FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 333-17529
Qualix Group, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 77-0261239
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1900 S. Norfolk St., Suite 224
San Mateo, CA 94403-1151
(Address of principal executive offices) (Zip code)
(650) 572-0200
(Registrant's telephone number including area code)
Not applicable
(Former name, former address, and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of December 31, 1997.
Title Outstanding
Common stock-par value $0.001 10,368,588
QUALIX GROUP, INC.
INDEX
PART I FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
At December 31, 1997 and June 30, 1997...............................3
Condensed Consolidated Statements of Operations-Quarter
and six months ended December 31, 1997 and 1996......................4
Condensed Consolidated Statements of Cash Flows Six months ended
December 31, 1997 and 1996...........................................5
Notes to Condensed Consolidated Financial Statements.................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................8
PART II OTHER INFORMATION
Item 1. Legal Proceedings....................................................22
Item 2. Changes in Securities................................................22
Item 3. Defaults Upon Senior Securities......................................22
Item 4. Submission of Matters to a Vote of Security Holders..................22
Item 5. Other Information....................................................23
Item 6. Exhibits and Reports on Form 8-K.....................................23
SIGNATURES....................................................................24
Exhibit Index.................................................................25
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
QUALIX GROUP, INC.
Condensed Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
Dec 31, June 30,
1997 1997
--------------- ---------------
(unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 3,264 $ 9,617
Temporary cash investments 12,178
9,541
Accounts receivable, net
7,995 5,147
Other current assets
583 470
--------------- ---------------
Total current assets 24,020 24,775
--------------- ---------------
Property and equipment, net
2,328 1,559
--------------- ---------------
=============== ===============
Total assets $ 26,348 $ 26,334
=============== ===============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 4,344 $ 4,119
Deferred revenue and advances
1,919 1,795
Current portion of long-term obligations
129 126
--------------- ---------------
Total current liabilities
6,392 6,040
--------------- ---------------
Long-term obligations
202 191
Stockholders' Equity 19,754 20,103
--------------- ---------------
=============== ===============
Total liabilities and stockholders' $ 26,348 $ 26,334
equity
=============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
QUALIX GROUP, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts; unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31, December 31,
------------------------------ ------------------------------
1997 1996 1997 1996
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenue:
Reliability software $ 5,541 $ 4,161 $ 10,047 $ 7,858
Other products 2,227 2,659 4,947
4,613
Support, maintenance and consulting 1,524 1,280 2,244
2,857
-------------- -------------- --------------- --------------
Total revenue 9,292 8,100 17,517 15,049
-------------- -------------- --------------- --------------
Cost of revenue:
Cost of reliability software 2,457
438 916 502
Cost of other products 1,611 1,854 3,440
3,319
Cost of support, maintenance and consulting
516 492 999 833
-------------- -------------- --------------- --------------
Total cost of revenue 2,565 3,262 6,730
4,820
-------------- -------------- --------------- --------------
-------------- ----------------------------------------------
Gross profit 6,727 4,838 12,697 8,319
-------------- ----------------------------------------------
Operating expenses:
Sales and marketing 5,507 2,659 4,801
9,826
General and administrative 1,158 1,264
783 2,172
Research and development
931 556 1,779 978
Merger expenses
- - - 595
-------------- -------------- --------------- --------------
Total operating expenses 7,596 3,998 13,777 7,638
-------------- ----------------------------------------------
Income (Loss) from operations
(869) 840 (1,080) 681
Other income, net
212 10 460 31
-------------- -------------- --------------- --------------
Income (loss) before income taxes
(657) 850 (620) 712
Provision for income taxes
- - - 1
-------------- -------------- --------------- --------------
============== ==============================================
Net income (loss) $ (657) $ 850 $ $ 711
(620)
============== ==============================================
Net income (loss) per share, basic $ (0.06) $ 0.17 $ $ 0.16
(0.06)
============== ==============================================
Shares used in per share computation 10,367 5,017 10,346 4,437
============== ============== =============== ==============
Net income (loss) per share, diluted $ (0.06) $ 0.10 $ $ 0.08
(0.06)
============== ============== =============== ==============
Shares used in per share computation 10,491 8,381 10,604 8,370
============== ============== =============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
QUALIX GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
-------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (620) $ 711
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization
343 85
Amortization of discount on long-term obligations
14 -
Changes in:
Accounts receivable (2,848) (1,452)
Other current assets
(113) (445)
Accounts payable and accrued liabilities 1,220
225
Deferred revenue and advances
124 354
Liability under employment termination agreement
- (98)
-------------- --------------
Net cash provided by (used in) operating activities (2,875)
375
-------------- --------------
Cash flows from investing activities:
Purchases of property and equipment, net (1,112)
(508)
Purchase of temporary cash investments (8,342)
-
Proceeds from maturity of temporary cash investments 5,737
-
-------------- --------------
Net cash used in investing activities (3,717)
(508)
-------------- --------------
Cash flows from financing activities:
Issuance of long-term obligations, net
- 17
Proceeds from issuance of common stock, net
239 98
-------------- --------------
Net cash provided by financing activities
239 115
-------------- --------------
Net decrease in cash and cash equivalents (6,353)
(18)
Cash and cash equivalents, beginning of year 9,617 3,102
-------------- --------------
============== ==============
Cash and cash equivalents, end of period $ 3,264 $ 3,084
============== ==============
Noncash investing and financing activities:
Net unrealized gain (loss) on investment
(32) 375
============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest
- -
============== ==============
Cash paid during the period for income taxes 54
109
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
QUALIX GROUP, INC.
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
Effective February 12, 1997, the Company completed its initial public
offering. The accompanying interim condensed unaudited financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for annual
financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation of financial
position, results of operations and cash flows at the dates and for the periods
presented have been included. The interim financial information herein is not
necessarily indicative of the results of any future period. The interim
condensed financial statements should be read in conjunction with the June 30,
1997 consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K.
The consolidated financial statements include the amounts of the Company
and its wholly-owned subsidiary. Intercompany accounts and transactions have
been eliminated in consolidation.
2. Net Income (Loss) Per Share
The Company implemented Statement of Financial Accounting Standards No.
128, "Earnings Per Share" (SFAS 128) during the current quarter and has restated
all prior periods to conform with this statement. SFAS 128 replaces previous
earnings per share reporting requirements and requires a dual presentation of
basic and diluted earnings per share.
Net income (loss) per basic share has been computed based upon the
weighted average number of common shares outstanding for the periods presented.
For diluted earnings per share, shares used in the per share
computation include weighted average common and common equivalent shares
outstanding. Common equivalent shares consist of shares issuable upon the
assumed exercise of dilutive stock options and totaled 124,000 and 31,000 for
the quarters ended December 31, 1997 and 1996, respectively, and 258,000 and
75,000 for the six months ended December 31, 1997 and 1996, respectively.
Pursuant to the Securities and Exchange Commission's Staff Accounting
Bulletins and staff policy, all outstanding preferred stock and warrants that
were converted into common stock in the initial public offering are included in
the computation as common equivalent shares when the effect is dilutive. Prior
to the Company's initial public offering in February 1997, common equivalent
shares include preferred stock and certain warrants (using the "if converted"
method) totaling 3,043,000 and 3,570,000 shares for the quarter and for the six
month period ended December 31, 1997, respectively. Additionally, all common and
common equivalent shares issued within the 12 months preceding the initial
filing date are included and totaled 288,000 shares both for the quarter and for
the six month period ended December 31, 1996.
3. Effects of Recent Accounting Pronouncement
In June 1997, the FASB adopted SFAS No.130, "Reporting Comprehensive
Income", which requires that an enterprise report, by major components and as a
single total, the change in its net assets during the period from nonowner
sources; and SFAS No.131, "Disclosures about Segments of an Enterprise and
Related Information", which establishes annual and interim reporting standards
for an enterprise's business segments and related disclosures about its
products, services, geographic areas and major customers. Adoption of these
statements will not impact the Company's consolidated financial position,
results of operations or cash flows. Both statements are effective for the
Company beginning July 1, 1998, with earlier application permitted.
<PAGE>
Item 2. Management's Discussion And Analysis of Financial Condition And Results
of Operations
This Form 10-Q contains forward-looking statements written in the meaning
of section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements involve a number of risks and uncertainties. Such
risks and uncertainties include, but are not limited to, those discussed under
the heading "Risk Factors" contained herein and in the Company's other reports
and filings with the Securities and Exchange Commission ("SEC"), including the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1997.
The actual results that the Company achieves may differ materially from any
anticipated results described in the forward-looking statements due to such
risks and uncertainties.
The Company has used various sentences within this Form 10-Q which contain
such forward-looking statements, and words such as "believes", "anticipates",
"expects", "intends", and similar expressions are intended to identify
forward-looking statements, but are not the exclusive means of denoting the
same. The Company undertakes no obligation to revise any forward-looking
statements in order to reflect events or circumstances that may arise after the
date of this report. Readers are urged to carefully review and consider various
disclosures made by the Company in this report and in the Company's other
reports filed with the SEC that attempt to advise interested parties of the
risks and factors that may affect the Company's business.
Overview
Qualix is a leading provider of reliability software for UNIX and Windows
NT applications and servers in distributed computing environments. The Company's
reliability solutions are designed to minimize the impact of system failures on
business-critical applications. The Company offers software products for high
availability and storage management. Although a substantial majority of the
Company's historical revenue has come from products licensed from third parties,
the Company now focuses its sales and marketing efforts on higher margin
internally developed or acquired products. See "Risk Factors - Recent Transition
to New Business Model."
The Company began operating primarily as a distributor, value-added
reseller (VAR) and publisher of licensed third party client/server software
products. In 1993, the Company focused on the reliability market by introducing
QualixHA, its first high availability product for the UNIX operating
environment. QualixHA was based on a licensed core software engine. In May 1996,
the Company acquired substantially all of the assets and assumed certain
liabilities of Anthill Incorporated ("Anthill"), including technology relating
to a hierarchical storage management product under development. In August 1996,
the Company merged with Octopus Technologies, Inc. ("Octopus Technologies")
which had developed high availability and remote data mirroring products for the
Windows NT operating environment. Additionally, the Company successfully
completed an initial public offering in February 1997.
In October 1996, the Company introduced QualixHA+, which is based on an
internally developed core software engine. A key element of the Company's
strategy is to increase substantially the percentage of revenues derived from
internally developed or acquired products that typically have higher gross
margins than licensed products. Pursuant to this strategy, the Company ceased
marketing Qualix HA in February 1997. The Company is developing several
additional systems management products. See "Risk Factors--Recent Transition to
New Business Model," "--Uncertainty of Success of Recently Introduced and
Planned Products" and "--Dependence on Licensed Products."
Results of Operations
Total Revenues
Total revenues increased to $9,292,000 in the second quarter of fiscal 1998
from $8,100,000 for the same period of fiscal 1997, an increase of $1,192,000,
or 15%. Total revenues for the six months ended December 31, 1997 increased
$2,468,000, or 16% from the comparable prior year period.
Reliability Software. Reliability software revenues increased to $5,541,000
in the second quarter of fiscal 1998, from $4,161,000 for the comparable period
in the prior year, an increase of $1,380,000, or 33%; reliability software
revenues for the six months ended December 31, 1997 increased to $10,047,000
from $7,858,000 for the six months ended December 31, 1996, an increase of 28%.
These increases are primarily due to the Company's success in closing large
licensing transactions during the quarter ended December 31, 1997, the increase
in sales personnel and the expansion of the field sales and telemarketing
organization. The Company recognized $1.1 million in product revenue for its
QualixHA+ Unix high availability product as part of one enterprise license
agreement. Such large transactions reflect the continuing broad market
acceptance of high availability products for the UNIX and Windows NT operating
environments and the focus of the Company's sales force on enterprise-wide
license agreements and larger transaction sizes. The timing of large sales can
cause significant fluctuations in the Company's operating results. See "Risk
Factors--Risk of Significant Fluctuations in Quarterly Operating Results."
Other Products. Revenue from the sale of other products decreased to
$2,227,000 in the second quarter and $4,613,000 for the six months ended
December 31, 1997 from $2,659,000 and $4,947,000, respectively, for the same
periods of fiscal 1997, decreases of $432,000 or 16% and $334,000 or 7%,
respectively. These decreases are attributable to Qualix Direct's continued
focus on the sales of the Company's internally developed higher margin
reliability products and to its de-emphasis on the sales of third party
products.
Support, Maintenance and Consulting. Support, maintenance and consulting
revenue, primarily derived from annual maintenance agreements and training,
increased to $1,524,000 in the second quarter of fiscal 1998 from $1,280,000 for
the same period of fiscal 1997, an increase of $244,000, or 19%. Support,
maintenance and consulting revenue increased to $2,857,000 in the first six
months of fiscal 1998 from $2,244,000 for the same period in fiscal 1997, an
increase of 27%. The increases in support, maintenance and consulting are
primarily attributable to increased sales of support contracts into the Octopus
installed base which historically had purchased minimal amounts of support.
Cost of Revenues
Cost of revenues decreased to $2,565,000 in the second quarter of fiscal
1998 from $3,262,000 for the same period of 1997, a decrease of $697,000, or
21%. Cost of revenues decreased to $4,820,000 in the first six months of fiscal
1998 from $6,730,000 for the same period of fiscal 1997, a decrease of 28%.
