UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended June 30, 2001
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: 000-25687
OPENWAVE SYSTEMS INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3219054 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) |
(650) 480-8000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:Common Stock, $0.001
Par Value
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 than the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $5,602,699,094 as of June 30, 2001 based upon the closing sale price on the Nasdaq National Market reported for such date. Shares of Common Stock held by each officer and director have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
There were 170,072,741 shares of the registrant's Common Stock issued and outstanding as of June 30, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement relating to the Company's 2001 Annual Meeting of Stockholders to be filed hereafter incorporated by reference into Part III hereof.
PART I
Forward-Looking Statements
In addition to historical information, this Annual Report contains forward- looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based upon current expectations and beliefs of our management and are subject to certain risks and uncertainties, including economic and market variables. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates" and similar expressions identify such forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those indicated in the forward- looking statements. Factors which could cause actual results to differ materially include those set forth in the risks discussed below under the subheading "Factors that may affect Future Results" under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in this section below and any subsequently filed reports.
Item 1. Business
We are a leading provider of infrastructure software, applications, and services that enable the convergence of the Internet and wireless communications. We were incorporated in Delaware in 1994. Our customers are communication service providers, including wireless and wireline carriers, Internet service providers, portals and broadband providers worldwide. Our Openwave(TM) Services Operating System (Services OS) is a suite of Internet protocol (IP) -based software products designed to be installed on communication service providers' systems. Services OS(TM) is designed to provide carrier-class scalability and reliability and work with industry standards, such as WAP, XHTML, SyncML and VoiceXML, to allow our operator customers to deploy our product modules and to integrate our offerings into existing installed technology.
Using our software, communication service providers can offer Internet services to their wireless and wireline subscribers, and wireless device manufacturers can turn their mass-market mobile phones, personal digital assistants and other wireless devices into mobile Internet appliances. Wireless subscribers thus can gain access to Internet- and corporate intranet-based services, including e- mail, news, stocks, weather, travel and sports. In addition, subscribers can gain access via their wireless devices to communication service providers' intranet-based telephony services, which can include over-the-air activation, call management, billing history information, pricing plan subscription and voice message management. As of June 30, 2001, over 85 communication service providers have licensed our mobile Internet software, have commenced or announced commercial service or are in market or laboratory trials.
Communication service providers using our software can also provide their subscribers with a variety of messaging applications, including e-mail, mobile e-mail, unified messaging (single inbox for e-mail, voice mail, and facsimile) as well as short messaging services. As of June 2001, we had over 180 million licensed mailbox seats and more than 35 predominantly wireline carriers with licensed deployments of over one million mailboxes.
Our microbrowser software, Openwave Mobile Browser, is designed to be embedded in wireless devices and to deliver the mobile Internet and the applications of Services OS through a graphical user interface. As of June 30, 2001, over 134 million handsets have shipped with Mobile Browser embedded.
Recent Events
On August 8, 2000, Phone.com, Inc. and Software.com, Inc, signed an agreement to merge the two companies subject to stockholder approval, regulatory reviews and other conditions. On November 17, 2000, pursuant to the agreement, a wholly-owned subsidiary of Phone.com was merged with and into Software.com so that Software.com became a wholly-owned subsidiary of Phone.com. At the same time, Phone.com changed its name to Openwave Systems Inc. Under the terms of the agreement, approximately 94.5 million shares of Openwave common stock were issued in exchange for all the outstanding shares of Software.com common stock based on an exchange ratio of 1.6105 Openwave shares for each Software.com share. Following the exchange, former stockholders of Phone.com owned approximately 51% of the combined company and former Software.com shareholders owned approximately 49%. The merger was accounted for as a pooling-of- interests.
In connection with the merger, Donald Listwin, formerly an Executive Vice President of Cisco Systems, Inc., became the President and Chief Executive Officer of the combined company. In June 2001, Mr. Listwin also became Chairman of the Board, replacing Alain Rossmann who resigned from the Company that same month.
Most recently, Kevin Kennedy, former senior vice president of Cisco Systems joined the Company to fill the newly-created position of Chief Operating Officer (COO). At the same time, John MacFarlane, the former Executive Vice President of Product Development was appointed to the newly-created position of Chief Technology Officer (CTO).
Industry Background
Growth of the Internet, Messaging and Wireless Telecommunications
Use of the Internet and wireless telecommunications has grown rapidly in the past few years. International Data Corporation estimates that from the end of 2000 to the end of 2005, the number of users of the Internet worldwide will increase from 318 million to 717 million and the number of email mailboxes will increase from 505 million to 1.2 billion. Industry analysts estimate that there were approximately 750 million digital wireless subscribers worldwide at the end of 2000, and the number of subscribers will grow to approximately 1.4 billion by the end of 2004. We cannot assure you that these estimates will be achieved.
The Convergence of the Internet and Mobile Telephony
As people have become increasingly dependent on e-mail services, remote access to corporate intranets, and other Internet-based services, mass-market wireless devices that provide mobile access to these resources have become increasingly useful tools. Openwave pioneered the convergence of the Internet and mobile telephony. In 1993, we developed our first e-mail messaging server. In 1995, we developed our initial mobile Internet technology which enables the delivery of Internet-based services to wireless devices. In 1996, we introduced and deployed our first products based on our mobile Internet technology.
To create a worldwide open standard enabling the delivery of Internet-based services to mass-market wireless devices, we co-founded the Wireless Application Protocol (WAP) Forum in 1997. A year later, the WAP Forum published technical specifications for application and content development and product interoperability based on Internet technology and standards. By complying with WAP specifications, wireless device manufacturers, communication service providers, content providers and application developers can provide Internet- based products and services that are interoperable.
In 1998, the WAP Forum also published the Wireless Markup Language, or WML. WML is compliant with the Extensible Markup Language, or XML, specification published by the World Wide Web Consortium, or W3C.
Content providers and application developers use WML to optimize the display of, and interaction with, Web-based data on wireless devices. Based substantially on technology that Openwave contributed to the public domain, WML is optimized for delivery of Internet content to mass-market wireless devices, which have numeric keypads instead of full keyboards, small screens, and limited memory capacity, processing power, battery life and bandwidth. In 2001, the WAP Forum published its WAP 2.0 specifications, to provide full compatibility with the emerging W3C XHTML standards for Web content authoring.
The Market Opportunity
In response to an increasingly competitive environment, communication service providers which own wireless, wireline, portal and Internet service provider (ISP) businesses, seek to deliver Internet-based information, entertainment and messaging services to their subscribers as a means to generate revenues from new sources, differentiate their service offerings and reduce subscriber turnover and operating costs. To do this, communication service providers require a scalable software and services platform. Our Services OS and unified messaging application allow our customers to offer common services across their wireless, wireline, and ISP businesses, thereby improving their efficiency and overall economies of scale.
The Openwave Systems Solution
We provide applications and services that enable the delivery of Internet- based services to mass-market wireless telephones and other mobile devices, as well as personal computers. Using our scalable products, communication services providers can provide Internet-based content, applications and services to their wireless subscribers and offer new revenue-generating services across their wireless and wireline businesses. In addition, wireless device manufacturers can turn their mass-market wireless devices into mobile Internet appliances.
With our technology, wireless subscribers have access to advanced communication services, Internet-based content and services and corporate intranet-based services; in addition, subscribers have the ability to use a single inbox for wireless and wireline voice messages, e-mails and facsimiles. Existing carrier deployments, built on our platform, include such services as unified messaging, e-mail, news, stock trading, weather, travel, sports, commerce and calendaring. Our strategy is to design products that help our customers derive incremental subscriber revenues and increase subscriber loyalty.
Products and Services
Our software product suite, called Services OS, is an open, standards-based suite of mobile Internet infrastructure software that is intended to enable communication service providers to rapidly create, deploy and manage revenue- generating services. Services OS consists of products in five broad categories: Communication Services, Platform Services, Mobile Services Infrastructure, Device Products and Developer Products.
Communication Services
. Openwave Email--an Internet-based, carrier-class e-mail messaging application with high scalability, performance and features to achieve reliable operation, smooth administration and integration with existing systems and services.
. Openwave Mobile Email--a mobile messaging application that provides subscribers with access to e-mail from wireless devices and PC's, personal address book and instant, flexible notification of new messages.
. Openwave Unified Messaging--a messaging application that delivers voice mail, e-mail and facsimile in a single inbox, accessible through the telephony user interface on any telephone, or the graphical user interface on any wireless telephone or PC. Based on the VoiceXML standard, our unified messaging solution is designed to be highly scalable, flexible and extensible.
Platform Services
. Openwave Provisioning Manager--a flexible, extensible, centralized provisioning solution for over-the-air provisioning of wireless handsets, mobile Internet infrastructure and applications.
. Openwave Download Fun--a content delivery solution that provides a platform for communication service providers to offer subscribers the capability to download a wide variety of media objects to their mobile handsets.
. Openwave M-Services Suite--a product bundle currently consisting of Download Fun, Provisioning Manager and Mobile Access Gateway. We expect that this bundle will enable GSM communication service providers to meet the goal of the GSM Association's Mobile Services initiative to deliver compelling, revenue-generating subscriber services.
Mobile Services Infrastructure
. Openwave Mobile Access Gateway--carrier-class infrastructure software for exchanging data between the wireline Internet and wireless devices. Our market-leading gateway includes advanced features such as security, billing support and differentiated classes of service.
. Openwave Mobile Messaging Gateway--an IP-based solution for Short Messaging System.
Device Products
. Openwave Mobile Browser--microbrowser software that is designed and optimized for wireless devices and that we believe provides a rich, easy-to-use subscriber experience.
. Openwave Device Applications--software applications for wireless telephones and other wireless devices for mobile services such as messaging, content download and synchronization.
Developer Products
. Openwave SDK--Software Development Kit for developers and content providers seeking to build applications and content for the mobile Internet.
Services
We also provide maintenance and engineering support services to wireless device manufacturers who have ported our Mobile Browser and other device applications to their telephones. In addition, we provide consulting services to communication service providers who license our mobile Internet platform software and engage us to perform integration services relating to commercial launches of our technology.
New Products and Services under Development
We have released a suite of messaging products that includes e-mail and unified messaging. This platform is built on Openwave Email messaging products. We continue to focus resources on enhancing these products and utilize technology obtained from various acquisitions, as well as technology developed in-house.
We are continuously improving our software products for mobile telephones and other personal mobile devices, including the ongoing enhancement of Mobile Browser. Ongoing developments include an improved graphical
user interface and the addition of new functionality relating to WAP 2.0 and over-the-air synchronization of data. We are also developing new messaging applications for mobile devices.
Communication service providers around the world are rapidly deploying 2.5G networks and preparing to deploy third-generation, or 3G, networks. We are working together with our partners and customers to ensure successful deployment of our products on 2.5G networks. We are engaged in ongoing testing of our products to ensure that they will fully support 3G deployments in the future. Currently, all of our products support IP transport, which is used by 3G networks.
Customers
Communication Service Providers
We sell our software products worldwide, primarily to communication service providers, including wireless and traditional telecommunications carriers, and also to Internet service providers, cable-based Internet access providers and Internet portals.
We also provide our communication service provider customers with professional services that enable them to rapidly adopt our technology and bring wireless and wireline Internet-based services and applications to market. Our professional services focus on those areas where our products interface with our customers' internal systems such as billing, provisioning and customer care.
Our agreements with our communication service provider customers grant them
non-exclusive licenses to use our Services OS software in connection with
providing Internet-based services to their subscribers. Pricing and payment
terms for licenses are negotiated with each customer based upon subscriber
count or transaction capacity. Products are licensed under either a perpetual
license model or under a monthly or quarterly time-based license model.
Although these agreements do not provide for a right of return, we typically
provide a limited warranty and indemnify customers, subject to certain
limitations, against intellectual property infringement claims. In addition, we
typically provide fee-based maintenance and support services to our customers,
under which they receive error corrections and remote support. Our customers
can also purchase new version coverage to receive new releases of our products
for a specified term. The Notes to Consolidated Financial Statements (See Note
8) quantify customers that represent more than 10% of revenues.
Wireless Device Manufacturers
We license our Mobile Browser software to wireless device manufacturers, who embed it into their wireless device products. To encourage these manufacturers to include Mobile Browser in their wireless device models, generally we do not charge a per-unit royalty. In addition, we provide engineering and support services to accelerate the introduction of new wireless device models that contain Mobile Browser. These services typically are provided to manufacturers on an annual flat-fee basis per digital wireless telephony standard.
Our agreements with wireless device manufacturers generally provide these customers with a non-exclusive, royalty-free license to include the Mobile Browser in the wireless devices that they sell. Under these agreements, we typically indemnify our customers, subject to certain limitations, against intellectual property infringement claims. In addition, customers can elect to receive varying levels of fee-based maintenance and support services.
Research and Product Development
Our ability to meet our customer's expectation of innovation and enhancement depends on a number of factors, including our ability to identify and respond to emerging technological trends in our target markets, develop and maintain competitive products, enhance our existing products by adding features and functionality that differentiate them from those of our competitors and bring products to market on a timely basis and at competitive prices. Consequently, we continue to enhance the features and performance of our existing products and have made and intend to continue to make, significant investments in research and product development. Our research and development expenses were $135.8 million, $59.9 million and $28.9 million for the years ended June 30, 2001, 2000 and 1999, respectively. As of June 30, 2001, we had 808 employees engaged in research and product development activities. We continue to hire skilled engineers for research and product development, and our business could be adversely affected if we are unable to hire these engineers in a timely basis.
Technology
Technology and innovation are core elements of our Company's value. We have contributed significantly to the development of the mobile Internet and its emergence as a viable technology. Our messaging products have substantial innovation and technology dedicated to the unique and stringent needs of the service provider marketplace. Our products are based on open standards, and we contribute significantly to the development of such standards, in particular in the areas of mobile Internet protocols, messaging, mobile Internet technology and enabling technologies for 2.5G and 3G networks.
Our technology is designed for deployment on very large-scale networks. Our customers require highly scalable systems, tools for monitoring and managing systems and other features unique to the size, scale and performance characteristics of their networks and service offerings. Our technology is designed with these requirements in mind and includes features such as:
. The ability to segment and structure data for high performance access, enabling a much larger number of supported users
. The ability to replicate directory information for increased performance and reliability
. The ability to perform certain management and operations activities on the systems without downtime
. Implementation techniques that utilize so-called multi-threaded architectures, to enable efficient utilization of multiple CPU Unix servers
Mobile Access Gateway Technology
We have designed our Mobile Access Gateway to be modular, expandable, flexible, scalable and reliable. Using an architecture based on scalable, object-oriented technology, the Mobile Access Gateway typically runs on a large, distributed set of servers. Mobile Access Gateway is intended to meet the stringent performance, scalability and reliability requirements of communication service providers. The Mobile Access Gateway implements WAP Forum specifications for communications with mobile WAP phones and other mobile terminals.
