<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1999
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
TUMBLEWEED SOFTWARE CORPORATION
(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>
--------------------------
2010 BROADWAY
REDWOOD CITY, CALIFORNIA 94063
(650) 369-6790
(Address, Including Zip Code, and Telephone Number
Including Area Code, of Registrant's Principal Executive Offices)
--------------------------
JEFFREY C. SMITH
TUMBLEWEED SOFTWARE CORPORATION
2010 BROADWAY
REDWOOD CITY, CALIFORNIA 94063
(650) 369-6790
(Name, Address, Including Zip Code, and Telephone Number
Including Area Code, of Agent for Service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
GREGORY C. SMITH, ESQ. STEVEN M. SPURLOCK, 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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common stock, par value $0.001 per share.......................................... $65,000,000 $18,070
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o).
--------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 28, 1999
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>
Shares
[LOGO]
Tumbleweed Software Corporation
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 $ and $ per share. We intend to apply 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
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 Baring Furman Selz LLC
The date of this prospectus is , 1999.
<PAGE>
Tumbleweed provides secure online communication services that enable customers
to move critical business interactions online.
[Cover design to include a graphical representation of communication moving from
paper-based processes to electronic interaction.]
TUMBLEWEED - THE KEY TO SECURE COMMUNICATIONS
<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.......................... 33
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT........................ 47
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.................... 57
PRINCIPAL STOCKHOLDERS............ 59
DESCRIPTION OF CAPITAL STOCK...... 61
SHARES ELIGIBLE FOR FUTURE SALE... 63
UNDERWRITING...................... 64
NOTICE TO CANADIAN RESIDENTS...... 66
LEGAL MATTERS..................... 67
EXPERTS........................... 67
AVAILABLE INFORMATION............. 67
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 SOFTWARE CORPORATION
Tumbleweed 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
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 are demanding 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, rendering the transition to
online delivery complex and expensive.
Built on open standards, Tumbleweed IME utilizes public networks to provide
a more 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, service
provider customers like United Parcel Service, the U.S. Postal Service, Pitney
Bowes, and Nippon Telegraph and Telephone Corporation 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. For example,
the United Parcel Service Document Exchange, powered by Tumbleweed, provides
secure Internet communication for end-user customers such as Hewlett-Packard,
Sears, Roebuck & Co. and the New York State Department of Transportation. In
selected strategic markets such as the financial services, banking and
pharmaceutical industries, we also offer solutions directly to enterprise
customers that require secure online communication services with their
employees, suppliers, partners and customers. Examples of these customers
include the Chase Manhattan Bank, the European Commission -- Joint Research
Council and Thomson Financial Services.
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 scalable architecture.
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........................................... shares
Common stock to be outstanding after the offering.............. 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."
Risk factors................................................... This offering involves a high degree of risk.
See "Risk Factors" beginning on page 7 for a
discussion of factors you should consider before
deciding to invest in shares of our common
stock.
</TABLE>
The common stock to be outstanding after the offering is based on shares
outstanding as of March 31, 1999. The shares outstanding exclude:
- 2,226,963 shares of common stock issuable as of May 28, 1999 upon the
exercise of outstanding stock options (at a weighted average exercise
price of $.58 per share) issued under our 1993 stock option plan;
- 500,000 shares of common stock reserved for issuance under our employee
stock purchase plan;
- 4,624,484 shares of common stock reserved for issuance as of May 28, 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 CONVERTIBLE 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,
RESPECTIVELY, TO PURCHASE AND SHARES OF COMMON STOCK,
RESPECTIVELY, UPON THE CONSUMMATION OF THIS OFFERING ON A CASHLESS BASIS
AT AN ASSUMED INITIAL PUBLIC OFFERING PRICE OF $ 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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER
31, MARCH 31,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
Revenue................................................................ $ 729 $ 2,015 $ 450 $ 693
Total cost of revenue.................................................. 108 931 162 274
Total operating expenses............................................... 5,231 7,150 1,813 2,216
Operating loss......................................................... (4,610) (6,066) (1,525) (1,797)
Net loss............................................................... (4,445) (5,917) (1,444) (1,799)
Net loss per share
Basic and diluted.................................................. $ (1.33) $ (1.56) $ (0.40) $ (0.44)
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average shares............................................ 3,331 3,797 3,628 4,092
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
--------- -------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents................................................................. $ 13,823 $
Total assets.............................................................................. 15,651
Long-term obligations, excluding current installments..................................... 405
Total stockholders' equity................................................................ 13,823
</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 convertible 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 and shares of common stock, respectively,
upon the consummation of this offering on a cashless basis at an assumed
initial public offering price of $ per share; and
- the sale of the shares of common stock by Tumbleweed in this
offering at an assumed initial public offering price of $ per share and
after deducting the estimated underwriting discounts and commissions and
estimated offering expenses.
--------------
OUR PRINCIPAL EXECUTIVE OFFICES ARE LOCATED AT 2010 BROADWAY, REDWOOD CITY,
CALIFORNIA 94063, AND OUR TELEPHONE NUMBER IS (650) 369-6790. OUR WORLD WIDE WEB
SITE IS WWW.TUMBLEWEED.COM. THE INFORMATION ON OUR WEB SITE DOES NOT CONSTITUTE
PART OF THIS DOCUMENT.
IN THIS PROSPECTUS, THE TERMS "TUMBLEWEED SOFTWARE CORPORATION,"
"TUMBLEWEED," "WE," "US," AND "OUR" REFER TO TUMBLEWEED SOFTWARE CORPORATION AND
ITS SUBSIDIARIES, UNLESS THE CONTEXT OTHERWISE REQUIRES, AND "COMMON STOCK"
REFERS TO OUR COMMON STOCK, $0.001 PAR VALUE PER SHARE. SEE "DESCRIPTION OF
CAPITAL STOCK."
TUMBLEWEED-REGISTERED TRADEMARK- IS OUR REGISTERED TRADEMARK. WE HAVE
APPLIED FOR FEDERAL REGISTRATION OF OUR TRADEMARKS 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 RISKS DESCRIBED BELOW ARE NOT THE ONLY ONES THAT WE FACE.
ADDITIONAL RISKS COULD ALSO IMPAIR OUR BUSINESS OR PROSPECTS. 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:
WE ARE IN AN EARLY STAGE OF DEVELOPMENT AND HAVE A HISTORY OF LOSSES
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 $4.4 million and $5.9 million in the years ended December
31, 1997 and 1998, respectively, as well as a net loss of $1.8 million in the
three months ended March 31, 1999. As of March 31, 1999, we had incurred
cumulative net losses of $13.0 million. See "Selected Consolidated Financial
Information" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
WE ANTICIPATE CONTINUED LOSSES
We believe that our success will depend in large part upon, among other
things, our ability to generate sufficient revenue to achieve profitability and
to effectively maintain existing relationships and develop new relationships
with customers and strategic partners. Accordingly, 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 revenues may not increase,
and we may not achieve or maintain profitability. In view of our limited
operating history, we believe that period-to-period comparisons of our operating
results are not necessarily meaningful and should not be relied upon as an
indication of future performance.
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. 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 service 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 implementation and consulting 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
7
<PAGE>
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 revenues in any given quarter. In particular, five customers comprised
approximately 93% of our revenue in the three months ended March 31, 1999 and
three customers comprised approximately 91% 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,
including, but not limited to:
- the timing of licensing transactions to new and existing customers;
- fluctuations in the minimum transaction commitments made and the
transaction volumes effected by our customers and their end-users;
- disruptions in software purchases associated with Year 2000 concerns;
- our ability to attract and retain customers and maintain their
satisfaction with our products and services;
- the degree of market acceptance of Tumbleweed IME as a solution for secure
online communication services;
- the length of time required to deploy and implement Tumbleweed IME by our
customers;
- our ability to upgrade, develop and maintain our systems and
infrastructure;
- the amount and timing of operating costs and capital expenditures relating
to expansion of our business, operations and infrastructure, including the
expansion of our international operations;
- the announcement or introduction of new or enhanced services and products
by us or our competitors;
- risks associated with international operations, including currency
fluctuations, government regulations and seasonality;
- our ability to recruit new personnel in a timely and effective manner;
- our pricing policies and those of our competitors;
- delays in the development and introduction of products and services;
- pending litigation; and
- general economic and market conditions and conditions specific to our
industry.
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 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."
8
<PAGE>
FAILURE TO MAINTAIN OR EXPAND RELATIONSHIPS WITH CUSTOMERS COULD HARM OUR
BUSINESS
Service provider customers use or intend to use our products for the
communication of third-party documents and data. To date, we have generated most
of our revenue from contracts with a very limited number of these customers,
including the United Parcel Service, International Postal Corporation, Pitney
Bowes and Nippon Telegraph and Telephone Corporation, and we expect that a small
number of these customers will continue to account for a majority of our revenue
for the foreseeable future. Our contracts with our service provider customers
are non-exclusive. Therefore, 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. In any event, these customers may not effectively promote the use of
Tumbleweed IME to their end-users for the preceding reasons and otherwise, which
could limit adoption of our services and the recognition of associated revenue.
Enterprise customers, by contrast, use or intend to use Tumbleweed IME for
internal purposes or for distribution of internally generated communications to
their customers. We expect that our enterprise 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. The loss of one or more of our
enterprise or service provider customers, the failure to obtain additional
customers on a timely basis, or a reduction in revenue associated with the
existing or proposed customers would harm our business and prospects.
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. For example, 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 (Electronic Courier Service) 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, among other things, 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, and a decision
not to do so or a delay in implementation could harm our businesses and
prospects.
WE DEPEND ON AN EVOLVING MARKET FOR SECURE ONLINE COMMUNICATION SERVICES AND
RAPID MARKET ACCEPTANCE OF OUR PRODUCTS
The market for our products and services is new and evolving rapidly. Our
success will be dependent upon the adoption and use by current and potential
customers and their end-users of secure online communication services and
acceptance of our technology as the standard for providing these services. While
we believe that there are substantial economic and timing benefits of our
products and services relative to traditional express mail delivery or e-mail,
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, which, in some cases, 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
9
<PAGE>
size of the potential market for our products and services, or its growth rate,
if any, and we cannot predict whether our products and services will achieve any
market acceptance. Our ability to achieve our goals is also dependent 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. 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.
THE TRADITIONAL AND INTERNET DELIVERY SERVICES INDUSTRIES ARE HIGHLY
COMPETITIVE, AND WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY
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 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 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. 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. 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 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 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 process of licensing our products and services to new customers is
lengthy. 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 and subject to a number of significant delays
over which we have little or no control. The inability to license our services
to new customers on a timely basis or delays by our existing and proposed
customers and their
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end-users in the implementation and adoption of our services could limit revenue
and harm our business and prospects.
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY
We regard our patents, copyrights and similar intellectual property as
critical to our success, and we rely on patent and copyright law and agreements
with our employees, customers, partners and others to protect our proprietary
rights. We are also pursuing new patents and the registration of selected key
trademarks and service marks in the United States and internationally. Despite
these precautions, we may not be able to obtain the protection we seek on
commercially reasonable terms, if at all, and it may be possible for
unauthorized third parties to copy selected portions of our products or obtain
and use information that we regard as proprietary. 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 United States. Our attempts to protect our proprietary rights in the United
States 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 United States patent protection in the software industry is
not well defined and will evolve as the U.S. Patent and Trademark Office grants
additional patents. 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 been issued, as well as a design patent relating to the user
interface of our products. We have also filed nine patents in foreign
jurisdictions. Our patent applications ultimately may not be issued with the
scope of the claims we are seeking, if at all. In addition, because patent
applications in the United States are not publicly disclosed until the patent is
issued, applications may have been filed by third parties that relate to our
products and services.
We could face a claim of infringement by third parties with respect to our
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, cause
product shipment delays or require us to enter into royalty or license
agreements. A successful claim of product infringement against us could harm our
business and prospects.
OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO MANAGE GROWTH
Although we may be unable to expand our operations in the future, our
business model contemplates a period of sustained and rapid operational growth.
Our plan for additional customer licenses and product and service introductions
and enhancements has placed, and will continue to place, a significant strain on
our personnel, systems and resources, including our personnel. To manage further
growth of our operations and personnel, we must:
- improve existing operations and implement new operations;
- maintain and enhance our customer service; and
- expand, 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
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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. If we are unable to manage growth effectively, our
business and prospects could be harmed.
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. 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. We have limited experience in
international operations and may not be able to compete effectively in
international markets. In this regard, we face risks inherent in conducting
business internationally, such as:
- unexpected changes in regulatory requirements applicable to the Internet
or our business;
- the imposition of or changes in export restrictions, tariffs and other
trade barriers;
- challenges in staffing and managing foreign operations;
- seasonal reductions in business activity;
- employment laws and practices in foreign countries;
- 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;
- reduced protection for intellectual property rights in certain countries;
- political instability or economic downturns;
- the imposition of currency exchange controls; and
- potentially adverse tax consequences.
In addition, our expansion into international markets will increasingly
subject us to risks associated with 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 risks of conducting business internationally could harm our
international operations and, consequently, our business and prospects.
WE ARE DEPENDENT ON TECHNOLOGIES PROVIDED BY THIRD PARTIES
We have developed Tumbleweed IME partially based on selected technologies
developed by third parties that we have licensed under non-exclusive agreements.
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
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favorable terms. In addition, we may not be able to license new technologies on
favorable terms, if at all. 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.
WE MUST PROVIDE ADEQUATE SUPPORT SERVICES FOR TUMBLEWEED IME IN ORDER TO SUCCEED
Our professional services organization assists our customers in implementing
Tumbleweed IME through software installation, integration with existing customer
systems, customization and training. 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. If the professional services
organization does not adequately assess customer requirements or address
technical problems, customers may seek to discontinue their relationships with
Tumbleweed or may realize lower transaction volume than they could have
otherwise achieved. In addition, the provision of customization and integration
services is an increasingly important aspect of Tumbleweed's strategy, as we
believe this will strengthen our relationship with customers and create barriers
to entry for our competitors. 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 INTERRUPTION
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, deliberate or accidental, 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. 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, which 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 through the introduction of known or undetected errors, or
"bugs," viruses or by other means. 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 for which we may not have
adequate insurance. In addition to purposeful security breaches, the inadvertent
transmission of computer viruses could expose us to litigation or a significant
risk of loss. 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 may also deter future
customers and their end-users from using our products and could cause current
customers to cease using Tumbleweed IME as a means of providing secure online
communication services. Our security measures may not be sufficient to prevent
security breaches, and failure to prevent security breaches could harm our
reputation, business and prospects.
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PRODUCT DESIGN LIMITATIONS OR DEFICIENCIES MAY BE DIFFICULT TO RESOLVE AND COULD
HARM OUR BUSINESS
Our revenue depends on the number of customers who use Tumbleweed IME to
provide secure online communication services. Accordingly, the satisfactory
design, performance, and reliability of our products and products licensed from
third parties is critical to our business, and any significant product design
limitations or deficiencies could have an adverse effect on our business. 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, and 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. In addition, 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. Although we attempt to resolve all software
errors that we believe would be considered serious by our customers, our
products (and the products incorporated from third parties) are not error-free.
Undetected errors or performance problems may be discovered in the future, and
known errors which we consider minor may be considered serious by our customers.
Difficulties in product design, performance and reliability could result in
lost revenue or delays in customer acceptance and would be detrimental to our
market reputation. If our internal quality assurance testing and customer
beta-testing reveals performance issues and/or desirable feature enhancements,
we could postpone the release of updates or enhancements to our current products
or delay the development and release of other future products, enhancements to
our currently available 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 FACE A RISK OF 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. 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. We typically
contract with an independent third party to provide these data center services
to these customers. Data centers often provide for redundant hardware and
software systems and duplexed disk arrays, and perform regular backups of
database and file system content. All data centers, whether hosted by us, our
customers, or by an independent third party, are vulnerable to damage or
interruption from fire, flood, earthquake, power loss, telecommunications
failure, or other similar events. 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.
WE DEPEND ON KEY MANAGEMENT PERSONNEL AND MUST CONTINUE TO ATTRACT AND RETAIN
HIGHLY SKILLED EMPLOYEES
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
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objectives. 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 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. 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
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 systems
also use 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. However, 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.
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
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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 CUSTOMERS MAY NOT IMPLEMENT OUR TECHNOLOGY
Our customers are not required to, and may not, implement Tumbleweed IME at
any time in the future, and we could have little warning of this election. In
any event, we could be required to reach an accommodation with our customers
with respect to any possible contractual provision in order to obtain additional
business and maintain our customer relationships. Any termination, decrease in
usage or custom development services or election not to renew a contract by our
principal customers would harm our business and prospects.
OUR BUSINESS IS SUBJECT TO CONTINUOUS TECHNOLOGICAL CHANGE AND OUR FUTURE
SUCCESS WILL DEPEND ON OUR ABILITY TO MEET 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 embodying new technologies and
the emergence of new industry standards and practices that could render our
existing services, proprietary technology and systems obsolete. The emerging
nature of these products and services and their rapid evolution will require
that we continually improve the performance, features and reliability of our
services, particularly in response to competitive offerings. We are dependent,
in part, on our ability to enhance our existing services, to develop new
services and technologies that address the increasingly sophisticated and varied
needs of our current and prospective customers and to 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 and business risks 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. If we are
unable, for technical, legal, financial or other reasons, to adapt or respond in
a timely manner to changing market conditions or customer requirements, our
business and prospects could be harmed.
WE MUST ESTABLISH, MAINTAIN AND STRENGTHEN OUR BRAND
To be successful, we believe that we must establish and strengthen
recognition of the Tumbleweed brand as the standard for providing secure online
communication services. We must succeed in our marketing efforts, provide
high-quality services and increase our user base, including through our
strategic relationships with key customers, in order to build our brand
awareness. These efforts have required significant expenditures to date, and we
believe that these efforts will require substantial commitments of resources in
the future as our brand becomes increasingly important to our overall strategy.
If existing or potential customers and their end-users do not perceive our
services to be of high quality, or reject our new products and services, the
value of our brand would be diluted. If we are unable to establish, maintain and
strengthen our brand, our business and prospects could be harmed.
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:
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- the rate of market acceptance of our products and services, including
transaction volume;
- our ability to expand our customer base;
- 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 and 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, and the terms of these debt securities could impose
restrictions on our operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISKS RELATED TO OUR INDUSTRY:
OUR FUTURE GROWTH DEPENDS ON THE CONTINUED GROWTH IN USE AND EFFICIENT OPERATION
OF THE INTERNET
The success of our products and services will depend on the development and
maintenance of Internet infrastructure, such as a reliable network backbone with
the necessary speed, data capacity and security, and timely development of
complementary products such as high speed modems, for providing reliable
Internet access and services. Because the online exchange of information is new
and evolving, it is difficult to predict whether the Internet will 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. To the extent that the
Internet continues to experience increased numbers of users, frequency of use or
increased bandwidth requirements of users, the Internet infrastructure may not
continue to be able to support the demands placed on it by this continued
growth, and the performance or reliability of the Internet may be adversely
affected. Furthermore, the Internet has experienced a variety of outages and
other delays as a result of damage to portions of its infrastructure, and could
face similar outages and delays in the future. These outages and delays could
adversely affect the level of Internet usage and also the level of utilization
of our products and services. The infrastructure or complementary products or
services necessary to make the Internet viable for the long term may not be
adequately developed, and even if they are developed, the Internet may not
become a viable platform for secure online communication services. In addition,
critical issues concerning the commercial use and governmental regulation of the
Internet (including security, cost, ease of use and access, intellectual
property ownership and other legal liability 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 covering issues like user privacy, pricing,
content, copyrights, distribution, antitrust 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.
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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
appropriate tax treatment of companies engaged in online commerce, and 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.
Exports of software products utilizing encryption technology are generally
restricted by the U.S. and various foreign governments. All cryptographic
products require export licenses from certain U.S. government agencies. Although
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, 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.
In addition, 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, which
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. 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 United States. 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. Although we carry general liability insurance, our
insurance may not cover claims of these types, or may not be adequate to
indemnify us for all liability that may be imposed. 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.
INTERNET SECURITY CONCERNS COULD DETER FUTURE USE OF OUR PRODUCTS AND SERVICES
Concern about the transmission of confidential information over the Internet
has been a significant barrier to e-commerce and communications. Any
well-publicized compromise of security could deter more people from using the
Internet or from using it to conduct transactions that involve the transmission
of confidential information. Due to the nature of our products and devices, our
business
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and operating results could be materially and adversely affected if Internet
users significantly reduce their use of the Internet because of security
concerns. We may also incur significant costs to protect ourselves against the
threat of security breaches or to alleviate problems caused by these breaches.
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 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>
At various times prior to February , 2000...................................................
February , 2000 (180 days after the offering date)..........................................
At various times thereafter upon expiration of applicable holding periods......................
</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."
INTERNET RELATED STOCK PRICES ARE ESPECIALLY VOLATILE AND THIS VOLATILITY MAY
DEPRESS OUR STOCK PRICE
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. We intend to list the common stock on the Nasdaq National Market. 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. 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. You may not
be able to resell your shares at or above the initial public offering price. See
"Underwriting."
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 OWNERSHIP WILL CONTINUE TO BE CONCENTRATED IN THE HANDS OF MANAGEMENT
AND EXISTING STOCKHOLDERS
Upon completion of this offering, our present directors, executive officers
and principal stockholders as a group will beneficially own approximately %
of the outstanding common stock ( % 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, the management and policies of our
company and the outcome of particular 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.
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ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS COULD
DISCOURAGE OR PREVENT AN ACQUISITION OF OUR COMPANY
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 include provisions classifying
our board of directors, prohibiting stockholder action by written consent and
requiring 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 which, in general, prevents an
interested stockholder (defined generally as a person owning 15% or more of the
corporation's outstanding voting stock) from engaging in a business combination
(as defined) for three years following the date that person became an interested
stockholder unless specified conditions are satisfied. In addition, our
certificate of incorporation will allow our board of directors to issue, without
further stockholder approval, preferred stock that 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 have the effect of discouraging or preventing an
acquisition, or disposition of, our business. These provisions could limit the
price that investors might be willing to pay in the future for shares of our
common stock.
FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN AND SHOULD NOT BE RELIED
UPON
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, among
other things,
- 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, and 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 $ million ($ million if the
underwriters exercise their over-allotment option in full), based upon an
assumed offering price of $ per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses. 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 following table indicates, as of March 31, 1999 our actual
capitalization, our pro forma capitalization assuming the conversion of
outstanding shares of our convertible preferred stock into common stock and the
exercise of warrants dated December 19, 1997 and May 13, 1999 to purchase
and shares of common stock, respectively, upon the consummation of
this offering on a cashless basis at an assumed initial public offering price of
$ per share, and 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 and 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>
MARCH 31, 1999
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations, excluding current installments................ $ 405 $ 405 $ 405
Stockholders' equity:
Convertible preferred stock, 29,000,000 shares authorized,
11,199,816 shares issued and outstanding, actual; 10,000,000
shares authorized, no shares issued and outstanding, pro forma
and pro forma as adjusted........................................ 11 -- --
Common stock, 43,000,000 shares authorized, 4,256,241 shares issued
and outstanding, actual; 100,000,000 shares authorized, pro forma
and pro forma as adjusted; shares issued and
outstanding, pro forma; shares issued and outstanding,
pro forma as adjusted............................................ 4 15
Additional paid-in capital......................................... 29,050 29,050
Deferred compensation.............................................. (2,257) (2,257) (2,257)
Accumulated other comprehensive income............................. 2 2 2
Accumulated deficit................................................ (12,987) (12,987) (12,987)
------------- ------------- -------------
Total stockholders' equity....................................... 13,823 13,823
------------- ------------- -------------
Total capitalization........................................... $ 14,228 $ 14,228 $
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The shares of common stock outstanding in the actual, pro forma and pro
forma as adjusted columns exclude:
- 2,226,963 shares of common stock issuable as of May 28, 1999 upon the
exercise of outstanding stock options (at a weighted average exercise
price of $.58 per share) issued under our 1993 stock option plan;
- 500,000 shares of common stock reserved for issuance under our employee
stock purchase plan;
- 4,624,484 shares of common stock reserved for issuance as of May 28, 1999
under our stock incentive plans; and
- 20,973 shares of common stock issuable upon the exercise of a warrant
dated as of 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 March 31, 1999 was
approximately $ , or $ 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 , the number of shares of common
stock treated as outstanding on a pro forma basis after giving effect to the
conversion of all outstanding shares of convertible preferred stock and the
exercise of a warrant dated December 19, 1997 and May 13, 1999 to purchase
and shares, respectively, of common stock on a cashless
basis at an assumed public offering price of $ 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 March 31, 1999 would have been $ , or $ per
share. This represents an immediate increase in net pro forma tangible book
value to existing stockholders of $ per share and an immediate dilution of
$ 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:........................... $
---------
Pro forma net tangible book value per share before this offering as of
March 31, 1999......................................................... $
---------
Increase per share attributable to new investors.........................
---------
Pro forma net tangible book value per share after this offering............
---------
Dilution per share to new investors........................................ $
---------
---------
</TABLE>
The following table summarizes on a pro forma basis (after giving effect to
the conversion of all outstanding shares of convertible preferred stock and the
exercise of a warrant dated December 31, 1997 to purchase shares of
common stock on a cashless basis at an assumed public offering price of $
per share) 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, in each case based upon the number of shares
of common stock outstanding as of March 31, 1999.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders................................. 15,496,057 % $ 27,786,517 % $ 1.79
New investors.........................................
------------ ----- ------------- ----- -----
Total............................................... 100.0% $ 100.0% $
------------ ----- ------------- ----- -----
------------ ----- ------------- ----- -----
</TABLE>
Except as noted above, the foregoing discussions and tables assume no
exercise of any stock options or warrants outstanding at March 31, 1999. As of
May 28, 1999, there were options outstanding to purchase 2,226,963 shares of
common stock at a weighted average exercise price of $.58 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 three months ended March 31, 1998 and 1999, and the
balance sheet data at March 31, 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 and ongoing services related to that technology.
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- --------------------
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......................................... $ 3,203 $ 411 $ 261 $ 359 $ 885 $ 304 $ 518
Services........................................ 375 407 336 250 910 146 175
Sale of technology.............................. -- -- -- 120 220 -- --
--------- --------- --------- --------- --------- --------- ---------
Total revenue................................. 3,578 818 597 729 2,015 450 693
Cost of revenue:
License cost.................................... -- 30 15 63 194 41 46
Services cost................................... 211 202 124 45 737 121 228
--------- --------- --------- --------- --------- --------- ---------
Total cost of revenue......................... 211 232 139 108 931 162 274
--------- --------- --------- --------- --------- --------- ---------
Gross profit...................................... 3,367 586 458 621 1,084 288 419
Operating expenses:
Research and development........................ 70 169 634 1,846 2,021 457 819
Sales and marketing............................. 309 256 649 2,593 4,049 1,081 1,055
General and administrative...................... 181 184 372 792 1,080 275 274
Stock compensation.............................. -- -- -- -- -- -- 68
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses...................... 560 609 1,655 5,231 7,150 1,813 2,216
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)........................... 2,807 (23) (1,197) (4,610) (6,066) (1,525) (1,797)
--------- --------- --------- --------- --------- --------- ---------
Other income (expense), net....................... (43) 7 41 165 149 81 (2)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)................................. $ 2,764 $ (16) $ (1,156) $ (4,445) $ (5,917) $ (1,444) $ (1,799)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net loss per share--basic and diluted............. $ (0.32) $ (1.33) $ (1.56) $ (0.40) $ (0.44)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average--basic and diluted............... 3,598 3,331 3,797 3,628 4,092
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- MARCH 31,
1994 1995 1996 1997 1998 1999
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................................... $ 101 $ 81 $ 2,670 $ 6,310 $ 698 $ 13,823
Total assets................................................... 119 206 2,939 7,115 1,725 15,651
Long-term obligations, excluding current installments.......... -- -- -- -- 369 405
Total stockholders' equity..................................... 91 141 2,652 6,270 501 13,823
</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."
COMPANY 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 $4.4 million and $5.9
million in the years ended December 31, 1997 and 1998, respectively, as well as
a net loss of $1.8 million in the three months ended March 31, 1999. As of March
31, 1999, we had incurred cumulative net losses of $13.0 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. To date, transaction
revenue has comprised a small portion of our total revenue. Service 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 revenues, 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 revenues. Five customers comprised
approximately 93% of our revenue in the three months ended March 31, 1999 and
three customers comprised approximately 91% of our revenue in 1998. See Note 9
to Consolidated Financial Statements. 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.
25
<PAGE>
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 model has been established.
To date, capitalized costs for our software development have not been material.
During the quarter ended March 31, 1999, we recorded aggregate deferred
stock compensation of $2.3 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. We also expect to record additional deferred compensation
expense in the second quarter of 1999 to reflect additional option grants at
exercise prices less than the deemed fair value of common stock on the grant
date. The 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 compensation expense, $68,000 was amortized in the first quarter
of 1999. 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 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. We did so in order to fund 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. 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 pursuant to 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.
Shortly thereafter, Hikari Tsushin also executed a license agreement with us.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
REVENUE. Total revenue, which is comprised of license revenue and services
revenue, increased 54.0% to $693,000 in the three months ended March 31, 1999
from $450,000 in the three months ended March 31, 1998. License revenue
increased 70.4% to $518,000 in the three months ended March 31, 1999 from
$304,000 in the three months ended March 31, 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.
Services revenue increased 19.9% to $175,000 in the three months ended March 31,
1999 from $146,000 in the three months ended March 31, 1998 due to an increase
in contract engineering work by our professional services organization.
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 69.1% to
$274,000 in the
26
<PAGE>
three months ended March 31, 1999 from $162,000 in the three months ended March
31, 1998. License cost increased by 12.2% to $46,000 in the three months ended
March 31, 1999 from $41,000 in the three months ended March 31, 1998
corresponding to increased license revenues. Services cost increased by 88.4% to
$228,000 in the three months ended March 31, 1999 from $121,000 in the three
months ended March 31, 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 79.2% to $819,000 in the three months ended March 31, 1999 from
$457,000 in the three months ended March 31, 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 remained
stable at approximately $1.1 million in the three months ended March 31, 1999
and 1998. Increases in our sales personnel costs during this and prior periods
were largely 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 remained stable at
approximately $275,000 and $274,000 in the three months ended March 31, 1999 and
1998, respectively. 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 pending litigation against The docSpace Company, Inc.
involving our claims of patent infringement. See "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 "--Company
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 to $737,000 in 1998 from $45,000 in 1997 due to
increased personnel costs to support new projects.
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.
27
<PAGE>
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 "--Company 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 five quarters ended March 31, 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, and 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
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue:
License.............................. $ 304 $ 256 $ 195 $ 130 $ 518
Services............................. 146 183 276 305 175
Sale of technology................... -- 110 110 -- --
------------- ------------- ------------- ------------- -------------
Total revenue...................... 450 549 581 435 693
Cost of revenue:
License cost......................... 41 60 61 32 46
Services cost........................ 121 150 265 201 228
------------- ------------- ------------- ------------- -------------
Total cost of revenue.............. 162 210 326 233 274
------------- ------------- ------------- ------------- -------------
Gross profit........................... 288 339 255 202 419
Operating expenses:
Research and development............. 457 412 500 652 819
Sales and marketing.................. 1,081 1,234 929 805 1,055
General and administrative........... 275 304 278 223 274
Stock compensation................... -- -- -- -- 68
------------- ------------- ------------- ------------- -------------
Total operating expenses........... 1,813 1,950 1,707 1,680 2,216
------------- ------------- ------------- ------------- -------------
Operating loss......................... (1,525) (1,611) (1,452) (1,478) (1,797)
------------- ------------- ------------- ------------- -------------
Other income (expense), net............ 81 46 28 (6) (2)
------------- ------------- ------------- ------------- -------------
Net loss............................... $ (1,444) $ (1,565) $ (1,424) $ (1,484) $ (1,799)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
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. 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 decreased in the quarter ended December 31, 1998 due to the
reallocation of personnel from the professional services organization to
research and development and increased in the quarter ended March 31, 1999 in
connection with hiring additional professional services personnel.
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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. Sales and marketing expenses increased in the quarter
ended March 31, 1999 due to 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
revenues in any given quarter. In particular, five customers comprised
approximately 93% of our revenue in the three months ended March 31, 1999 and
three customers comprised approximately 91% 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 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 March 31, 1999, on a pro
forma basis after giving effect to the recent May 1999 private placement,
Tumbleweed had approximately $17.9 million in cash and cash equivalents.
Net cash used by operating activities for the three months ended March 31,
1999, and the years ended December 31, 1998, 1997 and 1996 was $1.8 million,
$5.9 million, $4.0 million and $1.0 million,
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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 three months ended March 31,
1999, and the years ended December 31, 1998, 1997 and 1996 was $141,000,
$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 three months ended March
31, 1999 and the years ended December 31, 1998, 1997, and 1996 was $15.0
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 March 31, 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. We have
commitments relating to its facility relocation of approximately $600,000. 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.
As of March 31, 1999, we had a $1.5 million revolving credit facility with
Silicon Valley Bank. There were no borrowings under this facility as of March
31, 1999. Borrowings under the facility carry interest at prime rate plus 0.5%
(8.25% at March 31, 1999). The facility expires on July 22, 1999. The bank has a
senior security interest in substantially all of our assets.
Tumbleweed presently anticipates that the net proceeds from this offering,
together with existing sources of liquidity and cash anticipated to be provided
by operations, if any, will be adequate to meet its cash needs for at least the
next twelve months. Thereafter, we may be required to raise additional capital.
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
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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.
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."
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standard ("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, we have not entered
into any derivative financial instruments or hedging activities.
In March 1998, the AICPA issued Statement of Position, or SOP, 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. We do not expect SOP 98-1 to materially
affect our financial position or results of operations.
In December 1998, the American Institute of Certified Public Accountants, or
AICPA, 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-- FORWARD-LOOKING STATEMENTS
ARE INHERENTLY UNCERTAIN AND SHOULD NOT BE RELIED UPON."
COMPANY 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, and pharmaceutical 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, or IDC,
estimates that the number of electronic mailboxes will grow from approximately
240 million in 1998 to over 540 million by 2002. IDC 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 it and United Parcel Service
deliver an additional 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 open standards, the Tumbleweed Integrated Messaging Exchange, or
Tumbleweed IME, utilizes public networks to provide efficient, cost-effective,
secure business-to-business and business-to-consumer communications over the
Internet. By providing secure, reliable, and trackable
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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 an communication
platforms 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, or APIs. These APIs 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 leading 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, or ".pdf," 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 API. This API allows us, and our
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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, service providers such as Pitney Bowes, Nippon Telegraph and Telephone
Corporation, United Parcel Service, the member posts of the International Postal
Corporation and Hikari Tsushin, a major e-mail outsourcing service provider in
Japan, license Tumbleweed IME in order to be able to provide additional
value-added services to their customers. Second, service providers such as UPAQ,
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, as well as 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 Postal Corporation. The International Postal Corporation is an
umbrella organization composed of twenty-one national postal authorities. As
part of our work with the International Postal Corporation, we have integrated
Tumbleweed IME with the International Postal Corporation's Electronic Post Mark
technology. Tumbleweed IME is now in a pilot phase of deployment with the U.S.
Postal Service, Canada Post, and France's La Poste. We plan to introduce
Tumbleweed IME to the International Postal Corporation's other eighteen members
as well.
ESTABLISH TUMBLEWEED IME IN STRATEGIC INDUSTRY MARKETS
Through our direct sales force, we are pursuing strategic accounts in key
markets. These strategic markets initially include the banking, brokerage and
telecommunications 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 service needs should enable us to
compete favorably against those companies whose technologies are only suited to
lower-end communications applications.
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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.
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 the volume of communications sent through
Tumbleweed IME and whether Tumbleweed IME is being used on-site at the customer
premises or used as an outsourced service at Tumbleweed's premises.
PROVIDE COMPREHENSIVE PROFESSIONAL SERVICES
Our full outsourcing services enable our customers to reduce their cost of
ownership and time to deployment 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 the 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 APP BUILDER. Tumbleweed IME Custom App Builder
incorporates the API 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
Tumbleweed IME to complement electronic commerce
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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 health care)
and 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 APIs. 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 Chase Manhattan Bank, Thomson
Financial, and the European Commission.
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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<PAGE>
CUSTOMER PROFILES
The following examples illustrate how customers are using Tumbleweed IME to
bring their existing communications and business processes online:
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 searchable electronic
format. Tumbleweed IME allows Thomson to distribute prospectuses electronically
and satisfy SEC delivery requirements. The use of Tumbleweed IME by Thomson
Financial improves the timeliness of prospectus deliveries, cuts printing and
mailing costs for issuers, and increases the value of these deliveries to the
customer, as prospectuses are now searchable and hyperlinked.
EUROPEAN UNION--JOINT RESEARCH COUNCIL
The European Union's Joint Research Council, or JRC, is responsible for
organizing procedures for authorization, surveillance and, where appropriate,
withdrawal of human and veterinary pharmaceutical products across Europe. The
JRC provides a centralized authorization process for approving or rejecting new
drugs for the entire European Union. The JRC employs a distributed authorization
procedure, in which the agency coordinates the activities of more than 2,500
scientists and researchers across Europe for the drug approval process, before
ultimate approval is granted or rejected by the European Commission. The JRC
uses Tumbleweed IME as a mechanism for enabling online information distribution
in this decentralized approval process. Tumbleweed IME was selected due to its
ability to provide complete information security, authenticate participants, and
support a wide range of client systems. The JRC is also investigating Tumbleweed
IME as a platform for broad distribution of JRC reports and rulings, as well as
a possible archival platform for long-term research projects.
U.S. POSTAL SERVICE / INTERNATIONAL POSTAL CORPORATION
The International Postal Corporation, a cooperative organization of
twenty-one international postal administrations, is market testing Tumbleweed
IME under the label PostECS (Electronic Courier Service) as its standard for
secure online document delivery. The U.S. Postal Service, France's La Poste and
Canada Post are the first three member organizations to join International
Postal Corporation's online initiative. The International Postal Corporation
members' customer base is enormous and spans numerous countries. The member
organizations also wanted to develop customized applications, so Tumbleweed
IME's robust architecture and server APIs were important differentiating
features.
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. As part of the company's move into the e-commerce market, United
Parcel Service desired to develop a suite of online services to address the
evolving needs of their customers and the marketplace. After researching various
technologies and service providers, United Parcel Service selected Tumbleweed
IME to be a part of their family of online delivery services. 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. Tumbleweed
IME provided several attractive features for United Parcel Service, including
broad
40
<PAGE>
tracking capabilities and varying levels of security. United Parcel Service also
valued Tumbleweed IME's browser-based approach and open architecture, since this
approach does not limit the potential market.
PITNEY BOWES
Pitney Bowes, Inc. is a global provider of informed mail and messaging
management solutions. Pitney Bowes provides 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 an essential 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. Hitmail 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.
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
Thomson Financial Enterprise customer Financial services
European Union-Joint Research Enterprise customer Pharmaceutical
Council
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 Service provider Engineering
Pitney Bowes* Service provider Financial services
General purpose
Hikari Tsushin Service provider General purpose
Canon Service provider Financial services
Technology/engineering
</TABLE>
*Customers currently participating in paid pilot projects.
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<PAGE>
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. Five customers comprised approximately 93% of our
revenue in the three months ended March 31, 1999 and three customers comprised
approximately 91% of our revenue in 1998. In particular, sales to United Parcel
Service, the International Postal Corporation members and Nippon Telegraph and
Telephone Corporation each represented at least 10% of our revenue in 1998. 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 United
States 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 also 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 the CORBA object standard enables us to support the use of servers
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 application programming interfaces,
or APIs, which 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 APIs, 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 APIs 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.
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[Graphic depicts the Tumbleweed IME architecture, demonstrating how the
Tumbleweed IME API interfaces 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 HTTP and SMTP, 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.
The security options supported by Tumbleweed IME include SSL-based
encryption between sender and receiver, RSA-based encryption on the server,
name/password authentication, and PKI-based encryption. 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 PKI 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:
- HTTP (HYPERTEXT TRANSFER PROTOCOL)--The set of standards used by computers
to transfer hypertext files (Web pages) over the Internet.
- SMTP (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.
- CORBA (COMMON OBJECT REQUEST BROKER ARCHITECTURE)--A standard that 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.
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- PKI (PUBLIC KEY INFRASTRUCTURE)--An evolving, standards-based system which
relies on digital certificates to ensure the validity of Internet
communications and transactions.
- S/MIME (SECURE MULTIPURPOSE INTERNET MAIL EXTENSIONS)--An e-mail standard
used to format complex messages so that they can be sent securely over the
Internet.
- SSL (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 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."
INTELLECTUAL PROPERTY
We have filed eight utility patents and one design patent with the United
States 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 the 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 United States 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 United States. Our means of protecting
our proprietary rights in the United States or abroad may not be adequate and
competing companies may independently develop similar technology. In particular,
we are currently engaged in
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<PAGE>
litigation to enforce our intellectual property rights, which may not be
successful or may result in substantial expenditures of resources to pursue. See
"Business--Legal Proceedings."
The status of United States 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
United States are not publicly disclosed until the patent is issued,
applications may have been filed by third parties that relate to our software
products.
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. However, unlike Tumbleweed
IME's open, scalable architecture, these competing solutions are based on
proprietary protocols, require proprietary client software, and/or are not very
scalable. 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.
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<PAGE>
EMPLOYEES
As of April 30, 1999, we employed 60 people worldwide, including 21 in
engineering, 15 in sales, 12 in professional services, four in marketing and
eight 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--We Depend on Key Management Personnel and Must Continue to
Attract and Retain Highly Skilled Employees."
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., or docSpace, alleging
infringement of our United States 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 at the initial case
management conference with the court on July 8, 1999. We believe that we will
prevail on the merits of our claims and that docSpace's counterclaims are
meritless.
46
<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
Bernard J. Cassidy General Counsel and Secretary 44
Michael J. Earhart Director--Marketing 34
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.
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<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 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 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 is a graduate of San Francisco State University with a degree in
Operations Research.
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 September 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 previously been responsible for finance
and operations, business development, and strategic planning and alliances.
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.
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MICHAEL J. EARHART, Director--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 January 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 July 1989 to July 1992. Mr. Cassidy received a J.D. from Harvard Law
School, an M.A. in philosophy from the University of Toronto and a B.A. in
Philosophy from Loyola University.
TIMOTHY C. DRAPER has been a Director of Tumbleweed since August 1996. Mr.
Draper is the Founder and Managing Director of Draper Fisher Jurvetson (formerly
Draper Associates), 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 MSc. 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 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. Thereafter, directors will be elected for three-year terms.
Jeffrey C. Smith has been designated a Class I director whose term expires at
the
49
<PAGE>
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.
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<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 $100,000
for the year ended December 31, 1998. These executives are referred to as the
Named Executive Officers elsewhere in this prospectus.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
--------------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) 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.
51
<PAGE>
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 options were granted under our 1993 Stock Option Plan at exercise prices at
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 annual rate shown (compounded annually)
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.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTION EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5% 10%
- ----------------------------------- ----------- --------------- ----------- ----------- ---------- ----------
<S> <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
12,000 0.9 0.50 9/01/2008 9,773 15,562
Kerry S. Champion.................. 180,000 13.6 0.50 3/16/2008 146,601 233,437
50,000 3.8 0.50 9/01/2008 40,722 64,844
Mark R. Pastore.................... 20,000 1.5 0.50 9/01/2007 16,289 25,937
15,000 1.1 0.50 3/01/2008 12,217 19,453
10,000 0.8 0.50 9/05/2008 8,144 12,969
Randy A. Atherton.................. 75,000(1) 5.7 0.50 6/29/1999 61,084 97,265
</TABLE>
- ------------------------
(1) Mr. Atherton resigned on March 31, 1999. This number excludes unvested
shares that expired upon his resignation.
52
<PAGE>
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, 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 May 28, 1999, we had granted
options to purchase an aggregate of 3,375,516 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.
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 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 (the board or committee being 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 (including directors who are also
53
<PAGE>
employees) 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, or ISOs, which are intended to qualify under the Internal Revenue Code
of 1986, as amended, and non-qualified stock options, or NSOs. The option price
of each ISO granted under this plan must be at least equal to the fair market
value of a share of common stock on the date the ISO is granted.
Stock appreciation rights, or SARs, 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. An SAR 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 (at the date of exercise) of a
share of common stock 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. With
respect to deferred stock, during the deferral period, subject to the terms and
conditions imposed by the plan administrator, the deferred stock units may be
credited with dividend equivalent rights. 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 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, 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. 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 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 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 , 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.
54
<PAGE>
This plan will be administered by our board of directors, or a specifically
designated committee of the board of directors (this board or committee is
sometimes referred to as the plan administrator). The plan administrator may
interpret the plan and, subject to its provisions, may prescribe, amend and
rescind rules and make all other determinations necessary or desirable for the
administration 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; provided, however, that 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 (i) 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 (ii) 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 which 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 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.
The option agreements of Joseph Consul, Donald Gammon, Donald Taylor,
Bernard Cassidy 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;
55
<PAGE>
- 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. Insofar as 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 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 people as directors and executive officers.
56
<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 Fischer 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 Fischer 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 Fischer 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 Fischer 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 Fischer 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, the
57
<PAGE>
Company 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, 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 offers and directors. See "Management--Limitation of Liability
and Indemnification."
ENGAGEMENT OF LEGAL COUNSEL. Gregory C. Smith, the 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.
58
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table indicates information as of May 28, 1999 regarding the
beneficial ownership of Tumbleweed common stock by: (a) each person known to the
board of directors to own beneficially 5% or more of our common stock; (b) each
of our directors; (c) the Named Executive Officers; and (d) 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 Software Corporation, 2010
Broadway, Redwood City, California 94063.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power or
investment power with respect to those securities and includes shares of common
stock issuable pursuant to 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 16,985,487 shares of common
stock outstanding as of May 28, 1999 (which does not include the exercise of
warrants on 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 23.0%
22F Ohtemachi Nomura Bldg.
2-1-1 Ohtemachi, Chiyoda-ku, Tokyo
August Capital, L.P..................................................... 2,018,009(1) 11.9
David F. Marquardt
2480 Sand Hill Road, Suite 101
Menlo Park, CA 94025
Draper Fisher Entities.................................................. 1,886,695(2) 11.1
Timothy C. Draper
400 Seaport Court, Suite 250
Redwood City, CA 94063
Adobe Ventures II, L.P.................................................. 1,370,971 8.1
One Bush Street
San Francisco, CA 94104
United Parcel Service General Services Co............................... 1,118,569 6.6
55 Glenlake Parkway NE
Atlanta, Georgia 30328
Jeffrey C. Smith........................................................ 2,017,877 11.8
Jean-Christophe D. Bandini.............................................. 1,994,580 11.7
Randy A. Atherton....................................................... 75,000 *
Kerry S. Champion....................................................... 60,000(3) *
Joseph C. Consul........................................................ 68,164(3) *
Mark R. Pastore......................................................... 257,661(3) 1.5
Eric J. Hautemont....................................................... 38,616(3) *
Standish H. O'Grady..................................................... 1,644,567(4) 9.7
Executive officers and directors as a group (16 persons)................ 10,198,365(5) 60.0
</TABLE>
- --------------------------
* Less than 1% of the outstanding shares of common stock.
59
<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 II, L.P.; 401,888 shares
held by Draper Fisher Associates Fund; 1,219,611 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 (formerly Draper
Associates). 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) The following table indicates those people whose total number of
beneficially owned shares include shares subject to options exercisable
within 60 days of May 28, 1999:
<TABLE>
<CAPTION>
SHARES SUBJECT TO
OPTIONS
------------------------
<S> <C>
Kerry S. Champion.............................................................. 15,000
Joseph C. Consul............................................................... 63,333
Mark R. Pastore................................................................ 3,229
Eric J. Hautemont.............................................................. 1,500
</TABLE>
(4) 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.