Cost of Reliability Software. Cost of reliability software as a percentage
of reliability software revenues decreased to 8% in the second quarter of fiscal
1998 from 22% in the second quarter of 1997 and to 5% from 31% for the first six
months of the respective fiscal years. These decreases are primarily due to
increased sales volumes of higher margin internally developed reliability
products that have little or no royalty or licensing components.
Cost of Other Products. Cost of other products as a percentage of other
product revenues increased to 72% in the second quarter and in the first six
months of fiscal 1998 from 70% in the second quarter and in the first six months
of the prior year. These slight increases are attributable to the increased
demand for lower margin products. In general, margins for resold products are
decreasing, however these decreases were partially offset by the refocused
efforts of the Qualix Direct telesales organization on the higher margin
reliability products.
Cost of Support, Maintenance and Consulting. Cost of support, maintenance
and consulting as a percentage of support, maintenance and consulting revenues
decreased to 34% for the second quarter of fiscal 1998 from 38% for the same
period of 1997. Cost of support, maintenance and consulting decreased to 35% of
support, maintenance and consulting revenues for the first six months of fiscal
1998 compared to 37% for the comparable period in 1997. These decreases are
primarily the result of increased revenues while associated cost levels remained
stable.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased to $5,507,000
in the second quarter of fiscal 1998 from $2,659,000 for the same period of
1997, an increase of $2,848,000, or 107%. Sales and marketing expenses increased
to $9,826,000 in the first six months of fiscal 1998 from $4,801,000 for the
same period of 1997, an increase of $5,025,000 or 105%. These expenses increased
as a percentage of total net revenues to 59% in the second quarter of fiscal
1998 from 33% in the second quarter of 1997. This increase on an absolute and
percentage basis was primarily a result of the expanded sales infrastructure,
including the opening of eleven new sales offices worldwide, and the added
personnel to expand the Company's marketing and distribution capabilities. The
Company's sales and marketing head count has increased from 99 to 171 from
December 31, 1996 to December 31, 1997, including an increase of 48 personnel in
the first six months of fiscal 1998. Sales productivity levels declined in the
first and second quarters of fiscal 1998 as a result of adding new sales
personnel. The Company's ability to increase revenues and improve operating
results depends significantly on improving sales productivity levels. The
Company believes that sales and marketing expenses will increase during the
remainder of fiscal 1998 as the Company continues to expand its sales and
marketing staff.
General and Administrative. General and administrative expenses increased
to $1,158,000 in the second quarter of fiscal 1998 from $783,000 for the same
period of 1997, an increase of $375,000, or 48%. These expenses increased to
$2,172,000 in the first six months of fiscal 1998 from $1,264,000 for the same
period of fiscal 1997, an increase of $908,000, or 72%. As a percentage of total
net revenues, these expenses increased to 12% in the first six months of fiscal
1998 from 8% in the comparable period of 1997. The increase in absolute dollars
is primarily a result of increased staffing and related costs required to manage
and support the Company's operations as well as increases in depreciation
expense and other costs associated with business expansion. The Company expects
that general and administrative expenses will increase during the remainder of
fiscal 1998 in direct correlation with the expansion of the Company's
operations.
Research and Development. Research and development expenses increased to
$931,000 in the second quarter of fiscal 1998 from $556,000 for the same period
of 1997, an increase of $375,000, or 67%. Research and development expenses
increased to $1,779,000 in the first six months of fiscal 1998 from $978,000 in
the first half of fiscal 1997, an increase of $801,000 or 82%. This increase was
primarily attributable to increased staffing and related expenses required to
support product development activities, including developing a future release of
QualixHA+, version 3.1 of OctopusHA+, and version 1.4 of Qualix DataStar, the
Company's UNIX remote data mirroring application. The Company believes that a
significant level of research and development investment is required to remain
competitive and expects such expenses will increase during the remainder of
fiscal 1998.
Merger Expenses. Merger expenses of $595,000 were incurred in connection
with the acquisition of Octopus Technologies during the six months ended
December 31, 1996. Merger expenses consisted primarily of investment banking,
legal and accounting fees.
Other Income and Expense, net. Other income (expense), net, increased to
$212,000 in the second quarter of fiscal 1998 from $10,000 for the same period
of 1997, an increase of $212,000, or 2,020%. This increase reflects higher
average investment balances largely attributable to the proceeds from the
Company's initial public offering in February 1997.
Provision For Income Taxes. The Company recorded no provision for income
taxes for the second quarter and first six months of fiscal 1998 and a minimal
provision for the same periods in the prior fiscal year because the Company had
taxable losses for which no significant benefit was recognized.
Net Income(Loss). Net loss for the quarter was $(657,000) or $(0.06)
per share, diluted, compared to net income of $850,000 or $0.10 per share,
diluted, for the comparable period in the prior fiscal year. In addition to the
increases in general and administrative expenses and research and development
expenses associated with the Company's growth, the net loss reflects the full
impact of the increase in headcount in the field sales force which occurred
largely midway during the first quarter of fiscal 1998, and to a lesser extent,
during the second quarter of fiscal 1998.
Liquidity and Capital Resources
At December 31, 1997, the Company had $15,442,000 in cash, cash equivalents
and temporary cash investments, as compared to $19,158,000 at June 30, 1997, a
decrease of $3,716,000, or 19%. At December 31, 1997, the Company had working
capital of $17,628,000 compared to $18,735,000 at June 30, 1997.
Cash Flows From Operating Activities. Cash used in operations was
$2,875,000 during the first six months of fiscal 1998 which was a $3,250,000
increase from the comparable period of the prior year. This increase is
attributed principally to the loss from operations plus increases in accounts
receivable and other current assets and decreases in deferred revenues and
advances and accounts payable and other accrued liabilities. During the
comparable period of fiscal 1997, cash provided by operating activities was
attributable to income from operations plus increases in accounts payable and
accrued liabilities and deferred revenues and advances, offset by increases in
accounts receivable and other current assets. The increases in deferred revenue
and advances are attributable to payments under support, maintenance and
consulting contracts for which revenue had not yet been recognized.
Cash Flows From Investing Activities and Financing Activities. Net cash
used for investing activities of $3,717,000 for the first six months of fiscal
1998 primarily consisted of $1,112,000 in purchases of property and equipment
and $2,605,000 in net purchases of temporary cash investments. Net cash provided
by financing activities was $239,00 for the first six months of fiscal 1998
primarily provided by proceeds from the issuance of common stock.
The Company believes that cash flow from operations, existing cash balances
and temporary cash investments will be sufficient to meet its working capital
requirements for at least the next 12 months. However, if the available funds
and cash generated from operations are insufficient to satisfy the Company's
cash needs, the Company may be required to sell additional equity or convertible
debt securities. There can be no assurance that the Company will be able to sell
such securities. Moreover, the sale of additional equity or convertible debt
securities could result in dilution to the Company's stockholders.
Risk Factors
Recent Transition to New Business Model. The Company originally began
operating primarily as a distributor, value-added reseller ("VAR") and publisher
of licensed third party client/server software products. In 1993, the Company
focused on the reliability market by introducing QualixHA, its first high
availability product for the UNIX operating environment. QualixHA was based on a
core software engine licensed from Veritas. In August 1996, the Company merged
with Octopus Technologies, which had developed high availability and remote data
mirroring products for the Windows NT operating environment. In October 1996,
the Company introduced QualixHA+, which is based on an internally developed core
software engine. The Company's strategy is to increase substantially the
percentage of revenues derived from internally developed or acquired products
that typically have higher gross margins than licensed products. Pursuant to
this strategy, the Company ceased marketing QualixHA in February 1997. There can
be no assurance that the Company will successfully implement this strategy. The
Company's future profitability, if any, will be heavily dependent on the
successful development and/or acquisition, introduction and enhancement of its
own reliability products. See "-- Dependence on Qualix Direct" and
"--Uncertainty of Success of Recently Introduced and Planned Products."
Risk of Significant Fluctuations in Quarterly Operating Results. The
Company has experienced, and expects to continue to experience, significant
fluctuations in operating results, on an annual and a quarterly basis, as a
result of a number of factors, many of which are outside the Company's control,
including the size and timing of orders; lengthy sales cycles; customer budget
changes; introduction or enhancement of products by the Company or its
competitors; expansion of the Company's field sales force; changes in pricing
policy of the Company or its competitors; the mix of products sold, including
particularly the mix of owned, licensed and resold products; increased
competition; technological changes in computer systems and environments; the
ability of the Company to timely develop or acquire, introduce and market new
products; quality control of products sold; market readiness to deploy
reliability products for distributed computing environments; market acceptance
of new products and product enhancements; seasonality of revenue; customer order
deferrals in anticipation of new products and product enhancements; the
Company's success in expanding its sales and marketing programs; personnel
changes; foreign currency exchange rates; mix of sales channels; acquisition
costs or other nonrecurring charges in connection with the acquisition of
companies, products or technologies; and general economic conditions. The
Company's operating results have historically fluctuated significantly as a
result of nonrecurring items, including $595,000 of nonrecurring merger expenses
relating to the Octopus Technologies merger in the quarter ended September 30,
1996.
The Company believes that operating results over at least the next few
quarters will be particularly dependent upon achieving significant market
acceptance of its OctopusHA+ and QualixHA+ products, improving the productivity
of the Company's field sales force, the amount of any price reduction for such
products, the timing of large orders for such products, the level of revenues
from lower margin products resold through the Qualix Direct telesales
organization, the level of research and development expenses in connection with
the Company's ongoing and planned product development program and the level of
sales and operating expenses. The Company's gross margin will be affected by a
number of factors, including the mix of owned, licensed and resold products, the
percentage of total revenue from service contracts, product pricing, the
percentage of total revenue from direct sales and indirect distribution channels
and the percentage of sales by the Qualix Direct telesales organization.
Internally developed or acquired products generally have higher gross margins
than licensed products because lower or no royalties must be paid. Service
revenues generally have lower margins than revenues from sales of owned products
because of the costs incurred to generate service revenues. Revenues from
products resold by the Qualix Direct telesales organization generally have lower
gross margins than revenues from owned and licensed products sold by the
Company's other direct and indirect distribution channels.
Large sales of certain reliability products, including QualixHA+, often
have long cycles and are subject to a number of significant risks over which the
Company has little or no control. The timing of large sales can cause
significant fluctuations in the Company's operating results, particularly as the
Company pursues larger licensing transactions, and delivery schedules may be
canceled or delayed. Because sales orders are typically shipped shortly after
receipt, order backlog as of any particular date is not necessarily indicative
of the Company's future revenues. Accordingly, total revenues in any quarter are
substantially dependent on orders booked and shipped during that quarter.
Historically, the Company has often recognized a significant portion of its
revenues in the last weeks, or even days, of a quarter. As a result, the
magnitude of quarterly fluctuations may not become evident until late in, or
after the close of, a particular quarter. In addition, the Company's expense
levels are based in significant part on expectations as to future revenues and
as a result are relatively fixed in the short run. If revenues are below
expectations in any given quarter, net income is likely to be disproportionately
affected, particularly because the Company relies heavily on a relatively high
cost direct sales channel.
Based upon all of the foregoing, the Company believes that the Company's
annual and quarterly revenues, expenses and operating results are likely to vary
significantly in the future, that period-to-period comparisons of its results of
operations are not necessarily meaningful and that, in any event, such
comparisons should not be relied upon as indications of future performance. In
addition, it is likely that in future quarters the Company's operating results
will be below the expectations of public market analysts and investors. In such
event, the price of the Company's Common Stock would be materially and adversely
affected.
Intense Competition. The market for reliability software for distributed
computing environments is intensely competitive, fragmented and characterized by
rapid technological developments, evolving standards and rapid changes in
customer requirements. To maintain and improve its position in this market, the
Company must continue to enhance current products and develop new products in a
timely fashion. Although the Company believes that the reliability segment of
the market is in the early stages of development, the Company competes, or may
compete, with four types of vendors: (i) independent vendors that provide
reliability products; (ii) host-based systems management software companies
migrating their products to the distributed computing market; (iii) distributed
computing systems management software companies that incorporate reliability
products as a part of integrated systems management solutions; and (iv) hardware
and operating system vendors, including Microsoft Corporation and Sun
Microsystems, that incorporate high availability solutions into their products.
Many of the Company's competitors have longer operating histories and have
substantially greater financial, technical, sales, marketing and other
resources, as well as greater name recognition and a larger customer base, than
the Company. The Company's current and future competitors could introduce
products with more features, higher scaleability, greater functionality and
lower prices than the Company's products. These competitors could also bundle
existing or new products with other, more established products in order to
compete with the Company. The Company's focus on reliability software may be a
disadvantage in competing with vendors that offer a broader range of products.
Moreover, as the distributed systems management software market develops, a
number of companies with significantly greater resources than those of the
Company could attempt to increase their presence in this market by acquiring or
forming strategic alliances with competitors or business partners of the
Company. Because there are relatively low barriers to entry for the software
market, the Company expects additional competition from other established and
emerging companies. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any of which could
materially and adversely affect the Company's business, operating results and
financial condition. Any material reduction in the price of the Company's
products would negatively affect gross margins and would require the Company to
increase software unit sales in order to maintain gross profits.
