<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 1999
REGISTRATION STATEMENT NO. 333-79687
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
TUMBLEWEED COMMUNICATIONS CORP.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 7389 94-3183329
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
--------------------------
700 SAGINAW DRIVE
REDWOOD CITY, CALIFORNIA 94063
(650) 216-2000
(Address, Including Zip Code, and Telephone Number
Including Area Code, of Registrant's Principal Executive Offices)
--------------------------
JEFFREY C. SMITH
TUMBLEWEED COMMUNICATIONS CORP.
700 SAGINAW DRIVE
REDWOOD CITY, CALIFORNIA 94063
(650) 216-2000
(Name, Address, Including Zip Code, and Telephone Number
Including Area Code, of Agent for Service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
GREGORY C. SMITH, ESQ. JEFFREY P. HIGGINS, ESQ.
MELANIE D. VINSON, ESQ. WILLIAM A. HOLMES, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP GUNDERSON DETTMER STOUGH VILLENEUVE
525 UNIVERSITY AVENUE, SUITE 220 FRANKLIN & HACHIGIAN, LLP
PALO ALTO, CALIFORNIA 94301 155 CONSTITUTION DRIVE
(650) 470-4500 MENLO PARK, CA 94025
(650) 321-2400
</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 of 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If 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,
please 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 AN AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING OFFERS TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 28, 1999
4,000,000 Shares
[TUMBLEWEED LOGO]
Tumbleweed Communications Corp.
Common Stock
-----------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of the common stock is expected to be
between $12.00 and $14.00 per share. We have applied to list the shares on The
Nasdaq Stock Market's National Market under the symbol "TMWD."
The underwriters have an option to purchase a maximum of 600,000 additional
shares to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" on page 7.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Tumbleweed
------------------- ------------------- -------------------
<S> <C> <C> <C>
Per Share............................................. $ $ $
Total................................................. $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Credit Suisse First Boston Hambrecht & Quist
ING Barings
The date of this prospectus is , 1999.
<PAGE>
Cover Artwork
INSIDE FRONT COVER OF PROSPECTUS:
TUMBLEWEED-Registered Trademark-
A leading provider of Internet communication services that use e-mail networks
to bring business processes online.
[Cover design includes a graphical representation of communication moving from
paper-based processes to electronic interaction.]
Tumbleweed Integrated Messaging Exchange (IME)
IME Platform: The foundation for advanced e-mail solutions--providing the core
technology for integrating e-mail and e-commerce.
IME Applications: Additional features for specific business processes like
financial services and collaboration.
IME Services: Consulting, development and hosting services for quickly
implementing online solutions.
INSIDE BACK COVER OF PROSPECTUS:
Offering the key attributes of secure physical delivery, e-mail and the
worldwide web in a comprehensive Internet-based service.
[Cover design includes a graphical depiction of computer screen shots showing
new package, package options and delivery detail screens]
[Tumbleweed logo]
Bridging the gap between e-mail and e-commerce.
<PAGE>
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY................ 4
RISK FACTORS...................... 7
USE OF PROCEEDS................... 21
DIVIDEND POLICY................... 21
CAPITALIZATION.................... 22
DILUTION.......................... 23
SELECTED CONSOLIDATED FINANCIAL
DATA............................ 24
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....... 25
BUSINESS.......................... 35
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT........................ 50
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.................... 59
PRINCIPAL STOCKHOLDERS............ 61
DESCRIPTION OF CAPITAL STOCK...... 63
SHARES ELIGIBLE FOR FUTURE SALE... 65
UNDERWRITING...................... 66
NOTICE TO CANADIAN RESIDENTS...... 68
LEGAL MATTERS..................... 69
EXPERTS........................... 69
AVAILABLE INFORMATION............. 69
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS...................... F-1
</TABLE>
--------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO A DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3
<PAGE>
PROSPECTUS SUMMARY
Tumbleweed Communications Corp. is a leading provider of secure Internet
communication services for businesses worldwide. We have developed the
Tumbleweed Integrated Messaging Exchange, or Tumbleweed IME, a comprehensive
software and services solution that combines the personal, proactive nature of
e-mail with the ease of use of the world wide web. Tumbleweed IME offers the key
attributes of secure physical delivery, e-mail and web messaging in a
comprehensive, Internet-based system. Our solution enables corporations to
leverage their existing investments in e-mail and web systems in order to shift
their historically paper-based communications to more convenient and
cost-effective online alternatives.
Businesses increasingly seek to use e-mail as a means to communicate with
each other and with their customers. International Data Corporation estimates
that the number of e-mail messages sent per day in the U.S. will grow from
approximately 2.1 billion in 1998 to 7.9 billion in 2002. In evaluating
Internet-based solutions to take the place of traditional paper-based
interactions, corporations demand the security, reliability and trackability
that they have come to expect from physical delivery services. The online
alternatives that provide these advanced features exist, but require dedicated
proprietary networks and desktop software. This renders the transition to online
delivery complex and expensive.
Tumbleweed IME utilizes public networks and existing e-mail platforms to
provide an efficient and cost-effective means for businesses to effect secure
communications over the Internet. Tumbleweed IME enables our customers and
service providers to offer high-value business-to-business and
business-to-consumer communications. Using our products and services, our
service provider customers are able to provide their end-user customers with
these communication services on an outsourced basis for which we have agreed to
share ongoing transaction-based revenue. Our service provider customers include
the U.S. Postal Service, Canada Post and France's La Poste as member posts of
the International Post Corporation Technology, S.C., which each accounted for 9%
of our revenue during the year ended December 31, 1998, and 11% of our revenue
during the six months ended June 30, 1999. Additional service provider customers
include United Parcel Service and Pitney Bowes, which accounted for 30% and 3%,
respectively, of our revenue during the year ended December 31, 1998, and 4% and
8%, respectively, of our revenue during the six months ended June 30, 1999. In
selected strategic markets such as the financial services, banking and
pharmaceutical industries, we also offer solutions directly to customers that
use or intend to use Tumbleweed IME with their employees, suppliers, partners
and customers.
Tumbleweed IME offers customers the following benefits:
- a complete range of services;
- comprehensive technology;
- multi-level security;
- universal access;
- end-to-end trackability;
- automated delivery;
- personalized communication; and
- a design that accommodates growth.
Our objective is to be the leading provider of secure online communication
services. Key elements of our strategy include:
- establish Tumbleweed IME as the leading application platform for secure
online communication services;
- cultivate a channel of key service providers;
- establish Tumbleweed IME as the international standard for secure online
communication;
- establish Tumbleweed IME in strategic industry markets;
- expand into accounts after first securing business-critical applications;
- create recurring, transaction-based revenue streams; and
- provide comprehensive professional services.
4
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common stock offered........................................... 4,000,000 shares
Common stock to be outstanding after the offering.............. 21,203,494 shares
Use of proceeds................................................ We expect to use the net proceeds of this
offering for working capital and other general
corporate purposes. In addition, we may use a
portion of the net proceeds to acquire
complementary products, technologies, or
businesses. See "Use of Proceeds."
Proposed Nasdaq National Market symbol......................... "TMWD"
Dividend policy................................................ We intend to retain all future earnings to fund
the development and growth of our business.
Therefore, we do not anticipate paying cash
dividends on our common stock in the foreseeable
future. See "Dividend Policy."
</TABLE>
The common stock to be outstanding after the offering is based on shares
outstanding as of June 30, 1999. The shares outstanding exclude:
- 2,673,496 shares of common stock issuable as of July 8, 1999 upon the
exercise of outstanding stock options issued under our 1993 stock option
plan at a weighted average exercise price of $0.80 per share;
- 500,000 shares of common stock initially reserved for issuance under our
employee stock purchase plan;
- 4,576,484 shares of common stock reserved for issuance as of July 8, 1999
under our stock incentive plans; and
- 20,973 shares of common stock issuable upon the exercise of a warrant
dated November 30, 1998 that will remain outstanding after this offering
at an exercise price of $3.58 per share.
------------------------
EXCEPT AS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS ASSUMES THE
FOLLOWING:
- THE REINCORPORATION OF TUMBLEWEED INTO DELAWARE BEFORE THE CONSUMMATION OF
THIS OFFERING, AND A CHANGE IN THE PAR VALUE FOR THE COMMON STOCK FROM NO
PAR VALUE TO $0.001 PER SHARE;
- THE CONVERSION OF ALL OUTSTANDING SHARES OF PREFERRED STOCK INTO SHARES OF
COMMON STOCK ON A ONE-TO-ONE BASIS UPON THE CONSUMMATION OF THIS OFFERING;
- THE EXERCISE OF WARRANTS DATED DECEMBER 19, 1997 AND MAY 13, 1999,
RESPECTIVELY, TO PURCHASE 32,307 AND 54,733 SHARES OF COMMON STOCK,
RESPECTIVELY, UPON THE CONSUMMATION OF THIS OFFERING ON A CASHLESS BASIS
AT AN ASSUMED INITIAL PUBLIC OFFERING PRICE OF $13.00 PER SHARE; AND
- NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS ENDED
31, JUNE 30,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
Revenue................................................................ $ 729 $ 2,015 $ 999 $ 1,701
Total cost of revenue.................................................. 108 931 372 776
Total operating expenses............................................... 5,477 7,823 4,022 7,056
Operating loss......................................................... (4,856) (6,739) (3,395) (6,131)
Net loss............................................................... (4,691) (6,590) (3,268) (6,053)
Net loss per share
Basic and diluted.................................................. $ (1.41) $ (1.74) $ (0.89) $ (1.43)
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average shares............................................ 3,331 3,797 3,682 4,246
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents................................................................. $ 14,700 $ 61,910
Total assets.............................................................................. 19,037 66,247
Long-term obligations, excluding current installments..................................... 1,185 1,185
Total stockholders' equity................................................................ 14,832 62,042
</TABLE>
The above balance sheet data is shown on a pro forma as adjusted basis to give
effect to:
- the conversion of all outstanding shares of preferred stock into shares of
common stock upon the consummation of this offering;
- the exercise of warrants dated December 19, 1997 and May 13, 1999, to
purchase 32,307 and 54,733 shares of common stock, respectively, upon the
consummation of this offering on a cashless basis at an assumed initial
public offering price of $13.00 per share; and
- the sale of the 4,000,000 shares of common stock by Tumbleweed in this
offering at an assumed initial public offering price of $13.00 per share
and after deducting the estimated underwriting discounts and commissions
and estimated offering expenses.
------------------------
WE RECENTLY CHANGED OUR NAME FROM TUMBLEWEED SOFTWARE CORPORATION TO
TUMBLEWEED COMMUNICATIONS CORP. OUR PRINCIPAL EXECUTIVE OFFICES ARE LOCATED AT
700 SAGINAW DRIVE, REDWOOD CITY, CALIFORNIA 94063, AND OUR TELEPHONE NUMBER IS
(650) 216-2000. OUR WEB SITE IS WWW.TUMBLEWEED.COM. THE INFORMATION ON OUR WEB
SITE DOES NOT CONSTITUTE PART OF THIS DOCUMENT.
TUMBLEWEED-REGISTERED TRADEMARK- IS OUR REGISTERED TRADEMARK. WE HAVE
APPLIED FOR FEDERAL REGISTRATION OF OUR TRADEMARKS TUMBLEWEED COMMUNICATIONS,
POSTA AND IME. OUR TRADEMARK IME DESIGNATES OUR PRODUCTS THAT PREVIOUSLY WERE
KNOWN AS POSTA. WE INTEND TO CONTINUE USING OUR POSTA TRADEMARK IN JAPAN. THIS
PROSPECTUS ALSO CONTAINS THE TRADEMARKS AND SERVICE MARKS OF THIRD PARTIES.
6
<PAGE>
RISK FACTORS
ANY INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE MAKING AN INVESTMENT
DECISION. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO ANY OF
THESE RISKS, AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT. YOU ALSO SHOULD
CONSIDER CAREFULLY THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING
OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES, BEFORE DECIDING TO
PURCHASE SHARES OF OUR COMMON STOCK.
RISKS RELATED TO OUR BUSINESS:
BECAUSE WE ARE IN AN EARLY STAGE OF DEVELOPMENT AND HAVE A HISTORY OF LOSSES, IT
IS DIFFICULT TO EVALUATE OUR BUSINESS AND WE MAY FACE EXPENSES, DELAYS AND
DIFFICULTIES
Tumbleweed was organized in July 1993 and has only a limited operating
history upon which an evaluation can be based. We began developing Tumbleweed
IME in December 1995, and we launched Tumbleweed IME in July 1997. Before
December 1995, we were engaged in activities related to a technology that was
sold to Novell, Inc. Accordingly, Tumbleweed's prospects must be considered in
light of the risks, expenses, delays and difficulties frequently encountered by
companies in an early stage of development, particularly companies engaged in
new and rapidly evolving markets like secure online communication services. We
incurred net losses of $4.7 million and $6.6 million in the years ended December
31, 1997 and 1998, respectively, as well as a net loss of $6.1 million in the
six months ended June 30, 1999. As of June 30, 1999, we had incurred cumulative
net losses as a C-corporation of $18.2 million. See "Selected Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
WE ANTICIPATE CONTINUED LOSSES
Although we believe that our success will depend in large part upon our
ability to generate sufficient revenue to achieve profitability and to
effectively maintain existing relationships and develop new relationships with
customers and strategic partners, our revenue may not increase, and we may not
achieve or maintain profitability. In particular, we intend to expend
significant financial and management resources on product development, sales and
marketing, strategic relationships and technology, and operating infrastructure.
As a result, we expect to incur additional losses and continued negative cash
flow from operations for the foreseeable future.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS
As a result of our limited operating history and the emerging nature of the
markets in which we compete, we are unable to accurately forecast our revenue or
expenses. We may be unable to recognize quarterly or annual revenue consistent
with our historical operating results or expectations. Our success is dependent
upon our ability to enter into and maintain strategic relationships with
customers and to develop and maintain volume usage of our products by our
customers and their end-users. Our revenue has fluctuated and our quarterly
operating results will continue to fluctuate based on the timing of the
execution of new customer licenses, customer transitions from pilot to final
production phase and customer implementation of Tumbleweed IME in a given
quarter. Our license revenue is comprised entirely of initial license and
distribution fees. As a result, in order to realize comparable or increased
license revenue, we must regularly and increasingly sign additional customers
with substantial initial license fees on a timely basis. Our services revenue
historically has been comprised almost entirely of implementation and consulting
fees and support and maintenance fees, as actual transaction-based revenue to
date has been minimal. As a result, in order to realize comparable or increased
services revenue, we must increase our services revenue in the short term
through implementation and consulting work and contractual transaction minimums
and in the longer term through the increased transaction volume with the use of
our services, and the timing of this will also cause our quarterly
7
<PAGE>
operating results to fluctuate. Unless and until we have developed a significant
and recurring transaction-based revenue stream from communications that are sent
with our services, our revenue will continue to fluctuate significantly.
In addition, we have experienced, and expect to continue to experience,
fluctuations in revenue and operating results from quarter to quarter for other
reasons, including, but not limited to:
- disruptions in software purchases associated with Year 2000 concerns and
seasonality;
- our ability to upgrade, develop and maintain our systems and
infrastructure;
- the amount and timing of operating costs and capital expenditures relating
to our business, operations and infrastructure, including our
international operations;
- the announcement or introduction of new or enhanced services and products
in the secure online communications or document delivery markets; and
- conditions specific to our industry and related fluctuations in stock
prices.
As a result of these factors, we believe that quarter-to-quarter or other
periodic comparisons of our revenue and operating results are not necessarily
meaningful, and that these comparisons may not be accurate indicators of future
performance. Because our staffing and operating expenses are based on
anticipated revenue levels, and because a high percentage of our costs are
fixed, small variations in the timing of the recognition of specific revenue
could cause significant variations in operating results from quarter to quarter.
If we are unable to adjust spending in a timely manner to compensate for any
unexpected revenue shortfall, any significant revenue shortfall would likely
have an immediate negative effect on our business and operating results.
Moreover, our operating results in one or more future quarters may fail to meet
the expectations of securities analysts or investors. If this occurs, we would
expect to experience an immediate and significant decline in the trading price
of our stock. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
A LIMITED NUMBER OF CUSTOMERS ACCOUNT FOR A HIGH PERCENTAGE OF OUR REVENUE AND
THE FAILURE TO MAINTAIN OR EXPAND THESE RELATIONSHIPS COULD HARM OUR BUSINESS
The loss of one or more of our major customers, the failure to attract new
customers on a timely basis, or a reduction in usage and revenue associated with
the existing or proposed customers would harm our business and prospects. Four
customers comprised approximately 86% of our revenue in the six months ended
June 30, 1999, and five customers comprised approximately 91% of our revenue in
1998. We expect that a small number of customers will continue to account for a
majority of our revenue for the foreseeable future.
OUR SERVICE PROVIDER CUSTOMERS MAY COMPETE WITH US OR FAIL TO PROMOTE OUR
PRODUCT
To date, we have generated most of our revenue from contracts with a very
limited number of service provider customers, including the United Parcel
Service, the U.S. Postal Service, Canada Post and France's La Poste, as member
posts of the International Post Corporation Technology, S.C., Pitney Bowes and
Nippon Telegraph and Telephone Corporation, which use or intend to use our
products for the communication of third-party documents and data. If these
customers do not effectively promote the use of Tumbleweed IME to their
end-users, adoption of our services and the recognition of associated revenue
could be limited. Because our contracts with our service provider customers are
non-exclusive, these customers could elect to offer competing secure online
communication services to their customers through our existing or future
competitors. The service provider customers also may compete with our secure
online communication services through their traditional physical delivery
channels.
8
<PAGE>
IF WE DO NOT SECURE KEY RELATIONSHIPS WITH ENTERPRISE CUSTOMERS, OUR ACCESS TO
BROADER MARKETS WILL BE LIMITED
We expect that our enterprise customers, which use or intend to use
Tumbleweed IME for internal purposes or for distribution of internally generated
communications to their customers, will be an increasingly important source of
our future revenue. A key aspect of our strategy is to access target markets
prior to adoption of alternative online distribution solutions by the larger
participants in these markets. The failure to secure key relationships with new
enterprise customers in targeted markets could limit or effectively preclude our
entry into these target markets, which would harm our business and prospects.
CUSTOMERS IN A PRELIMINARY PHASE OF IMPLEMENTING OUR PRODUCT MAY NOT PROCEED ON
A TIMELY BASIS OR AT ALL
Some of our customers are currently in a pilot or preliminary stage of
implementing Tumbleweed IME and may encounter delays or other problems in the
introduction of our services. A decision not to do so or a delay in
implementation could result in a delay or loss in related revenue or otherwise
harm our businesses and prospects. In particular, a complaint was recently filed
with the Postal Rate Commission alleging that the U.S. Postal Service's offering
of the Tumbleweed IME-based service PostECS, currently in a preliminary phase,
is subject to regulation by the Postal Rate Commission. On May 3, 1999, the
Postal Rate Commission issued an order determining that it has jurisdiction over
the implementation of PostECS and is initiating formal proceedings to consider
the complaint. This order could result in a delay of the launch of our service
by the U.S. Postal Service or an election not to proceed with the product
launch. We cannot predict when any customer that is currently in a pilot or
preliminary phase will implement broader use of our services.
THE MARKETS FOR SECURE ONLINE COMMUNICATION SERVICES GENERALLY, AND THE
TUMBLEWEED IME PRODUCT SPECIFICALLY, ARE NEW AND MAY NOT DEVELOP
The market for our products and services is new and evolving rapidly. If the
market for our products and services fails to develop and grow, or if our
products and services do not gain broad market acceptance, our business and
prospects will be harmed. In particular, our success will depend upon the
adoption and use by current and potential customers and their end-users of
secure online communication services. Our success will also depend upon
acceptance of our technology as the standard for providing these services. The
adoption and use of our products and services will involve changes in the manner
in which businesses have traditionally exchanged information. In addition, sales
and marketing of our products and services is to a large extent under the
control of our customers. In some cases, our customers have little experience
with products, services and technology like those offered by us. Our ability to
influence usage of our products and services by customers and end-users is
limited. To date, the usage of Tumbleweed IME by the end-users of our service
provider customers has been limited. We have spent, and intend to continue to
spend, considerable resources educating potential customers and their end-users
about the value of our products and services. It is difficult to assess, or to
predict with any assurance, the present and future size of the potential market
for our products and services, or its growth rate, if any. Moreover, we cannot
predict whether our products and services will achieve any market acceptance.
Our ability to achieve our goals also depends upon rapid market acceptance of
future enhancements of our products. Any enhancement that is not favorably
received by customers and end-users may not be profitable and, furthermore,
could damage our reputation or brand name.
9
<PAGE>
THE TRADITIONAL AND INTERNET DELIVERY SERVICES INDUSTRIES ARE HIGHLY
COMPETITIVE, AND WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY
We may not be able to compete successfully against current and future
competitors, and the competitive pressures we face could harm our business and
prospects. Broadly speaking, Tumbleweed IME is an alternative to traditional
mail and courier document delivery services, such as those offered by Federal
Express Corporation, United Parcel Service or the U.S. Postal Service. Our
solution is also an alternative to general purpose e-mail applications and
services. As such, we compete with these options. In the more narrow area of
secure online communication services, our direct competition comes from other
small, early stage, secure online communication services providers. Some of
these providers have products that are intended to compete directly with our
products. Examples of these companies include Differential Inc., e-Parcel, LLC,
NetDox, Inc., PostX Corporation and The docSpace Company Inc. In addition,
companies with which we do not presently directly compete are planning to become
competitors in the future. This could occur either through the expansion of our
products and services or through their product development in the area of secure
online communication services. These companies could include America Online,
Inc./Netscape Communications Corporation, Critical Path Inc., International
Business Machines Corporation/Lotus Development Corporation, Microsoft
Corporation and VeriSign, Inc.
The market for secure online communication services is new and rapidly
evolving and is highly competitive. The level of competition is likely to
increase as current competitors improve their offerings and as new participants
enter the market. Many of our current and potential competitors have longer
operating histories, larger customer bases, greater brand recognition and
significantly greater financial, sales, marketing, technical and other resources
than Tumbleweed. Moreover, these competitors may enter into strategic or
commercial relationships with larger, more established and well-financed
companies. Some of our competitors may be able to enter into these strategic or
commercial relationships on more favorable terms. Additionally, these
competitors have research and development capabilities that may allow them to
develop new or improved products that may compete with product lines we market
and distribute. New technologies and the expansion of existing technologies also
may increase competitive pressures on us. Increased competition may result in
reduced operating margins as well as loss of market share and brand recognition.
This could result in decreased usage of our products.
WE HAVE A LENGTHY SALES AND IMPLEMENTATION CYCLE WHICH COULD HARM OUR BUSINESS
The inability to license our services to new customers on a timely basis or
delays by our existing and proposed customers and their end-users in the
implementation and adoption of our services could limit revenue and harm our
business and prospects. Our customers must evaluate our technology and integrate
our products and services into the products and services they provide. In
addition, our customers may need to adopt a comprehensive sales, marketing and
training program in order to effectively implement Tumbleweed IME. Finally, we
must coordinate with our customers using our product for third-party
communications in order to assist end-users in the adoption of our products in
order to generate usage fees. For these and other reasons, the cycle associated
with establishing licenses in order to generate initial license fees and
implementation of our products in order to generate material transaction-based
services revenue can be lengthy. This cycle is also subject to a number of
significant delays over which we have little or no control.
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY
Although we regard our patents, copyrights and similar intellectual property
as critical to our success, we may not be able to obtain the protection we seek
on commercially reasonable terms, if at all. It may also be possible for
unauthorized third parties to copy selected portions of our products or obtain
and use information that we regard as proprietary. In particular, we rely on the
utility patent we
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obtained relating to the web-based delivery method as critical to our
competitive position. Attempts by competitors to utilize this or our other
intellectual property could undermine our ability to retain or secure customers
on favorable terms, if at all. In addition, competing companies could
independently develop similar technology. Some end-user license provisions
protecting against unauthorized use, copying, transfer and disclosure of the
licensed program may be unenforceable under the laws of some jurisdictions and
foreign countries. In addition, the laws of some foreign countries do not
protect proprietary rights to the same extent as do the laws of the U.S. Our
attempts to protect our proprietary rights in the U.S. or abroad may not be
adequate. In particular, we are currently engaged in litigation to enforce our
intellectual property rights, which may not be successful and will result in
substantial expenditures of resources to pursue. See "Business--Legal
Proceedings."
The status of U.S. patent protection in the software industry is not well
defined and will evolve as the U.S. Patent and Trademark Office grants
additional patents. Our pending patent applications, as well as patents we may
seek in the future, ultimately may not be issued with the scope of the claims we
are seeking if at all. In addition, because patent applications in the U.S. are
not publicly disclosed until the patent is issued, applications may have been
filed by third parties that relate to our products and services.
ANY CLAIM OF INFRINGEMENT BY THIRD PARTIES COULD BE COSTLY TO DEFEND
Intellectual property claims could be time consuming to defend, result in
costly litigation, divert management's attention and resources and cause product
shipment delays. These claims could also require us to enter into royalty or
license agreements. A successful claim of product infringement against us could
harm our business and prospects. We could face a claim of infringement by third
parties with respect to our current or future products or services. In addition,
we may increasingly become subject to claims of intellectual property
infringement by third parties as the number of our competitors grows and the
functionality of their products and services increasingly overlap with ours.
Because we are in a new and evolving market, customers may demand features which
will subject us to a greater likelihood of claims of infringement.
IF WE DO NOT SUCCESSFULLY MANAGE ANY GROWTH WE EXPERIENCE, INCREASED STRAIN ON
OUR RESOURCES COULD HARM OUR BUSINESS
Although we may be unable to expand our operations in the future, our
business model contemplates a period of sustained and rapid operational growth.
If we are unable to manage growth efficiently, we will not have adequate
resources to maintain and secure key relationships contemplated by our business
plan and our business and prospects could be harmed. Our growth has subjected us
to, and will continue to subject us to, increased capital and operating
commitments. For instance, we have recently entered into a new operating lease
for significantly larger facilities. Moreover, our plan for additional customer
licenses and product and service introductions and enhancements and the timing
of implementing this plan has placed, and will continue to place, a significant
strain on our personnel, systems and resources. To manage further growth of our
operations and personnel and meet our present and future commitments, we must:
- improve existing operations and implement new operations;
- maintain and enhance our customer service; and
- expand, retain, train and manage our growing employee base.
Furthermore, our management will be required to maintain and expand its
relationships with our customers and other third parties necessary to our
business. Our current and planned systems and personnel levels may not be
adequate to support our future operations. Moreover, management may not be able
to hire, train, retain, motivate and manage required personnel or successfully
identify, manage and exploit existing and potential market opportunities.
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EXPANSION INTO INTERNATIONAL MARKETS MAY BE DIFFICULT OR UNPROFITABLE
We have recently begun to invest significant financial and managerial
resources to expand our sales and marketing operations in international markets
and have opened sales offices in Japan and the United Kingdom. In the six months
ended June 30, 1999, we derived 60% of our revenue from Hikari Tsushin, Canada
Post and France's La Poste as member posts of the International Post Corporation
Technology, S.C. and Canon Sales Co., Inc., all of which are based abroad.
However, as an early-stage company, we have limited experience in international
operations and may not be able to compete effectively in international markets.
A key component of our long-term strategy is to further expand into
international markets, and we must continue to devote substantial resources to
our international operations in order to succeed in these markets. In this
regard, we may encounter difficulties such as:
- unexpected changes in regulatory requirements and trade barriers
applicable to the Internet or our business;
- challenges in staffing and managing foreign operations, including
employment laws and practices as we expand into continental Europe;
- seasonal reductions in business activity and economic downturns, in
particular, in Europe and Asia;
- longer payment cycles and problems in collecting accounts receivable;
- problems caused by the conversion of various European currencies into a
single currency, the Euro;
- differing technology standards; and
- reduced protection for intellectual property rights in certain countries
in which we operate or plan to operate.
In addition, our expansion into international markets will increasingly
subject us to fluctuations in currency exchange rates. In particular, our
contract with Hikari Tsushin is denominated in Japanese yen, and in the future,
an increasing number of our contracts may be denominated in currencies other
than U.S. dollars. We do not presently engage in hedging or similar transactions
to protect us from currency fluctuations. Any of the foregoing difficulties of
conducting business internationally could harm our international operations and,
consequently, our business and prospects.
WE ARE DEPENDENT ON TECHNOLOGIES PROVIDED BY THIRD PARTIES, AND THE TERMINATION
OF OUR RELATIONSHIPS WITH THEM COULD INCREASE OUR COSTS, DELAY PRODUCT
DEVELOPMENT AND HARM OUR REPUTATION
We have developed Tumbleweed IME partially based on selected technologies
developed by third parties that we have licensed under non-exclusive agreements.
The inability to obtain new contractual relationships or maintain existing
relationships could increase our cost of revenue, delay product development,
damage our relationships with our customers and divert our resources, which
could harm our business and prospects. In particular, our ability to provide
data security is critical to our success. For certain security algorithms, we
use proven industry standard technology licensed in perpetuity from RSA Data
Security, Inc. We in turn focus our effort on applying these fundamental
algorithms as part of an overall messaging solution, and offer today several
levels of security which can fit the needs of a broad range of customers. In
addition, we license Adobe Acrobat technology from Adobe Systems Incorporated,
which we use as the basis for creating files in Adobe's portable document
format, under a renewable agreement that expires in April 2000. Our existing
agreements may be terminated by the other parties to these contracts, or may not
be renewed on favorable terms. In addition, we may not be able to license new
technologies on favorable terms, if at all.
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IF WE DO NOT PROVIDE ADEQUATE SUPPORT SERVICES TO OUR CUSTOMERS TO IMPLEMENT
TUMBLEWEED IME, WE MAY LOSE CUSTOMERS OR REALIZE LOWER TRANSACTION VOLUME
Our professional services organization assists our customers in implementing
Tumbleweed IME through software installation, integration with existing customer
systems, customization and training. If the professional services organization
does not adequately assess customer requirements or address technical problems,
customers may seek to discontinue their relationships with Tumbleweed due to
dissatisfaction with the product or our customer support. Furthermore, these
customers may realize lower transaction volume than they could have otherwise
achieved because they did not fully capitalize on the product in ways that could
have been addressed by our professional services organization. Tumbleweed IME
must be integrated with existing hardware and complex software products of our
customers or other third parties, and our customers may not have significant
experience with the implementation of products similar to ours. In addition, the
provision of customization and integration services is an increasingly important
aspect of Tumbleweed's strategy to strengthen customer loyalty to our product
and company. Therefore, our business and future prospects significantly depend
on the strength of our professional services organization.
OUR COMPUTER SYSTEMS AND OPERATIONS MAY BE VULNERABLE TO SECURITY BREACHES
Our success depends on the confidence of our customers and their end-users
in our ability to securely transmit confidential information over the Internet.
Any failure to provide secure online communication services could harm our
business and reputation. Our products rely on encryption and authentication
technology licensed from third parties to provide the security and
authentication necessary to achieve secure transmission of confidential
information. Despite our focus on Internet security, we may not be able to stop
unauthorized attempts to gain access to or disrupt the transmission of
communications by our customers or their end-users. Advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments could result in a compromise or breach of the algorithms used by
our products to protect data contained in customer databases and information
being transferred.
Although we generally limit warranties and liabilities relating to security
in our customer contracts, our customers or their end-users may seek to hold us
liable for any losses suffered as a result of unauthorized access to their
communications. We may not have adequate insurance to cover these losses. We may
be required to expend significant capital and other resources to protect against
these security breaches or to alleviate the problems they cause. Moreover,
concerns over the security of transactions conducted on the Internet and
commercial online services, which may be heightened by any well-publicized
compromise of security, may also deter future customers and their end-users from
using our products. These concerns also could cause current customers to cease
using Tumbleweed IME as a means of providing secure online communication
services. In either case, this could harm our business and prospects. Our
security measures may not be sufficient to prevent security breaches, and
failure to prevent security breaches could harm our reputation, business and
prospects.
OUR COMPUTER SYSTEMS AND OPERATIONS MAY BE VULNERABLE TO VIRUSES AND OTHER
DISRUPTIONS
Despite the implementation of data center and network security measures by
our customers and other third parties, their servers may be vulnerable to
computer viruses, physical or electronic break-ins and similar disruptions. We
may not be able to prevent any or all of these disruptions, and our failure to
do so could limit use of our product, cause us to incur substantial expenses,
and otherwise harm our business. Specifically, computer viruses, break-ins and
other disruptions could lead to interruptions, delays, loss of data or the
inability to accept and confirm the receipt of information. Anyone who is able
to circumvent our security measures could misappropriate proprietary information
or cause interruptions in Tumbleweed's, our customers' or their end-users'
operations. This could occur through the introduction of known or undetected
errors, or bugs, viruses or by other means. In addition to purposeful security
breaches, the inadvertent transmission of computer viruses could expose us to
litigation or a significant loss of revenue.
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WE HAVE HAD LIMITED CUSTOMER FEEDBACK IN THE DESIGN OF OUR PRODUCTS AND OUR
PRODUCTS MAY NOT BE SATISFACTORILY DESIGNED TO MEET CUSTOMER NEEDS
Our revenue depends on the number of customers who use Tumbleweed IME to
provide secure online communication services. Accordingly, the satisfactory
design of our products and products licensed from third parties is critical to
our business, and any significant product design limitations or deficiencies
could harm our business and market acceptance. To date, the features and
functionalities reflected in our products and services have been based on our
internal design efforts and on feedback from a limited number of customers and
potential customers. This limited feedback may not have resulted in an adequate
assessment of customer requirements. Therefore, currently specified features and
functionality of our products and services may not satisfy current or future
customer demands. Furthermore, even if we identify the feature set required by
customers in our market, we may not be able to design and implement products and
services incorporating features in a timely and efficient manner, if at all.
PRODUCT DEFICIENCIES MAY BE DIFFICULT TO RESOLVE AND COULD HARM OUR BUSINESS
Difficulties in product design, performance and reliability could result in
lost revenue, delays in customer acceptance or lawsuits and would be detrimental
to our market reputation. Software products as complex as those offered by
Tumbleweed, which incorporate products from third parties, often contain bugs or
performance problems. Serious defects are frequently found during the period
immediately following introduction of new products or enhancements to existing
products. Our products, and the products incorporated from third parties, are
not error-free. Undetected errors or performance problems may be discovered in
the future. Moreover, known errors which we consider minor may be considered
serious by our customers.
If our internal quality assurance testing or customer testing reveals
performance issues and/or desirable feature enhancements, we could postpone the
development and release of updates or enhancements to our current products,
future products or improvements in our services. We may not be able to
successfully complete the development of planned or future products in a timely
manner or to adequately address product defects, which could harm our business
and prospects. In addition, product defects may expose us to product liability
claims, for which we may not have sufficient product liability insurance. A
successful suit against us could harm our business and financial condition.
WE MAY ENCOUNTER SYSTEM FAILURE, AND A DISASTER COULD SEVERELY DAMAGE OUR
OPERATIONS
The ability of our customers to provide Tumbleweed IME-based services
depends on the efficient and uninterrupted operation of the computer and
communications hardware and the software and Internet network systems that they
maintain. Although our ability to manage the effects of system failures which
occur in computer hardware, software and network systems is limited, the
occurrences of these failures could harm our reputation, business and prospects.
The Internet has experienced a variety of outages and other delays as a result
of damage to portions of its infrastructure, and the Internet could face similar
outages and delays in the future. In addition, an increasing number of our
customers require Tumbleweed to provide computer and communications hardware,
software and Internet networking systems to them as an outsourced data center
service. All data centers, whether hosted by us, our customers, or by an
independent third party to which we outsource this function, are vulnerable to
damage or interruption from fire, flood, earthquake, power loss,
telecommunications failure, or other similar events.
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IF WE LOSE THE SERVICES OF OUR KEY MANAGEMENT PERSONNEL, INCLUDING OUR
CO-FOUNDERS OR KEY SALES EXECUTIVES, OUR ABILITY TO DEVELOP OUR BUSINESS AND
SECURE CUSTOMER RELATIONSHIPS WILL SUFFER
We are substantially dependent on the continued services and performance of
our senior management and other key personnel. The loss of the services of any
of our executive officers or other key employees, particularly Tumbleweed's
co-founders, Jeffrey C. Smith and Jean-Christophe D. Bandini, could
significantly delay or prevent the achievement of our development and strategic
objectives. In addition, the loss of key members of our sales organization
including Donald N. Taylor and Donald R. Gammon, could harm our ability to
secure key relationships contemplated by our business plan. We do not have
long-term employment agreements with any of our key personnel, and their
employment is at will. The loss of services of any of our senior management or
other key personnel would significantly harm our business and prospects.
WE MAY BE UNABLE TO RECRUIT OR RETAIN QUALIFIED PERSONNEL, WHICH COULD HARM OUR
BUSINESS AND PRODUCT DEVELOPMENT
We also must continue to identify, recruit, hire, train, retain and motivate
other highly skilled technical, managerial, editorial, marketing and customer
service personnel. Competition for these personnel is intense, and we may not be
able to successfully recruit, assimilate or retain sufficiently qualified
personnel. In particular, we may encounter difficulties in recruiting a
sufficient number of qualified software developers, and we may not be able to
retain these developers, which could harm our relationships with existing and
future customers at a critical stage of development. The failure to recruit and
retain necessary technical, managerial, editorial, merchandising, marketing and
customer service personnel could harm our business and our ability to obtain new
customers and develop new products.
POTENTIAL YEAR 2000 PROBLEMS AND PURCHASING PATTERNS COULD HARM OUR BUSINESS AND
REDUCE SALES
Our customers, potential customers, and end-users may need to upgrade their
computer systems and software products to ensure that their installed computer
systems and software products can distinguish between 20th century dates and
21st century dates. Their failure to do so could result in a system failure or
miscalculations causing disruptions of operations, including a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
Our computer systems use third-party equipment and software which may not be
Year 2000 compliant. In addition, our products and services are integrated into
the systems of our customers involving sophisticated hardware and complex
software products, which may not be Year 2000 compliant. We have no means of
ensuring that our customers and their end-users will be Year 2000 ready.
Moreover, Year 2000 readiness among international customers and in international
operations may be relatively more problematic as fewer resources may have been
devoted to addressing these issues in other countries. The failure of our
computer systems or the computer systems of our customers or Internet service
providers could cause us to incur significant expenses to remedy problems, could
reduce our revenue or could otherwise damage our business.
If we discover significant Year 2000 errors or defects, we could incur
substantial costs and our operations could be seriously disrupted. In addition,
disruptions in the economy generally resulting from Year 2000 issues could also
materially adversely affect us. We could be subject to litigation due to
computer systems or product failure, including as a result of equipment shutdown
or failure to properly date business records.
In addition, we believe that purchasing patterns of customers and potential
customers may be affected by Year 2000 issues as companies expend significant
resources to correct or upgrade their current software systems for Year 2000
compliance. These expenditures may reduce funds available to purchase software
products and services similar to those that we offer. To the extent that Year
2000
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issues cause significant postponements or cancellations of decisions to purchase
our products or services, our business and prospects would suffer. We cannot
reasonably estimate at this time the amount of potential liability and lost
revenue that could result from Year 2000 issues. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Year 2000
Compliance."
OUR BUSINESS IS SUBJECT TO CONTINUOUS TECHNOLOGICAL CHANGE, AND WE MAY NOT BE
ABLE TO RESPOND SUCCESSFULLY TO THE CHANGING NEEDS OF OUR INDUSTRY
The secure online communication services industry is characterized by rapid
technological change, changes in user and customer requirements and preferences,
frequent new product and service introductions and new industry standards and
practices that could render our existing services, proprietary technology and
systems obsolete. If we are unable to adapt or respond in a timely manner to
changing market conditions or customer requirements for technical, legal,
financial or other reasons, our business and prospects could be harmed. We must
continually improve the performance, features and reliability of our services,
particularly in response to competitive offerings. Because the technologies of
our partners, such as Oracle databases, Netscape web servers and digital
certificate and encryption technology from VeriSign and RSA provide a foundation
for our products, changes in those technologies and markets could affect the
demand for Tumbleweed IME. We must also enhance our existing services, develop
new services and technologies that address the increasingly sophisticated and
varied needs of our current and prospective customers and respond to
technological advances and emerging industry standards and practices on a
cost-effective and timely basis. The development of proprietary technology
entails significant technical challenges such as integrating new technology into
an existing platform and requires substantial expenditures and lead-time. We may
not be able to utilize new technologies effectively or adapt our products to
customer requirements or emerging industry standards.
OUR EFFORTS TO ESTABLISH, MAINTAIN AND STRENGTHEN OUR BRAND WILL REQUIRE
SIGNIFICANT EXPENDITURES AND MAY NOT BE SUCCESSFUL
If the marketplace does not associate the Tumbleweed or Tumbleweed IME
brands with high quality secure Internet communication services, it may be more
difficult for us to attract new customers or introduce future products and
services. The market for our services is new. Therefore, our failure to
establish brand recognition at this stage could harm our ability to compete in
the future with other companies that successfully establish a brand name for
their services. We must succeed in our marketing efforts, provide high quality
services and increase our user base in order to build our brand awareness and
differentiate our products from those of our competitors. These efforts have
required significant expenditures to date. Moreover, we believe that these
efforts will require substantial commitments of resources in the future as our
brands become increasingly important to our overall strategy and as the market
for our services grows.
OUR BUSINESS WILL BE HARMED IF WE CANNOT MEET OUR FUTURE CAPITAL NEEDS
We will require substantial working capital to fund our business and achieve
our goals. We have experienced negative cash flow from operations and we expect
to continue to experience significant negative cash flow from operations for the
foreseeable future. We believe that our existing capital resources, including
the anticipated proceeds of this offering, will enable us to maintain our
current and planned operations for at least the next 12 months. However, our
capital requirements depend upon several factors, including:
- the rate of market acceptance of our products and services, including
transaction volume;
- our ability to expand our customer base;
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- our level of expenditures; and
- the cost of service and technology upgrades.
If we seek additional funding to meet our requirements, this funding may not
be available on acceptable terms, if at all. If adequate funds are not
available, we may be required to curtail significantly or defer one or more of
our operating goals or programs. If we raise additional funds through the
issuance of equity securities, the issuance could result in substantial dilution
to existing shareholders. In addition, these equity securities may have rights,
preferences or privileges senior to those of the holders of our common stock. If
we raise additional funds through the issuance of debt securities, these new
securities would have rights, preferences and privileges senior to those of the
holders of our common stock. The terms of these debt securities could also
impose restrictions on our operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
RISKS RELATED TO OUR INDUSTRY:
BECAUSE TUMBLEWEED IME UTILIZES THE INTERNET TO ACHIEVE SECURE COMMUNICATIONS,
IF USE OF THE INTERNET DOES NOT INCREASE, THE LEVEL OF USE OF OUR PRODUCTS
WILL SUFFER
If the Internet and other products and services necessary for the
utilization of Tumbleweed IME are not sufficiently developed, fewer customers
and end-users will use Tumbleweed IME and our business will be harmed. In
particular, the success of our products and services will depend on the
development and maintenance of adequate Internet infrastructure, such as a
reliable network backbone with the necessary speed, data capacity and other
features demanded by users. Moreover, our success will also depend on the timely
development of complementary products or services such as high speed modems for
providing reliable Internet access and services and this may not occur. Because
the online exchange of information is new and evolving, the Internet may not
prove to be a viable platform for secure online communication services in the
long term. The Internet has experienced, and is expected to continue to
experience, significant growth in the numbers of users and amount of traffic. As
the Internet continues to experience increased numbers of users, frequency of
use or if its users require increasingly more resources, the Internet
infrastructure may not be able to support the demands placed on it. As a result,
the performance or reliability of the Internet may be adversely affected. This
in turn could adversely affect the level of Internet usage and also the level of
utilization of our products and services. In addition, critical issues
concerning the commercial use of the Internet, such as cost, ease of use and
access, and privacy issues, remain unresolved and could have a material adverse
effect on both the growth of the Internet and our business.
ADDITIONAL GOVERNMENT REGULATION RELATING TO THE INTERNET MAY INCREASE OUR COSTS
OF DOING BUSINESS OR REQUIRE CHANGES IN OUR BUSINESS MODEL
We are subject to regulations applicable to businesses generally and laws or
regulations directly applicable to companies utilizing the Internet. Although
there are currently few laws and regulations directly applicable to the
Internet, it is possible that a number of laws and regulations may be adopted
with respect to the Internet. These laws could cover issues like user privacy,
pricing, content, intellectual property, distribution, antitrust, legal
liability and characteristics and quality of products and services. The adoption
of any additional laws or regulations could decrease the demand for our products
and services and increase our cost of doing business, or otherwise harm our
business or prospects.
Moreover, the applicability to the Internet of existing laws in various
jurisdictions governing issues like property ownership, sales and other taxes,
libel and personal privacy is uncertain and may take years to resolve. For
example, tax authorities in a number of states are currently reviewing the
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appropriate tax treatment of companies engaged in online commerce. New state tax
regulations may subject us to additional state sales and income taxes. Any new
legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to our business, or the
application of existing laws and regulations to the Internet and commercial
online services could harm our ability to conduct business and our operating
results.
OUR PRODUCTS ARE SUBJECT TO EXPORT CONTROLS, AND WE MAY BE UNABLE TO OBTAIN
NECESSARY APPROVALS
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. We have
obtained approval to export Tumbleweed IME Desktop 1.5, Tumbleweed IME Desktop
2, Tumbleweed IME Server 2 and versions of Tumbleweed IME Desktop 3.1 and
Tumbleweed IME Server 3.1, and we are not exporting other products and services
that are subject to export control under U.S. law. However, the list of products
and countries for which export approval is required, and the related regulatory
policies, could be revised, and we may not be able to obtain necessary approval
for the export of future products. Our inability to obtain required approvals
under these regulations could limit our ability to make international sales.
Furthermore, our competitors may also seek to obtain approvals to export
products that could increase the amount of competition we face.
COSTS OF COMMUNICATING VIA THE INTERNET COULD INCREASE IF ACCESS FEES ARE
IMPOSED
Certain local telephone carriers have asserted that the increasing
popularity and use of the Internet has burdened the existing telecommunications
infrastructure, and that many areas with high Internet use have begun to
experience interruptions in telephone service. These carriers have petitioned
the Federal Communications Commission to impose access fees on Internet service
providers and online service providers. If these access fees were imposed, the
costs of communicating on the Internet could increase substantially, potentially
slowing the increasing use of the Internet. This could in turn decrease demand
for our services or increase our cost of doing business.
WE MAY HAVE LIABILITY FOR INTERNET CONTENT
As a provider of Internet communication products and services, we face
potential liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the nature and content of the materials
transmitted online. Any imposition of liability, particularly liability that is
not covered by insurance or is in excess of insurance coverage, could be costly
and could require us to implement measures to reduce our exposure to this
liability. This may require us to expend substantial resources or to discontinue
selected service or product offerings.
We do not and cannot screen all of the content generated by our users, and
we could be exposed to liability with respect to this content. Furthermore,
certain foreign governments, such as Germany, have enforced laws and regulations
related to content distributed over the Internet that are more strict than those
currently in place in the U.S. Other countries, such as China, regulate or
prohibit the transport of telephony data in their territories. Failure to comply
with regulations in a particular jurisdiction could result in fines or criminal
penalties or the termination of our service in one or more jurisdictions.
Moreover, the increased attention focused on liability issues as a result of
lawsuits and legislative proposals could impact the growth of Internet use. Our
liability insurance may not cover claims of these types, or may not be adequate
to indemnify us for all liability that may be imposed.
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RISKS RELATED TO THIS OFFERING:
FUTURE SALES OF COMMON STOCK COULD DEPRESS OUR STOCK PRICE
We cannot predict if future sales of our common stock, or the availability
of our common stock for sale, will depress the market price for our common stock
or our ability to raise capital by offering equity securities. Sales of
substantial amounts of common stock, or the perception that these sales could
occur, may depress prevailing market prices for the common stock.
After this offering, approximately 21,203,494 shares of common stock will be
outstanding. All of the shares sold in this offering will be freely tradeable
except for any shares purchased by affiliates of Tumbleweed. The remaining
shares of common stock outstanding after this offering will be restricted as a
result of securities laws or lock-up agreements. These remaining shares will be
available for sale in the public market as follows:
<TABLE>
<CAPTION>
DATE OF AVAILABILITY FOR SALE NUMBER OF SHARES
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
As of the date of this prospectus.............................................................. --
February 2, 2000............................................................................... 10,866,222
At various times thereafter upon expiration of applicable holding periods...................... 6,337,272
</TABLE>
Credit Suisse First Boston may release all or a portion of the shares
subject to lock-up agreements at any time without notice. See "Underwriting" and
"Shares Eligible for Future Sale."
INTERNET RELATED STOCK PRICES ARE ESPECIALLY VOLATILE AND THIS VOLATILITY MAY
DEPRESS OUR STOCK PRICE
The stock market has experienced significant price and volume fluctuations
and the market prices of securities of technology companies, particularly
Internet-related companies, have been highly volatile. In the past, following
periods of volatility in the market price of a company's securities, securities
class action litigation has often been instituted against the company. The
institution of this type of litigation against us could result in substantial
costs and a diversion of our management's attention and resources, which could
harm our business and prospects.
OUR STOCK HAS NOT BEEN PUBLICLY TRADED BEFORE THIS OFFERING AND YOU MAY NOT BE
ABLE TO SELL YOUR SHARES ABOVE THE PRICE YOU PAID
We cannot predict the extent to which investor interest in Tumbleweed will
lead to the development of a trading market or how liquid that market might
become. Before this offering, there has been no public market for our common
stock, and you may not be able to resell your shares at or above the initial
public offering price. We may sell a substantial amount of our common stock in
this offering to a limited number of institutional investors, which, together
with the effect of shares subject to lock-up agreements or other restrictions,
could limit the timely development of an active trading market. As a result,
investors may experience greater price volatility and less efficient execution
of buy and sell orders. The initial public offering price for the shares of our
common stock will be determined by negotiations between us and the
representatives of the underwriters and may not be indicative of prices that
will prevail in the trading market. See "Underwriting."
YOU WILL NOT BE ABLE TO CONTROL CORPORATE EVENTS BECAUSE OUR MANAGEMENT AND
EXISTING STOCKHOLDERS WILL OWN A MAJORITY OF OUR STOCK AFTER THE OFFERING
Upon completion of this offering, our present directors, executive officers
and principal stockholders as a group will beneficially own approximately 72.9%
of the outstanding common stock, or 70.9% if the underwriters' over-allotment
option is exercised. Accordingly, if all or particular stockholders were to act
together, they would be able to exercise significant influence over or control
the election of our board of directors, our management and policies and the
outcome of particular
19
<PAGE>
corporate transactions or other matters submitted to our stockholders for
approval, including mergers, consolidations and the sale of all or substantially
all of our assets.
OUR CERTIFICATE OF INCORPORATION AND BYLAWS CONTAIN PROVISIONS THAT COULD
DISCOURAGE OR PREVENT AN ACQUISITION OF TUMBLEWEED, WHICH COULD DEPRESS OUR
STOCK PRICE
Provisions of the certificate of incorporation and bylaws that we intend to
adopt before the closing of this offering may inhibit changes of control that
are not approved by our board of directors. These provisions could limit the
price that investors might be willing to pay in the future for shares of our
common stock. In particular, the provisions we intend to adopt will classify our
board of directors, prohibit stockholder action by written consent. These
provisions will also require advance notice for nomination of directors and
stockholders' proposals. In addition, as a Delaware corporation, we will be
subject to Section 203 of the Delaware General Corporation Law. In general, this
law prevents a person who becomes the owner of 15% or more of the corporation's
outstanding voting stock from engaging in specified business combinations for
three years unless specified conditions are satisfied. In addition, our
certificate of incorporation will allow our board of directors to issue
preferred stock without further stockholder approval. This could have the effect
of delaying, deferring or preventing a change in control. The issuance of
preferred stock also could effectively limit the voting power of the holders of
our common stock. The provisions of our certificate of incorporation and bylaws,
as well as provisions of Delaware law, may discourage or prevent an acquisition
or disposition of our business.
OUR CURRENT EXPECTATIONS AND PROJECTIONS CONTAINED IN FORWARD-LOOKING STATEMENTS
MAY NOT BE REALIZED, WHICH COULD HARM OUR BUSINESS AND REDUCE OUR STOCK PRICE
Some of the matters discussed under the captions "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this prospectus include
forward-looking statements. We have based these forward-looking statements on
our current expectations and projections about future events, including,
- implementing our business strategy;
- attracting and retaining customers;
- obtaining and expanding market acceptance of the products and services we
offer;
- forecasts of Internet usage and the size and growth of relevant markets;
- rapid technological changes in our industry and relevant markets; and
- competition in our market.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "could," "predicts," "potential," "continue,"
"expects," "anticipates," "future," "intends," "plans," "believes," "estimates"
and similar expressions. These statements are based on our current beliefs,
expectations and assumptions and are subject to a number of risks and
uncertainties. Actual results, levels of activity, performance, achievements and
events may vary significantly from those implied by the forward-looking
statements. A description of risks that could cause our results to vary appears
under the caption "Risk Factors" and elsewhere in this prospectus. These
forward-looking statements are made as of the date of this prospectus. We assume
no obligation to update them or to explain the reasons why actual results may
differ.
20
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of shares of our
common stock in this offering of approximately $47.2 million, based upon an
assumed offering price of $13.00 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses. If the
underwriters exercise their over-allotment option in full, we estimate that we
will receive net proceeds from this offering of $54.5 million on the same basis.
The principal purposes of this offering are to obtain additional capital and to
create a public market for our common stock. We expect to use the net proceeds
from this offering for working capital and other general corporate purposes. In
addition, we may use a portion of the net proceeds to acquire complementary
products, technologies, or businesses; however, we currently have no commitments
or agreements and are not involved in any negotiations with respect to any such
transactions.
We will have significant discretion in the use of the net proceeds of this
offering. Investors will be relying on the judgment of our management regarding
the application of the proceeds of this offering. Pending use of the net
proceeds as discussed above, we intend to invest these funds in short-term,
interest-bearing, investment-grade obligations.
DIVIDEND POLICY
We declared a substantial dividend in connection with the sale of our prior
technology in March of 1994. However, we presently anticipate that we will
retain any future earnings to finance the development and expansion of our
business and provide working capital. Therefore, we do not anticipate any cash
dividends on our common stock for the foreseeable future. The terms of our
existing credit facility prohibit the payment of dividends in specified
circumstances.
21
<PAGE>
CAPITALIZATION
The first column of the following table indicates our actual capitalization
as of June 30, 1999. The second column indicates pro forma capitalization upon
consummation of this offering assuming the conversion of outstanding shares of
our preferred stock into common stock. Pro forma capitalization also reflects
the exercise of warrants dated December 19, 1997 and May 13, 1999 to purchase
32,307 and 54,733 shares of common stock, respectively, on a cashless basis at
an assumed initial public offering price of $13.00 per share. The third column
shows our pro forma capitalization as adjusted after giving effect to the sale
of shares of common stock offered by us in this offering at the assumed initial
public offering price. Our pro forma capitalization as adjusted also reflects
the application of the estimated net proceeds from this offering. This
information should be read in conjunction with our Consolidated Financial
Statements and the related Notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations, excluding current installments................ $ 1,185 $ 1,185 $ 1,185
Stockholders' equity:
Convertible preferred stock, 29,000,000 shares authorized,
12,331,434 shares issued and outstanding, actual; 10,000,000
shares authorized, no shares issued and outstanding, pro forma
and pro forma as adjusted........................................ 12 -- --
Common stock, 43,000,000 shares authorized, 4,785,020 shares issued
and outstanding, actual; 100,000,000 shares authorized, pro forma
and pro forma as adjusted; 17,203,494 shares issued and
outstanding, pro forma; 21,203,494 shares issued and outstanding,
pro forma as adjusted............................................ 5 17 21
Additional paid-in capital......................................... 40,077 40,077 87,283
Deferred compensation.............................................. (7,082) (7,082) (7,082)
Accumulated other comprehensive income............................. 4 4 4
Accumulated deficit................................................ (18,184) (18,184) (18,184)
------------- ------------- -------------
Total stockholders' equity....................................... 14,832 14,832 62,042
------------- ------------- -------------
Total capitalization........................................... $ 16,017 $ 16,017 $ 63,227
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The shares of common stock outstanding in the actual, pro forma and pro
forma as adjusted columns exclude:
- 2,673,496 shares of common stock issuable as of July 8, 1999 upon the
exercise of outstanding stock options at a weighted average exercise price
of $0.80 per share;
- 500,000 shares of common stock initially reserved for issuance under our
employee stock purchase plan;
- 4,576,484 shares of common stock reserved for issuance as of July 8, 1999
under our stock incentive plans; and
- 20,973 shares of common stock issuable upon the exercise of a warrant
dated November 30, 1998 that will remain outstanding after this offering
at an exercise price of $3.58 per share.
22
<PAGE>
DILUTION
The pro forma net tangible book value of Tumbleweed as of June 30, 1999 was
approximately $14,832,000, or $0.86 per share of common stock. The table below
contains additional information concerning dilution to new investors. Pro forma
net tangible book value per share represents the amount of total tangible assets
less total liabilities, divided by 17,203,494. This number represents the number
of shares of common stock that would have been outstanding at June 30, 1999
after giving effect to the conversion of all outstanding shares of preferred
stock. This number also reflects the exercise of warrants dated December 19,
1997 and May 13, 1999 to purchase 32,307 and 54,733 shares, respectively, of
common stock on a cashless basis at an assumed public offering price of $13.00
per share. After giving effect to the sale by Tumbleweed of the shares of common
stock offered in this offering at the assumed public offering price,
Tumbleweed's pro forma net tangible book value at June 30, 1999 would have been
$62,042,000, or $2.93 per share. This represents an immediate increase in net
tangible book value to existing stockholders of $2.07 per share and an immediate
dilution of $10.07 per share to new investors. The following table illustrates
the per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share:........................... $ 13.00
---------
Pro forma net tangible book value per share before this offering as of
June 30, 1999.......................................................... $ 0.86
---------
Increase per share attributable to new investors......................... 2.07
---------
Pro forma net tangible book value per share after this offering............ 2.93
---------
Dilution per share to new investors........................................ $ 10.07
---------
---------
</TABLE>
The following table summarizes on a pro forma basis the total number of
shares of common stock purchased from us, the total consideration paid to us and
the average price per share paid by existing stockholders and by new investors.
Each of these figures are based upon the number of shares of common stock
outstanding as of June 30, 1999. These figures give effect to the conversion of
all outstanding shares of preferred stock. These figures also give effect to the
exercise of warrants dated December 31, 1997 and May 13, 1999 to purchase 32,307
and 54,733 shares of common stock, respectively, on a cashless basis at an
assumed public offering price of $13.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders................................. 17,203,494 81.1% $ 32,044,859 38.1% $ 1.86
New investors......................................... 4,000,000 18.9 52,000,000 61.9 13.00
------------ ----- ------------- ----- -----------
Total............................................... 21,203,494 100.0% $ 84,044,859 100.0% $ 14.86
------------ ----- ------------- ----- -----------
------------ ----- ------------- ----- -----------
</TABLE>
Except as noted above, the foregoing discussions and tables assume no
exercise of any stock options or warrants outstanding at June 30, 1999. As of
July 8, 1999, there were options outstanding to purchase 2,673,496 shares of
common stock at a weighted average exercise price of $0.80 and a warrant dated
November 30, 1998 to purchase 20,973 shares of preferred stock with an exercise
price of $3.58 per share. To the extent that any of these options or this
warrant is exercised, there will be further dilution to the new investors.
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our Consolidated Financial Statements and related Notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The statements of operations
data for each of the years in the three-year period ended December 31, 1998 and
the balance sheet data at December 31, 1997 and 1998, are derived from our
consolidated financial statements that have been audited by KPMG LLP,
independent accountants, included elsewhere in this prospectus. The statements
of operations data for the year ended December 31, 1995 and the balance sheet
data at December 31, 1995 and 1996, are derived from our audited financial
statements that are not included in this prospectus. The statements of
operations data for the six months ended June 30, 1998 and 1999, and the balance
sheet data at June 30, 1999, are derived from our unaudited consolidated
financial statements included elsewhere in this prospectus. The statements of
operations data for the year ended December 31, 1994 and the balance sheet data
at December 31, 1994 are derived from our unaudited financial statements that
are not included in this prospectus. We launched Tumbleweed IME in July 1997;
before this time, all of our revenue was related to a technology that was sold
in March of 1994, which comprised substantially all of our license revenue in
1994, and ongoing services related to that technology.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue:
License......................................... $ 210 $ 411 $ 261 $ 359 $ 885 $ 560 $ 1,082
Services........................................ 375 407 336 250 910 329 619
Sale of technology.............................. 2,993 -- -- 120 220 110 --
--------- --------- --------- --------- --------- --------- ---------
Total revenue................................. 3,578 818 597 729 2,015 999 1,701
Cost of revenue:
License cost.................................... -- 30 15 63 194 101 100
Services cost................................... 211 202 124 45 737 271 676
--------- --------- --------- --------- --------- --------- ---------
Total cost of revenue......................... 211 232 139 108 931 372 776
--------- --------- --------- --------- --------- --------- ---------
Gross profit...................................... 3,367 586 458 621 1,084 627 925
Operating expenses:
Research and development........................ 70 169 634 1,846 2,021 869 1,880
Sales and marketing............................. 309 256 649 2,593 4,049 2,315 2,788
General and administrative...................... 181 184 372 792 1,080 579 1,105
Stock compensation.............................. -- -- 24 246 673 259 1,283
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses...................... 560 609 1,679 5,477 7,823 4,022 7,056
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)........................... 2,807 (23) (1,221) (4,856) (6,739) (3,395) (6,131)
Other income (expense), net....................... (43) 7 41 165 149 127 118
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) before provision for taxes...... 2,764 (16) (1,180) (4,691) (6,590) (3,268) (6,013)
Provision for taxes............................... -- -- -- -- -- -- 40
Net income (loss)................................. $ 2,764 $ (16) $ (1,180) $ (4,691) $ (6,590) $ (3,268) $ (6,053)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net loss per share--basic and diluted............. $ (0.33) $ (1.41) $ (1.74) $ (0.89) $ (1.43)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average--basic and diluted............... 3,598 3,331 3,797 3,682 4,246
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................ $ 101 $ 81 $ 2,670 $ 6,310 $ 698
Total assets..................................................... 119 206 2,939 7,115 1,725
Long-term obligations, excluding current installments............ -- -- -- -- 369
Total stockholders' equity....................................... 91 141 2,652 6,270 501
<CAPTION>
JUNE 30,
1999
-----------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................ $ 14,700
Total assets..................................................... 19,037
Long-term obligations, excluding current installments............ 1,185
Total stockholders' equity....................................... 14,832
</TABLE>
24
<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 THE RELATED NOTES THAT APPEAR ELSEWHERE IN THIS
PROSPECTUS. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
REFLECT OUR PLANS, ESTIMATES AND BELIEFS. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO THESE DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS, PARTICULARLY IN "RISK
FACTORS."
OVERVIEW
Tumbleweed is a leading provider of Internet-based systems that enable
businesses to conduct secure online communications using e-mail and the web. We
began developing our Tumbleweed technology in December of 1995 and we launched
Tumbleweed IME in July of 1997. We incurred net losses of $4.7 million and $6.6
million in the years ended December 31, 1997 and 1998, respectively, as well as
a net loss of $6.1 million in the six months ended June 30, 1999. As of June 30,
1999, we had incurred cumulative net losses as a C-corporation of $18.2 million.
Our revenue is comprised of license fees and services fees. License revenue
is comprised of initial license fees and the sale of distribution rights.
License revenue typically is recognized upon customer acceptance of the
software. Revenue from the sale of distribution rights is recognized upon the
execution of a distribution agreement. Our services revenue is comprised of
transaction-based fees, implementation and consulting fees, and support and
maintenance fees. Transaction fees are based on the volume of transactions by
our customers, and the related revenue is recognized based on payment schedules
and transaction reports from our customers. A number of our contracts include
minimum transaction volume requirements. In these cases, the minimum guaranteed
revenue is recognized when fees are due and payable during those months where
transaction volume does not exceed the designated minimums. Services fees are
paid to us for implementation and consulting work. Implementation and consulting
work relates to co-branding products, integrating our products with those of our
customers, and feature enhancement. Revenue from implementation and consulting
work is recognized as the services are performed. Support and maintenance fees
are paid for ongoing customer support as well as for the right to receive future
updates and upgrades to our products during the term of the maintenance
agreement. Revenue from support and maintenance is recognized ratably over the
period the support is provided.
Our revenue is concentrated among a few customers. As license fees continue
to comprise a substantial portion of our revenue, the principal
revenue-generating customers are likely to vary on a quarterly basis. However,
we anticipate that the principal revenue-generating customers as a group will
continue to comprise a significant portion of revenue. While the number of our
customers has increased over time, we anticipate that our revenue will remain
concentrated among a few customers for the foreseeable future.
A substantial portion of our revenue relates to international customers or
operations. We are increasingly becoming dependent upon these customers. Most of
our contracts are denominated in U.S. dollars. However, our contract with Hikari
Tsushin is denominated in Japanese yen, and, in the future, an increasing number
of contracts may be denominated in foreign currencies. We currently do not have
hedging or similar arrangements to protect us against foreign currency
fluctuations. Therefore, we increasingly may be subject to currency
fluctuations, which could harm our operating results in future periods.
Development costs incurred in the research and development of new technology
and enhancements to existing technology are expensed as incurred until
technological feasibility in the form of a working
25
<PAGE>
model has been established. To date, capitalized costs for our software
development have not been material.
During the years ended December 31, 1996, 1997 and 1998 and the six months
ended June 30, 1999, we recorded aggregate deferred stock compensation expense
of $9.3 million in connection with the grant of certain stock options which were
granted at exercise prices less than the deemed fair value on the grant date.