(5) Includes 435,978 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of May 28, 1999.
60
<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 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, or the Securities
Act. 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,
61
<PAGE>
stockholders with registration rights may require Tumbleweed to file additional
registration statements on Form S-3, subject to conditions and limitations.
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 (i) before the date of the business combination, the
transaction is approved by the board of directors of the corporation, (ii) 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 (iii) 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
will serve as Transfer Agent and Registrar for our common stock.
Its phone number is .
LISTING
We intend to apply to list the common stock on the Nasdaq Stock Market's
National Market under the trading symbol "TMWD."
62
<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 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>
At various times prior to February , 2000...................................................
February , 2000 (180 days after the offering date)..........................................
At various times thereafter upon expiration of applicable holding periods......................
</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 May 28, 1999, options to purchase a total 2,226,963
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.
63
<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 Baring Furman Selz 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 Baring Furman Selz LLC.......................................................
Total..........................................................................
</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 on a pro rata basis up to 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.
64
<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 Baring Furman Selz LLC, is the brother of
Jeffrey C. Smith, the Chairman, President and Chief Executive Officer of
Tumbleweed.
65
<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 which 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 (1) 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, (2) where required
by law, the purchaser is purchasing as principal and not as agent, and (3) 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.
66
<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. Statements contained in this prospectus regarding
the contents of any contract or any other document to which reference is made
are not necessarily complete, and, in each instance, reference is made to the
copy of the contract or other document filed as an exhibit to the registration
statement, each statement being qualified in all respects by the reference. 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
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices located at the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048, and copies of all or any part of
the registration statement may be obtained from these offices upon the payment
of the fees prescribed by the Commission. Information on the operation of the
Public Reference Room may be obtained by calling the Commission at
1-800-SEC-0330. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
site is http://www.sec.gov.
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.
67
<PAGE>
TUMBLEWEED SOFTWARE CORPORATION
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 March 31, 1999 (unaudited)................ F-3
Consolidated Statements of Operations for the years ended December 31, 1996, 1997 and 1998 and the three
months ended March 31, 1998 and 1999 (unaudited)......................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1997 and 1998 and
the three months ended March 31, 1999 (unaudited)........................................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998 and the three
months ended March 31, 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 Signature]
San Francisco, California
May 28, 1999
The Board of Directors and Stockholders
Tumbleweed Software Corporation:
We have audited the accompanying consolidated balance sheets of Tumbleweed
Software Corporation (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
Software Corporation 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 SOFTWARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1999
-------------------- ----------------------
1997 1998 ACTUAL PRO FORMA
--------- --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 6,310 $ 698 $ 13,823 $ 13,823
Accounts receivable............................................................ 281 281 899 899
Prepaid expenses and other current assets...................................... 142 166 274 274
--------- --------- --------- -----------
Total current assets....................................................... 6,733 1,145 14,996 14,996
Property and equipment, net...................................................... 382 472 620 620
Other assets..................................................................... -- 108 35 35
--------- --------- --------- -----------
Total assets............................................................... $ 7,115 $ 1,725 $ 15,651 $ 15,651
--------- --------- --------- -----------
--------- --------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 200 $ 136 $ 181 $ 181
Current installments of equipment line......................................... -- 141 210 210
Accrued liabilities............................................................ 337 448 675 675
Deferred revenues.............................................................. 308 130 357 357
--------- --------- --------- -----------
Total current liabilities.................................................. 845 855 1,423 1,423
Equipment line, excluding current installments................................... -- 369 405 405
--------- --------- --------- -----------
Commitments
Stockholders' equity:
Preferred stock, $0.001 par value; no shares authorized, issued, or outstanding
as of December 31, 1997 and 1998 and March 31, 1999; 10,000,000 shares
authorized, none issued or outstanding on a pro forma basis as of March 31,
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 March 31, 1999,
and none outstanding on a pro forma basis as of March 31, 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 March 31, 1999, and none outstanding on a pro forma basis as of
March 31, 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; 4,460,885 shares
issued and outstanding as of March 31, 1999, and none outstanding on a pro
forma basis as of March 31, 1999 (aggregate liquidation preference of
$15,952 as of December 31, 1998)........................................... -- -- 4 --
Common stock, $0.001 par value; 43,000,000 shares authorized; 4,035,000,
4,209,535 and 4,256,241 shares issued and outstanding as of December 31,
1997, 1998 and March 31, 1999, respectively; 100,000,000 shares authorized,
issued and outstanding on a pro forma basis as of March 31,
1999......................................................................... 4 4 4 15
Additional paid-in capital..................................................... 11,530 11,680 29,050 29,050
Deferred compensation expense.................................................. -- -- (2,257) (2,257)
Accumulated other comprehensive income (loss).................................. -- (2) 2 2
Accumulated deficit............................................................ (5,271) (11,188) (12,987) (12,987)
--------- --------- --------- -----------
Total stockholders' equity................................................. 6,270 501 13,823 13,823
--------- --------- --------- -----------
Total liabilities and stockholders' equity................................. $ 7,115 $ 1,725 $ 15,651 $ 15,651
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
TUMBLEWEED SOFTWARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
License................................................... $ 261 $ 359 $ 885 $ 304 $ 518
Services.................................................. 336 250 910 146 175
Sale of technology........................................ -- 120 220 -- --
--------- --------- --------- --------- ---------
Total revenue........................................... 597 729 2,015 450 693
Cost of revenue:
License cost.............................................. 15 63 194 41 46
Services cost............................................. 124 45 737 121 228
--------- --------- --------- --------- ---------
Total cost of revenue................................... 139 108 931 162 274
--------- --------- --------- --------- ---------
Gross profit.............................................. 458 621 1,084 288 419
--------- --------- --------- --------- ---------
Operating expenses:
Research and development.................................. 634 1,846 2,021 457 819
Sales and marketing....................................... 649 2,593 4,049 1,081 1,055
General and administrative................................ 372 792 1,080 275 274
Stock compensation........................................ -- -- -- -- 68
--------- --------- --------- --------- ---------
Total operating expenses................................ 1,655 5,231 7,150 1,813 2,216
--------- --------- --------- --------- ---------
Operating loss.......................................... (1,197) (4,610) (6,066) (1,525) (1,797)
Other income (expense), net............................... 41 165 149 81 (2)
--------- --------- --------- --------- ---------
Net loss................................................ $ (1,156) (4,445) (5,917) (1,444) (1,799)
Translation adjustment.................................... -- -- (2) -- 4
--------- --------- --------- --------- ---------
Comprehensive loss...................................... $ (1,156) $ (4,445) $ (5,919) $ (1,444) $ (1,795)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net loss per share--basic and diluted....................... $ (0.32) $ (1.33) $ (1.56) $ (0.40) $ (0.44)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares--basic and diluted.................. 3,598 3,331 3,797 3,628 4,092
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
TUMBLEWEED SOFTWARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998 AND THE THREE MONTHS ENDED MARCH
31, 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....................... -- -- -- -- -- --
Issuance of Series A preferred stock.................... 2,657,971 3 -- -- -- --
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............... -- -- -- -- -- --
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................. -- -- -- -- -- --
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 $1,097 (unaudited)............... -- -- -- -- 4,454,385 4
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, March 31, 1999 (unaudited).................... 2,657,971 $ 3 4,080,960 $ 4 4,460,885 $ 4
--------- ---------- --------- ---------- --------- ----------
--------- ---------- --------- ---------- --------- ----------
<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 $ 137 $ -- $ --
Net loss prior to August 24, 1996....................... -- -- (331) -- --
Issuance of Series A preferred stock.................... -- -- 3,665 -- --
Net loss subsequent to August 24, 1996.................. -- -- -- -- --
--------- ---------- ----------- ------- ------
Balances, December 31, 1996............................. 4,035,000 4 3,471 -- --
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 -- --
Net loss................................................ -- -- -- -- --
--------- ---------- ----------- ------- ------
Balances, December 31, 1997............................. 4,035,000 4 11,530 -- --
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)
Net loss................................................ -- -- -- -- --
--------- ---------- ----------- ------- ------
Balances, December 31, 1998............................. 4,209,535 4 11,680 -- (2)
Issuance of common stock upon exercise of stock options
(unaudited)........................................... 46,706 -- 23 -- --
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 $1,097 (unaudited)............... -- -- 14,945 -- --
Issuance of Series C preferred stock in exchange for
services (unaudited).................................. -- -- 23 -- --
Foreign currency translation adjustment (unaudited)..... -- -- -- -- 4
Deferred compensation expense on stock option issuances
(unaudited)........................................... -- -- 2,325 (2,325) --
Amortization of deferred compensation expense
(unaudited)........................................... -- -- -- 68 --
Net loss (unaudited).................................... -- -- -- -- --
--------- ---------- ----------- ------- ------
Balances, March 31, 1999 (unaudited).................... 4,256,241 $ 4 $ 29,050 $ (2,257) $ 2
--------- ---------- ----------- ------- ------
--------- ---------- ----------- ------- ------
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------- -------------
Balances, December 31, 1995............................. $ -- $ 141
Net loss prior to August 24, 1996....................... -- (331)
Issuance of Series A preferred stock.................... -- 3,668
Net loss subsequent to August 24, 1996.................. (826) (826)
------------- -------------
Balances, December 31, 1996............................. (826) 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
Net loss................................................ (4,445) (4,445)
------------- -------------
Balances, December 31, 1997............................. (5,271) 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)
Net loss................................................ (5,917) (5,917)
------------- -------------
Balances, December 31, 1998............................. 11,188) 501
Issuance of common stock upon exercise of stock options
(unaudited)........................................... -- 23
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 $1,097 (unaudited)............... -- 14,949
Issuance of Series C preferred stock in exchange for
services (unaudited).................................. -- 23
Foreign currency translation adjustment (unaudited)..... -- 4
Deferred compensation expense on stock option issuances
(unaudited)........................................... -- --
Amortization of deferred compensation expense
(unaudited)........................................... -- 68
Net loss (unaudited).................................... (1,799) (1,799)
------------- -------------
Balances, March 31, 1999 (unaudited).................... $ (12,987) $ 13,823
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
TUMBLEWEED SOFTWARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................................... $ (1,156) $ (4,445) $ (5,917) $ (1,444) $ (1,799)
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............. -- -- -- -- 68
Depreciation.................................................... 29 121 201 43 66
Amortization of debt discount................................... -- -- 12 -- 43
Changes in operating assets and liabilities:
Accounts receivable........................................... 7 (204) -- 119 (618)
Prepaid expenses and other current assets..................... (46) (101) (24) 10 (108)
Accounts payable and accrued liabilities...................... 132 374 47 72 272
Deferred revenues............................................. 74 204 (178) (135) 227
--------- --------- --------- --------- ---------
Net cash used in operating activities....................... (960) (4,017) (5,851) (1,335) (1,772)
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Purchase of furniture and equipment............................. (134) (352) (291) (34) (214)
Other long-term assets.......................................... -- -- (108) -- 73
--------- --------- --------- --------- ---------
Net cash used in investing activities....................... (134) (352) (399) (34) (141)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Borrowings on equipment line.................................... -- -- 553 -- 1,113
Payments on equipment line...................................... -- -- -- -- (1,051)
Proceeds from issuance of preferred stock and warrants, net..... 3,668 8,028 -- 7 14,949
Issuance of common stock upon exercise of stock options......... -- -- 87 47 23
Payments on stockholder note payable............................ (50) (19) -- -- --
Borrowing on stockholder note payable........................... 65 -- -- -- --
--------- --------- --------- --------- ---------
Net cash provided by financing activities................... 3,683 8,009 640 54 15,034
--------- --------- --------- --------- ---------
Effect of exchange rate fluctuations................................ -- -- (2) -- 4
--------- --------- --------- --------- ---------
Net (decrease) increase in cash and cash equivalents................ 2,589 3,640 (5,612) (1,315) 13,125
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 $ 4,995 $ 13,823
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the year/period for interest..................... $ -- $ -- $ 25 $ -- $ 69
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Noncash investing and financing activities--
Issuance of warrants and options for services, debt issuance
costs or equity offering costs................................ $ -- $ 34 $ 63 $ -- $ 194
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Compensation expense associated with stock option activity...... $ -- $ -- $ -- $ -- $ 2,325
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
TUMBLEWEED SOFTWARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Tumbleweed Software Corporation (the "Company"), a California corporation
incorporated in June 1993, is a provider of secure Internet communications
software and services for businesses worldwide. The Company 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. The
Company'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.
The Company maintains its headquarters in Redwood City, California. The
Company incorporated a subsidiary in Japan in November 1998 and incorporated a
subsidiary in the United Kingdom in February 1999.
(a) BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries in Japan and the United Kingdom.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
(b) UNAUDITED PRO FORMA FINANCIAL BALANCE SHEET
The pro forma consolidated balance sheet as of March 31, 1999 includes (i)
the assumed automatic conversion of all outstanding shares of Series A, B and C
convertible preferred stock upon the closing of the Company's planned initial
public offering (IPO), into 11,199,816 shares of common stock, and (ii) the
assumed cashless conversion of the December 1997 and May 1999 warrant issuances,
using the assumed IPO price, into approximately shares of common stock.
(c) CASH, CASH EQUIVALENTS AND INVESTMENTS
The Company 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, the Company had $6,257,000 and $604,000 in money market accounts,
respectively. As of March 31, 1999, the Company had $4,981,000 in commercial
paper and $8,746,000 in money market accounts.
The Company 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. The Company 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 the Company did not hold any marketable
securities.
F-7
<PAGE>
TUMBLEWEED SOFTWARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
(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 the form of a working model has been
established. To date, capitalized costs for the Company's software development
have not been material.
(f) CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash equivalents and
accounts receivable. The Company's cash equivalents generally consist of money
market funds with qualified financial institutions. To reduce credit risk with
accounts receivable, the Company performs ongoing evaluations of its customers'
financial conditions and maintains allowances for credit losses, when necessary.
(g) REVENUE RECOGNITION
License revenue and associated initial implementation revenues are
recognized upon customer acceptance. Revenue from other consulting services is
recognized as the services are performed.
Transaction-based fee revenue are derived from the Company's customers and
resellers principally based on payment schedules and/or information reported by
the customer or reseller. Minimum royalties are recognized when fees are fixed
and determinable. Minimum royalties with extended payment terms are recognized
as they become due and payable.
Technology revenue relates to the sale of certain intellectual property. The
Company recognizes technology revenue as the payments are deemed collectible.
The Company provides post-contract support and training to customers.
Revenue from these arrangements is recognized either ratably over the period the
support is provided or, when appropriate, as the services are performed.
In October 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants ("AICPA") issued Statement of
Position (SOP) 97-2, SOFTWARE REVENUE RECOGNITION. Effective January 1, 1998,
the Company 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 (VSOE). If evidence of
fair value for each element of the arrangement does not exist, all
F-8
<PAGE>
TUMBLEWEED SOFTWARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 the Company's accounting for revenue as a result of
the adoption of SOP 97-2.
In February 1998, the Accounting Standards Executive Committee (AcSEC) of
the AICPA 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 (VSOE) of fair value. There was no material
change to the Company's accounting for revenue as a result of the adoption of
SOP 98-4.
In December 1998, AcSEC 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. The Company 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.
(i) STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation arrangements for
employees using the intrinsic-value method pursuant to Accounting Principles
Board ("APB") 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. Pursuant to SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the
Company discloses the pro forma effects of using the fair value method of
accounting for stock-based compensation arrangements.
(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
F-9
<PAGE>
TUMBLEWEED SOFTWARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
their effect is dilutive. Potential common shares comprise outstanding shares of
common stock subject to repurchase by the Company 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 Convertible 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>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Shares issuable under stock options............................. 1,136 1,471 2,391 1,854 2,644
Shares of restricted stock subject to repurchase................ 873 535 197 452 114
Shares issuable pursuant to warrants or rights to purchase
convertible preferred stock................................... -- 40 61 61 120
Shares of convertible preferred stock on an "as-if-converted"
basis......................................................... 2,658 6,724 6,724 6,724 11,200
--------- --------- --------- --------- ---------
4,667 8,770 9,373 9,091 14,078
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
As of March 31, 1999, the weighted average exercise prices of stock options
and warrants or rights to purchase convertible preferred stock outstanding were
$0.52 and $3.23, respectively.
(k) OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) consists entirely of cumulative
translation adjustments resulting from the Company'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 March 31, 1999 and for the
three months ended March 31, 1998 and 1999 is unaudited, but includes all
adjustments (consisting of normal recurring adjustments) that the Company
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 three months ended March 31, 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 the Company'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.
F-10
<PAGE>
TUMBLEWEED SOFTWARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
(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 revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(o) FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's Japan subsidiary is the yen. The
functional currency of the Company'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
The Company 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.
(q) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. The Company 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, the Company 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. The Company does not expect SOP 98-1, which is effective beginning
January 1, 1999, to materially affect its financial position or results of
operations.
F-11
<PAGE>
TUMBLEWEED SOFTWARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
(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>
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, the Company issued 3,914,989 shares of Series C preferred
stock at a price of $3.58 per share to Hikari Tsushin ("Hikari"), a Japanese
company, resulting in gross proceeds to the Company of approximately $14.0
million.
On March 31, 1999, the Company entered into a one-year License and
Distribution Agreement with Hikari. During the three months ended March 31,
1999, the Company 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.
F-12
<PAGE>
TUMBLEWEED SOFTWARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
(4) DEBT
In 1997, the Company obtained a $400,000 line of credit collateralized by
all of the Company's assets. The line bears interest at the bank's prime rate
plus 1.5% and expired on August 3, 1998.
In July 1998, the Company 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 are due in 36 equal
monthly installments beginning January 1999, and are secured by certain assets
of the Company. The weighted-average interest rate for the Equipment Line was
8.5% for fiscal 1998.
During November 1998, the Company amended the Debt Facility. As part of the
amendment, the Company 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; the Company 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 the Company'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, the Company 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, the Company repaid all outstanding borrowings against the Bridge Loan
Facility.
As of March 31, 1999, minimum debt payments under all agreements were as
follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
- ------------------------------------------------------------------
<S> <C>
1999.............................................................. $ 160
2000.............................................................. 213
2001.............................................................. 213
2002.............................................................. 29
---------
615
Less current installments of equipment line....................... (210)
---------
$ 405
---------
---------
</TABLE>
F-13
<PAGE>
TUMBLEWEED SOFTWARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 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>
The Company 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, 1997 and 1998, the Company has federal and California net
operating loss carryforwards of approximately $5,700,000 and $11,000,000,
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, the Company 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-14
<PAGE>
TUMBLEWEED SOFTWARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 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
the Company's issuances of preferred stock have resulted in multiple ownership
changes since inception of the Company. 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 Conversion Price." The Series Preferred 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 March 31, 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 shall automatically be converted into
shares of common stock, based on the then-effective Series Preferred
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 the Company 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 the Company'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 AGREEMENT
On August 16, 1996, stock repurchase agreements were signed with the
Company's Chief Technical Officer and Chief Executive Officer (the Officers).
Under these agreements, the Company may purchase a portion of the shares of
common stock held by the Officers (2,000,000 shares as of
F-15
<PAGE>
TUMBLEWEED SOFTWARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
(6) STOCKHOLDERS' EQUITY (CONTINUED)
December 31, 1998) if the Officers terminate their employment with the Company
prior to August 16, 1999. The purchase price would be $0.005 per share, and the
total number of shares available for repurchase by the Company is reduced
ratably over the three-year term of the agreements. The amount of shares subject
to repurchase by the Company as of December 31, 1998 and March 31, 1999, were
approximately 197,000 and 114,000, respectively.
(c) STOCK OPTION PLAN
On September 30, 1993, the Company adopted the 1993 Stock Option Plan (the
Plan). During 1998, the Board of Directors approved an amendment to the Plan to
increase the number of shares authorized for issuance thereunder by 1,000,000
shares to a total of 3,118,500 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.
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............................. 982,500 1,136,000 $ 0.48
Granted................................................. (531,500) 531,500 0.50
Canceled................................................ 196,375 (196,375) 0.50
----------- -----------
Balances, December 31, 1997............................. 647,375 1,471,125 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............................. 552,754 2,391,211 0.49
Granted (unaudited)..................................... (441,500) 441,500 0.67
Exercised (unaudited)................................... -- (46,706) 0.50
Canceled (unaudited).................................... 141,480 (141,480) 0.50
----------- -----------
Balances, March 31, 1999 (unaudited).................... 252,734 2,644,525 0.52
----------- -----------
----------- -----------
Options vested as of March 31, 1999 (unaudited)......... 973,566
-----------
-----------
Weighted-average fair value of options granted during
the year:
1997................................................ $ 0.13
1998................................................ $ 0.11
</TABLE>
F-16
<PAGE>
TUMBLEWEED SOFTWARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
(6) STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
as of March 31, 1999:
<TABLE>
<CAPTION>
AVERAGE
REMAINING
NUMBER CONTRACTUAL NUMBER
EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISABLE
- -------------------------------------------------------- ----------- --------------- -----------
<S> <C> <C> <C>
$0.25................................................... 100,000 4.5 100,000
0.50................................................... 2,295,525 8.4 873,566
0.80................................................... 249,000 9.9 --
----------- -----------
2,644,525 973,566
----------- -----------
----------- -----------
</TABLE>
(d) STOCK-BASED COMPENSATION
The Company uses the intrinsic value method prescribed by APB No. 25 in
accounting for its stock-based compensation arrangements for employees.
Accordingly, no compensation cost has been recognized for its fixed stock
options 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, except with respect to certain options that
were granted in the three months ended March 31, 1999. The Company has recorded
deferred stock compensation expense of $2.3 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 three months ended March 31, 1999. This
amount is 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
$68,000 was recognized in the three months ended March 31, 1999. Had
compensation cost for the Company's stock-based compensation plan been
determined consistent with the fair value approach set forth in SFAS No. 123,
the Company'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............................................................. $ (1,156) $ (4,445) $ (5,917)
Additional stock-based compensation under SFAS No. 123............................ (24) (33) (45)
--------- --------- ---------
Net loss--pro forma............................................................... $ (1,180) $ (4,478) $ (5,962)
--------- --------- ---------
--------- --------- ---------
Basic and diluted net loss per share--as reported................................. $ (0.32) $ (1.33) $ (1.56)
--------- --------- ---------
--------- --------- ---------
Basic and diluted net loss per share--pro forma................................... $ (0.33) $ (1.34) $ (1.57)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The fair value of options granted during the years ended December 31, 1997
and 1998, is estimated on the date of grant using the minimum value method with
the following weighted-average assumptions: no dividend yield; risk-free
interest rates of 4.75% to 7.5%, respectively; and an expected life of four
years.
F-17
<PAGE>
TUMBLEWEED SOFTWARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
(6) STOCKHOLDERS' EQUITY (CONTINUED)
(e) WARRANTS
In connection with the Company's sale of certain technology rights to a
third party in December 1997, the Company licensed the rights back from the
third party in exchange for a warrant to purchase 40,000 shares of the Company'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 the Company's common stock or five
years from the issue date. Using the Black-Scholes option pricing model the
Company 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%; 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), the
Company 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 the Company in which the Company's
stock is sold for at least three times the initial exercise price.
In connection with the February 1999 Series C financing, the Company'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 the Company or
sale or acquisition of the Company.
(7) EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan that allows eligible employees to contribute a
percentage of their compensation, limited to $10,000 in 1998. The Company may
make discretionary matching contributions of up to 6% of employee contributions.
Company matching contributions and earnings thereon vest immediately. No Company
contributions have been made to date.
F-18
<PAGE>
TUMBLEWEED SOFTWARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 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, the Company entered into royalty agreements with various
companies whereby the Company was granted a right to sublicense certain software
technology. Under the terms of the agreements, the Company 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 three month periods ended March 31, 1998
and 1999 was approximately $41,000 and $23,000, respectively, and was recorded
as cost of revenue.
(9) SEGMENT INFORMATION
The Company 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 the Company for
making operating decisions and assessing financial performance.
The Company's chief operating decision-maker is considered to be the
Company's Chief Executive Officer ("CEO"). The CEO reviews financial information
presented on a consolidated basis accompanied by disaggregated information about
revenues 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, the Company operates in a
single operating segment.
F-19
<PAGE>
TUMBLEWEED SOFTWARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 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>
NORTH
AMERICA EUROPE ASIA TOTAL
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
1996..................................................... $ 592 $ 5 $ -- $ 597
1997..................................................... 539 11 179 729
1998..................................................... 766 574 675 2,015
</TABLE>
Revenues to significant customers (representing approximately 10% or more of
total revenue for the respective periods) are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------------------- -------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
SALES:
Customer A............................................... --% 38% 33% 6% 4%
Customer B............................................... 22 26 -- -- --
Customer C............................................... -- 12 -- -- --
Customer D............................................... -- -- 28 -- 16
Customer E............................................... -- -- 30 87 5
Customer F............................................... 26 -- -- -- --
Customer G............................................... 20 -- -- -- --
Customer H............................................... 12 2 2 2 2
Customer I............................................... -- -- -- -- 56
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------- -------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
ACCOUNTS RECEIVABLE:
Customer A............................................... --% 43% --% 56% 6%
Customer B............................................... 85 -- -- -- --
Customer C............................................... -- 19 -- -- --
Customer D............................................... -- -- 82 10 10
Customer E............................................... -- 36 16 31 2
Customer F............................................... -- -- -- -- --
Customer G............................................... -- -- -- -- --
Customer H............................................... -- -- -- -- --
Customer I............................................... -- -- -- -- 71
</TABLE>
F-20
<PAGE>
TUMBLEWEED SOFTWARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
(9) SEGMENT INFORMATION (CONTINUED)
Revenue aggregating 0%, 0%, 30%, 87% and 61% of total revenue for the years
ended December 31, 1996, 1997 and 1998 and for the three months ended March 31,
1998 and 1999, respectively, was generated from two customers who are also
stockholders of the Company, and whose ownership percentages were 6.7% and
23.5%, respectively.
(10) SUBSEQUENT EVENTS
REINCORPORATION
On May 27, 1999, the Board of Directors approved the Company'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.
SERIES C FINANCING
In May 1999, the Company issued 1,131,618 shares of Series C convertible
preferred stock at $3.58 per share for aggregate gross proceeds of $4,047,000.
In connection with the May 1999 Series C financing, the Company 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 the Company. 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 and will be
included as an issuance cost of the Series C financing.
AMENDMENT OF 1993 STOCK OPTION PLAN
On May 24, 1999, the Board of Directors approved a 500,000 share increase in
the number of shares authorized under the 1993 Stock Option Plan to 3,618,500.
INITIAL PUBLIC OFFERING
On May 27, 1999, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission permitting
the Company to sell shares of the Company's common stock in connection with a
proposed initial public offering (IPO). 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 IPO. The conversion of the convertible preferred stock has been
reflected in the unaudited pro forma consolidated balance sheet as of March 31,
1999.
F-21
<PAGE>
TUMBLEWEED SOFTWARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS
UNAUDITED)
(10) SUBSEQUENT EVENTS (CONTINUED)
1999 OMNIBUS STOCK INCENTIVE PLAN
The 1999 Omnibus Stock Incentive Plan (the Incentive Plan) was adopted by
the Company'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.
1999 EMPLOYEE STOCK PURCHASE PLAN
The 1999 Employee Stock Purchase Plan (the Purchase Plan) was adopted by the
Company'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-22
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Registrant transacts business in various foreign currencies.
Accordingly, the Registrant is subject to exposure from adverse movements in
foreign currency exchange rates. This exposure is primarily related to revenues
and operating expenses in the U.K. and Japan denominated in the respective local
currency. However, as of December 31, 1998, the Registrant had no hedging
contracts outstanding.
The Registrant currently does not use financial instruments to hedge
operating expenses in the U.K. or Japan denominated in the respective local
currency. The Registrant assesses the need to utilize financial instruments to
hedge currency exposures on an ongoing basis.
The Registrant does not use derivative financial instruments for speculative
trading purposes, nor does the Registrant hedge its foreign currency exposure in
a manner that entirely offsets the effects of changes in foreign exchange rates.
The Registrant regularly reviews its hedging program and may as part of this
review determine at any time to change its hedging program.
FIXED INCOME INVESTMENTS
The Registrant's exposure to market risks for changes in interest rates
relates primarily to investments in money market. The Registrant places its
investments with high credit quality issuers and, by policy, limits the amount
of the credit exposure to any one issuer.
The Registrant'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;
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 5.05%.
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................................. *
Accounting fees and expenses....................................... *
Legal fees and expenses............................................ *
Director and officer insurance expenses............................ *
Printing and engraving expenses.................................... *
Transfer agent fees and expenses................................... *
Blue sky fees and expenses......................................... *
Miscellaneous fees and expenses.................................... *
---------
Total............................................................ $ *
---------
---------
</TABLE>
- ------------------------
* To be completed by amendment.
II-1
<PAGE>
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' ties, 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 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
II-2
<PAGE>
- 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 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
II-3
<PAGE>
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 May 28, 1999, an aggregate of 619,053 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 $0.46 per share, or
an aggregate of $284,526.50. 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.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
A. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Amended and Restated Articles of Incorporation of the Registrant
3.2* Amended and Restated Certificate of Incorporation of the Registrant
3.3 Bylaws of the Registrant
3.4* Amended and Restated Bylaws of the Registrant
4.1* Specimen common stock certificate
4.2 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 Warrant to Purchase Stock, dated November 30, 1998, issued to Silicon
Valley Bank
5.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
10.1 Form of Indemnification Agreement between the Registrant and each of its
directors and officers
10.2 1993 Stock Option Plan, as amended, and form of agreements thereunder
10.3 Form of 1999 Omnibus Stock Incentive Plan and form of stock option
thereunder
10.4 Form of 1999 Employee Stock Purchase Plan
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.5+ Software License, Development and Services Agreement, dated December 19,
1997, between the Registrant and United Parcel Service General Services,
Co.
10.6+ Posta License and Distribution Agreement, dated as of March 31, 1999,
between Tumbleweed Software, K.K. and K.K. Hikari Tsushin.
10.7+ OEM Object Code License Agreement, dated as of March 30, 1998, between the
Registrant and RSA Data Security, Inc.
21 Subsidiaries of the Registrant
23.1 Consent of KPMG LLP
23.2* Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit
5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
+ We have sought confidential treatment from the Commission for selected
portions of this exhibit. The omitted portions will be separately filed with
the 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.
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 REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF REDWOOD CITY, STATE OF
CALIFORNIA, ON MAY 28, 1999.
<TABLE>
<S> <C> <C>
TUMBLEWEED SOFTWARE CORPORATION
By: /s/ JEFFREY C. SMITH
------------------------------------------
Jeffrey C. Smith
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Each person whose signature appears below hereby constitutes and appoints
Jeffrey C. Smith and Joseph C. Consul, and each of them, his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him and in his name, place, and stead, in any and all capacities, to sign
any and all (i) amendments (including post-effective amendments) and additions
to this Registration Statement and (ii) Registration Statements, and any and all
amendments thereto (including post-effective amendments), relating to the
offering contemplated pursuant to Rule 462(b) under the Securities Act of 1933,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, and hereby
grants to such attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
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 May 28, 1999
Jeffrey C. Smith (Principal Executive
Officer)
Vice President--Finance
and Chief Financial
/s/ JOSEPH C. CONSUL Officer (Principal
- ------------------------------ Financial Officer and May 28, 1999
Joseph C. Consul Principal Accounting
Officer)
/s/ DAVID F. MARQUARDT
- ------------------------------ Director May 28, 1999
David F. Marquardt
/s/ TIMOTHY C. DRAPER
- ------------------------------ Director May 28, 1999
Timothy C. Draper
- ------------------------------ Director May 28, 1999
Standish H. O'Grady
/s/ ERIC J. HAUTEMONT
- ------------------------------ Director May 28, 1999
Eric J. Hautemont
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Amended and Restated Articles of Incorporation of the Registrant
3.2* Amended and Restated Certificate of Incorporation of the Registrant
3.3 Bylaws of the Registrant
3.4* Amended and Restated Bylaws of the Registrant
4.1* Specimen common stock certificate
4.2 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 Warrant to Purchase Stock, dated November 30, 1998, issued to Silicon
Valley Bank
5.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
10.1 Form of Indemnification Agreement between the Registrant and each of its
directors and officers
10.2 1993 Stock Option Plan, as amended, and form of stock option thereunder
10.3 Form of 1999 Omnibus Stock Incentive Plan and form of stock option
thereunder
10.4 Form of 1999 Employee Stock Purchase Plan
10.5+ Software License, Development and Services Agreement, dated December 19,
1997, between the Registrant and United Parcel Service General Services,
Co.
10.6+ Posta License and Distribution Agreement, dated as of March 31, 1999,
between Tumbleweed Software, K.K. and K.K. Hikari Tsushin.
10.7+ OEM Object Code License Agreement, dated as of March 30, 1998, between the
Registrant and RSA Data Security, Inc.
21 Subsidiaries of the Registrant
23.1 Consent of KPMG LLP
23.2* Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit
5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
+ We have sought confidential treatment from the Commission for selected
portions of this exhibit. The omitted portions will be separately filed with
the Commission.
<PAGE>
Exhibit 3.3
BYLAWS
OF
TUMBLEWEED SOFTWARE CORPORATION
(A CALIFORNIA CORPORATION)
<PAGE>
<TABLE>
<CAPTION>
Page
----
TABLE OF CONTENTS
<S> <C>
ARTICLE I - Offices...................................................................1.
Section 1. Principal Office .................................................1.
Section 2. Other Offices ....................................................1.
ARTICLE II - Corporate Seal...........................................................1.
Section 3. Corporate Seal 1.
ARTICLE III - Shareholders' Meetings and Voting Rights................................1.
Section 4. Place of Meetings ................................................1.
Section 5. Annual Meetings ..................................................2.
Section 6. Postponement of Annual Meeting ...................................2.
Section 7. Special Meetings .................................................2.
Section 8. Notice of Meetings ...............................................2.
Section 9. Manner of Giving Notice ..........................................3.
Section 10. Quorum and Transaction of Business ..............................4.
Section 11. Adjournment and Notice of Adjourned Meetings ....................4.
Section 12. Waiver of Notice, Consent to Meeting or
Approval of Minute...............................................4
Section 13. Action by Written Consent Without a Meeting .....................5
Section 14. Voting ..........................................................6.
Section 15. Persons Entitled to Vote or Consent .............................7.
Section 16. Proxies .........................................................7.
Section 17. Inspectors of Election ..........................................8.
ARTICLE IV - Board of Directors.......................................................8.
Section 18. Powers .........................................................8.
Section 19. Number of Directors ............................................9.
Section 20. Election Of Directors, Term, Qualifications ....................9.
Section 21. Resignations ...................................................9.
Section 22. Removal ........................................................9.
Section 23. Vacancies .....................................................10.
Section 24. Regular Meetings ..............................................10.
Section 25. Participation by Telephone ....................................10.
Section 26. Special Meetings ..............................................11.
Section 27. Notice of Meetings ............................................11.
Section 28. Place of Meetings .............................................11.
Section 29. Action by Written Consent Without a Meeting ...................11.
Section 30. Quorum and Transaction of Business ............................11.
Section 31. Adjournment ...................................................11.
Section 32. Organization ..................................................12.
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 33. Compensation ..................................................12.
Section 34. Committees ....................................................12.
ARTICLE V - Officers.................................................................13.
Section 35. Officers ......................................................13.
Section 36. Appointment ...................................................13.
Section 37. Inability to Act ..............................................13.
Section 38. Resignations ..................................................13.
Section 39. Removal .......................................................13.
Section 40. Vacancies .....................................................14.
Section 41. Chairman of the Board .........................................14.
Section 42. President .....................................................14.
Section 43. Vice Presidents ...............................................14.
Section 44. Secretary .....................................................15.
Section 45. Chief Financial Officer .......................................15.
Section 46. Compensation ..................................................16.
ARTICLE VI - Contracts, Loans, Bank Accounts, Checks and Drafts......................16.
Section 47. Execution of Contracts and Other Instruments ..................16.
Section 48. Loans .........................................................16.
Section 49. Bank Accounts .................................................17.
Section 50. Checks, Drafts, Etc. ..........................................17.
ARTICLE VII - Certificates for Shares and Their Transfer.............................17.
Section 51. Certificate for Shares ........................................17.
Section 52. Transfer on the Books .........................................18.
Section 53. Lost, Destroyed and Stolen Certificates .......................18.
Section 54. Issuance, Transfer and Registration of Shares .................18.
ARTICLE VIII - Inspection of Corporate Records.......................................19.
Section 55. Inspection by Directors .......................................19.
Section 56. Inspection by Shareholders ....................................19.
Section 57. Written Form ..................................................20.
ARTICLE IX - Miscellaneous...........................................................20.
Section 58. Fiscal Year ...................................................20.
Section 59. Annual Report .................................................20.
Section 60. Record Date ...................................................21.
Section 61. Bylaw Amendments ..............................................21.
Section 62. Construction and Definition ...................................21.
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE X - Indemnification..........................................................22.
Section 63. Indemnification of Directors, Officers, Employees
And Other Agents ..............................................22.
ARTICLE XI - Right of First Refusal..................................................26.
Section 64. Right of First Refusal ........................................26.
ARTICLE XII - Loans of Officers and Others...........................................28.
Section 65. Certain Corporate Loans and Guaranties ........................28.
</TABLE>
iii
<PAGE>
BYLAWS
OF
TUMBLEWEED SOFTWARE CORPORATION
(A CALIFORNIA CORPORATION)
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal executive office of the
corporation shall be located at such place as the Board of Directors may from
time to time authorize. If the principal executive office is located outside
this state, and the corporation has one or more business offices in this state,
the Board of Directors shall fix and designate a principal business office in
the State of California.
SECTION 2. OTHER OFFICES. Additional offices of the corporation shall
be located at such place or places, within or outside the State of California,
as the Board of Directors may from time to time authorize.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. If the Board of Directors adopts a corporate
seal such seal shall have inscribed thereon the name of the corporation and the
state and date of its incorporation. If and when a seal is adopted by the Board
of Directors, such seal may be engraved, lithographed, printed, stamped,
impressed upon, or affixed to any contract, conveyance, certificate for shares,
or other instrument executed by the corporation.
ARTICLE III
SHAREHOLDERS' MEETINGS AND VOTING RIGHTS
SECTION 4. PLACE OF MEETINGS. Meetings of shareholders shall be held at
the principal executive office of the corporation, or at any other place, within
or outside the State of California, which may be fixed either by the Board of
Directors or by the written consent of all persons entitled to vote at such
meeting, given either before or after the meeting and filed with the Secretary
of the Corporation.
1
<PAGE>
SECTION 5. ANNUAL MEETINGS. The annual meeting of the shareholders of
the corporation shall be held on any date and time which may from time to time
be designated by the Board of Directors. At such annual meeting, directors shall
be elected and any other business may be transacted which may properly come
before the meeting.
SECTION 6. POSTPONEMENT OF ANNUAL MEETING. The Board of Directors and
the President shall each have authority to hold at an earlier date and/or time,
or to postpone to a later date and/or time, the annual meeting of shareholders.
SECTION 7. SPECIAL MEETINGS.
(a) Special meetings of the shareholders, for any purpose or
purposes, may be called by the Board of Directors, the Chairman of the Board of
Directors, the President, or the holders of shares entitled to cast not less
than ten percent (10%) of the votes at the meeting.
(b) Upon written request to the Chairman of the Board of
Directors, the President, any vice president or the Secretary of the corporation
by any person or persons (other than the Board of Directors) entitled to call a
special meeting of the shareholders, such officer forthwith shall cause notice
to be given to the shareholders entitled to vote, that a meeting will be held at
a time requested by the person or persons calling the meeting, such time to be
not less than thirty-five (35) nor more than sixty (60) days after receipt of
such request. If such notice is not given within twenty (20) days after receipt
of such request, the person or persons calling the meeting may give notice
thereof in the manner provided by law or in these bylaws. Nothing contained in
this Section 7 shall be construed as limiting, fixing or affecting the time or
date when a meeting of shareholders called by action of the Board of Directors
may be held.
SECTION 8. NOTICE OF MEETINGS. Except as otherwise may be required by
law and subject to subsection 7(b) above, written notice of each meeting of
shareholders shall be given to each shareholder entitled to vote at that meeting
(see Section 15 below), by the Secretary, assistant secretary or other person
charged with that duty, not less than ten (10) (or, if sent by third class mail,
thirty (30)) nor more than sixty (60) days before such meeting.
Notice of any meeting of shareholders shall state the date, place and
hour of the meeting and,
(a) in the case of a special meeting, the general nature of
the business to be transacted, and no other business may be transacted at such
meeting;
(b) in the case of an annual meeting, the general nature of
matters which the Board of Directors, at the time the notice is given, intends
to present for action by the shareholders;
(c) in the case of any meeting at which directors are to be
elected, the names of the nominees intended at the time of the notice to be
presented by management for election; and
(d) in the case of any meeting, if action is to be taken on
any of the following proposals, the general nature of such proposal:
2
<PAGE>
(1) a proposal to approve a transaction within the
provisions of California Corporations Code, Section 310 (relating to certain
transactions in which a director has a direct or indirect financial interest);
(2) a proposal to approve a transaction within the
provisions of California Corporations Code, Section 902 (relating to amending
the Articles of Incorporation of the corporation);
(3) a proposal to approve a transaction within the
provisions of California Corporations Code, Sections 181 and 1201 (relating to
reorganization);
(4) a proposal to approve a transaction within the
provisions of California Corporations Code, Section 1900 (winding up and
dissolution);
(5) a proposal to approve a plan of distribution
within the provisions of California Corporations Code, Section 2007 (relating to
certain plans providing for distribution not in accordance with the liquidation
rights of preferred shares, if any).
At a special meeting, notice of which has been given in
accordance with this Section, action may not be taken with respect to business,
the general nature of which has not been stated in such notice. At an annual
meeting, action may be taken with respect to business stated in the notice of
such meeting, given in accordance with this Section, and, subject to subsection
8(d) above, with respect to any other business as may properly come before the
meeting.
SECTION 9. MANNER OF GIVING NOTICE. Notice of any meeting of
shareholders shall be given either personally or by first-class mail, or, if the
corporation has outstanding shares held of record by 500 or more persons
(determined as provided in California Corporations Code Section 605) on the
record date for such meeting, third-class mail, or telegraphic or other written
communication, addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that shareholder by first-class mail or telegraphic or other written
communication to the corporation's principal executive office, or if published
at least once in a newspaper of general circulation in the county where that
office is located. Notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by telegram or other means
of written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at that address, all future notices shall be deemed to have been duly given
without further mailing if these shall be available to the shareholder on
written demand by the shareholder at the principal executive office of the
corporation for a period of one year from the date of the giving of the notice.
An affidavit of mailing of any notice or report in accordance with the
provisions of this Section 9, executed by the Secretary, Assistant Secretary or
any transfer agent, shall be prima facie evidence of the giving of the notice.
3
<PAGE>
SECTION 10. QUORUM AND TRANSACTION OF BUSINESS.
(a) At any meeting of the shareholders, a majority of the
shares entitled to vote, represented in person or by proxy, shall constitute a
quorum. If a quorum is present, the affirmative vote of the majority of shares
represented at the meeting and entitled to vote on any matter shall be the act
of the shareholders, unless the vote of a greater number or voting by classes is
required by law or by the Articles of Incorporation, and except as provided in
subsection (b) below.
(b) The shareholders present at a duly called or held meeting
of the shareholders at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, provided that any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
(c) In the absence of a quorum, no business other than
adjournment may be transacted, except as described in subsection (b) above.
SECTION 11. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting
of shareholders may be adjourned from time to time, whether or not a quorum is
present, by the affirmative vote of a majority of shares represented at such
meeting either in person or by proxy and entitled to vote at such meeting.
In the event any meeting is adjourned, it shall not be necessary to
give notice of the time and place of such adjourned meeting pursuant to Sections
8 and 9 of these bylaws; provided that if any of the following three events
occur, such notice must be given:
(a) announcement of the adjourned meeting's time and place is
not made at the original meeting which it continues or
(b) such meeting is adjourned for more than forty-five (45)
days from the date set for the original meeting or
(c) a new record date is fixed for the adjourned meeting.
At the adjourned meeting, the corporation may transact any business
which might have been transacted at the original meeting.
SECTION 12. WAIVER OF NOTICE, CONSENT TO MEETING OR APPROVAL OF
MINUTES.
(a) Subject to subsection (b) of this Section, the
transactions of any meeting of shareholders, however called and noticed, and
wherever held, shall be as valid as though made at a meeting duly held after
regular call and notice, if a quorum is present either in person or by proxy,
and if, either before or after the meeting, each of the persons entitled to vote
but not present in person or by proxy signs a written waiver of notice or a
consent to holding of the meeting or an approval of the minutes thereof.
(b) A waiver of notice, consent to the holding of a meeting or
approval of the minutes thereof need not specify the business to be transacted
or transacted at nor the purpose of the meeting; provided that in the case of
proposals described in subsection (d) of Section 8 of these bylaws, the
4
<PAGE>
general nature of such proposals must be described in any such waiver of notice
and such proposals can only be approved by waiver of notice, not by consent to
holding of the meeting or approval of the minutes.
(c) All waivers, consents and approvals shall be filed with
the corporate records or made a part of the minutes of the meeting.
(d) A person's attendance at a meeting shall constitute waiver
of notice of and presence at such meeting, except when such person objects at
the beginning of the meeting to transaction of any business because the meeting
is not lawfully called or convened and except that attendance at a meeting is
not a waiver of any right to object to the consideration of matters which are
required by law or these bylaws to be in such notice (including those matters
described in subsection (d) of Section 8 of these bylaws), but are not so
included if such person expressly objects to consideration of such matter or
matters at any time during the meeting.
SECTION 13. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action
which may be taken at any meeting of shareholders may be taken without a meeting
and without prior notice if written consents setting forth the action so taken
are signed by the holders of the outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted.
Directors may not be elected by written consent except by unanimous
written consent of all shares entitled to vote for the election of directors;
provided that any vacancy on the Board of Directors (other than a vacancy
created by removal) which has not been filled by the board of directors may be
filled by the written consent of a majority of outstanding shares entitled to
vote for the election of directors.
Any written consent may be revoked pursuant to California Corporations
Code Section 603(c) prior to the time that written consents of the number of
shares required to authorize the proposed action have been filed with the
Secretary. Such revocation must be in writing and will be effective upon its
receipt by the Secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing, and if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of any corporate action approved by the shareholders without a meeting to
those shareholders entitled to vote on such matters who have not consented
thereto in writing. This notice shall be given in the manner specified in
Section 9 of these bylaws. In the case of approval of (i) a transaction within
the provisions of California Corporations Code, Section 310 (relating to certain
transactions in which a director has an interest), (ii) a transaction within the
provisions of California Corporations Code, Section 317 (relating to
indemnification of agents of the corporation), (iii) a transaction within the
provisions of California Corporations Code, Sections 181 and 1201 (relating to
reorganization), and (iv) a plan of distribution within the provisions of
California Corporations Code, Section 2007 (relating to certain plans providing
for distribution not in accordance with the liquidation rights of preferred
shares, if any), the notice shall be given at least ten (10) days before the
consummation of any action authorized by that approval.
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SECTION 14. VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of Section 15
of these bylaws, subject to the provisions of Sections 702 through 704 of the
California Corporations Code (relating to voting shares held by a fiduciary, in
the name of a corporation, or in joint ownership). Voting at any meeting of
shareholders need not be by ballot; provided, however, that elections for
directors must be by ballot if balloting is demanded by a shareholder at the
meeting and before the voting begins.