In addition, the distributed computing market is characterized by rapid
technological advances, changes in customer requirements, frequent new product
introductions and enhancements and evolving industry standards in computer
hardware and software technology. The introduction of products embodying new
technologies and the emergence of new industry standards may render the
Company's existing or planned products obsolete or unmarketable, particularly
because the market for reliability products is in an early stage of development.
There can be no assurance that the Company will be able to compete successfully
against current and future competitors, especially those with significantly
greater financial, marketing, service, support, technical and other resources
than the Company, and the failure to do so would have a material adverse effect
upon the Company's business, financial condition and results of operations.
Dependence on Qualix Direct. Through its Qualix Direct telesales
organization, the Company has historically derived and expects to continue to
derive a significant portion of its total revenue from reselling ancillary
software and hardware products for distributed computing systems. Qualix Direct
accounted for 24% and 33% of total revenue in the second quarter of fiscal 1998
and fiscal 1997, respectively. The Company's reliance on Qualix Direct entails a
number of risks. Qualix Direct's product line is updated frequently in response
to changes in vendor offerings. Qualix Direct has no long-term supply contracts
with its vendors and many resold products are acquired pursuant to purchase
orders or contracts that can be terminated with little or no notice. In
addition, Qualix Direct generally has little or no control over the marketing,
support and enhancement of its resold products by its vendors and faces
significant competition from distributors and other distribution channels.
Moreover, gross margins on products resold by Qualix Direct are generally lower
than gross margins on owned and licensed products sold by the Company's field
sales organization. In addition, the Company's net revenues may be adversely
impacted if sales by Qualix Direct decline or do not grow at anticipated rates,
even though the Company's gross margins may be less significantly impacted.
Although the Company sells its lower priced reliability products through Qualix
Direct telesales representatives, there can be no assurance that such efforts
will be successful or that such activities will not create conflicts with the
Company's other direct or indirect distribution channels. Any adverse
development at Qualix Direct could have a material adverse impact on the
Company's business, financial condition and results of operations.
Uncertainty of Success of Recently Introduced and Planned Products. A key
element of the Company's strategy is to increase substantially the percentage of
revenues derived from higher margin owned reliability software products. In
August 1996, the Company acquired and introduced high availability and remote
data mirroring products for Windows NT based systems upon merging with Octopus
Technologies. In October 1996 introduced QualixHA+, its high availability
product for UNIX based systems, which is based on an internally developed core
software engine. Version 2.0 of this product, which includes a GUI and
additional clustering features, commenced shipping in October, 1997. In April,
1997 the Company introduced DataStar, a network-based data duplication and
remote mirroring software for UNIX environments. In July, 1997 the Company began
shipping version 3.0 of OctopusHA+, its high availability and remote mirroring
product for Windows NT based systems. In addition, the Company is developing
additional reliability products. There are a number of risks associated with the
successful development or acquisition and introduction of the Company's existing
and planned products. The Company needs to significantly expand and enhance its
product development and engineering resources in order to successfully implement
its product development program. See "--Need to Expand Product Development and
Engineering Capability." The Company has in the past experienced delays in the
development of new products and enhancements to existing products. There can be
no assurance that the Company can successfully develop any additional products
or enhance existing products. Even if developed or acquired, such products or
enhancements may contain undetected difficulties or defects that are not
discovered before they are released. See "--Risk of Software Defects." In
addition, there can be no assurance that the Company can successfully market and
sell any such products or enhancements or that they will achieve significant
market acceptance. Failure of the Company to successfully develop, market and
sell existing and planned products or enhancements would have a material adverse
effect on the Company's business, financial condition and results of operations.
Dependence on Licensed Products. The Company has historically derived a
substantial majority, and expects to continue to derive a portion, of its total
revenue from the sale of products that are licensed or incorporate a significant
amount of technology that is licensed from third parties (collectively,
"licensed products"). There are a number of disadvantages and risks associated
with the sale of licensed products. The Company is frequently unable to obtain
exclusive rights to sell a licensed product, in which case the Company competes
against the licensor and potentially other third party licensees. The licenses
are typically for a specified period. For example, the Company's right to sell
FireWall-1 (and QualixHA+ for Firewalls, which incorporates FireWall-1) is
subject to annual renewal. The Company must typically pay a significant per copy
royalty that reduces gross margins realized by the Company from the sale of
licensed products and may put the Company at a competitive disadvantage against
the licensor or other third party licensees paying lower royalty rates. In
addition, the Company may have little or no control over the timing,
functionality and quality of enhancements and upgrades to the product and may be
restricted in the method and manner, including distribution channels, by which
the Company may sell the product. The Company may from time to time need to
enforce its rights under licenses. See "--Legal Proceedings." Notwithstanding
these factors, the Company anticipates it will derive a significant percentage
of its revenues from licensed products for the foreseeable future. Any loss in
the right to sell licensed products or any adverse change in the terms upon
which it sells licensed products could have a material adverse effect on the
Company's business, financial condition and results of operations.
Product Concentration. The Company currently derives the majority of its
revenues from the sale of reliability products and related services for
distributing computing environments. Broad market acceptance of the Company's
reliability products is therefore critical to the Company's future success.
Demand for the Company's reliability products will depend in large part on
increasing market acceptance of distributed computing systems, particularly for
business-critical applications, and the need for reliability systems management
software products and services for these computing systems. There can be no
assurance that market acceptance of distributed computing systems will increase
for business-critical applications or that market acceptance of reliability
products and services will increase. If reliability products fail to achieve
broad market acceptance in distributed computing environments, the Company's
business, operating results and financial condition would be materially and
adversely affected. During recent years, segments of the computer industry have
experienced significant economic downturns characterized by decreased product
demand, production overcapacity, price erosion, work slowdowns and layoffs. The
Company's financial performance may in the future experience substantial
fluctuations as a consequence of such industry patterns. There can be no
assurance that such factors will not have a material adverse effect on the
Company's business, financial condition and results of operations.
Need to Expand Product Development and Engineering Capability. The
Company's future success is critically dependent on expanding and integrating
its product development and engineering capability. In order to maintain its
market and technological leadership, the Company must maintain and upgrade its
products and develop new products. To successfully implement its product
development program, the Company must, among other things, hire additional
software engineers, enhance its product development policies and procedures and
substantially increase expenditures on product development and engineering.
There can be no assurance that the Company's product development efforts will be
successful or that future products will be available on a timely basis or at all
or achieve market acceptance. Moreover, expansion of the Company's product
development program will increase the Company's operating expenses, and there
can be no assurance that actual spending increases will not exceed anticipated
amounts or that such increases will result in sufficient revenues to justify
such increases. Failure to successfully implement the Company's product
development program would have a material adverse effect on its business,
financial condition and results of operations.
Dependence on Indirect Distribution Channels. An important element of the
Company's sales and marketing strategy is to continue to sell its products and
services through indirect distribution channels, including distributors, system
integrators, VARs, systems management software vendors and OEMs. Selling through
indirect channels may limit the Company's contacts with its customers. As a
result, the Company's ability to accurately forecast sales, evaluate customer
satisfaction and recognize emerging customer requirements may be hindered.
Marketing products through the Company's field sales force and through indirect
distribution channels may result in distribution channel conflicts. There can be
no assurance that channel conflicts will not materially adversely affect its
field sales efforts as well as its relationships with existing or future
distributors, system integrators, VARs, systems management software vendors and
OEMs. The Company's reliance on indirect distribution increases the risks
associated with the introduction of new products, including risks of delays in
adoption and the risk that resellers will evaluate and potentially adopt
competitive products. There can be no assurance that the Company's current
resellers will adopt or successfully market any of the Company's new products.
In addition, these relationships are frequently terminable at any time without
cause. Therefore, there can be no assurance that any such party will continue to
represent the Company's products, which could have a material adverse effect on
the Company's business, financial condition and results of operations.
Integration of Acquisitions. The Company may make acquisitions in the
future. Acquisitions of companies, products or technologies entail numerous
risks, including an inability to successfully assimilate acquired operations and
products, diversion of management's attention, loss of key employees of acquired
companies and substantial transaction costs. Some of the products acquired may
require significant additional development before they can be marketed and may
not generate revenue at levels anticipated by the Company. There can be no
assurance that the Company will not incur these problems in the future.
Moreover, future acquisitions by the Company may result in dilutive issuances of
equity securities, the incurrence of additional debt, large one-time write-offs
and the creation of goodwill or other intangible assets that could result in
amortization expense. Any such problems or factors could have a material adverse
effect on the Company's business, financial condition and results of operations.
Dependence on Key Personnel; Recent Management Changes; Management of
Growth. The Company's future operating results depend significantly on the
continued service of its key technical and senior management personnel and on
its continuing ability to attract and retain highly qualified technical and
managerial personnel. The Company's future success is particularly dependent on
increasing its product development personnel. See "--Need to Expand Product
Development and Engineering Capability." The Company has relied in the past on
consultants as well as employees for its product development programs.
Competition for such personnel is intense, and there can be no assurance that
the Company will retain its key managerial and technical employees or that it
will be successful in attracting or retaining other highly qualified technical
and managerial employees and consultants in the future. The Company has at times
experienced difficulty in recruiting qualified personnel, and there can be no
assurance that the Company will not experience such difficulties in the future.
If the Company were to experience such difficulties in the future, it may have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company recently hired a Senior Vice President of
Field Sales Operations and an acting Vice President of Marketing to replace
senior management personnel who have left the Company. Additionally, the Company
has hired a Vice President for Human Resources. If these new executives do not
integrate effectively into the Company's management and operations it would have
a material adverse effect on the Company's business, financial condition and
results of operations. In addition, the growth in the Company's business has
placed, and is expected to continue to place, a significant strain on the
Company's management and operations. To manage its future growth, if any,
effectively, the Company must continue to strengthen its operational, financial
and management information systems and expand, train and manage its employee
work force. Failure to do so effectively and on a timely basis could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
Dependence on Proprietary Technology; Risks of Infringement. The Company's
success depends in part upon its proprietary technology. The Company has no
issued patents and relies on a combination of copyright, trademark and trade
secret laws, confidentiality procedures and licensing arrangements to establish
and protect its proprietary rights relating to its licensed and internally
developed products. The Company's rights to market and sell licensed products
are generally governed by license agreements of specified duration. See
"--Dependence on Qualix Direct" and "--Dependence on Licensed Products." The
Company has applied for a United States patent covering certain aspects of the
technology included in its Octopus Technologies data mirroring product and has
recently received the official Notice of Allowance regarding that application
However, there can be no assurance that any issued patent will provide
meaningful protection for the Company's technology, that any issued patent will
provide the Company with any competitive advantages or will not be challenged by
third parties. Moreover, there can be no assurance that the Company will develop
additional proprietary products or technologies that are patentable or that the
patents of others will not have an adverse effect on the Company's ability to do
business. Furthermore, there can be no assurance that others will not
independently develop similar products, duplicate the Company's products or, if
patents are issued to the Company, design around the patents issued to the
Company. As part of its confidentiality procedures, the Company generally enters
into non-disclosure agreements with its employees, distributors and corporate
partners, and license agreements with respect to its software, documentation and
other proprietary information. Despite these precautions, it may be possible for
a third party to copy or otherwise obtain and use the Company's products or
technology without authorization, or to develop similar technology
independently. Policing unauthorized use of the Company's products is difficult
and although the Company is unable to determine the extent to which piracy of
its software products exists, software piracy can be expected to be a persistent
problem. In selling its products, the Company relies on "shrink wrap" licenses
for sales of certain products that are not signed by licensees and, therefore,
may be unenforceable under the laws of certain jurisdictions. In addition,
effective protection of intellectual property rights is unavailable or limited
in certain foreign countries. There can be no assurance that the Company's
protection of its proprietary rights, including any patent that may be issued,
will be adequate or that the Company's competitors will not independently
develop similar technology, duplicate the Company's products or design around
any patents issued to the Company or other intellectual property rights.
There can be no assurance that third parties will not claim infringement by
the Company with respect to current or future products. In October 1996, the
Company received correspondence from a French company asserting that it has
registered "Octopus" as a trademark in France and that the Company's use of the
mark "Octopus" infringes its trademark rights. The Company has not been
successful in obtaining a license to use the Octopus mark in France and has
determined that it must adopt a new trademark to replace the Octopus mark in
France. Qualix does not believe that this action will have a material adverse
effect on the Company's business, financial condition or results of operations.
In addition, the Company expects that software product developers will
increasingly be subject to such claims as the number of products and competitors
in the Company's industry segment grows and the functionality of products in the
industry segment overlaps. Any such claims, with or without merit, could result
in costly litigation that could absorb significant management time, which could
have a material adverse effect on the Company's business, operating results and
financial condition. Such claims might require the Company to enter into royalty
or license agreements. Such royalty or license agreements, if required, may not
be available on terms acceptable to the Company or at all, which could have a
material adverse effect upon the Company's business, financial condition and
operating results.
International Sales. Net revenue from customers outside the United States
was 21% of total revenue for the three months ended December 31, 1997 and 1996.
In the 1997 quarter, 3.6% of total revenue was generated in Asia. The Company
intends to continue to expand its operations outside of the United States and
enter additional international markets, which will require significant
management attention and financial resources. There can be no assurance,
however, that the Company will be able to maintain or increase international
market demand for the Company's products. The Company's international revenues
are currently denominated in U.S. dollars. An increase in the value of the U.S.
dollar relative to foreign currencies could make the Company's products more
expensive and, therefore, potentially less competitive in foreign markets.
