<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 2, 1998
REGISTRATION NO. 333-40789
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
VERISIGN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7371 94-3221585
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
---------------
1390 SHOREBIRD WAY
MOUNTAIN VIEW, CALIFORNIA 94043
(650) 961-7500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
DANA L. EVAN
CHIEF FINANCIAL OFFICER
VERISIGN, INC.
1390 SHOREBIRD WAY
MOUNTAIN VIEW, CALIFORNIA 94043
(650) 961-7500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
<TABLE>
<S> <C> <C>
LAIRD H. SIMONS III, ESQ. TIMOTHY TOMLINSON, ESQ. ROBERT P. LATTA, ESQ.
JEFFREY R. VETTER, ESQ. TOMLINSON ZISKO MOROSOLI & MASER LLP CHRIS F. FENNELL, ESQ.
MICHAEL J. MCADAM, ESQ. 200 PAGE MILL ROAD CHRIS E. MONTEGUT, ESQ.
WILSON SONSINI GOODRICH &
FENWICK & WEST LLP SECOND FLOOR ROSATI,
TWO PALO ALTO SQUARE PALO ALTO, CALIFORNIA 94306 PROFESSIONAL CORPORATION
PALO ALTO, CALIFORNIA 94306 (650) 325-8666 650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-
(650) 494-0600 1050
(650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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,
check the following box. [_]
---------------
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 THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued January 2, 1998
Shares
[LOGO OF VERISIGN APPEARS HERE]
COMMON STOCK
-----------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF
THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE
WILL BE BETWEEN $ AND $ PER SHARE. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE
FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
APPLICATION HAS BEEN MADE TO LIST THE SHARES OF COMMON STOCK ON THE NASDAQ
NATIONAL MARKET UNDER THE SYMBOL "VRSN."
-----------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON
PAGE 5 HEREOF.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- -----------
<S> <C> <C> <C>
Per Share.................... $ $ $
Total(3)..................... $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to an aggregate of
additional Shares at the price to public less underwriting discounts and
commissions for the purpose of covering over-allotments, if any. If the
Underwriters exercise such option in full, the total price to public,
underwriting discounts and commissions and proceeds to Company will be
$ , $ and $ , respectively. See "Underwriters."
-----------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the
Underwriters. It is expected that delivery of the Shares will be made on or
about , 1998 at the office of Morgan Stanley & Co. Incorporated, New
York, N.Y., against payment therefor in immediately available funds.
-----------
MORGAN STANLEY DEAN WITTER
HAMBRECHT & QUIST
WESSELS, ARNOLD & HENDERSON
, 1998
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY
PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
----------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 3
The Company......................... 4
Risk Factors........................ 5
Use of Proceeds..................... 18
Dividend Policy..................... 18
Capitalization...................... 19
Dilution............................ 20
Selected Consolidated Financial
Data............................... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 22
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business......................... 30
Management....................... 50
Certain Transactions............. 60
Principal Stockholders........... 64
Description of Capital Stock..... 66
Shares Eligible for Future Sale.. 69
Underwriters..................... 71
Legal Matters.................... 72
Experts.......................... 72
Additional Information........... 73
Index to Consolidated Financial
Statements...................... F-1
</TABLE>
----------------
The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by an independent public
accounting firm and quarterly reports containing unaudited consolidated
financial data for the first three quarters of each year.
----------------
VeriSign(TM) is a trademark exclusively licensed to the Company and Channel
Signing Digital IDSM, Digital IDSM, Digital ID CenterSM, EDI Server IDSM,
Financial Server IDSM, Global Server IDSM, NetSureSM, Secure Server IDSM,
Software Developer Digital IDSM, Universal Digital IDSM, VeriSign OnSiteSM,
VeriSign SETSM, VeriSign V-CommerceSM and WorldTrustSM are service marks of
the Company. This Prospectus also includes trademarks of companies other than
the Company.
----------------
Unless the context otherwise requires, the terms "VeriSign" and the
"Company" refer to VeriSign, Inc., a Delaware corporation, and its majority-
owned subsidiary, VeriSign Japan K.K. ("VeriSign Japan"). Except as otherwise
noted herein, information in this Prospectus (i) assumes no exercise of the
Underwriters' over-allotment option, (ii) gives effect to the conversion of
all outstanding shares of Preferred Stock of the Company into shares of Common
Stock of the Company, which will occur upon the closing of this offering,
(iii) gives effect to the increase in the authorized shares of Common Stock to
50,000,000 shares to be effected in January 1998 and (iv) gives effect to the
filing, upon the closing of this offering, of a Restated Certificate of
Incorporation, authorizing 5,000,000 shares of undesignated Preferred Stock.
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and notes thereto
appearing elsewhere in this Prospectus.
THE COMPANY
VeriSign is the leading provider of digital certificate solutions and
infrastructure needed by companies, government agencies, trading partners and
individuals to conduct trusted and secure communications and commerce over the
Internet and over intranets and extranets using the Internet Protocol
(collectively, "IP Networks"). The Company has established strategic
relationships with industry leaders, including Cisco, McAfee Associates,
Microsoft, Netscape, RSA, Security Dynamics, VeriFone and VISA, to enable
widespread deployment of the Company's digital certificate technology and
products and to assure their interoperability among a wide variety of
applications. The Company's digital certificates, called Digital IDs, are
enabled in millions of copies of Microsoft and Netscape Web browsers, tens of
thousands of copies of popular Web servers and a variety of other software
applications. The Company believes that it has issued more digital certificates
than any other company, having issued over 1.5 million of its Digital IDs for
individuals and over 35,000 of its Digital IDs for Web sites. In addition to
providing Digital IDs for individuals and Web sites, the Company provides turn-
key and custom digital certificate solutions needed by organizations, such as
Dow Jones, NOVUS/Discover and VISA, to conduct trusted and secure
communications and commerce over IP networks. The Company markets its products
and services worldwide through multiple distribution channels, including the
Internet, direct sales, telesales, VARs, systems integrators and OEMs, and
intends to continue to expand these distribution channels.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered....................... shares
Common Stock to be outstanding after the shares(1)
offering..................................
Use of proceeds............................ For general corporate purposes,
including capital expenditures
and working capital. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol..... VRSN
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS
APRIL 12, 1995 ENDED
(INCEPTION) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, -----------------
1995 1996 1996 1997
-------------- ------------ ------- --------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPER-
ATIONS DATA:
Revenues....................... $ 382 $ 1,351 $ 774 $ 6,115
Total costs and expenses....... 2,524 12,365 7,168 20,891
Operating loss................. (2,142) (11,014) (6,394) (14,776)
Net loss....................... (1,994) (10,243) (5,952) (12,722)
Pro forma net loss per
share(2)...................... $ (.74) $ (.47) $ (.75)
Shares used in per share compu-
tations(2).................... 13,836 12,532 17,006
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------
PRO PRO FORMA
ACTUAL FORMA(3) AS ADJUSTED(4)
------- -------- --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments.................................. $13,612 $13,612 $
Total assets.................................. 25,659 25,659
Stockholders' equity.......................... 15,876 17,876
</TABLE>
- --------
(1) Based on the number of shares outstanding as of September 30, 1997.
Excludes (i) 2,000,974 shares of Common Stock issuable upon the exercise of
options then outstanding, with a weighted average exercise price of $1.49
per share, and (ii) a maximum of 3,765,282 shares reserved or to be
reserved for issuance under the Company's stock plans. See
"Capitalization," "Management--Employee Benefit Plans" and Note 6 of Notes
to Consolidated Financial Statements.
(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in per share
computations.
(3) Pro forma to reflect (i) the conversion of all outstanding shares of
Preferred Stock into shares of Common Stock upon the closing of this
offering and (ii) the issuance in November 1997 of 250,000 shares of Common
Stock, valued at $2.0 million, in connection with the execution of certain
agreements with VeriFone, which included a settlement of claims of
VeriFone.
(4) Pro forma as adjusted to reflect the sale of the shares of
Common Stock offered hereby at an assumed initial public offering price of
$ per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company. See
"Use of Proceeds" and "Capitalization."
3
<PAGE>
THE COMPANY
VeriSign is the leading provider of digital certificate solutions and
infrastructure needed by companies, government agencies, trading partners and
individuals to conduct trusted and secure communications and commerce over IP
networks. A digital certificate functions as an electronic credential in the
digital world, identifying the certificate owner, authenticating the
certificate owner's membership in a given organization or community or
establishing the certificate owner's authority to engage in a given
transaction, thereby creating a framework for trusted interaction over IP
networks. The Company has established strategic relationships with industry
leaders, including Cisco, McAfee Associates, Inc. ("McAfee Associates"),
Microsoft, Netscape, RSA Data Security Inc. ("RSA"), Security Dynamics
Technologies, Inc. ("Security Dynamics"), VeriFone, Inc. ("VeriFone") and Visa
International Service Association ("VISA"), to enable widespread deployment of
the Company's digital certificate technology and products and to assure their
interoperability among a wide variety of applications. The Company's digital
certificates, called Digital IDs, are enabled in millions of copies of
Microsoft and Netscape Web browsers, tens of thousands of copies of popular
Web servers and a variety of other software applications. The Company believes
that it has issued more digital certificates than any other company, having
issued over 1.5 million of its Digital IDs for individuals and over 35,000 of
its Digital IDs for Web sites. In addition to providing Digital IDs for
individuals and Web sites, the Company also provides turn-key and custom
solutions needed by organizations, such as Dow Jones, NOVUS/Discover and VISA,
to conduct trusted and secure communications and commerce over IP networks.
IP networks are revolutionizing communications and commerce because of their
global reach, accessibility, use of open standards and ability to enable real-
time interaction. The use of IP networks is beginning to extend beyond
informal messaging, general information browsing and the exchange of non-
sensitive data to a number of more valuable and sensitive activities including
business-to-business transactions and electronic data interchange ("EDI"),
online retail purchases and payments, Web-based access to account and benefits
information and secure messaging for both personal and business use. Forrester
Research estimates that Internet business-to-business commerce alone will grow
from approximately $8 billion in 1997 to more than $327 billion in 2002.
However, despite the convenience and the compelling economic incentives for
the use of IP networks, they cannot reach their full potential as a platform
for global communications and commerce until the current lack of trust and
security associated with the use of these networks is resolved. Digital
certificates are emerging as the leading technology for establishing a
framework for trusted and secure communications and commerce over IP networks,
with many Internet security protocols dictating the use of digital
certificates. Just as an individual may have many forms of credit cards and
IDs, he or she may require multiple digital certificates, each corresponding
to a unique digital relationship between the individual and an organization.
Thus, there is the potential need over time for hundreds of millions of
digital certificates to be issued and managed.
The Company has invested significant resources to develop a highly reliable
and secure operations infrastructure, a modular software architecture and a
comprehensive set of security and trust practices to enable trusted and secure
communications and commerce over IP networks using digital certificates. The
Company's Digital ID Centers in Mountain View, California and Kawasaki, Japan
are designed to provide the high levels of availability, security and
scaleability required to meet the needs of customers for high volume digital
certificate issuance and management. The Company's modular WorldTrust software
architecture, which serves as the foundation for the Company's products and
services, automates many aspects of digital certificate issuance and lifecycle
management and provides the scaleability necessary to deploy millions of
digital certificates for distinct communities ranging from individual
corporations to the entire population of Internet users. The Company also has
been instrumental in defining comprehensive trust practices and procedures,
which the Company believes has been important in establishing its reputation
as the leading provider of digital certificate solutions.
The Company's objective is to enhance its position as the leading provider
of digital certificate solutions and infrastructure needed to conduct trusted
and secure communications and commerce over IP networks. The Company's
strategy to achieve this objective includes leveraging its leadership position
to drive market penetration, leveraging and expanding strategic relationships
with industry leaders, maintaining leadership in technology, infrastructure
and practices and continuing to build the VeriSign brand. The Company markets
its products and services worldwide through multiple distribution channels,
including the Internet, direct sales, telesales, value-added resellers
("VARs"), systems integrators and original equipment manufacturers ("OEMs"),
and intends to continue to expand these distribution channels.
The Company was incorporated in Delaware in April 1995. The Company's
executive offices are located at 1390 Shorebird Way, Mountain View, California
94043, its telephone number at this location is (650) 961-7500 and its Web
site is located at http://www.verisign.com. Information contained in the
Company's Web site is not part of this Prospectus.
4
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered hereby. This Prospectus contains forward-
looking statements that involve risks and uncertainties. The Company's actual
results may differ materially from the results discussed in such forward-
looking statements. Factors that may cause such a difference include, but are
not limited to, those discussed below, in the sections entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" and elsewhere in this Prospectus.
Limited Operating History; History of Losses and Anticipation of Future
Losses. The Company was incorporated in April 1995 and began introducing its
products and services in June 1995. Accordingly, the Company has only a
limited operating history on which to base an evaluation of its business and
prospects. The Company's prospects must be considered in light of the risks
and uncertainties encountered by companies in the early stages of development,
particularly companies in new and rapidly evolving markets. The Company's
success will depend on many factors, including, but not limited to, the
following: the rate and timing of the growth and use of IP networks for
communications and commerce and the extent to which digital certificates are
used for such communications and commerce; the demand for the Company's
products and services; the levels of competition; the perceived security of
communications and commerce over IP networks, and of the Company's
infrastructure, products and services in particular; and the Company's
continued ability to maintain its current, and enter into additional,
strategic relationships. To address these risks the Company must, among other
things: attract and retain qualified personnel; respond to competitive
developments; successfully introduce new products and services; successfully
introduce enhancements to its existing products and services to address new
technologies and standards; and successfully market its digital certificates
and its enterprise and electronic commerce solutions. There can be no
assurance that the Company will succeed in addressing any or all of these
risks, and the failure to do so would have a material adverse effect on the
Company's business, operating results and financial condition. In addition,
the Company has experienced substantial net losses in each fiscal period since
its inception and, as of September 30, 1997, had an accumulated deficit of
$25.0 million. Such net losses and accumulated deficit resulted from the
Company's lack of substantial revenues and the significant costs incurred in
the development and sale of the Company's products and services and in the
establishment and deployment of the Company's operations infrastructure and
practices. The Company's limited operating history, the emerging nature of its
market and the factors described under "--Adoption of IP Networks" and "--
Potential Fluctuations in Quarterly Operating Results; Unpredictability of
Future Revenues," among other factors, make prediction of the Company's future
operating results difficult. In addition, the Company intends to increase its
expenditures in all areas in order to execute its business plan. As a result,
the Company expects to incur substantial additional losses for the foreseeable
future. Furthermore, to the extent the Company's majority-owned subsidiary,
VeriSign Japan, is unable to continue to fund its operations with investments
from minority shareholders, the Company may be required to fund the operations
of VeriSign Japan, which could have a material adverse effect on the Company's
business, operating results and financial condition. Although the Company has
experienced revenue growth in recent periods, there can be no assurance that
such growth rates are sustainable and, therefore, they should not be
considered indicative of future operating results. There can also be no
assurance that the Company will ever achieve significant revenues or
profitability or, if significant revenues and profitability are achieved, that
they could be sustained. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Strategy."
Adoption of IP Networks. In order for the Company to be successful, IP
networks must be adopted as a means of trusted and secure communications and
commerce to a sufficient extent and within an adequate time frame. Because
trusted and secure communications and commerce over IP networks is new and
evolving, it is difficult to predict with any assurance the size of this
market and its growth rate, if any. To date, many businesses and consumers
have been deterred from utilizing IP networks for a number of reasons,
including, but not limited to, potentially inadequate development of network
infrastructure, security concerns, inconsistent quality of service, lack of
availability of cost-effective, high-speed service, limited numbers of local
access points for corporate users, inability to integrate business
applications on IP networks, the need to interoperate with multiple
5
<PAGE>
and frequently incompatible products, inadequate protection of the
confidentiality of stored data and information moving across IP networks and a
lack of tools to simplify access to and use of IP networks. The adoption of IP
networks for trusted and secure communications and commerce, particularly by
individuals and entities that historically have relied upon traditional means
of communications and commerce, will require a broad acceptance of new methods
of conducting business and exchanging information. Companies and government
agencies that already have invested substantial resources in other methods of
conducting business may be reluctant to adopt a new strategy that may limit or
compete with their existing efforts. Furthermore, individuals with established
patterns of purchasing goods and services and effecting payments may be
reluctant to alter those patterns.
The use of IP networks for trusted and secure communications and commerce
may not increase or may increase more slowly than expected because the
infrastructure required to support widespread trusted and secure
communications and commerce on such networks may not develop. For example, the
Internet has experienced, and may continue to experience, significant growth
in its number of users and amount of traffic. There can be no assurance that
the Internet infrastructure will continue to support the demands placed on it
by this continued growth or that the performance or reliability of the
Internet will not be adversely affected by this continued growth. In addition,
IP networks could lose their viability due to delays in the development or
adoption of new standards and protocols to handle increased levels of activity
or due to increased governmental regulation. Changes in, or insufficient
availability of, communications services to support IP networks could result
in slower response times and also adversely affect usage of IP networks. If
the market for trusted and secure communications and commerce over IP networks
fails to develop or develops more slowly than expected, or if the Internet
infrastructure does not adequately support any continued growth, the Company's
business, operating results and financial condition would be materially
adversely affected. See "--Industry Regulation" and "Business--Industry
Background" and "--Customers and Markets."
No Assurance of Market Acceptance for Digital Certificates and the Company's
Products and Services. The Company's products and services are targeted at the
market for trusted and secure communications and commerce over IP networks, a
market that is at an early stage of development and is rapidly evolving.
Accordingly, demand for and market acceptance of digital certificate solutions
are subject to a high level of uncertainty. There can be no assurance that
digital certificates will gain market acceptance as a necessary element of
trusted and secure communications and commerce over IP networks. In addition,
there can be no assurance that the market for the Company's products and
services will develop in a timely manner, or at all, or that demand for the
Company's products and services will emerge or be sustainable. The factors
that may affect the level of market acceptance of digital certificates and,
consequently, the Company's products and services, include the following:
market acceptance of products and services based upon authentication
technologies other than those used by the Company; public perception of the
security of digital certificates and of the inherent security levels of IP
networks; the ability of the Internet infrastructure to accommodate increased
levels of usage; and the enactment of government regulations affecting
communications and commerce over IP networks. Even if digital certificates
achieve market acceptance, there can be no assurance that the Company's
products and services will adequately address the market's requirements. If
digital certificates do not achieve market acceptance in a timely manner and
sustain such acceptance, or if the Company's products and services in
particular do not achieve or sustain market acceptance, the Company's
business, operating results and financial condition would be materially
adversely affected. See "Business--Industry Background" and "--Customers and
Markets."
Potential Fluctuations in Quarterly Operating Results; Unpredictability of
Future Revenues. The Company's operating results have varied on a quarterly
basis during its short operating history and may fluctuate significantly in
the future as a result of a variety of factors, many of which are outside the
Company's control. Factors that may affect the Company's quarterly operating
results include the following: market acceptance of digital certificates;
market acceptance of its products and services, particularly VeriSign OnSite,
VeriSign V-Commerce and VeriSign SET; the long sales and implementation cycles
for and potentially large order sizes of certain of the Company's products and
services; the timing and execution of individual contracts; the timing of
releases of new versions of Internet browsers or other third-party software
products in which the Company's public root keys are embedded; customer
renewal rates for the Company's products and services; the Company's
6
<PAGE>
success in marketing other products and services to its existing customer base
and to new customers; development of the Company's direct and indirect
distribution channels; market acceptance of the Company's or competitors' new
products and services; the amount and timing of expenditures relating to
expansion of the Company's operations; price competition or pricing changes;
general economic conditions and economic conditions specific to the Internet,
intranet and extranet industries. Any one of these factors could cause the
Company's revenues and operating results to vary significantly in the future.
In addition, the Company will need to expand its operations and attract,
integrate, retain and motivate a substantial number of sales and marketing and
research and development personnel. The timing of such expansion and the rate
at which new personnel become productive could cause material fluctuations in
the Company's quarterly results of operations. See "Business--Industry
Background" and "--Strategy."
The Company's limited operating history and the emerging nature of its
market make prediction of future revenues difficult. The Company's expense
levels are based, in part, on its expectations regarding future revenues, and
to a large extent such expenses are fixed, particularly in the short term.
There can be no assurance that the Company will be able to predict its future
revenues accurately and the Company may be unable to adjust spending in a
timely manner to compensate for any unexpected revenue shortfall. Accordingly,
any significant shortfall of revenues in relation to the Company's
expectations could cause significant declines in the Company's quarterly
operating results.
Due to all of the foregoing factors, the Company's quarterly revenues and
operating results are difficult to forecast. The Company believes that period-
to-period comparisons of its operating results will not necessarily be
meaningful and should not be relied upon as an indication of future
performance. Also, it is likely that the Company's operating results will fall
below the expectations of the Company, securities analysts or investors in
some future quarter. In such event, the market price of the Company's Common
Stock could be materially and adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
System Interruption and Security Breaches. The Company's success is largely
dependent on the uninterrupted operation of its Digital ID Centers and its
other computer and communications systems, which is dependent on the Company's
ability to protect such systems from loss, damage or interruption caused by
fire, earthquake, power loss, telecommunications failure or other events
beyond the Company's control. Most of the Company's systems are located at,
and most of its customer information is stored in, its facilities in Mountain
View, California and Kawasaki, Japan, areas susceptible to earthquakes.
Although the Company believes that its existing and planned precautions are
adequate to prevent any significant loss of information or system outage,
there can be no assurance that unanticipated problems will not cause such loss
or failure. Any damage or failure that causes interruptions in the Company's
Digital ID Centers and its other computer and communications systems could
have a material adverse effect on the Company's business, operating results
and financial condition. In addition, the ability of the Company to issue
digital certificates is also dependent on the efficient operation of the
Internet connections from customers to its Digital ID Centers. Such
connections, in turn, are dependent upon efficient operation of Web browsers,
Internet Service Providers ("ISPs") and Internet backbone service providers,
all of which have had periodic operational problems or experienced outages in
the past. Any such problems or outages could adversely affect customer
satisfaction with the Company's products and services, which could have a
material adverse effect on the Company's business, operating results and
financial condition. The Company's success also depends in large part upon the
scaleability of its systems, which have not been tested at high volumes. As
such, it is possible that a substantial increase in demand for the Company's
products and services could cause interruptions in the Company's systems that
could adversely affect the Company's ability to deliver its products and
services. Any such interruptions could have a material adverse effect on the
Company's business, operating results and financial condition.
The Company retains confidential customer information in its Digital ID
Centers. It is critical to the Company's business strategy that the Company's
facilities and infrastructure remain secure and that such facilities and
infrastructure are perceived by the marketplace to be secure. Despite the
implementation of security measures, the Company's infrastructure may be
vulnerable to physical break-ins, computer viruses, attacks by
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hackers or similar disruptive problems, and it is possible that in the future
the Company may have to expend additional financial and other resources to
further address such problems. Any physical or electronic break-ins or other
security breaches or compromises of the private root keys stored at the
Company's Digital ID Centers may jeopardize the security of information stored
on the Company's premises or stored in and transmitted through the computer
systems and networks of the businesses and individuals utilizing the Company's
products or services, which could result in significant liability to the
Company and could deter existing and potential customers from using the
Company's products and services. Such an occurrence could result in adverse
publicity and therefore adversely affect the market's perception of the
security of communications and commerce over IP networks as well as of the
security or reliability of the Company's products and services, which would
have a material adverse effect on the Company's business, operating results
and financial condition. See "Business--The VeriSign Solution," "--Strategy,"
"--Infrastructure," "--Security and Trust Practices" and "--Facilities."
Competition. The Company's digital certificate solutions are targeted at the
new and rapidly evolving market for trusted and secure communications and
commerce over IP networks. Although the competitive environment in this market
has yet to develop fully, the Company anticipates that it will be intensely
competitive, subject to rapid change and significantly affected by new product
and service introductions and other market activities of industry
participants.
The Company's primary competitors are Entrust Technologies, Inc.
("Entrust"), GTE CyberTrust Solutions Incorporated ("GTE/CyberTrust") and
International Business Machines Corporation ("IBM"). The Company also
experiences competition from a number of smaller companies that provide
digital certificate solutions. The Company expects that competition from
established and emerging companies in the financial and telecommunications
industries will increase in the near term, and that the Company's primary
long-term competitors may not yet have entered the market. Netscape has
introduced software products that enable the issuance and management of
digital certificates, and the Company believes that other companies could
introduce such products. There can be no assurance that additional companies
will not offer digital certificate solutions that are competitive with those
of the Company. Increased competition could result in pricing pressures,
reduced margins or the failure of the Company's products and services to
achieve or maintain market acceptance, any of which could have a material
adverse effect on the Company's business, operating results and financial
condition.
Several of the Company's current and potential competitors have longer
operating histories and significantly greater financial, technical, marketing
and other resources than the Company and therefore may be able to respond more
quickly than the Company to new or changing opportunities, technologies,
standards and customer requirements. Many of these competitors also have
broader and more established distribution channels that may be used to deliver
competing products or services directly to customers through bundling or other
means. If such competitors were to bundle with their products competing
products or services for their customers, the demand for the Company's
products and services might be substantially reduced and the ability of the
Company to distribute its products successfully and the utilization of its
services would be substantially diminished. In addition, browser companies
that embed the Company's root keys or otherwise feature the Company as a
provider of digital certificate solutions in their Web browsers or on their
Web sites could also promote competitors of the Company or charge the Company
substantial fees for such promotions in the future. New technologies and the
expansion of existing technologies may increase the competitive pressures on
the Company. There can be no assurance that competing technologies developed
by others or the emergence of new industry standards will not adversely affect
the Company's competitive position or render its products or technologies
noncompetitive or obsolete. In addition, the market for digital certificates
is nascent and is characterized by announcements of collaborative
relationships involving competitors of the Company. The existence or
announcement of such relationships could adversely affect the Company's
ability to attract and retain customers. As a result of the foregoing and
other factors, there can be no assurance that the Company will compete
effectively with current or future competitors or that competitive pressures
faced by the Company will not have a material adverse effect on the Company's
business, operating results and financial condition.
In connection with the Company's first round of financing, RSA contributed
certain technology to the Company and entered into a noncompetition agreement
with the Company pursuant to which RSA agreed that it
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would not compete with the Company's certificate authority business for a
period of five years. This noncompetition agreement will expire in April 2000.
The Company believes that, because RSA (which is now a wholly-owned subsidiary
of Security Dynamics) has already developed expertise in the area of
cryptography, its barriers to entry would be lower than those that would be
encountered by other potential competitors of the Company should it choose to
enter any of the Company's markets. If RSA were to enter into the digital
certificate market, the Company's business, operating results and financial
condition could be materially adversely affected. See "Business--Competition."
Rapid Technological Change; New Product and Services Introductions.
Substantially all of the Company's limited revenues to date have been derived
from the sale of digital certificate products and related services. These
products and services are expected to account for substantially all of the
Company's revenues for the foreseeable future. The emerging market for digital
certificate products and related services is characterized by rapid
technological developments, frequent new product introductions and evolving
industry standards. The emerging nature of this market and its rapid evolution
will require that the Company continually improve the performance, features and
reliability of its products and services, particularly in response to
competitive offerings and that it introduce new products and services or
enhancements to existing products and services as quickly as possible and prior
to its competitors. The success of new product introductions is dependent on
several factors, including proper new product definition, timely completion and
introduction of new products, differentiation of new products from those of the
Company's competitors and market acceptance of the Company's new products and
services. There can be no assurance that the Company will be successful in
developing and marketing new products and services that respond to competitive
and technological developments and changing customer needs. The failure of the
Company to develop and introduce new products and services successfully on a
timely basis and to achieve market acceptance for such products and services
could have a material adverse effect on the Company's business, operating
results and financial condition. In addition, the widespread adoption of new
Internet, networking or telecommunication technologies or standards or other
technological changes could require substantial expenditures by the Company to
modify or adapt its products and services. To the extent that a method other
than digital certificates is adopted to enable trusted and secure communications
and commerce over IP networks, sales of the Company's existing and planned
products and services will be adversely affected and the Company's products and
services could be rendered unmarketable or obsolete, which would have a material
adverse effect on the Company's business, operating results and financial
condition. The Company believes there is a time-limited opportunity to achieve
market share, and there can be no assurance that the Company will be successful
in achieving widespread acceptance of its products and services or in achieving
market share before competitors offer products and services with features
similar to the Company's current offerings. Any such failure by the Company
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Business--Products and Services" and "--
Research and Development."
Management of Growth and Expansion. The Company is currently experiencing a
period of significant expansion. The Company's historical growth has placed,
and such growth and any further growth is likely to continue to place, a
significant strain on the Company's managerial, operational, financial and
other resources. The Company has grown from 30 employees at December 31, 1995
to 162 employees at September 30, 1997. In addition, the Company has opened
additional sales offices and has significantly expanded its operations during
this time period. The Company's future success will depend, in part, upon the
ability of its senior management to manage growth effectively, which will
require the Company to implement additional management information systems, to
develop further its operating, administrative, financial and accounting
systems and controls and to maintain close coordination among its engineering,
accounting, finance, marketing, sales and operations organizations. Any
failure to implement or improve systems or controls or to manage any future
growth and expansion effectively could have a material adverse effect on the
Company's business, operating results and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Dependence on Key Personnel. The Company's future success will be highly
dependent on the performance of its senior management team and other key
employees, many of whom have worked together for only a short
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period of time. For example, the Company has only recently hired its Vice
President of Sales and Field Operations. The Company's success will also
depend on its ability to attract, integrate, motivate and retain additional
highly skilled technical and sales and marketing personnel. There is intense
competition for senior management and technical and sales and marketing
personnel in the areas of the Company's activities. In addition, the Company's
stringent hiring practices for all operations personnel and executive
management and for certain engineering personnel, which consist of background
checks into prospective employees' criminal and financial histories, further
limit the number of qualified persons for such positions. See "Business--
Security and Trust Practices." The Company has no employment agreements with
any of its key executives. In addition, the Company does not maintain key
person life insurance for any of its officers or key employees other than
Stratton D. Sclavos, its President and Chief Executive Officer. The loss of
the services of any of the Company's senior management team or other key
employees or the failure of the Company to attract, integrate, motivate and
retain additional key employees could have a material adverse effect on the
Company's business, operating results and financial condition. See "Business--
Employees" and "Management."
Need to Establish and Maintain Strategic Relationships. A significant
business strategy of the Company is to enter into strategic or other similar
collaborative relationships in order to offer products and services to a
larger customer base than could be reached through direct sales and marketing
efforts. The Company will need to enter into additional strategic
relationships to execute its business plan. There can be no assurance that the
Company will be able to enter into additional, or maintain its existing,
strategic relationships on commercially reasonable terms, if at all. If the
Company were unable to enter into additional strategic relationships or
maintain its existing strategic relationships, it would be required to devote
substantially more resources to the distribution, sale and marketing of its
products and services than it would otherwise plan to do. Furthermore, as a
result of the Company's emphasis on these relationships, the Company's success
will depend both on the ultimate success of the other parties to such
relationships, particularly in the use and promotion of IP networks for
trusted and secure communications and commerce, and on the ability of these
parties to market the Company's products and services successfully. Failure of
one or more of the Company's strategic relationships to result in the
development and maintenance of a market for the Company's products and
services could have a material adverse effect on the Company's business,
operating results and financial condition.
In addition, the Company's existing strategic relationships do not, and any
future strategic relationships may not, afford the Company any exclusive
marketing or distribution rights. There can be no assurance that the other
parties to such relationships view their relationships with the Company as
significant for their own businesses or that they will not reduce their
commitment to the Company at any time in the future. In addition, there can be
no assurance that such parties will not pursue alternative technologies or
develop alternative products and services in addition to or in lieu of the
Company's products and services either on their own or in collaboration with
others, including the Company's competitors. Any future inability of the
Company to maintain its strategic relationships or to enter into additional
strategic relationships could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business--Strategy,"
"--Strategic Relationships" and "--Marketing, Sales and Distribution."
Risk of Defects. Products as complex as those offered or developed by the
Company frequently contain undetected defects or failures that may be detected
at any point in the product's life. There can be no assurance that, despite
testing by the Company and potential customers, defects or errors will not
occur in existing or new products, which could result in loss of or delay in
revenues, loss of market share, failure to achieve market acceptance,
diversion of development resources, injury to the Company's reputation,
increased insurance costs or increased service and warranty costs, any of
which could have a material adverse effect on the Company's business,
operating results and financial condition. Furthermore, the Company often
renders implementation, customization, consulting and other technical services
in connection with the implementation of the Company's enterprise and
electronic commerce solutions and its digital certificate service and product
development agreements. The performance of these services typically involves
working with sophisticated software, computing and networking systems. The
Company's failure or inability to meet customer expectations or project
milestones in a timely manner could also result in loss of or delay in
revenues, loss of market share, failure to achieve market acceptance, injury
to reputation and increased costs. Because customers rely on the Company's
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digital certificate solutions for critical security applications, any
significant defects or errors in the Company's products or services, or in the
products of third parties that embed the Company's products, might discourage
such third parties or other customers from utilizing the Company's products
and services or result in tort or warranty claims, which could have a material
adverse effect on the Company's business, operating results and financial
condition. Although the Company attempts to reduce the risk of losses
resulting from such claims through warranty disclaimers and liability
limitation clauses in its sales agreements, there can be no assurance that
such contractual provisions would be enforceable in every instance or at all.
Furthermore, although the Company maintains errors and omissions insurance,
there can be no assurance that such insurance coverage will adequately cover
the Company for such claims or that such other measures will be effective in
limiting the Company's liability. If a court refused to enforce the liability-
limiting provisions of the Company's contracts for any reason, or if
liabilities arose that were not contractually limited or adequately covered by
insurance, the Company's business, operating results and financial condition
could be materially and adversely affected. See "Business--Products and
Services" and "--Research and Development."
Potentially Lengthy Sales and Implementation Cycles for Certain Products and
Services. A key element of the Company's strategy is to market certain of its
products and services directly to large companies and government agencies.
Based on its sales experience to date, the Company expects that the sale and
implementation of its enterprise and electronic commerce solutions to such
entities will typically involve a lengthy education process and a significant
technical evaluation and commitment of capital and other resources. The sale
and implementation of the Company's enterprise and electronic commerce
solutions will 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 networks and testing and accepting new
technologies that affect key operations. For these and other reasons, the
sales and implementation cycles associated with certain of the Company's
products and services are expected to be lengthy, potentially lasting from
three to 12 months, and are expected to be subject to a number of significant
risks that are beyond the Company's control. Because of the anticipated
lengthy sales and implementation cycle and the potentially large size of such
orders, if orders forecasted for a specific customer for a particular quarter
are not realized or revenues are not otherwise recognized in that quarter, the
Company's operating results for that quarter could be materially adversely
affected. See "--Potential Fluctuations in Quarterly Operating Results;
Unpredictability of Future Revenues" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Risks Relating to Cryptography Technology. The Company's digital certificate
products and related services are dependent on the use of public key
cryptography technology, which depends in part on the application of certain
mathematical principles known as "factoring." The security afforded by public
key cryptography technology is predicated on the assumption that the factoring
of the composite of large prime numbers is difficult. Should an easy factoring
method be developed, then the security afforded by encryption products
utilizing public key cryptography technology would be reduced or eliminated.
Furthermore, any significant advance in techniques for attacking cryptographic
systems could also render some or all of the Company's existing products and
services obsolete or unmarketable. There can be no assurance that such
developments will not occur. Moreover, even if no breakthroughs in factoring
or other methods of attacking cryptographic systems are made, factoring
problems can theoretically be solved by computer systems significantly faster
and more powerful than those presently available. If such improved techniques
for attacking cryptographic systems are ever developed, the Company would
likely have to reissue digital certificates to some or all of its customers,
which could adversely affect market perception of the reliability of the
Company's products and services or otherwise have a material adverse effect on
the Company's business, operating results and financial condition. In the past
there have been public announcements of the successful decoding of certain
cryptographic messages. The publicity around any breaches could adversely
affect the public perception as to the safety of the public key cryptography
technology included in the Company's digital certificates. Such adverse public
perception could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business--Industry Background"
and "--Products and Services."
Risks Associated with International Operations. Revenues of VeriSign Japan
and revenues from other international customers accounted for approximately
15% of the Company's revenues for the nine months ended
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September 30, 1997. A key component of the Company's strategy is to expand its
international operations and its international sales and marketing activities.
Expansion into these markets has required and will continue to require
significant management attention and resources and may require the Company to
localize its products and services for a particular market and to enter into
international distribution and operating relationships. The Company has
limited experience in localizing its products and in developing international
distribution or operating relationships. There can be no assurance that the
Company will be successful in expanding its product and service offerings into
international markets. In addition to the uncertainty regarding the Company's
ability to generate revenues from foreign operations and expand its
international presence, there are certain risks inherent in doing business on
an international basis, including, among others, regulatory requirements,
legal uncertainty regarding liability, export and import restrictions, tariffs
and other trade barriers, difficulties in staffing and managing foreign
operations, longer payment cycles, problems in collecting accounts receivable,
political instability, seasonal reductions in business activity and
potentially adverse tax consequences, any of which could adversely affect the
success of the Company's international operations. All of the Company's
international revenues from sources other than VeriSign Japan are denominated
in U.S. dollars. To the extent the Company expands its international
operations and has additional portions of its international revenues
denominated in foreign currencies, the Company could become subject to
increased risks relating to foreign currency exchange rate fluctuations. There
can be no assurance that one or more of the factors discussed above will not
have a material adverse effect on the Company's future international
operations and, consequently, on the Company's business, operating results and
financial condition. See "--Industry Regulation," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business--
Strategy" and "--Marketing, Sales and Distribution."
Uncertain Maintenance and Strengthening of the VeriSign Brand. The Company
believes that maintaining and strengthening the VeriSign brand is critical to
achieving widespread acceptance of its digital certificates and related
products and services and that the importance of brand recognition will
increase as competition in the market for digital certificates and related
products and services increases. Promoting and positioning the VeriSign brand
will depend largely on the success of the Company's marketing efforts and the
ability of the Company to provide, on an uninterrupted basis, high quality,
secure, trustworthy and cost effective digital certificate solutions. The
Company will also be dependent on the success of its strategic relationships
in order to promote its brand and increase brand awareness. See "--Need to
Establish and Maintain Strategic Relationships." If current or potential
customers do not perceive the Company's products and services as secure or
trustworthy, the Company will be unsuccessful in maintaining and strengthening
its brand. Furthermore, in order to promote the VeriSign brand in response to
competitive pressures, the Company may find it necessary to increase its
marketing budget or otherwise increase its financial commitment to creating
and maintaining brand loyalty among customers. If the Company fails to promote
and maintain its brand or incurs excessive expenses in an attempt to promote
and maintain its brand, or if the Company's existing or future strategic
relationships fail to promote the Company's brand or increase brand awareness,
the Company's business, operating results and financial condition could be
materially adversely affected. See "Business--Strategy" and "--Marketing,
Sales and Distribution."
Dependence on Authentication Information. The Company relies upon
information provided by third-party sources to authenticate the identity of
customers requesting certain of the Company's digital certificates. This
information is presently only available from a limited number of sources and
the Company currently procures such information from single sources. The
Company's reliance on these single sources involves certain risks and
uncertainties, including the possibility of delayed or discontinued
availability. Any such delay or unavailability, coupled with any inability of
the Company to develop alternative sources quickly and cost-effectively, could
materially impair the Company's ability to deliver certain of its digital
certificates on a timely basis and result in the cancellation of orders,
increased costs and injury to reputation, which could have a material adverse
effect on the Company's business, operating results and financial condition.
The Company's reliance on third-party information sources for authentication
has also limited the distribution of certain of its digital certificates
outside of the United States, where access to such sources has been
unavailable or limited. Additionally, accurate authentication of the identity
of the individuals and entities to which the Company issues its digital
certificates is necessary for such digital certificates to provide security.
Therefore, the inaccuracy of authentication information
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on which the Company relies, including information the Company receives from
third parties, could result in material injury to the Company's reputation and
tort or warranty claims from customers relying upon the Company's digital
certificates, which could have a material adverse effect on the Company's
business, operating results and financial condition. See "--Risk of Defects"
and "Business--Products and Services."
Industry Regulation. Exports of software products utilizing encryption
technology are generally restricted by the U.S. and various foreign
governments. All cryptographic products require export licenses from certain
U.S. government agencies. Although the Company has obtained approval to export
its Global Server ID product and none of the Company's other products and
services is currently subject to export controls under U.S. law, there can be
no assurance that the list of products and countries for which export approval
is required, and the regulatory policies with respect thereto, will not be
revised from time to time to include digital certificate products and related
services, or that the Company will be able to obtain necessary regulatory
approvals for the export of future products. The inability of the Company to
obtain required approvals under these regulations could adversely affect the
ability of the Company to make international sales. Furthermore, competitors
of the Company may also seek to obtain approvals to export products that could
increase the amount of competition faced by the Company. There are currently
no federal laws or regulations that specifically control certification
authorities, but a limited number of states have enacted legislation or
regulations with respect to certification authorities. If the market for
digital certificates grows, the United States, state or foreign governments
may choose to enact further regulations governing digital certificate
authorities or other providers of digital certificate products and related
services. Such regulations or the costs of complying with such regulations
could have a material adverse effect on the Company's business, operating
results and financial condition.
Many companies conducting commercial transactions over IP networks do not
collect sales or other similar taxes with respect to shipments of goods into
other states or foreign countries or with respect to other transactions
conducted between parties in different states or countries. It is possible
that states or foreign countries may seek to impose sales taxes on out of
state companies that engage in commerce over IP networks. In the event that
states or foreign countries succeed in imposing sales or other taxes on
Internet commerce, the growth of the use of IP networks for commerce could
slow substantially, which could have a material adverse effect on the
Company's business, operating results and financial condition.
Due to the increasing popularity of the Internet and other IP networks, it
is possible that laws and regulations may be enacted covering issues such as
user privacy, pricing, content and quality of products and services. For
example, the Telecommunications Act of 1996 prohibits the transmission over
the Internet of certain types of information and content. The increased
attention focused upon these issues as a result of the adoption of other laws
or regulations may reduce the rate of growth of the Internet or the use of
other IP networks, which in turn could result in decreased demand for the
Company's products and services or could otherwise have a material adverse
effect on the Company's business, operating results and financial condition.
See "Business--Industry Background."
Intellectual Property; Potential Litigation. The Company relies primarily on
a combination of copyrights, trademarks, trade secret laws, restrictions on
disclosure and other methods to protect its intellectual property and trade
secrets. The Company also enters into confidentiality agreements with its
employees and consultants, and generally controls access to and distribution
of its documentation and other proprietary information. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use the Company's intellectual property or trade secrets without
authorization. In addition, there can be no assurance that others will not
independently develop substantially equivalent intellectual property. There
can be no assurance that the precautions taken by the Company will prevent
misappropriation or infringement of its technology. A failure by the Company
to protect its intellectual property in a meaningful manner could have a
material adverse effect on the Company's business, operating results and
financial condition. In addition, litigation may be necessary in the future to
enforce the Company's intellectual property rights, to protect the Company's
trade secrets or to determine the validity and scope of the proprietary rights
of others. Such litigation could result in substantial costs and diversion of
management and technical resources, either of which could have a material
adverse effect on the Company's business, operating results and financial
condition.
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The Company also relies on certain licensed third-party technology, such as
public key cryptography technology licensed from RSA and other technology that
is used in the Company's products to perform key functions. There can be no
assurance that these third-party technology licenses will continue to be
available to the Company on commercially reasonable terms or at all, and the
loss of any of these technologies could have a material adverse effect on the
Company's business, operating results and financial condition. Moreover, in
the Company's current license agreements, the licensor has agreed to defend,
indemnify and hold the Company harmless with respect to any claim by a third
party that the licensed software infringes any patent or other proprietary
right. Although these licenses are fully paid, there can be no assurance that
the outcome of any litigation between the licensor and a third party or
between the Company and a third party will not lead to royalty obligations of
the Company for which the Company is not indemnified or for which such
indemnification is insufficient, or that the Company will be able to obtain
any additional license on commercially reasonable terms or at all. In the
future, the Company may seek to license additional technology to incorporate
in its products and services. There can be no assurance that any third-party
technology licenses that the Company may be required to obtain in the future
will be available to the Company on commercially reasonable terms or at all.
The loss of or inability to obtain or maintain any of these technology
licenses could result in delays in introduction of the Company's products or
services until equivalent technology, if available, is identified, licensed
and integrated, which could have a material adverse effect on the Company's
business, operating results and financial condition.
From time to time, the Company has received, and may receive in the future,
notice of claims of infringement of other parties' proprietary rights. In
September 1995, the Company applied to the United States Patent and Trademark
Office to register the VeriSign name as a trademark. VeriFone, Inc.
("VeriFone") challenged the validity of the Company's application in August
1996 and, in September 1996, commenced a civil action in federal district
court alleging trademark infringement and unfair competition. The parties
settled this litigation on November 21, 1997, entered into a licensing
arrangement and are currently negotiating an OEM agreement. The Company also
issued an aggregate of 250,000 shares of Common Stock to VeriFone in
connection with the foregoing transactions. There can be no assurance that
infringement or other claims will not be asserted or prosecuted against the
Company in the future or that any past or future assertions or prosecutions
will not materially adversely affect the Company's business, operating results
and financial condition. Any such claims, with or without merit, could be
time-consuming, result in costly litigation and diversion of technical and
management personnel, cause product shipment delays or require the Company to
develop non-infringing technology or enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to the Company, or at all. In the event of a
successful claim of product infringement against the Company and the failure
or inability of the Company to develop non-infringing technology or license
the infringed or similar technology on a timely basis, the Company's business,
operating results and financial condition could be materially adversely
affected. See "Business--Intellectual Property."
Year 2000 Compliance. Many currently installed computer systems and software
products are coded to accept only two digit entries in the date code field.
These date code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, many companies'
software and computer systems may need to be upgraded or replaced in order to
comply with such "Year 2000" requirements. Although the Company believes that
its products and systems are Year 2000 compliant, the Company utilizes third-
party equipment and software that may not be Year 2000 compliant. Failure of
such third-party equipment or software to operate properly with regard to the
year 2000 and thereafter could require the Company to incur unanticipated
expenses to remedy any problems, which could have a material adverse effect on
the Company's business, operating results and financial condition.
Furthermore, the purchasing patterns of customers or potential customers may
be affected by Year 2000 issues as companies expend significant resources to
correct their current systems for Year 2000 compliance. These expenditures may
result in reduced funds available to implement the infrastructure needed to
conduct trusted and secure communications and commerce over IP networks or to
purchase products and services such as those offered by the Company, which
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Business--Industry Background."
14
<PAGE>
Future Capital Needs; Uncertainty of Additional Funding. The Company may
require additional capital to finance its growth and marketing and research
and development projects beyond the next 12 months. The Company's capital
requirements will depend on many factors including, but not limited to, demand
for the Company's products and services and the extent to which such products
achieve market acceptance and the timing of such market acceptance, the timing
of and extent to which the Company invests in new technology, the expenses of
sales and marketing and new product development, the extent to which
competitors are successful in developing their own products and services and
increasing their own market share and brand awareness, the success of the
Company's strategic relationships, the costs involved in maintaining and
enforcing intellectual property rights, the level and timing of revenues,
available borrowings under line of credit arrangements, the degree and timing
of growth of IP networks for trusted and secure communications and commerce,
and other factors. To the extent that resources are insufficient to fund the
Company's activities, the Company may need to raise additional funds through
public or private financing, strategic relationships or other arrangements.
There can be no assurance that such additional funding, if needed, will be
available on terms attractive to the Company, or at all. Strategic
relationships, if necessary to raise additional funds, may require the Company
to relinquish rights to certain of its technologies or products. The failure
of the Company to raise capital when needed could have a material adverse
effect on the Company's business, operating results and financial condition.
If additional funds are raised through the issuance of equity securities, the
percentage ownership of the Company by its then-current stockholders would be
reduced. Furthermore, such equity securities might have rights, preferences or
privileges senior to those of the Company's Common Stock. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
Certain Anti-Takeover Provisions. Upon completion of this offering, the
Company's Board of Directors will have the authority to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote or action by the stockholders. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock, while providing flexibility in connection with
possible financings, acquisitions or other corporate purposes, may have the
effect of delaying, deferring or preventing a change in control of the
Company, may discourage bids for the Company's Common Stock at a premium over
the market price of the Common Stock and may adversely affect the market price
of, and the voting and other rights of the holders of, the Common Stock. The
Company has no current plans to issue shares of Preferred Stock. In addition,
certain provisions of the Company's Amended and Restated Bylaws will have the
effect of delaying, deferring or preventing a change of control of the
Company. These provisions will provide, among other things, that the Board of
Directors is divided into three classes to serve staggered three-year terms,
that stockholders may not take actions by written consent and that the ability
of stockholders to call special meetings will be restricted. In addition, the
Company is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which will prohibit the Company from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved
in a prescribed manner. The Company's indemnity agreements provide and the
Company's Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws will provide that the Company will indemnify officers and
directors against losses that they may incur in investigations and legal
proceedings resulting from their services to the Company, which may be broad
enough to include services in connection with takeover defense measures. Such
provisions may have the effect of preventing changes in the management of the
Company. See "Description of Capital Stock."
Shares Eligible for Future Sale. Sales of a substantial number of shares of
Common Stock in the public market following this offering could adversely
affect the market price of the Company's Common Stock. The number of shares of
Common Stock available for sale in the public market is limited by
restrictions under the Securities Act of 1933, as amended (the "Securities
Act"), and lock-up agreements executed by each of the security holders of the
Company under which such security holders have agreed not to sell or otherwise
dispose of any of their shares for a period of 180 days after the date of this
Prospectus without the prior written consent
15
<PAGE>
of Morgan Stanley & Co. Incorporated. Morgan Stanley & Co. Incorporated may,
however, in its sole discretion and at any time without notice, release all or
any portion of the shares subject to lock-up agreements. In addition to the
shares of Common Stock offered hereby (assuming no exercise of the
Underwriters' over-allotment option), there will be 17,018,509 shares of
Common Stock outstanding as of the date of this Prospectus, all of which are
"restricted" shares under the Securities Act. On the date of this Prospectus,
no shares other than the shares offered hereby will be eligible for
sale. Upon the expiration of lock-up agreements 180 days after the date of
this Prospectus, an additional 16,668,509 shares will become eligible for sale
in the public market, subject in the case of all but 2,661,052 shares to the
volume limitations and other conditions of Rule 144 adopted under the
Securities Act ("Rule 144"). The remaining 350,000 shares will become eligible
for sale in November 1998, subject to the volume limitations and other
conditions of Rule 144. In addition, the Company intends to file a
registration statement on Form S-8 with the Securities and Exchange Commission
shortly after this offering covering (i) the 2,625,000 shares of Common Stock
reserved or to be reserved for issuance under the Company's Equity Incentive
Plan, Purchase Plan and Directors Plan, (ii) an additional number of shares of
Common Stock to be reserved for issuance under the Equity Incentive Plan equal
to the number of shares reserved for future issuance under the 1995 Stock
Option Plan and 1997 Stock Option Plan as of the date of this Prospectus
(717,482 as of October 31, 1997), and (iii) the shares subject to outstanding
options granted under the Company's 1995 Stock Option Plan and 1997 Stock
Option Plan as of the date of this Prospectus (2,362,528 as of October 31,
1997). The holders of approximately 14,719,339 shares of Common Stock are also
entitled to certain rights with respect to registration of such shares of
Common Stock for offer or sale to the public. If such holders, by exercising
their registration rights, cause a large number of shares to be registered and
sold in the public market, such sales could have a material adverse effect on
the market price for the Company's Common Stock. See "Management--Director
Compensation," "--Employee Benefit Plans," "Description of Capital Stock--
Registration Rights" and "Shares Eligible for Future Sale."
Acquisitions. The Company from time to time may acquire or invest in
businesses, technologies and product lines that are complementary to the
Company's business. Although the Company currently has no understandings,
commitments or agreements with respect to any acquisitions, any such
acquisitions would be accompanied by the risks commonly encountered in such
transactions, including, among others, the difficulty of assimilating the
operations and personnel of the acquired businesses, the potential disruption
of the Company's ongoing business, the diversion of the Company's management
from the day-to-day operations of the Company, the inability of the Company to
incorporate acquired technologies successfully into the Company's products and
services, the additional expense associated with amortization of acquired
intangible assets, the potential impairment of the Company's relationships
with its employees, customers and strategic partners, the inability of the
Company to retain key technical and managerial personnel of the acquired
business and the inability of the Company to maintain uniform standards,
controls, procedures and policies. Because of these and other factors, any
such acquisitions, if consummated, could have a material adverse affect on the
Company's business, operating results and financial condition. See "Use of
Proceeds."
No Prior Trading Market; Possible Volatility of Stock Price. Prior to this
offering, there has been no public market for the Common Stock of the Company
and there can be no assurance that an active trading market will develop or be
sustained upon completion of this offering. The initial public offering price,
which will be established by negotiations between the Company and the
representatives of the Underwriters based upon a number of factors, may not be
indicative of prices that will prevail in the trading market. See
"Underwriters" for a discussion of the factors to be considered in determining
the initial public offering price. The stock market from time to time has
experienced significant price and volume fluctuations. In addition, the market
prices of securities of other technology companies, particularly Internet-
related companies, have been highly volatile. Factors such as fluctuations in
the Company's operating results, announcements of technological innovations or
new products or services by the Company or its competitors, analysts' reports
and projections, regulatory actions and general market conditions may have a
significant effect on the market price of the Company's Common Stock. See
"Underwriters."
16
<PAGE>
Control by Existing Stockholders. Upon completion of this offering, the
present executive officers, directors and 5% stockholders of the Company and
their affiliates will beneficially own approximately % of the Company's
outstanding Common Stock ( % if the Underwriters' over-allotment option is
exercised in full). As a result, these stockholders would be able to
significantly influence the management and affairs of the Company and all
matters requiring stockholder approval, including the election of directors
and approval of significant corporate transactions such as a merger,
consolidation or sale of substantially all of the Company's assets. Such
concentration of ownership might have the effect of delaying or preventing a
change in control of the Company and might affect the market price of the
Company's Common Stock and the voting and other rights of the Company's other
stockholders. See "Principal Stockholders."
Immediate and Substantial Dilution. Investors participating in this offering
will incur immediate, substantial dilution in the amount of $ per share. To
the extent that outstanding options to purchase the Company's Common Stock are
exercised, there will be further dilution. See "Dilution."
Unspecified Use of Proceeds. The Company plans to use substantially all of
the net proceeds from this offering for general corporate purposes, including
working capital and capital expenditures. The Company may also use a portion
of the net proceeds from this offering to acquire or invest in businesses,
technologies and product lines that are complementary to the Company's
business. The Company has no present plans or commitments and is not currently
engaged in any negotiations with respect to such transactions. As a result,
the Company will have significant discretion as to the use of the net proceeds
from this offering. Pending such uses, the Company intends to invest the net
proceeds from this offering in short-term, interest-bearing, investment-grade
securities. See "Use of Proceeds."
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Common Stock offered by the Company hereby are estimated to be approximately
$ million (approximately $ million if the Underwriters' over-
allotment option is exercised in full), at an assumed initial public offering
price of $ per share and after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by the Company. The
primary purposes of this offering are to obtain additional equity capital,
create a public market for the Company's Common Stock and facilitate future
access by the Company to the public equity markets.
The Company intends to use approximately $5.0 million of the net proceeds of
this offering to fund its capital expenditures for 1998 and to utilize the
remainder of the net proceeds of this offering primarily for general corporate
purposes, including working capital. The Company may also use a portion of the
net proceeds from this offering to acquire or invest in businesses,
technologies and product lines that are complementary to the Company's
business. The Company has no present plans or commitments and is not currently
engaged in any negotiations with respect to such transactions. As a result,
the Company will have significant discretion as to the use of the net proceeds
from this offering. Pending such uses, the Company intends to invest the net
proceeds from this offering in short-term, interest-bearing, investment-grade
securities. See "Risk Factors--Acquisitions" and "--Unspecified Use of
Proceeds."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock or other securities and does not anticipate paying any cash dividends in
the foreseeable future. In addition, the terms of the Company's equipment line
of credit agreement prohibit the payment of dividends on its capital stock.
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
September 30, 1997, (ii) on a pro forma basis, giving effect to the conversion
of all outstanding shares of Preferred Stock into shares of Common Stock upon
the closing of this offering and the issuance in November 1997 of 250,000
shares of Common Stock, valued at $2.0 million, in connection with the
execution of certain agreements with VeriFone, which included a settlement of
claims of VeriFone, and (iii) on a pro forma as adjusted basis to reflect the
receipt by the Company of the estimated net proceeds from the sale of the
shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $ per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Stockholders' equity:
Convertible Preferred Stock, $.001 par value;
actual--10,282,883 shares authorized,
10,031,006 shares issued and outstanding; pro
forma and pro forma as adjusted--5,000,000
shares authorized, no shares issued and
outstanding ................................. $ 10 $ -- $ --
Common Stock, $.001 par value; actual--
15,940,217 shares authorized, 6,568,257
shares issued and outstanding; pro forma--
50,000,000 shares authorized, 16,849,263
shares issued and outstanding; pro forma as
adjusted-- shares issued and
outstanding(1)............................... 6 17
Additional paid-in capital.................... 41,651 43,650
Notes receivable from stockholders............ (644) (644) (644)
Deferred compensation......................... (188) (188) (188)
Accumulated deficit........................... (24,959) (24,959) (24,959)
-------- -------- ---------
Total stockholders' equity................... 15,876 17,876
-------- -------- ---------
Total capitalization....................... $ 15,876 $ 17,876 $
======== ======== =========
</TABLE>
- --------
(1) Excludes (i) 2,000,974 shares of Common Stock issuable upon the exercise
of options outstanding as of September 30, 1997 under the Company's 1995
Stock Option Plan (the "1995 Stock Option Plan"), with a weighted average
exercise price of $1.49 per share, and 340,282 shares of Common Stock
reserved for future issuance thereunder, (ii) 800,000 shares of Common
Stock reserved for issuance under the Company's 1997 Stock Option Plan
(the "1997 Stock Option Plan"), (iii) 2,000,000 additional shares of
Common Stock reserved for issuance under the Company's 1998 Equity
Incentive Plan (the "Equity Incentive Plan"), (iv) 500,000 shares of
Common Stock to be reserved for issuance under the Company's 1998 Employee
Stock Purchase Plan (the "Purchase Plan"), (v) 125,000 shares of Common
Stock reserved for issuance under the Company's 1998 Directors Stock
Option Plan (the "Directors Plan") and (vi) 17,500 shares of Common Stock
subject to a warrant that would become issuable in the event that the
Company borrows funds under an equipment loan agreement. See "Management--
Employee Benefit Plans," "Description of Capital Stock" and Note 6 of
Notes to Consolidated Financial Statements.
19
<PAGE>
DILUTION
The pro forma net tangible book value of the Company's Common Stock as of
September 30, 1997 was $17.9 million, or $1.06 per share. Pro forma net
tangible book value per share is equal to the Company's total tangible assets
less its total liabilities, divided by the pro forma shares of Common Stock
outstanding as of September 30, 1997. After giving effect to the issuance and
sale of the shares of Common Stock offered by the Company hereby
(at an assumed initial public offering price of $ per share and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company), the Company's as adjusted net
tangible book value as of September 30, 1997 would have been $ , or
$ per share. This represents an immediate increase in pro forma net
tangible book value of $ per share to existing stockholders and an
immediate dilution of $ per share to new public investors. The following
table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $
Pro forma net tangible book value per share at September
30, 1997.................................................. $1.06
Increase in pro forma net tangible book value per share
attributable to new public investors......................
-----
As adjusted net tangible book value per share after
offering....................................................
-------
Dilution per share to new public investors................... $
=======
</TABLE>
The following table summarizes on a pro forma basis, as of September 30,
1997, the difference between the existing stockholders and the purchasers of
shares of Common Stock in this offering (at an assumed initial public offering
price of $ per share and before deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by the
Company) with respect to the number of shares of Common Stock purchased from
the Company, the total cash consideration paid and the average price paid per
share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)...... 16,849,263 % $38,640,000 % $2.29
New public investors..........