Every person entitled to vote at an election for directors may cumulate
the votes to which such person is entitled, i.e., such person may cast a total
number of votes equal to the number of directors to be elected multiplied by the
number of votes to which such person's shares are entitled, and may cast said
total number of votes for one or more candidates in such proportions as such
person thinks fit; provided, however, no shareholder shall be entitled to so
cumulate such shareholder's votes unless the candidates for which such
shareholder is voting have been placed in nomination prior to the voting and a
shareholder has given notice at the meeting, prior to the vote, of an intention
to cumulate votes. In any election of directors, the candidates receiving the
highest number of votes, up to the number of directors to be elected, are
elected.
Except as may be otherwise provided in the Articles of Incorporation or
by law, and subject to the foregoing provisions regarding the cumulation of
votes, each shareholder shall be entitled to one vote for each share held.
Any shareholder may vote part of such shareholder's shares in favor of
a proposal and refrain from voting the remaining shares or vote them against the
proposal, other than elections to office, but, if the shareholder fails to
specify the number of shares such shareholder is voting affirmatively, it will
be conclusively presumed that the shareholder's approving vote is with respect
to all shares such shareholder is entitled to vote.
No shareholder approval, other than unanimous approval of those
entitled to vote, will be valid as to proposals described in subsection 8(d) of
these bylaws unless the general nature of such business was stated in the notice
of meeting or in any written waiver of notice.
SECTION 15. PERSONS ENTITLED TO VOTE OR CONSENT. The Board of Directors
may fix a record date pursuant to Section 60 of these bylaws to determine which
shareholders are entitled to notice of and to vote at a meeting or consent to
corporate actions, as provided in Sections 13 and 14 of these bylaws. Only
persons in whose name shares otherwise entitled to vote stand on the stock
records of the corporation on such date shall be entitled to vote or consent.
If no record date is fixed:
(a) The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day notice is given or, if
notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held;
(b) The record date for determining shareholders entitled to
give consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors has been taken, shall be the day on which the
first written consent is given;
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(c) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto, or the sixtieth (60th) day
prior to the date of such other action, whichever is later.
A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting;
provided, however, that the Board of Directors shall fix a new record date if
the meeting is adjourned for more than forty-five (45) days from the date set
for the original meeting.
Shares of the corporation held by its subsidiary or subsidiaries (as
defined in California Corporations Code, Section 189(b)) are not entitled to
vote in any matter.
SECTION 16. PROXIES. Every person entitled to vote or execute consents
may do so either in person or by one or more agents authorized to act by a
written proxy executed by the person or such person's duly authorized agent and
filed with the Secretary of the corporation; provided that no such proxy shall
be valid after the expiration of eleven (11) months from the date of its
execution unless otherwise provided in the proxy. The manner of execution,
suspension, revocation, exercise and effect of proxies is governed by law.
SECTION 17. INSPECTORS OF ELECTION. Before any meeting of shareholders,
the Board of Directors may appoint any persons, other than nominees for office,
to act as inspectors of election at the meeting or its adjournment. If no
inspectors of election are so appointed, the chairman of the meeting may, and on
the request of any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors shall be either
one (1) or three (3). If inspectors are appointed at a meeting on the request of
one or more shareholders or proxies, the majority of shares represented in
person or proxy shall determine whether one (1) or three (3) inspectors are to
be appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, the chairman of the meeting may, and upon the request of any
shareholder or a shareholder's proxy shall, appoint a person to fill that
vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and the voting
power of each, the shares represented at the meeting, the existence of a quorum,
and the authenticity, validity, and effect of proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
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(g) Do any other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
ARTICLE IV
BOARD OF DIRECTORS
SECTION 18. POWERS. Subject to the provisions of law or any limitations
in the Articles of Incorporation or these bylaws, as to action required to be
approved by the shareholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised, by or under the direction of the Board of Directors. The Board of
Directors may delegate the management of the day-to-day operation of the
business of the corporation to a management company or other person, provided
that the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised under the ultimate direction of the Board of
Directors.
SECTION 19. NUMBER OF DIRECTORS. The authorized number of directors of
the corporation shall be not less than a minimum of four (4) nor more than a
maximum of seven (7) (which maximum number in no case shall be greater than two
times said minimum, minus one). The exact number of directors shall be set
within these limits from time to time (a) by approval of the Board of Directors,
or (b) by the affirmative vote of a majority of the shares represented and
voting at a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum) or by
the written consent of shareholders pursuant to Section 13 herein above.
Any amendment of these bylaws changing the maximum or minimum number of
directors may be adopted only by the affirmative vote of a majority of the
outstanding shares entitled to vote; provided, an amendment reducing the minimum
number of directors to less than five (5), cannot be adopted if votes cast
against its adoption at a meeting or the shares not consenting to it in the case
of action by written consent are equal to more than 16-2/3 percent of the
outstanding shares entitled to vote.
No reduction of the authorized number of directors shall remove any
director prior to the expiration of such director's term of office.
SECTION 20. ELECTION OF DIRECTORS, TERM, QUALIFICATIONS. The directors
shall be elected at each annual meeting of shareholders to hold office until the
next annual meeting. Each director, including a director elected or appointed to
fill a vacancy, shall hold office either until the expiration of the term for
which elected or appointed and until a successor has been elected and qualified,
or until his death, resignation or removal. Directors need not be shareholders
of the corporation.
SECTION 21. RESIGNATIONS. Any director of the corporation may resign
effective upon giving written notice to the Chairman of the Board, the
President, the Secretary or the Board of Directors of the corporation, unless
the notice specifies a later time for the effectiveness of such resignation. If
the resignation specifies effectiveness at a future time, a successor may be
elected pursuant to Section 23 of these bylaws to take office on the date that
the resignation becomes effective.
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SECTION 22. REMOVAL. The Board of Directors may declare vacant the
office of a director who has been declared of unsound mind by an order of court
or who has been convicted of a felony.
The entire Board of Directors or any individual director may be removed
from office without cause by the affirmative vote of a majority of the
outstanding shares entitled to vote on such removal; provided, however, that
unless the entire Board is removed, no individual director may be removed when
the votes cast against such director's removal, or not consenting in writing to
such removal, would be sufficient to elect that director if voted cumulatively
at an election at which the same total number of votes cast were cast (or, if
such action is taken by written consent, all shares entitled to vote were voted)
and the entire number of directors authorized at the time of such director's
most recent election were then being elected.
SECTION 23. VACANCIES. A vacancy or vacancies on the Board of Directors
shall be deemed to exist in case of the death, resignation or removal of any
director, or upon increase in the authorized number of directors or if
shareholders fail to elect the full authorized number of directors at an annual
meeting of shareholders or if, for whatever reason, there are fewer directors on
the Board of Directors, than the full number authorized. Such vacancy or
vacancies, other than a vacancy created by the removal of a director, may be
filled by a majority of the remaining directors, though less than a quorum, or
by a sole remaining director. A vacancy created by the removal of a director may
be filled only by the affirmative vote of a majority of the shares represented
and voting at a duly held meeting at which a quorum is present (which shares
voting affirmatively also constitute at least a majority of the required quorum)
or by the written consent of shareholders pursuant to Section 13 herein above.
The shareholders may elect a director at any time to fill any vacancy not filled
by the directors. Any such election by written consent, other than to fill a
vacancy created by removal, requires the consent of a majority of the
outstanding shares entitled to vote. Any such election by written consent to
fill a vacancy created by removal requires the consent of all of the outstanding
shares entitled to vote.
If, after the filling of any vacancy by the directors, the directors
then in office who have been elected by the shareholders constitute less than a
majority of the directors then in office, any holder or holders of an aggregate
of five percent (5%) or more of the shares outstanding at that time and having
the right to vote for such directors may call a special meeting of shareholders
to be held to elect the entire Board of Directors. The term of office of any
director shall terminate upon such election of a successor.
SECTION 24. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times, places and dates as fixed in these bylaws
or by the Board of Directors; provided, however, that if the date for such a
meeting falls on a legal holiday, then the meeting shall be held at the same
time on the next succeeding full business day. Regular meetings of the Board of
Directors held pursuant to this Section 24 may be held without notice.
SECTION 25. PARTICIPATION BY TELEPHONE. Members of the Board of
Directors may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another. Such participation constitutes presence in person
at such meeting.
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SECTION 26. SPECIAL MEETINGS. Special meetings of the Board of
Directors for any purpose may be called by the Chairman of the Board or the
President or any vice president or the Secretary of the corporation or any two
(2) directors.
SECTION 27. NOTICE OF MEETINGS. Notice of the date, time and place of
all meetings of the Board of Directors, other than regular meetings held
pursuant to Section 24 above shall be delivered personally, orally or in
writing, or by telephone or telegraph to each director, at least forty-eight
(48) hours before the meeting, or sent in writing to each director by
first-class mail, charges prepaid, at least four (4) days before the meeting.
Such notice may be given by the Secretary of the corporation or by the person or
persons who called a meeting. Such notice need not specify the purpose of the
meeting. Notice of any meeting of the Board of Directors need not be given to
any director who signs a waiver of notice of such meeting, or a consent to
holding the meeting or an approval of the minutes thereof, either before or
after the meeting, or who attends the meeting without protesting prior thereto
or at its commencement such director's lack of notice. All such waivers,
consents and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
SECTION 28. PLACE OF MEETINGS. Meetings of the Board of Directors may
be held at any place within or without the state which has been designated in
the notice of the meeting or, if not stated in the notice or there is no notice,
designated in the bylaws or by resolution of the Board of Directors.
SECTION 29. ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action
required or permitted to be taken by the Board of Directors may be taken without
a meeting, if all members of the Board of Directors individually or collectively
consent in writing to such action. Such written consent or consents shall be
filed with the minutes of the proceedings of the Board of Directors. Such action
by written consent shall have the same force and effect as a unanimous vote of
such directors.
SECTION 30. QUORUM AND TRANSACTION OF BUSINESS. A majority of the
authorized number of directors shall constitute a quorum for the transaction of
business. Every act or decision done or made by a majority of the authorized
number of directors present at a meeting duly held at which a quorum is present
shall be the act of the Board of Directors, unless the law, the Articles of
Incorporation or these bylaws specifically require a greater number. A meeting
at which a quorum is initially present may continue to transact business,
notwithstanding withdrawal of directors, if any action taken is approved by at
least a majority of the number of directors constituting a quorum for such
meeting. In the absence of a quorum at any meeting of the Board of Directors, a
majority of the directors present may adjourn the meeting, as provided in
Section 31 of these bylaws.
SECTION 31. ADJOURNMENT. Any meeting of the Board of Directors, whether
or not a quorum is present, may be adjourned to another time and place by the
affirmative vote of a majority of the directors present. If the meeting is
adjourned for more than twenty-four (24) hours, notice of such adjournment to
another time or place shall be given prior to the time of the adjourned meeting
to the directors who were not present at the time of the adjournment.
SECTION 32. ORGANIZATION. The Chairman of the Board shall preside at
every meeting of the Board of Directors, if present. If there is no Chairman of
the Board or if the Chairman is not present, a Chairman chosen by a majority of
the directors present shall act as chairman. The
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Secretary of the corporation or, in the absence of the Secretary, any person
appointed by the Chairman shall act as secretary of the meeting.
SECTION 33. COMPENSATION. Directors and members of committees may
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by the Board of Directors.
SECTION 34. COMMITTEES. The Board of Directors may, by resolution
adopted by a majority of the authorized number of directors, designate one or
more committees, each consisting of two (2) or more directors, to serve at the
pleasure of the Board of Directors. The Board of Directors, by a vote of the
majority of authorized directors, may designate one or more directors as
alternate members of any committee, to replace any absent member at any meeting
of such committee. Any such committee shall have authority to act in the manner
and to the extent provided in the resolution of the Board of Directors, and may
have all the authority of the Board of Directors in the management of the
business and affairs of the corporation, except with respect to:
(a) the approval of any action for which shareholders'
approval or approval of the outstanding shares also is required by the
California Corporations Code;
(b) the filling of vacancies on the Board of Directors or any
of its committees;
(c) the fixing of compensation of directors for serving on the
Board of Directors or any of its committees;
(d) the adoption, amendment or repeal of these bylaws;
(e) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repeal able;
(f) a distribution to shareholders, except at a rate or in a
periodic amount or within a price range determined by the Board of Directors; or
(g) the appointment of other committees of the Board of
Directors or the members thereof.
Any committee may from time to time provide by resolution for regular
meetings at specified times and places. If the date of such a meeting falls on a
legal holiday, then the meeting shall be held at the same time on the next
succeeding full business day. No notice of such a meeting need be given. Such
regular meetings need not be held if the committee shall so determine at any
time before or after the time when such meeting would otherwise have taken
place. Special meetings may be called at any time in the same manner and by the
same persons as stated in Sections 26 and 27 of these bylaws for meetings of the
Board of Directors. The provisions of Sections 25, 28, 29, 30, 31 and 32 of
these bylaws shall apply to committees, committee members and committee meetings
as if the words "committee" and "committee member" were substituted for the word
"Board of Directors", and "director", respectively, throughout such sections.
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ARTICLE V
OFFICERS
SECTION 35. OFFICERS. The corporation shall have a Chairman of the
Board or a President or both, a Secretary, a Chief Financial Officer and such
other officers with such titles and duties as the Board of Directors may
determine. Any two or more offices may be held by the same person.
SECTION 36. APPOINTMENT. All officers shall be chosen and appointed by
the Board of Directors; provided, however, the Board of Directors may empower
the chief executive officer of the corporation to appoint such officers, other
than Chairman of the Board, President, Secretary or Chief Financial Officer, as
the business of the corporation may require. All officers shall serve at the
pleasure of the Board of Directors, subject to the rights, if any, of an officer
under a contract of employment.
SECTION 37. INABILITY TO ACT. In the case of absence or inability to
act of any officer of the corporation or of any person authorized by these
bylaws to act in such officer's place, the Board of Directors may from time to
time delegate the powers or duties of such officer to any other officer, or any
director or other person whom it may select, for such period of time as the
Board of Directors deems necessary.
SECTION 38. RESIGNATIONS. Any officer may resign at any time upon
written notice to the corporation, without prejudice to the rights, if any, of
the corporation under any contract to which such officer is a party. Such
resignation shall be effective upon its receipt by the Chairman of the Board,
the President, the Secretary or the Board of Directors, unless a different time
is specified in the notice for effectiveness of such resignation. The acceptance
of any such resignation shall not be necessary to make it effective unless
otherwise specified in such notice.
SECTION 39. REMOVAL. Any officer may be removed from office at any
time, with or without cause, but subject to the rights, if any, of such officer
under any contract of employment, by the Board of Directors or by any committee
to whom such power of removal has been duly delegated, or, with regard to any
officer who has been appointed by the chief executive officer pursuant to
Section 36 above, by the chief executive officer or any other officer upon whom
such power of removal may be conferred by the Board of Directors.
SECTION 40. VACANCIES. A vacancy occurring in any office for any cause
may be filled by the Board of Directors, in the manner prescribed by this
Article of the bylaws for initial appointment to such office.
SECTION 41. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there
be such an officer, shall, if present, preside at all meetings of the Board of
Directors and shall exercise and perform such other powers and duties as may be
assigned from time to time by the Board of Directors or prescribed by these
bylaws. If no President is appointed, the Chairman of the Board is the general
manager and chief executive officer of the corporation, and shall exercise all
powers of the President described in Section 42 below.
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SECTION 42. PRESIDENT. Subject to such powers, if any, as may be given
by the Board of Directors to the Chairman of the Board, if there be such an
officer, the President shall be the general manager and chief executive officer
of the corporation and shall have general supervision, direction, and control
over the business and affairs of the corporation, subject to the control of the
Board of Directors. The President may sign and execute, in the name of the
corporation, any instrument authorized by the Board of Directors, except when
the signing and execution thereof shall have been expressly delegated by the
Board of Directors or by these bylaws to some other officer or agent of the
corporation. The President shall have all the general powers and duties of
management usually vested in the president of a corporation, and shall have such
other powers and duties as may be prescribed from time to time by the Board of
Directors or these bylaws. The President shall have discretion to prescribe the
duties of other officers and employees of the corporation in a manner not
inconsistent with the provisions of these bylaws and the directions of the Board
of Directors.
SECTION 43. VICE PRESIDENTS. In the absence or disability of the
President, in the event of a vacancy in the office of President, or in the event
such officer refuses to act, the Vice President shall perform all the duties of
the President and, when so acting, shall have all the powers of, and be subject
to all the restrictions on, the President. If at any such time the corporation
has more than one vice president, the duties and powers of the President shall
pass to each vice president in order of such vice president's rank as fixed by
the Board of Directors or, if the vice presidents are not so ranked, to the vice
president designated by the Board of Directors. The vice presidents shall have
such other powers and perform such other duties as may be prescribed for them
from time to time by the Board of Directors or pursuant to Sections 35 and 36 of
these bylaws or otherwise pursuant to these bylaws.
SECTION 44. SECRETARY. The Secretary shall:
(a) Keep, or cause to be kept, minutes of all meetings of the
corporation's shareholders, Board of Directors, and committees of the Board of
Directors, if any. Such minutes shall be kept in written form.
(b) Keep, or cause to be kept, at the principal executive
office of the corporation, or at the office of its transfer agent or registrar,
if any, a record of the corporation's shareholders, showing the names and
addresses of all shareholders, and the number and classes of shares held by
each. Such records shall be kept in written form or any other form capable of
being converted into written form.
(c) Keep, or cause to be kept, at the principal executive
office of the corporation, or if the principal executive office is not in
California, at its principal business office in California, an original or copy
of these bylaws, as amended.
(d) Give, or cause to be given, notice of all meetings of
shareholders, directors and committees of the Board of Directors, as required by
law or by these bylaws.
(e) Keep the seal of the corporation, if any, in safe custody.
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(f) Exercise such powers and perform such duties as are
usually vested in the office of secretary of a corporation, and exercise such
other powers and perform such other duties as may be prescribed from time to
time by the Board of Directors or these bylaws.
If any assistant secretaries are appointed, the assistant secretary, or
one of the assistant secretaries in the order of their rank as fixed by the
Board of Directors or, if they are not so ranked, the assistant secretary
designated by the Board of Directors, in the absence or disability of the
Secretary or in the event of such officer's refusal to act or if a vacancy
exists in the office of Secretary, shall perform the duties and exercise the
powers of the Secretary and discharge such duties as may be assigned from time
to time pursuant to these bylaws or by the Board of Directors.
SECTION 45. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall:
(a) Be responsible for all functions and duties of the
treasurer of the corporation.
(b) Keep and maintain, or cause to be kept and maintained,
adequate and correct books and records of account for the corporation.
(c) Receive or be responsible for receipt of all monies due
and payable to the corporation from any source whatsoever; have charge and
custody of, and be responsible for, all monies and other valuables of the
corporation and be responsible for deposit of all such monies in the name and to
the credit of the corporation with such depositories as may be designated by the
Board of Directors or a duly appointed and authorized committee of the Board of
Directors.
(d) Disburse or be responsible for the disbursement of the
funds of the corporation as may be ordered by the Board of Directors or a duly
appointed and authorized committee of the Board of Directors.
(e) Render to the chief executive officer and the Board of
Directors a statement of the financial condition of the corporation if called
upon to do so.
(f) Exercise such powers and perform such duties as are
usually vested in the office of chief financial officer of a corporation, and
exercise such other powers and perform such other duties as may be prescribed by
the Board of Directors or these bylaws.
If any assistant financial officer is appointed, the assistant
financial officer, or one of the assistant financial officers, if there are more
than one, in the order of their rank as fixed by the Board of Directors or, if
they are not so ranked, the assistant financial officer designated by the Board
of Directors, shall, in the absence or disability of the Chief Financial Officer
or in the event of such officer's refusal to act, perform the duties and
exercise the powers of the Chief Financial Officer, and shall have such powers
and discharge such duties as may be assigned from time to time pursuant to these
bylaws or by the Board of Directors.
SECTION 46. COMPENSATION. The compensation of the officers shall be
fixed from time to time by the Board of Directors, and no officer shall be
prevented from receiving such compensation by reason of the fact that such
officer is also a director of the corporation.
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ARTICLE VI
CONTRACTS, LOANS, BANK ACCOUNTS, CHECKS AND DRAFTS
SECTION 47. EXECUTION OF CONTRACTS AND OTHER INSTRUMENTS. Except as
these bylaws may otherwise provide, the Board of Directors or its duly appointed
and authorized committee may authorize any officer or officers, agent or agents,
to enter into any contract or execute and deliver any instrument in the name of
and on behalf of the corporation, and such authorization may be general or
confined to specific instances. Except as so authorized or otherwise expressly
provided in these bylaws, no officer, agent, or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or in any amount.
SECTION 48. LOANS. No loans shall be contracted on behalf of the
corporation and no negotiable paper shall be issued in its name, unless and
except as authorized by the Board of Directors or its duly appointed and
authorized committee. When so authorized by the Board of Directors or such
committee, any officer or agent of the corporation may effect loans and advances
at any time for the corporation from any bank, trust company, or other
institution, or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
evidences of indebtedness of the corporation and, when authorized as aforesaid,
may mortgage, pledge, hypothecate or transfer any and all stocks, securities and
other property, real or personal, at any time held by the corporation, and to
that end endorse, assign and deliver the same as security for the payment of any
and all loans, advances, indebtedness, and liabilities of the corporation. Such
authorization may be general or confined to specific instances.
SECTION 49. BANK ACCOUNTS. The Board of Directors or its duly appointed
and authorized committee from time to time may authorize the opening and keeping
of general and/or special bank accounts with such banks, trust companies, or
other depositories as may be selected by the Board of Directors, its duly
appointed and authorized committee or by any officer or officers, agent or
agents, of the corporation to whom such power may be delegated from time to time
by the Board of Directors. The Board of Directors or its duly appointed and
authorized committee may make such rules and regulations with respect to said
bank accounts, not inconsistent with the provisions of these bylaws, as are
deemed advisable.
SECTION 50. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes, acceptances or other evidences of indebtedness
issued in the name of the corporation shall be signed by such officer or
officers, agent or agents, of the corporation, and in such manner, as shall be
determined from time to time by resolution of the Board of Directors or its duly
appointed and authorized committee. Endorsements for deposit to the credit of
the corporation in any of its duly authorized depositories may be made, without
counter-signature, by the President or any vice president or the Chief Financial
Officer or any assistant financial officer or by any other officer or agent of
the corporation to whom the Board of Directors or its duly appointed and
authorized committee, by resolution, shall have delegated such power or by
hand-stamped impression in the name of the corporation.
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ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 51. CERTIFICATE FOR SHARES. Every holder of shares in the
corporation shall be entitled to have a certificate signed in the name of the
corporation by the Chairman or Vice Chairman of the Board or the President or a
Vice President and by the Chief Financial Officer or an assistant financial
officer or by the Secretary or an assistant secretary, certifying the number of
shares and the class or series of shares owned by the shareholder. Any or all of
the signatures on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue.
In the event that the corporation shall issue any shares as only partly
paid, the certificate issued to represent such partly paid shares shall have
stated thereon the total consideration to be paid for such shares and the amount
paid thereon.
SECTION 52. TRANSFER ON THE BOOKS. Upon surrender to the Secretary or
transfer agent (if any) of the corporation of a certificate for shares of the
corporation duly endorsed, with reasonable assurance that the endorsement is
genuine and effective, or accompanied by proper evidence of succession,
assignment or authority to transfer and upon compliance with applicable federal
and state securities laws and if the corporation has no statutory duty to
inquire into adverse claims or has discharged any such duty and if any
applicable law relating to the collection of taxes has been complied with, it
shall be the duty of the corporation, by its Secretary or transfer agent, to
cancel the old certificate, to issue a new certificate to the person entitled
thereto and to record the transaction on the books of the corporation.
SECTION 53. LOST, DESTROYED AND STOLEN CERTIFICATES. The holder of any
certificate for shares of the corporation alleged to have been lost, destroyed
or stolen shall notify the corporation by making a written affidavit or
affirmation of such fact. Upon receipt of said affidavit or affirmation the
Board of Directors, or its duly appointed and authorized committee or any
officer or officers authorized by the Board so to do, may order the issuance of
a new certificate for shares in the place of any certificate previously issued
by the corporation and which is alleged to have been lost, destroyed or stolen.
However, the Board of Directors or such authorized committee, officer or
officers may require the owner of the allegedly lost, destroyed or stolen
certificate, or such owner's legal representative, to give the corporation a
bond or other adequate security sufficient to indemnify the corporation and its
transfer agent and/or registrar, if any, against any claim that may be made
against it or them on account of such allegedly lost, destroyed or stolen
certificate or the replacement thereof. Said bond or other security shall be in
such amount, on such terms and conditions and, in the case of a bond, with such
surety or sureties as may be acceptable to the Board of Directors or to its duly
appointed and authorized committee or any officer or officers authorized by the
Board of Directors to determine the sufficiency thereof. The requirement of a
bond or other security may be waived in particular cases at the discretion of
the Board of Directors or its duly appointed and authorized committee or any
officer or officers authorized by the Board of Directors so to do.
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SECTION 54. ISSUANCE, TRANSFER AND REGISTRATION OF SHARES. The Board of
Directors may make such rules and regulations, not inconsistent with law or with
these bylaws, as it may deem advisable concerning the issuance, transfer and
registration of certificates for shares of the capital stock of the corporation.
The Board of Directors may appoint a transfer agent or registrar of transfers,
or both, and may require all certificates for shares of the corporation to bear
the signature of either or both.
ARTICLE VIII
INSPECTION OF CORPORATE RECORDS
SECTION 55. INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect and copy all books, records,
and documents of every kind of the corporation and any of its subsidiaries and
to inspect the physical properties of the corporation and any of its
subsidiaries. Such inspection may be made by the director in person or by agent
or attorney, and the right of inspection includes the right to copy and make
extracts.
SECTION 56. INSPECTION BY SHAREHOLDERS.
(a) INSPECTION OF CORPORATE RECORDS.
(1) A shareholder or shareholders holding at least
five (5%) percent in the aggregate of the outstanding voting shares of the
corporation or who hold at least one percent of such voting shares and have
filed a Schedule 14B with the United States Securities and Exchange Commission
relating to the election of directors of the corporation shall have an absolute
right to do either or both of the following:
(i) Inspect and copy the record of shareholders'
names and addresses and shareholdings during usual business hours upon five (5)
business days' prior written demand upon the corporation; or
(ii) Obtain from the transfer agent, if any, for
the corporation, upon five business days' prior written demand and upon the
tender of its usual charges for such a list (the amount of which charges shall
be stated to the shareholder by the transfer agent upon request), a list of the
shareholders' names and addresses who are entitled to vote for the election of
directors and their shareholdings, as of the most recent record date for which
it has been compiled or as of a date specified by the shareholder subsequent to
the date of demand.
(2) The record of shareholders shall also be open to
inspection and copying by any shareholder or holder of a voting trust
certificate at any time during usual business hours upon written demand on the
corporation, for a purpose reasonably related to such holder's interest as a
shareholder or holder of a voting trust certificate.
(3) The accounting books and records and minutes of
proceedings of the shareholders and the Board of Directors and of any committees
of the Board of Directors of the corporation and of each of its subsidiaries
shall be open to inspection, copying and making extracts
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upon written demand on the corporation of any shareholder or holder of a voting
trust certificate at any reasonable time during usual business hours, for a
purpose reasonably related to such holder's interests as a shareholder or as a
holder of such voting trust certificate.
(4) Any inspection, copying, and making of extracts
under this subsection (a) may be done in person or by agent or attorney.
(b) INSPECTION OF BYLAWS. The original or a copy of these
bylaws shall be kept as provided in Section 44 of these bylaws and shall be open
to inspection by the shareholders at all reasonable times during office hours.
If the principal executive office of the corporation is not in California, and
the corporation has no principal business office in the state of California, a
current copy of these bylaws shall be furnished to any shareholder upon written
request.
SECTION 57. WRITTEN FORM. If any record subject to inspection pursuant
to Section 56 above is not maintained in written form, a request for inspection
is not complied with unless and until the corporation at its expense makes such
record available in written form.
ARTICLE IX
MISCELLANEOUS
SECTION 58. FISCAL YEAR. Unless otherwise fixed by resolution of the
Board of Directors, the fiscal year of the corporation shall end on the 31st day
of December in each calendar year.
SECTION 59. ANNUAL REPORT.
(a) Subject to the provisions of Section 59(b) below, the
Board of Directors shall cause an annual report to be sent to each shareholder
of the corporation in the manner provided in Section 9 of these bylaws not later
than one hundred twenty (120) days after the close of the corporation's fiscal
year. Such report shall include a balance sheet as of the end of such fiscal
year and an income statement and statement of changes in financial position for
such fiscal year, accompanied by any report thereon of independent accountants
or, if there is no such report, the certificate of an authorized officer of the
corporation that such statements were prepared without audit from the books and
records of the corporation. When there are more than 100 shareholders of record
of the corporation's shares, as determined by Section 605 of the California
Corporations Code, additional information as required by Section 1501(b) of the
California Corporations Code shall also be contained in such report, provided
that if the corporation has a class of securities registered under Section 12 of
the United States Securities Exchange Act of 1934, that Act shall take
precedence. Such report shall be sent to shareholders at least fifteen (15) (or,
if sent by third-class mail, thirty-five (35)) days prior to the next annual
meeting of shareholders after the end of the fiscal year to which it relates.
(b) If and so long as there are fewer than 100 holders of
record of the corporation's shares, the requirement of sending of an annual
report to the shareholders of the corporation is hereby expressly waived.
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SECTION 60. RECORD DATE. The Board of Directors may fix a time in the
future as a record date for the determination of the shareholders entitled to
notice of or to vote at any meeting or entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any change, conversion or exchange of shares
or entitled to exercise any rights in respect of any other lawful action. The
record date so fixed shall not be more than sixty (60) days nor less than ten
(10) days prior to the date of the meeting nor more than sixty (60) days prior
to any other action or event for the purpose of which it is fixed. If no record
date is fixed, the provisions of Section 15 of these bylaws shall apply with
respect to notice of meetings, votes, and consents and the record date for
determining shareholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolutions relating
thereto, or the sixtieth (60th) day prior to the date of such other action or
event, whichever is later.
Only shareholders of record at the close of business on the record date
shall be entitled to notice and to vote or to receive the dividend, distribution
or allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date, except as otherwise provided in the Articles of Incorporation,
by agreement or by law.
SECTION 61. BYLAW AMENDMENTS. Except as otherwise provided by law or
Section 19 of these bylaws, these bylaws may be amended or repealed by the Board
of Directors or by the affirmative vote of a majority of the outstanding shares
entitled to vote, including, if applicable, the affirmative vote of a majority
of the outstanding shares of each class or series entitled by law or the
Articles of Incorporation to vote as a class or series on the amendment or
repeal or adoption of any bylaw or bylaws; provided, however, after issuance of
shares, a bylaw specifying or changing a fixed number of directors or the
maximum or minimum number or changing from a fixed to a variable board or vice
versa may only be adopted by approval of the outstanding shares as provided
herein.
SECTION 62. CONSTRUCTION AND DEFINITION. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions
contained in the California Corporations Code shall govern the construction of
these bylaws.
Without limiting the foregoing, "shall" is mandatory and "may" is
permissive.
ARTICLE X
INDEMNIFICATION
SECTION 63. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers to the fullest extent not
prohibited by the California General Corporation Law; PROVIDED, HOWEVER, that
the corporation may limit the extent of such indemnification by individual
contracts with its directors and executive officers; and, PROVIDED, FURTHER,
that the corporation shall not be required to indemnify any director or
executive officer in connection with any proceeding (or part thereof) initiated
by such person or any proceeding by such person against the corporation or its
directors, officers, employees or other agents unless (i) such
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indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the board of directors of the corporation or (iii) such
indemnification is provided by the corporation, in its sole discretion, pursuant
to the powers vested in the corporation under the California General Corporation
Law.
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The
corporation shall have the power to indemnify its other officers, employees and
other agents as set forth in the California General Corporation Law.
(c) DETERMINATION BY THE CORPORATION. Promptly after receipt
of a request for indemnification hereunder (and in any event within 90 days
thereof) a reasonable, good faith determination as to whether indemnification of
the director or executive officer is proper under the circumstances because such
director or executive officer has met the applicable standard of care shall be
made by:
(1) a majority vote of a quorum consisting of
directors who are not parties to such proceeding;
(2) if such quorum is not obtainable, by independent
legal counsel in a written opinion; or
(3) approval or ratification by the affirmative vote
of a majority of the shares of this corporation represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute at least a majority of the required quorum) or by written
consent of a majority of the outstanding shares entitled to vote; where in each
case the shares owned by the person to be indemnified shall not be considered
entitled to vote thereon.
(d) GOOD FAITH.
(1) For purposes of any determination under this
bylaw, a director or executive officer shall be deemed to have acted in good
faith and in a manner he reasonably believed to be in the best interests of the
corporation and its shareholders, and, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe that his conduct was
unlawful, if his action is based on information, opinions, reports and
statements, including financial statements and other financial data, in each
case prepared or presented by:
(i) one or more officers or employees of the
corporation whom the director or executive officer believed to be reliable and
competent in the matters presented;
(ii) counsel, independent accountants or other
persons as to matters which the director or executive officer believed to be
within such person's professional competence; and
(iii) with respect to a director, a committee of
the Board upon which such director does not serve, as to matters within such
committee's designated authority, which committee the director believes to merit
confidence; so long as, in each case, the director or executive officer acts
without knowledge that would cause such reliance to be unwarranted.
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(2) The termination of any proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in the best
interests of the corporation and its shareholders or that he had reasonable
cause to believe that his conduct was unlawful.
(3) The provisions of this paragraph (d) shall not be
deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth by
the California General Corporation Law.
(e) EXPENSES. The corporation shall advance, prior to the
final disposition of any proceeding, promptly following request therefor, all
expenses incurred by any director or executive officer in connection with such
proceeding upon receipt of an undertaking by or on behalf of such person to
repay said amounts if it shall be determined ultimately that such person is not
entitled to be indemnified under this bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (f) of this bylaw, no advance shall be made by the corporation if a
determination is reasonably and promptly made by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to the
proceeding (or, if no such quorum exists, by independent legal counsel in a
written opinion) that the facts known to the decision making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in the
best interests of the corporation and its shareholders.
(f) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
executive officers under this bylaw shall be deemed to be contractual rights and
be effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in the forum in
which the proceeding is or was pending or, if such forum is not available or a
determination is made that such forum is not convenient, in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. The corporation shall be entitled to raise as a
defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the California General Corporation Law
for the corporation to indemnify the claimant for the amount claimed. Neither
the failure of the corporation (including its board of directors, independent
legal counsel or its shareholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in the California General Corporation Law, nor an actual determination by
the corporation (including its board of directors, independent legal counsel or
its shareholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct.
(g) NON-EXCLUSIVITY OF RIGHTS. To the fullest extent permitted
by the corporation's Articles of Incorporation and the California General
Corporation Law, the rights
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conferred on any person by this bylaw shall not be exclusive of any other right
which such person may have or hereafter acquire under any statute, provision of
the Articles of Incorporation, bylaws, agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent permitted by the California General Corporation
Law and the corporation's Articles of Incorporation.
(h) SURVIVAL OF RIGHTS. The rights conferred on any person by
this bylaw shall continue as to a person who has ceased to be a director or
executive officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(i) INSURANCE. The corporation, upon approval by the board of
directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this bylaw.
(j) AMENDMENTS. Any repeal or modification of this bylaw shall
only be prospective and shall not affect the rights under this bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(k) EMPLOYEE BENEFIT PLANS. The corporation shall indemnify
the directors and officers of the corporation who serve at the request of the
corporation as trustees, investment managers or other fiduciaries of employee
benefit plans to the fullest extent permitted by the California General
Corporation Law.
(l) SAVING CLAUSE. If this bylaw or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the fullest extent permitted by any applicable portion of this bylaw that shall
not have been invalidated, or by any other applicable law.
(m) CERTAIN DEFINITIONS. For the purposes of this bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed
and shall include, without limitation, the investigation, preparation,
prosecution, defense, settlement and appeal of any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative.
(2) The term "expenses" shall be broadly construed
and shall include, without limitation, court costs, attorneys' fees, witness
fees, fines, amounts paid in settlement or judgment and any other costs and
expenses of any nature or kind incurred in connection with any proceeding,
including expenses of establishing a right to indemnification under this bylaw
or any applicable law.
(3) The term the "corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a
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consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this bylaw with respect
to the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(4) References to a "director," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is or was serving at the request of the corporation
as a director, officer, employee, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
ARTICLE XI
RIGHT OF FIRST REFUSAL
SECTION 64. RIGHT OF FIRST REFUSAL. No shareholder shall sell, assign,
pledge, or in any manner transfer any of the shares of stock of the corporation
or any right or interest therein, whether voluntarily or by operation of law, or
by gift or otherwise, except by a transfer which meets the requirements
hereinafter set forth in this bylaw:
(a) If the shareholder desires to sell or otherwise transfer
any of his shares of stock, then the shareholder shall first give written notice
thereof to the corporation. The notice shall name the proposed transferee and
state the number of shares to be transferred, the proposed consideration, and
all other terms and conditions of the proposed transfer.
(b) For thirty (30) days following receipt of such notice, the
corporation shall have the option to purchase all (but not less than all) of the
shares specified in the notice at the price and upon the terms set forth in such
notice; provided, however, that, with the consent of the shareholder, the
corporation shall have the option to purchase a lesser portion of the shares
specified in said notice at the price and upon the terms set forth therein. In
the event of a gift, property settlement or other transfer in which the proposed
transferee is not paying the full price for the shares, and that is not
otherwise exempted from the provisions of this Section 64, the price shall be
deemed to be the fair market value of the stock at such time as determined in
good faith by the Board of Directors. In the event the corporation elects to
purchase all of the shares or, with consent of the shareholder, a lesser portion
of the shares, it shall give written notice to the transferring shareholder of
its election and settlement for said shares shall be made as provided below in
paragraph (d).
(c) The corporation may assign its rights hereunder.
(d) In the event the corporation and/or its assignee(s) elect
to acquire any of the shares of the transferring shareholder as specified in
said transferring shareholder's notice, the Secretary of the corporation shall
so notify the transferring shareholder and settlement thereof shall be made in
cash within thirty (30) days after the Secretary of the corporation receives
said transferring shareholder's notice; provided that if the terms of payment
set forth in said transferring
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shareholder's notice were other than cash against delivery, the corporation
and/or its assignee(s) shall pay for said shares on the same terms and
conditions set forth in said transferring shareholder's notice.
(e) In the event the corporation and/or its assignees(s) do
not elect to acquire all of the shares specified in the transferring
shareholder's notice, said transferring shareholder may, within the sixty-day
period following the expiration of the option rights granted to the corporation
and/or its assignees(s) herein, transfer the shares specified in said
transferring shareholder's notice which were not acquired by the corporation
and/or its assignees(s) as specified in said transferring shareholder's notice.
All shares so sold by said transferring shareholder shall continue to be subject
to the provisions of this bylaw in the same manner as before said transfer.
(f) Anything to the contrary contained herein notwithstanding,
the following transactions shall be exempt from the provisions of this bylaw:
(1) A shareholder's transfer of any or all shares
held either during such shareholder's lifetime or on death by will or intestacy
to such shareholder's immediate family or to any custodian or trustee for the
account of such shareholder or such shareholder's immediate family. "Immediate
family" as used herein shall mean spouse, lineal descendant, father, mother,
brother, or sister of the shareholder making such transfer.
(2) A shareholder's bona fide pledge or mortgage of
any shares with a commercial lending institution, provided that any subsequent
transfer of said shares by said institution shall be conducted in the manner set
forth in this bylaw.
(3) A shareholder's transfer of any or all of such
shareholder's shares to the corporation or to any other shareholder of the
corporation.
(4) A shareholder's transfer of any or all of such
shareholder's shares to a person who, at the time of such transfer, is an
officer or director of the corporation.
(5) A corporate shareholder's transfer of any or all
of its shares pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of shares or capital reorganization of the
corporate shareholder, or pursuant to a sale of all or substantially all of the
stock or assets of a corporate shareholder.
(6) A corporate shareholder's transfer of any or all
of its shares to any or all of its shareholders.
(7) A transfer by a shareholder which is a limited or
general partnership to any or all of its partners or former partners.
In any such case, the transferee, assignee, or other recipient
shall receive and hold such stock subject to the provisions of this bylaw, and
there shall be no further transfer of such stock except in accord with this
bylaw.
(g) The provisions of this bylaw may be waived with respect to
any transfer either by the corporation, upon duly authorized action of its Board
of Directors, or by the shareholders,
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upon the express written consent of the owners of a majority of the voting power
of the corporation (excluding the votes represented by those shares to be
transferred by the transferring shareholder). This bylaw may be amended or
repealed either by a duly authorized action of the Board of Directors or by the
shareholders, upon the express written consent of the owners of a majority of
the voting power of the corporation.
(h) Any sale or transfer, or purported sale or transfer, of
securities of the corporation shall be null and void unless the terms,
conditions, and provisions of this bylaw are strictly observed and followed.
(i) The foregoing right of first refusal shall terminate on
either of the following dates, whichever shall first occur:
(1) Ten (10) years minus one day from the date the
first securities are sold; or
(2) Upon the date securities of the corporation are
first offered to the public pursuant to a registration statement filed with, and
declared effective by, the United States Securities and Exchange Commission
under the Securities Act of 1933, as amended.
(j) The certificates representing shares of stock of the
corporation shall bear on their face the following legend so long as the
foregoing right of first refusal remains in effect:
"The shares represented by this certificate are
subject to a right of first refusal option in favor of the corporation
and/or its assignee(s), as provided in the bylaws of the corporation."
ARTICLE XII
LOANS OF OFFICERS AND OTHERS
SECTION 65. CERTAIN CORPORATE LOANS AND GUARANTIES. If the corporation
has outstanding shares held of record by 100 or more persons on the date of
approval by the Board of Directors, the corporation may make loans of money or
property to, or guarantee the obligations of, any officer of the corporation or
its parent or any subsidiary, whether or not a director of the corporation or
its parent or any subsidiary, or adopt an employee benefit plan or plans
authorizing such loans or guaranties, upon the approval of the Board of
Directors alone, by a vote sufficient without counting the vote of any
interested director or directors, if the Board of Directors determines that such
a loan or guaranty or plan may reasonably be expected to benefit the
corporation. Notwithstanding the foregoing, the corporation shall have the power
to make loans permitted by the California Corporations Code.
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Exhibit 4.2
TUMBLEWEED SOFTWARE CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
FEBRUARY 26, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. General.........................................................................................1
1.1 Definitions.....................................................................................1
SECTION 2. RESTRICTIONS ON TRANSFER........................................................................3
SECTION 3. REGISTRATION....................................................................................4
3.1 Demand Registration.............................................................................4
3.2 Piggyback Registrations.........................................................................5
3.3 Form S-3 Registration...........................................................................5
3.4 Expenses of Registration........................................................................6
3.5 Obligations of the Company......................................................................7
3.6 Termination of Registration Rights..............................................................8
3.7 Delay of Registration; Furnishing Information...................................................8
3.8 Indemnification.................................................................................8
3.9 Assignment of Registration Rights..............................................................10
3.10 Amendment of Registration Rights...............................................................10
3.11 Limitation on Subsequent Registration Rights...................................................10
3.12 "Market Stand-Off" Agreement...................................................................10
3.13 Rule 144 Reporting.............................................................................11
Section 4. Covenants of the Company.......................................................................11
4.1 Basic Financial Information and Reporting......................................................11
4.2 Inspection Rights..............................................................................12
4.3 Confidentiality of Records.....................................................................12
4.4 Reservation of Common Stock....................................................................13
4.5 Stock Vesting..................................................................................13
4.6 Visitation Rights..............................................................................13
4.7 Board of Directors Meeting.....................................................................13
4.8 Proprietary Information and Inventions Agreement...............................................13
4.9 Real Property Holding Corporation..............................................................14
4.10 Compensation...................................................................................14
4.11 Board of Directors.............................................................................14
4.12 Board of Advisors..............................................................................14
4.13 Board of Directors Approval....................................................................15
4.14 Compensation Committee.........................................................................15
Section 5. Rights of First Refusal........................................................................15
5.1 Subsequent Offerings...........................................................................15
5.2 Exercise of Rights.............................................................................15
5.3 Excluded Securities............................................................................16
5.4 Limitation on Subsequent Rights of First Refusal...............................................17
</TABLE>
i
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<TABLE>
<S> <C>
Section 6. Miscellaneous..................................................................................17
6.1 Governing Law..................................................................................17
6.2 Survival.......................................................................................17
6.3 Successors and Assigns.........................................................................17
6.4 Termination....................................................................................17
6.5 Transfer of Rights.............................................................................17
6.6 Severability...................................................................................18
6.7 Amendment and Waiver...........................................................................18
6.8 Delays or Omissions............................................................................18
6.9 Notices........................................................................................18
6.10 Attorneys' Fees................................................................................18
6.11 Titles and Subtitles...........................................................................19
6.12 Counterparts...................................................................................19
</TABLE>
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AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
This Amended and Restated Investors' Rights Agreement (the "Agreement")
is entered into as of the 26th day of February, 1999, by and among TUMBLEWEED
SOFTWARE CORPORATION, a California corporation (the "Company"), the holders of
the Company's Series A and Series A-1 Preferred Stock ("Series A Stock"), the
Founders (as hereinafter defined), the holders of the Company's Series B and
Series B-1 Preferred Stock ("Series B Stock") and the holders of the Company's
Series C and Series C-1 Preferred Stock ("Series C Stock") under that certain
Series C Preferred Stock Purchase Agreement of even date herewith (the "Purchase
Agreement").
RECITALS
WHEREAS, the Company, the Founders and the holders of Series A Stock
and Series B Stock are parties to that certain Amended and Restated Investors'
Rights Agreement dated August 21, 1997 (the "Prior Agreement") pursuant to which
the Company granted the holders of Series A Stock and Series B Stock certain
participation, registration and information rights;
WHEREAS, the Company proposes to sell and issue up to Six Million
(6,000,000) shares of its Series C Stock pursuant to the Purchase Agreement;
WHEREAS, as a condition of entering into the Purchase Agreement, the
Purchasers have requested that the Company extend to them registration rights,
information rights and other rights as set forth below; and
WHEREAS, the Company, the Founders and the Investors (as hereinafter
defined) intend that this Agreement shall supersede the Prior Agreement, and
that the Prior Agreement shall terminate upon the closing of the sale and
issuance of the Series C Stock to the purchasers of Series C Stock.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement and in the Purchase Agreement, the parties mutually agree as follows:
SECTION 1. GENERAL
1.1 DEFINITIONS. As used in this Agreement the following terms shall
have the following respective meanings:
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Form S-3" means such form under the Securities Act as in effect on the
date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"Founders" shall mean Jeffrey C. Smith and Jean-Christophe D. Bandini.
"Holder" means any person owning of record Registrable Securities that
have not been sold to the public or any assignee of record of such Registrable
Securities in accordance with Section 3.9 hereof.
"Initial Offering" means the Company's first firm commitment
underwritten public offering of its Common Stock (the "Common Stock") registered
under the Securities Act.
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"Investors" shall mean the holders of the Series A Stock and Series B
Stock, the purchasers of the Series C Stock and the Founders.
"Register," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document.
"Registrable Securities" means (i) Common Stock of the Company issued
or issuable upon conversion of the Shares; and (ii) any Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, such above-described
securities. Notwithstanding the foregoing, Registrable Securities shall not
include any securities sold by a person to the public either pursuant to a
registration statement or Rule 144 or sold in a private transaction in which the
transferor's rights under Section 3 of this Agreement are not assigned.