Additional risks inherent in the Company's international business activities
generally include unexpected changes in regulatory requirements, tariffs and
other trade barriers, costs and risks of localizing products for foreign
countries, adverse tax consequences, restrictions on repatriating earnings and
the burdens of complying with a wide variety of foreign laws. There can be no
assurance that such factors will not have a material adverse effect upon the
Company's future export revenues and, consequently, the Company's business,
financial condition and results of operations. Although the company has been
unaffected to date, economic volatility in Asia and other parts of the world may
have a significant impact on future performance of the Company.
Risk of Software Defects. Software products as complex as those offered by
the Company frequently contain errors or defects, especially when first
introduced or when new versions or enhancements are released. Despite testing by
the Company and by current and potential customers, there can be no assurance
that defects and errors will not be found in existing products or in new
products, versions or enhancements after commencement of commercial shipments.
Any such defects and errors could result in adverse customer reactions,
particularly because the Company focuses on selling reliability products, delays
in market acceptance, expensive product changes or loss of revenue, any of which
could have a material adverse effect upon the Company's business, financial
condition and results of operations.
Product Liability. The Company's license agreements with customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. A significant portion of the Company's
products are licensed pursuant to "shrink wrap" licenses. To the extent the
Company relies on "shrink wrap" licenses that are not signed by licensees and,
therefore, may be unenforceable under the laws of certain jurisdictions, the
limitation of liability provisions contained in such license agreements may not
be effective. The Company's products generally provide systems management
software that is used for business-critical applications, and, as a result, the
sale and support of products by the Company may entail the risk of product
liability claims. Although the Company maintains errors and omissions product
liability insurance, a successful liability claim brought against the Company
could have a material adverse effect upon the Company's business, financial
condition and results of operations.
Year 2000 Compliance. The Company has, and will continue to make certain
investments in its software systems and applications to ensure the Company is
year 2000 compliant. The financial impact to the Company has not been and is not
anticipated to be material to its financial position or results of operations in
any given year.
Potential Volatility of Stock Price. The Company completed its initial
public offering in February 1997. As a newly public company, the market price
for the Company's stock has been subject to significant fluctuations and may
experience significant volatility in the future. The Company believes that
factors such as actual or anticipated fluctuations in the Company's results of
operations, announcements of technological innovations, new products by the
Company or its competitors, developments with respect to patents, copyrights or
proprietary rights, conditions and trends in the distributed computing
environment and other technology industries, general market conditions and other
factors may affect the market price for the Company's stock. In addition, the
stock market has from time to time experienced significant price and volume
fluctuations that have particularly affected the market prices for the common
stock of technology companies. These broad market fluctuations may adversely
affect the market price of the Company's Common Stock. In the past, following
periods of volatility in the market price of a particular company's securities,
securities class action litigation has often been brought against that company.
There can be no assurance that such litigation will not occur in the future with
respect to the Company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect upon the Company's business, financial condition and results of
operations.
Control by Directors, Executive Officers and Principal Stockholders. The
present directors, executive officers and principal stockholders, and their
affiliates and related persons, beneficially own approximately 32% of the
outstanding shares of the Company's Common Stock. These stockholders are able to
elect all of the Company's directors, have the voting power to approve all
matters requiring stockholder approval, and continue to exert significant
influence over the affairs of the Company. Such concentration of ownership may
have the effect of delaying, deferring or preventing a change in control of the
Company.
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to Vote of Security Holders
(a) The Annual Meeting of Stockholders was held on November 12,
1997.
(b) The meeting included the election of the Board of Directors,
submitted as Item No. 1, whose names are as follows:
Richard G. Thau
Jean A. Kovacs
Louis C. Cole
William Hart
William D. Jobe
Charles L. Minter
Peter L. Wolken
(c) Other matters voted upon at the stockholders meeting were:
Item No. 2, Approval of amendment to 1997 Stock Option Plan;
Item No. 3, Ratification of the appointment of Deloitte &
Touche LLP as the company's independent public accountants
for the fiscal year ending June 30, 1998.
Shares of Common Stock were voted as follows:
<TABLE>
<CAPTION>
Item No. 1 (Election of Board of Directors)
Total Vote For Total Vote Withheld
Each Director Each Director
<S> <C> <C>
Richard G. Thau 8,900,495 232,698
Jean A. Kovacs 8,867,784 265,409
Louis C. Cole 8,897,495 235,698
William Hart 8,897,495 235,698
William D. Jobe 8,897,495 235,698
Charles L. Minter 8,892,923 240,270
Peter L. Wolken 8,897,495 235,698
</TABLE>
<TABLE>
<CAPTION>
For Against Abstain No Vote
<S> <C> <C> <C> <C>
Item No. 2
Amendment to 1997 Stock
Option Plan 8,744,244 266,009 79,867 43,073
Item No. 3
Ratification of Independent
Public Accountants 9,109,659 7,000 16,534 0
</TABLE>
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.26 --Letter employment agreement between Registrant and David Malmstedt
dated December 23, 1997.
10.27 --Letter employment agreement between Registrant and Dan Kingman dated
December 24, 1997.
10.28+ --Enterprise License Agreement between the Company and Federal Express
Corporation dated December 10, 1997.
27 --Financial Data Schedule.
+ Confidential treatment requested.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Qualix Group, Inc.
February 13, 1998 By:_/S/___________________________________
Date Bruce C. Felt, Vice President, Finance
and Chief Financial Officer
(duly authorized officer and principal
financial and accounting officer)
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
10.26 --Letter employment agreement between Registrant and David Malmstedt
dated December 23, 1997.
10.27 --Letter employment agreement between Registrant and Dan Kingman dated
December 24, 1997.
10.28+ --Enterprise License Agreement between the Company and Federal
Express Corporation dated December 10, 1997.
27 --Financial Data Schedule.
+ Confidential treatment requested.
EXHIBIT 10.26
December 23, 1997
David R. Malmstedt
121 16th Street
Manhattan Beach, CA 90266
Dear Dave:
On behalf of Qualix Group, Inc., I am pleased to offer you the position of
Senior Vice President of Field Operations. In this position you will report to
me as the President & Chief Executive Officer of the Company.
Your compensation will consist of a base salary and quarterly bonuses based on
performance against your bonus plan. Your base salary will be $16,666.66 per
month, equivalent to $200,000.00 per year, and subject to federal, state, and
other applicable taxes.
A bonus plan for your first twelve months of employment will be developed within
sixty days of your start date, and agreed upon by you and me. As part of that
plan, you will be eligible to receive up to $50,000.00 in bonuses for achieving
100% of your goal. This amount will be guaranteed for your first year of
employment. In addition, it is our intent that you have the opportunity to earn
up to $100,000.00 in additional performance bonuses for achieving 110% of your
goal during your first twelve months of employment. The specific details of the
plan will be worked out between us as part of the planning process.
Upon your acceptance of employment with the Company, I will recommend to the
Board of Directors that you be granted the option to purchase 200,000 shares of
Qualix Group common stock. The exercise price of the options will be the closing
price of Qualix common stock on your first day of employment with the Company.
The options vest over a four year schedule with 25% becoming vested twelve
months from the start date of your employment, with the remaining 75% vesting on
a daily basis over the following three years.
We are pleased to be able to offer you a one-time sign up bonus of $25,000.00.
To assist you in relocation to the Bay Area, the Company will reimburse you for
actual expenses upon receipt of invoices, up to a maximum of $75,000.00.
In the event you voluntarily resign or are terminated for cause during the first
twelve months of your employment, you will reimburse the Company for your sign
on bonus and relocation expenses.
You will be entitled to participate in all of the Company's employee benefit
plans, beginning on your date of hire. Details will be sent to you under
separate cover.
When you report to work, you will be expected to execute the Company's standard
agreement relative to patents, confidential information and non compete
obligations.
This is an offer for "at will" employment and does not constitute an offer or
guarantee of employment for any period of time. Other than as specifically set
forth herein, you will not be entitled to any other amounts from the Company.
This letter constitutes the full offer of employment and supersedes any prior
discussions. This offer is effective pending completion of reference checking
and will expire if not accepted in writing by December 26, 1997.
Dave, we look forward to your acceptance of this offer and are confident that
with the addition of your sales capabilities and leadership, Qualix Group will
become a highly valued and increasingly successful company.
Sincerely,
Rick Thau
President & Chief Executive Officer
Accepted by: Date
Dave Malmstedt
EXHIBIT 10.27
December 24, 1997
Dan Kingman
1215 Los Trancos Road
Portola Valley, CA 94028
Dear Dan,
This is to confirm my verbal offer of employment to you as VP of Human Resources
reporting directly to me. Your salary will be $10,417.00 monthly base. You will
be eligible to receive a bonus of $25,000.00 annually based upon criteria that
we will establish together after your start date.
As we agreed upon, your start date will be January 12, with a phase in from MDL
to Qualix. Qualix will receive a minimum of 50% of your time through this
transition, through most of March, with some additional days through June.
During "shared" time, salary and bonus will be prorated.
Additional loans/notes as deferred or long-term compensation will be reviewed at
a later date, and not part of this initial offer.
Upon approval of the Board of Directors, you will be eligible to purchase 60,000
shares of the company's common stock, under the terms of the company's employee
stock option or purchase agreement. You will also be eligible to participate in
all standard employee benefits per our current Employee Handbook.
You will be asked to sign the standard Non-Disclosure, and Proprietary
Information Agreement before your start date. It should also be noted that this
offer does not constitute a contract of employment for any specific period of
time. If you have any questions regarding these items, please do not hesitate to
contact me.
Dan, we are looking forward to you joining us. Please sign and return one copy
of this letter as an indication of your acceptance of the position and
confirmation of your start date.
Best regards,
Richard G. Thau
President and CEO
RGT:eeb
- ---------------------------------------------------------
Accepted by Start Date
EXHIBIT 10.28
FEC Contract No. 98-0511
NON-EXCLUSIVE ENTERPRISE LICENSE AGREEMENT
THIS NON-EXCLUSIVE ENTERPRISE LICENSE AGREEMENT (the "License
Agreement") is entered into as of the ____ day of December, 1997 (the "Effective
Date") by and BETWEEN QUALIX GROUP, INC. (the "Licensor" or "Qualix") and
FEDERAL EXPRESS CORPORATION (which for purposes of this License Agreement shall
mean Federal Express Corporation and its majority -owned subsidiaries and
affiliates worldwide) (the "Licensee" or "Customer") who agree as follows:
RECITALS
WHEREAS, Licensee has previously licensed (the "Existing Licenses")
certain computer software (the "Software) from Licensor for use in its business;
WHEREAS, Licensee is desirous of obtaining a perpetual, non-exclusive,
non-transferable, enterprise-wide license to enable it to use the Software
within its business without restrictions as to the sites, number of copies
thereof, or number of users thereof;
WHEREAS, Licensor is willing to grant an enterprise license to Licensee
subject to the terms and conditions of this License Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which the parties acknowledge, the parties agree as follows:
GRANT OF NON-EXCLUSIVE ENTERPRISE LICENSE
Grant of License. Subject to the terms and conditions of this License Agreement,
Licensor hereby grants to Licensee a perpetual, non-exclusive, non-transferable
(except as otherwise provided in Section 8.1 hereof), enterprise-wide right and
license to install, use, copy, and distribute internally the Licensed Materials,
as defined below, in machine-readable form (the "Enterprise License"). Licensee
may install the Licensed Materials in any quantity on any number of computers
(the "Licensed Computers") and/or at any number of locations throughout the
world (the "Licensed Sites"), without restriction on the number of users or
concurrent users. The Licensed Computers may consist of any of the computer
platforms with respect to which Licensor makes the Software generally
commercially available. Upon request by Licensee, Licensor shall promptly inform
Licensee of any additional platforms which have been added by Licensor to its
standard commercial list of available platforms on which any of the Software may
be run. Licensee shall have no other license rights with respect to the Licensed
Materials than those expressly provided in this License Agreement. Ownership.
All patent rights, copyright rights, trade secret rights, trademark rights, and
other proprietary rights in the Licensor's proprietary software and related
materials delivered under this License Agreement, as more particularly specified
in Exhibit A hereto (the "Licensed Materials") are and shall remain the sole and
exclusive property of Licensor. Nothing herein shall be construed to grant to
Licensee any ownership rights in the Licensed Materials. Any rights not
expressly granted to Licensee hereunder are retained by Licensor. Deliverables.
Licensor shall deliver the Licensed Materials to Licensee, in reproducible
master format, during the term hereof as requested from time to time by
Licensee. Licensee has evaluated the version of the Licensed Materials currently
(as of the Effective Date) on site at Licensee's premises and hereby accepts
said version. Proprietary Notices and Records. Licensee shall retain, and in no
case delete, any and all of Licensor's proprietary notices in the Licensed
Materials.