Mobile Device Software Technology
Our mobile device software technology is designed to be embedded in limited- function devices, such as wireless devices, and has minimum hardware resource requirements. The technology includes multiple applications, such as browsing and messaging, and platform support to enable the correct and efficient operation of these applications in a wide variety of mobile devices.
Internet Messaging Technology
We have developed a scalable platform for building messaging and other Internet-standard, data intensive applications. Our platform is based on a partitioned cluster architecture, which enables excellent scalability and performance across a wide variety of configurations. Our Internet messaging technology implements a wide variety of messaging standards, including SMTP, MIME, IMAP4 and POP3. The message storage subsystem reliably and efficiently stores, organizes and retrieves a variety of messaging media types, including text, graphics, voice, audio, video and facsimile.
Unified Messaging Technology
Our Unified Messaging technology utilizes an IP-based architecture to provide a single inbox for e-mail, voice mail and facsimile. Users can interact with the e-mail, voice mail and facsimile messages in their inbox from any device, including a PC, PDA, mobile phone or voice telephone. Edge voice servers, from companies such as Cisco, can be used to link the telephone network with our Unified Messaging technology using VoiceXML, a W3C standard markup language designed for voice applications.
Directory Technology
Many of our products require access to common information, such as a user name, password, phone number or e-mail address. Our directory technology has a core database that contains the common information, and a set of high-speed replicas of that information. By using multiple replicas, the common information can be repeatedly accessed in a reliable and efficient manner. The replicas support the industry-standard Lightweight Directory Access Protocol (LDAP), so that third-party applications can access the information contained within the directory by using this standard format.
Sales and Marketing
We sell our products through both a direct sales force and third-party resellers. As of June 30, 2001, we had 579 people in Sales and Marketing worldwide. Our sales force focuses on selling products and related professional services and provides some assistance to our third-party resellers. Our third- party resellers are telephony infrastructure companies such as Siemens, systems integrators such as Itochu Techno-Science Corporation and systems providers such as Sun Japan.
International sales of products and services accounted for 64%, 62% and 66% of our total revenues for our fiscal years ended June 30, 2001, 2000 and 1999, respectively. We expect international revenues to continue to account for a significant portion of our revenues. Our international sales strategy is to sell directly to large carriers and to partner with leading distributors and systems integrators who have strong industry backgrounds and market presence in their respective markets and geographic regions.
We believe that customer service and ongoing technical support are an essential part of the sales process in the wireless communications industry. To provide high levels of customer service, we established our Customer Advocacy organization which is dedicated to the success and satisfaction of customers. Senior management and assigned account managers play a role in ongoing account management and relationships. We believe these customer relationships will enable us to improve customer satisfaction and develop products to meet specific customer needs.
We actively recruit content and application developers to our platform and provide to them free of charge our software development kit, Openwave SDK. We also provide them with free membership in the Openwave Developer Program, free e-mail-based support and the opportunity to participate in the Openwave Alliances Program.
The Openwave Developer Alliance Program has a select group of our content and application developers as members. We screen applications to the Developer Alliance Program based on the availability and quality of the content or applications produced by the applicants. We perform joint marketing activities with Alliance partners, as well as provide introductions between our wireless communication service providers and our Developer Alliance Program members.
Standards
We believe the growth and development of standards is key to the success of our industry and our Company. Therefore, we take an active role in a number of industry standards organizations including the WAP Forum (which we co-founded in 1997) the World Wide Web Consortium (W3C), CDMA Developer Group, SyncML Consortium and Internet Engineering Task Force among others. To facilitate success of the GSM Mobile Services Initiative, we have agreed to license certain intellectual property rights on a royalty-free basis to mobile handset vendors. We intend to continue to work closely with key standard organizations.
Competition
The market for wireless and wireline Internet standards-based infrastrucure and applications software products and services continues to be intensely competitive. The widespread adoption of open industry standards may make it easier for new market entrants and existing competitors to introduce products that compete with our software products. In addition, a number of our competitors, including Nokia, have announced, or are expected to announce, enhanced features and functionality as proprietary extensions to the WAP standard. Furthermore, some of our competitors have introduced, or may introduce, services based on proprietary wireless protocols that are not compliant with the WAP specifications.
We expect that we will continue to compete primarily on the basis of quality, breadth of product and service offerings, functionality, price and time-to- market.
Our current and potential competitors include the following:
. Wireless equipment manufacturers, such as Ericsson and Nokia, which are developing and marketing competitive server, browser and application software products. These companies already sell billions of dollars worth of wireless devices and other telecommunications products to communication service providers which are our existing and potential customers.
. Microsoft, which has produced a Mobile Explorer microbrowser to run on wireless handheld devices, including wireless telephones. This system is currently featured on handsets being marketed in the United Kingdom by Sony.
. Comverse, a telecommunications messaging provider of voice mail, which has extended its product offerings to include unified messaging, personal information management software solutions and other advanced communications applications.
. Software companies, such as Oracle Corporation, which are marketing portal platform software that is compliant with the specifications promulgated by the WAP Forum. Oracle has additionally launched a separate Oracle Mobile division which supplies consumers with mobile information services.
. NTT DoCoMo, a customer of ours, is pursuing a strategy to become a global wireless carrier. As part of that strategy, NTT DoCoMo, through an agreement with its MID subsidiary, may seek to offer or sublicense its iMode service to other wireless service providers in a manner that would be competitive with our wireless Internet service offerings.
Many of our existing competitors, as well as potential competitors, have substantially greater financial, technical, marketing and distribution resources than we have. Several of these companies also have greater name recognition and better established relationships with our target customers.
Furthermore, these competitors may be able to adopt more aggressive pricing policies and offer more attractive terms to customers than we can. We may face increasing price pressure from our communication service provider customers. In addition, current and potential competitors have established, or may establish, cooperative relationships among themselves or with third parties to compete more effectively.
Finally, existing and potential competitors may develop enhancements to, or future generations of, competitive products that will have better performance features than our products.
Intellectual Property Rights
Our performance depends significantly on our ability to protect our proprietary rights to the technologies used in our products. If we are not adequately protected, our competitors could use the intellectual property that we have developed to enhance their products and services, which could harm our business.
We rely on a combination of copyright, trademark, trade secret laws, confidentiality provisions and other contractual provisions to protect our proprietary rights, but these legal means afford only limited protection. Despite the measures we take to protect our intellectual property, unauthorized parties may attempt to copy aspects of our products or to obtain and use information which we regard as proprietary. In addition, the laws of some foreign countries may not protect our proprietary rights as fully as do the laws of the United States. Thus, the measures we take to protect our proprietary rights in the United States and abroad may not be adequate. In addition, our competitors may independently develop similar technologies.
The market for wireless communications and the delivery of Internet-based services are characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. As the number of entrants into our market increases, the possibility of infringement claims against us grows. For example, we inadvertently may be infringing a patent of which we are unaware. In addition, because patents can take many years to issue, there may be one or more patent applications now pending of which we are unaware, and which we may be accused of infringing when patent(s) issue from the application(s) in the future. To address any patent infringement claims, we may need to enter into royalty or licensing agreements on disadvantageous commercial terms. We may also have to incur significant legal expenses to ascertain the risk of infringing a patent and the likelihood of that patent being valid. A successful claim of patent infringement against us, and our failure to license the infringed or similar technology, could harm our business. In addition, any infringement claims, with or without merit, would be time-consuming and expensive to litigate or settle and could divert management attention from administering our core business. As of June 30, 2001, the Company is involved in certain legal proceedings that involve patents and trademarks (see Item 3, Legal Proceedings).
As a member of several groups involved in setting standards for the industry, the WAP Forum, for example, we have agreed to license our intellectual property to other members of those groups on fair and reasonable terms to the extent that the intellectual property is essential to implementing the specifications promulgated by those groups. Each other member of the groups has entered into a reciprocal agreement.
Employees
As of June 30, 2001, we had approximately 2,200 employees. None of our employees is covered by any collective bargaining agreements, except for certain employees located in Europe. We believe that our relations with our employees are good.
Item 2. Properties.
Our principal office is located in Redwood City, California, where we occupy a 280,000 square foot building that is leased for a period of 12 years, commencing in the fourth quarter of the fiscal year ended June 30, 2001. In addition, we have two options to extend the lease for five years each. We also have numerous other facility leases in other locations in the United States and throughout the world.
Item 3. Legal Preceedings.
On February 2, 2001, a complaint, Leon Stambler v. RSA Security Inc., Verisign Inc., First Data Corporation, Openwave Systems Inc. and Omnisky Corporation, Civil Action No. 01-00065, was filed in the U.S. District Court for the district of Delaware against us and certain other companies. The complaint alleges that the defendants have infringed claims of one or more patents that Mr. Stambler asserts have been granted to him. On March 26, 2001, we responded to the complaint. We denied the allegations that we have infringed any claim in either of the patents asserted against us. In addition, we asserted counterclaims against Mr. Stambler seeking a declaratory judgment that the asserted patents are not infringed by us and that the patents are also invalid and unenforceable. Although the parties have exchanged some written discovery, discovery is still in its initial stages and no trial date has been set. Based on the facts known to date, we believe that we have meritorious defenses and claims. We are unable to estimate the range of potential loss, if any.
On April 30, 2001, a complaint, Opuswave Networks, Inc. v. Openwave Systems Inc. and Alain Rossmann, Civil Action No. 01-1681, was filed in the U.S. District Court for the Northern District of California against us and a former affiliate. The complaint alleges that the defendents have infringed claims of a common law trademark that plaintiff asserts it has acquired. On June 5, 2001, we responded to the complaint. We denied allegations that we have infringed any trademark rights asserted against us. In addition, we asserted a counterclaim against Opuswave Networks seeking a declaratory judgment that the asserted trademark rights are not infringed by us. On June 13, 2001, Opuswave Networks responded to the counterclaims denying its allegations. Discovery has not commenced and no trial date has been set. Based on the facts known to date, we believe that we have meritorious defenses and intend to defend this suit. We are unable to estimate the range of potential loss, if any.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Price Range of Common Stock
Our common stock has been listed for quotations on the National Association of Securities Dealers, Inc. Automated Quotation System, under the symbol OPWV since the merger of Phone.com, Inc. and Software.com, Inc. on November 17, 2000. The following table sets forth the fiscal periods indicating the high and low closing sales prices for our common stock.
Stock price by quarter High Low ---------------------- ------- ------- Fiscal year ended June 30, 2000: First quarter............................................. $ 92.66 $ 22.69 Second quarter............................................ $170.00 $ 74.81 Third quarter............................................. $208.00 $102.00 Fourth quarter............................................ $160.63 $ 50.22 Fiscal year ended June 30, 2001: First quarter............................................. $126.88 $ 60.50 Second quarter............................................ $116.88 $ 37.00 Third quarter............................................. $ 76.19 $ 15.96 Fourth quarter............................................ $ 46.90 $ 13.51 |
As of August 24, 2001, there were 899 holders of record of our common stock. We have not paid any dividends and currently intend to retain future earnings for reinvestment in our business or the repurchase of outstanding shares of our common stock. Therefore, we do not anticipate paying cash dividends in the foreseeable future.
Item 6. Selected Financial Data
The tables that follow present portions of our consolidated financial statements and are not complete. You should read the following selected consolidated financial data in conjunction with our consolidated financial statements and related notes thereto and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Form 10-K. The consolidated statements of operations data for the years ended June 30, 2001, 2000 and 1999, and the consolidated balance sheet data as of June 30, 2001 and 2000 are derived from our financial statements which have been audited by KPMG LLP. The consolidated statements of operations for the years ended June 30, 1998 and 1997, and the consolidated balance sheet data as of June 30, 1999, 1998 and 1997 represent information that is unaudited. The information is presented for illustrative purposes only and is not necessarily indicative of the periods shown, nor is it necessarily indicative of future results or financial position.
You should also consider that on November 17, 2000, we merged with Software.com, Inc. in a transaction that was accounted for as a pooling-of- interests. In recording the pooling-of-interests combination, Software.com, Inc.'s consolidated financial statements for the year ended December 31, 1999, 1998 and 1997 were combined with our consolidated financial statements for the years ended June 30, 1999, 1998 and 1997. As of the merger date, Software.com changed its fiscal year end to June 30 to conform to our fiscal year end. Software.com's consolidated financial statements for the twelve months ended June 30, 2000 were combined with our consolidated financial statements for the same period. Software.com's unaudited results of operations for the six months ended December 31, 1999 included revenues of $29.0 million, expenses of $37.2 million and net loss of $8.2 million. An adjustment has been made in stockholders' equity as of June 30, 2000 to eliminate the effect of including Software.com's unaudited results of operations for the six months ended December 31, 1999 in both the years ended June 30, 2000 and 1999.
