stockholder
in amounts to be negotiated immediately prior to the sale.
In connection with distributions of the shares or otherwise, a selling
stockholder may enter into hedging transactions with broker-dealers. In
connection with these transactions, broker-dealers may engage in short sales of
the shares in the course of hedging the positions they assume with selling
stockholder. A selling stockholder may also sell shares short and redeliver the
shares to close out such short positions. A selling stockholder may also enter
into option or other transactions with broker-dealers which require the delivery
to the broker-dealer of the shares,
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which the broker-dealer may resell or otherwise transfer under this prospectus.
A selling stockholder may also loan or pledge the shares to a broker-dealer and
the broker-dealer may sell the shares so loaned or, upon a default, the
broker-dealer may effect sales of the pledged shares under this prospectus.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from a selling stockholder in amounts to
be negotiated in connection with the sale. Broker-dealers and any other
participating broker-dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with the sales, and any commission,
discount or concession may be deemed to be underwriting discounts or commissions
under the Securities Act. In addition, any securities covered by this prospectus
which qualify for sale under Rule 144 of the Securities Act may be sold under
Rule 144 rather than under this prospectus.
We have advised each selling stockholder that the anti-manipulation
rules under the Exchange Act may apply to sales of shares in the market and to
the activities of the selling stockholders and their affiliates. Each selling
stockholder has advised us that during such time as it may be engaged in the
attempt to sell shares registered, it will:
o not engage in any stabilization activity in connection with any of our
securities;
o not bid for or purchase any of our securities or any rights to acquire
our securities, or attempt to induce any person to purchase any of our
securities or rights to acquire our securities other than as permitted
under the Exchange Act;
o not effect any sale or distribution of the shares until after the
prospectus shall have been appropriately amended or supplemented, if
required, to set forth the terms thereof; and
o effect all sales of shares in broker's transactions through
broker-dealers acting as agents, in transactions directly with market
makers or in privately negotiated transactions where no broker or other
third party (other than the purchaser) is involved.
Under certain circumstances, we have the ability to suspend the use of
this prospectus if, in the good faith judgment of our board of directors, it
would be seriously detrimental to us and our stockholders for resales of shares
to be made due to:
o the existence of a material development or potential material
development with respect to or involving Worldtalk which we would be
obligated to disclose in the prospectus, which disclosure would in the
good faith judgment of our board of directors be premature or otherwise
inadvisable at such time and would seriously harm us and our
stockholders, or
o the occurrence of any event that makes any statement made in the
prospectus or any document incorporated or deemed to be incorporated by
reference untrue in any material respect or which requires the making
of any changes in the prospectus so that it will not contain any untrue
statement of a material fact required to be stated therein or necessary
to make the statements therein not misleading or omit to state any
material fact required to be stated or necessary to make the
statements, in the light of the circumstances under which they were
made, not misleading.
This offering will terminate on the later of:
o July 7, 2001; or
o the date on which the accountants to the selling stockholders confirm
that a discount to market price would not be applied to the selling
stockholders' holdings of common stock for financial statement
valuation purposes.
This offering will terminate earlier if the all shares offered have
been sold by the selling stockholders.
We have agreed to pay the expenses of registering the shares under the
Securities Act, including registration and filing fees, printing expenses,
administrative expenses and certain legal and accounting fees. The
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selling stockholders will bear all discounts, commissions or other amounts
payable to underwriters, dealers or agents, as well as fees and disbursements
for legal counsel retained by the selling stockholders.
We and each selling stockholder have agreed to indemnify each other and
certain other related parties for certain liabilities in connection with the
registration of the shares offered.
Upon the occurrence of any of the following events, this prospectus
will be amended to include additional disclosure before offers and sales of the
securities in question are made:
o to the extent the securities are sold at a fixed price or at a price
other than the prevailing market price, such price would be set forth
in the prospectus;
o if the securities are sold in block transactions and the purchaser
acting in the capacity of an underwriter wishes to resell, such
arrangements would be described in the prospectus;
o if any selling stockholder sells to a broker-dealer acting in the
capacity as an underwriter, such broker-dealer will be identified in
the prospectus; and
o if the compensation paid to broker-dealers is other than usual and
customary discounts, concessions or commissions, disclosure of the
terms of the transaction would be included in the prospectus.
LEGAL MATTERS
The validity of the shares of common stock offered under this
prospectus will be passed upon for Worldtalk by Fenwick & West LLP, Palo Alto,
California.