The deferred stock compensation expense is being amortized on an accelerated
basis over the vesting period of the options, which is generally four years. Of
the total deferred stock compensation expense, $24,000, $246,000, $673,000 and
$1,283,000 was amortized in the years ended December 31, 1996, 1997 and 1998 and
the six months ended June 30, 1999, respectively, and we expect that
approximately $2.1 million, $2.8 million and $900,000 will be amortized during
the remainder of 1999 and in 2000 and 2001, respectively. See Note 6 of the
Notes to Consolidated Financial Statements.
Our future net income and cash flow will be affected by our ability to apply
net operating losses for federal tax reporting purposes against taxable income
in future periods due to a cumulative change in ownership for income tax
purposes, as defined in Section 382 of the Internal Revenue Code, arising from
the sale of stock in this and prior offerings.
In March of 1994, we sold a technology known as Envoy to Novell, Inc.
pursuant to an asset transfer, and we thereafter effected a substantial
distribution to our stockholders. In connection with this sale, we retained the
rights to derivative payments from various agreements that were acquired by
Novell, Inc. for specified periods of time. The proceeds from this asset
transfer were used for general corporate purposes, including the initial
development of Tumbleweed IME. Virtually all of our revenue recognized before
June of 1997, which marked the initial launch of Tumbleweed IME, was derived
from these agreements. We ceased recognizing revenue under these agreements in
the first quarter of 1997, and we do not anticipate recognizing any additional
revenue under these agreements in the future since we believe that Novell, Inc.
has discontinued distribution of products utilizing Envoy technology. As a
result, revenue recognized for periods before June of 1997 is not indicative of
our operating results in subsequent periods. In addition, in 1997 and 1998, we
recognized revenue derived from a sale of ancillary technology to a third party.
We do not anticipate recognizing revenue from similar sales in the future.
RECENT DEVELOPMENTS
During the months of February and May of 1999, Tumbleweed completed private
placements that raised approximately $20.0 million of new capital. The primary
investors in these private placements were Hikari Tsushin and United Parcel
Service. All of our existing institutional investors participated as well. In
March 1999, Hikari Tsushin also executed a license agreement with us.
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
REVENUE. Total revenue, which is comprised of license revenue and services
revenue, increased 70.3% to $1.7 million in the six months ended June 30, 1999
from $999,000 in the six months ended June 30, 1998. License revenue increased
93.2% to $1.1 million in the six months ended June 30, 1999 from $560,000 in the
six months ended June 30, 1998. The majority of the license revenue for the six
months ended June 30, 1999 was derived from initial license fees arising from
agreements with Hikari Tsushin and the U.S. Postal Service, Canada Post,
France's La Poste and the International Post Corporation Technology, S.C.
Services revenue increased 88.1% to $619,000 in the six months ended June 30,
1999 from $329,000 in the six months ended June 30, 1998 due to an increase in
contract engineering work by our professional services organization, and, to a
lesser extent, an increase in transaction-based fees.
26
<PAGE>
COST OF REVENUE. Cost of revenue is comprised of license cost and services
cost. License cost is primarily comprised of royalties paid to third parties for
software licensed by us for inclusion in our products. Services cost is
comprised primarily of personnel and overhead cost related to customer support
and custom development projects. Total cost of revenue increased 108.6% to
$776,000 in the six months ended June 30, 1999 from $372,000 in the six months
ended June 30, 1998 corresponding to increased revenue. License cost decreased
slightly to $100,000 in the six months ended June 30, 1999 from $101,000 in the
six months ended June 30, 1998. Services cost increased by 149.4% to $676,000 in
the six months ended June 30, 1999 from $271,000 in the six months ended June
30, 1998, primarily due to increased personnel costs to support new projects.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses are
comprised of engineering and related costs associated with the development of
Tumbleweed IME, quality assurance and testing. Research and development expenses
increased 116.3% to $1.9 million in the six months ended June 30, 1999 from
$869,000 in the six months ended June 30, 1998. The increase was primarily due
to increased staffing. We expect that our research and development expenses will
increase in absolute dollars in future periods.
SALES AND MARKETING EXPENSES. Sales and marketing expenses are comprised of
salaries, commissions, travel expenses and costs associated with trade shows,
advertising and other marketing efforts. Sales and marketing expenses increased
20.4% to $2.8 million in the six months ended June 30, 1999 from $2.3 million in
the six months ended June 30, 1998. The increase in sales and marketing expenses
was primarily due to increased sales staffing and incentive compensation costs,
which were partially offset by decreases in our marketing program costs.
Marketing programs costs declined due to a decreased marketing emphasis on
end-users and an increased focus on marketing to customers and the realization
of co-promotion opportunities with these customers. We expect that our sales and
marketing expenses will increase in absolute dollars in future periods.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of personnel and support costs for our finance, human
resources, information systems and other administration departments as well as
professional fees. General and administrative expenses increased 90.8% to $1.1
million in the six months ended June 30, 1999 from $579,000 in the six months
ended June 30, 1998 corresponding to the expansion of our business. We expect
that our general and administrative expenses will increase substantially in
absolute dollars in future periods. We expect that the increase in part will be
due to the costs associated with operating as a public company and due to the
patent infringement lawsuit we brought against The docSpace Company, Inc., which
is still pending. See "Business--Legal Proceedings."
YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUE. Total revenue increased 176.4% to $2.0 million in 1998 from
$729,000 in 1997. Approximately one-half of the revenue in 1997 was derived from
prior agreements relating to our technology that was sold. See "--Overview."
License revenue increased 146.5% to $885,000 in 1998 from $359,000 in 1997 due
to increases in initial license fees from customers. Services revenue increased
264.0% to $910,000 in 1998 from $250,000 in 1997 due to increases in custom
development work performed for our customers. We have recognized revenue from
Tumbleweed IME commencing with its launch in July 1997. Our first full year of
recognizing revenue from Tumbleweed IME was 1998.
COST OF REVENUE. Cost of revenue increased 762.0% to $931,000 in 1998 from
$108,000 in 1997. License cost increased 207.9% to $194,000 in 1998 from $63,000
in 1997 due to increased royalty costs associated with the addition of licensed
technology from third parties and costs which correspond to increases in license
revenue. Services cost increased 1,537.7% to $737,000 in 1998 from $45,000 in
1997 due to increased personnel costs to support new projects.
27
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 9.5% to $2.0 million in 1998 from $1.8 million in 1997. The increase
was primarily due to increased staffing.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased 56.2%
to $4.0 million in 1998 from $2.6 million in 1997. The increase was primarily
due to increased staffing as well as increased spending on marketing programs.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 36.4% to $1.1 million in 1998 from $792,000 in 1997. The increase was
primarily due to increased personnel and professional fees.
YEARS ENDED DECEMBER 31, 1997 AND 1996
REVENUE. Total revenue increased 22.1% to $729,000 in 1997 from $597,000 in
1996. The increase was primarily due to the introduction of Tumbleweed IME and
the realization of related services revenue. A majority of the revenue in 1997
and all of the revenue in 1996 was derived from prior agreements relating to our
technology that was sold. See "--Overview." We have recognized revenue from
Tumbleweed IME commencing with its launch in June of 1997. During 1997, we
offered Tumbleweed IME directly to end-users, and, as a result, revenue from
customers was minimal.
COST OF REVENUE. Cost of revenue decreased 22.3% to $108,000 in 1997 from
$139,000 in 1996. Cost of revenue decreased in part due to the termination of
the revenue that was being recognized from our technology that was sold.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased 191.2% to $1.8 million in 1997 from $634,000 in 1996. The increase was
primarily due to increased staffing to support the further development and
introduction of Tumbleweed IME.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased 299.5%
to $2.6 million in 1997 from $649,000 in 1996. The increase was primarily due to
increased staffing and marketing program expenditures supporting the
introduction of Tumbleweed IME.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 112.9% to $792,000 in 1997 from $372,000 in 1996. The increase was
primarily due to increased staffing and outside professional fees.
28
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents selected unaudited quarterly consolidated
statements of operations data for the six quarters ended June 30, 1999. In the
opinion of management, this information has been presented on the same basis as
the audited Consolidated Financial Statements appearing elsewhere in this
prospectus. Management also believes that all necessary adjustments have been
included in the amounts stated below in order to state fairly the unaudited
quarterly results when read in conjunction with Tumbleweed's audited
Consolidated Financial Statements and related Notes. Results from any quarter
are not necessarily indicative of the results to be expected for the entire
fiscal year or for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------------
MARCH 31, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1998 JUNE 30, 1998 1998 1998 1999 JUNE 30, 1999
------------- ------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
License......................... $ 304 $ 256 $ 195 $ 130 $ 518 $ 564
Services........................ 146 183 276 305 175 444
Sale of technology.............. -- 110 110 -- -- --
------------- ------------- ------------- ------------- ------------- -------------
Total revenue................. 450 549 581 435 693 1,008
Cost of revenue:
License cost.................... 41 60 61 32 46 54
Services cost................... 121 150 265 201 228 448
------------- ------------- ------------- ------------- ------------- -------------
Total cost of revenue......... 162 210 326 233 274 502
------------- ------------- ------------- ------------- ------------- -------------
Gross profit...................... 288 339 255 202 419 506
Operating expenses:
Research and development........ 457 412 500 652 819 1,061
Sales and marketing............. 1,081 1,234 929 805 1,055 1,733
General and administrative...... 275 304 278 223 274 831
Stock compensation.............. 87 172 178 236 325 958
------------- ------------- ------------- ------------- ------------- -------------
Total operating expenses...... 1,900 2,122 1,885 1,916 2,473 4,583
------------- ------------- ------------- ------------- ------------- -------------
Operating loss.................... (1,612) (1,783) (1,630) (1,714) (2,054) (4,077)
Other income (expense), net....... 81 46 28 (6) (2) 120
------------- ------------- ------------- ------------- ------------- -------------
Net loss before provision for
taxes........................... (1,531) (1,737) (1,602) (1,720) (2,056) (3,957)
Provision for taxes............... -- -- -- -- -- 40
------------- ------------- ------------- ------------- ------------- -------------
Net loss.......................... $ (1,531) $ (1,737) $ (1,602) $ (1,720) $ (2,056) $ (3,997)
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
License revenue increased in the quarter ended June 30, 1999 due to new
license agreements executed during the quarter. The majority of license revenue
for the three months ended June 30, 1999 was derived from initial license fees
arising from the production agreement with the U.S. Postal Service, Canada Post,
France's La Poste and the International Post Corporation Technology, S.C.
Services revenue increased significantly in the quarter ended June 30, 1999 due
to an increase in contract engineering work by our professional services
organization and an increase in transaction based fees. License revenue
increased significantly in the quarter ended March 31, 1999, reflecting the
broadening of our sales base through the efforts of our direct sales force,
which was put in place in the latter part of 1998. The majority of the license
revenue for the three months ended March 31, 1999 was derived from initial
license and distribution fees arising from the agreement with Hikari Tsushin.
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License revenue decreased in the quarters ended June 30, 1998, September 30,
1998, and December 31, 1998, as services revenue increased, reflecting the
evolution in key customer relationships from the initial license phase to an
implementation phase. Services revenue decreased in the quarter ended March 31,
1999 due to the substantial completion of a major project in the preceding
quarter. Revenue derived from the sale of technology in the quarters ended June
30, 1998 and September 30, 1998, was associated with the sale of printer driver
technology to a company in Asia and is a non-recurring item.
Services cost increased in the quarter ended June 30, 1999 due to increased
personnel costs to support new projects. Services cost increased in the quarter
ended March 31, 1999 in connection with hiring additional professional services
personnel. Services cost decreased in the quarter ended December 31, 1998 due to
the reallocation of personnel from the professional services organization to
research and development. Sales and marketing expenses increased in the quarters
ended March 31, 1999 and June 30, 1999 due to the addition of personnel. Sales
and marketing expenses decreased in the quarters ended September 30, 1998 and
December 31, 1998, reflecting a decreased marketing emphasis on end-users and an
increased focus on marketing to customers. This change enabled Tumbleweed to
benefit from reduced direct marketing expenses and increased reliance on
co-promotion activities. General and administrative expenses increased
significantly in the quarter ended June 30, 1999, primarily due to legal fees
associated with the patent infringement lawsuit we brought against The docSpace
Company, Inc., as well as the addition of personnel.
FLUCTUATIONS IN QUARTERLY RESULTS
As a result of our limited operating history and the emerging nature of the
markets in which we compete, we are unable to accurately forecast our revenue or
expenses. Our success is dependent upon our ability to enter into and maintain
strategic relationships with customers and to develop and maintain volume usage
of our products by our customers and their end-users. Our revenue has fluctuated
and our quarterly operating results will continue to fluctuate based on the
timing of the execution of new customer licenses in a given quarter. Our license
revenue is comprised entirely of initial license and distribution fees. As a
result, we will be required to regularly and increasingly sign additional
customers with substantial initial license fees on a timely basis to realize
comparable or increased license revenue.
Our services revenue historically has been comprised almost entirely of
implementation and consulting fees and support and maintenance fees, as actual
transaction-based revenue to date has been minimal. As a result, we will be
required to increase our services revenue in the short term through custom
development work and contractual transaction minimums and in the longer term
through the increased transaction volume with the use of our services. Unless
and until we have developed a significant and recurring transaction-based
revenue stream from communications that are sent with our services, our revenue
will continue to fluctuate significantly. Accordingly, we may be unable to
recognize quarterly or annual revenue consistent with our historical operating
results or expectations.
In addition, sales to a limited number of customers have constituted a
majority of our revenue in any given quarter. In particular, four customers
comprised approximately 86% of our revenue in the six months ended June 30, 1999
and five customers comprised approximately 89% of our revenue in 1998.
Therefore, the deferral or cancellation of an agreement, or a decision not to
move from a pilot or preliminary phase into final production by any existing or
anticipated customer could harm our operating results for a quarter or annual
period. We have experienced, and expect to continue to experience, fluctuations
in revenue and operating results from quarter to quarter for other reasons which
are more fully set forth under the caption "Risk Factors -- Our Quarterly
Financial Results Are Subject to Significant Fluctuations."
As a result of these factors, we believe that quarter-to-quarter comparisons
of our revenue and operating results are not necessarily meaningful, and that
these comparisons may not be accurate indicators of future performance. Because
our staffing and operating expenses are based on anticipated
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revenue levels, and because a high percentage of our costs are fixed, small
variations in the timing of the recognition of specific revenue could cause
significant variations in operating results from quarter to quarter. If we are
unable to adjust spending in a timely manner to compensate for any unexpected
revenue shortfall, any significant revenue shortfall would likely have an
immediate negative effect on our operating results. Moreover, our operating
results in one or more future quarters may fail to meet the expectations of
securities analysts or investors. If this occurs, we would expect to experience
an immediate and significant decline in the trading price of our stock.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, Tumbleweed has financed its operations primarily through
the issuance of equity securities to investors. On June 30, 1999, Tumbleweed had
approximately $14.7 million in cash and cash equivalents.
Net cash used by operating activities for the six months ended June 30,
1999, and the years ended December 31, 1998, 1997 and 1996 was $3.7 million,
$5.9 million, $4.0 million and $1.0 million, respectively. Cash used in
operating activities in each of these periods was primarily the result of net
operating losses.
Net cash used in investing activities for the six months ended June 30,
1999, and the years ended December 31, 1998, 1997 and 1996 was $2.2 million,
$399,000, $352,000 and $134,000, respectively. In each period, net cash used in
investing activities was primarily the result of capital expenditures related to
increased personnel.
Net cash provided by financing activities for the six months ended June 30,
1999 and the years ended December 31, 1998, 1997, and 1996 was $19.9 million,
$640,000, $8.0 million and $3.7 million, respectively. Cash provided by
financing activities was primarily attributable to net proceeds from the
issuance of equity securities to investors.
As of June 30, 1999, Tumbleweed's principal commitments consisted of
obligations outstanding under equipment and operating leases. Our equipment
leases require payment of rental fees to third party leasing providers at
interest rates of between 1.4% and 12.8%. In most cases, Tumbleweed has no
obligations to purchase the equipment at the end of the term. In addition to
amounts reflected on our June 30, 1999 balance sheet, we have commitments
relating to our facility relocation of approximately $300,000. We anticipate a
substantial increase in capital expenditures consistent with potential growth in
operations, infrastructure and personnel.
We recently entered into an additional operating lease. The lease covers
approximately 40,000 square feet in Redwood City, California. The lease is for a
term of five years commencing June 8, 1999, at an initial monthly rent of
approximately $49,000 increasing to $96,000 monthly in October 1999.
In July 1998, Tumbleweed entered into an agreement with Silicon Valley Bank,
which included a $1.5 million revolving credit facility, with availability based
on outstanding accounts receivable, and a $750,000 equipment loan facility.
Borrowings under the credit facility and equipment facility carry interest at
the prime rate plus 0.5% and 0.75%, respectively, with interest payable monthly.
Borrowings under the credit facility are due in July 1999. Borrowings under the
equipment facility are due in 36 equal monthly installments beginning January
1999, and are secured by Tumbleweed's assets. There were no borrowings under the
credit facility as of June 30, 1999. The bank has a senior security interest in
substantially all of our assets.
During November 1998, Tumbleweed amended the agreement. As part of the
amendment, Tumbleweed obtained a $1.5 million bridge facility, with availability
based on several factors, including the proposed amount of Tumbleweed's next
equity financing. Tumbleweed was prohibited from making additional borrowings
against the credit facility until the maturity date of the bridge facility and
the equipment facility was limited to making additional borrowings up to
$125,000. The bridge facility
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matured, and all outstanding borrowings under the bridge facility were repaid,
upon the closing of the Series C preferred stock financing in February 1999.
During June 1999, Tumbleweed again amended the agreement. As part of the
amendment, Tumbleweed increased the equipment loan facility by $1.0 million. As
of June 30, 1999, total borrowings under the equipment loan facility were $1.4
million. Borrowings under the equipment loan facility are due in 36 equal
monthly installments beginning January 1, 2000.
We license technology from RSA Data Security, Inc. and from Adobe Systems
Incorporated pursuant to agreements that require payment of royalties to these
parties based on our revenue. The annual minimum payments currently effective
under these agreements are not significant.
Our capital requirements depend on numerous factors, including market
acceptance of our products and services, the resources we devote to development
of our products and services and the resources we devote to sales and marketing.
We have experienced a substantial increase in our capital expenditures and
operating expenses since our inception consistent with our relocation and the
growth in our operations and staffing. We anticipate that this growth will
continue for the foreseeable future. Additionally, we expect to make additional
investments in technologies, and plan to expand our sales and marketing
programs. We currently anticipate that the net proceeds of the offering,
together with our existing cash and sources of liquidity, will be sufficient to
meet our anticipated needs for working capital and capital expenditures for at
least the next 12 months. To the extent we experience growth beyond the next 12
months, we will need to raise funds for our growth from financing activities.
We intend to continue to consider our future financing alternatives, which
may include the incurrence of indebtedness, additional public or private equity
offerings or an equity investment by a strategic partner. However, other than
our agreement with Silicon Valley Bank, we have no present commitments or
arrangements assuring us of any future equity or debt financing, and additional
equity or debt financing may not be available to us on favorable terms, if at
all.
We are not aware of seasonal aspects of our business that will affect our
business on a short or long-term basis other than as described under the caption
"Year 2000 Compliance" below. See "Risk Factors--Our Business Will Be Harmed If
We Cannot Meet Our Future Capital Needs."
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two-digit entries to identify a year in the date code field.
Consequently, on January 1, 2000, many of these systems could fail or
malfunction because they may not be able to distinguish between 20th century
dates and 21st century dates. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. Accordingly, our customers, potential
customers, and end-users may need to upgrade their computer systems and software
products to comply with applicable Year 2000 requirements.
To date, we have completed our preliminary assessment of all internal
systems and equipment that could be significantly affected by the Year 2000.
Based on our Year 2000 assessment program, we believe that the portions of our
computer systems that we developed are Year 2000 compliant. Our computer system
also uses third-party equipment and software which may not be Year 2000
compliant. We are currently assessing the third-party equipment and software for
Year 2000 compliance. Based on our assessment to date, we also believe that the
current versions of our software products and services are Year 2000 compliant.
However, our products and services are integrated into the systems of our
customers involving sophisticated hardware and complex software products, which
may not be Year 2000 compliant. We are not aware of customers with a Year 2000
issue that would materially impact our results of operations, liquidity, or
capital resources.
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We have not incurred significant costs to date complying with Year 2000
requirements. We expect that our future costs to ensure compliance with Year
2000 concerns will not be significant. If we discover significant Year 2000
errors or defects, we could incur substantial costs and our operations could be
seriously disrupted. In addition, disruptions in the economy generally resulting
from Year 2000 issues could also materially adversely affect us. We could be
subject to litigation due to computer systems or product failure, including as a
result of equipment shutdown or failure to properly date business records.
In addition, we believe that purchasing patterns of customers and potential
customers may be affected by Year 2000 issues as companies expend significant
resources to correct or upgrade their current software systems for Year 2000
compliance. These expenditures may reduce funds available to purchase software
products and services similar to those that we offer. To the extent that Year
2000 issues cause significant delay in, or cancellation of, decisions to
purchase our products or services, our business and prospects would suffer. See
"Risk Factors--Potential Year 2000 Problems and Purchasing Patterns Could Harm
Our Business and Reduce Sales."
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Tumbleweed transacts business in various foreign currencies. Accordingly,
Tumbleweed is subject to exposure from adverse movements in foreign currency
exchange rates. This exposure is primarily related to revenue and operating
expenses in the United Kingdom and Japan denominated in the respective local
currency. However, as of December 31, 1998, Tumbleweed had no hedging contracts
outstanding.
Tumbleweed currently does not use financial instruments to hedge operating
expenses in the United Kingdom or Japan denominated in the respective local
currency. Tumbleweed assesses the need to utilize financial instruments to hedge
currency exposures on an ongoing basis.
Tumbleweed does not use derivative financial instruments for speculative
trading purposes, nor does Tumbleweed hedge its foreign currency exposure in a
manner that entirely offsets the effects of changes in foreign exchange rates.
Tumbleweed regularly reviews its hedging program and may as part of this review
determine at any time to change its hedging program.
FIXED INCOME INVESTMENTS
Tumbleweed's exposure to market risks for changes in interest rates relates
primarily to investments in money market funds and securities. Tumbleweed places
its investments with high credit quality issuers and, by policy, limits the
amount of the credit exposure to any one issuer.
Tumbleweed's general policy is to limit the risk of principal loss and
ensure the safety of invested funds by limiting market and credit risk. All
highly liquid investments with a maturity of three months or less at the date of
purchase are considered to be cash equivalents, investments with maturities
between three and twelve months are considered to be short-term investments and
investments with maturities in excess of twelve months are considered to be
long-term investments. For the fiscal year ended December 31, 1998 the weighted
average interest rate on the investment portfolio was approximately 5.0%.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES. Tumbleweed is required to adopt SFAS 133 in fiscal 2000.
SFAS 133 establishes methods of accounting for derivative financial instruments
and hedging activities related to those instruments as well as other hedging
activities. To date, we have not entered into any derivative financial
instruments or hedging activities.
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In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position No. 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE. The SOP requires that certain costs
related to the development or purchase of internal-use software be capitalized
and amortized over the estimated useful life of the software. The SOP also
requires that costs related to the preliminary project stage and the
post-implementation/operations stage of an internal-use computer software
development project be expensed as incurred. This statement is effective for
financial statements issued for fiscal years beginning after December 15, 1998.
Tumbleweed adopted SOP 98-1 effective January 1, 1999 and it did not materially
affect its financial position or results of operations.
In December 1998, the American Institute of Certified Public Accountants
issued SOP No. 98-9, MODIFICATIONS OF SOP 97-2, SOFTWARE REVENUE RECOGNITION,
WITH RESPECT TO CERTAIN TRANSACTIONS. SOP 98-9 requires recognition of revenue
using the residual method in a multiple-element software arrangement when fair
value does not exist for one or more of the delivered elements in the
arrangement. Under the residual method, the total fair value of the undelivered
elements is deferred and recognized in accordance with SOP 97-2. SOP 98-9 also
extends the deferral of the application of SOP 97-2 to certain other
multiple-element software arrangements through Tumbleweed's year ending December
31, 1999. We do not expect a material change to our accounting for revenue as a
result of the provisions of SOP 98-9.
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BUSINESS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE INDICATED IN
THESE FORWARD-LOOKING STATEMENTS. SEE "RISK FACTORS--OUR CURRENT EXPECTATIONS
AND PROJECTIONS CONTAINED IN FORWARD-LOOKING STATEMENTS MAY NOT BE REALIZED,
WHICH COULD HARM OUR BUSINESS AND REDUCE OUR STOCK PRICE."
OVERVIEW
Tumbleweed is a leading provider of Internet-based systems that enable
businesses to conduct secure online communications using e-mail and the web.
With our solution, corporations are able to shift their historically paper-based
communications to more convenient and cost-effective online alternatives. We
combine an open, scalable messaging software platform, a set of secure messaging
applications and a broad range of professional services capabilities in order to
deliver a complete online communications solution. Using our solution, service
providers are able to provide their business customers with secure, reliable and
trackable communication services that leverage these corporations' existing
investments in e-mail and web technologies. We also sell our products and
services directly to enterprises in selected strategic markets, such as the
banking, financial services, telecommunications and healthcare industries,
enabling them to offer Tumbleweed-based services to their employees, customers,
suppliers and partners.
INDUSTRY BACKGROUND
E-mail has become one of the primary applications in use on the Internet
today, providing the foundation for global communications and enabling millions
of people to interact electronically. International Data Corporation estimates
that the number of electronic mailboxes will grow from approximately 240 million
in 1998 to over 540 million by 2002. International Data Corporation further
projects that the number of e-mail messages sent per day in the U.S. will grow
from approximately 2.1 billion in 1998 to 7.9 billion in 2002.
We believe that the growth in e-mail usage generally has been associated
with increased informal communication between individuals rather than formal
communication between businesses and their customers. For business-critical
communications, corporations continue to rely upon traditional paper-based
methods of delivery such as first class mail and overnight express mail. For
example, although online brokerages execute hundreds of thousands of trades over
the Internet each day, these firms still print a physical trade confirmation and
deliver it to individuals via first class mail. The U.S. Postal Service
estimates that it delivers 107 billion pieces of first class mail annually. In
addition, the U.S. Postal Service estimates that United Parcel Service and the
U.S. Postal Service combined execute 18 million overnight deliveries per day.
To move online and away from physical delivery, businesses require
efficient, cost-effective solutions that leverage their investment in e-mail and
the Internet. Although existing online alternatives such as dedicated
proprietary networks and desktop software supply security and speed, they
introduce added cost and complexity to a corporation's business processes and
limit access to people using the same proprietary network or software. For
example, a virtual private network typically requires proprietary software,
specialized hardware and a closed list of participants.
In order to advance beyond physical mail or proprietary networks, and reach
the greatest possible number of end-users, customers need a secure, reliable
online solution built on public networks.
THE TUMBLEWEED SOLUTION
Built on widely accepted industry standards, the Tumbleweed Integrated
Messaging Exchange, or Tumbleweed IME, utilizes public networks to provide
efficient, cost-effective, secure
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business-to-business and business-to-consumer communications over the Internet.
By providing secure, reliable, and trackable communication through existing
networks and applications, we enable businesses to move their historically
paper-based business communications online. Our solution blends the personalized
and proactive nature of e-mail with the ubiquity of the Internet to deliver
sensitive, secure and time-critical content to the broadest possible audience.
Tumbleweed IME enables businesses to deliver secure and personalized
outbound information in a variety of ways. This information can be distributed
within e-mail messages, on the Internet via inboxes, or through a combination of
both e-mail and the Internet. Our solution has the unique and patented
capability of taking an e-mail message recipient to a unique web page that is
relevant to that recipient. In addition to being a vehicle for secure online
communication services, Tumbleweed IME provides features to manage personalized
content, track recipient transactions such as receipt or response, and integrate
the system into existing back-office processes.
Tumbleweed IME provides a complete framework for deploying enhanced online
communication services, eliminating the need to integrate multiple different
solutions or services that each address only part of the problem. Our customers
include enterprise customers that utilize Tumbleweed IME as a communication
platform for internal purposes or for distribution of internally generated
communication to their customers, and service providers that utilize Tumbleweed
IME as the basis for an external service for business customers. Our solution
provides the following benefits to our customers:
- COMPLETE RANGE OF SERVICES. Adding advanced technology to a customer's
already complex information technology environment presents numerous
challenges, ranging from software incompatibilities to inadequate
technical expertise. When deploying something as substantial as an
advanced online communication infrastructure, customers expect services
ranging from assistance in customizing and incorporating new technology
into their computing environment, to having the entire solution made
available to them as an outsourced, managed service. In order to meet
these unique customer requirements, together with our service providers,
we offer a complete range of services, allowing new customers to rapidly
deploy the Tumbleweed IME solution. Customers seeking to avoid complex
software procurement or installation can completely outsource the
management of Tumbleweed IME. For customers desiring to manage their
applications within their enterprise, Tumbleweed provides services ranging
from integration and customization to data center design and support.
- COMPREHENSIVE TECHNOLOGY. Tumbleweed IME is designed to provide a secure,
efficient and cost-effective method for communicating important
information online. Our solution contains all of the core technology,
integration tools and professional services necessary to incorporate
advanced messaging features into existing environments. Tumbleweed IME can
be modified to meet the unique communications needs of specific customers,
and can be easily integrated into existing environments. Customization and
integration are achieved through our extensive set of open application
programming interfaces. These application programming interfaces allow
customers to integrate Tumbleweed IME into their existing technology
infrastructure such as databases, support systems and billing systems.
- MULTI-LEVEL SECURITY. In many cases, the reason business-critical
information is not communicated online is the lack of security features
available in existing e-mail solutions. Through our innovative and unique
implementation of industry-standard security technologies, we are able to
offer secure online communication services to anyone with e-mail and
Internet access. Depending on the needs of the sender, security features
can include encryption during transmission and storage and password
protection for user authentication. For highly sensitive communication,
Tumbleweed IME includes certificate-based signing and encryption features.
Any level of security can be easily employed without requiring the sender
and recipient to have
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the same messaging software. Taken together, these features provide the
security necessary to communicate business-critical information over the
Internet.
- EASY, UNIVERSAL ACCESS. A successful advanced communication system must
be able to reach anyone on the Internet. Tumbleweed IME is based on open
Internet standards, and requires no proprietary desktop software,
protocols, or networks. Anyone with an e-mail account and web access can
use our solution to both send and to receive messages regardless of which
e-mail system they use or the format of the information included.
Similarly, Tumbleweed IME can be integrated with an enterprise's existing
back office systems to enable automated communication to anyone with an
e-mail account and web access. Because no new application or user
interface is needed, there is no costly training or desktop deployment
associated with our solution. In addition, senders can convert any
information to Adobe Portable Document Format, which allows recipients to
view the information they receive regardless of the application in which
the information was created.
- END-TO-END TRACKABILITY. Many business processes require the maintenance
of a transaction log of communications and an archive of past activities.
With our solution, senders can track the status of each delivery, and
subsequent interaction through the web page by recipients. Details on a
particular delivery are also easily accessible, providing specific
delivery information such as security level, and a complete tracking log
on each recipient. The tracking log details when the recipient's e-mail
gateway received e-mail notification, and when any information was
retrieved. Additionally, unlike existing e-mail and web-based solutions,
Tumbleweed IME allows the sender to retract information if the recipient
has not yet downloaded it.
- PERSONALIZED COMMUNICATION. Communication of important business
information such as transaction confirmations or account statements
requires message customization for specific recipients. Using Tumbleweed
IME, businesses can automatically generate unique messages for each
individual, personalized with recipient-specific information and
preferences. In addition, our solution allows senders to create messages
targeting specific recipient preferences, demographics and communication
history. Tumbleweed IME also enables our customers to easily incorporate
marketing promotions into their business communications.
- SCALABLE ARCHITECTURE. Tumbleweed IME is designed to accommodate a
variety of online communication applications, ranging from small corporate
deployments to large enterprise installations supporting global service
offerings. Our scalable architecture allows customers to accommodate high
transaction volumes and implement desired levels of redundancy. Tumbleweed
IME components can be distributed across multiple servers, allowing for an
increasingly high volume of transactions while maintaining high standards
of performance, reliability and security. The ability to seamlessly handle
increasing transaction volumes is a key consideration for customers in
deploying an enterprise-class online communication system.
STRATEGY
Our objective is to be the leading provider of secure online communication
services. Key elements of our strategy are to:
ESTABLISH TUMBLEWEED IME AS THE LEADING APPLICATION PLATFORM FOR SECURE ONLINE
COMMUNICATION SERVICES
We intend to establish Tumbleweed IME as the standard platform upon which to
build business-critical communication applications. Rather than designing
Tumbleweed IME as a point-solution for a specific application, we have designed
it to be a broad-based application development platform. As such, Tumbleweed IME
can be extended to include a number of different applications and includes
support for a comprehensive, open application programming interface. This
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application programming interface allows us, and our customers, to rapidly build
vertical, business-specific applications on top of our Tumbleweed IME
technology.
CULTIVATE A CHANNEL OF KEY SERVICE PROVIDERS
We intend to leverage our channel of service providers to expand our
business into new strategic industry markets as well as to pursue additional
general purpose transactions. Service providers fall into two major categories.
First, some of our service providers, license Tumbleweed IME in order to be able
to provide additional value-added services to their customers. These service
providers include Pitney Bowes, Nippon Telegraph and Telephone Corporation,
United Parcel Service, the member posts of the International Post Corporation
Technology, S.C. and Hikari Tsushin, a major e-mail outsourcing service provider
in Japan. Second, service providers such as UPAQ Ltd., an electronic transferor
of large, industrial file types, focus on distinct industries. Our service
provider customers are helping to rapidly expand the market for secure online
communications through their brand recognition, extensive sales and marketing
resources and substantial services competencies.
ESTABLISH TUMBLEWEED IME AS THE INTERNATIONAL STANDARD FOR SECURE ONLINE
COMMUNICATION
We intend to establish Tumbleweed IME as an international standard for
secure online communication services by developing a significant base of
enterprise and service provider customers. We also intend to accomplish this by
capturing business with the national postal authorities. The national postal
authorities present a strategic business opportunity for Tumbleweed. They are
both highly trusted service providers in their respective geographies and
uniquely able to dictate national standards for certified online communication.
In order to help establish Tumbleweed IME as the international standard for
certified online communications, we have formed a strategic relationship with
the International Post Corporation Technology, S.C. The International Post
Corporation Technology, S.C. is an umbrella organization composed of twenty-one
national postal authorities including the U.S. Postal Service, Canada Post and
France's La Poste. As part of our work with the International Post Corporation
Technology, S.C., we have integrated Tumbleweed IME with the International Post
Corporation Technology, S.C.'s Electronic Post Mark technology. Tumbleweed IME
is now being used by the U.S. Postal Service, Canada Post, and France's La
Poste. We plan to introduce Tumbleweed IME to the International Post Corporation
Technology, S.C.'s other eighteen members as well.
ESTABLISH TUMBLEWEED IME IN STRATEGIC INDUSTRY MARKETS
Through our direct sales force, we are pursuing key accounts in strategic
markets. These strategic markets initially include the banking, financial
services, telecommunications and healthcare industries. Through our direct sales
force in each strategic market, we have begun to secure key accounts and we
intend to expand our business to other similar customers within those
industries. Our successes in the strategic industry markets are intended to
provide leverage to our channel of service providers as they in turn pursue
business in those industries.
EXPAND INTO ACCOUNTS AFTER FIRST SECURING BUSINESS-CRITICAL APPLICATIONS
The sophistication of the Tumbleweed IME Platform enables us to first target
those business-critical applications that require the highest degrees of
security and tracking within an enterprise. Having secured these high-value
applications, we can then expand our focus to include other messaging
applications within the same enterprise. Customers benefit through the ability
to use Tumbleweed IME as the foundation for all of their enterprise messaging
needs, from high-end to low-end applications. Our ability to address the entire
spectrum of an enterprise's communication
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service needs should enable us to compete favorably against those companies
whose technologies are only suited to lower-end communications applications.
CREATE RECURRING TRANSACTION-BASED REVENUE STREAMS
To create a predictable, recurring revenue stream, we intend to generate
revenue based on the volume of communications sent through Tumbleweed IME.
Tumbleweed IME may be used by a particular customer on-site at the customer
premises or used as an outsourced service. Customers are charged a software
license fee plus any related professional service fees, supplemented by
transaction-based fees. The amount of these transaction fees varies depending on
customer usage as evidenced by the volume of communications sent through
Tumbleweed IME.
PROVIDE COMPREHENSIVE PROFESSIONAL SERVICES
Our full outsourcing services enable our customers to reduce their cost of
ownership and deployment time of our solutions, thereby helping reduce our sales
cycle to those enterprises. Enterprise customers have the option of deploying
Tumbleweed IME either on their premises or outsourcing the Tumbleweed IME
deployment to Tumbleweed. We complement our outsourcing services with a full
breadth of professional and consulting services. These services are
comprehensive, end-to-end, and designed to help customers implement Tumbleweed
IME-based applications as rapidly as possible. The services include
business-specific applications consulting, software development, training and
education and complete technical support.
PRODUCTS AND SERVICES
Tumbleweed IME, our online communication solution, combines advanced
security, tracking and personalization features in a single, comprehensive
messaging environment. With Tumbleweed IME, businesses have a secure Internet
communication alternative that allows them to extend their existing web and
e-mail infrastructures to support critical business processes.
TUMBLEWEED IME
Tumbleweed IME includes the elements necessary to successfully deploy an
online, interactive communication solution: a comprehensive delivery platform,
customized applications that integrate with business processes, and professional
services that help customers bring legacy business communications online.
[Graphic depicts the three layers of Tumbleweed IME, with the Tumbleweed IME
Platform at the bottom, Tumbleweed IME Applications stacked on top of the
platform, and Tumbleweed IME Services stacked on top of the applications.]
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TUMBLEWEED IME PLATFORM
The Tumbleweed IME Platform is the foundation of our solution that includes
the core functionality necessary for processing, managing, presenting and
archiving electronic communications. Because advanced services require high
performance and scalability, the Tumbleweed IME Platform has been designed to
handle millions of daily secure messages efficiently. The Tumbleweed IME
Platform's flexible architecture supports distributed execution of software
components, allowing customers to expand the service as their requirements grow.
This scalability, combined with advanced security and tracking features, enables
customers to use our technology as the foundation for a variety of online
communication services.
We have optimized our technology for use with industry-leading hardware and
software solutions, ensuring that the Tumbleweed IME Platform can meet customer
requirements now and in the foreseeable future. The Tumbleweed IME Platform has
been evaluated and deployed by some of the world's largest businesses, including
Nippon Telegraph and Telephone Corporation and United Parcel Service. Our
technology has been in production use for eighteen months and has been enhanced
with two significant releases during this time frame in order to meet production
requirements and provide carrier-class quality. Through advanced security,
trackability and reliability features, the Tumbleweed IME Platform provides a
comprehensive foundation for building and deploying premium communication
applications.
TUMBLEWEED IME APPLICATIONS
Using the Tumbleweed IME Platform as a foundation, Tumbleweed IME
Applications integrate with e-mail and legacy systems, interact with existing
applications, and automate transactions and exchanges to provide a complete
internal and external communications solution for the enterprise. These
applications are built to integrate with and enhance specific business
processes. Current Tumbleweed IME Applications include:
TUMBLEWEED IME FOR FINANCIAL SERVICES. As a growing number of organizations
make product and customer account information available online, billing and
customer management remain paper-intensive processes requiring physical delivery
of millions of documents. By automating these processes and integrating them
with Tumbleweed IME, both businesses and their customers can save time and money
with secure electronic communication of payment remittances, credit reports,
bills, statements, loan origination documents, and other types of
correspondence. Tumbleweed IME for Financial Services is also an ideal, low-cost
solution for distributing high-volume documentation, including prospectuses,
stockholder information, and research materials.
TUMBLEWEED IME INTERPERSONAL. Contracts, design and manufacturing
specifications and confidential records communicated between individuals often
require the secure delivery of information. For example, when a company
undergoes a private or public offering, a large number of documents must be
drafted and agreed upon by several parties, including company executives, the
company's law firm, and the underwriting financial institution. During the
drafting exercise, the document must be distributed securely to the different
parties many times. Each time, the sender must have assurance that all parties
received the documents. Tumbleweed IME Interpersonal provides all of the
security, tracking, and reliability required for ad-hoc correspondence and group
collaboration on any important business matters.
TUMBLEWEED IME CUSTOM APPLICATION BUILDER. Tumbleweed IME Custom
Application Builder incorporates the application programming interface
technology necessary to build a unique, secure online application. For example,
travel reservations, product and service sales and stock trading are becoming
increasingly popular on the Internet, but the security and reliability
limitations of e-mail have prevented some of these types of transactions from
becoming completely electronic. By customizing
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Tumbleweed IME to complement electronic commerce and other online processes,
businesses can create automated, sophisticated applications to deliver
confirmations, notifications and alerts with the security and tracking
capabilities of premium physical document delivery services and the speed,
convenience, and personalization of e-mail.
FUTURE TUMBLEWEED IME APPLICATIONS. We plan to introduce additional
applications targeted at strategic industries, such as banking and healthcare.
We also plan to introduce additional applications to address specific business
processes, such as direct marketing and security policy management. Because the
foundation for these applications will be the Tumbleweed IME platform, we can
take advantage of its numerous integration and customization features to rapidly
develop and deploy applications optimized for specific industries or business
processes.
TUMBLEWEED IME SERVICES
Our professional services organization provides all of the services and
support necessary to build a unique online communication system based on
Tumbleweed IME, including business process analysis, implementation services,
data center design, operational planning, training, quality assurance/
accreditation, installation, deployment and ongoing support.
Our consultants work closely with customers to help plan, implement, and
manage applications built on the Tumbleweed IME platform. In addition, our
consultants help ensure that Tumbleweed IME integrates seamlessly with existing
service infrastructures. The following are examples of the professional services
we offer:
CUSTOM APPLICATION DEVELOPMENT extends the functionality of the Tumbleweed
IME solution with custom engineering. The result is a unique online
communication solution that can be deployed to employees or customers around the
world.
INTEGRATION CONSULTING provides development work required to integrate
Tumbleweed IME with existing technology infrastructure, including customer
databases, support systems, and billing systems.
DATA CENTER DESIGN AND INSTALLATION assists customers in designing solutions
based on Tumbleweed IME, including determining hardware requirements, backup
processes and failure systems, and physically implementing our solution in the
customer's data center.
TECHNICAL TRAINING AND SUPPORT provides the customer with formal training in
the administration and operation of the Tumbleweed IME system, and use of the
Tumbleweed IME application programming interfaces. Our professional services
organization also provides ongoing support of the customer's data center.
CUSTOMERS AND MARKETS
Our customers are businesses for which Tumbleweed IME has created new
opportunities to bring existing communications and business processes online.
These customers fall into two broad categories. Service providers use Tumbleweed
IME to provide secure, outsourced, online communications services to their
business customers. Examples of service providers include United Parcel Service,
Nippon Telegraph & Telephone Corporation, and Pitney Bowes. Enterprise customers
utilize Tumbleweed IME to provide secure online communications services
originating within their own enterprise to employees, suppliers, and customers.
Examples of enterprise customers include the Chase Manhattan Bank, American
Express Travel Related Services, Inc., Datek Online Holdings Corp., Thomson
Financial, and the European Union-Joint Research Council.
Service providers and enterprise customers share many common attributes with
respect to software requirements, the professional services necessary to
integrate and implement a solution, and the potential for transaction-based fees
paid based on usage of Tumbleweed IME. While both service providers and
enterprise customers are using Tumbleweed IME to provide secure online
communications services outside the boundaries of their enterprise, the
principal distinction between the two groups is market focus. Service providers
offer the service on a fee-for-use basis, while enterprise customers typically
provide the improved communications service in order to gain business advantage
through improved cost, speed, and/or interactivity.
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CUSTOMER PROFILES
The following examples illustrate how customers are using Tumbleweed IME to
bring their existing communications and business processes online:
U.S. POSTAL SERVICE / INTERNATIONAL POST CORPORATION TECHNOLOGY, S.C.
The International Post Corporation Technology, S.C. is a cooperative
organization of twenty-one international postal administrations, with an
enormous customer base spanning numerous countries. Following a year-long pilot
program, the International Post Corporation Technology, S.C., the U.S. Postal
Service, Canada Post and France's La Poste signed an agreement to use Tumbleweed
IME under the label PostECS as the standard for secure online document delivery.
Tumbleweed IME's architecture and server application programming interfaces will
enable the member organizations of the International Post Corporation
Technology, S.C., including the U.S. Postal Service, Canada Post and France's La
Poste, to develop customized applications.
UNITED PARCEL SERVICE
United Parcel Service is the world's largest express carrier and largest
package delivery company, serving more than 200 countries and territories around
the world. United Parcel Service's Courier service, part of its Document
Exchange suite, is a production-level service powered by Tumbleweed IME that
allows United Parcel Service customers to deliver documents online. Current
pricing for document exchange ranges from $0.60 to $2.50 per transmission,
significantly lower than the price typically paid for overnight express document
shipments, which ranges from $6.00 to $36.75. Tumbleweed IME allows United
Parcel Service's Document Exchange Suite to provide its users with specific
features, including broad tracking capabilities and varying levels of security.
Tumbleweed IME's browser-based approach and open architecture broaden the
potential market that can be served by the United Parcel Service's online
document delivery service because end-users are not required to install any
additional software to utilize Tumbleweed IME.
THOMSON FINANCIAL SERVICES
Thomson Financial, a subsidiary of The Thomson Corporation, is a leading
provider of financial information, research, and analysis to global investment
and corporate communities. Thomson Financial has deployed Tumbleweed IME as part
of Thomson Prospectus, a service for electronic distribution of new issue
prospectuses for equity offerings, corporate bonds, and municipal bonds. Thomson
Prospectus compiles e-mail distribution lists, obtains electronic delivery
consent from investors, and converts prospectuses to a searchable electronic
format. Tumbleweed IME allows Thomson to distribute prospectuses electronically
to recipients with e-mail and a web browser. The use of Tumbleweed IME by
Thomson Financial cuts printing and mailing costs for issuers. In addition,
prospectuses delivered using Tumbleweed IME are searchable and hyperlinked.
EUROPEAN UNION--JOINT RESEARCH COUNCIL
The European Union's Joint Research Council is responsible for organizing
procedures for authorization, surveillance and, where appropriate, withdrawal of
human and veterinary pharmaceutical products for the entire European Union, and
coordinates the activities of more than 2,500 scientists and researchers across
Europe for the drug approval process. The Joint Research Council uses Tumbleweed
IME as a mechanism for enabling online information distribution in this
decentralized approval process. Tumbleweed IME is used by the Joint Research
Council to provide complete information security, authenticate participants, and
support a wide range of client systems. The Joint Research Council is also
investigating Tumbleweed IME as a platform for broad distribution of Joint
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Research Council reports and rulings, as well as a possible archival platform
for long-term research projects.
PITNEY BOWES
Pitney Bowes, Inc. is a global provider of informed mail and messaging
management solutions, providing a range of systems and services to its customers
for the creation, distribution and storage of documents in both paper and
digital form. Pitney Bowes' iSend service, powered by Tumbleweed IME, provides
for the transmission of confidential, high-value documents online. Businesses
can use iSend for any of their important communications, ranging from the
electronic delivery of statements and contracts, to online bulk mail. iSend is
also a component of the mail center operation services offered by Pitney Bowes'
management services business unit to major corporations worldwide.
HIKARI TSUSHIN
Hikari Tsushin is a leading prover of value-added communication services in
Japan, including cellular telephone, virtual ISP and outsourced corporate e-mail
services under the Hitmail brand name, which has over 5,000 corporate
subscribers in the Japanese market. Hikari Tsushin has licensed Tumbleweed IME
to provide secure communication services to their customer base, as well as
integration into the Hitmail service. The integration of Tumbleweed IME with
Hitmail will allow Hikari Tsushin to differentiate and augment their outsourced
e-mail solution.
TABLE OF CUSTOMERS
The following table describes our current customers and the markets in which
they operate. This table excludes the numerous end-user customers, such as
Hewlett-Packard, Sears, Roebuck & Co., Alston & Bird LLP, Morrison & Foerster
LLP, the New York State Department of Transportation, and Jackson National
Insurance, that utilize Tumbleweed IME through our service provider customers.
<TABLE>
<S> <C> <C>
CUSTOMER TYPE TARGET MARKET
The Chase Manhattan Bank Enterprise customer Banking
American Express Travel Related Services, Enterprise customer Financial services
Inc.
Datek Online Holdings Corp. Enterprise customer Brokerage
Thomson Financial Enterprise customer Financial services
European Union-Joint Research Council Enterprise customer Pharmaceutical
Times Mirror Company Enterprise customer Publishing
Cooley Godward LLP Enterprise customer Legal
CMP Media Inc. Enterprise customer Publishing
Federal Express Corporation Enterprise customer General purpose
Sema Group AB Enterprise customer General purpose
Asian Securities Printing Enterprise customer Financial printing
Keio University Enterprise customer Education
NASA Ames Research Center Enterprise customer Aeronautics
U.S. Postal Service Service provider Certified delivery
Canada Post Service provider Certified delivery
La Poste (France) Service provider Certified delivery
United Parcel Service Service provider Technology/engineering
Healthcare
Telecommunications
Financial services
Nippon Telegraph and Telephone Corp. Service provider Printing/publishing
Technology/engineering
UPAQ Ltd. Service provider Engineering
Pitney Bowes Service provider Financial services
General purpose
Hikari Tsushin Service provider General purpose
Canon Sales Co., Inc. Service provider Financial services
Technology/engineering
Secour.com Service provider General purpose
</TABLE>
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Our relationship with certain customers is new and evolving. In these cases,
implementation of Tumbleweed IME is preliminary or under review, and, in any
event, the volume of transactions effected by our customers or their end-users
to date has been limited. Four customers comprised approximately 86% of our
revenue in the six months ended June 30, 1999 and five customers comprised
approximately 91% of our revenue in 1998. In particular, sales to United Parcel
Service, the U.S. Postal Service, Canada Post and France's La Poste as member
posts of the International Post Corporation Technology, S.C., Dynalab, Inc.,
Canon Sales Co., Inc. and Nippon Telegraph and Telephone Corporation represented
30%, 28%, 15%, 9% and 9%, respectively, of our revenue in 1998. Sales to Hikari
Tsushin, the U.S. Postal Service, Canada Post and France's La Poste as member
posts of the International Post Corporation Technology, S.C., UPAQ Ltd. and
Pitney Bowes accounted for 36%, 32%, 10% and 8%, respectively, of our revenue in
the six months ended June 30, 1999. See "Risk Factors."
SALES AND MARKETING
SALES
We maintain a direct sales force that focuses on signing additional service
providers and key enterprise customers in strategic industries. Our sales force
is comprised of domestic and international sales groups. Offices in the U.S.
currently include Redwood City, California, Mount Laurel, New Jersey and New
York, New York. We currently have international offices in Tokyo, Japan and
Reading, United Kingdom. Our sales force includes field sales engineers and
inside sales personnel who support the account executives. Field sales engineers
assist our account executives with technical presentations, customer
requirements analysis and initial solution designs. Our inside sales personnel
assist the account executives in managing their customer relationships. Our
sales effort is augmented by the sales forces of our service providers.
MARKETING
Our marketing efforts are organized around three primary areas: product
marketing, product management, and marketing communications. Product marketing
identifies target markets and customer opportunities, then develops the
positioning, programs, and materials to reach customers and support sales
activities. Product marketing is also responsible for branding, corporate
identity, and the Tumbleweed website.
Product management translates customer and market requirements into product
plans and works with engineering to ensure completion. Product management also
trains salespeople on product information and competition. Marketing
communications drives overall market awareness of Tumbleweed and our products
through public relations, industry analyst relationships, product reviews,
editorial promotion, industry events and executive speaking engagements.
TECHNOLOGY
The Tumbleweed IME Platform and Tumbleweed IME Applications have been
designed using a distributed object model. This approach ensures that our
solutions are able to scale as the number of users and messages increases,
simply by adding additional servers, as well as providing enhanced reliability.
Our use of an industry standard protocol for computing using multiple central
processing units which may be distributed across discrete computing systems,
known as the common object request broker architecture, enables us to integrate
with systems from a variety of vendors. In addition, we leverage the proven
technologies of our partners, such as Oracle databases, Netscape web servers and
RSA's security toolkit, in order to provide a foundation for our products.
We have also developed a robust set of software procedures upon which
additional application-specific software functionality can be built, known as
application programming interfaces.
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These enable us to enhance the Tumbleweed IME Platform and Tumbleweed IME
Applications as the needs of our service provider customers evolve. Using this
set of application programming interfaces, we can also create new Tumbleweed IME
Applications, such as solutions suited to a specific strategic industries, that
run on top of the Tumbleweed IME Platform. We have made these application
programming interfaces open and available to our customers and partners,
enabling them to customize the Tumbleweed IME Platform and Tumbleweed IME
Applications to suit their individual needs.
[Graphic depicts the Tumbleweed IME architecture, demonstrating how the
Tumbleweed IME application programming interfaces interact with the Tumbleweed
IME Platform and Tumbleweed IME Applications.]
As shown above, our Tumbleweed IME Platform is organized into three separate
tiers, each of which can run on one or more physical servers. These tiers are:
- THE GATEWAY TIER, which provides an interface between the Tumbleweed IME
Server and the Internet. The gateway tier translates outgoing messages
into the appropriate protocols for transfer over the Internet, and
translates incoming messages that use these protocols.
- THE OBJECT TIER, which contains the set of objects which implement the
core functionality of the Tumbleweed messaging platform. Each core element
of a secure communication transaction, such as a user's account or a
secure package, is represented as a unique object within the object tier.
- THE STORAGE TIER, which uses the servers' underlying data storage and file
systems, coupled with a relational database, to maintain objects when they
are not in use.
Tumbleweed IME is a data-driven application architecture. As such, the
Tumbleweed IME Server allows for the dynamic personalization of outbound
messages on a per-recipient basis. Profile attributes associated with individual
recipients may be stored and used to populate outbound messages with customized
content. Tumbleweed IME's extensible data model allows both profile attributes
and content data to be stored in the system.
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The security options supported by Tumbleweed IME include encryption between
sender and receiver based on the secure sockets layer standard, encryption
technology developed by RSA on the server, name/password authentication, and
encryption based on public key infrastructure. Different security options can be
applied depending on the security needs of specific applications. For
applications requiring the highest levels of security, Tumbleweed IME is fully
integrated with digital certificate and encryption technology from
industry-leading vendors such as VeriSign and RSA. These public key
infrastructure capabilities allow Tumbleweed IME to provide complete,
tamper-proof, end-to-end security for highly sensitive business-to-business and
business-to-consumer communications.
Electronic delivery applications, particularly those under regulatory
control, must provide a full range of tracking capabilities to allow for the
needs of non-repudiation and compliance reporting. Tumbleweed IME, as a
server-based application platform, provides comprehensive tracking and reporting
capabilities. These include tracking notification and receipt, recording failed
transmissions, and providing all necessary status data and statistics for the
messaging application.
We have assembled an engineering team with expertise in the following
technologies and processes:
- HYPERTEXT TRANSFER PROTOCOL--The set of standards used by computers to
transfer hypertext files, i.e. web pages, over the Internet.
- SIMPLE MAIL TRANSFER PROTOCOL--The standard protocol used for routing
e-mail messages over the Internet.
- JAVA AND C++--Computer languages that are particularly well-suited for
developing special programs, called objects, that can communicate with
each other using the Internet.
- COMMON OBJECT REQUEST BROKER ARCHITECTURE--An industry standard protocol
that allows distributed software components to interoperate with each
other. It enables objects to communicate with one another regardless of
what programming language they were written in or on what type of computer
they are running.
- DIGITAL CERTIFICATES--Digital documents, typically containing a public key
and a name, that attest to the binding of a public key to an individual or
other entity.
- PUBLIC KEY INFRASTRUCTURE--An evolving, standards-based system which
relies on digital certificates to ensure the validity of Internet
communications and transactions.
- SECURE MULTIPURPOSE INTERNET MAIL EXTENSIONS--An e-mail standard used to
format complex messages so that they can be sent securely over the
Internet.
- SECURE SOCKETS LAYER--An Internet standard which is used to encrypt data
as it is being transmitted over the Internet.
GOVERNMENTAL REGULATION
We are not currently subject to direct regulation by any domestic or foreign
governmental agency, other than regulations applicable to businesses generally,
and laws or regulations directly applicable to access to online commerce.
However, due to the increasing popularity and use of the Internet and other
online services, it is possible that a number of laws and regulations may be
adopted with respect to the Internet or other online services covering issues
such as user privacy, Internet transaction taxation, pricing, content,
copyrights, distribution and characteristics and quality of products and
services. Furthermore, the growth and development of the market for online
commerce may prompt calls for more stringent consumer protection laws that may
impose additional burdens on those companies conducting business online. For
example, the Federal Communications Commission could determine through one of
its ongoing proceedings that the Internet is subject to regulation in that
Internet service providers are subject to certain access charges or fees for
carrying Internet traffic over
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the public switched telephone network. The adoption of any additional laws or
regulations may decrease the growth of the Internet or other online services,
which could, in turn, decrease the demand for our products and services and
increase our cost of doing business, or otherwise have a material adverse effect
on our business, financial condition and results of operations.
Permits or licenses may be required from federal, state, local or foreign
governmental authorities to operate or to sell some products on the Internet. We
may not be able to obtain these permits or licenses. We may be required to
comply with future national and/or international legislation and statutes
regarding conducting commerce on the Internet in all or specific countries
throughout the world. It may not be possible to comply with this legislation or
these statues on a commercially reasonable basis, if at all. See "Risk
Factors--Additional Government Regulation Relating to the Internet May Increase
Our Costs of Doing Business or Require Changes in Our Business Model; and-- We
May Have Liability for Internet Content."
In addition, our products rely on encryption and authentication technology
licensed from third parties to provide the security and authentication necessary
to achieve secure transmission of confidential information. Exports of software
products utilizing encryption technology are generally restricted by the U.S.
and various foreign governments. We have obtained approval to export Tumbleweed
IME Desktop 1.5, Tumbleweed IME Desktop 2, Tumbleweed IME Server 2 and versions
of Tumbleweed IME Desktop 3.1 and Tumbleweed IME Server 3.1. We are not
exporting other hardware, software or technology that is subject to export
control under U.S. law. However, the list of countries and products for which
exports are restricted and the related regulatory policies could be revised, and
we may not be able to obtain required government approvals. See "Risk
Factors--Our Products Are Subject to Export Controls, and We May be Unable to
Obtain Necessary Approvals."
INTELLECTUAL PROPERTY
We have filed eight utility patents and one design patent with the U.S.
Patent and Trademark Office and may seek other patents in the future. To date, a
utility patent relating to our fundamental web-based delivery method has issued,
as well as a design patent relating to the user interface of our products. We
have also filed nine patents in foreign jurisdictions.
We regard our patents and similar intellectual property as critical to our
success, and rely on patent law and confidentiality and/or license agreements
with our employees, customers, partners and others to protect our proprietary
rights. We are also pursuing the registration of key trademarks and service
marks in the U.S. and internationally. Despite these precautions, it may be
possible for unauthorized third parties to copy particular portions of our
products or reverse engineer or obtain and use information that we regard as
proprietary. Some end-user license provisions protecting against unauthorized
use, copying transfer and disclosure of the licensed program may be
unenforceable under the laws of some jurisdictions and foreign countries. In
addition, the laws of some foreign countries do not protect proprietary rights
to the same extent as do the laws of the U.S. Our means of protecting our
proprietary rights in the U.S. or abroad may not be adequate and competing
companies may independently develop similar technology. In particular, we are
currently engaged in litigation to enforce our intellectual property rights,
which may not be successful and in any event will result in substantial
expenditures of resources to pursue. See "Business--Legal Proceedings."
The status of U.S. patent protection in the software industry is not well
defined and will evolve as the U.S. Patent and Trademark Office grants
additional patents. Our patent applications may not be issued with the scope of
the claims sought by us, if at all. Our products may infringe issued patents
that relate to our products. In addition, because patent applications in the
U.S. are not publicly disclosed until the patent is issued, applications may
have been filed by third parties that relate to our software products.
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Third parties could claim infringement by us with respect to current or
future products or services. We may increasingly be subject to claims of
intellectual property infringement as the number of our competitors grows and
the functionality of their products and services increasingly overlap with ours.
Any of these claims, with or without merit, could be time consuming to defend,
result in costly litigation, divert management's attention and resources, limit
use of our services or require us to enter into royalty or license agreements. A
successful claim of product infringement against us could harm our business and
prospects.
COMPETITION
Broadly speaking, Tumbleweed IME is an alternative to traditional mail and
courier delivery services, such as those offered by Federal Express Corporation,
United Parcel Service or the U.S. Postal Service, and to general purpose e-mail
applications and services. As such, we compete with these options. Ultimately,
we believe that the Internet will become the primary solution for secure online
communication services. Within this area, our direct competition comes from
other small, early stage secure online communication service providers, some of
which have products that are intended to compete directly with our products.
Examples of these companies include Differential Inc., e-Parcel, LLC, NetDox,
Inc., PostX Corporation and The docSpace Company Inc. In addition, companies
with which we do not presently directly compete may become competitors in the
future, either through the expansion of our products and services or through
their product development in the area of secure online communication services.
These companies could include America Online, Inc./Netscape Communications
Corporation, Critical Path Inc., International Business Machines
Corporation/Lotus Development Corporation, Microsoft Corporation and VeriSign,
Inc.
The market for secure online communication services is new, rapidly evolving
and highly competitive. The level of competition is likely to increase as
current competitors improve their offerings and as new participants enter the
market. Many of our current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources than us and may enter into
strategic or commercial relationships with larger, more established and
well-financed companies. Some of our competitors may be able to enter into these
strategic or commercial relationships on more favorable terms. Additionally,
these competitors have research and development capabilities that may allow them
to develop new or improved products that may compete with product lines we
market and distribute. New technologies and the expansion of existing
technologies may increase competitive pressures on us. Furthermore, one of our
service provider customers currently offers to end-users the choice between
Tumbleweed's products and the products of one of our competitors, and other
current and future customers may also offer end-users a similar choice.
Increased competition may result in reduced operating margins as well as loss of
market share and brand recognition. We may be unable to compete successfully
against current and future competitors, and competitive pressures faced by us
could harm our business and prospects.
EMPLOYEES
As of June 30, 1999, we employed 75 people worldwide, including 24 in
engineering, 22 in sales, 15 in professional services, five in marketing and 9
in corporate management and administration. Our employees are not represented by
any collective bargaining organization. We have never experienced a work
stoppage and consider our relations with our employees to be good. See "Risk
Factors--If We Lose the Services of Our Key Management Personnel, Including Our
Co-Founders or Key Sales Executives, Our Ability to Develop Our Business and
Secure Customer Relationships Will Suffer"; and "--We May Be Unable to Recruit
or Retain Qualified Personnel, Which Could Harm Our Business and Product
Development."
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PROPERTIES AND FACILITIES
We lease approximately 40,000 square feet for our corporate headquarters
located in Redwood City, California. Our lease is for a term of five years
commencing June 8, 1999, at an initial monthly rent of approximately $49,000
increasing to $96,000 monthly in October 1999. We also maintain domestic sales
offices in Mount Laurel, New Jersey and New York, New York and international
offices in Tokyo, Japan and Reading, United Kingdom. Each of these office spaces
covers approximately 3,000 square feet.
LEGAL PROCEEDINGS
On March 3, 1999 we sued The docSpace Company, Inc. alleging infringement of
our U.S. Patent No. 5,790,790. In its answer, docSpace raised counterclaims
alleging, among other things, antitrust violations and unfair competition. On
May 3, 1999, docSpace filed a summary judgment motion of noninfringement. On May
27, 1999, the court granted Tumbleweed's request to continue docSpace's summary
judgment motion pending further discovery, and indicated that docSpace's motion
would be rescheduled. On July 14, 1999, the court issued a scheduling order
stating that it would conduct a hearing on the proper interpretation of the
claims of Tumbleweed's patent on September 24, 1999, and a hearing on any
motions for summary judgment on the issue of infringement on November 1, 1999.
The court also ordered that discovery on all issues other than claim
construction and infringement would be stayed pending resolution of these
issues. We believe that we will prevail on the merits of this patent
infringement lawsuit and that docSpace's counterclaims are meritless.
49
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table indicates information regarding the executive officers,
directors, and key employees of Tumbleweed with their ages as of April 30, 1999:
<TABLE>
<CAPTION>
NAME TITLE AGE
- ------------------------------- --------------------------------------------------------------------------- ---
<S> <C> <C>
Jeffrey C. Smith Founder, Chairman, President and Chief Executive Officer 32
Donald N. Taylor Vice President--International Sales 45
Donald R. Gammon Vice President--North American Sales 53
Jean-Christophe D. Bandini Founder and Chief Technical Officer 35
Shomit A. Ghose Vice President--Applications 37
Kerry S. Champion Vice President--Engineering 36
Joseph C. Consul Vice President--Finance and Chief Financial Officer 39
Shinji Eura General Manager--Tumbleweed Software, K.K. 63
Robert A. Krauss Vice President--Business Development 36
Mark R. Pastore Vice President--Corporate Development 32
Michael J. Earhart Vice President--Corporate Marketing 34
Bernard J. Cassidy General Counsel and Secretary 44
Timothy C. Draper Director 40
Eric J. Hautemont Director 33
David F. Marquardt Director 50
Standish H. O'Grady Director 39
</TABLE>
JEFFREY C. SMITH, President and Chief Executive Officer and Chairman of the
Board of Directors, is responsible for strategic planning and business
development. Before founding Tumbleweed in June 1993, Mr. Smith held various
senior positions in research and development with the following firms: Frame
Technology from January 1991 to June 1993; Aion Corp. from January 1990 to
January 1991; Hewlett Packard from June 1988 to June 1989; and IBM Scientific
Research Center in Palo Alto from June 1987 to June 1988. Mr. Smith served as a
lecturer in Software Engineering at Stanford University in 1988 and 1989. Mr.