"Registrable Securities then outstanding" shall be the number of shares
determined by calculating the total number of shares of the Company's Common
Stock that are Registrable Securities and either (1) are then issued and
outstanding or (2) are issuable pursuant to then exercisable or convertible
securities.
"Registration Expenses" shall mean all expenses incurred by the Company
in complying with Sections 3.1, 3.2 and 3.3 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses, incident
to or required by any such registration (but excluding the compensation of
regular employees of the Company which shall be paid in any event by the
Company). In the case of registration pursuant to Section 3.1, "Registration
Expenses" also shall include the reasonable fees and expenses of a single
special legal counsel for the Holders not to exceed $15,000 and the fees and
expenses of any special audits not to exceed $15,000 related to such
registration.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"SEC" or "Commission" means the Securities and Exchange Commission.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale.
"Shares" shall mean (i) shares of Common Stock beneficially owned or
held by the Founders, (ii) the Company's Series A Stock issued pursuant to the
Series A Preferred Stock Purchase Agreement dated August 28, 1996, (iii) the
Company's Series B Stock issued pursuant to the Series B Preferred Stock
Purchase Agreement dated August 21, 1997 and (iv) the Company's Series C Stock
issued pursuant to the Purchase Agreement.
SECTION 2. RESTRICTIONS ON TRANSFER
(a) Each Holder agrees not to make any disposition of all or
any portion of the Shares or Registrable Securities unless and until:
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(i) There is then in effect a registration statement
under the Securities Act covering such proposed disposition and such disposition
is made in accordance with such registration statement; or
(ii) (A) The transferee has agreed in writing to be
bound by this Section 2, (B) such Holder shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (C) if
reasonably requested by the Company, such Holder shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the
Securities Act.
Notwithstanding the provisions of paragraphs (i) and
(ii) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by a Holder which is (A) a partnership to its partners
or former partners in accordance with partnership interests, (B) a corporation
to its shareholders in accordance with their interest in the corporation, (C) a
limited liability company to its members or former members in accordance with
their interest in the limited liability company, or (D) to the Holder's family
member or trust for the benefit of an individual Holder, provided the transferee
will be subject to the terms of this Section 2 to the same extent as if he were
an original Holder hereunder.
(b) Each certificate representing Shares or Registrable
Securities shall (unless otherwise permitted by the provisions of the Agreement)
be stamped or otherwise imprinted with a legend substantially similar to the
following (in addition to any legend required under applicable state securities
laws or as provided elsewhere in this Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED.
(c) The Company shall be obligated to reissue promptly
unlegended certificates at the request of any holder thereof if the holder shall
have obtained an opinion of counsel (which counsel may be counsel to the
Company) reasonably acceptable to the Company to the effect that the securities
proposed to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
(d) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with respect
to such securities shall be removed upon receipt by the Company of an order of
the appropriate blue sky authority authorizing such removal.
SECTION 3. REGISTRATION.
3.1 DEMAND REGISTRATION.
3.1.1 Subject to the conditions of this Section 3.1, if the
Company shall receive a written
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request from the Holders of more than twenty percent (20%) of the Registrable
Securities then outstanding (the "Initiating Holders") that the Company file a
registration statement under the Securities Act covering the registration of at
least twenty percent (20%) of their Registrable Securities or a lesser
percentage if the Registrable Securities to be registered will have an aggregate
offering price to the public in excess of $2,000,000, then the Company shall,
within thirty (30) days of the receipt thereof, give written notice of such
request to all Holders, and subject to the limitations of this Section 3.1,
effect, as soon as practicable, the registration under the Securities Act of all
Registrable Securities that the Holders request to be registered.
3.1.2 If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 3.1 and the Company shall include such information in the written
notice referred to in Section 3.1.1. In such event, the right of any Holder to
include its Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Holder) to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holders (which
underwriter or underwriters shall be reasonably acceptable to the Company).
Notwithstanding any other provision of this Section 3.1, if the underwriter
advises the Company that marketing factors require a limitation of the number of
securities to be underwritten (including Registrable Securities) then the
Company shall so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of shares that may be
included in the underwriting shall be allocated to the Holders of such
Registrable Securities on a pro rata basis based on the number of Registrable
Securities held by all such Holders (including the Initiating Holders). Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.
3.1.3 The Company shall not be required to effect a
registration pursuant to this Section 3.1 prior to the earlier of:
(i) August 15, 2001; or
(ii) after the Company has effected two (2)
registrations pursuant to this Section 3.1, and such registrations have been
declared or ordered effective; or
(iii) during the period starting with the date of
filing of, and ending on the date one (1) year following the effective date of,
the registration statement pertaining to the Initial Offering; or
(iv) if within thirty (30) days of receipt of a
written request from Initiating Holders pursuant to Section 3.1.1, the Company
gives notice to the Holders of the Company's intention to make its Initial
Offering within ninety (90) days; or
(v) if the Company shall furnish to Holders
requesting a registration statement pursuant to this Section 3.1, a certificate
signed by the Chairman of the Board stating that in the good faith judgment of
the Board of Directors of the Company, it would be detrimental to the Company
and its shareholders for such registration statement to be effected at such
time, in which event the Company shall have the right to defer such filing for a
period of not more than ninety (90) days after receipt of the request of the
Initiating Holders; provided that such right to delay a request shall be
exercised by the Company no
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more than twice in any one-year period.
3.2 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to the filing
of any registration statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans or with respect to corporate reorganizations or other transactions under
Rule 145 of the Securities Act) and will afford each such Holder an opportunity
to include in such registration statement all or part of such Registrable
Securities held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by it
shall, within fifteen (15) days after the above-described notice from the
Company, so notify the Company in writing. Such notice shall state the intended
method of disposition of the Registrable Securities by such Holder. If a Holder
decides not to include all of its Registrable Securities in any registration
statement thereafter filed by the Company, such Holder shall nevertheless
continue to have the right to include any Registrable Securities in any
subsequent such registration statement or registration statements as may be
filed by the Company with respect to offerings of its securities, all upon the
terms and conditions set forth herein.
3.2.1 UNDERWRITING. If the registration statement under which
the Company gives notice under this Section 3.2 is for an underwritten offering,
the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder to be included in a registration pursuant to
this Section 3.2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of the Agreement, if the underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the number of
shares that may be included in the underwriting shall be allocated, first, to
the Company; second, to the Holders on a pro rata basis based on the total
number of Registrable Securities held by the Holders; and third, to any
shareholder of the Company (other than a Holder) on a pro rata basis. No such
reduction shall reduce the securities being offered by the Company for its own
account to be included in the registration and underwriting.
3.2.2 RIGHT TO TERMINATE REGISTRATION. The Company shall have
the right to terminate or withdraw any registration initiated or withdraw any
registration initiated by it under this Section 3.2 prior to the effectiveness
of such registration whether or not any Holder has elected to include securities
in such registration. The Registration Expenses of such withdrawn registration
shall be borne by the Company in accordance with Section 3.4 hereof.
3.3 FORM S-3 REGISTRATION. In case the Company shall receive from any
Holder or Holders of Registrable Securities a written request or requests that
the Company effect a registration on Form S-3 (or any successor to Form S-3) or
any similar short-form registration statement and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:
3.3.1 promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders
of Registrable Securities; and
3.3.2 as soon as practicable, effect such registration and all
such qualifications and
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<PAGE>
compliances as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such Holder's or Holders' Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any other Holder or Holders joining in such
request as are specified in a written request given within fifteen (15) days
after receipt of such written notice from the Company; PROVIDED, HOWEVER, that
the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 3.3:
(i) if Form S-3 (or any successor or similar form) is
not available for such offering by the Holders, or
(ii) if the Holders, together with the holders of any
other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public of less than $1,000,000, or
(iii) if the Company shall furnish to the Holders a
certificate signed by the Chairman of the Board of Directors of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its shareholders
for such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than ninety (90) days after receipt of the
request of the Holder or Holders under this Section 3.3, provided, that such
right to delay a request shall be exercised by the Company no more than twice in
any one-year period, or
(iv) if the Company has already effected two (2)
registrations on Form S-3 for the Holders pursuant to this Section 3.3, or
(v) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
3.3.3 Subject to the foregoing, the Company shall file a Form
S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders.
3.4 EXPENSES OF REGISTRATION. Except as specifically provided
herein, all Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 3.1 or any registration under
Section 3.2 or Section 3.3 herein shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder shall be borne
by the holders of the securities so registered pro rata on the basis of the
number of shares so registered. The Company shall not, however, be required to
pay for expenses of any registration proceeding begun pursuant to Section 3.1 or
3.3, the request of which has been subsequently withdrawn by the Initiating
Holders unless (a) the withdrawal is based upon material adverse information
concerning the Company of which the Initiating Holders were not aware at the
time of such request or (b) the Holders of a majority of Registrable Securities
agree to forfeit their right to one requested registration pursuant to Section
3.1 or Section 3.3, as applicable, in which event such right shall be forfeited
by all Holders. If the Holders are required to pay the Registration Expenses,
such expenses shall be borne by the holders of securities (including Registrable
Securities) requesting such registration in proportion to the number of shares
for which registration was requested. If the Company is required to pay the
Registration Expenses of a withdrawn offering pursuant to clause (a) above, then
the
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Holders shall not forfeit their rights pursuant to Section 3.1 or Section 3.3 to
a demand registration.
3.5 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
3.5.1 Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use all reasonable efforts to
cause such registration statement to become effective, and, upon the request of
the Holders of a majority of the Registrable Securities registered thereunder,
keep such registration statement effective for up to sixty (60) days or, if
earlier, until the Holder or Holders have completed the distribution related
thereto.
3.5.2 Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
3.5.3 Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
3.5.4 Use all reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
3.5.5 In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
3.5.6 Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
3.5.7 Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, (i) an opinion, dated as of such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering and (ii) a letter dated as of such date, from the independent certified
public accountants of the Company, in form and substance as is customarily given
by independent certified public accountants to underwriters in an underwritten
public offering addressed to the underwriters, if any, and if permitted by
applicable accounting standards, to the Holders requesting registration of
Registrable Securities.
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3.6 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted
under this Section 3 shall terminate and be of no further force and effect five
(5) years after the date of the Company's Initial Offering. In addition, a
Holder's registration rights shall expire if (i) the Company has completed its
Initial Offering and is subject to the provisions of the Exchange Act, (ii) such
Holder (together with its affiliates, partners and former partners) holds less
than 1% of the Company's outstanding Common Stock (treating all shares of
convertible Preferred Stock of the Company (the "Preferred Stock") on an as
converted basis) and (iii) all Registrable Securities held by such Holder may be
sold under Rule 144 during any one hundred eighty (180) day period.
3.7 DELAY OF REGISTRATION; FURNISHING INFORMATION.
3.7.1 No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 3.
3.7.2 It shall be a condition precedent to the obligations of
the Company to take any action pursuant to Section 3.1, 3.2 or 3.3 that the
selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities.
3.8 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 3.1, 3.2 or 3.3:
3.8.1 To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, officers, directors and
legal counsel of each Holder, any underwriter (as defined in the Securities Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation") by the Company: (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) 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, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law in
connection with the offering covered by such registration statement; and the
Company will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided however, that the indemnity
agreement contained in this Section 3.8.1 shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld, nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
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3.8.2 To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration, qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers,
and legal counsel and each person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter and any other Holder selling
securities under such registration statement or any of such other Holder's
partners, directors or officers or any person who controls such Holder, against
any losses, claims, damages or liabilities (joint or several) to which the
Company or any such director, officer, controlling person, underwriter or other
such Holder, or partner, director, officer or controlling person of such other
Holder may become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder under an instrument duly executed by such Holder and stated to be
specifically for use in connection with such registration; and each such Holder
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, controlling person, underwriter or other Holder, or
partner, officer, director or controlling person of such other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action if it is judicially determined that there was such a
Violation; PROVIDED, HOWEVER, that the indemnity agreement contained in this
Section 3.8.2 shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld;
provided further, that in no event shall any indemnity under this Section 3.8
exceed the proceeds from the offering received by such Holder.
3.8.3 Promptly after receipt by an indemnified party under
this Section 3.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 3.8, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 3.8, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 3.8.
3.8.4 If the indemnification provided for in this Section 3.8
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a
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material fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission; provided, that in no event shall any
contribution by a Holder hereunder exceed the proceeds from the offering
received by such Holder.
3.8.5 The obligations of the Company and Holders under this
Section 3.8 shall survive completion of any offering of Registrable Securities
in a registration statement. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. In the event any offering of Registrable Securities is
underwritten, and the underwriting agreement provides for indemnification and/or
contribution by the Company and the Holders offering securities thereunder, the
indemnification and/or contribution obligations of the Company and the Holders
hereunder shall in no event exceed the obligations of the parties set forth in
such underwriting agreement.
3.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 3 may be assigned by
a Holder to a transferee or assignee of Registrable Securities which (i) is a
subsidiary, parent, general partner, limited partner or retired partner of a
Holder, or an employee of a partner or shareholder of a Holder or, if such
partner or shareholder of Holder is a partnership or corporation, a partner or
shareholder of such partnership or corporation, (ii) is a Holder's family member
or trust for the benefit of an individual Holder, or (iii) acquires at least one
hundred thousand (100,000) shares of Registrable Securities (as adjusted for
stock splits and combinations); PROVIDED, HOWEVER, (A) the transferor shall,
within ten (10) days after such transfer, furnish to the Company written notice
of the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned and (B) such
transferee shall agree to be subject to all restrictions set forth in this
Agreement.
3.10 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Section 3
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of more than fifty percent (50%)
of the Registrable Securities which are not held by the Founders, unless such
amendment or waiver adversely affects the Founders differently than the other
Holders. Any amendment or waiver effected in accordance with this Section 3.10
shall be binding upon each Holder and the Company. By acceptance of any benefits
under this Section 3, Holders of Registrable Securities hereby agree to be bound
by the provisions hereunder.
3.11 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date of
this Agreement, if the Company shall enter into any agreement with any holder or
prospective holder of any securities of the Company that would grant such holder
registration rights senior to those granted to the Holders hereunder, then the
Company shall grant the Holders such senior registration rights.
3.12 "MARKET STAND-OFF" AGREEMENT. If requested by the Company as the
representative of the underwriters of Common Stock (or other securities) of the
Company, each Holder shall not sell or otherwise transfer or dispose of any
shares of Common Stock (or other securities) of the Company held by such Holder
(other than those included in the registration) for a period specified by the
representative of the underwriters not to exceed one hundred eighty (180) days
following the effective date of a registration
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statement of the Company filed under the Securities Act, provided that:
(i) such agreement shall apply only to the Company's
Initial Offering; and
(ii) all officers and directors of the Company and their
affiliates enter into similar agreements.
The obligations described in this Section 3.12 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-4 or similar
forms that may be promulgated in the future. The Company may impose
stop-transfer instructions with respect to the shares of Common Stock (or other
securities) subject to the foregoing restriction until the end of said one
hundred eighty (180) day period.
3.13 RULE 144 REPORTING. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities to
the general public;
(b) File with the SEC, in a timely manner, all reports and
other documents required of the Company under the Exchange Act; and
(c) So long as a Holder owns any Registrable Securities,
furnish to such Holder forthwith upon request: a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144 of
the Securities Act, and of the Exchange Act (at any time after it has become
subject to such reporting requirements); a copy of the most recent annual or
quarterly report of the Company; and such other reports and documents as a
Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing it to sell any such securities without registration.
SECTION 4. COVENANTS OF THE COMPANY.
4.1 BASIC FINANCIAL INFORMATION AND REPORTING.
4.1.1 The Company will maintain true books and records of
account in which full and correct entries will be made of all its business
transactions pursuant to a system of accounting established and administered in
accordance with generally accepted accounting principles consistently applied,
and will set aside on its books all such proper accruals and reserves as shall
be required under generally accepted accounting principles consistently applied.
4.1.2 As soon as practicable after the end of each fiscal year
of the Company, and in any event within ninety (90) days thereafter, the Company
will furnish each Investor a consolidated balance sheet of the Company, as at
the end of such fiscal year, and a consolidated statement of income and a
consolidated statement of cash flows of the Company, for such year, all prepared
in accordance with generally accepted accounting principles consistently applied
and setting forth in each case in comparative form the figures for
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the previous fiscal year, all in reasonable detail. Such financial statements
shall be accompanied by a report and opinion thereon by independent public
accountants selected the Company's Board of Directors.
4.1.3 The Company will furnish each Investor, as soon as
practicable after the end of the first, second and third quarterly accounting
periods in each fiscal year of the Company, and in any event within forty-five
(45) days thereafter, a consolidated balance sheet of the Company as of the end
of each such quarterly period, and a consolidated statement of income and a
consolidated statement of cash flows of the Company for such period and for the
current fiscal year to date, prepared in accordance with generally accepted
accounting principles, with the exception that no notes need be attached to such
statements and year-end audit adjustments may not have been made.
4.1.4 So long as an Investor (with its affiliates) shall own
not less than five hundred thousand (500,000) shares of Registrable Securities
(as adjusted for stock splits and combinations) (a "Major Investor"), the
Company will furnish each such Major Investor (i) at least thirty (30) days
prior to the beginning of each fiscal year an annual budget and operating plans
for such fiscal year (and as soon as available, any subsequent revisions
thereto); and (ii) as soon as practicable after the end of each month, and in
any event within thirty (30) days thereafter, a consolidated balance sheet of
the Company as of the end of each such month, and a consolidated statement of
income and a consolidated statement of cash flows of the Company for such month
and for the current fiscal year to date, including a comparison to plan figures
for such period, prepared in accordance with generally accepted accounting
principles consistently applied, with the exception that no notes need be
attached to such statements and year-end audit adjustments may not have been
made.
4.2 INSPECTION RIGHTS. So long as an Investor holds more than one
hundred thousand (100,000) shares of Registrable Securities (as adjusted for
stock splits and combinations), such Investor shall have the right to visit and
inspect any of the properties of the Company or any of its subsidiaries, and to
discuss the affairs, finances and accounts of the Company or any of its
subsidiaries with its officers, and to review such information as is reasonably
requested all at such reasonable times and as often as may be reasonably
requested; PROVIDED, HOWEVER, that the Company shall not be obligated under this
Section 4.2 with respect to a specific Investor if the Board of Directors
determines in good faith that such Investor is a competitor of the Company.
4.3 CONFIDENTIALITY OF RECORDS.
4.3.1 Each Investor agrees not to use Confidential Information
(as hereinafter defined) of the Company for its own use or for any purpose
except to evaluate and enforce its equity investment in the Company. Each
Investor shall undertake to treat such Confidential Information in a manner
consistent with the treatment of its own information of such proprietary nature
and agrees that it shall protect the confidentiality of and use reasonable best
efforts to prevent disclosure of the Confidential Information to prevent it from
falling into the public domain or the possession of unauthorized persons. Each
transferee of any Investor who receives Confidential Information shall agree to
be bound by such provisions. For purposes of this Section, "Confidential
Information": means any information, technical data, or know-how, including, but
not limited to, the Company's research, products, software, services,
development, inventions, processes, designs, drawings, engineering, marketing,
or finances, disclosed by the Company either directly or indirectly in writing,
orally or by drawings or inspection of parts or equipment which written material
is stamped "Confidential" or "Proprietary" or if disclosed orally, is promptly
confirmed in writing to be Confidential Information.
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4.3.2 Confidential Information does not include information,
technical data or know-how which (i) is in the Investor's possession at the time
of disclosure as shown by Investor's files and records immediately prior to the
time of disclosure; (ii) before or after it has been disclosed to the Investor,
it is part of the public knowledge or literature, not as a result of any action
or inaction of the Investor; (iii) is disclosed to an Investor on a
non-confidential basis by a third party having a legal right to such
information, (iv) is independently developed by Investor, as properly documented
by the Investor, or (v) is approved for release by written authorization of
Company. The provisions of this Section shall not apply (i) to the extent that
an Investor is required to disclose Confidential Information pursuant to any
law, statute, rule or regulation or any order of any court or jurisdiction
process or pursuant to any direction, request or requirement (whether or not
having the force of law but if not having the force of law being of a type with
which institutional investors in the relevant jurisdiction are accustomed to
comply) of any self-regulating organization or any governmental, fiscal,
monetary or other authority; (ii) to the disclosure of Confidential Information
to an Investor's employees, counsel, accountants or other professional advisors;
(iii) to the extent that an Investor needs to disclose Confidential Information
for the protection of any of such Investor's rights or interest against the
Company, whether under this Agreement or otherwise; or (iv) to the disclosure of
Confidential Information to a prospective transferee of securities which agrees
to be bound by the provisions of this Section in connection with the receipt of
such Confidential Information.
4.4 RESERVATION OF COMMON STOCK. The Company will at all times reserve
and keep available, solely for issuance and delivery upon the conversion of the
Preferred Stock, all Common Stock issuable from time to time upon such
conversion.
4.5 STOCK VESTING. Unless otherwise approved by the Compensation
Committee of the Board of Directors, all stock options and other stock
equivalents issued after the date of this Agreement to employees, directors,
consultants and other service providers shall be subject to vesting as follows:
(i) twenty-five percent (25%) of such stock shall vest at the end of the first
year following the earlier of the date of issuance or such person's services
commencement date with the company, and (ii) seventy-five percent (75%) of such
stock shall vest ratably over the remaining three (3) years. With respect to any
shares of stock purchased by any such person, the Company's repurchase option
shall provide that upon such person's termination of employment or service with
the Company, with or without cause, the Company or its assignee (to the extent
permissible under applicable securities laws and other laws) shall have the
option to purchase at cost any unvested shares of stock held by such person.
4.6 VISITATION RIGHTS. The Company shall allow one representative of
each of Draper Fisher Associates III, L.P., Adobe Ventures II, L.P. and
Hambrecht and Quist LLC to attend all meetings of the Company's Board of
Directors in a nonvoting capacity in addition to any representative who is a
member of the Board of Directors.
4.7 BOARD OF DIRECTORS MEETING. The Board of Directors shall meet at
least six (6) times per year until a majority of the Board of Directors decides
to reduce the number of meetings.
4.8 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. The Company shall
require all employees to execute and deliver a Proprietary Information and
Inventions Agreement substantially in the form attached to the Purchase
Agreement.
4.9 REAL PROPERTY HOLDING CORPORATION. The Company covenants that it
will operate in a manner such that it will not become a "United States real
property holding corporation" as that term is defined
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in Section 897(c)(2) of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder ("FIRPTA"). The Company agrees to make determinations as
to its status as a USRPHC, and will file statements concerning those
determinations with the Internal Revenue Service, in the manner and at the times
required under Reg. ss. 1.897-2(h), or any supplementary or successor provision
thereto. Within 30 days of a request from an Investor or any of its partners,
the Company will inform the requesting party, in the manner set forth in Reg.
ss. 1.897- 2(h)(1)(iv) or any supplementary or successor provision thereto,
whether that party's interest in the Company constitutes a United States real
property interest (within the meaning of Internal Revenue Code Section 897(c)(1)
and the regulations thereunder) and whether the Company has provided to the
Internal Revenue Service all required notices as to its USRPHC status.
4.10 COMPENSATION. The Company shall not pay or provide aggregate cash
compensation in excess of $100,000 to any employee during any calendar year
unless such compensation is approved by the Compensation Committee of the Board
of Directors.
4.11 BOARD OF DIRECTORS. The Board of Directors immediately following
the First Closing (as defined in the Purchase Agreement) shall be Jeffrey C.
Smith (the "Smith Director"), Jean-Christophe D. Bandini (the "Bandini
Director"), Mark Jung (the "Board Director"), Eric Hautemont (the "Founder
Director"), Standish O'Grady, David Marquardt and Tim Draper. Tim Draper shall
represent the holders of Series A Preferred Stock (the "Series A Director").
Standish O'Grady and David Marquardt shall represent the holders of Series B
Preferred Stock (the "Series B Directors"). The Board Director shall be
nominated by the unanimous written consent of the Smith Director, the Bandini
Director, the Series A Director and the Series B Directors, and the Board
Director shall not be an officer, employee, affiliate or consultant of the
Company, Draper, Fisher III, L.P. ("Draper Fisher"), Adobe Systems Incorporated
("Adobe"), Hambrecht & Quist LLC ("H&Q"), Adobe Ventures II, LLP ("Adobe
Ventures") or Hikari Tsushin, Inc. The Founder Director shall be appointed by
the unanimous consent of the Founders. The Series B Directors shall not be
officers, employees, affiliates or consultants of Adobe. Each Holder hereby
severally agrees to vote its shares of Company stock for, and otherwise to use
such Holder's best efforts to cause, the election of the directors as provided
in this Section. In addition, in the event of the resignation, removal, death or
incapacity of any director, each Holder hereby severally agrees to vote its
shares of Company stock for a replacement director selected by (i) the departing
director or its designee, with respect to the vacancy of the Smith Director or
the Bandini Director, as the case may be, (ii) Draper Fisher, with respect to a
vacancy of the Series A Director, (iii) the unanimous consent of the Smith
Director, the Bandini Director, the Series A Director and the Series B
Directors, with respect to a vacancy of the Board Director, (iv) the unanimous
consent of the Founders, with respect to a vacancy of the Founder Director, (v)
Adobe Ventures, with respect to a vacancy of one of the Series B Directors and
(vi) August Capital, L.P., with respect to a vacancy of the other Series B
Director. This voting agreement is coupled with an interest and may not be
revoked without the written consent of Draper Fisher, Adobe Ventures, August
Capital, L.P., the Founders, and a majority of the holders of each of the
Preferred Stock and the Common Stock, voting separately as a class. Unless
earlier terminated pursuant to this Agreement, this Section 4.11 will terminate
ten years from the date hereof. In the event of a vacancy of the Board of
Directors, the Company may reduce the authorized number of directors pending a
replacement selected in accordance with the terms hereof.
4.12 BOARD OF ADVISORS. So long as Adobe Ventures holds more than fifty
percent (50%) of its Registrable Securities purchased pursuant to the Series B
Preferred Stock Purchase Agreement, the Company shall appoint a nominee mutually
acceptable to the Company and Adobe to the Company's Board of Advisors.
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4.13 BOARD OF DIRECTORS APPROVAL. The Company shall not without the
approval of a disinterested majority of the Board of Directors for items (i),
(v), (vi) and (vii) or the Compensation Committee for items (ii), (iii) and (iv)
take any of the following actions:
(i) elect an officer of the Company;
(ii) approve any employment agreements;
(iii) adopt any compensation programs including bonus programs
or set the compensation levels, including option or stock grants, for any
officers and key employees of the Company;
(iv) adopt any stock option plan or amend any stock option
plan to increase the number of shares of Common Stock reserved under such plan;
(v) approve any annual budgets, business plans or financial
projections;
(vi) enter into any lease or purchase of real property; and
(vii) enter into any obligation or commitment in excess of
$25,000, including capital equipment leases or purchases, which are outside of
the business plan or budget approved pursuant to Section 4.13(v).
4.14 COMPENSATION COMMITTEE. The Compensation Committee of the Board of
Directors, consisting solely of non-employee directors, shall continue to be
authorized to approve employee compensation, including the grant of stock
options, annual compensation and bonuses.
4.15 BOARD OF TUMBLEWEED SOFTWARE, K.K. So long as Hikari Tsushin, Inc.
("Hikari") holds more than fifty percent (50%) of its Registrable Securities
purchased pursuant to the Purchase Agreement, the Company shall vote its shares
of capital stock of Tumbleweed Software, K.K. for the election of a director to
the Board of Directors of Tumbleweed Software, K.K. acceptable to Hikari.
SECTION 5. RIGHTS OF FIRST REFUSAL.
5.1 SUBSEQUENT OFFERINGS. Each Investor shall have a right of first
refusal to purchase its pro rata share of the Equity Securities, as defined
below, that the Company may, from time to time, propose to sell and issue after
the date of this Agreement, other than the Equity Securities excluded by Section
5.3 hereof. Each Investor's pro rata share is equal to the ratio of (A) the
number of shares of the Series A Stock, Series B Stock and Series C Stock, on an
as converted to Common Stock basis, which such Purchaser holds immediately prior
to the issuance of such Equity Securities to (B) the total number of shares of
the Company's outstanding Series A Stock, Series B Stock and Series C Stock, on
an as converted to Common Stock basis, plus the outstanding Common Stock
immediately prior to the issuance of the Equity Securities. The term "Equity
Securities" shall mean (i) any Common Stock, Preferred Stock or other security
of the Company, (ii) any security convertible, with or without consideration,
into any Common Stock, Preferred Stock or other security of the Company
(including any option to purchase such a convertible security), (iii) any
security carrying any warrant or right to subscribe to or purchase any Common
Stock, Preferred Stock or other security of the Company or (iv) any such warrant
or right.
5.2 EXERCISE OF RIGHTS. If the Company proposes to issue any Equity
Securities, it shall give
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each Investor written notice of its intention, describing the Equity Securities,
the price and the terms and conditions upon which the Company proposes to issue
the same. Each Investor shall have fifteen (15) days from the giving of such
notice to agree to purchase its pro rata share of the Equity Securities for the
price and upon the terms and conditions specified in the notice by giving
written notice to the Company and stating therein the quantity of Equity
Securities to be purchased, subject to the consummation of the issuance of
Equity Securities in accordance with the written notice. Notwithstanding the
foregoing, the Company shall not be required to offer or sell such Equity
Securities to any Investor who would cause the Company to be in violation of
applicable federal or state securities laws by virtue of such offer or sale.
5.3 EXCLUDED SECURITIES. The rights of first refusal established by
this Section 5 shall have no application to any of the following Equity
Securities:
5.3.1 shares of Series C Stock provided for in the Purchase
Agreement;
5.3.2 Common Stock (and/or options, warrants or other Common
Stock purchase rights issued pursuant to such options, warrants or other rights)
issued or to be issued to employees, officers or directors of, or consultants or
advisors to the Company or any subsidiary, pursuant to stock purchase or stock
option plans or other arrangements that are approved by a majority of the Board
of Directors;
5.3.3 stock issued pursuant to any rights or agreements
outstanding as of the date of this Agreement, options and warrants outstanding
as of the date of this Agreement; and stock issued pursuant to any such rights
or agreements granted after the date of this Agreement, provided that the rights
of first refusal established by this Section 5 applied with respect to the
initial sale or grant by the Company of such rights or agreements;
5.3.4 any Equity Securities issued pursuant to the acquisition
of another corporation by the Company by merger, purchase of all or
substantially all of the assets, or other reorganization;
5.3.5 shares of Common Stock issued in connection with any
stock split, stock dividend or recapitalization by the Company;
5.3.6 shares of Common Stock issued upon conversion of the
Shares;
5.3.7 any Equity Securities issued in connection with an
equipment purchase or leasing transaction or a revolving credit or term loan
transaction where the principal purpose of such transaction is not to receive
additional capital from the issuance of such Equity Securities;
5.3.8 any Equity Securities that are issued by the Company
pursuant to a registration statement filed under the Securities Act;
5.3.9 shares of the Company's Common Stock or Preferred Stock
or options or warrants for the purpose of such securities issued in connection
with strategic transactions involving the Company and other entities, including
(A) joint ventures, manufacturing, marketing or distribution arrangements or (B)
technology transfer or development arrangements; provided that such strategic
transactions and the issuance of shares therein, has been approved by two-thirds
(2/3) of the authorized members of the Company's Board of Directors;
5.3.10 shares of Equity Securities issued in connection with
the acquisition of a license,
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technology transfer or acquisition or similar transaction; provided that such
license transaction, and the issuance of shares therein, have been approved by
two-thirds (2/3) of the authorized members of the Company's Board of Directors;
5.3.11 shares of Equity Securities issued by the unanimous
consent of the Board of Directors of the Company; and
5.3.12 shares of Equity Securities issued by amendment, waiver
or extension of any securities issued prior to the First Closing, as such term
is defined in the Purchase Agreement, or issued pursuant to clauses 5.3.1
through 5.3.11 hereof.
5.4 LIMITATION ON SUBSEQUENT RIGHTS OF FIRST REFUSAL. After the date of
this Agreement, if the Company shall enter into any agreement with any investor
or prospective investor of any securities of the Company that would grant such
investor rights of first refusal senior to those granted to the Investors
herein, then the Company shall grant the Investors such senior rights of first
refusal.
SECTION 6. MISCELLANEOUS.
6.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
6.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
6.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
PROVIDED, HOWEVER, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the holder of such shares in its records as the absolute owner and holder of
such shares for all purposes, including the payment of dividends or any
redemption price.
6.4 TERMINATION. The covenants contained in Section 4 and the rights
contained in Section 5 shall expire and terminate as to each Investor upon the
earlier of: (i) the effective date of the registration statement pertaining to
the Initial Offering or (ii) the effective date of any consolidation or merger
of the Company with or into any other corporation or other entity or person, or
any other corporate reorganization, in which the stockholders of the Company
immediately prior to such consolidation, merger or reorganization, own less than
50% of the Company's voting power immediately after such consolidation, merger
or reorganization, or any transaction or series of related transactions in which
in excess of fifty percent (50%) of the Company's voting power is transferred.
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6.5 TRANSFER OF RIGHTS. The information rights, the right to enforce
the covenants contained in Section 4 and the rights contained in Section 5 shall
not be transferred or assigned to any party except pursuant to Section 2.
6.6 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
6.7 AMENDMENT AND WAIVER.
6.7.1 Except as otherwise expressly provided, this Agreement
may be amended or modified only upon the written consent of the Company and the
holders of more than fifty percent (50%) of the Registrable Securities which are
not held by the Founders unless the Founders would be adversely affected
differently than the other Holders, in which case a vote by a majority of the
Founders shall also be required.
6.7.2 Except as otherwise expressly provided, the obligations
of the Company and the rights of the Holders or the Investors under this
Agreement may be waived only with the written consent of the holders of more
than fifty percent (50%) of the Registrable Securities which are not held by the
Founders unless the Founders would be adversely affected differently than the
other Holders, in which case a vote by a majority of the Founders shall also be
required.
6.7.3 Notwithstanding the foregoing, this Agreement may be
amended with only the written consent of the Company to (i) include additional
purchasers of the Company's securities as "Investors," "Holders" and parties
hereto or (ii) to include shares of Common Stock subsequently issued by the
Company as Registrable Securities hereunder.
6.7.4 By execution of this Agreement, the parties to the Prior
Agreement consent to the amendment and termination of the Prior Agreement.
6.8 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character on
any Holder's part of any breach, default or noncompliance under the Agreement or
any waiver on such Holder's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not
alternative.
6.9 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified, (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
party to be notified at the address as set forth on the signature pages hereof
or Exhibit A hereto or at such other address as such party may
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designate by ten (10) days advance written notice to the other parties hereto.
6.10 ATTORNEYS' FEES. In the event that any dispute among the parties
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs and
expenses of enforcing any right of such prevailing party under or with respect
to this Agreement, including without limitation, such reasonable fees and
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals.
6.11 TITLES AND SUBTITLES. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
6.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Investors' Rights Agreement as of the date set forth in the first
paragraph hereof.
COMPANY: FOUNDERS:
TUMBLEWEED SOFTWARE CORPORATION
---------------------------
Jeffrey C. Smith
By:
----------------------------------------
Jeffrey C. Smith
President and Chief Executive Officer ---------------------------
Jean-Christophe D. Bandini
PURCHASER:
HIKARI TSUSHIN, INC.
By:
----------------------------------------
Name:
Title:
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HOLDERS OF SERIES B STOCK:
DRAPER FISHER ASSOCIATES FUND TOLMI, L.L.C.
By: By:
-------------------------------- --------------------------------
Name: Name:
Title: Title:
DRAPER FISHER PARTNERS, L.L.C. BESSEC VENTURES IV, L.P.
By: , its General Partner
By:
-------------------------------- By:
Name: --------------------------------
Title: Name:
Title:
ADOBE VENTURES II, L.P.
By: H&Q Adobe Ventures Management II, LLC
Its General Partner BESSEMER VENTURE PARTNERS IV L.P.
By: Deer IV & Co., its General
Partner
By:
-------------------------------- By:
Name: --------------------------------
Title: Name:
Title:
H&Q TUMBLEWEED INVESTORS, L.P.
AUGUST CAPITAL, L.P., FOR ITSELF
AND AS NOMINEE FOR:
By: AUGUST CAPITAL STRATEGIC PARTNERS,
L.P.
-------------------------------- AUGUST CAPITAL ASSOCIATES, L.P.
Name:
Title:
SOFINNOVA VENTURE PARTNERS III By: August Capital Management,
L.L.C.,
the general partner for each of
the foregoing
By:
--------------------------------
Name:
Title: By:
--------------------------------
Name:
Title:
- ----------------------------------- INNOVACOM 2
Jeffrey C. Smith
By:
--------------------------------
Name:
Title:
21
<PAGE>
HOLDERS OF SERIES A STOCK:
DRAPER FISHER ASSOCIATES FUND III
By:
-------------------------------- -----------------------------------
Name: Mark Pastore
Title:
-----------------------------------
DRAPER FISHER PARTNERS, L.L.C. Donald R. Emery
By:
-------------------------------- -----------------------------------
Name: Gregory C. Smith
Title:
DRAPER RICHARDS L.P. GC&H INVESTMENTS
By: Draper Richards Management Co.,
its General Partner
By: By:
-------------------------------- --------------------------------
Name: Name:
Title: Title:
-----------------------------------
William A. Sahlman
- ------------------------------------
Jeffrey C. Smith -----------------------------------
Joseph B. Lassiter III
- ------------------------------------ -----------------------------------
Jean-Christophe D. Bandini Kenneth H. Keller
SOFINNOVA VENTURE PARTNERS III
- ------------------------------------
Jeffrey J. Baymor
By:
--------------------------------
- ------------------------------------ Name:
Eric Hautemont Title:
22
<PAGE>
INNOVACOM 2 DRAPER ASSOCIATES, L.P.
By: , its General Partner
By:
------------------------------ By:
Name: ------------------------------
Title: Name:
Title:
BAYVIEW INVESTORS
BESSEC VENTURES IV, L.P.
By: By: , its General Partner
------------------------------
Name:
Title:
By:
------------------------------
CHARLES CORFIELD LIVING TRUST Name:
U/A 12/19/91 Title:
BESSEMER VENTURE PARTNERS IV L.P.
By:
------------------------------ By: Deer IV & Co., its General
Name: Partner
Title:
AUGUST CAPITAL, L.P. By:
------------------------------
By: August Capital Management, L.L.C., Name:
its general partner Title:
-----------------------------------
By: Joseph C. Consul
------------------------------
Name:
Title:
-----------------------------------
Charles N. Corfield
23
<PAGE>
ADDITIONAL PURCHASERS:
AUGUST CAPITAL, L.P., SOFINNOVA VENTURE PARTNERS III
FOR ITSELF AND AS NOMINEE FOR: By: Sofinnova Management L.P.,
AUGUST CAPITAL STRATEGIC PARTNERS, L.P. its general partner
AUGUST CAPITAL ASSOCIATES, L.P.
By: August Capital Management, L.L.C.,
the general partner for each of the By:
foregoing --------------------------------
Name:
Title:
By: DRAPER FISHER ASSOCIATES FUND III
------------------------------
Mark Wilson
Member By:
--------------------------------
BESSEC VENTURES IV, L.P. Name:
By: Deer IV & Co. LLC, its General Partner Title:
DRAPER FISHER PARTNERS, L.L.C.
By:
------------------------------
Robert H. Buescher By:
Manager --------------------------------
Name:
BESSEMER VENTURE PARTNERS IV L.P. Title:
By: Deer IV & Co. LLC, its General Partner
DRAPER RICHARDS L.P.
By: Draper Richards Management Co.,
By: its General Partner
------------------------------
Robert H. Buescher
Manager By:
--------------------------------
ADOBE VENTURES II, L.P. Name:
By: H&Q Adobe Ventures Management II, LLC Title:
its General Partner
DRAPER ASSOCIATES, L.P.
By: , its General Partner
By:
------------------------------
Name:
Title: By:
--------------------------------
H&Q TUMBLEWEED INVESTORS, L.P. Name:
Title:
By:
------------------------------
Name:
Title:
24
<PAGE>
INNOVACOM 2
By:
------------------------------
Name:
Title:
UNITED PARCEL SERVICE GENERAL
SERVICES CO.
By:
------------------------------
Thomas W. Delbrook
Vice President
25
<PAGE>
EXHIBIT A
SCHEDULE OF INVESTORS
NAMES AND ADDRESSES
Adobe Ventures II, L.P.
c/o Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
August Capital, L.P.
2480 Sand Hill Road, Suite 101
Menlo Park, CA 94025
Jean-Christophe D. Bandini
10230 N. Foothill Blvd. Apt. E10
Cupertino, CA 95014
Jeffrey J. Baymor
2169 Purisima Creek Road
Half Moon Bay, CA 94019
Bayview Investors Ltd.
555 California Street, Suite 2600
San Francisco, CA 94104
Bessec Ventures IV, L.P.
1400 Old Country Road, Suite 407
Westbury, NY 11590
Attention: Robert H. Buescher
Bessemer Venture Partners IV L.P.
1400 Old Country Road, Suite 407
Westbury, NY 11590
Attention: Robert H. Buescher
Joseph C. Consul
1131 Dwyer Avenue
San Jose, CA 95120
Charles N. Corfield
Charles N. Corfield Living Trust u/a 12/19/91
227 High Street
Palo Alto, CA 94301
Draper Associates, L.P.
Draper Fisher Associates Fund III
<PAGE>
Draper Fisher Partners, L.L.C.
400 Seaport Court, Suite 250
Redwood City, CA 94063
Draper Richards L.P.
50 California Street, Suite 2925
San Francisco, CA 94111
Attention: Robin Donohoe
Donald R. Emery
1608 Castro Street
San Francisco, CA 94114
GC&H Investments
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
Hambrecht & Quist Employee Venture Fund, L.P. II
H&Q Tumbleweed Investors, L.P.
c/o Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Eric Hautemont
1351 Sacramento Street
San Francisco, CA 94109
Hikari Tsushin, Inc.
22F Ohtemachi Nomura Bldg.
2-1-1 Ohtemachi, Chiyoda-ku, Tokyo
Japan
Innovacom 2
455 Market Street, Suite 1440
San Francisco, CA 94105
Kenneth H. Keller
3386 Royal Meadow Lane
San Jose, CA 95135
Joseph B. Lassiter III
One Concord Road
Weston, MA 02193
Mark R. Pastore
2320 Moraga Street
San Francisco, CA 9412
William A. Sahlman
<PAGE>
77 Viles Street
Weston, MA 02193
Gregory C. Smith
33 Digby Street
San Francisco, CA 94131
Jeffrey C. Smith
1305 Altschul Avenue
Menlo Park, CA 94025
Sofinnova Venture Partners III
One Market Plaza
Steuart Tower, Suite 2630
San Francisco, CA 94105
Tolmi, L.L.C.
c/o National Registered Agents
of NV, Inc.
202 South Minnesota Street
Carson City, NV 89703
with a copy to:
Timothy Tomlinson, Esq.
Tomlinson Zisko Morosoli & Maser
200 Page Mill Road, 2nd Floor
Palo Alto, CA 94306
United Parcel Service General Services Co.
55 Glenn Lake Parkway NorthEast
Atlanta, Georgia 30328
<PAGE>
EXHIBIT 4.3
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY
NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 AND ANY APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: Tumbleweed Software Corporation, a California corporation
Number of Shares: See Below
Class of Stock: Series B Preferred, provided however, should Series C
Preferred round close on or before April 30, 1999, the Class of Stock shall
be that of Series C Preferred
Initial Exercise Price: If Series B Preferred a price equal to $1.986; if
Series C Preferred, a price equal to the Series C Preferred round valuation
Issue Date: November 30, 1998
Expiration Date: See Section 4.8 below
For purposes of the foregoing:
The Number of Shares shall be determined as follows: $1,500,000 divided by
the Initial Exercise Price multiplied by 5%.
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
Class of Stock (the "Shares") of the Corporation (the "Company") at the
Initial Exercise Price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the
provisions and upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant, in whole or
in part, by delivering a duly executed Notice of Exercise in substantially
the form attached as Appendix 1 to the principal office of the Company.
Unless Holder is exercising the conversion right set forth in Section 1.2,
Holder shall also deliver to the Company a check for the aggregate Warrant
Price for the Shares being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as specified
in Section 1.1, Holder may from time to time convert this Warrant, in whole
or in part, into a number of Shares determined by dividing (a) the aggregate
fair market value of the Shares or other securities otherwise issuable upon
exercise of this Warrant minus the aggregate Warrant Price of such Shares by
(b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant to Section 1.4.
1.3 INTENTIONALLY OMITTED
1.4 FAIR MARKET VALUE. If the Shares are traded in a public market,
the fair market value of the Shares shall be the closing price of the Shares
(or the closing price of the Company's stock into which the Shares are
convertible) reported for the business day immediately before Holder delivers
its Notice of Exercise to the Company. If the Shares are not traded in a
public market, the Board of Directors of the Company shall determine fair
market value in its reasonable good faith judgment.
1.5 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this
<PAGE>
Warrant has not been fully exercised or converted and has not expired, a new
Warrant representing the Shares not so acquired.
1.6. REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of
an indemnity agreement reasonably satisfactory in form and amount to the
Company or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company at its expense shall execute and deliver, in lieu of
this Warrant, a new warrant of like tenor.
1.7 REPURCHASE ON SALE, MERGER, OR CONSOLIDATION OF THE COMPANY.
1.7.1 "ACQUISITION". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2 ASSUMPTION OF WARRANT. Upon the closing of any
Acquisition, except as provided for in Section 4.8, the successor entity
shall assume the obligations of this Warrant, and this Warrant shall be
exercisable for the same securities, cash, and property as would be payable
for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.
1.7.3 PURCHASE RIGHT. Notwithstanding the foregoing, if upon
the closing of any Acquisition the Acquiring Company does not assume the
Warrant, the Warrant shall be automatically deemed exercised and converted in
accordance with the formula set forth in Section 1.2. In no event shall this
provision be construed to require Holder to pay cash to the Company to effect
the automatic exercise.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or
pays a dividend on its common stock (or the Shares if the Shares are
securities other than common stock) payable in common stock, or other
securities, subdivides the outstanding common stock into a greater amount of
common stock, or, if the Shares are securities other than common stock,
subdivides the Shares in a transaction that increases the amount of common
stock into which the Shares are convertible, then upon exercise of this
Warrant, for each Share acquired, Holder shall receive, without cost to
Holder, the total number and kind of securities to which Holder would have
been entitled had Holder owned the Shares of record as of the date the
dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon
exercise or conversion of this Warrant, the number and kind of securities and
property that Holder would have received for the Shares if this Warrant had
been exercised immediately before such reclassification, exchange,
substitution, or other event. Such an event shall include any automatic
conversion of the outstanding or issuable securities of the Company of the
same class or series as the Shares to common stock pursuant to the terms of
the Company's Articles of Incorporation upon the closing of a registered
public offering of the Company's common stock. The Company or its successor
shall promptly issue to Holder a new Warrant for such new securities or other
property. The new Warrant shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in
this Article 2 including, without limitation, adjustments to the Warrant
Price and to the number of securities or property issuable upon exercise of
the new Warrant. The provisions of this Section 2.2 shall similarly apply to
successive reclassifications, exchanges, substitutions, or other events.
2
<PAGE>
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser
number of shares, the Warrant Price shall be proportionately increased.