EXPERTS
The consolidated financial statements and schedule of Worldtalk and
subsidiary as of December 31, 1998 and 1997 and for each of the years in the
three-year period ended December 31, 1998, have been incorporated by reference
herein and in the registration statement in reliance upon the report of KPMG
LLP, independent auditors, incorporated by reference, and upon the authority of
said firm as experts in accounting and auditing.
CHANGE IN MANAGEMENT
In August 1999, Bernard Harguindeguy resigned as President, Chief
Executive Officer and a director of Worldtalk. James Heisch, Worldtalk's Chief
Financial Officer, has been appointed as President, and Paul Hilal, a director
of Worldtalk, has been appointed Chairman of the Board. Worldtalk is currently
engaged in a search for a new Chief Executive Officer.
DOCUMENTS INCORPORATED BY REFERENCE IN THIS
PROSPECTUS
This prospectus incorporates documents by reference which are not
presented in or delivered with this prospectus.
All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act, after the date of this prospectus are
incorporated by reference into and to be a part of this prospectus from the date
of filing of those documents.
You should rely only on the information contained in this document or
that we have referred you to. We have not authorized anyone to provide you with
information that is different.
We filed the following documents with the Securities and Exchange
Commission and are incorporating them by reference into this prospectus.
o Worldtalk's Quarterly Report on Form 10-Q for the quarter ended June
30, 1999 (SEC file number 0-27886 and filing date August 13, 1999)
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o Worldtalk's Report on Form 8-K filed on July 20, 1999 (SEC file number
0-27886)
o Worldtalk's Quarterly Report on Form 10-Q/A-1 for the quarter ended
March 31, 1999 (SEC file number 0-27886 and filing date May 28, 1999)
o Worldtalk's Quarterly Report on Form 10-Q for the quarter ended March
31, 1999 (SEC file number 0-27886 and filing date May 17, 1999)
o Worldtalk's Annual Report on Form 10-K for the year ended December 31,
1998 (SEC file number 0-27886 and filing date March 31, 1999)
o Worldtalk's Registration Statement on Form 8-A (SEC file number 0-27886
and filing date March 4, 1996, which describes Worldtalk's common
stock)
Any statement contained in a document incorporated or deemed to be
incorporated by reference will be deemed to be modified or superseded for
purposes of this prospectus to the extent that a statement contained in this
prospectus or any other subsequently filed document that is deemed to be
incorporated in this prospectus by reference modifies or supersedes the
statement. Any statement so modified or superseded will not be deemed, except as
so modified or superseded, to constitute a part of this prospectus.
WHERE YOU CAN FIND MORE INFORMATION
The documents incorporated by reference into this prospectus are
available from us upon request. We will provide a copy of any and all of the
information that is incorporated by reference in this prospectus, not including
exhibits to the information unless those exhibits are specifically incorporated
by reference into this prospectus, to any person, without charge, upon written
or oral request.
Requests for documents should be directed to Worldtalk Communications
Corporation, Attention: Investor Relations, 5155 Old Ironsides Drive, Santa
Clara, California, 95054, telephone number (408) 567-1500.
We file reports, proxy statements and other information with the
Securities and Exchange Commission. Copies of our reports, proxy statements and
other information may be inspected and copied at the public reference facilities
maintained by the SEC:
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 5000 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
Copies of these materials can also be obtained by mail at prescribed
rates from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. The SEC
maintains a web site that contains reports, proxy statements and other
information regarding each of us. The address of the SEC web site is
http://www.sec.gov.
Worldtalk has filed a registration statement under the Securities Act
with the Securities and Exchange Commission with respect to the shares to be
sold by the selling stockholders. This prospectus has been filed as part of the
registration statement. This prospectus does not contain all of the information
set forth in the registration statement because certain parts of the
registration statement are omitted in accordance with the rules and regulations
of the SEC. The registration statement is available for inspection and copying
as set forth above.
This prospectus does not constitute an offer to sell, or a solicitation
of an offer to purchase, the securities offered by this prospectus or the
solicitation of a proxy, in any jurisdiction to or from any person to whom or
from whom it is unlawful to make such offer, solicitation of an offer or proxy
solicitation in such jurisdiction. Neither the delivery of this prospectus nor
any distribution of securities pursuant to this prospectus shall, under any
circumstances, create any implication that there has been no change in the
information set forth or incorporated herein by reference or in our affairs
since the date of this prospectus.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution.
The aggregate estimated expenses to be paid by the Registrant in
connection with this offering are as follows:
Securities and Exchange Commission registration fee .............. $ 5,742
Accounting fees and expenses ..................................... 5,000
Legal fees and expenses .......................................... 50,000
Miscellaneous .................................................... 5,258
-------
Total ....................................................... $66,000
=======
ITEM 15. Indemnification of Directors and Officers.