PAYMENT TERMS
License Fees. The total license fee for the Enterprise License shall be in the
amount of [*] in the aggregate, of which Licensor hereby acknowledges that [*]
has already been paid by Licensee to Licensor prior to the Effective Date
hereof. The remaining [*] shall be payable in two installments. The first of
said installments, which shall be in the amount of [*], shall be payable within
thirty (30) days following the execution of this License Agreement by the
parties and Licensee's receipt of Licensor's invoice therefor. The second and
final of said installments, which shall be in the final remaining amount of [*],
shall be payable within thirty (30) days following Licensee's receipt of
Licensor's invoice for such final amount, provided that Licensor does not sent
its invoice therefor to Licensee prior to July 1, 1998. Support and Maintenance
Fee. The fee for the Support and Maintenance Services described in Exhibit B for
a period of one (1) year commencing as of the Effective Date shall be in the
total amount of [*] and shall be payable within thirty (30) days following the
execution of this License Agreement by the parties and Licensee's receipt of
Licensor's invoice therefor. On-Site Engineer Services Fee. The fee for the
On-Site Engineer Services (hereinafter described in Section 6 hereof) for one
(1) year shall be in the amount of [*], which amount shall be payable within
thirty (30) days following the Start Date (as defined in Section 6 hereof) of
the on-site engineer at Licensee's facility.
WARRANTIES, INDEMNIFICATION AND LIMITED LIABILITY
Warrant of Title. Licensor warrants that it has all right, title, and interest
in all copyrights and all other proprietary rights in the Licensed Materials and
that it has the right to grant the license granted hereunder. Indemnification.
Licensor shall, at Licensor's expense, defend, indemnify and hold harmless
Licensee from and against any and all damages, liabilities, and costs including
attorney's fees arising from or relating to any breach of the foregoing Warranty
of Title or any claim based on an allegation that any of the Licensed Materials,
or the use by, or license to, Licensee of any of the Licensed Materials
infringes any patent, copyright or other proprietary right. Licensor shall not
be responsible for any compromise or other settlement made by Licensee without
Licensor's written consent. Licensor's obligation to indemnify Licensee shall be
conditioned upon Licensee's prompt notification to Licensor of any such claim,
and upon Licensee's cooperation with Licensor, at Licensor's expense, in the
defense of any such claim. Millennium Compliance. Licensor hereby warrants that
the Licensed Materials are "Millennium Compliant" as defined in Exhibit D. This
warranty shall be perpetual and shall survive any other expiration of warranty
period or other termination of this License Agreement. Disclaimer. LICENSOR
DISCLAIMS ALL EXPRESS WARRANTIES EXCEPT AS SET FORTH HEREIN, AND DISCLAIMS ALL
IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF
MERCHANTABILITY AND OF FITNESS FOR A PARTICULAR PURPOSE. LICENSEE UNDERSTANDS
AND AGREES THAT THE LICENSED MATERIALS ARE BEING DELIVERED "AS IS." Limitation
of Liability. LICENSOR WILL NOT BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL,
PUNITIVE OR EXEMPLARY DAMAGES OF ANY KIND, INCLUDING BUT NOT LIMITED TO ANY
CLAIMS FOR LOST DATA, LOST PROFITS, LOSS OF USE, OR INTERRUPTION OF BUSINESS,
AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE AND WHETHER OR NOT LICENSOR
HAS BEEN APPRISED OF THE LIKELIHOOD OF THE SAME. IN NO EVENT SHALL LICENSOR BE
LIABLE FOR ANY DAMAGES EXCEEDING THE AMOUNTS PAID BY LICENSEE TO LICENSOR UNDER
THIS LICENSE AGREEMENT. The foregoing limitations of liability shall not apply
to personal injury or tangible property damage caused by Licensor's negligence
or to Licensor's obligations under Sections 3.2 or 4 hereof.
CONFIDENTIALITY
Confidential Information. The use and disclosure by one party of the other
party's confidential and proprietary information shall be governed by and
subject to the provisions of that certain Mutual Nondisclosure Agreement between
the parties dated November 26, 1997 (the "MNDA"). Public Announcements. Licensor
shall in each instance obtain the prior written approval of Licensee concerning
exact text and timing of news releases, articles, brochures, advertisements,
prepared speeches and other information releases concerning this specific
License Agreement, which approval shall not be unreasonably withheld.
SUPPORT AND MAINTENANCE
Licensor shall provide the Support and Maintenance Services described in Exhibit
B to Licensee for a period of one (1) year from the Effective Date of this
License Agreement, provided the fee for Support and Maintenance Services as set
forth form in Section 2.2 hereof is paid to Licensor by Licensee in accordance
with the terms thereof. Thereafter, Support and Maintenance Services may be
purchased by Licensee from Licensor on an annual basis via issuance by Licensee
of its standard purchase order therefor. Annual support fees shall not increase
in any one (1) year by more five percent (5%) of the fee in the preceding year
or the Consumer Price Index whichever is less. The annual fee for any renewal
Support and Maintenance Services period shall be payable by Licensee within
thirty (30) days following the commencement of such renewal period and receipt
by Licensee of Licensor's invoice therefor.
ON-SITE ENGINEERING
On-Site Engineer Services. Licensor shall provide a full-time, on-site Qualix
engineer to Licensee for a period of one (1) year to perform the On-Site
Engineer Services described in Exhibit E, provided the fee for the On-Site
Engineer Services as set forth in Section 2.3 hereof is paid to Licensor by
Licensee in accordance with the terms thereof. The Qualix engineer shall be an
individual deemed competent in UNIX system administration. The one-year period
shall start on a date to be mutually determined by Licensor and Licensee (the
"Start Date"), but in no event shall such Start Date exceed July 1, 1998. All
travel expenses and daily meals incurred by the Qualix engineer in connection
with his/her performance of services for Licensee while on travel from
Licensee's initial designated domicile site, shall be the responsibility of
Licensee, provided that the Qualix engineer adheres to Licensee's stated travel
policies regarding said expenses (see Exhibit C attached hereto), as modified
from time to time. The Qualix engineer will travel in accordance with Licensee's
management's reasonable requirements. Licensor shall invoice Licensee at the end
of each month for any such applicable reimbursables incurred during such month.
Such invoices shall be payable by Licensee within thirty (30) days following
Licensee's receipt thereof. General Indemnity. Licensor hereby agrees to
indemnify and hold harmless Licensee, its officers, agents and employees from
any and all liabilities, damages, losses, expenses, demands, suits, or
judgments, including all attorneys' fees, costs, and expenses incidental
thereto, for death of or injuries to any person and for the loss of, damage to
or destruction of any property in any manner arising out of the negligent or
intentional acts or omissions of Licensor, its agents, employees, or
subcontractors. Licensor shall also indemnify Licensee against any liability or
payment in connection with federal, state and local taxes or contributions
imposed upon or required of Licensee under unemployment insurance, social
security, income tax and workers' compensation statutes with respect to
Licensor's services hereunder.
TERM AND TERMINATION
Term. This License Agreement shall become effective as of the Effective Date
and, unless otherwise terminated as provided herein, shall terminate November
30, 2002, except for fully paid-up licenses which shall continue in perpetuity
with full force and effect, unless otherwise terminated as provided herein.
Default. It shall be a default hereunder on the part of a party hereto if (i)
such party shall fail to perform when due any of its obligations under this
License Agreement and such failure or breach is not remedied within thirty (30)
days after receipt of written notice of such default from the other party, or
(ii) a party hereto becomes insolvent or makes an assignment for the benefit of
creditors or ceases to do business or if any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or other proceedings under
any bankruptcy or other law for the relief of debtors is instituted by or
against such party. In the event of any such default by Licensee, Licensor shall
have the right to terminate the license under this Agreement to the Licensed
Materials and shall be entitled to exercise any and all other rights and
remedies as shall be available to it at law or in equity. In the event of any
such default by Licensor, Licensee shall have the right to terminate this
License Agreement and shall be entitled to exercise any and all rights and
remedies as shall be available to it at law or in equity. Either party's
remedies may be exercised concurrently or separately, and the exercise of any
one remedy shall not be deemed an election of such remedy or to preclude the
exercise of any other remedy. In addition to the above remedies, if this License
Agreement is terminated for default of Licensor, then Licensor shall refund the
unused (pro rata) portion of any applicable Support and Maintenance Services
fees. Effect of Termination by Licensor due to Material Breach. Upon termination
of this License Agreement due to material breach, Licensee shall return to
Licensor the Licensed Materials then in possession of Licensee and all versions
thereof, together with all copies thereof and Licensee shall purge all copies
from all Licensed Computers at all Licensed Sites and from all storage devices
or media, and shall certify to Licensor in writing that it has done so. The
foregoing shall not apply with respect to the copies of the Licensed Materials
previously licensed by Licensee under the Existing Licenses, which copies shall
be subject to the provisions of said Existing Licenses in the event of such
termination of this License Agreement.
GENERAL
Assignment. This License Agreement may not be assigned by either party except
upon reasonable written notice to and consent of the other party, which consent
will not be unreasonably withheld; provided, however, Licensee may assign its
rights and obligations under this License Agreement to any present or future
parent corporation or sister corporations upon written notice to Licensor. In
the event of any merger or sale of substantially all of the business assets of
Licensor, Licensor shall notify Licensee in writing of such event promptly
following same, and Licensee shall thereupon have the right, at its option, to
terminate all or a portion of this Agreement, and if Licensee so terminates,
Licensee shall have the right to receive a pro rata refund of any Support and
Maintenance Service fees only. Severability. If any provision of this License
Agreement shall be found to be unenforceable then, notwithstanding that term,
all other terms shall remain in full force and effect. Governing Law, Venue,
Jurisdiction. This License Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware. Attorneys' Fees. The
prevailing party in any dispute arising out of, related or connected to this
License Agreement shall be entitled to reasonable attorney's and expert fees and
costs. Taxes. (a) In addition to any other payments due hereunder, Licensee
shall be responsible for all sales and other taxes, state or federal (other than
any income taxes owed by Licensor or any taxes imposed upon Licensor for the
privilege of doing business or exercising a franchise), that become due because
of the transaction contemplated by this License Agreement.
This is hidden text! Do not erase!
(b) Licensor shall invoice Licensee for the sales or use Taxes it
is responsible for collecting and paying under this Agreement by separately
stating the amount and percent of such Taxes in each invoice for fees presented
to Licensee for payment (or the final invoice, if agreed to by Licensor and
Licensee). Licensee shall pay such Taxes to Licensor within thirty (30) days
following Licensee's receipt of Licensor's invoice therefor, unless (i) the
validity or application of the Taxes is contested by Licensee in good faith, or
(ii) Licensee is permitted to make a direct payment of the Taxes to the taxing
authority, and Licensee notifies Licensor of its intention to do so.
(c) Licensor shall, upon Licensee's written request and at
Licensee's expense, assist Licensee in contesting the validity or application of
any Taxes. Licensor agrees that if it receives a refund of all or part of any
Taxes (including interest and penalties) previously paid by Licensee, it shall
promptly remit the refund to Licensee.
Survivability. The provisions of subsections 1.2, 1.4, and 6.2 and Sections 3
(except subsection 3.3) and 4 shall remain in full force and effect following
the effective date of termination of this License Agreement. Entire Agreement.
This License Agreement, together with the MNDA, constitute the entire agreement
among the parties relating to the subject matter hereof and may only be modified
by a writing signed by both parties. No terms or conditions of any purchase
order or other order document shall amend, modify, change, or add to this
License Agreement unless such term or condition is expressly made part of this
License Agreement by written amendment. Escrow Agreement. Contemporaneously with
the execution of this License Agreement, Licensee and Licensor shall enter into
a Source Code Escrow Agreement (the "Escrow Agreement") in substantially the
form attached hereto as Exhibit F, pursuant to which Licensor shall deposit with
the escrow agent named therein the source code for the Licensed Materials. Said
source code to be delivered by Licensor shall consist of all of the source code
of or relating to the Licensed Materials, including, without limitation, all
architectural components and elements of the source code necessary to provide
Licensee with a complete technical executable compilation thereof. Licensee
shall have the right, at any time, to direct the escrow agent or an independent
third party under nondisclosure obligations to audit the source code so
deposited with the escrow agent to verify Licensor's compliance with this
Section and to produce a file directory listing for each of the deposit
materials. Licensor shall, at its sole expense, remedy within fifteen (15) days
any verification issues identified by such audit. In the event Licensor fails to
deliver the source code for the Licensed Materials and all future releases
thereof to the escrow agent named in the Escrow Agreement by the delivery dates
required in this License Agreement or in said Escrow Agreement, Licensee shall
be entitled to specific performance of Licensor's obligation to so deliver the
source code to the escrow agent. In the event Licensee seeks to enforce such
specific performance and prevails, Licensor shall be responsible for all costs
and expenses, including attorney's fees, incurred by Licensee in connection
therewith. Notices. All notices hereunder shall be in writing and shall be
deemed to have been given and received when delivered in person or upon receipt
(or refusal) when mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or by Federal Express service, as follows:
If to Licensee:
Federal Express Corporation
3865 Airways Blvd., Module F-2
Memphis, TN 38116-8521
Attention: Michael Spano
If to Licensor:
Qualix Group, Inc.
1900 South Norfolk St., Suite 224
San Mateo, CA 94403-1151
Attention: Dave Fisher
Compliance with Laws. Licensor agrees that it will comply with all applicable
federal, state, and local laws, regulations, and codes in the performance of
this License Agreement. To the extent applicable to Licensor, it agrees to
comply with the affirmative action requirements applicable to contracts with
government contractors, as set forth in Title 41 of the Code of Federal
Regulations and incorporated into this License Agreement by reference.