Smith holds a B.S. in Computer Science from Stanford University.
DONALD N. TAYLOR, Vice President--International Sales, is responsible for
Tumbleweed's international sales organization, including our sales teams in
Europe and Japan. Before joining Tumbleweed in January 1999, Mr. Taylor gained
extensive experience in international marketing, sales, and operations, through
a number of senior executive positions at the following firms: Prism Solutions
from August 1995 to October 1998; Oracle from January 1994 to July 1995; Sun
Microsystems from November 1991 to December 1993; Netwise from October 1989 to
September 1991; and Ingres from January 1987 to August 1989. Mr. Taylor holds a
B.A. in History from Williams College.
DONALD R. GAMMON, Vice President--North American Sales, is responsible for
revenue and customer relationships in North America. Before joining Tumbleweed
in February 1999, Mr. Gammon served as Executive Vice President of PostX
Corporation from May 1997 to December 1998. He has also held senior management
positions at the following firms: Interlink Computer Sciences from July 1994 to
May 1997; Interactive Systems from November 1987 to April 1999; Inference
Corporation from December 1984 to October 1987; and Metier Management Systems
from July 1981 to November 1984. Mr. Gammon holds a B.S. in Management/Marketing
from Oklahoma State University.
50
<PAGE>
JEAN-CHRISTOPHE D. BANDINI, Chief Technical Officer, serves as Tumbleweed's
primary technical architect and oversees product development. Before founding
Tumbleweed in 1993, Mr. Bandini was a Senior Software Engineer at Frame
Technology from March 1991 to January 1993. Mr. Bandini's industry experience
also includes engineering positions at Oracle from August 1989 to February 1991
and at IBM from March 1986 to October 1986. Mr. Bandini holds an Engineering
Degree from Ecole Centrale Paris, and an M.S. in Computer Science from Stanford
University.
SHOMIT A. GHOSE, Vice President--Applications, is responsible for
applications development, consulting services, marketing and company alliances.
Before joining Tumbleweed in November 1998, Mr. Ghose served as Vice President
of Engineering and Marketing at Caresoft, Inc. from March 1998 through November
1998 and as Vice President of Marketing at Sky Stream Corp. from October 1997
through February 1998. Mr. Ghose served as Vice President of Worldwide
Consulting at BroadVision, Inc. from June 1995 through October 1997 and as
Senior Director, Business Development, at nCUBE from April 1990 through June
1995. Mr. Ghose was an engineer at Sun Microsystems, Inc., from January 1986 to
January 1989 and at Metaphor Computer Systems, a company later acquired by IBM,
from February 1983 to January 1986. Mr. Ghose holds a B.S. in Computer Science
from the University of California at Berkeley.
KERRY S. CHAMPION, Vice President--Engineering, is responsible for all
aspects of engineering, including development, quality assurance, product
management and documentation. Before joining Tumbleweed in February 1998, Mr.
Champion served as Director of Engineering at Zentek Technology from January
1997 to December 1997 and served as a Senior Director of Engineering at
BroadVision, Inc. from September 1995 to October 1996. Mr. Champion was one of
the initial members of the Gain Technology engineering team from June 1989 to
September 1995. Mr. Champion holds a B.S. in Business Administration, with a
concentration in Quantitative Methods, from San Francisco State University.
JOSEPH C. CONSUL, Vice President--Finance and Chief Financial Officer, is
responsible for finance, operations, legal and human resources at Tumbleweed.
Before joining Tumbleweed in June 1997, Mr. Consul was Vice President,
Operations for Fractal Design Corporation from May 1996 to May 1997. From
November 1991 to May 1996, Mr. Consul served as Vice President, Finance and
Administration, CFO for Ray Dream, Inc. Mr. Consul has also held senior
financial management positions at XA Systems Corporation from December 1989 to
November 1991 and at Adobe Systems Corporation from February 1987 to November
1989. Mr. Consul received his M.B.A. from the University of Southern California,
his B.S. from San Jose State University and is a licensed C.P.A.
SHINJI EURA, General Manager--Tumbleweed Software, K.K., is responsible for
the general management of our Japanese subsidiary. Before joining Tumbleweed in
August 1998, Mr. Eura worked from July 1994 to August 1998 at DynaLab Japan Co.,
where he most recently served as a Director of Business Development. From April
1993 to June 1994, Mr. Eura served as a General Manager at I.S.T Co. From April
1991 to March 1993, Mr. Eura served as President of System Bank Corporation.
From March 1990 to March 1991, Mr. Eura served as Executive Managing Director of
NIHON UNISYS. Mr. Eura holds a B.S. in Statistics from the Tokyo College of
Science.
ROBERT A. KRAUSS, Vice President--Business Development, is responsible for
building partnerships with organizations interested in providing Tumbleweed IME
as a service offering. Before joining Tumbleweed in March 1997, Mr. Krauss
served in various positions at Novell, Inc., ultimately as Director of Marketing
from July 1994 to March 1997 and Director of North American Sales at
SoftSolutions from September 1991 to July 1994. Mr. Krauss received a B.S. in
Business Administration from LaSalle College in Philadelphia, PA.
MARK R. PASTORE, Vice President--Corporate Development, is responsible for
strategic technology and marketing and sales alliances. Over the course of Mr.
Pastore's tenure at Tumbleweed, he has been responsible for finance and
operations, business development, and strategic planning and alliances.
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<PAGE>
Before joining Tumbleweed in September 1993, Mr. Pastore held various strategic
marketing and finance positions at Sun Microsystems, Inc. from March 1991 to
August 1993. Mr. Pastore holds a B.S. in Values, Technology, Science, and
Society from Stanford University.
MICHAEL J. EARHART, Vice President--Corporate Marketing, is responsible for
all aspects of marketing, including strategic planning, positioning, industry
relations and demand creation. Before joining Tumbleweed in June 1998, Mr.
Earhart served as Director of Marketing at Fabrik Communications from July 1996
to June 1998. He has also served as Business Development Director for Server
Technologies at Oracle from February 1995 to July 1996, and held various
management and strategic marketing positions at Hewlett-Packard from 1987 to
1995. Mr. Earhart holds a B.A. in Economics from the University of California at
Santa Barbara.
BERNARD J. CASSIDY, General Counsel and Secretary, is responsible for the
corporate and legal affairs of Tumbleweed. Before joining Tumbleweed in May
1999, Mr. Cassidy was in private practice at Wilson Sonsini Goodrich & Rosati
from August 1992 to May 1999, and at Skadden, Arps, Slate Meagher & Flom LLP
from September 1989 to July 1992. Mr. Cassidy holds a B.A. in Philosophy from
Loyola University, an M.A. in Philosophy from the University of Toronto and a
J.D. from Harvard Law School.
TIMOTHY C. DRAPER has been a Director of Tumbleweed since August 1996. Mr.
Draper is the Founder and Managing Director of Draper Fisher Jurvetson, formed
in 1985. He currently serves on the boards of directors of PLX Technology,
GoTo.com, and various private companies. Mr. Draper holds a B.S. in Electrical
Engineering from Stanford University and an M.B.A. from Harvard Business School.
ERIC J. HAUTEMONT has been a Director of Tumbleweed since October 1996. Mr.
Hautemont is Managing Director of Ridge Ventures, a high technology venture fund
dedicated to seed and early stage companies. Before starting Ridge Ventures in
June 1998, Mr. Hautemont served as President of Fractal Design Corporation from
June 1996 to January 1997. Before Fractal, Mr. Hautemont was co-founder,
chairman and CEO of Ray Dream, Inc. from December 1989 to June 1996. He
currently serves on the board of directors of Xenote Corporation. Mr. Hautemont
holds a M.Sc. in Computer Science and Applied Mathematics from Enseeiht,
University of Toulouse, France.
DAVID F. MARQUARDT has been a Director of Tumbleweed since August 1997. Mr.
Marquardt is a founding General Partner of August Capital, L.P., formed in 1995,
and has been a General Partner of various Technology Venture Investors entities,
which are private venture capital limited partnerships, since August 1980. Mr.
Marquardt is a director of Microsoft Corporation, Netopia, Inc., iScansoft and
various privately held companies. Mr. Marquardt received a B.S. in Mechanical
Engineering from Columbia University and an M.B.A. from Stanford Graduate School
of Business.
STANDISH H. O'GRADY has been a Director of Tumbleweed since August 1997. Mr.
O'Grady has been a Managing Director of H&Q Venture Associates, LLC, a venture
capital firm, since its inception in July 1998. He previously served in various
positions with Hambrecht & Quist Group's venture capital department since 1986,
including Managing Director from 1994 to 1998. Earlier in his career, Mr.
O'Grady was a process engineer with Intel Corporation. Mr. O'Grady is currently
a director of various privately held companies. Mr. O'Grady holds a B.S.E.
degree in Chemical Engineering from Princeton University and an M.B.A. from the
Amos Tuck School of Business Administration at Dartmouth College.
CLASSIFIED BOARD OF DIRECTORS
Our certificate of incorporation provides for a classified board of
directors consisting of three classes of directors, each serving staggered
three-year terms. As a result, a portion of our board of
52
<PAGE>
directors will be elected each year. To implement the classified structure,
before the consummation of the offering, three of the nominees to the board will
be elected to one-year terms, two will be elected to two-year terms and two will
be elected to three-year terms. After that time, directors will be elected for
three-year terms. Jeffrey C. Smith has been designated a Class I director whose
term expires at the 2000 annual meeting of stockholders. Eric J. Hautemont and
Timothy C. Draper have been designated Class II directors whose term expires at
the 2001 annual meeting of stockholders. David F. Marquardt and Standish H.
O'Grady have been designated Class III directors whose term expires at the 2002
annual meeting of stockholders.
Executive officers are appointed by the board of directors on an annual
basis and serve until their successors have been duly elected and qualified.
There are no family relationships among any of our directors, officers or key
employees.
BOARD COMMITTEES
We have established an audit committee and a compensation committee. The
audit committee reviews our internal accounting procedures and considers and
reports to the board of directors with respect to other auditing and accounting
matters, including the selection of our independent auditors, the scope of
annual audits, fees to be paid to our independent auditors and the performance
of our independent auditors. The audit committee consists of Messrs. Draper and
O'Grady. The compensation committee reviews and recommends to the board of
directors the salaries, benefits and stock option grants for all employees,
consultants, directors and other individuals compensated by us. The compensation
committee also administers our stock option and other employee benefit plans.
The compensation committee consists of Messrs. Hautemont and Marquardt.
DIRECTOR COMPENSATION
We reimburse our non-employee directors for all out-of-pocket expenses
incurred in the performance of their duties as directors of Tumbleweed. We
currently do not pay fees to our directors for attendance at meetings or for
their services as members of the board of directors. Under our 1993 stock option
plan, directors are eligible to receive stock option grants.
On October 15, 1996 and September 15, 1998, the board of directors granted
options to purchase an aggregate of 18,000 and 42,000, respectively, shares of
common stock to Mr. Hautemont at an exercise price per share of $0.50. On May
27, 1999, the board of directors granted an option to purchase an aggregate of
60,000 shares of common stock to each continuing director at an exercise price
per share equal to the price per share to the public in this offering, which
shall be effective upon the consummation of this offering.
Each non-employee director elected to the board of directors for the first
time following this offering will receive upon this election an initial grant of
options to purchase 15,000 shares of common stock at fair market value on the
date of grant as well as an annual grant of options to purchase 5,000 shares for
each year during the director's term. All of the foregoing options will have a
five-year term and will vest immediately. The foregoing award of options will be
granted automatically under the 1999 stock incentive plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the compensation committee of Tumbleweed serves as a member of
the board of directors or compensation committee of any entity that has one or
more executive officers serving as a member of our board of directors or
compensation committee. See "Certain Relationships and Related Transactions" for
a description of transactions between Tumbleweed and entities affiliated with
members of the compensation committee.
53
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table indicates information concerning compensation of our
Chief Executive Officer and our four most highly compensated executive officers
other than the Chief Executive Officer whose salary and bonus exceeded $100,000
for the year ended December 31, 1998.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
--------------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)
- --------------------------------------------------------------------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C>
Jeffrey C. Smith..................................................... 1998 115,000 -- --
Founder, Chairman, President and Chief Executive Officer
Joseph C. Consul..................................................... 1998 130,333 12,100 147,000
Vice President--Finance & Chief Financial Officer
Kerry S. Champion.................................................... 1998 104,621 11,825 230,000
Vice President--Engineering
Mark R. Pastore...................................................... 1998 123,317 5,250 294,000
Vice President--Corporate Development
Randy A. Atherton(1)................................................. 1998 185,728 -- 75,000(1)
Vice President--Sales
</TABLE>
- ------------------------
(1) Mr. Atherton resigned on March 31, 1999. This number excludes unvested
shares that expired upon his resignation.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information concerning grants of options to
purchase our common stock made during the fiscal year ended December 31, 1998 to
the named executive officers.
In the fiscal year ended December 31, 1998, we granted options to purchase
up to an aggregate of 1,320,250 shares to employees, directors and consultants.
All of these options were granted under our 1993 stock option plan at exercise
prices equal to the fair market value of our common stock on the date of grant,
as determined in good faith by the board of directors. All options have a term
of ten years. All option shares vest over four years, with 25% of the option
shares vesting one year after the option grant date, and the remaining option
shares vesting ratably each month for the next 36 months.
The potential realizable values are based on an assumption that the price of
our common stock will appreciate at the compounded annual rate shown from the
date of grant until the end of the option term. These values do not take into
account amounts required to be paid as income taxes under the Internal Revenue
Code and any applicable state laws or option provisions providing for
termination of an option following termination of employment,
non-transferability or vesting. These amounts are calculated based on the
requirements promulgated by the Securities and Exchange Commission and do not
reflect our estimate of future stock price growth of the shares of our common
stock.
54
<PAGE>
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------------------- ANNUAL RATES OF POTENTIAL
NUMBER OF STOCK PRICE REALIZABLE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR VALUE AT AN ASSUMED
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM INITIAL PUBLIC
OPTION TO EMPLOYEES IN PRICE EXPIRATION -------------------- OFFERING
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5% 10% PRICE PER SHARE
- ------------------- ----------- ----------------- ----------- ----------- --------- --------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jeffrey C. Smith... -- -- -- -- -- --
Joseph C. Consul... 25,000 1.9% $ 0.50 3/01/2008 $ 20,361 $ 34,422 $ 312,500
12,000 0.9 0.50 9/01/2008 9,773 15,562 150,000
Kerry S. Champion.. 180,000 13.6 0.50 3/16/2008 146,601 233,437 2,250,000
50,000 3.8 0.50 9/01/2008 40,722 64,844 625,000
Mark R. Pastore.... 20,000 1.5 0.50 9/01/2007 16,289 25,937 250,000
15,000 1.1 0.50 3/01/2008 12,217 19,453 187,500
10,000 0.8 0.50 9/05/2008 8,144 12,969 125,000
Randy A. Atherton.. 75,000(1) 5.7 0.50 6/29/1999 61,084 97,265 937,500
</TABLE>
- ------------------------------
(1) Mr. Atherton resigned on March 31, 1999. This number excludes unvested
shares that expired upon his resignation.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table describes for the named executive officers the
exercisable and unexercisable options held by them as of December 31, 1998. No
options were exercised by the named executive officers during the fiscal year
ended December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT FISCAL IN-THE-MONEY OPTIONS AT
YEAR-END(#) FISCAL YEAR-END($)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Jeffrey C. Smith.......................................... -- -- -- --
Joseph C. Consul.......................................... 41,250 105,750 -- --
Kerry S. Champion......................................... -- 230,000 -- --
Mark R. Pastore........................................... 244,625 49,375 25,000 --
Randy A. Atherton......................................... -- 200,000 -- --
</TABLE>
The "Value of Unexercised In-the-Money Options at Fiscal Year End" is based
on a value of $0.50 per share, the fair market value of our common stock as of
December 31, 1998, as determined by the board of directors, less the per share
exercise price, multiplied by the number of shares issued upon exercise of the
option. All options were granted under our 1993 stock option plan.
1993 STOCK OPTION PLAN
The 1993 stock option plan was adopted by our board of directors on
September 30, 1993, and approved by our stockholders on the same date for the
benefit of our officers, directors and consultants. This plan has been amended,
most recently on May 24, 1999 to approve an additional 500,000 shares of common
stock for issuance under this plan, and this amendment was concurrently approved
by our stockholders. This plan provides for the grant of incentive stock options
and nonstatutory stock options. An aggregate of 3,618,500 shares of common stock
is reserved for issuance under this plan. As of July 8, 1999, we had granted
options to purchase an aggregate of 3,423,516 shares of common stock under this
plan. We will not be granting options under this plan following the offering.
In the event of certain mergers or consolidations of Tumbleweed, outstanding
options will be assumed or similar options substituted. In the event outstanding
options are not assumed or substituted for, these options will terminate if not
exercised before the event. In the event of a dissolution or liquidation of
Tumbleweed, outstanding options will terminate if not exercised before these
events.
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<PAGE>
1999 OMNIBUS STOCK INCENTIVE PLAN
The 1999 omnibus stock incentive plan was adopted by our board of directors
on May 27, 1999, and approved by our stockholders on June 25, 1999 for the
benefit of the officers, directors, key employees, advisors and consultants. An
aggregate of 4,381,500 shares of common stock is reserved for issuance under the
plan, which provides for the issuance of stock-based incentive awards, including
stock options, stock appreciation rights, limited stock appreciation rights,
restricted stock, deferred stock, and performance shares. An award may consist
of one arrangement or benefit or two or more of them in tandem or in the
alternative. Under this plan, awards covering no more than 80% of the shares
reserved for issuance under the plan may be granted to any participant in any
one year.
This plan will initially be administered by the compensation committee,
although it may be administered by either our board of directors or any
committee of our board of directors, which group is sometimes referred to as the
plan administrator. The plan administrator may interpret this plan and may
prescribe, amend and rescind rules and make all other determinations necessary
or desirable for the administration of this plan. This plan permits the plan
administrator to select the officers, directors, key employees, advisors and
consultants who will receive awards and generally to determine the terms and
conditions of those awards.
We may issue two types of stock options under this plan: incentive stock
options, which are intended to qualify under the Internal Revenue Code of 1986,
as amended, and non-qualified stock options. The option price of each incentive
stock option granted under this plan must be at least equal to the fair market
value of a share of common stock on the date the incentive stock option is
granted.
Stock appreciation rights and limited stock appreciation rights may be
granted under this plan either alone or in conjunction with all or part of any
stock option granted under this plan. A stock appreciation right granted under
this plan entitles its holder to receive, at the time of exercise, an amount per
share equal to the excess of the fair market value of a share of common stock at
the date of exercise over a specified price fixed by the plan administrator. A
limited stock appreciation right granted under this plan entitles its holder to
receive, at the time of exercise, an amount per share equal to the excess of the
change in control price of a share of common stock over a specified price fixed
by the plan administrator. A limited stock appreciation right may only be
exercised within the 30-day period following a change in control.
Restricted stock, deferred stock and performance shares may be granted under
this plan. The plan administrator will determine the purchase price, performance
period and performance goals, if any, with respect to the grant of restricted
stock, deferred stock and performance shares. Participants with restricted stock
and preferred shares generally have all of the rights of a stockholder. During
the deferral period, the deferred stock units may be credited with dividend
equivalent rights, subject to the terms and conditions imposed by the plan
administrator. If the performance goals and other restrictions are not attained,
the participant will forfeit his or her shares of restricted stock, deferred
stock and/or performance shares.
In the event of a merger, consolidation, reorganization, recapitalization,
stock dividend or other change in corporate structure affecting the number of
issued shares of common stock, the plan administrator may make adjustments to
the terms of the plan. In particular, the plan administrator may make an
equitable substitution or proportionate adjustment in the number and type of
shares authorized by this plan, the number and type of shares covered by, or
with respect to which payments are measured under, the plan outstanding awards
and the exercise prices. In addition, the plan administrator, in its discretion,
may terminate all awards with payment of cash or in-kind consideration.
The terms of this plan provide that the plan administrator may amend,
suspend or terminate this plan at any time, provided, however, that some
amendments require approval of our stockholders.
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<PAGE>
Further, no action may be taken which adversely affects any rights under
outstanding awards without the holder's consent.
Each non-employee director elected to the board of directors for the first
time following this offering will receive upon this election an initial grant of
options to purchase 15,000 shares of common stock at fair market value on the
date of grant. These non-employee directors will also receive an annual grant of
options to purchase 5,000 shares for each year during the director's term. All
of the foregoing options will have a five-year term and will vest immediately.
The foregoing award of options will be granted automatically under this plan.
1999 EMPLOYEE STOCK PURCHASE PLAN
The board of directors adopted our 1999 employee stock purchase plan, which
was approved by our board of directors on May 27, 1999 and approved by our
stockholders on June 25, 1999, which allows eligible employees to purchase our
common stock at a discount from fair market value. A total of 500,000 shares of
common stock has been reserved for issuance under this plan for each fiscal year
occurring during the term of the plan.
This plan will be administered by our board of directors, or a specifically
designated committee of the board of directors, which group is sometimes
referred to as the plan administrator. The plan administrator may interpret the
plan and may prescribe, amend and rescind rules and make all other
determinations necessary or desirable for the administration of the plan,
subject to the provisions of the plan.
This plan contains offering periods that commence on the first trading day
on or after May 15 and November 15 of each year and end on the last trading day
before the commencement of the next offering period. The first offering period
under the plan will commence upon the completion of this offering and end on the
trading day on or before May 14, 2000.
Employees are eligible to participate if they are employed by us or any
participating subsidiary for at least 20 hours per week and more than five
months in any calendar year. However, an employee may not be granted the right
to purchase stock under this plan if the employee
- immediately after the grant would own stock possessing 5% or more of the
total combined voting power or value of all classes of our capital stock,
or
- holds rights to purchase stock under any of our employee stock purchase
plans that together accrue at a rate which exceeds $25,000 worth of stock
for each calendar year.
This plan permits each employee to purchase common stock through payroll
deductions of up to 15% of the employee's "compensation." Compensation is
defined as the employee's base salary, exclusive of any bonus, fee, overtime
pay, severance pay, expenses or other special emolument or any credit or benefit
under any of our employee plans. The maximum number of shares an employee may
purchase during a single offering period is 2,500 shares.
Amounts deducted and accumulated by the employee are used to purchase shares
of common stock at the end of each offering period. The price of the common
stock offered under this plan is an amount equal to 85% of the lower of the fair
market value of the common stock at the beginning or at the end of each offering
period. Employees may end their participation in this plan at any time during an
offering period. In that event, any amounts withheld through payroll deductions
and not otherwise used to purchase shares will be returned to them.
Participation ends automatically upon termination of employment with us.
Rights granted under this plan are not transferable by an employee other
than by will or the laws of descent and distribution. This plan provides that,
in the event of a merger, consolidation, reorganization, recapitalization, stock
dividend or other change in corporate structure affecting the
57
<PAGE>
number of issued shares of our common stock, the plan administrator will
conclusively determine the appropriate equitable adjustments. This plan will
terminate in 2009. Our board of directors has the authority to amend or
terminate this plan, except that no amendment or termination may adversely
affect any outstanding rights under this plan.
EMPLOYMENT AGREEMENTS
We have not entered into employment agreements with our named executive
officers, and their employment may be terminated at any time at the discretion
of our board of directors.
Effective January 7, 1999, we entered into an employment agreement with
Donald Taylor. The agreement provides for a base salary of $185,000 per year,
plus a bonus dependent upon the attainment of specified sales targets. The
minimum guaranteed bonus is $6,000 for each of the first six months of
employment. In addition, Mr. Taylor was granted options to purchase 140,000
shares of common stock. Mr. Taylor's employment is terminable without cause on
six months prior written notice.
The option agreements of Joseph Consul, Donald Gammon, Donald Taylor,
Bernard Cassidy, Shomit Ghose and Kerry Champion provide for the acceleration of
a portion of their stock options upon the occurrence of specified changes in
control of Tumbleweed.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our certificate of incorporation includes a provision that eliminates the
personal liability of our directors for monetary damages for breach of fiduciary
duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law; or
- for any transaction from which the director derives an improper personal
benefit.
Our certificate of incorporation and bylaws further provide for the
indemnification of our directors and officers to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law, including circumstances in
which indemnification is otherwise discretionary. Indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of Tumbleweed under the foregoing provisions,
or otherwise. Tumbleweed has been advised that in the opinion of the Securities
and Exchange Commission this indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
We intend to enter into agreements to indemnify our directors and executive
officers in addition to the indemnification provided for in our charter and
bylaws. These agreements, among other things, will provide for indemnification
of our directors and executive officers for expenses, judgments, fines and
settlement amounts incurred by any of these people in any action or proceeding
arising out of his or her services as a director or executive officer or at our
request. We believe that these provisions and agreements are necessary to
attract and retain qualified people as directors and executive officers.
58
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 1996, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which we were or are to be
a party in which the amount involved exceeds $60,000 and in which any director,
executive officer or holder of more than 5% of our common stock, or an immediate
family member of any of the foregoing, had or will have a direct or indirect
interest other than:
- compensation arrangements, which are described where required under
"Management," and
- the transactions described below.
SERIES C PREFERRED STOCK FINANCING ROUND. In February and May 1999, we sold
shares of Series C preferred stock, at a purchase price of $3.58 per share, to
the following investors, among others:
- 3,914,989 shares of Series C preferred stock to Hikari Tsushin, Inc.
- 1,118,569 shares of Series C preferred stock to United Parcel Service
General Services Co.
- 165,093 shares of Series C preferred stock to August Capital, L.P.
- 154,351 shares of Series C preferred stock to Draper Fisher Associates
Fund III, or to entities affiliated with it.
- 112,159 shares of Series C preferred stock to Adobe Ventures II, L.P.
SERIES B PREFERRED STOCK FINANCING ROUND. In August and September 1997, we
sold shares of Series B preferred stock, at a purchase price of $1.99 per share,
to the following investors, among others:
- 1,762,336 shares of Series B preferred stock to August Capital, L.P.
- 427,996 shares of Series B preferred stock to Draper Fisher Associates
Fund III.
- 1,258,812 shares of Series B preferred stock to Adobe Ventures II, L.P.
- 12,588 shares of Series B preferred stock to Jeffrey C. Smith, our
President and Chief Executive Officer, and Chairman of our board of
directors.
SERIES A PREFERRED STOCK FINANCING ROUND. In August and September 1996, we
sold shares of Series A preferred stock, at a purchase price of $1.38 per share,
to the following investors, among others:
- 103,623 shares of Series A preferred stock to Jeffrey C. Smith, our
President and Chief Executive Officer, and Chairman of our board of
directors.
- 90,580 shares of Series A preferred stock to Jean-Christophe D. Bandini,
our Chief Technical Officer, and a member of our board of directors.
- 1,304,348 shares of Series A preferred stock to Draper Fisher Associates
Fund III, or to entities affiliated with it.
- 90,580 shares of Series A preferred stock to August Capital, L.P.
Each of August Capital, L.P., Draper Fisher Associates Fund III, Adobe
Ventures II, L.P., Hikari Tsushin, Inc. and United Parcel Service General
Services Co., or their affiliated entities, is a 5% or greater shareholder of
us. In addition, August Capital, L.P., Draper Fisher Associates Fund III and
Adobe Ventures II, L.P. designate a representative to our board of directors.
HIKARI LICENSE AGREEMENT. On March 31, 1999, we entered into a one-year
license and distribution agreement with Hikari Tsushin, Inc. During the three
months ended March 31, 1999, Tumbleweed recognized approximately $388,000 of
revenue associated with the perpetual license fee and distribution rights from
Hikari, less a deferral for 90 days of maintenance of approximately $30,000.
INVESTORS' RIGHTS AGREEMENT. Tumbleweed has entered into an investors'
rights agreement with all of the purchasers of preferred stock and its founders.
The agreement provides for information rights,
59
<PAGE>
board participation, and registration rights in favor of the purchasers and
founders. These registration rights survive the closing of this offering. See
"Description of Capital Stock--Registration Rights."
INDEMNITY AGREEMENTS. Tumbleweed intends to enter into indemnity agreements
with each of its officers and directors. See "Management--Limitation of
Liability and Indemnification."
ENGAGEMENT OF LEGAL COUNSEL. Gregory C. Smith, a brother of Jeffrey C.
Smith, the President and Chief Executive Officer of Tumbleweed and Chairman of
our board of directors, is a partner of the law firm of Skadden, Arps, Slate,
Meagher & Flom LLP, which began providing legal services to Tumbleweed in July
1998. Before that time, Gregory Smith was a partner of the law firm of Cooley
Godward LLP, which provides legal services to Tumbleweed as well. The total fees
paid to Skadden, Arps in 1998 was $11,281. The total fees paid to Cooley Godward
in 1998, 1997 and 1996 were $326,442, $174,515 and $57,616, respectively. The
rates charged for services provided generally were equal to or more favorable
than the rates generally charged by these firms. Gregory Smith acted as
Secretary of Tumbleweed during these periods.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table indicates information as of July 8, 1999 regarding the
beneficial ownership of Tumbleweed common stock by:
- each person known to the board of directors to own beneficially 5% or more
of our common stock;
- each of our directors;
- the named executive officers; and
- all of our directors and executive officers as a group.
Information with respect to beneficial ownership has been furnished by each
director, officer or 5% or more stockholder, as the case may be. Except as
otherwise noted below, the address for each person listed on the table is c/o
Tumbleweed Communications Corp., 700 Saginaw Drive, Redwood City, California
94063. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. These rules generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power or
investment power with respect to those securities and include shares of common
stock issuable upon the exercise of stock options or warrants that are
immediately exercisable or exercisable within 60 days. Unless otherwise
indicated, the persons or entities identified in this table have sole voting and
investment power with respect to all shares shown as beneficially owned by them,
subject to applicable community property laws.
Percentage ownership calculations are based on 17,203,494 shares of common
stock outstanding as of July 8, 1999, which number includes shares of common
stock which will be outstanding upon the conversion of outstanding shares of
preferred stock and the exercise of warrants dated December 19, 1997 and May 13,
1999 upon the consummation of this offering. To the extent that any shares are
issued upon exercise of options, warrants or other rights to acquire our capital
stock that are presently outstanding or granted in the future or reserved for
future issuance under our stock plans, there will be further dilution to new
public investors.
<TABLE>
<CAPTION>
PERCENT OF SHARES
OUTSTANDING
NUMBER OF SHARES --------------------------
BENEFICIALLY BEFORE THE AFTER THE
NAME OWNED OFFERING OFFERING
- ------------------------------------------------------------------------ ----------------- ----------- -------------
<S> <C> <C> <C>
Hikari Tsushin, Inc..................................................... 3,914,989 22.8% 18.5%
22F Ohtemachi Nomura Bldg.
2-1-1 Ohtemachi, Chiyoda-ku, Tokyo
August Capital, L.P..................................................... 2,018,009(1) 11.7 9.5
David F. Marquardt
2480 Sand Hill Road, Suite 101
Menlo Park, CA 94025
Draper Fisher Entities.................................................. 1,886,695(2) 11.0 8.9
Timothy C. Draper
400 Seaport Court, Suite 250
Redwood City, CA 94063
Adobe Ventures II, L.P.................................................. 1,370,971(3) 8.0 6.5
Standish H. O'Grady
One Bush Street
San Francisco, CA 94104
United Parcel Service General Services Co............................... 1,118,569 6.5 5.3
55 Glenlake Parkway NE
Atlanta, Georgia 30328
Jeffrey C. Smith........................................................ 2,027,877 11.8 9.6
Jean-Christophe D. Bandini.............................................. 2,018,580 11.7 9.5
Randy A. Atherton....................................................... 75,000 * *
Kerry S. Champion....................................................... 76,250(4) * *
Joseph C. Consul........................................................ 76,789(4) * *
Mark R. Pastore......................................................... 264,476(4) 1.5 1.2
Eric J. Hautemont....................................................... 49,616(4) * *
Standish H. O'Grady..................................................... 1,644,567(5) 9.6 7.8
Executive officers and directors as a group (16 persons)................ 10,420,254(6) 60.6 49.1
</TABLE>
- ------------------------------
* Less than 1% of the outstanding shares of common stock.
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<PAGE>
(1) Voting and dispositive power over the shares is held by all the general
partners of August Capital, L.P. Mr. Marquardt is a General Partner at
August Capital, L.P. and as such may be deemed to share voting and
investment power with respect to these shares. However, Mr. Marquardt
disclaims beneficial ownership of all of these shares, except to the extent
of his pecuniary interest arising from his interest in August Capital, L.P.
(2) Includes 159,858 shares held by Draper Associates, L.P.; 1,621,499 shares
held by Draper Fisher Associates Fund III, and 105,338 shares held by Draper
Fisher Partners, L.L.C. Voting and dispositive power over the shares is held
by all the general partners of Draper Fisher Jurvetson. Mr. Draper is
Managing Partner at Draper Fisher Jurvetson and as such may be deemed to
share voting and investment power with respect to these shares. However, Mr.
Draper disclaims beneficial ownership of all these shares, except to the
extent of his pecuniary interest arising from his interest in these
entities.
(3) Voting and dispositive power over the shares held by Adobe Ventures II, L.P.
is held by all members of H&Q Adobe Ventures Management II, L.L.C. Mr.
O'Grady is a member of Adobe Ventures Management II, L.L.C. and may be
deemed to share voting and investment power with respect to these shares.
However, Mr. O'Grady disclaims beneficial ownership of all of these shares,
except to the extent of his pecuniary interest arising from his interest in
H&Q Adobe Ventures Management II, L.L.C.
(4) The following table indicates those people whose total number of
beneficially owned shares include shares subject to options exercisable
within 60 days of July 8, 1999:
<TABLE>
<CAPTION>
SHARES SUBJECT TO
OPTIONS
------------------------
<S> <C>
Kerry S. Champion.............................................................. 20,000
Joseph C. Consul............................................................... 11,438
Mark R. Pastore................................................................ 4,688
Eric J. Hautemont.............................................................. 12,500
</TABLE>
(5) Includes 1,370,971 shares held by Adobe Ventures II, L.P. and 273,596 shares
held by H&Q Tumbleweed Investors, L.P. Voting and dispositive power over the
shares held by H&Q Tumbleweed Investors, L.P. is held by all members of H&Q
Venture Associates, L.L.C. Voting and dispositive power over the shares held
by Adobe Ventures II, L.P. is held by all members of H&Q Adobe Ventures
Management II, L.L.C. Mr. O'Grady is a member of H&Q Venture Associates,
L.L.C. and H&Q Adobe Ventures Management II, L.L.C. and may be deemed to
share voting and investment power with respect to these shares. However, Mr.
O'Grady disclaims beneficial ownership of all of these shares, except to the
extent of his pecuniary interest arising from his interest in these
entities.
(6) Includes 406,021 shares issuable upon the exercise of stock options
exercisable within 60 days of July 8, 1999.
62
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the consummation of this offering, we will be authorized to issue
100,000,000 shares of common stock, $0.001 par value per share, and 10,000,000
shares of preferred stock, $0.001 par value per share. The following description
summarizes information regarding our capital stock. This information does not
purport to be complete and is subject in all respects to the applicable
provisions of the Delaware General Corporation Law, our certificate of
incorporation and our bylaws.
COMMON STOCK
Each share of common stock entitles the holder to one vote on all matters
submitted to a vote of stockholders, including the election of directors.
Holders of common stock are entitled to receive ratably the dividends, if any,
declared from time to time by the board of directors out of legally available
funds. See "Dividend Policy." Holders of common stock have no conversion,
redemption or preemptive rights to subscribe to any of Tumbleweed's securities.
In the event of any liquidation, dissolution or winding-up of our affairs,
holders of common stock will be entitled to share ratably in our assets
remaining after provision for payment of liabilities to creditors. The rights,
preferences and privileges of holders of common stock are subject to the rights
of the holders of any shares of preferred stock which we may issue in the
future.
PREFERRED STOCK
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, which may be
greater than the rights of the common stock. We cannot predict the effect of the
issuance of any shares of preferred stock upon the rights of holders of the
common stock until the board of directors determines the specific rights of the
holders of the preferred stock. However, the effects could include one or more
of the following:
- restricting dividends on the common stock;
- diluting the voting power of the common stock;
- impairing the liquidation rights of the common stock; or
- delaying or preventing a change in control of us without further action by
the stockholders.
Upon the consummation of this offering, no shares of preferred stock will be
outstanding, and we have no present plans to issue any shares of preferred
stock.
REGISTRATION RIGHTS
Upon completion of the offering, the holders of an aggregate of
approximately 16,236,640 shares of common stock and the holder of a warrant
dated November 30, 1998 to purchase preferred stock convertible into 20,973
shares of common stock will be entitled to rights with respect to the
registration of these shares under the Securities Act of 1933, as amended. Under
the terms of the agreements providing registration rights, if Tumbleweed
proposes to register any of its securities under the Securities Act, either for
its own account or for the account of other security holders exercising
registration rights, these holders are entitled to notice of this registration
and are entitled to include shares of common stock in the registration. The
rights are subject to conditions and limitations, among them the right of the
underwriters of an offering subject to the registration to limit the number of
shares included in the registration. These registration rights have been waived
with respect to this offering. Holders of these rights may also require
Tumbleweed to file a registration statement under the Securities Act at its
expense with respect to their shares of common stock, and Tumbleweed is required
to use its best efforts to effect this registration, subject to conditions and
limitations. Furthermore, stockholders with registration rights may require
Tumbleweed to file additional registration statements on Form S-3, subject to
conditions and limitations.
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<PAGE>
DELAWARE ANTI-TAKEOVER LAW
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. Generally, Section 203 of the Delaware General Corporation
Law prohibits a publicly held Delaware corporation 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:
- before the date of the business combination, the transaction is approved
by the board of directors of the corporation,
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at
least 85% of the outstanding stock, or
- on or after the date the business combination is approved by the board and
by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, owns, or within three
years, did own 15% or more of the corporation's voting stock. The existence of
this provision would be expected to have an anti-takeover effect with respect to
transactions not approved in advance by our board of directors, including
discouraging attempts that might result in a premium over the market price for
the shares of common stock held by stockholders.
TRANSFER AGENT AND REGISTRAR
Equiserve L.P. will serve as Transfer Agent and Registrar for our common
stock. Its phone number is (781) 575-2000.
LISTING
We have applied to list the common stock on the Nasdaq Stock Market's
National Market under the trading symbol "TMWD."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
We cannot predict if future sales of our common stock, or the availability
of our common stock for sale, will depress the market price for our common stock
or our ability to raise capital by offering equity securities. Sales of
substantial amounts of common stock, or the perception that these sales could
occur, may depress prevailing market prices for the common stock.
After this offering, approximately 21,203,494 shares of common stock will be
outstanding. All of the shares sold in this offering will be freely tradeable
except for any shares purchased by affiliates of Tumbleweed. The remaining
shares of common stock outstanding after this offering will be restricted as a
result of securities laws or lock-up agreements. These remaining shares will be
available for sale in the public market as follows:
<TABLE>
<CAPTION>
DATE OF AVAILABILITY FOR SALE NUMBER OF SHARES
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
As of the date of the prospectus............................................................... --
February 2, 2000............................................................................... 10,866,222
At various times afterwards upon expiration of applicable holding periods...................... 6,337,272
</TABLE>
Credit Suisse First Boston may release all or a portion of the shares
subject to this lockup agreement at any time without notice. See "Underwriting"
and "Shares Eligible for Future Sale."
In general, under Rule 144, as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
- 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 the sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates 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 other than an affiliate, is
entitled to sell the shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the holding
period requirement, of Rule 144. Any of our employees, officers, directors or
consultants who purchased shares under a written compensatory plan or contract
may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates to sell their Rule 701 shares under Rule 144 without complying with
the holding period requirements of Rule 144. Rule 701 further provides that
non-affiliates may sell their shares in reliance on Rule 144 without having to
comply with the holding period, public information, volume limitation or notice
provisions of Rule 144. All holders of Rule 701 shares are required to wait
until 90 days after the date of this prospectus before selling their shares.
However, substantially all Rule 701 shares are subject to lock-up agreements and
will only become eligible for sale at the earlier of the expiration of the
180-day lock-up agreements or no sooner than 90 days after the offering upon
obtaining the prior written consent of Credit Suisse First Boston Corporation.
We intend to file a Registration Statement on Form S-8 registering shares of
common stock subject to outstanding options or reserved for future issuance
under our stock plans. As of July 8, 1999, options to purchase a total 2,673,496
shares were outstanding under our stock option plans. Common stock issued upon
exercise of outstanding vested options, other than common stock issued to our
affiliates is available for immediate resale in the open market.
65
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Hambrecht & Quist
LLC and ING Barings LLC are acting as representatives, the following respective
numbers of shares of common stock:
<TABLE>
<CAPTION>
Number
Underwriters of Shares
- --------------------------------------------------------------------------------- ----------
<S> <C>
Credit Suisse First Boston Corporation...........................................
Hambrecht & Quist LLC............................................................
ING Barings LLC..................................................................
----------
Total.......................................................................... 4,000,000
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering, if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option from the date of this
prospectus to purchase up to 600,000 additional shares at the initial public
offering price less the underwriting discounts and commissions. The option may
be exercised only to cover over-allotments of common stock.
The underwriters propose to offer the shares to the public initially at the
public offering price on the cover page of this prospectus and to selling group
members at that price less a concession of $ per share. The underwriters and
selling group members may allow a discount of $ per share on sales to other
broker/dealers. After the initial public offering, the public offering price and
concession and discount to dealers may be changed by the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per share Total
---------------------------- ----------------------------
Without With Without With
Overallotment Overallotment Overallotment Overallotment
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Underwriting discounts
and commissions paid by us......................... $ $ $ $
Expenses payable by us............................... $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We, our officers and directors and substantially all of our other
securityholders have agreed that we will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any shares of common
stock or securities convertible into or exchangeable or exercisable for any
shares of common stock, or publicly disclose the intention to make any such
offer, sale, pledge or disposal, without the prior written consent of Credit
Suisse First Boston Corporation for a period of 180 days from the date of this
prospectus, subject to limited exceptions.
66
<PAGE>
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and
other persons associated with us that have expressed an interest in purchasing
common stock in the offering. The number of shares available for sale to the
general public in the offering will be reduced to the extent these persons
purchase the reserved shares. Any reserved shares not purchased will be offered
by the underwriters to the general public on the same terms as the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act or to contribute to payments which the underwriters may be
required to make in that respect.
We have applied to list our shares on The Nasdaq Stock Market's National
Market under the symbol "TMWD."
Before this offering, there has been no public market for our common stock.
The initial public offering price has been determined by negotiation between the
representatives and us. The principal factors considered in determining the
public offering price included: the information in this prospectus and available
to the representatives; the history and the prospects for the industry in which
we will compete; our management's ability; the prospects for our future
earnings; the present state of our development and our current financial
condition; the general condition of the securities markets at the time of this
offering; and the recent market prices of, and the demand for, publicly traded
common stock of generally comparable companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position. Stabilizing transactions permit
bids to purchase the underlying security so long as the stabilizing bids
do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to cover
syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
Entities affiliated with Hambrecht & Quist LLC purchased an aggregate of
22,432 shares of Series C preferred stock of Tumbleweed, on the same terms as
other investors in a private placement by Tumbleweed in February 1999, for a
total purchase price of $80,216. In addition, Hambrecht & Quist LLC received
from us a fee of approximately $1,080,000 and a warrant to purchase 75,503
shares of Series C preferred stock at a price of $3.58 per share for acting as
placement agent in connection with the private placement of our Series C
preferred stock.
Curtis Smith, an associate of ING Barings LLC, is a brother of Jeffrey C.
Smith, the Chairman, President and Chief Executive Officer of Tumbleweed.
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<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws. These will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or under a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice before any resale of the common
stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that:
- the purchaser is entitled under applicable provincial securities laws to
purchase the common stock without the benefit of a prospectus qualified
under such securities laws,
- where required by law, the purchaser is purchasing as principal and not as
agent, and
- the purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or these persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser in this offering. This report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one report must be filed
in respect of common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
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<PAGE>
LEGAL MATTERS
The validity of the shares of common stock being offered will be passed upon
for us by Skadden, Arps, Slate, Meagher & Flom LLP, Palo Alto, California.
Gregory C. Smith, a partner at Skadden, Arps, beneficially owns 54,246 shares of
common stock. Selected legal matters in connection with this offering will be
passed upon for the underwriters by Gunderson Dettmer Stough Villeneuve Franklin
& Hachigian, LLP.
EXPERTS
The consolidated financial statements of Tumbleweed as of December 31, 1997
and 1998 and for each of the years in the three-year period ended December 31,
1998 have been included herein and in the Registration Statement in reliance
upon the report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
AVAILABLE INFORMATION
We filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock being offered. This prospectus does not contain all of the
information described in the registration statement and the related exhibits and
schedules. For further information with respect to Tumbleweed and the common
stock being offered, reference is made to the registration statement and the
related exhibits and schedule. A copy of the registration statement and the
related exhibits and schedule may be inspected without charge at the public
reference facilities maintained by the Securities and Exchange Commission in
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Securities
and Exchange 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 these offices upon
the payment of the fees prescribed by the Securities and Exchange Commission.
Information on the operation of the Public Reference Room may be obtained by
calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities
and Exchange Commission maintains a web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Securities and Exchange Commission. The address of the
site is http://www.sec.gov.
Tumbleweed intends to provide its stockholders with annual reports
containing combined financial statements audited by an independent accounting
firm and quarterly reports containing unaudited combined financial data for the
first three quarters of each year.
69
<PAGE>
TUMBLEWEED COMMUNICATIONS CORP.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of KPMG LLP, Independent Auditors................................................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999 (unaudited)................. F-3
Consolidated Statements of Operations for the years ended December 31, 1996, 1997 and 1998 and the six
months ended June 30, 1998 and 1999 (unaudited).......................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1997 and 1998 and
the six months ended June 30, 1999 (unaudited)........................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998 and the six
months ended June 30, 1998 and 1999 (unaudited).......................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
FORM OF INDEPENDENT AUDITORS' REPORT
When the reincorporation of the Company in Delaware described in Note 10 of
the Notes to the Consolidated Financial Statements has been consummated, we will
be in a position to render the following report.
[KPMG LLP]
San Francisco, California
May 28, 1999
The Board of Directors and Stockholders
Tumbleweed Communications Corp.:
We have audited the accompanying consolidated balance sheets of Tumbleweed
Communications Corp. (the Company) and subsidiary as of December 31, 1997 and
1998, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1998. 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 Tumbleweed
Communications Corp. and subsidiary as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
San Francisco, California
March 18, 1999, except as to Note 10 which is as of , 1999
F-2
<PAGE>
TUMBLEWEED COMMUNICATIONS CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1999
-------------------- ----------------------
1997 1998 ACTUAL PRO FORMA
--------- --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 6,310 $ 698 $ 14,700 $ 14,700
Accounts receivable............................................................ 281 281 1,151 1,151
Prepaid expenses and other current assets...................................... 142 166 554 554
--------- --------- --------- -----------
Total current assets....................................................... 6,733 1,145 16,405 16,405
Property and equipment, net...................................................... 382 472 1,587 1,587
Other assets..................................................................... -- 108 1,045 1,045
--------- --------- --------- -----------
Total assets............................................................... $ 7,115 $ 1,725 $ 19,037 $ 19,037
--------- --------- --------- -----------
--------- --------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 200 $ 136 $ 909 $ 909
Current installments of equipment line......................................... -- 141 227 227
Accrued liabilities............................................................ 337 448 1,166 1,166
Deferred revenue............................................................. ` 308 130 718 718
--------- --------- --------- -----------
Total current liabilities.................................................. 845 855 3,020 3,020
Equipment line, excluding current installments................................... -- 369 1,185 1,185
--------- --------- --------- -----------
Commitments
Stockholders' equity:
Preferred stock, $0.001 par value; no shares authorized, issued, or outstanding
as of December 31, 1997 and 1998 and June 30, 1999; 10,000,000 shares
authorized, none issued or outstanding on a pro forma basis as of June 30,
1999......................................................................... -- -- -- --
Convertible preferred stock (29,000,000 shares authorized):
Series A, $0.001 par value; 2,700,000 shares designated; 2,657,971 shares
issued and outstanding as of December 31, 1997 and 1998 and June 30, 1999,
and none outstanding on a pro forma basis as of June 30, 1999 (aggregate
liquidation preference of $3,668 as of December 31, 1998).................. 3 3 3 --
Series B, $0.001 par value; 4,250,000 shares designated; 4,065,960, 4,065,960
and 4,080,960 shares issued and outstanding as of December 31, 1997 and
1998 and June 30, 1999, and none outstanding on a pro forma basis as of
June 30, 1999 (aggregate liquidation preference of $8,105 as of December
31, 1998).................................................................. 4 4 4 --
Series C, $0.001 par value; 6,000,000 shares designated; 5,592,503 shares
issued and outstanding as of June 30, 1999, and none outstanding on a pro
forma basis as of June 30, 1999 (aggregate liquidation preference of
$20,021 as of December 31, 1998)........................................... -- -- 5 --
Common stock, $0.001 par value; 43,000,000 shares authorized; 4,035,000,
4,209,535 and 4,785,020 shares issued and outstanding as of December 31,
1997, 1998 and June 30, 1999, respectively; 100,000,000 shares authorized,
17,203,494 issued and outstanding on a pro forma basis as of June 30, 1999... 4 4 5 17
Additional paid-in capital..................................................... 12,274 14,124 40,077 40,077
Deferred compensation expense.................................................. (474) (1,501) (7,082) (7,082)
Accumulated other comprehensive income (loss).................................. -- (2) 4 4
Accumulated deficit............................................................ (5,541) (12,131) (18,184) (18,184)
--------- --------- --------- -----------
Total stockholders' equity................................................. 6,270 501 14,832 14,832
--------- --------- --------- -----------
Total liabilities and stockholders' equity................................. $ 7,115 $ 1,725 $ 19,037 $ 19,037
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
TUMBLEWEED COMMUNICATIONS CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
License................................................... $ 261 $ 359 $ 885 $ 560 $ 1,082
Services.................................................. 336 250 910 329 619
Sale of technology........................................ -- 120 220 110 --
--------- --------- --------- --------- ---------
Total revenue........................................... 597 729 2,015 999 1,701
Cost of revenue:
License cost.............................................. 15 63 194 101 100
Services cost............................................. 124 45 737 271 676
--------- --------- --------- --------- ---------
Total cost of revenue................................... 139 108 931 372 776
--------- --------- --------- --------- ---------
Gross profit.............................................. 458 621 1,084 627 925
--------- --------- --------- --------- ---------
Operating expenses:
Research and development.................................. 634 1,846 2,021 869 1,880
Sales and marketing....................................... 649 2,593 4,049 2,315 2,788
General and administrative................................ 372 792 1,080 579 1,105
Stock compensation........................................ 24 246 673 259 1,283
--------- --------- --------- --------- ---------
Total operating expenses................................ 1,679 5,477 7,823 4,022 7,056
--------- --------- --------- --------- ---------
Operating loss.......................................... (1,221) (4,856) (6,739) (3,395) (6,131)
Other income (expense), net............................... 41 165 149 127 118
--------- --------- --------- --------- ---------
Net loss before provision for taxes..................... (1,180) (4,691) (6,590) (3,268) (6,013)
Provision for taxes..................................... -- -- -- -- 40
--------- --------- --------- --------- ---------
Net loss................................................ $ (1,180) $ (4,691) $ (6,590) $ (3,268) $ (6,053)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Other comprehensive income (loss)--translation
adjustment.............................................. -- -- (2) -- 6
--------- --------- --------- --------- ---------
Comprehensive loss...................................... $ (1,180) $ (4,691) $ (6,592) $ (3,268) $ (6,047)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net loss per share--basic and diluted....................... $ (0.33) $ (1.41) $ (1.74) $ (0.89) $ (1.43)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares--basic and diluted.................. 3,598 3,331 3,797 3,682 4,246
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
TUMBLEWEED COMMUNICATIONS CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998 AND THE SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
-------------------------------------------------------------------
SERIES A SERIES B SERIES C
--------------------- --------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995............................... -- $ -- -- $ -- -- $ --
Net loss prior to August 24, 1996......................... -- -- -- -- -- --
Transfer of accumulated deficit to additional paid in
capital in conjunction with termination of S corporation
status.................................................. -- -- -- -- -- --
Issuance of Series A preferred stock...................... 2,657,971 3 -- -- -- --
Deferred compensation expense on stock option issuances... -- -- -- -- -- --
Amortization of deferred compensation expense............. -- -- -- -- -- --
Net loss subsequent to August 24, 1996.................... -- -- -- -- -- --
--------- ---------- --------- ---------- --------- ----------
Balances, December 31, 1996............................... 2,657,971 3 -- -- -- --
Issuance of Series B preferred stock, net of issuance
costs of $47............................................ -- -- 4,065,960 4 -- --
Issuance of Series B preferred stock warrant.............. -- -- -- -- -- --
Issuance of stock options to nonemployees................. -- -- -- -- -- --
Deferred compensation expense on stock option issuances... -- -- -- -- -- --
Amortization of deferred compensation expense............. -- -- -- -- -- --
Net loss.................................................. -- -- -- -- -- --
--------- ---------- --------- ---------- --------- ----------
Balances, December 31, 1997............................... 2,657,971 3 4,065,960 4 -- --
Issuance of stock options to nonemployees................. -- -- -- -- -- --
Issuance of common stock upon exercise of stock options... -- -- -- -- -- --
Issuance of Series C preferred stock warrant.............. -- -- -- -- -- --
Foreign currency translation adjustment................... -- -- -- -- -- --
Deferred compensation expense on stock option issuances... -- -- -- -- -- --
Amortization of deferred compensation expense............. -- -- -- -- -- --
Net loss.................................................. -- -- -- -- -- --
--------- ---------- --------- ---------- --------- ----------
Balances, December 31, 1998............................... 2,657,971 3 4,065,960 4 -- --
Issuance of common stock upon exercise of stock options
(unaudited)............................................. -- -- -- -- -- --
Issuance of Series B preferred stock in exchange for
services(unaudited)..................................... -- -- 15,000 -- -- --
Issuance of Series C preferred stock and warrants, net of
issuance costs of $1,337 (unaudited).................... -- -- -- -- 5,586,003 5
Issuance of Series C preferred stock in exchange for
services (unaudited).................................... -- -- -- -- 6,500 --
Foreign currency translation adjustment (unaudited)....... -- -- -- -- -- --
Deferred compensation expense on stock option issuances
(unaudited)............................................. -- -- -- -- -- --
Amortization of deferred compensation expense
(unaudited)............................................. -- -- -- -- -- --
Net loss (unaudited)...................................... -- -- -- -- -- --
--------- ---------- --------- ---------- --------- ----------
Balances, June 30, 1999 (unaudited)....................... 2,657,971 $ 3 4,080,960 $ 4 5,592,503 $ 5
--------- ---------- --------- ---------- --------- ----------
--------- ---------- --------- ---------- --------- ----------
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL DEFERRED OTHER
--------------------- PAID IN COMPENSATION COMPREHENSIVE
SHARES AMOUNT CAPITAL EXPENSE INCOME (LOSS)
--------- ---------- ----------- --------------- ---------------
<S> <C> <C>
Balances, December 31, 1995............................... 4,035,000 $ 4 $ -- $ -- $ --
Net loss prior to August 24, 1996......................... -- -- -- -- --
Transfer of accumulated deficit to additional paid in
capital in conjunction with termination of S corporation
status.................................................. -- -- (194) -- --
Issuance of Series A preferred stock...................... -- -- 3,665 -- --
Deferred compensation expense on stock option issuances... -- -- 275 (275) --
Amortization of deferred compensation expense............. -- -- -- 24 --
Net loss subsequent to August 24, 1996.................... -- -- -- -- --
--------- ---------- ----------- ------- ------
Balances, December 31, 1996............................... 4,035,000 4 3,746 (251) --
Issuance of Series B preferred stock, net of issuance
costs of $47............................................ -- -- 8,024 -- --
Issuance of Series B preferred stock warrant.............. -- -- 28 -- --
Issuance of stock options to nonemployees................. -- -- 7 -- --
Deferred compensation expense on stock option issuances... -- -- 469 (469) --
Amortization of deferred compensation expense............. -- -- -- 246 --
Net loss.................................................. -- -- -- -- --
--------- ---------- ----------- ------- ------
Balances, December 31, 1997............................... 4,035,000 4 12,274 (474) --
Issuance of stock options to nonemployees................. -- -- 8 -- --
Issuance of common stock upon exercise of stock options... 174,535 -- 87 -- --
Issuance of Series C preferred stock warrant.............. -- -- 55 -- --
Foreign currency translation adjustment................... -- -- -- -- (2)
Deferred compensation expense on stock option issuances... -- -- 1,700 (1,700) --
Amortization of deferred compensation expense............. -- -- -- 673 --
Net loss.................................................. -- -- -- -- --
--------- ---------- ----------- ------- ------
Balances, December 31, 1998............................... 4,209,535 4 14,124 (1,501) (2)
Issuance of common stock upon exercise of stock options
(unaudited)............................................. 575,485 1 261 -- --
Issuance of Series B preferred stock in exchange for
services(unaudited)..................................... -- -- 54 -- --
Issuance of Series C preferred stock and warrants, net of
issuance costs of $1,337 (unaudited).................... -- -- 18,751 -- --
Issuance of Series C preferred stock in exchange for
services (unaudited).................................... -- -- 23 -- --
Foreign currency translation adjustment (unaudited)....... -- -- -- -- 6
Deferred compensation expense on stock option issuances
(unaudited)............................................. -- -- 6,864 (6,864) --
Amortization of deferred compensation expense
(unaudited)............................................. -- -- -- 1,283 --
Net loss (unaudited)...................................... -- -- -- -- --
--------- ---------- ----------- ------- ------
Balances, June 30, 1999 (unaudited)....................... 4,785,020 $ 5 $ 40,077 $ (7,082) $ 4
--------- ---------- ----------- ------- ------
--------- ---------- ----------- ------- ------
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------- -------------
Balances, December 31, 1995............................... $ 137 $ 141
Net loss prior to August 24, 1996......................... (331) (331)
Transfer of accumulated deficit to additional paid in
capital in conjunction with termination of S corporation
status.................................................. 194 --
Issuance of Series A preferred stock...................... -- 3,668
Deferred compensation expense on stock option issuances... -- --
Amortization of deferred compensation expense............. -- 24
Net loss subsequent to August 24, 1996.................... (850) (850)
------------- -------------
Balances, December 31, 1996............................... (850) 2,652
Issuance of Series B preferred stock, net of issuance
costs of $47............................................ -- 8,028
Issuance of Series B preferred stock warrant.............. -- 28
Issuance of stock options to nonemployees................. -- 7
Deferred compensation expense on stock option issuances... -- --
Amortization of deferred compensation expense............. -- 246
Net loss.................................................. (4,691) (4,691)
------------- -------------
Balances, December 31, 1997............................... (5,541) 6,270
Issuance of stock options to nonemployees................. -- 8
Issuance of common stock upon exercise of stock options... -- 87
Issuance of Series C preferred stock warrant.............. -- 55
Foreign currency translation adjustment................... -- (2)
Deferred compensation expense on stock option issuances... -- --
Amortization of deferred compensation expense............. -- 673
Net loss.................................................. (6,590) (6,590)
------------- -------------
Balances, December 31, 1998............................... (12,131) 501
Issuance of common stock upon exercise of stock options
(unaudited)............................................. -- 262
Issuance of Series B preferred stock in exchange for
services(unaudited)..................................... -- 54
Issuance of Series C preferred stock and warrants, net of
issuance costs of $1,337 (unaudited).................... -- 18,756
Issuance of Series C preferred stock in exchange for
services (unaudited).................................... -- 23
Foreign currency translation adjustment (unaudited)....... -- 6
Deferred compensation expense on stock option issuances
(unaudited)............................................. -- --
Amortization of deferred compensation expense
(unaudited)............................................. -- 1,283
Net loss (unaudited)...................................... (6,053) (6,053)
------------- -------------
Balances, June 30, 1999 (unaudited)....................... $ (18,184) $ 14,832
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
TUMBLEWEED COMMUNICATIONS CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................................... $ (1,180) $ (4,691) $ (6,590) $ (3,268) $ (6,053)
Adjustments to reconcile net loss to net cash used in operating
activities:
Compensation for grant of non-employee stock options and warrant
issuances..................................................... -- 34 8 -- 77
Amortization of deferred stock compensation expense............. 24 246 673 259 1,283
Depreciation.................................................... 29 121 201 94 171
Amortization of debt discount................................... -- -- 12 -- 43
Changes in operating assets and liabilities:
Accounts receivable........................................... 7 (204) -- 227 (870)
Prepaid expenses and other current assets..................... (46) (101) (24) (217) (388)
Accounts payable and accrued liabilities...................... 132 374 47 119 1,491
Deferred revenue.............................................. 74 204 (178) (114) 588
--------- --------- --------- --------- ---------
Net cash used in operating activities....................... (960) (4,017) (5,851) (2,900) (3,658)
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Purchase of furniture and equipment............................. (134) (352) (291) (167) (1,286)
Other long-term assets.......................................... -- -- (108) (50) (937)
--------- --------- --------- --------- ---------
Net cash used in investing activities....................... (134) (352) (399) (217) (2,223)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Borrowings on equipment line.................................... -- -- 553 400 1,966
Payments on equipment line...................................... -- -- -- -- (1,107)
Proceeds from issuance of preferred stock and warrants, net..... 3,668 8,028 -- -- 18,756
Issuance of common stock upon exercise of stock options......... -- -- 87 58 262
Payments on stockholder note payable............................ (50) (19) -- -- --
Borrowing on stockholder note payable........................... 65 -- -- -- --
--------- --------- --------- --------- ---------
Net cash provided by financing activities................... 3,683 8,009 640 458 19,877
--------- --------- --------- --------- ---------
Effect of exchange rate fluctuations................................ -- -- (2) -- 6
--------- --------- --------- --------- ---------
Net (decrease) increase in cash and cash equivalents................ 2,589 3,640 (5,612) (2,659) 14,002
Cash and cash equivalents, beginning of year/period................. 81 2,670 6,310 6,310 698
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of year/period....................... $ 2,670 $ 6,310 $ 698 $ 3,651 $ 14,700
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the year/period for interest..................... $ -- $ -- $ 25 $ 5 $ 81
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Noncash investing and financing activities--
Issuance of warrants and options for services, debt issuance
costs or equity offering costs................................ $ -- $ 34 $ 63 $ -- $ 194
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Deferred compensation expense associated with stock option
activity...................................................... $ 275 $ 469 $ 1,700 $ 854 $ 6,864
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
TUMBLEWEED COMMUNICATIONS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Tumbleweed Communications Corp., a California corporation incorporated in
June 1993, is a provider of secure Internet communications software and services
for businesses worldwide. Tumbleweed has developed the Tumbleweed Integrated
Messaging Exchange, or Tumbleweed IME, a scalable software solution that
combines the personal, proactive nature of e-mail with the ease of use of the
web. Tumbleweed IME offers the key attributes of physical delivery, e-mail and
web messaging in a comprehensive, Internet-based system. Tumbleweed's solutions
enable corporations to leverage their existing investments in e-mail and web
systems in order to shift their historically paper-based communications to more
convenient and cost-effective online alternatives.
In March of 1994, Tumbleweed sold a technology known as Envoy to Novell,
Inc. pursuant to an asset transfer, and Tumbleweed thereafter effected a
substantial distribution to its stockholders. In connection with this sale,
Tumbleweed retained the rights to derivative payments from various agreements
that were acquired by Novell, Inc. for specified periods of time. The proceeds
from this asset transfer were used for general corporate purposes, including the
initial development of Tumbleweed IME. Virtually all of Tumbleweed's revenue
recognized before June of 1997, which marked the initial launch of Tumbleweed
IME, was derived from these agreements. Tumbleweed ceased recognizing revenue
under these agreements in the first quarter of 1997, and does not anticipate
recognizing any additional revenue under these agreements in the future since
management believes that Novell, Inc. has discontinued distribution of products
utilizing Envoy technology. As a result, revenue recognized for periods before
June of 1997 is not indicative of Tumbleweed's operating results in subsequent
periods. In addition, in 1997 and 1998, Tumbleweed recognized revenue derived
from a sale of ancillary technology to a third party. Tumbleweed does not
anticipate recognizing revenue from similar sales in the future.
On May 27, 1999, the board of directors authorized the filing of a
registration statement with the Securities and Exchange Commission permitting
Tumbleweed to sell shares of its common stock in connection with a proposed
initial public offering. If the offering is consummated under the terms
presently anticipated, all currently outstanding shares of preferred stock will
automatically convert into shares of common stock upon the closing of the
proposed initial public offering. The conversion of the convertible preferred
stock has been reflected in the unaudited pro forma consolidated balance sheet
as of June 30, 1999.
On June 28, 1999, Tumbleweed filed with the California Secretary of State to
officially change its name to Tumbleweed Communications Corp. from Tumbleweed
Software Corporation. The board of directors and shareholders approved the name
change on June 23, 1999 and June 28, 1999, respectively.
Tumbleweed maintains its headquarters in Redwood City, California.
Tumbleweed incorporated a subsidiary in Japan in November 1998 and incorporated
a subsidiary in the United Kingdom in February 1999.
F-7
<PAGE>
TUMBLEWEED COMMUNICATIONS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
(a) BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Tumbleweed and its wholly owned subsidiaries in Japan and the United Kingdom.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
In August 1996, Tumbleweed terminated its S-corporation election in
connection with the issuance of preferred stock. Therefore, approximately
$194,000 in accumulated deficit prior to August 24, 1996, has been transferred
to additional paid-in capital as of that date.
(b) UNAUDITED PRO FORMA FINANCIAL BALANCE SHEET
The pro forma consolidated balance sheet as of June 30, 1999 includes (i)
the assumed automatic conversion of all outstanding shares of Series A, B and C
convertible preferred stock upon the closing of Tumbleweed's planned initial
public offering into 12,331,434 shares of common stock, and (ii) the assumed
cashless conversion of the December 1997 and May 1999 warrant issuances, using
the assumed initial public offering price, into approximately 87,040 shares of
common stock.