As permitted by Section 145 of the Delaware General Corporation Law,
the Registrant's Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (a) for any breach of a director's duty of loyalty to the
corporation or its stockholders, (b) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (c) under
section 174 of the Delaware General Corporation Law or (d) for any transaction
from which the director derived an improper personal benefit. In addition, as
permitted by Section 145 of the Delaware General Corporation Law, the Bylaws of
the Registrant provide that: (a) the Registrant is required to indemnify its
directors and executive officers to the fullest extent permitted by the Delaware
General Corporation Law; (b) the Registrant may, in its discretion, indemnify
other officers, employees and agents as set forth in the Delaware General
Corporation Law; (c) upon receipt of an undertaking to repay such advances if
indemnification is determined to be unavailable, the Registrant is required to
advance expenses, as incurred, to its directors and executive officers to the
fullest extent permitted by the Delaware General Corporation Law in connection
with a proceeding (except if a determination is reasonably and promptly made by
the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to the proceeding or, in certain circumstances, by
independent legal counsel in a written opinion that the facts known to the
decision-making party demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the corporation); (d) the rights conferred
in the Bylaws are not exclusive and the Registrant is authorized to enter into
indemnification agreements with its directors, officers, employees and agents;
(e) the Registrant may not retroactively amend the Bylaw provisions relating to
indemnity; and (f) to the fullest extent permitted by the Delaware General
Corporation Law, a director or executive officer will be deemed to have acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the Registrant, and, with respect to any criminal
action or proceeding, to have had no reasonable cause to believe that his or her
conduct was unlawful, if his or her action is based on the records or books of
account of the Registrant or on information supplied to him or her by officers
of the Registrant in the course of their duties or on the advice of legal
counsel for the Registrant or on information or records given or reports made to
the Registrant by independent certified public accountants or appraisers or
other experts.
The Registrant has entered into indemnity agreements with each of its
directors and executive officers. The indemnity agreements provide that
directors and executive officers will be indemnified and held harmless to the
fullest possible extent permitted by law including against all expenses
(including attorneys' fees), judgments, fines and settlement amounts paid or
reasonably incurred by them in any action, suit or proceeding, including any
derivative action by or in the right of the Registrant, on account of their
services as directors, officers, employees or agents of the Registrant or as
directors, officers, employees or agents of any other company or enterprise when
they are serving in such capacities at the request of the Registrant. The
Registrant will not be obligated pursuant to the agreements to indemnify or
advance expenses to an indemnified party with respect to proceedings or claims
(a) initiated by the indemnified party and not by way of defense, except with
respect to a proceeding authorized by the Board of Directors and successful
proceedings brought to enforce a right to indemnification under the indemnity
agreements, (b) for any amounts paid in settlement of a proceeding unless the
Registrant consents to such settlement; (c) on account of any suit in which
judgment is rendered against the indemnified party for an accounting of profits
made from the purchase or sale by the indemnified party of securities of the
Registrant pursuant to the provisions of
II-1
<PAGE>
ss.16(b) of the Securities Exchange Act of 1934 and related laws; (d) on account
of conduct by an indemnified party that is finally adjudged to have been in bad
faith or conduct that the indemnified party did not reasonably believe to be in,
or not opposed to, the best interests of the Registrant; (e) on account of any
criminal action or proceeding arising out of conduct that the indemnified party
had reasonable cause to believe was unlawful; or (f) if a final decision by a
court having jurisdiction in the matter shall determine that such
indemnification is not lawful.
The indemnity agreement requires a director or executive officer to
reimburse the Registrant for expenses advanced only to the extent it is
ultimately determined that the director or executive officer is not entitled,
under Delaware law, the Bylaws, his or her indemnity agreement or otherwise to
be indemnified for such expenses. The indemnity agreement provides that it is
not exclusive of any right a director or executive officer may have under the
Certificate of Incorporation, Bylaws, other agreements, any majority-in-interest
vote of the stockholders or vote of disinterested directors, the Delaware law,
or otherwise.
The indemnification provision in the Bylaws, and the indemnity
agreements entered into between the Registrant and its directors and executive
officers, may be sufficiently broad to permit indemnification of the
Registrant's directors and executive officers for liabilities arising under the
Securities Act.
As authorized by the Registrant's Bylaws, the Registrant, with approval
by the Registrant's Board of Directors, has obtained directors' and officers'
liability insurance with a per claim and annual aggregate coverage limit of $5
million.