Years ended June 30, --------------------------------------------------- 2001 2000 1999 1998 1997 ---------- --------- -------- -------- -------- (in thousands except per share data) Consolidated Statements of Operations Data: Revenues: License.................. $ 344,990 $ 93,126 $ 32,076 $ 17,984 $ 7,939 Maintenance and support services................ 60,264 25,835 13,507 4,396 212 Professional services.... 60,004 27,447 14,800 6,558 2,963 ---------- --------- -------- -------- -------- Total revenues......... 465,258 146,408 60,383 28,938 11,114 ---------- --------- -------- -------- -------- Cost of revenues: License.................. 21,945 6,742 3,046 1,663 776 Maintenance and support services................ 28,875 14,889 5,797 2,700 266 Professional services.... 36,950 16,971 8,685 5,161 1,915 ---------- --------- -------- -------- -------- Total cost of revenues.............. 87,770 38,602 17,528 9,524 2,957 ---------- --------- -------- -------- -------- Gross profit........... 377,488 107,806 42,855 19,414 8,157 ---------- --------- -------- -------- -------- Operating expenses: Research and development............. 135,768 59,889 28,934 17,822 10,669 Sales and marketing...... 148,811 68,421 33,597 19,541 12,786 General and administrative.......... 59,320 24,061 12,099 7,277 5,742 Stock-based compensation............ 10,223 10,184 2,236 335 -- Amortization of goodwill and other intangible assets.................. 636,282 216,614 329 -- -- In-process research and development............. -- 27,700 3,210 -- -- Merger, acquisition, and integration-related costs................... 88,850 10,395 -- -- -- ---------- --------- -------- -------- -------- Total operating expenses.............. 1,079,254 417,264 80,405 44,975 29,197 ---------- --------- -------- -------- -------- Operating loss......... (701,766) (309,458) (37,550) (25,561) (21,040) Interest and other, net... 24,760 23,220 2,829 446 736 ---------- --------- -------- -------- -------- Loss before income taxes................. (677,006) (286,238) (34,721) (25,115) (20,304) Income taxes.............. (12,988) (2,019) (2,316) (446) (1) ---------- --------- -------- -------- -------- Net loss............... (689,994) (288,257) (37,037) (25,561) (20,305) Accretion on redeemable convertible preferred stock.................... -- -- (403) (825) (730) ---------- --------- -------- -------- -------- Net loss attributable to common stockholders.......... (689,994) $(288,257) $(37,440) $(26,386) $(21,035) ========== ========= ======== ======== ======== Basic and diluted net loss attributable to common stockholders per share... $ (4.17) $ (2.06) $ (0.52) $ (0.47) $ (0.38) ========== ========= ======== ======== ======== Shares used in computing basic and diluted net loss attributable to common stockholders per share.................... 165,426 139,921 71,514 56,617 54,838 ========== ========= ======== ======== ======== |
June 30, ---------------------------------------------- 2001 2000 1999 1998 1997 ---------- ---------- -------- ------- ------- (in thousands) Consolidated Balance Sheet Data: Cash, cash equivalents and short-term investments........ $ 348,493 $ 523,007 $186,009 $40,222 $11,182 Total assets................... 1,725,715 2,361,225 250,825 60,892 28,637 Capital lease obligations and long-term debt, less current portion....................... 754 3,319 6,254 4,030 552 Total stockholders' equity..... 1,557,953 2,192,376 177,456 15,324 2,535 |
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
Fiscal Years Ended June 30, 2001, 2000 and 1999
Revenues
We produce three different types of revenue. License revenues are primarily associated with licensing our product to communication service providers; maintenance and support revenues are derived from providing support services to wireless device manufacturers and communication services providers; and professional services revenues, which are primarily a result of consultants providing deployment and integration services to the communication service providers.
License Revenues
License revenues increased from $32.1 million in the fiscal year ended June 30, 1999 to $93.1 million in the fiscal year ended June 30, 2000 and $345.0 million for the fiscal year ended June 30, 2001. The increase in license revenues is due to an increase in our customer base and the wider adoption of wireless and wireline data services generally, which resulted in a higher number of active subscribers using our applications and infrastructure software. License revenues represented 74%, 64% and 53% of total revenues for fiscal years ended June 30, 2001, 2000 and 1999, respectively.
Maintenance and Support Services Revenues
Maintenance and support services revenues increased from $13.5 million in the fiscal year ended June 30, 1999 to $25.8 million in the fiscal year ended June 30, 2000 and $60.3 million for the year ended June 30, 2001. The increase in maintenance and support services revenues reflects an increase in services provided to wireless device manufacturers and increased support fees from communication service providers. Maintenance and support services as a percent of total revenues represented 13%, 18% and 22% for fiscal years ended June 30, 2001, 2000 and 1999, respectively.
Professional Services Revenues
Professional services revenues increased from $14.8 million in the fiscal year ended June 30, 1999 to $27.4 million in the fiscal year ended June 30, 2000 and $60.0 million in the fiscal year ended June 30, 2001. The increase in professional services revenue was primarily due to higher billable hours as a result of the increased number of communication service providers who have licensed our products and engaged us to perform integration services relating to the deployment of those products. Professional services as of percent of total revenues represented 13%, 18% and 25% for fiscal years ended June 30, 2001, 2000 and 1999, respectively.
Cost of License Revenues
Cost of license revenues consists primarily of third-party license and related support fees, as well as costs associated with our Applications Service Provider (ASP) model. Cost of licenses increased from $3.0 million for the fiscal year ended June 30, 1999 to $6.7 million for the fiscal year ended June 30, 2000 and $21.9 million for the fiscal year ended June 30, 2001. As a percentage of license revenues, costs of license revenues represented 6%, 7% and 9% in the fiscal years ended June 30, 2001, 2000 and 1999, respectively. The $3.7 million and $15.2 million increase in cost of license revenues for fiscal year 1999 compared to fiscal year 2000 and fiscal year 2000 compared to fiscal year
2001, respectively, was attributed to increased cost related to the ASP model of Onebox.com, which was acquired in April 2000. Under an ASP model, certain costs such as the depreciation costs associated with operating a data center are charged to cost of license revenues. In addition, amortization of software licenses that were purchased during the last quarter of fiscal year ended 2001, contributed to increased cost of licenses for fiscal year 2001. In May 2001, we subcontracted the Onebox ASP services to iBasis, Inc. As a result of this arrangement and the continuing growth of revenue, we anticipate the cost of license revenues to continue to decrease as a percent of related revenue over the next year.
Cost of Maintenance and Support Services Revenues
Cost of maintenance and support services revenues consists of compensation and related overhead costs for personnel engaged in training and support services to wireless device manufacturers and communication service providers. Cost of maintenance and support services increased from $5.8 million for the fiscal year ended June 30, 1999 to $14.9 million for the fiscal year ended June 30, 2000 to $28.9 million for the fiscal year ended June 30, 2001. As a percentage of maintenance and support services revenues, cost of maintenance and support services revenues in the fiscal years ended June 30, 2001, 2000 and 1999 represented 48%, 58% and 43%, respectively. The $9.1 million and $14.0 million increase in cost of maintenance and support services for fiscal year 1999 compared to fiscal year 2000 and fiscal year 2000 compared to fiscal year 2001, respectively, was attributed to an increase in personnel dedicated to support the increase in wireless device manufacturers and communication service providers. We anticipate that the cost of maintenance and support services will remain constant as a percentage of related revenues in future operating periods.
Cost of Professional Services Revenues
Cost of professional services revenues consists of compensation and independent consultant costs for personnel engaged in our professional services operations and related overhead. Cost of professional services revenues increased from $8.7 million in the fiscal year ended June 30, 1999 to $17.0 million in the fiscal year ended June 30, 2000 and $37.0 million for the fiscal year ended June 30, 2001. As a percentage of professional service revenues, cost of professional services revenues in the fiscal years ended June 30, 2001, 2000 and 1999 represented 62%, 62% and 59%, respectively. The $8.3 million and $20.0 million increase in cost of professional services for fiscal year 1999 compared to fiscal year 2000 and fiscal year 2000 compared to fiscal year 2001, respectively, was attributed to increases in personnel and outside consultants to satisfy the increased demand for professional services to our customers. We anticipate that the gross profit margin on professional services will decrease slightly in future operating periods.
Research and Development Expenses
Research and development expenses consist primarily of compensation and related costs for research and development personnel. Research and development expenses increased from $28.9 million in the fiscal year ended June 30, 1999 to $59.9 million in the fiscal year ended June 30, 2000 and $135.8 million in the fiscal year ended June 30, 2001. As a percentage of revenues, research and development expenses decreased from 48% for the fiscal year ended June 30, 1999 to 41% for the fiscal year ended June 30, 2000 and 29% for the fiscal year ended June 30, 2001. We anticipate that the cost of research and development expenses will continue to decrease as a percentage of total revenues in future operating periods.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of compensation and related costs for sales and marketing personnel, sales commissions, marketing programs, travel expenses, public relations, promotional materials and trade show
exhibit expenses. Sales and marketing expenses increased from $33.6 million in the fiscal year ended June 30, 1999 to $68.4 million in the fiscal year ended June 30, 2000 and $148.8 million in the fiscal year ended June 30, 2001. As a percentage of revenues, sales and marketing expenses decreased from 56% for the fiscal year ended June 30, 1999 to 47% for the fiscal year ended June 30, 2000 and 32% for the fiscal year ended June 30, 2001. We expect to continue to increase our sales and marketing costs in absolute dollars in accordance with our planned growth. However, sales and marketing expenses are expected to continue to decrease as a percentage of total revenues.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related expenses, accounting, legal and administrative expenses, professional service fees and other general corporate expenses. General and administrative expenses increased from $12.1 million in the fiscal year ended June 30 1999 to $24.1 million in the fiscal year ended June 30, 2000 and $59.3 million in the fiscal year ended June 30, 2001. As a percentage of revenues, general and administrative expenses decreased from 20% for year ended June 30, 1999 to 16% for the year ended June 30, 2000 and 13% for the year ended June 30, 2001. The increase in dollars were due primarily to the addition of personnel, additional expenses in connection with our operation as a public company, additional provisions for unexpected uncollectible accounts and, to a lesser extent, legal expenses associated with increased product licensing and patent activity. General and administrative expenses are expected to continue to increase in absolute dollars, but will continue to decrease as an overall percentage of total revenues.
Stock-Based Compensation
Stock-based compensation expense totaled $10.2 million, $10.2 million and $2.2 million for the years ended June 30, 2001, 2000 and 1999, respectively. All stock-based compensation is being amortized in a manner consistent with Financial Accounting Board Interpretation No. 28. The increase of $8.0 million of stock-based compensation expense during the fiscal year ended June 30, 2000 as compared to the fiscal year ended June 30, 1999, resulted primarily from the amortization of deferred stock-based compensation related to acquisitions during the year ended June 30, 2000. Stock-based compensation remained relatively flat during the fiscal year ended June 30, 2001 as compared to the fiscal year ended June 30, 2000, and consisted of continued amortization of the deferred stock-based compensation related to acquisitions, as well as compensation expense recognized on warrants, stock issued to executives, and stock options granted to employees at exercise prices below the current fair market value. We expect stock-based compensation to increase during the year ended June 30, 2002 as compared to June 30, 2001 as a result of continued acquisitions including Avogadro, which was completed in July 2001, and restricted stock and stock options granted to employees and executives at exercise prices below the current fair market value.
Amortization of Goodwill and Intangible Assets
Amortization of goodwill and intangible assets totaled $636.3 million, $216.6 million, and $329,000 for the years ended June 30, 2001, 2000 and 1999, respectively, and primarily resulted from our acquisitions of Telarc, APiON and Angelica in October 1999 and the acquisitions of AtMotion in February 2000, Paragon in March 2000, Onebox in April 2000 and bCandid and MyAble in June 2000. Amortization of goodwill and other intangible assets is computed using the straight-line basis over a three to five-year period. We expect amortization of goodwill and other intangible assets will be approximately $630.0 million for the fiscal year ending June 30, 2002.
In-Process Research and Development
For each of our prior acquisitions, we allocated the purchase price to developed technology and in-process research and development (IPR&D). This allocation was based on whether or not technological feasibility had been achieved
and whether there was an alternative future use for the technology. Statement of Financial Accounting Standards (SFAS) No. 86 sets guidelines for establishing technological feasibility. Technological feasibility is determined when a product reaches the "working model" stage, which is generally when a product is classified as a beta version release. For the previous acquisitions of Telarc and APiON in October 1999, Paragon in March 2000, Onebox in April 2000, and bCandid in June 2000, we concluded that the purchased IPR&D of $3.2 million, $110,000, $18.1 million, $4.3 million and $2.0 million, respectively, had not yet reached technological feasibility and had no alternative use. Therefore, we expensed these costs at the time of the purchase, according to the provisions of FASB interpretation No. 4, Applicability of SFAS No. 2 to Business Combinations Accounted for by the Purchase Method. The IPR&D purchased from Onebox was used in our unified messaging product and reached technological feasibility in the fiscal year ended June 30, 2001. With the exception of the Onebox IPR&D, as of June 30, 2001, we were still in the development stage of all previously written off IPR&D.
Merger and Integration costs
As a result of the merger with Software.com, we recorded merger and integration costs of approximately $88.9 million during the year ended June 30, 2001. Merger costs, which totaled approximately $79.8 million, were comprised of banker's fees of $73.4 million, regulatory fees of $2.2 million, and professional services of $4.2 million. Integration costs of approximately $9.1 million related to the merger with Software.com included costs associated with the Company's name change and other consulting fees.
Interest and Other Income, Net
Interest and other income, net increased from $2.8 million in the fiscal year ended June 30, 1999 to $23.2 million for the fiscal year ended June 30, 1999 and $24.8 million for the fiscal year ended June 30, 2001. The increase resulted primarily from earnings on increased cash, cash equivalents and investment balances as a result of our public equity offerings during late fiscal year 1999 and early fiscal year 2001.
Income Taxes
Income tax expense totaled $2.3 million, $2.0 million and $13.0 million for the fiscal years ended June 30, 1999, 2000 and 2001, respectively. Income taxes in all periods presented consisted primarily of foreign withholding and foreign income taxes.
In light of the Company's recent history of operating losses, the Company has recorded a valuation allowance for all of its deferred tax assets, except to the extent of deferred tax liabilities, as it is presently unable to conclude that it is more likely than not that deferred tax assets in excess of deferred tax liabilities will be realized.
As of June 30, 2001, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $744.0 million and $323.0 million, respectively.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private sales of convertible preferred stock, which contributed $66.0 million in aggregate net proceeds through March 31, 1999; through our initial public offerings in June 1999, which generated net proceeds of $134.6 million; and through our secondary public offering in November 1999, which generated net proceeds of approximately $390.3 million. As of June 30, 2001, we had $348.5 million of cash, cash equivalents and short-term investments.
Net cash used for operating activities was $77.3 million, $8.3 million, and $13.9 million for the years ended June 30, 2001, 2000 and 1999, respectively. The net cash used during the year ended June 30, 2001 was primarily attributable to $88.9 million paid in merger and integration costs related to Software.com, an increase in accounts receivable of approximately $84.6 million, and a decrease in deferred revenue of $10.8 million, offset by an increase in accrued liabilities of $24.4 million and after consideration of non-cash depreciation and amortization expenses of $657.2 million.
Net cash provided by (used for) investing activities was $76.2 million, ($448.7) million, and ($45.4) million for the years ended June 30, 2001, 2000 and 1999, respectively. The net cash provided by investing activities during the year ended June 30, 2001 primarily reflected net maturities from short-term and long-term investments of $195.2 million, payments related to prior business combinations of $25.2 million, and purchases of property and equipment of $87.5 million.
Net cash provided by financing activities was $42.7 million, $427.7 million, and $167.3 million for the years ended June 30, 2001, 2000 and 1999, respectively. The net cash provided by investing activities during the year ended June 30, 2001 primarily reflected stock options exercised during the year. The net cash provided by investing activities during the years ended 2000 and 1999 were primarily the effect of the Company's Initial Public Offering.