(c) CASH, CASH EQUIVALENTS AND INVESTMENTS
Tumbleweed considers all highly liquid investments purchased with remaining
maturities of three months or less to be cash equivalents. As of December 31,
1997 and 1998, Tumbleweed had $6,257,000 and $604,000 in money market accounts,
respectively. As of June 30, 1999, Tumbleweed had $6,972,000 in commercial paper
and $6,512,000 in money market accounts.
Tumbleweed has adopted Statement of Financial Accounting Standards ("SFAS")
No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. SFAS
No. 115 requires entities to classify investments in debt and equity securities
with readily determined fair values as "held-to-maturity," "available-for-sale"
or "trading" and establishes accounting and reporting requirements for each
classification. Tumbleweed generally has classified its investment securities as
available-for-sale and accounts for them at estimated fair value. Realized and
unrealized gains and losses were not significant for all periods presented. The
cost of securities sold is based on the specific identification method. As of
December 31, 1996, 1997, and 1998 Tumbleweed did not hold any marketable
securities.
(d) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from three to five years.
(e) CAPITALIZED SOFTWARE
Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as incurred
until technological feasibility in
F-8
<PAGE>
TUMBLEWEED COMMUNICATIONS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
the form of a working model has been established. To date, capitalized costs for
Tumbleweed's software development have not been material.
(f) CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject Tumbleweed to
concentrations of credit risk, consist primarily of cash equivalents and
accounts receivable. Tumbleweed's cash equivalents generally consist of money
market funds with qualified financial institutions. To reduce credit risk with
accounts receivable, Tumbleweed performs ongoing evaluations of its customers'
financial conditions and maintains allowances for credit losses, when necessary.
(g) REVENUE RECOGNITION
In October 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
97-2, SOFTWARE REVENUE RECOGNITION. Effective January 1, 1998, Tumbleweed
adopted SOP 97-2. SOP 97-2 generally requires revenue recognized from software
arrangements to be allocated to each element of the arrangement based on the
relative fair values of the elements, such as software products, consulting,
training, installation, or post-contract customer support. Fair values are based
upon vendor specific objective evidence. If evidence of fair value for each
element of the arrangement does not exist, all revenue from the arrangement is
deferred until such time that evidence of fair value does exist, or until all
elements of the arrangement are delivered. There was no material change to
Tumbleweed's accounting for revenue as a result of the adoption of SOP 97-2.
In February 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued SOP 98-4, DEFERRAL OF
THE EFFECTIVE DATE OF SOP 97-2. The SOP deferred the effective date for applying
the provisions regarding vendor-specific objective evidence of fair value. There
was no material change to Tumbleweed's accounting for revenue as a result of the
adoption of SOP 98-4.
Tumbleweed's customer contracts are generally multiple-element arrangements;
that is, they involve Tumbleweed providing a combination of products and
services to a customer. Revenue is allocated to the various elements based on
the relative fair values of the elements. Revenue allocated to the various
elements is recognized when the basic revenue recognition criteria are met for
that element or group of elements.
Revenue attributable to licenses and associated initial installation and
testing services is recognized upon customer acceptance. Management currently
believes that customer acceptance is the point at which delivery has occurred,
collectibility of a fixed and determinable fee is deemed probable, and
persuasive evidence of an arrangement exists.
Paid pilot projects represent licensing transactions in which the customer
purchases the Company's products and services for internal use and
customer-testing purposes. The projects generally contain licensing elements as
well as associated initial installation and testing services. Revenues
attributable to
F-9
<PAGE>
TUMBLEWEED COMMUNICATIONS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
such projects are recognized upon customer acceptance. Fees earned from paid
pilot projects historically have not been refundable against other products and
services.
Transaction-based fee revenue are derived from Tumbleweed's customers and
resellers principally based on payment schedules, for minimum volume
commitments, or information reported by the customer or reseller, for actual
volume commitments. Royalties from minimum volume commitments are recognized at
the beginning of a transaction commitment cycle when fees are fixed and
determinable. Royalties from minimum volume commitments with extended payment
terms are recognized as they become due and payable. Royalties from actual
volume commitments are recognized when amounts due are reported to Tumbleweed.
Technology revenue relates to the sale of certain intellectual property.
Tumbleweed recognized technology revenue as the payments were collected.
Tumbleweed provides post-contract support, training and other consulting
services to customers. Revenue from post-contract support, i.e. unspecified
upgrades and telephone support, is recognized ratably over the period the
support is provided. Revenue from customer training and other consulting
services is recognized as the services are performed.
Tumbleweed provides limited warranty rights to its customers, which are
accounted for in accordance with SFAS No. 5, ACCOUNTING FOR CONTINGENCIES.
Estimated warranty obligations are provided by charges to operations in the
period in which the related revenue is recognized. To date, the estimated
warranty obligations have not been considered significant.
In December 1998, the Accounting Standards Executive Committee issued SOP
98-9, SOFTWARE REVENUE RECOGNITION, WITH RESPECT TO CERTAIN ARRANGEMENTS, which
requires recognition of revenue using the residual method in a multiple element
arrangement when fair value does not exist for one or more of the delivered
elements in the arrangement. Under the residual method, the total fair value of
the undelivered elements is deferred and subsequently recognized in accordance
with SOP 97-2. SOP 98-9 also extends the deferral of the application of SOP 97-2
to certain other multiple-element software arrangements through Tumbleweed's
year ending December 31, 1999. Tumbleweed does not expect a material change to
its accounting for revenue as a result of the provisions of SOP 98-9.
(h) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
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
basis and operating loss and tax credit carryforwards. 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. A valuation allowance is recorded to reduce deferred tax
assets to an amount whose realization is more likely than not. 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.
F-10
<PAGE>
TUMBLEWEED COMMUNICATIONS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
(i) STOCK-BASED COMPENSATION
Tumbleweed accounts for its stock-based compensation arrangements for
employees using the intrinsic-value method pursuant to Accounting Principles
Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. As such,
compensation expense is recorded for fixed plan stock options on the date of
grant when the fair value of the underlying common stock exceeds the exercise
price for stock options or the purchase price for issuance or sales of common
stock. Options granted to consultants and other non-employees are considered
compensatory and are accounted for at fair value pursuant to SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION. Tumbleweed discloses the pro forma
effects of using the fair value method of accounting for all stock-based
compensation arrangements, in accordance with SFAS No. 123.
(j) NET LOSS PER SHARE
Net loss per share is calculated in accordance with SFAS No. 128, EARNINGS
PER SHARE. Under the provisions of SFAS No. 128, basic net loss per share is
computed by dividing the net loss available to common stockholders for the
period by the weighted average number of common shares outstanding during the
period. Diluted net loss per share is computed by dividing the net loss for the
period by the weighted average number of common and potential common shares
outstanding during the period if their effect is dilutive. Potential common
shares comprise outstanding shares of common stock issued to certain officers
(see Note 6) but subject to ratable repurchase by Tumbleweed if such officers do
not remain employees through August 1999, and incremental common and preferred
shares issuable upon the exercise of stock options and warrants and upon the
conversion of Series A, Series B, and Series C preferred stock. The following
potential common shares have been excluded from the determination of diluted net
loss per share for all periods because the effect of such shares would have been
anti-dilutive (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Shares issuable under stock options............................. 1,154 1,489 2,409 1,950 2,673
Shares of restricted stock subject to repurchase................ 873 535 197 368 30
Shares issuable pursuant to warrants or rights to purchase
convertible preferred stock................................... -- 40 61 40 120
Shares of convertible preferred stock on an "as-if-converted"
basis......................................................... 2,658 6,724 6,724 6,724 12,331
--------- --------- --------- --------- ---------
4,685 8,788 9,391 9,082 15,154
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
As of June 30, 1999, the weighted average exercise prices of stock options
and warrants or rights to purchase preferred stock outstanding were $0.80 and
$3.22, respectively.
F-11
<PAGE>
TUMBLEWEED COMMUNICATIONS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
(k) OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) consists entirely of cumulative
translation adjustments resulting from Tumbleweed's application of its foreign
currency translation policy. The tax effects of translation adjustments were not
significant.
(l) UNAUDITED INTERIM FINANCIAL INFORMATION
The consolidated financial information as of June 30, 1999 and for the six
months ended June 30, 1998 and 1999 is unaudited, but includes all adjustments
(consisting of normal recurring adjustments) that Tumbleweed considers necessary
for the fair presentation of the financial position at such dates and the
operations and cash flows for the periods then ended. Operating results for the
six months ended June 30, 1999 are not necessarily indicative of results that
may be expected for the entire year.
(m) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of Tumbleweed's cash, cash equivalents, marketable
securities, accounts receivable, accounts payable and equipment line approximate
their carrying values due to the short maturity or variable-rate structure of
those instruments.
(n) 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 the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
(o) FOREIGN CURRENCY TRANSLATION
The functional currency of the Tumbleweed's Japan subsidiary is the yen. The
functional currency of the Tumbleweed's United Kingdom subsidiary is the pound.
Exchange gains and losses, which result from the translation of foreign currency
financial statements into U.S. dollars, are included in accumulated other
comprehensive income (loss) in stockholders' equity.
(p) ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
Tumbleweed reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of their carrying amount or fair value less cost to
sell.
F-12
<PAGE>
TUMBLEWEED COMMUNICATIONS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
(q) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. Tumbleweed is required to adopt SFAS 133 in
fiscal 2000. SFAS 133 establishes methods of accounting for derivative financial
instruments and hedging activities related to those instruments as well as other
hedging activities. To date, Tumbleweed has not entered into any derivative
financial instruments or hedging activities.
In March 1998, the Accounting Standards Executive Committee issued SOP 98-1,
ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL
USE. SOP 98-1 establishes the accounting for costs of software products
developed or purchased for internal use, including when such costs should be
capitalized. Tumbleweed adopted SOP 98-1 effective January 1, 1999 and it did
not materially affect its financial position or results of operations.
(2) FINANCIAL STATEMENT COMPONENTS
A summary of property and equipment as of December 31, 1997 and 1998,
follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Office furniture.............................................................. $ 100 $ 114
Computers and equipment....................................................... 460 737
--------- ---------
560 851
Less accumulated depreciation................................................. 178 379
--------- ---------
$ 382 $ 472
--------- ---------
--------- ---------
</TABLE>
A summary of accrued liabilities as of December 31, 1997 and 1998, follows
(in thousands):
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Accrued compensation.......................................................... $ 144 $ 235
Professional fees............................................................. 78 156
Advertising................................................................... 43 29
Other......................................................................... 72 28
--------- ---------
$ 337 $ 448
--------- ---------
--------- ---------
</TABLE>
F-13
<PAGE>
TUMBLEWEED COMMUNICATIONS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
(2) FINANCIAL STATEMENT COMPONENTS (CONTINUED)
Other income (expense), net consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Interest income....................................................... $ 41 $ 165 $ 180
Interest expense...................................................... -- -- (41)
Miscellaneous income (expense)........................................ -- -- 10
--------- --------- ---------
Other income (expense), net........................................... $ 41 $ 165 $ 149
--------- --------- ---------
--------- --------- ---------
</TABLE>
(3) RELATED PARTY TRANSACTIONS
In February 1999, Tumbleweed issued 3,914,989 shares of Series C preferred
stock at a price of $3.58 to Hikari Tsushin ("Hikari"), a Japanese company,
resulting in gross proceeds to Tumbleweed of approximately $14.0 million.
On March 31, 1999, Tumbleweed entered into a one-year License and
Distribution Agreement with Hikari. A summary of the salient terms of this
agreement is as follows:
- Tumbleweed granted Hikari a perpetual license to use Tumbleweed's product
in consideration of a one-time, non-refundable fee of Y30,000,000 (which
approximated $251,000 as of March 31, 1999).
- Hikari was granted distribution rights to sell Tumbleweed's products to
third parties in consideration of a one-time, non-refundable fee of
Y20,000,000 (which approximated $167,000 as of March 31, 1999).
- Beginning on April 1, 1999, Hikari will make quarterly, non-refundable
prepaid transaction fees of Y23,625,000 (which approximated $198,000 as of
March 31, 1999).
During the six months ended June 30, 1999, Tumbleweed recognized
approximately $388,000, $196,000 and $30,000 for perpetual license fee and
distribution rights, transaction fees and maintenance revenue, respectively,
from Hikari.
(4) DEBT
In 1997, Tumbleweed obtained a $400,000 line of credit collateralized by all
of Tumbleweed's assets. The line bears interest at the bank's prime rate plus
1.5% and expired on August 3, 1998.
In July 1998, Tumbleweed entered into a debt agreement with a bank (the Debt
Facility) which includes a $1,500,000 revolving credit facility (the Revolver),
with availability based on outstanding accounts receivable, and a $750,000
equipment loan facility (the Equipment Line). The Debt Facility expires on July
22, 1999. Borrowings under the Revolver and Equipment Line carry interest at
prime rate plus 0.5% and 0.75%, respectively, with interest payable monthly and
an unamortized discount of $43,000. Borrowings under the Revolver are due in
July 1999. Borrowings under the Equipment Line
F-14
<PAGE>
TUMBLEWEED COMMUNICATIONS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
(4) DEBT (CONTINUED)
are due in 36 equal monthly installments beginning January 1999, and are secured
by certain assets of Tumbleweed. The weighted-average interest rate for the
Equipment Line was 8.5% for fiscal 1998.
During November 1998, Tumbleweed amended the Debt Facility. As part of the
amendment, Tumbleweed obtained a $1,500,000 line of credit (Bridge Loan
Facility) with availability based on several factors, including the proposed
amount of the next equity financing; Tumbleweed is prohibited from making
additional borrowings against the Revolver until the maturity date of the Bridge
Loan Facility; and the Equipment Line is limited to making additional borrowings
up to $125,000. Borrowings under the Bridge Loan Facility are due the earlier of
(i) the closing of Tumbleweed's Series C preferred stock financing; (ii) 90 days
from the initial loan; or (iii) April 30, 1999. In connection with the Bridge
Loan Facility, Tumbleweed issued a warrant to purchase preferred stock with a
fair value of $55,000, which is being amortized over the term of the Bridge Loan
Facility (see Note 6). Borrowings under the Bridge Loan Facility carry interest
at prime rate plus 1% (8.5% at December 31, 1998) and are payable monthly. Upon
the closing of the February 1999 Series C preferred stock financing, Tumbleweed
repaid all outstanding borrowings against the Bridge Loan Facility.
In June 1999, Tumbleweed amended the Debt Facility. As part of the
amendment, Tumbleweed increased its Equipment Line by $1,000,000. Borrowings are
due in 36 equal monthly installments beginning January 1, 2000.
As of June 30, 1999, minimum debt payments under all agreements were as
follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
- -----------------------------------------------------------------
<S> <C>
1999............................................................. $ 168
2000............................................................. 571
2001............................................................. 535
2002............................................................. 322
2003............................................................. 11
---------
1,607
Less interest.................................................... (195)
Less current installments of equipment line...................... (227)
---------
$ 1,185
---------
---------
</TABLE>
F-15
<PAGE>
TUMBLEWEED COMMUNICATIONS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
(5) INCOME TAXES
The differences between the amount of income tax benefit recorded and the
amount of income tax benefit calculated using the U.S. federal statutory rate of
34% for the years ended December 31, 1997 and 1998, are as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Statutory federal income tax benefit..................................... $ (1,511) $ (2,047)
Net operating loss not benefited......................................... 1,503 2,035
Other.................................................................... 8 12
--------- ---------
$ -- $ --
--------- ---------
--------- ---------
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities as of December 31, 1997 and 1998, are
presented below (in thousands):
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................................... $ 1,921 $ 4,052
Tax credit carryforwards................................................. 56 249
Reserves and accruals not currently deductible........................... 227 196
Other.................................................................... 2 9
--------- ---------
2,206 4,506
Less valuation allowance................................................... 2,206 4,506
--------- ---------
Net deferred tax assets................................................ $ -- $ --
--------- ---------
--------- ---------
</TABLE>
Tumbleweed believes that sufficient uncertainty exists with respect to
future realization of these deferred tax assets; therefore, it has established a
valuation allowance against all net deferred tax assets.
The net change in the valuation allowance for the year ended December 31,
1998, was an increase of approximately $2,300,000.
As of December 31, 1998, Tumbleweed has federal and California net operating
loss carryforwards of approximately $11,000,000 and $5,700,000, respectively.
The net operating loss carryforwards expire in the years 2011 through 2018 for
federal income tax purposes and the years 2001 through 2003 for California
income tax purposes.
As of December 31, 1998, Tumbleweed has federal and California research and
development tax credit carryforwards of approximately $144,000 and $105,000,
respectively. The research and development tax credit carryforwards for federal
income tax purposes expire in the years 2012 through 2018. The research and
development tax credit carryforwards for California income tax purposes can be
carried forward indefinitely.
F-16
<PAGE>
TUMBLEWEED COMMUNICATIONS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
(5) INCOME TAXES (CONTINUED)
The Internal Revenue Code of 1986 and the California Conformity Act of 1987
substantially restrict the ability of a corporation to utilize existing net
operating losses and credits in the event of an "ownership change." Several of
Tumbleweed's issuances of preferred stock have resulted in multiple ownership
changes since inception of Tumbleweed. Of the approximately $11.0 million of
federal net operating loss carryforward as of December 31, 1998, approximately
$3.5 million will be subject to an annual limitation in the aggregate of
$400,000. Any unused annual limitation can be carried over and added to the
succeeding year's annual limitation within the allowable carryforward period.
Future changes in ownership may result in additional limitations.
(6) STOCKHOLDERS' EQUITY
(a) CONVERTIBLE PREFERRED STOCK
The rights, preferences, and privileges of the Series A, B, and C preferred
stock are as follows:
- The conversion rate in effect at any time for each series of convertible
preferred stock shall be the quotient obtained by dividing the original
issuance price for such series of series preferred stock by the series
preferred stock conversion price. The series preferred stock conversion
price shall initially be the original issue price for such series adjusted
for stock splits and combinations, common stock dividends and
distributions, and similar transactions. As of June 30, 1999, the
conversion rates allow each share of Series A, B and C preferred stock to
be converted into one share of common stock.
- Each share of series preferred stock shall automatically be converted into
shares of common stock, based on the then-effective series preferred stock
conversion price (a) at any time upon the affirmative vote of the holders
of more than 50% of the outstanding shares of preferred stock, or (b)
immediately upon the closing of a public offering in which the per share
price is two times the original issuance price of the Series C preferred
stock and the gross cash proceeds to Tumbleweed are at least $10,000,000.
- Each shareholder of Series A, B, and C preferred stock is entitled to
receive, when and as declared by Tumbleweed's board of directors,
noncumulative dividends of approximately $0.11, $0.16, and $0.29 per
share, respectively, payable in preference and priority to any payment of
dividends on common stock. No dividends have been declared or paid on the
preferred stock.
- In the event of liquidation, the stockholders of Series A, B, and C
preferred stock are entitled to a liquidation preference equal to $1.38,
$1.99, and $3.58 per share, respectively, plus all declared but unpaid
dividends. All remaining assets shall be distributed on a pro rata basis
among the holders of the preferred and common stock on an
"as-if-converted" basis.
(b) STOCK REPURCHASE AGREEMENTS
On August 16, 1996, stock repurchase agreements were signed with
Tumbleweed's Chief Technical Officer and Chief Executive Officer (the Officers).
Under these agreements, Tumbleweed may repurchase a ratable portion of the
shares of common stock held by the Officers if the Officers
F-17
<PAGE>
TUMBLEWEED COMMUNICATIONS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
(6) STOCKHOLDERS' EQUITY (CONTINUED)
terminate their employment with Tumbleweed at any time prior to August 16, 1999.
The common stock was issued for the value of services rendered, at a value of
$0.001 per share. The purchase price would be $0.005 per share, and the total
number of shares available for repurchase by Tumbleweed is reduced ratably over
the three-year term of the agreements. The amount of shares subject to
repurchase by Tumbleweed as of December 31, 1998 and June 30, 1999, were
approximately 197,000 and 30,000, respectively.
(c) 1993 STOCK OPTION PLAN
On September 30, 1993, the Company adopted the 1993 stock option plan.
During 1998 and 1999, the board of directors approved an amendment to the plan
to increase the number of shares authorized for issuance by 1,000,000 shares and
500,000 shares, respectively, to a total of 3,618,500 authorized shares.
Under the plan, the exercise price for incentive options is at least 100% of
the fair market value on the date of grant. The exercise price for nonqualified
stock options is at least 85% of the fair market value on the date of grant.
Options generally expire in 10 years. Vesting periods are determined by the
board of directors and generally provide for 25% of the options to vest on the
first anniversary date of the grant with the remaining options vesting monthly
over the following 36 months.
(d) 1999 OMNIBUS STOCK INCENTIVE PLAN
The 1999 Omnibus Stock Incentive Plan (the Incentive Plan) was adopted by
Tumbleweed's board of directors on May 27, 1999 (and to be approved by
stockholders thereafter), for the benefit of the officers, directors, key
employees, advisors and consultants. An aggregate of 4,381,500 shares of common
stock is reserved for issuance under the Incentive Plan, which provides for the
issuance of stock-based incentive awards, including stock options, stock
appreciation rights, limited stock appreciation rights, restricted stock,
deferred stock, and performance shares.
(e) 1999 EMPLOYEE STOCK PURCHASE PLAN
The 1999 Employee Stock Purchase Plan (the Purchase Plan) was adopted by
Tumbleweed's board of directors on May 27, 1999 (and to be approved by
stockholders thereafter) which allows eligible employees to purchase common
stock at a discount from fair market value. A total of 500,000 shares of common
stock has been reserved for issuance under the Purchase Plan for each fiscal
year occurring during the term of the Purchase Plan (the Purchase Plan will
terminate in 2009).
F-18
<PAGE>
TUMBLEWEED COMMUNICATIONS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
(6) STOCKHOLDERS' EQUITY (CONTINUED)
A summary of stock option activity follows:
<TABLE>
<CAPTION>
WEIGHTED-
OPTIONS AVERAGE
AVAILABLE OPTIONS EXERCISE
FOR GRANT OUTSTANDING PRICE
----------- ----------- -----------
<S> <C> <C> <C>
Balances, December 31, 1996............................. 964,500 1,154,000 $ 0.48
Granted................................................. (531,500) 531,500 0.50
Canceled................................................ 196,375 (196,375) 0.50
----------- -----------
Balances, December 31, 1997............................. 629,375 1,489,125 0.48
Authorized.............................................. 1,000,000 -- --
Granted................................................. (1,320,250) 1,320,250 0.50
Exercised............................................... -- (174,535) 0.50
Canceled................................................ 225,629 (225,629) 0.50
----------- -----------
Balances, December 31, 1998............................. 534,754 2,409,211 0.49
Authorized.............................................. 500,000 -- --
Granted (unaudited)..................................... (1,011,250) 1,011,250 1.29
Exercised (unaudited)................................... -- (575,485) 0.46
Canceled (unaudited).................................... 171,480 (171,480) 0.50
----------- -----------
Balances, June 30, 1999 (unaudited)..................... 194,984 2,673,496 0.80
----------- -----------
----------- -----------
Options vested as of June 30, 1999 (unaudited).......... 537,736
-----------
-----------
Weighted-average fair value of options granted during
the year:
1996................................................ $ 0.13
1997................................................ $ 0.13
1998................................................ $ 0.11
</TABLE>
The following table summarizes information about stock options outstanding
as of June 30, 1999:
<TABLE>
<CAPTION>
AVERAGE
REMAINING
NUMBER CONTRACTUAL NUMBER
EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISABLE
- -------------------------------------------------------- ----------- ------------- -----------
<S> <C> <C> <C>
$0.50................................................... 1,864,746 8.4 537,736
0.80................................................... 745,750 9.7 --
9.60................................................... 63,000 10.0 --
----------- -----------
2,673,496 537,736
----------- -----------
----------- -----------
</TABLE>
F-19
<PAGE>
TUMBLEWEED COMMUNICATIONS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
(6) STOCKHOLDERS' EQUITY (CONTINUED)
(f) STOCK-BASED COMPENSATION
Tumbleweed uses the intrinsic value method prescribed by APB No. 25 in
accounting for its stock-based compensation arrangements for employees.
Compensation cost has been recognized for fixed stock option issuances in the
accompanying consolidated financial statements because the fair value of the
underlying common stock equals or exceeds the exercise price of the stock
options at the date of grant. Tumbleweed has recorded deferred stock
compensation expense of $275,000, $469,000, $1.7 million and $6.8 million for
the difference at the grant date between the exercise price and the fair value
of the common stock underlying the options granted in the years ended December
31, 1996, 1997 and 1998, and in the six months ended June 30, 1999,
respectively. These amounts are being amortized on an accelerated basis over the
vesting period, generally four years, consistent with the method described in
FASB Interpretation No. 28. Amortization of deferred compensation of
approximately $24,000, $246,000, $673,000 and $1,283,000 were recognized in the
years ended December 31, 1996, 1997 and 1998, and in the six months ended June
30, 1999, respectively. Had compensation cost for Tumbleweed's stock-based
compensation plan been determined consistent with the fair value approach set
forth in SFAS No. 123, Tumbleweed's net losses for the years ended December 31,
1996, 1997, and 1998, would have been as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Net loss--as reported............................................................. $ (1,180) $ (4,691) $ (6,590)
APB No. 25 compensation expense recorded.......................................... 24 246 673
Additional stock-based compensation under SFAS No. 123............................ (27) (281) (731)
--------- --------- ---------
Net loss--pro forma............................................................... $ (1,183) $ (4,726) $ (6,648)
--------- --------- ---------
--------- --------- ---------
Basic and diluted net loss per share--as reported................................. $ (0.33) $ (1.41) $ (1.74)
--------- --------- ---------
--------- --------- ---------
Basic and diluted net loss per share--pro forma................................... $ (0.33) $ (1.42) $ (1.75)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The fair value of options granted during the years ended December 31, 1996,
1997 and 1998, are estimated on the date of grant using the minimum value method
with the following weighted-average assumptions: no dividend yield; risk-free
interest rates ranging from 4.75% to 7.5%; and an expected life of four years.
(g) WARRANTS
In connection with Tumbleweed's sale of certain technology rights to a third
party in December 1997, Tumbleweed licensed the rights back from the third party
in exchange for a warrant to purchase 40,000 shares of Tumbleweed's Series B
convertible preferred stock at an exercise price of $2.50 per share. The warrant
is exercisable upon issuance and expires upon on the earlier of the closing of
an initial public offering of Tumbleweed's common stock or five years from the
issue date. Using the Black-Scholes option pricing model Tumbleweed has
calculated the value of the warrant based on the following assumptions: no
dividends; contractual term of 5 years; risk-free interest rate of 5.75%;
F-20
<PAGE>
TUMBLEWEED COMMUNICATIONS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
(6) STOCKHOLDERS' EQUITY (CONTINUED)
expected volatility of 55%. The resultant expense of $28,000 is included in
research and development expenses in 1997.
In connection with the November 1998 Bridge Loan Facility (see Note 4),
Tumbleweed issued a warrant to acquire 20,973 shares of Series C preferred stock
at an exercise price of $3.58. Using the Black-Scholes model, the warrant is
valued at $2.65 per share, for a total of $55,000, based on the following
assumptions: no dividends; contractual term of 10 years; risk-free interest rate
of 4.86%; expected volatility of 60%. The value of the warrant is being
amortized over the term of the Bridge Loan Facility. The warrant expires upon
the earlier of (i) November 2008; (ii) five years from the closing of an initial
public offering; or (iii) the closing of an acquisition of Tumbleweed in which
Tumbleweed's stock is sold for at least three times the initial exercise price.
In connection with the February 1999 Series C financing, Tumbleweed's
financial advisor earned the right to receive a warrant to acquire 58,725 shares
of Series C convertible preferred stock at an exercise price of $3.58. Using the
Black-Scholes model, the warrant is valued at $1.99 per share, for a total of
$117,000, based on the following assumptions: no dividends; contractual term of
5 years; risk-free interest rate of 4.75%; expected volatility of 60%. The value
of the warrant is included as an issuance cost of the Series C financing. The
warrant will be exercisable for a period of 5 years from the date of issuance.
The warrant will terminate upon an initial public offering by Tumbleweed or sale
or acquisition of Tumbleweed.
In connection with the May 1999 Series C financing, Tumbleweed issued a
warrant to acquire 16,778 shares of Series C convertible preferred stock at an
exercise price of $3.58. The warrant will be exercisable for a period of 5 years
from the date of issuance and will terminate upon an initial public offering or
sale or acquisition of Tumbleweed. Using the Black-Scholes model, the warrant is
valued at $8.51 per share, for a total of $143,000, based on the following
assumptions: no dividends; contractual term of 5 years; risk-free interest rate
of 4.79%; expected volatility of 60%. The value of the warrant is included as an
issuance cost of the Series C financing.
(7) EMPLOYEE BENEFIT PLAN
Tumbleweed has a 401(k) plan that allows eligible employees to contribute a
percentage of their compensation, limited to $10,000 in 1998. Tumbleweed may
make discretionary matching contributions of up to 6% of employee contributions.
Tumbleweed matching contributions and earnings thereon vest immediately.
Tumbleweed has made no contributions to date.
F-21
<PAGE>
TUMBLEWEED COMMUNICATIONS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
(8) COMMITMENTS
(a) LEASE COMMITMENTS
Future minimum lease payments under all noncancelable operating leases as of
December 31, 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
YEAR ENDING DECEMBER 31, LEASES
- ----------------------------------------------------------------------------------- -----------
<S> <C>
1999............................................................................... $ 178
2000............................................................................... 53
2001............................................................................... 9
2002............................................................................... 3
2003............................................................................... --
-----
Total minimum lease payments....................................................... $ 243
-----
-----
</TABLE>
Total rent expense under operating leases for the years ended December 31,
1996, 1997 and 1998, was $56,000, $139,000 and $278,000, respectively.
(b) ROYALTY AGREEMENTS
During 1996, Tumbleweed entered into royalty agreements with various
companies whereby Tumbleweed was granted a right to sublicense certain software
technology. Under the terms of the agreements, Tumbleweed pays royalties based
on the number of software licenses sold or a percentage of revenue. Royalty
expense under these agreements in 1996, 1997 and 1998 was approximately $9,000,
$39,000 and $128,000, respectively, and was recorded as cost of revenue. Royalty
expense under these agreements in the six month periods ended June 30, 1998 and
1999 was approximately $38,000 and $55,000, respectively, and was recorded as
cost of revenue.
(9) SEGMENT INFORMATION
Tumbleweed has adopted the provisions of SFAS No. 131, DISCLOSURE ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS 131 establishes
standards for the reporting by public business enterprises of information about
operating segments, products and services, geographic areas, and major
customers. The method for determining what information to report is based on the
way that management organizes the operating segments within Tumbleweed for
making operating decisions and assessing financial performance.
Tumbleweed's chief operating decision-maker is considered to be Tumbleweed's
Chief Executive Officer. The CEO reviews financial information presented on a
consolidated basis accompanied by disaggregated information about revenue by
geographic region for purposes of making operating decisions and assessing
financial performance. The consolidated financial information reviewed by the
CEO is identical to the information presented in the accompanying consolidated
statement of operations. Therefore, Tumbleweed operates in a single operating
segment.
F-22
<PAGE>
TUMBLEWEED COMMUNICATIONS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
(9) SEGMENT INFORMATION (CONTINUED)
Revenue information regarding operations in the different geographic regions
is as follows (in thousands):
<TABLE>
<CAPTION>
UNITED
STATES BELGIUM TAIWAN OTHER COUNTRIES TOTAL
----------- ----------- ----------- --------------- ---------
<S> <C> <C> <C> <C> <C>
1996......................................... $ 592 $ -- $ -- 5 $ 597
1997......................................... 534 -- 178 17 729
1998......................................... 756 560 667 32 2,015
</TABLE>
Revenue attributable to significant customers, representing approximately
10% or more of total revenue for at least one of the respective periods, are
summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED ENDED
DECEMBER 31, JUNE 30,
------------------------------------- -------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
SALES:
Customer A............................................... --% 38% 33% 37% 6%
Customer B............................................... 22 26 -- -- --
Customer C............................................... -- 12 -- -- --
Customer D............................................... -- -- 28 12 32
Customer E............................................... -- -- 30 45 4
Customer F............................................... 26 -- -- -- --
Customer G............................................... 20 -- -- -- --
Customer H............................................... 12 2 2 2 1
Customer I............................................... -- -- -- -- 36
Customer J............................................... -- -- -- -- 10
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------- -------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
ACCOUNTS RECEIVABLE:
Customer A............................................... --% 43% --% 83% 5%
Customer B............................................... 85 -- -- -- --
Customer C............................................... -- 19 -- -- --
Customer D............................................... -- -- 82 -- 45
Customer E............................................... -- 36 16 7 9
Customer F............................................... -- -- -- -- --
Customer G............................................... -- -- -- -- --
Customer H............................................... -- -- -- -- --
Customer I............................................... -- -- -- -- 18
Customer J............................................... -- -- -- -- 12
</TABLE>
F-23
<PAGE>
TUMBLEWEED COMMUNICATIONS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS
UNAUDITED)
(9) SEGMENT INFORMATION (CONTINUED)
Revenue aggregating 0%, 0%, 30%, 45% and 40% of total revenue for the years
ended December 31, 1996, 1997 and 1998 and for the six months ended June 30,
1998 and 1999, respectively, was generated from two customers who are also
stockholders of Tumbleweed, and whose ownership percentages were 6.5% and 22.8%,
respectively.
(10) SUBSEQUENT EVENTS
REINCORPORATION
On May 27, 1999, the board of directors approved Tumbleweed's
reincorporation in the state of Delaware. Following stockholder approval, the
Certificate of Incorporation of the Delaware successor corporation will
authorize 100 million shares of common stock, $0.001 par value per share, and 10
million shares of preferred stock, $0.001 par value per share. The accompanying
consolidated financial statements have been retroactively restated to give
effect to the reincorporation.
F-24
<PAGE>
[TUMBLEWEED LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table indicates the expenses to be incurred in connection with
the offering described in this Registration Statement, all of which will be paid
by Tumbleweed. All amounts are estimates, other than the registration fee, the
NASD fee, and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC Registration fee............................................ $ 18,070
NASD Filing fee................................................. 7,000
Nasdaq National Market listing fee.............................. 95,000
Accounting fees and expenses.................................... 300,000
Legal fees and expenses......................................... 450,000
Printing and engraving expenses................................. 220,000
Transfer agent fees and expenses................................ 6,750
Blue sky fees and expenses...................................... 10,000
Miscellaneous fees and expenses................................. 43,180
---------
Total......................................................... $1,150,000
---------
---------
</TABLE>
- ------------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102 of the Delaware General Corporation Law, or the DGCL, as
amended, allows a corporation to eliminate the personal liability of directors
of a corporation to the corporation or its stockholders for monetary damages for
a breach of fiduciary duty as a director, except where the director breached his
duty of loyalty, failed to act in good faith, engaged in intentional misconduct
or knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
Section 145 of the DGCL provides, among other things, that we may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (other than an
action by or in the right of Tumbleweed) by reason of the fact that the person
is or was a director, officer, agent or employee of Tumbleweed or is or was
serving at our request as a director, officer, agent, or employee of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses, including attorneys' fees, judgment, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection with the
action, suit or proceeding. The power to indemnify applies (a) if the person is
successful on the merits or otherwise in defense of any action, suit or
proceeding, or (b) if the person acted in good faith and in a manner he
reasonably believed to be in the best interest, or not opposed to the best
interest, of Tumbleweed, and with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The power to
indemnify applies to actions brought by or in the right of Tumbleweed as well,
but only to the extent of defense expenses (including attorneys' fees but
excluding amounts paid in settlement) actually and reasonably incurred and not
to any satisfaction of judgment or settlement of the claim itself, and with the
further limitation that in these actions no indemnification shall be made in the
event of any adjudication of negligence or misconduct in the performance of his
duties to Tumbleweed, unless the court believes that in light of all the
circumstances indemnification should apply.
Section 174 of the DGCL provides, among other things, that a director, who
willfully or negligently approves of an unlawful payment of dividends or an
unlawful stock purchase or redemption, may be held liable for these actions. A
director who was either absent when the unlawful actions were
II-1
<PAGE>
approved or dissented at the time, may avoid liability by causing his or her
dissent to these actions to be entered in the books containing the minutes of
the meetings of the board of directors at the time the action occurred or
immediately after the absent director receives notice of the unlawful acts.
Our Amended and Restated Certificate of Incorporation 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:
- for any breach of the director's duty of loyalty to Tumbleweed or its
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under the section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
- for any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware law.
Our Amended and Restated Bylaws provide that:
- we must indemnify our directors and officers to the fullest extent
permitted by Delaware law;
- we must indemnify our other employees and agents to the same extent that
we indemnified our officers and directors, unless otherwise determined by
our board of directors; and
- we must advance expenses, as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware Law.
The indemnification provisions contained in our Amended and Restated
Certificate of Incorporation and Amended and Restated Bylaws are not exclusive
of any other rights to which a person may be entitled by law, agreement, vote of
stockholders or disinterested directors or otherwise. In addition, we maintain
insurance on behalf of our directors and executive officers insuring them
against any liability asserted against them in their capacities as directors or
officers or arising out of this status.
We intend to enter into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, will provide for indemnification of our
directors and executive officers for expenses, judgments, fines and settlement
amounts incurred by any such person in any action or proceeding arising out of
the person's services as a director or executive officer or at our request. We
believe that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Registrant has issued unregistered
securities to a limited number of persons as described below:
(a) On August 28, 1996, September 30, 1996 and October 29, 1997, Registrant
issued and sold an aggregate of 2,657,971 shares of Series A preferred
stock to 18 investors for $1.38 per share, or an aggregate of
$3,667,999.98. Upon the closing of this offering, each share of Series A
preferred stock will automatically convert into one share of common
stock. The foregoing purchases and sales were exempt from registration
under the Securities Act pursuant to Section 4(2) thereof on the basis
that the transactions did not involve a public offering.
(b) On August 21, 1997 and September 4, 1997, Registrant issued and sold an
aggregate of 4,065,960 shares of Series B preferred stock to 13 investors
for $1.98 per share, or an aggregate of $8,074,996.56. Upon the closing
of this offering, each share of Series B preferred stock will
automatically convert into one share of common stock. The foregoing
purchases and
II-2
<PAGE>
sales were exempt from registration under the Securities Act pursuant to
Section 4(2) thereof and Regulation D promulgated thereunder on the basis
that the transactions did not involve a public offering.
(c) On December 19, 1997, Registrant issued a warrant to Dynalab Technology
to purchase 40,000 shares of Series B preferred stock for $2.50 per
share. Upon the closing of this offering this warrant will be
automatically terminated unless otherwise exercised. The issuance of this
warrant was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof on the basis that the transaction did not involve a
public offering.
(d) On November 30, 1998, Registrant issued a warrant to Silicon Valley Bank
to purchase 20,973 shares of Series C preferred stock for $3.576 per
share. The issuance of this warrant was exempt from registration under
the Securities Act pursuant to Section 4(2) thereof on the basis that the
transaction did not involve a public offering.
(e) On February 11, 1999, Registrant issued 15,000 shares of Series B
preferred stock to a consultant of Registrant for services rendered
valued at $29,790. Upon the closing of this offering, these shares of
Series B preferred stock will automatically convert into 15,000 shares of
common stock. The foregoing purchase and sale was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof on
the basis that the transaction did not involve a public offering.
(f) On February 26, 1999 and May 13, 1999, Registrant issued and sold an
aggregate of 5,592,503 shares of Series C preferred stock to a total of
14 investors for $3.576 per share, or an aggregate of $19,975,546.73.
Upon the closing of this offering, each share of Series C preferred stock
will automatically convert into one share of common stock. The foregoing
purchases and sales were exempt from registration under the Securities
Act pursuant to Section 4(2) thereof and Regulation D promulgated
thereunder on the basis that the transactions did not involve a public
offering.
(g) On March 24, 1999, Registrant issued 6,500 shares of Series C preferred
stock to a consultant of Registrant for services rendered valued at
$23,244. Upon the closing of this offering, these shares of Series C
preferred stock will automatically convert into 6,500 shares of common
stock. The foregoing purchase and sale was exempt from registration under
the Securities Act pursuant to Section 4(2) thereof on the basis that the
transaction did not involve a public offering.
(h) On May 13, 1999, Registrant issued a warrant to Hambrecht & Quist LLC to
purchase 75,503 shares of Series C preferred stock for $3.576 per share.
Upon the closing of this offering this warrant will be automatically
terminated unless otherwise exercised. The issuance of this warrant was
exempt from registration under the Securities Act pursuant to Section
4(2) thereof on the basis that the transaction did not involve a public
offering.
(i) As of July 8, 1999, an aggregate of 750,020 shares of common stock had
been issued upon exercise of options under the Registrant's 1993 stock
option plan at a weighted average exercise price of $0.47 per share, or
an aggregate of $350,010. The foregoing purchases and sales were exempt
from registration under the Securities Act pursuant to Section 4(2)
thereof or Rule 710 promulgated thereunder.
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, except that Hambrecht & Quist
LLC acted as placement agent in connection with the transaction described in
paragraph (f) above. See "Underwriting." The recipients in such transactions
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution, and
appropriate legends were affixed to the share certificates and instruments
issued in those transactions.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
A. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- -------- --------------------------------------------------------------------------
<C> <S>
1.1(1) Form of Underwriting Agreement
3.1(2) Amended and Restated Articles of Incorporation of the Registrant, as
amended
3.2(2) Amended and Restated Certificate of Incorporation of the Registrant
3.3(2) Bylaws of the Registrant
3.4(2) Amended and Restated Bylaws of the Registrant
4.1(1) Specimen common stock certificate
4.2(2) Investors' Rights Agreement, dated as of February 26, 1999, among the
Registrant, the Founders, and the holders of the Registrant's preferred
stock
4.3(2) Warrant to Purchase Stock, dated November 30, 1998, issued to Silicon
Valley Bank
5.1(1) Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
10.1(2) Form of Indemnity Agreement between the Registrant and each of its
directors and officers
10.2(2) 1993 Stock Option Plan, as amended, and form of agreements thereunder
10.3(2) Form of 1999 Omnibus Stock Incentive Plan and form of stock option
thereunder
10.4(2) Form of 1999 Employee Stock Purchase Plan
10.5(1)+ Software License, Development and Services Agreement, dated December 19,
1997, between the Registrant and United Parcel Service General Services,
Co.
10.6(1)+ Posta License and Distribution Agreement, dated as of March 31, 1999,
between Tumbleweed Software, K.K. and K.K. Hikari Tsushin.
10.7(2)+ OEM Object Code License Agreement, dated as of March 30, 1998, between the
Registrant and RSA Data Security, Inc.
10.8(2) Employment Agreement, dated May 24, 1999, between Tumbleweed Software Inc.
and Tumbleweed Limited and Donald N. Taylor
21(2) Subsidiaries of the Registrant
23.1(1) Consent of KPMG LLP
23.2(1) Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit
5.1)
24.1(2) Power of Attorney
27.1(2) Financial Data Schedule
</TABLE>
- ------------------------
(1) Filed with this amendment
(2) Previously filed
+ We sought confidential treatment from the Securities and Exchange Commission
for selected portions of this exhibit. The omitted portions were separately
filed with the Securities and Exchange Commission.
B. FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the Consolidated Financial
Statements or related Notes.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing certificates in the denominations and registered in the names as
required by the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been informed 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 by the registrant 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 maser has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against pubic 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
of 1933, 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 under 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 of 1933, 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 bonafide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF REDWOOD
CITY, STATE OF CALIFORNIA, ON JULY 27, 1999.
<TABLE>
<S> <C> <C>
TUMBLEWEED COMMUNICATIONS CORP.
By: /s/ JOSEPH C. CONSUL
------------------------------------------
Joseph C. Consul
VICE PRESIDENT--FINANCE AND CHIEF
FINANCIAL OFFICER
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman of the Board,
/s/ JEFFREY C. SMITH* President and Chief
- ------------------------------ Executive Officer July 27, 1999
Jeffrey C. Smith (Principal Executive
Officer)
Vice President--Finance
and Chief Financial
/s/ JOSEPH C. CONSUL Officer (Principal
- ------------------------------ Financial Officer and July 27, 1999
Joseph C. Consul Principal Accounting
Officer)
/s/ DAVID F. MARQUARDT*
- ------------------------------ Director July 27, 1999
David F. Marquardt
/s/ TIMOTHY C. DRAPER*
- ------------------------------ Director July 27, 1999
Timothy C. Draper
- ------------------------------ Director July 27, 1999
Standish H. O'Grady
/s/ ERIC J. HAUTEMONT*
- ------------------------------ Director July 27, 1999
Eric J. Hautemont
</TABLE>
<TABLE>
<S> <C> <C>
/s/ JOSEPH C. CONSUL
------------------------------------------
Joseph C. Consul
*By: ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
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<C> <S>
1.1(1) Form of Underwriting Agreement
3.1(2) Amended and Restated Articles of Incorporation of the Registrant, as
amended
3.2(2) Amended and Restated Certificate of Incorporation of the Registrant
3.3(2) Bylaws of the Registrant
3.4(2) Amended and Restated Bylaws of the Registrant
4.1(1) Specimen common stock certificate
4.2(2) Investors' Rights Agreement, dated as of February 26, 1999, among the
Registrant, the Founders, and the holders of the Registrant's preferred
stock
4.3(2) Warrant to Purchase Stock, dated November 30, 1998, issued to Silicon
Valley Bank
5.1(1) Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
10.1(2) Form of Indemnity Agreement between the Registrant and each of its
directors and officers
10.2(2) 1993 Stock Option Plan, as amended, and form of stock option thereunder
10.3(2) Form of 1999 Omnibus Stock Incentive Plan and form of stock option
thereunder
10.4(2) Form of 1999 Employee Stock Purchase Plan
10.5(1)+ Software License, Development and Services Agreement, dated December 19,
1997, between the Registrant and United Parcel Service General Services,
Co.
10.6(1)+ Posta License and Distribution Agreement, dated as of March 31, 1999,
between Tumbleweed Software, K.K. and K.K. Hikari Tsushin.
10.7(2)+ OEM Object Code License Agreement, dated as of March 30, 1998, between the
Registrant and RSA Data Security, Inc.
10.8(2) Employment Agreement, dated May 24, 1999, between Tumbleweed Software Inc.
and Tumbleweed Limited and Donald N. Taylor
21(2) Subsidiaries of the Registrant
23.1(1) Consent of KPMG LLP
23.2(1) Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit
5.1)
24.1(2) Power of Attorney
27.1(2) Financial Data Schedule
</TABLE>
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(1) Filed with this amendment
(2) Previously filed
+ We sought confidential treatment from the Securities and Exchange Commission
for selected portions of this exhibit. The omitted portions were separately
filed with the Securities and Exchange Commission.
<PAGE>
EXHIBIT 1.1
_____________ Shares
TUMBLEWEED COMMUNICATIONS CORP.
COMMON STOCK, PAR VALUE $0.001 PER SHARE
UNDERWRITING AGREEMENT
----------------------
August ___, 1999
CREDIT SUISSE FIRST BOSTON CORPORATION
HAMBRECHT & QUIST LLC
ING BARING LLC
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Ladies and Gentlemen:
1. INTRODUCTORY. Tumbleweed Communications Corp., a Delaware
corporation ("Company"), proposes to issue and sell shares
("Firm Securities") of its Common Stock, par value $0.001 per share
("Securities"), and also proposes to issue and sell to the Underwriters, at
the option of the Underwriters, an aggregate of not more than
additional shares ("Optional Securities") of its Securities, as set forth
below. The Firm Securities and the Optional Securities are herein
collectively called the "Offered Securities". The Company hereby agrees with
the several Underwriters named in Schedule A hereto ("Underwriters") as
follows:
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 333-79687) relating to the Offered
Securities, including a form of prospectus, has been filed with the Securities
and Exchange Commission ("Commission") and either (i) has been declared
effective under the Securities Act of 1933, as amended ("Act") and is not
proposed to be amended or (ii) has been and/or is proposed to be amended by
amendment or post-effective amendment. If such registration statement ("initial
registration statement") has been declared effective, either (i) an additional
registration statement ("additional registration statement") relating to the
Offered Securities may have been filed with the Commission pursuant to Rule
462(b) ("Rule 462(b)") under the Act and, if so filed, has
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become effective upon filing pursuant to such Rule and the Offered Securities
all have been duly registered under the Act pursuant to the initial
registration statement and, if applicable, the additional registration
statement or (ii) such an additional registration statement is proposed to be
filed with the Commission pursuant to Rule 462(b) and will become effective
upon filing pursuant to such Rule and upon such filing the Offered Securities
will all have been duly registered under the Act pursuant to the initial
registration statement and such additional registration statement. If the
Company does not propose to amend the initial registration statement or if an
additional registration statement has been filed and the Company does not
propose to amend it, and if any post-effective amendment to either such
registration statement has been filed with the Commission prior to the
execution and delivery of this Agreement, the most recent amendment (if any)
to each such registration statement has been declared effective by the
Commission or has become effective upon filing pursuant to Rule 462(c) ("Rule
462(c)") under the Act or, in the case of the additional registration
statement, Rule 462(b). For purposes of this Agreement, "Effective Time" with
respect to the initial registration statement or, if filed prior to the
execution and delivery of this Agreement, the additional registration
statement means (i) if the Company has advised the Representatives that it
does not propose to amend such registration statement, the date and time as
of which such registration statement, or the most recent post-effective
amendment thereto (if any) filed prior to the execution and delivery of this
Agreement, was declared effective by the Commission, or (ii) if the Company
has advised the Representatives that it proposes to file an amendment or
post-effective amendment to such registration statement, the date and time as
of which such registration statement, as amended by such amendment or
post-effective amendment, as the case may be, is declared effective by the
Commission or has become effective upon filing pursuant to Rule 462(b) or
462(c). If an additional registration statement has not been filed prior to
the execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "Effective Time" with respect
to such additional registration statement means the date and time as of which
such registration statement is filed and becomes effective pursuant to Rule
462(b). "Effective Date" with respect to the initial registration statement
or the additional registration statement (if any) means the date of the
Effective Time thereof. The initial registration statement, as amended at its
Effective Time, including all information contained in the additional
registration statement (if any) and deemed to be a part of the initial
registration statement as of the Effective Time of the additional
registration statement pursuant to the General Instructions of the Form on
which it is filed and including all information (if any) deemed to be a part
of the initial registration statement as of its Effective Time pursuant to
Rule 430A(b) ("Rule 430A(b)") under the Act, is hereinafter referred to as
the "Initial Registration Statement". The additional registration statement,
as amended at its Effective Time, including the contents of the initial
registration statement incorporated by reference therein and including all
information (if any) deemed to be a part of the additional registration
statement as of its Effective Time pursuant to Rule 430A(b), is hereinafter
referred to as the "Additional Registration Statement". The Initial
Registration Statement and the Additional Registration Statement are herein
referred to collectively as the "Registration Statements" and individually as
a "Registration Statement". The form of prospectus relating to the Offered
Securities, as first filed with the Commission pursuant to and in accordance
with Rule 424(b) ("Rule 424(b)") under the Act or (if no such filing is
required) as included in a Registration Statement, is hereinafter referred to
as the "Prospectus". No document has been or will be prepared or distributed
in reliance on Rule 434 under the Act.
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(b) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (i) on the Effective Date
of the Initial Registration Statement, the Initial Registration Statement
conformed in all material respects to the requirements of the Act and the rules
and regulations of the Commission ("Rules and Regulations") and did not include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, (ii) on the Effective Date of the Additional Registration Statement
(if any), each Registration Statement conformed, or will conform, in all
material respects to the requirements of the Act and the Rules and Regulations
and did not include, or will not include, any untrue statement of a material
fact and did not omit, or will not omit, to state any material fact required to
be stated therein or necessary to make the statements therein not misleading and
(iii) on the date of this Agreement, the Initial Registration Statement and, if
the Effective Time of the Additional Registration Statement is prior to the
execution and delivery of this Agreement, the Additional Registration Statement
each conforms, and at the time of filing of the Prospectus pursuant to Rule
424(b) or (if no such filing is required) at the Effective Date of the
Additional Registration Statement in which the Prospectus is included, each
Registration Statement and the Prospectus will conform, in all material respects
to the requirements of the Act and the Rules and Regulations, and neither of
such documents includes, or will include, any untrue statement of a material
fact or omits, or will omit, to state any material fact required to be stated
therein or necessary to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they were made) not
misleading. If the Effective Time of the Initial Registration Statement is
subsequent to the execution and delivery of this Agreement: on the Effective
Date of the Initial Registration Statement, the Initial Registration Statement
and the Prospectus will conform in all material respects to the requirements of
the Act and the Rules and Regulations, neither of such documents will include
any untrue statement of a material fact or will omit to state any material fact
required to be stated therein or necessary to make the statements therein (in
the case of the Prospectus, in light of the circumstances under which they were
made) not misleading, and no Additional Registration Statement has been filed.
The two preceding sentences do not apply to statements in or omissions from a
Registration Statement or the Prospectus based upon written information
furnished to the Company by any Underwriter through the Representatives
specifically for use therein, it being understood and agreed that the only such
information is that described as such in Section 7(b) hereof.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with full
corporate power and authority to own its properties and conduct its business as
now being conducted and as described in the Prospectus; and the Company is duly
qualified to do business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the conduct of its
business requires such qualification.
(d) Each subsidiary of the Company has been duly incorporated and is an
existing corporation in good standing under the laws of the jurisdiction of its
incorporation, with full corporate power and authority to own its properties and
conduct its business as now being conducted and as described in the Prospectus,
except as woud not have a material adverse effect on the business, prospects,
results of operations or financial condition of the Company and its
subsidiaries, taken as a whole (a "Material Adverse Effect"); and each
subsidiary of the Company is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions
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in which its ownership or lease of property or the conduct of its business
requires such qualification, except where the failure to be so qualified
would not have a Material Adverse Effect; all of the issued and outstanding
capital stock of each subsidiary of the Company has been duly authorized and
validly issued and is fully paid and nonassessable; and except as described
in the Prospectus the capital stock of each subsidiary owned by the Company
is owned free from liens, encumbrances and defects.
(e) The Offered Securities and all other outstanding shares of capital
stock of the Company have been duly authorized; all outstanding shares of
capital stock of the Company are, and, when the Offered Securities have been
issued, delivered and paid for in accordance with this Agreement on each Closing
Date (as defined below), such Offered Securities will have been, validly issued,
fully paid and nonassessable and will conform to the description thereof
contained in the Prospectus; and the stockholders of the Company have no
preemptive rights with respect to the Securities.
(f) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person that would give
rise to a valid claim against the Company or any Underwriter for a brokerage
commission, finder's fee or other like payment in connection with this offering.
(g) Except as disclosed in the prospectus, there are no contracts,
agreements and understandings between the Company and any person granting such
person the right to require the Company to file a registration statement under
the Act with respect to any securities of the Company owned or to be owned by
such person or to require the Company to include such securities in the
securities registered pursuant to a Registration Statement or in any securities
being registered pursuant to any other registration statement filed by the
Company under the Act.
(h) The Offered Securities have been approved for quotation and trading
on the Nasdaq Stock Market's National Market subject to official notice of
issuance.
(i) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court is required for the consummation of
the transactions contemplated by this Agreement in connection with the issuance
and sale of the Offered Securities by the Company, except such as have been
obtained and made under the Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and such as may be required under state securities
laws.
(j) The execution, delivery and performance of this Agreement, and the
issuance and sale of the Offered Securities will not result in a breach or
violation of any of the terms and provisions of, or constitute a default under,
any statute, any rule, regulation or order of any governmental agency or body or
any court, domestic or foreign, having jurisdiction over the Company or any
subsidiary of the Company or any of their properties, or any agreement or
instrument to which the Company or any such subsidiary is a party or by which
the Company or any such subsidiary is bound or to which any of the properties of
the Company or any such subsidiary is subject, or the charter or by-laws of the
Company or any such subsidiary, except in each case as would not have a Material
Adverse Effect and the Company has full power and authority to authorize, issue
and sell the Offered Securities as contemplated by this Agreement.
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(k) This Agreement has been duly authorized, executed and delivered by
the Company.
(l) Except as disclosed in the Prospectus, the Company and its
subsidiaries have good and marketable title to all properties and assets owned
by them, in each case free from liens, encumbrances and defects that would
materially affect the value thereof or materially interfere with the use made or
to be made thereof by them, except in each case as would not have a Material
Adverse Effect; and except as disclosed in the Prospectus, the Company and its
subsidiaries hold any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or to be made thereof by them, except in each case as would not have a
Material Adverse Effect.
(m) The Company and its subsidiaries possess adequate certificates,
authorities or permits issued by appropriate governmental agencies or bodies
necessary to conduct the business now operated by them and have not received any
notice of proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the Company or
any of its subsidiaries, would individually or in the aggregate have a Material
Adverse Effect.
(n) No labor dispute with the employees of the Company exists or, to
the knowledge of the Company, is imminent that might have a Material Adverse
Effect.
(o) Except as disclosed in the Prospectus, the Company and its
subsidiaries own, possess or can acquire on reasonable terms, adequate
trademarks, trade names and other rights to inventions, know-how, patents,
copyrights, confidential information and other intellectual property
(collectively, "intellectual property rights") necessary to conduct the business
now operated by them, or presently employed by them, and have not received any
notice of infringement of or conflict with asserted rights of others with
respect to any intellectual property rights that, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate have
a Material Adverse Effect.
(p) Except as disclosed in the Prospectus, neither the Company nor any
of its subsidiaries is in violation of any statute, any rule, regulation,
decision or order of any governmental agency or body or any court, domestic or
foreign, relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the environment or
human exposure to hazardous or toxic substances (collectively, "environmental
laws"), owns or operates any real property contaminated with any substance that
is subject to any environmental laws, is liable for any off-site disposal or
contamination pursuant to any environmental laws, or is subject to any claim
relating to any environmental laws, which violation, contamination, liability or
claim would individually or in the aggregate have a Material Adverse Effect, and
the Company is not aware of any pending investigation which might lead to such a
claim.
(q) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or affecting the Company, any of its
subsidiaries or any of their respective properties that, if determined adversely
to the Company or any of its subsidiaries, would
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individually or in the aggregate have a Material Adverse Effect, or would
materially and adversely affect the ability of the Company to perform its
obligations under this Agreement, or which are otherwise material in the
context of the sale of the Offered Securities; and no such actions, suits or
proceedings are threatened or, to the Company's knowledge, contemplated.
(r) The consolidated financial statements included in each Registration
Statement and the Prospectus present fairly in all material respects the
financial position of the Company and its subsidiaries as of the dates shown and
their results of operations and cash flows for the periods shown, such financial
statements have been prepared in conformity with the generally accepted
accounting principles in the United States applied on a consistent basis; the
financial schedules included in each Registration Statement present fairly the
information required to be stated therein.
(s) Except as disclosed in the Prospectus, since the date of the latest
audited financial statements included in the Prospectus there has been no
material adverse change, nor any development or event involving a prospective
material adverse change, in the condition (financial or other), business,
properties or results of operations of the Company and its subsidiaries taken as
a whole and, except as disclosed in or contemplated by the Prospectus, there has
been no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(t) The Company is not and, after giving effect to the offering and
sale of the Offered Securities and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as defined in
the Investment Company Act of 1940, as amended.
3. PURCHASE, SALE AND DELIVERY OF OFFERED SECURITIES. On the basis
of the representations, warranties and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company agrees to
sell to the Underwriters, and the Underwriters agree, severally and not
jointly, to purchase from the Company, at a purchase price of $ per
share, the respective numbers of shares of Firm Securities set forth opposite
the names of the Underwriters in SCHEDULE A hereto.
The Company will deliver the Firm Securities to the Representatives for
the accounts of the Underwriters, against payment of the purchase price in
Federal (same day) funds by wire transfer to an account at a bank designated by
the Company, which shall be reasonably acceptable to Credit Suisse First Boston
Corporation ("CSFBC") drawn to the order of the Company at the office of
Skadden, Arps, Slate, Meagher & Flom LLP, 525 University Avenue, Palo Alto,
California 94301, at 10:00 A.M., New York time, on July ___, 1999, or at such
other time not later than seven full business days thereafter as CSFBC and the
Company determine, such time being herein referred to as the "First Closing
Date". For purposes of Rule 15c6-1 under the Securities Exchange Act of 1934, as
amended, the First Closing Date (if later than the otherwise applicable
settlement date) shall be the settlement date for payment of funds and delivery
of securities for all the Offered Securities sold pursuant to the offering. The
certificate(s) for the Firm Securities so to be delivered will be in definitive
form, in such denominations and registered in such names as CSFBC requests and
will be made available for checking and packaging at least 24 hours prior to the
First Closing Date.
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In addition, upon written notice from CSFBC given to the Company from
time to time not more than thirty 30 days subsequent to the date of the
Prospectus, the Underwriters may purchase all or less than all of the Optional
Securities at the purchase price per Security to be paid for the Firm
Securities. The Company agrees, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions set forth, to sell to the Underwriters the number of shares of
Optional Securities specified in such notice and the Underwriters agree,
severally and not jointly, to purchase such Optional Securities. Such Optional
Securities shall be purchased for the account of each Underwriter in the same
proportion as the number of shares of Firm Securities set forth opposite such
Underwriter's name bears to the total number of shares of Firm Securities
(subject to adjustment by CSFBC to eliminate fractions) and may be purchased by
the Underwriters only for the purpose of covering over-allotments made in
connection with the sale of the Firm Securities. No Optional Securities shall be
sold or delivered unless the Firm Securities previously have been, or
simultaneously are, sold and delivered. The right to purchase the Optional
Securities or any portion thereof may be exercised from time to time and to the
extent not previously exercised may be surrendered and terminated at any time
upon notice by CSFBC to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date," which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be reasonably determined
by CSFBC but shall be not later than five full business days after written
notice of election to purchase Optional Securities is given. The Company will
deliver the Optional Securities being purchased on each Optional Closing Date to
the Representatives for the accounts of the several Underwriters, against
payment of the purchase price therefor in Federal (same day) funds by wire
transfer to an account at a bank designated by the Company which shall be
reasonably acceptable to CSFBC drawn to the order of the Company, at the above
office of Skadden, Arps, Slate, Meagher & Flom LLP. The certificate(s) for the
Optional Securities being purchased on each Optional Closing Date will be in
definitive form, in such denominations and registered in such names as CSFBC
requests upon reasonable notice prior to such Optional Closing Date and will be
made available for checking and packaging at a reasonable time in advance of
such Optional Closing Date.
4. OFFERING BY UNDERWRITERS. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. CERTAIN AGREEMENTS OF THE COMPANY. The Company agrees with the
several Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will file the
Prospectus with the Commission pursuant to and in accordance with subparagraph
(1) (or, if applicable and if consented to by CSFBC, subparagraph (4)) of Rule
424(b) not later than the earlier of (A) the second business day following the
execution and delivery of this Agreement or (B) the fifteenth business day after
the Effective Date of the Initial Registration Statement.
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The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred as of
such execution and delivery, the Company will file the additional registration
statement or, if filed, will file a post-effective amendment thereto with the
Commission pursuant to and in accordance with Rule 462(b) on or prior to 10:00
P.M., New York time, on the date of this Agreement or, if earlier, on or prior
to the time the Prospectus is printed and distributed to any Underwriter, or
will make such filing at such later date as shall have been consented to by
CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to amend or
supplement the initial or any additional registration statement as filed or the
related prospectus or the Initial Registration Statement, the Additional
Registration Statement (if any) or the Prospectus and will not effect such
amendment or supplementation without CSFBC's written consent, which shall not be
unreasonably withheld and the Company will also advise CSFBC promptly of the
effectiveness of each Registration Statement (if its Effective Time is
subsequent to the execution and delivery of this Agreement) and of any amendment
or supplementation of a Registration Statement or the Prospectus and of the
institution by the Commission of any stop order proceedings in respect of a
Registration Statement and will use its reasonable efforts to prevent the
issuance of any such stop order and to obtain as soon as possible its lifting,
if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with sales by
any Underwriter or dealer, any event occurs as a result of which the Prospectus
as then amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or if it is necessary at any time to amend the Prospectus to comply
with the Act, the Company will promptly notify CSFBC of such event and will
promptly prepare and file with the Commission, at its own expense, an amendment
or supplement which will correct such statement or omission or an amendment
which will effect such compliance. Neither CSFBC's consent to, nor the
Underwriters' delivery of, any such amendment or supplement shall constitute a
waiver of any of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12 months
beginning after the Effective Date of the Initial Registration Statement (or, if
later, the Effective Date of the Additional Registration Statement) which will
satisfy the provisions of Section 11(a) of the Act. For the purpose of the
preceding sentence, "Availability Date" means the 45th day after the end of the
fourth fiscal quarter following the fiscal quarter that includes such Effective
Date, except that, if such fourth fiscal quarter is the last quarter of the
Company's fiscal year, "Availability Date" means the 90th day after the end of
such fourth fiscal quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (three of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a prospectus
relating to the Offered Securities is required to be delivered under the Act in
connection with sales by any Underwriter or dealer, the Prospectus and
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all amendments and supplements to such documents, in each case in such
quantities as CSFBC reasonably requests. The Prospectus shall be so furnished
on or prior to 3:00 P.M., New York time, on the business day following the
later of the execution and delivery of this Agreement or the Effective Time
of the Initial Registration Statement. All other documents shall be so
furnished as soon as available. The Company will pay the expenses of printing
and distributing to the Underwriters all such documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC designates and
will continue such qualifications in effect so long as required for the
distribution; provided, however, that the Company shall not be obligated to file
any general consent to service of process or to qualify as a foreign corporation
or as a securities dealer in any jurisdiction or to subject itself to taxation
in respect of doing business in any jurisdiction in which it is not otherwise
subject.