---------- ----- ----------- -----
Total....................... 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Reflects (i) the conversion of the Preferred Stock upon the closing of
this offering and (ii) the issuance in November 1997 of 250,000 shares of
Common Stock, valued at $2.0 million, in connection with the execution of
certain agreements with VeriFone, which included a settlement of claims of
VeriFone. See "Certain Transactions" for a description of certain noncash
consideration paid by Microsoft and RSA for the shares of Common Stock
issued to them. See Note 8 of Notes to Consolidated Financial Statements
for a description of certain noncash consideration paid for the shares of
Common Stock issued in connection with the agreements with VeriFone.
The foregoing discussion and tables assume no exercise of any stock options
outstanding as of September 30, 1997 and no exercise of a warrant to purchase
17,500 shares of Common Stock that would become issuable in the event that the
Company borrows funds under an equipment loan agreement. As of September 30,
1997, there were options outstanding to purchase a total of 2,000,974 shares
of Common Stock with a weighted average exercise price of $1.49 per share. To
the extent that any of these options are exercised, there will be further
dilution to new public investors. See "Capitalization," "Management--Employee
Benefit Plans" and Note 6 of Notes to Consolidated Financial Statements.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this Prospectus. The selected
consolidated statement of operations data presented below for the period from
April 12, 1995 (inception) to December 31, 1995, the year ended December 31,
1996 and the nine months ended September 30, 1997, and the selected
consolidated balance sheet data as of December 31, 1995 and 1996 and September
30, 1997, are derived from consolidated financial statements of the Company
that have been audited by KPMG Peat Marwick LLP, independent auditors, and are
included elsewhere in this Prospectus. The selected consolidated statement of
operations data for the nine months ended September 30, 1996 are derived from
unaudited Consolidated Financial Statements included elsewhere in this
Prospectus that have been prepared on substantially the same basis as the
audited consolidated financial statements and, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the Company's consolidated operating
results for such period. The operating results for the nine months ended
September 30, 1997 are not necessarily indicative of the results to be
expected for any other interim period, the full fiscal year or any future
fiscal year.
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 12, 1995 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ------------------
1995 1996 1996 1997
-------------- ------------ -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OP-
ERATIONS DATA:
Revenues ..................... $ 382 $ 1,351 $ 774 $ 6,115
Costs and expenses:
Cost of revenues............. 412 2,791 1,593 5,166
Sales and marketing.......... 790 4,876 2,768 7,264
Research and development..... 642 2,058 1,290 3,560
General and administrative... 680 2,640 1,517 2,901
Litigation settlement........ -- -- -- 2,000
------- -------- -------- --------
Total costs and expenses... 2,524 12,365 7,168 20,891
------- -------- -------- --------
Operating loss............. (2,142) (11,014) (6,394) (14,776)
Other income (expense)........ 148 (67) 84 860
------- -------- -------- --------
Loss before minority
interest.................. (1,994) (11,081) (6,310) (13,916)
Minority interest in net loss
of subsidiary................ -- (838) (358) (1,194)
------- -------- -------- --------
Net loss................... $(1,994) $(10,243) $(5,952) $(12,722)
======= ======== ======== ========
Pro forma net loss per
share(1)..................... $ (.74) $ (.47) $ (.75)
======== ======== ========
Shares used in per share com-
putations (1)................ 13,836 12,532 17,006
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term invest-
ments.......................................... $ 2,687 $29,983 $13,612
Working capital................................. 2,284 24,823 6,708
Total assets.................................... 4,052 36,503 25,659
Long-term obligations........................... -- -- --
Stockholders' equity............................ 3,376 28,555 15,876
</TABLE>
- --------
(1) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the determination of the number of shares used in per share
computations.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and notes thereto appearing elsewhere in this Prospectus.
The following discussion contains forward-looking statements. The Company's
actual results may differ significantly from those projected in the forward-
looking statements. Factors that might cause future results to differ
materially from those projected in the forward-looking statements include, but
are not limited to, those discussed in "Risk Factors" and elsewhere in this
Prospectus.
OVERVIEW
VeriSign is the leading provider of digital certificate solutions and
infrastructure needed by companies, government agencies, trading partners and
individuals to conduct trusted and secure communications and commerce over IP
networks. The Company's Digital IDs are enabled in millions of copies of
Microsoft and Netscape Web browsers, tens of thousands of copies of popular
Web servers and a variety of other software applications. The Company believes
that it has issued more digital certificates than any other company, having
issued over 1.5 million of its Digital IDs for individuals and over 35,000 of
its Digital IDs to organizations, primarily businesses, for their Web sites.
Because the Company has issued most of its Digital IDs for individuals on a
trial or promotional basis, a significant majority of the Company's revenues
to date have been derived from businesses.
The Company was incorporated in April 1995 and introduced its first product,
the Secure Server ID for Netscape Commerce Servers, in June 1995. In October
1995, the Company introduced additional Server Digital IDs for the Web server
products of Microsoft, IBM, Open Market and other vendors. In May 1996, the
Company began providing online enrollment and issuance of client Digital IDs
for Netscape Navigator through its Digital ID Center and began shipping
another form of Digital ID known as a Software Developer Digital ID for
Microsoft's Authenticode program. The Company began issuing Digital IDs for
Microsoft's Internet Explorer through the Company's Digital ID Center in
August 1996. During 1997, the Company introduced its Universal Digital IDs and
three new types of server digital certificate products--its Global Server ID,
Financial Server ID and EDI Server ID.
In April 1996, the Company entered the enterprise and electronic commerce
markets by introducing custom SET digital certificate solutions targeted at
certified banks, payment processors and major card brands. During 1997, the
Company introduced VeriSign OnSite and VeriSign V-Commerce, which are
enterprise and electronic commerce digital certificate solutions that are
targeted at mid-sized to large companies, managed intranets and extranets,
payment card industry service providers and Web sites with large customer or
user bases. During 1997, the Company began providing technology and products
for digital certificate management to OEMs.
Historically, the Company has derived substantially all of its revenues from
the sale of Digital IDs and from fees for services rendered in connection with
the Company's digital certificate solutions and digital certificate service
and product development agreements. Sales of Digital IDs and fees for services
each resulted in approximately one-half of the Company's revenues in 1997. The
purchase of a Digital ID allows the customer to use the Digital ID for a
limited period of time, generally 12 months. After this period, the Digital ID
must be renewed for continued usage by the customer. Renewal fees are
typically lower than the fees charged for the initial Digital ID. Revenues
from the sale or renewal of Digital IDs are deferred and recognized ratably
over the life of the digital certificate. Revenues from the Company's
enterprise and electronic commerce solutions consist of fees for the issuance
of digital certificates, which are recognized ratably over the term of the
particular license agreement relating to the enterprise or electronic commerce
solution, and fees for set-up services, which are recognized upon completion
of the service. Revenues from other services are recognized using the
percentage-of-completion method for fixed-fee development arrangements, on a
time-and-materials basis for consulting and training services or ratably over
the term of the agreement for support and maintenance services. Deferred
revenues increased from $46,000 at December 31, 1995 to $1.9 million at
December 31, 1996 and to $3.1 million at September 30, 1997. In the future,
the Company anticipates that it may receive additional revenues from sales
22
<PAGE>
of software products and value-added services, licensing and royalty fees from
licenses of digital certificates and related technology and maintenance, and
fees for customer support services.
The Company markets its products and services worldwide through multiple
distribution channels, including the Internet, direct sales, telesales, VARs,
systems integrators and OEMs. Although a significant portion of its revenues
to date has been generated through sales from the Company's Web site, the
Company intends to increase its direct sales force, both domestically and
internationally, and intends to continue to expand its other distribution
channels.
In February 1996, the Company formed VeriSign Japan to provide digital
certificate solutions to the Japanese market. In connection with the formation
of this subsidiary, the Company licensed certain technology and contributed
other assets to VeriSign Japan. Subsequent to its formation, additional
investors purchased minority interests in VeriSign Japan, and, as of September
30, 1997, the Company owned 51% of the outstanding capital stock of VeriSign
Japan. Accordingly, the Company's consolidated financial statements include
the accounts of the Company and this subsidiary and the Company's consolidated
statements of operations reflect the elimination of the minority shareholders'
share of the net losses of the subsidiary. Historically, VeriSign Japan has
funded its net losses with investments from minority shareholders. However, to
the extent VeriSign Japan is unable to continue to fund its operations
principally from investments by minority shareholders, the Company may be
required to fund the operations of this subsidiary, which could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business--VeriSign Japan."
The Company has experienced substantial net losses in each fiscal period
since its inception and, as of September 30, 1997, had an accumulated deficit
of $25.0 million. Such net losses and accumulated deficit resulted from the
Company's lack of substantial revenues and the significant costs incurred in
the development and sale of the Company's products and services and in the
establishment and deployment of the Company's operations infrastructure and
practices. The Company intends to increase its expenditures in all areas in
order to execute its business plan. As a result, the Company expects to incur
substantial additional losses for the foreseeable future. Although the Company
has experienced revenue growth in recent periods, there can be no assurance
that such growth rates are sustainable and, therefore, they should not be
considered indicative of future operating results. There can be no assurance
that the Company will ever achieve significant revenues or profitability or,
if significant revenues and profitability are achieved, that they could be
sustained. See "Risk Factors--Limited Operating History; History of Losses and
Anticipation of Future Losses."
RESULTS OF OPERATIONS
REVENUES
The Company's revenues increased from $382,000 for the period from April 12,
1995 (inception) to December 31, 1995 (the "Inception Period") to $1.4 million
for 1996 and to $6.1 million for the nine months ended September 30, 1997.
Revenues from inception through December 31, 1996 were primarily derived from
sales of the Company's Server Digital ID products. The increase in revenues
from the Inception Period to 1996 was due primarily to increased market
acceptance of Server Digital IDs and, to a lesser extent, SET digital
certificate solutions. The increase in revenues from 1996 to the nine months
ended September 30, 1997 was due primarily to increased sales of Server
Digital IDs and to increased services revenues, which included revenues from
digital certificate service and product development agreements. Revenues from
the sale of Universal Digital IDs have been nominal because substantially all
of the Company's Universal Digital IDs have been issued free of charge on a
promotional basis.
Revenues attributable to VISA accounted for approximately 21% and 16% of
revenues for 1996 and for the nine months ended September 30, 1997,
respectively. No other customer accounted for more than 10% of the Company's
revenues during the Inception Period, 1996 or the nine months ended September
30, 1997. Revenues of VeriSign Japan and revenues from other international
customers accounted for less than 10% of revenues for the Inception Period and
1996 and approximately 15% of revenues for the nine months ended September 30,
1997.
23
<PAGE>
COSTS AND EXPENSES
The Company's costs and expenses have increased in absolute dollars since
inception, primarily due to the overall growth of the Company. The total
number of the Company's employees increased from 30 at December 31, 1995 to
162 at September 30, 1997. In addition, the Company opened several new
offices, increased its sales and marketing and research and development
efforts, and expanded its headquarters and Digital ID Centers during this
period. The Company believes that it will need to continue to expand its
operations in order to execute its business strategy. Accordingly, the Company
intends to continue to increase its costs and expenses in all areas for the
foreseeable future.
Cost of Revenues. Cost of revenues consists primarily of costs related to
personnel providing digital certificate enrollment and issuance services,
customer support and training, consulting and development services, and
facilities and computer equipment used in such activities. Cost of revenues
also includes fees paid to third parties to verify certificate applicants'
identities and insurance premiums for the Company's NetSure warranty plan and
errors and omission insurance. Cost of revenues increased from $412,000 for
the Inception Period to $2.8 million for 1996 and to $5.2 million for the nine
months ended September 30, 1997. Cost of revenues was not material during the
Inception Period as a result of the Company's minimal revenues. The increases
in 1996 and the nine months ended September 30, 1997 were due primarily to
increased facilities costs and related overhead that resulted from building
the Company's operations infrastructure, hiring full-time and temporary
personnel to support the additional volume of issuances of Server Digital IDs,
introduction of additional Server Digital ID products, introduction of the
Company's NetSure warranty program, increased costs of errors and omission
insurance, increased expenses for access to third-party databases and, during
1997, implementation of the Company's disaster recovery plan. Given the
Company's limited operating history, limited history of issuing Digital IDs
and evolving industry and business model, the Company believes that analysis
of cost of revenues as a percentage of revenues is not yet meaningful.
Sales and Marketing. Sales and marketing expenses consist primarily of costs
related to sales, marketing and practices and external affairs personnel,
including salaries, sales commissions and other personnel-related expenses,
computer equipment and support services used in such activities, facilities
costs, consulting fees and costs of marketing programs. Sales and marketing
expenses increased from $790,000 for the Inception Period to $4.9 million for
1996 and to $7.3 million for the nine months ended September 30, 1997. These
increases were due primarily to increased headcount and, to a lesser extent,
increased expenditures for marketing programs. The Company anticipates that
sales and marketing expenses will continue to increase in absolute dollars as
it expands its direct sales force, hires additional marketing personnel and
increases its marketing and promotional activities during 1998. In addition,
the Company expects to record, during the fourth quarter of 1997, an $800,000
charge resulting from the issuance of 100,000 shares of Common Stock to
Microsoft in connection with a preferred provider agreement.
24
<PAGE>
Research and Development. Research and development expenses consist
primarily of costs related to research and development personnel, including
salaries and other personnel-related expenses, consulting fees, facilities,
and computer equipment and support services used in product and technology
development. Research and development expenses increased from $642,000 for the
Inception Period to $2.1 million for 1996 and to $3.6 million for the nine
months ended September 30, 1997. These increases were due primarily to
increased personnel to support the design, testing and deployment of, and
technical support for, the Company's expanded product offerings and
technology. The Company believes that timely development of new and enhanced
products and technology are necessary to remain competitive in the
marketplace. Accordingly, the Company intends to continue recruiting and
hiring experienced research and development personnel and make other
investments in research and development. Therefore, the Company expects that
research and development expenditures will continue to increase in absolute
dollars. To date, all research and development expenses have been expensed as
incurred.
General and Administrative. General and administrative expenses consist
primarily of salaries and other personnel-related expenses for the Company's
administrative, finance and human resources personnel, facilities and computer
equipment, support services and professional services fees. General and
administrative expenses increased from $680,000 for the Inception Period to
$2.6 million for 1996 and $2.9 million for the nine months ended September 30,
1997. These increases were due primarily to increased staffing levels to
manage and support the Company's expanding operations. The Company anticipates
hiring additional personnel and incurring additional costs related to being a
public company, including directors' and officers' liability insurance,
investor relations programs and professional services fees. Accordingly, the
Company anticipates that general and administrative expenses will continue to
increase in absolute dollars.
Litigation Settlement. In September 1996, VeriFone, which subsequently became
a wholly-owned subsidiary of Hewlett-Packard Company ("Hewlett-Packard"), filed
a lawsuit against the Company alleging, among other things, trademark
infringement. In November 1997, the parties executed a definitive agreement
under which, among other things, the Company issued an aggregate of 250,000
shares of Common Stock, which were transferred to Hewlett-Packard, and the
Company and VeriFone settled such claims. The settlement amount was recorded
during the nine months ended September 30, 1997 as a charge of $2.0 million.
OTHER INCOME (EXPENSE)
Other income (expense) consists primarily of interest earned on the
Company's cash, cash equivalents and short-term investments, less interest
expense on bank borrowings of VeriSign Japan and the effect of foreign
currency transaction gains and losses. The Company had other income of
$148,000 for the Inception Period, other expense of $67,000 for 1996 and other
income of $860,000 for the nine months ended September 30, 1997. The increase
for the nine months ended September 30, 1997 was due to interest earned on the
cash proceeds from the Company's November 1996 Series C Preferred Stock
financing.
INCOME TAXES
No provision for federal and California income taxes has been recorded
because the Company has experienced net losses since inception. As of
September 30, 1997, the Company had federal and California net operating loss
carryforwards of approximately $10.5 million in each jurisdiction. These
federal and California net operating loss carryforwards will expire, if not
utilized, in years 2010 through 2012 and in years 2000 through 2003,
respectively. The Tax Reform Act of 1986 imposes substantial restrictions on
the utilization of net operating losses and tax credits in the event of an
"ownership change" of a corporation. The Company's ability to utilize net
operating loss carryforwards may be limited as a result of an "ownership
change" as defined in the Internal Revenue Code. The Company does not
anticipate that a material limitation on its ability to use such carryforwards
and credits will result from this offering. The Company has provided a full
valuation allowance on the deferred tax asset because of the uncertainty
regarding its realization. The Company's accounting for deferred taxes under
Statement of Financial Accounting Standards No. 109 involves the evaluation of
a number of factors concerning the realizability of the Company's deferred tax
assets. In concluding that a full valuation allowance was required, management
primarily considered such factors as the Company's history of operating
25
<PAGE>
losses and expected future losses and the nature of the Company's deferred tax
assets. Although management's operating plans assume taxable and operating
income in future periods, management's evaluation of all the available
evidence in assessing the realizability of the deferred tax assets indicates
that such plans were not considered sufficient to overcome the available
negative evidence. See Note 7 of Notes to Consolidated Financial Statements.
MINORITY INTEREST IN NET LOSS OF SUBSIDIARY
Minority interest in the net losses of VeriSign Japan was $838,000 for 1996
and $1.2 million for the nine months ended September 30, 1997. This increase
was due to the increased expenses incurred in establishing and expanding the
operations of VeriSign Japan prior to recognizing significant revenues and to
an increasing percentage of VeriSign Japan's capital stock being held by
minority shareholders. VeriSign Japan is still in an early stage of operations
and, therefore, the Company expects that the minority interest in net loss of
subsidiary will continue to fluctuate in future periods.
SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth certain consolidated statement of operations
data for each quarter of 1996 and the first three quarters of 1997. This
information has been derived from the Company's unaudited consolidated
financial statements, which, in management's opinion, have been prepared on
the same basis as the annual consolidated financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information for the quarters presented. This
information should be read in conjunction with the Consolidated Financial
Statements and notes thereto included elsewhere in this Prospectus. The
operating results for any quarter are not necessarily indicative of the
results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
-------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 153 $ 246 $ 375 $ 577 $ 1,267 $ 2,249 $ 2,599
Costs and expenses:
Cost of revenues....... 304 552 737 1,198 1,419 1,733 2,014
Sales and marketing.... 540 1,015 1,213 2,108 2,254 2,686 2,324
Research and
development........... 350 417 523 768 1,029 1,222 1,309
General and
administrative........ 396 408 713 1,123 953 864 1,084
Litigation settlement.. -- -- -- -- -- -- 2,000
------- ------- ------- ------- ------- ------- -------
Total costs and
expenses............ 1,590 2,392 3,186 5,197 5,655 6,505 8,731
------- ------- ------- ------- ------- ------- -------
Operating loss....... (1,437) (2,146) (2,811) (4,620) (4,388) (4,256) (6,132)
Other income (expense).. 35 35 14 (151) 469 166 225
------- ------- ------- ------- ------- ------- -------
Loss before minority
interest............ (1,402) (2,111) (2,797) (4,771) (3,919) (4,090) (5,907)
Minority interest in net
loss of subsidiary..... (2) (128) (228) (480) (305) (482) (407)
------- ------- ------- ------- ------- ------- -------
Net loss............. $(1,400) $(1,983) $(2,569) $(4,291) $(3,614) $(3,608) $(5,500)
======= ======= ======= ======= ======= ======= =======
</TABLE>
REVENUES
The Company has experienced quarter-to-quarter sequential growth in revenues
since its inception. These quarterly increases were due primarily to the
increased number of Server Digital IDs sold during these periods. In addition,
during the first quarter of 1997, the Company completed certain work required
under various certificate service and product development agreements and,
therefore, recognized the related portion of revenues during that quarter. The
Company realized additional services fees during the second quarter of 1997 as
a result
26
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of entering into new certificate service and product development agreements
and completing work under existing certificate service and product development
agreements. During the third quarter of 1997, revenues attributable to digital
certificates grew as a result of the increased number of digital certificates
sold and an approximately 15% per unit price increase. Revenues also increased
in the third quarter of 1997 as a result of the completion of work under other
certificate service and product development agreements.
COSTS AND EXPENSES
Cost of Revenues. Throughout 1996, the Company was developing a secure
operations and customer support infrastructure as well as related systems.
During the fourth quarter of 1996, the Company began building its new Digital
ID Center to manage enrollment and issuance of large volumes of Digital IDs
and moved its customer support and information systems teams into the new
Digital ID Center. Accordingly, facilities costs and related overhead
increased significantly in the first quarter of 1997. During the second and
third quarters of 1997, the Company added full-time and temporary personnel,
particularly for customer support and information systems, in order to support
the additional volume of issuances of Server Digital IDs. The Company also
devoted additional personnel resources to support work under the Company's
product development agreements during this time period. During the second
quarter of 1997, the Company introduced its NetSure warranty program,
resulting in higher insurance premiums. During the third quarter of 1997, the
Company also incurred increased expenses for access to third-party databases
to verify certificate applicants' identities and expenses relating to the
implementation of the Company's disaster recovery plan.
Sales and Marketing. The quarterly increases in sales and marketing expenses
resulted primarily from the building of the Company's sales and marketing
organization, which began in 1996. During the third and fourth quarters of
1996, the Company began expanding its marketing organization to include
corporate, channel and product marketing programs. In each of the first three
quarters of 1997, the Company added sales and marketing personnel to support
its expanding product lines, which resulted in higher recruiting, benefits,
travel and facilities costs. Sales and marketing expenses were higher in the
second quarter of 1997 than the preceding two quarters and the following
quarter due to increased expenses incurred pursuing international and domestic
strategic relationships, increased public relations activities, Web site
management costs and channel development activities.
Research and Development. The sequential quarterly increases in research and
development expenses were due primarily to increased personnel and related
costs to support the design, testing and deployment of, and technical support
for, the Company's expanded product offerings and technology.
General and Administrative. The sequential quarterly increases in general
and administrative expenses over the four quarters of 1996 were primarily
related to the addition of personnel and related costs to support expansion of
the Company's operations. During the fourth quarter of 1996, the Company
incurred additional expenses for consulting services, increased legal fees
relating to a large number of contract negotiations and increased expenses
resulting from a growth in headcount. During the fourth quarter of 1996 and
into 1997, the Company incurred increased expenses for a larger facility and
for the implementation of additional systems and procedures.
FACTORS AFFECTING OPERATING RESULTS
The Company's operating results have varied on a quarterly basis during its
short operating history and may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside the Company's
control. Factors that may affect the Company's quarterly operating results
include the following: market acceptance of digital certificates; market
acceptance of its products and services, particularly VeriSign OnSite,
VeriSign V-Commerce and VeriSign SET; the long sales and implementation cycles
for and potentially large order sizes of certain of the Company's products and
services; the timing and execution of individual contracts; the timing of
releases of new versions of Internet browsers or other third-party software
products in which the Company's public root keys are embedded; customer
renewal rates for the Company's products and services;
27
<PAGE>
the Company's success in marketing other products and services to its existing
customer base and to new customers; development of the Company's direct and
indirect distribution channels; market acceptance of the Company's or
competitors' new products and services; the amount and timing of expenditures
relating to expansion of the Company's operations; price competition or
pricing changes; general economic conditions and economic conditions specific
to the Internet, intranet and extranet industries. Any one of these factors
could cause the Company's revenues and operating results to vary significantly
in the future. In addition, the Company will need to expand its operations and
attract, integrate, retain and motivate a substantial number of sales and
marketing and research and development personnel. The timing of such expansion
and the rate at which new personnel become productive could cause material
fluctuations in the Company's quarterly operating results.
The Company's limited operating history and the emerging nature of its
market make prediction of future revenues difficult. The Company's expense
levels are based, in part, on its expectations regarding future revenues, and
to a large extent such expenses are fixed, particularly in the short term.
There can be no assurance that the Company will be able to predict its future
revenues accurately and the Company may be unable to adjust spending in a
timely manner to compensate for any unexpected revenue shortfall. Accordingly,
any significant shortfall of revenue in relation to the Company's expectations
could cause significant declines in the Company's quarterly operating results.
Due to all of the foregoing factors, the Company's quarterly revenues and
operating results are difficult to forecast. The Company believes that period-
to-period comparisons of its operating results will not necessarily be
meaningful and should not be relied upon as an indication of future
performance. Also, it is likely that the Company's operating results will fall
below the expectations of the Company, securities analysts or investors in
some future quarter. In such event, the market price of the Company's Common
Stock could be materially and adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
private sales of equity securities raising approximately $42.7 million. At
September 30, 1997, the principal source of liquidity for the Company was
$13.6 million of cash, cash equivalents and short-term investments. The
Company also has an equipment loan agreement under which it may borrow up to
$3.0 million for purchases of equipment. This equipment loan agreement expires
on March 31, 1999. Any amounts borrowed under this equipment loan agreement
would bear interest at the rate of 7.5% per annum and would be secured by the
equipment purchased with the loan proceeds. In the event that the Company
borrows under this equipment loan agreement, it will be obligated to issue to
the lender a warrant to purchase 17,500 shares of Common Stock. The Company
currently has no plans to borrow any amounts under this equipment loan
agreement.
VeriSign Japan has an available credit facility of 250,000,000 yen
(approximately $2.1 million as of September 30, 1997) with a bank, which bears
interest at a rate of 1.625% per annum and expires in January 1998. At
September 30, 1997, VeriSign Japan had borrowed approximately $1.5 million
under this facility, which borrowings were secured by certain assets of
VeriSign Japan. VeriSign Japan also has available a revolving line of credit
of up to $500,000 with a bank that bears interest at 1.625% per annum and
expires in April 1998. The line of credit is secured by a letter of credit
from the Company in the same amount. There were no borrowings outstanding
under this line of credit as of September 30, 1997.
The Company has had significant negative cash flows from operating
activities in each fiscal period to date. Net cash used in operating
activities for the Inception Period, 1996 and the nine months ended
September 30, 1997 was $1.5 million, $6.0 million and $11.8 million,
respectively. Net cash used in operating activities in each of these periods
was primarily the result of net losses, offset in part by increases in
accounts payable and accrued liabilities for the Inception Period and 1996 and
deferred revenues in all three fiscal periods.
Net cash used in investing activities for the Inception Period, 1996 and the
nine months ended September 30, 1997 was $1.0 million, $4.4 million and $13.5
million, respectively. Net cash used in investing
28
<PAGE>
activities in these periods was primarily the result of capital expenditures
for computer equipment, purchased software, office equipment, furniture,
fixtures and leasehold improvements. In addition, for the nine months ended
September 30, 1997, cash used in investing activities included $7.7 million of
net purchases of short-term investments. Capital expenditures for property and
equipment for the Inception Period, 1996 and the nine months ended September
30, 1997 aggregated $1.0 million, $4.2 million and $5.3 million, respectively.
The Company's planned capital expenditures for the fourth quarter of 1997 and
for 1998 are approximately $1.2 million and $5.0 million, respectively,
primarily for computer equipment and other leasehold improvements. As of
September 30, 1997, the Company also had commitments under noncancelable
operating leases of $6.7 million through 2002.
Cash provided by financing activities for the Inception Period, 1996 and the
nine months ended September 30, 1997, was $5.3 million, $37.8 million and $1.3
million, respectively, resulting primarily from net proceeds from the sale of
Preferred Stock by the Company. In addition, for 1996 and the nine months
ended September 30, 1997, cash provided by financing activities of VeriSign
Japan was $4.4 million and $1.2 million, respectively, resulting from the sale
of its capital stock to minority investors and from the proceeds of its bank
borrowings.
The Company believes that the net proceeds from this offering, together with
existing cash, cash equivalents and short-term investments, will be sufficient
to meet its working capital and capital expenditure requirements for at least
the next 12 months. The Company may need to raise additional funds through
public or private financing, strategic relationships or other arrangements.
There can be no assurance that such additional funding, if needed, will be
available on terms attractive to the Company, or at all. Strategic
relationships, if necessary to raise additional funds, may require the Company
to relinquish rights to certain of its technologies or products. The failure
of the Company to raise capital when needed could have a material adverse
effect on the Company's business, operating results and financial condition.
If additional funds are raised through the issuance of equity securities, the
percentage ownership of the Company of its then-current shareholders would be
reduced. Furthermore, such equity securities might have rights, preferences or
privileges senior to those of the Company's Common Stock. See "Risk Factors--
Future Capital Needs; Uncertainty of Additional Financing."
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share, which
adjusts the calculation of earnings per share under generally accepted
accounting principles. SFAS No. 128 must be adopted by the Company during the
first quarter of 1998. See Note 1 of Notes to Consolidated Financial
Statements for the effect of SFAS No. 128 on the Company's pro forma net loss
per share presentation.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 97-2, Software Revenue Recognition,
which supersedes SOP No. 91-1. The Company will be required to adopt SOP No.
97-2 prospectively for software transactions entered into beginning January 1,
1998. SOP No. 97-2 generally requires revenue earned on software arrangements
involving multiple elements to be allocated to each element based on the
relative fair values of the elements. The fair value of an element must be
based on evidence that is specific to the vendor. If a vendor does not have
evidence of the fair value for all elements in a multiple-element arrangement,
all revenue from the arrangement is deferred until such evidence exists or
until all elements are delivered. The Company's management anticipates that
the adoption of SOP No. 97-2 will not have a material effect on the Company's
operating results.
29
<PAGE>
BUSINESS
VeriSign is the leading provider of digital certificate solutions and
infrastructure needed by companies, government agencies, trading partners and
individuals to conduct trusted and secure communications and commerce over IP
networks. The Company has established strategic relationships with industry
leaders, including Cisco, McAfee Associates, Microsoft, Netscape, RSA,
Security Dynamics, VeriFone and VISA, to enable widespread deployment of the
Company's digital certificate technology and products and to assure their
interoperability among a wide variety of applications over IP networks. The
Company's Digital IDs are enabled in millions of copies of Microsoft and
Netscape Web browsers, tens of thousands of copies of popular Web servers and
a variety of other software applications. The Company believes that it has
issued more digital certificates than any other company, having issued over
1.5 million of its Digital IDs for individuals and over 35,000 of its Digital
IDs for Web sites. In addition to providing Digital IDs for individuals and
Web sites, the Company provides turn-key and custom solutions needed by
organizations such as Dow Jones, NOVUS/Discover and VISA, to conduct trusted
and secure communications and commerce over IP networks. The Company markets
its products and services worldwide through multiple distribution channels,
including the Internet, direct sales, telesales, VARs, systems integrators and
OEMs, and intends to continue to expand these distribution channels.
INDUSTRY BACKGROUND
GROWTH OF INTERNET COMMERCE AND COMMUNICATIONS
IP networks are revolutionizing the ways in which companies, government
agencies, trading partners and individuals communicate and conduct business.
IP networks provide an attractive medium for communications and commerce
because of their global reach, accessibility, use of open standards and
ability to enable real-time interaction. Organizations are seeking to leverage
the capabilities of IP networks to attract new customers, access new markets,
improve customer service and satisfaction and lower support and distribution
costs. Until recently, IP networks have been used primarily for informal
messaging, general information browsing and the exchange of non-sensitive
data. The use of IP networks is now beginning to extend beyond these initial
uses to a number of more valuable and sensitive activities, including
business-to-business transactions and Internet-based EDI, online retail
purchases and payments, Web-based access to account and benefits information
and secure messaging for both personal and business use. Forrester Research
estimates that Internet business-to-business commerce alone will grow from
less than $8 billion in 1997 to more than $327 billion in 2002.
REQUIREMENT FOR TRUSTED INTERACTION OVER IP NETWORKS
Although openness represents a fundamental strength of IP networks, their
accessibility and the anonymity of users resulting from the lack of "face-to-
face" interaction create threats to the privacy and integrity of information
that is transmitted across or stored on these networks. Despite the
convenience and the compelling economic incentives for the use of IP networks,
they cannot reach their full potential as a platform for global communications
and commerce until the current lack of security and trust associated with
these networks is resolved. According to a study conducted in 1997 by Zona
Research, Inc., 70% of the businesses and consumers surveyed listed concerns
about trust and security as the main impediment to broader use of the Internet
for commercial applications. Business concerns include the potential for theft
of corporate or customer information, impersonation of employees, loss of
reputation and economic loss through fraud. Consumer concerns include the
possibility of merchant impersonation and fraud and the risk that third
parties may be able to intercept and use personal information such as credit
card numbers. Traditional security mechanisms such as passwords and personal
identification numbers do not adequately address these issues, as they can be
easily lost, forgotten or misappropriated. Some security concerns are being
addressed through technologies such as encryption and firewalls, but these
technologies do not address the need to establish and maintain a common
framework of trust between parties conducting transactions or exchanging
sensitive information in the digital world.
30
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In the physical world, trust in communications and commerce is established
through a combination of social, business and legal practices that, in some
cases, have been developed over hundreds of years. These practices often
include the use of physical credentials, such as credit cards, business
licenses or employee badges, and the associated legal protections to avoid
loss from theft or fraud. The diligence, practices, policies and reputations
of the organizations standing behind the issuance, delivery, revocation and
renewal of physical credentials provide a readily understood and accepted
framework of trust for a given communication or transaction. The physical
credentials that embody these proven practices and frameworks of trust and the
social interactions that accompany their use cannot be utilized in the digital
world. As a result, there is a need for a trusted and convenient way to verify
the identity, authority and privilege of the parties involved in
communications and commerce over IP networks and to assure their proper and
trusted association with a specific organization or community.
EMERGENCE OF DIGITAL CERTIFICATE TECHNOLOGY
Digital certificates are emerging as the leading technology for establishing
a framework for trusted and secure communications and commerce over IP
networks, with many Internet security protocols dictating the use of digital
certificates. A digital certificate is a specially prepared software file that
functions as an electronic credential in the digital world, identifying the
certificate owner, authenticating the certificate owner's membership in a
given organization or community (credit card holder, employee, supply chain
participant or citizen) and establishing the certificate owner's authority to
engage in a given transaction. Utilizing the principles of public key
cryptography, a digital certificate binds a pair of unique mathematical keys,
one designated as "private" and securely maintained by its owner, and the
other designated as "public" and embedded in the digital certificate. What the
owner's private key digitally signs, only the corresponding public key can
verify. When properly prepared, issued and administered, digital certificates
create a framework for trusted interaction over IP networks, making it
possible, for example, to verify with certainty the identity of an account
holder or a Web-based business, the source of an electronic message or the
integrity of electronically distributed software or content.
Significant efforts are underway to utilize digital certificates as
"vehicles of trust" for securely transmitting e-mail, accessing information on
public and private Web sites, purchasing retail goods and services and
conducting other financial transactions such as electronic securities trading.
The leading vendors of Web browser, Web server, electronic mail, electronic
payment and content distribution applications have incorporated digital
certificate technology as the framework for establishing trusted and secure
communications and commerce over IP networks and are embedding support for
digital certificates in their products. A number of standard protocols that
are being widely adopted for communications and commerce require the use of
digital certificates. These protocols include the Secure Sockets Layer
protocol ("SSL") for browser/server authentication and secure data
transmission, the Secure Multipurpose Internet Mail Extensions protocol
("S/MIME") for secure e-mail and EDI, the Secure Electronic Transactions
protocol ("SET") for secure electronic payments, and the Internet Protocol
Security standard ("IP/SEC") for authentication of networking devices. Just as
an individual may have many forms of credit cards and IDs, he or she may
require multiple digital certificates, each corresponding to a unique digital
relationship between the individual and an organization. Thus, there is the
potential need over time for hundreds of millions of digital certificates to
be issued and managed.
CERTIFICATION AUTHORITIES AND THE NEED FOR TRUSTED INFRASTRUCTURE
Digital certificates are prepared and managed by trusted parties known as
Certification Authorities ("CAs"). To prepare a digital certificate for
issuance, a CA embeds an individual's or an organization's public key along
with specific personal information (name or e-mail address) or organizational
information (domain name or affiliation) in the digital certificate, which is
then cryptographically "signed" by the CA. The CA's digital signature acts as
a tamper-proof electronic seal that verifies the integrity of the information
within the digital certificate and validates its use within a specific
organization or community. This digital signature is linked to the CA's public
"root key," which is embedded in the browser, server or other application used
by the
31
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organization or community. Through the embedded public root key, a community
member can automatically confirm the authenticity of a digital certificate--
and hence the certificate owner's identity, authority and privilege--to verify
the source and integrity of any accompanying message or transaction request.
A CA may digitally sign certificates for multiple organizations or
communities, each having different rules, qualifications or procedures
governing the admission of members. The CA may sign and issue certificates
directly to the members of a given community or sign certificates on behalf of
other entities (credit card issuers, corporations or government agencies) that
wish to control the admission of members into their organizations and grant to
them certain authority and privileges.
The successful implementation and management of digital certificates as a
mechanism for trusted and secure commerce and communications present a number
of issues and challenges for a CA. The CA must establish and maintain rigorous
practices, policies and procedures to manage the technical complexities of
cryptographic key management and provide for the secure creation and
distribution of digital certificates. The CA must carefully manage the entire
lifecycle of all digital certificate issued, including identifying and
conducting initial due diligence on the owners, tracking digital certificates,
providing customer support for digital certificate owners, confirming in real-
time the continued validity of each digital certificate and revoking or
renewing the digital certificates. To be effective for large public and
private communities needing digital certificates, a CA must also have a highly
scaleable and flexible infrastructure, be able to provide a full range of
digital certificate services in high volume on a 24 hour x 7 day basis and
have its public root key embedded in and supported by a wide variety of
applications utilized across IP networks.
THE VERISIGN SOLUTION
VeriSign is the leading provider of digital certificate solutions and
infrastructure needed by companies, government agencies, trading partners and
individuals to conduct trusted and secure communications and commerce over IP
networks. The Company has established strategic relationships with industry
leaders, including Cisco, McAfee Associates, Microsoft, Netscape, RSA,
Security Dynamics, VeriFone and VISA to enable widespread deployment of the
Company's digital certificate technology and products and to assure their
interoperability among a wide variety of applications. The Company believes
that it has issued more digital certificates than any other company, having
issued over 1.5 million of its Digital IDs for individuals and over 35,000 of
its Digital IDs for Web sites. The Company's digital certificates, are enabled
in millions of copies of Microsoft and Netscape browsers, tens of thousands of
copies of popular Web servers and a variety of software applications. In
addition, Microsoft and Netscape have integrated enrollment for the Company's
digital certificates into the registration process for their Web browsers,
prominently feature the Company and its digital certificate solutions in
certain of their products and on their Web sites, have integrated the
Company's public root key into their browsers and engage in a variety of joint
marketing activities with the Company. In addition to providing Digital IDs
for individuals and Web sites, the Company also provides turn-key and custom
solutions needed by organizations, such as Dow Jones, NOVUS/Discover and VISA,
to conduct trusted and secure communications and commerce over IP networks.
The Company issues and manages digital certificates directly from its
Digital ID Centers for consumers, businesses and organizations that use IP
networks for trusted and secure communications and commerce. The Company also
offers a comprehensive range of digital certificate solutions tailored to meet
the specific needs of customers, such as financial institutions and
governmental agencies, that wish to issue their own, or have VeriSign issue on
their behalf, digital certificates for use within their private intranets and
extranets. These solutions vary based on the nature and complexity of the
applications, the degree of control customers desire to maintain and the
degree of operational responsibility customers wish to delegate. Each of the
Company's solutions leverages its infrastructure for managing digital
certificates to relieve customers from the burdensome responsibilities and
costs of designing, establishing, maintaining and staffing their own digital
certificate operations.
The key components of the Company's solution are its scaleable, modular
software architecture, highly reliable and secure operations and comprehensive
security and trusted practices, which together provide a
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platform designed for the timely, rapid deployment of large volumes of digital
certificates and the ongoing management of such digital certificates
throughout their lifecycles.
. Scaleable, Modular Software Architecture. The Company has designed its
software to provide the scaleability necessary to support the issuance and
management of millions of certificates for distinct communities ranging
from individual corporations to the entire population of Internet users.
The Company's WorldTrust software automates many of the processes for
digital certificate issuance and lifecycle management, including subscriber
enrollment, authentication and administration services. The Company's
modular software is also distributable over one or many computer systems to
enhance scaleability and allow for certain functions of the digital
certificate issuance and lifecycle management process to be deployed at
customer or affiliate locations while maintaining a secure and reliable
link to the Company's Digital ID Centers for back-end processing.
. Highly Reliable and Secure Operations. The Company's Digital ID Centers,
which are located in Mountain View, California and Kawasaki, Japan and
operate on a 24 hour x 7 day basis, support all aspects of issuance and
management of digital certificates as well as the delivery of its related
digital certificate services. Through the use of state-of-the-art computer,
telecommunications, network and monitoring systems, the Company's Digital
ID Centers are designed to provide the high levels of availability,
security and scaleability necessary to meet the needs of customers for high
volume digital certificate issuance and management.
. Comprehensive Security and Trusted Practices. The Company has been
instrumental in defining comprehensive, industry-endorsed practices and
procedures for the legal and business frameworks in which digital
certificate relationships are established as well as the physical security
and controls that are essential to operate secure, large-scale digital
certificate management operations. The Company believes that these
practices and procedures are a critical component to the creation of a
digital certificate infrastructure required for trusted and secure
communications and commerce over IP networks.
STRATEGY
The Company's objective is to enhance its position as the leading provider
of digital certificate solutions and infrastructure needed by companies,
government agencies, trading partners and individuals to conduct trusted and
secure communications and commerce over IP networks. The Company's strategy to
achieve this objective includes the following key elements:
Leverage Leadership Position to Drive Market Penetration. The Company
believes that it has developed a leading position in the market for digital
certificate solutions and underlying trust infrastructure by being the first
to market with a variety of digital certificate products and services,
building strategic relationships with industry leaders, issuing more digital
certificates than any other company, embedding its public root key in a
variety of communications, commerce and other software applications and
investing significant resources in developing its comprehensive trust
infrastructure. The Company intends to leverage this leadership position to
drive further adoption and deployment of its digital certificate solutions and
associated trust services. In addition, the Company intends to maintain its
first-to-market position by applying its knowledge and experience to new
products and services that the Company believes will have significant market
potential.
Leverage and Expand Strategic Relationships with Industry Leaders. The
Company has established strategic relationships with industry leaders,
including Cisco, McAfee Associates, Microsoft, Netscape, RSA, Security
Dynamics, VeriFone and VISA. The Company believes that these relationships, as
well as others that it intends to pursue, will enable the widespread
deployment of the Company's Digital IDs by allowing it to capitalize on the
brand recognition and broad customer bases of such strategic partners. For
example, both Microsoft and Netscape have incorporated the Company's public
root key in their Web browsers and feature the Company and its digital
certificate solutions in their products and on their Web sites. The Company
believes that this support from Microsoft and Netscape enhances market
awareness of the Company and provides a powerful endorsement of the Company's
digital certificate solutions and infrastructure. Certain of the Company's
strategic
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relationships also involve joint marketing activities, which enhance the
Company's ability to target large customers and expand overall brand
awareness. The Company intends to pursue additional strategic relationships
that the Company believes will enhance the marketing and distribution of its
products and services.
Maintain Leadership in Technology, Infrastructure and Practices. The Company
has developed technical, operational and procedural expertise for the
widespread implementation of secure digital certificate solutions. The Company
intends to continue to enhance its technology, infrastructure and distributed
product architecture to enable further operational scaleability in order to
provide digital certificate solutions for a variety of industries with high
volume certificate issuance requirements. In order to ensure the alignment of
its technology with emerging trends, the Company actively participates in
industry consortia, standards setting organizations and other trade groups. In
addition, the Company is continually enhancing its internal "best practices"
and controls to ensure the physical security of its facilities, maintain
quality in the execution of its operations, verify the quality and consistency
of its services and promote the global acceptance of its digital certificate
solutions.
Continue to Build the VeriSign Brand. The Company will continue to promote
the VeriSign brand as synonymous with trusted and secure communications and
commerce over IP networks. In order to accelerate the acceptance and
penetration of its digital certificate solutions, the Company has developed
joint marketing relationships with brand leaders such as Microsoft, Netscape,
VeriFone and VISA and intends to pursue additional relationships with entities
whose brands are well known and widely respected. The Company also utilizes a
variety of marketing programs to promote market awareness of the Company and
promote the VeriSign brand.
Expand Global Marketing and Distribution. The Company will continue to
expand its global marketing and distribution efforts to address the range of
markets and applications for digital certificate solutions. The Company
intends to add direct sales personnel and expand indirect channels, both
domestically and internationally. The Company also plans to leverage its
technology infrastructure to establish Digital ID Centers in appropriate
international markets. The Company believes that this strategy affords the
opportunity to create an international network of digital certificate
providers operating under common technology, operations and legal practices to
provide a standard for global interoperability.
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PRODUCTS AND SERVICES
The Company provides a comprehensive line of digital certificate solutions
that are designed to enable trusted and secure communications and commerce
over IP networks. All of these solutions and services are based upon the
Company's WorldTrust software architecture, scaleable operations
infrastructure and comprehensive security and trust practices. See "--
Technology and Architecture," "--Infrastructure" and "--Security and Trust
Practices."
The following table illustrates the range of the Company's products:
<TABLE>
<CAPTION>
VERISIGN END-USER
MARKET/CATEGORY PRODUCT/SERVICE DESCRIPTION LIST PRICE*
<C> <C> <C> <S>
Internet IDs
Client Digital Universal Digital Digital certificates for $9.95-$29.95
Certificates IDs individuals for secure e-mail, per year
access control and password
replacement
Server Digital Server Digital IDs Digital certificates for $249-$1,195
Certificates organizations' Web sites for per year
encrypted server operations
Content Signing Software Developer Digital certificates for $20-$400
Digital Certificates Digital IDs software developers, content per year
publishers and distributors
Channel Signing for authenticated software and
Digital IDs content distribution
- ----------------------------------------------------------------------------------------------
Enterprise and
Electronic
Commerce
Enterprise Solutions VeriSign OnSite Turn-key digital certificate $5,000-$50,000
solutions for managed IP per year
network applications for a
wide range of mid-sized to
large enterprises
Integrated Electronic VeriSign V-Commerce Customized solutions for $50,000-$500,000
Commerce Solutions Fortune 1000 companies and Web per year
sites with very large customer
or user bases
SET Certificate VeriSign SET Managed solutions for card $50,000-$500,000
Solutions brands, banks and payment per year
processors
</TABLE>
* The Company typically receives a percentage of the end-user list price for
Internet IDs that are sold through the Company's distribution channels. The
terms and conditions for the Company's enterprise, integrated electronic
commerce and SET certificate solutions, including sales prices and
discounts from list prices, may be negotiated in individual transactions
based on certificate volumes, associated services and required
customization and thus may vary from customer to customer.
The Company derived approximately one-half of its revenues in 1997 from
Internet IDs, principally Server Digital IDs for businesses, and approximately
one-third of its revenues in 1997 from enterprise and electronic commerce
products. There can be no assurance that the Company will be able to continue
to increase its revenues from these sources or that these products and
services will achieve widespread market acceptance. See "Risk Factors--Limited
Operating History; History of Losses and Anticipation of Future Losses" and
"--No Assurance of Market Acceptance for Digital Certificates and the
Company's Products and Services."
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INTERNET IDS
The Company issues Internet IDs directly to individuals and organizations
engaged in communications and commerce over the Internet. These Internet IDs
allow individuals, organizations and software developers to protect the
privacy and integrity of their communications by establishing the identity,
authority or privilege of the parties involved to avoid impersonations or
identity "spoofing" and malicious security breaches. Since its inception, the
Company has issued over 1.5 million of its Digital IDs for individuals and
over 35,000 of its Digital IDs for Web sites. The purchase of a Digital ID
allows the customer to use the Digital ID for a limited period of time,
generally 12 months. After this period, the Digital ID must be renewed for
continued usage by the customer. The Company has also established a warranty
protection program, the NetSure Protection Plan, that provides warranty
coverage to its customers at varying levels up to $250,000 in the event of
economic loss due to the theft, impersonation, corruption or loss of an
Internet ID. VeriSign has insured itself against losses under such coverage
with United States Fidelity and Guaranty Company.
Client Digital Certificates. VeriSign's Universal Digital IDs are issued
directly to individuals to enable users to exchange digitally signed and
encrypted e-mail using the S/MIME protocol. Universal Digital IDs can also be
used to replace passwords for more convenient access to and enhanced security
of Web sites.
The Company currently offers two versions of Universal Digital IDs and plans
to offer a third version in the second half of 1998. These versions are
differentiated principally by the subscriber identity authentication
procedures and due diligence performed by the Company prior to issuance and
the amount of NetSure warranty protection provided:
Universal Digital ID-Class 1. Class 1 Universal Digital IDs are the class
of Universal Digital ID most commonly issued by the Company. The Company
issues a Class 1 Universal Digital ID after authenticating a user's e-mail
address by providing an activation code, via e-mail, that can be used to
download the digital certificate from VeriSign's Web site. Class 1
Universal Digital IDs have NetSure warranty protection of $1,000. The
Company offers a Class 1 Universal Digital ID for free on a 60-day trial
basis, but the trial version does not include replacement, revocation,
NetSure warranty protection or other related digital certificate services.
To date, substantially all of the Class 1 Universal Digital IDs have been
issued without charge on a trial or promotional basis.
Universal Digital ID-Class 2. The Company issues a Class 2 Universal
Digital ID after authenticating a user's personal identity by matching
personal information provided by the user with information contained in
established third-party consumer credit databases. To date, the Company has
issued Class 2 Universal Digital IDs primarily to North American residents.
Class 2 Universal Digital IDs have NetSure warranty protection of up to
$25,000.
Universal Digital ID-Class 3. VeriSign expects to introduce a Class 3
Universal Digital ID in the second half of 1998. A Class 3 Universal
Digital ID will be issued after authentication of a user's identity through
personal presence verification by VeriSign or one of its certified agents
or affiliates. The Company anticipates that Class 3 Universal Digital IDs
will have NetSure warranty protection of up to $50,000.
Server Digital Certificates. The VeriSign Server Digital ID product line
enables organizations to implement and operate secure Web sites using the SSL
or S/MIME protocols in order to establish authenticated and private
communications and commerce on IP networks. Prior to issuing a Server Digital
ID, VeriSign establishes the authenticity of a Web site through a series of
background checks that corroborate an organization's authority to do business
under a given business name, as well as its right to operate a server with a
specific domain name or URL. These procedures protect an organization against
another server "spoofing" its site and also allows site visitors to establish
the site's authenticity. VeriSign's Server Digital IDs enable an individual's
Web browser to verify a Web site's identity automatically by checking the
site's Server Digital ID. Once this authentication has occurred, an encrypted
session based on SSL or the S/MIME messaging protocol can commence. These
private communications sessions are virtually impenetrable by external
parties, thereby protecting sensitive information from unauthorized access.
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The Company currently offers four versions of its Server Digital IDs,
differentiated by the target application of the server that hosts the Server
Digital ID. The Company provides NetSure warranty protection of up to $100,000
on each Secure Server ID, Global Server ID and Financial Server ID and up to
$250,000 on each EDI Server ID.
Secure Server ID. VeriSign Secure Server IDs enable Web sites to
implement SSL security features for transactions and communications
conducted between their Web servers and individual end users. A Secure
Server ID can also be used in conjunction with a Universal Digital ID to
restrict access to account information and content on a server hosted on an
IP network. The Company's public root key is embedded in more than 40
server software applications.
Global Server ID. VeriSign Global Server IDs enable organizations to
establish worldwide 128-bit encrypted SSL sessions using Netscape
Communicator or appropriately configured Microsoft Internet Explorer
software. Global Server IDs are available for use by U.S. corporations and
U.S. and foreign banks approved by the United States Department of Commerce
Bureau of Export Administration. VeriSign Global Server IDs are currently
the only commercially available server digital certificates for Netscape
and Microsoft products that utilize 128-bit encryption and can be used by
approved organizations on a global basis.
Financial Server ID. VeriSign Financial Server IDs are intended for use
with financial applications using the Open Financial Exchange specification
developed by Microsoft, Intuit Inc. ("Intuit") and CheckFree Corporation.
Financial Server IDs are used by financial institutions for authentication
of their Web servers and to enable the secure exchange of data between
these organizations and customers engaged in home banking, brokerage and
insurance services on the Internet. The Company's financial server public
root key is embedded in Intuit's Quicken product and will be embedded in
the next version of Microsoft Money.
EDI Server ID. VeriSign EDI Server IDs are intended for organizations or
individuals who participate in large online trading networks and who wish
to engage in secure communications. EDI Server IDs ensure the integrity of
messages, allow encrypted messages to be sent using a variety of EDI
standards and enable messages to be digitally signed to ensure
nonrepudiation. The Company's public root key is embedded in the Actra
ECXpert product and other EDI applications.
Content Signing Digital Certificates. The VeriSign content signing digital
certificate product line enables content providers, publishers and vendors to
digitally sign their content or distribution channels in order to ensure the
authenticity and integrity of content delivered to end users. All of the
Company's content signing digital certificates have NetSure warranty
protection of between $25,000 and $50,000.
The Company currently offers three versions of its content signing digital
certificates, differentiated principally by the subscriber identity
authentication procedures and due diligence performed by the Company prior to
issuance and the amount of NetSure warranty protection provided:
Individual Software Developer Digital ID. Individual Software Developer
Digital IDs are issued after VeriSign authenticates the identity of an
individual software publisher through the use of established third- party
consumer credit and other databases.
Commercial Software Developer Digital ID. Commercial Software Developer
Digital IDs are issued after VeriSign authenticates the identity of a
commercial software publisher by using registered credentials and online
commercial databases to verify the company's identity.
Both the Individual Software Developer Digital IDs and the Commercial
Software Developer Digital IDs are designed for use by software developers
that wish to digitally sign and distribute code electronically via the
Internet, including ActiveX controls under the Microsoft Authenticode
program or JAVA code in conjunction with the Netscape object signing
technology.
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Channel Signing Digital ID. Channel Signing Digital IDs authenticate a
distribution channel for software and content that is automatically
distributed or "pushed" via IP networks using an application such as
Marimba's Castanet, by authenticating that the software or content is from
the indicated source and establishing that the software or content has not
been tampered with or modified while en route over IP networks.
ENTERPRISE AND ELECTRONIC COMMERCE
The Company offers a broad range of turn-key and custom solutions tailored
to meet the specific needs of companies, government agencies and other
organizations that wish to issue digital certificates to customers, employees,
trading partners or citizens. The Company's enterprise and electronic commerce
solutions can be used for a variety of applications, including: controlling
access to sensitive data and account information; facilitating and protecting
online payment card transactions; enabling digitally signed e-mail; or
creating an electronic trading community. These solutions give customers the
option of issuing private label digital certificates, which have limited use
within their intranets and extranets, or VeriSign Digital IDs, which are
interoperable with IP network applications enabled with the Company's public
root key and can be customized to include customer-specified data.
Enterprise and electronic commerce solutions vary based on the nature and
complexity of the application, the degree of control customers desire to
maintain, and the degree of operational responsibility customers wish to
delegate. The modularity of the Company's WorldTrust architecture allows
certain functions of the certification process, such as registration,
authentication, issuance, revocation, renewal or replacement, to be deployed
at customer sites while maintaining a link to VeriSign's Digital ID Centers
for back-end processing. As a result, customers enjoy significant time-to-
market and cost reduction benefits by leveraging the Company's trusted,
scaleable infrastructure with complete certificate lifecycle management, high-
speed servers, redundant telecommunications, data storage and daily back-up,
full disaster recovery, availability of 24 hour x 7 day customer service and
rigorous network and physical security.
VeriSign OnSite. VeriSign OnSite combines the ease of use and low entry cost
of a turn-key software product with the flexibility and scaleability of a
fully managed service. VeriSign OnSite targets mid- to large-scale companies
and government agencies that wish to set up and administer their own digital
certificate solutions using VeriSign's trusted infrastructure. VeriSign OnSite
provides browser-based software for front-end processing complete with
configuration wizards, enrollment templates, authentication and administration
tools, directory files and a secure link to the Company's Digital ID Centers
for back-end processing. VeriSign OnSite provides several key benefits,
including complete control over configuration, quick deployment, low cost and
flexibility. VeriSign OnSite can be downloaded from one of the Company's
Digital ID Centers or sold through one of the Company's direct or indirect
sales channels and is priced on an annual subscription basis for a fixed
quantity of digital certificates.
VeriSign V-Commerce. VeriSign V-Commerce is a comprehensive, custom solution
that enables large-scale electronic commerce activities on IP networks, such
as virtual storefronts, electronic subscription services, content delivery and
information access and broadcast. VeriSign V-Commerce targets Fortune 1000
companies, financial institutions and large government agencies with high-
volume digital certificate issuance and management requirements. VeriSign V-
Commerce solutions involve special set-up and consulting services to support
the development and installation of custom digital certificate formats,
subscriber services, authentication interfaces, administration tools and root
keys. VeriSign V-Commerce solutions also support the deployment of certain of
the digital certificate service functions at the customer's site or remote
offices to allow for maximum control and flexibility. VeriSign V-Commerce
enables companies and government agencies to realize the full potential of IP
networks as a medium for trusted and secure communications and commerce by
relying on the Company to develop, deploy and administer a large scale digital
certificate implementation. VeriSign V-Commerce terms are negotiated based on
the annual volume of digital certificates, associated services and
customization required.
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VeriSign SET. VeriSign SET is an electronic commerce solution targeted at
certified banks, payment processors or major credit card brands to enable
cardholders, merchants and payment gateways to enroll for and obtain digital
certificates for use with the SET specification without the expense of
developing and hosting a custom digital certificate solution. The SET
specification was developed by an industry consortium, including MasterCard
and VISA, to enable secure payments and purchases over IP networks. SET
digital certificates are used to identify the identity of participants in a
SET transaction. The Company delivers SET services directly to certified banks
or payment processors and to banks on behalf of major credit card brands,
including Air Travel Card, Diner's Club, MasterCard, NOVUS/Discover and VISA.
There are currently over 130 VISA member banks that are using VeriSign SET
solutions in pilot programs.
SERVICES
In addition to its broad set of digital certificate solutions, the Company
also provides, or intends to provide, a range of services that augment its
solutions with added value or trust functionality. These services include:
Professional Consulting Services. The Company employs experts in
cryptography and digital certificate management who offer consulting and
training services to organizations implementing digital certificate solutions.
VeriSign's professional services group provides a variety of design,
development and implementation services, including interfacing with existing
applications and databases, consulting on policies and procedures related to
the management and deployment of digital certificates and the selection of
related software and hardware (e.g., smart cards and readers) to complement a
digital certificate solution. These consulting and training services are
billed on a time and materials basis.
Key Generation Ceremonies. For larger organizations wishing to establish
customized storage of their digital certificate root keys as well as an
auditable record of the root key generation process, the Company provides a
custom "key generation ceremony" as part of its setup services, complete with
videography, dedicated hardware and secret key sharing among trusted parties.
These key generation services provide an added measure of security and an
audit trail for the issuance and management of digital certificates.
Status Services. The Company has currently developed services that will
support real-time confirmation of the status of a particular digital
certificate used in specific applications by providing a digitally signed
receipt acknowledging "good," "revoked" or "unknown" status of a digital
certificate to the requesting party. The Company currently uses a real-time
status service to support Microsoft's Authenticode program. The Company
expects to broaden the use of status services to other digital certificate
markets during the first half of 1998.
Time Stamping Services. The Company offers a time stamping service that
allows software developers to add a verifiable time and date stamp to software
content that they digitally sign with their Software Developer Digital IDs.
The Company is currently developing time stamping services for a variety of
other applications.
Warranty and Insurance Plans. To extend its NetSure Protection Plan
offerings, the Company is developing programs to make insurance products
available to its enterprise and electronic commerce customers so that these
customers can purchase insurance from third-party insurers to cover losses
resulting from the use of digital certificates on both a per certificate and
per transaction basis.
CUSTOMERS AND MARKETS
VeriSign's target customers for its enterprise and electronic commerce
digital certificate solutions include consumers, government agencies,
financial institutions, content providers and other organizations requiring
trusted and secure communications and commerce over IP networks. The following
examples illustrate how certain organizations use VeriSign's digital
certificate solutions:
Credit Cards. A major credit card association wants to promote the use of
its cards as the preferred payment method for purchases over the Internet. To
accomplish this goal, it must give consumers the confidence to use their
account numbers safely over the Internet while reducing the potential for
losses due to fraud. This credit
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card association has adopted the SET protocol, which dictates the use of
digital certificates for all parties involved in transactions, including
cardholders, merchants, issuing banks, acquiring banks and payment gateways.
The credit card association chose VeriSign to provide SET digital certificate
solutions to the credit card association on behalf of its member banks. The
benefits the credit card association and its member banks expect to receive
include increased use of the card for purchases over the Internet, increased
customer loyalty and a reduction in losses due to credit card fraud. The
credit card association currently is conducting a pilot program with a number
of member banks using VeriSign SET solutions, and the credit card association
anticipates full scale deployment of the program in 1998.