As of June 30, 2001, our principal commitments consisted of obligations outstanding under operating leases and our equipment loans and capitalized lease obligations. On March 30, 2000, we entered into a lease for approximately 280,000 square feet of office space in Redwood City, California. The lease commenced upon completion of construction in the fourth quarter of fiscal year ended June 30, 2001. Lease terms require a base rent of $3.25 per square foot per month as provided by the lease agreement and will increase by 3.5% annually. The lease term is for a period of 12 years from the commencement date of the lease. The agreement required that we provide a letter of credit in the amount of $16.5 million. As of June 30, 2000, we guaranteed the letter of credit and pledged approximately $20.7 million, or 125% of the letter of credit. The restricted cash and investments held in trust under this agreement are earning approximately 4.7% interest, and the resulting income earned is not subject to any restrictions. The lease further required that we pay leasehold improvements which totaled $29.3 million at June 30, 2001. Although we have no other material commitments for capital expenditures, we expect to increase capital expenditures and lease commitments consistent with our anticipated growth in operations, infrastructure and personnel.
We believe that our current cash, cash equivalents and short-term investments, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. If cash generated from operations is insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities or to obtain a credit facility. If additional funds are raised through the issuance of debt securities, these securities could have rights, preferences and privileges senior to holders of common stock, and terms of any debt could impose restrictions on our operations. The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders, and additional financing may not be available in amounts or on terms acceptable to us. If additional financing is necessary and we are unable to obtain the additional financing, we may be required to reduce the scope of our planned product development and marketing efforts, which could harm our business, financial condition and operating results.
Recent Accounting Pronouncements
We adopted Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101), as amended by SAB 101A and 101B on June 30, 2001, retroactive to July 1, 2000. SAB 101 provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the Securities and Exchange Commission (SEC). Our adoption of SAB 101 has not had a material impact on our consolidated financial position or results of operations.
In late July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141 Business Combinations (SFAS No. 141) and Goodwill and Other Intangible Assets (SFAS No. 142). SFAS 141 requires that all business combinations be accounted for using the purchase method of accounting; therefore, the pooling- of-interests method of accounting is prohibited. SFAS No. 141 also requires that an intangible asset acquired in a business combination be recognized apart from goodwill if: (i) the intangible asset arises from contractual or other legal rights or (ii) the acquired intangible asset is capable of being separated from the acquired enterprise, as defined in SFAS No. 141. SFAS No. 141 is effective for all business combinations completed by us after June 30, 2001.
For business combinations completed prior to July 1, 2001 and accounted for by the purchase method, SFAS No. 141 provides that intangible assets that do not meet the separate identifiable intangible asset criteria prescribed by this pronouncement (e.g., assembled workforce, among others) be reclassified to goodwill as of the date of adoption. Conversely, if a portion of the purchase price had been assigned to an intangible asset that meets the criteria for recognition apart from goodwill and that intangible asset is classified as part of goodwill for financial reporting purposes, the carrying amount of that intangible asset must be reclassified and reported separately from goodwill as of the date of adoption (July 1, 2002).
SFAS No. 142 requires that goodwill should not be amortized but should be tested for impairment at the "reporting unit level" (Reporting Unit) at least annually and more frequently upon the occurrence of certain events, as defined by SFAS No. 142. A Reporting Unit is the same level as or one level below an "operating segment," as defined by SFAS No. 131 Disclosures About Segments of an Enterprise and Related Information. Our identifiable intangible assets are required to be amortized over their useful life and reviewed for impairment in accordance with SFAS No. 121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of (SFAS No. 121). Goodwill is not tested for impairment under SFAS No. 121, but instead is tested for impairment as prescribed in SFAS No. 142.
SFAS No. 142 requires that goodwill be tested for impairment in a two-step process. First, a company must compare the "estimated fair value" of a Reporting Unit to its carrying amount, including goodwill, to determine if the fair value of the Reporting Unit is less than the carrying amount, which would indicate that goodwill is impaired. If we determine that goodwill is impaired, we must compare the "implied fair value" of the goodwill to its carrying amount to determine if there is an impairment loss. The "implied fair value" is calculated by allocating the fair value of the Reporting Unit to all assets and liabilities as if the Reporting Unit had been acquired in a business combination and accounted for under SFAS No. 141.
For goodwill and intangible assets acquired in business combinations completed prior to July 1, 2001, SFAS No. 142 is effective for us beginning on July 1, 2002. Goodwill and intangible assets acquired in a business combination completed after June 30, 2001 are required to be accounted for in accordance with the provisions of SFAS No. 142.
As of June 30, 2001, we currently have recorded net goodwill of $1.1 billion. Under the current accounting, we expect to have amortization expense of approximately $630.0 million for the fiscal year ending June 30, 2002.
We are currently evaluating the impact the adoption of these pronouncements may have on our financial position and results of operations; however, due to these pronouncements being issued in late July 2001 and due to our
expectations that the FASB will issue further guidance with respect to adoption of both SFAS Nos. 141 and 142, we are currently unable to determine the impact the adoption of these pronouncements may have on our financial position or results of operations.
Factors That May Affect Future Results
In addition to the other information in this report, the following factors should be considered carefully in evaluating our business and prospects.
Because we have a limited operating history, it is difficult to evaluate our business.
Because we commenced operation in 1994 and commercially released our first products in 1996, we only have a limited operating history on which you can base your evaluation of our business.
We may not continue to grow or reach profitability.
We face a number of risks encountered by early stage companies in the wireless telecommunications and Internet software industries, including:
. our need for communication service providers to launch and maintain commercial services utilizing our products;
. our substantial dependence on products with only limited market acceptance to date;
. our need to introduce reliable and robust products that meet the demanding needs of communication service providers and wireless device manufacturers;
. our dependence on a limited number of customers;
. our need to expand our marketing, sales, consulting and support organizations, as well as our distribution channels;
. our ability to anticipate and respond to market competition;
. our dependence upon key personnel;
. the amount and timing of operating costs and capital expenditures relating to expansion of our operations;
. the announcement or introduction of new or enhanced products or services by our competitors;
. adverse customer reaction to technical difficulties or "bugs" in our software;
. the growth rate and performance of wireless networks in general and of wireless communications in particular;
. the volume of sales by our distribution partners and resellers;
. our pricing policies and those of our competitors; and
. our customers' willingness to incur the costs necessary to buy third- party hardware and software required to use our software products and any related price concessions on our product that our customers demand as a result.
Our business strategy may not be successful, and we may not successfully address these risks.
We may not achieve or sustain our revenue or profit goals.
Because we expect to continue to incur significant product development, sales and marketing and administrative expenses, we will need to generate significant revenues to become profitable and sustain profitability on a quarterly
or annual basis. We may not achieve or sustain our revenue or profit goals, and our ability to do so depends on a number of factors outside of our control, including the extent to which:
. there is market acceptance of commercial services utilizing our products;
. our competitors announce and develop, or lower the prices of, competing products; and
. our strategic partners dedicate resources to selling our products and services.
As a result, we may not be able to increase revenue or achieve profitability on a quarterly or annual basis.
Our operating results are subject to significant fluctuations, and our stock price may decline if we do not meet expectations of investors and analysts.
Our revenues and operating results are difficult to predict and may fluctuate significantly from period to period due to a number of factors, some of which are outside of our control. These factors include, but are not limited to:
. delays in market acceptance or implementation by our customers of our products and services;
. changes in demand by our customers for additional products and services;
. our lengthy sales and implementation cycles;
. our concentrated target market and the potentially substantial effect on total revenues that may result from the gain or loss of business from each incremental customer;
. introduction of new products or services by us or our competitors;
. delays in developing and introducing new products and services;
. changes in our pricing policies or those of our competitors or customers;
. changes in our mix of domestic and international sales;
. risks inherent in international operations;
. changes in our mix of license, professional services and maintenance and support services revenues;
. changes in accounting standards, including standards relating to revenue recognition, business combinations and stock-based compensation;
. general political and economic factors, including an economic slowdown or recession; and
. general industry factors, including a slowdown in the telecom industry, either temporary or otherwise.
Most of our expenses, such as compensation for current employees and lease payments for facilities and equipment, are relatively fixed. In addition, our expense levels are based, in part, on our expectations regarding future revenues. As a result, any shortfall in revenues relative to our expectations could cause significant changes in our operating results from period to period. Due to the foregoing factors, we believe period-to-period comparisons of our revenue levels and operating results are of limited use. You should not rely on our period revenues and operating results to predict our future performance.
We may be unable to successfully integrate acquired or merged companies into our business or achieve the expected benefits of the business combinations.
To date, we have merged with or acquired 13 companies, including Avogadro, Software.com, AtMobile, Mobility.net, bCandid, MyAble, Velos, Onebox, Paragon, AtMotion, Angelica, APiON, and Telarc. We may not be able to successfully assimilate the personnel, operations and customers of these companies, along with those of their
acquired companies, into our business. Additionally, we may fail to achieve the anticipated synergies from the combined businesses, including product integration, marketing, product development, distribution and other operations synergies.
The integration process may further strain our existing financial and managerial controls and reporting systems and procedures. This may result in the diversion of management and financial resources from our core business objectives. In addition, we are relatively inexperienced in managing significant facilities or operations in geographically distant areas. We may also fail to retain these companies' key employees.
These companies have specific technology and other capabilities that we may not be able to successfully integrate with our existing products and services. As a result, we may incur unexpected integration and product development expenses which could harm our results of operations. Due to rapidly changing market conditions, we may find the value of our acquired technologies and related intangible assets, such as goodwill as recorded in our financial statements, to be impaired, resulting in charges to operations.
Any future merger or acquisition of companies or technologies may result in disruptions to our business.
We may merge with or acquire technologies or companies in the future. Entering into any business combination entails many risks, any of which could materially harm our business, including:
. diversion of management's attention from other business concerns;
. failure to assimilate the combined companies with pre-existing businesses;
. potential loss of key employees from either our pre-existing business or the merged or acquired business;
. dilution of our existing stockholders as a result of issuing equity securities; and
. assumption of liabilities of the merged or acquired company.
We may not be able to identify future suitable merger or acquisition candidates, and even if we do identify suitable candidates, we may not be able to make these transactions on commercially acceptable terms, or at all. If we do merge with or acquire other companies, we may not be able to realize the benefits we expected to achieve at the time of entering into the transaction. In any future merger or acquisition, we will likely face the same risks as discussed above. Further, we may have to utilize cash reserves, incur debt or issue equity securities to pay for any future merger or acquisition, the issuance of which could be dilutive to our existing stockholders.
We may not be successful in making strategic investments.
We have made, and in the future, we may continue to make strategic investments in other companies. These investments have been made in, and future investments will likely be made in, immature businesses with unproven track records and technologies. Such investments have a high degree of risk, with the possibility that we may lose the total amount of our investments. We may not be able to identify suitable investment candidates, and, even if we do, we may not be able to make those investments on acceptable terms, or at all. In addition, even if we make investments, we may not gain strategic benefits from those investments.
Our sales cycle is long and our stock price could decline if sales are delayed or cancelled.
Fluctuations in our operating performance are exacerbated by our sales cycle, which is lengthy, typically between three and twelve months, and unpredictable. Many factors outside our control add to the lengthy education and
customer approval process for our products. We spend a substantial amount of time educating customers regarding the use and benefits or our products and they in turn spend a substantial amount of time performing internal reviews and obtaining capital expenditure approvals before purchasing our products. Further, the emerging and evolving nature of the market for Internet-based services via wireless devices may lead prospective customers to postpone their purchasing decisions. Any delay in sales of our products could cause our operating results to vary significantly from projected results, which could cause our stock price to decline.
Our success depends on acceptance of our products and services by communication service providers and their subscribers.
Our future success depends on our ability to increase revenues from sales of our infrastructure software, applications and other services to communication service providers. This dependence is exacerbated by the relatively small number of communication service providers worldwide whose willingness to purchase our products is critical to our success. To date, only a limited number of communication service providers have implemented and deployed services based on our products. We cannot assure you that communication service providers will widely deploy or successfully market services based on our products, or that large numbers of subscribers will use these services.
The market for the delivery of Internet-based services is rapidly evolving, and we may not be able to adequately address this market.
The market for the delivery of Internet-based services is rapidly evolving and characterized by an increasing number of market entrants who have introduced or developed, or are in the process of introducing or developing, products that facilitate the delivery of Internet-based services through wireless devices. As a result, the life cycle of our products is difficult to estimate. We may not be able to develop and introduce new products, services and enhancements that respond to technological changes or evolving industry standards on a timely basis, in which case our business would suffer. In addition, we cannot predict the rate of adoption by wireless subscribers of these services or the price they will be willing to pay for these services. As a result, it is extremely difficult to predict the pricing of these services and the future size and growth rate of this market.
Our communication service provider customers face implementation and support challenges in introducing Internet-based services via wireless devices, which may slow their rate of adoption or implementation of the services our products enable. Historically, communication service providers have been relatively slow to implement new complex services such as Internet-based services. In addition, communication service providers may encounter greater customer service demands to support Internet-based services via wireless devices than they do for their traditional voice services. We have limited or no control over the pace at which communication service providers implement these new services. The failure of communication service providers to introduce and support services utilizing our products in a timely and effective manner could harm our business.
Until recently, we have relied on sales to a small number of customers, and the failure to retain these customers or add new customers may harm our business.
To date, a significant portion of our revenues in any particular period has been attributable to a limited number of customers, comprised primarily of communication service providers. We believe that we will continue to depend upon a limited number of customers for a significant portion of our revenues from each period for the foreseeable future. Any failure by us to capture a significant share of these customers could materially harm our business.
We are exposed to the credit risk of some of our customers and to credit exposures in weakened markets.
A portion of our sales are derived through customers who tend to have access to more limited financial resources than others and, therefore, represent potential sources of increased credit risk. Furthermore, with the consolidation of the Internet specifically in the area of Internet service providers (ISPs), future growth in sales attributed to a market of many ISPs may decline. Although we have programs in place to monitor and mitigate the associated risk, there can be no assurance that such programs will be effective in reducing our credit risk. We also continue to monitor increased credit exposures from weakened financial conditions in certain geographic regions, and the impact that such conditions may have on the worldwide economy. We have recently experienced losses due to customers failing to meet their obligations, primarily as a result of the weakened financial state of the wireless and telecom industry. Although these losses have not been significant, future losses, if incurred, could harm our business and have a material adverse effect on our operating results and financial condition.
If wireless devices are not widely adopted for mobile delivery of Internet- based services, our business could suffer.