Independent Contractor Relationship. The parties intend that an independent
contractor relationship will be created under this License Agreement. Nothing
contained herein shall be construed as creating a joint venture, partnership or
employment relationship between the parties, nor shall either party have the
right, power or authority to create any obligation or duty, express or implied,
on behalf of the other party. Additionally, Licensor shall be solely responsible
for any liability resulting from the acts, omissions or negligence of Licensor
or its agents, employees or subcontractors arising out of or occurring in the
course of any services hereunder. Insurance. Licensor will, at its own expense,
during the term of this License Agreement, maintain adequate coverage to insure
its liabilities under this License Agreement, including but not limited to,
comprehensive general liability, errors and omissions, and fire and theft with
extended coverage.
"Licensor": "Licensee":
QUALIX GROUP, INC. FEDERAL EXPRESS CORPORATION
By: By:
Name/Title: Name/Title:
<PAGE>
E-10
EXHIBIT A
SPECIFICATION OF LICENSED MATERIALS
Licensor licenses to Licensee, under the terms and conditions set forth
in the Non-exclusive Enterprise License Agreement, the following materials:
QUALIX HA+ server software and related modules for the SUN Solaris, HP-UX, and
IBM AIX platforms; and all related documents and manuals.
<PAGE>
EXHIBIT B
Qualix Group, Inc.
Support and Maintenance Services
1.0 DEFINITIONS
"Operating System" means currently supported operating system by Qualix.
"Product" means the binary executables and documentation for the Licensed
Materials. "Documentation" means any Qualix product literature (provided in
electronic and printed form), and descriptions relating to the Product (and any
derivative versions of documentation created by Customer). "Release" means the
addition by Qualix of a previously unincluded function or feature to the Product
(designed sequentially by Qualix as "Release 1.0", "Release 2.0", etc.).
"Version" means the addition by Qualix of a function or feature of the Product,
or any change made by Qualix to the Product which upgrades its performance,
including all Patches and Bug Fixes made to the Product since the last previous
Version (designated sequentially by Qualix as "Version 1.1", "Version 1.2",
etc.). "Patches and Bug Fixes" means any minor change made by Qualix to the
Product, including changes made for purposes of maintaining Operating System and
data base system compatibility, error correction, workarounds and patches
(designated sequentially by Qualix as "Version 1.1.1", "Version 1.1.2", etc.).
"Reproducible" means a repeatable test case which isolates a particular behavior
on the Operating System. 2.0 CUSTOMER SUPPORT SERVICES
Customer Support Service. Support for the Product and terms specified in this
product will consist of technical assistance provided by Qualix support
engineers to Customer for Customer's support of Product, for the term of the
License Agreement. Qualix agrees to provide such support to Customer's sites for
the terms stated above. For the severity of Product defect(s) described in
Section 2.2 below, such support will consist of the services described in
Section 2.3 below. Severity Level Designation. Problems, defects and
malfunctions in a Qualix Product will be categorized as follows: B-1 (d)
Severity Level 1. Severity Level 1 represents a mutually reproducible emergency
condition which makes the use or continued use of any one or more functions
impossible. The condition requires an immediate solution that is not already
available. Response time: 2 hours from Customer's initial call. (e) Severity
Level 2. Severity Level 2 represents a mutually reproducible condition. The
software may be causing system failures or destroying data and the customer is
unable to perform work-around and cannot proceed with the intended use of the
software. Response time: 2 hours from Customer's initial call. (f) Severity
Level 3. Severity Level 3 represents a mutually reproducible limited problem
condition that is not critical in that no loss of data occurs and which may be
circumvented or avoided on a temporary basis by the Customer. Response time: 5
to 10 hours from Customer's initial call. (g) Severity Level 4. Severity Level 4
represents minor problem conditions or documentation errors which are easily
avoided or circumvented by the Customer. Additional requests for new feature
suggestions, which are defined as new functionality in existing Product are also
classified as Severity Level 4. Response time: 24 hours from Customer's initial
call.
Customer Support Services. Qualix shall provide the following Customer Support
and Maintenance Services from a central site selected by Qualix: (h) Telephone,
E-Mail and Fax Support. Qualix will maintain and make available to Customer
telephone, UNIX electronic mail and fax support. Qualix's telephone support
service center will be staffed by properly trained Qualix personnel during
Qualix's support hours, which are between 7:00 a.m. and 6:00 p.m. Pacific
Standard Time, Monday through Friday (excluding holidays listed below). Qualix
will use commercially reasonable efforts to arrange for a qualified Qualix
support engineer or support manager to return calls to Customer within two (2)
Qualix's support hours of Customer's first call to Qualix. (i) Support Remedies.
From time of receipt during Qualix's support hours of a documented report from
Customer of a Product error, defect or malfunction that is reproducible by
Qualix, Qualix will respond to Customer by telephone, electronic mail or fax as
appropriate within the required responses times set forth in Section 2.2 above,
depending on the severity of the problem. High severity problems will be given
priority over fixes for low severity problems. Upon receipt of a report from
Customer of a Severity Level 1 or 2 problem or condition, Qualix shall
immediately and diligently commence resolution of the problem. (j) Versions. So
long as Customer is in compliance with its obligations hereunder, Customer will
be provided with Versions, Patches and Bug Fixes for the service term of this
Agreement. (k) Premium Customer Support Services. This service includes the
Services provided in subsections 2.3(a), (b) and (c) above. In addition,
Severity Level 1 and 2 calls as defined in Section 2.2 are accessed at any hour
of the day, seven days a week outside the hours identified above via an
automated paging system and shall be responded to by Qualix within the required
response times set forth in said Section 2.2.
Annual Support Fees. For Customer Support and Maintenance Services provided by
Qualix to Customer described in this Exhibit B, including without limitation, in
Section 2.3 above, Customer will pay to Qualix, in full, the then-applicable
annual support fees as described in Sections 2.2 and 5 of the License Agreement.
Qualix will provide to Customer written notice of renewal forty-five (45) days
prior to renewal. Support and Maintenance Services not renewed within 30 days
after the expiration date of the then-current annual period will be subject to a
reinstatement charge, consisting of the then-current renewal year's support fee
and the prorated fee for the lapsed period calculated at 50% of the uncollected
support fees for the lapsed period.
If Customer is at any time not on support and requires new Versions,
the following update costs will apply: 50% of product list price if new Version
is requested in less than 6 months after the expiration of the then most recent
annual Support and Maintenance Services period; 75% of product list price if new
Version is requested in more than 6 months, but less than 12 months after the
expiration of the then most recent annual Support and Maintenance Services
period; 100% of product list price if new Version is requested in more than 12
months after the expiration of the then most recent annual Support and
Maintenance Services period.
3.0 OTHER TERMS OF SERVICE SUPPORT
Customer's Obligations. Customers will use reasonable efforts to fully document
and isolate reported problems in the Product, and to eliminate other causes of
the problem (such as application software errors, equipment incompatibility or
Customer End-User modifications). Final Patch Fixes. Upon correcting an error,
Qualix will internally conduct tests on the corrected Product. Binary forms of
the Product, including the final fix for the reported error, will be delivered
by Qualix to Customer when complete. For purposes of this Section, a "final fix"
will consist of the final form of the fix for a reported error in a new patch or
Version of the Product, including Documentation. Qualix shall use commercially
reasonable efforts to provide final fixes to reported errors within the
following time periods based upon the applicable level of severity of the
problem: Severity Level 1 - 14 days; Severity Level 2 - 21 days; Severity Level
3 - with the next commercially available Release or Version; Severity Level 4 -
with respect to minor problems or documentation errors, with the next Release or
Version as commercially practicable. Prior Release Support. Qualix will provide
hotline phone support and Patches and Bug Fixes for the prior Version of the
Product for twelve (12) months after a new Version of the Product becomes
available on Qualix's Operating System platform. B-3
<PAGE>
Exhibit C
EXCEPTIONS TO FEDEX TRAVEL POLICY (PROFIT SEC.5)
FOR CONSULTANTS/CONTRACTORS
FEDEX PROJECT MANAGEMENT (DIRECTOR LEVEL OR 1) May designate an em-
ABOVE) ployee within the organ-
ization as the Consultant
Travel Coordinator(CTC)who
will act as liaison be-
tween consultant and corp-
orate travel services. The
CTC will have authority to
approve travel requests of
consultants.
2) If desired, may provide
traveler profiles for
consultant's employees in
order to enroll
consultant's employees in
the "pre-approved" travel
file.
3) If possible, provide
Corporate Travel Services
with a list of consultants
expected to travel.
CORPORATE TRAVEL SERVICES 1) Once approved, establishes
consultant's travel pro-
files in pre-approved
travel file.
2) Provides a regular report
to FedEx Project
Management of consultant's
travel activity.
3) Processes travel requests
and distributes necessary
documents (tickets,
itineraries, etc.).
CONSULTANT 1) If requested, completes
FedEx traveler profile
(either printed form or
EMAIL).
2) If approved by FedEx
Project Management (or
CTC), requests airline and
lodging by either
completing a Domestic
Business Travel Request
form or through EMAIL
Bulletin Board
CORPTRAV-FORMS. The
consultant company name
must be noted in the
employee number field.
Travel requests must
indicate preferred
delivery:
overnight letter toconsul-
tant
overnight letter to CTC
pickup at Corporate Travel
2655 Dividend Dr. Ste. 117
Memphis, TN 38132
INFORMATION AND TIPS
If traveling outside of Memphis, refer to Email Bulletin Board
CORPTRAV-DOM-HOTELS for preferred lodging.
Consultant's travel must comply with FedEx travel Policy (PROFIT Section
5). As a result, requests may be changed to comply. Documents should be
reviewed upon receipt.
Important resources
Domestic Business Travel Request Form CORPTRAV-FORMS
FedEx Preferred Domestic Hotels CORPTRAV-DOM-HOTELS
Corporate Travel Information 901-395-7000
Corporate Travel Fax 901-395-7003
Generally, the Business Travel and Entertainment policies of FedEx as
issued in the FedEx Finance Policies and Procedures (US) manual will govern
consultant/contractor travel. Below are variations from standard policies
in order to accommodate the special requirements of consultant/contractor
travel.
AIR TRAVEL
FIRST CLASS TRAVEL - Determined by Corporate Travel Services based on parity
between consultant's position and like positions within FedEx.
GROUND TRANSPORTATION -- Due to insurance considerations, all rental cars must
be contracted for by the Consultant directly with the rental agency.
HOTEL/LODGING
HOTELS - all lodging must be obtained through Corporate Travel Services in order
to secure FedEx negotiated rates.
APARTMENTS - On long-term assignments. apartments can be obtained in accordance
with the following:
Seniors and staff employees must share a two-bedroom
apartment. Associate partners and managers may obtain a
one-bedroom apartment.
Maximum reimbursable amount (which includes furnishings,
utilities, telephone service, cable service, cleaning and
maintenance).
Memphis one bedroom - $1,300 monthly, two bedroom -
$1,600 monthly Orlando one bedroom - $1,400 monthly,
two bedroom - $1,650 monthly Other Cities -
determined by Corporate Travel Services on a case by
case
basis
MEALS/INCIDENTALS
PER DIEM -- In lieu of specific reimbursement for meals and incidentals, the
following daily per diem is provided:
Apartment domiciled - $21 per day
Hotel domiciled - $26 per day (also for travel days to/from
locations other than assigned location)
The per diem allowance will be prorated for days of travel
to/from assigned out-of-town location based on amount of time
spent away from the individual's domicile. This proration is
determined in 4 six hour increments.
TEMPORARY ADVANCES - Will not be provided to consultants. CHARGE CARDS - Will
not be provided to consultants.
<PAGE>
EXHIBIT D
Millennium Compliance
(l) For the purposes of this Agreement "Millennium Compliant" means:
(m) the functions, calculations and other computing processes of each of
the Licensed Materials (collectively, the "Processes") perform in a
consistent manner regardless of the date in time on which the Processes
are actually performed and regardless of the date input to the Licensed
Materials, whether before, on or after January 1, 2000 and whether or not
the dates are affected by leap years (collectively, the "Millennial
Dates");
(n) the Licensed Materials accept, calculate, compute, compare, sort,
extract, sequence, and otherwise process date inputs and date values
(whether forward or backward), and return, generate, process and display
date output and date values, accurately and in a consistent manner
(without errors or omissions), regardless of the Millennial Dates used;
(o) the Licensed Materials will function without interruptions, errors or
omissions caused by the date in time on which the Processes are actually
performed or by the Millennial Dates input to the Licensed Materials;
(p) the Licensed Materials accept and respond to two-digit year-date
input in a manner that resolves any ambiguities as to the century in a
defined, predetermined, and appropriate manner; and
(q) the Licensed Materials store, process and display date information
(including, without limitation, in user interfaces and data fields) in
ways that are unambiguous as to the determination of the century in a
defined, predetermined and appropriate manner.
(r) Licensor represents and warrants that the Licensed Materials have been
tested by Licensor to determine that such Licensed Materials are Millennium
Compliant. Upon Licensee's written request, Licensor shall deliver to Licensee
documentation on the method of date manipulation, format of date elements,
changes affecting previous coding practices, examples of current coding
practices, test plans and the results of such tests with respect to the Licensed
Materials, as well as any other related information reasonably requested by
Licensee. Upon Licensee's reasonable written request, Licensor agrees to
participate in additional tests of the Licensed Materials, at no charge to
Licensee, to determine Millennium Compliance. Licensor shall notify Licensee
immediately of the results of any tests or any claim or other information that
indicates that any of the Licensed Materials are not Millennium Compliant.