Electronic Information Services. A major provider of electronic information
services to financial institutions and other businesses wants to distribute
its services more broadly, increase its penetration within its existing client
base and replace its existing proprietary terminals, which are in each of its
clients' locations, with an IP network-based service that can be delivered
over its clients' existing PCs. VeriSign will provide a custom digital
certificate solution, utilizing customer-branded client digital certificates,
that enables this company to deliver and charge for its services accurately at
each desktop. In addition, because the system is IP network-based, it provides
a better user experience due to graphical user interfaces and other IP
network-based features such as hyperlinks. The benefits the information
services company expects to receive include reduced hardware costs, improved
customer satisfaction, increased revenue opportunities, increased market
acceptance and reduced implementation costs. The system is currently in beta
testing with over 100 clients and the information services company expects to
release it fully in early 1998.
Banking. One of the top five U.S. banks wants to provide secure services
such as home banking, commercial banking and credit card purchases to its
business and consumer clients over the Internet. VeriSign will provide 128-bit
Server Digital IDs and bank-branded client digital certificates for home and
commercial banking as well as VeriSign SET digital certificates for the bank's
credit card holders. The benefits the bank expects to receive include improved
customer service, reduced service costs and broader geographic reach. The bank
is currently utilizing VeriSign's 128-bit Server Digital IDs for home banking
and commercial banking and anticipates offering bank-branded client digital
certificates and VeriSign SET digital certificates in mid-1998.
VISA accounted for approximately 21% and 16% of the Company's revenues for
1996 and the nine months ended September 30, 1997, respectively. VISA also
accounted for 13% and 25% of the Company's accounts receivable as of December
31, 1996 and September 30, 1997, respectively. In addition, two other
customers, a South African systems integrator and a financial services
provider, accounted for approximately 28% and 13%, respectively, of accounts
receivables as of December 31, 1996 and one other customer, a European smart
card manufacturer, accounted for approximately 12% of accounts receivable as
of September 30, 1997.
TECHNOLOGY AND ARCHITECTURE
The Company employs a modular set of software applications and toolkits,
which collectively make up its proprietary WorldTrust architecture, as the
core platform for all of its digital certificate solutions. The modular design
of the WorldTrust architecture enables the Company's digital certificate
services to be distributed over one or many co-located or dispersed computer
systems, allowing certain functions of the certification process, such as
registration, authentication, issuance, revocation, renewal or replacement, to
be deployed at customer or affiliate locations while maintaining a secure and
reliable link to one of the Company's Digital ID Centers for back-end
processing. These modules can also be replicated in order to handle increased
volumes of digital certificates. Digital certificate service modules
incorporated in the WorldTrust architecture include:
Subscriber Services Module. The subscriber services module supports requests
for digital certificate issuance, revocation, renewal and replacement.
Software toolkits are provided to permit rapid customization and integration
of digital certificate services with a customer's business-specific Web-based
solutions.
Authentication Services Module. The authentication services module supports
manual, automated and delegated authentication of subscribers by designated
sources prior to certificate issuance. Software toolkits and APIs are provided
to allow for integration with various process models and database systems.
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Administration and Support Modules. The administration and support modules
provide lifecycle services such as digital certificate revocation, renewal and
reissuance, as well as a customer support knowledge base to facilitate general
reporting of CA activity and Web-based and e-mail-based support of customers
and end users.
Directory Services Module. The directory services module utilizes database
applications typically hosted at one of the Company's Digital ID Centers to
support the storage of and access to digital certificates and associated
information for a particular customer. Enterprise and electronic commerce
customers can also download updated copies of their directory information to
their systems.
Service Control Module. The service control module is hosted at one of the
Company's Digital ID Centers and acts as a gatekeeper, decoding and routing
all certificate service requests based on customer type, application type,
security protocol, authentication policies, certificate content and billing
rules. This module utilizes a proprietary, data-driven programming model to
define each service and dispatch the appropriate control and error commands to
other modules.
Certificate Processing Module. The certificate processing module is hosted
at one of the Company's Digital ID Centers and creates digital certificates
with digital signatures on each certificate, delivers certificates to
subscribers and stores a copy of each digital certificate for archive, audit
and directory purposes.
INFRASTRUCTURE
The Company believes that its highly reliable and scaleable operations
infrastructure represents a strategic advantage in providing digital
certificate solutions. The Company's Digital ID Centers are located in
Mountain View, California and Kawasaki, Japan. These centers operate on a 24
hour x 7 day basis, and support all aspects of issuance and management of
digital certificates as well as delivery of related digital certificate
services. By leveraging the Company's WorldTrust architecture, certain
functionality of the Company's Digital ID Centers can be distributed in
optimum configurations based on customer requirements for availability and
capacity. Key features of the Company's infrastructure include:
Distributed Servers. The Company deploys a large number of high-speed
servers to support capacity and availability demands. Additional servers can
be added to support increases in certificate volumes, new services
introductions, new customers and higher levels of redundancy without service
interruptions or response time degradation. The WorldTrust architecture
provides automatic fail-over, load balancing and threshold monitoring on
critical servers.
Advanced Telecommunications. The Company deploys redundant
telecommunications and routing hardware and maintains high-speed connections
to multiple ISPs and throughout its internal network to ensure that its
mission critical services are readily accessible to customers at all times.
Network Security. The Company incorporates advanced architectural concepts
such as protected domains, restricted nodes and distributed access control in
its system architecture. The Company has also developed proprietary
communications protocols within and between the WorldTrust architecture
modules that it believes can prevent most known forms of electronic attacks.
In addition, the Company employs the latest network security technologies
including firewalls and intrusion detection software, and contracts with
security consultants who perform periodic attacks and security risk
assessments. The Company will continue to evaluate and deploy new
technological defenses as they become available. See "Risk Factors--System
Interruption and Security Breaches."
Call Center and Help Desk. The Company provides a wide range of customer
support services through a phone-based call center, e-mail help desk and Web-
based self-help system. The Company's call center is staffed from 8 a.m. to 5
p.m. PST and employs an Automated Call Director system. The Web-based support
services are available on a 24 hour x 7 day basis. E-mail support utilizes
customized auto response systems to provide self-help recommendations and a
staff of trained customer support agents.
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Disaster Recovery Plans. Although the Company believes its operations
facilities are highly resistant to systems failure and sabotage, it has
developed, and is in the process of implementing, a disaster recovery and
contingency operations plan and has an agreement with Comdisco Corporation to
provide replication of customer data, facilities and systems at another site
so that its main services can be re-instated within 24 hours of a failure. In
addition, all of the Company's digital certificate services are linked to
advanced storage systems that provide data protection through techniques such
as mirroring and replication. See "Risk Factors--System Interruption and
Security Breaches."
SECURITY AND TRUST PRACTICES
The Company believes that its perceived level of trustworthiness as a CA
will continue to be a significant determining factor in the acceptance of the
Company's digital certificate solutions. The Company believes that its
reputation as a trusted party will be based, to a large extent, on both the
security of its physical infrastructure and the special practices used in its
operations. The Company's Digital ID Centers include state-of-the-art physical
and network security. The Company also seeks to take a leading role in
defining and adhering to industry-endorsed trust practices and procedures,
which the Company believes are also critical to establishing its perceived
trustworthiness as a CA. The Company has invested significant capital and
human resources in its security and practices including:
Employees. The Company uses stringent hiring and personnel management
practices for all operations and certain engineering personnel as well as all
executive management. The Company utilizes a licensed private investigation
firm to conduct background checks into potential employees' criminal and
financial histories and conducts periodic investigations of such personnel on
an ongoing basis.
Security Monitoring Systems. The Company has sophisticated access control
and monitoring systems that help prevent unauthorized access to secure areas
and provide 24 hour x 7 day monitoring and logging of activities within its
facilities. These systems include electronic key and biometric access control
devices, video monitoring and recording devices, deployment and automatic
arming of motion detectors, glass breakage detectors and remote alarm system
monitoring.
Site Construction. The Company's Digital ID Centers have been built using
construction techniques modeled after U.S. Army specifications for facilities
accredited to handle classified information and contain a robust set of
physical and environmental defenses. These defenses include double layer,
slab-to-slab wall design, self-closing and locking metal doors at all secure
entrances, man traps, tamper proof enclosures for cryptographic materials and
fire prevention systems.
Back-up Power Systems. The Company has invested in back-up power systems
that automatically activate in the event of a failure in its primary power
sources. These include uninterruptible power supply systems and a diesel
generator and fuel supply. To ensure reliability, these systems are tested on
a periodic basis.
Audits. The Company's Practices and External Affairs Department periodically
performs, and retains accredited third parties to perform, audits of its
operational procedures under both internally-developed procedures and
externally-recognized standards.
Practices. The Company's Practices and External Affairs Department is
responsible for the development of the Company's practices for issuing and
managing digital certificates. These practices are set forth in the Company's
Certification Practice Statement, which the Company provides in order to
assure potential customers and strategic partners as to the trustworthiness of
the Company's digital certificate solutions. The Practices and External
Affairs Department is also responsible for the Company's accountability and
security controls and regularly monitors all aspects of the Company's Digital
ID Centers.
Policy Making Activities. The Practices and External Affairs Department also
takes a leading role in a variety of organizations that are defining standards
for trusted and secure communications and commerce over
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IP networks. For example, the Company actively participates in the United
Nations Commission on International Trade Law, which created the United
Nations Model Law on Electronic Commerce, the American Bar Association's
Information Security Committee, Section of Science and Technology, which has
drafted digital signature guidelines, the International Chamber of Commerce
ETERM Working Party, which is chaired by the Company's Vice President of
Practices and External Affairs, and the U.S. State Department Advisory
Committee on Electronic Commerce.
VERISIGN JAPAN
In February 1996, the Company formed VeriSign Japan in order to market and
deliver its digital certificate solutions in Japan. VeriSign Japan has built
and operates a secure Digital ID Center in Kawasaki, Japan, maintains sales
and marketing, engineering and administrative staffs and offers customer
support services, thus enabling it to provide the Company's digital
certificate solutions to the Japanese market. As of September 30, 1997,
VeriSign Japan had 20 employees. In 1996, additional strategic investors
acquired 49% of the outstanding capital stock of VeriSign Japan. These
investors are as follows: The Long Term Credit Bank of Japan, Ltd.; Mitsubishi
Corporation; NEC Corporation; Nippon Investment & Finance Co., Ltd.; Nippon
Steel Corporation; NISSHO IWAI Corporation; NTT Data Corporation; NTT
Electronics Corporation; NTT PC Communications, Inc.; The Sakura Bank,
Limited; The Sanwa Bank, Limited; SOFTBANK Corporation; The Sumitomo Credit
Service Co., Ltd.; and The Sumitomo Trust and Banking Company, Limited.
STRATEGIC RELATIONSHIPS
The Company has established strategic relationships with leading companies
across a number of industry segments, including Cisco, Microsoft, Netscape,
SecureOne (a consortium of McAfee Associates, RSA and Security Dynamics),
Security Dynamics, VeriFone and VISA.
Cisco. The Company has developed a custom software product to provide
digital certificate functionality in Cisco-based intranet environments. As a
result, intranets utilizing Cisco products will support applications that rely
on VeriSign digital certificates for authentication and network management.
The Company and Cisco also engage in a variety of joint marketing efforts.
Cisco is a stockholder of the Company.
Microsoft. The Company works with Microsoft to develop, promote and
distribute a variety of client-based and server-based digital certificate
solutions and has been designated as the preferred provider of digital
certificates for Microsoft customers. The Company's public root key has been
embedded in Microsoft's Internet Explorer since version 3.0, and users can
easily enroll for VeriSign's Universal Digital IDs through this product. The
Company also provides Server Digital IDs for Microsoft's Internet Information
Server product. The Company and Microsoft also jointly promote a set of
technologies and security policies for the secure authentication and
distribution of software over the Internet and engage in other joint marketing
activities. Microsoft is a 5% stockholder of the Company.
Netscape. The Company works with Netscape on a variety of technology
projects and joint marketing activities. The Company's public root key has
been embedded in Netscape's Navigator since version 2.0 and in Netscape's
Communicator since version 4.0. The Company also has an agreement with
Netscape through February 1998 which provides that Netscape will exclusively
feature the Company as the premier provider of digital certificates on the
Netscape Web site and also provides for the Company to have a first right of
participation for any new Netscape products incorporating digital certificate
technology. Enrollment for free, limited-use versions of the Company's
Universal Digital IDs is integrated into the registration process of
Netscape's Netcenter online service and users of Netscape browsers can easily
enroll for standard VeriSign Universal Digital IDs through these products.
Netscape SuiteSpot and SuiteSpot with 128-bit encryption capabilities can also
utilize the Company's Server Digital IDs. The Company also supports Netscape's
object signing technology, enabling software developers to digitally sign Java
and JavaScript objects in order to authenticate the developer's identity and
assure end users that the downloaded objects have not been tampered with or
modified.
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SecureOne. The Company, McAfee Associates, RSA and Security Dynamics are
jointly developing the SecureOne framework, which is designed to provide
enterprises with a platform for developing and maintaining secure networks
that link anti-virus, authentication, encryption and digital certificate
technologies. The SecureOne framework will integrate the programming
interfaces of McAfee Associates' Virus Interface for Protective Early
Response, Security Dynamics' Enterprise Security Services ("ESS")
architecture, RSA's digital signature, cryptographic, messaging and
transaction security engines and a VeriSign software developer toolkit to
enable digital certificate functionality in secure applications. The companies
have also agreed to integrate their security technologies through a series of
cross-licensing agreements, and, as a result, the Company's Class 1 Universal
Digital IDs are being issued on a trial basis to users of McAfee Associates'
VirusScan Security Suite. Security Dynamics, together with its wholly-owned
subsidiaries, is the largest stockholder of the Company.
Security Dynamics. The Company has entered into an agreement with Security
Dynamics under which Security Dynamics will incorporate custom digital
certificate technology developed by VeriSign into Security Dynamics' ESS
architecture, which is used in certain of Security Dynamics' security
solutions. Security Dynamics has also agreed to be a reseller of the Company's
VeriSign OnSite product. The Company believes that Security Dynamics is a
market leader in enterprise security and that, by including VeriSign
technology and products in Security Dynamics' products, the Company will have
a broader potential market for its digital certificate solutions. Security
Dynamics, through a controlled entity, is the largest stockholder of the
Company. See "Certain Transactions" and "Principal Stockholders."
VeriFone. The Company and VeriFone have executed a term sheet which provides
that VeriFone will become a reseller of the Company's SET services and Server
Digital ID products in connection with VeriFone's Internet payment solutions.
In addition, VeriFone has agreed to promote VeriSign as the preferred provider
of SET digital certificate services to its current and prospective customers
and to use its best efforts to position the Company as a premier provider of
SET and non-SET digital certificate services for use by Hewlett-Packard and
its affiliated entities. VeriFone has also agreed to engage in a variety of
joint marketing activities with the Company. Hewlett-Packard, VeriFone's
parent company, is a stockholder of the Company.
VISA. The Company has an agreement with VISA under which the Company
provides SET digital certificate solutions to VISA on behalf of its member
banks enabling them to offer branded SET-compliant digital certificates to
their cardholders and merchants. To date, over 130 member banks worldwide are
using VeriSign SET solutions in pilot programs. VISA is a 6% stockholder of
the Company. See "Certain Transactions" and "Principal Stockholders."
MARKETING, SALES AND DISTRIBUTION
MARKETING
The Company utilizes a variety of marketing programs to increase brand
awareness. In addition to joint marketing arrangements, the Company also
engages in a variety of direct marketing programs that are focused on owners
of Web servers, home and business PC users and enterprise professionals in
mid-sized and large organizations. The Company addresses these customers
through outbound e-mail, telemarketing and printed mail campaigns to stimulate
product trial, purchase and usage. The Company also uses banner ads that link
to the Company's Web site, participates in industry-specific events, trade
shows, executive seminars, industry association activities and various
national and international standards bodies.
SALES AND DISTRIBUTION
The Company markets its digital certificate solutions worldwide through
multiple distribution channels. To date, direct sales and Internet sales have
accounted for a substantial majority of the Company's revenues. The Company
has recently begun to market its digital certificate solutions through other
distribution channels, including telesales, VARs, systems integrators and
OEMs.
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Internet Sales. The Company distributes many of its products through its Web
sites. The Company believes that Internet distribution is particularly well-
suited for sales of certain of its enterprise solutions and Internet IDs and
can be used to serve a large number of Internet users from multiple countries.
The Company also utilizes its Web site to assist in disseminating product
information and in generating product leads and trials for a number of its
products and services.
Direct Sales. The Company's direct sales force targets mid-sized and large
corporations, financial institutions, commercial Web sites and federal and
state government agencies. The Company believes that these organizations have
a substantial installed base of PCs, Web servers, IP networks and high-speed
access to the Internet and are most likely to be able to benefit quickly from
the use of digital certificates. The direct sales force also targets
international organizations that the Company believes are the most suitable to
act as VeriSign affiliates. In certain instances, the Company's direct sales
force works with complementary VARs, hardware OEMs and systems integrators to
deliver complete solutions for major customers. As of September 30, 1997, the
Company had 19 direct sales and sales support personnel. The Company maintains
sales offices and personnel in California, Georgia, Illinois, Maryland,
Massachusetts, New York and Japan.
Telesales. The Company currently outsources its telemarketing operations to
a third party for use in customer prospecting, lead generation and lead
follow-up. This marketing activity qualifies leads for further follow up by
the direct sales force or resellers or leads the prospect to VeriSign's Web
site so that the prospect can access information or enroll for enterprise or
electronic commerce solutions.
VARs and Systems Integrators. The Company works with VARs and systems
integrators to package and sell its enterprise and electronic commerce
solutions and Internet IDs. The Company also has a VeriSign Business Partner
Program that allows leading ISPs to offer VeriSign Server Digital IDs as an
integral part of their secure Web site hosting services. Current members of
this program include AOL Primehost, Epoch Internet, Hiway Technologies,
Internet Servers, Inc., pcbank.net and PSINET, Inc.
OEMs. The Company provides technology and products for certificate
management to OEMs, which integrate the technology and products with value-
added software or service offerings and sell the bundled solution to end user
customers. Cisco and Security Dynamics have OEM relationships with the
Company. See "--Strategic Relationships."
International. The Company intends to market its products and services to
international markets directly over the Internet and through resellers and
affiliate relationships. The Company markets its products and services in
Japan through VeriSign Japan, which maintains a secure Digital ID Center in
Kawasaki, Japan, and employed 20 persons as of September 30, 1997. Revenues of
VeriSign Japan and from other international customers accounted for less than
10% of revenues through 1996 and for approximately 15% of revenues for the
nine months ended September 30, 1997. See "--VeriSign Japan."
RESEARCH AND DEVELOPMENT
The Company believes that its future success will depend in large part on
its ability to continue to maintain and enhance its current technologies,
products and services. To this end, the Company leverages the modular nature
of its WorldTrust software architecture to enable it to rapidly develop
enhancements to its WorldTrust software and to deliver complementary new
products and services. In the past, the Company has developed products and
services both independently and through efforts with leading application
developers and major customers. The Company has also, in certain
circumstances, acquired or licensed technology from third parties, including
public key cryptography technology from RSA. Although the Company will
continue to work closely with developers and major customers in its product
development efforts, it expects that most of its future enhancements to
existing products and new products will be developed internally.
The Company has several significant projects currently in development. These
include the continued enhancement of the WorldTrust architecture and
associated software toolkits to broaden functionality and provide
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additional packaging and integration options and the development of new
services such as real-time status checking, secure timestamping and smart card
personalization.
As of September 30, 1997, VeriSign had 42 employees dedicated to research
and development. The Company also employs independent contractors for
documentation, usability, artistic design and editorial review. Research and
development expenses were $642,000, $2.1 million and $3.6 million for the
period from April 12, 1995 (inception) to December 31, 1995, 1996 and the nine
months ended September 30, 1997, respectively. To date, all development costs
have been expensed as incurred. The Company believes that timely development
of new and enhanced products and technology are necessary to remain
competitive in the marketplace. Accordingly, the Company intends to continue
recruiting and hiring experienced research and development personnel and to
make other investments in research and development.
The market for digital certificate products and related services is an
emerging market characterized by rapid technological developments, frequent
new product introductions and evolving industry standards. The emerging nature
of this market and its rapid evolution will require that the Company
continually improve the performance, features and reliability of its products
and services, particularly in response to competitive offerings and that it
introduce new products and services or enhancements to existing products and
services as quickly as possible and prior to its competitors. The success of
new product introductions is dependent on several factors, including proper
new product definition, timely completion and introduction of new products,
differentiation of new products from those of the Company's competitors and
market acceptance of the Company's new products and services. There can be no
assurance that the Company will be successful in developing and marketing new
products and services that respond to competitive and technological
developments and changing customer needs. The failure of the Company to
develop and introduce new products and services successfully on a timely basis
and to achieve market acceptance for such products and services could have a
material adverse effect on the Company's business, operating results and
financial condition. In addition, the widespread adoption of new Internet,
networking or telecommunication technologies or standards or other
technological changes could require substantial expenditures by the Company to
modify or adapt its products and services. To the extent that a specific
method other than digital certificates is adopted to enable trusted and secure
commerce and communications over IP networks, sales of the Company's existing
and planned products and services will be adversely affected and the Company's
products and services could be rendered unmarketable or obsolete, which would
have a material adverse effect on the Company's business, operating results
and financial condition. The Company believes there is a time-limited
opportunity to achieve market share, and there can be no assurance that the
Company will be successful in achieving widespread acceptance of its products
and services or in achieving market share before competitors offer products
and services with features similar to the Company's current offerings. Any
such failure by the Company could have a material adverse effect on the
Company's business, operating results and financial condition. See "Risk
Factors--Rapid Technological Change; New Product and Services Introductions."
CUSTOMER SUPPORT
The Company believes that a high level of customer support for commerce and
enterprise customers as well as end users of digital certificates is necessary
to achieve acceptance of its digital certificates and related products and
services. The Company provides a wide range of customer support services
through a staff of customer service personnel, call center, e-mail help desk
and a Web-based self-help system. Since it introduced its first products over
two years ago, the Company has developed a substantial knowledge base of
customer support information based on its customer interactions and believes
that this offers the Company a competitive advantage. The Company's call
center is staffed from 8 a.m. to 5 p.m. PST and employs an Automated Call
Director system to provide self-help services and, if necessary, to route
support calls to available support personnel. The Company also offers Web-
based support services that are available on a 24 hour x 7 day basis and that
are frequently updated to improve existing information and to support new
services. The Company's e-mail customer support service utilizes customized
auto response systems to provide self-help recommendations and also utilizes a
staff of trained customer support agents who typically respond to customer
inquiries within 24 hours. As of September 30, 1997, the Company had 53
employees in its customer support organization.
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The Company also employs technical support personnel who work directly with
its direct sales force, distributors and customers of its electronic commerce
and enterprise solutions. The Company's annual maintenance agreements for its
electronic commerce and enterprise solutions include technical support and
upgrades. The Company also provides training programs for customers of its
enterprise and electronic commerce solutions.
COMPETITION
The Company's digital certificate solutions are targeted at the new and
rapidly evolving market for trusted and secure communications and commerce
over IP networks. Although the competitive environment in this market has yet
to develop fully, the Company anticipates that it will be intensely
competitive, subject to rapid change and significantly affected by new product
and service introductions and other market activities of industry
participants.
The Company's primary competitors are Entrust, GTE CyberTrust and IBM. The
Company also experiences competition from a number of smaller companies that
provide digital certificate solutions. The Company expects that competition
from established and emerging companies in the financial and
telecommunications industries will increase in the near term, and that the
Company's primary long-term competitors may not yet have entered the market.
Netscape has introduced software products that enable the issuance and
management of digital certificates, and the Company believes that other
companies could introduce such products. There can be no assurance that
additional companies will not offer digital certificate solutions that are
competitive with those of the Company. Increased competition could result in
pricing pressures, reduced margins or the failure of the Company's products
and services to achieve or maintain market acceptance, any of which could have
a material adverse effect on the Company's business, operating results and
financial condition.
Several of the Company's current and potential competitors have longer
operating histories and significantly greater financial, technical, marketing
and other resources than the Company and therefore may be able to respond more
quickly than the Company to new or changing opportunities, technologies,
standards and customer requirements. Many of these competitors also have
broader and more established distribution channels that may be used to deliver
competing products or services directly to customers through bundling or other
means. If such competitors were to bundle competing products or services for
their customers, the demand for the Company's products and services might be
substantially reduced and the ability of the Company to distribute its
products successfully and the utilization of its services would be
substantially diminished. In addition, browser companies that embed the
Company's root keys or otherwise feature the Company as a provider of digital
certificate solutions in their Web browsers or on their Web sites could also
promote competitors of the Company or charge the Company substantial fees for
such promotions in the future. New technologies and the expansion of existing
technologies may increase the competitive pressures on the Company. There can
be no assurance that competing technologies developed by others or the
emergence of new industry standards will not adversely affect the Company's
competitive position or render its products or technologies noncompetitive or
obsolete. In addition, the market for digital certificates is nascent and is
characterized by announcements of collaborative relationships involving
competitors of the Company. The existence or announcement of such
relationships could adversely affect the Company's ability to attract and
retain customers. As a result of the foregoing and other factors, there can be
no assurance that the Company will compete effectively with current or future
competitors or that competitive pressures faced by the Company will not have a
material adverse effect on the Company's business, operating results and
financial condition. See "Risk Factors--Competition."
INTELLECTUAL PROPERTY
The Company relies primarily on a combination of copyrights, trademarks,
trade secret laws, restrictions on disclosure and other methods to protect its
intellectual property and trade secrets. The Company also enters into
confidentiality agreements with its employees and consultants, and generally
controls access to and distribution of its documentation and other proprietary
information. Despite these precautions, it may be possible for a third party
to copy or otherwise obtain and use the Company's intellectual property or
trade secrets without
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authorization. In addition, there can be no assurance that others will not
independently develop substantially equivalent intellectual property. There
can be no assurance that the precautions taken by the Company will prevent
misappropriation or infringement of its technology. A failure by the Company
to protect its intellectual property in a meaningful manner could have a
material adverse effect on the Company's business, operating results and
financial condition. In addition, litigation may be necessary in the future to
enforce the Company's intellectual property rights, to protect the Company's
trade secrets or to determine the validity and scope of the proprietary rights
of others. Such litigation could result in substantial costs and diversion of
management and technical resources, either of which could have a material
adverse effect on the Company's business, operating results and financial
condition.
The Company also relies on certain licensed third-party technology, such as
public key cryptography technology licensed from RSA and other technology that
is used in the Company's products to perform key functions. In particular, the
Company has been granted a perpetual, royalty free, nonexclusive, worldwide
license to distribute products it develops that contain or incorporate the RSA
BSAFE and TIPEM products and that relate to digital certificate issuing
software, software for the management of private keys and for digitally
signing computer files on behalf of others, software for customers to preview
and forward digital certificate requests to the Company, or such other
products that, in RSA's reasonable discretion, are reasonably necessary for
the implementation of a digital certificate business. RSA is also required to
provide maintenance and technical support for these products to the Company.
RSA's BSAFE product is a software tool kit that allows for the integration of
encryption and authentication features into software applications and TIPEM is
a secure e-mail development tool kit that allows for secure e-mail messages to
be sent using one vendor's e-mail product and read by another vendor's e-mail
product. There can be no assurance that these third-party technology licenses
will continue to be available to the Company on commercially reasonable terms
or at all, and the loss of any of these technologies could have a material
adverse effect on the Company's business, operating results and financial
condition. Moreover, in the Company's current license agreements, the licensor
has agreed to defend, indemnify and hold the Company harmless with respect to
any claim by a third party that the licensed software infringes any patent or
other proprietary right. Although these licenses are fully paid, there can be
no assurance that the outcome of any litigation between the licensor and a
third party or between the Company and a third party will not lead to royalty
obligations of the Company for which the Company is not indemnified or for
which such indemnification is insufficient, or that the Company will be able
to obtain any additional license on commercially reasonable terms or at all.
In the future, the Company may seek to license additional technology to
incorporate in its products and services. There can be no assurance that any
third party technology licenses that the Company may be required to obtain in
the future will be available to the Company on commercially reasonable terms
or at all. The loss of or inability to obtain or maintain any of these
technology licenses could result in delays in introduction of the Company's
products or services until equivalent technology, if available, is identified,
licensed and integrated, which could have a material adverse effect on the
Company's business, operating results and financial condition.
From time to time, the Company has received, and may receive in the future,
notice of claims of infringement of other parties' proprietary rights. There
can be no assurance that infringement or other claims will not be asserted or
prosecuted against the Company in the future or that any past or future
assertions or prosecutions will not materially adversely affect the Company's
business, operating results and financial condition. Any such claims, with or
without merit, could be time-consuming, result in costly litigation and
diversion of technical and management personnel, cause product shipment delays
or require the Company to develop non-infringing technology or enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, or at all.
In the event of a successful claim of product infringement against the Company
and the failure or inability of the Company to develop non-infringing
technology or license the infringed or similar technology on a timely basis,
the Company's business, operating results and financial condition could be
materially adversely affected. See "Risk Factors--Intellectual Property;
Potential Litigation."
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EMPLOYEES
As of September 30, 1997, the Company had 162 full-time employees. Of the
total, 38 were employed in sales and marketing, 42 in research and
development, 53 in operations, seven in practices and external affairs, three
in federal markets, and 19 in finance and administration. The Company has
never had a work stoppage, and no employees are represented under collective
bargaining agreements. The Company considers its relations with its employees
to be good. The Company's ability to achieve its financial and operational
objectives depends in large part upon its continuing ability to attract,
integrate, retain and motivate highly qualified sales, technical and
managerial personnel, and upon the continued service of its senior management
and key sales and technical personnel, none of whom is bound by an employment
agreement. Competition for such qualified personnel in the Company's industry
and geographical location in the San Francisco Bay Area is intense,
particularly in software development and product management personnel. See
"Risk Factors--Dependence on Key Personnel."
FACILITIES
The Company's principal administrative, sales, marketing, research and
development and operations facilities are located in two adjacent buildings in
Mountain View, California, where they occupy approximately 44,000 square feet
under leases expiring in 2001. The Company intends to obtain additional office
space in 1998 contiguous to its headquarters. The Company believes that this
additional space will be available and that its current facilities, together
with this additional space, will be adequate to meet its needs for the
foreseeable future.
The Company also leases space for sales and support offices in Rosemont,
Illinois; Atlanta, Georgia; Linthicum, Maryland; Cambridge, Massachusetts; and
Melville, New York. In addition, VeriSign Japan leases space in Kawasaki,
Japan for its offices and Digital ID Center. The Company's success is largely
dependent on the uninterrupted operation of its Digital ID Centers and
computer and communications systems. See "Risk Factors--System Interruption
and Security Breaches."
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company as of October 31, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
D. James Bidzos (1).............. 42 Chairman of the Board
Stratton D. Sclavos.............. 36 President, Chief Executive Officer and
Director
Michael S. Baum.................. 45 Vice President of Practices and
External Affairs
Ethel E. Daly.................... 53 Vice President of Worldwide Operations
Dana L. Evan..................... 38 Vice President of Finance and
Administration
and Chief Financial Officer
Quentin P. Gallivan.............. 40 Vice President of Sales and Field
Operations
Nicholas F. Piazzola............. 51 Vice President of Federal Markets
Arnold Schaeffer................. 34 Vice President of Engineering
Richard A. Yanowitch............. 41 Vice President of Marketing
Timothy Tomlinson (2)............ 47 Secretary and Director
William Chenevich (1)(2)......... 53 Director
Kevin R. Compton (2)............. 39 Director
David J. Cowan (1)............... 31 Director
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
D. JAMES BIDZOS has served as Chairman of the Board of the Company since its
founding in April 1995 and served as Chief Executive Officer of the Company
from April 1995 to July 1995. He has also served as President and Chief
Executive Officer of RSA since 1986. RSA was acquired by Security Dynamics in
July 1996 and has been a wholly-owned subsidiary of Security Dynamics since
that time. Mr. Bidzos has been an Executive Vice President and a director of
Security Dynamics since its acquisition of RSA.
STRATTON D. SCLAVOS has served as President and Chief Executive Officer and
as a director of the Company since he joined the Company in July 1995. From
October 1993 to June 1995, he was Vice President, Worldwide Marketing and
Sales of Taligent, Inc. ("Taligent"), a software development company that was
a joint venture among Apple Computer, Inc. ("Apple"), IBM and Hewlett-Packard.
From May 1992 to September 1993, Mr. Sclavos was Vice President of Worldwide
Sales and Business Development of GO Corporation, a pen-based computer
company. Prior to that time, he served in various sales and marketing
capacities for MIPS Computer Systems, Inc. and Megatest Corporation. Mr.
Sclavos is also a director and a member of the compensation committee of
Network Solutions, Inc. Mr. Sclavos holds a B.S. degree in Electrical and
Computer Engineering from the University of California at Davis.
MICHAEL S. BAUM has served as Vice President of Practices and External
Affairs of the Company since he joined the Company in November 1995. From 1987
to October 1995, he was the founder and a principal of Independent Monitoring,
a consulting firm specializing in digital commerce and information security
law. Prior to that time, Mr. Baum was employed by BBN Corporation in various
capacities. Mr. Baum holds a B.A. degree in History from Carnegie Mellon
University, an M.B.A. degree in Management of Technology from the Wharton
School of the University of Pennsylvania and a J.D. degree from Western New
England School of Law.
ETHEL E. DALY has served as Vice President of Worldwide Operations of the
Company since she joined the Company in June 1996. From January 1995 to June
1996, she was Senior Vice President, Product Management and Marketing of
Knight-Ridder Information, Inc., an online information services company. Prior
to that time, from 1986 to January 1995, Ms. Daly worked for Charles Schwab
and Company, a stock brokerage firm, most
50
<PAGE>
recently as Managing Director, International Division. Prior to that time, she
held the positions of Vice President of Marketing for Attalla Corporation and
Vice President Electronic Banking of Crocker National Bank. Ms. Daly holds a
B.A. degree in Psychology from San Francisco State University and a Masters of
Business Management degree from Stanford University.
DANA L. EVAN has served as Vice President of Finance and Administration and
Chief Financial Officer of the Company since she joined the Company in June
1996. From 1988 to June 1996, she worked as a financial consultant in the
capacity of chief financial officer, vice president of finance or corporate
controller for various public and private companies and partnerships,
including the Company from November 1995 to June 1996, Delphi Bioventures, a
venture capital firm, from 1988 to June 1995, and Identix Incorporated, a
manufacturer of biometric identity verification and imaging products, from
1991 to August 1993. Prior to 1988, she was employed by KPMG Peat Marwick LLP,
most recently as a senior manager. Ms. Evan is a certified public accountant
and holds a B.S. degree in Commerce with a concentration in Accounting and
Finance from the University of Santa Clara.
QUENTIN P. GALLIVAN has served as Vice President of Sales and Field
Operations of the Company since he joined the Company in October 1997. From
April 1996 to October 1997, he was Vice President for Asia Pacific and Latin
America of Netscape, a software company. Prior to that time, Mr. Gallivan was
with General Electric Information Services, an electronic commerce services
company, most recently as Vice President, Sales and Services for the Americas.
NICHOLAS F. PIAZZOLA has served as Vice President of Federal Markets of the
Company since he joined the Company in December 1996. From 1969 to November
1996, he was employed by the United States National Security Agency (the
"NSA"), most recently as Chief, Network Security Group from May 1994 to
November 1996 and Chief, Infosec Research & Technology Group until April 1994.
Mr. Piazzola holds a B.S. degree in Electrical Engineering from Villanova
University and an M.S. degree in Electrical Engineering from the University of
Maryland.
ARNOLD SCHAEFFER has served as Vice President of Engineering of the Company
since he joined the Company in January 1996. From March 1992 to December 1995,
he was employed by Taligent, most recently as Vice President of Engineering,
CommonPoint Products. Prior to working at Taligent, he served as a software
engineer for Apple, Intellicorp and Hewlett-Packard. Mr. Schaeffer holds a
B.S. degree in Information and Computer Science from the Georgia Institute of
Technology and an M.B.A. degree from the University of California at Berkeley.
RICHARD A. YANOWITCH has served as Vice President of Marketing of the
Company since he joined the Company in May 1996. From July 1995 to May 1996,
he was a management consultant to private software companies. From 1989 to
June 1995, he held a series of marketing positions with Sybase, Inc., a
software company, most recently as Vice President of Corporate Marketing.
Prior to that time, he held various sales, marketing and operating positions
with The Santa Cruz Operation, Inc., Digital Equipment Corporation, Lanier
Harris Corporation and Brooks International Corporation. Mr. Yanowitch holds a
B.A. degree in History from Swarthmore College and an M.B.A. degree in
Entrepreneurial Management and Marketing from Harvard Business School.
TIMOTHY TOMLINSON has been Secretary and a director of the Company since its
founding in April 1995. He has been a partner of Tomlinson Zisko Morosoli &
Maser LLP, a law firm, since 1983. Mr. Tomlinson is also a director of Portola
Packaging, Inc. and Oak Technology, Inc. Mr. Tomlinson holds a B.A. degree in
Economics, an M.B.A. degree and a J.D. degree from Stanford University.
WILLIAM CHENEVICH has been a director of the Company since its founding in
April 1995. He has been the Group Executive Vice President, Data Processing
Systems of VISA, a financial services company, since October 1993. From May
1992 to October 1993, he was Executive Vice President and Chief Information
Officer of Ahmanson Corporation, a financial services company. Mr. Chenevich
holds a B.B.A. degree in Business and an M.B.A. degree in Management from the
City College of New York.
51
<PAGE>
KEVIN R. COMPTON has been a director of the Company since February 1996. He
has been a general partner of Kleiner Perkins Caufield & Byers, a venture
capital firm, since January 1990. Mr. Compton is also a director of Citrix
Systems, Inc., Corsair Communications, Inc., Digital Generation Systems, Inc.
and Global Village Communication Inc. Mr. Compton holds a B.S. degree in
Business Management from the University of Missouri.
DAVID J. COWAN has been a director of the Company since its founding in
April 1995. He has been a general partner of Bessemer Venture Partners, a
venture capital investment firm, since August 1996. Mr. Cowan has also been a
manager of Deer IV & Co. LLC, a venture capital investment firm, since August
1996. Previously he was an associate with Bessemer Venture Partners from
August 1992 to August 1996. Mr. Cowan also served as President and Chief
Executive Officer of Visto Corporation, a computer software and service firm,
from August 1996 to April 1997, and as Chief Financial Officer of the Company
from April 1995 to June 1996. Mr. Cowan is also a director of Worldtalk
Communications Corporation. Mr. Cowan holds an A.B. degree in Mathematics and
Computer Science and an M.B.A. degree from Harvard University.
The Company's Bylaws currently authorize no fewer than five and no more than
seven directors. The Company's Board of Directors (the "Board") is currently
comprised of six directors. Directors are elected by the stockholders at each
annual meeting of stockholders to serve until the next annual meeting of
stockholders or until their successors are duly elected and qualified. The
existing directors were elected pursuant to the provisions of the
Stockholders' Agreement described in "Certain Transactions," which agreement
terminates upon the closing of this offering. Executive officers are elected
by, and serve at the discretion of, the Board. The Company's Amended and
Restated Bylaws, which will become effective upon the completion of this
offering, provide that the Board will be divided into three classes, Class I,
Class II and Class III, with each class serving staggered three-year terms.
The Class I directors will stand for reelection or election at the 1998 annual
meeting of stockholders. The Class II directors will stand for reelection or
election at the 1999 annual meeting of stockholders and the Class III
directors will stand for reelection or election at the 2000 annual meeting of
stockholders.
BOARD COMMITTEES
The Board has established an Audit Committee to meet with and consider
suggestions from members of management, as well as the Company's independent
accountants, concerning the financial operations of the Company. The Audit
Committee also has the responsibility to review audited financial statements
of the Company and consider and recommend the employment of, and approve the
fee arrangements with, independent accountants for both audit functions and
for advisory and other consulting services. The Audit Committee is currently
comprised of Messrs. Chenevich, Compton and Tomlinson. The Board has also
established a Compensation Committee to review and approve the compensation
and benefits for the Company's key executive officers, administer the
Company's stock purchase, equity incentive and stock option plans and make
recommendations to the Board regarding such matters. The Compensation
Committee is currently comprised of Messrs. Bidzos, Chenevich and Cowan.
DIRECTOR COMPENSATION
Directors do not receive any cash fees for their service on the Board or any
Board committee, but they are entitled to reimbursement of all reasonable out-
of-pocket expenses incurred in connection with their attendance at Board and
Board committee meetings. At the Company's founding in April 1995, the Company
granted an option to purchase 25,000 shares of its Common Stock under the
Company's 1995 Stock Option Plan to D. James Bidzos with an exercise price of
$.12 per share. All Board members are eligible to receive stock options under
the Company's stock option plans, and outside directors receive stock options
pursuant to automatic grants of stock options under the 1995 Stock Option
Plan. In July 1996, the Company granted to each of Messrs. Bidzos, Chenevich,
Compton, Cowan and Tomlinson an option to purchase 10,000 shares of its Common
Stock under the Company's 1995 Stock Option Plan with an exercise price of
$8.00 per share. In June 1997, the Company granted to each of Messrs. Bidzos,
Compton, Cowan and Tomlinson an option to purchase 3,500 shares of its Common
Stock under the Company's 1995 Stock Option Plan with an exercise price of
$8.00 per share.
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<PAGE>
In October 1997, the Board adopted, subject to stockholder approval, the
1998 Directors Stock Option Plan (the "Directors Plan") and reserved a total
of 125,000 shares of the Company's Common Stock for issuance thereunder.
Members of the Board who are not employees of the Company, or any parent,
subsidiary or affiliate of the Company, are eligible to participate in the
Directors Plan. The option grants under the Directors Plan are automatic and
nondiscretionary, and the exercise price of the options is 100% of the fair
market value of the Common Stock on the date of grant. Each eligible director
who first becomes a member of the Board on or after the effective date of the
Registration Statement of which this Prospectus forms a part (the "Effective
Date") will initially be granted an option to purchase 15,000 shares (an
"Initial Grant") on the date such director first becomes a director. On each
anniversary of a director's Initial Grant (or most recent grant if such
director was ineligible to receive an Initial Grant), each eligible director
will automatically be granted an additional option to purchase 7,500 shares if
such director has served continuously as a member of the Board since the date
of such director's Initial Grant (or most recent grant if such director did
not receive an Initial Grant). The term of such options is ten years, provided
that they will terminate seven months following the date the director ceases
to be a director or, if the Company so specifies in the grant, a consultant of
the Company (twelve months if the termination is due to death or disability).
All options granted under the Directors Plan will vest as to 6.25% of the
shares each quarter after the date of grant, provided the optionee continues
as a director or, if the Company so specifies in the grant, as a consultant of
the Company. Additionally, immediately prior to the dissolution or liquidation
of the Company or a "change in control" transaction, all options granted
pursuant to the Directors Plan will accelerate and will be exercisable for a
period of up to six months following the transaction, after which period any
unexercised options will expire.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Bidzos, a member of the Compensation Committee, is an Executive Vice
President and a director of Security Dynamics, which beneficially owns
approximately 27.0% of the Company's Common Stock, and also served as the
Company's Chief Executive Officer from April to July 1995. See "Certain
Transactions." No interlocking relationship exists between the Board or
Compensation Committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation awarded to, earned by, or paid for services rendered to the
Company in all capacities during 1997 by the Company's Chief Executive Officer
and the four most highly compensated executive officers, other than the Chief
Executive Officer, who were serving as executive officers at the end of 1997
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
----------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS(#)
--------------------------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Stratton D. Sclavos................. $200,000 $80,922 -- 100,000
President and Chief Executive
Officer
Dana L. Evan........................ 145,000 36,568 -- 45,000
Vice President of Finance and
Administration and Chief Financial
Officer
Michael S. Baum..................... 145,000 30,033 $15,000(1) 25,000
Vice President of Practices and
External Affairs
Arnold Schaeffer.................... 143,333 30,588 -- 58,000
Vice President of Engineering
Richard A. Yanowitch................ 140,000 45,066 -- --
Vice President of Marketing
</TABLE>
- --------
(1) Represents compensation that the Company paid Mr. Baum in exchange for his
agreement to forego certain consulting projects.
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<PAGE>
OPTION GRANTS IN FISCAL 1997
The following table sets forth certain information regarding stock options
granted to each of the Named Executive Officers during the year ended December
31, 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERMS(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED FISCAL YEAR(%)(3) PER SHARE(4) DATE 5% 10%
- ---- ---------- ----------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stratton D. Sclavos..... 100,000 7.7 $7.00 11/4/04 $ 284,970 $ 664,102
Dana L. Evan............ 45,000 3.4 6.00 10/6/04 109,917 256,154
Michael S. Baum......... 25,000 1.9 6.00 10/6/04 61,065 142,308
Arnold Schaeffer........ 58,000 4.4 6.00 10/6/04 141,671 330,154
Richard A. Yanowitch.... -- -- -- -- -- --
</TABLE>
- --------
(1) Options granted in 1997 were granted under the Company's 1995 Stock Option
Plan or, in the case of Mr. Sclavos, the Company's 1997 Stock Option Plan.
These options become exercisable with respect to 25% of the shares covered
by the option on the first anniversary of the date of grant and with
respect to an additional 6.25% of these shares each quarter thereafter.
These options have a term of seven years. Upon certain changes in control
of the Company, this vesting schedule will accelerate as to 50% of any
shares that are then unvested. See "--Employee Benefit Plans" and "--
Compensation Arrangements" for a description of the material terms of
these options.
(2) Potential realizable values are net of exercise price but before taxes,
and are based on the assumption that the Common Stock of the Company
appreciates at the annual rate shown (compounded annually) from the date
of grant until the expiration of the seven-year term. These numbers are
calculated based on Securities and Exchange Commission requirements and do
not reflect the Company's projection or estimate of future stock price
growth.
(3) The Company granted options to purchase 1,307,100 shares of Common Stock
to employees from January 1 through November 15, 1997.
(4) Options were granted at an exercise price equal to the fair market value
of the Company's Common Stock, as determined by the Board of Directors.
AGGREGATE OPTION EXERCISES IN FISCAL 1997 AND FISCAL YEAR-END OPTION VALUES
The following table sets forth for each of the Named Executive Officers the
shares acquired and the value realized on each exercise of stock options
during the year ended December 31, 1997 and the year-end number and value of
exercisable and unexercisable options:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT 12/31/97(1) AT 12/31/97(2)
ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stratton D. Sclavos..... -- -- -- 100,000
Dana L. Evan............ -- -- -- 45,000
Michael S. Baum......... -- -- -- 25,000
Arnold Schaeffer........ -- -- -- 58,000
Richard A. Yanowitch.... -- -- -- --
</TABLE>
- --------
(1) Options shown were granted under the Company's 1995 Stock Option Plan or,
in the case of Mr. Sclavos, under the Company's 1997 Stock Option Plan,
and are subject to vesting as described in footnote (1) to the option
grant table above. See "--Employee Benefit Plans" and "--Compensation
Arrangements" for a description of the material terms of these options.
(2) Based on an assumed initial public offering price of $ per share.
55
<PAGE>
No options were exercised during 1997 by the Named Executive Officers. No
compensation intended to serve as incentive for performance to occur over a
period longer than one year was paid pursuant to a long-term incentive plan
during 1997 to any Named Executive Officer. The Company does not have any
defined benefit or actuarial plan under which benefits are determined
primarily by final compensation and years of service with any of the Named
Executive Officers.
EMPLOYEE BENEFIT PLANS
1995 Stock Option Plan. In April 1995, the Board adopted and the
stockholders approved the 1995 Stock Option Plan. At that time, 2,145,000
shares of Common Stock were reserved for issuance under the 1995 Stock Option
Plan, which number was increased to 4,145,000 shares in May 1996. As of
September 30, 1997, options to purchase 1,803,744 shares had been exercised
(net of repurchases), options to purchase an additional 2,000,974 shares of
Common Stock were outstanding under the 1995 Stock Option Plan with a weighted
average exercise price of $1.49 and 340,282 shares remained available for
future grants. Following the closing of this offering, no additional options
will be granted under the 1995 Stock Option Plan. Options granted under the
1995 Stock Option Plan are subject to terms substantially similar to those
described below with respect to options to be granted under the Equity
Incentive Plan. The 1995 Stock Option Plan does not provide for issuance of
restricted stock or stock bonus awards.
1997 Stock Option Plan. In October 1997, the Board adopted and the Company's
stockholders approved the 1997 Stock Option Plan. At that time, 800,000 shares
of Common Stock were reserved for issuance under the 1997 Stock Option Plan.
Following the closing of this offering, no options will be granted under the
1997 Stock Option Plan. Options granted under the 1997 Stock Option Plan are
subject to terms substantially similar to those described below with respect
to options granted under the Equity Incentive Plan. The 1997 Stock Option Plan
does not provide for issuance of restricted stock or stock bonus awards.
1998 Equity Incentive Plan. In October 1997, the Board adopted, subject to
stockholder approval, the Equity Incentive Plan. The total number of shares of
Common Stock reserved for issuance thereunder is 2,000,000. The Equity
Incentive Plan will become effective on the Effective Date and will serve as
the successor to the 1995 Stock Option Plan and the 1997 Stock Option Plan
(the "Prior Plans"). Options granted under the Prior Plans before their
termination will remain outstanding according to their terms, but no further
options will be granted under the Prior Plans after the Effective Date. Shares
that: (a) are subject to issuance upon exercise of an option granted under the
Prior Plans, or the Equity Incentive Plan that cease to be subject to such
option for any reason other than exercise of such option; (b) have been issued
pursuant to the exercise of an option granted under the Prior Plans or the
Equity Incentive Plan with respect to which the Company's right of repurchase
has not lapsed and are subsequently repurchased by the Company; (c) are
subject to an award granted pursuant to restricted stock purchase agreements
under the Equity Incentive Plan that are forfeited or are repurchased by the
Company at the original issue price; or (d) are subject to stock bonuses
granted under the Equity Incentive Plan that otherwise terminate without
shares being issued, will again be available for grant and issuance under the
Equity Incentive Plan. Any authorized shares not issued or subject to
outstanding grants under the Prior Plans on the Effective Date will no longer
be available for grant and issuance under the Prior Plans but will be
available for grant and issuance under the Equity Incentive Plan. The Equity
Incentive Plan will terminate in October 2007, unless sooner terminated in
accordance with the terms of the Equity Incentive Plan. The Equity Incentive
Plan authorizes the award of options, restricted stock awards and stock
bonuses (each an "Award"). No person will be eligible to receive more than
400,000 shares in any calendar year pursuant to Awards under the Equity
Incentive Plan other than a new employee of the Company who will be eligible
to receive no more than 1,000,000 shares in the calendar year in which such
employee commences employment. The Equity Incentive Plan will be administered
by the Compensation Committee. The Compensation Committee has the authority to
construe and interpret the Equity Incentive Plan and any agreement made
thereunder, grant Awards and make all other determinations necessary or
advisable for the administration of the Equity Incentive Plan.
The Equity Incentive Plan provides for the grant of both incentive stock
options ("ISOs") that qualify under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), and nonqualified stock options
56
<PAGE>
("NQSOs"). ISOs may be granted only to employees of the Company or of a parent
or subsidiary of the Company. NQSOs (and all other Awards other than ISOs) may
be granted to employees, officers, directors, consultants, independent
contractors and advisors of the Company or any parent or subsidiary of the
Company, provided such consultants, independent contractors and advisors
render bona fide services not in connection with the offer and sale of
securities in a capital-raising transaction ("Eligible Service Providers").
The exercise price of ISOs must be at least equal to the fair market value of
the Company's Common Stock on the date of grant. The exercise price of NQSOs
must be at least equal to 85% of the fair market value of the Company's Common
Stock on the date of grant. The maximum term of options granted under the
Equity Incentive Plan is ten years. Awards granted under the Equity Incentive
Plan may not be transferred in any manner other than by will or by the laws of
descent and distribution and may be exercised during the lifetime of the
optionee only by the optionee (unless otherwise determined by the Compensation
Committee and set forth in the Award agreement with respect to Awards that are
not ISOs). Options granted under the Equity Incentive Plan generally expire
three months after the termination of the optionee's service to the Company or
a parent or subsidiary of the Company, except in the case of death or
disability, in which case the options generally may be exercised up to 12
months following the date of death or termination of service. Options will
generally terminate immediately upon termination for cause. In the event of
the Company's dissolution or liquidation or a "change in control" transaction,
outstanding Awards may be assumed or substituted by the successor corporation
(if any). If a successor corporation (if any) does not assume or substitute
the Awards, they will expire upon the effectiveness of the transaction. The
Committee, in its discretion, may provide that the vesting of any or all
Awards will accelerate prior to the effectiveness of the transaction.
1998 Employee Stock Purchase Plan. In December 1997, the Board adopted,
subject to stockholder approval, the Purchase Plan and reserved 500,000 shares
of the Company's Common Stock for issuance thereunder. The Purchase Plan will
be administered by the Compensation Committee of the Board. The Compensation
Committee will have the authority to construe and interpret the Purchase Plan
and its decisions in such capacity will be final and binding. The Purchase
Plan will become effective on the first business day on which price quotations
for the Company's Common Stock are available on the Nasdaq National Market.
Employees generally will be eligible to participate in the Purchase Plan if
they are customarily employed by the Company (or its parent or any
subsidiaries that the Company designates) for more than 20 hours per week and
more than five months in a calendar year and are not (and would not become as
a result of being granted an option under the Purchase Plan) 5% stockholders
of the Company (or its designated parent or subsidiaries). Eligible employees
may select a rate of payroll deduction between 2% and 10% of their
compensation and are subject to certain maximum purchase limitations that will
be described in the Purchase Plan. A participant may change the rate of
payroll deductions or withdraw from an Offering Period by notifying the
Company in writing. Participation in the Purchase Plan will end automatically
upon termination of employment for any reason. Except for the first offering,
each offering under the Purchase Plan will be for a period of 24 months (the
"Offering Period") and will consist of six-month purchase periods (each a
"Purchase Period"). The first Offering Period is expected to begin on the
first business day on which price quotations for the Company's Common Stock
are available on the Nasdaq National Market and, depending on the effective
date of this Registration Statement, may be greater or less than 24 months
long. Offering Periods thereafter will begin on February 1 and August 1. The
Compensation Committee may change the duration of Offering Periods (up to a
maximum of 24 months) and the number and duration of Purchase Periods (up to a
maximum of four per Purchase Period). The Compensation Committee will also be
able to terminate any Offering Period as of the end of any Purchase Period
within the affected Offering Period. Each participant will be granted an
option on the first day of the Offering Period and such option will be
automatically exercised on the last day of each Purchase Period during the
Offering Period. The purchase price for the Company's Common Stock purchased
under the Purchase Plan is 85% of the lesser of the fair market value of the
Company's Common Stock on the first day of the applicable Offering Period and
the last day of the applicable Purchase Period. The Board will have the power
to change the duration of Offering Periods and Purchase Periods without
stockholder approval, if such change is announced at least 15 days prior to
the beginning of the Offering or Purchase Period to be affected. The Purchase
Plan will be intended to qualify as an "employee stock purchase plan" under
Section 423 of the Code. Rights granted under the Purchase Plan will not be
transferable by a participant other than by will or the laws of descent and
57
<PAGE>
distribution. The Purchase Plan will provide that, in the event of the
proposed dissolution or liquidation of the Company, the Offering Period will
terminate immediately prior to the consummation of such proposed action,
provided that the Compensation Committee may fix a different date for
termination of the Purchase Plan and may give each participant the opportunity
to purchase shares under the Purchase Plan prior to such termination. The
Purchase Plan will provide that, in the event of certain "change of control"
transactions, the Plan will continue for all Offering Periods that began prior
to the transaction and shares will be purchased based on the fair market value
of the surviving corporation's stock on each Purchase Date. The Purchase Plan
will terminate in December 2007, unless earlier terminated pursuant to the
terms of the Purchase Plan. The Board will have the authority to amend,
terminate or extend the term of the Purchase Plan, except that no such action
may adversely affect any outstanding options previously granted under the
Purchase Plan and stockholder approval is required to increase the number of
shares that may be issued or change the terms of eligibility under the
Purchase Plan.
401(k) Plan. The Board maintains the VeriSign, Inc. 401(k) Plan (the "401(k)
Plan"), a defined contribution plan intended to qualify under Section 401 of
the Code. All eligible employees who are at least 18 years old and have been
employed by the Company for one month may participate in the 401(k) Plan. An
eligible employee of the Company may begin to participate in the 401(k) Plan
on the first day of January, April, July or October of the plan year
coinciding with or following the date on which such employee meets the
eligibility requirements. A participating employee may make pre-tax
contributions of a whole percentage (not more than 15%) of his or her eligible
compensation and up to 100% of any cash bonus, subject to limitations under
the federal tax laws. Employee contributions and the investment earnings
thereon are fully vested at all times. The 401(k) Plan permits, but does not
require, additional matching and profit-sharing contributions by the Company
on behalf of the participants. The Company has not made matching or profit-
sharing contributions. Contributions by employees or the Company to the 401(k)
Plan, and income earned on plan contributions, are generally not taxable to
employees until withdrawn, and contributions by the Company, if any, should be
deductible by the Company when made. The trustee under the 401(k) Plan, at the
direction of each participant, invests the assets of the 401(k) Plan in
selected investment options.
Executive Loan Program of 1996. In November 1996, the Compensation Committee
adopted the Company's Executive Loan Program of 1996 (the "Executive Loan
Program"). Pursuant to the Executive Loan Program, the Company's Chief
Executive Officer and each Vice President of the Company (each a "Qualified
Borrower") are each entitled to borrow an aggregate of up to $250,000 from the
Company. Each loan made under the Executive Loan Program is a full recourse
loan and bears interest at the then-minimum interest rate to avoid imputation
of income under federal, state and local tax laws. Interest on any loan made
under the Executive Loan Program is due and payable on December 31 of each
year in which such loan is outstanding. Principal and accrued interest are
payable in full on any such loan upon the earlier of December 31, 2005 or 90
days after the termination of the Qualified Borrower's employment with the
Company, unless extended by a separate written agreement approved by the
Board. Each loan made under the Executive Loan Program must be secured by
collateral represented by Common Stock of the Company or other marketable
securities acceptable to the Board having a fair market value equaling or
exceeding the principal amount of the loan.
COMPENSATION ARRANGEMENTS
Mr. Sclavos's employment offer letter of June 1995, as amended in October
1995, provided for an initial annual salary of $175,000 and an initial annual
bonus of up to $50,000 per year. In addition, it provided for a loan to Mr.
Sclavos of $48,000 which was to be forgiven after the first anniversary of Mr.
Sclavos's employment with the Company. This loan was forgiven by the Board in
October 1996. Mr. Sclavos was also granted an option to purchase 616,000
shares of Common Stock with an exercise price of $.12 per share. In October
1996, this option was amended such that it became immediately exercisable. Mr.
Sclavos exercised this option in full in November 1996. In connection with
this exercise, the Company loaned Mr. Sclavos $73,920 pursuant to the terms of
the Executive Loan Program, representing the full exercise price of such
option. As of September 30, 1997, 269,500 of the shares Mr. Sclavos received
upon exercise of the option were subject to a right of repurchase on behalf of
the Company. This right lapses as to 38,500 shares per quarter. Mr. Sclavos's
employment is "at will" and thus can be terminated at any time, with or
without cause.
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Michael S. Baum, Dana L. Evan, Arnold Schaeffer and Richard A. Yanowitch
were granted options to purchase 150,000, 170,000, 200,000 and 290,000 shares,
respectively, of Common Stock under the 1995 Stock Option Plan, at exercise
prices ranging from $.12 to $6.00. Each of these options is subject to the
standard four-year vesting schedule under the 1995 Stock Option Plan or, in
certain circumstances, is immediately exercisable, subject to the Company's
right to repurchase shares subject to such options, which repurchase right
lapses on a schedule similar to the vesting schedule for options granted under
the 1995 Stock Option Plan. However, upon the occurrence of certain change-in-
control transactions, 50% of each such Named Executive Officer's then-unvested
options will become vested or, if applicable, the right of repurchase will
lapse as to 50% of the shares covered by such right of repurchase.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF
LIABILITY
As permitted by the Delaware General Corporation Law (the "DGCL"), the
Company's Third Amended and Restated Certificate of Incorporation, which will
become effective upon the closing of this offering, includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) under section 174 of the DGCL
(regarding unlawful dividends and stock purchases) or (iv) for any transaction
from which the director derived an improper personal benefit.