(g) During the period of five years hereafter, the Company will furnish
to the Representatives and, upon request, to each of the other Underwriters, as
soon as practicable after the end of each fiscal year, a copy of its annual
report to stockholders for such year; and the Company will furnish to the
Representatives (i) as soon as available, a copy of each report and any
definitive proxy statement of the Company filed with the Commission under the
Securities Exchange Act of 1934, as amended or mailed to stockholders, and (ii)
from time to time, such other publicly available information concerning the
Company as CSFBC may reasonably request.
(h) The Company will pay all expenses incident to the performance of
its obligations under this Agreement, for any filing fees and other expenses
(including fees and disbursements of counsel) incurred in connection with
qualification of the Offered Securities for sale under the laws of such
jurisdictions as CSFBC designates and the printing of memoranda relating
thereto, for the filing fee incident to, and the reasonable fees and
disbursements of counsel to the Underwriters in connection with, the review by
the National Association of Securities Dealers, Inc. (the "NASD") of the Offered
Securities, for any travel expenses of the Company's officers and employees and
any other expenses of the Company in connection with attending or hosting
meetings with prospective purchasers of the Offered Securities and for expenses
incurred in distributing preliminary prospectuses and the Prospectus (including
any amendments and supplements thereto) to the Underwriters.
(i) For a period of 180 days after the date of the initial public
offering of the Offered Securities, the Company will not offer, sell, contract
to sell, pledge or otherwise dispose of, directly or indirectly, or file with
the Commission a registration statement under the Act relating to, any
additional shares of its Securities or securities convertible into or
exchangeable or exercisable for any shares of its Securities, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of CSFBC; except (1) the Offered
Securities to be sold to the Underwriters hereunder (2) issuances of Securities
pursuant to the conversion of convertible securities and the exercise of
options, in each case, outstanding on the date hereof, (3) grants of employee
stock options pursuant to the terms of a plan in effect on the date hereof or as
disclosed in the Prospectus and issuances of Securities pursuant to the exercise
of such options, or (4) issuances of Securities pursuant to the terms of the
Company's 1999 Employee Stock Purchase Plan ("ESPP"), and provided that the
Company may
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file a Registration Statement or Statements under the Securities Act of 1933,
as amended with respect to the foregoing.
6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Firm
Securities on the First Closing Date and the Optional Securities to be
purchased on each Optional Closing Date will be subject to the accuracy of
the representations and warranties on the part of the Company herein, to the
accuracy of the statements of Company officers made pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder and to the following additional conditions precedent:
(a) The Representatives shall have received a letter, dated the
date of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement, shall be prior to the filing of the
amendment or post-effective amendment to the registration statement to be
filed shortly prior to such Effective Time), of KPMG LLP confirming that they
are independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating to the
effect that:
(i) in their opinion the consolidated financial statements
and schedule examined by them and included in the Registration Statements
comply as to form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and Regulations;
(ii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing Standards No. 71,
Interim Financial Information, on the unaudited condensed consolidated
financial statements included in the Registration Statements;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim consolidated financial
statements of the Company, inquiries of officials of the Company who have
responsibility for financial and accounting matters and other specified
procedures, nothing came to their attention that caused them to believe that:
(A) the unaudited condensed consolidated financial
statements included in the Registration Statements do not comply as to form
in all material respects with the applicable accounting requirements of the
Act and the related published Rules and Regulations or any material
modifications should be made to such unaudited condensed consolidated
financial statements for them to be in conformity with generally accepted
accounting principles;
(B) the unaudited consolidated total revenue, operating
loss, net loss and basic and diluted net loss per share amounts for the
six-month period ended June 30, 1999 included in the Prospectus do not agree
with the amounts set forth in the unaudited consolidated financial statements
for those same periods or were not determined on a basis substantially
consistent with that of the corresponding amounts in the audited consolidated
statements of operations;
(C) at the date of the latest available consolidated
balance sheet read by such accountants, or at a subsequent specified date not
more than three business days prior to the date
10
<PAGE>
of such letter, there was any change in the capital stock (except pursuant to
option exercises or other issues described in the Prospectus) or any increase
in long-term debt of the Company and its consolidated subsidiaries or, at the
date of the latest available consolidated balance sheet read by such
accountants, there was any decrease in net current assets or total
stockholders' equity, as compared with amounts shown on the latest
consolidated balance sheet included in the Prospectus except as set forth in
such letters; provided that in the event that the letters referred to above
set forth any changes in capital stock, increases in short-term or long-term
debt or decreases in total current assets, or total assets, it shall be a
further condition to the obligations of the Underwriters that (i) such
letters shall be accompanied by a written explanation of the Company as to
the significance thereof, unless the Representatives deem such explanation
necessary, and (ii) such changes, decreases or increases do not, in the sole
judgment of the Representatives, make it impractical or inadvisable to
proceed with the purchase and delivery of the Offered Securities as
contemplated by such Registration Statement, as amended as of the date
hereof; or
(D) for the period from the closing date of the latest
consolidated statement of operations included in the Prospectus to the
closing date of the latest available consolidated statement of operations
read by such accountants there were any decreases, as compared with the
corresponding period of the previous year, in total revenues, or increase in
net loss or basic and diluted per share amounts of net loss, except in all
cases set forth in clauses (B) and (C) above for changes, increases or
decreases which the Prospectus discloses have occurred or may occur or which
are described in such letter; and
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the extent that
such dollar amounts, percentages and other financial information are derived
from the general accounting records of the Company and its subsidiaries
subject to the internal controls of the Company's accounting system or are
derived directly from such records by analysis or computation) with the
results obtained from inquiries, a reading of such general accounting records
and other procedures specified in such letter and have found such dollar
amounts, percentages and other financial information to be in agreement with
such results, except as otherwise specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective amendment
to be filed shortly prior to its Effective Time, (ii) if the Effective Time of
the Initial Registration Statement is prior to the execution and delivery of
this Agreement but the Effective Time of the Additional Registration is
subsequent to such execution and delivery, "Registration Statements" shall mean
the Initial Registration Statement and the additional registration statement as
proposed to be filed or as proposed to be amended by the post-effective
amendment to be filed shortly prior to its Effective Time, and (iii)
"Prospectus" shall mean the prospectus included in the Registration Statements.
(b) If the Effective Time of the Initial Registration Statement is not
prior to the execution and delivery of this Agreement, such Effective Time shall
have occurred not later than 10:00 P.M., New York time, on the date of this
Agreement or such later date as shall have been consented to by CSFBC. If the
Effective Time of the Additional Registration Statement (if any) is not prior to
the execution and delivery of this Agreement, such Effective Time shall have
occurred not later than 10:00 P.M., New York time, on the date of this Agreement
or, if earlier, the time the Prospectus is printed and distributed to any
Underwriter, or shall have occurred at such later date as shall have been
consented to by CSFBC. If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the
Prospectus shall have been filed with the Commission in accordance with the
Rules and Regulations and
11
<PAGE>
Section 5(a) of this Agreement. Prior to the Closing Date, no stop order
suspending the effectiveness of a Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or, to
the knowledge of the Company or the Representatives, shall be contemplated by
the Commission.
(c) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development or event involving a
prospective change, in the condition (financial or other), business, properties
or results of operations of the Company and its subsidiaries taken as one
enterprise which, in the judgment of a majority in interest of the Underwriters
including the Representatives, is material and adverse and makes it impractical
or inadvisable to proceed with completion of the public offering or the sale of
and payment for the Offered Securities; (ii) any material suspension or material
limitation of trading in securities generally on the New York Stock Exchange or
any setting of minimum prices for trading on such exchange, or any suspension of
trading of any securities of the Company on any exchange or in the
over-the-counter market; (iii) any banking moratorium declared by U.S. Federal
or New York authorities; or (iv) any outbreak or escalation of major hostilities
in which the United States is involved, any declaration of war by Congress or
any other substantial national or international calamity or emergency if, in the
judgment of a majority in interest of the Underwriters including the
Representatives, the effect of any such outbreak, escalation, declaration,
calamity or emergency makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the Offered
Securities.
(d) The Representatives shall have received an opinion, dated the
Closing Date, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
Company, substantially as follows:
(i) The Company has been duly incorporated and is a
corporation validly existing and in good standing under the laws of the State
of Delaware, with corporate power and authority to own its properties and
conduct its business as described in the Prospectus and the Company is duly
qualified to do business as a foreign corporation in good standing in
California, [list other States];
(ii) The Offered Securities delivered on such Closing Date and
all other outstanding shares of the Common Stock of the Company have been
duly authorized; the Offered Securities, when delivered and paid for by the
Underwriters in accordance with the terms of this Agreement will be, validly
issued, fully paid and nonassessable; and the authorized shares of Common
Stock conform to the description thereof contained in the Prospectus. Except
as described in the Prospectus, the stockholders of the Company have no
statutory, or to our knowledge, contractual preemptive rights with respect to
the issuance of the Offered Securities that have not been waived;
(iii) Except as described in the Registration Statement or
Prospectus, no holders of any securities of the Company have registration
rights under any agreement or instrument filed by the Company as exhibits to
the Registration Statement;
(iv) The Company is not, and after giving effect to the
offering and sale of the Offered Securities and the application of the
proceeds thereof as described in the Prospectus, will not be an "investment
company" as defined in the Investment Company Act of 1940;
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<PAGE>
(v) No Governmental Approval or consent, filing, registration
or approval of or with the Commission is required to be made or obtained by
the Company for the execution and delivery of this Agreement in connection
with the issuance or sale of the Offered Securities by the Company pursuant
to this Agreement, except such as have been obtained and made;
(vi) The execution and delivery of this Agreement by the
Company and the issuance and sale of the Offered Securities will not (i)
require any Governmental Approvals except such as have been obtained and
made, (ii) conflict with the Certificate of Incorporation or the Bylaws,
(iii) constitute a violation of or default under the terms of any agreement
or instrument filed by the Company as exhibits to the Registration Statement
(except that we do not express any opinion as to any covenant, restriction or
provision of any such agreement or instrument with respect to financial
covenants, ratios or tests or any aspect of the financial condition or
results of operations of the Company) or (iv) violate or conflict with, or
result in any contravention of, any Applicable Law or any Applicable Order;
(vii) The Registration Statement and the Prospectus, as of
their respective effective or issue dates, complied as to form in all material
respects with the requirements of the Act and the Rules and Regulations, except
that, in each case, such counsel shall express no opinion as to the financial
statements, schedules and other financial and statistical data included therein
or excluded therefrom or the exhibits thereto, and such counsel shall not assume
any responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus; and
(viii) The Underwriting Agreement has been duly authorized,
executed and delivered by the Company.
(ix) The statements (A) in the Prospectus under the captions
"Description of Capital Stock" and, to the extent of the description of the
Underwriting Agreement, the first, second, third and ninth paragraphs under
the caption "Underwriters" and (B) in the Registration Statement in Items 14
and 15, in each case insofar as such statements constitute summaries of the
legal matters, documents or proceedings referred to therein fairly
summarize the matters referred to therein in all material respects.
In addition, such opinion shall contain a statement that such counsel has
been orally advised that the Initial Registration Statement was declared
effective under the Act as of the date and time specified in such opinion,
the Additional Registration Statement (if any) became effective under the Act
as of the date and time (if determinable) specified in such opinion. In
addition, such opinion shall state that such counsel has been orally advised
by the Commission that no stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued and to the best of
such counsel's knowledge, no proceedings for that purpose have been
instituted or are pending or threatened by the Commission.
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<PAGE>
Such opinion shall also contain a statement to the effect that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the independent accountants of the Company,
representatives of the Underwriters and Underwriters' counsel at which the
contents of the Registration Statement and the Prospectus and related matters
were discussed and, although such counsel does not pass upon, and assumes no
responsibility for, the accuracy completeness or fairness of the statements
contained in the Registration Statement or the Prospectus and has made no
independent check or verification thereof, on the basis of the foregoing, no
facts have come to the attention of such counsel that have led them to believe
that the Registration Statement, at the time it became effective, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus, as of its date or as of such Closing Date,
contained any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; it being
understood that such counsel need express no opinion or belief as to the
financial statements, schedules or other financial data and statistical data
included therein or excluded therefrom contained in the Registration Statements
or the Prospectus or to the exhibits to the Registration Statement.
(e) The Representatives shall have received from Gunderson Dettmer
Stough Villeneuve Franklin & Hachigian, LLP, counsel for the Underwriters, such
opinion or opinions, dated such Closing Date, with respect to the incorporation
of the Company, the validity of the Offered Securities delivered on such Closing
Date, the Registration Statements, the Prospectus and other related matters as
the Representatives may require, and the Company shall have furnished to such
counsel such documents as they reasonably request for the purpose of enabling
them to pass upon such matters. In rendering such opinion, Gunderson Dettmer
Stough Villeneuve Franklin & Hachigian, LLP may rely as to the incorporation of
the Company and all other matters governed by Delaware law upon the opinion of
Skadden, Arps, Slate, Meagher & Flom LLP referred to above.
(f) The Representatives shall have received a certificate, dated such
Closing Date, of the President or any Vice President and a principal financial
or accounting officer of the Company in which such officers, to the best of
their knowledge after reasonable investigation, shall state that: the
representations and warranties of the Company in this Agreement are true and
correct; the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or prior to
such Closing Date; no stop order suspending the effectiveness of any
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are contemplated by the Commission; the Additional
Registration Statement (if any) satisfying the requirements of subparagraphs (1)
and (3) of Rule 462(b) was filed pursuant to Rule 462(b), including payment of
the applicable filing fee in accordance with Rule 111(a) or (b) under the Act,
prior to the time the Prospectus was printed and distributed to any Underwriter;
and, subsequent to the respective dates as of which information is given in the
most recent financial statements in the Prospectus, there has been no material
adverse change, nor any development or event involving a prospective material
adverse change, in the condition (financial or other), business, properties or
results of operations of the Company and its subsidiaries taken as a whole
except as set forth in or contemplated by the Prospectus or as described in such
certificate.
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<PAGE>
(g) The Representatives shall have received a letter, dated such
Closing Date, of KPMG LLP which meets the requirements of subsection (a) of this
Section, except that the specified date referred to in such subsection will be a
date not more than three days prior to such Closing Date for the purposes of
this subsection.
The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
request. CSFBC may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder,
whether in respect of an Optional Closing Date or otherwise.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company will indemnify and hold harmless each Underwriter,
its partners, directors and officers and each person, if any, who controls
such Underwriter within the meaning of Section 15 of the Act, against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of
any material fact contained in any Registration Statement, the Prospectus, or
any amendment or supplement thereto, or any related preliminary prospectus,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse each Underwriter
for any legal or other expenses reasonably incurred by such Underwriter in
connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred; provided, however, that
the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter consists of the
information described as such in subsection (b) below; and provided, further,
that with respect to any untrue statement or alleged untrue statement in or
omission or alleged omission from any preliminary prospectus the indemnity
agreement contained in this subsection (a) shall not inure to the benefit of
any Underwriter from whom the person asserting any such losses, claims,
damages or liabilities purchased the Offered Securities concerned, to the
extent that a prospectus relating to such Offered Securities was required to
be delivered by such Underwriter under the Act in connection with such
purchase and any such loss, claim, damage or liability of such Underwriter
results from the fact that there was not sent or given to such person, at or
prior to the written confirmation of the sale of such Offered Securities to
such person, a copy of the Prospectus if the Company had previously furnished
copies thereof to such Underwriter.
(b) Each Underwriter will severally and not jointly indemnify and
hold harmless the Company, its directors and officers who shall have signed
the Registration Statement and each other person, if any, who controls them
or any of them within the meaning of Section 15 of the Act, against any
losses, claims, damages or liabilities, joint or several, to which the
Company may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or
15
<PAGE>
liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement, the Prospectus, or any amendment or
supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by Underwriter through the
Representatives specifically for use therein, and will reimburse any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action
as such expenses are incurred, it being understood and agreed that the only
such information furnished by any Underwriter consists of the following
information in the Prospectus furnished on behalf of each Underwriter: (i)
the information appearing in the fourth, fifth, sixth, eighth and twelfth
paragraphs under the caption "Underwriting;" (ii) the information in the
Prospectus furnished on behalf of Hambrecht & Quist regarding their
investment in the Company and the fees they received for acting as a
placement agent in connection with a private placement disclosed in paragraph
thirteen under the caption "Underwriting" and (iii) the information in the
Prospectus furnished on behalf of ING Baring LLC regarding the relationship
of one of their employees to senior management of the Company disclosed in
paragraph fourteen under the caption "Underwriting."
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under subsection (a) or (b) above. In case any such action is
brought against any indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party (who shall not, except with the consent
of the indemnified party, be counsel to the indemnifying party), and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement (i) includes
an unconditional release of such indemnified party from all liability on any
claims that are the subject matter of such action, and (ii) does not include a
statement as to, or an admission of, fault, culpability or a failure to act by
or on behalf of an indemnified party.
(d) If the indemnification provided for in this Section is unavailable
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such
16
<PAGE>
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other from the offering
of the Securities or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and the Underwriters
on the other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities as well as any other relevant
equitable considerations. The relative benefits received by the Company on
the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts
and commissions received by the Underwriters. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company or the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The amount paid by an indemnified party as a result of the losses,
claims, damages or liabilities referred to in the first sentence of this
subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount
of any damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this subsection (d) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section shall be in addition to any liability which the
respective Underwriters may otherwise have and shall extend, upon the same terms
and conditions, to each director of the Company, to each officer of the Company
who has signed a Registration Statement and to each person, if any, who controls
the Company within the meaning of the Act.
8. DEFAULT OF UNDERWRITERS. If any Underwriter or Underwriters default
in their obligations to purchase Offered Securities hereunder on either the
First or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company for the purchase of such Offered
Securities by other persons, including any of the Underwriters, but if no such
arrangements are made by such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Offered Securities that such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any
17
<PAGE>
Underwriter or Underwriters so default and the aggregate number of shares of
Offered Securities with respect to which such default or defaults occur
exceeds 10% of the total number of shares of Offered Securities that the
Underwriters are obligated to purchase on such Closing Date and arrangements
satisfactory to CSFBC and the Company for the purchase of such Offered
Securities by other persons are not made within 36 hours after such default,
this Agreement will terminate without liability on the part of any
non-defaulting Underwriter or the Company, except as provided in Section 9
(provided that if such default occurs with respect to Optional Securities
after the First Closing Date, this Agreement will not terminate as to the
Firm Securities or any Optional Securities purchased prior to such
termination). As used in this Agreement, the term "Underwriter" includes any
person substituted for an Underwriter under this Section. Nothing herein will
relieve a defaulting Underwriter from liability for its default.
9. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated pursuant
to Section 8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Company and the Underwriters pursuant to Section 7 shall
remain in effect, and if any Offered Securities have been purchased hereunder
the representations and warranties in Section 2 and all obligations under
Section 5 shall also remain in effect. If the purchase of the Offered Securities
by the Underwriters is not consummated for any reason other than solely because
of the termination of this Agreement pursuant to Section 8 or the occurrence of
any event specified in clause (iii), (iv) or (v) of Section 6(c), the Company
will reimburse the Underwriters for all out-of-pocket expenses (including fees
and disbursements of counsel) reasonably incurred by them in connection with the
offering of the Offered Securities.
10. NOTICES. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed
to the Representatives c/o Credit Suisse First Boston Corporation, Eleven
Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking
Department--Transactions Advisory Group, or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at 700 Saginaw Drive,
Redwood City, California 94063, Attention: General Counsel, with a copy to
Gregory C. Smith, Skadden, Arps, Slate, Meagher & Flom LLP, 525 University
Avenue, Suite 220, Palo Alto, California 94301; provided, however, that any
notice to an Underwriter pursuant to Section 7 will be mailed, delivered or
telegraphed and confirmed to such Underwriter.
11. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7, and no other
person will have any right or obligation hereunder. The term "successors and
assigns" shall not include a purchaser in its capacity as such of securities
from any of the Underwriters.
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<PAGE>
12. REPRESENTATION OF UNDERWRITERS. The Representatives will act for
the several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York, without regard to
principles of conflicts of laws. The Company hereby submits to the non-exclusive
jurisdiction of the Federal and state courts in the Borough of Manhattan in The
City of New York in any suit or proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby.
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<PAGE>
If the foregoing is in accordance with the Representatives'
understanding of our agreement, kindly sign and return to the Company one of the
counterparts hereof, whereupon it will become a binding agreement between the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
TUMBLEWEED COMMUNICATIONS CORP.
By
------------------------------------
Jeffrey C. Smith,
Chief Executive Officer
The foregoing Underwriting Agreement
is hereby confirmed and accepted as of
the date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
HAMBRECHT & QUIST LLC
ING BARING LLC
Acting on behalf of themselves
and as the Representatives of
the several Underwriters
By CREDIT SUISSE FIRST BOSTON
CORPORATION
By
----------------------------------------
Name
--------------------------------------
Title
-------------------------------------
20
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER FIRM SECURITIES
----------- ---------------
<S> <C>
Credit Suisse First Boston Corporation...................................
Hambrecht & Quist LLC ...................................................
ING Baring LLC ..........................................................
---------------
Total
---------------
---------------
</TABLE>
21
<PAGE>
Exhibit 4.1
FACE
[TUMBLEWEED COMMUNICATIONS CORP. LOGO]
COMMON STOCK COMMON STOCK
TCC-
THIS CERTIFICATE IS TRANSFERABLE IN
BOSTON, MA OR NEW YORK, NY
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 899690 10 1
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $0.001 PAR VALUE PER
SHARE, OF
TUMBLEWEED COMMUNICATIONS CORP.
transferable 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 by the Transfer
Agent and registered by the Registrar. WITNESS the facsimile seal of the
Corporation and the facsimile signatures of its duly authorized officers.
Dated:
/s/ Bernard J. Cassidy /s/ Jeffrey C. Smith
SECRETARY CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
BANK BOSTON, N.A.
TRANSFER AGENT AND REGISTRAR
BY ____________________
AUTHORIZED SIGNATURE
<PAGE>
BACK
TUMBLEWEED COMMUNICATIONS CORP.
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
from the Secretary of the Corporation 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 though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - __________________ Custodian __________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act ___________________________________________
(State)
UNIF TRF MIN ACT - _____________ Custodian (until age ____________)
(Cust)
________________________ under Uniform Transfers
(Minor)
to Minors Act _________________________________
(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 common 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 GUARANTEED 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-15.
<PAGE>
EXHIBIT 5.1
[Skadden, Arps, Slate, Meagher & Flom LLP Letterhead]
July 28, 1999
Tumbleweed Communications Corp.
700 Saginaw Drive
Redwood City, CA 94063
Re: Tumbleweed Communications
Corp. Registration on Form S-1
Ladies and Gentlemen:
We have acted as special counsel to Tumbleweed Communications Corp., a
California corporation (the "Company"), in connection with the initial public
offering by the Company of up to 4,600,000 shares (including 600,000 shares
subject to an over-allotment option) (the "Shares") of the Company's Common
Stock, par value $0.001 per share (the "Common Stock").
This opinion is being furnished in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended (the
"Act").
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement on Form S-1 (File No. 333-79687) as filed with the Securities and
Exchange Commission (the "Commission") on May 28, 1999 under the Act, Amendment
No. 1 thereto filed with the Commission on June 29, 1999, Amendment No. 2
thereto filed with the Commission on July 13, 1999 and Amendment No. 3 thereto
filed with the Commission on July 28, 1999 (such Registration Statement, as so
amended, being hereinafter referred to as the "Registration Statement"); (ii)
the form of Underwriting Agreement (the "Underwriting Agreement") proposed to be
entered into among the Company, as issuer, and Credit Suisse First Boston
Corporation, Hambrecht & Quist LLC and ING Barings LLC, as representatives of
the several underwriters (the "Underwriters"); (iii) a specimen certificate
representing the Common Stock; (iv) the Amended and Restated Certificate of
Incorporation of the Company, as presently in effect, and the form of Amended
and Restated Certificate of Incorporation of the Company, filed as an exhibit to
the Registration Statement; (v) the Bylaws of the Company, as presently in
effect, and the form of Amended and Restated Bylaws of the Company, filed as an
exhibit to the Registration Statement; and (vi) certain resolutions of the Board
of Directors of the Company relating to the issuance and sale of the Shares and
related matters. We have also examined originals or copies, certified or
otherwise identified to our satisfaction, of such records of the Company and
such agreements, certificates of public officials, certificates of officers or
other representatives of the Company and others, and such other documents,
certificates and records as we have deemed necessary or appropriate as a basis
for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other than the
Company, we have assumed that such parties had or will have the power, corporate
or other, to enter into and perform all obligations thereunder and have also
assumed the due authorization by all requisite action, corporate or other, and
execution and delivery by such parties of such documents and the validity and
binding effect thereof. As to any facts material to the opinions expressed
herein which we have not independently established or verified, we have relied
upon statements and representations of officers and other representatives of the
Company and others.
<PAGE>
Tumbleweed Communications Corp.
July 28, 1999
Page 2
Members of our firm are admitted to the bar in the State of California, and
we do not express any opinion as to the laws of any other jurisdiction other
than Delaware corporate law.
Based upon and subject to the foregoing, we are of the opinion that when (i)
the Registration Statement becomes effective; (ii) the price at which the Shares
are to be sold to the Underwriters pursuant to the Underwriting Agreement and
other matters relating to the issuance and sale of the Shares have been approved
by the Board of Directors; (iii) the Underwriting Agreement has been duly
executed and delivered; and (iv) certificates representing the Shares in the
form of the specimen certificates examined by us have been manually signed by an
authorized officer of the transfer agent and registrar for the Common Stock and
registered by such transfer agent and registrar, and delivered to and paid for
by the Underwriters at a price per share not less than the per share par value
of the Common Stock as contemplated by the Underwriting Agreement, the issuance
and sale of the Shares will have been duly authorized, and the Shares will be
validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement. We also consent to the reference to our
firm under the caption "Legal Matters" in the Registration Statement. In giving
this consent, we do not thereby admit that we are included in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission.
Very truly yours,
[Skadden, Arps, Slate, Meagher & Flom
LLP]
<PAGE>
Exhibit 10.5
Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
SOFTWARE LICENSE, DEVELOPMENT
AND
SERVICES AGREEMENT
BETWEEN
TUMBLEWEED SOFTWARE CORPORATION
AND
UNITED PARCEL SERVICE GENERAL SERVICES, CO.
EFFECTIVE DECEMBER 19, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
<TABLE>
<S> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
a. "Affiliate". . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
b. "Application Program Interfaces" . . . . . . . . . . . . . . . . . .1
c. "Authorized Shipping Outlet" . . . . . . . . . . . . . . . . . . . .1
d. "Business Day" . . . . . . . . . . . . . . . . . . . . . . . . . . .1
e. "Client Software". . . . . . . . . . . . . . . . . . . . . . . . . .2
f. "Confidential Information" . . . . . . . . . . . . . . . . . . . . .2
g. "Critical Defect". . . . . . . . . . . . . . . . . . . . . . . . . .2
h. "Custom Client Software" . . . . . . . . . . . . . . . . . . . . . .2
i. "Custom Server Software" . . . . . . . . . . . . . . . . . . . . . .2
j. "Custom Software". . . . . . . . . . . . . . . . . . . . . . . . . .2
k. "Dedicated Support Personnel" or "DSP" . . . . . . . . . . . . . . .2
l. "Derivative Work". . . . . . . . . . . . . . . . . . . . . . . . . .3
m. "Detailed Design Specifications" . . . . . . . . . . . . . . . . . .3
n. "Documentation". . . . . . . . . . . . . . . . . . . . . . . . . . .3
o. "Enhancement". . . . . . . . . . . . . . . . . . . . . . . . . . . .3
p. "Functional Specifications". . . . . . . . . . . . . . . . . . . . .4
q. "Major Defect" . . . . . . . . . . . . . . . . . . . . . . . . . . .4
r. "Messaging Service". . . . . . . . . . . . . . . . . . . . . . . . .4
s. "Minor Defect" . . . . . . . . . . . . . . . . . . . . . . . . . . .4
t. "Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
u. "Phase I Software" . . . . . . . . . . . . . . . . . . . . . . . . .4
v. "Phase II Software". . . . . . . . . . . . . . . . . . . . . . . . .4
w. "Project". . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
x. "Server Software". . . . . . . . . . . . . . . . . . . . . . . . . .5
y. "Services" . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
z. "Software" . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
aa. "Source Code". . . . . . . . . . . . . . . . . . . . . . . . . . . .5
bb. "Specifications" . . . . . . . . . . . . . . . . . . . . . . . . . .5
cc. "Standard Software". . . . . . . . . . . . . . . . . . . . . . . . .5
dd. "Supported Datacenter" . . . . . . . . . . . . . . . . . . . . . . .6
ee. "Trade Secret" . . . . . . . . . . . . . . . . . . . . . . . . . . .6
ff. "Transaction". . . . . . . . . . . . . . . . . . . . . . . . . . . .6
gg. "Tumbleweed Marks" . . . . . . . . . . . . . . . . . . . . . . . . .6
hh. "UPS Information". . . . . . . . . . . . . . . . . . . . . . . . . .6
ii. "UPS Inventions" . . . . . . . . . . . . . . . . . . . . . . . . . .6
jj. "Use". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
i
<PAGE>
2. Software Development. . . . . . . . . . . . . . . . . . . . . . . . . . .7
a. Initial Phases . . . . . . . . . . . . . . . . . . . . . . . . . . .7
b. Subsequent Phases. . . . . . . . . . . . . . . . . . . . . . . . . .7
c. Functional Specifications for Subsequent Phases. . . . . . . . . . .7
d. Detailed Design Specifications . . . . . . . . . . . . . . . . . . .8
e. Acceptance of Specifications . . . . . . . . . . . . . . . . . . . .8
f. Programming and Tumbleweed Testing . . . . . . . . . . . . . . . . .8
g. On-Site Installation Support . . . . . . . . . . . . . . . . . . . .8
h. Designation of Project Coordinators. . . . . . . . . . . . . . . . .9
i. Progress Reports . . . . . . . . . . . . . . . . . . . . . . . . . .9
j. Extensions of Time . . . . . . . . . . . . . . . . . . . . . . . . 10
k. Termination of Development Services. . . . . . . . . . . . . . . . 12
3. Modifications to Specifications . . . . . . . . . . . . . . . . . . . . 12
a. Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
b. Accepted Changes . . . . . . . . . . . . . . . . . . . . . . . . . 12
4. Implementation and Acceptance . . . . . . . . . . . . . . . . . . . . . 12
a. Implementation Schedule. . . . . . . . . . . . . . . . . . . . . . 12
b. Acceptance Testing . . . . . . . . . . . . . . . . . . . . . . . . 13
c. Interim Testing. . . . . . . . . . . . . . . . . . . . . . . . . . 15
5. Licenses and Proprietary Rights . . . . . . . . . . . . . . . . . . . . 15
a. Server Software. . . . . . . . . . . . . . . . . . . . . . . . . . 15
b. Client Software. . . . . . . . . . . . . . . . . . . . . . . . . . 15
c. Ownership of Custom Software . . . . . . . . . . . . . . . . . . . 16
i. UPS Inventions. . . . . . . . . . . . . . . . . . . . . . . 16
ii. UPS Information . . . . . . . . . . . . . . . . . . . . . . 17
d. Ownership of Customer Data . . . . . . . . . . . . . . . . . . . . 17
e. Tumbleweed Trademarks and Trade Names. . . . . . . . . . . . . . . 18
f. Developer Kits (and Localization Kits) . . . . . . . . . . . . . . 18
g. Interface Information. . . . . . . . . . . . . . . . . . . . . . . 20
h. Documentation Licences . . . . . . . . . . . . . . . . . . . . . . 21
i. UPS Intellectual Property. . . . . . . . . . . . . . . . . . . . . 21
j. No Other Licenses. . . . . . . . . . . . . . . . . . . . . . . . . 21
6. Fees and Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
a. License Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
b. Royalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
c. [ * ]. . . . . . . . . . . . . . . . . . . . . . . . . . 22
d. Royalty Payments . . . . . . . . . . . . . . . . . . . . . . . . . 22
e. Royalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
f. Demonstration and Internal Use . . . . . . . . . . . . . . . . . . 23
- ---------------
[*]Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
ii
<PAGE>
g. Initial Phase Development Fee. . . . . . . . . . . . . . . . . . . 24
h. Development Fees for Subsequent Phases . . . . . . . . . . . . . . 24
i. Software Maintenance and Support Services. . . . . . . . . . . . . 24
j. Dedicated Support Personnel. . . . . . . . . . . . . . . . . . . . 25
k. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
l. Commission for Referrals . . . . . . . . . . . . . . . . . . . . . 25
m. Sales and Use Taxes. . . . . . . . . . . . . . . . . . . . . . . . 26
n. Payment Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
o. Payment Discrepancies. . . . . . . . . . . . . . . . . . . . . . . 26
p. Time and Materials Fees. . . . . . . . . . . . . . . . . . . . . . 27
7. Marketing, Distribution and Offering of Messaging Service . . . . . . . 27
a. Marketing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 27
b. Distribution of Client Software. . . . . . . . . . . . . . . . . . 28
c. Trademark Usage. . . . . . . . . . . . . . . . . . . . . . . . . . 28
d. End User Support . . . . . . . . . . . . . . . . . . . . . . . . . 28
e. Marketing Flexibility. . . . . . . . . . . . . . . . . . . . . . . 28
f. Additional Marketing and Sales Support . . . . . . . . . . . . . . 29
8. Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
a. Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
b. Compatibility. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
c. Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
d. [Intentionally omitted]. . . . . . . . . . . . . . . . . . . . . . 30
e. Reliability. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
f. [Intentionally omitted]. . . . . . . . . . . . . . . . . . . . . . 31
g. Locks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
h. Viruses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
i. Millennium . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
j. Warranty Disclaimer. . . . . . . . . . . . . . . . . . . . . . . . 32
9. Software Support Services . . . . . . . . . . . . . . . . . . . . . . . 32
a. Notification of Defects. . . . . . . . . . . . . . . . . . . . . . 32
b. Enhancements . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
c. Second Level Support . . . . . . . . . . . . . . . . . . . . . . . 33
d. Supported Datacenter Support . . . . . . . . . . . . . . . . . . . 34
e. Remedial Efforts by Tumbleweed . . . . . . . . . . . . . . . . . . 34
f. Termination of Maintenance . . . . . . . . . . . . . . . . . . . . 37
g. Maintenance Exclusions . . . . . . . . . . . . . . . . . . . . . . 37
10. Confidential Information. . . . . . . . . . . . . . . . . . . . . . . . 38
a. Non-Disclosure of Trade Secrets and Confidential Information . . . 38
b. Return of Materials. . . . . . . . . . . . . . . . . . . . . . . . 38
iii
<PAGE>
c. Third Party Materials. . . . . . . . . . . . . . . . . . . . . . . 39
d. Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
e. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11. Source Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
a. Right to Use Source Code . . . . . . . . . . . . . . . . . . . . . 39
b. Source Code Escrow . . . . . . . . . . . . . . . . . . . . . . . . 39
c. Verification of Escrow Deposit(s). . . . . . . . . . . . . . . . . 40
d. Ownership of Modifications Made by UPS . . . . . . . . . . . . . . 40
e. Source Code License. . . . . . . . . . . . . . . . . . . . . . . . 40
f. Discontinuance of Marketing. . . . . . . . . . . . . . . . . . . . 41
12. Training Services . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
13. Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . 41
a. Licenses and Permits . . . . . . . . . . . . . . . . . . . . . . . 41
b. Changes in Law and Regulations . . . . . . . . . . . . . . . . . . 42
14. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
a. Proprietary Rights Indemnification . . . . . . . . . . . . . . . . 42
b. Tumbleweed's General Indemnity . . . . . . . . . . . . . . . . . . 43
c. UPS's General Indemnity. . . . . . . . . . . . . . . . . . . . . . 43
d. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
15. Co-Promotion and Co-Advertising . . . . . . . . . . . . . . . . . . . . 44
16. Term and Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 44
a. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
b. Termination by Tumbleweed; Escalation. . . . . . . . . . . . . . . 44
c. Consequences of Termination. . . . . . . . . . . . . . . . . . . . 45
17. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
a. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
b. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 46
c. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
d. Relationship of the Parties. . . . . . . . . . . . . . . . . . . . 46
e. Amendments and Modifications . . . . . . . . . . . . . . . . . . . 47
f. Personal Pronouns; Headings. . . . . . . . . . . . . . . . . . . . 47
g. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
h. No Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . 47
i. No Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
j. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
k. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
iv
<PAGE>
l. Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
m. Personnel Rules and Regulations. . . . . . . . . . . . . . . . . . 49
n. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
o. Limitation of Liability. . . . . . . . . . . . . . . . . . . . . . 49
p. No Consequential Damages . . . . . . . . . . . . . . . . . . . . . 50
</TABLE>
v
<PAGE>
SOFTWARE LICENSE DEVELOPMENT AND SERVICES AGREEMENT
THIS SOFTWARE LICENSE DEVELOPMENT AND SERVICES AGREEMENT (this "Agreement")
is made and entered into effective as of the 19th day of December, 1997, by and
between TUMBLEWEED SOFTWARE CORPORATION ("Tumbleweed"), a California corporation
with offices at 2010 Broadway Street, Redwood City, California 94063, and UNITED
PARCEL SERVICE GENERAL SERVICES CO. ("UPS"), a Delaware corporation with offices
at 55 Glenlake Parkway, Atlanta, Georgia 30328, and which is authorized to
conduct business in the State of New York.
1. DEFINITIONS. For purposes of this Agreement, the following terms have
the meetings set forth below:
a. "AFFILIATE" means, with respect to UPS, any entity which
controls, is controlled by or is under common control with UPS, or any
partnership, joint venture, consortium or other such entity in which UPS or its
Affiliates have any material form of ownership. For purposes of this definition
of Affiliate, "material form of ownership" shall be deemed to include
partnerships, joint ventures, consortiums or other entities in which UPS or its
Affiliates have at least a thirty percent (30%) ownership interest. The
definition of Affiliate shall specifically exclude [ * ] and any
successor entity thereof.
b. "APPLICATION PROGRAM INTERFACES" OR "APIS" mean those portions of
the Software required to enable external applications to interface into and with
the Software.
c. "AUTHORIZED SHIPPING OUTLET" means any third party authorized
shipping outlet or UPS, or any third party which resells the UPS portfolio of
services, which third party is designated by UPS to provide the Messaging
Service. UPS shall provide written notice to Tumbleweed of the identity of each
such Authorized Shipping Outlet from time to time.
d. "BUSINESS DAY" means (i) with respect to any time period within
which UPS must respond or otherwise perform some action, Monday through Friday,
excluding any holidays recognized by UPS as company-wide holidays; and (ii) with
respect to any time period within which Tumbleweed must respond or otherwise
perform some action, Monday through Friday, excluding any holidays recognized by
Tumbleweed as company-wide holidays. All time period references in this
Agreement to "days" other than Business Days shall be deemed to refer to
calendar days.
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[*]Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
UPS/Tumbleweed Confidential 1 December 18, 1997
<PAGE>
e. "CLIENT SOFTWARE" means the client-based portions of the
pre-existing computer software programs described in Exhibit A hereto, together
with the Documentation therefor and all Enhancements thereto. The Client
Software furnished hereunder shall be in machine readable object code form.
f. "CONFIDENTIAL INFORMATION" shall mean any data or information
that is of value to and is not generally known to competitors of the party which
owns and/or discloses such data or information, and that (i) in the case of data
or information which has been reduced to tangible form, is marked clearly and
conspicuously with a legend identifying such data or information as confidential
or proprietary, or (ii) in the case of data or information communicated orally,
is denominated as confidential or proprietary at the time of disclosure and
confirmed in a writing by the disclosing party, summarizing such data or
information within a reasonable period of time thereafter. Confidential
Information also includes any information described in this subsection (f) which
either party obtains from another party under an obligation of confidentiality.
g. "CRITICAL DEFECT" means the failure of the Software to conform to
the Detailed Design Specifications such that any critical function of the
Messaging Service is inoperable and no immediate circumvention is possible.
h. "CUSTOM CLIENT SOFTWARE" means the client-based portions of the
computer software programs, and any and all portions thereof, developed by
Tumbleweed pursuant to this Agreement. The Custom Client Software includes,
without limitation, the client-based portions of the Phase I Software and the
client-based portions of the Phase II Software, and the Documentation therefor
and all Enhancements thereto. Unless otherwise specified in the applicable
Specifications, all Custom Client Software furnished hereunder shall be in
machine readable object code form.
i. "CUSTOM SERVER SOFTWARE" means the server-based portions of the
computer software programs, and any and all portions thereof, developed by
Tumbleweed pursuant to this Agreement. The Custom Server Software includes,
without limitation, the server-based portions of the Phase I Software and the
server-based portions of the Phase II Software, and the Documentation therefor
and all Enhancements thereto. Unless otherwise specified in the applicable
Specifications, all Custom Server Software furnished hereunder shall be in
machine readable object code form.
j. "CUSTOM SOFTWARE" means the Custom Server Software and the Custom
Client Software, collectively.
k. "DEDICATED SUPPORT PERSONNEL" OR "DSP" means the person(s) who
shall be (i) assigned to one (1) or more UPS data centers, (ii) dedicated to
assisting UPS with the ongoing support and maintenance of the Software,
including without limitation, assisting UPS in performance of its first level
support obligations, and (iii) physically present at the relevant UPS
UPS/Tumbleweed Confidential 2 December 18, 1997
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data center(s) during UPS Business Hours and available by pager twenty-four (24)
hours per day, seven (7) days per week.
l. "DERIVATIVE WORK" means a work which is based upon one or more
pre-existing works, such as a revision, enhancement, modification, translation,
abridgement, condensation, expansion, or any other form in which such
pre-existing work(s) may be recast, transformed, or adapted, and which, if
prepared without authorization of the owner of the copyright in such
pre-existing work(s), would constitute a copyright infringement.
m. "DETAILED DESIGN SPECIFICATIONS" means the detailed description
of the Software to be developed and/or provided by Tumbleweed during any Phase
(as defined in Section 2 below) of the Project, together with the detailed
description of all Enhancements to such Software (provided that in no event
shall Tumbleweed be obligated to prepare Detailed Design Specifications for
Enhancements that are not developed specifically for UPS). The Detailed Design
Specifications shall include, at a minimum, system flow charts, program
descriptions, file layouts, database structures, report layouts and screen
layouts, interface requirements and layouts, conversion requirements and
layouts, equipment requirements and acceptance test plans for the Software. For
Enhancements that are not developed specifically for UPS, the specifications
created by Tumbleweed for such Enhancements shall be treated as Detailed Design
Specifications for such Enhancements. Following preparation and acceptance of
the Detailed Design Specifications by UPS with respect to any Phase(s)
subsequent to Phase II of the Project, as provided for in Section 2(d), such
Detailed Design Specifications, with respect to such Phase(s), shall supercede
and replace the Functional Specifications for such Phase(s). In the event that
Detailed Design Specifications are not prepared with respect to any subsequent
Phase(s) of the Project, the term "Detailed Design Specifications," as used
herein with respect to such Phase(s), shall be deemed to mean the Functional
Specifications for such Phase(s). The term "Detailed Design Specifications," as
used herein with respect to Phases I and II of the Project, shall be deemed to
refer solely to the Specifications for such Phases set forth in Exhibits A and B
hereto. In the event that any Detailed Design Specifications hereunder include
any disclaimer or other limitation of warranty or liability which conflicts with
any of the terms and conditions of this Agreement, the terms and conditions of
this Agreement shall control and such disclaimers and limitations shall not
apply.
n. "DOCUMENTATION" means all detailed user and operational manuals,
instructions and other documentation for the Software, and all training manuals
and routines designed to train users in the operation of the Software (including
without limitation, the Custom Client Software and the Custom Server Software).
All Documentation supplied on disks must be in machine readable form.
o. "ENHANCEMENT" means any modifications, enhancements, revisions
(including, without limitation, revisions to support new releases of any
operating system), corrections, updates, upgrades, new versions, additions,
extensions, interfaces, new platforms, and improvements of any type made by or
on behalf of Tumbleweed to the Software (where
UPS/Tumbleweed Confidential 3 December 18, 1997
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Tumbleweed has the right to distribute such Enhancements) and which are made
available by Tumbleweed to UPS or which are made generally commercially
available by Tumbleweed to its customers. For the purposes of this Agreement,
software shall be "generally commercially available" when Tumbleweed lists such
software on a standard price sheet or makes such software available for fee-free
download by customers or makes such software available to five (5) or more
Persons for use on a revenue generating basis.
p. "FUNCTIONAL SPECIFICATIONS" means the description of the Software
to be developed and/or provided by Tumbleweed during any Phase (as defined in
Section 2 below) of the Project. In the event that any Functional
Specifications hereunder include any disclaimer or other limitation of warranty
or liability which conflicts with any of the terms and conditions of this
Agreement, the terms and conditions of this Agreement shall control and such
disclaimers and limitations shall not apply.
q. "MAJOR DEFECT" means the failure of the Software to conform to
the Detailed Design Specifications such that either (i) and critical function of
the Software is inoperable, but immediate circumvention is possible, or (ii) any
major (non-critical) function of the Software is inoperable and no immediate
circumvention is possible.
r. "MESSAGING SERVICE" means the electronic delivery/messaging
service to be offered by UPS and/or any of its Affiliates and Authorized
Shipping Outlets, for the electronic delivery (and related transaction
attestation services) of digital representations, including without limitation,
textual messages, photographic images, audio, video, graphics, computer software
and/or other information or content.
s. "MINOR DEFECT" means any failure of the Software to conform to
the Detailed Design Specifications in a manner not covered by Critical Defects
and/or Major Defects.
t. "PERSON" means any individual, or any corporation, limited
liability company, partnership, joint venture, association, joint stock company,
trust, incorporated organization or other legal entity.
u. "PHASE I SOFTWARE" means the computer software programs, and any
and all portions thereof, developed by Tumbleweed pursuant to this Agreement, as
described in the Phase I portion of the Specifications. Except to the extent
specified in the applicable Specifications, the Phase I Software furnished
hereunder shall be in machine readable object code form.
v. "PHASE II SOFTWARE" means the computer software programs, and any
and all portions thereof, developed by Tumbleweed pursuant to this Agreement, as
described in the Phase II portion of the Specifications. Except to the extent
specified in the applicable Specifications, the Phase II Software furnished
hereunder shall be in machine readable object code form.
UPS/Tumbleweed Confidential 4 December 18, 1997
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w. "PROJECT" means the design, development, installation and testing
of the Software.
x. "SERVER SOFTWARE" means the server-based portions of the
pre-existing computer software programs described in Exhibit A hereto, together
with the documentation therefor and all Enhancements thereto. The Server
Software furnished hereunder shall be in machine readable object code form.
y. "SERVICES" means all work to be provided by Tumbleweed under the
terms of this Agreement.
z. "SOFTWARE" means the Standard Software and the Custom Software,
collectively.
aa. "SOURCE CODE" means a copy of the source code corresponding to
the Software, including all updates to the source code of the Software delivered
to the Escrow Agent from time to time pursuant to Section 11 of this Agreement,
plus any pertinent associated commentary or explanation that may be necessary to
render the source code understandable and usable by highly-trained computer
programmers. The Source Code shall be in a format and on a storage medium
suitable for loading onto customary development platforms, and shall not be
encrypted. Insofar as the Software includes any computer software programs or
other material which are proprietary to Persons other than Tumbleweed, and for
which Tumbleweed has no right to deposit such source code, the Source Code shall
not include the source code for any such third party computer software programs,
but shall include object code modules therefor where Tumbleweed has the right to
deposit such materials. Insofar as the "development environment" employed by
Tumbleweed for the development, maintenance and implementation of the Source
Code includes any device, programming, or documentation not commercially
available to UPS on reasonable terms through readily known sources other than
Tumbleweed, the Source Code shall include al such devices, programming, or
documentation. The foregoing reference to such "development environment" is
intended to apply to any programs, including compilers, "workbenches," tools,
and higher-level (or "Proprietary") languages, used by Tumbleweed for the
development, maintenance and implementation of the Source Code. The Source Code
for the Standard Software shall be deemed to be Tumbleweed's Trade Secret.
bb. "SPECIFICATIONS" mean the Functional Specifications and/or the
Detailed Design Specifications, individually and collectively.
cc. "STANDARD SOFTWARE" means the Server Software and the Client
Software, collectively.
UPS/Tumbleweed Confidential 5 December 18, 1997
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dd. "SUPPORTED DATACENTER" means the UPS data processing
facility(ies) that will use the Software to operate the Messaging Service, for
which UPS has elected to secure the Services of the Dedicated Support Personnel.
ee. "TRADE SECRET" shall mean any Confidential Information of the
party which owns and/or discloses such information, including but not limited to
technical or non-technical data, a formula, a pattern, a compilation, a program,
a device, a method, a technique, a drawing, a process, financial data, financial
plans, product plans, or a list of actual or potential customers or suppliers,
which (i) derives economic value, actual or potential, from not being generally
known to and not being readily ascertainable by proper means by other person who
can obtain economic value from its disclosure or use and (ii) is the subject of
efforts that are reasonable under the circumstances to maintain its secrecy.
Trade Secrets specifically include any Confidential Information described in
this subsection (ee) which either party obtains from another party under an
obligation of confidentiality.
ff. "TRANSACTION" means any [ * ]
gg. "TUMBLEWEED MARKS" mean the "Tumbleweed" and "Tumbleweed Posta"
trademarks, the 'Tumbleweed" logo, and any other trademark, trade name or
service mark of Tumbleweed relating to products and/or services involving
Internet or intranet delivery systems.
hh. "UPS INFORMATION" means those portions of technical information,
computer or other specifications, documentation, works of authorship and other
creative works, written, oral or otherwise expressed, originated by Tumbleweed
or any of its employees, consultants, representatives or agents (collectively,
"Associates") in the course of performing work under this Agreement in
connection with any component or portion of the Custom Software for which the
applicable Specifications indicate that UPS will won such component or portion.
ii. "UPS INVENTIONS" mean those specific inventions, discoveries and
improvements which are conceived, first reduced to practice, made or developed
in the course of work performed under this Agreement by Tumbleweed or by one or
more of its Associates in connection with any component or portion of the Custom
Software for which the applicable Specifications indicate that UPS will own such
component or portion.
jj. "USE" means access, configure, reproduce, execute, display,
perform, employ, load, process, run and/or utilize the Software and, upon
release of the Source Code for
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[*]Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
UPS/Tumbleweed Confidential 6 December 18, 1997
<PAGE>
the Software to UPS pursuant to Section 11 hereof and/or the Escrow Agreement
attached hereto as Exhibit F, solely with respect to such Source Code, shall
also include the right to Use such Source Code (solely as permitted by the
Source Code License set forth in Section 11(e)). In the event that the
applicable Specifications indicate that the Source Code for any portions of the
Custom Software developed thereunder will be provided to UPS, the term "Use"
shall also include the right to Use, modify, maintain, update and/or create
Derivative Works of the Source Code for such Custom Software, so long as such
Use does not disclose any Tumbleweed Trade Secrets.
2. SOFTWARE DEVELOPMENT. The Software will be developed and/or provided
by Tumbleweed in two or more phases (the "Phases"), in accordance with the
following terms and procedures:
a. INITIAL PHASES. During Phase I of the Project, Tumbleweed will
provide to UPS the development and implementation Services, and the associated
Software deliverables, identified or described in the Specifications set forth
in Exhibit A hereto, covering the Standard Software and the Phase I Software.
During Phase II of the Project, Tumbleweed will provide to UPS the development
and implementation Services, and the associated Software deliverables,
identified or described in the Specifications set forth in Exhibit B hereto,
covering the Phase II Software.
b. SUBSEQUENT PHASES. Tumbleweed agrees to provide to UPS, as
requested by UPS from time to time, software development and other Services in
connection with subsequent Phases of this Agreement. Except as may be
specifically agreed in writing by the parties, the terms and conditions of this
Agreement shall apply to each such subsequent Phase which is proposed by UPS and
accepted by Tumbleweed for the furnishing of such Services. Each such Phase
will generally be defined by a set of mutually agreed Functional Specifications,
which will contain a description of the tasks to be performed by Tumbleweed, the
Software, Documentation and other deliverables to be provided by Tumbleweed, a
schedule of performance and either a schedule of payments (for fixed price work)
or a statement of Tumbleweed's then-current rates (for work performed on a time
and materials basis). The Functional Specifications may include such additional
terms and conditions as the parties may agree to include.
c. FUNCTIONAL SPECIFICATIONS FOR SUBSEQUENT PHASES. Within ten (10)
Business Days after the delivery of any Functional Specifications to Tumbleweed
(unless a longer period is reasonably required), Tumbleweed shall either (i)
accept the Functional Specifications in writing, or (ii) notify UPS if
Tumbleweed objects to any part of the Functional Specifications, specifying with
particularity and in good faith the changes which Tumbleweed desires in order to
accept the Functional Specifications. The parties agree that Tumbleweed's
concerns regarding ownership issues relating to any Custom Software to be
developed pursuant to the proposed Functional Specifications shall constitute
"good faith" concerns of the purposes of this Agreement. Within ten (10)
Business Days of delivery of any objections to the Specifications, UPS and
Tumbleweed shall confer in order to resolve Tumbleweed's objections, and UPS
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shall resubmit the Functional Specifications to Tumbleweed. Within ten (10)
Business Days of the delivery of the revised Functional Specifications,
Tumbleweed shall either (i) accept the revised Functional Specifications in
writing, (ii) notify UPS if it continues to object to any part of the Functional
Specifications, or (iii) decline to perform such Services relating to the
proposed Functional Specifications. If the parties are unable to agree in
writing to a set of Functional Specifications within thirty (30) days of the
delivery of the revised Functional Specifications, then any proposed development
Services relating to that particular Phase shall be deemed terminated.
d. DETAILED DESIGN SPECIFICATIONS. With respect to each Phase
beyond Phase II of the Project, Tumbleweed shall, with UPS's cooperation and at
no additional charge to UPS, gather the necessary detailed requirements and
develop and deliver to UPS a set of Detailed Design Specifications based upon
the Functional Specifications which have been mutually agreed by the parties
with respect to such Phase. The Detailed Design Specifications shall be
delivered to UPS on or before the specified time set forth in the applicable
Functional Specifications. Within ten (10) Business Days of the delivery of the
Detailed Design Specifications to UPS, UPS shall notify Tumbleweed in writing of
its acceptance or rejection of the Detailed Design Specifications. If the
Detailed Design Specifications are rejected, UPS will specify the reasons for
such rejection and Tumbleweed shall have ten (10) Business Days to revise and
re-deliver amended Detailed Design Specifications to UPS for acceptance. Once
accepted by UPS, the Detailed Design Specifications shall supersede the
Functional Specifications for that portion of the Project to which the Detailed
Design Specifications relate. If UPS rejects the amended Detailed Design
Specifications, UPS's sole and exclusive remedy shall be to terminate the
particular phase to which UPS's rejection relates.
e. ACCEPTANCE OF SPECIFICATIONS. Upon acceptance of the
Specifications for any Phase of the Project such Specifications shall be deemed
to be a part of this Agreement, and Tumbleweed shall perform the Services
described in such Specifications within the time frames, in the manner, and for
the fees specified therein.
f. PROGRAMMING AND TUMBLEWEED TESTING. After approval of the
Detailed Design Specifications by UPS pursuant to Section 2(d) hereof,
Tumbleweed shall commence program coding and testing to provide the necessary
programming of the Software. Upon completion of the program coding and
testing, Tumbleweed shall notify UPS in writing that such program coding and
testing is completed and that, upon delivery of the Software to UPS (and
installation thereof by Tumbleweed in the event such installation is at a
Supported Datacenter) UPS may commence its acceptance testing.
g. ON-SITE INSTALLATION SUPPORT. Upon delivery of the Phase II
Software, and again upon completion of the upgrade of the Custom Software to
reflect version 2.0 of the Standard Software, Tumbleweed shall identify and
assign at least one (1) Tumbleweed professional services employee to be on site
at UPS's facilities and devote all of his or her business time for a period of
up to three (3) Business Days, the duration of which will be determined by
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UPS in its sole discretion, to support the installation of the Software. In the
event that UPS requires additional support beyond such three (3) Business Day
period, and such support is not required as a result of any problems with the
Software encountered during such installation, UPS shall pay Tumbleweed for such
additional on-site installation support Services on a time and materials basis.
h. DESIGNATION OF PROJECT COORDINATORS. Tumbleweed shall designate
Robert A. Krauss as its Project coordinator (the "Tumbleweed Project
Coordinator"), who shall be assigned by Tumbleweed to supervise the Project,
shall devote the necessary time to such endeavor, and shall serve as UPS's point
of contact for the resolution of problems. The services of the Tumbleweed
Project Coordinator shall be included in the fees provided for herein. UPS
shall also designate an employee who shall be assigned by UPS to coordinate
UPS's involvement in the Project (the "UPS Project Coordinator"), who shall
serve as Tumbleweed's point of contact for the resolution of problems. The
initial UPS Project Coordinator is Jack Carrig. Either party may change its
Project Coordinator from time to time upon prior written notice to the other
party; provided, however, that Tumbleweed shall not change the Tumbleweed
Project Coordinator with respect to any Phase of the Project without the prior
written consent of UPS, which consent shall not be unreasonably withheld, unless
such individual shall have left the employment of Tumbleweed.
i. PROGRESS REPORTS. The UPS Project Coordinator and Tumbleweed
Project Coordinator, as well as appropriate additional personnel involved in the
particular task underway, shall arrange a conference call (or schedule a meeting
at a mutually agreed site) to discuss the progress made by Tumbleweed and UPS.
Such call or meeting shall take place (i) each week during the period prior to
the Commercial Availability Date, (ii) each month for the first year of the
Agreement, and (iii) each quarter for the remainder of the Agreement. Each such
conference call (or meeting) shall include a discussion by the parties of any
actual or potential events which may give rise to delays in any schedules. In
order to facilitate proper project management, UPS shall notify Tumbleweed
promptly of any actual or potential events which may give rise to delays of any
UPS deliverables or performance of UPS's obligations (or any obligations of
UPS's Affiliates or Associates) under this Agreement, and Tumbleweed shall, for
each such conference call (or meeting), provide UPS with a progress report
specifying in detail:
(A) Any critical issue encountered by Tumbleweed during the preceding
period, including without limitation, the failure of either party to
perform, any delay of either party in performing or the inadequate
performance of either party, which may prevent or tend to prevent
Tumbleweed from completing any task by the completion date;
(B) An estimated length of any delay which may result from any critical
issues; and
(C) The cause of any critical issue and the specific steps taken or
proposed to be taken by Tumbleweed or UPS, as appropriate, to remedy
such critical issue.
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Each progress report provided by Tumbleweed pursuant to this Section
2(i) shall include recent critical issues discussed and dealt with, together
with those not yet raised by Tumbleweed, during the preceding period. In any
event, critical issues shall be discussed and dealt with as soon as possible
after identification by Tumbleweed or UPS. In the event Tumbleweed fails to
specify in writing any critical issue with respect to a given period in such
manner and at such time as required pursuant to this Section 2(i), it shall be
presumed that no critical issue arose during such period.
j. EXTENSIONS OF TIME. If Tumbleweed is delayed at any time during
Phase I or Phase II of the Project by the failure of UPS or its Affiliates or
Associates to perform the obligations set forth in Exhibit D hereto, then upon
notice from Tumbleweed to UPS, the affected Implementation Schedule date(s) will
be reasonably extended to accommodate such delays, not to exceed a day-for-day
extension for each such delay. If Tumbleweed is delayed at any time during
Phase I or Phase II of the Project by supervening conditions beyond Tumbleweed's
reasonable control, and arising without its fault or negligence after the
execution hereof, including acts of God, civil commotion, strikes, labor
disputes, or governmental demands or requirements, then upon notice from
Tumbleweed to UPS, the affected Implementation Schedule date(s) will be
reasonably extended to accommodate such delays, not to exceed a day-for-day
extension for each such delay and all such extensions pursuant to this sentence
not to exceed, in the aggregate, ten (10) days. If Tumbleweed will be delayed
by more than ten (10) days, in the aggregate, during Phase I or Phase II of the
Project by supervening conditions beyond Tumbleweed's reasonable control,
including acts of God, civil commotion, strikes, labor disputes, or governmental
demands or requirements, then Tumbleweed may request that the affected
Implementation Schedule date(s) be further extended. UPS shall review such
request with Tumbleweed at the appropriate conference call (or meeting) provided
for in Section 2(i) above, and shall grant an extension of time commensurate
with the circumstances, subject to the following conditions:
(A) The cause of the delay (i) is beyond Tumbleweed's control and arises
without its fault or negligence, and (ii) arises after the execution
hereof;
(B) Tumbleweed demonstrates that the affected Implementation Schedule
date(s) will be actually and necessarily delayed; and
(C) Tumbleweed provides a written request to UPS in conjunction with the
next progress report provided for in Section 2(i) above after the time
Tumbleweed knows of any cause or circumstances which might, under
reasonable foreseeable circumstances, result in a delay. If
Tumbleweed shall fail to give the foregoing notice, the right to
request an extension for such cause shall be waived.
If either party is delayed at any time in the performance of its
obligations hereunder subsequent to Phase II of the Project by the failure of
the other party to perform its obligations under this Agreement, or by
supervening conditions beyond such party's reasonable
UPS/Tumbleweed Confidential 10 December 18, 1997
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control, including acts of God, civil commotion, strikes, labor disputes, or
governmental demands or requirements, then the parties shall review the cause of
such delay at the appropriate conference call (or meeting) provided for in
Section 2(i) above, and an extension of time commensurate with the circumstances
shall be provided, subject to the following conditions:
(X) The cause of the delay is beyond the control of the party requesting
the extension of time and arises without its fault or negligence; and
(Y) The party requesting the extension demonstrates that the affected
obligation(s) will be actually and necessarily delayed.
Any delay by Tumbleweed in the performance of its obligations
hereunder as a result of (i) any failure by UPS, its Affiliates or Associates to
perform their express obligations under this Agreement; or (ii) by any
supervening condition beyond Tumbleweed's reasonable control, and which failure
or condition satisfies the applicable requirement(s) set forth above in this
subsection (j) shall be deemed an "Excusable Delay," with respect to
Tumbleweed's performance. Unless otherwise agreed by the parties, in the event
of an Excusable Delay, Tumbleweed shall proceed continuously and diligently with
the performance of the unaffected portions of its obligations under this
Agreement.
Notwithstanding the foregoing, UPS shall have the right to terminate
this Agreement, or any Phase hereunder or Maintenance Services (hereinafter
defined), as applicable, without liability to Tumbleweed (except as expressly
set forth in this paragraph), in the event that any Excusable Delay materially
adversely affects UPS's ability to offer the Messaging Service, whereupon (i) if
such Excusable Delay occurs prior to acceptance of Phase II of the Project, (x)
if such Excusable Delay is due to UPS's or its Affiliates' or Associates'
failure to perform the obligations set forth in Exhibit D hereto, Tumbleweed
shall be entitled to payment of the Initial Phase Development Fee described in
Section 6(g) in full, but shall refund to UPS any License Fees previously paid
pursuant to Section 6(a), in which case all licenses granted hereunder shall
terminate, Section 15 terminates, and neither party shall have any further
obligations to the other, and (y) if such Excusable Delay is not due to any such
failure by UPS. Tumbleweed shall refund to UPS all amounts paid hereunder, in
which case all licenses granted hereunder shall terminate, Section 15
terminates, and neither party shall have any further obligations to the other;
(ii) in the event that such Excusable Delay occurs in connection with any
subsequent Phase of the Project, and if such Excusable Delay is not due to any
failure by UPS or its Affiliates or Associates to perform the obligations set
forth in the relevant Specifications, Tumbleweed shall refund to UPS all amounts
paid with respect to such Phase; and (iii) in the event that such Excusable
Delay involves the provision of Maintenance Services by Tumbleweed, Tumbleweed
shall refund to UPS a pro rata amount (calculated on a daily basis) of any
annual Maintenance Service fees previously paid by UPS for the period in which
such termination is effective. Such foregoing termination (and associated
refund, if applicable) shall constitute UPS's sole and exclusive remedy for any
Excusable Delay which materially adversely affects UPS's ability to offer the
Messaging Service.
UPS/Tumbleweed Confidential 11 December 18, 1997
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k. TERMINATION OF DEVELOPMENT SERVICES. UPS may terminate the
software development Services of Tumbleweed for any reason whatsoever during any
Phase beyond Phase II of this Agreement by not less than [ * ] written
notice to Tumbleweed specifying the date upon which termination becomes
effective. In the event of any termination during any such Phase, Tumbleweed
shall be entitled to payment, on a time and materials basis, for Services
rendered by Tumbleweed prior to the effective date of termination; provided,
however, that payments for such Phase shall not exceed the maximum amount
specified in the applicable Specifications, and such payments shall constitute
full settlement of any and all claims of Tumbleweed of every description arising
out of or relating to the termination of such Phase, including without
limitation, claims for lost profits.
3. MODIFICATIONS TO SPECIFICATIONS.
a. PROCEDURES. No changes in or deviations from the Specifications
shall be permitted unless the UPS Project Coordinator shall submit a written
request to Tumbleweed setting forth with reasonable specificity any requested
changes to such Specifications. Alternatively, a proposal for such a change or
deviation submitted in writing by Tumbleweed and accepted in writing by UPS
shall suffice for this purpose. As soon as reasonably practicable, but in no
event later than ten (10) days following Tumbleweed's receipt of such request
(unless a longer period is reasonably required), Tumbleweed shall provide UPS
with written notice stating any anticipated change in price, schedule, or any
other terms of the Specifications resulting from the requested changes. All
changes and adjustments required by Tumbleweed in its notice shall be made by
Tumbleweed in good faith.
b. ACCEPTED CHANGES. Unless UPS accepts in writing any changes in
price, schedule, or other terms set forth by Tumbleweed in its notice, the
changes to the Specifications shall not be made. If such changes are accepted
in writing by UPS, the changes to the Specifications shall be made, and UPS's
written request for such changes and Tumbleweed's written acceptance thereof
shall be deemed to constitute an amendment to the Specifications and shall be
deemed to be a part of this Agreement.