We have focused a significant amount of our efforts on mass-market wireless devices as the principal means of delivery of Internet-based services using our products. If wireless devices are not widely adopted for mobile delivery of Internet-based services, our business would suffer materially. Mobile individuals currently use many competing products, such as portable computers, to remotely access the Internet and e-mail. These products generally are designed for the visual presentation of data, while wireless devices historically have been limited in this regard. In addition, the development and proliferation of many types of competing products capable of the mobile delivery of Internet-based service in a rapidly evolving industry represents a significant risk to a dominant product emerging. If mobile individuals do not adopt wireless devices as a means of accessing Internet-based services, our business would suffer.
If widespread integration of browser technology does not occur in wireless devices, our business could suffer.
Because our current software offers enhanced features and functionality that are not currently covered by the specifications promulgated by the WAP Forum, subscribers currently must use wireless devices enabled with our browser in order to fully utilize these features and functionality. Additionally, we expect that future versions of our software and related server-based software will offer features and functionality that are compatible with the specifications promulgated by the WAP Forum. Our business could suffer materially if widespread integration of our browser or WAP-compliant third- party browser software in wireless devices does not occur. All of our agreements with wireless device manufacturers are nonexclusive, so they may choose to embed a browser other than ours in their wireless devices. We may not succeed in maintaining and developing relationships with wireless device manufacturers, and any arrangements may be terminated early or not renewed at expiration. In addition, wireless device manufacturers may not produce products using our browser in a timely manner and in sufficient quantities, if at all.
The market for our products and services is highly competitive.
The market for our products and services is becoming increasingly competitive. The widespread adoption of open industry standards such as the WAP specifications may make it easier for new market entrants and existing competitors to introduce products that compete with our software products. In addition, a number of our
competitors, including Nokia, have announced or are expected to announce enhanced features and functionality as proprietary extensions to the WAP standard. Furthermore, some of our competitors, such as NTT DoCoMo, have introduced or may introduce services based on proprietary wireless protocols that are not compliant with the WAP specifications.
We expect that we will compete primarily on the basis of price, time to market, functionality, quality and breadth of product and service offerings. Our current and potential competitors include the following:
. wireless equipment manufacturers, such as Ericsson and Nokia;
. Microsoft;
. Wireless Knowledge, a joint venture of Microsoft and Qualcomm, as well as a similar European joint venture of Microsoft and Ericsson;
. messaging software providers, such as Comverse.
. systems integrators, such as CMG plc, and software companies, such as Oracle Corporation and iPlanet, a Sun/Netscape alliance, and Critical Path;
. service providers, such as iPlanet, E-Commerce Solutions and Infospace;
. communication service providers, such as NTT DoCoMo; and
. providers of Internet software applications and content, electronic messaging applications and personal information management software solutions.
Microsoft Corporation has announced its intention to introduce products and services that may compete directly with many of our products. In addition, Microsoft has announced that it intends to enable its Windows CE operating system to run on wireless handheld devices, including wireless telephones. Microsoft has announced its own browser, called Mobile Explorer, for these devices.
Nokia is marketing a WAP server to corporate customers and content providers. This WAP server is designed to enable wireless device subscribers to directly access applications and services provided by these customers, rather than through gateways provided by communication service providers' WAP servers. If Nokia's WAP server is widely adopted by corporate customers and content providers, it could undermine the need for communication service providers to purchase WAP servers. Many of our existing competitors, as well as potential competitors, have substantially greater financial, technical, marketing and distribution resources than we do.
As we enter new markets and introduce new services, we will face additional competitors.
As we enter the unified messaging market, we will face competition from established voice mail providers such as Comverse, and Internet-based unified messaging providers such as Critical Path. In the portal framework market, a number of companies have introduced products and services relating to mobile portals that compete with our products and services. These existing and potential competitors may include telecommunications companies such as Lucent Technologies, traditional Internet portals such as AOL, InfoSpace, Microsoft MSN and Yahoo!, Internet infrastructure software companies and several private mobile Internet portal companies.
In addition to the existing competitors listed above, voice mail solutions providers are expected to be competitors in the unified messaging market because of their existing relationships with service providers and ownership of technologies for the conversion of voice to data. If we are unable to compete effectively against existing or emerging competitors our business, financial condition and operating results will suffer.
Our software products may contain defects or errors, and shipments of our software may be delayed.
The software we develop is complex and must meet the stringent technical requirements of our customers. We must develop our products quickly to keep pace with the rapidly changing Internet software and telecommunications markets. Software products and services as complex as ours are likely to contain undetected errors or defects, especially when first introduced or when new versions are released. We have in the past experienced delays in releasing some versions of our products until software problems were corrected. Our products may not be free from errors or defects after commercial shipments have begun, which could result in the rejection of our products and damage to our reputation, as well as lost revenues, diverted development resources and increased service and warranty costs, any of which could harm our business.
We depend on recruiting and retaining key management and technical personnel with telecommunications and Internet software experience.
Because of the technical nature of our products and the dynamic market in which we compete, our performance depends on attracting and retaining key employees. In particular, our future success depends in part on the continued services of each of our current executive officers. Competition for qualified personnel in the telecommunications, Internet software and Internet messaging industries is significant. We believe that there are only a limited number of persons with the requisite skills to serve in many key positions, and it is difficult to hire and retain these persons. Competitors and others have in the past, and may in the future, attempt to recruit our employees.
We may fail to support our anticipated growth in operations.
To succeed in the implementation of our business strategy, we must rapidly execute our sales strategy and further develop products and expand service capabilities, while managing anticipated growth by implementing effective planning and operating processes. If we fail to manage our growth effectively, our business could suffer materially. To manage anticipated growth, we must:
. continue to implement and improve our operational, financial and management information systems;
. hire, train and retain additional qualified personnel;
. continue to expand and upgrade core technologies;
. effectively manage multiple relationships with various communication service providers, wireless device manufacturers, content providers, applications developers and other third parties; and
. successfully integrate the businesses of our acquired companies.
Our systems, procedures and controls may not be adequate to support our operations, and our management may not be able to achieve the rapid execution necessary to exploit the market for our products and services.
Our success, particularly in international markets, depends in part on our ability to maintain and expand our distribution channels.
Our success depends in part on our ability to increase sales of our products and services through value-added resellers and systems integrators and to expand our indirect distribution channels. If we are unable to maintain the relationships that we have with our existing distribution partners, increase revenues derived from sales through our indirect distribution channels, or increase the number of distribution partners with whom we have relationships, then we may not be able to increase our revenues or achieve profitability.
We expect that many communication service providers in international markets will require that our products and support services be supplied through value- added resellers and systems integrators. Thus, we expect that a significant portion of international sales will be made through value-added resellers and systems integrators, and the success of our international operations will depend on our ability to maintain productive relationships with value-added resellers and systems integrators.
In addition, our agreements with our distribution partners generally do not
restrict the sale by them of products and services that are competitive with
our products and services, and each of our partners generally can cease
marketing our products and services at their option and, in some circumstances,
with little notice and with little or no penalty.
Our business depends on continued growth in use and improvement of the Internet
and customers ability to operate their systems effectively.
The infrastructure, products and services necessary to maintain and expand the Internet may not be developed, and the Internet may not continue to be a viable medium for secure and reliable personal and business communication, in which case our business, financial condition and operating results would be harmed. Because we are in the business of providing Internet infrastructure software, our future success depends on the continued expansion of, and reliance of consumers and businesses on, the Internet for communications and other services. The Internet may not be able to support an increased number of users or an increase in the volume of data transmitted over it. As a result, the performance or reliability of the Internet in response to increased demands will require timely improvement of the high speed modems and other communications equipment that form the Internet's infrastructure. The Internet has already experienced temporary outages and delays as a result of damage to portions of its infrastructure. The effectiveness of the Internet may also decline due to delays in the development or adoption of new technical standards and protocols designed to support increased levels of activity and due to the transmission of computer viruses.
In addition to problems that may affect the Internet as a whole, our customers have in the past experienced some interruptions in providing their Internet- related services, including services related to our software products. We believe that these interruptions will continue to occur from time to time. Our revenues depend substantially upon the number of end users who use the services provided by our customers. Our business may suffer if our customers experience frequent or long system interruptions that result in the unavailability or reduced performance of their systems or networks or reduce their ability to provide services to their end users.
We depend on others to provide content and develop applications for wireless devices.
In order to increase the value to customers of our product platform and encourage subscriber demand for Internet-based services via wireless devices, we must successfully promote the development of Internet-based applications and content for this market. If content providers and application developers fail to create sufficient applications and content for Internet-based services via wireless devices, our business could suffer materially. Our success in motivating content providers and application developers to create and support content and applications that subscribers find useful and compelling will depend, in part, on our ability to develop a customer base of communication service providers and wireless device manufacturers large enough to justify significant and continued investments in these endeavors.
The market for wireless communications and the delivery of Internet-based services through wireless technology is rapidly evolving, and we may not be able to adequately address this market.
The market for wireless communications and the delivery of Internet-based services through wireless technology is rapidly evolving and is characterized by an increasing number of market entrants that have introduced or developed, or are in the process of introducing or developing, products that facilitate wireless communication and the delivery of Internet-based services through wireless devices. We intend to devote significant efforts and resources on developing and marketing infrastructure applications for wireless communications and the wireless delivery of Internet-based content and services. In addition, the emerging nature of the market for wireless communications and Internet-based services via wireless devices may lead prospective customers to postpone adopting wireless devices or using wireless technology. As a result, the life cycle of our wireless products is difficult to estimate. We may not be able to develop and introduce new products, services and enhancements that respond to technological changes or evolving industry standards on a timely basis, in which case our business would suffer. In addition, we cannot predict the rate of adoption by wireless subscribers of these services or the price they will be willing to pay for these services. As a result, it is extremely difficult to predict the pricing of these services and the future size and growth rate of the wireless market.
Our customer service providers face implementation and support challenges in expanding wireless communications and introducing Internet-based services via wireless devices, which may slow their rate of adoption or implementation of the services our wireless messaging products enable. Historically, customer service providers have been relatively slow to implement new complex services such as wireless messaging services and wireless delivery of Internet content. In addition, customer service providers may encounter greater customer service demands to support Internet-based services via wireless devices than they do for their traditional Internet services. We have limited or no control over the pace at which customer service providers implement these new services. The failure of customer service providers to introduce and support services utilizing our products in a timely and effective manner could harm our business.
If we are unable to integrate our products with third-party technology, such as communication service providers' systems, our business may suffer.
Our products are integrated with communication service providers' systems and wireless devices. If we are unable to integrate our platform products with these third-party technologies, our business could suffer materially. For example, if, as a result of technology enhancements or upgrades of these systems or devices, we are unable to integrate our products with these systems or devices, we could be required to redesign our software products. Moreover, many communication service providers use legacy, or custom-made, systems for their general network management software. Legacy systems and certain custom- made systems are typically very difficult to integrate with new server software. We may not be able to redesign our products or develop redesigned products that achieve market acceptance.
An interruption in the supply of software that we license from third parties could cause a decline in product sales.
We license technology that is incorporated into our products from third parties, such as RSA Data Security, Inc. and other companies. Any significant interruption in the supply of any licensed software could cause a decline in product sales, unless and until we are able to replace the functionality provided by this licensed software. We also depend on
these third parties to deliver and support reliable products, enhance their current products, develop new products on a timely and cost-effective basis, and respond to emerging industry standards and other technological changes. The failure of these third parties to meet these criteria could materially harm our business.
Our intellectual property or proprietary rights could be misappropriated, which could force us to become involved in expensive and time-consuming litigation.
Our ability to compete and continue to provide technological innovation is substantially dependent upon internally developed technology. We rely on a combination of patent, copyright, trade secret and trademark law to protect our technology, although we believe that other factors such as the technological and creative skills of our personnel, new product developments, frequent product and feature enhancements and reliable product support and maintenance are more essential to maintaining a technology leadership position.
We generally enter into confidentiality and nondisclosure agreements with our employees, consultants, prospective customers, licensees and corporate partners. In addition, we control access to and distribution of our software, documentation and other proprietary information. Except for certain limited escrow arrangements, we do not provide customers with access to the source code for our products. Despite our efforts to protect our intellectual property and proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. Effectively policing the unauthorized use of our products is time-consuming and costly, and there can be no assurance that the steps taken by us will prevent misappropriation of our technology, particularly in foreign countries where in many instances the local laws or legal systems do not offer the same level of protection as in the United States.
If others claim that our products infringe their intellectual property rights, we may be forced to seek expensive licenses, reengineer our products, engage in expensive and time-consuming litigation or stop marketing our products.
We attempt to avoid infringing known proprietary rights of third parties in our product development efforts. However, we do not regularly conduct comprehensive patent searches to determine whether the technology used in our products infringes patents held by third parties. There are many issued patents as well as patent applications in the electronic messaging field. Because patent applications in the United States are not publicly disclosed until the patent is issued, applications may have been filed which relate to our software products. In addition, our competitors and other companies as well as research and academic institutions have conducted research for many years in the electronic messaging field, and this research could lead to the filing of further patent applications. If we were to discover that our products violated or potentially violated third-party proprietary rights, we might not be able to obtain licenses to continue offering those products without substantial reengineering. Any reengineering effort may not be successful, nor can we be certain that any licenses would be available on commercially reasonable terms.
Substantial litigation regarding intellectual property rights exists in the software industry, and we expect that software products may be increasingly subject to third-party infringement claims as the number of competitors in our industry segments grows and the functionality of software products in different industry segments overlaps. Any third-party infringement claims could be time consuming to defend, result in costly litigation, divert management's attention and resources, cause product and service delays or require us to enter into royalty or licensing agreements. Any royalty or licensing arrangements, if required, may not be available on terms acceptable to us, if at all. A successful claim of infringement against us and our failure or inability to license the infringed or similar technology could have a material adverse effect on our business, financial condition and results of operations.
On February 2, 2001, a complaint, Leon Stambler v. RSA Security Inc., Verisign Inc., First Data Corporation, Openwave Systems Inc. and Omnisky Corporation, Civil Action No. 01-00065, was filed in the U.S. District Court for the district of Delaware against us and certain other companies. The complaint alleges that the defendants have infringed claims of one or more patents that Mr. Stambler asserts have been granted to him. On March 26, 2001, we responded to the complaint. We denied the allegations that we have infringed any claim in either of the patents asserted against us. In addition, we asserted counterclaims against Mr. Stambler seeking a declaratory judgment that the asserted patents are not infringed by us and that the patents are also invalid and unenforceable. Although the parties have exchanged some written discovery, discovery is still in its initial stages and no trial date has been set. Based on the facts known to date, we believe that we have meritorious defenses and claims. We are unable to estimate the range of potential loss, if any.