As permitted by the DGCL, the Company's Amended and Restated Bylaws, which
will become effective upon the completion of this offering, provide that (i)
the Company is required to indemnify its directors and officers to the fullest
extent permitted by the DGCL, subject to certain very limited exceptions, (ii)
the Company may indemnify its other employees and agents to the extent that it
indemnifies its officers and directors, unless otherwise required by law, its
Certificate of Incorporation, its Amended and Restated Bylaws, or agreement,
(iii) the Company is required to advance expenses, as incurred, to its
directors and executive officers in connection with a legal proceeding to the
fullest extent permitted by the DGCL, subject to certain very limited
exceptions and (iv) the rights conferred in the Amended and Restated Bylaws
are not exclusive.
The Company has entered into Indemnification Agreements with each of its
current directors and certain of its executive officers and intends to enter
into such Indemnification Agreements with each of its other executive officers
to give such directors and executive officers additional contractual
assurances regarding the scope of the indemnification set forth in the
Company's Certificate of Incorporation and Amended and Restated Bylaws and to
provide additional procedural protections. At present, there is no pending
litigation or proceeding involving a director, officer or employee of the
Company regarding which indemnification is sought, nor is the Company aware of
any threatened litigation that may result in claims for indemnification.
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CERTAIN TRANSACTIONS
Since April 12, 1995, the Company's inception date, there has not been nor
is there currently proposed, any transaction or series of similar transactions
to which the Company or any of its subsidiaries was or is to be a party in
which the amount involved exceeded or will exceed $60,000 and in which any
director, executive officer, holder of more than 5% of the Common Stock of the
Company or any member of the immediate family of any of the foregoing persons
had or will have a direct or indirect material interest other than (i)
compensation agreements and other arrangements, which are described where
required in "Management," and (ii) the transactions described below.
TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS
The Company has financed its operations to date through a series of private
Common Stock and Preferred Stock financings. Upon the closing of this
offering, all shares of Preferred Stock will be converted into shares of
Common Stock at a conversion rate of one share of Common Stock for each share
of Preferred Stock. See "Description of Capital Stock."
Common Stock at Formation. In April 1995, the Company sold an aggregate of
4,688,333 shares of its Common Stock at a purchase price of $.12 per share to
certain individuals and entities. Among the purchasers were the following 5%
stockholders, directors and entities affiliated with directors of the Company,
who purchased the number of shares set forth opposite their respective names:
RSA--4,000,000 shares; Bessemer Venture Partners DCI--258,333 shares; D. James
Bidzos--125,000 shares; Kairdos L.L.C.--100,000 shares; and TZM Investment
Fund--80,000 shares. Mr. Bidzos is the Chairman of the Board of the Company,
the President and Chief Executive Officer of RSA and the General Manager and a
member of Kairdos L.L.C. Mr. Tomlinson, a director of the Company, is a
general partner of TZM Investment Fund and TZM Investment Fund is a member of
Kairdos L.L.C. Mr. Cowan, a director of the Company, is a general partner of
the general partner of Bessemer Venture Partners DCI. All purchasers paid cash
except RSA, which assigned and transferred to the Company equipment, assets
and technology, which assets and technology included certain specified
software developed or under development by RSA relating to digital certificate
issuance and management, certain tangible personal property, consisting mostly
of computer equipment, and all of RSA's right, title and interest in certain
specified agreements to provide digital certificate services. In connection
with the contribution of these assets to the Company, RSA entered into a
BSAFE/TIPEM OEM Master License Agreement with the Company pursuant to which
the Company was granted a perpetual, royalty free, nonexclusive, worldwide
license to distribute products it develops that contain or incorporate the RSA
BSAFE and TIPEM products and that relate to digital certificate issuing
software, software for the management of private keys and for digitally
signing computer files on behalf of others, software for customers to preview
and forward digital certificate requests to the Company, or such other
products that, in RSA's reasonable discretion, are reasonably necessary for
the implementation of a digital certificate business. RSA is also required to
provide maintenance and technical support for these products to the Company.
RSA's BSAFE product is a software tool kit that allows for the integration of
encryption and authentication features into software applications and TIPEM is
a secure e-mail development tool kit that allows for secure e-mail messages to
be sent using one vendor's e-mail product and read by another vendor's e-mail
product. Also in connection with this contribution of assets, RSA entered into
a Non-Compete and Non-Solicitation Agreement pursuant to which RSA agreed, for
a five-year period, not to compete with the Company's certificate authority
business.
Series A Preferred Stock. In April 1995, the Company also sold an aggregate
of 4,306,883 shares of its Series A Preferred Stock at a cash purchase price
of $1.20 per share to nine entities. Among the purchasers were the following
5% stockholders and entities affiliated with directors of the Company, who
purchased the number of shares set forth opposite their respective names:
Bessemer Venture Partners DCI--850,000 shares; VISA--850,000 shares; Intel
Corporation--850,000 shares; Security Dynamics--425,000 shares and First TZMM
Investment Partnership--23,550 shares. Mr. Bidzos is an Executive Vice
President and a director of Security Dynamics. Mr. Tomlinson, a director of
the Company, is a general partner of First TZMM Investment Partnership.
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Series B Preferred Stock. In February 1996, the Company sold an aggregate of
2,099,123 shares of its Series B Preferred Stock at a cash purchase price of
$2.45 per share to 12 entities. Among the purchasers were the following 5%
stockholders and entities affiliated with directors of the Company, who
purchased the number of shares set forth opposite their respective names:
Kleiner Perkins Caufield & Byers VII--1,153,207 shares; Bessemer Venture
Partners DCI--187,819 shares; Intel Corporation--144,052 shares; VISA --
144,052 shares; KPCB VII Founders Fund--125,947 shares; Security Dynamics--
72,026 shares; KPCB Information Science Zaibatsu Fund II--32,799 shares; and
First TZMM Investment Partnership--17,554 shares. Mr. Compton, a director of
the Company, is a general partner of the general partner of Kleiner Perkins
Caufield & Byers VII, KPCB VII Founders Fund and KPCB Information Science
Zaibatsu Fund II.
Stockholders' Agreement. In April 1995, the Company and each of the persons
who were then stockholders (the "Parties") entered into a Stockholders'
Agreement, which was amended at the time of the Series B Preferred Stock
financing and again in November 1996, when the Series C Preferred Stock
financing was closed, to include as parties to the agreement the new holders
of Preferred Stock. The Stockholders' Agreement, as amended, prohibits the
Parties from transferring any of their shares of capital stock of the Company,
without the prior consent of the Board and a majority in interest of the other
Parties, to certain specified corporations and entities affiliated with such
corporations. The Stockholders' Agreement also provides that no Party can vote
shares of capital stock of the Company with voting rights in excess of 45% of
the voting rights of the total voting capital stock of the Company entitled to
vote on any matter, thereby prohibiting a Party with more than 45% of the
voting rights of the total voting capital stock of the Company from
controlling the voting on any given matter. Finally, the Stockholders'
Agreement provides that, so long as any of Kleiner Perkins Caufield & Byers
VII, Bessemer Venture Partners DCI, VISA and Intel Corporation retained at
least 50% of the shares issued to them in the Series A or Series B Preferred
Stock financing, or so long as RSA retains not less than the lesser of 10% of
the issued and outstanding voting shares of the Company or 75% of the shares
of Common Stock held by it immediately following the Series A Preferred Stock
financing, the Company and the stockholders would cause and maintain the
election to the Board of a representative of each of those five entities that
satisfied their respective requirement. The Stockholders' Agreement terminates
upon the closing of this offering.
Co-Sale Agreement. In February 1996, the Company, each of the purchasers of
Series B Preferred Stock and RSA entered into a Co-Sale Agreement, pursuant to
which the holders of Series B Preferred Stock were granted rights to
participate in certain sales of capital stock of the Company owned by RSA.
Such co-sale rights will terminate upon the closing of this offering.
Investors' Rights Agreement. In November 1996, the Company, all of the
current holders of Preferred Stock and the purchasers of Common Stock in April
1995 entered into an Amended and Restated Investors' Rights Agreement (the
"Investors' Rights Agreement") pursuant to which the holders of all such
Preferred or Common Stock (the "Investors") have certain registration rights
with respect to their shares of Common Stock following this offering. See
"Description of Capital Stock--Registration Rights." Pursuant to the terms of
the Investors' Rights Agreement, each of the Investors and Stratton Sclavos,
the Company's President and Chief Executive Officer and a director of the
Company, were granted a right of first offer with respect to certain future
sales of securities by the Company.
Officer Loans. In November 1996, in connection with the exercise of stock
options granted under the 1995 Stock Option Plan, the Company permitted four
executive officers, Richard A. Yanowitch, Ethel E. Daly, Dana L. Evan and
Stratton D. Sclavos to purchase shares of Common Stock in exchange for
promissory notes issued under its Executive Loan Program in the amounts of
$217,500, $105,000, $93,750 and $73,920, respectively. See "Management--
Employee Benefit Plans--Executive Loan Program of 1996." In June 1997, in
connection with the exercise of a stock option granted under the 1995 Stock
Option Plan, the Company permitted Nicholas F. Piazzola, an executive officer,
to purchase shares of Common Stock in exchange for a promissory note issued
under the Executive Loan Program in the amount of $115,425. Each note is a
recourse note that is secured by the shares purchased with that note. The
notes bear interest at the rate of 6.95% per annum (6.87% in the case of Mr.
Piazzola), payable quarterly, and are due and payable on the earlier of
December 31, 2005 or the date the borrowers' employment relationship with the
Company is terminated, unless otherwise extended by a separate
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written agreement approved by the Board. During the nine months ended
September 30, 1997, the Company paid a bonus in the amount of the interest
accrued under each such executive officer's promissory note in the amounts of
$17,426, $8,412, $7,511 and $5,922 for Mr. Yanowitch, Ms. Daly, Ms. Evan and
Mr. Sclavos, respectively.
Development Agreement. In September 1997, the Company and Security Dynamics,
the parent company of RSA, entered into a Master Development and License
Agreement (the "Development Agreement"). Mr. Bidzos, the Chairman of the Board
of the Company, is also a director of Security Dynamics. Pursuant to the
Development Agreement, the Company will develop a customized certificate
authority product based upon the Company's WorldTrust software application in
order to enable Security Dynamics to offer a product with encryption and
digital certificate authority functionality. The Company has retained the
ownership rights to the technology developed under this agreement, except to
the extent such technology constitutes derivatives of Security Dynamics's pre-
existing technology or such technology is solely created by Security Dynamics.
The Development Agreement provides that Security Dynamics will pay the Company
an aggregate of $2.7 million as an initial license fee, $900,000 of which was
paid in October 1997 and the remainder of which will be payable upon the
achievement of certain technical milestones, which include a software code
completion milestone of February 6, 1998, the release of a beta version of
this product by February 27, 1998 and the release of the final version of the
product by April 1, 1998. Commencing in March 1998, Security Dynamics will
also be required to pay the Company a monthly product support fee for a three-
year period, and thereafter for successive annual terms, unless either of the
parties elects to terminate such product support within 60 days prior to the
end of the term or Security Dynamics terminates support services at any time
on 60 days prior written notice to the Company. For a yearly fee, Security
Dynamics can purchase product maintenance services. For so long as Security
Dynamics is paying such maintenance fees, the Company will be obligated, at no
additional cost, to provide Security Dynamics with non-exclusive first-to-
market access to new technologies developed by the Company that are relevant
to the business of providing enterprise security solutions or solutions for
secure business communications. The Company is also obligated, upon the
request of Security Dynamics, to make its other technology available to
Security Dynamics and to offer maintenance after the term of the agreement on
certain "most favored pricing" terms.
Microsoft Agreements. In November 1996, the Company sold an aggregate of
3,562,500 shares of its Series C Preferred Stock at a cash purchase price of
$8.00 per shares to 11 entities. Among the purchasers was Microsoft, a 5%
stockholder, which purchased 812,500 shares. In November 1997, the Company
entered into a Certificate Authority Preferred Provider Agreement under which
the Company will be featured as the preferred provider of digital certificates
for Microsoft customers. Upon the execution of this agreement, the Company
issued Microsoft 100,000 shares of Common Stock valued at $800,000.
VISA Agreements. In April 1996, the Company entered into a Private Label
Agreement with VISA under which the Company developed and operates a digital
certificate system for VISA's member banks, based on a private VISA root key.
The Company provides certificate registration and issuing and management
functions through its Digital ID Center and retains the ownership rights to
this digital certificate system developed for VISA. The Company provides, at
no additional charge, all maintenance and support for the VISA digital
certificate system. If the Company does not meet certain minimum service
standards, or if the VISA system experiences a degradation in the quality of
service, the Company would be required to pay monetary penalties in the event
that the system is unavailable. VISA could terminate this agreement in the
event the service, once fully available in final form, is unavailable for a
significant amount of time. This agreement expires two and one-half years from
the earlier of the commencement of the pilot program or April 8, 1997. The
Company received aggregate payments from VISA of $455,000 during 1996 and
$675,000 during the nine months ended September 30, 1997, in the form of
development fees, set-up fees and certificate volume-based subscriber fees.
VISA is obligated to continue to pay subscriber fees for the remainder of the
term of this agreement. VISA prepays these fees on a quarterly basis and are
subject to offset against certificates issued. VISA is not entitled to any
refunds in the event that sufficient certificates are not issued to offset any
remaining prepaid subscriber fees. The Company is also obligated to provide
VISA with certain "most favored pricing" rights. VISA has the right
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to terminate this agreement after April 1, 1998 by entering into a license
agreement with the Company and paying licensing fees as well as a royalty for
future certificates issued. Otherwise, the agreement is terminable upon the
completion of its term (or earlier in the event of a material breach of the
agreement by the other party), upon bankruptcy or insolvency of the other
party or upon the Company's failure to provide support.
In October 1996, the Company entered into a Private Label Agreement with
VISA under which the Company developed a pilot digital certificate system,
based on a private VISA root key, which provides certificate registration and
issuing and management functions through VeriSign's operations and Digital ID
Center in connection with the VISA Cash stored value card and the Chip Card
Payment Service. This agreement expired in October 1997. The Company received
aggregate payments of $40,000 during 1996 and $126,000 during the nine months
ended September 30, 1997, in the form of development fees, operation fees and
subscriber fees.
Sublease with Security Dynamics. Since September 1996, the Company has
sublet approximately 12,700 square feet of space for its offices in Cambridge,
Massachusetts. This space is subleased from Security Dynamics pursuant to a
sublease that expires in March 1998. The Company made lease payments to
Security Dynamics of $17,646 during 1996 and $130,624 during the nine months
ended September 30, 1997. The Company is obligated to pay monthly rent of
approximately $19,000 for the remainder of 1997 and monthly rent of
approximately $20,000 from January 1998 through the expiration date. The
Company is also obligated to pay all electricity, heating, ventilation and air
conditioning costs for the subleased premises.
CERTAIN BUSINESS RELATIONSHIPS
Legal Fees. During 1996 and the nine months ended September 30, 1997, the
law firm of Tomlinson Zisko Morosoli & Maser LLP, of which Mr. Tomlinson is a
partner, provided legal services to the Company on a variety of matters.
During 1996 and the nine months ended September 30, 1997, the Company paid
Tomlinson Zisko Morosoli & Maser LLP an aggregate of $344,120 and $106,252,
respectively.
The Company believes that the terms of each of the transactions described
above, taken as a whole, were no less favorable to the Company than the
Company could have obtained from unaffiliated third parties.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of October 31, 1997 and
as adjusted to reflect the sale of the shares of Common Stock offered hereby
by: (i) each person who is known by the Company to own beneficially more than
5% of the Company's Common Stock, (ii) each director of the Company, (iii)
each of the Named Executive Officers and (iv) all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON
STOCK BENEFICIALLY
NUMBER OF OWNED(1)
SHARES --------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING(2)
- ------------------------ ------------ -------- -----------
<S> <C> <C> <C>
D. James Bidzos
Security Dynamics Technologies, Inc. (3)... 4,740,151 28.4%
Kevin R. Compton
Kleiner Perkins Caufield & Byers (4)....... 1,315,078 7.9
David J. Cowan
Bessemer Venture Partners DCI (5).......... 1,299,277 7.8
William Chenevich
Visa International Service Association
(6)....................................... 997,177 6.0
Intel Corporation (7)....................... 994,052 6.0
Stratton D. Sclavos (8)..................... 616,000 3.7
Richard A. Yanowitch (9).................... 290,000 1.7
Arnold Schaeffer (10)....................... 142,000 *
Dana L. Evan (11)........................... 135,000 *
Michael S. Baum (12)........................ 125,000 *
Timothy Tomlinson (13)...................... 124,229 *
All officers and directors as a group (13
persons) (14).............................. 10,013,912 60.1
</TABLE>
- --------
* Less than 1% of the Company's outstanding Common Stock
(1) Percentage ownership is based on 16,668,509 shares outstanding as of
October 31, 1997, including shares issuable upon conversion of all
outstanding Preferred Stock into Common Stock in connection with this
offering, and shares outstanding after the offering. Shares of
Common Stock subject to options currently exercisable or exercisable
within 60 days of October 31, 1997 are deemed outstanding for the purpose
of computing the percentage ownership of the person holding such options
but are not deemed outstanding for computing the percentage ownership of
any other person. Unless otherwise indicated below, the persons and
entities named in the table have sole voting and sole investment power
with respect to all shares beneficially owned, subject to community
property laws where applicable.
(2) Assumes the Underwriters' over-allotment option is not exercised.
(3) Represents 4,497,026 shares held of record by Security Dynamics or by
wholly-owned subsidiaries thereof, 113,000 shares held of record by D.
James Bidzos, 100,000 shares held of record by Kairdos L.L.C., 12,000
shares held of record by relatives and other associates of Mr. Bidzos,
15,000 shares subject to options held of record by D. James Bidzos that
are exercisable within 60 days of October 31, 1997 and 3,125 shares
subject to options that are held of record by Mr. Bidzos that are
exercisable within 60 days of October 31, 1997. Mr. Bidzos, the Chairman
of the Board of the Company, is the President of RSA, an Executive Vice
President and a director of Security Dynamics and the General Manager and
a member of Kairdos L.L.C. and Tolmi LLC. Mr. Bidzos disclaims beneficial
ownership of the shares held by Kairdos L.L.C. and Tolmi LLC except for
his proportional interest therein, and disclaims beneficial ownership of
the shares held by Security Dynamics or its wholly-owned subsidiaries.
The address for Mr. Bidzos and Security Dynamics is One Alewife Center,
Cambridge, Massachusetts 02140.
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(4) Represents 1,153,207 shares held of record by Kleiner Perkins Caufield &
Byers VII L.P., 125,947 shares held of record by KPCB VII Founders Fund,
32,799 shares held of record by KPCB Information Science Zaibatsu Fund II
and 3,125 shares subject to options held of record by Kevin Compton that
are exercisable within 60 days of October 31, 1997. Mr. Compton, a
director of the Company, is a general partner of the general partner of
each of these entities. Mr. Compton disclaims beneficial ownership of
shares held by such entities except for his proportional interest
therein. The address for Mr. Compton and these entities is c/o Kleiner
Perkins Caufield & Byers, 2750 Sand Hill Road, Menlo Park, California
94025.
(5) Represents 1,296,152 shares held of record by Bessemer Venture Partners
DCI and 3,125 shares subject to options held of record by Mr. Cowan that
are exercisable within 60 days of October 31, 1997. Mr. Cowan, a director
of the Company, is a general partner of the general partner of Bessemer
Venture Partners DCI and is a manager of Deer III & Co. LLC. Mr. Cowan
disclaims beneficial ownership of shares held by Bessemer Venture
Partners DCI except for his proportional interest therein. The address
for Mr. Cowan and Bessemer Venture Partners DCI is 535 Middlefield Road,
Menlo Park, California 94025.
(6) Represents 994,052 shares held by VISA and 3,125 shares subject to
options held of record by Mr. Chenevich that are exercisable within 60
days of October 31, 1997. Mr. Chenevich, a director of the Company, is
the Group Executive Vice President, Data Processing Systems of VISA. Mr.
Chenevich disclaims beneficial ownership of shares held by VISA. The
address for Mr. Chenevich and VISA is 900 Metro Center, Foster City,
California 94404.
(7) Represents shares held by Intel Corporation. The address for Intel
Corporation is 2200 Mission College Blvd., Building SC-4, Santa Clara,
California 95050.
(8) Mr. Sclavos is President, Chief Executive Officer and a director of the
Company. Of the shares shown in the table, as of October 31, 1997,
269,500 were subject to a repurchase right that lapses as to 38,500 of
the shares each quarter.
(9) Mr. Yanowitch is Vice President of Marketing of the Company. Of the
shares shown in the table, as of October 31, 1997, 199,375 were subject
to a repurchase right that lapses as to 18,125 of the shares each
quarter.
(10) Mr. Schaeffer is Vice President of Engineering of the Company. Of the
shares shown in the table, as of October 31, 1997, 81,125 were subject to
a repurchase right that lapses as to 8,875 of the shares each quarter.
(11) Ms. Evan is Vice President of Finance and Administration and Chief
Financial Officer of the Company. Of the shares shown in the table, as of
October 31, 1997, 85,938 were subject to a repurchase right that lapses
as to 7,812 of the shares each quarter.
(12) Mr. Baum is Vice President of Practices and External Affairs of the
Company. Of the shares shown in the table, as of October 31, 1997, 65,918
were subject to a repurchase right that lapses as to 7,324 of the shares
each quarter.
(13) Represents 50,000 shares held of record by TZM Investment Fund, 41,104
shares held of record by First TZMM Investment Partnership, 5,000 shares
held of record by the Joy E. Tomlinson 1996 Trust, 5,000 shares held of
record by the Tucker Tomlinson 1996 Trust, 10,000 shares held of record
by the Allison A. Zisko 1996 Trust, 10,000 shares held of record by the
Natalie L. Zisko 1996 Trust and 3,125 shares subject to options held of
record by Mr. Tomlinson that are exercisable within 60 days of October
31, 1997. Mr. Tomlinson is a general partner of TZM Investment Fund and
First TZMM Investment Partnership and a trustee of each trust.
(14) Represents the shares described in footnotes (3)-(6) and (8)-(13) and an
additional 230,000 shares held by other executive officers, of which
186,250 were subject to repurchase rights as of October 31, 1997 that
lapse as to an aggregate of 14,375 shares each quarter.
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DESCRIPTION OF CAPITAL STOCK
As of October 31, 1997, assuming the conversion of all outstanding shares of
Preferred Stock into shares of Common Stock, there were outstanding 16,668,509
shares of Common Stock, each with a par value of $.001, held of record by
approximately 109 stockholders, and outstanding options to purchase 2,362,258
shares of Common Stock.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Certificate of
Incorporation, which is included as an exhibit to the Registration Statement,
of which this Prospectus forms a part, and by the provisions of applicable
law.
COMMON STOCK
Upon the closing of this offering, the Company will be authorized to issue
50,000,000 shares of Common Stock. Subject to preferences that may be
applicable to any Preferred Stock outstanding at the time, the holders of
outstanding shares of Common Stock are entitled to receive dividends out of
assets legally available therefor at such times and in such amounts as the
Board from time to time may determine. Holders of Common Stock are entitled to
one vote for each share held on all matters submitted to a vote of
stockholders. Cumulative voting for the election of directors will not be
authorized by the Company's Amended and Restated Certificate of Incorporation,
which means that the holders of a majority of the shares voted can elect all
of the directors then standing for election. The Common Stock is not entitled
to preemptive rights and is not subject to conversion or redemption. Upon
liquidation, dissolution or winding-up of the Company, the assets legally
available for distribution to stockholders are distributable ratably among the
holders of the Common Stock and any participating Preferred Stock outstanding
at that time after payment of liquidation preferences, if any, on any
outstanding Preferred Stock and payment of other claims of creditors. Each
outstanding share of Common Stock is, and all shares of Common Stock to be
outstanding upon completion of this offering will be upon payment therefor,
duly and validly issued, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, each outstanding share of Preferred Stock
(the "Convertible Preferred") will be converted into shares of Common Stock.
See Note 6 of Notes to Consolidated Financial Statements for a description of
the Convertible Preferred. Following the offering, the Company will be
authorized to issue up to 5,000,000 shares of "blank check" Preferred Stock.
The Board is authorized, subject to any limitations prescribed by Delaware
law, to provide for the issuance of Preferred Stock in one or more series, to
establish from time to time the number of shares to be included in each such
series, to fix the rights, preferences and privileges of the shares of each
wholly unissued series and any qualifications, limitations or restrictions
thereon, and to increase or decrease the number of shares of any such series
(but not below the number of shares of such series then outstanding), without
any further vote or action by the stockholders. The Board may authorize the
issuance of Preferred Stock with voting or conversion rights that could
adversely affect the voting power or other rights of the holders of Common
Stock. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company and may adversely
affect the market price of the Common Stock, and the voting and other rights
of the holders of Common Stock. The Company has no current plan to issue any
shares of Preferred Stock.
REGISTRATION RIGHTS
Following this offering, the holders of approximately 14,719,339 shares of
Common Stock (representing the purchasers of Common Stock at the founding of
the Company in April 1995 and all of the purchasers of Preferred Stock) (the
"Holders") will have certain rights to cause the Company to register those
shares (the "Registrable Securities") under the Securities Act pursuant to the
Investors' Rights Agreement. The holders of at least a majority of the
Registrable Securities may require, after 180 days from the effective date of
this
66
<PAGE>
offering, that the Company use its best efforts to effect up to two
registrations. Holders not part of the initial registration demand are
entitled to notice of such registration and are entitled to include shares of
Registrable Securities therein. These registration rights are subject to
certain conditions and limitations, including (i) the right, under certain
circumstances, of the underwriters of an offering to limit the number of
shares included in such registration and (ii) the right of the Company to
delay the filing of a registration statement for not more than 120 days after
receiving the registration demand. The Company is obligated to pay all
registration expenses incurred in connection with such registration (other
than underwriters' discounts and commissions) and the reasonable fees and
expenses of a single counsel to the selling Holders.
In addition, if the Company proposes to register any of its securities under
the Securities Act (other than a registration relating solely to the sale of
securities to participants in a Company stock plan, a registration on a form
that does not include substantially the same information as would be required
in a registration statement covering the sale of the Registrable Securities or
a registration in which the only Common Stock being registered is Common Stock
issuable upon conversion of debt securities that are also being registered) in
connection with the sale of such securities solely for cash, whether or not
for sale for its own account, the Holders are entitled to notice of such
registration and are entitled to include Registrable Securities therein. These
rights are subject to certain conditions and limitations, including the right
of the underwriters of an offering to limit the number of shares included in
such registration under certain circumstances. The Company is obligated to pay
all registration expenses incurred in connection with such registration other
than underwriters' discounts and commissions. If the Company were to initiate
a registration and include shares pursuant to this "piggyback" right, such
sales might have an adverse effect on the Company's ability to raise capital.
The Holders may also require the Company, on no more than two occasions in
any twelve-month period, to register all or a portion of their Registrable
Securities on Form S-3 under the Securities Act when such form becomes
available for use by the Company, if the securities to be so registered
represent an aggregate selling price to the public of not less than $1.0
million. The Holders who are not part of the initial registration demand are
entitled to notice of such registration and are entitled to include shares of
Registrable Securities therein. These registration rights are subject to
certain conditions and limitations, including the right of the Company to
delay the filing of a registration statement on Form S-3 for a period of not
more than 60 days after receiving the registration demand. The Company is
obligated to pay all registration expenses incurred in connection with such
registration (other than underwriters' discounts and commissions) and the
reasonable fees and expenses of a single counsel to the selling Holders.
Each stockholder's registration rights will expire upon the earlier of the
fifth anniversary of the closing of this offering or at such time as the
stockholder can sell all of its securities under Rule 144(k).
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Upon the closing of this offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law (the "Anti-
Takeover Law") regulating corporate takeovers. The Anti-Takeover Law prevents
certain Delaware corporations, including those whose securities are listed on
the Nasdaq National Market, from engaging, under certain circumstances, in a
"business combination" (which includes a merger or sale of more than 10% of
the corporation's assets) with any "interested stockholder" (a stockholder who
owns 15% or more of the corporation's outstanding voting stock, as well as
affiliates and associates of any such persons) for three years following the
date that such stockholder became an "interested stockholder" unless (i) the
transaction is approved by the Board of Directors prior to the date the
"interested stockholder" attained such status, (ii) upon consummation of the
transaction that resulted in the stockholder's becoming an "interested
stockholder," the "interested stockholder" owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced
(excluding those shares owned by (a) persons who are directors and also
officers and (b) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer), or (iii) on or
subsequent to such date the "business combination" is approved by the Board of
Directors and authorized at an annual or special meeting of stockholders by
the affirmative vote of at least two-thirds of the outstanding
67
<PAGE>
voting stock that is not owned by the "interested stockholder." A Delaware
corporation may "opt out" of the Anti-Takeover Law with an express provision
in its original certificate of incorporation or an express provision in its
certificate of incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares.
The Company has not "opted out" of the provisions of the Anti-Takeover Law.
The statute could prohibit or delay mergers or other takeover or change-in-
control attempts with respect to the Company and, accordingly, may discourage
attempts to acquire the Company.
The Company's Amended and Restated Bylaws, which will be in effect upon the
completion of this offering, will provide for the division of the Board into
three classes as nearly equal in size as possible with staggered three-year
terms. The classification of the Board could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of the Company. In addition, the Amended and Restated
Bylaws will provide that any action required or permitted to be taken by the
stockholders of the Company at an annual meeting or special meeting of
stockholders may only be taken if it is properly brought before such meeting
and may not be taken by written action in lieu of a meeting. The Amended and
Restated Bylaws will provide that special meetings of the stockholders may
only be called by the Chairman of the Board, the Chief Executive Officer or,
if none, the President of the Company or by the Board.
The Company's Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws will provide that the Company will indemnify officers and
directors against losses that they may incur in investigations and legal
proceedings resulting from their services to the Company, which may include
services in connection with takeover defense measures. Such provisions may
have the effect of preventing changes in the management of the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is
ChaseMellon Shareholder Services, L.L.C.
LISTING
The Company has applied to list its Common Stock on the Nasdaq National
Market under the symbol "VRSN."
68
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect prevailing market prices from time to
time. Furthermore, since no shares will be available for sale shortly after
this offering because of certain contractual and legal restrictions on resale
(as described below), sales of substantial amounts of Common Stock of the
Company in the public market after these restrictions lapse could adversely
affect the prevailing market price and the ability of the Company to raise
equity capital in the future.
Upon completion of this offering, the Company will have outstanding an
aggregate of shares of Common Stock, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options. Of
these shares, all of the shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, unless
such shares are purchased by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act (the "Affiliates"). The remaining
17,018,509 shares of Common Stock held by existing stockholders are
"restricted securities" as that term is defined in Rule 144 under the
Securities Act ("Restricted Shares"). Restricted Shares may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rule 144 or 701 promulgated under the Securities Act, which
rules are summarized below. All officers, directors, stockholders and option
holders of the Company have agreed not to offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly (or enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of), any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for shares of
Common Stock, for a period of 180 days after the date of this Prospectus,
without the prior written consent of Morgan Stanley & Co. Incorporated. Morgan
Stanley & Co. Incorporated may in its sole discretion choose to release a
certain number of these shares from such restrictions prior to the expiration
of such 180 day period. As a result of such contractual restrictions and the
provisions of Rule 144 and 701, the Restricted Shares will be available for
sale in the public market as follows: (i) no shares will be eligible for
immediate sale on the date of this Prospectus; (ii) 16,668,509 shares will be
eligible for sale upon expiration of the lock-up agreements 180 days after the
date of this Prospectus, subject in the case of all but 2,661,052 shares to
the volume limitations and other conditions of Rule 144 described below; and
(iii) the remaining 350,000 shares will become eligible for sale in November
1998, subject to the volume limitations and other conditions of Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an Affiliate) would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of: (i) 1% of the number of shares of Common Stock then
outstanding (which will equal approximately shares immediately after
this offering); or (ii) the average weekly trading volume of the Common Stock
on the Nasdaq National Market during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to such sale. Sales under Rule 144
are also subject to certain manner of sale provisions and notice requirements
and to the availability of current public information about the Company. Under
Rule 144(k), a person who is not deemed to have been an Affiliate of the
Company at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except an Affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144; therefore,
unless otherwise restricted, shares will qualify as "144(k) shares" on the
date of this Prospectus and may be sold immediately upon the completion of
this offering. Subject to certain limitations on the aggregate offering price
of a transaction and other conditions, employees, directors, officers,
consultants or advisors may rely on Rule 701 with respect to the resale of
securities originally purchased from the Company prior to the date the issuer
becomes subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), pursuant to written compensatory
benefit plans or written contracts relating to the compensation of such
persons. In addition, the Securities and Exchange Commission has indicated
that Rule 701 will apply to typical stock options granted by an issuer before
it
69
<PAGE>
becomes subject to the reporting requirements of the Exchange Act, along with
the shares acquired upon exercise of such options (including exercises after
the date of this Prospectus). Securities issued in reliance on Rule 701 are
restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this Prospectus, may be sold by
persons other than Affiliates subject only to the manner of sale provisions of
Rule 144, and by Affiliates under Rule 144 without compliance with its holding
period requirements.
Upon completion of this offering, the holders of approximately 14,719,339
shares of Common Stock currently outstanding or issuable upon conversion of
Preferred Stock, or their transferees, will be entitled to certain rights with
respect to the registration of such shares under the Securities Act. See
"Description of Capital Stock--Registration Rights." Registration of such
shares under the Securities Act would result in such shares becoming freely
tradable without restriction under the Securities Act (except for share
purchases by affiliates) immediately upon the effectiveness of such
registration.
The Company intends to file a registration statement under the Securities
Act covering (i) 2,625,000 shares of Common Stock reserved or to be reserved
for issuance under the Equity Incentive Plan, the Purchase Plan and the
Directors Plan, (ii) an additional number of shares of Common Stock to be
reserved for issuance under the Equity Incentive Plan equal to the number of
shares reserved for future issuance under the Prior Plans as of the date of
this Prospectus (717,482 as of October 31, 1997), and (iii) shares subject to
outstanding options under the Prior Plans as of the date of this Prospectus
(2,362,528 as of October 31, 1997). See "Management--Employee Benefit Plans."
Such registration statement is expected to be filed and become effective as
soon as practicable after the effective date of this offering. Accordingly,
shares registered under such registration statement will, subject to Rule 144
volume limitations applicable to Affiliates, be available for sale in the open
market, beginning 180 days after the date of the Prospectus, unless such
shares are subject to vesting restrictions with the Company.
70
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the
Underwriters named below (the "Underwriters"), for whom Morgan Stanley & Co.
Incorporated, Hambrecht & Quist LLC and Wessels, Arnold & Henderson, L.L.C.
are acting as Representatives (the "Representatives"), have severally agreed
to purchase, and the Company has agreed to sell to them, severally, the
respective number of shares of Common Stock set forth opposite their
respective names below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated.....................................
Hambrecht & Quist LLC.................................................
Wessels, Arnold & Henderson, L.L.C. ..................................
-------
Total.............................................................
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to
take and pay for all of the shares of Common Stock offered hereby (other than
those covered by the over-allotment option described below) if any such shares
are taken.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the initial public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in
excess of $ a share to other Underwriters or to certain dealers. After the
initial offering of the shares of Common Stock, the offering price and other
selling terms may from time to time be varied by the Representatives.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of
additional shares of Common Stock at the initial public offering
price set forth on the cover page hereof, less underwriting discounts and
commissions. The Underwriters may exercise such option to purchase solely for
the purpose of covering over-allotments, if any, made in connection with the
offering of the shares of Common Stock offered hereby. To the extent such
option is exercised, each Underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares of Common Stock as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares
of Common Stock set forth next to the names of all Underwriters in the
preceding table.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.
The Company has applied to list its Common Stock on the Nasdaq National
Market under the symbol "VRSN."
Each of the Company and the directors, executive officers, certain other
stockholders and option holders of the Company has agreed that, without the
prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, it will not during the period ending 180 days after the date of
this Prospectus (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer, lend or dispose
of, directly or indirectly, any shares
71
<PAGE>
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise, except under certain
limited circumstances. The restrictions described in this paragraph to not
apply to (a) the sale of Shares to the Underwriters, (b) the issuance by the
Company of shares of Common Stock upon exercise of an option or a warrant
outstanding on the date of this Prospectus and described as such in the
Prospectus, (c) the issuance by the Company of shares of Common Stock under
the Equity Incentive Plan, the Directors Plan and the Purchase Plan or (d)
transactions by any person other than the Company relating to shares of Common
Stock or other securities acquired in open market transactions after the
completion of the offering of the Shares.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the Common Stock, the Underwriters may bid for, and purchase,
shares of Common Stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an Underwriter or a dealer for
distributing the Common Stock in the offering, if the syndicate repurchases
previously distributed Common Stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in
these activities, and may end any of these activities at any time.
In November and December 1996, the Company issued an aggregate of 3,625,000
shares of Series C Preferred Stock for an aggregate consideration of $29.0
million. In connection with such financing, Morgan Stanley & Co. Incorporated
received an aggregate of $730,000 as a financial advisory fee.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the Common Stock
or any other securities of the Company. The initial public offering price for
the Common Stock will be determined by negotiations between the Company and
the Representatives. Among the factors to be considered in determining the
initial public offering price will be the future prospects of the Company and
its industry in general, sales, earnings and certain other financial and
operating information of the Company in recent periods, and the price-earnings
ratios, price-sales ratios, market prices of securities and certain financial
and operating information of companies engaged in activities similar to those
of the Company. The estimated initial public offering price range set forth on
the cover page of this Preliminary Prospectus is subject to change as a result
of market conditions and other factors.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Fenwick & West LLP, Palo Alto, California. Certain
legal matters in connection with this offering will be passed upon for the
Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California.
EXPERTS
The consolidated financial statements and schedule of VeriSign, Inc. and
subsidiary as of December 31, 1995 and 1996 and September 30, 1997 and for the
period from April 12, 1995 (inception) to December 31, 1995, the year ended
December 31, 1996 and the nine month period ended September 30, 1997 have been
included herein and in the Registration Statement in reliance upon the reports
of KPMG Peat Marwick LLP, independent auditors, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
72
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedule thereto. Certain items
are omitted in accordance with the rules and regulations of the Commission.
For further information with respect to the Company and the Common Stock
offered hereby, reference is made to the Registration Statement and the
exhibits and schedule thereto. Statements contained in this Prospectus
regarding the contents of any contract or any other document to which
reference is made are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. A copy of the Registration Statement, and the
exhibits and schedule thereto, may be inspected without charge at the public
reference facilities maintained by the Commission in Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at the Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New
York, New York 10048, and copies of all or any part of the Registration
Statement may be obtained from such offices upon the payment of the fees
prescribed by the Commission. The Commission maintains a World Wide Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The
address of the site is http://www.sec.gov.
73
<PAGE>
VERISIGN, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of KPMG Peat Marwick LLP, Independent Auditors...................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Equity............................ F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
VeriSign, Inc.:
We have audited the accompanying consolidated balance sheets of VeriSign,
Inc. and subsidiary as of December 31, 1995 and 1996 and September 30, 1997,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for the period from April 12, 1995 (inception) to December 31,
1995, for the year ended December 31, 1996, and for the nine months ended
September 30, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of VeriSign,
Inc. and subsidiary as of December 31, 1995 and 1996 and September 30, 1997,
and the results of their operations and their cash flows for the period from
April 12, 1995 (inception) to December 31, 1995, for the year ended December
31, 1996, and for the nine months ended September 30, 1997, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
San Francisco, California
November 5, 1997, except as to Note 8, which is
as of November 20, 1997, and Note 10,
which is as of December 19, 1997
F-2
<PAGE>
VERISIGN, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1997
--------------- --------------------
1995 1996 ACTUAL PRO FORMA
------ ------- ------- -----------
ASSETS (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.............. $2,687 $29,983 $ 5,902 $ 5,902
Short-term investments................. -- -- 7,710 7,710
Accounts receivable, net of allowance
for doubtful accounts of $30, $35, and
$134, respectively.................... 195 751 2,245 2,245
Prepaid expenses and other current
assets................................ 78 786 573 573
------ ------- ------- -------
Total current assets................. 2,960 31,520 16,430 16,430
Property and equipment, net.............. 1,007 4,617 8,391 8,391
Other assets............................. 85 366 838 838
------ ------- ------- -------
$4,052 $36,503 $25,659 $25,659
====== ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable.......................... $ -- $ 258 $ 1,488 $ 1,488
Accounts payable....................... 414 2,461 1,221 1,221
Accrued liabilities.................... 216 2,034 3,904 1,904
Deferred revenue....................... 46 1,944 3,109 3,109
------ ------- ------- -------
Total current liabilities............ 676 6,697 9,722 7,722
------ ------- ------- -------
Minority interest in subsidiary.......... -- 1,251 61 61
------ ------- ------- -------
Commitments
Stockholders' equity:
Convertible preferred stock, $.001 par
value; actual--10,282,883 shares
authorized; 4,306,883 shares issued
and outstanding in 1995, 10,031,006
shares issued and outstanding in 1996
and 1997; aggregate liquidation
preference of $5,038 in 1995 and
$39,206 in 1996 and 1997; pro forma--
5,000,000 shares authorized; no shares
issued and outstanding................ 4 10 10 --
Common stock, $.001 par value; actual--
15,940,217 shares authorized;
4,692,833, 6,376,708, and 6,568,257
shares issued and outstanding in 1995,
1996, and 1997, respectively; pro
forma--50,000,000 shares authorized;
16,849,263 shares issued and
outstanding........................... 5 6 6 17
Additional paid-in capital............. 5,361 41,319 41,651 43,650
Notes receivable from stockholders..... -- (543) (644) (644)
Deferred compensation.................. -- -- (188) (188)
Accumulated deficit.................... (1,994) (12,237) (24,959) (24,959)
------ ------- ------- -------
Total stockholders' equity........... 3,376 28,555 15,876 17,876
------ ------- ------- -------
$4,052 $36,503 $25,659 $25,659
====== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
VERISIGN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 12, 1995 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, --------------------
1995 1996 1996 1997
-------------- ------------ ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.................... $ 382 $ 1,351 $ 774 $ 6,115
Costs and expenses:
Cost of revenues.......... 412 2,791 1,593 5,166
Sales and marketing....... 790 4,876 2,768 7,264
Research and development.. 642 2,058 1,290 3,560
General and
administrative........... 680 2,640 1,517 2,901
Litigation settlement..... -- -- -- 2,000
------- -------- ------- --------
Total costs and
expenses............... 2,524 12,365 7,168 20,891
------- -------- ------- --------
Operating loss.......... (2,142) (11,014) (6,394) (14,776)
Other income (expense)...... 148 (67) 84 860
------- -------- ------- --------
Loss before minority
interest............... (1,994) (11,081) (6,310) (13,916)
Minority interest in net
loss of subsidiary......... -- (838) (358) (1,194)
------- -------- ------- --------
Net loss................ $(1,994) $(10,243) $(5,952) $(12,722)
======= ======== ======= ========
Pro forma net loss per
share...................... $ (.74) $ (.47) $ (.75)
======== ======= ========
Shares used in per share
computations............... 13,836 12,532 17,006
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
VERISIGN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM APRIL 12, 1995 (INCEPTION) TO SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE TOTAL
----------------- ----------------- PAID-IN FROM DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION DEFICIT EQUITY
---------- ------ --------- ------ ---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock to founders... -- $ - 688,333 $ 1 $ 82 $ - $ - $ - $ 83
Issuance of common
stock to a founder
in exchange for
equipment, other
assets, and
technology.......... -- -- 4,000,000 4 115 -- -- -- 119
Issuance of common
stock............... -- -- 4,500 -- -- -- -- -- --
Issuance of Series A
convertible
preferred stock..... 4,306,883 4 -- -- 5,164 -- -- -- 5,168
Net loss............. -- -- -- -- -- -- -- (1,994) (1,994)
---------- ---- --------- --- -------- ------ ------ --------- --------
Balances, December
31, 1995............ 4,306,883 4 4,692,833 5 5,361 -- -- (1,994) 3,376
Issuance of Series B
convertible
preferred stock..... 2,099,123 2 -- -- 5,141 -- -- -- 5,143
Issuance of Series C
convertible
preferred stock..... 3,625,000 4 -- -- 28,192 -- -- -- 28,196
Exercise of common
stock options....... -- -- 1,637,375 1 559 (543) -- -- 17
Issuance of common
stock............... -- -- 46,500 -- 3 -- -- -- 3
Issuance of capital
stock by subsidiary
to minority
interest............ -- -- -- -- 2,063 -- -- -- 2,063
Net loss............. -- -- -- -- -- -- -- (10,243) (10,243)
---------- ---- --------- --- -------- ------ ------ --------- --------
Balances, December
31, 1996............ 10,031,006 10 6,376,708 6 41,319 (543) -- (12,237) 28,555
Deferred compensation
related to common
stock options, net
of amortization of
$13................. -- -- -- -- 201 -- (188) -- 13
Exercise of common
stock options and
advance to
stockholder......... -- -- 244,494 -- 99 (116) -- -- (17)
Issuance of common
stock............... -- -- 25,180 -- 42 -- -- -- 42
Repurchase of common
stock............... -- -- (78,125) -- (10) 10 -- -- --
Payments on notes
receivable from
stockholders........ -- -- -- -- -- 5 -- -- 5
Net loss............. -- -- -- -- -- -- -- (12,722) (12,722)
---------- ---- --------- --- -------- ------ ------ --------- --------
Balances, September
30, 1997............ 10,031,006 $ 10 6,568,257 $ 6 $ 41,651 $ (644) $ (188) $ (24,959) $ 15,876
========== ==== ========= === ======== ====== ====== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
VERISIGN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 12, 1995 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, --------------------
1995 1996 1996 1997
-------------- ------------ ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating ac-
tivities:
Net loss..................... $(1,994) $(10,243) $(5,952) $(12,722)
Adjustments to reconcile net
loss to net cash used in op-
erating activities:
Litigation settlement...... -- -- -- 2,000
Depreciation and
amortization.............. 52 559 238 1,564
Minority interest in net
loss of subsidiary........ -- (838) (358) (1,194)
Changes in operating assets
and liabilities:
Accounts receivable...... (195) (556) (425) (1,494)
Prepaid expenses and
other current assets.... (79) (708) (203) 213
Accounts payable......... 437 2,047 524 (1,240)
Accrued liabilities...... 216 1,818 447 (130)
Deferred revenue......... 42 1,898 1,033 1,165
------- -------- ------- --------
Net cash used in
operating activities.... (1,521) (6,023) (4,696) (11,838)
------- -------- ------- --------
Cash flows from investing ac-
tivities:
Purchases of short-term
investments............... -- -- -- (11,208)
Maturities and sales of
short-term investments.... -- -- -- 3,498
Purchases of property and
equipment................. (1,008) (4,168) (1,702) (5,321)
Other assets............... (35) (281) (264) (472)
------- -------- ------- --------
Net cash used in
investing activities.... (1,043) (4,449) (1,966) (13,503)
------- -------- ------- --------
Cash flows from financing ac-
tivities:
Proceeds from bank
borrowings................ -- 258 269 1,230
Proceeds from issuance of
convertible preferred
stock..................... 5,168 33,339 5,143 --
Proceeds from issuance of
common stock.............. 83 20 19 30
Issuance of capital stock
by subsidiary to minority
interest.................. -- 4,151 2,803 --
------- -------- ------- --------
Net cash provided by
financing activities.... 5,251 37,768 8,234 1,260
------- -------- ------- --------
Net change in cash and cash
equivalents................. 2,687 27,296 1,572 (24,081)
Cash and cash equivalents at
beginning of period......... -- 2,687 2,687 29,983
------- -------- ------- --------
Cash and cash equivalents at
end of period............... $ 2,687 $ 29,983 $ 4,259 $ 5,902
======= ======== ======= ========
Noncash financing and invest-
ing activities:
Issuance of common stock to
a founder for equipment,
other assets, and
technology................ $ 119 $ -- $ -- $ --
======= ======== ======= ========
Issuance of notes
receivable collateralized
by common stock........... $ -- $ 543 $ -- $ 116
======= ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
VERISIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997
(INFORMATION FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
VeriSign, Inc. (the "Company") was incorporated in Delaware in April 1995
when RSA Data Security, Inc. ("RSA") contributed equipment, other assets, and
technology for common stock. This transfer of nonmonetary assets was recorded
at the founder's historical cost basis. The Company provides digital
certificate solutions and infrastructure needed by companies, government
agencies, trading partners and individuals to conduct trusted and secure
communications and commerce over the Internet and over intranets and extranets
using the Internet Protocol.
Consolidation
In February 1996, the Company established a subsidiary in Japan. As of
September 30, 1997, the Company owned approximately 51% of the subsidiary's
outstanding shares of capital stock. The subsidiary provides the Company's
digital certificate solutions throughout Japan. The accompanying consolidated
financial statements include the accounts of the Company and its subsidiary.
All significant intercompany balances and transactions have been eliminated in
consolidation. The Company accounts for changes in its proportionate share of
the net assets of the subsidiary resulting from sales of capital stock by the
subsidiary as equity transactions.
Foreign Currency Translation
The functional currency for the Company's subsidiary is the U.S. dollar;
however, its books of record are maintained in Japanese yen. As a result, its
financial statements are remeasured into U.S. dollars using a combination of
current and historical exchange rates and any remeasurement adjustments are
included in net loss, along with all transaction gains and losses for the
period.
Cash, Cash Equivalents, and Short-Term Investments
The Company considers all highly liquid investments with maturities of three
months or less at the date of acquisition to be cash equivalents. Cash and
cash equivalents include money market funds, commercial paper, and various
deposit accounts.
Investments held by the Company are classified as "available-for-sale" and
are carried at fair value based on quoted market prices. Such investments
consist of U.S. government or agency securities and corporate bonds with
original maturities beyond 3 months and less than 12 months. Unrealized gains
and losses as of December 31, 1996, and September 30, 1997, and realized gains
and losses for the year ended December 31, 1996 and for the nine months ended
September 30, 1997, were not material.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets, generally three to five years.
Revenue Recognition
Revenues from the sale or renewal of digital certificates are deferred and
recognized ratably over the life of the digital certificate, generally 12
months. Revenues from services are recognized using the percentage-of-
completion method, based on the ratio of costs incurred to total estimated
costs for fixed-fee development arrangements, on a time-and-materials basis
for consulting and training services or ratably over the term of the agreement
for support and maintenance services. To the extent costs incurred and
anticipated costs to complete
F-7
<PAGE>
VERISIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fixed-fee contracts in progress exceed anticipated billings, a loss is accrued
for the excess. To date, the Company has not experienced such losses. Deferred
revenue principally consists of payments for unexpired digital certificates.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 97-2, Software Revenue Recognition,
which supersedes SOP No. 91-1. The Company will be required to adopt SOP No.
97-2 prospectively for software transactions entered into beginning January 1,
1998. SOP No. 97-2 generally requires revenue earned on software arrangements
involving multiple elements to be allocated to each element based on the
relative fair values of the elements. The fair value of an element must be
based on evidence that is specific to the vendor. If a vendor does not have
evidence of the fair value for all elements in a multiple-element arrangement,
all revenue from the arrangement is deferred until such evidence exists or
until all elements are delivered. The Company's management anticipates that
the adoption of SOP No. 97-2 will not have a material effect on the Company's
operating results.
Research and Development Costs
Research and development costs are expensed as incurred. Costs incurred
subsequent to establishing technological feasibility, in the form of a working
model, are capitalized and amortized over their estimated useful lives. To
date, software development costs incurred after technological feasibility has
been established have not been material.
Income Taxes
The Company uses the asset and liability method to account for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. A valuation allowance
is recorded for deferred tax assets whose realization is not sufficiently
likely.
Stock-Based Compensation
The Company accounts for its equity-based compensation plan using the
intrinsic value method.
Pro Forma Net Loss Per Share
Pro forma net loss per share is computed using the weighted average number
of shares of common stock and convertible preferred stock outstanding on an
as-if converted basis and, when dilutive, common equivalent shares from
options to purchase common stock using the treasury stock method. In
accordance with certain Securities and Exchange Commission Staff Accounting
Bulletins, such computations included all common and common equivalent shares
issued within the 12 months preceding the initial public offering ("IPO") date
as if they were outstanding for all prior periods presented using the treasury
stock method and the estimated IPO price.
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share, which
must be adopted in the first quarter of 1998. At that time, the Company will
be required to change the method currently used to compute net income (loss)
per share and to restate amounts previously reported. Under the new
requirements, basic net income (loss) per share is computed using the weighted
average number of shares of common stock outstanding during the period and
diluted net income (loss) per share is computed in a manner similar to the
Company's existing policy. The Company expects that neither basic nor diluted
net loss per share will differ materially from pro forma net loss per share
presented in the accompanying consolidated financial statements.
F-8
<PAGE>
VERISIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of Credit Risk and Related Party Transactions
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents,
short-term investments, and accounts receivable. The Company maintains its
cash, cash equivalents, and short-term investments with high quality financial
institutions and, as part of its cash management process, performs periodic
evaluations of the relative credit standing of these financial institutions.
The Company also performs ongoing credit evaluations of its customers and,
generally, requires no collateral from its customers. The Company maintains an
allowance for potential credit losses, but to date has not experienced
significant write-offs.
The Company provided services to VISA International Services Association
("VISA"), a 6% stockholder of the Company on a fully-diluted basis, under an
agreement that included development and ongoing operations of a digital
certificate system for VISA's member banks. VISA accounted for approximately
21% and 16% of the Company's revenues for the year ended December 31, 1996,
and the nine months ended September 30, 1997, respectively, and 13% and 25% of
accounts receivable as of December 31, 1996, and September 30, 1997,
respectively.
The Company entered into a development agreement in September 1997 with
Security Dynamics Technologies, Inc. ("Security Dynamics"), the parent company
of RSA, a 27% stockholder of the Company on a fully-diluted basis, to develop
a customized certificate authority product in order to enable Security
Dynamics to offer a product with encryption and digital certificate authority
functionality. The development agreement provides that Security Dynamics will
pay the Company an aggregate of $2.7 million as an initial license fee,
$900,000 of which was paid in October 1997 and the remainder of which will be
payable upon the achievement of certain milestones. The Company records
revenue related to the development agreement using the percentage-of-
completion method. Revenue from the development agreement accounted for
approximately 4% of the Company's revenues for the nine months ended
September 30, 1997.
The Company had one customer, a South African systems integrator, and
another customer, a financial services provider, which accounted for
approximately 28% and 13%, respectively, of accounts receivable as of December
31, 1996. One other customer, a European smart card manufacturer, accounted
for approximately 12% of accounts receivable as of September 30, 1997.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Unaudited Pro Forma Consolidated Balance Sheet
Upon closing of the Company's proposed initial public offering, all
outstanding shares of preferred stock will be converted into 10,031,006 shares
of common stock. The unaudited pro forma consolidated balance sheet as of
September 30, 1997, reflects this conversion and also gives effect to the
issuance of 250,000 shares of common stock from the litigation settlement
described in Note 8.
Interim Financial Statements
The accompanying unaudited consolidated financial statements for the nine-
month period ended September 30, 1996, have been prepared on substantially the
same basis as the audited consolidated financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the consolidated financial information set forth therein.
F-9
<PAGE>
VERISIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
Available-for-sale securities included in cash, cash equivalents, and short-
term investments are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
<S> <C> <C> <C>
Corporate bonds......... $ -- $ -- $ 6,210
Money market funds...... 624 521 3,690
U.S. government and
agency securities...... 2,027 84 1,000
Commercial paper........ -- -- 1,450
------ ------ -------
$2,651 $ 605 $12,350
====== ====== =======
Included in cash and
cash equivalents....... $2,651 $ 605 $ 4,640
====== ====== =======
Included in short-term
investments............ $ -- $ -- $ 7,710
====== ====== =======
(3) PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows (in thousands):
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
<S> <C> <C> <C>
Computer equipment and
purchased software..... $ 692 $3,501 $ 6,645
Office equipment, furni-
ture and fixtures...... 245 792 1,525
Leasehold improvements.. 122 934 2,453
------ ------ -------
1,059 5,227 10,623
Less accumulated depre-
ciation and amortiza-
tion................... 52 610 2,232
------ ------ -------
$1,007 $4,617 $ 8,391
====== ====== =======
(4) ACCRUED LIABILITIES
A summary of accrued liabilities follows (in thousands):
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
<S> <C> <C> <C>
Employee compensation... $ 161 $ 566 $ 1,278
Professional fees....... 30 354 132
Financing charges....... -- 732 --
Accrued litigation set-
tlement................ -- -- 2,000
Other................... 25 382 494
------ ------ -------
$ 216 $2,034 $ 3,904
====== ====== =======
</TABLE>
(5) NOTES PAYABLE
The Company's Japanese subsidiary has an available credit facility of
250,000,000 yen (approximately $2,083,000 as of September 30, 1997) with a
bank, which bears interest at a rate of 1.625% per annum and expires in
January 1998. Borrowings are secured by certain assets of the subsidiary. As
of December 31, 1996, and September 30, 1997, borrowings under this facility
aggregated $258,000 and $1,487,000, respectively.
F-10
<PAGE>
VERISIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's Japanese subsidiary also has available a revolving line of
credit with a bank that provides up to $500,000, bears interest at 1.625% per
annum and expires in April 1998. The line of credit is secured by a letter of
credit in the same amount from the Company. There were no borrowings under
this arrangement as of December 31, 1996 or September 30, 1997.
In January 1997, the Company entered into an agreement for a non-revolving
equipment line of credit with a financing company that provides up to
$3,000,000, bears interest at 7.50% per annum and expires in March 1999. The
line of credit is secured by the Company's fixed assets. The Company is
obligated to grant a warrant to purchase up to 17,500 shares of common stock
at $8.00 per share in the event the Company borrows funds under the equipment
line of credit. There were no borrowings under this arrangement during the
nine months ended September 30, 1997.
(6) STOCKHOLDERS' EQUITY
Convertible Preferred Stock
As of September 30, 1997, convertible preferred stock consisted of the
following:
<TABLE>
<CAPTION>
SHARES
SHARES ISSUED AND
SERIES AUTHORIZED OUTSTANDING
------ ---------- -----------
<S> <C> <C>
A.................................................... 4,306,883 4,306,883
B.................................................... 2,101,000 2,099,123
C.................................................... 3,875,000 3,625,000
---------- ----------
10,282,883 10,031,006
========== ==========
</TABLE>
The rights, preferences, and privileges of the holders of preferred stock
are as follows:
. The holders of Series A, B, and C preferred stock are entitled to
noncumulative dividends, if and when declared by the Board of Directors,
of $0.10, $0.20, and $0.64 per share, respectively.
. Shares of preferred stock are convertible to common stock at any time at
the rate of one share of common stock for each share of preferred stock.
The preferred stock automatically converts to common stock upon the
closing of an underwritten public offering of the Company's common stock
in which the aggregate proceeds for such shares is at least $15,000,000
and the per share price is at least $9.00 per share.
. The holders of preferred stock are protected by certain antidilutive
provisions.
. Shares of Series A, B, and C preferred stock have a liquidation
preference of $1.20, $2.40, and $8.00 per share, respectively, plus any
declared and unpaid dividends.
. The preferred stock generally votes equally with shares of common stock
on an "as if converted" basis.
No dividends have been declared or paid on the convertible preferred stock
or common stock since inception of the Company.
Common Stock Options
As of September 30, 1997, a total of 4,145,000 shares of common stock were
authorized for issuance under the 1995 Stock Option Plan. Options may be
granted at an exercise price not less than 100% of the fair market value of
the Company's common stock on the date of grant, as determined by the Board of
Directors, for incentive stock options and 85% of such fair market value for
nonqualified stock options. All options are granted at the discretion of the
Company's Board of Directors and have a term not greater than 7 years from the
date of grant. Options issued generally vest 25% on the first anniversary date
and ratably over the following 12 quarters.