2.4 ADJUSTMENTS FOR DILUTING ISSUANCES. The Warrant Price and the number
of Shares issuable upon exercise of this Warrant or, if the Shares are
Preferred Stock, the number of shares of common stock issuable upon
conversion of the Shares, shall be subject to adjustment, from time to time
in the manner set forth on Exhibit A in the event of Diluting Issuances (as
defined on Exhibit A).
2.5 NO IMPAIRMENT. The Company shall not, by amendment of its Articles
of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed under this Warrant by the Company,
but shall at all times in good faith assist in carrying out of all the
provisions of this Article 2 and in taking all such action as may be
necessary or appropriate to protect Holder's rights under this Article
against impairment. If the Company takes any action affecting the Shares or
its common stock other than as described in this Section 2 that adversely
affects Holder's rights under this Warrant, the Warrant Price shall be
adjusted downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate Warrant
Price of this Warrant is unchanged.
2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share
interest arises upon any exercise or conversion of the Warrant, the Company
shall eliminate such fractional share interest by paying Holder amount
computed by multiplying the fractional interest by the Warrant Price.
2.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting
forth such adjustment and the facts upon which such adjustment is based. The
Company shall, upon written request, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and the series of
adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of this
Warrant is not greater than (i) the price per share at which the Shares were
last issued in an arms-length transaction in which at least $500,000 of the
Shares were sold and (ii) the fair market value of the Shares as of the date
of this Warrant.
(b) All Shares which may be issued upon the exercise of the purchase
right represented by this Warrant, and all securities, if any, issuable upon
conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
(c) The capitalization table attached hereto is true and correct.
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a) to
declare any dividend on its Preferred Stock payable in stock or make any
special dividend or other distribution to the holders of it's Preferred Stock
(b) to effect any reclassification or recapitalization of common stock; (c) to
3
<PAGE>
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (d) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the
company's securities for cash, then, in connection with each such event, the
Company shall give Holder (1) at least 20 days prior written notice of the
date on which a record will be taken for such dividend, distribution, or
subscription rights (and specifying the date on which the holders of common
stock will be entitled thereto) or for determining rights to vote, if any, in
respect of the matters referred to in (b) and (c) above; (2) in the case of
the matters referred to in (b) and (c) above at least 20 days prior written
notice of the date when the same will take place (and specifying the date on
which the holders of common stock will be entitled to exchange their common
stock for securities or other property deliverable upon the occurrence of such
event); and (3) in the case of the matter referred to in (d) above, the same
notice as is given to the holders of such registration rights.
3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant
and/or any of the Shares, the Company shall deliver to the Holder (a)
promptly after mailing, copies of all notices or other written communications
to the shareholders of the Company, (b) within ninety (90) days after the end
of each fiscal year of the Company, the annual audited financial statements
of the Company certified by independent public accountants of recognized
standing and (c) such other financial statements required under and in
accordance with any loan documents between Holder and the Company (of if
there are no such requirements or if the subject loan(s) no longer are
outstanding), then within forty-five (45) days after the end of each of the
first three quarters of each fiscal year, the Company's quarterly, unaudited
financial statements.
3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. The
Company agrees that the Shares or, if the Shares are convertible into common
stock of the Company, such common stock, shall be subject to the registration
rights set forth on Exhibit B, if attached.
ARTICLE 4. MISCELLANEOUS.
4.1 TERM; NOTICE OF EXPIRATION. This Warrant is exercisable, in
whole or in part, at any time and from time to time on or before the
Expiration Date set forth in Section 4.8.
4.2 LEGENDS. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any)
shall be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 AND ANY APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT
REQUIRED.
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and
the Shares issuable upon exercise of this Warrant (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) may
not be transferred or assigned in whole or in part without compliance with
applicable federal and state securities laws by the transferor and the
transferee (including, without limitation, the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, as reasonably requested by the Company). The Company shall not
require Holder to provide an opinion of counsel if the transfer is to an
affiliate of Holder or if there is no material question as to the
availability of current information as referenced in Rule 144(c). Holder
represents that it has complied with Rule 144(d) and (e) in reasonable
detail, the selling broker represents that it has complied with Rule 144(f),
and the Company is provided with a copy of Holder's notice of proposed sale.
4
<PAGE>
4.4 TRANSFER PROCEDURE. Subject to the provisions of Section 4.3
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) at any time to Silicon Valley
Bancshares or The Silicon Valley Bank Foundation, or to any affiliate of
Holder, or, to any other transferee by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this
Warrant to the Company or reissuance to the transferee(s) (and Holder if
applicable). Unless the Company is filing financial information with the SEC
pursuant to the Securities Exchange Act of 1934, the Company shall have the
right to refuse to transfer any portion of this Warrant to any person who
directly competes with the Company.
4.5 NOTICES. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from
time to time. All notices to be provided under this Warrant shall be send to
the following address:
To Holder: Silicon Valley Bank
Attn: Treasury Department HG 250
3003 Tasman Drive
Santa Clara, CA 95054
To Company: Tumbleweed Software Corporation
Attn: Joseph C. Consul
-------------------
2010 Broadway
Redwood City, CA 94063
4.6 WAIVER. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 ATTORNEYS FEES. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 TERMINATION. This warrant shall terminate upon the earliest to
occur of: (i) ten (10) years from the date of this Warrant; (ii) five (5)
years from the closing of an initial public offering ("IPO") or (iii) the
closing of an Acquisition of the Company in which the Company's stock is sold
for at least 3 times the Initial Exercise Price; provided, however, if the
events described in subsections' (ii) or (iii) occur, Company agrees to
provide Holder with at least 30 days' advance written notice of the event in
order that Holder may exercise the warrant.
4.9 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
5
<PAGE>
"COMPANY"
TUMBLEWEED SOFTWARE CORPORATION
By: /s/ Joseph C. Consul
-----------------------------
Name: Joseph C. Consul
---------------------------
(Print)
Title: Chairman of the Board,
President or Vice President
By: /s/ Joseph C. Consul
-----------------------------
Name: Joseph C. Consul
---------------------------
(Print)
Title: Chief Financial Officer,
Secretary, Assistant
Treasurer or Assistant
Secretary
6
<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
------------------
1. The undersigned hereby elects to purchase _____ shares of the
Common/Preferred Series ___ [Strike one] Stock of Tumbleweed Software
Corporation pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This
conversion is exercised with respect to ___________________________ of the
Shares covered by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
-----------------------------------------------
(Name)
-----------------------------------------------
-----------------------------------------------
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view
toward the resale or distribution thereof except in compliance with
applicable securities laws.
-------------------------------------
(Signature)
- -------------------------------
(Date)
<PAGE>
EXHIBIT A
---------
Anti-Dilution Provisions
(For Preferred Stock Warrants With Existing Anti-Dilution Protection)
---------------------------------------------------------------------
In the event of the issuance (a "Diluting Issuance") by the Company,
after the Issue Date of the Warrant, of securities at a price per share less
than the Warrant Price, then the number of shares of common stock issuable
upon conversion of the Shares shall be adjusted in accordance with those
provisions (the "Provisions") of the Company's Articles of Incorporation
which apply to Diluting Issuances.
The Company agrees that the Provisions, as in effect on the Issue Date,
shall be deemed to remain in full force and effect during the term of the
Warrant notwithstanding any subsequent amendment, waiver or termination
thereof by the Company's shareholders.
Under no circumstances shall the aggregate Warrant Price payable by the
Holder upon exercise of the Warrant increase as a result of any adjustment
arising from a Diluting Issuance.
<PAGE>
Exhibit 10.1
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of
__________, 1999 by and between Tumbleweed Software Corporation, a California
corporation and, following its reincorporation into Delaware, a Delaware
corporation (the "Corporation"), and _________________ ("Agent"). This Agreement
super sedes any and all indemnity agreement(s) previously entered into between
the Corporation and the Agent.
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation
in his capacity as ______________ of the Corporation;
WHEREAS, the current By-laws and Amended and Restated Articles
of Incorporation of the Corporation, and the Amended and Restated By-laws and
Amended and Restated Certificate of Incorporation to be adopted upon the consum
mation of the Company's currently contemplated initial public offering
(collectively, the "Charter Documents") require the Corporation to indemnify and
advance expenses to its directors and officers to the full extent permitted by
the California Corporations Code, as amended, and, following the Corporation's
reincorporation in Delaware, by the Delaware General Corporation Law, as amended
(as applicable, the "Code") and the Agent intends to continue serving as a
director or officer of the Corporation in part in reliance on such Charter
Documents and Code;
WHEREAS, the Charter Documents and the Code, by their
non-exclusive nature, permit contracts between the Corporation and its agents,
officers, employees and other agents with respect to indemnification of such
persons; and
WHEREAS, in order to induce Agent to continue to serve as
___________ of the Corporation, the Corporation has determined and agreed to
enter into this Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service
as __________ after the date hereof, the parties hereto agree as follows:
<PAGE>
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will
of the Corporation or under separate contract, if any such contract exists, as
__________ of the Corporation or as a director, officer or other fiduciary of an
affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his or her ability so long as he or
she is duly elected and qualified in accordance with the provisions of the
Charter Documents or the charter documents of such affiliate; provided, however,
that Agent may at any time and for any reason resign from such position (subject
to any contractual obligation that Agent may have assumed apart from this
Agreement) and that the Corporation or any affiliate shall have no obligation
under this Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold
harmless and indemnify Agent to the fullest extent authorized or permitted by
the provisions of the Charter Documents and the Code, as the same may be amended
from time to time (but, only to the extent that such amendment permits the
Corpora tion to provide broader indemnification rights than the Charter
Documents or the Code permitted prior to adoption of such amendment).
3. ADDITIONAL INDEMNITY. In addition to and not in limitation
of the indemnification otherwise provided for herein, and subject only to the
exclu sions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement
and any other amounts that Agent becomes legally obligated to pay
(including interest, assessments and other charges paid or payable,
because of, or in preparation for the defense of, any claim or claims
made against or by him or her in connection with any threatened,
pending or completed action, suit or proceed ing, whether civil,
criminal, arbitrational, administrative or investigative (including an
action by or in the right of the Corporation) to which Agent is, was or
at any time becomes a party to or witness or other participant in, or
is threatened to be made a party to or witness or other participant in,
by reason of the fact that Agent is, was or at any time becomes a
director, officer, employee or other agent of Corporation, or is or was
serving or at any time serves at the request of the Corporation as a
director, officer, employee or
2
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other agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to
Agent by the Corporation under the non-exclusivity provisions of the
Code and the Charter Documents.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant
to Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent for an accounting of
profits made from the purchase or sale by Agent of securities of the
Corporation pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any federal, state or local statutory law;
(b) on account of Agent's conduct that was knowingly
fraudulent or deliberately dishonest or that constituted willful
misconduct;
(c) on account of Agent's conduct that constituted a breach of
Agent's duty of loyalty to the Corporation or resulted in any personal
profit or advan tage to which Agent was not legally entitled;
(d) for which payment is actually made to Agent under a valid
and collectible insurance policy or under a valid and enforceable
indemnity clause, bylaw or agreement, except in respect of any excess
beyond payment under such insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect,
both the Corporation and Agent have been advised that the Securities
and Exchange Commission believes that indemnification for liabilities
arising under the federal securities laws is against public policy and
is, therefore, unenforceable and that claims for indemnification should
be submitted to appropriate courts for adjudication);
(f) if indemnification is not authorized in the specific case
upon a determination that indemnification is proper in the
circumstances because the Agent has met the standard of conduct
required by the Code, as applicable, which determination shall be made
by a majority of directors who are not
3
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party to the action or a committee designated by such directors,
independent legal counsel or the stockholders; or
(g) in connection with any proceeding (or part thereof)
initiated by Agent, or any proceeding by Agent against the Corporation
or its directors, officers, employees or other agents, unless (i) such
indemnification is ex pressly required to be made by law, (ii) the
proceeding was authorized by the Board of Directors of the Corporation,
(iii) such indemnification is provided by the Corporation, in its sole
discretion, pursuant to the powers vested in the Corporation under the
Code, or (iv) the proceeding is initiated pursuant to Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations
of the Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and amounts
paid in settlement and any other amounts that Agent becomes legally obligated to
pay in connection with any action, suit or proceeding referred to in Section 3
hereof even if not entitled hereunder to indemnification for the total amount
thereof, and the Corporation shall indemnify Agent for the portion thereof to
which Agent is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty
(30) days after receipt by Agent of notice of the commencement of any action,
suit or proceeding, Agent will, if a claim in respect thereof is to be made
against the Corporation under this Agreement, notify the Corporation of the
commencement thereof; but the omission so to notify the Corporation will not
relieve it from any liability which it may have to Agent otherwise than under
this Agreement. With respect to any such action, suit or proceeding as to which
Agent notifies the Corporation of the commencement thereof:
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(a) the Corporation will be entitled to participate therein at
its own expense;
(b) except as otherwise provided below, the Corporation may,
at its option and jointly with any other indemnifying party similarly
notified and electing to assume such defense, assume the defense
thereof, with counsel reasonably satisfactory to Agent. After notice
from the Corporation to Agent of its election to assume the defense
thereof, the Corporation will not be liable to Agent under this
Agreement for any legal or other expenses subse quently incurred by
Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have
the right to employ separate counsel in such action, suit or proceeding
but the fees and expenses of such counsel incurred after notice from
the Corporation of its assumption of the defense thereof shall be at
the expense of Agent unless (i) the employment of counsel by Agent has
been authorized by the Corporation, (ii) Agent shall have reasonably
concluded that there may be a conflict of interest between the
Corporation and Agent in the conduct of the defense of such action or
(iii) the Corporation shall not in fact have employed counsel to assume
the defense of such action, in each of which cases the fees and
expenses of Agent's separate counsel shall be at the expense of the
Corporation. The Corporation shall not be entitled to assume the
defense of any action, suit or proceeding brought by or on behalf of
the Corporation or as to which Agent shall have made the conclusion
provided for in clause (ii) above; and
(c) the Corporation shall not be liable to indemnify Agent
under this Agreement for any amounts paid in settlement of any action
or claim effected without its written consent, which shall not be
unreasonably withheld. The Corporation shall be permitted to settle any
action except that it shall not settle any action or claim in any
manner which would impose any penalty or limitation on Agent without
Agent's written consent, which may be given or withheld in Agent's sole
discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an undertak
ing by or on behalf of Agent to repay said amounts if it shall be determined
ulti mately that Agent is not entitled to be indemnified under the provisions of
this Agreement, the Charter Documents, the Code or otherwise.
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<PAGE>
9. ENFORCEMENT. Any right to indemnification, advances or
insurance recovery granted by this Agreement or any other agreement or provision
contained in a Charter Document now or hereafter in effect to Agent shall be
enforceable by or on behalf of Agent in any court of competent jurisdiction if
(i) the claim for indemnification, advances or insurance recovery is denied, in
whole or in part, or (ii) no disposition of such claim is made within ninety
(90) days of request therefor. Agent, in such enforcement action, if successful
in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any action for which a claim for
indemnification is made under Section 3 hereof (other than an action brought to
enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of Directors
or its shareholders) to have made a determination prior to the commence ment of
such enforcement action that indemnification of Agent is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its shareholders) that such indemnification is improper
shall be a defense to the action or create a presumption that Agent is not
entitled to indemnifi cation under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agree
ment, the Corporation shall be surrogated to the extent of such payment to all
of the rights of recovery of Agent, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent
by this Agreement shall not be exclusive of any other right which Agent may have
or hereafter acquire under any statute, provision of the Charter Documents,
agreement, vote of shareholders or directors, or otherwise, both as to action in
his official capacity and as to action in another capacity while holding office.
12. BURDEN OF PROOF. In connection with any determination as
to whether the Agent is entitled to be indemnified hereunder the burden of proof
shall be on the Company to establish that Agent is not so entitled.
13. LIABILITY INSURANCE. To the extent the Company main tains
an insurance policy or policies providing directors' and officers' liability
insurance, Agent shall be covered by such policy or policies, in accordance with
its
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<PAGE>
or their terms, to the maximum extent of coverage available to any Company
director of officer.
13. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall
continue after Agent has ceased to be a director, officer, employee or
other agent of the Corporation or to serve at the request of the
Corporation as a director, officer, employee or other agent of another
corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise and shall inure to the benefit of Agent's heirs,
executors and administrators.
(b) The Corporation shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substan tially all of the business or assets of the Corporation,
expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required to
perform if no such succession had taken place.
14. SEPARABILITY. Each of the provisions of this Agreement is
a separate and distinct agreement and independent of the others, so that if any
provi sion hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Charter Documents, the Code or any other
applicable law.
15. GOVERNING LAW. This Agreement shall be interpreted and
enforced in accordance with the laws of the State of California prior to the
Company's reincorporation into Delaware, and following such reincorporation,
in accordance with the laws of the State of Delaware.
16. AMENDMENT AND TERMINATION. No amendment,
modification, termination or cancellation of this Agreement shall be effective
unless in writing signed by both parties hereto.
17. IDENTICAL COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed
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<PAGE>
to be an original but all of which together shall constitute but one and the
same Agreement.
18. HEADINGS. The headings of the sections of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction hereof.
19. NOTICES. All notices, requests, demands and other
communica tions hereunder shall be in writing and shall be deemed to have been
duly given (i) upon delivery if delivered by hand to the party to whom such
communication was directed, (ii) upon the third business day after the date on
which such communication was mailed if mailed by certified or registered mail
with postage prepaid, (iii) upon the first business day after the date on which
such communication was sent by a nationally recognized overnight delivery
service, with delivery confirmed, or (iv) upon delivery by facsimile, with
receipt confirmed, addressed as follows:
(a) If to Agent, at the address indicated on the signature
page hereof.
(b) If to the Corporation, to
Tumbleweed Software Corporation
2010 Broadway
Redwood City, California 94063
Attention: President and CEO
Fax: (650) 369-7197
or to such other address as may have been furnished to Agent by the Corporation.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
TUMBLEWEED SOFTWARE CORPORATION
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
AGENT
By:
---------------------------------------
Print Name:
----------------------------
Address:
-------------------------------
-------------------------------
-------------------------------
Fax:
--------------------------------
9
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Exhibit 10.2
TUMBLEWEED SOFTWARE CORPORATION
1993 STOCK OPTION PLAN
ADOPTED SEPTEMBER 30, 1993
APPROVED BY THE SHAREHOLDERS SEPTEMBER 30, 1993
AMENDED FEBRUARY 26, 1996
APPROVED BY THE SHAREHOLDERS FEBRUARY 26, 1996
AMENDED OCTOBER 15, 1996
APPROVED BY THE SHAREHOLDERS AUGUST 5, 1997
AMENDED SEPTEMBER 15, 1998
APPROVED BY THE SHAREHOLDERS OCTOBER 21, 1998
AMENDED MAY 24, 1999
APPROVED BY THE SHAREHOLDERS MAY 24, 1999
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to purchase stock of the Company.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Options issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either Incentive Stock Options or Nonstatutory Stock Options. All Options shall
be separately designated Incentive Stock Options or Nonstatutory Stock
<PAGE>
Options at the time of grant, and in such form as issued pursuant to Section 6,
and a separate certificate or certificates will be issued for shares purchased
on exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "COMPANY" means Tumbleweed Software Corporation, a California
corporation.
(f) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
the employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave, or any other personal leave; or (ii) transfers between
locations of the Company or between the Company, Affiliates or their successors.
(h) "DIRECTOR" means a member of the Board.
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(i) "DISINTERESTED PERSON" means a Director: (i) who was not during the
one year prior to service as an administrator of the Plan granted or awarded
equity securities pursuant to the Plan or any other plan of the Company or any
of its affiliates entitling the participants therein to acquire
equity securities of the Company or any of its affiliates except as permitted by
Rule 16b-3(c)(2)(i); or (ii) who is otherwise considered to be a "disinterested
person" in accordance with Rule 16b- 3(c)(2)(i), or any other applicable rules,
regulations or interpretations of the Securities and Exchange Commission.
(j) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of the common
stock of the Company determined as follows:
(1) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a share of common stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in common stock) on the last market trading day prior
to the day of determination, as reporting in the Wall Street Journal or such
other source as the Board deems reliable;
(2) If the common stock is quoted on the NASDAQ System (but
not on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling
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<PAGE>
prices are not reported, the Fair Market Value of a share of common stock shall
be the mean between the bid and asked prices for the common stock on the last
market trading day prior to the day of determination, as reported in the Wall
Street Journal or such other source as the Board deems reliable;
(3) In the absence of an established market for the common
stock, the Fair Market Value shall be determined in good faith by the Board.
(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(n) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(o) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "OPTION" means a stock option granted pursuant to the Plan.
(q) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(r) "OPTIONED STOCK" means the common stock of the Company subject to
an Option.
(s) "OPTIONEE" means an Employee, Director or Consultant who holds an
outstanding Option.
(t) "PLAN" means this 1993 Stock Option Plan.
(u) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
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3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons
eligible under the Plan shall be granted Options; when and how each Option shall
be granted; whether an Option will be an Incentive Stock Option or a
Nonstatutory Stock Option; the provisions of each Option granted (which need not
be identical), including the time or times such Option may be exercised in whole
or in part; and the number of shares for which an Option shall be granted to
each such person.
(2) To construe and interpret the Plan and Options granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(3) To amend the Plan as provided in Section 11.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the members
of which Committee shall be Disinterested Persons if required by the provisions
of subsection 3(d). If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board (and references in this Plan to the Board
shall thereafter be to the Committee), subject, however, to such resolutions,
not inconsistent with the provisions of
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<PAGE>
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan. Additionally, prior to the date of the first registration of an equity
security of the Company under Section 12 of the Exchange Act, and
notwithstanding anything to the contrary contained herein, the Board may
delegate administration of the Plan to any person or persons and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated.
(d) Any requirement that an administrator of the Plan be a
Disinterested Person shall not apply (i) prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, or (ii) if the Board or the Committee expressly declares that such
requirement shall not apply. Any Disinterested Person shall otherwise comply
with the requirements of Rule 16b-3.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to Options shall not
exceed in the aggregate three million one hundred eighteen thousand five hundred
(3,618,500) shares of the Company's common stock. If any Option shall for any
reason expire or otherwise terminate, in whole or in part, without having been
exercised in full, the stock not purchased under such Option shall revert to and
again become available for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
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<PAGE>
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees.
Nonstatutory Stock Options may be granted only to Employees, Directors or
Consultants.
(b) A Director shall in no event be eligible for the benefits of the
Plan unless at the time discretion is exercised in the selection of the Director
as a person to whom Options may be granted, or in the determination of the
number of shares which may be covered by Options granted to the Director: (i)
the Board has delegated its discretionary authority over the Plan to a Committee
which consists solely of Disinterested Persons; or (ii) the Plan otherwise
complies with the requirements of Rule 16b-3. The Board shall otherwise comply
with the requirements of Rule 16b-3. This subsection 5(b) shall not apply (i)
prior to the date of the first registration of an equity security of the Company
under Section 12 of the Exchange Act, or (ii) if the Board or Committee
expressly declares that it shall not apply.
(c) No person shall be eligible for the grant of an Option if, at the
time of grant, such person owns (or is deemed to own pursuant to Section 424(d)
of the Code) stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or of any of its Affiliates
unless the exercise price of such Option is at least one hundred ten percent
(110%) of the Fair Market Value of such stock at the date of grant and the
Option is not exercisable after the expiration of five (5) years from the date
of grant.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option
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<PAGE>
shall include (through incorporation of provisions hereof by reference in the
Option or otherwise) the substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted. The exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the stock subject to the Option on the date the
Option is granted.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the option is exercised, or (ii) at
the discretion of the Board or the Committee, either at the time of the grant or
exercise of the Option, (A) by delivery to the Company of other common stock of
the Company, (B) according to a deferred payment or other arrangement (which may
include, without limiting the generality of the foregoing, the use of other
common stock of the Company) with the person to whom the Option is granted or to
whom the Option is transferred pursuant to subsection 6(d), or (C) in any other
form of legal consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement in connection with the
exercise of an Incentive Stock Option, interest shall be payable at least
annually and shall be charged at the minimum rate of interest necessary to avoid
the treatment as interest, under any applicable provisions of the Code, of any
amounts other than amounts stated to be interest under the deferred payment
arrangement.
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<PAGE>
(d) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option shall
not be transferable except by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code or Title
I of the Employee Retirement Income Security Act, or the rules thereunder (a
"QDRO"), and shall be exercisable during the lifetime of the person to whom the
Option is granted only by such person or any transferee pursuant to a QDRO. The
person to whom the Option is granted may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who, in
the event of the death of the Optionee, shall thereafter be entitled to exercise
the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The vesting provisions of
individual Options may vary but in each case will provide for vesting of at
least twenty percent (20%) per year of the total number of shares subject to the
Option. The provisions of this subsection 6(e) are subject to any Option
provisions governing the minimum number of shares as to which an Option may be
exercised.
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<PAGE>
(f) SECURITIES LAW COMPLIANCE. The Company may require any Optionee, or
any person to whom an Option is transferred under subsection 6(d), as a
condition of exercising any such Option, (1) to give written assurances
satisfactory to the Company as to the Optionee's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters, and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the Option; and (2) to give written assurances satisfactory to the
Company stating that such person is acquiring the stock subject to the Option
for such person's own account and not with any present intention of selling or
otherwise distributing the stock. The foregoing requirements, and any assurances
given pursuant to such requirements, shall be inoperative if (i) the issuance of
the shares upon the exercise of the Option has been registered under a then
currently effective registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), or (ii) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.
(g) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option but only within such
period of time as is determined by the Board, and only to the extent that the
Optionee
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<PAGE>
was entitled to exercise it at the date of termination (but in no event later
than the expiration of the term of such Option as set forth in the Option
Agreement). In the case of an Incentive Stock Option, the Board shall determine
such period of time (in no event to exceed three (3) months from the date of
termination, which in no event shall be less than thirty (30) days) when the
Option is granted. If, after termination, the Optionee does not exercise his or
her Option within the time specified in the Option Agreement, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(h) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period, which in no event shall be less than six (6) months), or (ii)
the expiration of the term of the Option as set forth in the Option Agreement.
If, at the date of termination, the Optionee is not entitled to exercise his or
her entire Option, the shares covered by the unexercisable portion of the Option
shall revert to and again become available for issuance under the Plan. If,
after termination, the Optionee does not exercise his or her Option within the
time specified herein, the Option shall terminate, and the shares covered by
such Option shall revert to and again become available for issuance under the
Plan.
(i) DEATH OF OPTIONEE. In the event of the death of an optionee, the
Option may be exercised, at any time within twelve (12) months following the
date of death (or such shorter period specified in the Option Agreement) (but in
no event later than the expiration of the term of such Option as set forth in
the Option Agreement), by the Optionee's estate or by a person who acquired
11
<PAGE>
the right to exercise the Option by bequest or inheritance, but only to the
extent the optionee was entitled to exercise the Option at the date of death.
If, at the time of death, the Optionee was not entitled to exercise his or her
entire Option, the shares covered by the unexercisable portion of the Option
shall revert to the Plan. If, after death, the Optionee's estate or a person who
acquired the right to exercise the Option by bequest or inheritance does not
exercise the Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to the Plan.
(j) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
(k) WITHHOLDING. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such Option by any of the following means
or by a combination of such means: (1) tendering a cash payment; (2) authorizing
the Company to withhold shares from the shares of the common stock otherwise
issuable to the participant as a result of the exercise of the Option; or (3)
delivering to the Company owned and unencumbered shares of the common stock of
the Company.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the Options, the Company shall keep available
at all times the number of shares of stock required to satisfy such Options.
12
<PAGE>
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Options; PROVIDED, HOWEVER,
that this undertaking shall not require the Company to register under the
Securities Act either the Plan, any Option or any stock issued or issuable
pursuant to any such Option. If, after reasonable efforts, the Company is unable
to obtain from any such regulatory commission or agency the authority which
counsel for the Company deems necessary for the lawful issuance and sale of
stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Options unless and until
such authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an Optionee nor any person to whom an Option is transferred
under subsection 6(d) shall be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject to such Option unless and
until such person has satisfied all requirements for exercise of the Option
pursuant to its terms.
(b) Throughout the term of any Option, the Company shall deliver to the
holder of such Option, not later than one hundred twenty (120) days after the
close of each of the Company's fiscal years during the Option term, a balance
sheet and an income statement.
(c) Nothing in the Plan or any instrument executed or Option granted
pursuant thereto shall confer upon any Employee, Director, Consultant or
Optionee any right to continue in the
13
<PAGE>
employ of the Company or any Affiliate (or to continue acting as a Director or
Consultant) or shall affect the right of the Company or any Affiliate to
terminate the employment or relationship as a Director or Consultant of any
Employee, Director, Consultant or Optionee with or without cause.
(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options
granted after 1986 are exercisable for the first time by any Optionee during any
calendar year under all plans of the Company and its Affiliates exceeds one
hundred thousand dollars ($100,000), the Options or portions thereof which
exceed such limit (according to the order in which they were granted) shall be
treated as Nonstatutory Stock Options.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any Option (through merger, consolidation, reorganization, recapitalization,
stock dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or otherwise), the Plan and outstanding Options will be appropriately
adjusted in the class(es) and maximum number of shares subject to the Plan and
the class(es) and number of shares and price per share of stock subject to
outstanding Options.
(b) In the event of: (1) a merger or consolidation in which the Company
is not the surviving corporation or (2) a reverse merger in which the Company is
the surviving corporation but the shares of the Company's common stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or otherwise
then to the extent permitted by applicable law: (i) any surviving corporation
shall assume any Options outstanding under the Plan or shall substitute similar
Options for those outstanding
14
<PAGE>
under the Plan, or (ii) such Options shall continue in full force and effect. In
the event any surviving corporation refuses to assume or continue such Options,
or to substitute similar options for those outstanding under the Plan, then such
Options shall be terminated if not exercised prior to such event. In the event
of a dissolution or liquidation of the Company, any Options outstanding under
the Plan shall terminate if not exercised prior to such event.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 10 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(1) Increase the number of shares reserved for Options under
the Plan;
(2) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to satisfy the requirements of Section 422 of the
Code); or
(3) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code, comply with the stockholder approval requirements of
Section 162(m) of the Code or to comply with the requirements of Rule 16b-3.
(b) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide Optionees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating
15
<PAGE>
to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock
Options granted under it into compliance therewith.
(c) Rights and obligations under any Option granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Option was
granted and (ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on September 30, 2003. No Options
may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) Rights and obligations under any Option granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the Option was granted.
13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Options granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board,
and, if required, an appropriate permit has been issued by the Commissioner of
Corporations of the State of California.
16
<PAGE>
INCENTIVE STOCK OPTION
____________________, OPTIONEE:
TUMBLEWEED SOFTWARE CORPORATION (the "Company"), pursuant to its 1993
Stock Option Plan (the "Plan") has this day granted to you, the optionee named
above, an option to purchase shares of the common stock of the Company ("Common
Stock"). This option is intended to qualify as an "incentive stock option"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's employees
(including officers), directors or consultants and is intended to comply with
the provisions of Rule 701 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act").
The details of your option are as follows:
1. The total number of shares of Common Stock subject to this option is
__________ (______). Subject to the limitations contained herein, this option
shall be exercisable with respect to each installment shown below on or after
the date of vesting applicable to such installment, as follows:
NUMBER OF SHARES (INSTALLMENT) DATE OF EARLIEST EXERCISE (VESTING)
2. (a) The exercise price of this option is fifty cents ($0.50) per
share, being not less than the fair market value of the Common Stock on the date
of grant of this option.
(b) Payment of the exercise price per share is due in full
upon exercise of all or any part of each installment which has accrued to you.
You may elect, to the extent permitted by applicable statutes and regulations,
to make payment of the exercise price under one of the following alternatives:
(i) Payment of the exercise price per share in cash (including
check) at the time of exercise; or
<PAGE>
(ii) Payment pursuant to a program developed under Regulation
T as promulgated by the Federal Reserve Board which results in the receipt of
cash (or check) by the Company prior to the issuance of Common Stock.
3. This option may not be exercised for any number of shares which
would require the issuance of anything other than whole shares.
4. Notwithstanding anything to the contrary contained herein, this
option may not be exercised unless the shares issuable upon exercise of this
option are then registered under the Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Act.
5. The term of this option commences on the date hereof and, unless
sooner terminated as set forth below or in the Plan, terminates on __________
(which date shall be no more than ten (10) years from the date this option is
granted). In no event may this option be exercised on or after the date on which
it terminates. This option shall terminate prior to the expiration of its term
as follows: three (3) months after the termination of your employment with the
Company or an affiliate of the Company (as defined in the Plan) for any reason
or for no reason unless:
(a) such termination of employment is due to your disability,
in which event the option shall terminate on the earlier of the termination date
set forth above or twelve (12) months following such termination of employment
(or such longer or shorter period, which in no event shall be less than six (6)
months); or
(b) such termination of employment is due to your death, in
which event the option shall terminate on the earlier of the termination date
set forth above or twelve (12) months after your death; or
(c) during any part of such three (3) month period the option
is not exercisable solely because of the condition set forth in paragraph 4
above, in which event the option shall not terminate until the earlier of the
termination date set forth above or until it shall have been exercisable for an
aggregate period of three (3) months after the termination of employment; or
(d) exercise of the option within three (3) months after
termination of your employment with the Company or with an affiliate would
result in liability under section 16(b) of the Securities Exchange Act of 1934,
in which case the option will terminate on the earlier of (i) the termination
date set forth above, (ii) the tenth (10th) day after the last date upon which
exercise would result in such liability or (iii) six (6) months and ten (10)
days after the termination of your employment with the Company or an affiliate.
However, this option may be exercised following termination of
employment only as to that number of shares as to which it was exercisable on
the date of termination of employment under the provisions of paragraph 1 of
this option.
2
<PAGE>
6. (a) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then require pursuant to subparagraph
6(f) of the Plan.
(b) By exercising this option you agree that:
(i) the Company may require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (A) the exercise of this option;
(B) the lapse of any substantial risk of forfeiture to which the shares are
subject at the time of exercise; or (C) the disposition of shares acquired upon
such exercise;
(ii) you will notify the Company in writing within fifteen
(15) days after the date of any disposition of any of the shares of the Common
Stock issued upon exercise of this option that occurs within two (2) years after
the date of this option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of this option; and
(iii) the Company (or a representative of the underwriters)
may, in connection with the first underwritten registration of the offering of
any securities of the Company under the Act, require that you not sell or
otherwise transfer or dispose of any shares of Common Stock or other securities
of the Company during such period (not to exceed one hundred eighty (180) days)
following the effective date (the "Effective Date") of the registration
statement of the Company filed under the Act as may be requested by the Company
or the representative of the underwriters. For purposes of this restriction you
will be deemed to own securities which (1) are owned directly or indirectly by
you, including securities held for your benefit by nominees, custodians, brokers
or pledgees; (2) may be acquired by you within sixty (60) days of the Effective
Date; (3) are owned directly or indirectly, by or for your brothers or sisters
(whether by whole or half blood) spouse, ancestors and lineal descendants; or
(4) are owned, directly or indirectly, by or for a corporation, partnership,
estate or trust of which you are a shareholder, partner or beneficiary, but only
to the extent of your proportionate interest therein as a shareholder, partner
or beneficiary thereof. You further agree that the Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such period.
7. This option is not transferable, except by will or by the laws of
descent and distribution, and is exercisable during your life only by you.
8. This option is not an employment contract and nothing in this option
shall be deemed to create in any way whatsoever any obligation on your part to
continue in the employ of the Company, or of the Company to continue your
employment with the Company.
9. Any notices provided for in this option or the Plan shall be given
in writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you,
3
<PAGE>
five (5) days after deposit in the United States mail, postage prepaid,
addressed to you at the address specified below or at such other address as you
hereafter designate by written notice to the Company.
10. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto and its provisions are hereby made a part of this
option, including without limitation the provisions of paragraph 6 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.
Dated the .
-------------
Very truly yours,
TUMBLEWEED SOFTWARE CORPORATION
By
---------------------------------------
Duly authorized on behalf of the Board
of Directors
ATTACHMENTS:
1993 Stock Option Plan
Notice of Exercise
4
<PAGE>
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionee and the Company
and its affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the undersigned
under stock option plans of the Company, and (ii) the following agreements only:
NONE
---------------------
(Initial)
OTHER
------------------------------
------------------------------
------------------------------
, OPTIONEE
-------------------
Address:
-------------------
-------------------
5
<PAGE>
NOTICE OF EXERCISE
Tumbleweed Software Corporation
2010 Broadway, Suite 200
Redwood City, CA 94063
Date of Exercise:
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase
the number of shares for the price set forth below.
Type of option (check one): Incentive / / Nonstatutory / /
Stock option dated: ________________________
Number of shares as
to which option is
exercised: ________________________
Certificates to be
issued in name of: ________________________
Total exercise price: $_______________________
Cash payment delivered
herewith: $_______________________
By this exercise, I agree (i) to provide such additional documents as
you may require pursuant to the terms of the 1993 Stock Option Plan, (ii) to
provide for the payment by me to you (in the manner designated by you) of your
withholding obligation, if any, relating to the exercise of this option, and
(iii) if this exercise relates to an incentive stock option, to notify you in
writing within fifteen (15) days after the date of any disposition of any shares
of Common Stock issued upon exercise of this option that occurs within two (2)
years after the date of grant of this option or within one (1) year after such
shares of Common Stock are issued upon exercise of this option.
I hereby make the following certifications and representations with
respect to the number of shares of Common Stock of the Company listed above (the
"Shares"), which are being acquired by me for my own account upon exercise of
the Option as set forth above:
6
<PAGE>
I acknowledge that the Shares have not been registered under the
Securities Act of 1933, as amended (the "Act"), and are deemed to constitute
"restricted securities" under Rule 701 and "control securities" under Rule 144
promulgated under the Act. I warrant and represent to the Company that I have no
present intention of distributing or selling said Shares, except as permitted
under the Act and any applicable state securities laws.
I further acknowledge that I will not be able to resell the Shares for
at least ninety days after the stock of the Company becomes publicly traded
(i.e., subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934) under Rule 701 and that more restrictive
conditions apply to affiliates of the Company under Rule 144.
I further acknowledge that all certificates representing any of the
Shares subject to the provisions of the Option shall have endorsed thereon
appropriate legends reflecting the foregoing limitations, as well as any legends
reflecting restrictions pursuant to the Company's Articles of Incorporation,
Bylaws and/or applicable securities laws.
I further agree that, if required by the Company (or a representative
of the underwriters) in connection with the first underwritten registration of
the offering of any securities of the Company under the Act, I will not sell or
otherwise transfer or dispose of any shares of Common Stock or other securities
of the Company during such period (not to exceed one hundred eighty (180) days)
following the effective date of the registration statement of the Company filed
under the Act (the "Effective Date") as may be requested by the Company or the
representative of the underwriters. For purposes of this restriction I will be
deemed to own securities that (i) are owned directly or indirectly by me,
including securities held for my benefit by nominees, custodians, brokers or
pledgees; (ii) may be acquired by me within sixty (60) days of the Effective
Date; (iii) are owned directly or indirectly, by or for my brothers or sisters
(whether by whole or half blood), spouse, ancestors and lineal descendants; or
(iv) are owned, directly or indirectly, by or for a corporation, partnership,
estate or trust of which I am a shareholder, partner or beneficiary, but only to
the extent of my proportionate interest therein as a shareholder, partner or
beneficiary thereof. I further agree that the Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such period.
Very truly yours,
------------------
7
<PAGE>
NONSTATUTORY STOCK OPTION
__________________, Optionee:
TUMBLEWEED SOFTWARE CORPORATION (the "Company"), pursuant to its 1993
Stock Option Plan (the "Plan") has this day granted to you, the optionee named
above, an option to purchase shares of the common stock of the Company ("Common
Stock"). This option is not intended to qualify and will not be treated as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's employees
(including officers), directors or consultants and is intended to comply with
the provisions of Rule 701 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act").
The details of your option are as follows:
1. The total number of shares of Common Stock subject to this option is
_______________ (_________). Subject to the limitations contained herein, this
option shall be exercisable with respect to each installment shown below on or
after the date of vesting applicable to such installment, as follows:
NUMBER OF SHARES (INSTALLMENT) DATE OF EARLIEST EXERCISE (VESTING)
2. (a) The exercise price of this option is ___________ ($_____) per
share, being not less than 85% of the fair market value of the Common Stock on
the date of grant of this option.
(b) Payment of the exercise price per share is due in full
upon exercise of all or any part of each installment which has accrued to you.
You may elect, to the extent permitted by applicable statutes and regulations,
to make payment of the exercise price under one of the following alternatives:
<PAGE>
(i) Payment of the exercise price per share in cash
(including check) at the time of exercise; or
(ii) Payment pursuant to a program developed under
Regulation T as promulgated by the Federal Reserve Board which results in the
receipt of cash (or check) by the Company prior to the issuance of Common Stock.
3. This option may not be exercised for any number of shares which
would require the issuance of anything other than whole shares.
4. Notwithstanding anything to the contrary contained herein, this
option may not be exercised unless the shares issuable upon exercise of this
option are then registered under the Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Act.
5. The term of this option commences on the date hereof and, unless
sooner terminated as set forth below or in the Plan, terminates on
_______________, 20____ (which date shall be no more than ten (10) years from
the date this option is granted). In no event may this option be exercised on or
after the date on which it terminates. This option shall terminate prior to the
expiration of its term as follows: three (3) months after the termination of
your employment with the Company or an affiliate of the Company (as defined in
the Plan) for any reason or for no reason unless:
(a) such termination of employment is due to your disability,
in which event the option shall terminate on the earlier of the termination date
set forth above or twelve (12) months following such termination of employment
(or such longer or shorter period, which in no event shall be less than six (6)
months); or
(b) such termination of employment is due to your death, in
which event the option shall terminate on the earlier of the termination date
set forth above or twelve (12) months after your death; or
(c) during any part of such three (3) month period the option
is not exercisable solely because of the condition set forth in paragraph 4
above, in which event the option shall not terminate until the earlier of the
termination date set forth above or until it shall have been exercisable for an
aggregate period of three (3) months after the termination of employment; or
(d) exercise of the option within three (3) months after
termination of your employment with the Company or with an affiliate would
result in liability under section 16(b) of the Securities Exchange Act of 1934,
in which case the option will terminate on the earlier of (i) the termination
date set forth above, (ii) the tenth (10th) day after the last date upon which
exercise would result in such liability or (iii) six (6) months and ten (10)
days after the termination of your employment with the Company or an affiliate.
2
<PAGE>
However, this option may be exercised following termination of
employment only as to that number of shares as to which it was exercisable on
the date of termination of employment under the provisions of paragraph 1 of
this option.
6. (a) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then require pursuant to paragraph 6 of
the Plan.
(b) By exercising this option you agree that:
(i) the Company may require you to enter an arrangement
providing for the cash payment by you to the Company of any tax withholding
obligation of the Company arising by reason of: (1) the exercise of this option;
(2) the lapse of any substantial risk of forfeiture to which the shares are
subject at the time of exercise; or (3) the disposition of shares acquired upon
such exercise; and
(ii) the Company (or a representative of the underwriters)
may, in connection with the first underwritten registration of the offering of
any securities of the Company under the Act, require that you not sell or
otherwise transfer or dispose of any shares of Common Stock or other securities
of the Company during such period (not to exceed one hundred eighty (180) days)
following the effective date (the "Effective Date") of the registration
statement of the Company filed under the Act as may be requested by the Company
or the representative of the underwriters. For purposes of this restriction you
will be deemed to own securities which (i) are owned directly or indirectly by
you, including securities held for your benefit by nominees, custodians, brokers
or pledgees; (ii) may be acquired by you within sixty (60) days of the Effective
Date; (iii) are owned directly or indirectly, by or for your brothers or sisters
(whether by whole or half blood) spouse, ancestors and lineal descendants; or
(iv) are owned, directly or indirectly, by or for a corporation, partnership,
estate or trust of which you are a shareholder, partner or beneficiary, but only
to the extent of your proportionate interest therein as a shareholder, partner
or beneficiary thereof. You further agree that the Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such period.
7. This option is not transferable, except by will or by the laws of
descent and distribution, and is exercisable during your life only by you. By
delivering written notice to the Company, in a form satisfactory to the Company,
you may designate a third party who, in the event of your death, shall
thereafter be entitled to exercise this option.
8. This option is not an employment contract and nothing in this option
shall be deemed to create in any way whatsoever any obligation on your part to
continue in the employ of the Company, or of the Company to continue your
employment with the Company. In the event that this option is granted to you in
connection with the performance of services as a consultant or director,
references to employment, employee and similar terms shall be deemed to include
the
3
<PAGE>
performance of services as a consultant or a director, as the case may be,
provided, however, that no rights as an employee shall arise by reason of the
use of such terms.
4
<PAGE>
9. Any notices provided for in this option or the Plan shall be given
in writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed to you at the address specified
below or at such other address as you hereafter designate by written notice to
the Company.
10. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto and its provisions are hereby made a part of this
option, including without limitation the provisions of paragraph 6 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.
Dated the _______ day of _______________, 1998.
Very truly yours,
TUMBLEWEED SOFTWARE CORPORATION
By
---------------------------------
Duly authorized on behalf
of the Board of Directors
ATTACHMENTS:
1993 Stock Option Plan
Notice of Exercise
5
<PAGE>
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionee and the Company
and its affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the undersigned
under stock option plans of the Company, and (ii) the following agreements only:
NONE
--------------------
(Initial)
OTHER
--------------------------------
--------------------------------
--------------------------------
----------------------------------------
, OPTIONEE
---------------------
Address:
------------------------------
------------------------------
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NOTICE OF EXERCISE
Tumbleweed Software Corporation
2010 Broadway, Suite 200
Redwood City, CA 94063
Date of Exercise:
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase
the number of shares for the price set forth below.
Type of option (check one): Incentive / / Nonstatutory / /
Stock option dated: ______________________
Number of shares as
to which option is
exercised: ______________________
Certificates to be
issued in name of: ______________________
Total exercise price: $______________________
Cash payment delivered
herewith: $______________________
By this exercise, I agree (i) to provide such additional documents as
you may require pursuant to the terms of the 1993 Stock Option Plan, (ii) to
provide for the payment by me to you (in the manner designated by you) of your
withholding obligation, if any, relating to the exercise of this option, and
(iii) if this exercise relates to an incentive stock option, to notify you in
writing within fifteen (15) days after the date of any disposition of any shares
of Common Stock issued upon exercise of this option that occurs within two (2)
years after the date of grant of this option or within one (1) year after such
shares of Common Stock are issued upon exercise of this option.
I hereby make the following certifications and representations with
respect to the number of shares of Common Stock of the Company listed above (the
"Shares"), which are being acquired by me for my own account upon exercise of
the Option as set forth above:
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I acknowledge that the Shares have not been registered under the
Securities Act of 1933, as amended (the "Act"), and are deemed to constitute
"restricted securities" under Rule 701 and "control securities" under Rule 144
promulgated under the Act. I warrant and represent to the Company that I have no
present intention of distributing or selling said Shares, except as permitted
under the Act and any applicable state securities laws.
I further acknowledge that I will not be able to resell the Shares for
at least ninety days after the stock of the Company becomes publicly traded
(I.E., subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934) under Rule 701 and that more restrictive
conditions apply to affiliates of the Company under Rule 144.
I further acknowledge that all certificates representing any of the
Shares subject to the provisions of the Option shall have endorsed thereon
appropriate legends reflecting the foregoing limitations, as well as any legends
reflecting restrictions pursuant to the Company's Articles of Incorporation,
Bylaws and/or applicable securities laws.