<PAGE>
(s) In the event that any of the Licensed Materials are not in conformity to the
warranties set forth in subsection (a) above, Licensor shall, within thirty (30)
days after notification or discovery thereof and at no expense to Licensee,
either (i) remedy such non-conformity or replace such non-conforming Licensed
Materials with equivalent conforming Licensed Materials; or (ii) if such remedy
is impossible or commercially impracticable, refund to Licensee on a depreciated
basis all fees paid by Licensee for the non-conforming Licensed Materials, plus
the unused portion of any maintenance fees paid by Licensee for such
non-conforming Licensed Materials.
<PAGE>
EXHIBIT E
On-Site Engineer Services
The Qualix engineer shall be initially assigned to Licensee's facility in
Orlando, FL, and shall perform the following services: installation,
configuration and support of the Licensed Materials within Licensee's
environment and such other services as may be reasonably requested by Licensee
from time to time in connection with the Licensed Materials.
Notwithstanding anything to the contrary contained in the License Agreement, in
the event the Qualix on-site engineer's performance of services hereunder does
not meet Licensee's requirements as determined by Licensee in its reasonable
discretion, Licensee shall, in addition to any other remedies available to it,
be entitled to terminate the On-Site Engineer Services and receive a refund of
the On-Site Engineer Services fees paid by Licensee, such refund to be pro rated
over a one-year basis from the date of termination.
<PAGE>
Exhibit F
STANDARD ESCROW AGREEMENT
BETWEEN
PRODUCER, FORT KNOX AND FEDERAL EXPRESS
This escrow agreement is intended for use by a Producer (Licensor),
Federal Express (End User) and Fort Knox Escrow Services, Inc. Any number of
escrow products may be stored in escrow for the Federal Express under the terms
of this agreement. All parties sign the contract.
<PAGE>
Software Escrow Agreement
This Escrow Agreement ("Agreement") is made as of this ____ day of
_________, 1996, by and between Qualix Group, Inc. ("Producer"), Fort Knox
Escrow Services, Inc. ("Fort Knox") and Federal Express Corporation ("Federal
Express").
Preliminary Statement. Producer shall deliver to Fort Knox a sealed
package containing magnetic tapes, disks, disk packs, or other forms of media,
in machine readable form, and the written documentation prepared in connection
therewith, and any subsequent updates or changes thereto (the "Deposit
Materials") for the computer software products (the "System(s)"), all as
identified from time to time on Exhibit B hereto. Producer desires Fort Knox to
hold the Deposit Materials, and, only upon certain events, deliver the Deposit
Materials (or a copy thereof) to Federal Express, in accordance with the terms
hereof.
Now, therefore, in consideration of the foregoing, of the mutual
promises hereinafter set forth, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
Delivery by Producer and Acceptance of Deposit.
(t) Producer shall be solely responsible for delivering to Fort Knox
the Deposit Materials within thirty (30) days of execution of this Agreement.
Such Deposit Materials shall be identified on Exhibit B of this Agreement, and
Producer shall submit the Deposit Materials in accordance with the requirements
of Exhibit D. Exhibit B is to be prepared and signed by Producer and Federal
Express. Fort Knox shall hold the Deposit Materials in accordance with the terms
hereof. When Fort Knox receives the Deposit Materials and the Exhibit B, Fort
Knox will conduct a deposit inspection by visually matching the labeling of the
tangible media containing the Deposit Materials to the item descriptions and
quantity listed on the Exhibit B. In addition to the deposit inspection, Federal
Express may elect to cause a verification of the Deposit Materials in accordance
with Paragraph 10 below. Fort Knox shall have no further obligation to verify
the completeness or accuracy of the Deposit Materials.
(u) At completion of the deposit inspection, if Fort Knox determines
that the labeling of the tangible media matches the item descriptions and
quantity on Exhibit B, Fort Knox will sign the Exhibit B and mail a copy thereof
to Producer and Federal Express. If Fort Knox determines the labeling does not
match the item descriptions or quantity on the Exhibit B, Fort Knox will (i)
note the discrepancies in writing on the Exhibit B; (ii) sign the Exhibit B with
the exceptions noted; and (iii) provide a copy of the Exhibit B to Producer and
Federal Express. Fort Knox's acceptance of the deposit occurs upon the signing
of the Exhibit B by Fort Knox. Delivery of the signed Exhibit B to Federal
Express is Federal Express's notice that the Deposit Materials have been
received and accepted by Fort Knox.
Duplication; Updates.
(v) Fort Knox may duplicate the Deposit Materials by any means but only
for purposes of complying with the terms and provisions of this Agreement,
provided that Federal Express shall bear the expense of duplication.
Alternatively, Fort Knox, by notice to Producer, may require Producer to
reasonably promptly duplicate the Deposit Materials.
(w) Producer shall deposit with Fort Knox any modifications, updates,
new releases or documentation related to the Deposit Materials and required by
any agreement between Producer and Federal Express by delivering to Fort Knox an
updated version of the Deposit Materials ("Additional Deposit"), together with
an updated Exhibit B identifying the Additional Deposit, no later than sixty
(60) days after the modifications, updates, new releases and documentation are
available for commercial distribution by Producer. Upon receipt of the
Additional Deposit, Fort Knox will repeat the deposit inspection procedures
outlined in Paragraph 1 above. Fort Knox shall have no further obligation to
verify the accuracy or completeness of any Additional Deposit or to verify that
any Additional Deposit is in fact a copy of the Deposit Materials or any
modification, update, or new release thereof.
Notification of Deposits. Simultaneous with the delivery to Fort
Knox of the Deposit Materials or any Additional Deposit, as the case may
be, Producer shall deliver to Fort Knox and to Federal Express a written
statement specifically identifying all items deposited and stating that
the Deposit Materials or any Additional Deposit, as the case may be, so
deposited have been inspected by Producer and are complete and accurate.
The Deposit Materials and any Additional Deposit are hereinafter
collectively referred to as the "Deposit Materials."
Delivery by Fort Knox.
Delivery by Fort Knox to Federal Express. Fort Knox shall deliver the
Deposit Materials, or a copy thereof, to Federal Express only upon the
occurrence of one or more of the following release conditions ("Release
Conditions"):
(x) Producer notifies Fort Knox to effect such delivery to Federal
Express at a specific address, the notification being accompanied by a check
payable to Fort Knox in the amount of one hundred dollars ($100.00); or
(y) Fort Knox receives from Federal Express:
(z) written notification that (A) it has been construed that Producer
has failed in a material respect (as evidenced by multiple instances of failure)
to provide the level of support which meets the essential purpose or intent of
the support requirements set forth in the applicable license and/or maintenance
agreement ("License Agreement") between Federal Express and Producer, after the
exhaustion of reasonable cure periods; (B) the obligation of Producer to support
the applicable Systems in accordance with the License Agreement has been
transferred or assigned in violation of the assignment provisions set forth in
the License Agreement; (C) Producer has become insolvent, has made an assignment
for the benefit of creditors, has ceased to do business in the ordinary course
or any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings or other proceedings under any bankruptcy or other law for the
relief of debtors is instituted by or against Producer, or Producer no longer
offers support and/or maintenance for the applicable Systems as required by the
License Agreement (each a "Producer Default");
(aa) a copy of the written notice pursuant to which Federal
Express has previously notified Producer of such Producer
Default;
(bb) a written demand that the Deposit Materials be released
and delivered to Federal Express;
(cc) specific instructions from Federal Express for this deliv-
ery; and
(dd) a check payable to Fort Knox in the amount of one hundred
dollars ($100.00).
(ee) If the provisions of paragraph 4.1(a) are satisfied, Fort Knox
shall, within five (5) business days after receipt of the notification and check
specified in paragraph 4.1(a), deliver the Deposit Materials in accordance with
the applicable instructions.
(ff) If the provisions of paragraph 4.1(b) are met, Fort Knox shall,
within five (5) business days after receipt of all the documents specified in
paragraph 4.1(b), send by certified mail, return receipt requested, or by
Federal Express service, to Producer a photostatic copy of all such documents.
Producer shall have ten (10) days from the date on which Producer receives such
documents ("Objection Period") to notify Fort Knox by certified mail, return
receipt requested, or by Federal Express Service that a Release Condition has
not occurred or has been cured (the "Objection Notice") and to provide written
proof that a Release Condition has not occurred or has been cured. Producer
shall also request in such Objection Notice that the issue of Federal Express's
entitlement to a copy of the Deposit Materials be submitted to arbitration in
accordance with the following provisions (upon receipt of an Objection Notice,
Fort Knox shall forward a copy of such notice to Federal Express by certified
mail, return receipt requested, or by Federal Express service):
(gg) If Producer shall send an Objection Notice to Fort
Knox during the Objection Period, the matter shall be submitted to, and settled
by arbitration by, a panel of three (3) arbitrators chosen by the Atlanta
Regional Office of the American Arbitration Association in accordance with the
rules of the American Arbitration Association. The arbitrators shall apply
Tennessee law. At least one (1) arbitrator shall be reasonably familiar with the
computer software industry. The decision of the arbitrators shall be binding and
conclusive on all parties involved, and judgment upon their decision may be
entered in a court of competent jurisdiction. All costs of the arbitration
incurred by Fort Knox, including reasonable attorneys' fees and costs, shall be
paid by the party which does not prevail in the arbitration; provided, however,
if the arbitration is settled prior to a decision by the arbitrators, the
Producer and Federal Express shall pay all such costs.
(hh) Producer may, at any time prior to the commencement of
arbitration proceedings, notify Fort Knox that Producer has withdrawn the
Objection Notice. Upon receipt of any such notice from Producer, Fort Knox shall
reasonably promptly deliver (no later than five (5) business days) the Deposit
Materials to Federal Express in accordance with the instructions specified in
paragraph 4.1 (b)(iv).
(ii) If, at the end of the Objection Period, Fort Knox has not received
an Objection Notice from Producer, then Fort Knox shall reasonably promptly
deliver the Deposit Materials to Federal Express in accordance with the
instructions specified in paragraph 4.1(b)(iv).
(jj) Upon release of the Deposit Materials to Federal Express in
accordance with this Paragraph 4, Federal Express shall have a non-exclusive,
non-transferable, irrevocable perpetual right to use the Deposit Materials for
the sole purpose of internally maintaining the Systems for the continued
authorized use thereof as set forth in the License Agreement. Federal Express
shall be obligated to maintain the confidentiality of the released Deposit
Materials in accordance with the confidentiality requirement of the License
Agreement.
Delivery by Fort Knox to Producer. Fort Knox shall release and
deliver the Deposit Materials to Producer upon termination of this Agreement in
accordance with paragraph 7(a) hereof.
Indemnity. Except as contained in Paragraph 12 (a) of this
Agreement, Producer and Federal Express shall, jointly and severally,
indemnify and hold harmless Fort Knox and each of its directors,
officers, agents, employees and stockholders ("Fort Knox Indemnities")
absolutely and forever, from and against any and all claims, actions,
damages, suits, liabilities, obligations, costs, fees, charges, and any
other expenses whatsoever, including reasonable attorneys' fees and
costs, that may be asserted against any Fort Knox Indemnitee in
connection with this Agreement or the performance of Fort Knox or any
Fort Knox Indemnitee hereunder; provided, however, this indemnity shall
not apply to any liability caused by the negligence or willful misconduct
of any Fort Knox Indemnitee. Disputes and Interpleader.
(kk) Except as provided in Section 4(d)(i), in the event of any dispute
between Producer and/or Federal Express relating to delivery of the Deposit
Materials by Fort Knox or to any other matter arising out of this Agreement,
Fort Knox may submit the matter to any court of competent jurisdiction in an
interpleader or similar action. Any and all costs incurred by Fort Knox in
connection therewith, including reasonable attorneys' fees and costs, shall be
borne by Producer or Federal Express, whichever is the non-prevailing party.
(ll) Fort Knox shall perform any acts ordered by any court of competent
jurisdiction, without any liability or obligation to any party hereunder by
reason of such act.
Term and Renewal.
(mm) The initial term of this Agreement shall be one (1) year,
commencing on the date hereof (the "Initial Term"). This Agreement shall be
automatically extended for an additional term of one year ("Additional Term") at
the end of the Initial Term and at the end of each Additional Term hereunder
unless, on or before the end of the Initial Term or an Additional Term, as the
case may be, (i) Federal Express and Producer both notify Fort Knox that they
wish to terminate the Agreement at the end of such term or (ii) Federal Express
does not renew annual support/maintenance within one (1) year following the
expiration of the then most recent annual support/maintenance period, and
Federal Express or Producer notifies Fort Knox thereof.
(nn) In the event of termination of this Agreement by the joint
instruction of Federal Express and Producer in accordance with paragraph 7(a)
hereof, Federal Express or Producer shall pay all fees due Fort Knox up to the
date of termination and Fort Knox shall return to Producer all copies of the
Deposit Materials then in its possession.
(oo) At no time shall Fort Knox return the Deposit Materials to
Producer except as expressly provided in this Agreement.