F-11
<PAGE>
VERISIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of stock option activity follows:
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS
APRIL 12, 1995 YEAR ENDED ENDED
(INCEPTION) TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, 1995 1996 1997
-------------------- --------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- $ -- 1,274,750 $.12 1,608,075 $ .80
Granted................. 1,398,750 .12 2,022,700 .83 714,050 2.82
Exercised............... -- -- (1,637,375) .34 (244,494) .41
Canceled................ (124,000) .12 (52,000) .13 (76,657) .80
--------- ---------- ---------
Outstanding at end of
period................. 1,274,750 .12 1,608,075 .80 2,000,974 1.49
========= ========== =========
Exercisable at end of
period................. 86,457 152,163 285,550
========= ========== =========
Weighted average fair
value of options
granted during the
period................. .03 .22 .75
==== ==== =====
</TABLE>
The following table summarizes information about stock options outstanding
as of September 30, 1997:
<TABLE>
<CAPTION>
WEIGHTED-
RANGE AVERAGE WEIGHTED-
OF REMAINING AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER
PRICES OUTSTANDING LIFE PRICE EXERCISABLE
-------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
$.12-.25...................... 453,286 5.0 years $ .15 159,210
$.75-1.50..................... 817,138 6.0 years $ .86 113,840
$2.25......................... 562,550 6.6 years $2.25 --
$4.00-8.00.................... 168,000 6.6 years $5.61 12,500
</TABLE>
The Company applies the intrinsic value method in accounting for its equity-
based compensation plan. Had compensation cost for the Company's equity-based
compensation plan been determined consistent with the fair value approach set
forth in SFAS No. 123, Accounting for Stock-Based Compensation, the Company's
net loss for the period from April 12, 1995 (inception) to December 31, 1995,
for the year ended December 31, 1996, and for the nine months ended September
30, 1997, would have been as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1995 1996 1997
------- -------- -------------
<S> <C> <C> <C>
Net loss as reported...................... $(1,994) $(10,243) $(12,722)
Pro forma net loss under SFAS No. 123..... (1,999) (10,294) (12,877)
Pro forma net loss per share as reported.. (.74) (.75)
Pro forma net loss per share under SFAS
No. 123.................................. (.74) (.76)
</TABLE>
The fair value of options granted during the period from April 12, 1995
(inception) to December 31, 1995, the year ended December 31, 1996 and the
nine months ended September 30, 1997, is estimated on the date of grant using
the minimum value method with the following weighted-average assumptions: no
dividend yield; risk-free interest rates of 6.11%, 6.21%, and 6.39%,
respectively; and an expected life of 5 years.
F-12
<PAGE>
VERISIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Notes Receivable From Stockholders
In November 1996, the Company loaned several officers an aggregate of
$543,000, due December 31, 2005, bearing interest at a rate per annum of
6.95%, payable quarterly. In August 1997, the Company loaned an officer an
aggregate of $116,000, due December 31, 2006, bearing interest at a rate per
annum of 6.87%, payable quarterly. The loans are full recourse, are
collateralized by pledges of shares of common stock of the Company that were
purchased and may be prepaid in part or in full without notice or penalty.
(7) INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of the Company's deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1995 1996 1997
----- ------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards and
deferred start-up costs................... $ 833 $ 4,016 $ 8,542
Accrued litigation settlement.............. -- -- 850
Tax credit carryforwards................... 57 177 504
Other...................................... 26 162 266
----- ------- --------
916 4,355 10,162
Valuation allowance.......................... (916) (4,355) (10,162)
----- ------- --------
Net deferred tax assets.................. $ -- $ -- $ --
===== ======= ========
</TABLE>
As of September 30, 1997, the Company has available net operating loss
carryforwards for federal and California income tax purposes of approximately
$10,453,000 and $10,506,000, respectively. The federal net operating loss
carryforwards will expire, if not utilized, in years 2010 through 2012. The
California net operating loss carryforwards will expire, if not utilized, in
years 2000 through 2003.
As of September 30, 1997, the Company has available for carryover research
and experimental tax credits for federal and California income tax purposes of
approximately $91,000 and $72,000, respectively. The federal research and
experimental tax credits will expire, if not utilized, in years 2010 through
2012. California research and experimental tax credits carry forward
indefinitely until utilized. The Company also has federal foreign tax credits
of approximately $15,000, which expire, if not utilized, in the years 2001
through 2002.
The Tax Reform Act of 1986 imposed substantial restrictions on the
utilization of net operating losses and tax credits in the event of an
"ownership change" of a corporation. Accordingly, the Company's ability to
utilize net operating loss and credit carryforwards may be limited as a result
of such an "ownership change" as defined in the Internal Revenue Code.
(8) COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its facilities under operating leases that extend through
2002. Future minimum lease payments under the Company's noncancelable
operating leases as of September 30, 1997, are as follows (in thousands):
<TABLE>
<S> <C>
Three months ended December 31, 1997................................. $ 428
1998................................................................. 1,631
1999................................................................. 1,667
2000................................................................. 1,679
2001................................................................. 1,293
Thereafter........................................................... 9
------
Total minimum lease payments......................................... $6,707
======
</TABLE>
F-13
<PAGE>
VERISIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net rental expense under operating leases for the period from April 12, 1995
(inception) to December 31, 1995, for the year ended December 31, 1996, and
for the nine months ended September 30, 1997, was $141,000, $621,000, and
$1,305,000, respectively.
VeriFone
In September 1996, VeriFone, Inc., which subsequently became a wholly-owned
subsidiary of Hewlett-Packard Company, filed a lawsuit against the Company
alleging, among other things, trademark infringement. In November 1997, both
parties executed a definitive agreement under which, among other things, the
Company issued an aggregate of 250,000 shares of common stock, which were
transferred to Hewlett-Packard, and the Company and VeriFone settled such
claims. The settlement amount was recorded during the nine months ended
September 30, 1997 as a charge of $2.0 million.
(9) GEOGRAPHIC INFORMATION
Financial information by geographic area is as follows (in thousands):
<TABLE>
<CAPTION>
UNITED
DECEMBER 31, 1996 STATES JAPAN CONSOLIDATED
----------------- -------- ------- ------------
<S> <C> <C> <C>
Revenues................................... $ 1,296 $ 55 $ 1,351
Operating loss............................. $ (9,281) $(1,733) $(11,014)
Total assets, excluding cash and cash
equivalents............................... $ 5,922 $ 598 $ 6,520
SEPTEMBER 30, 1997
------------------
Revenues................................... $ 5,893 $ 222 $ 6,115
Operating loss............................. $(12,543) $(2,233) $(14,776)
Total assets, excluding cash and cash
equivalents............................... $ 17,614 $ 2,143 $ 19,757
</TABLE>
Intergeographic transactions have not been significant to date. Other
revenues derived from international customers aggregated $668,000 for the nine
months ended September 30, 1997.
(10) OTHER SUBSEQUENT EVENTS
In October 1997, the Board of Directors adopted and the stockholders
approved the 1997 Stock Option Plan, for which 800,000 shares of the Company's
common stock have been authorized for issuance. Terms of the 1997 Stock Option
Plan are similar to those of the 1995 Stock Option Plan.
In October 1997, the Board of Directors adopted, subject to stockholder
approval, the 1998 Equity Incentive Plan. The 1998 Equity Incentive Plan
succeeds the previous equity-based compensation plans and 2,000,000 shares
have been authorized under the 1998 Equity Incentive Plan. Terms of the 1998
Equity Incentive Plan are similar to those of the 1995 Stock Option Plan.
In October 1997, the Board of Directors adopted, subject to stockholder
approval, the 1998 Directors Plan, for which 125,000 shares of the Company's
common stock have been authorized. Terms of the 1998 Directors Plan are
similar to those of the 1995 Stock Option Plan.
In December 1997, the Board of Directors adopted, subject to stockholder
approval, the 1998 Employee Stock Purchase Plan ("Purchase Plan"), for which
500,000 shares of the Company's common stock have been authorized. Eligible
employees may select a rate of payroll deduction between 2% and 10% of their
compensation and each participant will be granted an option on the first day
of each 24 month offering period and such option will be automatically
exercised on the last day of each six month purchase period during the
offering period. The purchase price for the Company's common stock purchase
under the Purchase Plan is 85%
F-14
<PAGE>
VERISIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of the lesser of the fair market value of the Company's common stock on the
first day of the applicable offering period and the last day of the applicable
purchase period. The first offering period is expected to begin on the first
business day on which price quotations for the Company's common stock are
available on the Nasdaq National Market and, depending on the effective date
of the registration statement for the Company's proposed initial public
offering, may be greater or less than 24 months. Offering periods thereafter
will begin at February 1 and August 1.
In November 1997, the Company entered into a preferred provider agreement
with Microsoft Corporation ("Microsoft") whereby the companies will develop,
promote and distribute a variety of client-based and server-based digital
certificate solutions and the Company will be designated as the premier
provider of digital certificates for Microsoft customers. In connection with
the agreement, the Company will issue 100,000 shares of common stock to
Microsoft that will result in an $800,000 charge to operations during the
fourth quarter of 1997.
15
<PAGE>
[LOGO OF VERISIGN APPEARS HERE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses to be paid by the Registrant in connection with this offering
are as follows. All amounts other than the SEC registration fee, NASD filing
fee and Nasdaq National Market application fee are estimates.
<TABLE>
<S> <C>
SEC Registration Fee................................................ $12,122
NASD Filing Fee..................................................... 4,500
Nasdaq National Market Application Fee.............................. 50,000
Printing............................................................ *
Legal Fees and Expenses............................................. *
Accounting Fees and Expenses........................................ *
Road Show Expenses.................................................. *
Blue Sky Fees and Expenses.......................................... *
Transfer Agent and Registrar Fees................................... *
Miscellaneous....................................................... *
-------
Total............................................................. $ *
=======
</TABLE>
- --------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the
"Securities Act").
As permitted by the Delaware General Corporation Law, the Registrant's Third
Amended and Restated Certificate of Incorporation, which will become effective
upon the completion of this offering, includes a provision that eliminates the
personal liability of its directors for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Registrant or its stockholders, (ii) for
acts or omissions not in good faith or that involve intentional misconduct or
a knowing violation of law, (iii) under section 174 of the Delaware General
Corporation Law (regarding unlawful dividends and stock purchases) or (iv) for
any transaction from which the director derived an improper personal benefit.
As permitted by the Delaware General Corporation Law, the Registrant's
Amended and Restated Bylaws, which will become effective upon the completion
of this offering, provide that (i) the Registrant is required to indemnify its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law, subject to certain very limited exceptions, (ii) the
Registrant may indemnify its other employees and agents to the extent that it
indemnifies its officers and directors, unless otherwise required by law, its
Certificate of Incorporation, its Amended and Restated Bylaws, or agreement,
(iii) the Registrant is required to advance expenses, as incurred, to its
directors and executive officers in connection with a legal proceeding to the
fullest extent permitted by the Delaware General Corporation Law, subject to
certain very limited exceptions and (iv) the rights conferred in the Amended
and Restated Bylaws are not exclusive.
The Registrant has entered into Indemnification Agreements with each of its
current directors and certain of its executive officers and intends to enter
into such Indemnification Agreements with each of its other executive officers
to give such directors and executive officers additional contractual
assurances regarding the scope of the indemnification set forth in the
Registrant's Certificate of Incorporation and to provide additional procedural
protections. At present, there is no pending litigation or proceeding
involving a director, officer or employee of the Registrant regarding which
indemnification is sought, nor is the Registrant aware of any threatened
litigation that may result in claims for indemnification.
II-1
<PAGE>
Reference is also made to Article VIII of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling
persons of the Registrant against certain liabilities. The indemnification
provisions in the Registrant's Certificate of Incorporation, Amended and
Restated Bylaws and the Indemnification Agreements entered into between the
Registrant and each of 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.
The Registrant, with approval by the Registrant's Board of Directors, has
applied for, and expects to obtain, directors' and officers' liability
insurance.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT
DOCUMENT NUMBER
-------- -------
<S> <C>
Underwriting Agreement (draft dated November 20, 1997)............. 1.01
Form of Third Amended and Restated Certificate of Incorporation of
Registrant........................................................ 3.03
Form of Amended and Restated Bylaws of Registrant.................. 3.05
Form of Indemnification Agreement.................................. 10.05
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following table sets forth information regarding all securities sold by
the Registrant since April 12, 1995, the Company's inception date.
<TABLE>
<CAPTION>
AGGREGATE
NAME OR TITLE OF NUMBER PURCHASE FORM OF
CLASS OF PURCHASER DATE OF SALE SECURITIES OF SHARES PRICE CONSIDERATION
------------------ ------------ ------------------ --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
6 founding 4/18/95 Common Stock 4,688,333 $ 562,600 Cash/Property(1)
stockholders...........
9 entities.............. 4/18/95 Series A Preferred 4,306,883 5,168,260 Cash
Stock(2)
12 entities............. 2/20/96 Series B Preferred 2,099,123 5,142,851 Cash
Stock(2)
12 entities............. 11/18/96 and 12/17/96 Series C Preferred 3,625,000 29,000,000 Cash
Stock(2)
23 consultants.......... 3/28/96-10/24/97 Common Stock 72,180 113,350 Services
39 employee or director 2/27/96-10/29/97 Common Stock 1,943,115(3) 705,966 Cash
optionees.............. (option exercises)
Microsoft Corporation... 11/20/97 Common Stock 100,000 800,000 (4)
VeriFone, Inc./Hewlett-
Packard Company........ 11/20/97 Common Stock 250,000 2,000,000 (5)
</TABLE>
- --------
(1) All founding stockholders paid cash except RSA Data Security, Inc., which
contributed its equipment, other assets and technology, as described in
Exhibit A to its Founder's Subscription Agreement.
(2) Each share of Preferred Stock will convert automatically into one share of
Common Stock.
(3) Of these shares, 78,125 were repurchased by cancellation of a promissory
note in the amount of $9,375, and 893,673 were subject to repurchase at
October 31, 1996. The repurchase right lapses ratably over four years.
(4) The shares of Common Stock were issued in connection with a preferred
provider agreement with the Registrant.
(5) The shares of Common Stock were issued in connection with the execution of
certain agreements, including a settlement of claims, with VeriFone, Inc.,
which is owned by Hewlett-Packard Company.
II-2
<PAGE>
All sales of Common Stock to employees made pursuant to the exercise of
stock options granted under the Registrant's stock option plans or pursuant to
restricted stock purchase agreements, and all sales to consultants for
services, were made pursuant to the exemption from the registration
requirements of the Securities Act afforded by Rule 701 promulgated under the
Securities Act.
All other sales were made in reliance on Section 4(2) of the Securities Act
and/or Regulation D promulgated under the Securities Act. These sales were
made without general solicitation or advertising. Each purchaser was a
sophisticated investor with access to all relevant information necessary to
evaluate the investment who represented to the Registrant that the shares were
being acquired for investment.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
1.01 Underwriting Agreement (draft dated November 20, 1997).+
3.01 Second Amended and Restated Certificate of Incorporation of the
Registrant, as amended.+
3.02 Form of Amendment to Second Amended and Restated Certificate of
Incorporation of the Registrant.
3.03 Form of Third Amended and Restated Certificate of Incorporation of the
Registrant to be effective upon the closing of this offering.
3.04 Bylaws of Registrant.+
3.05 Form of Amended and Restated Bylaws of Registrant, to be adopted prior
to the closing of this offering.
4.01 Investors' Rights Agreement, dated November 15, 1996, among the
Registrant and the parties indicated therein.+
4.02 Stockholders' Agreement, dated April 18, 1995, among the Registrant
and the parties indicated therein, and amendments dated February 20,
1996 and November 15, 1996.+
4.03 Co-Sale Agreement, dated February 20, 1996, among the Registrant and
the parties indicated therein.+
4.04 Form of Specimen Common Stock Certificate.
5.01 Opinion of Fenwick & West LLP regarding legality of the securities
being registered.*
10.01 Series A Preferred Stock Purchase Agreement, dated April 18, 1995,
among the Registrant and the parties indicated therein.+
10.02 Series B Preferred Stock Purchase Agreement, dated February 20, 1996,
among the Registrant and the parties indicated therein.+
10.03 Series C Preferred Stock Purchase Agreement, dated November 15, 1996,
among the Registrant and the parties indicated therein.+
10.04 Termination and Release Agreement, dated February 20, 1996, among the
Registrant and the parties indicated therein.+
10.05 Form of Indemnification Agreement entered into by the Registrant with
each of its directors and executive officers.+
10.06 Registrant's 1995 Stock Option Plan and related documents.+
10.07 Registrant's 1997 Stock Option Plan.+
10.08 Registrant's 1998 Directors' Stock Option Plan and related documents.
10.09 Registrant's 1998 Equity Incentive Plan and related documents.
10.10 Registrant's 1998 Employee Stock Purchase Plan and related documents.
10.11 Registrant's Executive Loan Program of 1996.+
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
10.12 Founder's Subscription Agreement, dated April 18, 1995, between the
Registrant and RSA Data Security, Inc. for purchase of Common Stock.+
10.13 Form of Subscription Agreement, dated April 18, 1995, between the
Registrant and certain founding Common Stock holders for purchase of
Common Stock.+
10.14 Form of Full Recourse Secured Promissory Note and Form of Pledge and
Security Agreement entered into between the Registrant and certain
executive officers.+
10.15 Assignment Agreement, dated April 18, 1995, between the Registrant and
RSA Data Security, Inc.
10.16 BSAFE/TIPEM OEM Master License Agreement, dated April 18, 1995,
between the Registrant and RSA Data Security, Inc., as amended.+
10.17 Non-Compete and Non-Solicitation Agreement, dated April 18, 1995,
between the Registrant and RSA Data Security, Inc.+
10.18 Microsoft/VeriSign Certificate Technology Preferred Provider
Agreement, effective as of May 1, 1997, between the Registrant and
Microsoft Corporation.**
10.19 Master Development and License Agreement, dated September 30, 1997,
between the Registrant and Security Dynamics Technologies, Inc.**+
10.20 License Agreement, dated December 16, 1996, between the Registrant and
VeriSign Japan K.K.+
10.21 Loan Agreement, dated January 30, 1997, between the Registrant and
Venture Lending & Leasing, Inc.+
10.22 Security Agreement, dated January 30, 1997, between the Registrant and
Venture Lending & Leasing, Inc.+
10.23 VeriSign Private Label Agreement, dated April 2, 1996, between the
Registrant and VISA International Service Association.**+
10.24 VeriSign Private Label Agreement, dated October 3, 1996, between the
Registrant and VISA International Service Association.**+
10.25 Lease Agreement, dated August 15, 1996, between the Registrant and
Shoreline Investments VII.+
10.26 Lease Agreement, dated September 18, 1996, between the Registrant and
Shoreline Investments VII.+
10.27 Sublease Agreement, dated September 5, 1996, between the Registrant
and Security Dynamics Technologies, Inc.+
10.28 Employment Offer Letter Agreement, between the Registrant and Stratton
Sclavos, dated June 12, 1995, as amended October 4, 1995.+
11.01 Statement regarding computation of pro forma net loss per share.+
21.01 Subsidiary of the Registrant.+
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).*
23.02 Consent of KPMG Peat Marwick LLP (see Page S-1 of the Registration
Statement).
24.01 Power of Attorney.+
27.01 Financial Data Schedule (available in EDGAR format only).+
</TABLE>
- --------
+ Previously filed.
* To be supplied by amendment.
** Confidential treatment is being sought with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
(b) The following financial statement schedule is filed herewith:
Schedule II -- Valuation and Qualifying Accounts--Page S-2
II-4
<PAGE>
Other 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.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
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 14 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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be 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.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Mountain View, State of California, on the 2nd
day of January, 1998.
VERISIGN, INC.
/s/ Stratton D. Sclavos
By: _________________________________
Stratton D. Sclavos
President and Chief Executive
Officer
In accordance with the requirements of the Securities Act, this Amendment
was signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
PRINCIPAL EXECUTIVE OFFICER:
<S> <C> <C>
/s/ Stratton D. Sclavos President, Chief Executive January 2, 1998
____________________________________ Officer and Director
Stratton D. Sclavos
PRINCIPAL FINANCIAL AND PRINCIPAL ACCOUNTING OFFICER:
/s/ Dana L. Evan Vice President of Finance January 2, 1998
____________________________________ and Administration and
Dana L. Evan Chief Financial Officer
DIRECTORS:
* Chairman of the Board January 2, 1998
____________________________________
D. James Bidzos
* Director January 2, 1998
____________________________________
William Chenevich
* Director January 2, 1998
____________________________________
Kevin R. Compton
* Director January 2, 1998
____________________________________
David J. Cowan
* Director and Secretary January 2, 1998
____________________________________
Timothy Tomlinson
/s/ Dana L. Evan Attorney-in-Fact
* By _______________________________
Dana L. Evan
</TABLE>
II-6
<PAGE>
REPORT ON SCHEDULE AND CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
VeriSign, Inc.:
The audits referred to in our report dated November 5, 1997, except as to
Notes 8 and 10, which are as of November 20, 1997, included the related
financial statement schedule for the period from April 12, 1995 (inception) to
December 31, 1995, for the year ended December 31, 1996, and for the nine
months ended September 30, 1997, included in the registration statement. This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
We consent to the use of our reports included herein and to the reference to
our firm under the headings "Selected Consolidated Financial Data" and
"Experts" in the prospectus.
KPMG Peat Marwick LLP
San Francisco, California
January 2, 1998
S-1
<PAGE>
VERISIGN, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT THE CHARGED TO BALANCE AT THE
BEGINNING OF COSTS AND END OF THE
DESCRIPTION THE PERIOD EXPENSES WRITE-OFFS PERIOD
- ----------- -------------- ---------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Period from April 12, 1995
(inception) to
December 31, 1995........ $ -- $ 30 $ -- $ 30
Year ended December 31,
1996..................... $ 30 $ 22 $ 17 $ 35
Nine months ended
September 30, 1997....... $ 35 $155 $ 56 $134
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
1.01 Underwriting Agreement (draft dated November 20, 1997).+
3.01 Second Amended and Restated Certificate of Incorporation of the
Registrant, as amended.+
3.02 Form of Amendment to Second Amended and Restated Certificate of
Incorporation of the Registrant.
3.03 Form of Third Amended and Restated Certificate of Incorporation of the
Registrant to be effective upon the closing of this offering.
3.04 Bylaws of Registrant.+
3.05 Form of Amended and Restated Bylaws of Registrant, to be adopted prior
to the closing of this offering.
4.01 Investors' Rights Agreement, dated November 15, 1996, among the
Registrant and the parties indicated therein.+
4.02 Stockholders' Agreement, dated April 18, 1995, among the Registrant
and the parties indicated therein, and amendments dated February 20,
1996 and November 15, 1996.+
4.03 Co-Sale Agreement, dated February 20, 1996, among the Registrant and
the parties indicated therein.+
4.04 Form of Specimen Common Stock Certificate.
5.01 Opinion of Fenwick & West LLP regarding legality of the securities
being registered.*
10.01 Series A Preferred Stock Purchase Agreement, dated April 18, 1995,
among the Registrant and the parties indicated therein.+
10.02 Series B Preferred Stock Purchase Agreement, dated February 20, 1996,
among the Registrant and the parties indicated therein.+
10.03 Series C Preferred Stock Purchase Agreement, dated November 15, 1996,
among the Registrant and the parties indicated therein.+
10.04 Termination and Release Agreement, dated February 20, 1996, among the
Registrant and the parties indicated therein.+
10.05 Form of Indemnification Agreement entered into by the Registrant with
each of its directors and executive officers.+
10.06 Registrant's 1995 Stock Option Plan and related documents.+
10.07 Registrant's 1997 Stock Option Plan.+
10.08 Registrant's 1998 Directors' Stock Option Plan and related documents.
10.09 Registrant's 1998 Equity Incentive Plan and related documents.
10.10 Registrant's 1998 Employee Stock Purchase Plan and related documents.
10.11 Registrant's Executive Loan Program of 1996.+
10.12 Founder's Subscription Agreement, dated April 18, 1995, between the
Registrant and RSA Data Security, Inc. for purchase of Common Stock.+
10.13 Form of Subscription Agreement, dated April 18, 1995, between the
Registrant and certain founding Common Stock holders for purchase of
Common Stock.+
10.14 Form of Full Recourse Secured Promissory Note and Form of Pledge and
Security Agreement entered into between the Registrant and certain
executive officers.+
10.15 Assignment Agreement, dated April 18, 1995, between the Registrant and
RSA Data Security, Inc.
10.16 BSAFE/TIPEM OEM Master License Agreement, dated April 18, 1995,
between the Registrant and RSA Data Security, Inc., as amended.+
</TABLE>
1
<PAGE>
<TABLE>
<C> <S>
10.17 Non-Compete and Non-Solicitation Agreement, dated April 18, 1995,
between the Registrant and RSA Data Security, Inc.+
10.18 Microsoft/VeriSign Certificate Technology Preferred Provider Agreement,
effective as of May 1, 1997, between the Registrant and Microsoft
Corporation.**
10.19 Master Development and License Agreement, dated September 30, 1997,
between the Registrant and Security Dynamics Technologies, Inc.**+
10.20 License Agreement, dated December 16, 1996, between the Registrant and
VeriSign Japan K.K.+
10.21 Loan Agreement, dated January 30, 1997, between the Registrant and
Venture Lending & Leasing, Inc.+
10.22 Security Agreement, dated January 30, 1997, between the Registrant and
Venture Lending & Leasing, Inc.+
10.23 VeriSign Private Label Agreement, dated April 2, 1996, between the
Registrant and VISA International Service Association.**+
10.24 VeriSign Private Label Agreement, dated October 3, 1996, between the
Registrant and VISA International Service Association.**+
10.25 Lease Agreement, dated August 15, 1996, between the Registrant and
Shoreline Investments VII.+
10.26 Lease Agreement, dated September 18, 1996, between the Registrant and
Shoreline Investments VII.+
10.27 Sublease Agreement, dated September 5, 1996, between the Registrant and
Security Dynamics Technologies, Inc.+
10.28 Employment Offer Letter Agreement, between the Registrant and Stratton
Sclavos, dated June 12, 1995, as amended October 4, 1995.+
11.01 Statement regarding computation of pro forma net loss per share.+
21.01 Subsidiary of the Registrant.+
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).*
23.02 Consent of KPMG Peat Marwick LLP (see Page S-1 of the Registration
Statement).
24.01 Power of Attorney.+
27.01 Financial Data Schedule (available in EDGAR format only).+
</TABLE>
- --------
+ Previously filed.
* To be supplied by amendment.
** Confidential treatment is being sought with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
2
<PAGE>
Exhibit 3.02
CERTIFICATE OF AMENDMENT
OF THE SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
VERISIGN, INC.
VeriSign, Inc. a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), whose original
-----------
Certificate of Incorporation was filed in the Office of the Secretary of State
of the State of Delaware on April 12, 1995 under the name of Digital
Certificates International, Inc., and subsequently amended and restated on
February 15, 1996, November 14, 1996, and November 18, 1997, does hereby
certify:
The following resolutions amending the Corporation's Second Amended and
Restated Certificate of Incorporation, approved by the Corporation's Board of
Directors and Stockholders, were duly adopted in accordance with the provisions
of Section 242 of the Delaware General Corporation Law, including written
consent of the Stockholders of the Corporation and written notice to the non-
consenting Stockholders of the Corporation in accordance with the provisions of
Section 228 of the Delaware General Corporation Law:
RESOLVED, that the first sentence of Article Four of the Second Amended and
Restated Certificate of Incorporation of this Corporation be amended and
restated to read as follows:
FOUR: The aggregate number of shares which the corporation shall have
authority to issue is Sixty Million Two Hundred Eighty-Two Thousand
Eight Hundred Thirty Three (60,282,833) consisting of (i) Fifty
Million (50,000,000) shares of Common Stock, One-Tenth of One Cent
($0.001) par value per share (the "Common Stock"), and (ii) Four
------------
Million Three Hundred Six Thousand Eight Hundred Eighty Three
(4,306,883) shares of Series A Convertible Preferred Stock, One-Tenth
of One Cent ($0.001) par value per share (the "Series A Preferred
------------------
Stock"), Two Million One Hundred One Thousand (2,101,000) shares of
-----
Series B Convertible Preferred Stock, One-Tenth of One Cent ($0.001)
par value per share (the "Series B Preferred Stock") and Three
------------------------
<PAGE>
Certificate of Amendment of the
Second Amended and Restated Certficate
of Incorporated of VeriSign, Inc.
Page 2
Million Eight Hundred Seventy-Five Thousand (3,875,000) shares of the
Series C Convertible Preferred Stock, One Tenth of One Cent ($0.001)
par value per share (the "Series C Preferred Stock").
------------------------
IN WITNESS WHEREOF, VeriSign, Inc. has caused this Certificate to be signed
and attested by its duly authorized officers, this _____ day of January, 1998.
VERISIGN, INC.
----------------------------------------
Stratton Sclavos, President
Attest:
- --------------------------------------
Timothy Tomlinson, Secretary
2
<PAGE>
Exhibit 3.03
CERTIFICATE OF THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
VERISIGN, INC.
VeriSign, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), whose original
-----------
Certificate of Incorporation was filed in the Office of the Secretary of State
of the State of Delaware on April 12, 1995 under the name of Digital
Certificates International, Inc. and subsequently amended and restated on
February 15, 1996, November 14, 1996, November 18, 1997 and January __, 1998,
does hereby certify:
The following resolution amending and restating the Corporation's Second
Amended and Restated Certificate of Incorporation, approved by the Corporation's
Board of Directors and Stockholders, was duly adopted in accordance with the
provisions of Sections 242 and 245 of the Delaware General Corporation Law,
including written consent of the Stockholders of the Corporation holding a
majority of the issued and outstanding shares of the Corporation, voting
together as a single class, and two-thirds of the issued and outstanding shares
of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock of the Corporation, voting together as a single class, and written notice
to the nonconsenting Stockholders of the Corporation in accordance with the
provisions of Section 228 of the Delaware General Corporation Law and Exhibit A
referenced in such resolution is the same as the attachment to this Certificate:
RESOLVED, that the Certificate of Incorporation of this corporation shall
be amended and restated as set forth in the Third Amended and Restated
Certificate of Incorporation attached hereto as Exhibit A.
IN WITNESS WHEREOF, VeriSign, Inc. has caused this Certificate to be signed
and attested by its duly authorized officers, this ___ day of _______, 1998.
VERISIGN, INC.
--------------------------------------------
Stratton Sclavos
Attest:
- -----------------------------------
Timothy Tomlinson, Secretary
<PAGE>
THIRD
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
VERISIGN, INC.
a Delaware corporation
ONE: The name of the corporation is VeriSign, Inc. (hereinafter sometimes
referred to as the "Corporation").
TWO: The address of the Corporation's registered office in the State of
Delaware is 30 Old Rudnick Lane, in the City of Dover, in the County of Kent.
The registered agent in charge thereof is CorpAmerica, Inc., 30 Old Rudnick
Lane, Dover, Delaware 19901.
THREE: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
law of Delaware.
FOUR: A. The Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the Corporation is authorized to issue is fifty-five
Million (55,000,000) shares. Fifty Million (50,000,000) shares shall be Common
Stock, $0.001 par value per share, and five Million (5,000,000) shares shall be
Preferred Stock, $0.001 par value per share.
B. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of shares of Preferred Stock in
series, and by filing a certificate pursuant to the applicable law of the State
of Delaware (such certificate being hereinafter referred to as a "Preferred
Stock Designation"), to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences,
and rights of each such series and any qualifications, limitations or
restrictions thereof. The number of authorized shares of Preferred Stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock, without a vote of the holders of the
Preferred Stock, or of any series thereof, unless a vote of any such holders is
required pursuant to the terms of any Preferred Stock Designation.
FIVE: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by statute or by this Third Amended and
Restated Certificate of Incorporation or the Bylaws of the Corporation, the
directors are hereby empowered to exercise all such powers and do all such acts
and things as may be exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
<PAGE>
C. Any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
D. Special meetings of stockholders of the Corporation may be
called only by either the Board of Directors pursuant to a resolution adopted by
a majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption), the Chief Executive Officer
or the President.
SIX: A. The directors, other than those who may be elected by the
holders of Preferred Stock under specified circumstances, shall be divided into
three classes with the term of office of the first class (Class I) to expire at
the annual meeting of the stockholders held in 1998; the term of office of the
second class (Class II) to expire at the annual meeting of stockholders held in
1999; the term of office of the third class (Class III) to expire at the annual
meeting of stockholders held in 2000; and thereafter for each such term to
expire at each third succeeding annual meeting of stockholders after such
election. All directors shall hold office until the expiration of the term for
which elected, and until their respective successors are elected, except in the
case of the death, resignation, or removal of any director.
B. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, newly created directorships resulting from any increase
in the authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation or other cause may be filled (a) by the
stockholders at any meeting, (b) by a majority of the directors, although less
than a quorum, or (c) by a sole remaining director, and directors so chosen
shall hold office for a term expiring at the next annual meeting of stockholders
at which the term of office of the class to which they have been elected
expires, and until their respective successors are elected, except in the case
of the death, resignation, or removal of any director. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director.
SEVEN: The Corporation shall have a perpetual existence.
EIGHT: A. Exculpation. A director of the Corporation shall not be
-----------
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation law or (iv) for any transaction from which the
director derived any improper personal benefit. If the Delaware General
Corporation law is hereafter amended to further reduce or authorize, with the
approval of the Corporation's stockholders, further reductions in the liability
of the Corporation's directors for breach of fiduciary duty, then a director of
the Corporation shall not be liable for any such breach to the fullest extent
permitted by the Delaware General Corporation Law as so amended.
B. Indemnification. To the extent permitted by applicable law,
---------------
this Corporation is also authorized to provide indemnification of (and
advancement of expenses to) agents (and any other persons to which Delaware law
permits this Corporation to provide
<PAGE>
indemnification) through bylaw provisions, agreements with such agents or other
persons, vote of stockholders or disinterested directors or otherwise, in excess
of the indemnification and advancement otherwise permitted by Section 145 of the
Delaware General Corporation Law, subject only to limits created by applicable
Delaware law (statutory or non-statutory), with respect to actions for breach of
duty to the Company, its stockholders, and others.
C. Effect of Repeal or Modification. Any repeal or modification of
--------------------------------
any of the foregoing provisions of this Article Eight shall not adversely affect
any right or protection of a director, officer, agent or other person existing
at the time of, or increase the liability of any director of the Corporation
with respect to any acts or omissions of such director occurring prior to, such
repeal or modification.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Third Amended and Restated Certificate of
Incorporation of VeriSign, Inc. has been signed and attested as of this ___ day
of January, 1998.
--------------------------------------------
Stratton Sclavos, President
Attest:
- -----------------------------------
Timothy Tomlinson, Secretary
[SIGNATURE PAGE TO THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION]
<PAGE>
EXHIBIT 3.05
Amended and Restated
Bylaws
of
VERISIGN, INC.
(A Delaware Corporation)
ARTICLE I
Stockholders
Section 1. Annual Meeting. An annual meeting of the stockholders of the
---------- --------------
corporation, for the election of the Directors to succeed those whose terms
expire and for the transaction of such other business as may properly come
before the meeting, shall be held at such place, on such date and at such time
as the Board of Directors shall each year fix.
Section 2. Special Meetings. Special meetings of the stockholders, for
---------- ----------------
any purpose or purposes prescribed in the notice of the meeting, may be called
only by (i) the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there exist
any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board of Directors for adoption), (ii) the
Chairman of the Board or (iii) the President and shall be held at such place, on
such date, and at such time as they shall fix. Business transacted at special
meetings shall be confined to the purpose or purposes stated in the notice.
Section 3. Place of Meetings. All meetings of stockholders shall be held
---------- -----------------
at the principal office of the corporation unless a different place is fixed by
the person or persons calling the meeting and stated in the notice of the
meeting.
Section 4. Notices of Meetings and Adjourned Meetings. A written notice
---------- ------------------------------------------
of each annual or special meeting of the stockholders stating the place, date,
and hour thereof, shall be given by the Secretary (or the person or persons
calling the meeting), not less than 10 nor more than 60 days before the date of
the meeting, to each stockholder entitled to vote thereat, by leaving such
notice with him or her or at his or her residence or usual place of business, or
by depositing it postage prepaid in the United States mail, directed to each
stockholder at his or her address as it appears on the records of the
corporation. Notices of all meetings of stockholders shall state the purpose or
purposes for which the meeting is called. An affidavit of the Secretary,
Assistant Secretary, or transfer agent of the corporation that the notice has
been given shall, in the absence of fraud, be primary facie evidence of the
facts stated therein. No notice need be given to any person with whom
communication is unlawful or to any person who has waived such notice either (a)
in writing (which writing need not specify the business to be transacted at, or
the purpose of, the meeting) signed by such person before or after the time of
the meeting or (b) by attending the meeting except for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. When a meeting is
adjourned to another time and place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
<PAGE>
adjournment is taken except that, if the adjournment is for more than 30 days or
if, after the adjournment, a new record date is fixed for the adjourned meeting,
a notice of the adjourned meeting shall be given in the manner provided in this
Section 4.
Section 5. Quorum. At any meeting of the stockholders, a quorum for the
---------- ------
transaction of business shall consist of one or more individuals appearing in
person or represented by proxy and owning or representing a majority of the
shares of the corporation then outstanding and entitled to vote thereat, unless
or except to the extent that the presence of a larger number may be required by
law (including as required from time to time by the Delaware General Corporation
Law or the Certificate of Incorporation of the corporation). Where a separate
vote by a class or classes is required, a majority of the shares of such class
or classes then outstanding and entitled to vote present in person or by proxy
shall constitute a quorum entitled to take action with respect to that vote on
that matter. If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote
thereat who are present, in person or by proxy, may adjourn the meeting to
another place, date, or time.
Section 6. Organization. Such person as the Board of Directors may have
---------- ------------
designated or, in the absence of such a person, the President of the corporation
shall call to order any meeting of the stockholders and act as chairman of the
meeting. In the absence of the Secretary of the corporation, the secretary of
the meeting shall be such person as the chairman appoints.
Section 7. Conduct of Business. The chairman of any meeting of
---------- -------------------
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seem to him or her in order.
Section 8. Voting. Unless otherwise provided in the Certificate of
---------- ------
Incorporation as currently in effect (the "Certificate of Incorporation") and
subject to the provisions of Section 6 of Article IV hereof, each stockholder
shall have one vote for each share of stock entitled to vote held by him or her
of record according to the records of the corporation. Persons holding stock in
a fiduciary capacity shall be entitled to vote the shares so held. Persons
whose stock is pledged shall be entitled to vote unless the pledgor in a
transfer on the books of the corporation has expressly empowered the pledgee to
vote the pledged shares, in which case only the pledgee or his or her proxy
shall be entitled to vote. If shares stand of record in the names of two or
more persons or if two or more persons have the same fiduciary relationship
respecting the shares then, unless the Secretary is given written notice to the
contrary and is furnished with a copy of the instrument or order appointing them
or creating the relationship wherein it is so provided to the contrary: (a) if
only one votes, his or her act binds all; (b) if more than one vote, the act of
the majority so voting binds all; and (c) if more than one vote and the vote is
evenly split, the effect shall be as provided by law.
Section 9. Proxies. Each stockholder entitled to vote at a meeting of
---------- -------
stockholders may authorize another person or any group of persons to act for him
or her by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period.
Section 10. Action at Meeting. When a quorum is present at any meeting,
----------- -----------------
action of the stockholders on any matter properly brought before such meeting,
other than the election of
2
<PAGE>
directors, shall require, and may be effected by, the affirmative vote of the
holders of a majority in interest of the stock present or represented by proxy
and entitled to vote on the subject matter, except where a different vote is
expressly required by law, the Certificate of Incorporation or these Bylaws, in
which case such express provision shall govern and control. The election of
directors shall be determined by a plurality of votes cast. If the Certificate
of Incorporation so provides, no ballot shall be required for the election of
directors unless requested by a stockholder present or represented at the
meeting and entitled to vote in the election.
Section 11. Stockholder Lists. The officer who has charge of the stock
----------- -----------------
ledger of the corporation shall prepare and make available, at least 10 days
before every meeting of stockholders, a complete list of stockholders entitled
to vote at the meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least 10 days prior to the meeting, either at a place of inspection within
the city where the meeting is to be held (which place of inspection shall be
specified in the notice of the meeting) or, if not so specified, at the place
where the meeting is to be held. Such list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list required by this section or the books of the corporation, or to vote in
person or by proxy at any meeting of stockholders.
Section 12. Inspectors of Elections.
----------- -----------------------
(a) Applicability. Unless otherwise provided in the Certificate of
-------------
Incorporation or required by the Delaware General Corporation Law, the following
provisions of this Section 12 shall apply only if and when the corporation has a
class of voting stock that is: (i) listed on a national securities exchange;
(ii) authorized for quotation on an interdealer quotation system of a registered
national securities association; or (iii) held of record by more than 2,000
stockholders; in all other cases, observance of the provisions of this Section
12 shall be optional, and at the discretion of the corporation.
(b) Appointment. The corporation shall, in advance of any meeting of
-----------
stockholders, appoint one or more inspectors of election to act at the meeting
and make a written report thereof. The corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting shall appoint one or more inspectors to act at
the meeting.
(c) Inspector's Oath. Each inspector of election, before entering upon the
----------------
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability.
(d) Duties of Inspectors. At a meeting of stockholders, the inspectors of
--------------------
election shall (i) ascertain the number of shares outstanding and the voting
power of each share, (ii) determine the shares represented at a meeting and the
validity of proxies and ballots, (iii) count all votes
3
<PAGE>
and ballots, (iv) determine and retain for a reasonable period of time a record
of the disposition of any challenges made to any determination by the
inspectors, and (v) certify their determination of the number of shares
represented at the meeting, and their count of all votes and ballots. The
inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors.
(e) Opening and Closing of Polls. The date and time of the opening and
----------------------------
the closing of the polls for each matter upon which the stockholders will vote
at a meeting shall be announced by the inspectors at the meeting. No ballot,
proxies or votes, nor any revocations thereof or changes thereto, shall be
accepted by the inspectors after the closing of the polls unless the Court of
Chancery upon application by a stockholder shall determine otherwise.
(f) Determinations. In determining the validity and counting of proxies
--------------
and ballots, the inspectors shall be limited to an examination of the proxies,
any envelopes submitted with those proxies, any information provided in
connection with proxies in accordance with Section 212(c)(2) of the Delaware
General Corporation Law, ballots and the regular books and records of the
Corporation, except that the inspectors may consider other reliable information
for the limited purpose of reconciling proxies and ballots submitted by or on
behalf of banks, brokers, their nominees or similar persons which represent more
votes than the holder of a proxy is authorized by the record owner to cast or
more votes than the stockholder holds of record. If the inspectors consider
other reliable information for the limited purpose permitted herein, the
inspectors at the time they make their certification of their determinations
pursuant to this Section 12 shall specify the precise information considered by
them, including the person or persons from whom they obtained the information,
when the information was obtained, the means by which the information was
obtained and the basis for the inspectors' belief that such information is
accurate and reliable.
Section 13. Notice of Stockholder Business; Nominations.
----------- --------------------------------------------
(a) Annual Meeting of Stockholders.
------------------------------
(i) Nominations of persons for election to the Board of Directors
and the proposal of business to be considered by the stockholders shall be made
at an annual meeting of stockholders (A) pursuant to the corporation's notice of
such meeting, (B) by or at the direction of the Board of Directors or (C) by any
stockholder of the corporation who was a stockholder of record at the time of
giving of the notice provided for in this Section 1.13, who is entitled to vote
at such meeting and who complies with the notice procedures set forth in this
Section 1.13.
(ii) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (C) of subparagraph
(a)(i) of this Section 1.13, the stockholder must have given timely notice
thereof in writing to the Secretary of the corporation and such other business
must otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice must be delivered to the Secretary at the principal
executive offices of the corporation not later than the close of business on the
sixtieth (60th) day nor earlier than the close of business on the ninetieth
(90th) day prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
-------- -------
meeting is more than thirty (30) days before or more than sixty (60) days after
such anniversary date, notice by
4
<PAGE>
the stockholder to be timely must be so delivered not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day prior to such
annual meeting or the close of business on the tenth (10th) day following the
day on which public announcement of the date of such meeting is first made by
the corporation. Such stockholder's notice shall set forth: (a) as to each
person whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), including such person's written
------------
consent to being named in the proxy statement as a nominee and to serving as a
director if elected; (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (1) the name and address of such
stockholder, as they appear on the corporation's books, and of such beneficial
owner, and (2) the class and number of shares of the corporation that are owned
beneficially and held of record by such stockholder and such beneficial owner.
(iii) Notwithstanding anything in the second sentence of subparagraph
(a)(ii) of this Section 13 to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the corporation is
increased and there is no public announcement by the corporation naming all of
the nominees for director or specifying the size of the increased board of
directors at least seventy (70) days prior to the first anniversary of the
preceding year's annual meeting (or, if the annual meeting is held more than
thirty (30) days before or sixty (60) days after such anniversary date, at least
seventy (70) days prior to such annual meeting), a stockholder's notice required
by this Section 13 shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary of the corporation at the principal executive office
of the corporation not later than the close of business on the tenth (10th) day
following the day on which such public announcement is first made by the
corporation.
(b) Special Meetings of Stockholders. Only such business shall be
--------------------------------
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the corporation's notice of such meeting. Nominations
of persons for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected pursuant to the
corporation's notice of such meeting (i) by or at the direction of the Board of
Directors or (ii) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice of
the special meeting, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 13. In the event
the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by subparagraph (a)(ii) of this Section 13 shall
be
5
<PAGE>
delivered to the Secretary of the corporation at the principal executive offices
of the corporation not earlier than the ninetieth (90th) day prior to such
special meeting and not later than the close of business on the later of the
sixtieth (60th) day prior to such special meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
(c) General.
-------
(i) Only such persons who are nominated in accordance with the
procedures set forth in this Section 13 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 13. Except as otherwise provided by law or these bylaws, the
chairman of the meeting shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the meeting was made or
proposed, as the case may be, in accordance with the procedures set forth in
this Section 1.12 and, if any proposed nomination or business is not in
compliance herewith, to declare that such defective proposal or nomination shall
be disregarded.
(ii) For purposes of this Section 13, the term "public announcement"
-------------------
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section 13, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein. Nothing in this Section 1.12 shall be deemed to affect any rights
of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE II
Directors
Section 1. Powers. The business and affairs of the corporation shall be
---------- ------
managed by or under the direction of the Board of Directors, which may exercise
all such powers of the corporation and do all such lawful acts and things as are
not by law or these Bylaws directed or required to be exercised or done by the
stockholders.
Section 2. Number of Directors. The Board of Directors shall consist of no
---------- -------------------
less than five (5) members nor more than seven (7) members, the number thereof
to be fixed from time to time by resolution of the Board of Directors. Any
amendment of these Bylaws changing the authorized number of directors may be
adopted only by the affirmate vote of the stockholders holding a majority of the
outstanding capital stock of the Company entitled to vote.
Section 3. Election and Tenure. The directors shall be divided into three
---------- -------------------
classes, with the term of office of the first class, which class initially
consists of two directors, to expire at the annual meeting of stockholders held
in 1998; the term of office of the second class, which class
6
<PAGE>
initially consists of two directors, to expire at the annual meeting of
stockholders held in 1999; the term of office of the third class, which class
initially consists of two directors, to expire at the annual meeting of
stockholders held in 2000; and thereafter for each such term to expire at each
third succeeding annual meeting of stockholders after such election. Each
Director shall serve until his or her successor is elected and qualified, or
until his or her earlier resignation or removal.
Section 4. Qualification. No Director need be a stockholder.
---------- -------------
Section 5. Removal. Subject to the rights of holders of any series of
---------- -------
Preferred Stock then outstanding, any directors, or the entire Board of
Directors, may be removed from office at any time, with or without cause, but
only by the affirmative vote of the holders of at least a majority of the voting
power of all of the then outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class. Vacancies in the Board of Directors resulting from such removal
may be filled by a majority of the directors then in office, though less than a
quorum, or by the stockholders as provided in Article II, Section 3 above.
Directors so chosen shall hold office until the next annual meeting of
stockholders.
Section 6. Resignation. Any Director of the corporation may resign at any
---------- -----------
time by giving written notice to the Board of Directors, to the Chairman of the
Board, if any, to the President, or to the Secretary, and any member of a
committee may resign therefrom at any time by giving notice as aforesaid or to
the chairman or secretary of such committee. Any such resignation shall take
effect at the time specified therein, or, if the time be not specified, upon
receipt thereof; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 7. Vacancies and Newly Created Directorships. Vacancies and newly
---------- -----------------------------------------
created directorships resulting from any increase in the authorized number of
Directors may be filled (a) by the stockholders at any meeting, (b) by a
majority of the Directors then in office, although less than a quorum, or (c) by
a sole remaining Director. Whenever the holders of any class or classes of
stock or series thereof are entitled to elect one or more Directors by the
Certificate of Incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the Directors elected
by such class, classes or series then in office or by the sole remaining
director so elected. When one or more Directors shall resign from the Board,
effective at a future date, a majority of Directors who are entitled to act on
the filling of such vacancy or vacancies and who are then in office, including
those who have so resigned, shall have power to fill such vacancy or vacancies
by vote to take effect when such resignation or resignations shall become
effective.
Section 8. Annual Meeting. The first meeting of each newly elected board
---------- --------------
may be held without notice immediately after an annual meeting of stockholders
(or a special meeting of stockholders held in lieu of an annual meeting) at the
same place as that at which such meeting of stockholders was held; or such first
meeting may be held at such place and time as shall be fixed by the consent in
writing of all the Directors, or may be called in the manner hereinafter
provided with respect to the call of special meetings.
7
<PAGE>
Section 9. Regular Meetings. Regular meetings of the Directors may be
---------- ----------------
held at such times and places as shall from time to time be fixed by resolution
of the Board, and no notice need be given of regular meetings held at times and
places so fixed, PROVIDED, HOWEVER, that any resolution relating to the holding
of regular meetings shall remain in force only until the next annual meeting of
stockholders and that, if at any meeting of Directors at which a resolution is
adopted fixing the times or place or places for any regular meetings any
Director is absent, no meeting shall be held pursuant to such resolution without
notice to or waiver by such absent Director pursuant to Section 11 of this
Article II.
Section 10. Special Meetings. Special meetings of the Directors may be
----------- ----------------
called by the Chairman of the Board, if any, the President, or by at least one-
third of the Directors then in office (rounded up to the nearest whole number),
and shall be held at the place and on the date and hour designated in the call
thereof.
Section 11. Notices. Notices of any special meeting of the Directors
----------- -------
shall be given to each Director by the Secretary or an Assistant Secretary (a)
by mailing to him or her, postage prepaid, and addressed to him or her at his or
her address as registered on the books of the corporation, or if not so
registered at his or her last known home or business address, a written notice
of such meeting at least 4 days before the meeting, (b) by delivering such
notice by hand or by telegram, telecopy or telex to him or her at least 48 hours
before the meeting, addressed to him or her at such address, or (c) by giving
such notice in person or by telephone at least 48 hours in advance of the
meeting. In the absence of all such officers, such notice may be given by the
officer or one of the Directors calling the meeting. Notice need not be given
to any Director who has waived notice (a) in writing executed by him or her
before or after the meeting and filed with the records of the meeting, or (b) by
attending the meeting except for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A notice or waiver of notice of a meeting
of the Directors need not specify the business to be transacted at or the
purpose of the meeting.
Section 12. Quorum. At any meeting of the Directors, a majority of the
----------- ------
authorized number of Directors shall constitute a quorum for the transaction of
business. If a quorum shall not be present at any meeting of the Board of
Directors, a majority of those present (or, if not more than two Directors are
present, any Director present) may adjourn the meeting from time to time to
another place, date or time, without notice other than announcement at the
meeting prior to adjournment, until a quorum shall be present.
Section 13. Participation in Meetings by Conference Telephone. One or
----------- -------------------------------------------------
more members of the Board of Directors, or any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this Section 13 shall constitute presence in person at such meeting.
Section 14. Conduct of Business; Action by Written Consent. At any
----------- ----------------------------------------------
meeting of the Board of Directors at which a quorum is present, business shall
be transacted in such order and manner as the Board may from time to time
determine, and all matters shall be determined by the vote of a majority of the
Directors present, except as otherwise provided in these Bylaws or required by
law. Action may be taken by the Board of Directors, or any committee thereof,
8
<PAGE>
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
records of proceedings of the Board or committee.
Section 15. Place of Meetings. The Board of Directors may hold its
----------- -----------------
meetings, and have an office or offices, within or without the State of
Delaware.
Section 16. Compensation. The Board of Directors shall have the authority
----------- ------------
to fix stated salaries for Directors for their service in such capacity and to
provide for payment of a fixed sum and expenses of attendance, if any, for
attendance at each regular or special meeting of the Board. The Board shall
also have the authority to provide for payment of a fixed sum and expenses of
attendance, if any, payable to members of committees for attending committee
meetings. Nothing herein contained shall preclude any Director from serving the
corporation in any other capacity and receiving compensation for such services.
Section 17. Committees. The Board of Directors, by resolution passed by a
----------- ----------
majority of the number of Directors required at the time to constitute a full
Board as fixed in or determined pursuant to these Bylaws as then in effect, may
from time to time designate one or more committees, each committee to consist of
one or more of the Directors of the corporation. The Board may designate one or
more Directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
she or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have
such power or authority in reference to amending the Certificate of
Incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the Board of Directors as provided in Subsection (a) of Section 151 of the
Delaware General Corporation Law, fix the designations and any preferences or
rights of such shares or fix the number of shares in a series of stock or
authorize the increase or decrease in the shares of any series), adopting an
agreement of merger or consolidation under Sections 251, 252, 254, 255, 256,
257, 258, 263, or 264 of the Delaware General Corporation Law, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property or assets, recommending to the stockholders a dissolution
of the corporation or a revocation of a dissolution, or amending the Bylaws of
the corporation. Such a committee may, to the extent expressly provided in the
resolution of the Board of Directors, have the power or authority to declare a
dividend or to authorize the issuance of stock or adopt a certificate of
ownership and merger pursuant to Section 253 of the Delaware General Corporation
Law.
(b) At any meeting of any committee, a majority of the whole committee
shall constitute a quorum and, except as otherwise provided by these Bylaws or
required by law, the affirmative vote of at least a majority of the members
present at a meeting at which there is a quorum shall be the act of the
committee.
9
<PAGE>
(c) Each committee, except as otherwise provided by resolution of the Board
of Directors, shall fix the time and place of its meetings within or without the
State of Delaware, shall adopt its own rules and procedures, and shall keep a
record of its acts and proceedings and report the same from time to time to the
Board of Directors.
ARTICLE III
Officers
Section 1. Officers and Their Election. The officers of the corporation
--------- ---------------------------
shall be a Chief Executive Officer, a President, a Secretary, a Chief Financial
Officer and such Vice Presidents, Assistant Secretaries, Assistant Chief
Financial Officers and other officers as the Board of Directors may from time to
time determine and elect or appoint. The Board of Directors may appoint one of
its members to the office of Chairman of the Board and another of its members to
the office of Vice-Chairman of the Board and from time to time define the powers
and duties of these offices notwithstanding any other provisions of these
Bylaws. All officers shall be elected by the Board of Directors and shall serve
at the will of the Board of Directors. Any officer may, but need not, be a
Director. Two or more offices may be held by the same person.
Section 2. Term of Office. The Chief Executive Officer, the President,
--------- --------------
the Chief Financial Officer and the Secretary shall, hold office until his or
her successor is elected and qualified or until his or her earlier resignation
or removal.
Section 3. Vacancies. Any vacancy at any time existing in any office may
--------- ---------
be filled by the Board of Directors.
Section 4. Chairman of the Board. The Board of Directors may, in its
--------- ---------------------
discretion, elect a Chairman of the Board from among its members. He or she may
be the Chief Executive Officer of the corporation if so designated by the Board,
and he or she shall preside at all meetings of the Board of Directors at which
he or she is present and shall exercise and perform such other powers and duties
as may from time to time be assigned to him or her by the Board of Directors or
prescribed by the Bylaws.
Section 5. Chief Executive Officer. The Board of Directors may elect a
--------- -----------------------
Chief Executive Officer of the corporation who may also be the Chairman of the
Board or President of the corporation or both. It shall be his or her duty and
he or she shall have the power to see that all orders and resolutions of the
Board of Directors are carried into effect and to affix the signature of the
corporation to all deeds, conveyances, mortgages, guarantees, leases,
obligations, bonds, certificates and other papers and instruments in writing
which have been authorized by the Board of Directors or which, in the judgment
of the Chief Executive Officer, should be executed on behalf of the corporation;
to sign certificates for shares of stock of the corporation; and, subject to the
direction of the Board of Directors, to have general charge of the property of
the corporation and to supervise and control all officers, agents and employees
of the corporation. He or she shall from time to time report to the Board of
Directors all matters within his or her knowledge which the interests of the
corporation may require to be brought to
10
<PAGE>
its notice. The Chief Executive Officer, when present, shall preside at all
meetings of the stockholders and, unless there shall be a Chairman of the Board,
of the Board of Directors, unless otherwise provided by the Board of Directors.
Section 6. President. If there is no Chief Executive Officer, the
--------- ---------
President shall be the chief executive officer of the corporation except as the
Board of Directors may otherwise provide. The President shall perform such
duties and have such powers additional to the foregoing as the Board of
Directors shall designate.
Section 7. Vice Presidents. In the absence or disability of the
--------- ---------------
President, his or her powers and duties shall be performed by the vice
president, if only one, or, if more than one, by the one designated for the
purpose by the Board of Directors. Each vice president shall perform such
duties and have such powers additional to the foregoing as the Board of
Directors shall designate.
Section 8. Chief Financial Officer. The Chief Financial Officer shall be
--------- -----------------------
the treasurer of the corporation and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all monies and other valuable effects in the name and to the credit of
the corporation in such depositories as shall be designated by the Board of
Directors or in the absence of such designation in such depositories as he or
she shall from time to time deem proper. The Chief Financial Officer (or any
Assistant Chief Financial Officer) shall sign all stock certificates as
treasurer of the corporation. He or she shall disburse the funds of the
corporation as shall be ordered by the Board of Directors, taking proper
vouchers for such disbursements. He or she shall promptly render to the Chief
Executive Officer and to the Board of Directors such statements of his or her
transactions and accounts as the Chief Executive Officer and Board of Directors
respectively may from time to time require. The Chief Financial Officer shall
perform such duties and have such other powers that are commonly incident to the
office of chief financial officer and such duties and powers additional to the
foregoing as the Board of Directors may designate.
Section 9. Assistant Chief Financial Officers. In the absence or
--------- ----------------------------------
disability of the Chief Financial Officer, his or her powers and duties shall be
performed by the Assistant Chief Financial Officer, if only one, or if more than
one, by the one designated for the purpose by the Board of Directors. Each
Assistant Chief Financial Officer shall perform such duties and have such powers
additional to the foregoing as the Board of Directors shall designate.
Section 10. Secretary. The Secretary shall issue notices of all meetings
---------- ---------
of stockholders, of the Board of Directors and of committees thereof where
notices of such meetings are required by law or these Bylaws. He or she shall
record the proceedings of the meetings of the stockholders and of the Board of
Directors and shall be responsible for the custody thereof in a book to be kept
for that purpose. He or she shall also record the proceedings of the committees
of the Board of Directors unless such committees appoint their own respective
secretaries. Unless the Board of Directors shall appoint a transfer agent
and/or registrar, the Secretary shall be charged with the duty of keeping, or
causing to be kept, accurate records of all stock outstanding, stock
certificates issued and stock transfers. He or she shall sign such instruments
as require his or her signature. The Secretary shall have custody of the
corporate seal and shall affix and attest such seal on all documents whose
execution under seal
11
<PAGE>
is duly authorized. In his or her absence at any meeting, an Assistant Secretary
or the Secretary pro tempore shall perform his or her duties thereat. He or she
shall perform such duties and have such powers additional to the foregoing as
the Board of Directors shall designate.
Section 11. Assistant Secretaries. In the absence or disability of the
---------- ---------------------
Secretary, his or her powers and duties shall be performed by the Assistant
Secretary, if only one, or, if more than one, by the one designated for the
purpose by the Board of Directors. Each Assistant Secretary shall perform such
duties and have such powers additional to the foregoing as the Board of
Directors shall designate.
Section 12. Salaries. The salaries and other compensation of officers,
---------- --------
agents and employees shall be fixed from time to time by or under authority from
the Board of Directors. No officer shall be prevented from receiving a salary
or other compensation by reason of the fact that he or she is also a Director of
the corporation.