I further agree that, if required by the Company (or a representative
of the underwriters) in connection with the first underwritten registration of
the offering of any securities of the Company under the Act, I will not sell or
otherwise transfer or dispose of any shares of Common Stock or other securities
of the Company during such period (not to exceed one hundred eighty (180) days)
following the effective date of the registration statement of the Company filed
under the Act (the "Effective Date") as may be requested by the Company or the
representative of the underwriters. For purposes of this restriction I will be
deemed to own securities that (i) are owned directly or indirectly by me,
including securities held for my benefit by nominees, custodians, brokers or
pledgees; (ii) may be acquired by me within sixty (60) days of the Effective
Date; (iii) are owned directly or indirectly, by or for my brothers or sisters
(whether by whole or half blood), spouse, ancestors and lineal descendants; or
(iv) are owned, directly or indirectly, by or for a corporation, partnership,
estate or trust of which I am a shareholder, partner or beneficiary, but only to
the extent of my proportionate interest therein as a shareholder, partner or
beneficiary thereof. I further agree that the Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such period.
Very truly yours,
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Exhibit 10.3
TUMBLEWEED SOFTWARE CORPORATION
1999 OMNIBUS STOCK INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the Tumbleweed Software
Corporation 1999 Omnibus Stock Incentive Plan (the "Plan"). The Plan was
adopted by the Board (defined below) on May 27, 1999 subject to the approval
of the stockholders of the Company (defined below). The purpose of the Plan
is to enable the Company to attract and retain highly qualified personnel who
will contribute to the Company's success and to provide incentives to
Participants (defined below) that are linked directly to increases in
stockholder value and will therefore inure to the benefit of all stockholders
of the Company.
For purposes of the Plan, the following terms shall be defined
as set forth below:
(1) "Administration" means the Board, or if and to the extent
the Board does not administer the Plan, the Committee in accordance with Section
2 below.
(2) "Board" means the Board of Directors of the Company.
(3) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor thereto.
(4) "Committee" means any committee the Board may appoint to
administer the Plan. To the extent necessary and desirable, the Committee shall
be composed entirely of individuals who meet the qualifications referred to in
Section 162(m) of the Code and Rule 16b-3 under the Exchange Act. If at any time
or to any extent the Board shall not administer the Plan, then the functions of
the Board specified in the Plan shall be exercised by the Committee.
(5) "Company" means Tumbleweed Software Corporation, a
Delaware corporation (or any successor corporation).
(6) "Deferred Stock" means the right to receive Stock at the
end of a specified deferral period granted pursuant to Section 7 below.
<PAGE>
(7) "Disability" means the inability of a Participant to
perform substantially his or her duties and responsibilities to the Company or
to any Parent or Subsidiary by reason of a physical or mental disability or
infirmity (i) for a continuous period of six months, or (ii) at such earlier
time as the Participant submits medical evidence satisfactory to the
Administrator that the Participant has a physical or mental disability or
infirmity that will likely prevent the Participant from returning to the
performance of the Participant's work duties for six months or longer. The date
of such Disability shall be the last day of such six-month period or the day on
which the Participant submits such satisfactory medical evidence, as the case
may be.
(8) "Eligible Recipient" means an officer, director, employee,
consultant or advisor of the Company or of any Parent or Subsidiary.
(9) "Employee Director" means any director of the Company who
is also an employee of the Company or of any Parent or Subsidiary.
(10) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time.
(11) "Fair Market Value" means, as of any given date, with
respect to any awards granted hereunder, (A) if the Stock is publicly traded,
the closing sale price of a share of Stock on such date as reported in the
Western Edition of the Wall Street Journal, or (B) the fair market value of a
share of Stock as determined in accordance with a method prescribed in the
agreement evidencing any award hereunder, (C) in the case of a Limited Stock
Appreciation Right, the per share "Change in Control Price" (as defined in the
agreement evidencing such Limited Stock Appreciation Right) of the Stock as of
the date of exercise or (D) the fair market value of a share of Stock as
otherwise determined by the Administrator in the good faith exercise of its
discretion.
(12) "Incentive Stock Option" means any Stock Option intended
to be designated as an "incentive stock option" within the meaning of Section
422 of the Code.
(13) "Limited Stock Appreciation Right" means a Stock
Appreciation Right that can be exercised only in the event of a "Change in
Control" (as defined in the award evidencing such Limited Stock Appreciation
Right).
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(14) "Non-Employee Director" means a director of the
Company who is not an employee of the Company or of any Parent or Subsidiary.
(15) "Non-Qualified Stock Option" means any Stock Option
that is not an Incentive Stock Option, including any Stock Option that
provides (as of the time such Stock Option is granted) that it will not be
treated as an Incentive Stock Option.
(16) "Parent" means any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company, if each of the
corporations in the chain (other than the Company) owns stock possessing 50% or
more of the combined voting power of all classes of stock in one of the other
corporations in the chain.
(17) "Participant" means (i) any Eligible Recipient
selected by the Administrator, pursuant to the Administrator's authority in
Section 2 below, to receive grants of Stock Options, Stock Appreciation
Rights, Limited Stock Appreciation Rights, awards of Restricted Stock,
Deferred Stock, or Performance Shares or any combination of the foregoing, or
(ii) any Non-Employee Director who is eligible to receive grants of Stock
Options pursuant to Section 5(9) below.
(18) "Performance Shares" means shares of Stock that are
subject to restrictions based upon the attainment of specified performance
objectives granted pursuant to Section 7 below.
(19) "Registration Statement" means the registration statement
on Form S-1 filed with the Securities and Exchange Commission for the initial
underwritten public offering of the Company's Stock.
(20) "Restricted Stock" means shares of Stock subject to
certain restrictions granted pursuant to Section 7 below.
(21) "Stock" means the common stock, par value $0.001 per
share, of the Company.
(22) "Stock Appreciation Right" means the right pursuant to an
award granted under Section 6 below to receive an amount equal to the excess, if
any, of (A) the Fair Market Value, as of the date such Stock Appreciation Right
or portion thereof is surrendered, of the shares of Stock covered by such right
or such
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<PAGE>
portion thereof, over (B) the aggregate exercise price of such right or such
portion thereof.
(23) "Stock Option" means an option to purchase shares of
Stock granted pursuant to Section 5 below.
(24) "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company, if
each of the corporations (other than the last corporation) in the unbroken chain
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered in accordance with the
requirements of Section 162(m) of the Code (but only to the extent necessary and
desirable to maintain qualification of awards under the Plan under Section
162(m) of the Code) and, to the extent applicable, Rule 16b-3 under the Exchange
Act ("Rule 16b-3"), by the Board or, at the Board's sole discretion, by the
Committee, which shall be appointed by the Board, and which shall serve at the
pleasure of the Board.
Pursuant to the terms of the Plan, the Administrator shall
have the power and authority to grant to Eligible Recipients pursuant to the
terms of the Plan: (a) Stock Options, (b) Stock Appreciation Rights or Limited
Stock Appreciation Rights, (c) awards of Restricted Stock, Deferred Stock or
Performance Shares or (d) any combination of the foregoing; PROVIDED, HOWEVER,
that automatic, nondiscretionary grants of Stock Options shall be made to
Non-Employee Directors pursuant to and in accordance with the terms of Section
5(9) below. Except as otherwise provided in Section 5(9) below, the
Administrator shall have the authority:
(a) to select those Eligible Recipients who shall be
Participants;
(b) to determine whether and to what extent Stock
Options, Stock Appreciation Rights, Limited Stock Appreciation Rights, awards of
Restricted Stock, Deferred Stock or Performance Shares or a combination of any
of the foregoing, are to be granted hereunder to Participants;
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<PAGE>
(c) to determine the number of shares of Stock to be
covered by each such award granted hereunder;
(d) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of each award granted hereunder
(including, but not limited to, (x) the restrictions applicable to awards of
Restricted Stock or Deferred Stock and the conditions under which restrictions
applicable to such awards of Restricted Stock or Deferred Stock shall lapse, and
(y) the performance goals and periods applicable to awards of Performance
Shares);
(e) to determine the terms and conditions, not
inconsistent with the terms of the Plan, which shall govern all written
instruments evidencing Stock Options, Stock Appreciation Rights, Limited
Stock Appreciation Rights, awards of Restricted Stock, Deferred Stock or
Performance Shares or any combination of the foregoing granted hereunder; and
(f) to reduce the option price of any Stock Option
to the then current Fair Market Value if the Fair Market Value of the Stock
covered by such Stock Option has declined since the date such Stock Option
was granted.
The Administrator shall have the authority, in its sole
discretion, to adopt, alter and repeal such administrative rules, guidelines and
practices governing the Plan as it shall from time to time deem advisable; to
interpret the terms and provisions of the Plan and any award issued under the
Plan (and any agreements relating thereto); and to otherwise supervise the
administration of the Plan.
All decisions made by the Administrator pursuant to the
provisions of the Plan shall be final, conclusive and binding on all persons,
including the Company and the Participants.
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<PAGE>
Section 3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available
for issuance under the Plan shall be 4,381,500 shares. Such shares may
consist, in whole or in part, of authorized and unissued shares or treasury
shares. The aggregate number of shares of Stock as to which Stock Options,
Stock Appreciation Rights, and awards of Restricted Stock, Deferred Stock and
Performance Shares may be granted to any participant during any calendar year
may not, subject to adjustment as provided in this Section 3, exceed [80]% of
the shares of Stock reserved for the purposes of the Plan.
Consistent with the provisions of Section 162(m) of the
Code, as from time to time applicable, to the extent that (i) a Stock Option
expires or is otherwise terminated without being exercised, or (ii) any
shares of Stock subject to any award of Restricted Stock, Deferred Stock or
Performance Shares granted hereunder are forfeited, such shares of Stock
shall again be available for issuance in connection with future awards
granted under the Plan. If any shares of Stock have been pledged as
collateral for indebtedness incurred by a Participant in connection with the
exercise of a Stock Option and such shares of Stock are returned to the
Company in satisfaction of such indebtedness, such shares of Stock shall
again be available for issuance in connection with future awards granted
under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend or other change in corporate structure
affecting the Stock, an equitable substitution or proportionate adjustment shall
be made in (i) the aggregate number of shares of Stock reserved for issuance
under the Plan, (ii) the kind, number and option price of shares of Stock
subject to outstanding Stock Options granted under the Plan, and (iii) the kind,
number and purchase price of shares of Stock subject to outstanding awards of
Restricted Stock, Deferred Stock and Performance Shares granted under the Plan,
in each case as may be determined by the Administrator, in its sole discretion.
Such other substitutions or adjustments shall be made as may be determined by
the Administrator, in its sole discretion. An adjusted option price shall also
be used to determine the amount payable by the Company upon the exercise of any
Stock Appreciation Right or Limited Stock Appreciation Right related to any
Stock Option. In connection with any event described in this paragraph, the
Administrator may provide, in its sole discretion, for the cancellation of any
outstanding awards and payment in cash or other property therefor.
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SECTION 4. ELIGIBILITY.
Eligible Recipients shall be eligible to be granted Stock
Options, Stock Appreciation Rights, Limited Stock Appreciation Rights, awards
of Restricted Stock, Deferred Stock or Performance Shares or any combination
of the foregoing hereunder. The Participants under the Plan shall be selected
from time to time by the Administrator, in its sole discretion, from among
the Eligible Recipients, and the Administrator shall determine, in its sole
discretion, the number of shares of Stock covered by each such award.
SECTION 5. STOCK OPTIONS.
Stock Options may be granted alone or in addition to other
awards granted under the Plan. Any Stock Option granted under the Plan shall be
in such form as the Administrator may from time to time approve, and the
provisions of Stock Option awards need not be the same with respect to each
Participant. Participants who are granted Stock Options shall enter into a
subscription and/or award agreement with the Company, in such form as the
Administrator shall determine, which agreement shall set forth, among other
things, the option price of the Stock Option, the term of the Stock Option and
provisions regarding exercisability of the Stock Option granted thereunder.
The Stock Options granted under the Plan may be of two types:
(i) Incentive Stock Options and (ii) Non-Qualified Stock Options.
The Administrator shall have the authority to grant to any
officer or employee of the Company or of any Parent or Subsidiary (including
directors who are also officers of the Company) Incentive Stock Options,
Non-Qualified Stock Options, or both types of Stock Options (in each case
with or without Stock Appreciation Rights or Limited Stock Appreciation
Rights). Directors who are not also officers of the Company or of any Parent
or Subsidiary, consultants or advisors to the Company or to any Parent or
Subsidiary may only be granted Non-Qualified Stock Options (with or without
Stock Appreciation Rights or Limited Stock Appreciation Rights). To the
extent that any Stock Option does not qualify as an Incentive Stock Option,
it shall constitute a separate Non-Qualified Stock Option. More than one
Stock Option may be granted to the same Participant and be outstanding
concurrently hereunder.
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Stock Options granted under the Plan shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the Administrator
shall deem desirable:
(1) Option Price. The option price per share of Stock
purchasable under a Stock Option shall be determined by the Administrator in
its sole discretion at the time of grant but shall not, (i) in the case of
Incentive Stock Options, be less than 100% of the Fair Market Value of the
Stock on such date, (ii) in the case of Non-Qualified Stock Options intended
to qualify as "performance-based compensation" within the meaning of Section
162(m) of the Code, be less than 100% of the Fair Market Value of the Stock
on such date and (iii) in any event, be less than the par value (if any) of
the Stock. If a Participant owns or is deemed to own (by reason of the
attribution rules applicable under Section 424(d) of the Code) more than 10%
of the combined voting power of all classes of stock of the Company or of any
Parent or Subsidiary and an Incentive Stock Option is granted to such
Participant, the option price of such Incentive Stock Option (to the extent
required at the time of grant by the Code shall be no less than 110% of the
Fair Market Value of the Stock on the date such Incentive Stock Option is
granted.
(2) Option Term. The term of each Stock Option shall be
fixed by the Administrator, but no Stock Option shall be exercisable more
than ten years after the date such Stock Option is granted; provided,
however, that if an employee owns or is deemed to own (by reason of the
attribution rules of Section 424(d) of the Code) more than 10% of the
combined voting power of all classes of stock of the Company or of any Parent
or Subsidiary and an Incentive Stock Option is granted to such employee, the
term of such Incentive Stock Option (to the extent required by the Code at
the time of grant) shall be no more than five years from the date of grant.
(3) Exercisability. Stock Options shall be exercisable at
such time or times and subject to such terms and conditions as shall be
determined by the Administrator at or after the time of grant. The
Administrator may provide at the time of grant, in its sole discretion, that
any Stock Option shall be exercisable only in installments, and the
Administrator may waive such installment exercise provisions at any time, in
whole or in part, based on such factors as the Administrator may determine,
in its sole discretion, including but not limited to in connection with any
"change in control" of the Company (as defined in the agreement evidencing
such Stock Option).
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(4) Method of Exercise. Subject to paragraph (3) of this
Section 5, Stock Options may be exercised in whole or in part at any time
during the option period, by giving written notice of exercise to the Company
specifying the number of shares of Stock to be purchased, accompanied by
payment in full of the purchase price in cash or its equivalent, as
determined by the Administrator. As determined by the Administrator, in its
sole discretion, payment in whole or in part may also be made (i) by means of
any cashless exercise procedure approved by the Administrator, (ii) in the
form of unrestricted Stock already owned by the Participant which, (x) in the
case of unrestricted Stock acquired upon exercise of an option, have been
owned by the Participant for more than six months on the date of surrender,
and (y) has a Fair Market Value on the date of surrender equal to the
aggregate option price of the Stock as to which such Stock Option shall be
exercised, or (iii) in the case of the exercise of a Non-Qualified Stock
Option, in the form of Restricted Stock or Performance Shares subject to an
award hereunder (based, in each case, on the Fair Market Value of the Stock
on the date the Stock Option is exercised); provided, however, that in the
case of an Incentive Stock Option, the right to make payment in the form of
already owned shares of Stock may be authorized only at the time of grant. If
payment of the option price of a Non-Qualified Stock Option is made in whole
or in part in the form of Restricted Stock or Performance Shares, the shares
of stock received upon the exercise of such Stock Option shall be restricted
in accordance with the original terms of the Restricted Stock award or
Performance Shares award in question, except that the Administrator may
direct that such restrictions shall apply only to that number of shares of
Stock equal to the number of shares surrendered upon the exercise of such
Stock Option. A Participant shall generally have the rights to dividends and
any other rights of a stockholder with respect to the Stock subject to the
Stock Option only after the Participant has given written notice of exercise,
has paid in full for such shares, and, if requested, has given the
representation described in paragraph (2) of Section 10 below.
The Administrator may require the surrender of all or a
portion of any Stock Option granted under the Plan as a condition precedent to
the grant of a new Stock Option. Subject to the provisions of the Plan, such new
Stock Option shall be exercisable at the price, during such period and on such
other terms and conditions as are specified by the Administrator at the time the
new Stock Option is granted. Consistent with the provisions of Section 162(m),
to the extent applicable, upon their surrender, Stock Options shall be canceled
and the shares of Stock previously subject to such canceled Stock Options shall
again be available for grants of Stock Options and other awards hereunder.
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(5) Loans. The Company or any Parent or Subsidiary may make
loans available to Stock Option holders in connection with the exercise of
outstanding Stock Options, as the Administrator, in its sole discretion, may
determine. Such loans shall (i) be evidenced by promissory notes entered into by
the Stock Option holders in favor of the Company or any Parent or Subsidiary,
(ii) be subject to the terms and conditions set forth in this Section 5(5) and
such other terms and conditions, not inconsistent with the Plan, as the
Administrator shall determine, (iii) bear interest at the applicable Federal
interest rate or such other rate as the Administrator shall determine, and (iv)
be subject to Board approval (or to approval by the Administrator to the extent
the Board may delegate such authority). In no event may the principal amount of
any such loan exceed the sum of (x) the option price less the par value (if any)
of the shares of Stock covered by the Stock Option, or portion thereof,
exercised by the holder, and (y) any Federal, state, and local income tax
attributable to such exercise. The initial term of the loan, the schedule of
payments of principal and interest under the loan, the extent to which the loan
is to be with or without recourse against the holder with respect to principal
and/or interest and the conditions upon which the loan will become payable in
the event of the holder's termination of service to the Company or to any Parent
or Subsidiary shall be determined by the Administrator. Unless the Administrator
determines otherwise, when a loan is made, shares of Stock having a Fair Market
Value at least equal to the principal amount of the loan shall be pledged by the
holder to the Company as security for payment of the unpaid balance of the loan,
and such pledge shall be evidenced by a pledge agreement, the terms of which
shall be determined by the Administrator, in its sole discretion; provided,
however, that each loan shall comply with all applicable laws, regulations and
rules of the Board of Governors of the Federal Reserve System and any other
governmental agency having jurisdiction.
(6) Non-Transferability of Options. Except under the laws
of descent and distribution, the Participant shall not be permitted to sell,
transfer, pledge or assign any Stock Option, and all Stock Options shall be
exercisable, during the Participant's lifetime, only by the Participant;
provided, however, that the Participant shall be permitted to transfer one or
more Non-Qualified Stock Options to a trust controlled by the Participant
during the Participant's lifetime for estate planning purposes.
(7) Termination of Employment or Service. If a
Participant's employment with or service as a director, consultant or advisor
to the Company or to any Parent or Subsidiary terminates by reason of his or
her death, Disability or for any
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other reason, the Stock Option may thereafter be exercised to the extent
provided in the agreement evidencing such Stock Option, or as otherwise
determined by the Administrator.
(8) Annual Limit on Incentive Stock Options. To the extent
that the aggregate Fair Market Value (determined as of the date the Incentive
Stock Option is granted) of shares of Stock with respect to which Incentive
Stock Options granted to a Participant under this Plan and all other option
plans of the Company or of any Parent or Subsidiary become exercisable for
the first time by the Participant during any calendar year exceeds $100,000,
(as determined in accordance with Section 422(d) of the Code), the portion of
such Incentive Stock Options in excess of $100,000 shall be treated as
Non-Qualified Stock Options.
(9) Automatic Grants of Stock Options to Non-Employee
Directors. The Company shall grant Non-Qualified Stock Options to
Non-Employee Directors pursuant to this subsection (9), which grants shall be
automatic and nondiscretionary and otherwise subject to the terms and
conditions set forth in this subsection (9) and the terms of the Plan
("Automatic Non-Employee Director Options"). Each Non-Employee Director who
first becomes a director of the Company following the Effective Date ,
whether through election by the stockholders of the Company or appointment by
the Board to fill a vacancy shall be automatically granted a Non-Qualified
Stock Option to purchase 15,000 shares of Stock (an "Initial Option") as well
as an annual grant of a Non-Qualified Stock Option to purchase 5,000 shares
of Stock (the "Annual Options") on the date immediately following the
Company's annual meeting of stockholders; provided, however, that he or she
is then a director of the Company and, provided, further, that as of such
date, such director shall have served on the Board for at least the preceding
six (6) months.
The term of each Automatic Non-Employee Director
Option shall be five (5) years, and the option price per share of Stock
purchasable under an Automatic Non-Employee Director Option shall be no less
than 100% of the Fair Market Value of the Stock on the date of grant,
provided, however, in no event shall the option price per share of Stock
purchasable under an Automatic Non-Employee Director Option be less than the
par value (if any) of the Stock. Each Initial Option shall immediately be
fully vested as of the date of grant. Each Initial Option shall also be
immediately exercisable for all of the shares subject such option; provided,
however, that, in the event the Non-Employee Director's service with the
Company terminates for any reason prior to full vesting of the shares of
Stock subject to the Initial Option, any unvested shares purchased pursuant
to such option
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shall be subject to repurchase by the Company at the option price paid per
share of Stock. The Annual Options shall be fully vested and immediately
exercisable as of the date of grant.
In the event that the number of shares of Stock
available for grant under the Plan is not sufficient to accommodate the
Automatic Non-Employee Director Options, then the remaining shares of Stock
available for Automatic Non-Employee Director Options shall be granted to
Non-Employee Directors on a pro-rata basis. No further grants shall be made
until such time, if any, as additional shares of Stock become available for
grant under the Plan through action of the Board and/or the stockholders of the
Company to increase the number of shares of Stock that may be issued under the
Plan or through cancellation or expiration of awards previously granted
hereunder.
SECTION 6. STOCK APPRECIATION RIGHTS AND LIMITED STOCK APPRECIATION RIGHTS.
Stock Appreciation Rights and Limited Stock Appreciation
Rights may be granted either alone ("Free Standing Rights") or in conjunction
with all or part of any Stock Option granted under the Plan ("Related Rights").
In the case of a Non-Qualified Stock Option, Related Rights may be granted
either at or after the time of the grant of such Stock Option. In the case of an
Incentive Stock Option, Related Rights may be granted only at the time of the
grant of the Incentive Stock Option. The Administrator shall determine the
Eligible Recipients to whom, and the time or times at which, grants of Stock
Appreciation Rights or Limited Stock Appreciation Rights shall be made; the
number of shares of Stock to be awarded, the exercise price (or, in the case of
a Limited Stock Appreciation Right, the "Change in Control" price), and all
other conditions of Stock Appreciation Rights and Limited Stock Appreciation
Rights. The provisions of Stock Appreciation Rights and Limited Stock
Appreciation Rights need not be the same with respect to each Participant.
Stock Appreciation Rights and Limited Stock Appreciation
Rights granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Administrator shall deem
desirable:
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(1) Awards. The prospective recipient of a Stock Appreciation
Right or Limited Stock Appreciation Right shall not have any rights with respect
to such award, unless and until such recipient has executed an agreement
evidencing the award (a "Stock Appreciation Right Agreement" or "Limited Stock
Appreciation Right Agreement," as appropriate) and delivered a fully executed
copy thereof to the Company, within a period of sixty days (or such other period
as the Administrator may specify) after the award date. Participants who are
granted Stock Appreciation Rights or Limited Stock Appreciation Rights shall
have no rights as stockholders of the Company with respect to the grant or
exercise of such rights.
(2) Exercisability.
(a) Stock Appreciation Rights that are Free Standing
Rights ("Free Standing Stock Appreciation Rights") shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined by
the Administrator at or after grant; provided, however, that no Free Standing
Stock Appreciation Right shall be exercisable during the first six months of its
term, except that this additional limitation shall not apply in the event of a
Participant's death or Disability prior to the expiration of such six-month
period.
(b) Stock Appreciation Rights that are Related Rights
("Related Stock Appreciation Rights") shall be exercisable only at such time or
times and to the extent that the Stock Options to which they relate shall be
exercisable in accordance with the provisions of Section 5 above and this
Section 6 of the Plan; provided, however, that a Related Stock Appreciation
Right granted in connection with an Incentive Stock Option shall be exercisable
only if and when the Fair Market Value of the Stock subject to the Incentive
Stock Option exceeds the option price of such Stock Option; provided, further,
that no Related Stock Appreciation Right shall be exercisable during the first
six months of its term, except that this additional limitation shall not apply
in the event of a Participant's death or Disability prior to the expiration of
such six-month period.
(c) Limited Stock Appreciation Rights shall only be
exercised within the 30-day period following a "Change in Control" (as defined
by the Administrator in the Limited Stock Appreciation Right Agreement
evidencing such right) and, with respect to Limited Stock Appreciation Rights
that are Related Rights ("Related Limited Stock Appreciation Rights"), only to
the extent that the Stock Options to which they relate shall be exercisable in
accordance with the provisions of Section 5 above and this Section 6 of the
Plan.
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(3) Payment Upon Exercise.
(a) Upon the exercise of a Free Standing Stock
Appreciation Right, the Participant shall be entitled to receive up to, but not
more than, an amount in cash or that number of shares of Stock (or any
combination of cash and shares of Stock) equal in value to the excess of the
Fair Market Value of one share of Stock as of the date of exercise over the
price per share specified in the Free Standing Stock Appreciation Right (which
price shall be no less than 100% of the Fair Market Value of the Stock on the
date of grant) multiplied by the number of shares of Stock in respect of which
the Free Standing Stock Appreciation Right is being exercised, with the
Administrator having the right to determine the form of payment.
(b) A Related Right may be exercised by a Participant
by surrendering the applicable portion of the related Stock Option. Upon such
exercise and surrender, the Participant shall be entitled to receive up to, but
not more than, an amount in cash or that number of shares of Stock (or any
combination of cash and shares of Stock) equal in value to the excess of the
Fair Market Value of one share of Stock as of the date of exercise over the
option price per share specified in the related Stock Option multiplied by the
number of shares of Stock in respect of which the Related Stock Appreciation
Right is being exercised, with the Administrator having the right to determine
the form of payment. Stock Options which have been so surrendered, in whole or
in part, shall no longer be exercisable to the extent the Related Rights have
been so exercised.
(c) Upon the exercise of a Limited Stock Appreciation
Right, the Participant shall be entitled to receive an amount in cash equal in
value to the excess of the "Change in Control Price" (as defined in the
agreement evidencing such Limited Stock Appreciation Right) of one share of
Stock as of the date of exercise over (A) the option price per share specified
in the related Stock Option, or (B) in the case of a Limited Stock Appreciation
Right which is a Free Standing Stock Appreciation Right, the price per share
specified in the Free Standing Stock Appreciation Right, such excess to be
multiplied by the number of shares in respect of which the Limited Stock
Appreciation Right shall have been exercised.
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(4) NON-TRANSFERABILITY.
(a) Free Standing Stock Appreciation Rights shall be
transferable only when and to the extent that a Stock Option would be
transferable under paragraph (6) of Section 5 of the Plan.
(b) Related Stock Appreciation Rights shall be
transferable only when and to the extent that the underlying Stock Option would
be transferable under paragraph (6) of Section 5 of the Plan.
(c) Limited Stock Appreciation Rights shall be
transferable only when and to the extent that a Stock Option would be
transferable under paragraph (6) of Section 5 of the Plan.
(5) TERMINATION OR EMPLOYMENT OR SERVICE
(a) In the event of the termination of employment or
service of a Participant who has been granted one or more Free Standing Stock
Appreciation Rights, such rights shall be exercisable at such time or times and
subject to such terms and conditions as shall be determined by the Administrator
at or after grant.
(b) In the event of the termination of employment or
service of a Participant who has been granted one or more Related Stock
Appreciation Rights, such rights shall be exercisable at such time or times and
subject to such terms and conditions as set forth in the related Stock Options.
(c) In the event of the termination of employment or
service of a Participant who has been granted one or more Limited Stock
Appreciation Rights, such rights shall be exercisable at such time or times and
subject to such terms and conditions as shall be determined by the Administrator
at or after grant.
(6) TERM.
(a) The term of each Free Standing Stock Appreciation
Right shall be fixed by the Administrator, but no Free Standing Stock
Appreciation Right shall be exercisable more than ten years after the date such
right is granted.
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(b) The term of each Related Stock Appreciation Right
shall be the term of the Stock Option to which it relates, but no Related Stock
Appreciation Right shall be exercisable more than ten years after the date such
right is granted.
(c) The term of each Limited Stock Appreciation Right
shall be fixed by the Administrator, but no Limited Stock Appreciation Right
shall be exercisable more than ten years after the date such right is granted.
SECTION 7. RESTRICTED STOCK, DEFERRED STOCK AND PERFORMANCE SHARES.
Awards of Restricted Stock, Deferred Stock or Performance
Shares may be issued either alone or in addition to other awards granted under
the Plan. The Administrator shall determine the Eligible Recipients to whom, and
the time or times at which, awards of Restricted Stock, Deferred Stock or
Performance Shares shall be made; the number of shares to be awarded; the price,
if any, to be paid by the Participant for the acquisition of Restricted Stock,
Deferred Stock or Performance Shares; the Restricted Period (as defined in
paragraph (2) of this Section 7) applicable to awards of Restricted Stock or
Deferred Stock; the performance objectives applicable to awards of Deferred
Stock or Performance Shares; and all other conditions of the awards of
Restricted Stock, Deferred Stock and Performance Shares. Subject to the
requirements of Section 162(m) of the Code, as applicable, the Administrator may
also condition the grant of the award of Restricted Stock, Deferred Stock or
Performance Shares upon the exercise of Stock Options, or upon such other
criteria as the Administrator may determine, in its sole discretion. The
provisions of the awards of Restricted Stock, Deferred Stock or Performance
Shares need not be the same with respect to each Participant. In the sole
discretion of the Administrator, loans may be made to Participants in connection
with the purchase of Restricted Stock under substantially the same terms and
conditions as provided in paragraph (5) of Section 5 of the Plan with respect to
the exercise of Stock Options.
(1) Awards and Certificates. The prospective recipient of
awards of Restricted Stock, Deferred Stock or Performance Shares shall not have
any rights with respect to any such award, unless and until such recipient has
executed an agreement evidencing the award (a "Restricted Stock Award
Agreement," "Deferred Stock Award Agreement" or "Performance Shares Award
Agreement," as appropriate) and delivered a fully executed copy thereof to the
Company, within a period of sixty days (or such other period as the
Administrator may specify) after
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the award date. Except as otherwise provided below in this Section 7(2), (i)
each Participant who is granted an award of Restricted Stock or Performance
Shares shall be issued a stock certificate in respect of such shares of
Restricted Stock or Performance Shares; and (ii) such certificate shall be
registered in the name of the Participant, and shall bear an appropriate legend
referring to the terms, conditions, and restrictions applicable to any such
award.
The Company may require that the stock certificates evidencing
Restricted Stock or Performance Shares granted hereunder be held in the custody
of the Company until the restrictions thereon shall have lapsed, and that, as a
condition of any award of Restricted Stock or Performance Shares, the
Participant shall have delivered a stock power, endorsed in blank, relating to
the Stock covered by such award.
With respect to awards of Deferred Stock, at the expiration of
the Restricted Period, stock certificates in respect of such shares of Deferred
Stock shall be delivered to the Participant, or his legal representative, in a
number equal to the number of shares of Stock covered by the Deferred Stock
award.
(2) Restrictions and Conditions. The awards of Restricted
Stock, Deferred Stock and Performance Shares granted pursuant to this Section 7
shall be subject to the following restrictions and conditions:
(a) Subject to the provisions of the Plan and the
Restricted Stock Award Agreement, Deferred Stock Award Agreement or Performance
Shares Award Agreement, as appropriate, governing any such award, during such
period as may be set by the Administrator commencing on the date of grant (the
"Restricted Period"), the Participant shall not be permitted to sell, transfer,
pledge or assign shares of Restricted Stock, Deferred Stock or Performance
Shares awarded under the Plan; provided, however, that the Administrator may, in
its sole discretion, provide for the lapse of such restrictions in installments
and may accelerate or waive such restrictions in whole or in part based on such
factors and such circumstances as the Administrator may determine, in its sole
discretion, including, but not limited to, the attainment of certain performance
related goals, the Participant's termination of employment or service as a
director, consultant or advisor to the Company or any Parent or Subsidiary, the
Participant's death or Disability or the occurrence of a "Change in Control" as
defined in the Restricted Stock Award Agreement, Deferred Stock Award Agreement
or Performance Shares Award Agreement, as appropriate, evidencing such award.
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<PAGE>
(b) Except as provided in paragraph (3)(a) of this
Section 7, the Participant shall generally have the rights of a stockholder of
the Company with respect to Restricted Stock or Performance Shares during the
Restricted Period. The Participant shall generally not have the rights of a
stockholder with respect to Stock subject to awards of Deferred Stock during the
Restricted Period; provided, however, that dividends declared during the
Restricted Period with respect to the number of shares of Stock covered by
Deferred Stock shall be paid to the Participant. Certificates for shares of
unrestricted Stock shall be delivered to the Participant promptly after, and
only after, the Restricted Period shall expire without forfeiture in respect of
such awards of Restricted Stock, Deferred Stock or Performance Shares except as
the Administrator, in its sole discretion, shall otherwise determine.
(c) The rights of Participants granted awards of
Restricted Stock, Deferred Stock or Performance Shares upon termination of
employment or service as a director, consultant or advisor to the Company or to
any Parent or Subsidiary terminates for any reason during the Restricted Period
shall be set forth in the Restricted Stock Award Agreement, Deferred Stock Award
Agreement or Performance Shares Award Agreement, as appropriate, governing such
awards.
SECTION 8. AMENDMENT AND TERMINATION.
The Board may amend, alter or discontinue the Plan, but no
amendment, alteration, or discontinuation shall be made that would impair the
rights of a Participant under any award theretofore granted without such
Participant's consent, or that, without the approval of the stockholders (as
described below), would:
(1) except as provided in Section 3 of the Plan, increase the
total number of shares of Stock reserved for issuance under the Plan;
(2) change the class of officers, directors, employees,
consultants and advisors eligible to participate in the Plan; or
(3) extend the maximum option period under paragraph (2) of
Section 5 of the Plan.
Notwithstanding the foregoing, stockholder approval under this
Section 8 shall only be required at such time and under such circumstances as
18
<PAGE>
stockholder approval would be required under Section 162(m) of the Code or other
applicable law, rule or regulation with respect to any material amendment to any
employee benefit plan of the Company.
The Administrator may amend the terms of any award
theretofore granted, prospectively or retroactively, but, subject to Section
3 of Plan, no such amendment shall impair the rights of any Participant
without his or her consent.
SECTION 9. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for
incentive compensation. With respect to any payments not yet made to a
Participant by the Company, nothing contained herein shall give any such
Participant any rights that are greater than those of a general creditor of the
Company.
SECTION 10. GENERAL PROVISIONS.
(1) Shares of Stock shall not be issued pursuant to the
exercise of any award granted hereunder unless the exercise of such award and
the issuance and delivery of such shares of Stock pursuant thereto shall comply
with all relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act and the requirements of any
stock exchange upon which the Stock may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(2) The Administrator may require each person acquiring shares
of Stock hereunder to represent to and agree with the Company in writing that
such person is acquiring the shares of Stock without a view to distribution
thereof. The certificates for such shares of Stock may include any legend which
the Administrator deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan
shall be subject to such stock-transfer orders and other restrictions as the
Administrator may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed, and any applicable Federal or state securities
law, and the Administrator may cause a legend or legends to be placed on any
such certificates to make appropriate reference to such restrictions.
19
<PAGE>
(3) Nothing contained in the Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
stockholder approval, if such approval is required; and such arrangements may
be either generally applicable or applicable only in specific cases. The
adoption of the Plan shall not confer upon any Eligible Recipient any right
to continued employment or service with the Company or any Parent or
Subsidiary, as the case may be, nor shall it interfere in any way with the
right of the Company or any Parent or Subsidiary to terminate the employment
or service of any of its Eligible Recipients at any time.
(4) Each Participant shall, no later than the date as of which
the value of an award first becomes includible in the gross income of the
Participant for Federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Administrator regarding payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to such award. The obligations of the Company under the Plan shall be
conditional on the making of such payments or arrangements, and the Company
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the Participant.
(5) No member of the Board or the Administrator, nor any
officer or employee of the Company acting on behalf of the Board or the
Administrator, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Board or the Administrator and each and any officer or employee
of the Company acting on their behalf shall, to the extent permitted by law, be
fully indemnified and protected by the Company in respect of any such action,
determination or interpretation.
SECTION 11. STOCKHOLDER APPROVAL; EFFECTIVE DATE OF PLAN.
(1) The grant of any award hereunder shall be contingent upon
stockholder approval of the Plan being obtained within 12 months before or after
the date the Board adopts the Plan.
(2) Subject to the approval of the Plan by the stockholders of
the Company within twelve (12) months before or after the date the Plan is
adopted by the Board, the Plan shall be effective as of the first trading day on
or after the date on which the Securities and Exchange Commission declares the
Company's Registration Statement effective (the "Effective Date").
20
<PAGE>
SECTION 12. TERM OF PLAN.
No Stock Option, Stock Appreciation Right, Limited Stock
Appreciation Right, or awards of Restricted Stock, Deferred Stock or Performance
Shares shall be granted pursuant to the Plan on or after the tenth anniversary
of the Effective Date, but awards theretofore granted may extend beyond that
date.
21
<PAGE>
INCENTIVE STOCK OPTION AGREEMENT
This INCENTIVE STOCK OPTION AGREEMENT (this "Option Agreement"),
dated as of the [__] day of [_____], 1999 (the "Effective Date"), by and
between Tumbleweed Software Corporation, a Delaware corporation (the
"Company"), and [______] (the "Optionee").
Pursuant to the Company's 1999 Omnibus Stock Incentive Plan (the
"Plan"), the Board of Directors of the Company (the "Board"), as the
Administrator of the Plan, has determined that the Optionee is to be granted
an option (the "Option") to purchase shares of the Company's common stock,
par value $0.001 per share (the "Common Stock"), on the terms and conditions
set forth herein, and hereby grants such Option. It is intended that the
Option constitute an "incentive stock option" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"). In the
event the Option exceeds the $100,000 rule of Section 422(d), this Option
shall be treated as a Non-Qualified Stock Option.
Any capitalized terms not defined herein shall have their
respective meanings set forth in the Plan.
1. NUMBER OF SHARES. The Option entitles the Optionee to
purchase [____] shares of the Company's Common Stock (the "Option Shares") at
a price of $[__] per share (the "Option Exercise Price"), which is at least
equal to the Fair Market Value of the Common Stock as of the Effective Date.
2. OPTION TERM. The term of the Option and of this Option
Agreement (the "Option Term") shall commence on the Effective Date and,
unless the Option is previously terminated pursuant to this Option Agreement,
shall terminate upon the expiration of ten (10) years from the Effective
Date. Upon expiration of the Option Term, all rights of the Optionee
hereunder shall terminate.
3. CONDITIONS OF EXERCISE. (a) Subject to Section 7 below, the
Option shall vest and become exercisable as to [insert vesting schedule].
(1) Except as otherwise provided herein, the right of the
Optionee to purchase Option Shares with respect to which this Option has
become exercisable may be exercised in whole or in part at any time or from
time to time prior to expiration of the Option Term; PROVIDED, HOWEVER, that
the Option may not be exercised for a fraction of a share of Stock.
<PAGE>
4. ADJUSTMENTS. In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, stock split or similar
change affecting the Common Stock, a substitution or proportionate adjustment
shall be made in the kind, number and Option Exercise Price of shares of
Common Stock subject to the unexercised portion of the Option, as may be
determined by the Board in its sole discretion.
5. NONTRANSFERABILITY OF OPTION. The Option and this Option
Agreement shall not be transferable otherwise than by will or the laws of
descent and distribution and, during the lifetime of Optionee, the Option may
be exercised only by Optionee. Without limiting the generality of the
foregoing, except as otherwise provided herein, the Option may not be
assigned, transferred, pledged or hypothecated in any way, shall not be
assignable by operation of law, and shall not be subject to execution,
attachment or similar process. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of the Option contrary to the provisions
hereof, and the levy of any execution, attachment or similar process upon the
Option shall be null and void and without effect.
6. METHOD OF EXERCISE OF OPTION. The Option may be exercised by
means of written notice of exercise to the Company specifying the number of
Option Shares to be purchased, accompanied by payment in full of the
aggregate Option Exercise Price and any applicable withholding taxes (i) in
cash or by check, (ii) by means of a cashless exercise procedure either
through a broker or, at the discretion of the Administrator, through
withholding of shares of Common Stock otherwise issuable upon exercise of the
Option in an amount sufficient to pay the aggregate Option Exercise Price and
any applicable withholding taxes, (iii) in the form of unrestricted Stock
already owned by the Optionee which, (x) in the case of unrestricted Stock
acquired upon exercise of an option, have been owned by Optionee for more
than six months on the date of surrender, and (y) have an aggregate Fair
Market Value on the date of surrender equal to the aggregate Option Exercise
Price of the Stock as to which such Stock Option shall be exercised, or (iv)
by any other means of exercise authorized from time to time in the Plan
and/or by the Board.
7. EFFECT OF TERMINATION OF EMPLOYMENT. Upon the termination of
Optionee's employment or service with the Company or any Parent or
Subsidiary, the Option shall immediately terminate as to any Option Shares
that have not previously vested as of the date of such termination (the
"Termination Date"). Any portion of the Option that has vested as of the
Termination Date shall be exercisable in whole or in part for a period of
[90 DAYS] following the Termination Date; PROVIDED, HOWEVER, that in the
event of termination by reason of Optionee's death or Disability, such
exercise period shall extend until the date that
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<PAGE>
is [SIX MONTHS] from the Termination Date. Upon expiration of such [90-day]
or [six-month] period, as applicable, any unexercised portion of the Option
shall terminate in full.
8. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by facsimile or first class
mail, certified or registered with return receipt requested, and shall be
deemed to have been duly given three days after mailing or 24 hours after
transmission by facsimile to the respective parties named below:
If to Company: Tumbleweed Software Corporation
2010 Broadway
Redwood City, California 94063
Attention: [Secretary]
Facsimile: (650) 369-7197
with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
525 University Avenue, Suite 220
Palo Alto, California 94301
Attention: Gregory C. Smith
Facsimile: (650) 470-4570
If to the Optionee: [Name of Optionee]
[Address]
-----------------------------
Facsimile: -----------------------------
Either party hereto may change such party's address for notices by notice
duly given pursuant hereto.
9. PROTECTIONS AGAINST VIOLATIONS OF AGREEMENT. No purported
sale, assignment, mortgage, hypothecation, transfer, pledge, encumbrance,
gift, transfer in trust (voting or other) or other disposition of, or
creation of a security interest in or lien on, any of the Option Shares by
any holder thereof in violation of the provisions of this Agreement or the
Articles of Incorporation or the Bylaws of the Company, will be valid, and
the Company will not transfer any of said Option Shares on its books nor will
any of said Option Shares be entitled to vote, nor will any dividends be paid
thereon, unless and until there has been full compliance with said provisions
to the satisfaction of the Company. The foregoing restrictions are in
addition to and not in lieu of any other remedies, legal or equitable,
available to enforce said provisions.
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<PAGE>
10. WITHHOLDING REQUIREMENTS. The Company's obligations under
this Option Agreement shall be subject to all applicable tax and other
withholding requirements, and the Company shall, to the extent permitted by
law, have the right to deduct any withholding amounts from any payment or
transfer of any kind otherwise due to the Optionee.
11. FAILURE TO ENFORCE NOT A WAIVER. The failure of the Company
to enforce at any time any provision of this Option Agreement shall in no way
be construed to be a waiver of such provision or of any other provision
hereof.
12. GOVERNING LAW. This Option Agreement shall be governed by and
construed according to the laws of the State of California without regard to
its principles of conflict of laws.
13. INCORPORATION OF PLAN. The Plan is hereby incorporated by
reference and made a part hereof, and the Option and this Option Agreement
shall be subject to all terms and conditions of the Plan.
14. AMENDMENTS. This Option Agreement may be amended or modified
at any time only by an instrument in writing signed by each of the parties
hereto.
15. RIGHTS AS A STOCKHOLDER. Neither the Optionee nor any of the
Optionee's successors in interest shall have any rights as a stockholder of
the Company with respect to any shares of Common Stock subject to the Option
until the date of issuance of a stock certificate for such shares of Common
Stock.
16. AGREEMENT NOT A CONTRACT OF EMPLOYMENT. Neither the Plan, the
granting of the Option, this Option Agreement nor any other action taken
pursuant to the Plan shall constitute or be evidence of any agreement or
understanding, express or implied, that the Optionee has a right to continue
to provide services as an officer, director, employee, consultant or advisor
of the Company or any Parent Subsidiary for any period of time or at any
specific rate of compensation.
17. AUTHORITY OF THE BOARD. The Board shall have full authority
to interpret and construe the terms of the Plan and this Option Agreement.
The determination of the Board as to any such matter of interpretation or
construction shall be final, binding and conclusive.
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<PAGE>
18. DISPUTE RESOLUTION. The parties hereto will use their
reasonable best efforts to resolve any dispute hereunder through good faith
negotiations. A party hereto must submit a written notice to any other party
to whom such dispute pertains, and any such dispute that cannot be resolved
within 30 calendar days of receipt of such notice (or such other period to
which the parties may agree) will be submitted to an arbitrator selected by
mutual agreement of the parties. In the event that, within 50 days of the
written notice referred to in the preceding sentence, a single arbitrator has
not been selected by mutual agreement of the parties, a panel of arbitrators
(with each party to the dispute being entitled to select one arbitrator and,
if necessary to prevent the possibility of deadlock, one additional
arbitrator being selected by such arbitrators selected by the parties to the
dispute) shall be selected by the parties. Except as otherwise provided
herein or as the parties to the dispute may otherwise agree, such arbitration
will be conducted in accordance with the then existing rules of the American
Arbitration Association. The decision of the arbitrator or arbitrators, or
of a majority thereof, as the case may be, made in writing will be final and
binding upon the parties hereto as to the questions submitted, and the
parties will abide by and comply with such decision; PROVIDED, HOWEVER, the
arbitrator or arbitrators, as the case may be, shall not be empowered to
award punitive damages. Unless the decision of the arbitrator or
arbitrators, as the case may be, provides for a different allocation of costs
and expenses determined by the arbitrators to be equitable under the
circumstances, the prevailing party or parties in any arbitration will be
entitled to recover all reasonable fees (including but not limited to
attorneys' fees) and expenses incurred by it or them in connection with such
arbitration from the nonprevailing party or parties.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Option Agreement on the day and year first above written.
TUMBLEWEED SOFTWARE CORPORATION
By
-------------------------------------
Name
-----------------------------------
Title
----------------------------------
The undersigned has had the opportunity to read the terms and
provisions of the foregoing Option Agreement and the terms and provisions of the
Plan, herein incorporated by reference. The undersigned hereby accepts and
agrees to all the terms and provisions of the foregoing Option Agreement and to
all the terms and provisions of the Plan, herein incorporated by reference.
---------------------------------------
The Optionee
Address:
-----------------------------
-----------------------------
-----------------------------
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<PAGE>
NON-QUALIFIED STOCK OPTION AGREEMENT
This NON-QUALIFIED STOCK OPTION AGREEMENT (this "Option
Agreement"), dated as of the [__] day of [_____], 1999 (the "Effective
Date"), by and between Tumbleweed Software Corporation, a Delaware
corporation (the "Company"), and [______] (the "Optionee").