4. IMPLEMENTATION AND ACCEPTANCE.
a. IMPLEMENTATION SCHEDULE. The Implementation Schedule attached
hereto as Exhibit D sets forth the timing requirements for the various stages of
the completion of Phase I and Phase II of the Project. In the event any
milestone set forth in the Implementation Schedule is not met due to any delay
caused by Tumbleweed, in addition to damages for the delay (if applicable), as
provided for in Section 4(b) below, Tumbleweed shall [ * ].
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[*]Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
UPS/Tumbleweed Confidential 12 December 18, 1997
<PAGE>
Additionally, Tumbleweed shall use commercially reasonable efforts to ensure
that such delay does not result in slippage of later milestones.
b. ACCEPTANCE TESTING. Tumbleweed shall notify UPS in writing when
Tumbleweed has completed the final version of the Software associated with any
Phase of the Project such that it is ready for acceptance testing by UPS. UPS
shall then promptly conduct the acceptance tests provided for in the Detailed
Design Specifications (the "Acceptance Tests") to determine whether or not the
Software, Documentation and other deliverables to be provided pursuant to such
Phase materially conform to the Detailed Design Specifications (the "Acceptance
Standard"). The Acceptance Tests shall be conducted over a period not to exceed
thirty-five (35) days (the "Acceptance Test Period"), and may consist both of
testing by UPS in a test environment and beta testing by allowing a limited
number of customers to process Transactions using the Software in a product
environment. In the event that the applicable Software, Documentation and other
deliverables materially conform to the Acceptance Standard, UPS shall notify
Tumbleweed in writing that same have passed the Acceptance Tests. In the event
that UPS does not provide notice of rejection of any Phase of the Project by the
end of the Acceptance Test Period for such Phase, such Phase shall be deemed
accepted.
In the event that the Acceptance Tests reveal that the applicable
Software, Documentation and other deliverables, or any portion thereof, to be
provided pursuant to any Phase do not materially conform to the Acceptance
Standard, then UPS shall so notify Tumbleweed in writing specifying the nature
of such failure, and Tumbleweed shall have [ * ] to correct such failure
after which UPS shall have [ * ] to repeat the Acceptance Tests
according to the above process; provided, however that UPS will use reasonable
efforts to notify Tumbleweed as promptly as possible during the initial
Acceptance Test Period when and as such failures are identified. If the
Software, Documentation and other deliverables again fail to pass the Acceptance
Tests, UPS's sole and exclusive remedy shall be to elect one of the following
options in its sole discretion: (i) the parties may mutually agree that
Tumbleweed shall have an additional [ * ] to correct the failure, in
which case the above process (including, without limitation, these remedies)
shall be repeated; (ii) UPS may accept the applicable Software, Documentation
and other deliverables despite the nonconformities; (iii) for Acceptance Tests
associated with either Phase I or Phase II of this Agreement, UPS may terminate
the Agreement, whereupon UPS, at its sole option, may elect one (1) of the
following remedies: (X) Tumbleweed will [ * ] which amount is agreed by
the parties to be the deemed
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information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
UPS/Tumbleweed Confidential 13 December 18, 1997
<PAGE>
amount of damages suffered by UPS as a result of such failure and not a penalty,
in which event all licenses granted hereunder shall terminate, Section 15 shall
terminate, and the provisions of Section 16(c) shall apply, or (Y) Section 15
shall continue to apply, in which event all licenses granted hereunder shall
terminate and the provisions of Section 16(c) shall apply, but Tumbleweed shall
not be obligated to pay to UPS the aforementioned [ * ] or (iv) for
Acceptance Tests associated with Phases beyond Phase II of this Agreement, UPS
may terminate such Phase(s), whereupon Tumbleweed will promptly refund to UPS
all amounts paid to Tumbleweed in connection with such Phase(s).
Notwithstanding anything to the contrary herein, acceptance of
Phase II shall be deemed to have occurred when UPS begins using the Software
associated with Phase II of the Project to support revenue generating customers
of the Messaging Service. Such date shall be defined as the "Commercial
Availability Date."
In the event that Tumbleweed fails to deliver the Software,
Documentation and other deliverables associated with Phase I or Phase II of
this Agreement by the final delivery date set forth in the Implementation
Schedule set forth in Exhibit D hereto, or in the event UPS elects option (i)
above with respect to Acceptance Tests associated with either Phase I or
Phase II of this Agreement, then as UPS's sole and exclusive remedy for any
delay in passing the Acceptance Tests associated with Phase I and Phase II of
this Agreement on or before the scheduled acceptance milestone date therefor
(as specified in the Implementation Schedule), UPS may elect one of the
following options in its sole discretion: (x) UPS may terminate this
Agreement, whereupon UPS, at its sole option, may elect one (1) of the
following remedies: (A) Tumbleweed [ * ], which amount is agreed by the
parties to be the deemed amount of damages suffered by UPS as a result of
such failure and not a penalty, in which event all licenses granted hereunder
shall terminate, Section 15 shall terminate, and the provisions of Section
16(c) shall apply, or (B) Section 15 shall continue to apply, in which event
all licenses granted hereunder shall terminate and the provisions of Section
16(c) shall apply, but Tumbleweed shall not be obligated to pay to UPS the
aforementioned [ * ]; or (y) the parties may mutually agree that
Tumbleweed shall continue performing, in which event UPS will be entitled to
deduct from the amounts otherwise payable hereunder, as damages for any delay
of up to thirty (30) days ("Delay Damages"), [ * ] for each calendar
day that the Software, Documentation and other deliverables associated with
Phase I or Phase II of this Agreement fail to pass the Acceptance Tests
beyond the scheduled milestone date therefor (as specified in the
Implementation Schedule). The foregoing Delay Damages are agreed by the
parties to be the deemed amount of damages suffered by UPS as a result of any
such delay of up to thirty (30) days and not a penalty. Any failure of the
Software, Documentation and other deliverables
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information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
UPS/Tumbleweed Confidential 14 December 18, 1997
<PAGE>
associated with Phase I or Phase II of this Agreement to pass the Acceptance
Tests within thirty (30) days of the scheduled acceptance milestone date
therefor (as specified in the Implementation Schedule, as such dates may be
extended pursuant to Section 2(j)) shall constitute non-delivery by
Tumbleweed.
c. INTERIM TESTING. For efficiency and project management purposes,
informal testing, in addition to the acceptance testing provided for herein, may
be conducted at various times as the work progresses, at Tumbleweed's
discretion, but neither such informal testing nor any provisional acceptance of
the results thereof by UPS shall constitute acceptance of any aspect of the
Software by UPS or relieve Tumbleweed of the responsibility to complete
successful acceptance tests on the Software, as a whole, as a precondition to
its entitlement to certain payments under this Agreement.
5. LICENSES AND PROPRIETARY RIGHTS.
a. SERVER SOFTWARE. Tumbleweed hereby grants to UPS a
non-exclusive, worldwide, royalty-bearing, perpetual (subject to termination
pursuant to the provisions hereof) license (the "License"): (i) to Use
[ * ] copies of the Server Software and Custom Server Software to
provide the Messaging Service, and shall include the right to operate the
Server Software and Custom Server Software on [ * ] processors and
[ * ] data center locations [ * ]; and (ii) to reproduce the Server
Software and Custom Server Software, and to distribute and sublicense same,
with equivalent rights to those enumerated in (i) to (x) any one or more of
UPS's Affiliates and/or Authorized Shipping Outlets, and (y) to any third
party which shall have been approved in writing by Tumbleweed in advance,
which approval shall not be unreasonably withheld, conditioned or delayed,
where such third party is one to which UPS outsources all or any portion of
the responsibility for operating the Messaging Service (collectively, "Server
Sublicensees"). All sublicenses granted by UPS under this Section 5(a) shall
include the minimum terms and conditions which are set out in Exhibit I
hereto. Upon request by UPS, Tumbleweed shall offer to provide maintenance
and support services to the Server Sublicensees on commercially reasonable
terms and conditions (including price). UPS shall not, nor shall it
authorize any third party to, decompile, reverse engineer or disassemble the
Server Software and/or Custom Server Software. UPS shall not remove, modify
or obscure any proprietary rights notices in the Server Software and/or
Custom Server Software, or any logos or trademarks displayed in such
Software, as long as no such notices are visually perceptible to end user
customers of UPS and its Server Sublicensees under this Section 5(a), except
to the extent expressly provided for in Section 7(c) hereof.
b. CLIENT SOFTWARE. In addition to the rights and licenses provided
for in Section 5(a) above, the License shall also include a License to Use and
to distribute and sublicense, either on a standalone basis or bundled with UPS's
products or services, and to provide services based upon, the Client Software
and Custom Client Software to any end users. Such License includes the right to
grant perpetual licenses to Use, sublicense and distribute copies of the Client
Software and Custom Client Software for an end user's use and permits UPS
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information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
UPS/Tumbleweed Confidential 15 December 18, 1997
<PAGE>
to privately label the Client Software and Custom Client Software under UPS's
name and trademarks. Distribution of the Client Software and Custom Client
Software may be made by any means selected by UPS, including without limitation,
by making the Client Software and Custom Client Software available for download
from one or more FTP sites on the Internet, and by utilizing Affiliates,
Authorized Shipping Outlets, distributors, dealers, VARs, resellers,
subsidiaries or other third parties. To facilitate such distribution, the
License shall include the right for UPS to grant sublicenses to such Affiliates,
Authorized Shipping Outlets, distributors, dealers, VARs, resellers,
subsidiaries and third parties to Use the Client Software and Custom Client
Software for demonstration purposes. UPS shall license the Client Software and
Custom Client Software to end users in any manner which is commercially
acceptable for products distributed over or for use in connection with the
Internet, including without limitation, by written license agreements, which may
be either signed by UPS and the end user or included in the package containing
the product, or by the inclusion of license terms within copies of the Client
Software and/or Custom Client Software whereby the end user signifies his or her
acceptance by "clicking" on an "accept" button or performing some other action;
PROVIDED, HOWEVER, that each end user must sign a license agreement, open a
package containing the Client Software and/or Custom Client Software, "click" on
an "accept" button or perform some other action, at a minimum, designed to
signify its acceptance of the license terms and conditions with respect to such
Software which are set out in Exhibit E hereto. The parties acknowledge that in
the event future versions of the Client Software or Custom Client Software
incorporate additional software (which may be royalty-bearing or subject to
other limitations on use or distribution), or otherwise requires modification or
supplementation of the terms set forth in Exhibit E in order to reflect the
nature of such versions, the parties will mutually agree on any required
amendments to Exhibit E. Tumbleweed acknowledges that UPS is not guarantying
the enforceability of such terms and conditions against end users nor that the
methods of purported acceptance described above shall ultimately be found to
constitute acceptance of such terms and conditions. UPS shall not, nor shall it
authorize any third party to, decompile, reverse engineer or disassemble the
Client Software and/or Custom Client Software.
c. OWNERSHIP OF CUSTOM SOFTWARE. Unless otherwise stated in the
applicable Specifications, as between UPS and Tumbleweed, Tumbleweed shall own
all right, title and interest in and to all developments made during the course
of performing any work under this Agreement and UPS shall enjoy those licenses
provided for in this Agreement with respect to such developments. If the
parties mutually agree that UPS shall own one or more components of the Custom
Software produced during the course of Tumbleweed's performance of a Phase,
then, with respect to such components (and not with respect to any other
component), the following terms apply:
i. UPS INVENTIONS. Tumbleweed assigns and agrees to assign to UPS
all of Tumbleweed's and its Associates' entire right, title and
interest in and to the UPS Inventions, and any patents that may
be granted thereon in any country of the world. Tumbleweed shall
promptly share with UPS all information relating to such UPS
inventions. Tumbleweed also agrees to
UPS/Tumbleweed Confidential 16 December 18, 1997
<PAGE>
acquire from its Associates who perform work hereunder, such
assignments, rights and covenants as to assure that UPS shall
receive the rights provided for in this Section 5(c)(i).
Tumbleweed agrees that upon UPS's request it will promptly have
its Associates sign all papers and perform all acts which may be
reasonably requested by UPS to enable UPS at its expense to file
and prosecute applications for patents on such UPS Inventions,
and to maintain patents granted thereon, provided that UPS shall
compensate Tumbleweed for the costs incurred by Tumbleweed that
are associated with such activities.
ii. UPS INFORMATION. Tumbleweed agrees to disclose and promptly
furnish to UPS any and all UPS Information originated by
Tumbleweed or any of its Associated hereunder. UPS shall own all
right, title and interest in and to the UPS Information created
by Tumbleweed hereunder, including all copyrights and proprietary
rights therein. Tumbleweed expressly acknowledges that the
parties have agreed that all aspects of the UPS Information and
all work in process in connection therewith are to be considered
"works made for hire" within the meaning of the Copyright Act of
1976, as amended (the "Act"), and that UPS is to be the "author"
within the meaning of such Act. All such copyrightable UPS
Information, as well as all copies of such UPS Information in
whatever medium fixed or embodied, shall be owned exclusively by
UPS as its creation, and Tumbleweed hereby expressly disclaims
any interest in any of them.
In the event (and to the extent) that the UPS Information created by
Tumbleweed hereunder or any part or element thereof is found as a
matter of law not to be a "work made for hire" within the meaning of
the Act, Tumbleweed hereby conveys and assigns to UPS the sole and
exclusive right, title and interest in the ownership to all such UPS
Information, and all copies of any of them, without further
consideration, and agrees to assist UPS to register, and from time to
time enforce (at UPS's expense), all copyrights relating to the UPS
Information created hereunder in any and all countries. Tumbleweed
shall place a copyright notice in favor of UPS on the UPS Information
at UPS's request.
d. OWNERSHIP OF CUSTOMER DATA. Tumbleweed agrees that all records,
files, reports and other data relating to UPS's customers which are received,
used or stored in connection with the Messaging Service or otherwise are the
exclusive property of UPS and its customers and that Tumbleweed hereby waives
any interest, title, lien or right to any such data or records. Customer
records and other data shall not be (i) used by Tumbleweed other than in
connection with supporting UPS's offering of the Messaging Service, (ii)
disclosed, sold, assigned, leased, or otherwise provided to third parties by
Tumbleweed, or (iii) commercially exploited by or on behalf of Tumbleweed, its
employees, subcontractors or agents.
UPS/Tumbleweed Confidential 17 December 18, 1997
<PAGE>
e. TUMBLEWEED TRADEMARKS AND TRADE NAMES. Tumbleweed hereby grants
to UPS and its Affiliates and Authorized Shipping Outlets worldwide,
non-exclusive, non-transferable, non-sublicenseable, [ * ] licenses to
use and reproduce the Tumbleweed Marks in their advertising and promotion of the
Messaging Service and/or the Software, including without limitation, the right
to brand the Messaging Service by referencing the Tumbleweed Mark "Tumbleweed
Software." Tumbleweed acknowledges that (A) the licenses granted pursuant to
this Section 5(e) in no way, form or manner create or infer any obligation on
the part of UPS to use any of the Tumbleweed Marks, and (B) UPS shall have sole
discretion and control as to the size, location and position of its usage of the
Tumbleweed Marks, understanding that the Tumbleweed Marks will be prominently
and reasonably displayed. UPS acknowledges Tumbleweed's ownership and exclusive
rights in the Tumbleweed Marks, and UPS's use of the Tumbleweed's ownership and
exclusive rights in the Tumbleweed Marks, and UPS's use of the Tumbleweed Marks
shall inure to the benefit of Tumbleweed. UPS shall not adopt or attempt to
register any of the Tumbleweed Marks, as a whole, or adopt, use or attempt to
register any mark which is confusingly similar to any of the Tumbleweed Marks,
as a whole. For the period during which UPS is using any of the Tumbleweed
Marks, Tumbleweed shall have the right to monitor and observe UPS's operation of
the Messaging Service for the purpose of protecting and maintaining the
standards of quality established by Tumbleweed for products sold and services
rendered under the Tumbleweeds Marks as of the date UPS exercised its rights.
If UPS does not operate the Messaging Service in a manner consistent with
Tumbleweed's standards of quality, UPS shall be in breach of the terms of this
Section 5(e). Tumbleweed may immediately terminate this trademark license if
UPS breaches any of the terms of this Section 5(e) and does not either (i) cure
such breach within thirty (30) days after receiving notice thereof, or (ii)
discontinue any conduct in breach of the terms of this Section 5(e). UPS shall
include the symbols TM and -Registered Trademark- as appropriate at the first
instance of each use of each Tumbleweed Mark. UPS shall provide, at its own
expense, samples of Tumbleweed Mark usage for Tumbleweed to inspect from time to
time upon written request from Tumbleweed.
f. DEVELOPER KITS (AND LOCALIZATION KITS). Tumbleweed shall deliver
to UPS, at no charge therefor, such number of developer kit(s) and/or
localization kit(s) as shall be reasonably requested by UPS, which
developer/localization kit(s) shall be comprised of the Software described in
Exhibit C hereto and successor versions thereof, and any other
developer/localization kit software made generally commercially available by
Tumbleweed and successor versions thereof (collectively, the "Developer Kit
Software"), solely to permit UPS's development of localized versions of the
Software and/or applications to be deployed as part of or in support of the
Messaging Service. The License set forth in Sections 5(a) and (b) above
includes the right to modify, maintain, support, update and create Derivative
Works of the Software, to the extent enabled by the Developer Kit Software.
Tumbleweed grants to UPS a non-exclusive, perpetual, irrevocable right and
license (the "Developer Kit License") to Use the Developer Kit Software for
purposes of the development of localized versions of the Software and/or
applications to be deployed as part of or in support of the Messaging Service,
and for testing the operation of such localized versions and applications to be
deployed in connection with the Messaging Service, and to sublicense such right,
subject to mutually agreed upon
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information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
UPS/Tumbleweed Confidential 18 December 18, 1997
<PAGE>
minimum terms and conditions, solely to permit third party developers working
directly on UPS's behalf to create localized versions of the Software and/or
applications for the Messaging Service. The Developer Kit License granted
hereunder specifically permits UPS and those third party developers working
directly on UPS's behalf, in addition to their other rights hereunder, to
develop localized versions of the Software and/or applications for the Messaging
Service which may utilize or require the use of the Developer Kit Software, or a
portion thereof, to operate ("Applications"), and to use or license or otherwise
permit third parties to use such Applications without royalty or payment to
Tumbleweed, except as expressly provided hereunder, even though such
Applications may contain portions or Derivative Works of the Developer Kit
Software. Except as set forth in this subsection (f), UPS shall have no right
to further sublicense, transfer, lease, sell, or in any way dispose of the
Developer Kit Software for any purpose other than as provided for in this
subsection (f), and furthermore agrees to direct any third parties who request
such Developer Kit Software to create software in support of the Standard
Software to Tumbleweed in order to procure licenses therefor directly from
Tumbleweed. UPS shall not, nor shall it authorize any third party to,
decompile, reverse engineer or disassemble the Developer Kit Software.
Notwithstanding anything to the contrary set forth in this Agreement,
neither UPS's development or localized versions of the Software nor its creation
of Applications relating to the Software, in either case prepared utilizing the
Developer Kit Software and/or APIs furnished by Tumbleweed, will, in any way,
form or manner, reduce or otherwise modify Tumbleweed's Maintenance Services or
other obligations hereunder with regard to the base Software, provided, however,
that Tumbleweed's obligations shall not extend to support of (i) the
Applications, (ii) localizations that have not been successfully certified by
Tumbleweed as set forth below, or (iii) modifications made to the base Software
to the extent not enabled by the Developer Kit Software. For quality control
purposes, however, UPS may submit each localized version to Tumbleweed, solely
for the purpose of Tumbleweed's testing and certification thereof, prior to
implementing same in support of the Messaging Service. Tumbleweed shall perform
such testing on a mutually agreeable schedule after the delivery of each
localized version of the Software, for which testing UPS shall reimburse
Tumbleweed for any costs and/or expenses (including personnel costs) reasonably
incurred by Tumbleweed in connection therewith, and either certify that such
localized version is in compliance with Tumbleweed's quality control
requirements (and that UPS may implement the localized version without affecting
any of Tumbleweed's Maintenance Services or other obligations hereunder), or
that such localized version is not in compliance with Tumbleweed's quality
control requirements, in which event Tumbleweed shall so notify UPS in writing
specifying the nature of such non-compliance and including sufficient details to
permit UPS to understand such non-compliance.
Furthermore, UPS may submit Applications to Tumbleweed for the limited
purpose of permitting Tumbleweed to test whether such Applications are
compatible with the APIs, and Tumbleweed shall perform such testing on a
mutually agreeable schedule, for which testing UPS shall reimburse Tumbleweed
for any costs and/or expenses (including personnel costs) reasonably incurred by
Tumbleweed in connection therewith.
UPS/Tumbleweed Confidential 19 December 18, 1997
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Tumbleweed agrees to use its commercial discretion to make the
Developer Kit Software generally commercially available pursuant to a developer
support program designed to encourage third party developers to develop high
quality applications in support of, and localized versions of, the Standard
Software, and which will be conducted consistent with similar programs
maintained by comparable applications software vendors (e.g., [ * ]).
g. INTERFACE INFORMATION. Tumbleweed will disclose to UPS,
[ * ] any and all APIs, communication protocols, interface
specifications or other such documentation (collectively, "APIs") necessary
to enable UPS to write Applications which interface/communicate with the
Software used by UPS to operate the Messaging Service. Tumbleweed grants to
UPS a non-exclusive, perpetual, irrevocable right and license (the "API
License") to internally Use the APIs solely to develop Applications which
interface/communicate with the Software used by UPS to operate the Messaging
Service, and for testing the operation of such Applications and to sublicense
such right, subject to the minimum terms and conditions of this Agreement
solely to permit third party developers working directly on UPS's behalf to
create Applications which interface/communicate with the Software used by UPS
to operate the Messaging Service. The API License granted hereunder
specifically permits UPS and the third party developers working directly on
UPS's behalf, in addition to their other rights hereunder, to develop
Applications which may utilize or require the use of any of the APIs to
interface/communicate with the Software, and to use or license or otherwise
permit third parties to use such Applications without royalty or payment to
Tumbleweed, even though such Applications will take advantage of such APIs to
interface/communicate with the Software. Except as set forth in this
subsection (g), UPS shall have no right to further sublicense, transfer,
lease, sell, or in any way dispose of the APIs for any purpose other than as
provided for in this subsection (g), and furthermore agrees to direct any
third parties who request such APIs to create software in support of the
Standard Software to Tumbleweed in order to procure licenses therefor
directly from Tumblewed. UPS shall not (except as expressly provided above),
nor shall it authorize any third party to, disclose, decompile, reverse
engineer or disassemble the APIs nor remove, modify or obscure any
proprietary rights notices in the APIs (so long as no such notices are
visually perceptible to end user customers (as opposed to third party
developers) of UPS).
Tumbleweed shall have an ongoing duty, during the term of this
Agreement, to update its provision of APIs, as required pursuant to this Section
5(g), to cover Enhancements to the Software which are made by Tumbleweed from
time to time. In addition, Tumbleweed's commitment to establish a developer
support program, as provided for in Section 5(f) above, shall also extend to the
APIs contemplated in this Section 5(g).
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[*]Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
UPS/Tumbleweed Confidential 20 December 18, 1997
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h. DOCUMENTATION LICENCES. Subject to the provisions of Section 10
hereof, Tumbleweed further grants to UPS and its Affiliates and Authorized
Shipping Outlets, during the term of this Agreement, the following
non-exclusive, worldwide rights and licenses: (i) to access, reproduce, display
and otherwise use the Documentation and other written materials furnished to UPS
hereunder; (ii) to modify, update and/or create Derivative Works of such
Documentation and other written materials; and (iii) to sublicense, lease,
sublease and distribute such Documentation and other written materials and to
permit their respective customers to enjoy the same rights and licenses with
respect thereto as are set forth in (i) above.
i. UPS INTELLECTUAL PROPERTY. UPS hereby grants to Tumbleweed a
limited, non-exclusive, non-transferable, fully-paid license to use those
portions of the trademarks, service marks, other indicia of origin, copyrighted
material and art work owned or licensed by UPS and any additional technical
information (the "UPS Intellectual Property") which are deliverable by UPS to
Tumbleweed solely to the extent necessary for Tumbleweed to develop the Customer
Software hereunder. Tumbleweed shall not use the UPS Intellectual Property for
any other purpose.
j. NO OTHER LICENSES. Except as otherwise provided in this
Agreement and/or in the exhibits hereto, both parties and their respective
suppliers shall retain all rights, title and interest in and to all copyrights,
trademarks, trade secrets, patents and all other industrial and intellectual
property embodied in or appurtenant to the Software and/or any other materials
or information provided by any such parties hereunder. There are no implied
licenses under this Agreement, and any rights no expressly granted hereunder are
reserved by the parties or their respective suppliers.
6. FEES AND PAYMENT.
a. LICENSE FEE. As consideration for the License to the Software
granted herein, and for the rights granted in Section 15, UPS shall pay to
Tumbleweed a license fee of [ * ] (the "License Fee") in the following
installments:
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information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
UPS/Tumbleweed Confidential 21 December 18, 1997
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i. [ * ] upon the execution and delivery of the memorandum
of understanding between the parties, dated [ ]*,
receipt of which payment is hereby acknowledged by Tumbleweed;
ii. [ * ] upon the execution and delivery of this Agreement;
iii. [ * ] upon UPS's acceptance of the Software associated
with Phase I of this Agreement pursuant to Section 4(b) hereof;
and
iv. [ * ] upon UPS's acceptance of the Software associated
with Phase II of this Agreement pursuant to Section 4(b) hereof.
All such payments due hereunder shall be invoiced by Tumbleweed to UPS, and
shall be payable within fifteen (15) days after its receipt.
b. ROYALTIES. As additional consideration for the License to the
Software granted herein, UPS shall pay Tumbleweed as a royalty (the "Royalty")
the following percentage of the [ * ](hereinafter defined) actually
received by UPS and/or its Affiliates for [ * ] by the Messaging Service
utilizing the Software, based upon the [ * ] processed during the term
of this Agreement:
[ * ]
As used in this Section 6(b), [ * ]
c. [ * ]
d. ROYALTY PAYMENTS. All Royalties shall be computed and paid to
Tumbleweed monthly on the fifteenth (15th) day following the end of each
calendar month for Net Fees received by UPS during such calendar month for
license fees for the Software [ * ]. UPS shall have the right
to set off, deduct, retain, or withhold from any
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[*]Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
UPS/Tumbleweed Confidential 22 December 18, 1997
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accrued Royalties or other amounts otherwise payable hereunder, any monies due
by Tumbleweed hereunder and/or credits available to UPS hereunder until such
monies have been paid and/or credits applied.
e. ROYALTIES. At least monthly, a report shall be provided to
Tumbleweed showing the basis of the computation of Tumbleweed's Royalties. In
making such report, UPS shall be entitled to report only [ * ], the
Net Fees received for licenses granted with respect to the Custom Software, the
number of end users registered to use the Messaging Service as of the end of the
applicable month, [ * ], all of which information shall bee deemed
to be the Confidential Information of UPS and its Server Sublicensees.
Tumbleweed shall be entitled, not more than once annually, to retain one of the
"Big 6" public accounting firms (or any other independent certified public
accountant, if such other independent certified public accountant is reasonably
acceptable to UPS) to review the books and records of UPS and any applicable
Affiliates relating to the Messaging Service solely for the purpose of verifying
the accuracy of the Royalties calculated, paid or due to Tumbleweed under this
Agreement. Said certified public accountant shall inform Tumbleweed only
whether all Royalties have been paid and the amount of any underpayment or
overpayment. Such review shall be conducted during normal business hours upon
reasonable notice of at least one (1) month. Upon presentation of reasonable
proof of underpayment or overpayment, such underpayment or overpayment shall be
reflected in the next monthly Royalty payment. The cost of such audit shall
normally be at Tumbleweed's expense; provided, however, that UPS will bear the
cost of the audit if the audit reveals any underpayment or overpayment which, in
the aggregate, is greater than five percent (5%) of the amount of which was
actually due for the period being audited. If the audit reveals an underpayment
in excess of five percent (5%) of the amount which was actually due for the
period being audited, Tumbleweed shall also have the right to conduct another
audit within the same twelve (12) month period.
f. DEMONSTRATION AND INTERNAL USE. Notwithstanding the Royalties
provided for in subsection (b) above, and notwithstanding the minimum message
fee provided for in subsection (c) above, UPS shall [ * ]
obligation (i) for any [ * ] performed by UPS's and its Affiliates'
employees sending internally generated documents via the Messaging Service, (ii)
for any [ * ] performed by UPS's and its Affiliates' employees,
distributors, dealers, VARs and resellers, and by Authorized Shipping Outlets,
sending documents via the Messaging Service for demonstration purposes only, or
(iii) for any [ * ] performed by prospective customers sending documents
via the Messaging Service pursuant to limited, pre-defined evaluation plans
established by UPS from time to time, where such limited evaluation plans are
designed to increase the number of revenue generating customers of the Messaging
Service [ * ]
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Securities and Exchange Commission.
UPS/Tumbleweed Confidential 23 December 18, 1997
<PAGE>
g. INITIAL PHASE DEVELOPMENT FEE. As consideration for the Phase I
and Phase II development Services rendered by Tumbleweed pursuant to Section 2
of this Agreement, UPS shall pay to Tumbleweed a fixed price development fee of
[ * ] (the "Initial Phase Development Fee"). The Initial Phase
Development Fee shall be payable in installments in accordance with the
milestone payment schedule set forth in the Implementation Schedule, and each
installment shall be payable upon completion of each milestone by Tumbleweed
and, if applicable, acceptance by UPS in accordance with Section 4. All such
payments due hereunder shall be invoiced by Tumbleweed to UPS.
h. DEVELOPMENT FEES FOR SUBSEQUENT PHASES. Upon mutual agreement as
to terms and conditions (including price) for the development of Software beyond
that required for Phase II of the Project, unless the parties otherwise agree to
the contrary, Tumbleweed will invoice UPS, monthly in arrears, for Services
provided to UPS by Tumbleweed in connection with Phases for which the agreed
upon Specifications therefor specify that Services performed in connection
therewith are to be performed on a time and materials basis, in accordance with
the daily rate and work schedule set forth in the Specifications. In the event
that the parties agree to Services on a fixed price basis, Tumbleweed will
invoice UPS in accordance with the schedule of payments set forth in such
Specifications. For Services agreed by the parties to be provided on a time and
materials basis, Tumbleweed shall submit with each invoice, copies of time
reports which relate to the Services being invoiced, together with supporting
documentation for all associated reimbursable expenses, which shall be limited
to reasonable out-of-pocket expenses necessarily and actually incurred by
Tumbleweed in the performance of such Services. Notwithstanding anything to the
contrary contained herein, UPS shall not be liable for any charges and/or
expenses in connection with any Phase for work done on a time and materials
basis in excess of the maximum dollar amount specified in the associated
Specifications, unless previously authorized by UPS.
i. SOFTWARE MAINTENANCE AND SUPPORT SERVICES. As consideration
for the Software maintenance and support Services (excluding the services of
the Dedicated Support Personnel) rendered by Tumbleweed pursuant to Section 9
hereof ("Maintenance Services") for the period ending as of [ * ],
UPS shall pay to Tumbleweed a fee of [ * ], [ * ] of which
shall be due and payable upon expiration of the Warranty Period for the
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Phase II Software, as provided for in Section 8(a) below, and [ * ] of
which shall be paid in quarterly installments of [ * ] each, with the
first such installment becoming due and payable on [ * ]. As
consideration for the Maintenance Services rendered by Tumbleweed for subsequent
years, if so elected by UPS, UPS shall pay to Tumbleweed an annual fee of
[ * ] per year, payable in quarterly installments of [ * ]
each; provided, however, that in the event such Maintenance Services obligations
increase (whether by inclusion of additional data centers to be supported,
additional software, or the like, as long as the increased burden on
Tumbleweed's resources or risk can be substantiated) or the burden of providing
such Maintenance Services decreases (whether by reduced demand for telephone
support or otherwise), the parties shall meet to mutually agree upon a
reasonably adjustment to such fee. All payments due hereunder shall be invoiced
by Tumbleweed.
j. DEDICATED SUPPORT PERSONNEL. As consideration for the Services
of the Dedicated Support Personnel, as such Services are more specifically
described in Section 9(d), UPS shall bear [ * ] of Tumbleweed's actual
costs and expenses (including salary, employment taxes, unemployment insurance,
and all fees and costs normally associated with the employment of personnel or
hiring of independent contractors) attributable to the employment of such
Dedicated Support Personnel. Tumbleweed shall invoice UPS on a monthly basis
for the amounts required under this Section 6(j).
k. EXPENSES. Where this Agreement provides that UPS shall reimburse
Tumbleweed for various expenses incurred in connection with certain activities
hereunder, such expenses shall be limited to reasonable out-of-pocket expenses
necessarily and actually incurred by Tumbleweed in the performance of such
activities, provided that: (i) UPS has given its prior consent for any such
expenses, which consent shall not be unreasonably withheld; (ii) such expenses
are consistent with UPS's then-current travel and expense guidelines; and (iii)
if requested by UPS, Tumbleweed submits supporting documentation to UPS for such
expenses. It is understood that any air transportation reimbursable hereunder
shall be coach-economy and that entertainment by or on behalf of Tumbleweed
shall be at no cost to UPS.
l. COMMISSION FOR REFERRALS. In the event that UPS refers one of
its end user customers who has been using the Messaging Service for a period of
less than twenty-four (24) months and who has had a significant presence of
individual users of the Messaging Service at that customer (a "Referral
Customer") to Tumbleweed, and such Referral Customer licenses software or
procures services from Tumbleweed, Tumbleweed hereby agrees to pay to UPS, for
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UPS/Tumbleweed Confidential 25 December 18, 1997
<PAGE>
such referral, a commission of [ * ] for each individual account
that switches their account from the Messaging Service and [ * ] for the
new accounts, of the fees actually received by Tumbleweed from such Referral
Customer during the first year that such Referral Customer licenses software or
procures services from Tumbleweed. All commissions shall be computed and paid
to UPS monthly on the fifteenth (15th) day following the end of each calendar
month for fees received by Tumbleweed from Referral Customers during such
calendar month. At least monthly, a report shall be provided to UPS showing the
basis of the computation of UPS's commissions. UPS shall be entitled, not more
than once annually, to retain one of the "Big 6" public accounting firms (or any
other independent certified public accountant, if such other independent
certified public accountant is reasonably acceptable to Tumbleweed) to review
the books and records of Tumbleweed relating to such transactions solely for the
purpose of verifying the accuracy of the commissions paid or due to UPS under
this Agreement. Said certified public accountant shall inform UPS only whether
all commissions have been paid and the amount of any underpayment or
overpayment. Such review shall be conducted during normal business hours upon
reasonable notice of at least one (1) month. Upon presentation of reasonable
proof of underpayment or overpayment, such underpayment or overpayment shall be
paid to UPS or refunded by UPS, respectively. The cost of such audit shall
normally be at UPS's expense; provided, however, that Tumbleweed will bear the
cost of the audit if the audit reveals any underpayment or overpayment which, in
the aggregate, is greater than five percent (5%) of the amount which was
actually due for the period being audited. If the audit reveals an underpayment
in excess of five percent (5%) of the amount which was actually due for the
period being audited, UPS shall also have the right to conduct another audit
within the same twelve (12) month period.
m. SALES AND USE TAXES. All fees stated herein and Royalty payments
made hereunder exclude, and UPS shall pay, any sales, use, or similar tax,
federal state or local, that may be assessable in connection with this
Agreement, exclusive of taxes based on or measured by Tumbleweed's net income.
n. PAYMENT TERMS. All fees stated in, and shall be made in, U.S.
Dollars. Unless otherwise specified, all payments hereunder (including, without
limitation, Royalty payments) shall be due and payable within fifteen (15) days
of the date of UPS's receipt of Tumbleweed's invoice; provided, however, that
Royalty payments shall be made in accordance with Section 9(d).
o. PAYMENT DISCREPANCIES. UPS shall not be obligated to make
payments required hereunder to the extent and for the duration that such
payments are in dispute in good
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UPS/Tumbleweed Confidential 26 December 18, 1997
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faith; provided, however, that in the event of any such discrepancy or dispute,
UPS shall be required to make payments required hereunder on any undisputed
portion of any properly rendered invoice for which payment is due. In the event
that any payment discrepancy or dispute may be resolved by audit, then
Tumbleweed shall have the right to institute an audit pursuant to subsection (e)
above to verify the accuracy of the amounts paid or due to Tumbleweed under this
Agreement. If the audit confirms an underpayment by UPS, UPS shall pay to
Tumbleweed the amount of such underpayment within thirty (30) days of the date
of UPS's receipt of auditor's written findings. If UPS fails to make such
payment within such thirty (30) day period, Tumbleweed may terminate this
Agreement without liability for such termination. In the event such discrepancy
or dispute is not susceptible to resolution by accounting audit, the parties
shall engage in the escalation procedures set forth in Section 16(b).
p. TIME AND MATERIALS FEES. For Services provided by Tumbleweed on
a time and materials basis, the fees for such Services will be at commercially
reasonable rates.
7. MARKETING, DISTRIBUTION AND OFFERING OF MESSAGING SERVICE.
a. MARKETING PLAN. UPS will, in its sole discretion, develop a
marketing plan for the Messaging Service, including development of brand name
identities, and identifying likely markets, distribution channels, and pricing
structures for the Messaging Services; provided, however, that UPS will consult
with Tumbleweed with respect to the promotion and advertising of the Messaging
Service and that UPS will not market the Messaging Service as "free." Subject
to the foregoing, UPS shall have the sole determination of the marketing
strategies to be followed, including the extent to which UPS will use the
Tumbleweed Marks in connection with such marketing; provided, however, that,
[ * ] the Tumbleweed Mark "Tumbleweed Software" [ * ]
of advertising, collateral and promotional materials published by UPS and/or its
Affiliates and Authorized Shipping Outlets in relationship to UPS's "Document
Exchange" service offering, [ * ] shall be within UPS's sole
discretion. Notwithstanding the foregoing commitment, UPS shall have the right
to immediately discontinue its use of any or all of the Tumbleweed Marks,
[ * ] of advertising, collateral and promotional materials, in the
event that any of the Persons or entities identified in Section 15 of this
Agreement begin marketing products and/or services involving Internet or
Intranet delivery systems utilizing any of the Tumbleweed Marks, or in the event
that any act, omission or misrepresentation on the part of Tumbleweed or any of
its officers, directors, agents or employees directly and negatively impacts
upon the goodwill associated with any of UPS's trade names, trademarks and/or
service marks, as determined by UPS in its sole but reasonable discretion.
Tumbleweed agrees to include a direct link to the
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Messaging Service on Tumbleweed's "Posta" homepage on the World Wide Web. In
addition, Tumbleweed agrees to participate in major sales calls by UPS, as
reasonably requested by UPS. The foregoing shall not in any way limit UPS's
obligations, pursuant to Section 7(c) below, to display the "Tumbleweed Posta"
mark in the Software.
b. DISTRIBUTION OF CLIENT SOFTWARE. The License granted pursuant
to Section 5(b) of the Agreement permits UPS to reproduce the client-based
portion of the Software, which reproduction may be in any form and on any media
deemed suitable by UPS for distribution. UPS shall not be obligated to offer
the Messaging Service in all formats, or for all computer systems, but shall
select those which, in its judgment, are deemed most suitable for the Messaging
Service. All costs of packaging and reproduction of the client-based Software
shall be borne by UPS, and subject to compliance with all license restrictions
in this Agreement, UPS shall have complete discretion in selecting the parties
by whom and the circumstances under which and the means by which the
client-based Software is reproduced for distribution, including without
limitation, by making the client-based Software available for download from one
or more FTP sites on the Internet.
c. TRADEMARK USAGE. Unless and until any of the Persons
identified in Section 15 of this Agreement begin marketing products and/or
services involving Internet or Intranet delivery systems utilizing any of the
Tumbleweed Marks, and unless and until any act, omission or misrepresentation on
the part of Tumbleweed or any of its officers, directors, agents or employees
directly and negatively impacts upon the goodwill associated with any of UPS's
trade names, trademarks and/or service marks, as determined by UPS in its sole
but reasonable discretion, UPS agrees Tumbleweed display the Tumbleweed Mark
"Tumbleweed Posta" in the Software, and in the HTML pages created thereby,
provided that the manner in which such Tumbleweed Mark appears (e.g., size,
location, etc.) shall be within UPS's sole but reasonable discretion, subject to
Tumbleweed's reasonable approval.
d. END USER SUPPORT. UPS shall assume sole responsibility for all
first level customer support of all sublicensees and end user customers of the
Messaging Service, at its own expense; provided, however, that Tumbleweed agrees
to promptly provide UPS with second level support to assist UPS with customer
support problems which cannot be dealt with at the first level due to their
complexity or their unusual nature, or due to errors or other malfunctions in
the Software which can only be corrected by Tumbleweed. Tumbleweed will
redirect to UPS any customer support questions it receives from end user
customers of the Messaging Service.
e. MARKETING FLEXIBILITY. UPS shall have full freedom and
flexibility in its marketing effort for the Messaging Service, including,
without limitation, the freedom to decide its methods of marketing and pricing,
and to decide whether to market or discontinue marketing the Messaging Service
or any particular subset of the Messaging Service. Subject to complying with
the express requirements of this Agreement, Tumbleweed shall have full freedom
and flexibility in its support of UPS's marketing effort for the Messaging
Service, including, without
UPS/Tumbleweed Confidential 28 December 18, 1997
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limitation, the freedom to decide its methods of marketing support, and to
decide whether to support or discontinue supporting UPS's marketing of the
Messaging Service or any particular subset of the Messaging Service. Neither
party makes any guarantee or commitment as to the success of its marketing
effort, and each party agrees that the other party has no obligation to it
whatsoever other than as specifically provided in this Agreement.
f. ADDITIONAL MARKETING AND SALES SUPPORT. For the period ending
(1) year after the Commercial Availability Date, in addition to its other
marketing and sales support obligations hereunder, Tumbleweed shall provide the
Services set forth in Exhibit G hereto.
8. WARRANTIES. Tumbleweed hereby warrants and represents to UPS as
follows:
a. SOFTWARE. All Software and Documentation delivered pursuant to
this Agreement will materially conform to the Detailed Design Specifications
therefor. In the event of any breach of the foregoing warranty, Tumbleweed
shall use commercially reasonable efforts to promptly correct or replace the
Software so that it materially conforms with the Detailed Design Specifications.
As the Internet transmission medium and servers connected thereto are not
entirely free form unauthorized access, Tumbleweed does not warrant that
operation of the Software will be uninterrupted, secure, or error-free, or that
all errors will be corrected, and further does not warrant that the information
stored or transmitted by the Software will be free from unauthorized
modification. The warranty set forth in this Section 8(a) shall remain in
effect for the period ending [ * ] following acceptance of Phase II
of the Project pursuant to Section 4(b) hereof (the "Warranty Period"), and for
the period during which Tumbleweed is providing continuing support for the
Software pursuant to Section 9 below (the "Support Period"). The foregoing
warranty does not cover non-conformities due to: (a) any modification of the
Software performed by any Person other than Tumbleweed or any of its Associates
(except for localizations certified by Tumbleweed as set forth in Section 5(f)
and except for modifications to the base Software enabled by the Developer Kit
Software ); (b) operation of the Software under environmental conditions outside
of normal operating ranges for computer hardware for UPS's data center; (c) any
use of the Software on a system that does not meet Tumbleweed's minimum
standards for such Software, to the extent such minimum standards are included
in the Specifications; and (d) hardware or non-Tumbleweed software (where such
non-conformity is due solely to the operation of such hardware or non-Tumbleweed
software).
b. COMPATIBILITY. All Enhancements to the Software furnished
hereunder will be implemented in such a manner as to maintain backward
compatibility with the immedi-
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UPS/Tumbleweed Confidential 29 December 18, 1997
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ately preceding two (2) versions, and all versions of the Software furnished
hereunder and/or released within the previous year, and with any and all
associated interfaces within the Software to other vendors'; software and
hardware, as provided for in Section 5(g) hereof, in Exhibit C hereto, or in the
Detailed Design Specifications, so that such previous versions or interfaces
shall continue to be operable with the Software as Enhanced, in materially the
same manner and with materially equivalent performance as prior to the
Enhancement; provided, however, that Tumbleweed shall have satisfied such
obligation with respect to the preservation of an interface if it furnishes to
UPS, as an alternative to backward compatibility, the software retrofit(s)
necessary to preserve the functionality of applications written to such previous
interface. As used in this subsection (b), a "version" is any version of the
Standard Software designated, in Tumbleweed's sole but reasonable discretion, by
a change in the version number to the left of the first decimal point. On a
case by case basis, UPS agrees to consider, in good faith, reducing Tumbleweed's
two (2) version backward compatibility commitment to one (1) version for a
particular version release; provided, however, that no such reduction shall be
taken or held to extend to any subsequent version of the Software released by
Tumbleweed hereunder.
c. SERVICES. The work to be performed hereunder shall be of
professional quality and will conform to generally accepted standards for
software in the software development and software support fields.
d. Intentionally omitted.
e. RELIABILITY. During the Warranty Period and subsequent Support
Period, when UPS elects to secure the Services of the DSP at the Supported
Datacenter(s), in addition to the individual performance standards for the
Software set forth in the Detailed Design Specifications, Tumbleweed hereby
represents and warrants to UPS that the Software operating at such Supported
Datacenter(s) shall on an ongoing basis, operate without unresolved Critical or
Major Defects ("Uptime"), measured on a monthly basis, for an average of
[ * ]. For the purposes of determining Uptime, the following
formula shall be used:
Uptime = Unit Hours of Operation minus Downtime
(to be expressed --------------------------------------
as a percentage) Unit Hours of Operation
For the purposes of this Section 8(e), "Unit Hours of Operation" shall mean
twenty-four (24) hours per day, seven (7) days per week and "Downtime" shall
mean that period of time when the Messaging Service at the Supported
Datacenter(s) is inoperable (unavailable) for reasons
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attributable to the Software. Downtime for each incident shall commence from
the time UPS has made a BONA FIDE attempt to notify Tumbleweed (or the DSP) that
the Messaging Service at the Supported Datacenter(s) is inoperable for reasons
attributable to the Software, and shall continue until the Messaging Service at
the Supported Datacenter(s) is restored to fully operable condition, but
Downtime shall specifically exclude any time (x) required to perform scheduled
maintenance upgrades (which shall be scheduled by UPS during non-peak hours for
the Messaging Service), or (y) spent as a result of any delay by UPS in
providing Tumbleweed or its DSP with access to the hardware and software at the
Supported Datacenter(s). UPS will consider, in good faith, any recommendations
made by Tumbleweed's DSP(s) with respect to the operation of the Supported
Datacenter(s), where such recommendations shall be limited to the requirements
of operating a data center for the Software in a professional manner consistent
with generally accepted standards for data center operation (including, but not
limited to, the operation of redundant "hot" servers for system integrity,
multiple data line access, regular backups, and the like). At a minimum, UPS
shall implement (i) the operation of redundant "hot" servers, (ii) automatic
regular backups, and (iii) automatic switching to redundant servers in the event
of a networking or hardware failure (the "Minimum Conditions").
f. Intentionally omitted.
g. LOCKS. Except to the extent disclosed in the applicable
Specifications, Tumbleweed has not inserted, and will not insert, in the
Software any lock, clock, timer, counter, copy protection feature, CPU serial
number reference, "Trojan horse," or other device which is intended to (i)
disable or erase all or any part of the Software; (ii) prevent UPS or its
Affiliates from fully utilizing all or any part of the Software, or prevent
UPS's customers for fully utilizing all or any part of the Client Software
and/or Custom Client Software; or (iii) require action or intervention by
Tumbleweed or any other Person to allow UPS or its Affiliates, or their
respective customers, to utilize all or any part of the Software on the type of
computer equipment indicated in Exhibits A and B hereto.
h. VIRUSES. Tumbleweed has used and will use all commercially
reasonable efforts to ensure that each copy of the Software delivered pursuant
to this Agreement is free of any computer "viruses."
i. MILLENNIUM. Tumbleweed warrants to UPS (and not to any other
parties) that Tumbleweed will use commercially reasonable efforts to ensure that
the Software will create, store, process, compare, calculate, sequence and
output data relating to (and including) dates on or after January 1, 2000,
without producing inaccurate results. The foregoing warranty only applies to
errors that are specifically attributable to date-specific data; if such errors
would be encountered with non-date-specific data, such errors are covered solely
by the other warranty and maintenance provisions of this Agreement. While the
exclusions applicable to such other warranty and maintenance provisions also
apply to this warranty, UPS acknowledges that inaccurate results also could be
caused by software and hardware being used with the Software (including without
limitation the BIOS or the operating system), and such inaccurate
UPS/Tumbleweed Confidential 31 December 18, 1997
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results are not covered by the foregoing warranty. Any enhancement required to
enable that the Software to comply with this warranty will be considered part of
and covered under the maintenance provisions of this Agreement at no additional
charge to UPS.
j. WARRANTY DISCLAIMER. EXCEPT AS SET FORTH IN THIS AGREEMENT,
TUMBLEWEED AND ITS SUPPLIERS DISCLAIM ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF TITLE, MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT.
9. SOFTWARE SUPPORT SERVICES. Tumbleweed shall provide Maintenance
Services pursuant to this Section 9 for the period ending as of December 31,
1999, and on a year to year basis thereafter (collectively, the "Support
Period"), unless and until terminated by UPS upon at least ninety (90) days'
written notice to Tumbleweed prior to the commencement date of the next annul
Support Period. Tumbleweed agrees to make the Maintenance Services available to
UPS for the term of this Agreement.
a. NOTIFICATION OF DEFECTS. Tumbleweed will promptly (i) notify
UPS of any defects or malfunctions in the Software or Documentation of which it
learns from any source and which it reasonably expects to lead to a Critical
Defect or Major Defect, (ii) use commercially reasonable efforts to correct any
such defects or malfunctions, and (iii) upon the earliest availability of such
corrections, provide UPS with corrected copies of same.
b. ENHANCEMENTS. Tumbleweed will promptly provide to UPS, on or
before the date on which any such Enhancement is made generally available to any
of Tumbleweed's other customers, copies of the Software and Documentation
revised to reflect any Enhancements to the Standard Software which are to be
made generally available to Tumbleweed's other customers, including, without
limitation, modifications to the Software which can increase the speed,
efficiency or ease of operation of the Software or add additional functionality
or capabilities to or otherwise improve the functions of the Software, and
modifications to the Software which support new protocols, new operating systems
and/or new releases of the operating systems and other third party software with
which the Software is designed to operate or interface. In the event that
Tumbleweed develops an Enhancement for which it will owe a royalty based on the
distribution of such Enhancement (a "Royalty Enhancement"), Tumbleweed agrees to
offer the Royalty Enhancement to UPS on terms [ * ], and UPS
agrees to pay such royalty, [ * ] based solely upon UPS's use
of the Royalty Enhancement, in the event UPS elects to license such Royalty
Enhancement. Solely
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with respect to the migration from version 1.0 of the Standard Software to
version 2.0 of the Standard Software, Tumbleweed shall perform [ * ]
modifications necessary to the Custom Software furnished hereunder,
[ * ] charge to UPS, to ensure that such Custom Software shall
continue to be operable with the Software as Enhanced, in materially the same
manner and with materially equivalent performance as Custom Software
associated with version 1.0 of the Standard Software. Further, Tumbleweed
hereby represents and warrants to UPS that version 2.0 of the Standard
Software, and the modified version of the Custom Software provided pursuant
to the previous sentence, shall have equivalent or greater functionality and
performance as version 1.0 of the Standard Software, and Custom Software
associated therewith, when operated on (A) SUN Ultra servers, with (B) the
SUN Solaris 2.6 operating system or above, with (C) Oracle 7.3 database (with
patch) or above, with (D) Netscape Enterprise Service 3.0C or above (backward
compatible to 2.01), and must support (E) NFS, and must support (F) separate
HTTP components (multiple web servers talking to the same file, system and
database), and must provide (G) same custom API services as Tumbleweed built
for UPS in version 1.0 (the functions do not have to be the same, but
functionality must be), and (H) Tumbleweed must provide expert assistance for
developing a distributed implementation using multiple HTTP components, and
(I) Tumbleweed must provide expert assistance for developing a redundant data
center recovery solution (the solution must be approved by the UPS
architecture group). With respect to subsequent Enhancements to the Standard
Software, subject to Section 8(b) above, UPS acknowledges that any work that
the parties mutually agree that Tumbleweed shall perform to conform the
Custom Software to any such subsequent Enhancement shall be performed as part
of a new Phase pursuant to Section 2 hereof. With respect to all
Enhancements, Tumbleweed shall provide procedures, such as database
conversion procedures where applicable, and any computer program(s) required
to assure a smooth and timely migration to the new environment (i.e.,
typically capable of being performed overnight).
c. SECOND LEVEL SUPPORT. UPS shall be solely responsible for
providing all first level support for its end user customers and for all aspects
of the Messaging Service which do not involve the Software. Except as set forth
in Section 9(d) below UPS shall further be responsible for first level support
of the Server Software and Custom Server Software. Tumbleweed will provide to
UPS, twenty-four (24) hours per day, seven (7) days per week, all telephone or
written consultation reasonably requested by UPS in connection with its use and
operation of the Software or any problems therewith which cannot be resolved a
the first level. UPS may designate up to two (2) employees per data center
operating the Server Software/Custom Server Software as its support interface(s)
("Support Interfaces") with Tumbleweed, which employee(s) shall initiate and
administer all requests for telephone consultation hereunder. Each UPS support
interface must complete the training specified in Section 12 hereof, and UPS's
end user support personnel shall have completed either the end user support
training specified in Section 12 hereof, or subsequent "train the trainer"
sessions conducted by UPS regarding end user support. In the event that
requests become excessive or overly burdensome as a result of lack of skill or
training by the Support Interface(s), or high rate of turnover of such Support
Interface(s), UPS and Tumbleweed personnel shall meet to provide solutions to
such problem.
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d. SUPPORTED DATACENTER SUPPORT. In order to assist UPS in
performance of its first level support obligations for the Server Software and
Custom Server Software, Tumbleweed shall make available to UPS for a period of
[ * ] from the Commercial Availability Date, one Dedicated Support
Personnel at each Supported Datacenter(s) as UPS may so elect. Following such
[ * ] period, Tumbleweed shall continue to make the DSP(s) available to
UPS on a month to month basis unless and until UPS shall have provided at least
ninety (90) days' prior written notice to Tumbleweed of the termination of such
DSP Services with respect to one (1) or more Supported Datacenters. In the
event that UPS elects to discontinue DSP Services with respect to a particular
Supported Datacenter, the parties shall meet to mutually agree upon a reasonable
adjustment to the Reliability Warranty set forth in Section 8(e) hereof, and the
obligations and remedies set forth in Section 9(e)(ii) and (iii) shall no longer
apply, but be replaced by the obligations set forth in Section 9(e)(iv) and (v)
with respect to any such data center. The DSP(s) shall have as his, her or
their first priority the ongoing support and maintenance of the Software at the
Supported Datacenter, and shall be physically present at the Supported
Datacenter(s) during UPS Business Hours, and on call (i.e., available by pager)
outside of UPS's Business Hours. "Business Hours" are 8:00 a.m. to 6:00 p.m.,
local time, on Business Days. UPS shall provide to the DSP(s) physical access
to the server(s) running the Messaging Service at the Supported Datacenter(s),
as well as remote access to any other servers running the Messaging Service, in
all cases subject to compliance with UPS's reasonable security measures for such
access, remote or otherwise. To the extent that UPS declines or fails to
implement the Minimum Conditions (as defined above), Tumbleweed shall not be
liable for any response time commitments and associated remedies set forth in
Sections 9(e)(ii) and (iii). During the first five (5) days following
installation of the Software at each Supported Datacenter, the DSP shall be
physically present during UPS Business Hours to assist with the implementation
of the Messaging Service at such Supported Datacenter.
e. REMEDIAL EFFORTS BY TUMBLEWEED. Tumbleweed will respond to and
resolve problems with the Software in accordance with the following procedures:
i. UPS shall first attempt to identify and rectify the problem in
accordance with its first-level support obligations, which may include
consulting with the DSP. If such activities are unsuccessful, the DSP
(or one of UPS's Support Interfaces, if UPS is not then covered by
Tumbleweed's DSP Services pursuant to Section 9(d) above) shall
contact Tumbleweed to report such problem. If the problem may be
solved via a telephone consultation, Tumbleweed (or its DSP) shall
proceed to attempt to effect such resolution. If remote access is
required to permit Tumble-
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information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
UPS/Tumbleweed Confidential 34 December 18, 1997
<PAGE>
weed to attempt to diagnose the problem, then subject to Tumbleweed's
compliance with UPS's security procedures then in effect, UPS shall
provide remote access to UPS's servers running the Messaging Service
solely for the purpose of enabling Tumbleweed to attempt to diagnose
and remedy reported problems remotely. Based on such remote
diagnosis, the parties shall confer to determine whether the Software
or some other component is responsible for any problems with respect
to the Messaging Service.
In the event that the problem does not arise at a Supported
Datacenter, and Tumbleweed informs UPS that the Software is not
responsible for the problem, and UPS nevertheless reasonably believes
that the Software is responsible for such problem and that such
problem is a Critical or Major Defect, and after all possible
diagnosis by Tumbleweed and discussion by the parties UPS insists that
on-site support is the only reasonable solution, Tumbleweed support
personnel shall promptly travel to the other UPS datacenter to attempt
to effectuate such repairs. In the event that after such travel it
becomes clear that the Software was not responsible for such problems
and Tumbleweed had informed UPS of such diagnosis prior to such
travel, as provided for above, UPS shall reimburse Tumbleweed for all
actual expenses incurred in the course of such service call as well as
time and materials charges related to the same. In the event that
such on-site service had been necessitated by a Critical or Major
defect caused by the Software, Tumbleweed shall bear all expenses
associated with such on-site call, but no time and materials charges
shall be payable in connection therewith.
Nothing provided for in this subsection (e)(i) shall have any effect
on the remedies available to UPS pursuant to subsections (e)(ii) and
(e)(iii) below, provided, however that Tumbleweed's obligations and
UPS's remedies set forth in subsections (e)(ii) and (e)(iii) below
shall apply only to Supported Datacenters;
ii. For a Supported Datacenter, with respect to Critical Defects, as
reasonably determined by UPS, Tumbleweed will respond to UPS's request
for service by telephone response by a qualified and knowledgeable
representative within one (1) hour from the time Tumbleweed receives
UPS's call and will complete such repairs expeditiously. Tumbleweed
personnel shall render continuous effort with respect to such
problems. If Tumbleweed does not respond and remedy such problem in
the Software within four (4) hours of receipt of the call , UPS shall
be entitled to a credit against future amounts due hereunder of
[ * ] the average hourly revenues generated by the Messaging
Service (measured over the prior three-month period) for every hour or
part thereof after four (4) hours that Tumbleweed fails to remedy such
problem. Monies becoming due UPS shall be applied as a credit against
any amounts subsequently due from UPS to Tumbleweed. Notwithstanding
the foregoing, in the event that Tumbleweed fails to remedy any such
problem within fifteen (15) days of receipt of the call, or in the
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information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
UPS/Tumbleweed Confidential 35 December 18, 1997
<PAGE>
event that any such problem occurs four (4) or more times within any
six (6) month period, such failure shall be deemed to be a material
breach by Tumbleweed of this Agreement, in which event the foregoing
credits shall no longer accrue and UPS shall be entitled to pursue
such damages and remedies as UPS might have pursuant to this
Agreement, at law or in equity, subject to the limitations (including
the limitations on liability) set forth herein;
iii. For a Supported Datacenter, with respect to Major Defects, as
reasonably determined by UPS, Tumbleweed will respond to UPS's request
for service by telephone response by a qualified and knowledgeable
representative within two (2) hours from the time Tumbleweed receives
UPS's call and will complete such repairs expeditiously. Tumbleweed
personnel shall render continuous effort with respect to such
problems. If Tumbleweed does not respond and remedy such problem in
the Software within twenty-four (24) hours of receipt of the call, UPS
shall be entitled to a credit against future amounts due hereunder of
[ * ] the average hourly revenues generated by the Messaging
Service (measured over the prior three-month period) for every hour or
part thereof after twenty-four (24) hours that Tumbleweed fails to
remedy such problem. Monies becoming due UPS shall be applied as a
credit against any amounts subsequently due from UPS to Tumbleweed.
Notwithstanding the foregoing, in the event that Tumbleweed fails to
remedy any such problem within thirty (30) days of receipt of the
call, or in the event that any such problem occurs six (6) or more
times within any six (6) month period, such failure shall be deemed to
be a material breach by Tumbleweed of this Agreement, in which event
the foregoing credits shall no longer accrue and UPS shall be entitled
to pursue such damages and remedies as UPS might have pursuant to this
Agreement, at law or in equity, subject to the limitations (including
the limitations on liability) set forth herein;
iv. For locations other than Supported Datacenters, with respect to
Critical Defects, as reasonably determined by UPS, Tumbleweed will
respond to UPS's request for service by telephone response by a
qualified and knowledgeable representative within one (1) hour from
the time Tumbleweed receives UPS's call and will complete such repairs
within eight (8) hours. Tumbleweed personnel shall render continuous
effort with respect to such problems;
v. For locations other than Supported Datacenters, with respect to Major
Defects, as reasonable determined by UPS, Tumbleweed will respond to
UPS's request for service by telephone response by a qualified and
knowledgeable representative within two (2) hours from the time
Tumbleweed receives UPS's call and will complete such repairs within
forty-eight (48) hours. Tumbleweed personnel shall render continuous
effort with respect to such problems;
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information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
UPS/Tumbleweed Confidential 36 December 18, 1997
<PAGE>
vi. With respect to any other problem involving the Software (i.e., Minor
Defects), Tumbleweed will respond during Business Hours (hereinafter
defined) to UPS's request for service by telephone response by a
qualified and knowledgeable representative within four (4) hours from
the time Tumbleweed receives UPS's call and will use commercially
reasonable efforts to correct such Minor Defect(s) in the next
Enhancement of the applicable Software; and
f. TERMINATION OF MAINTENANCE. UPS shall have the right to
terminate the maintenance provisions of this Agreement, without affecting its
Licenses to the Software granted under Section 5 hereof, at any time in the
event of a breach by Tumbleweed of any of its maintenance obligations hereunder
if Tumbleweed shall fail to cure such breach within thirty (30) calendar days of
receipt of written notice thereof. Except as expressly provided for in Section
9(e) above, any termination of the maintenance provisions of this Agreement by
UPS shall be in addition to any and all other legal or equitable remedies which
may be available to UPS. In the event that UPS has terminated the maintenance
provisions of this Agreement, and subsequently desires maintenance services,
Tumbleweed shall have the right to require that UPS first pay all maintenance
fees which would have been otherwise due during the interim and upgrade the
Software to the currently supported versions of the Software.
g. MAINTENANCE EXCLUSIONS. Tumbleweed will only provide Maintenance
Services for (x) the then-current version of the Software, (y) the immediately
preceding two (2) versions of the Software, and (z) all preceding versions of
the Software (in addition to the immediately preceding version) for a period of
[ * ] following the release of such preceding version(s). As used in
this subsection (h), a "version" is any version of the Standard Software
designated, in Tumbleweed's sole but reasonable discretion, by a change in the
version number to the left of the first decimal point. Furthermore, Maintenance
Services do not include any service required as a result of: (a) any
modification of the Software performed by any Person other than Tumbleweed or
any of its Associates (except for localizations certified by Tumbleweed as set
forth in Section 5(f) and except for modifications to the base Software enabled
by the Developer Kit Software); (b) operation of the Software under
environmental conditions outside of normal operating ranges for computer
hardware for UPS's data centers; (c) any use of the Software on a system that
does not meet Tumbleweed's minimum standards for such Software, to the extent
such minimum standards are included in the Specifications; or (d) the operation
of hardware or non-Tumbleweed software (where such non-conformity is due solely
to the operation of such hardware or non-Tumbleweed software). In the event
that Tumbleweed provides services that are shown to be due to a factor not
covered by the Maintenance Services enumerated in this Agreement, UPS shall pay
Tumbleweed's then-current time
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information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
UPS/Tumbleweed Confidential 37 December 18, 1997
<PAGE>
and materials charges needed to perform such services; provided, however, that
Tumbleweed shall have informed UPS in advance that such services are not covered
by the maintenance provisions hereof, and UPS shall then have expressly
requested that Tumbleweed proceed to perform such services.
10. CONFIDENTIAL INFORMATION.
a. NON-DISCLOSURE OF TRADE SECRETS AND CONFIDENTIAL INFORMATION.
During the term of this Agreement, and indefinitely thereafter, Tumbleweed will
not use, copy, or disclose, or permit any unauthorized person access to, any of
UPS's Trade Secrets, except as expressly directed by UPS or as permitted herein
in connection with Tumbleweed's work hereunder. During the term of this
Agreement, and indefinitely thereafter, UPS will not disclose, or permit any
unauthorized person access to, any of Tumbleweed's Trade Secrets, except as
expressly authorized by Tumbleweed or as permitted herein. During the term of
this Agreement and for a period of two (2) years after termination thereof,
Tumbleweed will not use, copy, or disclose, or permit any unauthorized person
access to, any of UPS's Confidential Information, except as expressly directed
by UPS or as permitted herein in connection with Tumbleweed's work hereunder.