Section 13. Removal. The Board of Directors may remove any officer,
---------- -------
either with or without cause, at any time.
Section 14. Bond. The corporation may secure the fidelity of any or all
---------- ----
of its officers or agents by bond or otherwise.
Section 15. Resignations. Any officer, agent or employee of the
---------- ------------
corporation may resign at any time by giving written notice to the Board of
Directors, to the Chairman of the Board, if any, to the Chief Executive Officer
or to the Secretary of the corporation. Any such resignation shall take effect
at the time specified therein, or, if the time be not specified, upon receipt
thereof; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
ARTICLE IV
Capital Stock
Section 1. Stock Certificates; Uncertificated Shares. The shares of
--------- -----------------------------------------
capital stock of the corporation shall be represented by certificates, provided
that the Board of Directors may provide by resolution or resolutions that some
or all of any or all classes or series of its stock may be uncertificated
shares. Any such resolution shall not apply to shares represented by a
certificate until such certificate is surrendered to the corporation (or the
transfer agent or registrar, as the case may be). Notwithstanding the adoption
of such a resolution, every holder of stock represented by certificates and upon
request every holder of uncertificated shares shall be entitled to have a
certificate signed by, or in the name of, the corporation by the Chairman or
Vice-Chairman of the Board of Directors or the President or a Vice President,
and by the Chief Financial Officer (in his or her capacity as treasurer) or an
Assistant Chief Financial Officer (in his or her capacity as assistant
treasurer), or the Secretary or an Assistant Secretary, certifying the number of
shares owned by him or her in the corporation. Any or all of the signatures on
the certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before the certificate is issued, such certificate may
12
<PAGE>
nevertheless be issued by the corporation with the same effect as if he or she
were such officer, transfer agent or registrar at the date of issue.
Section 2. Classes of Stock. If the corporation shall be authorized to
--------- ----------------
issue more than one class of stock or more than one series of and class, the
face or back of each certificate issued by the corporation to represent such
class or series shall either (a) set forth in full or summarize the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions thereof, or
(b) contain a statement that the corporation will furnish a statement of
the same without charge to each stockholder who so requests. Within a
reasonable time after the issuance or transfer of uncertificated shares, the
corporation shall send to the registered holder thereof such written notice as
may be required by law as to the information required by law to be set forth or
stated on stock certificates.
Section 3. Transfer of Stock. Shares of stock shall be transferable
--------- -----------------
only upon the books of the corporation pursuant to applicable law and such rules
and regulations as the Board of Directors shall from time to time prescribe.
The Board of Directors may at any time or from time to time appoint a transfer
agent or agents or a registrar or registrars for the transfer or registration of
shares of stock. Except where a certificate is issued in accordance with
Section 5 of Article IV of these Bylaws, one or more outstanding certificates
representing in the aggregate the number of shares involved shall be surrendered
for cancellation before a new certificate is issued representing such shares.
Section 4. Holders of Record. Prior to due presentment for registration
--------- -----------------
of transfer the corporation may treat the holder of record of a share of its
stock as the complete owner thereof exclusively entitled to vote, to receive
notifications and otherwise entitled to all the rights and powers of a complete
owner thereof, notwithstanding notice to the contrary.
Section 5. Stock Certificates. The Board of Directors may direct that a
--------- ------------------
new stock certificate or certificates, or uncertificated shares, be issued in
place of any certificate or certificates theretofore issued by the corporation
alleged to have been lost, stolen, or destroyed upon the making of an affidavit
of that fact by the person claiming the certificate of stock to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
or uncertificated shares, the Board of Directors may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate or certificates or his or her legal
representative, to give the corporation a bond sufficient to indemnify it
against any claim that may be made against the corporation on account of the
alleged loss, theft, or destruction, of such certificates or the issuance of
such new certificate or certificates, or uncertificated shares.
Section 6. Record Date. In order that the corporation may determine the
--------- -----------
stockholders entitled to notice of or to vote at any meeting of stockholders, or
to receive payment of any dividend or other distribution or allotment of any
rights or to exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the
13
<PAGE>
date on which the resolution fixing the record date is adopted and which record
date shall not be more than 60 nor less than 10 days before the date of any
meeting of stockholders, nor more than 60 days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the day next preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of and dividend or other distribution or allotment of rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
ARTICLE V
Miscellaneous Provisions
Section 1. Interested Directors and Officers. (a) No contract or
--------- ---------------------------------
transaction between the corporation and one or more of its Directors or
officers, or between the corporation and any other corporation, partnership,
association, or other organization in which one or more of its Directors or
officers are Directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the Director or officer is
present at or participates in the meeting of the Board or committee thereof
which authorizes the contract or transaction, or solely because his or her or
their votes are counted for such purpose, if:
(i) the material facts as to his or her relationship or interest
and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested Directors, even though the number of
disinterested Directors is less than a quorum; or
(ii) the material facts as to his or her relationship or interest
and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the shareholders; or
(iii) the contract or transaction is fair as to the corporation as
of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the shareholders.
(b) Common or interested Directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
14
<PAGE>
Section 2. Indemnification.
--------- ---------------
(a) Right to Indemnification. The corporation shall indemnify and hold
------------------------
harmless each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a Director or an officer of the
corporation or is or was serving at the request of the corporation as a
Director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director, officer,
to the fullest extent authorized by law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the corporation to provide broader indemnification rights than
such law permitted the corporation to provide prior to such amendment), against
all expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by such indemnitee in connection therewith; provided,
however, that, except as provided in Subsection (c) of this Section with respect
to proceedings to enforce rights to indemnification, the corporation shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the corporation; and provided further
that as to any matter disposed of by a compromise payment by such person,
pursuant to a consent decree or otherwise, no indemnification either for said
payment or for any other expenses shall be provided unless such compromise and
indemnification therefor shall be appropriated:
(i) by a majority vote of a quorum consisting of disinterested
Directors;
(ii) if such a quorum cannot be obtained, then by a majority vote of
a committee of the Board of Directors consisting of all the disinterested
Directors;
(iii) if there are not two or more disinterested Directors in
office, then by a majority of the Directors then in office, provided they
have obtained a written finding by special independent legal counsel
appointed by a majority of the Directors to the effect that, based upon a
reasonable investigation of the relevant facts as described in such
opinion, the person to be indemnified appears to have acted in good faith
in the reasonable belief that his or her action was in the best interests
of the corporation (or, to the extent that such matter relates to service
with respect to an employee benefit plan, in the best interests of the
participants or beneficiaries of such employee benefit plan);
(iv) by the holders of a majority of the shares of stock entitled to
vote for the election of Directors, which majority may include interested
Directors and officers; or
(v) by a court of competent jurisdiction.
15
<PAGE>
An "interested" Director or officer is one against whom in such capacity the
proceeding in question or other proceeding on the same or similar grounds is
then pending. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he or she reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful.
(b) Right to Advancement of Expenses. The right to indemnification
--------------------------------
conferred in Subsection (a) of this Section shall include the right to be paid
by the corporation the expenses incurred in defending any such proceeding in
advance of its final disposition (hereinafter an "advancement of expenses");
provided, however, that, if the Delaware General Corporation Law requires, an
advancement of expenses incurred by an indemnitee in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee,
to repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal (hereinafter a
"final adjudication") that such indemnitee is not entitled to be indemnified for
such expenses under this Section or otherwise, which undertaking may be accepted
without reference to the financial ability of such person to make repayment.
(c) Right of Indemnitee to Bring Suit. If a claim under Subsection (a) or
---------------------------------
(b) of this Section is not paid in full by the corporation within 60 days after
a written claim has been received by the corporation, except in the case of a
claim for an advancement of expenses, in which case the applicable period shall
be 20 days, the indemnitee may at any time there after bring suit against the
corporation to recover the unpaid amount of the claim. If successful in whole
or in part of any such suit, or in a suit brought by the corporation to recover
an advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the indemnitee
to enforce a right to an advancement of expenses) it shall be a defense that,
and (ii) any suit by the corporation to recover an advancement of expenses
pursuant to the terms of an undertaking the corporation shall be entitled to
recover such expenses upon a final adjudication that, the indemnitee has not met
any applicable standard for indemnification set forth in the Delaware General
Corporation Law. Neither the failure of the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the indemnitee
has not met such applicable standard of conduct, shall create a presumption that
the indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is
16
<PAGE>
not entitled to be indemnified, or to such advancement of expenses, under this
Section or otherwise shall be on the corporation.
(d) Non-exclusivity of Rights. The rights to indemnification and to the
-------------------------
advancement of expenses conferred in this Section shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
certificate of incorporation, by-law, agreement, vote of disinterested Directors
or otherwise. The corporation's indemnification under this Section 2 of any
person who is or was a Director or officer of the corporation, or is or was
serving, at the request of the corporation, as a Director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall be reduced by any amounts such person receives as
indemnification (i) under any policy of insurance purchased and maintained on
his or her behalf by the corporation, (ii) from such other corporation,
partnership, joint venture, trust or other enterprise, or (iii) under any other
applicable indemnification provision.
(e) Joint Representation. If both the corporation and any person to be
--------------------
indemnified are parties to an action, suit or proceeding (other than an action
or suit by or in the right of the corporation to procure a judgment in its
favor), counsel representing the corporation therein may also represent such
indemnified person (unless such dual representation would involve such counsel
in a conflict of interest in violation of applicable principles of professional
ethics), and the corporation shall pay all fees and expenses of such counsel
incurred during the period of dual representation other than those, if any, as
would not have been incurred if counsel were representing only the corporation;
and any allocation made in good faith by such counsel of fees and disbursements
payable under this paragraph by the corporation versus fees and disbursements
payable by any such indemnified person shall be final and binding upon the
corporation and such indemnified person.
(f) Indemnification of Employees and Agents of the Corporation. Except to
----------------------------------------------------------
the extent that rights to indemnification and advancement of expenses of
employees or agents of the corporation may be required by any statute, the
Certificate of Incorporation, this Section or any other by-law, agreement, vote
of disinterested Directors or otherwise, the corporation may, to the extent
authorized from time to time by the Board of Directors, grant rights to
indemnification and to the advancement of to any employee or agent of the
corporation to the fullest extent of the provisions of this Section with respect
to the indemnification and advancement of expenses of Directors and officers of
the corporation.
(g) Insurance. The corporation may maintain insurance, at its expense, to
---------
protect itself and any Director, officer, employee or agent of the corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law (as currently in effect or hereafter
amended), the corporation's Certificate of Incorporation or these Bylaws.
(h) Nature of Indemnification Right: Modification of Repeal of
----------------------------------------------------------
Indemnification. Each person who is or becomes a Director or officer as
- ---------------
described in subsection (a) of this Section 2 shall be deemed to have served or
to have continued to serve in such capacity in reliance upon the indemnity
provided for in this Section 2. All rights to indemnification (and the
advancement
17
<PAGE>
of expenses) under this Section 2 shall be deemed to be provided by a contract
between the corporation and the person who serves as a Director or officer of
the corporation at any time while these Bylaws and other relevant provisions of
the Delaware General Corporation Law and other applicable law, if any, are in
effect. Such rights shall continue as to an indemnitee who has ceased to be a
Director, officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators. Any modification or repeal of
this Section 2 shall not adversely affect any right or protection existing under
this Section 2 at the time of such modification or repeal.
Section 3. Stock in Other Corporations. Subject to any limitations
--------- ---------------------------
that may be imposed by the Board of Directors, the President or any person or
persons authorized by the Board of Directors may, in the name and on behalf of
the corporation, (a) call meetings of the holders of stock or other securities
of any corporation or other organization, stock or other securities of which are
held by this corporation, (b) act, or appoint any other person or persons (with
or without powers of substitution) to act in the name and on behalf of the
corporation, or (c) express consent or dissent, as a holder of such securities,
to corporate or other action by such other corporation or organization.
Section 4. Checks, Notes, Drafts and Other Instruments. Checks, notes,
--------- -------------------------------------------
drafts and other instruments for the payment of money drawn or endorsed in the
name of the corporation may be signed by any officer or officers or person or
persons authorized by the Board of Directors to sign the same. No officer or
person shall sign any such instrument as aforesaid unless authorized by the
Board of Directors to do so.
Section 5. Corporate Seal. The seal of the corporation shall be
--------- --------------
circular in form, bearing the name of the corporation, the word "Delaware", and
the year of incorporation, and the same may be used by causing it or a facsimile
thereof to be impressed or affixed or in any other manner reproduced.
Section 6. Books and Records. The books, accounts and records of the
--------- -----------------
corporation, except as may be otherwise required by law, may be kept outside of
the State of Delaware, at such place or places as the Board of Directors may
from time to time appoint. Except as may otherwise be provided by law, the
Board of Directors shall determine whether and to what extent the books,
accounts, records and documents of the corporation, or any of them, shall be
open to the inspection of the stockholders.
Section 7. Severability. If any term or provision of the Bylaws, or the
--------- ------------
application thereof to any person or circumstances or period of time, shall to
any extent be invalid or unenforceable, the remainder of the Bylaws shall be
valid and enforced to the fullest extent permitted by law.
Section 8. Interpretations. Words importing persons include firms,
--------- ---------------
associations and corporations, all words importing the singular number include
the plural number and vice versa, and all words importing the masculine gender
include the feminine gender.
Section 9. Amendments. The Board of Directors is expressly empowered to
--------- ----------
adopt, amend or repeal Bylaws of the corporation. Any adoption, amendment or
repeal of Bylaws of
18
<PAGE>
the corporation by the Board of Directors shall require the approval of a
majority of the total number of authorized directors (whether or not there exist
any vacancies in previously authorized directorships at the time any resolution
providing for adoption, amendment or repeal is presented to the Board of
Directors). The stockholders also have power to adopt, amend or repeal the
Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of the
corporation by the stockholders shall require, in addition to any vote of the
holders of any class or series of stock of the Corporation required by law or by
the Certificate of Incorporation, the affirmative vote of the holders of at
least a majority of the voting power of all of the then outstanding shares of
the capital stock of the corporation entitled to vote generally in the election
of directors, voting together as a single class.
19
<PAGE>
CERTIFICATION
I, the undersigned, do hereby certify that:
(1) I am the duly elected and acting Secretary of VeriSign, Inc., a
Delaware corporation; and
(2) The foregoing Bylaws, comprising ______(__) pages, including this
Certification, constitute the Bylaws of said corporation as duly adopted by the
Board of Directors of this corporation on ______ __, 1998.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal
of said corporation this ____th day of January, 1998.
---------------------------------
Timothy Tomlinson, Secretary
20
<PAGE>
Exhibit 4.04
------------
Number Shares
VERISIGN
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR STATEMENTS RELATING
THE STATE OF DELAWARE TO RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS, IF ANY
This Certifies that CUSIP 92343E 10 2
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $0.001 PER
SHARE, OF
VERISIGN, INC.
transferable only on the books of the Corporation by the holder hereof in
person or by duly authorized Attorney upon surrender of this certificate
properly endorsed. This certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
[corporate seal]
/s/ Dana Evan /s/ Stratton Sclavos
VICE PRESIDENT OF FINANCE AND ADMINISTRATION PRESIDENT AND
AND CHIEF FINANCIAL OFFICER CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of designation, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge at
the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as through they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties ------ ------
JT TEN - as joint tenants with right (Cust) (Minor)
of survivorship and not as under Uniform Gifts
tenants in common to Minors Act
---------
(State)
UNIF TRF MIN ACT - Custodian (until
------
(Cust)
age )
-------- ---------
(Minor)
under Uniform
Transfers to Minors
and
-------------------
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -----------------------------------------------
- -----------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
----------------------
X
-------------------------------------------------
X
-------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed
By
------------------------------------------------------------------------------
THE SIGNATURE(S) MUST BE GUARATNEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-16.
<PAGE>
EXHIBIT 10.08
-------------
VERISIGN, INC.
1998 DIRECTORS STOCK OPTION PLAN
As Adopted October 31, 1997
1. Purpose. This 1998 Directors Stock Option Plan (this "Plan") is
established to provide equity incentives for certain nonemployee members of the
Board of Directors of VeriSign, Inc., (the "Company"), who are described in
Section 6.1 below, by granting such persons options to purchase shares of stock
of the Company.
2. Adoption and Stockholder Approval. After this Plan is adopted by the
Board of Directors of the Company (the "Board"), this Plan will become effective
on the time and date (the "Effective Date") on which the registration statement
filed by the Company with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933, as amended (the "Securities Act"), to register the
initial public offering of the Company's Common Stock is declared effective by
the SEC. This Plan shall be approved by the stockholders of the Company,
consistent with applicable laws, within twelve (12) months after the date this
Plan is adopted by the Board.
3. Types of Options and Shares. Options granted under this Plan shall be
non-qualified stock options ("NQSOs"). The shares of stock that may be
purchased upon exercise of Options granted under this Plan (the "Shares") are
shares of the Common Stock of the Company.
4. Number of Shares. The maximum number of Shares that may be issued
pursuant to Options granted under this Plan (the "Maximum Number") is 125,000
Shares, subject to adjustment as provided in this Plan. If any Option is
terminated for any reason without being exercised in whole or in part, the
Shares thereby released from such Option shall be available for purchase under
other Options subsequently granted under this Plan. At all times during the
term of this Plan, the Company shall reserve and keep available such number of
Shares as shall be required to satisfy the requirements of outstanding Options
granted under this Plan; provided, however that if the aggregate number of
Shares subject to outstanding Options granted under this Plan plus the aggregate
number of Shares previously issued by the Company pursuant to the exercise of
Options granted under this Plan equals or exceeds the Maximum Number, then
notwithstanding anything herein to the contrary, no further Options may be
granted under this Plan until the Maximum Number is increased or the aggregate
number of Shares subject to outstanding Options granted under this Plan plus the
aggregate number of Shares previously issued by the Company pursuant to the
exercise of Options granted under this Plan is less than the Maximum Number.
5. Administration. This Plan shall be administered by the Board or by a
committee of not less than two members of the Board appointed to administer this
Plan (the "Committee"). As used in this Plan, references to the Committee shall
mean either such Committee or the Board if no Committee has been established.
The interpretation by the Committee of any of the provisions of this Plan or any
Option granted under this Plan shall be final and binding upon the Company and
all persons having an interest in any Option or any Shares purchased pursuant to
an Option.
6. Eligibility and Award Formula.
6.1 Eligibility. Options shall be granted only to directors of the
-----------
Company who are not employees of the Company or any Parent, Subsidiary or
Affiliate of the Company, as those terms are defined in Section 18 below (each
such person referred to as an "Optionee").
6.2 Initial Grant. Each Optionee who on or after the Effective Date
-------------
first becomes a member of the Board will automatically be granted an Option for
15,000 Shares (an "Initial Grant") on the date such Optionee becomes a member of
the Board.
<PAGE>
6.3 Succeeding Grants. On each annual anniversary of an Optionee's
-----------------
Initial Grant (or previous grant from the Company outside this Plan if such
Optionee was ineligible to receive an Initial Grant) provided the Optionee is a
member of the Board on such anniversary date and has served continuously as a
member of the Board since the date of such Optionee's Initial Grant or previous
grant, as the case may be, the Optionee will automatically be granted an Option
for 7,500 Shares (a "Succeeding Grant").
7. Terms and Conditions of Options. Subject to the following and to
Section 6 above:
7.1 Form of Option Grant. Each Option granted under this Plan shall
--------------------
be evidenced by a written Stock Option Grant ("Grant") in such form (which need
not be the same for each Optionee) as the Committee shall from time to time
approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
7.2 Vesting. The date an Optionee receives an Initial Grant or a
-------
Succeeding Grant is referred to in this Plan as the "Start Date" for such
Option.
(a) Initial Grants. Each Initial Grant will vest as to six and
--------------
one-fourth percent (6.25%) of the Shares on each three-month anniversary of the
Start Date for such Initial Grant, so long as the Optionee continuously remains
a director or, as determined by the Board in the Initial Grant or the Succeeding
Grant, a consultant of the Company.
(b) Succeeding Grants. Each Succeeding Grant will vest as to six
-----------------
and one-fourth percent (6.25%) of the Shares on each three-month anniversary of
the Start Date for such Succeeding Grant, so long as the Optionee continuously
remains a director or, as determined by the Board in the Initial Grant or the
Succeeding Grant, a consultant of the Company.
7.3 Exercise Price. The exercise price of an Option shall be the Fair
--------------
Market Value (as defined in Section 18.4) of the Shares, at the time that the
Option is granted.
7.4 Termination of Option. Except as provided below in this Section,
---------------------
each Option shall expire ten (10) years after its Start Date (the "Expiration
Date"). The Option shall cease to vest when the Optionee ceases to be a member
of the Board or, as determined by the Board in the Initial Grant or the
Succeeding Grant, a consultant of the Company provided, however that if the
Optionee ceases to be a member of the Board or, as determined by the Board in
the Initial Grant or the Succeeding Grant, a consultant of the Company due to
death or total and permanent disability, the vesting of each Option shall
accelerate with respect to the number of shares that would have been vested on
the anniversary of the date of grant next following the Optionee's termination
date. The date on which the Optionee ceases to be a member of the Board or, as
determined by the Board in the Initial Grant or the Succeeding Grant, a
consultant of the Company shall be referred to as the "Termination Date". An
Option may be exercised after the Termination Date only as set forth below:
(a) Termination Generally. If the Optionee ceases to be a member
---------------------
of the Board or, as determined by the Board in the Initial Grant or the
Succeeding Grant, a consultant of the Company for any reason except death of the
Optionee or disability of the Optionee (whether temporary or permanent, partial
or total, as determined by the Committee), then each Option then held by such
Optionee, to the extent (and only to the extent) that it would have been
exercisable by the Optionee on the Termination Date, may be exercised by the
Optionee no later than seven (7) months after the Termination Date, but in no
event later than the Expiration Date.
(b) Death or Disability. If the Optionee ceases to be a member of
-------------------
the Board or, as determined by the Board in the Initial Grant or the Succeeding
Grant, a consultant of the Company because of the death of the Optionee or the
disability of the Optionee (whether temporary or permanent, partial or total, as
determined by the Committee), then each Option then held by such Optionee to the
extent (and only to the extent) that it would have been exercisable by the
Optionee on the Termination Date, may be exercised by the Optionee (or
-2-
<PAGE>
the Optionee's legal representative) no later than twelve (12) months after the
Termination Date, but in no event later than the Expiration Date.
8. Exercise of Options.
8.1 Exercise Period. Subject to the provisions of Section 8.5 below,
---------------
Options shall be exercisable as they vest.
8.2 Notice. Options may be exercised only by delivery to the Company
------
of an exercise agreement in a form approved by the Committee stating the number
of Shares being purchased, the restrictions imposed on the Shares and such
representations and agreements regarding the Optionee's investment intent and
access to information as may be required by the Company to comply with
applicable securities laws, together with payment in full of the exercise price
for the number of Shares being purchased.
8.3 Payment. Payment for the Shares purchased upon exercise of an
-------
Option may be made (a) in cash or by check; (b) by surrender of shares of Common
Stock of the Company that have been owned by the Optionee for more than six (6)
months (and which have been paid for within the meaning of SEC Rule 144 and, if
such shares were purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares) or were obtained by the
Optionee in the open public market, having a Fair Market Value equal to the
exercise price of the Option; (c) by waiver of compensation due or accrued to
the Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD Dealer") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
exercise price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the exercise price directly to the Company; (e) provided
that a public market for the Company's stock exists, through a "margin"
commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably
elects to exercise the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the exercise price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the exercise price directly to the
Company; or (f) by any combination of the foregoing.
8.4 Withholding Taxes. Prior to issuance of the Shares upon exercise
-----------------
of an Option, the Optionee shall pay or make adequate provision for any federal
or state withholding obligations of the Company, if applicable.
8.5 Limitations on Exercise. Notwithstanding the exercise periods set
-----------------------
forth in the Grant, exercise of an Option shall always be subject to the
following limitations:
(a) An Option shall not be exercisable unless such exercise is in
compliance with the Securities Act and all applicable state securities laws, as
they are in effect on the date of exercise.
(b) The Committee may specify a reasonable minimum number of
Shares that may be purchased upon any exercise of an Option, provided that such
minimum number will not prevent the Optionee from exercising the full number of
Shares as to which the Option is then exercisable.
9. Nontransferability of Options. During the lifetime of the Optionee, an
Option shall be exercisable only by the Optionee or by the Optionee's guardian
or legal representative, unless otherwise determined by the Committee. No
Option may be sold, pledged, assigned, hypothecated, transferred or disposed of
in any manner other than by will or by the laws of descent and distribution,
unless otherwise determined by the Committee.
10. Privileges of Stock Ownership. No Optionee shall have any of the
rights of a stockholder with respect to any Shares subject to an Option until
the Option has been validly exercised. No adjustment shall be made for
dividends or distributions or other rights for which the record date is prior to
the date of exercise, except as
-3-
<PAGE>
provided in this Plan. The Company shall provide to each Optionee a copy of the
annual financial statements of the Company at such time after the close of each
fiscal year of the Company as they are released by the Company to its
stockholders.
11. Adjustment of Option Shares. In the event that the number of
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration,
the number of Shares available under this Plan and the number of Shares subject
to outstanding Options and the exercise price per share of such outstanding
Options shall be proportionately adjusted, subject to any required action by the
Board or stockholders of the Company and compliance with applicable securities
laws; provided, however, that no fractional shares shall be issued upon exercise
of any Option and any resulting fractions of a Share shall be rounded up to the
nearest whole Share.
12. No Obligation to Continue as Director. Nothing in this Plan or any
Option granted under this Plan shall confer on any Optionee any right to
continue as a director of the Company.
13. Compliance With Laws. The grant of Options and the issuance of Shares
upon exercise of any Options shall be subject to and conditioned upon compliance
with all applicable requirements of law, including without limitation compliance
with the Securities Act, compliance with all other applicable state securities
laws and compliance with the requirements of any stock exchange or national
market system on which the Shares may be listed. The Company shall be under no
obligation to register the Shares with the SEC or to effect compliance with the
registration or qualification requirement of any state securities laws, stock
exchange or national market system.
14. Acceleration of Options on Certain Corporate Transactions. In the
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Options granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption, conversion or
replacement will be binding on all Optionees), (c) a merger in which the Company
is the surviving corporation but after which the stockholders of the Company
(other than any stockholder which merges (or which owns or controls another
corporation which merges) with the Company in such merger) cease to own their
shares or other equity interests in the Company, (d) the sale of substantially
all of the assets of the Company, or (e) the acquisition, sale or transfer of
more than 50% of the outstanding shares of the Company by tender offer or
similar transaction, the vesting of all options granted pursuant to this Plan
will accelerate and the options will become exercisable in full prior to the
consummation of such event at such times and on such conditions as the Committee
determines, and must be exercised, if at all, within six months of the
consummation of said event. Any options not exercised within such six-month
period shall expire.
15. Amendment or Termination of Plan. The Board may at any time terminate
or amend this Plan or any outstanding option, provided that the Board may not
terminate or amend the terms of any outstanding option without the consent of
the Optionee. In any case, no amendment of this Plan may adversely affect any
then outstanding Options or any unexercised portions thereof without the written
consent of the Optionee.
16. Term of Plan. Options may be granted pursuant to this Plan from time
to time within a period of ten (10) years from the Effective Date.
17. Certain Definitions. As used in this Plan, the following terms shall
have the following meanings:
17.1 "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
-4-
<PAGE>
VeriSign, Inc.
1998 Directors Stock Option Plan
17.2 "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
17.3 "Affiliate" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
17.4 "Fair Market Value" means, as of any date, the value of a share of
the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in The Wall
--------
Street Journal;
--------------
(d) in the case of an Option granted on the Effective Date, the price
per share at which shares of the Company's Common Stock are
initially offered for sale to the public by the Company's
underwriters in the initial public offering of the Company's
Common Stock pursuant to a registration statement filed with the
SEC under the Securities Act; or
(e) if none of the foregoing is applicable, by the Committee in
good faith.
-5-
<PAGE>
INITIAL GRANT
- -------------
VERISIGN, INC.
1998 DIRECTORS STOCK OPTION PLAN
DIRECTORS NONQUALIFIED INITIAL STOCK OPTION GRANT
-------------------------------------------------
This Stock Option Grant (this "GRANT") is made and entered into as of the
date of grant set forth below (the "DATE OF GRANT") by and between VeriSign,
Inc., a Delaware corporation (the "COMPANY"), and the Optionee named below
("OPTIONEE").
Optionee: ____________________________________
Optionee's Address: ____________________________________
____________________________________
Total Shares Subject to Option: ____________________________________
Exercise Price Per Share: ____________________________________
Date of Grant: ____________________________________
Expiration Date: ____________________________________
1. GRANT OF OPTION. The Company hereby grants to Optionee an option (this
---------------
"OPTION") to purchase up to the total number of shares of Common Stock of the
Company set forth above (collectively, the "SHARES") at the exercise price per
share set forth above (the "EXERCISE PRICE"), subject to all of the terms and
conditions of this Grant and the Company's 1998 Directors Stock Option Plan (the
"PLAN"). Unless otherwise defined herein, capitalized terms used herein shall
have the meanings ascribed to them in the Plan.
2. EXERCISE AND VESTING OF OPTION. Subject to the terms and conditions of
------------------------------
the Plan and this Grant, this Option shall become exercisable as it vests.
Subject to the terms and conditions of the Plan and this Grant, this Option
shall vest as to six and twenty-five one-hundredths percent (6.25%) of the
Shares on each three-month anniversary of the Date of Grant so long as the
Optionee continuously remains a member of the Board of Directors (a "BOARD
MEMBER") [OPTIONAL, IF PERMITTED BY THE COMMITTEE: OR A CONSULTANT OF THE
COMPANY].
3. RESTRICTION ON EXERCISE. This Option may not be exercised unless such
-----------------------
exercise is in compliance with the Securities Act, and all applicable state
securities laws, as they are in effect on the date of exercise, and the
requirements of any stock exchange or national market system on which
<PAGE>
VeriSign, Inc.
Directors Stock Option Grant - Initial Grant
the Company's Common Stock may be listed at the time of exercise. Optionee
understands that the Company is under no obligation to register, qualify or list
the Shares with the SEC, any state securities commission or any stock exchange
or national market system to effect such compliance.
4. TERMINATION OF OPTION. Except as provided below in this Section, this
---------------------
Option shall terminate and may not be exercised if Optionee ceases to be a Board
Member [OPTIONAL, IF PERMITTED BY THE COMMITTEE: OR CONSULTANT OF THE COMPANY].
The date on which Optionee ceases to be a Board Member [OPTIONAL, IF PERMITTED
BY THE COMMITTEE: OR A CONSULTANT OF THE COMPANY] shall be referred to as the
"TERMINATION DATE."
4.1 Termination Generally. If Optionee ceases to be a Board Member,
---------------------
[OPTIONAL, IF PERMITTED BY THE COMMITTEE: OR A CONSULTANT OF THE COMPANY] for
any reason except death or disability, then this Option, to the extent (and only
to the extent) that it would have been exercisable by Optionee on the
Termination Date, may be exercised by Optionee within seven (7) months after the
Termination Date, but in no event later than the Expiration Date.
4.2 Death or Disability. If Optionee ceases to be a Board Member
-------------------
[OPTIONAL, IF PERMITTED BY THE COMMITTEE: OR A CONSULTANT OF THE COMPANY]
because of the death of Optionee or the disability of Optionee, then this
Option, to the extent (and only to the extent) that it would have been
exercisable by Optionee on the Termination Date, may be exercised by Optionee
(or Optionee's legal representative) within twelve (12) months after the
Termination Date, but in no event later than the Expiration Date.
5. MANNER OF EXERCISE.
------------------
5.1 Exercise Agreement. This Option shall be exercisable by delivery
------------------
to the Company of an executed written Directors Stock Option Exercise Agreement
in the form attached hereto as Exhibit A, or in such other form as may be
---------
approved by the Committee, which shall set forth Optionee's election to exercise
some or all of this Option, the number of shares being purchased, any
restrictions imposed on the Shares and such other representations and agreements
as may be required by the Company to comply with applicable securities laws.
5.2 Payment. Payment for the Shares purchased upon exercise of this
-------
Option may be made (a) in cash or by check; (b) by surrender of shares of Common
Stock of the Company that have been owned by Optionee for more than six (6)
months (and which have been paid for within the meaning of SEC Rule 144 and, if
such shares were purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares) or were obtained by the
Optionee in the open public market, having a Fair Market Value equal to the
Exercise Price of the Option; (c) by waiver of compensation due or accrued to
Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD DEALER") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
Exercise Price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the Exercise Price directly to the Company; (e) provided
that a public market for the Company's stock exists, through a "margin"
commitment from the Optionee and a NASD Dealer whereby the Optionee irrevocably
2
<PAGE>
VeriSign, Inc.
Directors Stock Option Grant - Initial Grant
elects to exercise the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the Exercise Price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the Exercise Price directly to the
Company; or (f) by any combination of the foregoing.
5.3 Withholding Taxes. Prior to the issuance of the Shares upon
-----------------
exercise of this Option, Optionee shall pay or make adequate provision for any
applicable federal or state withholding obligations of the Company.
5.4 Issuance of Shares. Provided that such notice and payment are in
------------------
form and substance satisfactory to counsel for the Company, the Company shall
cause the Shares to be issued in the name of Optionee or Optionee's legal
representative. To enforce any restrictions on Optionee's Shares, the Committee
may require Optionee to deposit all certificates, together with stock powers or
other instruments of transfer approved by the Committee appropriately endorsed
in blank, with the Company or an agent designated by the Company to hold in
escrow until such restrictions have lapsed or terminated, and the Committee may
cause a legend or legends referencing such restrictions to be placed on the
certificates.
6. NONTRANSFERABILITY OF OPTION. During the lifetime of the Optionee,
----------------------------
this Option shall be exercisable only by Optionee or by Optionee's guardian or
legal representative, unless otherwise permitted by the Committee. This Option
may not be sold, pledged, assigned, hypothecated, transferred or disposed of in
any manner other than by will or by the laws of descent and distribution.
7. INTERPRETATION. Any dispute regarding the interpretation of this Grant
--------------
shall be submitted by Optionee or the Company to the Committee that administers
the Plan, which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Committee shall be final and binding on the
Company and on Optionee. Nothing in the Plan or this Grant shall confer on
Optionee any right to continue as a Board Member.
8. ENTIRE AGREEMENT. The Plan and the Directors Stock Option Exercise
----------------
Agreement in the form attached hereto as Exhibit A, and the terms and conditions
---------
thereof, are incorporated herein by reference. This Grant, the Plan and the
Directors Stock Option Exercise Agreement constitute the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof
and supersede all prior understandings and agreements with respect to such
subject matter.
VERISIGN, INC.
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
3
<PAGE>
VeriSign, Inc.
Directors Stock Option Grant - Initial Grant
ACCEPTANCE OF STOCK OPTION GRANT
--------------------------------
Optionee hereby acknowledges receipt of a copy of the Plan, represents that
Optionee has read and understands the terms and provisions thereof, and accepts
this Option subject to all the terms and conditions of the Plan and this Grant.
Optionee acknowledges that there may be adverse tax consequences upon exercise
of this Option or disposition of the Shares and that Optionee has been advised
by the Company that Optionee should consult a qualified tax advisor prior to
such exercise or disposition.
_________________________________
________________________, Optionee
[ACCEPTANCE SIGNATURE PAGE TO DIRECTORS NONQUALIFIED INITIAL STOCK OPTION GRANT]
4
<PAGE>
SUCCEEDING GRANT
- ----------------
VERISIGN, INC.
1998 DIRECTORS STOCK OPTION PLAN
DIRECTORS NONQUALIFIED SUCCEEDING STOCK OPTION GRANT
----------------------------------------------------
This Stock Option Grant (this "GRANT") is made and entered into as of the
date of grant set forth below (the "DATE OF GRANT") by and between VeriSign,
Inc., a Delaware corporation (the "COMPANY"), and the Optionee named below
("OPTIONEE").
Optionee: ____________________________________
Optionee's Address: ____________________________________
Total Shares Subject to Option: ____________________________________
Exercise Price Per Share: ____________________________________
Date of Grant: ____________________________________
Expiration Date: ____________________________________
1. Grant of Option. The Company hereby grants to Optionee an option (this
---------------
"OPTION") to purchase up to the total number of shares of Common Stock of the
Company set forth above (collectively, the "SHARES") at the exercise price per
share set forth above (the "EXERCISE PRICE"), subject to all of the terms and
conditions of this Grant and the Company's 1998 Directors Stock Option Plan (the
"PLAN"). Unless otherwise defined herein, capitalized terms used herein shall
have the meanings ascribed to them in the Plan.
2. EXERCISE AND VESTING OF OPTION. Subject to the terms and conditions of
------------------------------
the Plan and this Grant, this Option shall become exercisable as it vests.
Subject to the terms and conditions of the Plan and this Grant, this Option
shall vest as to six and twenty-five one-hundredths (6.25%) of the Shares on
each three-month anniversary of the Date of Grant so long as the Optionee
continuously remains a member of the Board of Directors (a "BOARD MEMBER")
[OPTIONAL, IF PERMITTED BY THE COMMITTEE: OR A CONSULTANT OF THE COMPANY].
3. RESTRICTION ON EXERCISE. This Option may not be exercised unless such
-----------------------
exercise is in compliance with the Securities Act, and all applicable state
securities laws, as they are in effect on the date of exercise, and the
requirements of any stock exchange or national market system on which
<PAGE>
VeriSign, Inc.
Directors Stock Option Grant - Succeeding Grant
the Company's Common Stock may be listed at the time of exercise. Optionee
understands that the Company is under no obligation to register, qualify or list
the Shares with the SEC, any state securities commission or any stock exchange
or national market system to effect such compliance.
4. TERMINATION OF OPTION. Except as provided below in this Section, this
---------------------
Option shall terminate and may not be exercised if Optionee ceases to be a Board
Member [OPTIONAL, IF PERMITTED BY THE COMMITTEE: OR A CONSULTANT OF THE
COMPANY]. The date on which Optionee ceases to be a Board Member [OPTIONAL, IF
PERMITTED BY THE COMMITTEE: OR A CONSULTANT OF THE COMPANY] shall be referred
to as the "TERMINATION DATE."
4.1 Termination Generally. If Optionee ceases to be a Board Member
---------------------
[OPTIONAL, IF PERMITTED BY THE COMMITTEE: OR A CONSULTANT OF THE COMPANY] for
any reason except death or disability, then this Option, to the extent (and only
to the extent) that it would have been exercisable by Optionee on the
Termination Date, may be exercised by Optionee within seven (7) months after the
Termination Date, but in no event later than the Expiration Date.
4.2 Death or Disability. If Optionee ceases to be a Board Member
-------------------
[OPTIONAL, IF PERMITTED BY THE COMMITTEE: OR A CONSULTANT OF THE COMPANY]
because of the death of Optionee or the disability of Optionee, then this
Option, to the extent (and only to the extent) that it would have been
exercisable by Optionee on the Termination Date, may be exercised by Optionee
(or Optionee's legal representative) within twelve (12) months after the
Termination Date, but in no event later than the Expiration Date.
5. MANNER OF EXERCISE.
------------------
5.1 Exercise Agreement. This Option shall be exercisable by delivery
------------------
to the Company of an executed written Directors Stock Option Exercise Agreement
in the form attached hereto as Exhibit A, or in such other form as may be
---------
approved by the Committee, which shall set forth Optionee's election to exercise
some or all of this Option, the number of shares being purchased, any
restrictions imposed on the Shares and such other representations and agreements
as may be required by the Company to comply with applicable securities laws.
5.2 Payment. Payment for the Shares purchased upon exercise of this
-------
Option may be made (a) in cash or by check; (b) by surrender of shares of Common
Stock of the Company that have been owned by Optionee for more than six (6)
months (and which have been paid for within the meaning of SEC Rule 144 and, if
such shares were purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares) or were obtained by the
Optionee in the open public market, having a Fair Market Value equal to the
Exercise Price of the Option; (c) by waiver of compensation due or accrued to
Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD DEALER") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
Exercise Price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the Exercise Price directly to the Company; (e) provided
that a public market for the Company's stock exists, through a
-2-
<PAGE>
VeriSign, Inc.
Directors Stock Option Grant - Succeeding Grant
"margin" commitment from the Optionee and a NASD Dealer
whereby the Optionee irrevocably elects to exercise the Option and to pledge the
Shares so purchased to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the Exercise Price, and whereby the
NASD Dealer irrevocably commits upon receipt of such Shares to forward the
Exercise Price directly to the Company; or (f) by any combination of the
foregoing.
5.3 Withholding Taxes. Prior to the issuance of the Shares upon
-----------------
exercise of this Option, Optionee shall pay or make adequate provision for any
applicable federal or state withholding obligations of the Company.
5.4 Issuance of Shares. Provided that such notice and payment are in
------------------
form and substance satisfactory to counsel for the Company, the Company shall
cause the Shares to be issued in the name of Optionee or Optionee's legal
representative. To enforce any restrictions on Optionee's Shares, the Committee
may require Optionee to deposit all certificates, together with stock powers or
other instruments of transfer approved by the Committee appropriately endorsed
in blank, with the Company or an agent designated by the Company to hold in
escrow until such restrictions have lapsed or terminated, and the Committee may
cause a legend or legends referencing such restrictions to be placed on the
certificates.
6. NONTRANSFERABILITY OF OPTION. During the lifetime of the Optionee,
----------------------------
this Option shall be exercisable only by Optionee or by Optionee's guardian or
legal representative, unless otherwise permitted by the Committee. This Option
may not be sold, pledged, assigned, hypothecated, transferred or disposed of in
any manner other than by will or by the laws of descent and distribution.
7. INTERPRETATION. Any dispute regarding the interpretation of this Grant
--------------
shall be submitted by Optionee or the Company to the Committee that administers
the Plan, which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Committee shall be final and binding on the
Company and on Optionee. Nothing in the Plan or this Grant shall confer on
Optionee any right to continue as a Board Member.
8. ENTIRE AGREEMENT. The Plan and the Directors Stock Option Exercise
----------------
Agreement in the form attached hereto as Exhibit A, and the terms and conditions
thereof, are incorporated herein by reference. This Grant, the Plan and the
Directors Stock Option Exercise Agreement constitute the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof
and supersede all prior understandings and agreements with respect to such
subject matter.
VERISIGN, INC.
By: _________________________________
Name: _______________________________
Title: ______________________________
-3-
<PAGE>
VeriSign, Inc.
Directors Stock Option Grant - Succeeding Grant
ACCEPTANCE OF STOCK OPTION GRANT
--------------------------------
Optionee hereby acknowledges receipt of a copy of the Plan, represents that
Optionee has read and understands the terms and provisions thereof, and accepts
this Option subject to all the terms and conditions of the Plan and this Grant.
Optionee acknowledges that there may be adverse tax consequences upon exercise
of this Option or disposition of the Shares and that Optionee has been advised
by the Company that Optionee should consult a qualified tax advisor prior to
such exercise or disposition.
_________________________________
________________________, Optionee
[ACCEPTANCE SIGNATURE PAGE TO DIRECTORS NONQUALIFIED SUCCEEDING STOCK OPTION
GRANT]
-4-
<PAGE>
EXHIBIT A
---------
DIRECTORS STOCK OPTION EXERCISE AGREEMENT
-----------------------------------------
<PAGE>
Exhibit A
VERISIGN, INC.
1998 DIRECTORS STOCK OPTION PLAN (THE "PLAN")
DIRECTORS STOCK OPTION EXERCISE AGREEMENT
-----------------------------------------
I hereby elect to purchase the number of shares of common stock of VERISIGN,
INC. (the "Company") as set forth below:
<TABLE>
<S> <C>
Optionee: _________________________________________________ Number of Shares Purchased: ______________________________
Social Security Number: ___________________________________ Purchase Price per Share: ________________________________
Address: __________________________________________________ Aggregate Purchase Price: ________________________________
___________________________________________________________ Date of Stock Option Grant: ______________________________
Type of Stock Option: Nonqualified Stock Option Exact Name of Title to Shares: ___________________________
__________________________________________________________
</TABLE>
1. DELIVERY OF PURCHASE PRICE. Optionee hereby delivers to the Company the
Aggregate Purchase Price, to the extent permitted in the Directors Nonqualified
Stock Option Grant referred to above (the "Grant") as follows (check as
applicable and complete):
[ ] in cash or by check in the amount of $___________________________,
receipt of which is acknowledged by the Company;
[ ] by delivery of _______________________ fully-paid, nonassessable and
vested shares of the Common Stock of the Company owned by Optionee for at
least six (6) months prior to the date hereof (and which have been paid
for within the meaning of SEC Rule 144), or obtained by Optionee in the
open public market, and owned free and clear of all liens, claims,
encumbrances or security interests, valued at the current Fair Market
Value of $___________________ per share;
[ ] by the waiver hereby of compensation due or accrued to Optionee for
services rendered in the amount of $_______________________________;
[ ] through a "same-day-sale" commitment, delivered herewith, from Optionee
and the NASD Dealer named therein, in the amount of
$______________________________; or
[ ] through a "margin" commitment, delivered herewith from Optionee and the
NASD Dealer named therein, in the amount of
$______________________________________.
2. MARKET STANDOFF AGREEMENT. Optionee, if requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, agrees not to
sell or otherwise transfer or dispose of any Common Stock (or other securities)
of the Company held by Optionee during the period requested by the managing
underwriter following the effective date of a registration statement of the
Company filed under the Securities Act, provided that all officers and directors
of the Company are required to enter into similar agreements. Such agreement
shall be in writing in a form satisfactory to the Company and such underwriter.
The Company may impose stop-transfer instructions with respect to the shares (or
other securities) subject to the foregoing restriction until the end of such
period.
3. TAX CONSEQUENCES. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE TAX
CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE SHARES.
OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX CONSULTANT(S)
OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR DISPOSITION OF THE
SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE.
4. ENTIRE AGREEMENT. The Plan and the Grant are incorporated herein by
reference. This Agreement, the Plan and the Grant constitute the entire
agreement of the parties and supersede in their entirety all prior
understandings and agreements of the Company and Optionee with respect to the
subject matter hereof, and are governed by California Law except for that body
of law pertaining to conflict of laws.
Date:______________________________ ________________________________________
SIGNATURE OF OPTIONEE
<PAGE>
VERISIGN, INC.
1998 DIRECTORS STOCK OPTION PLAN
SPOUSE'S CONSENT
I acknowledge that I have read the foregoing Directors Stock Option
Exercise Agreement (the "Agreement") and that I know its contents. I hereby
consent to and approve all the provisions of the Agreement and agree that the
shares of the Common Stock of VeriSign, Inc. purchased thereunder (the "Shares")
and any interest I may have in such Shares are subject to all the provisions of
the Agreement. I will take no action at any time to hinder operation of the
Agreement on these Shares or any interest I may have on them.
- ---------------------------------- Date:
SIGNATURE OF OPTIONEE'S SPOUSE -----------------------------
- ----------------------------------
OPTIONEE'S NAME - TYPED OR PRINTED
- ----------------------------------
SPOUSE'S NAME - TYPED OR PRINTED
<PAGE>
EXHIBIT 10.09
-------------
VERISIGN, INC.
1998 EQUITY INCENTIVE PLAN
As Adopted October 31, 1997
1. PURPOSE. The purpose of this Plan is to provide incentives to
-------
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
--------------------------
2.1 Number of Shares Available. Subject to Sections 2.2 and 18,
--------------------------
the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 2,000,000 Shares. Subject to Sections 2.2 and 18,
Shares that: (a) are subject to issuance upon exercise of an Option but cease to
be subject to such Option for any reason other than exercise of such Option; (b)
are subject to an Award granted hereunder but are forfeited or are repurchased
by the Company at the original issue price; or (c) are subject to an Award that
otherwise terminates without Shares being issued, will again be available for
grant and issuance in connection with future Awards under this Plan. Any
authorized shares not issued or subject to outstanding grants under the
Company's 1997 Stock Option Plan and the Company's 1995 Stock Option Plan (the
"Prior Plans") on the Effective Date (as defined below) and any shares that are
issuable upon exercise of options granted pursuant to the Prior Plans that
expire or become unexercisable for any reason without having been exercised in
full, will no longer be available for grant and issuance under the Prior Plans,
but will be available for grant and issuance under this Plan. In addition, any
shares issued under the Prior Plans which are repurchased or forfeited will be
available for grant and issuance under this Plan. At all times the Company
shall reserve and keep available a sufficient number of Shares as shall be
required to satisfy the requirements of all outstanding Options granted under
this Plan and all other outstanding but unvested Awards granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of
--------------------
outstanding shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the stockholders of the
Company and compliance with applicable securities laws; provided, however, that
-------- -------
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted
-----------
only to employees (including officers and directors who are also employees) of
the Company or of a Parent or Subsidiary of the Company. All other Awards may
be granted to employees, officers, directors, consultants, independent
contractors and advisors of the Company or any Parent or Subsidiary of the
Company; provided such consultants, contractors and advisors render bona fide
--------
services not in connection with the offer and sale of securities in a capital-
raising transaction. No person will be eligible to receive more than 400,000
Shares in any calendar year under this Plan pursuant to the grant of Awards
hereunder, other than new employees of the Company or of a Parent or Subsidiary
of the Company (including new employees who are also officers and directors of
the Company or any Parent or Subsidiary of the Company), who are eligible to
receive up to a maximum of 1,000,000 Shares in the calendar year in which they
commence their employment. A person may be granted more than one Award under
this Plan.
-1-
<PAGE>
VeriSign, Inc.
1998 Equity Incentive Plan
4. ADMINISTRATION.
--------------
4.1 Committee Authority. This Plan will be administered by the
-------------------
Committee or by the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan.
Without limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to
this Plan or any Award;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject to
Awards;
(f) determine whether Awards will be granted singly, in combination
with, in tandem with, in replacement of, or as alternatives to,
other Awards under this Plan or any other incentive or
compensation plan of the Company or any Parent or Subsidiary of
the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Any determination made by the
--------------------
Committee with respect to any Award will be made in its sole discretion at the
time of grant of the Award or, unless in contravention of any express term of
this Plan or Award, at any later time, and such determination will be final and
binding on the Company and on all persons having an interest in any Award under
this Plan. The Committee may delegate to one or more officers of the Company
the authority to grant an Award under this Plan to Participants who are not
Insiders of the Company.
5. OPTIONS. The Committee may grant Options to eligible persons and
-------
will determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOs"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan
--------------------
will be evidenced by an Award Agreement which will expressly identify the Option
as an ISO or an NQSO ("Stock Option Agreement"), and will be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
-2-
<PAGE>
VeriSign, Inc.
1998 Equity Incentive Plan
5.2 Date of Grant. The date of grant of an Option will be the date
-------------
on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 Exercise Period. Options may be exercisable within the times or
---------------
upon the events determined by the Committee as set forth in the Stock Option
Agreement governing such Option; provided, however, that no Option will be
-------- -------
exercisable after the expiration of ten (10) years from the date the Option is
granted; and provided further that no ISO granted to a person who directly or by
----------------
attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any Parent or Subsidiary of the
Company ("Ten Percent Stockholder") will be exercisable after the expiration of
five (5) years from the date the ISO is granted. The Committee also may provide
for Options to become exercisable at one time or from time to time, periodically
or otherwise, in such number of Shares or percentage of Shares as the Committee
determines.
5.4 Exercise Price. The Exercise Price of an Option will be
--------------
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant; provided that:
(i) the Exercise Price of an ISO will be not less than 100% of the Fair Market
Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO
granted to a Ten Percent Stockholder will not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of this Plan.
5.5 Method of Exercise. Options may be exercised only by delivery to
------------------
the Company of a written stock option exercise agreement (the "Exercise
Agreement") in a form approved by the Committee (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set forth in
-----------
the Stock Option Agreement, exercise of an Option will always be subject to the
following:
(a) If the Participant is Terminated for any reason except death or
Disability, then the Participant may exercise such Participant's
Options only to the extent that such Options would have been
exercisable upon the Termination Date no later than three (3)
months after the Termination Date (or such shorter or longer time
period not exceeding five (5) years as may be determined by the
Committee, with any exercise beyond three (3) months after the
Termination Date deemed to be an NQSO), but in any event, no
later than the expiration date of the Options.
(b) If the Participant is Terminated because of Participant's death
or Disability (or the Participant dies within three (3) months
after a Termination other than because of Participant's death or
disability), then Participant's Options may be exercised only to
the extent that such Options would have been exercisable by
Participant on the Termination Date and must be exercised by
Participant (or Participant's legal representative or authorized
assignee) no later than twelve (12) months after the Termination
Date (or such shorter or longer time period not exceeding five
(5) years as may be determined by the Committee, with any such
exercise beyond (a) three (3) months after the Termination Date
when the Termination is for any reason other than the
Participant's death or Disability, or (b) twelve (12) months
after the Termination Date when the Termination is for
Participant's death or Disability, deemed to be an NQSO), but in
any event no later than the expiration date of the Options.
-3-
<PAGE>
VeriSign, Inc.
1998 Equity Incentive Plan
(c) Notwithstanding the provisions in paragraph 5.6(a) above, if a
Participant is terminated for Cause, neither the Participant, the
Participant's estate nor such other person who may then hold the
Option shall be entitled to exercise any Option with respect to
any Shares whatsoever, after termination of service, whether or
not after termination of service the Participant may receive
payment from the Company or Subsidiary for vacation pay, for
services rendered prior to termination, for services rendered for
the day on which termination occurs, for salary in lieu of
notice, or for any other benefits. In making such determination,
the Board shall give the Participant an opportunity to present to
the Board evidence on his behalf. For the purpose of this
paragraph, termination of service shall be deemed to occur on the
date when the Company dispatches notice or advice to the
Participant that his service is terminated.
5.7 Limitations on Exercise. The Committee may specify a reasonable
-----------------------
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.
5.8 Limitations on ISO. The aggregate Fair Market Value (determined
------------------
as of the date of grant) of Shares with respect to which ISO are exercisable for
the first time by a Participant during any calendar year (under this Plan or
under any other incentive stock option plan of the Company, Parent or Subsidiary
of the Company) will not exceed $100,000. If the Fair Market Value of Shares on
the date of grant with respect to which ISO are exercisable for the first time
by a Participant during any calendar year exceeds $100,000, then the Options for
the first $100,000 worth of Shares to become exercisable in such calendar year
will be ISO and the Options for the amount in excess of $100,000 that become
exercisable in that calendar year will be NQSOs. In the event that the Code or
the regulations promulgated thereunder are amended after the Effective Date of
this Plan to provide for a different limit on the Fair Market Value of Shares
permitted to be subject to ISO, such different limit will be automatically
incorporated herein and will apply to any Options granted after the effective
date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may modify,
----------------------------------
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered will be treated in accordance with Section 424(h)
of the Code. The Committee may reduce the Exercise Price of outstanding Options
without the consent of Participants affected by a written notice to them;
provided, however, that the Exercise Price may not be reduced below the minimum
- -------- -------
Exercise Price that would be permitted under Section 5.4 of this Plan for
Options granted on the date the action is taken to reduce the Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in this
-------------------
Plan, no term of this Plan relating to ISO will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
----------------
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee will determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the "Purchase Price"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a
------------------------------
Restricted Stock Award made pursuant to this Plan will be evidenced by an Award
Agreement ("Restricted Stock Purchase Agreement") that will be in such form
(which need not be the same for each Participant) as the Committee will from
time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. The offer of Restricted Stock will be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
and full payment for the Shares to the Company within thirty (30) days from the
date the Restricted Stock Purchase Agree-
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VeriSign, Inc.
1998 Equity Incentive Plan
ment is delivered to the person. If such person does not execute and deliver the
Restricted Stock Purchase Agreement along with full payment for the Shares to
the Company within thirty (30) days, then the offer will terminate, unless
otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a
--------------
Restricted Stock Award will be determined by the Committee on the date the
Restricted Stock Award is granted, except in the case of a sale to a Ten Percent
Stockholder, in which case the Purchase Price will be 100% of the Fair Market
Value. Payment of the Purchase Price may be made in accordance with Section 8 of
this Plan.
6.3 Terms of Restricted Stock Awards. Restricted Stock Awards shall
--------------------------------
be subject to such restrictions as the Committee may impose. These restrictions
may be based upon completion of a specified number of years of service with the
Company or upon completion of the performance goals as set out in advance in the
Participant's individual Restricted Stock Purchase Agreement. Restricted Stock
Awards may vary from Participant to Participant and between groups of
Participants. Prior to the grant of a Restricted Stock Award, the Committee
shall: (a) determine the nature, length and starting date of any Performance
Period for the Restricted Stock Award; (b) select from among the Performance
Factors to be used to measure performance goals, if any; and (c) determine the
number of Shares that may be awarded to the Participant. Prior to the payment of
any Restricted Stock Award, the Committee shall determine the extent to which
such Restricted Stock Award has been earned. Performance Periods may overlap and
Participants may participate simultaneously with respect to Restricted Stock
Awards that are subject to different Performance Periods and having different
performance goals and other criteria.
6.4 Termination During Performance Period. If a Participant is
-------------------------------------
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Restricted Stock Award only to the extent earned as of the date of
Termination in accordance with the Restricted Stock Purchase Agreement, unless
the Committee will determine otherwise.
7. STOCK BONUSES.
-------------
7.1 Awards of Stock Bonuses. A Stock Bonus is an award of
-----------------------
Shares (which may consist of Restricted Stock) for services rendered to the
Company or any Parent or Subsidiary of the Company. A Stock Bonus may be awarded
for past services already rendered to the Company, or any Parent or Subsidiary
of the Company pursuant to an Award Agreement (the "Stock Bonus Agreement") that
will be in such form (which need not be the same for each Participant) as the
Committee will from time to time approve, and will comply with and be subject to
the terms and conditions of this Plan. A Stock Bonus may be awarded upon
satisfaction of such performance goals as are set out in advance in the
Participant's individual Award Agreement (the "Performance Stock Bonus
Agreement") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent or Subsidiary and/or
individual performance factors or upon such other criteria as the Committee may
determine.
7.2 Terms of Stock Bonuses. The Committee will determine the number
----------------------
of Shares to be awarded to the Participant. If the Stock Bonus is being earned
upon the satisfaction of performance goals pursuant to a Performance Stock Bonus
Agreement, then the Committee will: (a) determine the nature, length and
starting date of any Performance Period for each Stock Bonus; (b) select from
among the Performance Factors to be used to measure the performance, if any; and
(c) determine the number of Shares that may be awarded to the Participant. Prior
to the payment of any Stock Bonus, the Committee shall determine the extent to
which such Stock Bonuses have been earned. Performance Periods may overlap and
Participants may participate simultaneously with respect to Stock Bonuses that
are subject to different Performance Periods and different performance goals and
other criteria. The number of Shares may be fixed or may vary in accordance with
such performance goals and criteria as may be determined by the Committee. The
Committee may adjust the performance goals applicable to the Stock Bonuses to
take into account changes in law and accounting or tax rules and to make such
adjustments as
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VeriSign, Inc.
1998 Equity Incentive Plan
the Committee deems necessary or appropriate to reflect the impact of
extraordinary or unusual items, events or circumstances to avoid windfalls or
hardships.
7.3 Form of Payment. The earned portion of a Stock Bonus may be paid
---------------
currently or on a deferred basis with such interest or dividend equivalent, if
any, as the Committee may determine. Payment may be made in the form of cash or
whole Shares or a combination thereof, either in a lump sum payment or in
installments, all as the Committee will determine.
8. PAYMENT FOR SHARE PURCHASES.
---------------------------
8.1 Payment. Payment for Shares purchased pursuant to this Plan
-------
may be made in cash (by check) or, where expressly approved for the Participant
by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid for
within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note
has been fully paid with respect to such shares); or (2) were
obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such terms as
may be approved by the Committee and bearing interest at a rate
sufficient to avoid imputation of income under Sections 483 and
1274 of the Code; provided, however, that Participants who are
-------- -------
not employees or directors of the Company will not be entitled to
purchase Shares with a promissory note unless the note is
adequately secured by collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant for
services rendered;
(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from the Participant
and a broker-dealer that is a member of the National
Association of Securities Dealers (an "NASD Dealer") whereby
the Participant irrevocably elects to exercise the Option
and to sell a portion of the Shares so purchased to pay for
the Exercise Price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the Exercise
Price directly to the Company; or
(2) through a "margin" commitment from the Participant and a
NASD Dealer whereby the Participant irrevocably elects to
exercise the Option and to pledge the Shares so purchased to
the NASD Dealer in a margin account as security for a loan
from the NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt
of such Shares to forward the Exercise Price directly to the
Company; or
(f) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the Participant pay
---------------
for Shares purchased under this Plan by authorizing a guarantee by the Company
of a third-party loan to the Participant.