ITEM 16. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made pursuant to this Registration Statement, a post-effective amendment
to this Registration Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933 (the "Securities Act");
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement (notwithstanding the foregoing, any increase or
decrease in volume or securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement); and
(iii) to include any material information with
respect to the plan of distribution not previously disclosed
in the Registration Statement or any material change to such
information in the Registration Statement; provided, however,
that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective
amendment by paragraphs (1)(i) or (1)(ii) is contained in any
periodic report filed with or furnished to the Securities and
Exchange Commission by the Registrant pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act, each post-effective amendment shall be deemed a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE>
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Exchange Act) that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
ITEM 17. Exhibits.
(a) The following exhibits are filed herewith:
Exhibit
Number Exhibit Title
------ -------------
3.01 Registrant's Certificate of Incorporation. (1)
3.02 Registrant's Certificate of Designation. (1)
3.03 Registrant's Certificate of Elimination. (1)
4.02 Form of Specimen Common Stock Certificate. (1)
5.01 Opinion of Fenwick & West LLP regarding legality of the securities
being registered.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of KPMG LLP, Independent Auditors.
24.01 Power of Attorney (see Page II-6).
99.01 Securities Purchase Agreement entered into as of July 7, 1999 among
the Registrant and the parties listed on the Schedule of Investors
attached thereto, with form of Escrow Agreement attached. (2)
99.02 Registration Rights Agreement entered into on July 7, 1999 among
the Registrant and the Investors. (2)
99.03 Form of Warrant issued as of July 7, 1999 to the Investors. (2)
- ------------------
(1) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-1 declared effective on April 11, 1996 (File
No. 33-31482) and incorporated herein by reference.
(2) Previously filed as an exhibit to the Registrant's Current Report on Form
8-K filed on July 20, 1999 (File No. 0-27886) and incorporated herein by
reference.
(b) Financial statement schedules are omitted because the information
called for is not required or is shown either in the financial statements or the
notes thereto.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all for the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Santa Clara, State of California, on the 8th day of
September 1999.
WORLDTALK COMMUNICATIONS CORPORATION
By: /s/ James Heisch
--------------------------------------
James Heisch
President and Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Paul Hilal and James Heisch, and each of them,
his attorneys-in-fact and agents, each with the power of substitution, for him
and in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
<TABLE>
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Principal Executive Officer:
/s/ James Heisch President September 8, 1999
- --------------------------------
James Heisch
Principal Financial and
Principal Accounting Officer:
s/s James Heisch Vice President, Finance, Chief September 8, 1999
- -------------------------------- Financial Officer and Secretary
James Heisch
Directors:
/s/ David J. Cowan Director September 8, 1999
- --------------------------------
David J. Cowan
/s/ Paul Hilal Director September 8, 1999
- --------------------------------
Paul Hilal
/s/ Max D. Hopper Director September 8, 1999
- --------------------------------
Max D. Hopper
/s/ Anthony Sun Director September 8, 1999
- --------------------------------
Anthony Sun
/s/ Wade Woodson Director September 8, 1999
- --------------------------------
Wade Woodson
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Title
------ -------------
3.01 Registrant's Certificate of Incorporation. (1)
3.02 Registrant's Certificate of Designation. (1)
3.03 Registrant's Certificate of Elimination. (1)
4.02 Form of Specimen Common Stock Certificate.(1)
5.01 Opinion of Fenwick & West LLP regarding legality of the securities
being registered.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of KPMG LLP, Independent Auditors.
24.01 Power of Attorney (see Page II-6).
99.01 Securities Purchase Agreement entered into as of July 7, 1999 among
the Registrant and the parties listed on the Schedule of Investors
attached thereto, with form of Escrow Agreement attached. (2)
99.02 Registration Rights Agreement entered into on July 7, 1999 among
the Registrant and the Investors. (2)
99.03 Form of Warrant issued as of July 7, 1999 to the Investors. (2)
- ----------------
(1) Previously filed with the Commission as an exhibit to the Registrant's
Registration Statement on Form S-1 declared effective on April 11, 1996 (File
No. 33-31482) and incorporated herein by reference.
(2) Previously filed as an exhibit to the Registrant's Current Report on Form
8-K filed on July 20, 1999 (File No. 0-27886) and incorporated herein by
reference.