During the term of this Agreement and for a period of two (2) years after
termination thereof, UPS will not disclose, or permit any unauthorized person
access to, any of Tumbleweed's Confidential Information, except as expressly
authorized by Tumbleweed or as permitted herein. The use and disclosure
restrictions in this Section 10(a) shall not apply to Trade Secrets and/or
Confidential Information which (i) are known by the recipient prior to receipt
from the disclosing party, (ii) are or become, through no act or fault of the
recipient, publicly known or generally utilized by others, (iii) are received by
recipient from a third party without a restriction on disclosure or use, (iv)
are independently developed by recipient without reference to the Trade Secrets
and/or confidential Information, or (v) are required to be disclosed by a court
or government agency, provided that the recipient shall have given prior written
notice of such required disclosure to the disclosing party promptly upon the
recipient becoming aware of such requirement, and taken reasonable steps to
allow the disclosing party to seek to protect the confidentiality of the
information required to be disclosed.
b. RETURN OF MATERIALS. Each party acknowledges that all Trade
Secrets and Confidential Information of the other party are the property of the
other party or its affiliates and their respective licensors. All notes, data,
reference materials, sketches, disks, memoranda, tapes, manuals, files,
documentation and records in any way incorporating or reflecting any of the
Trade Secrets or Confidential Information of UPS and/or its Affiliates shall
belong exclusively to UPS and such Affiliates, and Tumbleweed agrees to turn
over all copies of such materials in Tumbleweed's possession or control to UPS,
or certify the destruction thereof, upon request and, in any event, after the
termination or expiration of this Agreement. All notes, data, reference
materials, sketches, disks, memoranda, tapes, manuals, files, documentation and
records in any way incorporating or reflecting any of the Trade Secrets or
Confidential Information of Tumbleweed or its Associates shall belong
exclusively to Tumbleweed or its Associates
UPS/Tumbleweed Confidential 38 December 18, 1997
<PAGE>
and upon the termination or expiration of this Agreement, UPS agrees to turn
over all copies of such materials in UPS's possession or control to Tumbleweed,
or certify the destruction thereof.
c. THIRD PARTY MATERIALS. Neither party wishes to incorporate any
unlicenced or unauthorized materials into its products. Therefore, each party
agrees that it will not knowingly disclose to the other, or cause the other to
use any information or material which is confidential to any third party unless
the disclosing party has a written agreement with such third party permitting
disclosure of such information or material to the receiving party or the
receiving party otherwise has the right to receive and use such information or
material. Neither party will incorporate into its work any materials which are
subject to the copyrights of any third party except with the prior written
consent of said third party.
d. PUBLICITY. Tumbleweed shall not use the name of or refer to UPS
or any of its Affiliates directly or indirectly in any advertisement, press
release or professional or trade publication without receiving prior written
approval from UPS. Notwithstanding the foregoing, and subject to Tumbleweed's
compliance with the applicable restrictions and other obligations hereunder
(e.g., restrictions on the disclosure of UPS's Confidential Information), UPS
will agree to be a reference account for Tumbleweed and will allow Tumbleweed to
promote its relationship with UPS in press releases, web pages and other
collateral marketing and sales materials; provided, however, that Tumbleweed
must obtain UPS's prior written consent with respect to any and all such
descriptions of the relationship between UPS and Tumbleweed, which consent will
not be unreasonably withheld.
e. REMEDIES. Both parties acknowledge and agree that there may be
no adequate remedy at law available to the other party in the event of the
breach of any provision of this Section 10 and that such other party, in
addition to any other rights which may be available to it, shall have the right
to obtain specific performance or injunctive relief, as applicable, in the event
of any breach or threatened breach of these provisions.
11. SOURCE CODE.
a. RIGHT TO USE SOURCE CODE. UPS shall be entitled to a copy of the
Source Code for the Software, and may use same for its own benefit as set forth
in Section 11(c) hereto if (i) Tumbleweed suffers an "Insolvency Event," as such
term is defined in the Escrow Agreement attached hereto as Exhibit F, and in
connection therewith, Tumbleweed or its trustee or receiver rejects this
Agreement; or (ii) Tumbleweed is in material breach of the maintenance
provisions set forth in Section 9 hereof, or of any software maintenance
agreement then in effect between the parties relating to the Standard Software
and that has replaced the provisions of Section 9 hereof.
b. SOURCE CODE ESCROW. Within fifteen (15) days after UPS's
acceptance of the Software associated with Phase II of this Agreement, and
thereafter no later than the time of Tumbleweed's delivery to UPS of the
Software associated with Phases subsequent to Phase II of
UPS/Tumbleweed Confidential 39 December 18, 1997
<PAGE>
this Agreement, Tumbleweed shall place the Source Code for such Software in
escrow pursuant to an escrow agreement in the form of the escrow agreement
attached hereto as Exhibit F (the "Escrow Agreement"), which Escrow Agreement
shall be entered into prior to the date of such delivery. Except as set forth
herein, Tumbleweed shall be responsible for all charges incurred in establishing
and maintaining such escrow account. UPS shall be entitled to receive a copy of
such Source Code under the circumstances set forth in Section 11(a) above and
pursuant to the procedures set forth in the Escrow Agreement. If Tumbleweed
corrects any defects in, or provides any revision to, the Software under
Section 9 hereof, or under any software maintenance agreement between the
parties, Tumbleweed shall simultaneously furnish the escrow agent with a
corrected or revised copy of the Source Code for the Software.
c. VERIFICATION OF ESCROW DEPOSIT(S). UPS may periodically, but not
more frequently than once per year, trigger fresh escrow deposits. UPS shall
reimburse Tumbleweed and the escrow agent under the Escrow Agreement for the
reasonable expenses incurred in the preparation of such fresh escrow deposits.
In addition to triggering fresh deposits, UPS shall have the right, either
itself or through a third party designated by UPS, to validate the materials on
deposit upon thirty (30) calendar days prior written notice to and in the
presence of Tumbleweed, but no more frequently than two (2) times per year. Any
third party designated by UPS to validate the materials on deposit shall be
required to execute a nondisclosure agreement with Tumbleweed, in a form
reasonably satisfactory to Tumbleweed, which nondisclosure agreement shall
require that such third party's report to UPS contain only a non-confidential
description of results of such validation. Verification shall take place at
Tumbleweed's convenience during normal business hours on mutually-designated
hardware. Such verification shall be at UPS's expense unless the materials on
deposit have not been deposited at the frequency required in Section 11(b)
above, in which event Tumbleweed shall bear all costs associated therewith.
d. OWNERSHIP OF MODIFICATIONS MADE BY UPS. Any and all Derivative
Works to the Source code released from escrow which are made by or on behalf of
UPS shall be the sole property of UPS. UPS acknowledges that its ownership of
such Derivative Works in no way, form or manner creates or transfers any right
or title in the Source code to the underlying Standard Software, and that its
ownership rights are limited solely to the Derivative Works.
e. SOURCE CODE LICENSE. Upon the occurrence of the release events
set forth in Section 11(a), Tumbleweed hereby automatically grants to UPS, a
non-exclusive, irrevocable license to Use, reproduce, modify, maintain, support,
update, make, have made, and create Derivative Works of the Source code, and to
create object code copies of such software thereby created solely to support and
enhance the Messaging Service. UPS shall have the right to employ third party
contractors to exercise the foregoing license, so long as such third parties are
bound by terms no less protective of the Source Code than the terms of this
Agreement, including an obligation to protect the confidential and proprietary
nature of the Source Code and to use the Source Code only on UPS's behalf and
only to the extent necessary to support the foregoing license. Except as
incident to the foregoing grant, UPS may not use, reproduce, distribute, create
Derivative Works of, publicly perform, publicly display, digitally perform,
UPS/Tumbleweed Confidential 40 December 18, 1997
<PAGE>
make, have made, sell, offer to sell or import the Source Code. UPS shall
continue to pay Royalties, and UPS's failure to make such payments when due
shall terminate this source code license.
f. DISCONTINUANCE OF MARKETING. If Tumbleweed ceases to market the
Standard Software and such marketing is not continued by another Person, or is
continued by another Person which UPS for reasonable cause deems unsatisfactory,
at UPS's request, UPS and Tumbleweed will enter into good faith negotiations to
license the Source code to UPS on commercially reasonable terms.
12. TRAINING SERVICES. In addition to the training outlined in Exhibit G
hereto, the License Fees and development fees specified in Section 6 hereof
include all costs (other than Tumbleweed's reasonable and actual travel and
living expenses) for the following training programs: (i) attendance of up to
ten (10) of UPS's technical support personnel at Tumbleweed's two-day system
administrator training course, for which course UPS shall have the right to
select the topics to be covered based upon training materials supplied to UPS by
Tumbleweed in advance of such training; and (ii) training of up to fifteen (15)
of UPS's end user support personnel on the Use and operation of the Software.
Pursuant to a mutually agreed upon schedule, Tumbleweed shall provide sufficient
experienced and qualified personnel to conduct such training at the location(s)
designated by UPS. The parties may mutually agree that Tumbleweed shall perform
additional training for UPS. Such training may be purchased by UPS, in it sole
discretion, at Tumbleweed's standard list price and shall be conducted at a
mutually agreed upon time. In addition, if the paries agree that such training
shall be performed at any site other than Tumbleweed's Redwood City facility,
UPS shall pay all reasonable and actual travel and living expenses incurred by
Tumbleweed in performing the training.
13. COMPLIANCE WITH LAWS.
a. LICENSES AND PERMITS. Tumbleweed (i) is responsible for
obtaining all licenses, authorizations and permits required by applicable
legislative enactments and regulatory authorizations, whether United States
federal, state, local or otherwise, which are required in connection with the
export of the Software from the United States to foreign countries which may
reasonably be considered to be "major" markets, and/or in connection with the
exercise by UPS and its sublicensees (to the extent of their sublicenses),
within the United States, of their respective rights derived from this
Agreement; and (ii) has financial responsibility for, and shall pay, all fees
and taxes associated with such licenses, authorizations and permits. UPS is
responsible for obtaining, and shall pay all fees and taxes associated with, all
licenses, authorizations and permits required by applicable legislative
enactments and regulatory authorizations, whether United States federal, state,
local or otherwise, which are required in connection with the export of the
Software from the United States to any and all other foreign countries. With
respect to foreign jurisdictions within which UPS will provide the Messaging
Service, UPS shall also be responsible for obtaining all licenses,
authorizations and permits required by applicable legislative enactments and
regulatory authorizations, except with respect to those provided for
UPS/Tumbleweed Confidential 41 December 18, 1997
<PAGE>
above in this Section 13(a). Notwithstanding the foregoing, upon UPS's
reasonable request and subject to UPS's agreement to reimburse any associated
costs and reasonable expenses, Tumbleweed will promptly execute all documents
and do all acts which may be necessary, desirable or convenient to enable UPS at
its expense to obtain such licenses, authorizations and permits. In the event
that Tumbleweed has expertise in procuring any such licenses, authorizations or
permits, Tumbleweed shall cooperate with UPS to share such information regarding
the same.
b. CHANGES IN LAW AND REGULATIONS. Tumbleweed shall use reasonable
efforts to identify the impact of changes in applicable legislative enactments
and regulations on the functions performed by the Software, whether such
enactments or regulations are foreign or Untied States federal, state, local or
otherwise. Tumbleweed shall notify UPS of such changes and shall work with UPS
to identify the impact of such changes on UPS's offering of the Messaging
Service. Tumbleweed shall promptly make any resulting modifications to the
Software as reasonable necessary as a result of such changes, and shall be
responsible for, and shall pay for, the cost of any such changes directly
related to Tumbleweed's business.
14. INDEMNIFICATION.
a. PROPRIETARY RIGHTS INDEMNIFICATION. Tumbleweed shall indemnify,
defend and hold UPS and its Affiliates and Server Sublicensees and their
respective officers, directors, agents and employees harmless from and against
any and all liabilities, damages, losses, expenses, claims, demands, suits,
fines or judgments, including reasonable attorneys' fees, and costs and expenses
incidental thereto, which may be suffered by, accrued against, charged to or
recoverable from UPS or any of its Affiliates or Server Sublicensees, or their
respective officers, directors, agents or employees, arising out of a claim that
the Software or Documentation, or any portion thereof, infringes or
misappropriates any United States or foreign patent, copyright, trade secret or
other proprietary right. In the event that the Software or Documentation, or
any portion thereof, is held in a suit or proceeding, or Tumbleweed, in its sole
discretion, believes that the software or Documentation may be held, to infringe
any rights of any other Person, and the Use of the Software or Documentation or
portion thereof is enjoined, or Tumbleweed, believes that the Software or
Documentation may be enjoined, Tumbleweed shall, at its sole option and expense,
either (i) procure for UPS the right to continue using the Software and
Documentation, or (ii) modify the Software and/or Documentation or replace the
same with non-infringing software or materials of equivalent functionality and
performance. Tumbleweed will not be liable for claims based upon: (w)
compliance with UPS specifications, where such specifications would necessarily
give rise to infringement (i.e. where alternate implementations of substantially
the same functionality would not avoid such infringement); (x) the use or
combination of the Software with software, hardware, or other materials not
provided or approved by Tumbleweed; (y) any use of a version of the Software
which has been altered or modified other than by Tumbleweed or an authorized
representative of Tumbleweed, if infringement would not have occurred but for
the alteration or modification; or (z) any UPS Intellectual Property
incorporated into the Custom Software.
UPS/Tumbleweed Confidential 42 December 18, 1997
<PAGE>
b. TUMBLEWEED'S GENERAL INDEMNITY. Tumbleweed shall indemnify,
defend and hold UPS and its Affiliates, and their respective officers,
directors, agents and employees, harmless from and against any and all
liabilities, damages, losses, expenses, claims, demands, suits, fines or
judgments, including reasonable attorneys' fees, and costs and expenses
incidental thereto, which may be suffered by, accrued against, charged to or
recoverable from UPS or any of its Affiliates, or any of their respective
officers, directors, agents or employees, arising out of or resulting from (i)
claims of bodily injury, including death, or loss or damage to property or
physical destruction of property arising out of or in connection with any act,
error or omission of Tumbleweed or any of its officers, directors, agents,
employees or subcontractors, during the term of this Agreement; (ii) the fault
or negligence of Tumbleweed in the course of its performance under this
Agreement, including, without limitation, performance, nonperformance, or defect
in performance or defect in design, or any failure of any license management
software (to the extent placed in the software by Tumbleweed) to operate
properly, or any statement, misstatement, representation or misrepresentation
made by Tumbleweed; or (iii) a reclassification or attempt to reclassify any of
Tumbleweed's employees as an employee of UPS, including, without limitation, any
tax liability (including interest and penalties) resulting from UPS's failure to
pay, deduct or withhold income taxes, Federal Insurance Contribution Act taxes,
or Federal Unemployment Tax Act taxes with respect to any of Tumbleweed's
employees.
c. UPS'S GENERAL INDEMNITY. Except with respect to matters covered
by Sections 14(a) and (b) above, UPS shall indemnify, defend and hold Tumbleweed
and its officers, directors, agents and employees harmless from and against any
and all liabilities, damages, losses, expenses, claims, demands, suits, fines or
judgments, including reasonable attorneys' fees, and costs and expenses
incidental thereto, which may be suffered by, accrued against, charged to or
recoverable from Tumbleweed or any of its officers, directors, agents or
employees, arising out of or resulting from claims by third parties, including
end user customers of UPS, based upon (i) any representations made by UPS to
such third parties which are not supported by the Documentation and/or any other
information or materials supplied by Tumbleweed, or (ii) any acts committed by
UPS's end user customers during the course of their use of the Messaging
Service. IN NO EVENT WILL UPS'S AGGREGATE, CUMULATIVE LIABILITY UNDER THIS
SECTION 14 EXCEED [ * ]
d. LITIGATION. The parties' respective indemnification obligations
hereunder shall require that promptly after a party seeking to be indemnified
receives a threat of any action, or a notice of the commencement or filing of
any action which may be subject to the provisions of this Section 14, the party
seeking indemnification shall notify the other party in writing and tender the
matter to said party for resolution or litigation. The indemnifying party shall
keep the
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information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
UPS/Tumbleweed Confidential 43 December 18, 1997
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other party reasonably apprized of the continuing status of the claims covered
by this Section 14, including any lawsuits resulting therefrom, and shall permit
the other party, upon such party's written request, to participate (at such
party's own expense) in the defense or settlement of any such claim. Neither
party shall be required to indemnify for, be bound by, or otherwise incur any
liability with respect to, any settlement terms to which it has not agreed; and
in such a case, the party has not agreed to the settlement terms shall assume
the cost of defending against any such claim and shall select the attorney(s) to
defend against such claim subject to the other party's approval, which shall not
be unreasonably withheld.
15. CO-PROMOTION AND CO-ADVERTISING. Any and all marketing by Tumbleweed
shall exclude co-promoting or co-advertising with, or otherwise licensing the
use of any of the Tumbleweed Marks, to:
(A) [ * ]
(B) any of the following entities for the period ending [ * ],
or (xi) any parent or subsidiary of any entity on the above list which
is involved in the transportation industry or any successor of any
entity on the above list.
To the extent that any of the foregoing entities utilize any such Tumbleweed
Marks in violation of the foregoing restriction, Tumbleweed will take any and
all reasonable steps necessary to enjoin such entity(ies) from using said
Tumbleweed Marks. The [ * ] date provided for above in this
Section 15 shall be extended on a day for day basis for any slippage in any of
the dates set forth in the Implementation Schedule which is caused by
Tumbleweed.
16. TERM AND TERMINATION.
a. TERM. The term of this Agreement shall be eight (8) years,
subject to any earlier termination hereof pursuant to the express terms and
conditions of this Agreement.
b. TERMINATION BY TUMBLEWEED; ESCALATION. Tumbleweed may terminate
this Agreement for UPS's breach of its payment obligations under Sections 6(a),
(b), (c), (d), (g), and may terminate Section 9 of this Agreement for UPS's
breach of its payment obligations under Section 6(i) and (j), provided that
prior to any such termination (i) the parties shall first engage in good faith
in the dispute escalation procedures set forth below, and (ii) if the dispute
can be resolved via an accounting audit process, such audit process (as set
forth in Sections 6(e) and (o)) shall have been completed. In the event that a
dispute arises regarding any payment or withholding of any funds, either party
may give the other notice of the existence of a dispute. If the dispute is not
resolved in the normal course of business, then each party shall refer the
dispute to the following individuals, which individuals shall attempt to settle
amicably by good faith discussions such dispute:
For UPS: Mark A. Rhoney
- ---------------
[*]Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
UPS/Tumbleweed Confidential 44 December 18, 1997
<PAGE>
For Tumbleweed: Jeffrey C. Smith
If the designated individuals are unable to resolve the dispute by such
discussions within thirty (30) days (the "Escalation Period"), and the parties
have not agreed that the dispute can be resolved via an accounting audit process
(or if the parties have agreed that the dispute can be resolved via an
accounting audit process, such process has been completed, including the thirty
(30) day payment period provided for in Section 6(o)), and if UPS has not paid
the disputed amounts within an additional thirty (30) days following the
Escalation Period, then Tumbleweed may terminate this Agreement without
liability for such termination. No payment by UPS of any disputed amount under
this Agreement, whether pursuant to Section 6(o), this Section 16(b) or
otherwise, shall constitute a waiver by UPS of its right to pursue any and all
claims relating thereto following such payment, provided, however, that UPS
shall have provided Tumbleweed written notice of its continued dispute.
c. CONSEQUENCES OF TERMINATION. In the event of the termination or
expiration of this Agreement, in addition to the parties' other obligations
hereunder, (i) all licenses granted by either party to the other hereunder shall
terminate, (ii) UPS shall promptly remove all copies of the
Tumbleweed-proprietary Software from all servers in UPS's control, (iii) both
parties shall promptly remove all references to the other party and its products
and/or services from its advertising and other promotional materials, and from
its website and any other Internet sites, and (iv) except as otherwise provided
to the contrary, all obligations of one party to the other party shall cease.
Sections 1, 2(j) (only to the extent any amounts remain due and payable), 2(k),
4(b) (only to the extent any amounts remain due and payable and/or restrictive
covenants remain unfulfilled), 5(d), 6 (only to the extent any fees remain due
and payable), 10, 13 (only to the extent of any financial obligations
thereunder), 14, 15 (except as otherwise expressly provided herein), 16, 17
(except for subsections (a) and (h)) shall survive the termination or expiration
of this Agreement.
17. MISCELLANEOUS.
a. INSURANCE. Tumbleweed shall, at its own cost and expense,
obtain and maintain in full force and effect, with sound and reputable
insurers, during the term of this Agreement, the following insurance
coverages: (i) Workers' Compensation insurance as required by the law of the
state of hire. Tumbleweed shall cause the carrier to provide a waiver of
subrogation in favor of UPS for this coverage; (ii) Employer's liability
insurance with a minimum limit of [ * ] of liability, and not less than
[ * ] aggregate limit of liability per policy year for disease,
including death at any time resulting therefrom, not caused by accident;
(iii) Comprehensive General Liability insurance, including blanket
contractual liability, broad form property damage, and products and completed
operations coverage, on an occurrence form insuring against all hazards with
a minimum limit of liability for bodily injury, including death resulting
therefrom, and property damage in the amount of [ * ] per occurrence.
The coverage should also include coverage for personal and advertising injury
liability, United Parcel Service of America, Inc. and each of its
subsidiaries shall be named as "additional insureds"
- ---------------
[*]Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
UPS/Tumbleweed Confidential 45 December 18, 1997
<PAGE>
under this policy with respect to the Services provided for under this
Agreement; (iv) Automobile liability insurance against liability arising from
the maintenance or use of all owned, non-owned and hired automobiles and trucks
with a minimum limit of liability for bodily injury and/or property damage of
[ * ] Combined Single limit. United Parcel Service of America, Inc. and
each of its subsidiaries shall be named as "additional insureds" under this
policy with respect to the Services provided for under this Agreement; and (v)
insurance in the minimum amount of [ * ] for coverage of software errors
and omissions, including services rendered and intellectual property
infringement claims, with respect to the computer software developed hereunder.
Tumbleweed's insurance shall be deemed primary and without right of contribution
by UPS. Tumbleweed shall provide UPS with certificates of insurance evidencing
the coverages required hereunder within fifteen (15) days after execution of
this Agreement. Each policy required hereunder shall provide that UPS shall
receive thirty (30) days' advance written notice in the event of a cancellation
or material change in such policy. In the event that any of the Services under
this Agreement are to be rendered by persons other than Tumbleweed's employees,
Tumbleweed shall arrange to furnish UPS with evidence of insurance for such
persons subject to the same terms and conditions as set forth above and
applicable to UPS prior to commencement of service by such person(s).
b. ENTIRE AGREEMENT. This Agreement, including the Exhibits
attached hereto and the Specifications which are agreed to by the parties as
provided in this Agreement, contains the entire understanding and agreement of
the parties with respect to the subject matter hereof, and supersedes any prior
written or oral agreements between them with respect thereto. Except as set
forth herein, there are no representations, agreements, arrangements or
understandings, written or oral, between the parties with respect to the subject
matter of this Agreement. This Agreement shall control over any conflicting
provisions of any UPS purchase order, Tumbleweed invoice or other business form,
and such conflicting provisions are expressly rejected. In the event of any
conflict between this Agreement and an Exhibit, the terms of this Agreement
shall control.
c. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, as such laws are applied
to agreements entered into and to be performed entirely within the State of New
York between residents of the State of New York. The parties agree that the
exclusive jurisdiction and venue for any action relating to this Agreement shall
be a federal or state court in the State of New York, and the parties hereby
consent to such jurisdiction and venue.
d. RELATIONSHIP OF THE PARTIES. Tumbleweed acknowledges, agrees,
represents and warrants that it is and has been engaged as an independent
contractor, and not as an employee, of UPS, and nothing in this Agreement shall
be construed as creating an employer-employee relationship or any partnership or
joint venture between UPS and Tumbleweed. Tumbleweed shall be responsible for
payment of all federal, state and local business-related and employment-related
taxes, withholding and insurance arising out of Tumbleweed's and its
subcontractors' activities, including by way of illustration, but not limited
to, federal and state
- ---------------
[*]Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
UPS/Tumbleweed Confidential 46 December 18, 1997
<PAGE>
income taxes, social security taxes, unemployment insurance taxes, where
applicable, and business license fees, where required. Neither party shall
incur any liability on behalf of the other party nor in any way represent or
bind such other party in any manner or thing whatsoever, and nothing herein
shall be deemed to make either party the agent or legal representative of the
other.
e. AMENDMENTS AND MODIFICATIONS. No amendment to or modification of
this Agreement shall be binding upon either party unless such amendment or
modification is reduced to writing, dated and executed by the parties to this
Agreement.
f. PERSONAL PRONOUNS; HEADINGS. All personal pronouns in this
Agreement, whether used in the masculine, feminine or neuter gender shall
include all other genders; the singular shall include the plural and vice versa.
Titles of all sections and paragraphs in this Agreement are for convenience only
and shall neither limit nor amplify the substantive provisions of this
Agreement.
g. SEVERABILITY. In the event that any one or more of the
provisions of this Agreement is determined by a court of competent jurisdiction
to be invalid, unenforceable or illegal, such invalidity, unenforceability or
illegality shall not affect any other provisions of this Agreement and this
Agreement shall be construed as if the challenged provision had never been
contained herein. The parties further agree that in the event such provision is
an essential part of this Agreement, they will immediately begin negotiations
for a suitable replacement provision.
h. NO ASSIGNMENT. Neither party may assign its rights or delegate
its duties under this Agreement without the other party's prior written consent.
Any attempted assignment in violation of the foregoing shall be void and of no
effect. Notwithstanding the foregoing, without the consent of the other party,
(i) either party may assign its rights and delegate its duties, in whole but not
in part, to any successor in interest by asset sale, merger, reorganization,
recapitalization or similar transaction, except that UPS's prior written consent
shall be required with respect to any delegation or assignment by Tumbleweed to
any of the entities listed in Section 15 above, during the period specified
therein, and (ii) UPS may assign its rights and delegate its duties to any of
its Affiliates. Following any such assignment or delegation by Tumbleweed
pursuant to the previous sentence, upon written notice to Tumbleweed (or its
successor in interest), UPS shall have the right to (i) cancel any outstanding
development Services with respect to any Phase(s) subsequent to Phase II of the
Project, (ii) terminate the procurement of Maintenance Services from Tumbleweed
pursuant to Section 9 hereof, such termination to be effective one (1) year
after the giving of such notice, (iii) convert the licenses granted by
Tumbleweed hereunder to irrevocable licenses for the remainder of the
eight (8) year
UPS/Tumbleweed Confidential 47 December 18, 1997
<PAGE>
term of this Agreement, and (iv) reduce the Royalties payable pursuant to
Section 6(b) hereof, for the remainder of the term of this Agreement, to
[ * ] actually received by UPS and/or its Affiliates for license
fees for the Software [ * ]. The parties' rights and obligations
will bind and inure to the benefit of their respective successors and permitted
assigns.
i. NO WAIVER. The failure of either party at any time to require
performance by the other party of any provision of this Agreement shall in no
way affect that party's right to enforce such provisions, nor shall the waiver
by either party of any breach of any provision of this Agreement be taken or
held to be a waiver of any further breach of the same provision.
j. NOTICES. Except as otherwise provided herein, and except for
notices of failures, errors or other problems with the Software, which may be
delivered by phone and confirmed in writing, all notices, requests, demands or
other communications required or permitted to be given or made under this
Agreement shall be in writing and shall be given by personal service, UPS Next
Day Air, telecopy, or by United States certified mail, return receipt requested,
postage prepaid to the addresses set forth below, or such other address as
changed through written notice to the other party.
If to UPS:
United Parcel Service
55 Glenlake Parkway
Atlanta, Georgia 30328
Attn: Joseph R. Moderow
Telecopy: (404) 828-6619
With a copy to Joe Pyne (same address); Telecopy: (404) 828-6619
If to Tumbleweed:
Tumbleweed Software Corp.
2010 Broadway Street
Redwood City, California 94063
Attn: President
Telecopy: (650) 369-7197
- ---------------
[*]Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
UPS/Tumbleweed Confidential 48 December 18, 1997
<PAGE>
Notice given by personal service shall be deemed effective on the date
it is delivered, notice sent by UPS Next Day Air shall be deemed effective one
Business Day after dispatch, notice given by telecopy shall be deemed effective
on the date of transmission, and notice mailed shall be deemed effective on the
third Business Day following its placement in the mail.
k. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which, when so executed and delivered, shall be deemed an
original, and all of which shall constitute one and the same Agreement.
l. CONSTRUCTION. This Agreement shall be construed and interpreted
fairly, in accordance with the plain meaning of its terms, and there shall be no
presumption or inference against the party drafting this Agreement in construing
or interpreting the provisions hereof.
m. PERSONNEL RULES AND REGULATIONS. While on the other party's
premises, the personnel of each party will comply with all security practices
and procedures generally prescribed by such other party. In addition, unless
otherwise instructed by UPS, Tumbleweed personnel shall observe the working
hours, working rules, holiday schedules and policies of UPS while working on
UPS's premises.
n. EXHIBITS. The following Exhibits are attached hereto and
incorporated herein by reference:
Exhibit "A" - Standard Software and Phase I Software and Services**
Exhibit "B" - Phase II Software and Services**
Exhibit "C" - Interface Information and Developer Kits**
Exhibit "D" - Implementation Schedule**
Exhibit "E" - End User License Terms**
Exhibit "F" - Source Code Escrow Agreement
Exhibit "G" - Marketing Support Services**
Exhibit "H" - [Reserved]
Exhibit "I" - Server Software Sublicense Terms
o. LIMITATION OF LIABILITY. EXCEPT WITH RESPECT TO TUMBLEWEED'S
OBLIGATIONS UNDER SECTIONS 5, 14(a) (ONLY WITH RESPECT TO THE FIRST SENTENCE
THEREOF), 15 AND 17(p) HEREOF, AND EXCEPT WITH RESPECT TO UPS'S OBLIGATIONS
UNDER SECTIONS 5, 14(c) AND 17(p) HEREOF AND ITS OUTSTANDING PAYMENT OBLIGATIONS
UNDER SECTION 6 HEREOF, AND EXCEPT IN THE EVENT A PARTY BREACHES ITS
CONFIDENTIALITY OBLIGATIONS TO THE OTHER PARTY HEREUNDER, IN NO EVENT SHALL
EITHER PARTY'S AGGREGATE CUMULATIVE LIABILITY UNDER THIS AGREEMENT EXCEED (I)
DURING THE [ * ]
- ---------------
[*]Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
** Confidential treatment has been requested with respect to certain
portions of these exhibits. The confidential portions have been omitted
from the public filing and have been filed separately with the Securities
and Exchange Commission.
UPS/Tumbleweed Confidential 49 December 18, 1997
<PAGE>
OF THIS AGREEMENT, [ * ]; OR (II) DURING [ * ]
OF THIS AGREEMENT, [ * ] PLUS THE AMOUNTS ACTUALLY RECEIVED BY
TUMBLEWEED UNDER THIS AGREEMENT IN [ * ] PERIOD PRECEDING THE DATE
THE CLAIM IS MADE.
p. NO CONSEQUENTIAL DAMAGES. EXCEPT WITH RESPECT TO EACH PARTY'S
OUTSTANDING PAYMENT OBLIGATIONS HEREUNDER, IN NO EVENT SHALL EITHER PARTY BE
LIABLE IN THE AGGREGATE IN EXCESS OF [ * ] FOR LOST PROFITS OR LOSS
OF BUSINESS, OR FOR PUNITIVE, EXEMPLARY, SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT (WHETHER FROM BREACH
OF CONTRACT OR WARRANTY OR FROM NEGLIGENCE OR STRICT LIABILITY OR OTHERWISE),
EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THIS
LIMITATION OF LIABILITY SHALL APPLY NOTWITHSTANDING THE FAILURE OF ESSENTIAL
PURPOSE OF ANY LIMITED REMEDY HEREIN.
- ---------------
[*]Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
UPS/Tumbleweed Confidential 50 December 18, 1997
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the date first above
written.
UPS:
UNITED PARCEL SERVICE GENERAL SERVICES CO.
By: /s/ Joseph M. Pyne
----------------------------
Title: Sr. V.P.
-------------------------
Print Name: Joseph M. Pyne
--------------------
Tumbleweed:
TUMBLEWEED SOFTWARE CORPORATION
By: Joseph C. Consul
----------------------------
Title: V.P. Finance, C.F.O.
-------------------------
Print Name: Joseph C. Consul
--------------------
(K:\78900.ups\97649.tum\agmnts\120897.wpd)
UPS/Tumbleweed Confidential 51 December 18, 1997
<PAGE>
EXHIBIT A
<PAGE>
EXHIBIT A - PHASE I
TUMBLEWEED-REGISTERED TRADEMARK- SOFTWARE CORPORATION
2010 Broadway
Redwood City, CA 94063
www.tumbleweed.com
DOCUMENT VERSION 1.0
Copyright 1997 Tumbleweed Software Corp.
All Rights Reserved
<PAGE>
[ * ]
[*] Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been omitted
from the public filing and have been filed separately with the Securities and
Exchange Commission.
<PAGE>
POSTA 1.0 DETAILED DESIGN SPECIFICATION
TUMBLEWEED-REGISTERED TRADEMARK- SOFTWARE CORPORATION
2010 Broadway
Redwood City, CA 94063
www.tumbleweed.com
DOCUMENT VERSION 1.0
Copyright 1997 Tumbleweed Software Corp.
All Rights Reserved
<PAGE>
- - OVERVIEW
- -------------------------------------------------------------------------------
Tumbleweed Posta is an electronic document delivery client/server software
application. Posta allows a computer user with access to the Internet to
send an electronic file to a recipient over the Internet.
- - POSTA COMPONENTS
- -------------------------------------------------------------------------------
POSTA ADMIN
Posta Admin is a server application that allows the administrator of the
Posta server to configure the Posta server software, configure and manage
Posta accounts for end users, and generate invoices for Posta account
holders for Posta use.
POSTA CENTRAL
Posta Central is a server application that allows Posta account holders to
send and track documents and manage accounts, mail lists, and billing.
Each Posta Central account holder needs a Posta account which is set up
ahead of time by the individual user, group manager, or Posta
administrator.
POSTA DESKTOP
Posta Desktop is a client application for use with the end-users' computer
desktops. Posta Desktop enables access to Posta Central server
capabilities through a desktop application.
POSTA RECIPIENT
Posta recipients need an e-mail account, World Wide Web access, and a Web
browser in order to receive Posta deliveries.
<PAGE>
[ * ]
[*] Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been omitted
from the public filing and have been filed separately with the Securities and
Exchange Commission.
<PAGE>
- POSTA ADMIN
- -------------------------------------------------------------------------------
The Posta Admin is an application used by the administrator of the Posta server.
Only those at the service provider level who maintain the Posta systems and
manage the top level accounts on the Posta server should be granted access to
the Posta Admin. The chief administrator is referred to as the Postamaster
(PM).(1)
The Postamaster accesses Posta Admin through a Web browser and a private admin
password. There are two types of administrative functions available from the
Admin: systems administration and account administration. The main elements on
the toolbar are:
- Server - status information regarding the various system components.
- Accounts - account creation and management functionality
- Billing - invoicing functionality to bill Posta accounts for services
provided
- Quit - logout from Posta Admin
FIGURE 1; ADMIN MAIN TOOL BAR
[Graphic depicting Admin main tool bar]
SERVER
To access information about the system, click on the Server button on the
primary navigation bar. This will open the Server pages of Posta Admin. In
Server mode, the following can be viewed:
- System summary information
- System and server configuration, with parameter listings
- System statistics
- System events
SYSTEM SUMMARY
To view summary information about the system, click on Summary on the secondary
navigation bar in Server mode. The System Summary page, shown below, will open
with a table listing the components of the system and their current status.
- ----------------------------
(1)The Postamaster manages all accounts on a Posta server, which may include
individual, group, or member accounts on a Posta server. In contrast, a group
account manager manages only the activities of a single group account.
<PAGE>
FIGURE 2; SYSTEM SUMMARY PAGE
[Graphic depicting System Summary Page]
Posta server components, each of which is responsible for a particular task
within the Posta server, are:
- HTTP GATEWAY - This component is the Posta server's connection to the
Internet. HTTP is the protocol that the server uses to communicate
with the Posta applications and the Web browser.
- STMP GATEWAY - The SMTP gateway is Posta's e-mail server.
- ACCOUNT MANAGER - This component manages the Posta accounts,
validating each account every time the user logs in.
- STORE MANAGER - The Store manager interfaces with the database and
provides a layer of abstraction for the other Posta server components.
- DELIVERY MANAGER - This Posta server component manages notifications
of Posta deliveries.
- CONTROLLER - The Controller verifies that the other Posta server
components are functioning properly
- DATABASE - The Database stores all Posta data such as account
information, notification status, etc.
The Status column of the System Summary table describes the operational status
of the various Posta components.
The "Restart" button shuts down and then attempts to restart the Posta
components. The "Shutdown" button shuts down the Posta components. The Restart
component cannot be relied upon to restart the Posta server 100% of the time; if
the underlying operating system, Web server, or database is malfunctioning, the
Restart may not function.
SYSTEM AND SERVER CONFIGURATION
Configuration, on the secondary navigation bar in Server mode, opens a page
containing tables listing the system configuration, license information, server
configuration, and operation parameters.
FIGURE 3; CONFIGURATION PAGE
[Graphic depicting Configuration Page]
NOTE: The details given below regarding the License Information, Server
Configuration, or Operation Parameters tables are also available by
clicking on the "Show
<PAGE>
help" link at the top of the applicable table. To hide the details
again, click on the Back button of the Web browser's toolbar.
The Postamaster may edit any information that is in an editable text box. Click
on the Update button at the bottom of each table to save the changes made within
that table to the Posta server. Restarting is not necessary for changes to take
effect.
The System Configuration table lists each Posta server component installed on
the system and its version number. It also lists other components of the
system, including the database server, database name, HTTP server, computer
name, operating system, and processor(s).
The License Information table lists the following:
- USER NAME - The name of the Posta license holder.
- USER ORGANIZATION - The name of the license holder's company.
- USER E-MAIL - The e-mail address of the Posta license holder.
- LICENSE KEY - To allow users to log into the Posta server, the license
holder must get a valid license for that server. The license must be
provided by Tumbleweed Software.
- MAXIMUM NUMBER OF ACCOUNTS - This field shows the maximum number of
accounts available on the Posta server. The number zero refers to an
unlimited number of accounts.
- EXPIRATION DATE - This field shows the expiration date of the Posta
server license. After that time limit, the license must be renewed.
An unlimited expiration date is depicted by 00/00/0000.
The Server Configuration table lists the following:
- HTTP HOST NAME - This is the host part of the URL used to access the
Posta server.
- Note that if this host is not in the DNS, recipients will not be
able to retrieve their delivery notifications from this server.
- An IP address can be provided instead of the host name. In that
case the Posta license must be issued for that IP address.
- HTTP CONNECTIONS - This allows for secure or unsecure connections
between the user and the Posta server.
- If Unsecure is checked, then the Posta server will accept only
unsecure connections. This causes the "recipient must use secure
connection" send option to be hidden within Posta Central. This
must be used if the server does not have a digital certificate
installed.
<PAGE>
- If Secure is checked, then the server will require Posta Central
and Posta Desktop users and recipients to use secure connections.
The users and recipients are required to have valid digital
certificates installed (see the POSTA SERVER INSTALLATION GUIDE
for details).
- If the "Secure" or "Both" option is checked, then the server must
have a digital certificate to authenticate itself to users who
will then have the option to use secure connections for their
sessions and/or for their deliveries.
- SMTP HOST NAME - This is the host name of the SMTP mailer which sends
the delivery notification.
- MAILER SMTP ACCOUNT - This is the name of the sender of the delivery
notifications. It is located at the SMTP host selected above.
- ADMIN SMTP ACCOUNT - This is the name of the Admin SMTP account. This
account is at the SMTP host selected above. Users may send their
requests and questions to this account. Posta will then forward that
information to the "Human e-mail Address" specified in the next box.
- HUMAN E-MAIL ADDRESS - This full e-mail address is reserved for
forwarding all e-mail that must be handled manually. That includes
mail sent to the SMTP-standard-defined 'postmaster' account of the
Posta SMTP Gateway, mail sent to the Posta administrator account
defined during Posta software installation, and the bounced
notifications sent by the Posta SMTP Gateway which cannot be handled
automatically.
- DNS SERVER - These DNS server addresses are used by the SMTP gateway
to resolve the address of the notifications. It is strongly
recommended that there are at least two, for redundancy.
- DATABASE ACCOUNT (POSTA) PASSWORD - This is the password of the
database account called "Posta" that is used by the Posta server.
- DATABASE CONNECTION TIMEOUT - This is the time after which the server
stops trying to connect to the database.
The Operation Parameters table lists the following:
- DELIVERY DELETE DELAY - This specifies how long the server retains the
tracking information after the expiration date. Notice that the
delivered files are deleted at the delivery expiration date,
independently of this setting.
- BILLING POST DELETE DELAY - This parameter specified how long the
server retains the billing posts after the date they are posted.
Billing information will not be accessible for items older than this
delay.
- VALIDATE DELETE DELAY - This specifies how long the server retains the
valid information for the evaluation accounts for which the user
completed the infor-
<PAGE>
mation forms but has not validated the account
after receiving the validation e-mail.
- BATCH HOURS - this parameter sets the time during which the batch
tasks can be run. Batch tasks are routines that check the database
for the specified criteria. They delete old information from the
database and delete old documents from the Posta server. The batch
tasks should not be run during peak hours. The time is specified in
24 hour format.
<PAGE>
SYSTEM STATISTICS
The Statistics link on the secondary navigation bar in Server mode will open a
list of server statistics. The following picture illustrates this page:
FIGURE 4; SYSTEM STATISTICS PAGE
[Graphic depicting System Statistics Page]
Click on a highlighted line of text to open a chart based upon the relevant
data. Most of the data can be displayed in intervals of one minute, five
minutes, one hour, one day, or one week. Click on the desired time interval
link before the chart. Note that the information regarding database table sizes
is only collected hourly.
The data obtained for statistical purposes is compressed in order to conserve
space in the database. Data that is older than three months is displayed in
intervals of one day or greater.
NOTE: The daily accumulation of data over three months old will be based upon
Standard Time, not Daylight Savings Time. Therefore, information compressed
during Daylight Savings Time will have a timestamp of 11:00 p.m. rather than
12:00 a.m.
SYSTEM EVENTS
The Events link on the secondary navigation bar in Server mode will open a table
listing the date, type, source, and description of events occurring on the Posta
server. This information is listed in reverse-chronological order.
The following is an illustration of the Posta Events page:
FIGURE 5; POSTA EVENTS PAGE
[Graphic depicting Posta Events Page]
Note that the Events page describes events in terms of the Posta services. Thus
the terms Store, Account, Mail, etc. pertain to the services which perform
certain tasks within the Posta server.
ACCOUNTS
The Postamaster can create and manage Posta accounts by clicking on the Accounts
button on the main tool bar. The left hand side navigation includes View,
Create, Search, Types, and Help.
<PAGE>
VIEW
The first click on Accounts on the main tool bar brings users to the first page
of a table which displays all billing accounts on that Posta server. Note that
individual and GROUP accounts, but not specific MEMBER accounts, are displayed
in this table. Postamasters can get increasingly detailed information about
each of the accounts by drilling down within the desired account and type of
information. For example, for a given group account the Postamaster can
navigate from View Accounts >> Account Information >> Members >> Member Account
Information.
FIGURE 6; VIEW ACCOUNTS
[Graphic depicting View Accounts]
Clicking on the "Name link will bring up an email box addressed to the account
holder. Clicking on the Account link will bring users to the Account
Information page where the Postamaster can view and edit account information.
ACCOUNT INFORMATION
Account Information is divided into three segments. Postamasters can edit the
fields marked with an (e) below. General Account Information contains:
- Account name (e)
- Type of account (e) - pulldown menu listing the defined account types;
"Type" text-link goes to Account Types section described below
- # of members - presents # of current members; "Members" text-link goes
to view Members page described below
- Date of creation
- Date of last access
- Status - Active, Disabled, or Wait Validate
Account Holder (the account manager for group accounts) information contains:
- Name (e) - (first, middle, last)
- E-mail address (e)
- Company (e)
- Address (e) - (street, suite/floor, city, state, zip code, country)
The last section allows Postamasters to change (but not view) the password of
the account.
The Postamaster can update any of the information presented in input fields
(marked with (e) above).
Clicking on update will save changes. Clicking on the Delete account button
will delete the Posta account. After updating or deleting an account, Posta
Admin will return to the "View Accounts" page.
<PAGE>
VIEW MEMBERS
The Account Members page is accessed by clicking on the "Members" text-link on
the Account Information page and displays the members of the given group
account. Above the table is the group account name. The name of the group
account is a text-link back to the account detail page. In the table, the name
of a member links to a mail-to: box addressed to the member. The member account
name links to the Account Information page which allows Postamasters to view and
edit group member information.
MEMBER DETAIL
From the Member Account Information page, the Postamaster can view and edit
member account information, and delete member accounts. General member account
information includes:
- Posta server name
- Group account name - text link back to account detail
- Member account (e)
- Date created
- Date last accessed
Member information includes:
- Member name (e) - (first, middle last)
- E-mail address (e)
Postamasters may also change the password of the member account or can delete
the member account by clicking on the Delete Member button. If a member account
or account information is deleted or updated, the Postamaster is returned to an
updated Account Members page.
CREATE ACCOUNT
To create a NEW account, Postamasters click on the Create link on the left hand
side of the page.
Postamasters fill in the requested information and Click on the Create button at
the bottom of the page. Posta Admin will create the account and return to the
Account Information page for the new account.
<PAGE>
SEARCH
Posta Admin provides the Postamaster searching capabilities to locate a specific
account. Clicking on Search from the left hand navigation brings up the Search
Accounts page. Postamasters can search by
- Account name
- Account type (pull down with defined types)
- Account status (pull down with active, on hold)
- Account holder or member name - (first, middle, last)
- Account holder or member E-mail
- Company
- Street Address
- Suite/Floor
- City
- State
- Zip
- Country
Postamasters can fill out any or all of the above information. Clicking on the
Search button initiates the query, clicking on Reset clears the form.
TYPES
Types allows the Postamaster to view, edit, and delete existing account types
and to define new types. Posta includes three predefined types of accounts that
Postamasters can edit to suit their needs. One of the types is named
"Evaluation." This account type is provided for Evaluation accounts created by
users who want to try out Posta. Postamasters can edit any of the pre-defined
types, but can only delete the non-Evaluation types.
Clicking on Types in the left hand side navigation brings users to a table
summarizing existing account types. Information listed in the table includes
the type name, maximum # of members, maximum # of recipients per delivery,
maximum # of kilobytes per delivery, and the pricing plan associated with each.
ACCOUNT TYPE DETAIL
Clicking on the hot-linked account type name brings up the Account Type page
which allows the Postamaster to view and edit settings about a specific account
type and to delete the account type. The Postamaster can edit any entry that is
presented in an editable field. Information on the page includes:
- Type information: name, date created, last date modified, pricing plan
(pulldown menu of available pricing plans)
- "Pricing" is a text link to the pricing section in the billing section
of the Admin
- Account parameters" maximum # of members (e), automatic disabling and
deletion (e)
- What features are available: maximum # of mail lists and/or billing
codes (e)
<PAGE>
- Delivery constraints: max file size in kilobytes, max # of recipients,
max document expiration, and max time into the future for scheduled
notification.
Buttons at the bottom of the page are Delete and Update. Once deleted or
updated, users are returned to an updated Account Type report with a line above
it confirming the action that had just occurred.
CREATE ACCOUNT TYPE
From the Account Types page PostaMasters can create account types by typing in a
new account type name and clicking on the Create account type button. The
Create Account Type page is similar to the Account Type Details page. Buttons
at the bottom of the page include Update or Delete. Once created, users are
returned to an updated Account Type table.
BILLING
The Billing section of the Admin allows Postamasters to manage pricing plans and
to create invoices for the accounts on the Posta server. The left hand side
navigation includes Pricing Plans, Create Plan, Create Invoice, View Invoice,
Preferences, and Help.
PRICING PLANS
The first click on Billing in the main tool bar brings Postamasters to a list of
existing pricing plans.
The Pricing Plans page displays a table of existing pricing plans. The table
includes information such as the name of the plan, the method of billing (i.e.
by delivery, or subscription), and the base rate for either billing method.
Clicking on the hot-linked plan name brings users to the Pricing Plan Detail
page.
FIGURE 7; PRICING PLANS
[Graphic depicting Pricing Plans]
PRICING PLAN DETAIL
The Pricing Plan Detail allows Postamasters to view and edit pricing plan
parameters, and to delete a given plan. Parameters presented in an editable
field (e) can be edited. Information included in the detail includes:
- Name of the plan
- Date created
In addition, the page displays pricing options that may be selected individually
or in combination:
- Subscription pricing
<PAGE>
- base price (e)
- frequency (e) pulldown menu (daily, weekly, monthly, quarterly,
yearly)
- cost per member (e) above a number (e) of members
- Delivery pricing
- cost per delivery
- cost (e) per MB above a number (e) x 0.1 MB
- cost (e) per MB* days above a number (e) of MB* days
- cost (e) for encryption
- cost (e) for high priority
Buttons at the bottom of the page include Delete plan, Update, and Reset.
Deleting or updating a pricing plan brings users back to an updated Pricing Plan
table.
CREATE PRICING
Postamasters can create a new pricing plan by clicking on the Create Pricing
link on the left hand side. The Create Pricing page is similar to the Pricing
Plan Detail page with the exception that the plan name is editable, the creation
date is not displayed, and the buttons at the bottom of the page do not include
Update and Delete, only Create and Reset.
CREATE INVOICE AND VIEW INVOICE
Postamasters can bill account holders by creating invoices from Posta Admin.
Clicking on the Create Invoice link on the left hand side allows Postamasters to
specify which account(s) they currently want to invoice.
Postamasters can specify which account(s) they want to bill for by account name,
and/or by account type. To invoice all accounts, the Postamaster specifies a
wildcard (*) in the account name field and "Any" in the account type field.
They must also specify a billing period expressed as a range of dates for the
invoice. One invoice will be created for each account specified.
The Postamaster generates the invoices by clicking the "Create" button. After
the invoices are created, Postamasters can choose to export invoice results to a
file by clicking on the "Save to Disk" link at the bottom of the page. Doing so
will bring up a dialog which will allow them to specify a file name and a
location to store the file. The file created will be ASCII text in a tab
delimited format.
<PAGE>
- - POSTA CENTRAL
- -----------------------------------------------------------------------------
The Posta Central is an application that provides sending, tracking, account
management, billing, and mail list capabilities. HTML pages viewed through a
Web browser serve as a front end to the Posta server delivery functionality and
database information.
Most of Posta Central functionality is accessible through Web browsers which
support tables, specifically, Netscape Navigator 2.0 or greater and MS Internet
Explore 2.x or greater. However, the ability to initiate a package delivery
through Posta Central requires Netscape Navigator 2.0 or higher, not MS Internet
Explorer. Users can login directly to the Posta Central through the Posta
Central login page. In addition, Posta Desktop users can access Posta Central
functions through Internet shortcuts on the Posta Central menu.
GENERAL LAYOUT
There are five main functional areas of Posta Central. A persistent tool bar
provides access to these functions. This tool bar serves as the primary
navigational element and is laid out across the top of the page. There are six
buttons on the main tool bar including: New Package, Tracking, Account,
Billing, Mail Lists, and Quit. Secondary navigation within each of the
functions is laid out vertically down the left hand side of each page. Help is
the last item on the left hand side and points to online help regarding the
current function.
FIGURE 8; POSTA CENTRAL LAYOUT
[Graphic depicting Posta Central Layout]
NEW PACKAGE
Posta Central send functionality is only available to users with Netscape
Navigator 2.0 or higher. Posta Drop, PDF conversion, and access to local
address books are not available from the Posta Central.
Send functionality can be accessed from the New Package button on the main tool
bar.
NEW PACKAGE
Clicking on the New Package button from the main tool bar brings up the Posta
Package page. For a given delivery, users can both manually enter names into
the To: filed and select a mail list from a pulldown. The mail list link before
the pulldown brings people to the top level of the mail list functionality to
allow people to view and manipulate the mail lists. Unlike the Posta Desktop,
users do not have access to a local E-mail address book.
If items entered in the To: field do not contain an "@" the server will attempt
to resolve them with mail lists. If they still cannot be resolved, the server
will append the sender's domain name to the end of the item.
<PAGE>
Senders can input text into the Subject and Message fields. Note that the
Subject field can be no larger than 127 characters and the message field is
limited by the size of the Web browser's edit box.
CAUTION: Since the subject and message are sent over regular e-mail, they are
not encrypted and thus are not secure.
Users may specify a document to be sent in one of two ways:
- Typing the name of and path to the document, or
- Clicking the Document: button and browsing to select a document from a
local directory through Netscape's "File Upload" dialog.
To send multiple files, specify your first file as instructed above and then
click on the Add Another File button. This button will upload the file to the
server (without "sending" it to the recipient). The file will be listed on the
Posta Package page. You may then add the second file in the text box provided,
clicking on Add Another File to add that file to the Package. Repeat as
desired. Note that once a file is added to the list, it cannot be removed from
that Posta Package. Note also that any applicable size limits for the user's
account pertain to the sum of the file sizes per package.
The Reset button clears the form to its default.
The Send button initiates the delivery of the document with the current Send
Options.
If the information input into the address form is incomplete or incorrect, Posta
will deliver an error page with the fields in question. If a file's MIME type
is not recognized, it will default to a binary file (octet stream) and the user
must specify the file extension. Users can edit the field directly from the
error page and can resubmit the new information.
When the send is complete, the sender is presented with a "Send Complete" page
notifying the sender of the completed status, "Your Document Has Been Sent."
FIGURE 9; POSTA CENTRAL PACKAGE WINDOW
[Graphic depicting Posta Central Package Window]
OPTIONS
If a user wishes to change the send options, he/she can do so by clicking on the
Options button at the bottom of the Posta Package page.
Send options from Posta Central are the same as from the Desktop with the
following exception: Document Type is not an option. From Posta Central,
documents can only be sent in documents' original format.
SEND OPTIONS
<PAGE>
Each delivery transaction has associated send options. All options have default
settings which can be changed by the user prior to delivery. Settings can be
viewed and edited by clicking on the Options button on the Package page.
PRIORITY
Users can specify the priority of a delivery as either normal, low, or high, by
clicking on the pulldown menu. Priority determines the order the package is
processed by the client as well as by the server.
REQUEST CONFIRMATION
Request confirmation prompts the recipient to confirm whether or not a document
was successfully received. Request confirmation can be selected or de-selected
by clicking on the checkbox.
SECURITY
The security options allow the user to specify different levels of security
measures. The user may enter a password into the "Password" and "Confirm
Password" fields. If the user enters different passwords into the two fields,
Posta Central will prompt the user to enter identical passwords prior to
initiating the delivery. If the user enters the same password in each field and
then initiates the delivery, the Posta server will then prompt the recipient for
the password prior to enabling the recipient to access the Posta Receive page
for the package.
If the user selects the "Encrypt document(s)" checkbox, the Posta server will
utilize the Windows NT Server "CryptoAPI" function call to encrypt the file
stream that is stored on the Posta server. This encryption will use the
underlying private key encryption algorithm and default key length as provided
by the Microsoft Windows NT server through its CryptoAPI.
If the user selects the "Require secure connection to receive" checkbox, then
the Posta server will verify that the recipient has a web browser that supports
a secure connection between the recipient's web browser and the Posta server
using Secured Socket Layer (SSL) or Private Communications Technology (PCT).
When delivering the Posta receive page to the recipient's web browser, the Posta
server will then require this secure connection capability to be enabled in the
recipient's web browser. Note that this checkbox only addresses the secure
connection between the Posta server and the recipient. if the user wishes to
create a secure connection between himself and the Posta server, the user must
also check the "Use Secure connection" checkbox in the Posta Desktop setup
dialog.
DOCUMENT EXPIRATION
Document Expiration allows users to specify how long a document will remain on
the server for recipient availability. Default will be 10 days after
notification is sent. The minimum value is one day and the maximum is one
thousand days.
<PAGE>
SCHEDULED NOTIFICATION
Scheduled Notification allows users to specify a future date and time that Posta
will notify users of a given delivery. Times will be specified with AM/PM
designation.
BILLING CODES
The Billing Code option allows users to select a billing code from a pulldown
menu. The list must be defined and maintained in the Billing section of Posta
Central. The "Billing code" text link brings users to the billing section of
the Posta Central to view and manipulate billing codes.
SAVE AS DEFAULT
Users can check the "Save current settings as default" box if they wish to save
the current settings as the default. If the box is checked, the new default
settings will be saved and used for subsequent sends. If the box is not
checked, the default settings will not change. Changes will only take effect if
the send is actually initiated.
Clicking on the Reset button at the bottom of the page will restore the default
settings. Once the options are set to the sender's satisfaction, clicking on
Apply will apply the changes to the current package and open that Posta Package
page. Clicking on the No Change button will open the current Posta Package
without changing the options.
FIGURE 10; PACKAGE OPTIONS
[Graphic depicting Package Options]
TRACKING
The Posta Central tracking functionality queries the Posta database for
information about deliveries sent from an account and presents search results in
a report format.
Tracking is accessible from a button on the main tool bar. The secondary
navigation on the left hand side includes Log, Search, Preferences and Help.
Account Managers can track deliveries initiated from a Group Account. Group
members can track deliveries he or she personally initiated, not deliveries
initiated by other group members.
LOG
The tracking button on the main tool bar brings up the delivery log, a record of
recent deliveries sent from the account, presented in reverse chronological
order. The user can specify the format of the report in Tracking Preferences
(the format chosen applies to both the Log and Tracking Reports). If the total
number of deliveries exceeds the number of rows specified in the Preferences,
the user can click on the Next button at the bottom of the
<PAGE>
page to see another page of deliveries. A Previous button navigates the user
to the previous page of deliveries. A line at the bottom of the page
indicates the preferences settings.
In Basic format, the subject of each listing in the log links to a DELIVERY
DETAIL report about the specific delivery. A detail report contains send
parameters of each delivery (including a link to the document if not expired or
encrypted, and the mime type) and the status of the delivery to each recipient.
Users can click on Log on the left hand side to return to the top level log.
FIGURE 11; DELIVERY LOG
[Graphic depicting Delivery Log]
SEARCH
Search functionality allows users to search the Posta database for a specific
delivery or set of deliveries. To identify the deliveries of interest, users
can specify any combination of search criteria. If multiple criteria are
specified, the search engine will perform an AND search among all the criteria.
To simply the UI, a short-list of searchable fields are presented on the main
search page, which will accommodate most users' queries. Clicking on a "More
Options . . ." button at the bottom of the short form brings users to a page
with an expanded list of searchable fields -- including all of the fields from
the short list.
The main search page contains six search criteria.
- To: allows a user to search by full or partial E-mail address of the
recipient; partial E-mail addresses allows the user to search by
domain name
- Subject: allows a user to search on text in the subject field.
- Document: allows a user to perform a text search on the name of the
document
- Send date: a user can search for deliveries sent within a defined
date range
- Delivery status: allows a user to select from a menu which includes
Any, Received, Not received (includes both failed notification and not
picked up), Pending notification, Failed notification, Confirmed, Not
confirmed
- Billing Codes: allows a user to search by billing code
Clicking on the Search button initiates the query and returns a report with all
deliveries which match the query. Clicking on the Reset button clears the form
to its default.
FIGURE 12; MAIN SEARCH PAGE
[Graphic depicting Main Search Page]
MORE OPTIONS
Clicking on more options brings the user to a search page which additional
search parameter options. The page includes the fields on the main Search page
followed by these additional fields:
<PAGE>
- Document expiration (date range)
- Scheduled notification (date range)
- Receive date (date range)
- Notified (date range)
The Search and Reset buttons have the same behavior as the buttons on the main
Search page.
The "Less Options" button returns to the Search page.
FIGURE 13; MORE SEARCH OPTIONS
[Graphic depicting More Search Options]
PREFERENCES
Senders can configure the format of the tracking report in the Preferences
section of Tracking. Users can select from two preformatted reports, or can
define their own by selecting the "customized" option. Users may edit existing
formats by selecting the desired format and clicking on the Customize button.
They may specify the number of rows to be displayed per page by entering the
desired number in the field.
Users may choose whether to show information on recipients by package summary or
per recipient. Recipient summaries will list only the name of the first
recipient or mail list in the To: field with an indication (. . .) if there are
more items on the list; received and notified information is totaled across all
recipients. Recipient detail lists every recipient specified in the To: field
and expands every mail list(2); received and notified fields list the specific
date applicable for each recipient. Clicking on Update saves all changes and
will return users to the report or page from where they came. If users return
to a report, it will be displayed with the new Preferences settings.
FIGURE 14; TRACKING REPORT PREFERENCES
[Graphic depicting Tracking Report Preferences]
CREATING NEW FORMATS
Users can create a new format by clicking on the Customize button. The Custom
Format page allows users to specify a name for the format and to select which
fields appear in the report. The Reset button clears the form. Users can click
on Update to create the format, and return to the Preferences page with the new
format available in the pull down menu. Users may also click on Sort Order to
define sorting parameters for the format.
- -------------------------------
(2)Mail lists will only be expanded for deliveries that have been processed.
Future scheduled deliveries and deliveries in progress will be indicated as
such.
<PAGE>
FIGURE 15; CUSTOM FORMAT
[Graphic depicting Custom Format]
The Sort Order screen displays the name of the format currently being specified,
and displays a series of pulldowns corresponding to the number of fields
selected for display in the previous screen. Each pulldown is populated by the
specified fields and by the choice "-any-." Using the pulldowns, the user can
specify which field to sort by first, then second, then third, etc. The column
placement of the fields in the resulting report table correspond to their sort
order. Once the order is specified, the user clicks on Create to create the
format and return to the Preferences page.
FIGURE 16; CUSTOM FORMAT - SORT ORDER
[Graphic depicting Custom Format - Sort Order]
PREFORMATTED REPORTS
The preformatted reports are defined to meet the specific needs of various types
of users. The Basic format is shown in the two figures above. Listings are
sorted by date in reverse chronological order. The Billing Code format displays
the billing code and sorts results by billing code and date.
Users may edit existing formats by selecting the desired format and clicking on
the Customize button. Editing formats is similar to creating new formats.
Forms are Preferred Stock-filled out with existing settings. Bottons at the
bottom of the Edit Format page include Sort Order, Update, and Reset. Buttons
at the bottom of the Specify Sort order page are Update and Reset.
ACCOUNT MANAGEMENT
The Posta Central Account Management functions are available from the main tool
bar button labeled "Account." Account functionality varies with the type of
account and the type of user. The Posta server will recognize users' account
types and will make the appropriate information and functionality available.
All users will be able to view administrative account information on record and
change their password. Group account managers can also edit group members'
account information as well as create new accounts.
GROUP ACCOUNT MANAGERS
Group account managers have the most extensive functionality available to them
of the three types of users. They are presented with the left hand side
navigation of Information, View Members, Add Member, and Help.
INFORMATION
<PAGE>
The Information page will display information about the group account that is
stored on the server. Basic account information includes:
- the name of the account
- type of account
- date it was created
- date it was last accessed
- the number of current members out of the maximum allowed (a text link
on members allows account managers to view and manage the current
member list)
- what banner to use on the receive page
Account holder information includes:
- name of the manager
- e-mail address
- company name
- address
The basic account information and the account manager information cannot be
edited. The group account password can be changed from the same page. The
manager must enter the existing password and the desired new password, and must
confirm the new password. Clicking on Update allows the manager to submit the
new password. There is also a field which informs the manager when the password
was last changed. If the password has never been changed, it should present the
creation date of the account.
The bottom of the page contains an e-mail link to the post-admin mail account at
the server's URL.
FIGURE 17; ACCOUNT INFORMATION
[Graphic depicting Account Information]
Group Account Managers can specify a custom banner for receive pages by clicking
"Receive Banner" text link.
The Receive Page Banner page displays the current banner specified. Managers
can change the banner by browsing and selecting the new gif file and clicking on
the Update button. Once the update button is clicked, the gif is uploaded to
and stored on the server. The Manager is presented a recommended specification
for the file - gif no larger than 468 x 100 pixels and 12kbs - but the server
does not enforce compliance. Once Uploaded, the new gif is displayed on the
Receive Page Banner page. managers can click on the "Information" link to go
back to the Account Information page. Note that if changes had been made to the
Account Information page but had not been submitted before going to the Receive
Page Banner page, users must click on Update to submit the changes.
<PAGE>
FIGURE 18; RECEIVE PAGE BANNER
[Graphic depicting Receive Page Banner]
VIEW MEMBERS
Managers can view a list of members by either clicking on the members link
within the information page, or on the View Members link in the left hand side
column. The View Members page displays the member account names, the member
names, the date created, and the date last accessed.
Clicking on the account name allows managers to view and edit member account
information, which looks similar to the group account information page. For the
fields below, (e) indicates that the information is displayed in a field and can
be edited by the account manager. Basic information includes:
- group account
- member account (e)
- date created
- date last accessed
Member information:
- member name (e)
- E-mail address (e)
Managers cannot view the member's password, but can change the password on the
member account information page by specifying a new password and confirming it.
The date of the last password change (by the manager or by the member) is also
displayed. Any changes made to the information on this page can be submitted by
clicking on Update. Reset restores the previously stored information.
Member accounts can be completely deleted by clicking on the Delete button.
When the member account is Updated or Deleted, the manager is returned to an
updated View Members table. Clicking on the member's name brings up an email
box Preferred Stock-addressed to the member.
ADD MEMBERS
Managers can add members by clicking on the Add Member link in the left hand
side navigation. They are presented with a form prompting them for the
information required to create a member account. The top of the form indicates
the Group Account to which the members will be added, and the number of the
member out of the maximum total members allowed. The information required
includes:
- member account name
- member's name
- member's E-mail address
<PAGE>
- password (and confirm password)
Clicking on Add will create a new account and will return managers to an updated
View Members table. Clicking on Reset will clear the form.
INDIVIDUAL ACCOUNT HOLDERS
By definition, Individual Accounts have no group members aside from the account
holder herself. Therefore, individual account holders do not have member
information or functionality. The left hand side navigation includes only
Information and help. The information displayed from the account information
page is the same as that available from the group account information page
without the number of current members.
MEMBER ACCOUNT HOLDERS
Like individual account holders the member account holders do not have member
management functionality. Their left hand side navigation includes only
Information and Help. Member account information contains the same data as the
member account information page that managers see when they click on the member
account link on the View Members page. However, members do not have the ability
to edit as many of the fields as the managers do.
Basic information:
- group account
- member account
- date created
- date last accessed
Member information:
- member name
- E-mail address (e)
Members can change their own passwords on the Member account information page.