On April 30, 2001, a complaint, Opuswave Networks, Inc. v. Openwave Systems Inc. and Alain Rossmann, Civil Action No. 01-1681, was filed in the U.S. District Court for the Northern District of California against us and a former affiliate. The complaint alleges that the defendents have infringed claims of a common law trademark that plaintiff asserts it has acquired. On June 5, 2001, we responded to the complaint. We denied allegations that we have infringed any trademark rights asserted against us. In addition, we asserted counterclaims against the plaintiff seeking a declaratory judgment that the asserted trademark rights are not infringed by us. On June 13, 2001, Opuswave Networks responded to the counterclaims its allegations. Discovery has not commenced and no trial date has been set. Based on the facts known to date, we believe that we have meritorious defenses and intend to defend this suit. We are unable to estimate the range of potential loss, if any.
International sales of products is an important part of our strategy, and this expansion carries specific risks.
International sales of products and services accounted for 66% of our total revenues for the year ended June 30, 2001. We expect international sales to continue to account for a significant portion of our revenues, although the percentage of our total revenues derived from international sales may vary. Risks inherent in conducting business internationally include:
. failure by us and/or third parties to develop localized content and applications that are used with our products;
. fluctuations in currency exchange rates;
. problems caused by the ongoing conversion of various European currencies into a single currency, the Euro;
. any imposition of currency exchange controls;
. unexpected changes in regulatory requirements applicable to the Internet or our business;
. difficulties and costs of staffing and managing international operations;
. differing technology standards;
. export restrictions on encryption and other technologies;
. difficulties in collecting accounts receivable and longer collection periods;
. seasonable variations in customer buying patterns or electronic messaging usage;
. political instability, acts of terrorism or war;
. economic downturns;
. potentially adverse tax consequences;
. reduced protection for intellectual property rights in certain countries;
. costs of localizing our products for foreign markets;
. contractual provisions governed by foreign laws; and
. the burden of complying with complex and changing regulatory requirements.
Any of these factors could harm our international operations and, consequently, our business, financial condition and operating results.
The security provided by our messaging products could be breached, in which case our reputation, business, financial condition and operating results could suffer.
The occurrence or perception of security breaches could harm our business, financial condition and operating results. A fundamental requirement for online communications is the secure transmission of confidential information over the Internet. Third parties may attempt to breach the security provided by our messaging products, or the security of our customers' internal systems. If they are successful, they could obtain confidential information about our customers' end users, including their passwords, financial account information, credit card numbers or other personal information. Our customers or their end users may file suits against us for any breach in security. Even if we are not held liable, a security breach could harm our reputation, and even the perception of security risks, whether or not valid, could inhibit market acceptance of our products. Despite our implementation of security measures, our software is vulnerable to computer viruses, electronic break-ins, intentional overloading of servers and other sabotage, and similar disruptions, which could lead to interruptions, delays, or loss of data. We may be required to expend significant capital and other resources to license encryption or other technologies to protect against security breaches or to alleviate problems caused by these breaches. In addition, our customers might decide to stop using our software if their end users experience security breaches.
Future governmental regulation of the Internet could limit our ability to conduct our business.
Although there are currently few laws and regulations directly applicable to the Internet and commercial messaging, a number of laws have been proposed involving the Internet, including laws addressing user privacy, pricing, content, copyrights, distribution, antitrust and characteristics and quality of products and services. Further, the growth and development of the market for online messaging may prompt calls for more stringent consumer protection laws that may impose additional burdens on those companies, including us, that conduct business online. The adoption of any additional laws or regulations may impair the growth of the Internet or commercial online services, which would decrease the demand for our services and could increase our cost of doing business or otherwise harm our business, financial condition and operating results. Moreover, the applicability of existing laws governing property ownership, sales and other taxes, libel and personal privacy to the Internet is uncertain and may take years to resolve.
Our stock price, like that of many companies in the Internet and telecommunications software industries, may be volatile.
Our stock price has experienced significant volatility. We expect that the market price of our common stock also will fluctuate in the future as a result of variations in our operating results. These fluctuations may be exaggerated if the trading volume of our common stock is low. In addition, due to the technology-intensive and emerging nature of our business, the market price of our common stock may rise and fall in response to:
. announcements or technological or competitive developments;
. acquisitions or strategic alliances by us or our competitors;
. the gain or loss of a significant customer or order;
. changes in estimates or our financial performance or changes in recommendations by securities analysts; or
. changes in financial performance of competitors and other companies in our industry.
Our stock price may be volatile, exposing us to expensive and time-consuming securities class action litigation.
The stock market in general, and the stock prices of Internet-related companies in particular, have recently experienced extreme volatility, which has often been unrelated to the operating performance of any particular company or companies. If market or industry-based fluctuations continue, our stock price could decline below current levels regardless of our actual operating performance. Furthermore, the historical trading volume of our stock is not indicative of any future trading volume because a substantial portion of shares were not eligible for sale until recently. Therefore, if a larger number of shares of our stock are sold in a short period of time, our stock price will decline. In the past, securities class action litigation has often been brought against companies following periods of volatility in their stock prices. We may in the future be the targets of similar litigation. Securities litigation could result in substantial costs and divert management's time and resources, which could harm our business, financial condition and operating results.
Item7A. Quantitative and Qualitative Disclosures About Market Risk
The tables below provide information about the Company's derivative financial instruments and financial instruments that are subject to market risk. These include a foreign currency forward contract used to hedge a foreign currency deposit, which is subject to exchange rate risk, cash equivalents and available-for-sale short-term investments, which are subject to interest rate risk.
The Company manages its foreign currency exchange rate risk by entering into contracts to sell or buy foreign currency at the time a foreign currency receivable or payable is generated. When the foreign currency asset or liability is extinguished, the contract is liquidated, and the resulting gain or loss on the contract mitigates the exchange rate risk of the associated asset or liability.
The following summarized the Company's foreign currency forward contract, which matures in 2002, by currency, as of June 30, 2001. (in thousands):
Contract Fair Amount Value at (Local Contract June 30, Currency) Amount 2001 (US$) ----------- -------- ---------- Japanese yen ("YEN") (contract to pay Yen/receive US$)............................. (YEN)82,100 US$708 $27 |
Contract amounts are representative of the expected payments to be made under these instruments through earnings. Derivatives or portions of derivatives that are not designated as hedging instruments are adjusted to fair value through earnings and are recognized in the period of change in their fair value.
We operate internationally and thus are exposed to potentially adverse movements in foreign currency rate changes. We have entered into foreign exchange forward contracts to reduce our exposure to foreign currency rate changes on receivables, payables and intercompany balances denominated in a non-functional currency. The objective of these contracts is to neutralize the impact of foreign currency exchange rate movements on our operating results. These
contracts require us to exchange currencies at rates agreed upon at the inception of the contracts. These contracts reduce the exposure to fluctuations in exchange rate movements because the gains and losses associated with foreign currency balances and transactions are generally offset with the gains and losses of the foreign exchange forward contracts. Because the impact of movements in currency exchange rates on forward contracts offsets the related impact on the underlying items being hedged, these financial instruments help alleviate the risk that might otherwise result from changes in currency exchange rates. We do not designate our foreign exchange forward contracts as hedges and, accordingly, we adjust these instruments to fair value through earnings in the period of change in their fair value.
The following is a chart of the principal amounts of short-term investments, long-term investments, and restricted investments by expected maturity:
Period ended June 30, 2001 Fair Expected maturity date Value --------------------------------- June 30, 2002 2003 2004 2005 2006 Total 2001 -------- ------- -------- -------- ------- -------- -------- Corporate bonds......... $102,349 $21,337 -- -- -- $123,686 $123,700 Commercial paper........ 70,239 -- -- -- -- 70,239 70,253 Certificates of deposit................ 6,002 -- -- -- -- 6,002 6,000 Federal agencies........ 21,687 -- -- -- -- 21,687 21,733 -------- ------- -------- -------- ------- -------- -------- Total................. $200,277 $21,337 -- -- -- $221,614 $221,686 ======== ======= ======== ======== ======= ======== ======== Weighted-average interest rate...... 4.89% 4.89% ======== ======== |
Our exposure to market risks for changes in interest rates relates primarily to corporate debt securities, U.S. Treasury Notes and certificates of deposit. We place our investments with high credit quality issuers that have a rating by Moody's of A1 or higher and Standard & Poors of P-1 or higher, and, by policy, limit the amount of the credit exposure to any one issuer.
Our general policy is to limit the risk of principal loss and ensure the safety of invested funds by limiting market and credit risk. All highly liquid investments with a maturity of less than three months at the date of purchase are considered to be cash equivalents; all investments with maturities of three months or greater are classified as available-for-sale and considered to be short-term investments; all investments with maturities of greater than one year and less than two years are classified as available-for-sale and considered to be long-term investments. We do not purchase investments with a maturity date greater than two years from the date of purchase.
Item 8. Financial Statements and Supplementary Data
See Part IV, Item 14 of this report.
Item 9. Changes in Disagreements with Accountants on Accounting and Financial Disclosure
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Reference is made to the information regarding Directors and Executive Officers appearing under the captions "Election of Directors", "Management--Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Proxy Statement related to the Annual Meeting of Shareholders to be held on November 30, 2001, which information is incorporated herein by reference.
Item 11. Executive Compensation
The information appearing under the caption "Compensation of Executive Officers" in the Company's Proxy Statement related to the Annual Meeting of Shareholders to be held on November 30, 2001, is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information appearing under the caption "Common Stock Ownership of Certain Beneficial Owners and Management" in the Company's Proxy Statement related to the Annual Meeting of Shareholders to be held on November 30, 2001, is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information appearing under the caption "Transactions with Management and Directors" in the Company's Proxy Statement related to the Annual Meeting of Shareholders to be held on November 30, 2001, is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements and Report of KPMG LLP, which are set forth in the Index to Consolidated Financial Statements at page F-1.
(2) Financial Statement Schedule, which is set forth in the Index to Consolidated Financial Statements at F-1.
(3) Exhibits.
Exhibit Number Description ------- ----------- 2.1 Agreement to Amend Agreement and Plan of Merger dated as of October 5, 2000, by and among the Company, Silver Merger Sub Inc. and Software.com, Inc. 2.2 Agreement and Plan of Merger dated as of August 8, 2000, by and among the Company, Silver Merger Sub Inc. and Software.com, Inc. (incorporated by reference to Exhibit 2.1 to the Company's current report on Form 8-K dated August 17, 2000). 2.3 Agreement and Plan of Merger, dated as of February 13, 2000, by and among the Company, Onyx Acquisition Corp., Onebox.com, Inc. and Timothy Haley as agent of the former stockholders of Onebox.com, Inc. (incorporated by reference to Exhibit 2.1 to the Company's current report on Form 8-K dated May 15, 2000). 2.4 Sale and Purchase Agreement dated February 8, 2000, by and among the Company, Paragon Software (Holdings) Limited and the several vendors named therein (incorporated by reference to Exhibit 2.1 to the Company's current report on Form 8-K dated March 17, 2000). 2.5 Separation Agreement, dated August 1, 2000 by and among the Company, Phone.com (Newbury) Limited, Colin Calder and The Stanley Trustee Company Limited (incorporated by reference to Exhibit 2.4 to the Company's annual report on Form 10-K filed on August 31, 2000). 2.6 Agreement and Plan of Merger and Reorganization, dated as of December 21, 1999, by and among the Company, Mercedes Acquisition Corp., AtMotion Inc. and Dixon R. Doll as agent of the former shareholders of AtMotion Inc. (incorporated by reference to Exhibit 2.1 to the Company's current report on Form 8-K dated February 24, 2000). 2.7 Agreement dated October 11, 1999, between the Company and each of the shareholders of APiON (incorporated by reference to Exhibit 2.1 to the Company's current report on Form 8-K dated November 3, 1999). 2.8 Supplemental Agreement dated October 26, 1999, between the Company and each of the shareholders of APiON (incorporated by reference to Exhibit 2.2 to the Company's current report on Form 8-K dated November 3, 1999). 3.1 Certificate of Incorporation of the Company, as amended. 3.2 Amended and Restated Bylaws of the Company. 4.1 Form of the Company's Common Stock Certificate, as amended. 4.2 Rights Agreement dated August 8, 2000, by and between the Company and U.S. Stock Transfer Corporation, as Rights Agent, including the form of Certificate of Designation, Preferences and Rights as Exhibit A, the form of Rights Certificates as Exhibit B, and the Summary of Rights as Exhibit C (incorporated by reference to Exhibit 1 to the Company's registration statement on Form 8-A(12)(B) filed on August 17, 2000). |
Exhibit Number Description ------- ----------- 10.1 Openwave Systems Inc. 2001 Stock Compensation Plan (incorporated by reference to Exhibit 99.1 to Form S-8 filed on August 9, 2001). 10.2 Openwave Systems Inc. 1996 Stock Plan (incorporated by reference to Exhibit 10.2 of the Company's quarterly report on Form 10-Q filed on May 15, 2001). 10.3 Openwave Systems Inc. 1995 Stock Plan (incorporated by reference to Exhibit 10.1 of the Company's quarterly report on Form 10-Q filed on May 15, 2001). 10.4 Software.com, Inc. 1999 Employee Stock Purchase Plan and form of subscription agreement (incorporated by reference to Exhibit 10.2 of the Company's quarterly report on Form 10-Q/A filed on February 15, 2001). 10.5 Openwave Systems Inc. 1999 Employee Stock Purchase Plan and form of subscription agreement. 10.6 1999 Directors' Stock Option Plan and form of stock option agreement. 10.7* Fourth Amended and Restated Investor Rights Agreement dated March 12, 1999. 10.8* Voting Agreement dated January 23, 1998 and amendment thereto. 10.9 Lease Agreement dated February 4, 2000 for offices at 1400 Seaport Boulevard in Pacific Shores Complex, Redwood City, California, by and between the Company and Pacific Shores Center LLC. (incorporated by reference to Exhibit 10.19 to the Company's quarterly report on Form 10-Q filed on May 15, 2000). 10.10 First Amendment to Lease Agreement dated June 17, 1999 for offices at 800 Chesapeake Drive, Redwood City, California, by and between the Company and Seaport Centre Associates, LLC. (incorporated by reference to Exhibit 10.18 of Registrant's annual report on Form 10- K filed on August 31, 2000). 10.11 Lease Agreement dated January 21, 2000 for offices at 101 Saginaw and 595 Penobscot, Redwood City, California, by and between the Company and Metropolitan Life Insurance Company (incorporated by reference to Exhibit 10.18 of Registant's annual report on Form 10-K filed on August 31, 2000). 10.12 Lease Agreement dated March 10, 1998 for offices at 800 Chesapeake Drive, Redwood City, California, by and between the Company and Seaport Centre Associates, LLC (incorporated by reference to Exhibit 10.8 of Registrant's Annual Report on Form 10-K filed on August 31, 2000). 10.13*+ OEM Master License Agreement dated December 2, 1996 by and between the Company and RSA Data Security. 10.14*+ Software License and Support Agreement dated May 1, 1996 by and between the Company and AT&T Wireless Services, Inc. 10.15*+ Client License Agreement dated January 1, 1999 by and between the Company and Matsushita Communication Industrial Co., Ltd. 10.16 Form of Indemnity Agreement for Officers and Directors. 10.17* Form of Change of Control Severance Agreement between the Company and the Company's Named Executive Officers. 10.18 Employment Agreement dated September 18, 2000 by and between the Company and Donald Listwin. 10.19 Form of Restricted Stock Agreement by and between the Company and Donald Listwin (incorporated by reference to Exhibit 10.2 of the Company's quarterly report on Form 10-Q/A filed on February 15, 2001). 10.20 Form of Phone.com Stock Option Agreement for Donald Listwin (incorporated by reference to Exhibit 10.4 of the Company's quarterly report on Form 10-Q/A filed on February 15, 2001). |
Exhibit Number Description ------- ----------- 10.21 Form of Software.com Stock Option Agreement for John MacFarlane (incorporated by reference to Exhibit 10.3 of the Company's quarterly report on Form 10-Q/A filed on February 15, 2001). 10.22 Letter Amendment to Employment Agreement dated July 26, 2001 by and between the Company and Michael Mulica. 10.23 Letter Amendment to Employment Agreement dated July 24, 2000 by and between the Company and Michael Mulica (incorporated by reference to Exhibit 10.20 to the Company's annual report on Form 10-K filed on August 31, 2000). 10.24 Employment Agreement dated October 4, 1999 by and between the Company and Michael Mulica (incorporated by reference to Exhibit 10.19 to the Company's annual report on Form 10-K filed on August 31, 2000). 10.25 Offer Letter dated December 19, 2000 by and between the Company and Allen Snyder. 10.26 Offer Letter dated August 25, 2001 by and between the Company and Kevin Kennedy. 10.27 Promissory Note dated August 6, 2001 by and between the Company and Michael Mulica. 10.28 Promissory note dated August 20, 2001 by and between the Company and Alan Black. 10.29 Promissory note dated September 27, 2001 by and between the Company and Kevin Kennedy. 10.30* Incentive Compensation Plan for Maurice Jeffery dated January 27, 1999. 10.31* Incentive Compensation Plan for Malcolm Bird dated January 27, 1999. 10.32* Letter Agreement dated August 18, 1997 with Malcolm Bird. 21 Subsidiaries of the Company. 23.1 Report on Financial Statement Schedule and Consent of Independent Auditors. 23.2 Report on Financial Statement Schedule and Consent of Independent Auditors. 24.1 Power of Attorney (see page 37). |
+ Confidential treatment has been granted by the Securities and Exchange Commission with respect to certain information in these exhibits.