Pursuant to the Company's 1999 Omnibus Stock Incentive Plan (the
"Plan"), the Board of Directors of the Company (the "Board"), as the
Administrator of the Plan, has determined that the Optionee is to be granted
an option (the "Option") to purchase shares of the Company's common stock,
par value $0.001 per share (the "Common Stock"), on the terms and conditions
set forth herein, and hereby grants such Option. The Option is not intended
to constitute an "incentive stock option" within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code").
Any capitalized terms not defined herein shall have their
respective meanings set forth in the Plan.
1. NUMBER OF SHARES. The Option entitles the Optionee to
purchase [____] shares of the Company's Common Stock (the "Option Shares") at
a price of $[__] per share (the "Option Exercise Price").
2. OPTION TERM. The term of the Option and of this Option
Agreement (the "Option Term") shall commence on the Effective Date and,
unless the Option is previously terminated pursuant to this Option Agreement,
shall terminate upon the expiration of ten (10) years from the Effective
Date. Upon expiration of the Option Term, all rights of the Optionee
hereunder shall terminate.
3. CONDITIONS OF EXERCISE. (a) Subject to Section 7 below, the
Option shall vest and become exercisable as to [insert vesting schedule].
(1) Except as otherwise provided herein, the right of the
Optionee to purchase Option Shares with respect to which this Option has
become exercisable may be exercised in whole or in part at any time or from
time to time prior to expiration of the Option Term; PROVIDED, HOWEVER, that
the Option may not be exercised for a fraction of a share of Stock.
4. ADJUSTMENTS. In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, stock split or similar
change
<PAGE>
affecting the Common Stock, a substitution or proportionate adjustment shall
be made in the kind, number and Option Exercise Price of shares of Common
Stock subject to the unexercised portion of the Option, as may be determined
by the Board in its sole discretion.
5. NONTRANSFERABILITY OF OPTION. Unless otherwise provided by
the Administrator, the Option and this Option Agreement shall not be
transferable otherwise than by will or the laws of descent and distribution
and, during the lifetime of Optionee, the Option may be exercised only by
Optionee; PROVIDED, HOWEVER, that Optionee shall be permitted to transfer the
Option to a trust controlled by Optionee during the Optionee's lifetime for
estate planning purposes. Without limiting the generality of the foregoing,
except as otherwise provided herein, the Option may not be assigned,
transferred, pledged or hypothecated in any way, shall not be assignable by
operation of law, and shall not be subject to execution, attachment or
similar process. Any attempted assignment, transfer, pledge, hypothecation
or other disposition of the Option contrary to the provisions hereof, and the
levy of any execution, attachment or similar process upon the Option shall be
null and void and without effect.
6. METHOD OF EXERCISE OF OPTION. The Option may be exercised by
means of written notice of exercise to the Company specifying the number of
Option Shares to be purchased, accompanied by payment in full of the
aggregate Option Exercise Price and any applicable withholding taxes (i) in
cash or by check, (ii) by means of a cashless exercise procedure either
through a broker or, at the discretion of the Administrator, through
withholding of shares of Common Stock otherwise issuable upon exercise of the
Option in an amount sufficient to pay the aggregate Option Exercise Price and
any applicable withholding taxes, (iii) in the form of unrestricted Stock
already owned by the Optionee which, (x) in the case of unrestricted Stock
acquired upon exercise of an option, have been owned by Optionee for more
than six months on the date of surrender, and (y) have an aggregate Fair
Market Value on the date of surrender equal to the aggregate Option Exercise
Price of the Stock as to which such Stock Option shall be exercised, or (iv)
by any other means of exercise authorized from time to time in the Plan
and/or by the Board.
7. EFFECT OF TERMINATION OF EMPLOYMENT. Upon the termination of
Optionee's employment or service with the Company or any Parent or
Subsidiary, the Option shall immediately terminate as to any Option Shares
that have not previously vested as of the date of such termination (the
"Termination Date"). Any portion of the Option that has vested as of the
Termination Date shall be exercisable in whole or in part for a period of
[90 DAYS] following the Termination Date; PROVIDED, HOWEVER, that in the
event of termination by reason of
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Optionee's death or Disability, such exercise period shall extend until the
date that is [SIX MONTHS] from the Termination Date. Upon expiration of such
[90-day] or [six-month] period, as applicable, any unexercised portion of the
Option shall terminate in full.
8. NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given by facsimile or first class
mail, certified or registered with return receipt requested, and shall be
deemed to have been duly given three days after mailing or 24 hours after
transmission by facsimile to the respective parties named below:
If to Company: Tumbleweed Software Corporation
2010 Broadway
Redwood City, California 94063
Attention: [Secretary]
Facsimile: (650) 369-7197
with a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
525 University Avenue, Suite 220
Palo Alto, California 94301
Attention: Gregory C. Smith
Facsimile: (650) 470-4570
If to the Optionee: [Name of Optionee]
[Address]
-----------------------------
Facsimile: -----------------------------
Either party hereto may change such party's address for notices by notice
duly given pursuant hereto.
9. PROTECTIONS AGAINST VIOLATIONS OF AGREEMENT. No purported
sale, assignment, mortgage, hypothecation, transfer, pledge, encumbrance,
gift, transfer in trust (voting or other) or other disposition of, or
creation of a security interest in or lien on, any of the Option Shares by
any holder thereof in violation of the provisions of this Agreement or the
Articles of Incorporation or the Bylaws of the Company, will be valid, and
the Company will not transfer any of said Option Shares on its books nor will
any of said Option Shares be entitled to vote, nor will any dividends be paid
thereon, unless and until there has been full compliance with said provisions
to the satisfaction of the Company. The foregoing restrictions are in
addition to and not in lieu of any other remedies, legal or equitable,
available to enforce said provisions.
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10. WITHHOLDING REQUIREMENTS. The Company's obligations under
this Option Agreement shall be subject to all applicable tax and other
withholding requirements, and the Company shall, to the extent permitted by
law, have the right to deduct any withholding amounts from any payment or
transfer of any kind otherwise due to the Optionee.
11. FAILURE TO ENFORCE NOT A WAIVER. The failure of the Company
to enforce at any time any provision of this Option Agreement shall in no way
be construed to be a waiver of such provision or of any other provision
hereof.
12. GOVERNING LAW. This Option Agreement shall be governed by and
construed according to the laws of the State of California without regard to
its principles of conflict of laws.
13. INCORPORATION OF PLAN. The Plan is hereby incorporated by
reference and made a part hereof, and the Option and this Option Agreement
shall be subject to all terms and conditions of the Plan.
14. AMENDMENTS. This Option Agreement may be amended or modified
at any time only by an instrument in writing signed by each of the parties
hereto.
15. RIGHTS AS A STOCKHOLDER. Neither the Optionee nor any of the
Optionee's successors in interest shall have any rights as a stockholder of
the Company with respect to any shares of Common Stock subject to the Option
until the date of issuance of a stock certificate for such shares of Common
Stock.
16. AGREEMENT NOT A CONTRACT OF EMPLOYMENT. Neither the Plan, the
granting of the Option, this Option Agreement nor any other action taken
pursuant to the Plan shall constitute or be evidence of any agreement or
understanding, express or implied, that the Optionee has a right to continue
to provide services as an officer, director, employee, consultant or advisor
of the Company or any Parent Subsidiary for any period of time or at any
specific rate of compensation.
17. AUTHORITY OF THE BOARD. The Board shall have full authority
to interpret and construe the terms of the Plan and this Option Agreement.
The determination of the Board as to any such matter of interpretation or
construction shall be final, binding and conclusive.
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18. DISPUTE RESOLUTION. The parties hereto will use their
reasonable best efforts to resolve any dispute hereunder through good faith
negotiations. A party hereto must submit a written notice to any other party
to whom such dispute pertains, and any such dispute that cannot be resolved
within 30 calendar days of receipt of such notice (or such other period to
which the parties may agree) will be submitted to an arbitrator selected by
mutual agreement of the parties. In the event that, within 50 days of the
written notice referred to in the preceding sentence, a single arbitrator has
not been selected by mutual agreement of the parties, a panel of arbitrators
(with each party to the dispute being entitled to select one arbitrator and,
if necessary to prevent the possibility of deadlock, one additional
arbitrator being selected by such arbitrators selected by the parties to the
dispute) shall be selected by the parties. Except as otherwise provided
herein or as the parties to the dispute may otherwise agree, such arbitration
will be conducted in accordance with the then existing rules of the American
Arbitration Association. The decision of the arbitrator or arbitrators, or
of a majority thereof, as the case may be, made in writing will be final and
binding upon the parties hereto as to the questions submitted, and the
parties will abide by and comply with such decision; PROVIDED, HOWEVER, the
arbitrator or arbitrators, as the case may be, shall not be empowered to
award punitive damages. Unless the decision of the arbitrator or
arbitrators, as the case may be, provides for a different allocation of costs
and expenses determined by the arbitrators to be equitable under the
circumstances, the prevailing party or parties in any arbitration will be
entitled to recover all reasonable fees (including but not limited to
attorneys' fees) and expenses incurred by it or them in connection with such
arbitration from the nonprevailing party or parties.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Option Agreement on the day and year first above written.
TUMBLEWEED SOFTWARE CORPORATION
By
-------------------------------------
Name
-----------------------------------
Title
----------------------------------
The undersigned has had the opportunity to read the terms and
provisions of the foregoing Option Agreement and the terms and provisions of the
Plan, herein incorporated by reference. The undersigned hereby accepts and
agrees to all the terms and provisions of the foregoing Option Agreement and to
all the terms and provisions of the Plan, herein incorporated by reference.
---------------------------------------
The Optionee
Address:
-----------------------------
-----------------------------
-----------------------------
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Exhibit 10.4
TUMBLEWEED SOFTWARE CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the Tumbleweed Software
Corporation 1999 Employee Stock Purchase Plan (the "Plan"). The Plan was
adopted by the Board (defined below) on May 27, 1999, subject to the approval
of the stockholders of the Company (defined below), which approval was
obtained on . The purpose of the Plan is to provide Employees (defined
below) of the Company (defined below), its Parent (defined below) and any
Designated Subsidiary (defined below) with the opportunity to purchase Common
Stock (defined below) through accumulated payroll deductions. It is the
intention of the Company that the Plan qualify as an "employee stock purchase
plan" within the meaning of Section 423 of the Code (defined below), and that
the provisions of the Plan be construed in a manner consistent with the
requirements of such Section of the Code.
For purposes of the Plan, the following terms shall be defined
as set forth below:
(a) "ADMINISTRATOR" means the Board, or if and to the extent
the Board does not administer the Plan, the Committee in accordance with Section
11 below.
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) "CHANGE IN CAPITALIZATION" shall mean any increase,
reduction, change or exchange of Shares for a different number of shares and/or
kind of shares or other securities of the Company by reason of a
reclassification, recapitalization, merger, consolidation, reorganization,
issuance of warrants or rights, stock dividend, stock split or reverse stock
split, combination or exchange of Shares, repurchase of Shares, change in
corporate structure or otherwise.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time, or any successor thereto.
(e) "COMMITTEE" shall mean a committee appointed by the Board
to administer the Plan and to perform the functions set forth herein.
(f) "COMMON STOCK" shall mean the common stock, $0.001 par
value, of the Company.
(g) "COMPANY" shall mean Tumbleweed Software Corporation, a
Delaware corporation.
<PAGE>
(h) "COMPENSATION" shall mean the fixed salary or wage paid by
the Company to an Employee as reported by the Company to the United States
government for Federal income tax purposes, including an Employee's portion of
salary deferral contributions pursuant to Section 401(k) of the Code and any
amount excludable pursuant to Section 125 of the Code, but excluding any
payments for overtime, shift premium, incentive compensation, bonuses,
commissions, severance pay, expense reimbursements or any credit or benefit
under any employee plan maintained by the Company.
(i) "CONTINUOUS STATUS AS AN EMPLOYEE" shall mean the absence
of any interruption or termination of service as an Employee. Continuous Status
as an Employee shall not be considered interrupted in the case of a leave of
absence agreed to in writing by the Company, its Parent or a Designated
Subsidiary, as appropriate, provided that (x) such leave is for a period of not
more than 90 days or (y) reemployment with the Company, its Parent or a
Designated Subsidiary, as appropriate, is guaranteed by contract or statute upon
expiration of such leave.
(j) "DESIGNATED SUBSIDIARY" shall mean a Subsidiary that has
been designated by the Administrator from time to time in its sole discretion as
eligible to participate in the Plan.
(k) "EMPLOYEE" shall mean any person who is customarily
employed for at least twenty (20) hours per week and more than five (5) months
in a calendar year by the Company, its Parent or a Designated Subsidiary.
(l) "ENROLLMENT DATE" shall mean the first Trading Day of each
Offering Period.
(m) "FAIR MARKET VALUE" as of a particular date shall mean the
fair market value of the Shares as determined by the Administrator in its sole
discretion; PROVIDED, HOWEVER, that (i) if the Shares are admitted to trading on
a national securities exchange, fair market value of the Shares on any date
shall be the closing sale price reported for the Shares on such exchange on such
date or, if no sale was reported on such date, on the last date preceding such
date on which a sale was reported, (ii) if the Shares are admitted to quotation
on the National Association of Securities Dealers Automated Quotation ("Nasdaq")
System or other comparable quotation system and have been designated as a
National Market System ("NMS") security, fair market value of the Shares on any
date shall be the [CLOSING SALE PRICE] reported for the Shares on such system on
such date or, if no sale was reported on such date, on the last date preceding
such date on which a
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sale was reported, or (iii) if the Shares are admitted to quotation on the
Nasdaq System but have not been designated as an NMS security, fair market value
of the Shares on any date shall be the average of the highest bid and lowest
asked prices of the Shares on such system on such date or, if no bid and ask
prices were reported on such date, on the last date preceding such date on which
both bid and ask prices were reported. Notwithstanding anything to the contrary
contained herein, for purposes of the Enrollment Date of the first Offering
Period under the Plan, fair market value of the Shares shall be the initial
price to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial underwritten public offering of the Stock (the
"Registration Statement").
(n) "OFFERING PERIOD" shall mean a period as described in
Section 3 hereof.
(o) "PARENT" shall mean any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at the
time of the granting of an option, each of the corporations other than the
Company owns Shares possessing fifty percent (50%) or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain, whether or not such corporation now exists or hereafter acquires the
Company.
(p) "PARTICIPANT" shall mean an Employee who elects to
participate in the Plan pursuant to Section 4 hereof.
(q) "PURCHASE DATE" shall mean the last Trading Day of each
Offering Period.
(r) "PURCHASE PRICE" shall mean an amount equal to the lesser
of (i) 85% of the Fair Market Value of a Share on the Enrollment Date or (ii)
85% of the Fair Market Value of Share on the Purchase Date.
(s) "SHARE" shall mean a share of Common Stock.
(t) "SUBSIDIARY" shall mean any corporation (other than the
Company) in an unbroken chain of corporations, beginning with the Company, if,
at the time of the granting of an option, each of the corporations other than
the last corporation in the unbroken chain owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the other
corporations in
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such chain, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(u) "TRADING DAY" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
SECTION 2. ELIGIBILITY.
(a) Subject to the limitations set forth in Section 2(b)
hereof, any person who is an Employee as of an Enrollment Date shall be eligible
to participate in the Plan in accordance with Section 4 hereof and shall be
granted an option for the Offering Period commencing on such Enrollment Date.
(b) Notwithstanding any provision of the Plan to the contrary,
no Employee shall be granted an option under the Plan (i) if such Employee (or
any other person whose stock would be attributed to such Employee pursuant to
Section 424(d) of the Code) would own stock and/or hold outstanding options to
purchase stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company, its Parent or of any
Subsidiary, or (ii) if such grant would permit such Employee's right to purchase
stock under all employee stock purchase plans (described in Section 423 of the
Code) of the Company, its Parent and of any Subsidiary to accrue at a rate that
exceeds twenty-five thousand dollars ($25,000) of Fair Market Value of such
stock (determined at the time such option is granted) for any calendar year in
which such option would be outstanding. Any amounts received from an Employee
that cannot be used to purchase Shares as a result of this limitation shall be
returned as soon as reasonably practicable to the Employee without interest.
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<PAGE>
SECTION 3. OFFERING PERIODS.
The Plan shall be implemented by a series of consecutive
six-month Offering Periods, with a new Offering Period commencing on the first
Trading Day on or after May 15 (beginning in the year 2000) and November 15
(beginning in the year 2000) of each year, or at such other time or times as may
be determined by the Administrator, and ending on the last Trading Day on or
before the following November 14 and May 14, respectively, or at such other time
or times as may be determined by the Administrator; PROVIDED, HOWEVER, that the
first Offering Period under the Plan shall commence with the first Trading Day
on or after the date on which the Securities and Exchange Commission declares
the Company's Registration Statement effective and ending on the last Trading
Day on or before May 14, 2000. The Plan shall continue until terminated in
accordance with Section 17 hereof. Subject to Section 17 hereof, the
Administrator shall have the power to change the duration and/or the frequency
of Offering Periods with respect to future offerings and shall use its best
efforts to notify Employees of any such change at least fifteen (15) days prior
to the scheduled beginning of the first Offering Period to be affected. In no
event shall any option granted hereunder be exercisable more than twenty-seven
(27) months from its date of grant.
SECTION 4. ENROLLMENT; PARTICIPATION.
(a) On each Enrollment Date, the Company shall commence an
offering by granting each eligible Employee who has elected to participate in
such Offering Period pursuant to Section 4(b) hereof an option to purchase on
the Purchase Date of such Offering Period up to a number of Shares determined by
dividing each Employee's payroll deductions accumulated prior to such Purchase
Date and retained in the Participant's account as of such Purchase Date by the
applicable Purchase Price; provided that in no event shall a Participant be
permitted to purchase during each Offering Period more than 2,500 Shares
(subject to any adjustment pursuant to Section 16 hereof), PROVIDED, FURTHER,
that such purchase shall be subject to the limitations set forth in Sections
2(b) and 10 hereof. Exercise of the option shall occur as provided in Section 6
hereof, unless the Participant has withdrawn pursuant to Section 8 hereof. The
option with respect to an Offering Period shall expire on the Purchase Date with
respect to such Offering Period or the withdrawal date if earlier.
(b) Subject to the limitations set forth in Section 2(b)
hereof, an Employee may elect to become a Participant in the Plan by completing
and filing a
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subscription agreement authorizing the Company to make payroll deductions (as
set forth in Section 5 hereof) at least five (5) business days prior to the
applicable Enrollment Date unless a later time for filing the subscription
agreement is set by the Administrator for all Employees. Unless a Participant,
by giving written notice (or such other notice as may from time to time be
prescribed by the Administrator), elects not to participate with respect to any
subsequent Offering Period, the Participant shall be deemed to have accepted
each new offer and to have authorized payroll deductions in respect thereof
during each subsequent Offering Period.
SECTION 5. PAYROLL DEDUCTIONS.
(a) An Employee may, in accordance with rules and procedures
adopted by the Administrator and subject to the limitation set forth in Section
2(b) hereof, authorize payroll deductions in amounts which are not less than one
percent (1%) and not more than fifteen percent (15%) of such Employee's
Compensation on each payday during the Offering Period. Payroll deductions shall
commence on the first payroll paid following the Enrollment Date, and shall end
on the last payroll paid prior to the Purchase Date of the Offering Period to
which the subscription agreement is applicable, unless sooner terminated by the
Participant's withdrawal from the Plan or termination of the Participant's
Continuous Status as an Employee as provided in Section 8 hereof. A Participant
may increase or decrease his or her rate of payroll deductions at any time
during an Offering Period, but not more frequently than once during each
Offering Period, or as may be determined by the Administrator prior to the
commencement of an Offering Period, by giving written notice (or such other
notice as may from time to time be prescribed by the Administrator). The change
in rate shall be effective the first full payroll period following five (5)
business days after the Company's receipt of the new subscription agreement
unless the Company elects to process a given change in rate of payroll
deductions more quickly.
(b) All payroll deductions made by a Participant shall be
credited to such Participant's account under the Plan and shall be withheld in
whole percentages only. A Participant may not make any additional payments into
such account.
(c) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 2(b) hereof, a
Participant's rate of payroll deductions may be decreased by the Company to zero
percent (0%)
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<PAGE>
at any time during an Offering Period. Payroll deductions shall recommence at
the rate provided for in such Participant's subscription agreement at the
beginning of the first Offering Period which is scheduled to end the following
calendar year, unless a Participant increases or decreases the rate of his or
her payroll deductions as provided in Section 5(a) hereof, or terminates his or
her participation in the Plan as provided in Section 8 hereof.
SECTION 6. PURCHASE OF SHARES.
Unless a Participant withdraws from the Plan as provided in
Section 8 hereof, such Participant's election to purchase Shares shall be
exercised automatically on each Purchase Date, and the maximum number of whole
Shares subject to option shall be purchased for each Participant at the
applicable Purchase Price with the accumulated payroll deductions in each
Participant's account as of the Purchase Date. No fractional Shares may be
purchased hereunder. Any payroll deductions accumulated in a Participant's
account following the purchase of Shares on any Purchase Date that are not
sufficient to purchase a full Share shall be retained in the Participant's
account for the subsequent Offering Period, subject to earlier withdrawal by the
Participant as provided in Section 8 hereof. Any additional amounts remaining in
a Participant's account following the purchase of Shares on any Purchase Date
that are equal to, or in excess of, the amount required under this Section 6 to
purchase at least one full Share shall be returned to the Participant as soon as
reasonably practicable following the Purchase Date. During a Participant's
lifetime, a Participant's option to purchase Shares hereunder is exercisable
only by the Participant.
SECTION 7. DELIVERY OF SHARES; WITHDRAWAL OR SALE OF SHARES.
As promptly as reasonably practicable after each Purchase
Date, the Company shall either arrange the delivery of the whole Shares
purchased on such date by each Participant to the Participant's brokerage
account or arrange the delivery to the Participant of a share certificate
representing such Shares.
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SECTION 8. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(a) A Participant may withdraw all, but not less than all, of
the payroll deductions credited to such Participant's account (that have not
been used to purchase Shares) under the Plan by giving written notice to the
Company at least five (5) business days prior to the Purchase Date of the
Offering Period in which the withdrawal occurs. Withdrawal of payroll deductions
shall be deemed to be a withdrawal from the Plan. All of the payroll deductions
credited to such Participant's account (that have not been used to purchase
Shares) shall be paid to such Participant promptly after receipt of such
Participant's notice of withdrawal, and such Participant's eligibility to
participate in the Plan for the Offering Period in which the withdrawal occurs
shall be automatically terminated. No further payroll deductions for the
purchase of Shares shall be made for such Participant during such Offering
Period. If a Participant withdraws from an Offering Period, payroll deductions
for such Participant shall not resume at the beginning of the succeeding
Offering Period unless the Participant timely delivers to the Company a new
subscription agreement in accordance with the provisions of Section 4 hereof. A
Participant's withdrawal from an Offering Period shall not have any effect upon
a Participant's eligibility to participate in any similar plan which may
hereafter be adopted by the Company or in succeeding Offering Periods which
commence after termination of the Offering Period from which the Participant
withdraws.
(b) Upon termination of a Participant's Continuous Status as
an Employee during the Offering Period for any reason, including Participant's
voluntary termination, retirement or death, all the payroll deductions credited
to such Participant's account (that have not been used to purchase Shares) shall
be returned to such Participant or, in the case of such Participant's death, to
the person or persons entitled thereto under Section 12 hereof, and such
Participant's option shall be automatically terminated. Such termination shall
be deemed a withdrawal from the Plan.
SECTION 9. INTEREST.
No interest shall accrue on or be payable by the Company with
respect to the payroll deductions of a Participant in the Plan.
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SECTION 10. STOCK SUBJECT TO PLAN.
(a) Subject to adjustment upon Changes in Capitalization of
the Company as provided in Section 16 hereof, the maximum aggregate number of
Shares which shall be reserved for sale under the Plan for all Offering Periods
that commence during each fiscal year of the Company occurring during the term
of the Plan shall be 250,000(1) Shares. Such Shares shall be available as of the
first day of the first Offering Period that commences in each such fiscal year.
The Shares may consist, in whole or in part, of authorized and unissued Shares
or treasury Shares. If the total number of Shares which would otherwise be
subject to options granted pursuant to Section 2(a) hereof on an Enrollment Date
exceeds the number of Shares then available under the Plan (after deduction of
all Shares for which options have been exercised or are then outstanding), the
Administrator shall make a pro rata allocation of the Shares remaining available
for option grant in as uniform a manner as shall be practicable and as it shall
determine to be equitable. In such event, the Administrator shall give written
notice to each Participant of such reduction of the number of option Shares
affected thereby and shall similarly reduce the rate of payroll deductions, if
necessary.
(b) No Participant shall have rights as a stockholder with
respect to any option granted hereunder until the date on which such Shares
shall be deemed to have been purchased by the Participant in accordance with
Section 6 hereof.
(c) Shares purchased on behalf of a Participant under the Plan
shall be registered in the name of the Participant or, if requested in writing
by the Participant, in the names of the Participant and the Participant's
spouse.
SECTION 11. ADMINISTRATION.
The Plan shall be administered by the Board or a Committee.
The Board or the Committee shall have full power and authority, subject to the
provisions of the Plan, to promulgate such rules and regulations as it deems
necessary for the proper administration of the Plan, to interpret the provisions
and supervise the administration of the Plan, and to take all action in
connection therewith or in relation thereto as it deems necessary or advisable.
Any decision reduced to
- ----------------------
(1) Reflects post-exchange shares
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writing and signed by a majority of the members of the Committee shall be fully
effective as if it had been made at a meeting duly held. The Company shall pay
all expenses incurred in the administration of the Plan. No member of the Board
or Committee shall be personally liable for any action, determination, or
interpretation made in good faith with respect to the Plan, and all members of
the Board or Committee shall be fully indemnified by the Company with respect to
any such action, determination or interpretation.
All decisions, determinations and interpretations of the Board
or Committee shall be final and binding on all persons, including the Company,
its Parent, any Subsidiary, the Employee (or any person claiming any rights
under the Plan through any Employee) and any stockholder of the Company, its
Parent or any Subsidiary.
SECTION 12. DESIGNATION OF BENEFICIARY.
(a) A Participant may file, on forms supplied by and delivered
to the Company, a written designation of a beneficiary who is to receive Shares
and/or cash, if any, remaining in such Participant's account under the Plan in
the event of the Participant's death.
(b) Such designation of beneficiary may be changed by the
Participant at any time by written notice. In the event of the death of a
Participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such Participant's death, the Company shall
deliver the balance of the Shares and/or cash credited to Participant's account
to the executor or administrator of the estate of the Participant or, if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such Shares and/or cash to the
spouse or to any one or more dependents or relatives of the Participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
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SECTION 13. TRANSFERABILITY.
Neither payroll deductions credited to a Participant's account
nor any rights with regard to the exercise of an option or any rights to receive
Shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by the laws of descent and distribution or as
provided in Section 12 hereof) by the Participant. Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with Section 8 hereof.
SECTION 14. USE OF FUNDS.
All payroll deductions received or held by the Company under
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such payroll deductions.
SECTION 15. REPORTS.
Individual accounts shall be maintained by the Company for
each Participant in the Plan. Statements of account shall be given to each
Participant at least annually which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of Shares purchased and the
remaining cash balance, if any.
SECTION 16. EFFECT OF CERTAIN CHANGES.
In the event of a Change in Capitalization or the distribution
of an extraordinary dividend, the Administrator shall conclusively determine the
appropriate equitable adjustments, if any, to be made under the Plan, including
without limitation adjustments to the number of Shares which have been
authorized for issuance under the Plan, but have not yet been placed under
option, as well as the Purchase Price of each option under the Plan which has
not yet been exercised. In the event of a Change in Control of the Company, the
Offering Period shall terminate unless otherwise provided by the Administrator.
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SECTION 17. AMENDMENT OR TERMINATION.
The Board may at any time terminate or amend the Plan. Except
as provided in Section 16 hereof, no such termination may adversely affect
options previously granted and no amendment may make any change in any option
theretofore granted which adversely affects the rights of any Participant. To
the extent necessary to comply with Section 423 of the Code (or any successor
rule or provision or any other applicable law, regulation or stock exchange
rule), the Company shall obtain stockholder approval in such a manner and to
such a degree as required.
SECTION 18. NOTICES.
All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when they are received in a timely manner in the form specified by the
Company at the location, or by the person, designated by the Company for the
receipt thereof.
SECTION 19. REGULATIONS AND OTHER APPROVALS; GOVERNING LAW.
(a) This Plan and the rights of all persons claiming hereunder
shall be construed and determined in accordance with the laws of the State of
California without giving effect to the choice of law principles thereof, except
to the extent that such law is preempted by Federal law.
(b) The obligation of the Company to sell or deliver Shares
with respect to options granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Administrator.
SECTION 20. WITHHOLDING OF TAXES.
If the Participant makes a disposition, within the meaning of
Section 424(c) of the Code of any Share or Shares issued to Participant pursuant
to Participant's exercise of an option, and such disposition occurs within the
two-year period commencing on the day after the Enrollment Date or within the
one-year period commencing on the day after the Purchase Date, Participant
shall, within
12
<PAGE>
ten (10) days of such disposition, notify the Company thereof and thereafter
immediately deliver to the Company any amount of Federal, state or local income
taxes and other amounts which the Company informs the Participant the Company
may be required to withhold.
SECTION 21. EFFECTIVE DATE.
Subject to the approval of the Plan by the stockholders of the
Company within twelve (12) months before or after the date the Plan is adopted
by the Board, the Plan shall be effective as of the first Trading Day on or
after the date on which the Securities and Exchange Commission declares the
Company's Registration Statement effective (the "Effective Date").
SECTION 22. TERM OF PLAN.
No option shall be granted pursuant to the Plan and no
Offering Period shall commence on or after the tenth anniversary of the
Effective Date, but options theretofore granted may extend beyond that date.
13
<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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
a. "Affiliate". . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
b. "Application Program Interfaces" . . . . . . . . . . . . . . . . . .2
c. "Authorized Shipping Outlet" . . . . . . . . . . . . . . . . . . . .2
d. "Business Day" . . . . . . . . . . . . . . . . . . . . . . . . . . .2
e. "Client Software". . . . . . . . . . . . . . . . . . . . . . . . . .2
f. "Confidential Information" . . . . . . . . . . . . . . . . . . . . .3
g. "Critical Defect". . . . . . . . . . . . . . . . . . . . . . . . . .3
h. "Custom Client Software" . . . . . . . . . . . . . . . . . . . . . .3
i. "Custom Server Software" . . . . . . . . . . . . . . . . . . . . . .3
j. "Custom Software". . . . . . . . . . . . . . . . . . . . . . . . . .3
k. "Dedicated Support Personnel" or "DSP" . . . . . . . . . . . . . . .3
l. "Derivative Work". . . . . . . . . . . . . . . . . . . . . . . . . .3
m. "Detailed Design Specifications" . . . . . . . . . . . . . . . . . .4
n. "Documentation". . . . . . . . . . . . . . . . . . . . . . . . . . .4
o. "Enhancement". . . . . . . . . . . . . . . . . . . . . . . . . . . .4
p. "Functional Specifications". . . . . . . . . . . . . . . . . . . . .5
q. "Major Defect" . . . . . . . . . . . . . . . . . . . . . . . . . . .5
r. "Messaging Service". . . . . . . . . . . . . . . . . . . . . . . . .5
s. "Minor Defect" . . . . . . . . . . . . . . . . . . . . . . . . . . .5
t. "Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
u. "Phase I Software" . . . . . . . . . . . . . . . . . . . . . . . . .5
v. "Phase II Software". . . . . . . . . . . . . . . . . . . . . . . . .5
w. "Project". . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
x. "Server Software". . . . . . . . . . . . . . . . . . . . . . . . . .5
y. "Services" . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
z. "Software" . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
aa. "Source Code". . . . . . . . . . . . . . . . . . . . . . . . . . . .6
bb. "Specifications" . . . . . . . . . . . . . . . . . . . . . . . . . .6
cc. "Standard Software". . . . . . . . . . . . . . . . . . . . . . . . .6
dd. "Supported Datacenter" . . . . . . . . . . . . . . . . . . . . . . .6
ee. "Trade Secret" . . . . . . . . . . . . . . . . . . . . . . . . . . .6
ff. [ * ] . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
gg. "Tumbleweed Marks" . . . . . . . . . . . . . . . . . . . . . . . . .7
hh. "UPS Information". . . . . . . . . . . . . . . . . . . . . . . . . .7
ii. "UPS Inventions" . . . . . . . . . . . . . . . . . . . . . . . . . .7
jj. "Use". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
- ---------------
[*]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.
i
<PAGE>
2. Software Development. . . . . . . . . . . . . . . . . . . . . . . . . . .8
a. Initial Phases . . . . . . . . . . . . . . . . . . . . . . . . . . .8
b. Subsequent Phases. . . . . . . . . . . . . . . . . . . . . . . . . .8
c. Functional Specifications for Subsequent Phases. . . . . . . . . . .8
d. Detailed Design Specifications . . . . . . . . . . . . . . . . . . .9
e. Acceptance of Specifications . . . . . . . . . . . . . . . . . . . .9
f. Programming and Tumbleweed Testing . . . . . . . . . . . . . . . . .9
g. On-Site Installation Support . . . . . . . . . . . . . . . . . . . .9
h. Designation of Project Coordinators. . . . . . . . . . . . . . . . .9
i. Progress Reports . . . . . . . . . . . . . . . . . . . . . . . . . 10
j. Extensions of Time . . . . . . . . . . . . . . . . . . . . . . . . 10
k. Termination of Development Services. . . . . . . . . . . . . . . . 12
3. Modifications to Specifications . . . . . . . . . . . . . . . . . . . . 13
a. Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
b. Accepted Changes . . . . . . . . . . . . . . . . . . . . . . . . . 13
4. Implementation and Acceptance . . . . . . . . . . . . . . . . . . . . . 13
a. Implementation Schedule. . . . . . . . . . . . . . . . . . . . . . 13
b. Acceptance Testing . . . . . . . . . . . . . . . . . . . . . . . . 13
c. Interim Testing. . . . . . . . . . . . . . . . . . . . . . . . . . 15
5. Licenses and Proprietary Rights . . . . . . . . . . . . . . . . . . . . 15
a. Server Software. . . . . . . . . . . . . . . . . . . . . . . . . . 15
b. Client Software. . . . . . . . . . . . . . . . . . . . . . . . . . 16
c. Ownership of Custom Software . . . . . . . . . . . . . . . . . . . 17
i. UPS Inventions. . . . . . . . . . . . . . . . . . . . . . . 17
ii. UPS Information . . . . . . . . . . . . . . . . . . . . . . 17
d. Ownership of Customer Data . . . . . . . . . . . . . . . . . . . . 18
e. Tumbleweed Trademarks and Trade Names. . . . . . . . . . . . . . . 18
f. Developer Kits (and Localization Kits) . . . . . . . . . . . . . . 19
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. [ * ]. . . . . . . . . . . . . . . . . . . . . . . . . . 23
d. Royalty Payments . . . . . . . . . . . . . . . . . . . . . . . . . 23
e. Royalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
f. Demonstration and Internal Use . . . . . . . . . . . . . . . . . . 24
- ---------------
[*]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. . . . . . . . . . . . . . . . . . . . . . 26
7. Marketing, Distribution and Offering of Messaging Service . . . . . . . 27
a. Marketing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 27
b. Distribution of Client Software. . . . . . . . . . . . . . . . . . 27
c. Trademark Usage. . . . . . . . . . . . . . . . . . . . . . . . . . 28
d. End User Support . . . . . . . . . . . . . . . . . . . . . . . . . 28
e. Marketing Flexibility. . . . . . . . . . . . . . . . . . . . . . . 28
f. Additional Marketing and Sales Support . . . . . . . . . . . . . . 28
8. Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
a. Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
b. Compatibility. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
c. Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
d. Intentionally omitted. . . . . . . . . . . . . . . . . . . . . . . 29
e. Reliability. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
f. Intentionally omitted. . . . . . . . . . . . . . . . . . . . . . . 30
g. Locks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
h. Viruses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
i. Millennium . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
j. Warranty Disclaimer. . . . . . . . . . . . . . . . . . . . . . . . 31
9. Software Support Services . . . . . . . . . . . . . . . . . . . . . . . 31
a. Notification of Defects. . . . . . . . . . . . . . . . . . . . . . 31
b. Enhancements . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
c. Second Level Support . . . . . . . . . . . . . . . . . . . . . . . 32
d. Supported Datacenter Support . . . . . . . . . . . . . . . . . . . 33
e. Remedial Efforts by Tumbleweed . . . . . . . . . . . . . . . . . . 33
f. Termination of Maintenance . . . . . . . . . . . . . . . . . . . . 36
g. Maintenance Exclusions . . . . . . . . . . . . . . . . . . . . . . 36
10. Confidential Information. . . . . . . . . . . . . . . . . . . . . . . . 36
a. Non-Disclosure of Trade Secrets and Confidential Information . . . 36
b. Return of Materials. . . . . . . . . . . . . . . . . . . . . . . . 37
iii
<PAGE>
c. Third Party Materials. . . . . . . . . . . . . . . . . . . . . . . 37
d. Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
e. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11. Source Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
a. Right to Use Source Code . . . . . . . . . . . . . . . . . . . . . 38
b. Source Code Escrow . . . . . . . . . . . . . . . . . . . . . . . . 38
c. Verification of Escrow Deposit(s). . . . . . . . . . . . . . . . . 39
d. Ownership of Modifications Made by UPS . . . . . . . . . . . . . . 39
e. Source Code License. . . . . . . . . . . . . . . . . . . . . . . . 39
f. Discontinuance of Marketing. . . . . . . . . . . . . . . . . . . . 39
12. Training Services . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
13. Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . 40
a. Licenses and Permits . . . . . . . . . . . . . . . . . . . . . . . 40
b. Changes in Law and Regulations . . . . . . . . . . . . . . . . . . 40
14. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
a. Proprietary Rights Indemnification . . . . . . . . . . . . . . . . 41
b. Tumbleweed's General Indemnity . . . . . . . . . . . . . . . . . . 41
c. UPS's General Indemnity. . . . . . . . . . . . . . . . . . . . . . 42
d. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
15. Co-Promotion and Co-Advertising . . . . . . . . . . . . . . . . . . . . 42
16. Term and Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 43
a. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
b. Termination by Tumbleweed; Escalation. . . . . . . . . . . . . . . 43
c. Consequences of Termination. . . . . . . . . . . . . . . . . . . . 44
17. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
a. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
b. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 45
c. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 45
d. Relationship of the Parties. . . . . . . . . . . . . . . . . . . . 45
e. Amendments and Modifications . . . . . . . . . . . . . . . . . . . 45
f. Personal Pronouns; Headings. . . . . . . . . . . . . . . . . . . . 45
g. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
h. No Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
i. No Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
j. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
k. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
iv
<PAGE>
l. Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
m. Personnel Rules and Regulations. . . . . . . . . . . . . . . . . . 47
n. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
o. Limitation of Liability. . . . . . . . . . . . . . . . . . . . . . 48
p. No Consequential Damages . . . . . . . . . . . . . . . . . . . . . 48
</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.
- ---------------
[*]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
<PAGE>
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.
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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.
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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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omitted from the public filing and have been filed separately with the
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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 o 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.
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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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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) the 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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Securities and Exchange Commission.
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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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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
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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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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
<PAGE>
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 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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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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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 23 December 18, 1997
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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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Securities and Exchange Commission.
UPS/Tumbleweed Confidential 24 December 18, 1997
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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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omitted from the public filing and have been filed separately with the
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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
<PAGE>
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
<PAGE>
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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UPS/Tumbleweed Confidential 30 December 18, 1997
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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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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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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; and
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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
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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.
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
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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 [ * ], 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
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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 44 December 18, 1997
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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"
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omitted from the public filing and have been filed separately with the
Securities and Exchange Commission.
UPS/Tumbleweed Confidential 45 December 18, 1997
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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
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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 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
[ * ]
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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 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
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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 48 December 18, 1997
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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 [
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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 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.
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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 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
--------------------
UPS/Tumbleweed Confidential 51 December 18, 1997
<PAGE>
EXHIBIT A
STANDARD SOFTWARE AND PHASE I SOFTWARE AND SERVICES
[ * ]
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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.
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EXHIBIT B
PHASE II SOFTWARE AND SERVICES
[ * ]
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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.
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EXHIBIT C
INTERFACE INFORMATION AND DEVELOPER KITS
[ * ]
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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.
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EXHIBIT D
IMPLEMENTATION SCHEDULE
[ * ]
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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 December 18, 1997
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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,
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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 December 18, 1997
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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.
UPS/Tumbleweed Confidential December 18, 1997
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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.
UPS/Tumbleweed Confidential December 18, 1997
<PAGE>
Exhibit F
UPS/Tumbleweed Confidential December 18, 1997
<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
UPS/Tumbleweed Confidential December 18, 1997
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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
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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
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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.
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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
UPS/Tumbleweed Confidential December 18, 1997
<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.
UPS/Tumbleweed Confidential December 18, 1997
<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
UPS/Tumbleweed Confidential December 18, 1997
<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:
UPS/Tumbleweed Confidential December 18, 1997
<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
--------------------- --
UPS/Tumbleweed Confidential December 18, 1997
<PAGE>
EXHIBIT G
MARKETING SUPPORT SERVICES
[ * ]
- ---------------
*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 December 18, 1997
<PAGE>
Exhibit H
[Reserved]
UPS/Tumbleweed Confidential December 18, 1997
<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
UPS/Tumbleweed Confidential December 18, 1997
<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.
UPS/Tumbleweed Confidential December 18, 1997
<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 [ * ] payable
to Tumbleweed;
- ---------------
*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>
- In consideration of acquisition of the Distribution Right,
[ * ]payable to Tumbleweed; and
- As a minimum license fee for the initial contract year are
[ * ] and [ * ] payable to Tumbleweed as a
first payment in this date of contract. After that, three months
later, six months later, [ * ]. 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)
- ---------------
*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.
2
<PAGE>
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.
3
<PAGE>
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
[ * ] 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.
- ---------------
*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.
4
<PAGE>
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
5
<PAGE>
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.
6
<PAGE>
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 [ * ] 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 [ * ] 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.
- ---------------
*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.
7
<PAGE>
2. With regard to any matters not provided for in this Agreement or any
matters that may [be] subject to dispute, both parties shall discuss
such matters in good faith.
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.
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
8
<PAGE>
Exhibit 10.7
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.
RSA DATA SECURITY, INC.
100 MARINE PARKWAY, SUITE 500
REDWOOD CITY, CA 94065
OEM OBJECT CODE LICENSE AGREEMENT
This OEM OBJECT CODE LICENSE AGREEMENT ("Agreement"), effective as of
the later date of execution ("Effective Date"), is entered into by and
between RSA Data Security, Inc., a Delaware corporation ("RSA"), having a
principal address at 100 Marine Parkway, Suite 500, Redwood City, California
94065, and the entity named below ("OEM"), having a principal address as set
forth below.
OEM:
Tumbleweed Software, a California corporation
- -----------------------------------------------------------------------
(Name and jurisdiction of incorporation)
2010 Broadway, Redwood City, CA 94063
- -----------------------------------------------------------------------
(Address)
Notices to Contact: Bill Bradford,
---------------------------------------------------
Vice President Strategic Relationships
---------------------------------------------------
(650) 569-3687
---------------------------------------------------
(Name, Title and Telephone)
RSA SOFTWARE:
BSAFE-Registered Trademark- 3.0, consisting of the following algorithms: RSA,
DES, DESX., 3DES, RC2, RC4, RC5, MD, MD2, MD5, SHA, DSA, Diffie-Hellman;
TIPEM-Registered Trademark- 2.0, consisting of the following algorithms: RSA,
DES, 3DES, RC2, RC5, MD5, SHA, JSAFE-Registered Trademark- 1.0, consisting of
the following algorithms: RSA, DES, 3DES, RC2, RC4, RC5, MD5, SHA,
Diffie-Hellman. (The RSA Software provided by RSA on the Windows 95/NT
platform.)
OEM may obtain copies of the RSA Software on other platforms as may be
generally available at RSA's then current published price list, each
additional platform version of which will be covered RSA Software under this
Agreement.
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>
DELIVERY OF RSA SOFTWARE TO OEM:
One (1) copy of each of the Object Code and the User Manual for the RSA
Software identified above:
[X] has been received by OEM, or
[ ] will be delivered by RSA as soon as practicable, but not later
than ten (10) business days after the date of execution of this
Agreement.
BUNDLED PRODUCT:
OEM's software products currently known as 1) "Posta Server" ("Server Bundled
Product") which holds and forwards Posta-generated documents to Posta
Recipient Client, 2) "Posta Desktop Client," which encrypts and signs
documents being sent to Server Bundled Product, 3) "Posta Recipient Client,"
which decrypts documents and validates signatures. The Posta Desktop Client
and the Posta Recipient Client are referred to collectively as the "Client
Bundled Products."
FIELD OF USE:
Solely for privacy and authentication of communications between the Server
Bundled Product and the Client Bundled Products within a closed system,
JSAFE-Registered Trademark- v.1.0 shall perform decryption and authentication
functions only.
INITIAL MAINTENANCE AND SUPPORT:
[X] Yes [ ] No
1. DEFINITIONS
-----------
The following terms when used in this Agreement shall have the
following meanings:
1.1 "Bundled Product(s)" means one or more of the products or
product groups described above which has been or will be developed by OEM and
which incorporates in the OEM Product in any manner any portio of the RSA
Software. A Bundled Product must represent a significant functional and
value enhancement to the RSA Software such that the primary reason for an End
User Customer to license such Bundled Product is other than the right to
receive a license to the functionality of the RSA Software included in the
Bundled Product.
1.2 "Distributor" means a dealer or distributor in the business of
reselling Bundled Products to End User Customers, directly or through one or
more Distributors, by virtue of
2
<PAGE>
authority of OEM. Bundled Products resold by a Distributor shall bear OEM's
trademarks and service marks and shall not be privately labeled by such
Distributor or other parties. A Distributor shall have no right to modify
any part of the Bundled Products. Notwithstanding the foregoing, OEM may
authorize a Distributor to co-brand or private label the Bundled Products for
redistribution to End User Customers by such Distributor; provided that OEM
indicates in it licensing reports delivered pursuant to Section 3.7 the
identity of any Distributor so authorized and the name of the co-branded or
private-labeled Bundled Products. It is understood and agreed that a
Distributor authorized to co-brand or private label a Bundled Product may not
otherwise modify the Bundled Product or incorporate it into another product
for redistribution.
1.3 "End User Customer" mans a person or entity licensing RSA
Software as part of a Bundled Product from OEM, OEM Sublicensee, Corporate
Sublicensee or a Distributor solely for personal or internet use and whose
primary purpose in licensing the Bundled Product is other than to license,
assign or otherwise transfer such Bundled Product to any other person or
entity.
1.4 "Field of Use" means a use, method of incorporation or product
purpose limitation with respect to the RSA Software for a Bundled Product
specified above for such Bundled Product.
1.5 "RSA Software" means RSA's proprietary software identified
above (and including only those algorithms listed therewith), as further
described in the User Manual(s) associated therewith.
1.6 "OEM Product" means any product developed by OEM into which the
RSA Software is to be incorporated to create a Bundled Product.
1.7 "Object Code" means the RSA Software in machine-readable,
compiled object code or in the case RSA Software includes JSAFE, in Java byte
code form.
1.8 "Source Code" means the mnemonic, high level statement versions
of the RSA Software written in the source language used by programmers.
1.9 "Territory" means worldwide, subject to Section 10.7.