They must enter the current password, the new password, and must confirm the new
password.
BILLING
The Billing button on the main tool bar gives users access to billing code
management and invoice functionality. Secondary navigation for Billing includes
Billing Codes, Add Codes, Invoicing, Preferences and Help.
BILLING CODES
The first click on the Billing button in the toolbar brings people to Billing
Code mode, which displays a table of defined Billing Codes. The top of the
table indicates how many code there are total and which ones are currently being
viewed (e.g., 1-10 of 24). Billing codes can be up to 25 characters long and
can be composed of letters, numbers or charac-
<PAGE>
ters. Each billing code may have an optional plain English description or
name associated with it. In Billing Preferences users can specify whether to
sort the billing codes by code or by description, and how many rows to view
per page. Next and previous buttons may be necessary to view additional
pages of billing codes.
For Group Accounts, there are two levels of billing codes. The group manager
maintains a list of codes that can be accessed by all group members. Group
members can select their own subset of codes from the group list, for easy
access to the codes they personally use most frequently. Members cannot edit or
create billing codes; they can only select codes from the list created by the
manager and add them to their personal list. In Billing Preferences, members
can specify whether to list group or personal billing codes.
FIGURE 19; BILLING CODES
[Displaying Code and Description]
Clicking on a hot-linked code allows users to edit or delete the code or its
description. Users can edit from a pre-filled form and can save changes by
clicking Update, which returns them to the billing code table displaying the
updated information. Users may also delete codes from this page. Note that
because group members cannot edit group billing codes, group billing codes will
not be hot-linked if viewed.
<PAGE>
ADD CODES
Group account managers and individual account holders can add to their billing
code list by clicking on the Add Codes link in the left-hand side column. Group
members can only view and make use of the billing codes created by their account
manager. Managers and individual account holders can type a new code and
associates optional description in the form provided and click the Add button.
CREATE INVOICE
Clicking on the Invoicing link on the left hand side allows user to create an
invoice. The screen presented is a search screen which allows users to specify
which billing code they wish to use for the current invoice. Users must also
specify a date range for the invoice. Once the appropriate information is
entered, the user clicks "Create" to initiate the query and generate the
invoice. "Reset" clears all entries.
The query result is presented in a preformatted Invoice. The invoice indicates
the query parameters at the top in the form. The query results are displayed in
a table, with the prices of deliveries totaled at the bottom. Like the tracking
report, users can specify the invoice format in the Billing Preferences. The
subject of each delivery is hot-linked to the delivery detail report (the same
one that is accessible from the tracking report).
The "Save to Disk" link at the bottom of the page allows users to export the
report data as a tab-delimited ASCII text file. Invoice report preferences
(excluding the mark-up rate) are listed in small type at the bottom of the page.
BILLING PREFERENCES
Billing Preferences allow users to specify preferences that affect billing code
management and preferences that affect invoice report formats. Users can choose
to display lists by code, or by description. This selection affects what shows
up in selection boxes in Send Options and Invoicing. It also affects the
presentation of the Billing Codes display table. If display is by billing code,
then the first column is billing code. If display is by description, the first
column is description. The user can specify how many rows to display per page,
format, and the rate per delivery.
MAIL LISTS
Posta Central allows publishers and other users to create and manage Posta
distribution lists. Each account holder or group account member can define
his/her own personal mail lists.
Mail list functionality is accessible from the main tool bar. Secondary
navigation includes Mail list, Create list, Preferences and help.
<PAGE>
MAIL LISTS
The first click on the Mail Lists button on the main tool bar brings users to
table listing existing mail lists. The table also presents how many recipients
are on each mail list and the date the mail list was most recently modified.
Next and previous buttons may exist to navigate between pages of mail lists.
MAIL LIST PREFERENCES
In Mail List Preferences, users can specify the number of mail lists and the
number of addresses to display per page.
FIGURE 20; MAIL LISTS
[Displaying Group, Size and Date]
Clicking on the hot-linked name of the mail list brings up a Mail List Detail
for the selected mail list. The Mail List Detail displays general information
about an existing mail list and allows users to view and manage the addresses on
them.
The top of the Mail List Detail page displays the name of the mail list in a
form which can be edited. To rename the list, the user can change the name in
the form and click on the Update button. Users may also delete the entire mail
list or add addresses by clicking on the appropriate button.
VIEW ADDRESSES
The "View Addresses" button allows users to view the mail list addresses.
Clicking this button displays the first page of addresses in the list. If
necessary, there will be Next and Previous links at the bottom of the table to
navigate between multiple pages of addresses.
Users can also view a select set of addresses by specifying a query in the field
provided. Users can specify an e-mail address or a portion of an address such
as a domain name using the asterisk character as a wild card. Once the query is
specified, clicking on View will display a table of matching addresses.
Users can edit or delete individual addresses in the table by clicking on the
appropriate address. Users are then presented an edit page with an Update and a
Delete button. When the address is updated or deleted, users are returned to an
updated Mail List Detail page.
Users can also delete multiple addresses at a time. Clicking on "Delete all
items found" will delete all items which matched the query, regardless whether
the addresses are not visible on the current page. Once the addresses are
deleted, the Mail List Detail page is immediately updated and presented to the
user.
ADD ADDRESSES
<PAGE>
Clicking on the Add Addresses button in the Mail List Detail brings users to the
Add Addresses page. The name of the current mail list is displayed at the top.
The name is also linked to the mail list detail page. Users can add additional
addresses by either manually entering them in, by uploading names from an ASCII
file, or by merging names from an existing mail list. Once the new addresses
are specified, they can be added to the current address list or can replace the
current list. After the names are submitted, the users are returned to an
updated member detail page with a line at the top confirming the addition or
replacement that just occurred.
CREATE MAIL LISTS
Users can create a new mail list by clicking on the Create list link from the
secondary navigation. The Create Mail List page is similar to the Add
Addressees page, except that the user is prompted for a name of the mail list.
Users can manually enter addresses in the provided text box. Alternatively,
users can upload address from an ASCII file or copy addresses from an existing
mail list as they would in Add Addresses. However, since users are creating a
brand new list, they do not have the option to replace the existing list.
Clicking Add will create a mail list with the specified name and addresses.
Users are presented with an updated Mail List report, with the new list
information included.
QUIT
The button entitle "Quit" at the top of the Posta Central Page allows the user
to exist Posta Central. The Account Logout page will open, giving the Posta
server URL which can be accessed for the next Posta Central session.
- -POSTA DESKTOP
- ---------------------------------------------------------------------------
Tumbleweed Posta Desktop is a client application which extends the functionality
of Posta Central by integrating delivery capabilities into users' desktop
environments. Posta Desktop communicates with the Posta server and does not
require senders to use a Web browser to initiate deliveries. Functionality
beyond the Posta Central includes conversion of documents into PDF, access to
address books from some local E-mail packages, and protocols to address internal
firewalls. Posta Desktop also allows users to create Posta Drops, dedicated
mail slots to specified recipients. The Posta Desktop described herein is
available for Windows 95 and Windows NT 4.0.
FIRST TIME USE
The first time the application is launched after installation, the user will be
prompted for set up information. Users who already have a Posta account can
enter the account name, password, and Posta server. Those who do not have an
account must be pointed to a URL where they can create a Posta account.
MAIL APPLICATION WINDOW
Once the Posta account information is configured, launching the Posta Desktop
displays the main Posta Desktop application window. The main function of the
window is to view the
<PAGE>
status of and manage Posta Desktop activity. It also serves as a launching
paid to reach the various features of Posta. Closing the main application
exists the application.
FIGURE 21; MAIN APPLICATION WINDOW
[Screen showing Recipients Status]
TOOLBAR
The toolbar in the main window provides access to the features of Posta Desktop,
described below:
NEW PACKAGE
Clicking on New Package opens a new Package window (see below) which allows
users to initiate a delivery of a document.
TRACKING, ACCOUNT, BILLING AND MAIL LISTS
These buttons are Internet shortcuts to functionality in the Posta Central.
Clicking on the bottons launches the user's Web browser and displays the
appropriate page in the Posta Central. Provided there is a valid Posta server
address, account, and password configured in the Posta Desktop, no additional
login is required in the process.
SETUP
Opens the Setup dialog where users can specify their Posta server account
information and proxy server account information, if necessary to navigate
through an internal firewall. Users can also specify whether or not to use a
secure connection between the Desktop and the Posta server for transmissions,
e.g. file uploads and mail list downloads. By default, this connection will use
40-bit SSL.
Lastly, users can specify to which local address book the Posta Desktop provides
access. Users are presented a pulldown menu which allows users to select the
"MS MAPI Address Book" or the "Not using Local Address Book" text option. Users
may have to specify where the address book is on their system and will be able
to browse and select the desired file.
<PAGE>
PACKAGE MANAGER
The body of the main application window is a field which lists all packages that
have been initiated during a Posta Desktop session. When the application is
first launched, the field is empty, as shown in the above figure. As packages
are sent, they are listed in the window. The window displays the recipient(s),
the subject, and the status of the delivery. The status of the active package
is a dynamic percentage of upload completed. Other status labels include
"completed,""error," "pending," or "on hold." Packages are listed in reverse
processing order. The package currently being processed, is presented in bold
font.
Clicking on a package in the package field selects the package. Users may
select multiple packages at one time using Control-click. Once a package is
selected, the user can use the Package menu to hold, delete, or edit a package.
These functions can be accessed from the Package menu.
Hold is only available for packages that are pending and will prevent the
package from being processed. The package is held in the queue with a "Hold"
status and will remain there until it is deleted or the hold is removed. All
packages in the field can be deleted. This prevents a pending package form
being processed; a current send will be completely aborted; packages already
processed are simply deleted from the window. Editing a package will open
the package in a new package window. Users can make edits to the package and
re-submit for sending. If a package is edited in transmission, the
transmission of the package is aborted, the package is opened in a new
address window, and the next pending package begins transmission.
MENUS
FILE
The File menu contains New, Open and Exit. New and Open have the same
functionality as the New Package and Open buttons on the main tool bar.
EDIT
The Edit menu contains Setup, which serves the same function as the Setup button
the main toolbar, and Toolbar, which is a checkmark menu item which allows users
to show or hide the toolbar. The Edit menu also contains Select All, which will
select all packages in the window, and Clear which will delete all selected
packages.
PACKAGE
The Package menu contains the Hold, Edit, and Delete menu items, which are
commands applied to selected packages.
<PAGE>
POSTA CENTRAL
The Posta Central menu items corresponding on the buttons on the toolbar, are
Internet shortcuts to services provided in the Posta Central. The items are
Tracking, Account, Billing, and Mail Lists.
HELP
The Help Menu contains Getting Started Guide, Index, and About Posta Desktop.
Selecting Getting Started Guide or Index from the delete Menu launches the
user's browser and displays a local documentation file which is in HTML.
PACKAGE WINDOW
The Package window allows users to specify the parameter of a particular
delivery, including the recipients, the documents, and send options. A new
package window is accessible from the main application window by electing
File/New or by clicking on the New Package button from the main tool bar. A
previously saved Package window can be opened by selecting File/Open or by
clicking on the Open button in the toolbar and specifying a Posta Drop file (see
below for description).
The Package Window also allows senders to provide the information required to
initiate a delivery. Each delivery transaction requires the sender to specify:
-Recipient(s) of the delivery
-Document(s) to be delivered
There are two main buttons across the bottom of the window: Save As Posta Drop
and Send.
FIGURE 22; THE PACKAGE WINDOW
[Screen displaying Recipient, Priority, Expiration and Notification]
RECIPIENTS
Senders can specify recipients or mail lists for a given delivery in the To:
field of the address window. Each recipient must be specified by an E-mail
address, alias or mail list. Senders may type destination addressees into the
field directly. Alternatively, they may use the Recipients Window to select
names from a local address book or a pre-defined mail list. The window can be
accessed by clicking on the To: button.
<PAGE>
FIGURE 23; RECIPIENTS WINDOW
[Screen Showing Recipients/Mail List]
If the user has configured the Posta Desktop to work with a local e-mail address
book, the user can select from a pull down menu whether to use addresses form a
local address book or Posta mail lists. Selecting Posta Mail Lists and clicking
on the Refresh button will populate the list box on the left hand side with the
names of the mail lists stored on the server for the Posta account for which the
Desktop is configured. Selecting Local Address Book and clicking on the Refresh
button will populate the field with addresses from the address book specified in
the Preferences dialog.
Users can select items form the left and side scroll box and click the To:
button to specify the sections as recipients. Control-click allows selection of
multiple items; shift-click selects a range of items. Recipients are presented
in the right hand side list box. Recipients in the right hand side list box can
be selected and removed by clicking the Remove button.
When the user clicks OK, items in the right hand side field are displayed in the
To: field of the Address Window. Mail lists will have the prefix "list:"
prepended to them. Senders can also delete recipient addresses from the To:
field of the Package Window. Note: users cannot manipulate either local
address books or mail lists from the Posta Desktop; this can only be done from
native E-mail application.
SUBJECT AND MESSAGE
The next two fields in the address window, subject and message, are optional.
The sender may type or paste text into these fields to provide recipients
context to the document being delivered. The subject will appear in the
E-mail notification anon on the HTML user page. The message will appear only
in the E-mail notification.
DOCUMENTS
The document field in the address window allows senders to specify any number
documents to be sent. There are three ways users can specify documents:
- Users can click and drag documents from their desktop onto either
Posta icon, a Posta Drop icon (see description below), the main
application window, or the package window.
- Clicking the Document button in the Package Window allows the sender
to browse local and network directories and select desired documents
through the standard open file dialog.
Below the document field, users can specify in what electronic format the file
will be sent. The type is defaulted to original file format. Optionally, the
user may select Acrobat PDF format, which will attempt to open the application
associates with the original file type, load the PDF driver, print the file, and
return the PDF file to the Posta Desktop.
<PAGE>
SEND OPTIONS
Each delivery transaction has associated send options. All options default
settings which can be changed by the user prior to delivery. Settings can be
viewed and edited in the right hand side of the Package window.
PRIORITY
Users can specify the priority of a delivery as either normal, low, or high, by
clicking on the pulldown menu. Priority determines the order the package is
processed by the client on the checkbox.
REQUEST CONFIRMATION
Request confirmation prompts the recipient with a confirmation button on the
HTML Posta Receive page. Request confirmation can be selected or de-selected by
clicking on the checkbox.
SECURITY
The security options allow the user to specify different levels of security
measures. The user may enter a password into the "Password" and "Confirm
Password" fields. If the user enters different passwords into the two fields,
the Posta Desktop will prompt the user to enter identical passwords prior to
initiating the delivery. If the user enters the name password in each field and
then initiates the delivery, the Posta server will then prompt, the recipient
for the password prior to enabling the recipient to access the Posta Receive
page for the package.
If the user selects the "Encrypt document(s)" checkbox, the Posta server will
utilize the Windows NT Server "CryptoAPI" function call to encrypt the file
stream that is stored on the Posta server. This encryption will use the
underlying private key encryption algorithm and default key length as provided
by the Microsoft Windows NT server through its CryptoAPI.
If the user selects the "Require secure connection to receive" checkbox, then
the Posta server will verify that the recipient as a web browser that
supports a secure connection between the recipient's web browser and the
Posta server using Secured Socket Layer (SSL) or Private Communications
Technology (PCT). When delivering the Posta Receive page to the recipient's
web browser, the Posta server will then require this secure connection
capacity to be enabled in the recipient's web browser. Note that this
checkbox only addresses the secure connection between the Posta server and
the recipient. If the user wishes to create a secure connection between
himself and the Posta server, the user must also check the "Use Secure
connection" checkbox in the Posta Desktop setup dialog.
DOCUMENT EXPIRATION
Document Expiration allows users to specify how long a document will remain on
the server of r recipient availability. The minimum value is one day and the
maximum is one
<PAGE>
thousand days. Low permissible maximum values can be set within
Posta Admin by the Postamaster. For the purposes of this feature, the document
will be deleted from the Posta server at the first batch processing event after
the number of days specified in the Document Expiration field have passed.
SCHEDULED NOTIFICATION
Scheduled Notification allows users to specify a future date and time that Posta
will notify users of a given delivery. Times will be specified with AM/PM
designation.
BILLING CODES
The Billing code dialog allows users to select an option a billing code from a
list associated with the user's account. The behavior of the billing code
pulldown list will be similar to Mail Lists in the Address Window in that access
to billing codes requires a "Refresh" button to retrieve the list of valid
billing codes stored on the server. A Refresh button refreshes the list with
the latest billing code list on the server. The default code will be "None".
SENDING THE DOCUMENT
Once the address window is complete, senders can initiate the delivery by
clicking the Send button. Posta will only accept a delivery if both the
recipient and the document fields are complete. If the sender is working
off-line, sent packages will be queued for sending when and Internet
connection is eventually established.
RESOLVING ADDRESSES
Address without an explicit "@domain" suffix are matched first against current
local address book. If addresses are still not matched, they are uploaded to
the server as is. The server then attempts to match address with a mail list.
If the address is still not matched, the server will append the domain name of
the account holder.
A package window may be saved to disk as a Posta Drop document by clicking on
the Save As Posta Drop button at the bottom of the window.
POSTA DROPS
Posta Drops are saved delivery parameter which can be utilized on a recurring
basis across sessions. From a Package window, senders can create a Posta Drop
containing specified send options, an address list, and/or a fixed subject or
message. Posta Drops cannot save references to specified documents. To create
a Posta Drop, a user can click on the Save As Posta Drop button at the bottom of
the window. A dialog box prompts the sender to specify a name for the Posta
Drop and a location on the sender's disk to serve the Drop. Once created, the
Drop can be accessed for future deliveries.
If a Posta Drop contains an address list, the sender can initiate a delivery
using the Posta Drop parameters by clicking and dragging a document icon onto
the Posta Drop icon. The document provides the last piece of information
required for the delivery, and the send is
<PAGE>
initiated automatically. In this use scenario, the Posta Drop serves as a
dedicated mail cute to a specified recipient. If a sender wishes to modify
or confirm the existing send options of the Posta Drop before launching the
delivery, clicking and dragging with the control key depressed will open an
window with all send parameters displayed. The sender can then modify send
parameters or append a message before sending the document.
If only send options are saved on a Posta Drop - i.e., there is no address list
provided - clicking and dragging a document onto the Posta Drop will open a
package window with the Posta Drop send options and the name of the document
specified. The sender must specify a recipient before the document can be sent.
Posta Drops can be opened by double-clicking on the Posta Drop icon or by using
the File/Open command from the menu bar of the main application. The Posta Drop
will be displayed in a Package Window and can be completed or modified for a
delivery. Note if the Posta desktop application is not open, opening a Posta
Drop will open the main application window as well as a Package window.
Modifications to the Posta Drop can be preserved by clicking on the Save As
Posta Drop button and saving over the existing Drop using the same name, or by
creating a new Drop with a different name.
If any send options or EXISTING address lists have been modified and the changes
have not been saved, the sender will be prompted to save the modifications upon
closing the Package window. If a sender wishes to add an address to an existing
Posta Drop that did not preciously contain an address list, she can click Save
As Posta Drop.
- -POSTA RECIPIENT
- -------------------------------------------------------------------------------
Posta recipients need an Internet e-mail account, World Wide Web access, and a
Web browser in order to receive documents sent through a Posta server.
Recipients of a Posta Package receive an e-mail message notifying them of the
Posta delivery, including a link to the HTML Posta Receive page. The Posta
Receive page contains a link to the files which were sent via Posta.
PROVIDING A PASSWORD
If prompted for a password, the recipient must specify the correct password in
the space provided and click on Submit in order to access the Posta Receive
page.
<PAGE>
CONFIRMING RECEIPT OF THE FILE
If a Confirm button is present on the Posta Receive page, clicking on it will
indicate on the Posta server that the Confirm button was activated
ACCESSING THE DOCUMENT
If more than one document is specified on the Receive page, the recipient will
open one file at a time by clicking on the file name. After opening each file,
clicking the "Back" button the web browser should return to the list of files.
JPEG OR GIF FILES
If the document is in JPEG or GIF format, it will be embedded in the Posta
Receive page. To view the document without the Posta Receive page, the
recipient can click on the file name in the full browser window, or right-click
on the document name in the Posta Receive page and choose "Save As...".
PDF FILES
If the document is in PDF format, and the recipient have installed the
appropriate Acrobat Reader plug-in, the document will be embedded in the Posta
Receive page. To view the document without the Posta Receive page, the
recipient can click on the file name to view the file in the full browser
window, or right-click on the document file name in the Posta Receive page and
choose "Save As...". If the recipient cannot view the document, the recipient
must download the Acrobat Reader plug-in from Adobe Systems, Inc.
OTHER FILE TYPES
For all other document formats, click on the hyperlinked file name as it appears
on the Receive page.
If the Posta Server did not receive the information necessary to properly
determine the file's MIME type, the file will be downloaded as a binary file of
generic type, without an association to the application used to create the file.
If the Posta server did receive the information necessary to properly determine
the file's MIME type, the file will be downloaded and the Web browser will
either prompt the recipient to select an application to read the file, or, if
the browser has been pre-configured, will launch the application or plug-in and
open the file in it.
<PAGE>
THE POSTA OPERATING ENVIRONMENT
TUMBLEWEED-REGISTERED TRADEMARK- SOFTWARE CORPORATION
2010 Broadway
Redwood City, CA 94063
www.tumbleweed.com
------------------
DOCUMENT VERSION 1.0
Copyright 1997 Tumbleweed Software Corp.
All Rights Reserved
<PAGE>
- POSTA SERVER REQUIREMENTS
- --------------------------------------------------------------------------
To install and access the Posta 1.0 server on a computer system, the
following is required:
- Hardware: PC with Pentium processor or greater
- System software: Microsoft-Registered Trademark- Windows
NETSCAPE-Registered Trademark- 4.0 Server with Service Pack 2 (or
higher), TCP/IP networking protocol, and current ODBC driver
- Microsoft SQL Server 6.5 with Service Pack 2
- 64 MB minimum RAM
- 24 MB minimum hard drive space for Posta Server
- 500 MB+ minimum hard drive space for SQLO Server device files
- 400 MB+ minimum hard drive space for Posta data files
- Windows NT 4.0-compatible network card
- Digital Server Certificate from VeriSign.
NOTE: It is important to Note that the Posta server software contains an
SMTP server and uses the SMTP port on the Windows NT Server. Note
that an additional SMTP server cannot use the same port on the same
Windows NT Server.
NOTE: Posta does not require that the Windows NT Server be the primary
domain controller for the system. however, if the Posta server is
part of a given domain and is NOT the primary domain controller, the
appropriate registry entry must be edited after the Posta server has
been installed. To do this, the
HKEY_LOCAL_MACHINE\SOFTWARE\Tumbleweed\Posta\Server\ Network registry
must be changed from:
"OS Admin Account" = "AdministratorAccountName"
- to -
"OS Admin Account" = "DomainName\AdministratorAccountName"
- - POSTA CENTRAL REQUIREMENTS
- --------------------------------------------------------------------------
To access Tumbleweed Posta Central, Posta Central users need the following:
- an account on a Posta server
- World Wide Web access
- a Web browser (such as Netscape Navigator or Microsoft Internet
Explorer)
NOTE: To send files from Posta Central, netscape navigator 2.02 (or greater)
is currently required. If other Web browsers are used, documents may
need to be sent from Posta Desktop.
<PAGE>
Currently most major Web browsers (Netscape Navigator version 2.0.2 or
higher, Internet Explorer 3.0 or higher) can be used to access the
management and tracking features of Posta Central.
- - POSTA DESKTOP REQUIREMENTS
- --------------------------------------------------------------------------
To send files using Posta Desktop, the following requirements must be met:
- Hardware: IBM-compatible PC with Intel 486 or Pentium processor or
greater.
- System software: Windows 95 or Windows NT 4.0
- 16 Megabytes of RAM on Windows 96, or 32 Megabytes of RAM on NT 4.0
- 2.5 Megabytes of hard disk space
- an Internet connection
- TCP/IP networking protocol, properly installed and configured.
NOTE: Although a web browser is not required to send files via Posta
Desktop, a browser is needed to access Posta Central features such as tracking
and billing.
Each Posta Desktop user must have a Posta account in order to access Posta
Desktop.
The first time the Posta Desktop is opened, a box will open requesting the
account information or the creation of an evaluation account. Click on the
enter Account Information button. In the spaces provided, enter the server URL
and the Administrator name and password which were specified during Posta
installation.
PROXY SERVERS
If the Internet connection is established using one or more proxy servers for a
firewall or data caching, Posta Desktop must be configured to work with the
proxies as described below.
Microsoft Internet Explorer (MSIE) automatically configures the appropriate
information within the Internet Control Panel.
If a browser other than MSIE is being used, the user will need to configure
Posta Desktop to work with the proxies via the Proxy Server page in the Setup
dialog box. This dialog box is accessible from the toolbar or the Edit/Setup
menu in Posta Desktop. In the Proxy Server folder, the "Use Proxy Server" box
must be checked and the addresses and ports of the proxy servers must be
entered.
In an insecure proxy server is being used, its address must be specified in the
"Http" text box. If the system also uses a secure proxy server, the secure
proxy's address must be specified in the "Secure" text box. The proxy ports
must be typed in the corresponding boxes.
If Netscape Navigator is being used, the proxy server addresses are found using
the Network Preferences menu item in the Web browser. The Proxies folder in the
Preferences dialog
<PAGE>
box must be accessed. The Manual Proxy Configuration checkbox and the View
button must be clicked. The dialog box which opens will list the proxies
which exist on the system.
SECURE CONNECTION
To secure the files as they travel to and from the Posta server, a secure
Internet connection (such as SSL) must be used. Within Posta Desktop, to
connect using a secure connection to the Posta server, Use Secure Connection
must be selected on the Account Info page, accessible by the Setup button in the
main application window. To require usage of a secure connection on the
recipient's desktop, the "Require secure connection to receive" option in the
Package window must be selected.
Within Posta Central, to connect using a secure connection between the Web and
the Posta server, the URL of the Posta Central Pages Must begin with "https".
To require usage of a secure connection on the recipient's desktop, the "Require
secure connection to receive" checkbox on the Options page must be checked when
sending files.
Note that the recipient must have a browser that supports a secure connection to
receive a secured document.
<PAGE>
[ * ]
[*] Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been omitted
from the public filing and have been filed separately with the Securities and
Exchange Commission. The confidential portion omitted here consists of 187
pages.
<PAGE>
EXHIBIT B
<PAGE>
EXHIBIT B - PHASE II
TUMBLEWEED-REGISTERED TRADEMARK- SOFTWARE CORPORATION
2010 Broadway
Redwood City, CA 94063
www.tumbleweed.com
DOCUMENT VERSION 1.0
Copyright 1997 Tumbleweed Software Corp.
All Rights Reserved
<PAGE>
[ * ]
[*] Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been omitted
from the public filing and have been filed separately with the Securities and
Exchange Commission. The confidential portion omitted here consists of 27
pages.
<PAGE>
EXHIBIT C
<PAGE>
EXHIBIT C - INTERFACE GUIDELINES
TUMBLEWEED-REGISTERED TRADEMARK- SOFTWARE CORPORATION
2010 Broadway
Redwood City, CA 94063
www.tumbleweed.com
DOCUMENT VERSION 1.0
Copyright 1997 Tumbleweed Software Corp.
All Rights Reserved
<PAGE>
[ * ]
[*] Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been omitted
from the public filing and have been filed separately with the Securities and
Exchange Commission. The confidential portion omitted here consists of 13
pages.
<PAGE>
EXHIBIT D
<PAGE>
Exhibit D
Implementation Schedule
DATE MILESTONE
[ * ]
[*] Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been omitted
from the public filing and have been filed separately with the Securities and
Exchange Commission.
<PAGE>
EXHIBIT E
<PAGE>
EXHIBIT E
END USER LICENSE TERMS
United Parcel Service General Services Co. ("UPS") grants to the end-user
("Customer"), under the terms and conditions set forth herein and for so long as
Customer has a valid Messaging Service account and is not in breach of this
Agreement, a personal, non-exclusive and non-transferable right to use (i) all
computer programs, in any form, provided to the Customer in connection with the
Messaging Service (in object code form only), and all updates, enhancements and
modifications thereto which are provided to the Customer; and (ii) all user
documentation including manuals, handbooks and other written materials relating
to such programs which are provided to the Customer (together referred to as the
"Software"). Customer shall not use the Software for any purpose other than in
connection with Messaging Service transactions.
1. All title and ownership rights in the Software remain with UPS
and its licensors. Additional copies of the Software must contain the
copyright and proprietary notices which are furnished with the original.
Customer may not attempt to disable or bypass any functionality or
time-limitation mechanisms of the Messaging Service or Software, nor
decompile, disassemble, reverse engineer, reverse compile or otherwise
reduce the Software to human readable form without prior written consent of
UPS; PROVIDED, HOWEVER, that, notwithstanding anything contained herein to
the contrary, UPS's authorization shall not be required where reproduction
of the Software and translation of its form are indispensable in the
European Union to obtain the information necessary to achieve the
interoperability of the Software with other programs, provided that: (A)
these acts are performed by the Customer or by another person having a
right to use a copy of the Software, or on their behalf by a person
authorized to do so; (B) the information necessary to achieve
interoperability has not previously been readily available to the persons
referred to in subparagraph (A); and (C) these acts are confined to the
parts of the Software which are necessary to achieve interoperability.
2. UPS warrants that the Software provided by it will perform
substantially in accordance with applicable written product specifications
provided by UPS to Customer at the time of delivery for a period of
[ * ] from the date of delivery. UPS does not warrant that
Customer's use of the Software will be uninterrupted or error-free.
Customer's sole remedy shall be replacement of the Software. UPS MAKES NO
OTHER WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, IN FACT OR IN LAW,
- ---------------
[*]Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
<PAGE>
INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, NON-INFRINGEMENT OR TITLE.
3. IN NO EVENT WILL UPS OR ANY OF ITS LICENSORS BE LIABLE FOR
INCIDENTAL, SPECIAL, CONSEQUENTIAL OR EXEMPLARY PENALTIES OR DAMAGES
(INCLUDING LOST PROFITS, OR PENALTIES AND/OR DAMAGES FOR DELAY IN DELIVERY
OR FAILURE TO GIVE NOTICE OR DELAY), EVEN IF UPS HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. CUSTOMER AGREES THAT ANY LIABILITY OF UPS
HEREUNDER FOR DAMAGES, REGARDLESS OF THE FORM OF ACTION, SHALL NOT EXCEED
US$10.00.
4. UPS may terminate this License Agreement after giving written
notice to Customer of its failure to satisfy any of its obligations
hereunder if Customer then fails to begin taking corrective action within
fifteen (15) days after receiving such notice and to resolve such failure
within thirty (30) days after receiving such notice. Upon such
termination, Customer shall cease all use of all copies of the Software
which it received hereunder. In addition, UPS can terminate Customer's
right to use the Software in the event Customer ceases to do business or
becomes bankrupt. If UPS terminates this Agreement, Customer agrees to
return to UPS all copies of the Software, including all copies or partial
copies.
5. Any change to this License Agreement must be in writing, signed
by both parties. Interpretation of this License Agreement will be governed
by the laws of the State of Georgia, excluding (i) its conflicts of law
principals; (ii) the United Nations Convention on Contracts for the
International Sale of Goods; (iii) the 1974 Convention on the Limitation
Period in the International Sale of Goods; and (iv) the Protocol amending
the 1974 Convention, done at Vienna April 11, 1980.
6. No rights or licenses with respect to the Software, the names,
trademarks, service marks or logos of UPS or any of its licensors, or any
other of the intellectual property rights of UPS or any of its licensors,
or with respect to rights to offer services provided by the Software to
third parties, are granted or deemed granted hereunder or in connection
herewith, other than those rights to use the Software which are expressly
granted in this Agreement.
7. The Software is a "commercial item," as that term is defined at
48 C.F.R. 2.101 (Oct. 1995), consisting of "commercial computer software"
or "commercial computer software documentation" as such terms are used in
48 C.F.R. 12.212 (Sept. 1995). If the Customer is a unit or agency of the
United States Government, then the United States Government's rights with
respect to the Software are limited by the terms of this Agreement,
consistent with 48 C.F.R. 12.212 and 48 C.F.R. 227.7202-1 through
227.7202-4 (June 1995), as applicable.
<PAGE>
8. This Agreement is the complete and exclusive statement of the
agreement between UPS and Customer, and this Agreement supersedes any prior
proposal, agreement, or communication, oral or written, pertaining to the
subject matter of this Agreement.
9. Customer shall comply with all applicable United States export
control laws and regulations, and will obtain any export and/or re-export
authorizations required under the Export Administration Regulations of the
U.S. Department of Commerce and other relevant regulations controlling the
export of the Software or related technical data.
(K:\78900.ups\97649.tum\agmts\Exhibits.wpd)
<PAGE>
Exhibit F
<PAGE>
EXHIBIT F
SOURCE CODE ESCROW AGREEMENT
This Agreement is made and entered into as the ___ day of _______, 199__,
by and between Tumbleweed Software Corporation, a California corporation with
offices at 2010 Broadway Street, Redwood City, California 94063 (hereinafter
"Tumbleweed"); United Parcel Service General Services Co., a Delaware
corporation with offices at 55 Glenlake Parkway, Atlanta, Georgia 30328
(hereinafter "UPS"); and Data Securities International, a Delaware corporation
with offices at 9555 Chesapeake Drive, San Diego, California 92123 (hereinafter
"Escrow Agent").
WITNESSETH:
WHEREAS, Tumbleweed and UPS have entered into a Software License,
Development and Maintenance Agreement more particularly described below pursuant
to which Tumbleweed has agreed to license to UPS, its Affiliates, and certain
other third parties certain proprietary computer programs in object code form;
and
WHEREAS, Tumbleweed and UPS have agreed to place the source code
corresponding to such computer programs in escrow to be released to UPS upon
breach of certain obligations of maintenance and support of such programs
undertaken by Tumbleweed, or upon the occurrence of certain other events
described herein;
NOW THEREFORE, in consideration of the premises, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby covenant and agree as follows:
Section 1
DEFINITIONS
For the purposes of this Agreement, in addition to definitions set forth
elsewhere in this Agreement, the definitions set forth in this Section shall
apply to the respective capitalized terms immediately preceding each definition.
Other capitalized terms shall have the meanings set forth in the License
Agreement.
1.1 "AGREEMENT." This Source Code Escrow Agreement, including
any exhibits, addenda, amendments and modifications hereto.
1.2 "INSOLVENCY EVENT." Any one or more of the following: (1)
Tumbleweed's admission in writing of its inability to pay its debts
generally as they become due, or (2) a general assignment for the
benefit of creditors by Tumbleweed; or (3) voluntary institution of
proceedings by Tumbleweed to be adjudicated as bankruptcy; or (4)
Tumbleweed's consent to the filing of a petition of bankruptcy against
it; or (5) adjudication of Tumbleweed
<PAGE>
by a court of competent jurisdiction as being bankrupt or insolvent;
or (6) Tumbleweed's application for reorganization under any bankrupt
act or law, or Tumbleweed's consent to the filing of a petition
seeking such a reorganization; or (7) the entry of a decree against
Tumbleweed by a court of competent jurisdiction appointing a receiver,
liquidator, trustee, or assignee in bankruptcy or in insolvency
covering all or substantially all of Tumbleweed's property or
providing for the liquidation of Tumbleweed's property or business.
1.3 "LICENSE AGREEMENT." The Software License, Development and
Services Agreement entered into by the parties as of the 19th day of
December, 1997, pursuant to which Tumbleweed has agreed, INTER ALIA,
to license the Software to UPS.
1.4 "SUPPORT SERVICES." All warranty, maintenance (customer
support), error correction, installation, and other technical
assistance respecting the Software required to be performed by
Tumbleweed pursuant either to Section 9 of the License Agreement or
to any software maintenance agreement(s) then in effect between the
parties and that has replaced the provisions of Section 9 of the
License Agreement.
Section 2
PURPOSE OF AGREEMENT; DEPOSIT OF SOURCE CODE
2.1 DEPOSIT OF SOURCE CODE. The deposit of Source Code and the
expanded license thereof to UPS pursuant to Section 11(e) of the
License Agreement are intended to provide assurance to UPS of access
to, and the right to use, the Source Code in the event, INTER ALIA,
that Tumbleweed fails to provide Support Services as required under
the License Agreement or any software maintenance (customer support)
agreement respecting the Software. In connection therewith, Escrow
Agent agrees to accept from Tumbleweed and Tumbleweed agrees to
deposit with Escrow Agent, within the time frames set forth in
Section 11(b) of the License Agreement, a copy of the Source Code.
Tumbleweed will furnish to Escrow Agent a list describing all Source
Code so deposited. Such description will be supplemented and updated
by Tumbleweed with each subsequent deposit of Source Code. For
each deposit, Escrow Agent will issue receipts to Tumbleweed.
2.2 UPDATE AND MAINTENANCE OF SOURCE CODE. During the term of
this Agreement, Tumbleweed shall keep the Source Code in escrow fully
current by depositing a copy of the Source Code corresponding to each
and every Enhancement to the Software licensed to UPS from time to
time, such deposits to be completed within the time frames set forth
in Section 11(b) of the License Agreement.
2.3 VERIFICATION AND TESTING OF SOURCE CODE. UPS shall have the
right to inspect, compile, test and review the Source Code at the time
of the initial deposit and at the time of each subsequent deposit of
the Source Code in escrow, and from time to time thereafter, to verify
that it corresponds to the Software, provided Tumbleweed is given
written notice to such verification and testing of the Source Code and
provided Tumbleweed is given the right
<PAGE>
to supervise the verification, testing and security of the Source
Code. Escrow Agent shall permit such inspections and testing of the
same promptly upon request. Such inspections and testing shall be at
UPS's expense and shall be conducted at Tumbleweed's premises or at
such other location as Tumbleweed may approve, which approval shall
not be unreasonably withheld.
Section 3
TITLE TO SOURCE CODE
Title to the Source Code shall remain in Tumbleweed, but title to the media
upon which the Source Code is stored to be deposited in escrow hereunder shall
pass to, and vest in, Escrow Agent immediately upon delivery, and in the event
the Source Code shall be delivered to UPS pursuant hereto, title to the media
upon which the Source Code is stored shall thereupon pass to and vest in UPS.
Notwithstanding it ownership of a copy of the Source Code in such event, UPS
shall remain subject to the terms of the license granted pursuant to Section
11(e) of the License Agreement with respect to the Use thereof.
Section 4
RELEASE OF SOURCE CODE TO UPS
4.1 NOTICE OF DEFAULT; RIGHT TO CURE. If UPS shall conclude in good faith
that a release event set forth in Section 11(a) of the License Agreement has
occurred (including Tumbleweed's failure in any material respect to provide any
Support Services that it is obligated to provide, and such failure has resulted
in UPS's inability to use any of the major functional components of the
Software), it shall so notify Tumbleweed in writing (the "Initial Notice").
Such notice shall describe such failure in reasonable detail. A copy of such
Initial Notice shall be simultaneously delivered to Escrow Agent. For a period
of twenty (20) days after receipt of such Initial Notice, Tumbleweed shall have
the right to cure the identified failure. In the event that, at the conclusion
of such cure period, UPS shall conclude in good faith that the identified
failures have not been cured, UPS may so notify both Tumbleweed and Escrow Agent
in writing and demand that Escrow Agent release the Source Code to UPS (the
"Final Notice"). Notwithstanding the foregoing, in the event that the release
event is an Insolvency Event, and in connection therewith, Tumbleweed or its
trustee or receiver rejects the License Agreement, UPS shall not be obligated to
provide the Initial Notice, and the initial notification by UPS shall be deemed
to constitute a Final Notice.
4.2 DISPUTE BY TUMBLEWEED. If Tumbleweed disputes UPS's determination
that the identified failure occurred and has not been cured following the
expiration of the allowed period. Tumbleweed may so notify Escrow Agent and UPS
in writing within four (4) business days after receipt of UPS's Final Notice
demanding release of the Source Code. Failure of Tumbleweed to give timely
notice of such an objection shall conclusively establish its consent to the
release of the Source Code to UPS hereunder, whereupon Escrow Agent shall
promptly release a copy of the Source Code to UPS. In the event of a dispute,
Escrow Agent will continue to store the Source Code without
<PAGE>
release, pending (a) joint instructions from UPS and Tumbleweed, (b) resolution
pursuant to Section 5, or (c) order of a court.
4.3 INJUNCTIVE RELIEF. Tumbleweed and UPS acknowledge and agree that UPS
may suffer irreparable harm to its business and operations in the event that
release of the Source Code to UPS pursuant to the terms hereof is wrongfully
delayed by Tumbleweed, and that UPS may petition for injunctive relief to
prevent Tumbleweed from seeking to delay such release.
Section 5
ARBITRATION OF DISPUTES RESPECTING RELEASE OF SOURCE CODE
5.1 ARBITRATION OF DISPUTES. In the event of any dispute respecting
release of the Source Code under Section 4 hereof, representatives of Tumbleweed
and UPS shall meet no later than five (5) days after delivery of Tumbleweed's
notice objecting to such release and shall enter into good faith negotiations
aimed at curing the deficiencies alleged to exist. If such persons are unable
to resolve the dispute in a satisfactory manner within the next five (5) days,
either Tumbleweed or UPS may seek binding arbitration in accordance with the
terms of this Section 5.
5.2 ARBITRATION PROCEDURE. Upon receipt by Escrow Agent of written notice
by Tumbleweed or UPS calling for arbitration with respect to any dispute
respecting release of the Source Code under Section 4 hereof, the matter shall
be submitted to binding arbitration. Such arbitration shall be conducted under
the commercial rules then prevailing of the American Arbitration Association, by
a single arbitrator appointed by the American Arbitration Association. Insofar
as possible, such arbitrator shall be, at the time of his selection, a partner
or manager of a national or regional accounting firm (including the information
processing affiliates thereof) not regularly employed by Tumbleweed or UPS, and
such arbitrator shall be required to have substantial experience in the field of
computer software technology and licensing. The sole issue for arbitration
shall be whether Tumbleweed has failed in any material respect to provide any
Support Services that it is obligated to provide, in accordance with the terms
of the applicable agreement. If the arbitrator shall so determine, he shall
forthwith so notify the parties, and Escrow Agent shall forthwith deliver the
Source Code to UPS. The decision of the arbitrator shall be final and binding
on Tumbleweed and UPS and may be entered and enforced in any court in competent
jurisdiction of either party.
5.3 COSTS OF ARBITRATION. The prevailing party in the arbitration
proceedings shall be awarded reasonable attorney fees, expert witness costs and
expenses, and all other costs and expenses incurred directly or indirectly in
connection with the proceedings, unless the arbitrator for good cause determines
otherwise.
<PAGE>
Section 6
LICENSE OF SOURCE CODE
6.1 LICENSE. In the event that the Source Code shall be delivered out of
escrow to UPS pursuant to the terms of this Agreement, UPS shall be licensed by
Tumbleweed, and Tumbleweed does so hereby license UPS subject to such condition,
to use the Source Code pursuant to the expanded license terms set forth in
Section 11(e) of the License Agreement.
6.2 CONFIDENTIALITY UNDERTAKING. UPS shall treat and preserve the Source
Code as a Trade Secret of Tumbleweed in accordance with the terms of Section 10
of the License Agreement, and in no event shall UPS's treatment be less secure
than that of UPS's own propriety source code of similar importance.
Section 7
FEES OF ESCROW AGENT
7.1 Tumbleweed shall pay to Escrow Agent, annually in advance during the
term hereof, the fees of Escrow Agent at the rate prescribed on the attached
Exhibit B for its performance of services hereunder.
Section 8
LIMITATION ON OBLIGATIONS OF ESCROW AGENT
8.1 LIMITED DUTY OF INQUIRY. Escrow Agent shall not be required to
inquire into the truth of any statements or representations contained in any
notices, certificates, or other documents required or otherwise provided
hereunder, and it shall be entitled to assume that the signatures on such
documents are genuine, that the persons signing on behalf of any party thereto
are duly authorized to execute the same, and that all actions necessary to
render any such documents binding on the party purporting to be executing the
same have been duly undertaken. Without limiting the foregoing, Escrow Agent
may, in its discretion, require from Tumbleweed or UPS additional documents that
it deems to be necessary or desirable to aid in the course of performing its
obligations hereunder.
8.2 RIGHT TO INTERPLEADER. Notwithstanding any other provision of this
Agreement, in the event Escrow Agent shall receive conflicting demands from
Tumbleweed and UPS respecting release of the Source Code to UPS hereunder,
Escrow Agent may, in its sole discretion, file an interpleader action with
respect thereto in any court of competent jurisdiction.
8.3 RELEASE AND INDEMNIFICATION OF ESCROW AGENT. Tumbleweed and UPS,
severally, do hereby release Escrow Agent from any and all liability for losses,
damages, and expenses (including attorney fees) that may be incurred on account
of any action taken by Escrow Agent in good faith pursuant to this Agreement,
and such parties do hereby severally indemnify Escrow Agent and
<PAGE>
undertake to hold harmless Escrow Agent from and against any and all claims,
demands, or actions arising out of or resulting from such performance by Escrow
Agent under this Agreement.
Section 9
CONTINUED ABILITY TO PERFORM OBLIGATIONS
The parties hereto respect and warrant that they have full power and
authority to undertake the obligations set forth in this Agreement and that they
have not entered into, nor will they enter into, any other agreements that would
render them incapable of satisfactorily performing their respective obligations
hereunder or that would place them in a position of conflict of interest or be
inconsistent or in conflict with their respective obligations hereunder.
Section 10
TERM OF AGREEMENT
The term of this Agreement shall commence on the effective date hereof and
shall continue until the Source Code shall be transferred to UPS pursuant to the
terms hereof, or, if such transfer shall not have so occurred, this Agreement
shall terminate and the Source Code shall be returned to Tumbleweed upon the
expiration of the License Agreement, including any renewals of the term thereof.
<PAGE>
Section 11
MISCELLANEOUS
11.1 COMPLIANCE WITH LAWS. The parties hereto agree that they will comply
with all applicable laws and regulations of governmental bodies or agencies in
their respective performance of obligations under this Agreement.
11.2 NO UNDISCLOSED AGENCY; NO ASSIGNMENT. Each party represents that it
is acting on its own behalf and is not acting as an agent for or on behalf of
any third party. Escrow Agent may not assign its rights or delegate its duties
under this Agreement without the prior written consent of the other parties
hereto. Neither Tumbleweed nor UPS may assign its respective rights or delegate
its respective duties hereunder except in connection with a permitted assignment
and delegation of such party's respective rights and duties under the License
Agreement. Notwithstanding any substitution of a new escrow agent, all other
terms of this Agreement shall remain in effect.
11.3 NOTICES. All notices, requests, demands or other communications
required or permitted to be given or made under this Agreement shall be in
writing and shall be given by personal service, UPS Next Day Air, telecopy, or
by United States certified mail, return receipt requested, postage prepaid to
the addresses set forth below, or such other address as changed through written
notice to the other party.
If to UPS:
United Parcel Service
55 Glenlake Parkway
Atlanta, Georgia 30328
Attn: Joseph R. Moderow
Telecopy: (404) 828-6619
With a copy to Joe Pyne (same address); Telecopy: (404) 828-6619
If to Tumbleweed:
Tumbleweed Software Corp.
2010 Broadway Street
Redwood City, California 94063
Attn: President
Telecopy: (650) 369-7197
If to Escrow Agent:
DSI
Contract Administration
<PAGE>
Suite 200
9555 Chesapeake Drive
San Diego, CA 92123
Facsimile: (619) 694-1919
Notice given by personal service shall be deemed effective on the date it is
delivered, notice sent by UPS Next Day Air shall be deemed effective one
Business Day after dispatch, notice given by telecopy shall be deemed effective
on the date of transmission, and notice mailed shall be deemed effective on the
third Business Day following its placement in the mail.
11.4 GOVERNING LAW. All questions concerning the validity, operation,
interpretation, and construction of this Agreement shall be governed by and
determined in accordance with the laws of the State of New York, excluding its
conflict of law rules.
11.5 NO WAIVER. No party shall, by mere lapse of time, without giving
notice or taking other action hereunder, be deemed to have waived any breach by
the other party or parties of any of the provisions of this Agreement. Further,
the waiver by any party of a particular breach of this Agreement by any other
party shall be construed as or constitute a continuing waiver of such breach or
of other breaches of the same or other provisions of this Agreement.
11.6 FORCE MAJEURE. No party shall be in default if failure to perform any
obligation hereunder is caused solely by supervising conditions beyond such
party's control, including acts of God, civil commotion, strikes, labor
disputes, or governmental demands or requirements.
11.7 PARTIAL INVALIDITY. If any part, term, or provision of this Agreement
shall be held illegal, unenforceable, or in conflict with any law of a federal,
state, or local government having jurisdiction over this Agreement, the validity
of the remaining portions or provisions hereof shall not be affected thereby.
11.8 COMPLETE STATEMENT OF AGREEMENT. The parties hereto acknowledge that
each has read this Agreement, understands it, and agrees to be bound by its
terms. The parties further agree that this Agreement is the complete and
exclusive statement of agreement respecting the subject matters hereof, and
supersedes all proposals (oral and written), understandings, representations,
conditions, warranties, covenants, and all other communications between the
parties relating hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective duly authorized representatives as set forth below:
<PAGE>
Tumbleweed Software Corp. United Parcel Service General Services Co.
By: By:
------------------------------ ----------------------------------------
Title: Title:
--------------------------- -------------------------------------
Date: , 199 Date: , 199
--------------------- -- ------------------------------- --
Data Securities International, Inc.
By:
------------------------------
Title:
---------------------------
Date: , 199
--------------------- --
(K:\78900.ups\97649.tum\agmnts\Exhibits.wpd)
<PAGE>
EXHIBIT G
<PAGE>
EXHIBIT G
MARKETING AND SALES SUPPORT
[ * ]
- ---------------
*Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission. The confidential portion omitted
here consists of 2 pages.
<PAGE>
Exhibit H
[Reserved]
<PAGE>
EXHIBIT I
SERVER SOFTWARE SUBLICENSE TERMS
--------------------------------
Any agreement between UPS and any Server Sublicensee shall contain rights
consistent with those enumerated in the Agreement, except that the agreement
must also include terms at least as protective of Tumbleweed's interests in
the Server Software and Custom Server Software (collectively, the "Server
Software") and in the Client Software and Custom Client Software
(collectively, the "Client Software" which, with the Server Software, is
collectively referred to herein as the "Software") as the following:
1. RESTRICTIONS. The license grant to use the Server Software and
reproduce and distribute the Client Software is not transferable, assignable
or sublicenseable. Server Sublicensee shall not, nor shall it authorize a
third party to, decompile, reverse engineer or disassemble the Software
except where such conduct is explicitly permitted under local law. Server
Sublicensee agrees to pay all required licensing fees and not to exceed the
scope of the licenses granted under the Agreement. Server Sublicensee
acknowledges and agrees that Tumbleweed may, at any time without notice,
incorporate license management software into the Server Software to prevent
Server Sublicensee from exceeding the scope of its license. Neither UPS nor
Tumbleweed has provided any license of its trademarks to Server Sublicensee.
2. OTHER RESTRICTIONS. Server Sublicensee shall retain any End User
license agreements included with the Client Software. Server Sublicensee
shall not remove, modify or obscure any proprietary rights notices in the
Software or logos or trademarks displayed in the Software or any documents
automatically generated by it. Server Sublicensee shall not distribute, in
connection with the Software or in the performance of reselling messaging
services, any viruses, trojan horses, worms, time bombs, cancelbots or other
programs containing computer programming defects which are intended to damage
or detrimentally interfere with a user's system or data.
3. OWNERSHIP. Except as otherwise provided in this Agreement, UPS and
its suppliers (including, without limitation, Tumbleweed) shall retain all
rights, title and interest in and to all copyrights, trademarks, trade
secrets, patents and all other industrial and intellectual property embodied
in or appurtenant to the Software. There are no implied licenses under this
Agreement, and any rights not expressly granted to Server Sublicensee
hereunder are reserved by UPS or its suppliers.
4. AUDIT RIGHTS. Server Sublicensee will keep for 3 years proper
records and books of account relating to Server Sublicensee's activities
regarding the Software. Once every 12 months, UPS or its designee may
inspect such records to verify Server Sublicensee's statements. Any such
inspection will be conducted on Server Sublicensee's office in a manner that
does not unreasonably interfere with Server Sublicensee's business
activities. Server Sublicensee shall immediately make any overdue payments
disclosed by the audit. Such inspection shall be at UPS's expense; PROVIDED,
HOWEVER, if the audit reveals overdue payments in excess of 5% of the
payments owed to date, Server Sublicensee shall immediately pay the cost of
such audit, and UPS may conduct another audit during the same 12 month
period. Server Sublicensee will make available to UPS all relevant records,
including but not limited to all records relating to activities outside of
the United States.
5. DISCLAIMER OF WARRANTY; NO PASS THROUGH. UPS shall be responsible
for any warranties extended to Server Sublicensee regarding the Software,
except that UPS shall have the
<PAGE>
right to pass through to Server Sublicensee the proprietary rights
indemnification of Tumbleweed, as set forth in Section 14(a) of the
Agreement. TUMBLEWEED AND ITS SUPPLIERS DISCLAIM ALL WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF TITLE,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT.
Server Sublicensee shall make no warranties to End Users on behalf of UPS or
its suppliers.
6. SERVER SUBLICENSEE'S INDEMNITY. Server Sublicensee shall indemnify
UPS and its suppliers against any and all claims, losses, costs and expenses,
including reasonable attorneys' fees, which any of them may incur as a result
of claims in any form by third parties, including End Users, based upon (i)
any representations made by Server Sublicensee to such third parties which
are not supported by the Documentation and/or any other information or
materials supplied by UPS and/or its suppliers, or (ii) any acts committed by
Server Sublicensee's End Users during the course of their use of the Software.
7. LIMITATIONS ON LIABILITY. EXCEPT FOR ANY BREACHES OF SECTIONS
RELATING TO LICENSE GRANTS OR CONFIDENTIALITY, IN NO EVENT SHALL EITHER PARTY
BE LIABLE FOR LOST PROFITS OR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES
ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT (WHETHER FROM BREACH OF
CONTRACT OR WARRANTY OR FROM NEGLIGENCE OR STRICT LIABILITY), EVEN IF SUCH
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THIS LIMITATION
OF LIABILITY SHALL APPLY NOTWITHSTANDING THE FAILURE OF ESSENTIAL PURPOSE OF
ANY LIMITED REMEDY HEREIN. EXCEPT FOR TUMBLEWEED'S INDEMNIFICATION
OBLIGATIONS, IN NO EVENT SHALL TUMBLEWEED'S LIABILITY TO SERVER SUBLICENSEE
EXCEED THE AMOUNTS ACTUALLY RECEIVED BY TUMBLEWEED ATTRIBUTABLE TO SERVER
SUBLICENSEE.
8. GENERALLY. At its own expense, Server Sublicensee shall comply
with all applicable laws, regulations, rules, ordinances and orders regarding
its activities related to this Agreement. Without limiting the foregoing:
(a) Server Sublicensee shall fully comply with the relevant export
administration and control laws and regulations, as same may be amended from
time to time, to ensure that the Software is not exported (directly or
indirectly) in violation of United States law.
(b) Server Sublicensee shall comply with the U.S. Foreign Corrupt
Practices Act and shall not make any payments to third parties which would
cause UPS (or any of its suppliers) or Server Sublicensee to violate such
laws.
9. GOVERNMENT END USERS. The Software is a "commercial item,"
consisting of "commercial computer software" and "commercial computer
software documentation," and is provided to the U.S. Government only as a
commercial end item.
(K:\78900.ups\97649.tum\agmnts\Exhibits.wpd)
<PAGE>
Exhibit 10.6
Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
(Translation)
DATE: MAR. 31, 1999
POSTA LICENSE AND DISTRIBUTION AGREEMENT
This Agreement is made and entered into by and between K.K. HIKARI TSUSHIN
(hereinafter referred to as "Kou") and Tumbleweed Software, K.K. (Hereinafter
referred to as "Otsu") in connection with Posta System with respect to which
Tumbleweed is authorized to license and distribute.
Article 1 (Grant of License and Distribution Right)
1. Otsu hereby grants to Kou a non-exclusive license (hereinafter
referred to as the "License") to provide certain services (hereinafter referred
to as the "Services") to Kou's users for a consideration by using Posta System
(hereinafter referred to as the "Products"). The scope of the Products covered
by this Agreement will be separately designated by Tumbleweed.
2. Otsu hereby grants to Kou a non-exclusive right (hereinafter referred
to as the "Distribution Right") to sell the Products to certain customers (in
this Agreement a customer shall mean a third party who will use the Products for
such internal purposes as authorized by Tumbleweed). Kou may lease the Products
to its customers in place of the sale of the Products at request of such
customers.
Article 2 (Payment)
In consideration of the License and the Distribution Right set forth in
Article I hereof, Kou shall pay the following amounts plus consumption tax
thereon at the time of the execution of this Agreement:
- In consideration of acquisition of the License Y30 million payable
to Tumbleweed;
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- In consideration of acquisition of the Distribution Right,
Y20 million payable to Tumbleweed; and
- As a minimum license fee for the initial contract year are Y94.5
million and Y23.625 million which equivalent of 25% of Y94.5
million payable to Tumbleweed as a first payment in this date of
contract. After that, three months later, six months later, it pay
nine months later by Y23.625 million every the degree. But, it
isn't kept if this contract ends with the responsibility of Otsu
before the payment completes.
Article 3 (Compliance)
Kou shall comply with the rules, regulations, instructions, etc. prescribed
by Otsu and shall exert its sincere effort to expand the market share for the
Services and Products when Kou exercises the rights granted by Article I hereof.
Article 4 (Restrictions)
1. Unless otherwise explicitly provided for in this Agreement, Kou shall
not transfer, sublicense or loan Kou's rights.
2. Kou shall not provide the Services outside of Japan and shall not
directly or indirectly sell or distribute the Products outside of
Japan.
3. Kou shall not reproduce, amend source code, reverse engineer or
decompile the Products in any method whatsoever. Otsu shall be
entitled to insert administration software into the Products without
prior notice at any time in order to prevent Kou or Kou's users or
customers from conducting any activities beyond the extent authorized
by Otsu in advance.
4. Any trademarks, copyright indications, advertisements and promotions
in relation to the Products and the Services will be subject to
mutual agreement both Kou and Otsu.
Article 5 (Training in relation to the Products)
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Kou may receive training in relation to the Products in such method, period
and content as designated by Otsu. Under this Agreement, Kou may receive
such training free of charge only [ * ] of this
Agreement to the extent that three or less persons for each occasion will
receive the training for one time each of education of API and Posta
administrators. Upon request of Kou, any other training and education
than the above-mentioned training will be provided by Otsu for a
consideration in such way as separately designated by Otsu.
Article 6 (Invoice Price)
The invoice prices of the Products shall be equal to the respective amounts
set forth in such invoice price table as separately designated by Otsu plus
consumption tax thereupon.
Article 7 (Appointment of Sub-distributors)
Kou may appoint a sub-distributors of the Products with notify to Otsu's.
Article 8 (Loan of the Products for Providing the Services)
In the event that Kou intends to provide the Services to its users for a
consideration by using the Products, Otsu will loan such number of the
Products as necessary for providing the Services free of charge only during
the effective term of this Agreement. Provided that the free loan of the
Products shall be subject to the completion of the payment set forth in
Article 2 hereof.
Article 9 (Protection of Third Party Licensor's Copyright)
Kou acknowledges that such software of a third party licensor (hereinafter
referred to as the "Licensor") as is integrated with the Products shall be
used
- ---------------
*Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
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for the sole purpose of transmission of files by using the Products and
that the Licensor's software shall not be separated from the Products and
shall not be used independently. Kou shall make a notification thereof to
any customers (who will use the Products) and any users (who will use the
Services provided by Kou) and shall have them comply with the above
restrictions.
Article 10 (Payment of Running Royalty)
1. In the event that any sales volume of Kou exceeds such number of
delivery of files or such number of users as is covered by the
annual minimum license fees after Kou commences to provide the
Services by using the Products, Kou shall pay Otsu such running
royalty (plus consumption tax thereupon) as will be separately
designated by Otsu.
2. Kou shall prepare, maintain and provide to Otsu accurate records based
upon which the above running royalty shall be calculated. During the
effective period of this Agreement and thereafter Otsu and its
designee(s) shall be entitled to examine and make each copy of the
above records.
3. In accordance with the terms of this Agreement, Otsu will send Kou an
invoice covering the running royalty. Such invoice will be closed at
the end of the month in the invoice is received by Kou, who shall pay
the amount designated in the invoice by remitting the same to such
bank account as separately designated by Otsu no later than the end of
the following month.
Article 11 (Sales Plan)
Kou shall prepare sales plans for the Products an the Services provided by
using the Products in such a form as separately designated by Otsu. Kou
shall submit to Otsu such plans every three months on the date separately
designated.
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Article 12 (Supply of the Products)
Any individual sales agreement of the Products shall become effective when
Kou places an order to Otsu for shipment of the Products and such order is
approved by Otsu orally or in writing. Otsu shall deliver the Products to
such place as designated by the order.
Article 13 (Payment of Sales Price of the Products)
After delivering the Products to such place as designated by Kou, Otsu will
send an invoice of sales price of the Products to Kou in accordance with
the terms of this Agreement. The invoiced amount shall be closed at the
end of the month in which the invoice is received by Kou, who shall pay the
amount designated in the invoice by remitting the same to such bank account
as separately designated by Otsu no later than the end of the after three
month.
Article 14 (Entrustment of Maintenance Services)
With respect to maintenance services for the Products to be provided by Kou
to a customer, Kou shall enter into a maintenance agreement with such
customer with cooperation of Otsu. Kou shall pay Otsu annual maintenance
fees which will be separately designated by Otsu.
Article 15 (Prohibition of Modification)
Kou shall not modify the Products and shall prevent its customers and users
from modifying the Products unless otherwise agreed upon by Otsu in writing
and in advance.
Article 16 (Provision of APIs)
1. At Kou's request, Otsu will provide Kou with APIs in order for Kou to
integrate the Products into any other software. In such event, Kou
shall enter into a separate API license agreement as will be
designated by Otsu.
2. In the event that Kou intends to integrate the Products with any other
software by using APIs, Otsu will provide Kou with technical support
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upon Kou's request. Terms and conditions of supply of such technical
support will be determined by both parties upon mutual consultation
depending upon the content of technology required by Kou.
3. The ownership of any media containing APIs belongs to Otsu and any and
all rights relating to APIs will be reserved by Otsu or its licensors.
Article 17 (Termination)
1. In the event that Kou or Otsu falls under any of the following, the
other party shall be entitled to forthwith terminate this Agreement
without any demand or notice. In such event, all of Kou's or Otsu's
debts to the other party shall become due and payable and Kou or Otsu
shall forthwith pay all amounts thereof to the other party:
(a) If the party is subject to any provisional attachment,
preliminary injunction, attachment, or any petition for
bankruptcy and reorganization or any other legal proceeding which
will be likely to interfere with the business of the party;
(b) If the party transfers any right or obligation arising hereunder
to any third party or causes any third party to take over the
same; or
(c) If the party breaches any of the provisions of this Agreement.
2. In the event that Otsu's right to use the Licensor's software which
constitutes components of the Products expires or terminates for
whatever reasons, Otsu may forthwith terminate this Agreement.
3. Upon any expiration or termination of this Agreement, Kou shall not be
entitled to request any compensation from Otsu due to loss of the
License and the Distribution Right, etc.
Article 18 (Warranty and Damages)
1. In the event that there is a defect in media of the Products for any
reason attributable to Otsu, Otsu's liability shall be limited to
replacement of the non-defective products or repayment of the purchase
price of the Products.
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2. Users of the Products (namely, any of Kou, Kou's customers and users)
shall be responsible for any use, operation and administration of the
Products and Otsu shall not be liable for any damage of those users
arising from the use of the Products.
Article 19 (Confidentiality)
During the effective period of this Agreement and thereafter, Kou shall not
disclose to any third party any technical or business confidential
information which is obtained by Kou under this Agreement or in connection
with any transaction hereunder and shall not use such confidential
information for any other purposes than that of this Agreement.
Upon expiration or termination of this Agreement, Kou shall return to Otsu
the Products loaned to Kou hereunder, media containing APIs and any other
materials including Otsu's confidential information (together with all
copies thereof).
Article 20 (Term, etc.)
This Agreement shall become effective as of the date when both parties have
affixed their names and seals hereon and shall remain in force and effect
for one year thereafter. Unless otherwise indicated by either
party no later than one month prior to any expiration date, this Agreement
shall be automatically renewed for additional one year periods under
the same conditions hereof. Provided that no initial payment for
acquisition of the License and the Distribution Right shall be required in
any renewal period and annual minimum license fees applicable to any
renewal period shall be agreed upon in advance based upon mutual
consultation with Otsu.
Article 21 (Good Faith)
1. Kou and Otsu shall cooperate with each other to sincerely perform this
Agreement in good faith.
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2. With regard to any matters not provided for in this Agreement or any
matters that may subject to dispute, both parties shall discuss
such matters in good faith.
Article 22 (Jurisdiction)
In the event any dispute arises between the parties in connection with this
agreement, the Tokyo District Court shall have an exclusive jurisdiction
for the first instance.
IN WITNESS WHEREOF, Kou and Otsu have executed this Agreement by affixing
their names and seals in duplicate, one copy of which is retained by each of the
parties.
(Kou):
2-1-1 Otemachi Chiyoda-ku Tokyo
K.K. HIKARI TSHUSHIN
President Yasumitsu Shigeta
(Otsu)
Kanetatsu Bldg. 5F
2-17 Hayabusa-cho Chiyoda-ku Tokyo
Tumbleweed Software K.K.
Representative Shinji Eura
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Tumbleweed Communications Corp.
We consent to the form of our report included herein and to the references
to our firm under the headings "Selected Consolidated Financial Data" and
"Experts" in the prospectus.
/s/ KPMG LLP
San Francisco, California
July 28, 1999