(b) Reports on Form 8-K
1. On June 11, the Company filed a current report on Form 8-K to report that Alain Rossman had resigned his position as Chairman of the Board of Directors and a member of the Board of Directors and that Donald Liswin had been elected Chairman of the Board of Directors.
2. On July 2, 2001, the Company filed a current report on Form 8-K to provide certain financial information required in connection with its acquisition of Avogadro, Inc.
3. On July 16, 2001, the Company filed a current report on Form 8-K to report that it had consummated its acquistion of Avogadro, Inc.
4. On August 2, 2001, the Company filed a current report on Form 8-K to report that it had offered its employees the ability to exchange options for new options under a stock option exchange program.
5. On September 12, 2001, the Company filed a current report on Form 8-K to report that it had extended the stock option exchange program offered to employees until September 17, 2001.
6. On September 17, 2001, the Company filed a current report on Form 8-K to report a stock repurchase program.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: September 28, 2001
Openwave Systems Inc.
/s/ Alan Black By:__________________________________ Alan Black Senior Vice President, Corporate Affairs and Chief Financial Officer |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Donald Listwin and Alan Black, jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Donald Listwin Chairman, President and September 28, 2001 ____________________________________ Chief Executive Officer Donald Listwin (Principal Executive Officer) /s/ Alan Black Senior Vice President, September 28, 2001 ____________________________________ Corporate Affairs, and Alan Black Chief Financial Officer (Principal Financial and Accounting Officer) /s/ John MacFarlane Chief Technology Officer and September 28, 2001 ____________________________________ Director John MacFarlane /s/ Roger Evans Director September 28, 2001 ____________________________________ Roger Evans /s/ Bernard Puckett Director September 28, 2001 ____________________________________ Bernard Puckett /s/ Andrew Verhalen Director September 28, 2001 ____________________________________ Andrew Verhalen |
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
SCHEDULE
Page ---- Report of KPMG LLP, independent auditors................................. F-2 Report of Ernst & Young LLP independent auditors'........................ F-3 Consolidated Balance Sheets as of June 30, 2001 and 2000................. F-4 Consolidated Statements of Operations for the years ended June 30, 2001, 2000 and 1999........................................................... F-5 Consolidated Statements of Stockholders' Equity and Comprehensive Loss for the years ended June 30, 1999, 2000 and 2001........................ F-6 Consolidated Statements of Cash Flows for the years ended June 30, 2001, 2000 and 1999........................................................... F-9 Notes to Consolidated Financial Statements............................... F-11 Schedule II--Valuation and Qualifying Accounts........................... S-1 |
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Openwave Systems Inc.
We have audited the accompanying consolidated balance sheets of Openwave Systems Inc. (formerly Phone.com, Inc.) and subsidiaries (the Company), as of June 30, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity and comprehensive loss, and cash flows for each of the years in the three-year period ended June 30, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the consolidated financial statements of Software.com, Inc., for the year ended June 30, 1999, which statements reflect total revenues constituting 78% of the related consolidated totals for the year ended June 30, 1999. As discussed in Note 1, the Company merged with Software.com, Inc. in a business combination that was accounted for as a pooling-of-interests. Those separate financial statements prior to these restatement for the pooling-of-interests transaction with the Company were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to amounts included for Software.com, Inc. for the year ended June 30, 1999, is based solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Openwave Systems Inc. and subsidiaries, as of June 30, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2001, in conformity with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP Mountain View, California July 23, 2001, except as to Note 11, which is as of September 25, 2001 |
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Shareholders of Software.com, Inc.
We have audited Software.com, Inc. the supplemental consolidated statements of operations, shareholders' equity (deficit) and cash flows for the year ended December 31, 1999 (not separately presented herein). The supplemental consolidated statements of operations, shareholders' equity (deficit) and cash flows give retroactive effect to the merger of Software.com, Inc. and AtMobile.com, Inc. (AtMobile) on April 11, 2000, which has been accounted for using the pooling-of-interests method as described in the notes to the supplemental consolidated financial statements. Our audit also included in the 1999 Software.com, Inc. financial statement schedule (note separately presented herein).These supplemental financial statements and schedule are the responsibility of the management of Software.com, Inc. Our responsibility is to express an opinion on these supplemental financial statements and schedule based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the supplemental financial statements of Software.com, Inc.
referred to above present fairly, in all material respects, the consolidated
results of its operations and its cash flows for the year ended December 31,
1999, after giving retroactive effect to the merger of AtMobile, as described
in the notes to the supplemental consolidated financial statements, in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related supplemental financial statement schedule,
when considered in relation to the basic supplemental financial statements
taken as a whole presents fairly in all material respects the information set
forth therein.
/s/ Ernst & Young LLP Woodland Hills, California July 12, 2000 |
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
June 30, ----------------------- 2001 2000 ----------- ---------- ASSETS ------ Current assets: Cash and cash equivalents........................... $ 161,987 $ 120,585 Short-term investments.............................. 186,506 402,422 Accounts receivable, net............................ 153,701 77,385 Prepaid and other current assets.................... 14,364 11,499 ----------- ---------- Total current assets.............................. 516,558 611,891 Property and equipment, net........................... 98,582 34,824 Long-term and restricted cash and investments......... 41,873 20,700 Deposits and other assets............................. 11,774 5,880 Goodwill and other intangible assets, net............. 1,056,928 1,687,930 ----------- ---------- $ 1,725,715 $2,361,225 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Current portions of capital lease obligations and long-term debt..................................... $ 1,776 $ 3,367 Accounts payable.................................... 20,600 14,176 Accrued liabilities................................. 54,370 50,124 Deferred revenue.................................... 90,262 97,863 ----------- ---------- Total current liabilities......................... 167,008 165,530 Capital lease obligations and long-term debt, less current portion...................................... 754 3,319 ----------- ---------- Total liabilities................................. 167,762 168,849 ----------- ---------- Commitments and contingencies Stockholders' equity: Common stock, $0.001 par value; 1,000,000 and 491,575 shares authorized as of June 30, 2001 and 2000, respectively; 170,073 and 161,269 issued and outstanding as of June 30, 2001 and 2000, respectively....................................... 170 161 Additional paid-in capital.......................... 2,623,466 2,569,416 Deferred stock-based compensation................... (6,079) (7,237) Accumulated other comprehensive loss................ (247) (561) Notes receivable from stockholders.................. (684) (724) Accumulated deficit................................. (1,058,673) (368,679) ----------- ---------- Total stockholders' equity........................ 1,557,953 2,192,376 ----------- ---------- $ 1,725,715 $2,361,225 =========== ========== |
See accompanying notes to consolidated financial statements.
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Years ended June 30, ------------------------------- 2001 2000 1999 ---------- --------- -------- Revenues: License..................................... $ 344,990 $ 93,126 $ 32,076 Maintenance and support services............ 60,264 25,835 13,507 Professional services....................... 60,004 27,447 14,800 ---------- --------- -------- Total revenues............................ 465,258 146,408 60,383 ---------- --------- -------- Cost of revenues: License..................................... 21,945 6,742 3,046 Maintenance and support services............ 28,875 14,889 5,797 Professional services....................... 36,950 16,971 8,685 ---------- --------- -------- Total cost of revenues.................... 87,770 38,602 17,528 ---------- --------- -------- Gross profit.............................. 377,488 107,806 42,855 ---------- --------- -------- Operating expenses: Research and development.................... 135,768 59,889 28,934 Sales and marketing......................... 148,811 68,421 33,597 General and administrative.................. 59,320 24,061 12,099 Stock-based compensation.................... 10,223 10,184 2,236 Amortization of goodwill and other intangible assets.......................... 636,282 216,614 329 In-process research and development......... -- 27,700 3,210 Merger, acquisition and integration-related costs...................................... 88,850 10,395 -- ---------- --------- -------- Total operating expenses.................. 1,079,254 417,264 80,405 ---------- --------- -------- Operating loss............................ (701,766) (309,458) (37,550) Interest and other, net....................... 24,760 23,220 2,829 ---------- --------- -------- Loss before income taxes.................. (677,006) (286,238) (34,721) Income taxes.................................. (12,988) (2,019) (2,316) ---------- --------- -------- Net loss.................................. (689,994) (288,257) (37,037) Accretion on redeemable convertible preferred stock........................................ -- -- (403) ---------- --------- -------- Net loss attributable to common stockholders............................. $ (689,994) $(288,257) $(37,440) ========== ========= ======== Basic and diluted net loss per share attributable to common stockholders.......... $ (4.17) $ (2.06) $ (0.52) ========== ========= ======== Shares used in computing basic and diluted net loss per share attributable to common stockholders................................. 165,426 139,921 71,514 ========== ========= ======== |
See accompanying notes to consolidated financial statements.
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
Year ended June 30, 1999
(In thousands)
Convertible preferred Accumulated Notes stock Common stock Additional Deferred other receivable --------------- --------------- paid-in stock-based Treasury comprehensive from Accumulated Shares Amount Shares Amount capital compensation stock income (loss) stockholders deficit ------- ------ ------- ------ ---------- ------------ -------- ------------- ------------ ----------- Balances as of June 30, 1998.... 38,755 $ 39 59,201 $ 59 $ 69,901 $(3,054) $ -- $ -- $ (197) $(51,424) Repurchase of common stock..... -- -- (266) -- -- -- (124) -- 124 -- Issuance of common stock .... -- -- 3,103 3 14,700 -- 124 -- (422) -- Issuance of convertible preferred stock, net of issuance costs............ 9,656 9 -- -- 34,395 -- -- -- -- -- Issuance of warrants......... -- -- -- -- 94 -- -- -- -- -- Conversion of convertible preferred stock into common stock in connection with initial public offerings........ (45,109) (45) 45,109 45 -- -- -- -- -- -- Issuance of common stock in initial public offerings, net of offering costs of $8,774........... -- -- 17,253 18 134,558 -- -- -- -- -- Conversion of redeemable convertible preferred stock.. -- -- 5,437 5 13,835 -- -- -- -- -- Accretion of redeemable convertible preferred stock redemption premium.......... -- -- -- -- -- -- -- -- -- (403) Exercise of warrants......... -- -- 1,213 1 (1) -- -- -- -- -- Capital contribution..... -- -- -- -- 12 -- -- -- -- -- Repayment of notes receivable from stockholders..... -- -- -- -- -- -- -- -- 11 -- Deferred compensation related to stock option grants.... -- -- -- -- 1,313 (1,313) -- -- -- -- Amortization of deferred stock- based compensation..... -- -- -- -- -- 2,111 -- -- -- -- Nonemployee stock-based compensation..... -- -- -- -- 125 -- -- -- -- -- Comprehensive loss: Net loss........ -- -- -- -- -- -- -- -- -- (37,037) Unrealized loss on marketable securities...... -- -- -- -- -- -- -- (6) -- -- Total comprehensive loss............ ------- ---- ------- ---- -------- ------- ----- ----- ------ -------- Balances as of June 30, 1999.... 3,302 $ 3 131,050 $131 $268,932 $(2,256) $ -- $ (6) $ (484) $(88,864) Total stockholders' Comprehensive equity loss ------------- ------------- Balances as of June 30, 1998.... $ 15,324 Repurchase of common stock..... -- Issuance of common stock .... 14,405 Issuance of convertible preferred stock, net of issuance costs............ 34,404 Issuance of warrants......... 94 Conversion of convertible preferred stock into common stock in connection with initial public offerings........ -- Issuance of common stock in initial public offerings, net of offering costs of $8,774........... 134,576 Conversion of redeemable convertible preferred stock.. 13,840 Accretion of redeemable convertible preferred stock redemption premium.......... (403) Exercise of warrants......... -- Capital contribution..... 12 Repayment of notes receivable from stockholders..... 11 Deferred compensation related to stock option grants.... -- Amortization of deferred stock- based compensation..... 2,111 Nonemployee stock-based compensation..... 125 Comprehensive loss: Net loss........ (37,037) $(37,037) Unrealized loss on marketable securities...... (6) (6) ------------- Total comprehensive loss............ $(37,043) ------------- ============= Balances as of June 30, 1999.... $177,456 |
See accompanying notes to consolidated financial statements.