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VeriSign, Inc.
1998 Equity Incentive Plan
9. WITHHOLDING TAXES.
-----------------
9.1 Withholding Generally. Whenever Shares are to be issued in
---------------------
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan,
payments in satisfaction of Awards are to be made in cash, such payment will be
net of an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2 Stock Withholding. When, under applicable tax laws, a
-----------------
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee and be in writing in a form acceptable to the
Committee.
10. PRIVILEGES OF STOCK OWNERSHIP.
-----------------------------
10.1 Voting and Dividends. No Participant will have any of the
--------------------
rights of a stockholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a stockholder and have all the rights of a stockholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
--------
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
-------- -------
retain such stock dividends or stock distributions with respect to Shares that
are repurchased at the Participant's Purchase Price or Exercise Price pursuant
to Section 12.
10.2 Financial Statements. The Company will provide financial
--------------------
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company will not be
-------- -------
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
11. TRANSFERABILITY. Awards granted under this Plan, and any
---------------
interest therein, will not be transferable or assignable by Participant, and may
not be made subject to execution, attachment or similar process, otherwise than
by will or by the laws of descent and distribution or as determined by the
Committee and set forth in the Award Agreement with respect to Awards that are
not ISOs. During the lifetime of the Participant an Award will be exercisable
only by the Participant, and any elections with respect to an Award may be made
only by the Participant unless otherwise determined by the Committee and set
forth in the Award Agreement with respect to Awards that are not ISOs.
12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
----------------------
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase a portion of or all Unvested Shares held by a Participant
following such Participant's Termination at any time within ninety (90) days
after the later of Participant's Termination Date and the date Participant
purchases Shares under this Plan, for cash and/or cancellation of purchase money
indebtedness, at the Participant's Exercise Price or Purchase Price, as the case
may be.
13. CERTIFICATES. All certificates for Shares or other securities
------------
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or
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VeriSign, Inc.
1998 Equity Incentive Plan
advisable, including restrictions under any applicable federal, state or foreign
securities law, or any rules, regulations and other requirements of the SEC or
any stock exchange or automated quotation system upon which the Shares may be
listed or quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
------------------------
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
-------- -------
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
-----------------------------
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will
----------------------------------------------
not be effective unless such Award is in compliance with all applicable federal
and state securities laws, rules and regulations of any governmental body, and
the requirements of any stock exchange or automated quotation system upon which
the Shares may then be listed or quoted, as they are in effect on the date of
grant of the Award and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have no
obligation to issue or deliver certificates for Shares under this Plan prior to:
(a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable; and/or (b) completion of any registration
or other qualification of such Shares under any state or federal law or ruling
of any governmental body that the Company determines to be necessary or
advisable. The Company will be under no obligation to register the Shares with
the SEC or to effect compliance with the registration, qualification or listing
requirements of any state securities laws, stock exchange or automated quotation
system, and the Company will have no liability for any inability or failure to
do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award
-----------------------
granted under this Plan will confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Company or any Parent or Subsidiary of the Company or limit in any way
the right of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
18. CORPORATE TRANSACTIONS.
----------------------
18.1 Assumption or Replacement of Awards by Successor. In the
------------------------------------------------
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to
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VeriSign, Inc.
1998 Equity Incentive Plan
such merger (other than any stockholder that merges, or which owns or controls
another corporation that merges, with the Company in such merger) cease to own
their shares or other equity interest in the Company, (d) the sale of
substantially all of the assets of the Company, or (e) the acquisition, sale, or
transfer of more than 50% of the outstanding shares of the Company by tender
offer or similar transaction, any or all outstanding Awards may be assumed,
converted or replaced by the successor corporation (if any), which assumption,
conversion or replacement will be binding on all Participants. In the
alternative, the successor corporation may substitute equivalent Awards or
provide substantially similar consideration to Participants as was provided to
stockholders (after taking into account the existing provisions of the Awards).
The successor corporation may also issue, in place of outstanding Shares of the
Company held by the Participant, substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Participant. In the
event such successor corporation (if any) refuses to assume or substitute
Awards, as provided above, pursuant to a transaction described in this
Subsection 18.1, such Awards will expire on such transaction at such time and on
such conditions as the Committee will determine; provided, however, that the
-------- -------
Committee may, in its sole discretion, provide that the vesting of any or all
Awards granted pursuant to this Plan will accelerate. If the Committee exercises
such discretion with respect to Options, such Options will become exercisable in
full prior to the consummation of such event at such time and on such conditions
as the Committee determines, and if such Options are not exercised prior to the
consummation of the corporate transaction, they shall terminate at such time as
determined by the Committee.
18.2 Other Treatment of Awards. Subject to any greater rights granted
-------------------------
to Participants under the foregoing provisions of this Section 18, in the event
of the occurrence of any transaction described in Section 18.1, any outstanding
Awards will be treated as provided in the applicable agreement or plan of
merger, consolidation, dissolution, liquidation, or sale of assets.
18.3 Assumption of Awards by the Company. The Company, from time to
-----------------------------------
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of Shares issuable
------
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become
---------------------------------
effective on the date on which the registration statement filed by the Company
with the SEC under the Securities Act registering the initial public offering of
the Company's Common Stock is declared effective by the SEC (the "Effective
Date"). This Plan shall be approved by the stockholders of the Company
(excluding Shares issued pursuant to this Plan), consistent with applicable
laws, within twelve (12) months before or after the date this Plan is adopted by
the Board. Upon the Effective Date, the Committee may grant Awards pursuant to
this Plan; provided, however, that: (a) no Option may be exercised prior to
-------- -------
initial stockholder approval of this Plan; (b) no Option granted pursuant to an
increase in the number of Shares subject to this Plan approved by the Board will
be exercised prior to the time such increase has been approved by the
stockholders of the Company; and (c) in the event that stockholder approval of
such increase is not obtained within the time period provided herein, all Awards
granted pursuant to such increase will be canceled, any Shares issued pursuant
to any Award granted pursuant to such increase will be canceled, and any
purchase of Shares pursuant to such increase will be rescinded.
20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as
--------------------------
provided herein, this Plan will terminate ten (10) years from the date this Plan
is adopted by the Board or, if earlier, the date of stockholder approval. This
Plan and all agreements thereunder shall be governed by and construed in
accordance with the laws of the State of California.
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VeriSign, Inc.
1998 Equity Incentive Plan
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
--------------------------------
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; provided, however, that the Board will not, without the approval
-------- -------
of the stockholders of the Company, amend this Plan in any manner that requires
such stockholder approval.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by
--------------------------
the Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. DEFINITIONS. As used in this Plan, the following terms will have
-----------
the following meanings:
"Award" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.
"Award Agreement" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"Board" means the Board of Directors of the Company.
"Cause" means the commission of an act of theft, embezzlement,
fraud, dishonesty or a breach of fiduciary duty to the Company or a Parent or
Subsidiary of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation Committee of the Board.
"Company" means VeriSign, Inc. or any successor corporation.
"Disability" means a disability, whether temporary or permanent,
partial or total, within the meaning of Section 22(e)(3) of the Code, as
determined by the Committee.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exercise Price" means the price at which a holder of an Option
may purchase the Shares issuable upon exercise of the Option.
"Fair Market Value" means, as of any date, the value of a share
of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
-----------------------
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VeriSign, Inc.
1998 Equity Incentive Plan
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in The Wall
--------
Street Journal;
--------------
(d) in the case of an Award made on the Effective Date, the price per
share at which shares of the Company's Common Stock are initially
offered for sale to the public by the Company's underwriters in
the initial public offering of the Company's Common Stock
pursuant to a registration statement filed with the SEC under the
Securities Act; or
(d) if none of the foregoing is applicable, by the Committee in good
faith.
"Insider" means an officer or director of the Company or any
other person whose transactions in the Company's Common Stock are subject to
Section 16 of the Exchange Act.
"Option" means an award of an option to purchase Shares pursuant
to Section 5.
"Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
"Participant" means a person who receives an Award under this
Plan.
"Performance Factors" means the factors selected by the Committee
from among the following measures to determine whether the performance goals
established by the Committee and applicable to Awards have been satisfied:
(a) Net revenue and/or net revenue growth;
(b) Earnings before income taxes and amortization and/or
earnings before income taxes and amortization growth;
(c) Operating income and/or operating income growth;
(d) Net income and/or net income growth;
(e) Earnings per share and/or earnings per share growth;
(f) Total shareholder return and/or total shareholder return
growth;
(g) Return on equity;
(h) Operating cash flow return on income;
(i) Adjusted operating cash flow return on income;
(j) Economic value added; and
(k) Individual confidential business objectives.
"Performance Period" means the period of service determined by
the Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards or Stock Bonuses.
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VeriSign, Inc.
1998 Equity Incentive Plan
"Plan" means this VeriSign, Inc. 1998 Equity Incentive Plan, as
amended from time to time.
"Restricted Stock Award" means an award of Shares pursuant to
Section 6.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any
successor security.
"Stock Bonus" means an award of Shares, or cash in lieu of
Shares, pursuant to Section 7.
"Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"Termination" or "Terminated" means, for purposes of this Plan
with respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director, consultant, independent
contractor, or advisor to the Company or a Parent or Subsidiary of the Company.
An employee will not be deemed to have ceased to provide services in the case of
(i) sick leave, (ii) military leave, or (iii) any other leave of absence
approved by the Committee, provided, that such leave is for a period of not more
than 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute or unless provided otherwise pursuant to
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing. In the case of any employee on an approved
leave of absence, the Committee may make such provisions respecting suspension
of vesting of the Award while on leave from the employ of the Company or a
Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Option agreement.
The Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "Termination Date").
"Unvested Shares" means "Unvested Shares" as defined in the Award
Agreement.
"Vested Shares" means "Vested Shares" as defined in the Award
Agreement.
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NO. ______
VERISIGN, INC.
1998 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
----------------------
This Stock Option Agreement (this "AGREEMENT") is made and entered
into as of the date of grant set forth below (the "DATE OF GRANT") by and
between VeriSign, Inc., a Delaware corporation (the "COMPANY"), and the
participant named below ("OPTIONEE"). Capitalized terms not defined herein
shall have the meaning ascribed to them in the Company's 1998 Equity Incentive
Plan, as amended (the "PLAN").
OPTIONEE: ___________________________________________________
SOCIAL SECURITY NUMBER: ___________________________________________________
OPTIONEE'S ADDRESS: ___________________________________________________
___________________________________________________
TOTAL OPTION SHARES: ___________________________________________________
EXERCISE PRICE PER SHARE: ___________________________________________________
DATE OF GRANT: ___________________________________________________
VESTING START DATE: ___________________________________________________
EXPIRATION DATE: ___________________________________________________
TYPE OF STOCK OPTION
(CHECK ONE): [ ] INCENTIVE STOCK OPTION
[ ] NONQUALIFIED STOCK OPTION
1. GRANT OF OPTION. The Company hereby grants to Optionee an option
---------------
(this "OPTION") to purchase up to the total number of shares of Common Stock of
the Company set forth above (collectively, the "SHARES") at the Exercise Price
Per Share set forth above (the "EXERCISE PRICE"), subject to all of the terms
and conditions of this Agreement and the Plan. If designated as an Incentive
Stock Option above, this Option is intended to qualify as an "incentive stock
option" ("ISO") within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "CODE").
2. VESTING; EXERCISE PERIOD.
------------------------
2.1 Vesting of Shares. [ALTERNATIVE #1: (IMMEDIATELY
-----------------
EXERCISABLE)] This Option is immediately exercisable, subject to repurchase
pursuant to Section 12 of the Plan and Section 6 of this Agreement. Subject to
the terms and conditions of the Plan and this Agreement, this Option shall vest
with respect to ____ of the Shares on ______________ following the Date of
Grant, provided the Optionee has not been Terminated as of such date and has
continuously provided services to the Company or a Parent or Subsidiary of
<PAGE>
NO. ______
VERISIGN, INC.
1998 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
----------------------
This Stock Option Agreement (this "AGREEMENT") is made and entered
into as of the date of grant set forth below (the "DATE OF GRANT") by and
between VeriSign, Inc., a Delaware corporation (the "COMPANY"), and the
participant named below ("OPTIONEE"). Capitalized terms not defined herein
shall have the meaning ascribed to them in the Company's 1998 Equity Incentive
Plan, as amended (the "PLAN").
OPTIONEE: ___________________________________________________
SOCIAL SECURITY NUMBER: ___________________________________________________
OPTIONEE'S ADDRESS: ___________________________________________________
___________________________________________________
TOTAL OPTION SHARES: ___________________________________________________
EXERCISE PRICE PER SHARE: ___________________________________________________
DATE OF GRANT: ___________________________________________________
VESTING START DATE: ___________________________________________________
EXPIRATION DATE: ___________________________________________________
TYPE OF STOCK OPTION
(CHECK ONE): [ ] INCENTIVE STOCK OPTION
[ ] NONQUALIFIED STOCK OPTION
1. GRANT OF OPTION. The Company hereby grants to Optionee an option
---------------
(this "OPTION") to purchase up to the total number of shares of Common Stock of
the Company set forth above (collectively, the "SHARES") at the Exercise Price
Per Share set forth above (the "EXERCISE PRICE"), subject to all of the terms
and conditions of this Agreement and the Plan. If designated as an Incentive
Stock Option above, this Option is intended to qualify as an "incentive stock
option" ("ISO") within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "CODE").
2. VESTING; EXERCISE PERIOD.
------------------------
2.1 Vesting of Shares. [ALTERNATIVE #1: (IMMEDIATELY
-----------------
EXERCISABLE)] This Option is immediately exercisable, subject to repurchase
pursuant to Section 12 of the Plan and Section 6 of this Agreement. Subject to
the terms and conditions of the Plan and this Agreement, this Option shall vest
with respect to ____ of the Shares on ______________ following the Date of
Grant, provided the Optionee has not been Terminated as of such date and has
continuously provided services to the Company or a Parent or Subsidiary of
<PAGE>
VeriSign, Inc.
Stock Option Agreement
the Company. [ALTERNATIVE #2: (EXERCISABLE AS OPTION VESTS)]: Subject to the
terms and conditions of the Plan and this Agreement, this Option shall become
exercisable with respect to ____ of the Shares on _____________ of the Date of
Grant (the "FIRST VESTING DATE") and with respect to _______ of the Shares on
______________________ following the First Vesting Date, provided the Optionee
has not been Terminated and has continuously provided services to the Company or
a Parent or Subsidiary of the Company.
[IF IMMEDIATELY EXERCISABLE:
2.2 Vesting of Options. Shares that are vested pursuant to the
------------------
schedule set forth in Section 2.1 are "VESTED SHARES." Shares that are not
vested pursuant to the schedule set forth in Section 2.1 are "UNVESTED SHARES."
Unvested Shares may not be sold or otherwise transferred by Optionee without
Optionee's prior written consent.]
2.3 Expiration. This Option shall expire on the Expiration Date
----------
set forth above and must be exercised, if at all, on or before the earlier of
the Expiration Date or the date on which this Option is earlier terminated in
accordance with the provisions of Section 3.
3. TERMINATION.
-----------
3.1 Termination for Any Reason Except Death, Disability or Cause.
------------------------------------------------------------
If Optionee is Terminated for any reason except Optionee's death, Disability or
Cause (as defined in the Plan), then this Option, to the extent (and only to the
extent) that it is vested in accordance with the schedule set forth in Section
2.1 of this Agreement on the date of Termination, may be exercised by Optionee
no later than three (3) months after the date of Termination, but in any event
no later than the Expiration Date.
3.2 Termination Because of Death or Disability. If Optionee is
------------------------------------------
Terminated because of death or Disability of Optionee (or the Optionee dies
within three (3) months after a Termination other than because of death or
disability), then this Option, to the extent that it is vested in accordance
with the schedule set forth in Section 2.1 of this Agreement on the date of
Termination, may be exercised by Optionee (or Optionee's legal representative)
no later than twelve (12) months after the date of Termination, but in any event
no later than the Expiration Date.
3.3 Termination for Cause. If Optionee is Terminated for Cause
---------------------
(as defined in the Plan), this Option will expire on the Optionee's date of
Termination.
3.4 No Obligation to Employ. Nothing in the Plan or this
-----------------------
Agreement shall confer on Optionee any right to continue in the employ of, or
other relationship with, the Company or any Parent or Subsidiary of the Company,
or limit in any way the right of the Company or any Parent or Subsidiary of the
Company to terminate Optionee's employment or other relationship at any time,
with or without Cause.
-2-
<PAGE>
VeriSign, Inc.
Stock Option Agreement
4. MANNER OF EXERCISE.
------------------
4.1 Stock Option Exercise Agreement. To exercise this Option,
-------------------------------
Optionee (or in the case of exercise after Optionee's death, Optionee's
executor, administrator, heir or legatee, as the case may be) must deliver to
the Company an executed stock option exercise agreement in the form attached
hereto as Exhibit A, or in such other form as may be approved by the Company
---------
from time to time (the "EXERCISE AGREEMENT"), which shall set forth, inter alia,
----- ----
Optionee's election to exercise this Option, the number of shares being
purchased, any restrictions imposed on the Shares and any representations,
warranties and agreements regarding Optionee's investment intent and access to
information as may be required by the Company to comply with applicable
securities laws. If someone other than Optionee exercises this Option, then
such person must submit documentation reasonably acceptable to the Company that
such person has the right to exercise this Option.
4.2 Limitations on Exercise. This Option may not be exercised
-----------------------
unless such exercise is in compliance with all applicable federal and state
securities laws, as they are in effect on the date of exercise. This Option may
not be exercised as to fewer than 100 Shares unless it is exercised as to all
Shares as to which this Option is then exercisable.
4.3 Payment. The Exercise Agreement shall be accompanied by full
-------
payment of the Exercise Price for the Shares being purchased in cash (by check),
or where permitted by law [AND ONLY IF PERMITTED BY THE COMMITTEE]:
[(a) by cancellation of indebtedness of the Company to the Optionee;
(b) by surrender of shares of the Company's Common Stock that either: (1)
have been owned by Optionee for more than six (6) months and have been
paid for within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note has
been fully paid with respect to such shares); or (2) were obtained by
Optionee in the open public market; and (3) are clear of all liens,
---
claims, encumbrances or security interests;
(c) IF PERMITTED BY THE COMMITTEE, by tender of a full recourse promissory
note having such terms as may be approved by the Committee and bearing
interest at a rate sufficient to avoid imputation of income under
Sections 483 and 1274 of the Code; provided, however, that Optionees
-------- -------
who are not employees or directors of the Company shall not be entitled
to purchase Shares with a promissory note unless the note is adequately
secured by collateral other than the Shares;
(d) by waiver of compensation due or accrued to Optionee for services
rendered;
(e) provided that a public market for the Company's stock exists: (1)
through a "same day sale" commitment from Optionee and a broker-dealer
that is a member of the National Association of Securities Dealers (an
"NASD DEALER") whereby Optionee
-3-
<PAGE>
VeriSign, Inc.
Stock Option Agreement
irrevocably elects to exercise this Option and to sell a portion of the
Shares so purchased to pay for the exercise price and whereby the NASD
Dealer irrevocably commits upon receipt of such Shares to forward the
exercise price directly to the Company; or (2) through a "margin"
--
commitment from Optionee and a NASD Dealer whereby Optionee irrevocably
elects to exercise this Option and to pledge the Shares so purchased to
the NASD Dealer in a margin account as security for a loan from the
NASD Dealer in the amount of the exercise price, and whereby the NASD
Dealer irrevocably commits upon receipt of such Shares to forward the
exercise price directly to the Company; or
(f) by any combination of the foregoing.]
4.4 Tax Withholding. Prior to the issuance of the Shares upon
---------------
exercise of this Option, Optionee must pay or provide for any applicable federal
or state withholding obligations of the Company. If the Committee permits,
Optionee may provide for payment of withholding taxes upon exercise of this
Option by requesting that the Company retain Shares with a Fair Market Value
equal to the minimum amount of taxes required to be withheld. In such case, the
Company shall issue the net number of Shares to the Optionee by deducting the
Shares retained from the Shares issuable upon exercise.
4.5 Issuance of Shares. Provided that the Exercise Agreement and
------------------
payment are in form and substance satisfactory to counsel for the Company, the
Company shall issue the Shares registered in the name of Optionee, Optionee's
authorized assignee, or Optionee's legal representative, and shall deliver
certificates representing the Shares with the appropriate legends affixed
thereto.
5. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If this Option
-------------------------------------------------
is an ISO, and if Optionee sells or otherwise disposes of any of the Shares
acquired pursuant to the ISO on or before the later of (a) the date two (2)
years after the Date of Grant, and (b) the date one (1) year after transfer of
such Shares to Optionee upon exercise of this Option, then Optionee shall
immediately notify the Company in writing of such disposition.
[IF IMMEDIATELY EXERCISABLE:
6. REPURCHASE RIGHT. The Company shall have the right to repurchase
----------------
all Unvested Shares held by Optionee if Optionee is Terminated. The Company
shall exercise such repurchase right, if at all, within 90 days after the
Optionee's date of Termination for cash or cancellation of purchase money
indebtedness at the Optionee's original exercise price.]
7. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this Option
------------------------------------
and the issuance and transfer of Shares shall be subject to compliance by the
Company and Optionee with all applicable requirements of federal and state
securities laws and with all applicable requirements of any stock exchange on
which the Company's Common Stock may be listed at the time of such issuance or
transfer. Optionee understands that the Company is under no obligation
-4-
<PAGE>
VeriSign, Inc.
Stock Option Agreement
to register or qualify the Shares with the Securities and Exchange Commission,
any state securities commission or any stock exchange to effect such compliance.
8. NONTRANSFERABILITY OF OPTION. This Option may not be transferred
----------------------------
in any manner other than by will or by the laws of descent and distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
this Option shall be binding upon the executors, administrators, successors and
assigns of Optionee.
9. TAX CONSEQUENCES. Set forth below is a brief summary as of the
----------------
date the Board of Directors of the Company adopted the Plan of some of the
federal and California tax consequences of exercise of this Option and
disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX
LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX
ADVISOR BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES.
9.1 Exercise of ISO. If this Option qualifies as an ISO, there
---------------
will be no regular federal or California income tax liability upon the exercise
of this Option, although the excess, if any, of the fair market value of the
Shares on the date of exercise over the Exercise Price will be treated as a tax
preference item for federal income tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
9.2 Exercise of Nonqualified Stock Option. If this Option does
-------------------------------------
not qualify as an ISO, there may be a regular federal and California income tax
liability upon the exercise of this Option. Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the fair market value of the Shares on the date of exercise
over the Exercise Price. The Company will be required to withhold from
Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income
at the time of exercise.
[IF IMMEDIATELY EXERCISABLE:
9.3 Section 83(b) Election for Unvested Shares. With respect to
------------------------------------------
Unvested Shares which are subject to repurchase pursuant to Section 6 of this
Agreement, unless an election is filed by the Optionee with the Internal Revenue
Service (and, if necessary, the proper state taxing authorities), within 30 days
--------------
of the purchase of the Unvested Shares, electing pursuant to Code Section 83(b)
(and similar state tax provisions, if applicable) to be taxed currently on any
difference between the exercise price of the Unvested Shares and their Fair
Market Value on the date of exercise, there may be a recognition of taxable
income (including, where applicable, alternative minimum taxable income) to the
Optionee, measured by the excess, if any, of the Fair Market Value of the
Unvested Shares at the time they cease to be Unvested Shares, over the Exercise
Price of the Unvested Shares.]
9.4 Disposition of Shares. The following tax consequences may
---------------------
apply upon disposition of the Shares.
-5-
<PAGE>
VeriSign, Inc.
Stock Option Agreement
a. Incentive Stock Options. If the Shares are held for
-----------------------
more than twelve (12) months after the date of the transfer of the Shares
pursuant to the exercise of an ISO and are disposed of more than two (2) years
after the Date of Grant, any gain realized on disposition of the Shares will be
treated as capital gain for federal and California income tax purposes. The
maximum federal capital gain tax rates are twenty eight percent (28%) for Shares
held more than twelve (12) months, but not more than eighteen (18) months ("MID-
TERM CAPITAL GAIN"), and twenty percent (20%) for Shares held for more than
eighteen (18) months ("LONG-TERM CAPITAL GAIN"). If Shares purchased under an
ISO are disposed of within the applicable one (1) year or two (2) year period,
any gain realized on such disposition will be treated as compensation income
(taxable at ordinary income rates) to the extent of the excess, if any, of the
Fair Market Value of the Shares on the date of exercise over the Exercise Price.
b. Nonqualified Stock Options. If the Shares are held for
--------------------------
more than twelve (12) months after the date of the transfer of the Shares
pursuant to the exercise of an NQSO, any gain realized on disposition of the
Shares will be treated as Mid-Term Capital Gain or Long-Term Capital Gain, as
the case may be.
c. Withholding. The Company may be required to withhold
-----------
from Participant's compensation or collect from the Participant and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income.
10. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall not have any of the
-----------------------------
rights of a shareholder with respect to any Shares until Optionee exercises this
Option and pays the Exercise Price.
11. INTERPRETATION. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or the Company to the Committee for
review. The resolution of such a dispute by the Committee shall be final and
binding on the Company and Optionee.
12. ENTIRE AGREEMENT. The Plan is incorporated herein by reference.
----------------
This Agreement and the Plan and the Exercise Agreement constitute the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof and supersede all prior understandings and agreements with respect
to such subject matter.
13. NOTICES. Any notice required to be given or delivered to the
-------
Company under the terms of this Agreement shall be in writing and addressed to
the Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to Optionee shall be in writing and
addressed to Optionee at the address indicated above or to such other address as
such party may designate in writing from time to time to the Company. All
notices shall be deemed to have been given or delivered upon: personal
delivery; three (3) days after deposit in the United States mail by certified or
registered mail (return receipt requested); one (1) business day after deposit
with any return receipt express courier (prepaid); or one (1) business day after
transmission by rapifax or telecopier.
-6-
<PAGE>
VeriSign, Inc.
Stock Option Agreement
14. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
----------------------
under this Agreement. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer set forth herein, this Agreement shall be binding upon
Optionee and Optionee's heirs, executors, administrators, legal representatives,
successors and assigns.
15. GOVERNING LAW. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws of the State of California, without regard
to that body of law pertaining to choice of law or conflict of law.
16. ACCEPTANCE. Optionee hereby acknowledges receipt of a copy of the
----------
Plan and this Agreement. Optionee has read and understands the terms and
provisions thereof, and accepts this Option subject to all the terms and
conditions of the Plan and this Agreement. Optionee acknowledges that there may
be adverse tax consequences upon exercise of this Option or disposition of the
Shares and that the Company has advised Optionee to consult a tax advisor prior
to such exercise or disposition.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
in duplicate by its duly authorized representative and Optionee has executed
this Agreement in duplicate as of the Date of Grant.
VERISIGN, INC. OPTIONEE
By:
___________________________ ___________________________________
(Signature)
______________________________ ___________________________________
(Please print name) (Please print name)
______________________________
(Please print title)
-7-
<PAGE>
EXHIBIT A
---------
STOCK OPTION EXERCISE AGREEMENT
<PAGE>
EXHIBIT A
---------
VERISIGN, INC.
1998 EQUITY INCENTIVE PLAN (THE "PLAN")
STOCK OPTION EXERCISE AGREEMENT
-------------------------------
I hereby elect to purchase the number of shares of Common Stock of
VERISIGN, INC. (the "Company") as set forth below:
<TABLE>
<CAPTION>
<S> <C>
Optionee_______________________________________ Number of Shares Purchased:___________________________
Social Security Number:________________________ Purchase Price per Share:_____________________________
Address:_______________________________________ Aggregate Purchase Price:_____________________________
_______________________________________ Date of Option Agreement:_____________________________
Type of Option: [ ] Incentive Stock Option Exact Name of Title to Shares:________________________
[ ] Nonqualified Stock Option ______________________________________________________
</TABLE>
1. Delivery of Purchase Price. Optionee hereby delivers to the Company the
Aggregate Purchase Price, to the extent permitted in the Option Agreement (the
"Option Agreement") as follows (check as applicable and complete):
[ ] in cash (by check) in the amount of $_____________________, receipt of which
is acknowledged by the Company;
IF THE COMMITTEE ALLOWED PAYMENT BY OTHER MEANS IN THE STOCK OPTION AGREEMENT,
ADD ONE OR MORE OF THE FOLLOWING, AS APPLICABLE:
[ ] by cancellation of indebtedness of the company to optionee in the amount
of $___________________________________;
[ ] by delivery of ______________________________ fully-paid, nonassessable
and vested shares of the Common Stock of the Company owned by Optionee for
at least six (6) months prior to the date hereof (and which have been paid
for within the meaning of SEC Rule 144), or obtained by Optionee in the
open public market, and owned free and clear of all liens, claims,
encumbrances or security interests, valued at the current Fair Market Value
of $____________________ per share;
[ ] by the waiver hereby of compensation due or accrued to Optionee for
services rendered in the amount of $____________________________________ ;
[ ] by tender of a full recourse promissory note in the principal amount of
$__________________________, secured by a Pledge Agreement of even date
herewith (the par value of the Shares is tendered in cash (by check)
receipt of which is acknowledged by the Company);
[ ] through a "same-day-sale" commitment, delivered herewith, from Optionee
and the NASD Dealer named therein, in the amount of
$_______________________________; or
[ ] through a "margin" commitment, delivered herewith from Optionee and the
NASD Dealer named therein, in the amount of
$_________________________________________.
2. MARKET STANDOFF AGREEMENT. Optionee, if requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, agrees not to
sell or otherwise transfer or dispose of any Common Stock (or other securities)
of the Company held by Optionee during the period requested by the managing
underwriter following the effective date of a registration statement of the
Company filed under the Securities Act, provided that all officers and directors
of the Company are required to enter into similar agreements. Such agreement
shall be in writing in a form satisfactory to the Company and such underwriter.
The company may impose stop-transfer instructions with respect to the shares (or
other securities) subject to the foregoing restriction until the end of such
period.
3. TAX CONSEQUENCES. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE
TAX CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE
SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX
CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR
DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR
ANY TAX ADVICE. IN PARTICULAR, IF THE SHARES ARE SUBJECT TO REPURCHASE BY THE
COMPANY, OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH OPTIONEE'S TAX
ADVISER CONCERNING THE ADVISABILITY OF FILING THE ATTACHED 83(B) ELECTION WITH
THE INTERNAL REVENUE SERVICE.
4. ENTIRE AGREEMENT. The Plan and Option Agreement are incorporated herein by
reference. This Exercise Agreement, the Plan and the Option Agreement
constitute the entire agreement and understanding of the parties and supersede
in their entirety all prior understandings and agreements of the Company and
Optionee with respect to the subject matter hereof, and are governed by
California law except for that body of law pertaining to choice of law or
conflict of law.
Date:_________________________ ---------------------
SIGNATURE OF OPTIONEE
<PAGE>
Spousal Consent
I acknowledge that I have read the foregoing Stock Option Exercise
Agreement (the "Agreement") and that I know its contents. I hereby consent to
and approve all the provisions of the Agreement, and agree that the shares of
the Common Stock of VeriSign, Inc. purchased thereunder (the "Shares") and any
interest I may have in such Shares are subject to all the provisions of the
Agreement. I will take no action at any time to hinder operation of the
Agreement on these Shares or any interest I may have in or to them.
Date:__________________
__________________________________
SIGNATURE OF OPTIONEE'S SPOUSE
__________________________________
SPOUSE'S NAME - TYPED OR PRINTED
___________________________________
OPTIONEE'S NAME - TYPED OR PRINTED
<PAGE>
[FOR REGULAR INCOME TAX - NONQUALIFIED OPTIONS]
[FOR AMT AND DISQUALIFYING DISPOSITION PURPOSES - INCENTIVE STOCK OPTION]
ELECTION UNDER SECTION 83(B) OF THE
INTERNAL REVENUE CODE
The undersigned Taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include the excess, if any, of the
fair market value of the property described below at the time of transfer over
the amount paid for such property, as compensation for services in the
calculation of: (1) regular gross income; (2) alternative minimum taxable income
or (3) disqualifying disposition gross income, as the case may be.
1. TAXPAYER'S NAME: ____________________________
TAXPAYER'S ADDRESS: ____________________________
____________________________
SOCIAL SECURITY NUMBER: ____________________________
2. The property with respect to which the election is made is described as
follows: _______ shares of Common Stock of ____________, a _________
corporation which were transferred upon exercise of an option (the
"COMPANY"), which is Taxpayer's employer or the corporation for whom the
Taxpayer performs services.
3. The date on which the shares were transferred pursuant to the exercise of
the option was ________, 199__ and this election is made for calendar year
199__.
4. The shares received upon exercise of the option are subject to the following
restrictions: The Company may repurchase all or a portion of the shares at
the Taxpayer's original purchase price under certain conditions at the time
of Taxpayer's termination of employment or services.
5. The fair market value of the shares (without regard to restrictions other
than restrictions which by their terms will never lapse) was $___ per share
at the time of exercise of the option.
6. The amount paid for such shares upon exercise of the option was $___ per
share.
7. The Taxpayer has submitted a copy of this statement to the Company.
THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE ("IRS"), AT THE
OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS, WITHIN 30 DAYS AFTER
--------------
THE DATE OF TRANSFER OF THE SHARES, AND MUST ALSO BE FILED WITH THE TAXPAYER'S
INCOME TAX RETURNS FOR THE CALENDAR YEAR. THE ELECTION CANNOT BE REVOKED
WITHOUT THE CONSENT OF THE IRS.
Dated: ________________ ____________________________________
Taxpayer's Signature
<PAGE>
EXHIBIT 10.10
VERISIGN, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
As Adopted December 19, 1997
1. Establishment of Plan. VeriSign, Inc. (the "Company") proposes to
grant options for purchase of the Company's Common Stock to eligible employees
of the Company and its Participating Subsidiaries (as hereinafter defined)
pursuant to this Employee Stock Purchase Plan (this "Plan"). For purposes of
this Plan, "Parent Corporation" and "Subsidiary" (collectively, "Participating
Subsidiaries") shall have the same meanings as "parent corporation" and
"subsidiary corporation" in Sections 424(e) and 424(f), respectively, of the
Internal Revenue Code of 1986, as amended (the "Code"). "Participating
Subsidiaries" are Parent Corporations or Subsidiaries that the Board of
Directors of the Company (the "Board") designates from time to time as
corporations that shall participate in this Plan. The Company intends this Plan
to qualify as an "employee stock purchase plan" under Section 423 of the Code
(including any amendments to or replacements of such Section), and this Plan
shall be so construed. Any term not expressly defined in this Plan but defined
for purposes of Section 423 of the Code shall have the same definition herein.
A total of 500,000 shares of the Company's Common Stock is reserved for
issuance under this Plan. Such number shall be subject to adjustments effected
in accordance with Section 14 of this Plan.
2. Purpose. The purpose of this Plan is to provide eligible employees of
the Company and Participating Subsidiaries with a convenient means of acquiring
an equity interest in the Company through payroll deductions, to enhance such
employees' sense of participation in the affairs of the Company and
Participating Subsidiaries, and to provide an incentive for continued
employment.
3. Administration. This Plan shall be administered by the Compensation
Committee of the Board (the "Committee"). Subject to the provisions of this
Plan and the limitations of Section 423 of the Code or any successor provision
in the Code, all questions of interpretation or application of this Plan shall
be determined by the Committee and its decisions shall be final and binding upon
all participants. Members of the Committee shall receive no compensation for
their services in connection with the administration of this Plan, other than
standard fees as established from time to time by the Board for services
rendered by Board members serving on Board committees. All expenses incurred in
connection with the administration of this Plan shall be paid by the Company.
4. Eligibility. Any employee of the Company or the Participating
Subsidiaries is eligible to participate in an Offering Period (as hereinafter
defined) under this Plan except the following:
(a) employees who are not employed by the Company or Participating
Subsidiaries ten (10) days before the beginning of such Offering Period, except
that employees who are employed on the effective date of the registration
statement filed by the Company with the Securities and Exchange Commission
("SEC") under the Securities Act of 1933, as amended (the "Securities Act")
registering the initial public offering of the Company's Common Stock shall be
eligible to participate in the first Offering Period under the Plan;
(b) employees who are customarily employed for twenty (20) hours or
less per week;
(c) employees who are customarily employed for five (5) months or less
in a calendar year;
(d) employees who, together with any other person whose stock would be
attributed to such employee pursuant to Section 424(d) of the Code, own stock or
hold options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Participating Subsidiaries or who, as a result of being granted an option
under this Plan with respect to such Offering Period, would own stock or hold
options to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Participating Subsidiaries; and
-1-
<PAGE>
VeriSign, Inc.
1998 Employee Stock Purchase Plan
(e) individuals who provide services to the Company or any of its
Participating Subsidiaries as independent contractors who are reclassified as
common law employees for any reason except for federal income and employment tax
------ ---
purposes.
5. Offering Dates. The offering periods of this Plan (each, an "Offering
Period") shall be of twenty-four (24) months duration commencing on February 1
and August 1 of each year and ending on January 31 and July 31 of each year;
provided, however, that notwithstanding the foregoing, the first such
- --------- -------
Offering Period shall commence on the first business day on which price
quotations for the Company's Common Stock are available on the Nasdaq National
Market (the "First Offering Date") and shall end on January 31, 1999. Except
for the first Offering Period, each Offering Period shall consist of four (4)
six-month purchase periods (individually, a "Purchase Period") during which
payroll deductions of the participants are accumulated under this Plan. The
first Offering Period shall consist of no more than five and no fewer than three
Purchase Periods, any of which may be greater or less than six months as
determined by the Committee. The first business day of each Offering Period is
referred to as the "Offering Date". The last business day of each Purchase
Period is referred to as the "Purchase Date". The Committee shall have the
power to change the duration of Offering Periods or Purchase Periods with
respect to offerings without stockholder approval if such change is announced at
least fifteen (15) days prior to the scheduled beginning of the first Offering
Period or Purchase Period to be affected.
6. Participation in this Plan. Eligible employees may become participants
in an Offering Period under this Plan on the first Offering Date after
satisfying the eligibility requirements by delivering a subscription agreement
to the Company's treasury department (the "Treasury Department") not later than
five (5) days before such Offering Date unless a later time for filing the
subscription agreement authorizing payroll deductions is set by the Committee
for all eligible employees with respect to a given Offering Period. An eligible
employee who does not deliver a subscription agreement to the Treasury
Department by such date after becoming eligible to participate in such Offering
Period shall not participate in that Offering Period or any subsequent Offering
Period unless such employee enrolls in this Plan by filing a subscription
agreement with the Treasury Department not later than five (5) days preceding a
subsequent Offering Date. Once an employee becomes a participant in an Offering
Period, such employee will automatically participate in the Offering Period
commencing immediately following the last day of the prior Offering Period
unless the employee withdraws or is deemed to withdraw from this Plan or
terminates further participation in the Offering Period as set forth in Section
11 below. Such participant is not required to file any additional subscription
agreement in order to continue participation in this Plan.
7. Grant of Option on Enrollment. Enrollment by an eligible employee in
this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Purchase Period by (b) the lower of (i) eighty-
five percent (85%) of the fair market value of a share of the Company's Common
Stock on the Offering Date (but in no event less than the par value of a share
of the Company's Common Stock), or (ii) eighty-five percent (85%) of the fair
market value of a share of the Company's Common Stock on the Purchase Date (but
in no event less than the par value of a share of the Company's Common Stock),
provided, however, that the number of shares of the Company's Common Stock
- --------- -------
subject to any option granted pursuant to this Plan shall not exceed the lesser
of (a) the maximum number of shares set by the Committee pursuant to Section
10(c) below with respect to the applicable Purchase Date, or (b) the maximum
number of shares which may be purchased pursuant to Section 10(b) below with
respect to the applicable Purchase Date. The fair market value of a share of
the Company's Common Stock shall be determined as provided in Section 8 hereof.
8. Purchase Price. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be eighty-five percent
(85%) of the lesser of:
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date.
-2-
<PAGE>
VeriSign, Inc.
1998 Employee Stock Purchase Plan
For purposes of this Plan, the term "Fair Market Value" means, as of any
date, the value of a share of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in The Wall
--------
Street Journal; or
--------------
(d) if none of the foregoing is applicable, by the Board in good
faith, which in the case of the First Offering Date will be the
price per share at which shares of the Company's Common Stock are
initially offered for sale to the public by the Company's
underwriters in the initial public offering of the Company's
Common Stock pursuant to a registration statement filed with the
SEC under the Securities Act.
9. Payment Of Purchase Price; Changes In Payroll Deductions; Issuance Of
Shares.
(a) The purchase price of the shares is accumulated by regular payroll
deductions made during each Offering Period. The deductions are made as a
percentage of the participant's compensation in one percent (1%) increments not
less than two percent (2%), nor greater than ten percent (10%) or such lower
limit set by the Committee. Compensation shall mean base salary, commissions,
bonuses, incentive compensation and shift premiums not to exceed $250,000 per
calendar year, provided however, that for purposes of determining a
participant's compensation, any election by such participant to reduce his or
her regular cash remuneration under Sections 125 or 401(k) of the Code shall be
treated as if the participant did not make such election. Payroll deductions
shall commence on the first payday of the Offering Period and shall continue to
the end of the Offering Period unless sooner altered or terminated as provided
in this Plan.
(b) A participant may decrease or increase the rate of payroll
deductions during an Offering Period by filing with the Treasury Department a
new authorization for payroll deductions, in which case the new rate shall
become effective for the next payroll period commencing more than fifteen (15)
days after the Treasury Department's receipt of the authorization and shall
continue for the remainder of the Offering Period unless changed as described
below. Such change in the rate of payroll deductions may be made at any time
during an Offering Period, but not more than one (1) change may be made
effective during any Offering Period. A participant may increase or decrease
the rate of payroll deductions for any subsequent Offering Period by filing with
the Treasury Department a new authorization for payroll deductions not later
than fifteen (15) days before the beginning of such Offering Period.
(c) All payroll deductions made for a participant are credited to his
or her account under this Plan and are deposited with the general funds of the
Company. No interest accrues on the payroll deductions. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such payroll
deductions.
(d) On each Purchase Date, so long as this Plan remains in effect and
provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the participant
wishes to withdraw from that Offering Period under this Plan and have all
payroll deductions accumulated in the account maintained on behalf of the
participant as of that date returned to the participant, the Company shall
-3-
<PAGE>
VeriSign, Inc.
1998 Employee Stock Purchase Plan
apply the funds then in the participant's account to the purchase of whole
shares of Common Stock reserved under the option granted to such participant
with respect to the Offering Period to the extent that such option is
exercisable on the Purchase Date. The purchase price per share shall be as
specified in Section 8 of this Plan. Any cash remaining in a participant's
account after such purchase of shares shall be refunded to such participant in
cash, without interest; provided, however that any amount remaining in such
participant's account on a Purchase Date which is less than the amount necessary
to purchase a full share of Common Stock of the Company shall be carried
forward, without interest, into the next Purchase Period or Offering Period, as
the case may be. In the event that this Plan has been oversubscribed, all funds
not used to purchase shares on the Purchase Date shall be returned to the
participant, without interest. No Common Stock shall be purchased on a Purchase
Date on behalf of any employee whose participation in this Plan has terminated
prior to such Purchase Date.
(e) As promptly as practicable after the Purchase Date, the Company
shall issue shares for the participant's benefit representing the shares
purchased upon exercise of his or her option.
(f) During a participant's lifetime, such participant's option to
purchase shares hereunder is exercisable only by him or her. The participant
will have no interest or voting right in shares covered by his or her option
until such option has been exercised.
10. Limitations on Shares to be Purchased.
(a) No participant shall be entitled to purchase stock under this Plan
at a rate which, when aggregated with his or her rights to purchase stock under
all other employee stock purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in this Plan. The Company shall automatically suspend
the payroll deductions of any participant as necessary to enforce such limit
provided that when the Company automatically resumes such payroll deductions,
the Company must apply the rate in effect immediately prior to such suspension.
(b) No more than two hundred percent (200%) of the number of shares
determined by using eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Offering Date as the denominator may
be purchased by a participant on any single Purchase Date.
(c) No participant shall be entitled to purchase more than the Maximum
Share Amount (as defined below) on any single Purchase Date. Not less than
thirty (30) days prior to the commencement of any Offering Period, the Committee
may, in its sole discretion, set a maximum number of shares which may be
purchased by any employee at any single Purchase Date (hereinafter the "Maximum
Share Amount"). Until otherwise determined by the Committee, there shall be no
Maximum Share Amount. In no event shall the Maximum Share Amount exceed the
amounts permitted under Section 10(b) above. If a new Maximum Share Amount is
set, then all participants must be notified of such Maximum Share Amount prior
to the commencement of the next Offering Period. Once the Maximum Share Amount
is set, it shall continue to apply with respect to all succeeding Purchase Dates
and Offering Periods unless revised by the Committee as set forth above.
(d) If the number of shares to be purchased on a Purchase Date by all
employees participating in this Plan exceeds the number of shares then available
for issuance under this Plan, then the Company will make a pro rata allocation
of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Committee shall determine to be equitable. In such
event, the Company shall give written notice of such reduction of the number of
shares to be purchased under a participant's option to each participant affected
thereby.
(e) Any payroll deductions accumulated in a participant's account
which are not used to purchase stock due to the limitations in this Section 10
shall be returned to the participant as soon as practicable after the end of the
applicable Purchase Period, without interest.
-4-
<PAGE>
VeriSign, Inc.
1998 Employee Stock Purchase Plan
11. Withdrawal.
(a) Each participant may withdraw from an Offering Period under this
Plan by signing and delivering to the Treasury Department a written notice to
that effect on a form provided for such purpose. Such withdrawal may be elected
at any time at least fifteen (15) days prior to the end of an Offering Period.
(b) Upon withdrawal from this Plan, the accumulated payroll deductions
shall be returned to the withdrawn participant, without interest, and his or her
interest in this Plan shall terminate. In the event a participant voluntarily
elects to withdraw from this Plan, he or she may not resume his or her
participation in this Plan during the same Offering Period, but he or she may
participate in any Offering Period under this Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth above for initial participation in
this Plan.
(c) If the purchase price on the first day of any current Offering
Period in which a participant is enrolled is higher than the purchase price on
the first day of any subsequent Offering Period, the Company will automatically
enroll such participant in the subsequent Offering Period. Except with respect
to the first Offering Period, any funds accumulated in a participant's account
prior to the first day of such subsequent Offering Period will be applied to the
purchase of shares on the Purchase Date immediately prior to the first day of
such subsequent Offering Period. With respect to the first Offering Period, any
funds accumulated in a participant's account prior to the first day of such
subsequent Offering Period will be applied to the purchase of shares on the
Purchase Date next following the first day of such subsequent Offering Period.
A participant does not need to file any forms with the Company to automatically
be enrolled in the subsequent Offering Period
12. Termination of Employment. Termination of a participant's employment
for any reason, including retirement, death or the failure of a participant to
remain an eligible employee of the Company or of a Participating Subsidiary,
immediately terminates his or her participation in this Plan. In such event,
the payroll deductions credited to the participant's account will be returned to
him or her or, in the case of his or her death, to his or her legal
representative, without interest. For purposes of this Section 12, an employee
will not be deemed to have terminated employment or failed to remain in the
continuous employ of the Company or of a Participating Subsidiary in the case of
sick leave, military leave, or any other leave of absence approved by the Board;
provided that such leave is for a period of not more than ninety (90) days or
- --------
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
13. Return of Payroll Deductions. In the event a participant's interest
in this Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event this Plan is terminated by the Board, the Company
shall promptly deliver to the participant all payroll deductions credited to
such participant's account. No interest shall accrue on the payroll deductions
of a participant in this Plan.
14. Capital Changes. Subject to any required action by the stockholders
of the Company, the number of shares of Common Stock covered by each option
under this Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under this Plan but have
not yet been placed under option (collectively, the "Reserves"), as well as the
price per share of Common Stock covered by each option under this Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock of the
Company resulting from a stock split or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued and outstanding shares of Common Stock effected without receipt of any
consideration by the Company; provided, however, that conversion of any
--------- -------
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the
Committee, whose determination shall be final, binding and conclusive. Except
as expressly provided herein, no issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Committee. The
-5-
<PAGE>
VeriSign, Inc.
1998 Employee Stock Purchase Plan
Committee may, in the exercise of its sole discretion in such instances, declare
that this Plan shall terminate as of a date fixed by the Committee and give each
participant the right to purchase shares under this Plan prior to such
termination. In the event of (i) a merger or consolidation in which the Company
is not the surviving corporation (other than a merger or consolidation with a
wholly-owned subsidiary, a reincorporation of the Company in a different
jurisdiction, or other transaction in which there is no substantial change in
the stockholders of the Company or their relative stock holdings and the options
under this Plan are assumed, converted or replaced by the successor corporation,
which assumption will be binding on all participants), (ii) a merger in which
the Company is the surviving corporation but after which the stockholders of the
Company immediately prior to such merger (other than any stockholder that
merges, or which owns or controls another corporation that merges, with the
Company in such merger) cease to own their shares or other equity interest in
the Company, (iii) the sale of substantially all of the assets of the Company or
(iv) the acquisition, sale, or transfer of more than 50% of the outstanding
shares of the Company by tender offer or similar transaction, the Plan shall
continue for all Offering Periods which began prior to the transaction and
shares will be purchased based on the fair market value of the surviving
corporation's stock on each Purchase Date (taking into account the exchange
ratio, where necessary).
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, or in the event of the Company being consolidated with or merged into any
other corporation.
15. Nonassignability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.
16. Reports. Individual accounts will be maintained for each participant
in this Plan. Each participant shall receive promptly after the end of each
Purchase Period a report of his or her account setting forth the total payroll
deductions accumulated, the number of shares purchased, the per share price
thereof and the remaining cash balance, if any, carried forward to the next
Purchase Period or Offering Period, as the case may be.
17. Notice of Disposition. Each participant shall notify the Company if
the participant disposes of any of the shares purchased in any Offering Period
pursuant to this Plan if such disposition occurs within two (2) years from the
Offering Date or within one (1) year from the Purchase Date on which such shares
were purchased (the "Notice Period"). Unless such participant is disposing of
any of such shares during the Notice Period, such participant shall keep the
certificates representing such shares in his or her name (and not in the name of
a nominee) during the Notice Period. The Company may, at any time during the
Notice Period, place a legend or legends on any certificate representing shares
acquired pursuant to this Plan requesting the Company's transfer agent to notify
the Company of any transfer of the shares. The obligation of the participant to
provide such notice shall continue notwithstanding the placement of any such
legend on the certificates.
18. No Rights to Continued Employment. Neither this Plan nor the grant of
any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Participating Subsidiary, or restrict the right of
the Company or any Participating Subsidiary to terminate such employee's
employment.
19. Equal Rights And Privileges. All eligible employees shall have equal
rights and privileges with respect to this Plan so that this Plan qualifies as
an "employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision of
this Plan which is inconsistent with Section 423 or any successor provision of
the Code shall, without further act or amendment by the Company, the Committee
or the Board, be reformed to comply with the requirements of Section 423. This
Section 19 shall take precedence over all other provisions in this Plan.
-6-
<PAGE>
VeriSign, Inc.
1998 Employee Stock Purchase Plan
20. Notices. All notices or other communications by a participant to the
Company under or in connection with this Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. Term; Stockholder Approval. After this Plan is adopted by the Board,
this Plan will become effective on the date that is the First Offering Date (as
defined above). This Plan shall be approved by the stockholders of the Company,
in any manner permitted by applicable corporate law, within twelve (12) months
before or after the date this Plan is adopted by the Board. No purchase of
shares pursuant to this Plan shall occur prior to such stockholder approval.
This Plan shall continue until the earlier to occur of (a) termination of this
Plan by the Board (which termination may be effected by the Board at any time),
(b) issuance of all of the shares of Common Stock reserved for issuance under
this Plan, or (c) ten (10) years from the adoption of this Plan by the Board.
22. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
this Plan in the event of such participant's death subsequent to the end of an
Purchase Period but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under this Plan in the event
of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under this Plan who is living
at the time of such participant's death, the Company shall deliver such shares
or cash to the executor or administrator of the estate of the participant, or if
no such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
23. Conditions Upon Issuance of Shares; Limitation on Sale of Shares.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act, the Securities Exchange Act of 1934, the
rules and regulations promulgated thereunder, and the requirements of any stock
exchange or automated quotation system upon which the shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
24. Applicable Law. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. Amendment or Termination of this Plan. The Board may at any time
amend, terminate or extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the stockholders of the Company obtained in accordance with
Section 21 hereof within twelve (12) months of the adoption of such amendment
(or earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under this Plan;
or
(b) change the designation of the employees (or class of employees)
eligible for participation in this Plan.
-7-
<PAGE>
VERISIGN, INC. 1998 EMPLOYEE STOCK PURCHASE PLAN
ENROLLMENT FORM
Check One: Complete:
[ ] New Enrollment Social Security No._______________________________
[ ] Change Employee No.______________________________________
1. Name of Participant__________________________________________________________
2. Stock purchased under the plan should be held in account with the broker
selected by VeriSign, Inc. (the "DESIGNATED BROKER") in my name or in my name
together with the name(s) indicated below/*/:
Name____________________ Social Security No._______________________________
Name____________________ Social Security No._______________________________
If the account is to be in your name and another's, it will be held in
joint tenancy, unless you specifically designate otherwise.
PLEASE NOTIFY THE DESIGNATED BROKER DIRECTLY TO TRANSFER OR SELL YOUR STOCK.
3. Payroll Deduction Level (from 2% to 10% in whole percentages):____________
(Deductions will be made from your base salary, commissions, bonuses,
incentive compensation and shift premiums (up to $250,000 per year) unreduced
for Section 401(k) or 125 Plan payroll deferrals.)
4. I hereby designate the following person(s) as my beneficiary(ies) to receive
all payments and/or stock attributable to my interest under the Plan:
<TABLE>
<CAPTION>
NAME *To be divided ADDRESS
as follows:
<S> <C> <C>
---------------------------------- -------------- ------------------------------
Last First M.I. Number Street
---------------------------------- ------------------------------
Social Security No. Relationship City State Zip
---------------------------------- -------------- ------------------------------
Last First M.I. Number Street
---------------------------------- ------------------------------
Social Security No. Relationship City State Zip
</TABLE>
* If more than one beneficiary: (1) insert "in equal shares", or (2) insert
percentage to be paid to each beneficiary.
5. The information provided on this Enrollment Form will remain in effect unless
and until I complete and submit to the Human Resources Department a new
enrollment form.
<TABLE>
<CAPTION>
VERISIGN, INC. OFFICE USE:
<S> <C>
Signature:____________________ Date received by the Human Resources Dept.:____________
Name:_________________________ Date entered into system:______________________________
Date:_________________________
</TABLE>
* If you name someone other than your spouse, you will cause a "disqualifying
disposition" of the shares and you will be deemed to have received ordinary
income in the amount that the fair market value of the shares on the date of
purchase was greater than the amount you paid for the shares.
PLEASE RETURN THIS FORM TO HUMAN RESOURCES.
8
<PAGE>
VERISIGN, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
1. I elect to participate in the VeriSign, Inc. (the "COMPANY") 1998 Employee
Stock Purchase Plan (the "PLAN") and to subscribe to purchase shares of the
Company's Common Stock (the "SHARES") in accordance with this Subscription
Agreement and the Plan.
2. I authorize payroll deductions from each of my paychecks in that percentage
of my gross compensation as shown on my Enrollment Form, in accordance with
the Plan.
3. I understand that such payroll deductions shall be accumulated for the
purchase of Shares under the Plan at the applicable purchase price
determined in accordance with the Plan. I further understand that except as
otherwise set forth in the Plan, Shares will be purchased for me
automatically at the end of each Purchase Period unless I withdraw from the
Plan or otherwise become ineligible to participate in the Plan.
4. I understand that this Subscription Agreement will automatically re-enroll
me in all subsequent Offering Periods unless I withdraw from the Plan or I
become ineligible to participate in the Plan.
5. I acknowledge that I have a copy of and am familiar with the Company's most
recent Prospectus which describes the Plan. A copy of the complete Plan and
the Prospectus is on file with the Company. (In the case of the initial Plan
Purchase Period, the Prospectus will be on file on the first day of the
Offering Period.)
6. I understand that Shares purchased for me under the Plan will be held in a
personal account with the Plan Broker unless I request otherwise.
7. I hereby agree to be bound by the terms of the Plan. The effectiveness of
this Subscription Agreement is dependent upon my eligibility to participate
in the Plan.
8. I have read and understood this Subscription Agreement.
Signature:_________________________________
Name:______________________________________
Date:______________________________________
PLEASE RETURN THIS FORM TO HUMAN RESOURCES.
<PAGE>
VERISIGN, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I, ______________________, the undersigned participant in the Offering
Period of the VeriSign, Inc. 1998 Employee Stock Purchase Plan (the "PLAN")
which began on ________________, hereby notify the Company that I wish to
withdraw from the Offering Period. I direct the Company to pay to me as promptly
as practicable all payroll deductions credited to my account with respect to
such Offering Period. I understand and agree that my participation in the Plan
will terminate and no shares will be purchased for me at the end of the Purchase
Period so long as I submit this Notice of Withdrawal to the Company at least 15
days prior to the end of the Purchase Period. I understand and agree that if I
submit this Notice of Withdrawal to the Company less than 15 days prior to the
----
end of the Purchase Period, shares will be purchased for me at the end of the
Purchase Period, and my participation in the Plan will end at the beginning of
the next Purchase Period or Offering Period, as the case may be. I further
understand that no additional payroll deductions will be made for the purchase
of shares in the current Offering Period, and I shall be eligible to participate
in succeeding Offering Periods only by timely delivering to the Company a new
Subscription Agreement and Enrollment Form.
Name and address of Participant (please print):
Name:___________________________________________________________________________
Street Address or P.O. Box:_____________________________________________________
City, State ZIP:________________________________________________________________
_______________________________________ ____________________________________
Signature Date
PLEASE RETURN THIS FORM TO HUMAN RESOURCES.
<PAGE>
EXHIBIT 10.15
-------------
ASSIGNMENT
THIS ASSIGNMENT ("ASSIGNMENT") is by and between RSA Data Security, Inc.
----------
("RSA") and Digital Certificates International, Inc., a Delaware corporation
- -----
("DCI") and is dated this 18th day of April, 1995.
- -----
RECITALS
A. RSA has sold its certification services business including the goodwill
thereof to DCI in return for shares of DCI's Common Stock.
B. Such sale has been accomplished pursuant to a Founders Subscription
Agreement between RSA and DCI of even date herewith.
C. The Founders Subscription Agreement requires an assignment by RSA of the
assets of its certification services business and the parties have entered into
this Agreement to execute such transfer.
AGREEMENT
1. ASSIGNMENT. Except as set forth in Section 2, for good and valuable
----------
consideration the adequacy of which is hereby acknowledged, RSA hereby transfers
and assigns to DCI all of its right, title and interest in the following
property:
1.1 All of RSA's hierarchy root keys including without limitation its
Low-Assurance Hierarchy, Secure Server Hierarchy, Intra-Organization Only
Hierarchy, Persona Root Key and Commercial Hierarchy as listed on Exhibit A
---------
hereto.
1.2 The source code, object code, copyright and trade secrets (the
"SOFTWARE") contained in the software products set forth on Exhibit B hereto.
- --------- ---------
The source code shall include, but is not limited to, design documents, error
logs, bug lists, and developer's documentation.
<PAGE>
RSA Data Security, Inc.
Assignment
Page 2
1.3 All discoveries, developments, designs, innovations,
improvements, inventions, formulas, processes, techniques, know-how and data
(whether or not patentable, and whether or not at a commercial stage, or
registrable under copyright or similar statutes) (the "KNOW-HOW") contained in
--------
the Software.
1.4 The design, specifications, blueprints, shop drawings and trade
secrets embodied in the CIS hardware more specifically described on Exhibit C
---------
hereto, subject to the rights (the "BNN RIGHTS") of BBN Communications, a
----------
Division of Bolt Beranek and Newman Inc., and affiliated entities as set forth
in the Source Code Software License Agreement between BBN Communications and RSA
dated October 5, 1992, the Value Added Reseller Agreement between BBN
Communications and RSA dated October 7, 1992 and the Software License Agreement
between BBN Systems and Technologies and RSA dated September 22, 1994.