II-6
EXHIBIT 5.01
September 8, 1999
Worldtalk Communications Corporation
5155 Old Ironsides Drive
Santa Clara, California, 95054
Gentlemen/Ladies:
At your request, we have examined the Registration Statement on Form
S-3 (the "Registration Statement") to be filed by you with the Securities and
Exchange Commission (the "Commission") on or about September 8, 1999, in
connection with the registration under the Securities Act of 1933, as amended,
of an aggregate of 5,720,735 shares of your common stock (the "Stock") and will
be sold by certain selling stockholders (the "Selling Stockholders"). The Stock
consists of 4,054,069 shares of common stock that are presently issued and
outstanding and 1,666,666 shares of common stock that are issuable upon exercise
of outstanding warrants held by the Selling Stockholders (the "Warrants").
In rendering this opinion, we have examined the following:
(1) your registration statement on Form S-1 (File Number 33-31482)
filed with and declared effective by the Commission on April 11,
1996, together with the Exhibits filed as a part thereof;
(2) your registration statement on Form 8-A (File number 0-27886)
filed with the Commission on March 4, 1996, and declared
effective on April 11, 1996;
(3) the Registration Statement, together with the Exhibits filed, as
a part thereof or incorporated therein by reference;
(4) the Prospectuses prepared in connection with the Registration
Statement;
(5) the minutes of meetings and actions by written consent of the
stockholders and Board of Directors that are contained in your
minute books that are in our possession and the minute books of
Worldtalk Corporation, a California corporation, with which you
were merged;
(6) your stock records that you have provided to us (consisting of a
certificate from your transfer agent verifying the number of your
issued and outstanding shares of capital stock as of September 7,
1999, and a list of option and warrant holders respecting your
capital and of any rights to purchase capital stock that was
prepared by you and dated September 7, 1999, verifying the number
of such issued and outstanding securities);
(7) a Management Certificate addressed to us and dated of even date
herewith executed by you containing certain factual and other
representations;
(8) the various stock purchase and other agreements under which the
Selling Stockholders acquired the Stock, or will acquire the
Stock, to be sold by them as described in the Registration
Statement; and
<PAGE>
(9) Selling Stockholder Questionnaires dated various dates in August
and September 1999 completed and signed by each Selling
Stockholder.
By telephone call to the offices of the Commission, we have also
confirmed the continued effectiveness of Worldtalk's registration under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the timely
filing by you of all reports required to be filed by you pursuant to Rules 13,
14 and 15 promulgated under the Exchange Act.
In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity and completeness of all documents submitted
to us as originals, the conformity to originals and completeness of all
documents submitted to us as copies, the legal capacity of all natural persons
executing the same, the lack of any undisclosed terminations, modifications,
waivers or amendments to any documents reviewed by us and the due authorization,
execution and delivery of all documents where due authorization, execution and
delivery are prerequisites to the effectiveness thereof.
As to matters of fact relevant to this opinion, we have relied solely
upon our examination of the documents referred to above and have assumed the
current accuracy and completeness of the information obtained from public
officials and records referred to above. We have made no independent
investigation or other attempt to verify the accuracy of any of such information
or to determine the existence or non-existence of any other factual matters;
however, we are not aware of any facts that would cause us to believe that the
opinion expressed herein is not accurate.
We are admitted to practice law in the State of California, and we
express no opinion herein with respect to the application or effect of the laws
of any jurisdiction other than the existing laws of the United States of America
and the State of California and (without reference to case law or secondary
sources) the existing Delaware General Corporation Law.
Based upon the foregoing, it is our opinion that (1) the 4,054,069
shares of Stock to be sold by the Selling Stockholders pursuant to the
Registration Statement are validly issued, fully paid and nonassessable and (2)
the 1,666,666 shares of Stock to be sold by the Selling Stockholders, upon
exercise of the Warrants in accordance with the terms thereof and pursuant to
the Registration Statement, will be validly issued, fully paid and
nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the Prospectus constituting a part thereof and any
amendments thereto.
This opinion speaks only as of its date and we assume no obligation to
update this opinion should circumstances change after the date hereof. This
opinion is intended solely for the your use as an exhibit to the Registration
Statement for the purpose of the above sale of the Stock and is not to be relied
upon for any other purpose.
Very truly yours,
FENWICK & WEST LLP
By: /s/ Gail E. Suniga
---------------------------------
Gail E. Suniga, a Partner
Exhibit 23.02
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Worldtalk Communications Corporation:
We consent to incorporation by reference herein of our report dated January 28,
1999 relating to the consolidated balance sheets of Worldtalk Communications
Corporation and subsidiary as of December 31, 1998 and 1997, 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, 1998,
and the related financial statement schedule, which report appears in the
December 31, 1998, annual report on Form 10-K of Worldtalk Communications
Corporation, and to the reference to our firm under the heading "Experts" in the
prospectus.
KPMG LLP
Mountain View, California
September 7, 1999