Fees. Federal Express shall pay to Fort Knox the applicable
fees in accordance with Exhibit A as compensation for Fort Knox's services under
this Agreement. The initialization fee is due upon receipt of the signed
contract and the annual maintenance fee is due upon receipt of the Deposit
Materials, and shall be paid in U.S. Dollars.
(pp) Payment. Fort Knox shall issue an invoice to Federal Express
following execution of this Agreement ("Initial Invoice"), on the commencement
of any Additional Term hereunder, and in connection with the performance of any
additional services hereunder. Payment is due within ten (10) days of receipt of
invoice. All fees and charges are exclusive of, and Federal Express or Producer
is responsible for the payment of, all sales, use and like taxes. Fort Knox
shall have no obligations under this Agreement until the Initial Invoice has
been paid in full by Federal Express.
(qq) Nonpayment. In the event of non-payment of any fees or charges
invoiced by Fort Knox, Fort Knox shall give notice of non-payment of any fee due
and payable hereunder to Federal Express and, in such an event, the Federal
Express shall have the right to pay the unpaid fee within ten (10) days after
receipt of notice from Fort Knox. If Federal Express fails to pay in full all
fees due during such ten (10) day period, Fort Knox shall give notice of
non-payment of any fee due and payable hereunder to Producer and, in such event,
Producer shall have the right to pay the unpaid fee within ten (10) days of
receipt of such notice from Fort Knox. Upon payment of the unpaid fee by either
the Producer or Federal Express, as the case may be, this Agreement shall
continue in full force and effect until the end of the applicable term. Failure
to pay the unpaid fee under this paragraph 8(b) by both Producer and Federal
Express shall result in termination of this Agreement and the return of the
Deposit Materials to Producer.
Ownership of Deposit Materials. The parties recognize and
acknowledge that ownership of the Deposit Materials shall remain with Producer
at all times.
Available Verification Services. Fort Knox will produce a file
directory listing for each piece of magnetic media up to three disks, tapes or
CDs and provide a copy to both the Producer and Federal Express within fifteen
(15) business days of receiving the Deposit Material. Fort Knox will provide
these listings without charge as long as the source code media is not created
using back-up software and the media is: a 4mm tape (DDSI) or 8mm tape (DDSI) in
AIX/Tar format, a 3.5" or 5.25" disk in MS-Dos format, a 3480 cartridge or 3490
cartridge in ASCII or EBCDIC languages, or a CD or 9 track round tape in ASCII
or EBCDIC languages. For any pieces of media above three, Federal Express may
request from Fort Knox a file directory for the fees set forth below:
In-house Level 1 Technical Verification (See Exhibit C): $50.00/hour
up to a maximum of $500.00
Verification, as described herein only, may also be conducted at the request of
Federal Express by an independent auditing company such as KPMG Peat Marwick's
Software Quality Center. Fort Knox shall obtain a price quotation from the
independent auditing company, and, at the written direction of Federal Express,
engage the company for its services. The independent auditing company will
invoice Federal Express for the documented cost of all such services, provided
such cost is not greater than the quotation received and approved in writing in
advance by Federal Express. Producer shall reasonably cooperate with Fort Knox
by providing its facilities, computer systems, and technical and support
personnel for technical verification whenever reasonably necessary. If requested
by Federal Express, Producer shall permit one employee of Federal Express to be
present at Producer's facility during any such verification of the Deposit
Materials.
Bankruptcy. Producer and Federal Express acknowledge that this
Agreement is an "agreement supplementary to" the License Agreement as
provided in Section 365 (n) of Title 11, United States Code (the
"Bankruptcy Code"). Producer acknowledges that if Producer as a debtor in
possession or a trustee in Bankruptcy in a case under the Bankruptcy Code
rejects the License Agreement or this Agreement, Federal Express may
elect to retain its rights under the License Agreement and this Agreement
as provided in Section 365 (n) of the Bankruptcy Code. Upon written
request of Federal Express to Producer or the Bankruptcy Trustee,
Producer or such Bankruptcy Trustee shall not interfere with the rights
of Federal Express as provided in the License Agreement and this
Agreement, including the right to obtain the Deposit Material from Fort
Knox. Miscellaneous.
(rr) Remedies. Except for actual fraud, negligence or intentional
misconduct, Fort Knox shall not be liable to Producer or to Federal Express for
any act, or failure to act, by Fort Knox in connection with this Agreement. Fort
Knox will not be liable for special, indirect, incidental or consequential
damages hereunder.
(ss) Natural Degeneration; Updated Version. In addition, the parties
acknowledge that as a result of the passage of time alone, the Deposit Materials
are susceptible to loss of quality ("Natural Degeneration"). It is further
acknowledged that Fort Knox shall have no liability or responsibility to any
person or entity for any Natural Degeneration. For the purpose of reducing the
risk of Natural Degeneration, Producer shall deliver to Fort Knox a new copy of
the Deposit Materials at least once every three years.
(tt) Permitted Reliance and Abstention. Fort Knox may rely and shall be
fully protected in acting or refraining from acting upon any notice or other
document believed by Fort Knox in good faith to be genuine and to have been
signed or presented by the proper person or entity. Fort Knox shall have no
duties or responsibilities except those expressly set forth herein.
(uu) Independent Contractor. Fort Knox is an independent
contractor, and is not an employee or agent of either the Producer or Federal
Express.
(vv) Amendments. This Agreement shall not be modified or
amended except by another agreement in writing executed by the parties hereto.
(ww) Entire Agreement. This Agreement, including all exhibits hereto,
supersedes all prior discussions, understandings and agreements between the
parties with respect to the matters contained herein, and constitutes the entire
agreement between the parties with respect to the matters contemplated herein.
All exhibits attached hereto are by this reference made a part of this Agreement
and are incorporated herein.
(xx) Counterparts; Governing Law. This Agreement may be executed in
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
Agreement. This Agreement shall be construed and enforced in accordance with the
laws of the State of Tennessee.
(yy) Confidentiality. Fort Knox will hold and release the Deposit
Materials only in accordance with the terms and conditions hereof, and will
maintain the confidentiality of the Deposit Materials.
(zz) 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 delivered by hand or by Federal Express overnight delivery
service which provides for evidence of receipt, or mailed by certified mail,
return receipt requested, postage prepaid.
(aaa) If to Producer:
to the address listed on the signature page hereof
(bbb) If to Federal Express:
to the address listed on the signature page hereof
(ccc) If to Fort Knox:
Fort Knox Escrow Services, Inc.
3539 A Church Street
Clarkston, GA 30021-1717
Attn: Contract Administrator
Copy: Richard Sheffield, Sales Manager
If delivered personally or by Federal Express overnight delivery service, the
date on which the notice, request, instruction or document is delivered shall be
the date on which delivery is deemed to be made, and if delivered by mail, the
date on which such notice, request, instruction or document is received shall be
the date on which delivery is deemed to be made. Any party may change its
address for the purpose of this Agreement by notice in writing to the other
parties as provided herein.
(ddd) Survival. Paragraphs 4.1(f), 5, 6, 8, 9 and 11 shall
survive any termination of this Agreement.
(eee) No Waiver. No failure on the part of any party hereto to
exercise, and no delay in exercising any right, power or single or partial
exercise of any right, power or remedy by any party will preclude any other or
further exercise thereof or the exercise of any other right, power or remedy. No
express waiver or assent by any party hereto to any breach of or default in any
term or condition of this Agreement shall constitute a waiver of or an assent to
any succeeding breach of or default in the same or any other term or condition
hereof.
(fff) Assignment. This Agreement shall inure to the benefit of and be
binding upon each of the parties and their respective successors and assigns,
but neither the rights nor the duties of any party under this Agreement may be
assigned, transferred or delegated, without the prior written consent of the
other parties.
<PAGE>
IN WITNESS WHEREOF each of the parties has caused its duly authorized
officer to execute this Agreement as of the date and year first above written.
Fort Knox Escrow Services, Inc.
3539A Church Street Phone: 1-800-875-5669
Clarkston, Georgia 30021-1717 Fax: 1-404-298-2010
Attn: Contracts Administrator Copy: Richard Sheffield,
Sales Manager
By: Title:
Print Name:
Producer: Qualix Group, Inc.
By: Title:
Print Name:
Address:
Phone: Fax:
Federal Express Corporation
By: Title:
Print Name:
Address:
Phone: Fax:
<PAGE>
EXHIBIT A
FEE SCHEDULE
Fees to be paid by Federal Express or Producer shall be as follows:
Initialization fee (one time only) $ 475
Surcharges: for significant modifications to this
Agreement $ 200
Annual maintenance/storage fee
includes two Deposit Material updates $ 800/product
includes two cubic feet of storage space (foreign $900)
International (Producer outside of U.S) -- $ 900/product
Additional Updates
(above two per year) $ 100
Additional Storage Space $ 150/cubic foot
Payable by Federal Express or Producer:
Due Upon Federal Express' or Producer's
Request for Release of Deposit Materials$100 for initial 2 hrs
$50/hour for
additional hours
initialization fee is due upon receipt of signed contract and the annual
maintenance fee is due upon receipt of Deposit Material, and shall be paid in
U.S. Dollars. After the Initial Term, fees shall be subject to their current
pricing, provided that such prices shall not increase by more than 3% per year.
<PAGE>
EXHIBIT B
B1. Product Name:
Version #:
Prepared and Confirmed by:
Title: Date:
Signature:
Type of deposit:
____ Initial Deposit
____ Update Deposit to replace current deposits
____ Other (please describe)
Items Deposited:
Quantity Media Type Description of Material
A) _____
B) _____
C) _____
B2. Product Name:
Version #:
Prepared and Confirmed by:
Title: Date:
Signature:
Type of deposit:
____ Initial Deposit
____ Update Deposit to replace current deposits
____ Other (please describe)
Items Deposited:
Quantity Media Type Description of Material
A) _____
B) _____
C) _____
For Producer, I certify that the above described Deposit For Fort Knox, I
certify that the deposit inspection Materials have been transmitted to Fort
Knox: has been completed (any exceptions are noted above):
By: By:
Title: Title:
Date: Date:
Acknowledged:
Federal Express Corporation
By:
Title:
Date:
<PAGE>
EXHIBIT C
IN-HOUSE LEVEL 1 TECHNICAL VERIFICATION
A. Comparative Inventory Report
A physical inventory of the escrow deposit is conducted. The contents
are compared to both our list of potential deposit materials and the
technology partner's deposit description.
B. File Directory
After the necessary updates are made and the deposit is complete, a
directory of all computer files generated and all software and hardware
required for this process is documented. The generated file directory
is then compared to the documentation of directory listings which is
furnished in the escrow deposit.
A report is issued to Federal Express outlining the Comparative Inventory Report
and File Directory Listing.
<PAGE>
EXHIBIT D
FEDERAL EXPRESS REQUIREMENTS FOR ESCROW DEPOSIT
Federal Express requires the following materials to be supplied for the escrow
agreement involving your company. However, other materials may be a requisite of
this account. Consult your Federal Express contact with any questions. When
prepared, please ship these materials to Fort Knox Escrow Services in Atlanta,
GA (800-875-5669) to the attention of Lisa McKinney. Thank you.
Your company name: Date:
Product name: Version number:
Two copies of the source code for each version of the licensed software,
on magnetic media, in the original programming code language
The source code media shall not be created using back-up software and the
source code media shall be: a 4mm tape (DDSI) or 8mm tape (DDSI) in AIX/Tar
format, a 3.5" or 5.25" disk in MS-DOS format, a 3480 cartridge or 3490
cartridge in ASCII or EBCDIC languages, or a CD or 9 track round tape in
ASCII or EBCDIC languages
Source code print out (on paper, microfilm, or CD-ROM)
All manuals necessary for operation (i.e., installation, operator, user)
Maintenance tools (test programs, program specification)
Proprietary or third party system utilities (compiler & assembler descrip-
tions)
Descriptions of the system/program generation
Necessary non-licensor proprietary software or a listing of such software
if licensor rights do not allow deposit in escrow
Menu and support programs and subroutine libraries in source and object
form
Compilation and execution procedures in human and machine readable form
(may be supplemented with a video explanation by programming personnel)
Names and phone numbers of key technical employees
All other necessary and available information that would assist Federal
Express in the reconstruction, maintenance or enhancement of the licensed
material
Please provide a listing of any required materials that cannot be provided to
Federal Express along with a reason for the omission of these materials:
1.
2.
3.
*Confidential portion has been omitted and filed separately with the Commission.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27.0
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,264
<SECURITIES> 12,178
<RECEIVABLES> 8,513
<ALLOWANCES> 518
<INVENTORY> 303
<CURRENT-ASSETS> 24,020
<PP&E> 3,539
<DEPRECIATION> 1,211
<TOTAL-ASSETS> 26,348
<CURRENT-LIABILITIES> 6,392
<BONDS> 0
0
0
<COMMON> 25,101
<OTHER-SE> (5,347)
<TOTAL-LIABILITY-AND-EQUITY> 26,348
<SALES> 17,517
<TOTAL-REVENUES> 17,517
<CGS> 4,820
<TOTAL-COSTS> 4,820
<OTHER-EXPENSES> 13,777
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> (620)
<INCOME-TAX> 0
<INCOME-CONTINUING> (620)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (620)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