1.5 The tangible personal property set forth on Exhibit D hereto.
---------
2. RETENTION OF RIGHTS. Notwithstanding the provisions of paragraphs 1.2
-------------------
and 1.3 of this Assignment, the following property and rights are expressly
excluded from the assignments hereunder and reserved to RSA:
2.1 All right, title and interest in and to the Software and the
Know-How in RSA's products known as "TIPEM" and "BSAFE" including without
limitation that portion of the software products identified on Exhibit B
---------
consisting of TIPEM and BSAFE. Contemporaneously with the execution of this
Assignment, RSA and DCI shall enter an OEM Master License Agreement granting DCI
a license to TIPEM and BSAFE on the terms and conditions set forth in such OEM
Master License Agreement.
<PAGE>
RSA Data Security, Inc.
Assignment
Page 3
2.2. A non-exclusive, perpetual, transferable, royalty-free right and
license to make, use, modify, support, compile, reproduce, display, disclose,
perform, transmit, market, sublicense and distribute the Software and the Know-
How in the software products identified on Exhibit B as "SoftCIS" with TIPEM,
---------
BSAFE or any successor products to TIPEM or BSAFE; provided, however, that: (i)
RSA shall have no right to sublicense SoftCIS as a standalone product; and (ii)
sublicenses of SoftCIS will restrict use of such products to certification of
public keys provided by RSA or DCI.
2.3 A non-exclusive, perpetual, transferable, royalty-free right and
license to embed the hierarchy root keys assigned to DCI hereunder in TIPEM or
BSAFE or any successor product to TIPEM or BSAFE to permit users of TIPEM or
BSAFE to embed such root keys in software products made, used, modified,
supported, compiled, reproduced, displayed, disclosed, performed, transmitted,
marketed, sublicensed or distributed by such users.
3. ASSIGNMENT OF CONTRACTS.
-----------------------
3.1 RSA hereby assigns all of its rights, title and interest in the
contracts (or portions thereof) set forth in Exhibit E hereto and any bids,
---------
proposals, quotations and commitments set forth on Exhibit G attached hereto.
---------
DCI hereby assumes all outstanding liabilities and obligations of RSA under such
contracts. To the extent such contracts require consent of any party to their
assignment, the consent so required has been obtained except as noted on Exhibit
-------
E. If so noted, such assignment and assumption is subject to RSA obtaining such
- -
consent. RSA agrees to use its reasonable best efforts to obtain such consents.
In the event any such consent cannot be obtained, RSA and DCI agree to negotiate
in good faith to permit
<PAGE>
RSA Data Security, Inc.
Assignment
Page 4
RSA to honor its obligations to other parties to such contracts while obtaining
for DCI the economic benefits of this Assignment.
3.2 With respect to the assignment of Sections 2.3 and 7 (the "APPLE
-----
SECTIONS") of the Second Encryption Software License Agreement between RSA Data
- --------
Security, Inc. and Apple Computer, Inc. ("APPLE COMPUTER") dated as of September
--------------
25, 1990 (the "APPLE AGREEMENT"), Sections 2.1.5, 2.2.4, 5.2 and 5.15 (the
---------------
"MICROSOFT SECTIONS") of the Technology Software License Agreement between RSA
- -------------------
and Microsoft Corporation ("MICROSOFT") dated May 24, 1991 (the "MICROSOFT
--------- ---------
AGREEMENT"), the second sentence of Section 2.3.5 of the BSAFE/TIPEM OEM Master
- ---------
License Agreement between RSA and Enterprise Integration Technologies
Corporation, dated as of November 21, 1994 (the "EIT SECTIONS") and that portion
------------
of Exhibit A quoted on Exhibit E hereto to that certain BSAFE/TIPEM OEM Master
---------
License Agreement between RSA and Premenos Corp., dated July 12, 1994 ("PREMENOS
--------
SECTIONS") RSA agrees that it shall not consent to any amendment to the Apple
- --------
Sections, Microsoft Sections, EIT Sections or Premenos Sections without DCI's
prior written consent.
3.3 In the event RSA breaches its covenants set forth in Section 3.2,
DCI shall be entitled to recover from RSA its actual out-of-pocket damages plus
reasonably anticipated lost profits from RSA's breach.
3.4 In the event Apple Computer of Microsoft do not consent to the
assignment of the Apple Sections or Microsoft Sections respectively, and DCI
wishes to cause RSA to enforce either the Apple Sections or Microsoft Sections,
RSA agrees, upon DCI's written
<PAGE>
RSA Data Security, Inc.
Assignment
Page 5
request and at DCI's sole expense, to prosecute enforcement of such Sections
through counsel selected by DCI. Such counsel shall represent RSA and RSA waives
any conflict in connection with such representation provided that such counsel
previously has not represented any party in a matter or proceeding in which such
party's interest was adverse to RSA. In this connection RSA agrees to cooperate
with DCI in connection with the prosecution of any such matter. Notwithstanding
the foregoing, RSA's obligations under this Section 3.4 shall terminate and be
of no further force or effect upon DCI's failure to make timely payments of all
costs and expenses incurred by RSA or its counsel under this Section 3.4.
4. FURTHER ASSISTANCE. RSA agrees, at no charge to DCI, but at DCI's
------------------
expense, (i) to sign and deliver to DCI such other documents as DCI considers
desirable to evidence the assignment of the foregoing rights to DCI and DCI's
ownership of such rights and property and (ii) to cooperate with DCI in
performing any lawful act or signing any document which DCI in its sole judgment
considers necessary to apply for, prosecute, obtain or enforce any patent,
copyright or other right of protection relating to any intellectual property.
In the event DCI is unable to secure RSA's signature on any such document, RSA
hereby irrevocably designates and appoints each of DCI and its duly authorized
agents as its attorney-in-fact, to act for and in its behalf and stead, for the
limited purpose of executing and filing any such document and doing all other
lawfully permitted acts to further the prosecution, issuance and enforcement of
patents, copyrights, or other protections with the same force and effect as if
executed and delivered by RSA.
<PAGE>
RSA Data Security, Inc.
Assignment
Page 6
5. REPRESENTATIONS AND WARRANTIES OF RSA. RSA represents and warrants to
-------------------------------------
DCI that:
5.1 RSA has, and hereby transfers to DCI, good, valid and marketable
title free from all security interests, liens, claims, charges, encumbrances, or
any other defects in title of any nature whatsoever to all of the rights and
assets described in Section 1 above, subject to Section 2 and the BBN Rights.
5.2 The property and contract rights assigned by RSA to DCI pursuant
to Section 1 and Section 3 above are sufficient to permit DCI to conduct the
certification business described in that "Digital Certificates International,
Inc. Strategic Business Plan, November 1994, Version 2.0."
5.3 Attached hereto as Exhibit F is a true and accurate list of the
---------
names and addresses of employees of RSA that may be employed by DCI (the
"EMPLOYEES"). Exhibit F sets forth for each such employee a rate of
- ---------- ---------
compensation (including annual bonuses), and anticipated date of salary review.
RSA does not have any employment contracts or consulting agreements currently in
effect with such employees which are not terminable at will except as set forth
on Exhibit F.
---------
5.4 Attached as Exhibit G is a true and accurate list of all
---------
outstanding bids, proposals, quotations, and commitments for the sale of
certification services by RSA.
5.5 The Agreements set forth on Exhibit E are in full force and
---------
effect and are binding upon RSA and to the best of RSA's knowledge are binding
on the other parties thereto. No default by RSA has occurred thereunder and to
the best of RSA's knowledge, no default by
<PAGE>
RSA Data Security, Inc.
Assignment
Page 7
the other contracting parties has occurred thereunder and no event has occurred
which with the giving of notice or the lapse of time or both would constitute a
default. The agreements set forth in Exhibit E are all of the agreements to
---------
which RSA is a party which commit RSA
to engage in the "Certificate Business" as such term is defined in the Non-
Compete and Non-Solicitation Agreement of even date herewith between RSA and
DCI. The agreements set forth in Exhibit E are all of the agreements to which
---------
RSA is a party necessary to permit DCI to conduct its business as now being
conducted or proposed to be conducted in the Business Plan Version 2.0 dated
November, 1994 and attached as Exhibit E to the Series A Preferred Stock
---------
Purchase Agreement dated an even date herewith, by and between DCI, RSA and the
purchasers listed on Exhibit A to such Agreement. True and complete copies of
---------
the agreements set forth in Exhibit E have been delivered to counsel to Bessemer
---------
Venture Partners.
5.6 The agreements set forth on Exhibit H are a true and complete
---------
list of the agreements to which RSA is a party which contain restrictions on a
third party's ability to engage in the Certificate Business, other than
agreements set forth on Exhibit E.
---------
5.7 The execution, delivery and performance of this Assignment has
been duly and validly approved and authorized by RSA's Board of Directors and no
authorization or approval, governmental or otherwise, is necessary in order to
enable RSA to enter into and perform the terms of this Agreement. This
Assignment is a valid and binding obligation of RSA enforceable in accordance
with its terms. Neither the execution and delivery of this Assignment nor the
consummation of the transactions contemplated hereby will conflict with, or
result in a breach or violation of, any provision of RSA's Certificate of
Incorporation or Bylaws as
<PAGE>
RSA Data Security, Inc.
Assignment
Page 8
currently in effect, or any material instrument or contract to which RSA is a
party or by which RSA is bound.
6. EMPLOYEES. Exhibit F sets forth those RSA employees and consultants
--------- ---------
which RSA anticipates may be employed by DCI. DCI shall, at its sole election,
determine those RSA employees and consultants listed on Exhibit F which it
---------
desires to employ and shall employ same on such terms and conditions as shall be
negotiated between DCI and each such employee. If DCI employs any such RSA
employee or consultant within sixty (60) days from the date hereof, DCI will
reimburse RSA for all salary and benefits paid to such employee or consultant
after the date hereof to the date of employment by DCI.
7. PROPRIETARY RIGHTS INFRINGEMENT BY RSA.
--------------------------------------
7.1 Subject to the limitations set forth below, RSA, at its own
expense, shall: (i) defend, or at its option settle, any claim, suit or
proceeding against DCI on the basis of infringement of any United States patent,
copyright or trade secret in the field of cryptography by the software described
on Exhibit B delivered by RSA to DCI hereunder or any claim that RSA has no
---------
right to transfer and assign such software hereunder; and (ii) pay any final
judgment entered or settlement against DCI on such issue in any such suit or
proceeding defended by RSA. RSA shall have no obligation to DCI pursuant to
this Section 7.1 unless: (A) DCI gives RSA prompt written notice of the claim;
(B) RSA is given the right to control and direct the investigation,
preparation, defense and settlement of the claim; and (C) the claim is based
on the software delivered in accordance with this Assignment. RSA shall have no
obligation under this Section 7.1 if DCI shall have modified the software
described on Exhibit B and except for such
---------
<PAGE>
RSA Data Security, Inc.
Assignment
Page 9
modifications the software described
on Exhibit B would not have infringed on any such patent, copyright or trade
---------
secret. In the event RSA accepts provisional responsibility hereunder and it is
determined by any final judgment that RSA was not liable hereunder because of
such modifications, DCI shall reimburse RSA for all expenses incurred by it in
connection with this Section 7.1.
7.2 If RSA receives notice of an alleged infringement, RSA shall have
the right, at its sole option, to obtain the right to continue use of the
software or to replace or modify the software so that it is no longer
infringing; provided, that such replacement or modified software performs
comparably to that which it replaces.
7.3 WITHOUT LIMITING DCI'S RIGHTS AND REMEDIES UNDER ANY OTHER
AGREEMENT, THE RIGHTS AND REMEDIES SET FORTH IN SECTIONS 7.1 AND 7.2 CONSTITUTE
THE ENTIRE OBLIGATION OF RSA AND THE EXCLUSIVE REMEDIES OF DCI CONCERNING RSA'S
PROPRIETARY RIGHTS INFRINGEMENT UNDER THIS AGREEMENT.
8. INDEMNITY. RSA shall indemnify, hold harmless, reimburse and
defend DCI against any loss, liability or other damages, including reasonable
costs of investigation, interest, penalties and attorneys' and accountants' fees
incurred in connection with, or arising from, or attributable to (i) any breach
or inaccuracy in any representation or warranty made by RSA under this
Assignment, and (ii) any breach or failure to perform any covenant or agreements
of RSA under this Assignment.
<PAGE>
RSA Data Security, Inc.
Assignment
Page 10
9. MISCELLANEOUS.
9.1 GOVERNING LAWS. IT IS THE INTENTION OF THE PARTIES HERETO THAT
THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A.
(IRRESPECTIVE OF ITS CHOICE OF LAW PRINCIPLES) SHALL GOVERN THE VALIDITY OF THIS
ASSIGNMENT, THE CONSTRUCTION OF ITS TERMS, AND THE INTERPRETATION AND
ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO. THE PARTIES HEREBY
EXCLUDE THE UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF
GOODS FROM THIS ASSIGNMENT. THE PARTIES HEREBY AGREE THAT ANY SUIT TO ENFORCE
ANY PROVISION OF THIS ASSIGNMENT OR ARISING OUT OF OR BASED UPON THIS ASSIGNMENT
OR THE BUSINESS RELATIONSHIP BETWEEN ANY OF THE PARTIES HERETO SHALL BE BROUGHT
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA OR
THE SUPERIOR OR MUNICIPAL COURT IN AND FOR THE COUNTY OF SAN MATEO, CALIFORNIA,
U.S.A.
9.2 BINDING UPON SUCCESSORS AND ASSIGNS.
Subject to, and unless otherwise provided in, this Assignment, each and all of
the covenants, terms, provisions, and agreements contained herein shall be
binding upon, and inure to the benefit of, the permitted successors, executors,
heirs, representatives, administrators and assigns of the parties hereto.
9.3 ENTIRE AGREEMENT. This Assignment, the exhibits hereto, the
-----------------
documents referenced herein, and the exhibits thereto, constitute the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and thereof and supersede all prior
<PAGE>
RSA Data Security, Inc.
Assignment
Page 11
and contemporaneous agreements or understandings, inducements or conditions,
express or implied, written or oral, between the parties with respect hereto and
thereto. The express terms hereof control and supersede any course of
performance or usage of the trade inconsistent with any of the terms hereof.
9.4 SURVIVAL OF AGREEMENTS. All covenants, agreements,
-----------------------
representations and warranties made herein shall survive the execution and
delivery of this Assignment and the consummation of the transactions
contemplated hereby.
9.5 ATTORNEYS FEES.
---------------
9.5.1 Should suit or arbitration be brought to enforce or interpret
any part of this Assignment, the prevailing party shall be entitled to recover
reasonable attorneys' fees to be fixed by the court or arbitrator (including
without limitation, costs, expenses and fees on any appeal). If either party to
this Assignment shall bring any action for any relief against the other,
declaratory or otherwise, arising out of this Assignment, the losing party shall
pay to the prevailing party a reasonable sum for attorneys' fees incurred in
bringing such suit and enforcing any judgment granted therein, all of which
shall be deemed to have accrued upon the commencement of such action and shall
be paid whether or not such action is prosecuted to judgment. Any judgment or
order entered in such action shall contain a specific provision providing for
the recovery of attorney fees and costs incurred in enforcing such judgment.
For the purposes of this section, attorney fees shall include, without
limitation, fees incurred in the following: (i) postjudgment motions; (ii)
contempt proceedings; (iii) garnishment, levy, and debtor and third party
examinations; (iv) discovery; and (v) bankruptcy litigation.
<PAGE>
RSA Data Security, Inc.
Assignment
Page 12
9.5.2 In addition to attorneys' fees recoverable pursuant to Section
9.5.1 above, the prevailing party in any suit or arbitration shall be entitled
to recover its reasonable
attorneys' fees incurred in enforcing the final judgment or arbitration award.
Such right to attorneys' fees pursuant to this Section 9.5.2 is severable from
the other provisions of this agreement, shall survive the initial judgment or
award in favor of the prevailing party, and is not to be deemed to be merged
into such judgment or award.
9.6 NOTICES. Whenever any party hereto desires or is required to
--------
give any notice, demand or request with respect to this agreement, each such
communication shall be in writing and shall be given or made by, telecopy,
telegraph, cable, mail or other delivery and telecopied, telegraphed, cabled,
mailed or delivered to the intended recipient at the addresses specified below:
RSA: RSA Data Security, Inc.
100 Marine Parkway, Suite 500
Redwood City, CA 94065
Attn: President
If to RSA, Timothy Tomlinson, Esq.
with a copy to: Tomlinson Zisko Morosoli & Maser
200 Page Mill Road, Second Floor
Palo Alto, California 94306
DCI: Digital Certificates International, Inc.
100 Marine Parkway
Suite 500
Redwood City, CA 94054
Attn: President
Except as may be otherwise provided elsewhere in this Assignment, all such
communications shall be deemed to have been duly given when transmitted by
telecopier
<PAGE>
RSA Data Security, Inc.
Assignment
Page 13
with verified receipt by the receiving telecopier, when delivered to
the telegraph or cable office, when personally delivered, or in the case of a
mailed notice, five (5) days after being deposited in the
United States certified or registered mail, postage prepaid. Any party may
change its address for such communications by giving notice thereof to the other
parties in conformance with this section.
9.7 FURTHER ASSURANCES. Each party agrees to cooperate fully with
-------------------
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances, as may be reasonably
requested by any other party, to better evidence and reflect the transactions
described herein and contemplated hereby, and to carry into effect the intents
and purposes of this Assignment.
9.8 FOREIGN RESHIPMENT LIABILITY. THIS ASSIGNMENT IS EXPRESSLY MADE
----------------------------
SUBJECT TO ANY LAWS, REGULATIONS, ORDERS OR OTHER RESTRICTIONS ON THE EXPORT
FROM THE UNITED STATES OF AMERICA OF SOFTWARE, DERIVATIVE SOFTWARE OR
APPLICATION PROGRAMS OR OF INFORMATION ABOUT SUCH SOFTWARE, DERIVATIVE SOFTWARE
OR APPLICATION PROGRAMS WHICH MAY BE IMPOSED FROM TIME TO TIME BY THE GOVERNMENT
OF THE UNITED STATES OF AMERICA. NOTWITHSTANDING ANYTHING CONTAINED IN THIS
ASSIGNMENT TO THE CONTRARY, DCI SHALL NOT EXPORT OR REEXPORT, DIRECTLY OR
INDIRECTLY, ANY SOFTWARE, DERIVATIVE SHOFTWARE OR APPLICATION PROGRAM OR
INFORMATION PERTAINING THERETO TO ANY COUNTRY OR DESTINATION OR PERMIT ITS
TRANSHIPMENT TO ANY COUNTRY
<PAGE>
RSA Data Security, Inc.
Assignment
Page 14
OR DESTINATION FOR WHICH SUCH GOVERNMENT OR ANY
AGENCY THEREOF
REQUIRES AN EXPORT LICENSE OR OTHER GOVERNMENTAL APPROVAL AT THE TIME OF EXPORT
WITHOUT FIRST OBTAINING SUCH LICENSE OR APPROVAL.
9.9 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provisions of this
-----------------------------------------
Agreement are intended nor shall be interpreted to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, or partner of any party hereto or any other
person; unless specifically provided otherwise herein, and, except as so
provided, all provisions hereof shall be personal solely between the parties to
this Assignment.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
as of the date first hereinabove written.
RSA DATA SECURITY, INC.
By: /S/ D. James Bidzos
-------------------
Its: President
---------
DIGITAL CERTIFICATES
INTERNATIONAL, INC.
By: /S/ D. Cowan
------------
Its: Chairman of the Board
---------------------
<PAGE>
EXHIBIT A
---------
ROOT KEYS
Commercial Hierarchy Root Key
Secure Server Hierarchy Root Key
Intra-Organization Only Hierarchy Root Key
Low Assurance Hierarchy Root Key
Persona Root Key
<PAGE>
EXHIBIT B
---------
SOFTWARE PRODUCTS
CIS Software Certificate Issuing Software including the user interface
and management of the CIS hardware and certificate database
CSC CIS Internal software used by RSA Certificate Services to
manage the services
SoftCIS Software - only certificate issuing product
Persona Responder Automatic, anonymous certificate issuing for Internet
user's testing and play
Co-Issuer Tool Software that allows co-issuer customers to preview
certificate requests and forward them to RSA Certificate
Services
Co-Issuer Software Software that allows RSA Certificate Services to manage
private keys and sign data and other files on behalf of
co-signer customers.
IVR Software Software component of the Integrated Voice Response system
that provides certificate status via telephone
WinSign Software utility under development that provides for a
digital signature creation and verification capability in
the Windows environment
Conversion Utility Software that converts Macintosh signers to PC format
certificates
rsaSign/rsaCheck Software application providing digital signature creation
and verification capabilities
<PAGE>
EXHIBIT C
---------
CIS HARDWARE
CIS Hardware Secure Certificate Signing Unit (CSU) hardware
provided by BBN
Datakey Reader(s) Used for Co-Signing business
<PAGE>
EXHIBIT D
---------
Tangible Personal Property
IVR (1) Integrated Voice Response system
BBN CSU Inventory (4) used internally
(1) on loan to prospect
(9) in inventory
DataKey Inventory (80) Short Datakeys
(2) Long Datakeys
Safes (2) Sentry Model 1250 Personal Safes
(2) Medium Size Mosler Safes
(1) 4-Drawer Mosler File Cabinet
Macintosh Computers (1) Centris 610 (DI, ST)
(1) Quadra 650 (PH)
(2) Quadra 800 (JP, GP)
IBM Compatible PCs (1) Gateway PC Clone (Pentium 66 MHz) (JP)
(1) Dell Latitude XP Notebook (ST)
Servers: (1) Sun SPARCserver 10
Other Hardware (1) Apple Laser Writer Select Laser Printer
<PAGE>
EXHIBIT E
---------
Contracts
1. RSA Commercial Hierarchy Certified Agreement between RSA Data Security,
Inc. and Apple Computer, Inc., dated November 5, 1993.
2. RSA Commercial Hierarchy Co-Issuer Agreement between RSA Data Security,
Inc. and Apple Computer, AB., dated June 3, 1994.*
3. RSA Commercial Hierarchy Co-Issuer Agreement between RSA Data Security,
Inc. and Cisco Systems, Inc., dated November 1, 1994.
4. RSA Commercial Hierarchy Co-Issuer Agreement between RSA Security, Inc. and
Consensus Development Corporation, dated April 5, 1994.
5. RSA Commercial Hierarchy Certifier Agreement between RSA Data Security and
ESL, Inc., dated April 19, 1994.
6. RSA Commercial Hierarchy Trusted Third Party Service Provider Agreement
between RSA Data Security, Inc. and Fix, Inc., dated May 24, 1994.
7. RSA Data Security, Inc. Co-Signer Agreement between RSA Data Security and
General Magic, Inc., dated December 5, 1993.
8. RSA Commercial Hierarchy Certifier Agreement between RSA Data Security,
Inc. and Lawrence Livermore National Laboratory, dated June, 1994.
9. RSA Certificate Services Agreement Co-Issuer Agreement between RSA Data
Security, Inc. and Norwest Bank Minnesota, National Association, dated
September 27, 1994.
10. RSA Commercial Hierarchy Co-Issuer Agreement between RSA Data Security,
Inc. and RSA Data Security, Inc., dated August 2, 1994.
11. RSA Commercial Hierarchy Certifier Agreement between RSA Data Security,
Inc. and San Joaquin Delta Community College District, dated May 3, 1994.
12. RSA Commercial Hierarchy Co-Issuer Agreement between RSA Data Security and
Shana Corporation, dated February 10, 1994.
13. BBN Communications Source Code Software License Agreement between BBN
Communications and RSA Data Security, Inc. dated October 5, 1992
- --------------------
* Consent to assignment required.
<PAGE>
14. Value Added Reseller Agreement between BBN Communications, A Division of
Bolt Beranek and Newman, Inc. and RSA Data Security, Inc. dated October 7,
1992.
15. Software License Agreement for BBN Software between BBN Systems and
Technologies and RSA Data Security, Inc., signed September 22, 1994.
16. RSA Commercial Hierarchy Co-Issuer Agreement between RSA Data Security,
Inc. and CommerceNet, signed March 24, 1995.
17. RSA Commercial Hierarchy Co-Issuer Agreement between RSA Data Security,
Inc. and CommerceNet, signed March 10, 1995.
18. RSA Commercial Hierarchy Certifier Agreement between RSA Data Security,
Inc. and NTT Electronics Technology Corporation, dated January 10, 1995.
<PAGE>
Partial Assignment
------------------
RSA will assign all rights to receive revenue under and all rights to enforce
the following sections to the following documents and DCI will assume all
obligations under such sections:
1. Sections 2.1.5, 2.2.4, 5.2 and 5.15 of that certain Technology Software
License Agreement between RSA and Microsoft Corporation dated May 24,
1991.*
2. Sections 2.3 and 7 of that certain Second Encryption Software License
Agreement between RSA Data Security, Inc. and Apple Computer, Inc. dated as
of September 25, 1990.*
3. RSA will assign all rights to enforce the following sections to the
following documents:
3.1 The second sentence of Section 2.3.5 of that certain BSAFE/TIPEM OEM
Master License Agreement between RSA and Enterprise Integration
Technologies Corporation, a California corporation dated November 21,
1994.
3.2 The sentence that reads: "Nothing herein shall be construed to permit
OEM or any third person to issue certificates to third parties, act as
a certification authority, or provide certificate-issuing services, or
any fee-generating service associated with the issuance of
certificates." appearing on Exhibit "A" dated July 12, 1994 to that
certain BSAFE/TIPEM OEM Master License Agreement between RSA and
Premenos Corp., a Delaware corporation, dated July 12, 1994.
-------------------------
* Consent to assignment required.
<PAGE>
EXHIBIT F
---------
Employees
<TABLE>
<CAPTION>
Name Anticipated Title at DCI Anticipated
Compensation at DCI
Definitely Will Transfer to DCI
<S> <C> <C>
Danny Ivan Sr. Certificate Services Support Rep. $40K/year
Patricia Holmes Certificate Services Support Rep. $30K/year
George Parsons Director, Engineering & Operations $90K + $40K bonus
at 100% of
objectives
<CAPTION>
Most Likely Will Transfer to DCI (RSA Employees)
<S> <C> <C>
Jason Paul Software Engineer $70K/year
Web Augustine VP, Marketing and Sales $120K + $30K bonus
at 100% of
objectives
<CAPTION>
Most Likely Will Transfer to DCI (Currently Consultants to RSA)
<S> <C> <C>
Andy Leventhal** Business Development Manager $70K + $20K bonus
at 100% of
objectives
Simon Taylor** Sales Engineer $55K + $15K at 100%
of objectives
Todd Varland** Lotus Notes Architect $55K + $15K at 100%
of objectives
Ram Moskovitz** QA Engineer $35K/year
</TABLE>
NOTES: 1). Accrued vacation bonus and expense reimbursement will be paid out
by RSA as part of the termination process for employees
transferring to DCI. Consequently, all employees will start at
DCI without any accrued vacation or sick leave.
2). Initial review dates for all employees anticipated to be twelve
months after hire date at DCI.
3). ** These consultants are under different contracts with RSA.
Compensation shown is anticipated compensation upon hiring by DCI
<PAGE>
EXHIBIT G
---------
Outstanding Bids, Proposals, Quotations and Commitments
Service Provider Proposals
Spry Proposal to issue certificates for end-users of Spry
WWW products
National Semiconductor Proposal to issue certificates for end users of
National Semiconductor iPower tokens used in
conjunction with Axent's SECURExchange product
Co-Issuer Proposals
Apple Computer Proposal to co-issue certificates for internal Apple
employees
Motorola CIS and co-issuer quotation for certification of
internal Motorola employees
CIS Quotations
Trusted Information Custom hierarchy CIS quotation
Systems
Sonoma State University
Draper Labs
<PAGE>
EXHIBIT H
---------
Other Contracts Restricting Third Party Certificate Business
[NONE]
<PAGE>
EXHIBIT 10.18
-------------
CONFIDENTIAL TREATMENT REQUESTED
MICROSOFT/VERISIGN
CERTIFICATE TECHNOLOGY PREFERRED PROVIDER AGREEMENT
Company: MICROSOFT CORPORATION (Washington)
-----------------------------------------------------
(name and jurisdiction of incorporation)
Company Address: One Microsoft Way
-----------------------------------------------------
Redmond, Washington 98052-6399
-----------------------------------------------------
Company Contact:
-----------------------------------------------------
Effective Date: May 1, 1997
-----------------------------------------------------
Term: Two (2) years from Effective Date
-----------------------------------------------------
THIS MICROSOFT/VERISIGN CERTIFICATE TECHNOLOGY PREFERRED PROVIDER AGREEMENT
("Agreement"), effective as of the Effective Date set forth above, is entered
into by and between VeriSign, Inc., a Delaware corporation, ("VeriSign") having
--------
its principal place of business at 2593 Coast Avenue, Mountain View, California
94043 and Microsoft Corporation, a Washington corporation, ("Microsoft") having
---------
a principal address as set forth above.
RECITALS
--------
The purpose of this Agreement is to set out the terms and conditions under which
each party will become the Preferred Provider of the other's existing products
and services that involve the use of Certificate technology and will work
closely together to bring new products and services to market. VeriSign will
make the Microsoft Technology Platform (including Windows 95, Windows NT
Workstation, Windows NT Server, *** ) its preferred platform for delivering
existing and new products and services *** . Microsoft will make VeriSign
the Preferred Provider of Certificate Authority products and services that are
used by Microsoft customers or for Microsoft internal use. Microsoft will
promote VeriSign as the Preferred Provider in its strategic marketing programs
related to commercial Certificate Authority products and services.
AGREEMENT
---------
1. DEFINITIONS
-----------
1.1 Certificate means a message that, at least, states a name or
-----------
identifies the IA,
*** Confidential treatment has been requested with respect to certain
portions of this exhibit. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchange
Commission.
<PAGE>
identifies the Subscriber, contains the Subscriber's public key, identifies its
operational period, contains a certificate serial number, and is digitally
signed by the IA. "Certify" or "Certification" means the act of generating a
------- -------------
Certificate. "Certified" means the condition of having been issued a valid
---------
Certificate by a Certifier, which Certificate has not been revoked.
1.2 Certificate Revocation List ("CRL") means a periodically (or
-----------------------------------
exigently) issued list, digitally signed by an IA, of certificates that have
been suspended or revoked prior to their expiration date. The list generally
indicates the issuer's name, the time of issue, the time of the next scheduled
CRL issue, the suspended or revoked certificates' serial numbers, and the
specific times and reasons for suspension and revocation.
1.3 Certification Authority or Certifier ("CA") means VeriSign or any
------------------------------------
entity which is authorized to issue Certificates.
1.4 Certification Practice Statement ("CPS") means VeriSign's statement of
--------------------------------
the practices an IA in the VeriSign Public Certification Service employs in
issuing Certificates, as further described in Section 2.2 of this Agreement.
1.5 Digital ID means VeriSign's service-marked name for a Certificate.
----------
1.6 Digital Signature means a transformation of a message, using an
-----------------
asymmetric cryptosystem, such that a person having the initial message and the
signer's Public Key can accurately determine whether the transformation was
created using the Private Key that corresponds to the signer's Public Key and
whether the message has been altered since the transformation was made.
1.7 ECAS means VeriSign's proprietary software product marketed and
----
developed under the name "Electronic Commerce Authentication System" providing
secure on-line Certificate issuance as presently in existence and as developed
and enhanced in the future by VeriSign.
1.8 Issuing Authority ("IA") means the VeriSign Root or a Certification
------------------------
Authority that issues, suspends or revokes a Certificate within the VeriSign
Public Certification Services. An Issuing Authority is identified by a
distinguished name on all Certificates and CRLs it issues.
1.9 Microsoft Product means any product developed by Microsoft that
-----------------
utilizes a commercial Certificate.
1.10 Microsoft Technology Platform means the existing Microsoft products
-----------------------------
currently known as Windows NT Server, Windows 95, Windows NT Workstation,
Internet Information Server, Certificate Server, Internet Explorer, Crypto API
and ActiveX, as they may be revised or updated from time to time during the term
of this Agreement.
1.11 Preferred Provider means a provider of products and services which
------------------
are a preferred choice for internal use and recommended to customers as a
preferred choice through the strategic marketing programs and other commitments
set forth in this Agreement.
2
<PAGE>
1.12 Private Key means a mathematical key (kept secret by the holder) used
-----------
to create Digital Signatures and, depending upon the algorithm, to decrypt
messages encrypted with the corresponding Public Key.
1.13 Public Key means a mathematical key that can be made publicly
----------
available and which is used to verify signatures created with its corresponding
Private Key. Public Keys are also used to encrypt messages or files which can
then only be decrypted using the matching Private Key.
1.14 Root means the IA that issues the first Certificate in a
----
certification chain. The Root's Public Key must be known in advance by a
Certificate user in order to validate a certification chain. A Root's Public
Key is made trustworthy by some mechanism other than a Certificate, such as the
policies and procedures defined for that infrastructure.
1.15 Subscriber means a person who is the subject of a Certificate,
----------
accepts it, and uses or is capable of using, and authorized to use, the Private
Key that corresponds to the Public Key listed in the Certificate.
1.16 WWW or Web means World Wide Web, a hypertext-based, distributed
----------
information system in which users may create, edit, or browse hypertext
documents; a graphical document publishing and retrieval medium; a collection of
linked documents that reside on the Internet.
2. SCOPE
-----
2.1 VeriSign Will Migrate Existing Products and Services to Microsoft
Technology Platform.
VeriSign will migrate its existing products and services to the
Microsoft Technology Platform during the normal course of planned system
upgrades and enhancements, provided the Microsoft Technology Platform is able to
met the technical requirements of the specific product or service. The specific
products and services to be considered will include the following:
A. Digital ID Center operator tools will be migrated to Windows 95
and Windows NT Workstation within 6 months of satisfaction of
VeriSign technical requirements.
B. ***
C. Web pages on VeriSign Web sites that are accessed by customers
using Microsoft Internet Explorer will be updated to include the
use of ActiveX controls to perform enrollment and other
operations within 6 months of satisfaction of VeriSign technical
requirements.
*** Confidential treatment has been requested with respect to certain
portions of this exhibit. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchange
Commission.
3
<PAGE>
D. VeriSign will make best efforts to release the commercial version
of ECAS on Microsoft NT Server and Microsoft Internet Information
Server no later than one year after release on other platforms.
Once ECAS is released on the Microsoft Technology Platform, new
releases of ECAS will thereafter be released on such Microsoft
Technology Platform with equivalent functionality and
simultaneously with VeriSign's new releases on the then current
Sun/Solaris platform.
E. VeriSign will make best efforts to migrate servers used by
VeriSign to perform back-end operations (including signing
servers, authentication servers, lifecycle management servers,
but excluding Oracle database server) to Windows NT Server within
one year of the satisfaction of VeriSign technical requirements.
F. VeriSign will make reasonable efforts to migrate its internal
systems to Microsoft Windows 95, Windows NT Workstation, and
Windows NT Server within one year after execution of this
Agreement. To the extent VeriSign migrates VeriSign internal
systems, Microsoft will provide VeriSign the opportunity to
acquire "Not for Resale" or "NFR" Microsoft software at published
prices for NFR software to complete the migration. VeriSign's
use of the software will be subject to the terms and conditions
of the End User License Agreement ("EULA") accompanying such
software; provided however, any restrictions contained in the
EULA against VeriSign's use of the software in a production
environment shall not apply.
G. ***
H. ***
In order to expedite the migration process, VeriSign will train up to
five (5) members of its technical staff to become Certified Microsoft
Professionals for Windows NT Server. Microsoft will provide VeriSign with
access to training materials and programs for training of VeriSign's technical
staff at Microsoft's expense.
2.2 ***
*** Confidential treatment has been requested with respect to certain
portions of this exhibit. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchange
Commission.
4
<PAGE>
2.3 Microsoft Will Make VeriSign the Preferred Provider of Commercial
Certificate Authority Services Acquired by Customers through the Microsoft
Technology Platform.
VeriSign will be Microsoft's Preferred Provider of commercial
Certificate Authority services that are necessary for the effective use of
Microsoft Products and services. Preferred Provider status means that Microsoft
will use commercially reasonable efforts to provide preferential placement of
VeriSign services in Microsoft Products in initial and subsequent releases by
listing VeriSign services before any non-preferred providers in any listing of
service providers that is displayed in the product and in a distinguished form
(e.g., through default registration links, specific and unique graphics, logos,
sizing, ad banners, preferred CA WWW Page, etc.). The parties recognize that
such preferential listing shall exclude situations such as programmatic
enumeration (such as in the case of trusted roots) due to design characteristics
of Microsoft's certificate management architecture. The Microsoft Products may
include:
. Internet Explorer
. Internet Information Server
. Exchange mail client
Microsoft may publish certain criteria that other Certificate
Authorities or other potential Preferred Providers must meet to be recognized as
a trusted Certificate Authority or a Preferred Provider on Microsoft Certificate
Authority pages or to be enabled in Microsoft Products, including bundling of
the trusted CA's root keys in such products. Such criteria may include:
objectively reviewed and published a certification practice statement, audited
secure facilities and practices, third party accreditation, volume scaleability,
liability insurance, etc. Prior to issuing final criteria for Certificate
Authorities and Preferred Provider status, Microsoft will provide to VeriSign
for review and comment its proposed criteria and consider VeriSign's comments if
provided in a timely manner.
To attain and retain Preferred Provider status for commercial Certificate
Authority services in Microsoft Products, VeriSign must meet the following
criteria:
A. VeriSign must provide, within commercially reasonable
limitations, a specific service that Microsoft deems necessary
for the effective use of a Microsoft Product and must make that
service available at the time of the first general availability
beta release of the Microsoft Product. VeriSign shall support
Certificate services for all platforms for which the Microsoft
Product is released. The specified service must be available to
customers in any geographic market in which Microsoft Product
will be used whether the service is available directly through
VeriSign's presence in such market or indirectly via the
Internet, subject to the legal, infrastructure, or regulatory
restrictions on CA products or services in those geographies.
B. If Microsoft, in its reasonable judgment, notifies VeriSign of
deficiencies in the delivery of VeriSign services, VeriSign shall
correct any such deficiencies in accordance with obligations
specified in any applicable
5
<PAGE>
Service Level Agreements (or substantially similar forms agreed
to by the parties). Moreover, if the parties, for whatever
reason, are not able to agree upon a Service Level Agreement for
a particular service, or if the parties cannot agree upon the
application or interpretation of an existing Service Level
Agreement to a service, either party may escalate the issue to
executives for the thirty (30) day period described below. In the
event the parties cannot agree after such executive period,
Microsoft shall reasonably specify or interpret VeriSign's
obligation to address the deficiencies.
C. The VeriSign service must offer pricing and service quality
similar to the pricing and quality of equivalent services
provided by VeriSign competitors under similar terms and
conditions.
Microsoft at its sole discretion may develop relationships with alternative
providers for any technology or service. However, an additional thirty (30) day
executive escalation period will be required before other providers may be
considered for Preferred Provider status due to VeriSign's lack of compliance
with the above. Provided that VeriSign continues to be in compliance with the
above, for a period of twelve (12) months after the Effective Date of this
Agreement, VeriSign shall be the only Preferred Provider of Certificate
Authority services for Microsoft Products.
2.4 Microsoft Will Make VeriSign the Preferred Provider of Commercial
Certificate Authority Services Acquired by Microsoft for Use in Products or
Services.
Individual Microsoft operating units may require Certificate Authority
services for internal use or for inclusion in products or services for their
external customers. Microsoft will provide VeriSign with (i) access to purchase
decision-makers in the Microsoft organization, and to executives responsible for
Microsoft's external distribution channels (including OEMs, VARs, system
integrators and resellers), (ii) designation by a Microsoft executive of
VeriSign as a Microsoft Preferred Provider of commercial Certificate Authority
Services and (iii) an e-mail introduction to VeriSign (in a form substantially
similar to Exhibit "A"). Examples of such products and services may include,
but are not limited to:
. Product registration
. The Microsoft.com web site and specific sections of the Web Site
such as the developer forum
. The MSWeb web site
. The Microsoft Network, and specific "channels" on MSN
. A Microsoft "passport" service
. Active Desktop content channels
6
<PAGE>
2.5 Microsoft and VeriSign Will Collaborate to Cross-Promote Each Other's
Products and Services.
Microsoft and VeriSign will work together to develop marketing plans
which feature each other's products and services. These marketing plans may
include, but not be limited to, the following variety of activities:
. Inclusion of VeriSign marketing materials in Microsoft seminars on
Microsoft products which include VeriSign Certificate Authority
services
. Advertisement of VeriSign services on The Microsoft Network at
favorable pricing
. Advertisement of Microsoft products on the VeriSign Digital ID
Center at favorable pricing
. Joint sales calls on mutual existing and prospective customers
. Joint participation in trade shows, at the invitation of individual
product groups
. Joint participation in vertical market programs developed by the
Microsoft Industry Marketing Group
Specific written plans may be developed by mutual agreement from time
to time by the appropriate representatives of the product marketing
organizations for each company.
2.6 Microsoft and VeriSign Will Collaborate to Develop New Certificate-
Based Technologies, Products and Services.
Microsoft and VeriSign will explore in good faith the potential
development of new Certificate technologies, products, and services, including
but not limited to:
. Microsoft Certificate Server Add-on modules
. Microsoft Certificate Server gateways
. ECAS integration with Microsoft Certificate Server
. Authentication
. Code Signing
. Personalization/Demographics
. S.E.T. (or pre-SET)
. Digital Wallet
. Content Signing
. Smart Cards
. Internationalization
. Software Metering
. Coupons/attribute Certificates
. Executable Certificates
7
<PAGE>
In the event that Microsoft and VeriSign agree to cooperate on a new
Certificate-based technology, product or service, the parties will consider in
good faith an agreement to provide the other party with a time-to-market
advantage relative to competitors, as described in detail below. Performance
enhancements to existing services and new Certificate-based technology developed
by VeriSign for release on a Microsoft Technology Platform will not involve such
market advantage.
2.6.1 Performance Enhancements to Existing Services. VeriSign will
develop performance enhancements that shall be implemented on Microsoft's
browsers at the same time as, if not before, any competing browser. VeriSign
will not keep this development work confidential. Microsoft has no
confidentiality obligation with respect to any publicly disclosed information
regarding this type of development work by VeriSign and can work with other
vendors who are making similar changes to their services at the same time
VeriSign is making such enhancements. Example: a standards change,
acceleration and improvement of execution of CA products and services.
2.6.2 New VeriSign Service on a Microsoft Technology Platform. This
section will apply in the event VeriSign wishes to develop at its own expense a
new product or service for use with Microsoft technology and wishes to keep this
development confidential until release. VeriSign will identify the development
as confidential to Microsoft. Microsoft will maintain strict confidentiality
regarding such VeriSign development until full commercial release of the
Microsoft Product containing the VeriSign service. Following commercial
release, Microsoft will continue to maintain confidentiality regarding any
details not made public by VeriSign.
2.6.3 Original Joint Development. In the event VeriSign and
Microsoft work together to develop new products or services, both companies,
including developers for each, will work together on a confidential basis.
Strict confidentiality will be maintained by both parties until full commercial
release of the new product or service. Following commercial release, each party
will continue to maintain confidentiality regarding any details not made public
by the other party.
2.6.4 Ownership of Intellectual Property. Each party shall retain
all right, title and interest in the technology which it owns as of the date of
this Agreement and all intellectual property embodied therein. Nothing in this
Agreement shall preclude any party from independent development of any
technology without use of another party's confidential information or without
infringement of another party's intellectual property. Each party shall be
responsible for providing its customers with appropriate patent infringement and
other intellectual property protection, if any, relating to its own technology
and products. Prior to any original joint development under Section 2.6.3, the
parties shall agree on the right, title and interest in and to the resulting
products or services, and any intellectual property rights embodied therein.
Each party agrees to grant the other party any and all intellectual property
rights necessary, but only to the extent necessary, for the other party's
performance of its obligations under the terms of this Agreement.
8
<PAGE>
2.7 Process for Technical and Marketing Collaboration.
Microsoft and VeriSign agree to use commercially reasonable efforts to
collaborate in the following ways:
A. Meet by mutual agreement from time to time to develop an agreed
upon list of development priorities and commitments. The
participants in this meeting will review product and service
plans, customer requirements, technical requirements and delivery
schedules.
B. Cooperate on standards group initiatives. Microsoft and VeriSign
shall use commercially reasonable efforts to present a unified
position to standards organizations whose primary focus is Public
Key Infrastructure technology. Representatives of Microsoft and
VeriSign shall discuss issues and develop joint positions on
critical issues prior to attending standards group meetings or
posting to discussion forums frequented by individuals who are
involved in standards organizations. In the event that a
representative of either party is the sole participant in a
Public Key Infrastructure standards organization meeting, that
person will provide a summary of the proceedings to a designated
counterpart.
C. Coordinate to provide effective customer support. For each
product and service initiative, Microsoft and VeriSign will
identify appropriate technical support contacts who will develop
a plan to resolve customer problems which arise through the use
of our respective products and services.
D. Provide early access to respective products and services.
Microsoft and VeriSign will disclose to each other on a
confidential and reasonable efforts basis (as determined by the
disclosing party) plans for future products and services that may
use or be used in connection with Certificate technology.
Microsoft and VeriSign may extend invitations to each other to
attend public conference and public technical design reviews of
technology related to digital Certificates.
9
<PAGE>
The following people will serve as contacts for collaboration on activities
identified in this Agreement:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Area for Collaboration Microsoft Microsoft
VeriSign Technical VeriSign Marketing Technical Marketing
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Primary contact for overall Arne Schaeffer Steve Crawford Lead Public Group
relationship Key Product
Security Manager -
PM - NT NT Security
- ----------------------------------------------------------------------------------------------------
Web Server integration Mahi DeSilva Greg Smirin Lead Group
Security Product
PM - IIS Manager -
IIS
- ----------------------------------------------------------------------------------------------------
Web Browser integration Mahi DeSilva Greg Smirin Lead Group
(e.g., client authentication) Security Product
PM - IE Manager -IIS
- ----------------------------------------------------------------------------------------------------
Developer Tools integration Mahi DeSilva Greg Smirin Lead PK Group
(e.g., code-signing) Security Product
PM - NT Manager -
NT Security
- ----------------------------------------------------------------------------------------------------
</TABLE>
2.8 Public Announcements.
Microsoft and VeriSign will jointly announce the relationship created
by this Agreement. The parties agree that any announcement concerning the
execution of this Agreement shall be a mutually agreed upon joint announcement.
Microsoft shall issue press releases in connection with Microsoft Products which
provide access to VeriSign Certificate technology. Either of the parties may at
any time make announcements which are required by applicable law, regulatory
bodies, or stock exchange or stock association rules, so long as the party so
required to make the announcement, promptly upon learning of such requirement,
notifies the other party of such requirement and discusses with the other party
in good faith the exact wording of any such announcement. VeriSign grants
Microsoft the right to state publicly that VeriSign products and services work
with Microsoft Products to provide access to VeriSign Certificates. Microsoft
grants VeriSign the right to state publicly that Microsoft Products incorporate
the VeriSign Issuing Authority Keys and provide access to VeriSign
Certificates.
3. CONFIDENTIALITY
---------------
The terms and conditions of this Agreement and any information provided by
the parties pursuant to this Agreement shall be governed by the terms and
conditions of the Nondisclosure Agreement dated January 15, 1996, between the
parties.
10
<PAGE>
4. LIMITED WARRANTY; DISCLAIMER OF WARRANTIES; LIMITATION OF LIABILITY;
--------------------------------------------------------------------
INDEMNITIES
-----------
4.1 VeriSign Limited Warranty.
During the term of this Agreement, VeriSign represents and warrant
that
4.1.1 it has full power to enter into this Agreement and perform its
obligations hereunder;
4.1.2 this Agreement and VeriSign's performance of its obligations
hereunder shall not violate any third-party agreement to which VeriSign is a
party; and
4.1.3 VeriSign's performance of its obligations hereunder shall not
infringe any copyright, patent, trade secret or other proprietary right held by
any third party.
4.2 Microsoft Limited Warranty.
During the term of this Agreement, Microsoft represents and warrants
that
4.2.1 it has full power to enter into this Agreement and perform its
obligations hereunder;
4.2.2 this Agreement and Microsoft's performance of its obligations
hereunder shall not violate any third-party agreement to which Microsoft is a
party; and
4.2.3 Microsoft's performance of its obligations hereunder shall not
infringe any copyright, patent, trade secret or other proprietary right held by
any third party.
4.3 DISCLAIMER
EXCEPT FOR THE EXPRESS LIMITED WARRANTIES PROVIDED IN SECTIONS 4.1 AND
4.2, EACH PARTY'S PRODUCTS AND SERVICES ARE PROVIDED "AS IS" WITHOUT ANY
WARRANTY WHATSOEVER. EACH PARTY DISCLAIMS ALL WARRANTIES, EXPRESS, IMPLIED OR
STATUTORY, AS TO ANY MATTER WHATSOEVER, INCLUDING ALL IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. NO ORAL OR WRITTEN
INFORMATION OR ADVICE GIVEN BY A PARTY OR ITS EMPLOYEES OR REPRESENTATIVES SHALL
CREATE A WARRANTY OR IN ANY WAY INCREASE THE SCOPE OF SUCH PARTY'S OBLIGATIONS.
4.4 LIMITATION OF LIABILITY
EXCEPT AS PROVIDED IN SECTION 4.5, NEITHER PARTY SHALL BE LIABLE TO
ANY PERSON FOR ANY CONSEQUENTIAL, INDIRECT, PUNITIVE, SPECIAL, OR INCIDENTAL
DAMAGES INCLUDING, BUT NOT LIMITED TO, ANY DAMAGES ARISING FROM LOSS OF DATA,
GOODWILL, PROFITS, USE OF MONEY OR FACILITIES, INTERRUPTION IN USE OR
AVAILABILITY OF DATA OR COMPUTER
11
<PAGE>
RESOURCES, STOPPAGE OF OTHER WORK OR IMPAIRMENT OF OTHER ASSETS, AND LABOR
CLAIM(S), WHETHER FORESEEABLE OR UNFORESEEABLE, ARISING OUT OF BREACH OF ANY
EXPRESS OR IMPLIED WARRANTY, BREACH OF CONTRACT, MISREPRESENTATION, NEGLIGENCE,
STRICT LIABILITY (IN TORT OR OTHERWISE), EXCEPT IN THE CASE OF DEATH OR PERSONAL
INJURY, IF APPLICABLE LAW REQUIRES SUCH LIABILITY.
4.5 INDEMNITY
VeriSign shall indemnify, defend, and hold Microsoft and its
successors, officers, directors and employees harmless from any and all actions,
causes of action, claims, demands, costs, liabilities, expenses and damages
(including attorneys' fees) brought by third parties arising out of, or in
connection with any other claim that is attributable to VeriSign's failure to
comply with its Certification Practice Statement, or its equivalent, as amended
from time to time (representing VeriSign's statement of the practices an Issuing
Authority employs in issuing Certificates).
5. TERM AND TERMINATION
--------------------
5.1 Termination.
This Agreement shall terminate on the earliest of:
5.1.1 The end of the term set forth on the first page hereof unless
renewed pursuant to Section 5.2, below;
5.1.2 Failure by either party to perform any of its material
obligations under this Agreement if, after a thirty (30) day executive
escalation period, such breach is not cured within thirty (30) days after
receipt of notice thereof from the other party;
5.1.3 Notwithstanding Section 5.1.2, notice from the non-assigning
party to the other party after the occurrence of a purported assignment of this
Agreement in violation of Section 7.2; or
5.1.4 Notice from either party to the other if the other party is
adjudged insolvent or bankrupt, or the institution of any proceedings by or
against the other party seeking relief, reorganization or arrangement under any
laws relating to insolvency, or any assignment for the benefit of creditors, or
the appointment of a receiver, liquidator or trustee of any of the other party's
property or assets, or the liquidation, dissolution or winding up of the other
party's business.
12
<PAGE>
5.2 Extension of Term.
This Agreement may be renewed by mutual agreement of the parties, in
writing, for an additional one-year term upon expiration of the term provided
for in Section 5.1.1, unless otherwise terminated pursuant to Section 5.1.
5.3 Effect of Termination.
Sections 1, 3, 4, 6, and 7 of this Agreement which shall continue in
full force and effect to the extent necessary to permit the complete fulfillment
thereof.
6. INCENTIVES FOR TIMELY AND EFFECTIVE EXECUTION
---------------------------------------------
The effective execution of this Agreement is expected to accelerate the
growth and valuation of VeriSign. VeriSign will provide Microsoft with one
hundred thousand shares of VeriSign common stock upon execution of this
Agreement.
7. MISCELLANEOUS PROVISIONS
------------------------
7.1 Governing Laws; Venue; Waiver of Jury Trial.
THE LAWS OF THE STATE OF NEW YORK, USA (IRRESPECTIVE OF ITS CHOICE OF
LAW PRINCIPLES) SHALL GOVERN THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION OF
ITS TERMS, AND THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF
THE PARTIES HERETO. THE PARTIES AGREE THAT THE UNITED NATIONS CONVENTION ON
CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS SHALL NOT APPLY TO THIS AGREEMENT.
The parties hereby waive any right to jury trial with respect to any action
brought in connection with this Agreement.
7.2 Binding upon Successors and Assigns.
Except as otherwise provided herein, this agreement shall be binding
upon, and inure to the benefit of, the successors, executors, heirs,
representatives, administrators and assigns of the parties hereto. This
Agreement shall not be assignable by either party, by operation of law
(including as a result of a merger involving such party or a transfer of a
controlling interest in such party's voting securities) or otherwise without the
prior written consent of the other party, which consent shall not be
unreasonably withheld. Any such purported assignment or delegation shall be
void and of no effect and shall permit the non-assigning party to terminate this
Agreement pursuant to Section 5.1.3.
7.3 Severability.
If any provision of this Agreement, or the application thereof, shall
for any reason and to any extent, be invalid or unenforceable, the remainder of
this Agreement and application of such provision to other persons or
circumstances shall be interpreted so as best to reasonably effect the intent of
the parties hereto. IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT EACH AND EVERY
PROVISION OF THIS AGREEMENT WHICH PROVIDES FOR
13
<PAGE>
A LIMITATION OF LIABILITY, DISCLAIMER OF WARRANTIES OR EXCLUSION OF DAMAGES IS
INTENDED BY THE PARTIES TO BE SEVERABLE AND INDEPENDENT OF ANY OTHER PROVISION
AND TO BE ENFORCED AS SUCH.
7.4 Entire Agreement.
THIS AGREEMENT, INCLUDING EXHIBIT A, CONSTITUTES THE ENTIRE
UNDERSTANDING AND AGREEMENT OF THE PARTIES HERETO WITH RESPECT TO THE SUBJECT
MATTER HEREOF AND SUPERSEDE ALL PRIOR AND CONTEMPORANEOUS AGREEMENTS OR
UNDERSTANDINGS BETWEEN THE PARTIES.
7.5 Amendment and Waivers.
Except as otherwise expressly provided in this Agreement, any term or
provision of this Agreement may be amended, and the observance of any term of
this Agreement may be waived, only in writing signed by the party to be bound
thereby.
7.6 Attorneys' Fees.
Should suit be brought to enforce or interpret any part of this
Agreement, the prevailing party shall be entitled to recover, as an element of
the costs of suit and not as damages, reasonable attorneys' fees to be fixed by
the court (including without limitation, costs, expenses and fees on any
appeal). Each party agrees to pay all costs, including attorneys' fees, which
it incurs in connection with the negotiation of this Agreement.
7.7 Notices.
Whenever any party hereto desires or is required to give any notice,
demand, or request with respect to this Agreement, each such communication shall
be in writing and shall be effective only if it is delivered sent by a courier
service that confirms delivery in writing or mailed, certified or registered
mail, postage prepaid, return receipt requested, addressed as follows:
VeriSign: To the address set forth on page 1
Attention: Stratton Sclavos, President and CEO
Microsoft: To the address set forth on Page 1
Attention: Group Vice President Personal and Business
Systems Group
With a copy to: Law and Corporate Affairs at the same address
Such communications shall be effective when they are received. Any party may
change its address for such communications by giving notice thereof to the other
party in conformity with this Section.
14
<PAGE>
7.8 Foreign Reshipment Liability.
THIS AGREEMENT IS EXPRESSLY MADE SUBJECT TO ANY LAWS, REGULATIONS,
ORDERS OR OTHER RESTRICTIONS ON THE EXPORT FROM THE UNITED STATES OF AMERICA OF
TECHNICAL INFORMATION, SOFTWARE OR INFORMATION ABOUT SUCH SOFTWARE WHICH MAY BE
IMPOSED FROM TIME TO TIME BY THE GOVERNMENT OF THE UNITED STATES OF AMERICA.
NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT TO THE CONTRARY, NEITHER
MICROSOFT NOR VERISIGN SHALL EXPORT OR REEXPORT, DIRECTLY OR INDIRECTLY, ANY
TECHNICAL INFORMATION, SOFTWARE OR INFORMATION ABOUT SUCH SOFTWARE TO ANY
COUNTRY FOR WHICH SUCH GOVERNMENT OR ANY AGENCY THEREOF REQUIRES AN EXPORT
LICENSE OR OTHER GOVERNMENT APPROVAL AT THE TIME OF EXPORT OR REEXPORT WITHOUT
FIRST OBTAINING SUCH LICENSE OR APPROVAL.
7.9 No Waiver.
Failure by either party to enforce any provision of this Agreement
will not be deemed a wavier of future enforcement of that or any other
provision.
7.10 Counterparts.
This Agreement may be executed in one or more counterparts, each of
which will be deemed an original, but which collectively will constitute one and
the same instrument.
7.11 Headings and References.
The headings and captions used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
7.12 Due Authorization.
Each party hereby represents and warrants to the other party that the
individual executing this Agreement on its behalf is duly authorized to execute
this Agreement on its behalf and to bind it hereby.
7.13 Independent Contractor.
The relationship of VeriSign and Microsoft is that of independent
contractors. Neither party's employees, consultants, contractors or agents:
(a) are agents, employees or joint ventures of the other party, or (b) have any
authority to bind the other party by contract or otherwise to any obligation.
They will not represent to the contrary, either expressly, implicitly, by
appearance or otherwise.
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<PAGE>
IN WITNESS WHEREOF, this Agreement shall be effective as of the day and
year first written above.
MICROSOFT CORPORATION
By: /s/ Microsoft Corporation
-------------------------
Its: Vice President, WOSD
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VERISIGN, INC.
By: /s/ Stratton Sclavos
--------------------
Its: President & CEO 11/20/97
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<PAGE>
EXHIBIT "A"
LETTER OF INTRODUCTION
From: Director TBD
To: Microsoft Business Units
Re: VeriSign Becomes Microsoft's Preferred Provider for
Digital Certificate Technology and Services
Microsoft recently led a strategic investment round in VeriSign, Inc., the
leading provider of digital certificate services and technology for the
Internet. Other investors include: AT&T, Cisco, First Data Corp, GemPlus,
Reuters, SoftBank and VISA International.
Microsoft believes that digital certificates and digital signatures will be a
key enabling technology for transforming the internet into a secure commerce
platform. As part of this investment, Microsoft and VeriSign have agreed to
become Preferred Providers of each others' technology and services.
Applications of VeriSign Digital IDs include:
. Software Code Signing (Authenticode, developed with Microsoft)
. Consumers and website authentication (SSL certificates)
. Secure email (SMIME certificates)
. Secure credit card transactions (S.E.T. certificates)
. Secure network/router communications (IPSEC certificates)
. Business-to-business EDI (SMIME certificates)
. 1-to-1 Marketing (Personalized SSL certificates)
. Custom-branded certificates for major consumer brands (e.g. Merrill
Lynch)
. Employee authentication on Intranets.
As our Preferred Provider, VeriSign is our 1st choice for internal and external
Microsoft customers who need to incorporate digital certificates into their
products and services. If you have special market requirements, VeriSign can
develop customized Digital ID services that can often be delivered to market
within weeks!
We urge you to offer VeriSign the opportunity to service your digital
certificate needs.
Key Contacts:
- -------------
Microsoft - Karan Khanna 425-936-6029
VeriSign - Mary Anderson, Director Channels Marketing, 415-429-3364,
[email protected]
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