1.10 "User Manual" means the most current version of the user manual
and/or reference manual customarily supplied by RSA to OEMs who license the
Object Code.
2. LICENSES.
--------
2.1 LICENSE GRANT. During the term of this Agreement and within
the Field of Use limitation (if any), RSA hereby grants OEM a non-exclusive,
non-transferable license to:
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2.1.1 (i) incorporate the Object Code into an OEM Product to
create a Bundled Product; and (ii) reproduce, have reproduced, and license or
otherwise distribute the Object Code as incorporated in a Bundled Product in
the Territory.
2.1.2 sublicense its rights granted in Section 2.1.1 with
respect to the RSA Object Code as part of the Bundled Products to OEM's
licensees in the Territory (each, an "OEM Sublicensee") for the use only in
their own products in which substantial functionality or value is added to
the Bundled Products so that such products are not a substitute for the RSA
Software (collectively, "Sublicensee Products").
2.1.3 sublicense its rights granted in Section 1.1 to
distribute the RSA Object Code as part of the Client Bundled Products to
OEM's End User Customers of the Bundled Products in the Territory who are
either (i) Posta Service Providers (as defined below), or (ii) corporate End
User Customers operating a service for internal business purposes using the
Bundled Products (collectively, "Corporate Sublicensees") and who in each
case may make minor changes to the user interfaces in the Bundled Products
but no substantial changes in functionality (collectively, "Corporate
Sublicensee Products"), provided that only the client components of such
Corporate Sublicensee Products are licensed or otherwise distributed and only
for use in obtaining the Posta Service or supporting the Corporate
Sublicensee's's service for internal business purposes, and not as commercial
products.
2.1.4 (i) use the User Manual to support End User Customers;
(ii) modify and incorporate portions of the User Manual in Bundled Product
documentation; and (iii) reproduce, have reproduced and distribute in the
Territory such portions of the User Manual as incorporated in Bundled Product
documentation.
2.2 LIMITATIONS ON LICENSES. The licenses granted in Section 2.1
are further limited as follows:
2.2.1 LIMITATION ON DISTRIBUTEES. The RSA Software shall bel
licensed or otherwise distributed only to (i) Distributors, (ii) End User
Customers, (iii) OEM Sublicensees, and (iv) Corporate Sublicensees.
2.2.2 NO EXPOSURE OF RSA SOFTWARE. The RSA Software may only
be accessed by the functionality of the Bundled Product in which it is
included and a Bundled Product shall not make the RSA Object Code directly
accessible to End User Customers or to products other than the Bundled
Product or otherwise expose a cryptographic API.
2.2.3 NO STANDALONE PRODUCT. OEM may not in any way sell,
lease, rent, license, sublicense or otherwise distribute the RSA Software or
any part thereof or the right to use the RSA Software or any part thereof to
any person or entity except as part of a Bundled Product.
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2.2.4 PROHIBITED ACTIVITIES; NO SOURCE CODE. OEM shall not
modify, translate, reverse engineer, decompile, or disassemble the RSA
Software or any part thereof or otherwise attempt to derive Source Code
therefrom, and shall not authorize any third party to do any of the
foregoing. Nothing in this Agreement grants OEM any rights, license or
interest with respect to Source Code.
2.2.5 RSA ROOT KEYS. OEM may include the RSA/VeriSign, Inc.
root keys (the "RSA Root Keys") in any Bundled Product in which a hierarchy
root key is utilized or incorporated, provided that any such incorporation
must make the RSA Root Keys functional within the Bundled Products and as
accessible as any other hierarchy root key within the Bundled Product.
2.2.6 CONDITION OF SUBLICENSE GRANT. All sublicenses
permitted under Sections 2.1.2 and 2.1.3 shall be subject to all of the
following conditions: (i) all such sublicenses will be granted in a signed
writing containing at a minimum substantially all of the restrictions set
forth in Exhibit "A" attached hereto, and RSA shall be an express third party
beneficiary of the such sublicense agreements; (ii) OEM shall use its best
efforts to enforce the provisions of such sublicense as they relate to RSA
and the RSA Software; (iii) the Sublicensee Products shall include
substantial added function and value on top of the Bundled Products; (iv) the
OEM Sublicensees and Corporate Sublicensees to whom such rights are
sublicensed pursuant to Sections 2.1.2 and 2.1.3 shall have no further right
to sublicense such rights; (v) any rights of any OEM Sublicenses or Corporate
Sublicensee sublicensed by OEM shall survive only so long as both this
Agreement and the sublicense between OEM and such OEM Sublicensee or
Corporate Sublicensee remain in effect; and (vi) OEM shall identify all OEM
Sublicensees and Corporate Sublicensees in its licensing reports delivered
pursuant to Section 3.7.
2.3 TITLE. Except for the limited licenses expressly granted in
Section 2.1 and as further limited by Section 2.2, RSA does not by this
Agreement grant to OEM any right, title or ownership interest in and to the
RSA Software or in any related patents, trademarks, copyrights or proprietary
or trade secret rights. RSA receives no right, title or ownership interest
in the OEM product by way of this Agreement.
3. LICENSE FEES; DELIVERY.
----------------------
3.1 LICENSE FEES. In consideration of RSA's grant to OEM of the
limited license rights hereunder, OEM shall pay to RSA license fees in the
amounts set forth below (the "License Fees"):
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3.1.1 ANNUAL LICENSE FEE. OEM shall pay RSA an annual License
Fee during the term of this Agreement in the amount of
[ * ], for unlimited distribution of Client
Bundled Products and Server Bundled Product. Such amount shall be due and
payable for the first year upon execution of this Agreement, and for each
subsequent year on the anniversary of the Effective Date of this Agreement.
3.1.2 PERCENTAGE OF PRODUCT REVENUE LICENSE FEE. In addition
to the License Fees set forth above, OEM shall pay to RSA as License Fees an
amount equal to [ * ] of all Product Revenue.
3.1.3 PERCENTAGE OF SERVICE REVENUE LICENSE FEE. The parties
acknowledge and agree that OEM's licensees of the Bundled Products may use
the Bundled Products, Sublicensee Products or Corporation Sublicensee
Products to provide an electronic document distribution service to third
parties (the "Posta Service"). Under OEM's current business model, such
licensees ("Posta Service Providers') will pay OEM a percentage of the
transaction and/or subscription revenue from the Posta Service and may pay
OEM an initial license fee for the right to offer the Posta Service. Based
upon the foregoing, and in addition to the License Fees set forth above, OEM
shall pay to RSA as License Fees an amount equal to [ * ]
of all Service Revenue. "Service Revenue" means the gross amount of all
cash, in-kind or other consideration receivable by OEM from Posta Service
Providers at any time in connection with their providing the Posta Service,
whether as a percentage of transaction and/or subscription revenue, as an
initial license fee, or otherwise.
3.1.4 CHANGE IN BUSINESS MODEL. The License Fees set forth in
Section 3.1.3 are based upon OEM's business model described above. In the
event OEM changes its business model, OEM agrees to negotiate in good faith
for alternative License Fees that result in substantially the same payments
to RSA for substantially the same value to OEM as those provided for in
Section 3.1.3.
3.1.5 [ * ]
3.2 TAXES. All taxes, duties, fees and other governmental charges
of any kind (including sales and use taxes, but excluding taxes based on the
gross revenues or net income of RSA) which are imposed by or under the
authority of any government or any political subdivision thereof on the
License Fees or any aspect of this Agreement shall be borne by OEM and shall
not be considered a part of, a deduction from, or an offset against License
Fees.
- ---------------------
* Confidential treatment has been requested with respect to
certain information contained in this document. Confidential portions have
been ommited from the public filing and have been filed separately with the
Securities and Exchange Commission.
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3.3 PREPAYMENT OF LICENSE FEES. OEM shall prepay License Fees in
the amount [ * ] upon execution of this
Agreement. In no event shall such prepayment be refundable. All of such
prepaid amounts may be offset against License Fees accrued under Section
3.1.2 at a rate of [ * ] of License Fees
accrued under Sections 3.1.2 and 3.1.3 until the prepayments are exhausted.
OEM shall show the application of prepaid License Fees in the licensing
reports provided to RSA pursuant to Section 3.7.
3.4 USE OF PRODUCT REVENUE. "Product Revenue" means the gross
amount of all cash, in-kind or other consideration receivable by OEM at any
time in consideration of the licensing or other distribution of the Bundled
Products, whether as a sale, license, use, transaction, or service fee based
on or involving the Bundled Product, but excluding any amounts receivable by
OEM for standard maintenance and support fees which are not intended to avoid
any payment of royalties under this Agreement, sales and use taxes, shipping,
insurance and duties, and reduced by all discounts or refunds granted in the
ordinary course of business, and excluding Service Revenue. For the purposes
of determining Product Revenue, the amount of in-kind or other non-cash
consideration receivable by OEM shall be deemed to have a dollar value equal
to the standard price (as listed in OEM's published price schedule on the
date of the grant of the license or the sale in question) for such Bundled
Product, less all cash paid. For purposes of this Section 3.4 and Section
3.1.3, in-kind or non-cash consideration does not include the standard
marketing consideration that OEM requires in its standard license agreement
for the Bundled Products under OEM's standard pricing.
3.5 TERMS OF PAYMENT. License Fees payable under Section 3.1.2
shall accrue with respect to Bundled Products licensed or otherwise
distributed by OEM, OEM Sublicensees, Corporate Sublicensees or Distributors,
as applicable, upon the date of invoice of the Bundled Product, Sublicensee
Product or Corporate Sublicensee Product, as applicable, to an End User
Customer or Distributor. License Fees payable under Section 3.1.3 shall
accrue upon the date the applicable Service Revenue is due and payable from
Posta Service Providers to OEM. Such License Fees shall be paid by OEM to
the attention of the Software Licensing Department at RSA's address set forth
above on or before the thirtieth (30th) day after the close of the calendar
quarter during which the License Fees accrued. A late payment penalty on any
License Fees not paid when due shall be assessed at the rate of one percent
(1%) per thirty (30) days, beginning on the day after the delayed License
Fees were due.
3.6 U.S. CURRENCY. All payments hereunder shall be made in lawful
United States currency and shall in no case be refundable. If OEM receives
payment in foreign currencies, the amount of its License Fees to RSA shall be
calculated using the closing exchange rate published
- ---------------------
* Confidential treatment has been requested with respect to
certain information contained in this document. Confidential portions have
been ommited from the public filing and have been filed separately with the
Securities and Exchange Commission.
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in THE WALL STREET JOURNAL, Western Edition, on the last business day such
journal is published in the calendar quarter immediately preceding the date
of payment.
3.7 LICENSING REPORT. A report in reasonably detailed form setting
forth the calculation of License Fees due from OEM and signed by a reasonable
officer of OEM shall be delivered to RSA on or before the thirtieth (30th)
day after the close of each calendar quarter during the term of this
Agreement, regardless of whether License Fee payments are required to be made
pursuant to Section 3.5. The report shall include, at a minimum, the
following information with respect to the relevant quarter: (I) the total
Product Revenue invoiced to OEM Sublicensees, Corporate Sublicensees,
Distributors and End User Customers; (iii) the total Service Revenue due and
payable from Posta Service Providers' and (iii) total License Fees accrued.
3.8 AUDIT RIGHTS. RSA shall have the right, at its sole cost and
expense, to have an independent certified public accountant conduct during
normal business hours and not more frequently than annually, an audit of the
appropriate records of OEM to verify the amount of Product Revenue and
Service Revenue and OEM's calculation of License Fees. If the License Fees
accrued are different than those reported, OEM will be invoiced or credited
for the difference, as applicable. Any additional License Fees, along with
the late payment penalty assessed in accordance with Section 3.5, shall be
payable within thirty (30) days of such invoice. If the deficiency in
License Fees paid by OEM is greater than ten percent (10%) of the License
Fees reported by OEM for any quarter, OEM will pay the reasonable expenses
associated with such audit, in addition to the deficiency.
3.9 EVALUATION COPIES. [INTENTIONALLY OMITTED.]
-----------------
4. LIMITED WARRANTY.
----------------
4.1 LIMITED WARRANTY. During the initial ninety (90)-day term of
this Agreement, RSA warrants that the RSA Software will operate in material
conformance to RSA's published specifications for the RSA Software. RSA does
not warrant that the RSA Software or any portion thereof is error-free.
OEM's exclusive remedy, and RSA's entire liability in tort, contract or
otherwise, shall be correction of any warranted nonconformity as provided in
Section 4.2. This limited warranty and any obligations of RSA hereunder shall
not apply to any nonconformities caused by, and shall terminate immediately
if OEM makes, any unauthorized modification to the RSA Software.
4.2 ERROR CORRECTION. In the event OEM discovers an error in the
RSA Software which causes the RSA Software not to operate in material
conformance to RSA's published specifications therefor, OEM shall submit to
RSA a written report describing such error in sufficient detail to permit RSA
to reproduce such error. Upon receipt of any such written report, RSA will
use its reasonable business judgment to classify a reported error as either:
(i) a "Level 1 Severity" error, meanding an error that causes the RSA
Software to fail to operate in a material
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manner or to produce materially incorrect results and for which there is no
workaround or only a difficult woraround; or (ii) a "Level 2 Severity" error,
meaning an error that produces a situation in which the RSA Software is
usable but does not function in the most convenient or expeditious manner,
and the use or value of the RSA Software suffers no material impact. RSA will
acknowledge receipt of a conforming error report within two (2) business days
and (A) will use its continuing best efforts to provide a correction for any
Level 1 Severity error to OEM as early as practicable; and (B) will use its
reasonable efforts to include a correction for any Level 2 Severity error in
the next release of the RSA Software.
4.3 DISCLAIMER. EXCEPT FOR THE EXPRESS LIMITED WARRANTY PROVIDED
IN THIS SECTION 4, THE RSA SOFTWARE IS PROVIDED "AS IS" WITHOUT ANY WARRANTY
WHATSOEVER. RSA DISCLAIMS ALL WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS
TO ANY MATTER WHATSOEVER, INCLUDING ALL IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT OF
THIRD PARTY RIGHTS. RSA DISCLAIMS ANY WARRANTY OR REPRESENTATION TO ANY
PERSON OTHER THAN OEM WITH RESPECT TO THE RSA SOFTWARE. OEM SHALL NOT, AND
SHALL TAKE ALL MEASURES NECESSARY TO INSURE THAT ITS AGENTS AND EMPLOYEES DO
NOT, MAKE OR PASS THROUGH ANY SUCH WARRANTY ON BEHALF OF RSA TO ANY
DISTRIBUTOR, END USER CUSTOMER OR OTHER THIRD PARTY.
5. ADDITIONAL OBLIGATIONS OF OEM.
-----------------------------
5.1 USE OF RSA "LICENSE SEAL". OEM agrees to insert and maintain
within Bundled Products and marketing materials therefor the RSA "Licensee
Seal" from the "Logo Usage Guide," which shall be delivered to OEM within ten
(10) days of execution of this Agreement and is Incorporated herein by
reference, as follows:
5.1.1 IN BUNDLED PRODUCTS. OEM shall ensure display of the
Licensee Seal within any Bundled Product such that users thereof are exposed
to the Licensee Seal during normal operation of such Bundled Product. In a
software Bundled Product, the Licensee Seal shall be featured in such Bundled
Product's startup splash screen (if any) and within security-related dialog
windows visible in the normal operation of the product (i.e., password dialog
window). In a hardware Bundled Product, the Licensee Seal shall be visible
on the panel of such Bundled Product most normally viewed by the user.
5.1.2 IN MARKETING MATERIALS. OEM agrees to provide the
Licensee Seal within related marketing materials that reference any security
features of the Bundled Products, including but not limited to printed and
electronic data sheets, direct mail, user documentation, product packaging
and advertisements for the Bundled Product.
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5.2 BUNDLED PRODUCT MARKETING. OEM is authorized to represent to
Distributors and End User Customers only such facts about the RSA Software as
RSA states in its published product descriptions, advertising and promotional
materials or as may be stated in other non-confidential written material
furnished by RSA.
5.3 CUSTOMER SUPPORT. OEM shall, at its expense, provide all
support for the Bundled Products to Distributors and End User Customers.
5.4 LICENSE AGREEMENTS. OEM shall cause to be delivered to each
Distributor and End User Customer a license agreement which shall contain, at
a minimum, substantially all of the limitations of rights and the protections
for RSA which are contained in Sections 2.2, 5.5, 7, 10.7 and 10.8 of this
Agreement. OEM shall use commercially reasonable efforts to enforce the
terms of such agreements.
5.5 PROPRIETARY RIGHTS.
------------------
5.5.1 RSA COPYRIGHT NOTICES. OEM agrees not to remove or
destroy and proprietary, trademark or copyright markings or notices placed
upon or contained within the RSA Software, User Manuals or any related
materials or documentation. OEM further agrees to insert and maintain within
every Bundled Product and any related materials or documentation a copyright
notice in the name of OEM.
5.5.2 TRADEMARKS. By reason of this Agreement or the
performance hereof, OEM shall acquire no rights of any kind in any RSA
trademark, trade name, logo or product designation under which the RSA
Software was or is marketed and OEM shall not make any use of the same for
any reason except as expressly authorized by this Agreement or otherwise
authorized in writing by RSA. OEM shall cease to use the markings, or any
similar markings, in any manner on the expiration or other termination of
this Agreement.
6. CONFIDENTIALITY. Each party acknowledges that in its performance of
its duties hereunder, the other party may communicate to it (or its
designees) certain confidential and proprietary information of such party,
provided that such Confidential Information is clearly identified in writing
at the time of disclosure (the "Confidential Information"), all of which is
confidential and proprietary to, and a trade secret of the disclosing party.
The receiving party agrees to hold the Confidential Information disclosed to
it within its own organization and shall not, without the specific written
consent of the disclosing party or as expressly authorized herein, utilize in
any manner, publish, communicate, or disclose any part of the disclosing
party's Confidential Information or the RSA Software (in the case of OEM) to
third parties. This Section 6 shall impose no obligations on either party
with respect to any Confidential Information which: (i) is in the public
domain at the time disclosed by the disclosing party; (ii) enters the public
domain after disclosure other than by a breach of the receiving party's
obligations hereunder or by a breach of another party's confidentiality
obligation; (iii) is shown by documentary evidence to have been known by the
receiving party prior to its receipt from the
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disclosing party or developed independently without reference to Confidential
Information; or (iv) is required to be disclosed by law. Each party will
take such steps as are consistent with its protection of its own confidential
and proprietary information (but will in no event exercise less then
reasonable care) to insure that provisions of this Section 6 are not violated
by its employees, agents or any other person. The terms of this Agreement
are deemed Confidential Information and may not be disclosed without the
prior written consent of the other party, except (i) either party may
disclose such terms to the extent required by law; (ii) either party may
disclose the existence of this Agreement; (iii) either party may disclose
such terms to the extent necessary in connection with the due diligence
review of such party by potential business partners, investors or acquirors,
to such persons and to their employees, agents, attorneys and auditors, if
such persons are bound by written confidentiality agreements covering
third-party information; and (iv) both parties shall have the right to
disclose that OEM is an OEM of the RSA Software and that any
publicity-announced Bundled Product incorporates the RSA Software.
7. LIMITATION OF LIABILITY. IN NO EVENT WILL EITHER PARTY BE LIABLE TO
THE OTHER PARTY FOR INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL OR EXEMPLARY
DAMAGES ARISING OUT OF OR RELATED TO THIS AGREEMENT, INCLUDING BUT NOT
LIMITED TO LOST PROFITS, BUSINESS INTERRUPTION, OR LOSS OF BUSINESS
INFORMATION, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES, REGARDLESS OF THE CAUSE OF ACTION OR THE FORM OF ACTION, RSA'S
AGGREGATE LIABILITY TO OEM FOR ACTUAL DAMAGES ARISING OUT OF OR RELATED TO
THIS AGREEMENT SHALL BE LIMITED TO THE TOTAL AMOUNT PAID BY OEM HEREUNDER,
EXCEPT FOR RSA'S LIABILITY ARISING UNDER SECTIONS 6 AND 8. DURING THE TERM
OF THIS AGREEMENT OEM'S AGGREGATE LIABILITY TO RSA FOR ACTUAL DAMAGES ARISING
OUT OF OR RELATED TO THIS AGREEMENT SHALL BE LIMITED TO THE TOTAL AMOUNT
PAYABLE BY OEM TO RSA HEREUNDER, EXCEPT FOR OEM'S LIABILITY RESULTING FROM
BREACH OF SECTIONS 2 AND 6.
8. INTELLECTUAL PROPERTY INDEMNITY.
-------------------------------
8.1 DUTY TO DEFEND. RSA agrees that it shall, at its own expense,
defend, or at its option settle, any action instituted against OEM, and pay
any award or damages assessed against OEM or agreed to be paid by OEM in
settlement resulting from such action, insofar as the same is based upon a
claim that any RSA Software used in accordance with the terms of this
Agreement infringes any United States patent, copyright or trade secret or a
claim that RSA has no right to license the RSA Software hereunder, provided
that OEM gives RSA; (i) prompt notice in writing of such action, (ii) the
right to control and direct the investigation, preparation, defense and
settlement of the action; and (iii) reasonable assistance and information.
8.2 RSA OPTIONS. If, as a result of any binding settlement among
the parties or a final determination by a court of competent jurisdiction,
any of the RSA Software is held to infringe and its use is enjoined, or if
RSA reasonable determines in its sole discretion that the
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RSA Software may become subject to an inunction, RSA shall have the option to
obtain the right to continue use of the RSA Software or replace or modify the
RSA Software so that it is no longer infringing. In the event that neither
of the foregoing options is reasonably available, then RSA may refund the
License Fees paid by OEM hereunder less depreciation for use assuming
straight line depreciation over a five (5)-year useful life and terminate the
Agreement.
8.3 EXCLUSIONS. Notwithstanding the foregoing, RSA shall have no
liability under this Section 8 if the alleged infringement arises from (i)
the use of other than current unaltered release of the RSA Software provided
by RSA or other than in the manner specified in the relevant User Manual, or
(ii) combination of the RSA Software with other equipment or software not
provided by RSA, if such action would have been avoided but for such use or
combination.
8.4 EXCLUSIVE REMEDY. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN
THIS AGREEMENT, THE FOREGOING STATES RSA'S ENTIRE LIABILITY AND OEM'S
EXCLUSIVE REMEDY FOR PROPRIETARY RIGHTS INFRINGEMENT.
9. TERM AND TERMINATION.
--------------------
9.1 TERM. This Agreement shall be effective as of the date hereof
and shall continue in full force and effect unless and until sooner
terminated pursuant to the terms of this Agreement.
9.2 TERMINATION FOR DEFAULT. Either party shall be entitled to
terminate this Agreement at any time on written notice to the other in the
event of a material default (i.e., breach of a provision designated as
"material" herein) by the other party and a failure to cure such default
within a period of thirty (30) days following receipt of written notice
specifying that a default has occurred. For purposes of this section,
"material" provisions include Sections 1, 2, 3, 5.2, 5.4, 5.5, 6, 8, 10.2,
10.7 and 10.8.
9.3 INSOLVENCY. Upon (i) the institution of any proceedings by or
against either party seeking relief, reorganization or arrangement under any
laws relating to insolvency, which proceedings are not dismissed within sixty
(60) days; (ii) the assignment for the benefit of creditors, or the
appointment of a receiver, liquidator or trustee, of any of either party's
property or assets; or (iii) the liquidation, dissolution or winding up of
either party's business; then and in any such events this Agreement may
immediately be terminated by the other party upon written notice.
9.4 TERMINATION FOR CONVENIENCE. The parties acknowledge and agree
that OEM may at any time delay, interrupt or cease use of the RSA Software,
but this Agreement shall continue in full force, including any obligations to
make quarterly reports. OEM may elect to terminate this Agreement upon ninety
(90) days written notice and it is expressly understood that such termination
shall not discharge payment obligations accrued as of the date of such
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termination, even if such obligation is payable after the termination date,
or entitle OEM to a refund of any amounts previously paid to RSA.
9.5 EFFECT OF TERMINATION. Upon the termination of this Agreement,
OEM shall cease making copies of, using or licensing the RSA Software, User
Manual and Bundled Products, excepting only such copies of Bundled Products
necessary to fill orders placed with OEM prior to such expiration or
termination. OEM shall destroy all copies of the RSA Software, User Manual
and Bundled Products not subject to any then-effective license agreement with
an End User Customer and all information and documentation provided by RSA to
OEM, other than such copies of the RSA Object Code, the User Manual and the
Bundled Products as are necessary to enable OEM to perform its continuing
support obligations in accordance with Section 5.3, if any.
9.6 SURVIVAL OF CERTAIN TERMS. The following provision shall
survive any expiration or termination: Sections 2.2, 2.3, 3.8, 4.3, 6, 7, 9
and 10.
10. MISCELLANEOUS PROVISIONS.
------------------------
10.1 GOVERNING LAW AND JURISDICTION. This Agreement will be
governed by and construed in accordance with the laws of the State of
California, irrespective of its choice of law principles. All disputes
arising out of this Agreement shall exclusively be brought in the California
state courts or the United States District Court for the Northern District of
California. The parties agree that the United Nations Convention on
Contracts for the international Sale of Goods shall not apply to this
Agreement.
10.2 BINDING UPON SUCCESSORS AND ASSIGNS. Except as otherwise
provided herein, this Agreement shall be binding upon, and inure to the
benefit of, the successors, representatives, administrators and assigns of
the parties hereto. Notwithstanding the generality of the foregoing, this
Agreement shall not be assignable by OEM, by operation of law or otherwise,
without the prior written consent of RSA, which shall not be unreasonably
withheld. If RSA fails to respond to a written request for consent to assign
OEM's rights with identifies the proposed assignee and which is given in
accordance with Section 10.6 and directed to RSA's Legal Department within
fourteen (14) days after is receipt, RSA shall be deemed to have consented to
such request. Any such purported assignment or delegation without RSA's
written consent shall be void and of no effect. RSA may withhold its consent
to the assignment of this Agreement, at its sole discretion, if the Agreement
provides for paid-up License Fees. RSA acknowledges that this unamended
Agreement as of the Effective Date does not provide for paid-up License Fees.
10.3 SEVERABILITY. If any provision of this Agreement is found to
be invalid or unenforceable, such provision shall be severed from the
Agreement and the remainder of this Agreement shall be interpreted so as best
to reasonably effect the intent of the parties hereto.
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10.4 ENTIRE AGREEMENT. This Agreement any exhibits or attachments
hereto constitute the entire understanding and agreement of the parties
hereto with respect to the subject matter hereof and supersede all prior and
contemporaneous agreements, representations and understandings between the
parties regarding the subject matter hereof.
10.5 AMENDMENT AND WAIVERS. Any term or provision of this Agreement
may be amended, and the observance of any term of this Agreement may be
waived, only by a writing signed by the party to the bound.
10.6 NOTICES. Any notice, demand, or request with respect to this
Agreement shall be in writing and shall be effective only if it is delivered
by hand or mailed, certified or registered mail, postage prepaid, return
receipt requested, addressed to the appropriate party at its address set
forth on page 1. Notice to RSA shall be addressed to "RSA Legal Department."
Such communication shall be effective when they are received by the
addressee; but if sent by certified or registered mail in the manner set
forth above, they shall be effective not later than ten (10) days after being
deposited in the mail. Any party may change its address for such
communications by giving notice to the other party in conformity with this
Section.
10.7 EXPORT COMPLIANCE AND FOREIGN RESHIPMENT LIABILITY. THIS
AGREEMENT IS EXPRESSLY MADE SUBJECT TO ANY LAWS, REGULATIONS, ORDERS OR OTHER
RESTRICTIONS ON THE EXPORT FROM THE UNITED STATES OF AMERICA OF THE RSA
SOFTWARE OR BUNDLED PRODUCTS OR OF INFORMATION ABOUT THE RSA SOFTWARE OR
BUNDLED PRODUCTS WHICH MAY BE IMPOSED FROM TIME TO TIME BY THE GOVERNMENT OF
THE UNITED STATES OF AMERICA. NOTWITHSTANDING ANYTHING CONTAINED IN THIS
AGREEMENT TO THE CONTRARY, OEM SHALL NOT EXPORT OR REEXPORT, DIRECTLY OR
INDIRECTLY, ANY RSA SOFTWARE OR BUNDLED PRODUCTS OR INFORMATION PERTAINING
THERETO ANY COUNTRY TO WHICH SUCH EXPORT OR REEXPORT IS RESTRICTED OR
PROHIBITED, OR AS TO WHICH SUCH GOVERNMENT OR ANY AGENCY THEREOF REQUIRES AN
EXPORT LICENSE OR OTHER GOVERNMENTAL APPROVAL AT THE TIME OF EXPORT OR
REEXPORT WITHOUT FIRST OBTAINING SUCH LICENSE OR APPROVAL.
10.8 FEDERAL GOVERNMENT LICENSE. OEM and each of OEM's Distributors
shall in all proposals and agreements with the United States government or
any contractor of the United States government identify and license the
Bundled Product, including the RSA Software incorporated therein, as follows:
(i) for acquisition by or on behalf of civilian agencies, as necessary to
obtain protection as "commercial computer software" and related documentation
in accordance with the terms of OEM's or such Distributor's customary
license, as specified in 48 C.F.R. 12.212 of the Federal Acquisition
Regulations and its successor regulations; or (ii) for acquisition by or on
behalf of units of the Department of Defense, as necessary to obtain
protection as "commercial computer software" as defined in 48 C.F.R.
252.227-7014(a)(1) of the Department of Defense Federal Acquisition
Regulation Supplement (DFARS) and related
14
<PAGE>
documentation in accordance with the terms of OEM's or such Distributor's
customary license, as specified in 48 C.F.R. 227.7202-1 of DFARS and its
successor regulations.
10.9 REMEDIES NON-EXCLUSIVE. Except as otherwise expressly
provided, any remedy provided for in this Agreement is deemed cumulative
with, and not exclusive of, any other remedy provided for in this Agreement
or otherwise available at law or in equity. The exercise by a party of any
remedy shall not preclude the exercise by such party of any other remedy.
10.10 ATTORNEYS' FEES. Should suit be brought to enforce or
interpret any part of this Agreement, the prevailing party shall be entitled
to recover, as an element of the costs of suit and not as damages, reasonable
attorneys' fees to be fixed by the court (including without limitation,
costs, expenses and fees on any appeal).
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date of the last signature below.
OEM:
TUMBLEWEED SOFTWARE, INC.
By: /s/ Joseph C. Consul
-----------------------------------
Printed Name: Joseph C. Consul
-------------------------
Title: VP Finance, CFO
--------------------------------
Date: 3/29/98
---------------------------------
RSA DATA SECURITY, INC.
By: /s/ Albert Sisto
-----------------------------------
Printed Name: Albert Sisto
-------------------------
Title: Chief Operating Officer
--------------------------------
Date: March 30, 1998
---------------------------------
15
<PAGE>
EXHIBIT "A"
MANDATORY SUBLICENSE TERMS
All sublicense agreements for the license of the RSA Object Code in
the Bundled Products by OEM to OEM Sublicensees and Corporate Sublicensees
will substantially include all of the following restrictions:
I. The OEM Sublicensee or Corporate Sublicensee will receive no
greater rights with respect to the Bundled Products than those permitted in
Sections 2.1.1 of the Agreement as limited by Section 2.2 of the Agreement.
II. The OEM Sublicensee or Corporate Sublicensee will agree not to
remove or destroy any proprietary, trademark or copyright markings or
confidentiality legends placed upon or contained within the Bundled Products
or any related materials or documentation.
III. If applicable, the OEM Sublicensee or Corporate Sublicensee
will agree that any sublicensee of the Bundled Products to the United States
Government or any agency thereof will state that such software and related
documentation are "commercial computer software" as that term is defined for
purposes of the Federal Acquisition Regulations (FARs) or the Department of
Defense Federal Acquisition Regulations Supplement (DFARS), as applicable,
then in effect.
IV. The OEM Sublicensee or Corporate Sublicensee will agree not to
export or reexport any Bundled Products or any part thereof or information
pertaining thereto to any country for which a U.S. government agency requires
an export license or other governmental approval without first obtaining such
license or approval.
V. The OEM Sublicensee or Corporate Sublicensee will agree that,
except for the limited licenses granted under the license agreement, OEM and
its licensors will retain full and exclusive right, title and ownership
interest in and to the Bundled Products and in any and all related patents,
trademarks, copyrights or proprietary or trade secret rights.
VI. OEM will have the right to terminate the license for the OEM
Sublicensee's or Corporate Sublicensee's breach of a material term. The OEM
Sublicensee or Corporate Sublicensee will agree that, upon termination of the
license, the OEM Sublicensee or Corporate Sublicensee will return to OEM all
copies of the object code and documentation for the Bundled Products or
certify to OEM that the OEM Sublicensee or Corporate Sublicensee has
destroyed all such copies, except that the OEM Sublicensee or Corporate
Sublicensee may retain one (1) copy of the object code for the Bundled
Products solely for the purpose of supporting the OEM Sublicensee's or
Corporale Sublicensee's existing licensees.
16
<PAGE>
VII. The OEM Sublicensee or Corporate Sublicensee will agree, to the
extent permitted by applicable law, not to reverse compile, disassemble or
modify the Bundled Products.
VIII. The OEM Sublicensee or Corporate Sublicensee will agree not to
distribute the Bundled Products or any part thereof except pursuant to a
license agreement meeting the requirements in Section 5.4 of the Agreement.
IX. The sublicense agreement will state that in no event will OEM
or its licensors be liable for indirect, incidental, special, consequential
or exemplary damages arising out of or related to the Bundled Products,
including but not limited to lost profits, business interruption or loss of
business information, even if such party has been advised of the possibility
of such damages.
17
<PAGE>
RSA DATA SECURITY, INC.
100 Marine Parkway, Suite 500
Redwood City, CA 94065
MAINTENANCE AND SUPPORT AGREEMENT
THIS MAINTENANCE AND SUPPORT AGREEMENT ("Support Agreement"),
effective as of the later date of execution ("Effective Date"), is entered
into by and between RSA Data Security, Inc., a Delaware corporation ("RSA"),
having a principal address at 100 Marine Parkway, Suite 500, Redwood City,
California 94065, and the entity named below ("OEM"), having a principal
address as set forth below:
OEM:
Tumbleweed Software, a California corporation
- -----------------------------------------------------------------------
(Name and jurisdiction of incorporation)
2010 Broadway, Redwood City, CA 94063
- -----------------------------------------------------------------------
(Address)
Notices to Contact: Bill Bradford,
---------------------------------------------------
Vice President Strategic Relationships
---------------------------------------------------
(650) 569-3687
---------------------------------------------------
(Name, Title and Telephone)
Initial Annual Maintenance Fee: [ * ]
10. DEFINITIONS. All capitalized terms used and not defined herein shall
have the meanings set forth in the OEM Agreement or the following meanings:
10.1 "News Release" means a version of the RSA Software which shall
generally be designated by a new version number which has changed from the
prior number only to the right of the decimal point (E.G., Version 2.2 to
Version 2.3).
- ---------------------
* Confidential treatment has been requested with respect to
certain information contained in this document. Confidential portions have
been ommited from the public filing and have been filed separately with the
Securities and Exchange Commission.
18
<PAGE>
10.2 "New Version" means a version of the RSA Software which shall
generally be designated by a new version number which has changed from the
prior number to the left of the decimal point (E.G., Version 2.3 to Version
3.0).
10.3 "OEM Agreement" means that certain OEM Object Code License
Agreement between RSA and OEM dated March 30).
10.4 "RSA Software" means proprietary software identified as RSA
Software on page 1 of the OEM Agreement.
11. MAINTENANCE AND SUPPORT SERVICES.
--------------------------------
11.1 GENERAL. This Support Agreement sets forth the terms under
which RSA will provide maintenance and support to OEM for the RSA Software
licensed to OEM for the Bundled Product, as set forth under the unamended OEM
Agreement. The use of and license to any software provided to OEM hereunder
shall be governed by the terms of the OEM Agreement.
11.2 SUPPORT AND MAINTENANCE. RSA agrees to provide the maintenance
and support specified in this Support Agreement and OEM agrees to pay RSA's
then-current annual support and maintenance fee ("Maintenance Fee").
11.3 MAINTENANCE PROVIDED BY RSA. For the annual period commencing
on the Effective Date hereof, and for future annual periods for which OEM has
paid the Maintenance Fee, RSA will provide OEM with the following services:
11.3.1 TELEPHONE SUPPORT. RSA will provide telephone support
to OEM during RSA's normal business hours. RSA may provide on-site support
reasonably determined to be necessary by RSA at OEM's location specified on
page 1 hereof. RSA shall provide the support specified in this Section 2.3.1
to OEM's employees responsible for developing and maintaining the Bundled
Products licensed under the OEM Agreement and providing support to End User
Customers. No more than two (2) OEM employees may obtain such support from
RSA at any one time. On RSA's request, OEM will provide a list with the
names of the employees designated to receive support from RSA. OEM may
change the names on the list at any time by providing written notice to RSA.
11.3.2 ERROR CORRECTION. In the event OEM discovers an error
in the RSA Software which causes the RSA Software not to operate in material
conformance to RSA's published specifications therefor, OEM shall submit to
RSA a written report describing such error in sufficient detail to permit RSA
to reproduce such error. Upon receipt of any such written report, RSA will
use its reasonable business judgment to classify a reported error as either:
(i) a "Level 1 Severity" error, meaning an error that causes the RSA Software
to fail to operate in a material manner or to produce materially incorrect
results and or which there is no workaround
19
<PAGE>
or only a difficult workaround; or (ii) a "Level 2 Severity" error, meaning
an error that produces a situation in which the RSA Software is usable but
does not function in the most convenient or expeditious manner, and the use
or value of the RSA Software suffers no material impact. RSA will acknowledge
receipt of a confirming error report within two (2) business days and (A)
will use its continuing best efforts to provide a correction of any Level 1
Severity error to OEM as early as practicable; and (B) will use its
reasonable efforts to include a correction for any Level 2 Severity error in
the next release of the RSA Software.
11.3.3 NEW RELEASES AND NEW VERSIONS. RSA will provide OEM
information relating to New Releases and New Versions of the RSA Software
during the term of this Support Agreement. New Releases and New Versions
will be provided by RSA at no additional charge. Nevertheless, license rights
to any New Versions provided hereunder shall not extend to any new algorithms
contained in such New Versions which algorithms are not listed as licensed
under the terms of the OEM Agreement. License rights to such new algorithms
shall be available at RSA's standard upgrade charges in effect at the time.
Any New Releases or New Versions acquired by OEM shall be governed by all of
the terms and provisions of the OEM Agreement.
11.4 LEGEND MAINTENANCE. If this Support Agreement has lapsed, OEM
may obtain a license of New Releases or New Versions of the applicable RSA
Software (consistent with Section 2.3.3 above) or any service which is
provided as a part of maintenance and support by becoming current on
Maintenance Fees as provided in Section 3.1 to te date such New Release or
New Version is licensed or such service is provided.
12. MAINTENANCE AND SUPPORT FEES.
----------------------------
12.1 MAINTENANCE AND SUPPORT FEES. In consideration of RSA's
providing the maintenance and support services described herein, OEM agrees
to pay RSA the initial Maintenance Fee set forth on the first page hereof.
Such amount shall be payable for the first year upon the execution of this
Support Agreement, and for each subsequent year in advance of the
commencement of such year. The Maintenance Fee may be modified by RSA for
each renewal term by written notice to OEM at least ninety (90) days prior to
the end of the then-current term. If OEM elects not to renew this Support
Agreement for successive terms (as provided in Section 6.1 below) OEM may
re-enroll only upon payment of the annual Maintenance Fee for the coming year
and for all Maintenance Fees that would have been paid had OEM not ceased
maintenance and support.
12.2 ADDITIONAL CHARGES. In the event RSA is required to take
actions to correct a difficulty or defect which is traced to OEM errors,
modifications, enhancements, software or hardware, then OEM shall pay to RSA
its time and materials charges at RSA's rates then in effect, in the event
RSA's personnel must travel to perform maintenance or on-site support, OEM
shall reimburse RSA for any reasonable out-of-pocket expenses incurred,
including travel to and from OEM's sites, lodging, meals and shipping, as may
be necessary in connection with duties performed under this Section 3.2 by
RSA.
20
<PAGE>
12.3 TAXES. All taxes, duties, fees and other governmental charges
of any kind (including sales and use taxes, but excluding taxes based on the
gross revenues or net income of RSA) which are imposed by or under the
authority of any government or any political subdivision thereof on the
Maintenance Fees or any aspect of this Support Agreement shall be borne by
OEM and shall not be considered a part of, a deduction from or an offset
against Maintenance Fees.
12.4 TERMS OF PAYMENT. Maintenance Fees due RSA hereunder shall be
paid by OEM to the attention of the Software Licensing Department at RSA's
address set forth above upon execution and, in the case of renewal terms,
prior to each anniversary thereof. A late payment penalty on any Maintenance
Fees not paid when due shall be assessed at the rate of one percent (1%) per
thirty (30) days. In no event shall Maintenance Fees paid be refundable.
12.5 U.S. CURRENCY. All payments hereunder shall be made in lawful
United States currency.
13. CONFIDENTIALITY. The parties agree that all obligations and
conditions respecting confidentiality, use of the Source Code (if licensed to
OEM) and publicity in Section 6 of the OEM Agreement shall apply to the
parties' performance of this Support Agreement.
14. USE LIMITATIONS; TITLE; INTELLECTUAL PROPERTY INDEMNITY; LIMITATION OF
LIABILITY. Any and all RSA Software provided to OEM pursuant to this Support
Agreement shall constitute RSA Software under the OEM Agreement. As such,
the parties' respective interests and obligations relating to the RSA
Software, including but not limited to license and ownership rights thereto,
use limitations (if any), intellectual property indemnity and limitation of
liability, shall be governed by the terms of the OEM Agreement.
15. TERM AND TERMINATION
--------------------
15.1 TERM. This Support Agreement shall commence on the Effective
Date hereof and shall remain in full force and effect for an initial period
of one (1) year, unless sooner terminated in accordance with this Support
Agreement. Upon expiration of the initial period and each successive period,
this Support Agreement shall automatically renew for an additional (1) year
period, unless either party has notified the other of its intent to terminate
as set forth in Section 6.2.3 herein.
15.2 TERMINATION.
-----------
15.2.1 Either party shall be entitled to terminate this Support
Agreement at any time on written notice to the other in the event of a
material default by the other party of this Support Agreement and a failure
to cure such default within a period of thirty (30) days following receipt of
written notice specifying that a default has occurred.
21
<PAGE>
15.2.2 This Support Agreement shall automatically terminate in
the event that the OEM Agreement is terminated in accordance with its terms.
15.2.3 This Support Agreement may also be terminated by OEM for
any or no reason by providing written notice of such intent at least (90)
days prior to the end of the then-current term. RSA may cease to offer
support and maintenance for future maintenance terms by notice delivered to
OEM ninety (90) days or more before the end of the then-current maintenance
term.
15.2.4 Upon (i) the institution of any proceeding by or against
either party seeking relief, reorganization or arrangement under any laws
relating to insolvency, which proceedings are not dismissed within sixty (60)
days; (ii) the assignment for the benefit of creditors, or upon the
appointment of a receiver, liquidator or trustee, of any of either party's
property or assets; or (iii) the liquidation, dissolution or winding up of
either party's business, then and in any such events this Support Agreement
may immediately be terminated by the other party upon written notice.
15.3 SURVIVAL OF CERTAIN TERMS. The following provisions shall
survive any expiration or termination: Sections 2.4, 5, 6 and 7.
16. MISCELLANEOUS PROVISIONS. This Support Agreement is not an amendment
to the OEM Agreement, but instead is a separate binding agreement which
incorporates certain terms of the OEM Agreement for the purposes of brevity
and assured consistency. This Agreement incorporates by this reference
Section 10 of the OEM Agreement in its entirety.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date of the later signature below.
OEM:
TUMBLEWOOD SOFTWARE, INC.
BY:
-----------------------------------
PRINTED NAME:
-------------------------
TITLE:
--------------------------------
DATE:
---------------------------------
22
<PAGE>
RSA DATA SECURITY, INC.
BY: /s/ Albert Sisto
-----------------------------------
PRINTED NAME: Albert Sisto
-------------------------
TITLE: Chief Operating Officer
--------------------------------
DATE: March 30, 1998
---------------------------------
23
<PAGE>
EXHIBIT "A"
TO
MAINTENANCE AND SUPPORT AGREEMENT
Licensee: Tumbleweed Software, Inc.
----------------------------------------------------------------------
Maintenance and Support Agreement Date: March 30, 1998
---------------------------------------
THE MAINTENANCE AND SUPPORT AGREEMENT between RSA Data Security, Inc.
and the Licensee set forth above dated as of the date set forth above
("Agreement") is amended as set forth below.
1. DEFINITIONS. Capitalized terms used and not otherwise defined
in this Exhibit "A" shall have the meanings designated for such terms in the
Agreement.
2. AMENDMENTS TO AGREEMENT. The following provisions of the
Agreement, referenced by the applicable Section numbers in the Agreement, are
hereby amended as follows:
2.1 SECTION 3.1 The third sentence of Section 3.1 is
amended by adding the following at the end thereof: ". . . ; PROVIDED,
HOWEVER THAT THE MAINTENANCE FEE SHALL NOT BE INCREASED BY ANA MOUNT GREATER
THAN TEN PERCENT (10%) PER ANNUM."
2.2 SECTION 6.2.3 The second sentence of Section 6.2.3 of
the Agreement is amended by adding the following at the end thereof: ". . .
; PROVIDED, HOWEVER, THAT RSA MAY CEASE TO OFFER MAINTENANCE TO OEM WITH
RESPECT TO THE MOST RECENT RELEASE OF A PARTICULAR RSA SOFTWARE PRODUCT ONLY
IF IT IS GENERALLY CEASING TO OFFER MAINTENANCE FOR THE SAME PRODUCT TO IT
OTHER SIMILARLY-SITUATED LICENSEES."
3. EFFECT OF AMENDMENT. This Exhibit "A" is an amendment to the
Agreement. Except as expressly amended above, the Agreement shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties have executed this Exhibit "A" as of
the date set forth above.
LICENSEE:
TUMBLEWEED SOFTWARE, INC. RSA DATA SECURITY, INC.
BY: /s/ Joseph C. Consul BY: /s/ Albert Sisto
----------------------------------- ---------------------------------
PRINTED NAME: Joseph C. Consul PRINTED NAME: Albert Sisto
------------------------- -----------------------
TITLE: VP FInance, CFO TITLE: Chief Operating Officer
-------------------------------- ------------------------------
24
<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 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.
25
<PAGE>
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.
26
<PAGE>
Exhibit 21
- ----------
Subsidiaries of the Registrant
Tumbleweed Software, K.K. (Japan)
Tumbleweed Software Ltd. (United Kingdom)
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Tumbleweed Software Corporation
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
May 28, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 698 13,823
<SECURITIES> 0 0
<RECEIVABLES> 281 899
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,145 14,996
<PP&E> 851 1,069
<DEPRECIATION> 379 449
<TOTAL-ASSETS> 1,725 15,651
<CURRENT-LIABILITIES> 855 1,423
<BONDS> 369 405
0 0
7 11
<COMMON> 4 4
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 1,725 15,651
<SALES> 2,015 693
<TOTAL-REVENUES> 2,015 693
<CGS> 931 274
<TOTAL-COSTS> 931 274
<OTHER-EXPENSES> 7,150 2,216
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 41 65
<INCOME-PRETAX> (5,917) (1,799)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,917) (1,799)
<EPS-BASIC> (1.56) (0.44)
<EPS-DILUTED> (1.56) (0.44)
</TABLE>