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS--
(CONTINUED)
Year ended June 30, 2000
(In thousands)
Convertible preferred Accumulated Notes stock Common stock Additional Deferred other receivable -------------- --------------- paid-in stock-based Treasury comprehensive from Accumulated Shares Amount Shares Amount capital compensation stock income (loss) stockholders deficit ------ ------ ------- ------ ---------- ------------ -------- ------------- ------------ ----------- Issuance of common stock in secondary public offering, net of offering costs of $20,345.. -- $ -- 3,041 $ 3 $ 390,258 $ -- $ -- $ -- $ -- $ -- Issuance of common stock and assumption of stock options and notes receivable from stockholders in acquisitions... -- -- 15,549 16 1,870,043 -- -- -- (475) -- Deferred stock compensation related to acquisitions...... -- -- 26 -- 7,982 (7,982) -- -- -- -- Issuance of preferred stock... 2,319 2 -- -- 21,173 -- -- -- -- -- Conversion of preferred stock into common stock .................. (4,435) (4) 4,435 4 -- -- -- -- -- -- Issuance of warrants.......... -- -- -- -- 94 -- -- -- -- -- Exercise of warrants.......... -- -- 1,271 1 2 -- -- -- -- -- Repayment of notes receivable from stockholders...... -- -- -- -- -- -- -- -- 235 -- Issuance of common stock............. -- -- 8,172 8 20,139 -- -- -- -- -- Deferred compensation related to stock option grants..... -- -- -- -- 2,823 (2,823) -- -- -- -- Amortization of deferred stock- based compensation...... -- -- -- -- -- 6,413 -- -- -- -- Non-employee stock based compensation...... -- -- 3 -- 3,771 -- -- -- -- -- Comprehensive loss: Net loss......... -- -- -- -- -- -- -- -- -- (288,257) Foreign currency translation adjustments...... -- -- -- -- -- -- -- (172) -- -- Unrealized loss on marketable securities....... -- -- -- -- -- -- -- (383) -- -- Impact of conforming year end of Software.com..... (1,186) (1) (2,278) (2) (15,801) (589) -- -- -- 8,442 Total comprehensive loss............ ------ ----- ------- ---- ---------- ------- ----- ----- ----- --------- Balances as of June 30, 2000..... -- $ -- 161,269 $161 $2,569,416 $(7,237) $ -- $(561) $(724) $(368,679) Total stockholders' Comprehensive equity loss ------------- ------------- Issuance of common stock in secondary public offering, net of offering costs of $20,345.. $ 390,261 Issuance of common stock and assumption of stock options and notes receivable from stockholders in acquisitions... 1,869,584 Deferred stock compensation related to acquisitions...... -- Issuance of preferred stock... 21,175 Conversion of preferred stock into common stock .................. -- Issuance of warrants.......... 94 Exercise of warrants.......... 3 Repayment of notes receivable from stockholders...... 235 Issuance of common stock............. 20,147 Deferred compensation related to stock option grants..... -- Amortization of deferred stock- based compensation...... 6,413 Non-employee stock based compensation...... 3,771 Comprehensive loss: Net loss......... (288,257) $(288,257) Foreign currency translation adjustments...... (172) (172) Unrealized loss on marketable securities....... (383) (383) Impact of conforming year end of Software.com..... (7,951) 8,442 ------------- Total comprehensive loss............ $(280,370) ------------- ============= Balances as of June 30, 2000..... $2,192,376 |
See accompanying notes to consolidated financial statements.
OPENWAVE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS--
(CONTINUED)
Year ended June 30, 2001
(In thousands)
Convertible preferred Accumulated Notes stock Common stock Additional Deferred other receivable ------------- -------------- paid-in stock-based Treasury comprehensive from Accumulated Shares Amount Shares Amount capital compensation stock loss stockholders deficit ------ ------ ------- ------ ---------- ------------ -------- ------------- ------------ ----------- Issuance of common stock and assumption of stock option..... -- $ -- 8,604 $ 9 $ 46,785 $ -- $ -- $ -- $(367) $ -- Repayment of note receivable from stockholders..... -- -- -- -- -- -- -- -- 407 -- Non employee stock-based compensation..... -- -- -- -- 1,983 -- -- -- -- -- Stock-based compensation related to issuance of stock and stock option grants........... -- -- 200 -- 7,830 (5,408) -- -- -- -- Amortization of stock-based compensation..... -- -- -- -- -- 6,566 -- -- -- -- Acquisition consideration settled in cash.. -- -- -- -- (2,548) -- -- -- -- -- Comprehensive loss: Net loss......... -- -- -- -- -- -- -- (689,994) Foreign currency translation adjustments...... -- -- -- -- -- -- -- (151) -- -- Unrealized gain on marketable securities....... -- -- -- -- -- -- -- 465 -- -- Total comprehensive loss............ -- -- -- -- -- -- -- -- -- -- --- ---- ------- ---- ---------- ------- ----- ----- ----- ----------- Balances as of June 30, 2001..... -- $ -- 170,073 $170 $2,623,466 $(6,079) $ -- $(247) $(684) $(1,058,673) === ==== ======= ==== ========== ======= ===== ===== ===== =========== Total stockholders' Comprehensive equity loss ------------- ------------- Issuance of common stock and assumption of stock option..... $ 46,427 Repayment of note receivable from stockholders..... 407 Non employee stock-based compensation..... 1,983 Stock-based compensation related to issuance of stock and stock option grants........... 2,422 Amortization of stock-based compensation..... 6,566 Acquisition consideration settled in cash.. (2,548) Comprehensive loss: Net loss......... (689,994) $(689,994) Foreign currency translation adjustments...... (151) (151) Unrealized gain on marketable securities....... 465 465 ------------- Total comprehensive loss............ -- $ 689,680) ------------- ============= Balances as of June 30, 2001..... $1,557,953 ============= |
See accompanying notes to consolidated financial statements.
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years ended June 30, ------------------------------ 2001 2000 1999 --------- --------- -------- Cash flows from operating activities: Net loss..................................... $(689,994) $(288,257) $(37,037) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization.............. 657,161 225,425 3,922 Amortization of deferred stock-based compensation.............................. 6,566 6,413 2,111 Employee stock-based compensation.......... 2,422 -- -- Nonemployee stock-based compensation....... 1,983 3,771 125 Acquisition consideration settled in cash.. (2,548) -- -- Loss on sale of assets..................... 2,195 10 10 Accrued interest on convertible notes...... -- 26 -- Write-down of non-marketable securities.... 1,000 -- -- Provision for doubtful accounts............ 8,279 1,907 790 In-process research and development........ -- 27,700 3,210 Changes in operating assets and liabilities: Accounts receivable...................... (84,595) (41,832) (32,219) Prepaid expenses and other assets........ 237 (6,354) (2,148) Accounts payable......................... 6,424 (2,423) 3,309 Accrued liabilities...................... 24,357 11,535 7,578 Deferred revenue......................... (10,795) 53,824 36,483 --------- --------- -------- Net cash used for operating activities............................ (77,308) (8,255) (13,866) --------- --------- -------- Cash flows from investing activities: Purchases of property and equipment, net..... (87,488) (28,374) (5,839) Restricted cash and investments.............. -- (20,700) -- Investment in non-marketable equity securities.................................. (6,326) -- -- Purchases of short-term investments.......... (416,469) (622,538) (84,877) Proceeds from maturities of short-term investments................................. 633,014 255,988 47,129 Acquisitions, net of cash acquired........... (25,211) (32,694) (1,601) Purchases of long-term investments........... (21,337) -- -- Other assets................................. -- (386) (190) --------- --------- -------- Net cash provided by (used for) investing activities.................. 76,183 (448,704) (45,378) --------- --------- -------- Cash flows from financing activities: Net proceeds from issuance of convertible preferred stock............................. -- 15,783 29,979 Net proceeds from issuance of common stock... 46,427 410,411 138,981 Repayment of notes receivable from stockholders................................ 407 235 11 Repayments of note payable to bank, net...... -- (546) (7,554) Proceeds from long-term debt................. -- 5,000 7,613 Repayments of capital lease obligations and long-term debt.............................. (4,156) (3,189) (1,747) --------- --------- -------- Net cash provided by financing activities............................ 42,678 427,694 167,283 --------- --------- -------- |
See accompanying notes to supplemental consolidated financial statements.
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(In thousands)
Years ended June 30, ------------------------------ 2001 2000 1999 -------- ---------- -------- Effect of exchange rate on cash and cash equivalents.................................... $ (151) $ (172) $ -- -------- ---------- -------- Effect of conforming fiscal year ends........... -- 23,044 -- -------- ---------- -------- Net increase (decrease) in cash and cash equivalents.................................... 41,402 (6,393) 108,039 Cash and cash equivalents at beginning of year.. 120,585 126,978 18,939 -------- ---------- -------- Cash and cash equivalents at end of year........ $161,987 $ 120,585 $126,978 ======== ========== ======== Supplemental disclosures of cash flow information: Cash paid for income taxes.................... $ 10,770 $ 2,019 $ 2,316 ======== ========== ======== Cash paid for interest........................ $ 993 $ 1,033 $ 985 ======== ========== ======== Noncash investing and financing activities: Common stock issued to officers and employees for notes receivable......................... $ 367 $ 475 $ 422 ======== ========== ======== Repurchase of common stock in settlement of notes receivable from stockholders........... $ -- $ -- $ 124 ======== ========== ======== Deferred stock-based compensation............. $ 5,408 $ 10,805 $ 1,313 ======== ========== ======== Conversion of convertible preferred stock into common stock................................. $ -- $ 4 $ 45 ======== ========== ======== Conversion of notes payable and accrued interest into preferred stock................ $ -- $ 5,392 $ 4,426 ======== ========== ======== Warrants issued in connection with borrowing agreements................................... $ -- $ 94 $ 94 ======== ========== ======== Deferred purchase price liabilities........... $ -- $ 20,788 $ -- ======== ========== ======== Common stock issued and options assumed in acquisitions................................. $ -- $1,870,059 $ 10,000 ======== ========== ======== Accretion of redeemable convertible preferred stock........................................ $ -- $ -- $ 403 ======== ========== ======== Warrants received for revenue deferred........ $ 2,324 $ -- $ -- ======== ========== ======== |
See accompanying notes to supplemental consolidated financial statements.
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001, 2000, and 1999
(1) Organization and Significant Accounting Policies
(a) Organization and Basis of Consolidation
Openwave Systems Inc., (formerly Phone.com, Inc.) (the Company), was incorporated in Delaware in 1994 to develop and market software that enables the delivery of Internet-based services to mass-market wireless telephones.
On November 17, 2000, a subsidiary of the Company merged with and into Software.com, Inc. (Software.com). The Company concurrently changed its name to Openwave Systems Inc. This merger was accounted for as a pooling-of-interests. Accordingly, the financial information presented reflects the combined financial positions and operations of the Company and Software.com for all dates and periods presented (see Note 2).
In April 2000, Software.com merged with and into AtMobile, Inc. (AtMobile). In April 1999, a subsidiary of Software.com merged with and into Mobility.Net, Inc. (Mobility.Net). These mergers were accounted for as pooling-of-interests. Accordingly, the financial information presented reflects the combined financial positions and operations of the Company, Software.com, AtMobile, and Mobility.Net for all dates and periods presented (see Note 2).
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
(b) Revenue Recognition
The Company's primary revenue categories consist of applications, including email and unified messaging products; infrastructure software, including Mobile Access Gateway and Mobile Browser; and customer services, including maintenance and support services and professional services. The Company licenses and provides new version coverage for applications and infrastructure products primarily to communication service providers through its direct sales force and indirectly through its channel partners. The Company's license agreements for such products do not provide for a right of return. Applications and infrastructure products are licensed either under a perpetual license model or under a monthly or quarterly time-based license model.
Cost of license revenues consist primarily of third-party license and support fees. Cost of maintenance and support services revenues consist of compensation and related overhead costs for personnel engaged in training and support services to wireless device manufacturers. Cost of professional services revenues consist of compensation and independent consultant costs for personnel engaged in the professional services operations and related overhead costs.
The Company recognizes revenue in accordance with Statement of Position 97-2, Software Revenue Recognition (SOP 97-2), as amended by SOP 98-9, and generally recognizes revenue when all of the following criteria are met as set forth in paragraph 8 of SOP 97-2: (1) Persuasive evidence of an arrangement exists, (2) delivery has occurred, (3) the vendor's fee is fixed or determinable and (4) collectibility is probable. The Company defines each of the four criteria above as follows:
Persuasive evidence of an arrangement exists. It is the Company's customary practice to have a written contract, which is signed by both the customer and the Company, or a purchase order from those customers that have previously negotiated a standard license arrangement, prior to recognizing revenue on an arrangement.
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Delivery has occurred. The Company's software may be either physically or electronically delivered to its customer. Delivery is deemed to have occurred upon the earlier of notification by customer of acceptance or commercial launch of the software product by the customer. If undelivered products or services exist in an arrangement that are essential to the functionality of the delivered product, delivery is not considered to have occurred.
The vendor's fee is fixed or determinable. The fee the Company's communication service provider customers pay for its products is negotiated at the outset of an arrangement, and is generally based on the specific volume of customer activations. The Company's license fees are not a function of variable-pricing mechanisms such as the expected number of users in an arrangement. The Company's customary payment terms are such that a minimum of 80% of the arrangement fee is due within one year or less. Arrangements with payment terms extending beyond the customary payment terms are considered not to be fixed or determinable. Revenue from such arrangements is recognized at the lesser of the aggregate of amounts due and payable or the amount of the arrangement fee that would have been recognized if the fees had been fixed or determinable.
Collectibility is Probable. Collectibility is assessed on a customer-by- customer basis. The Company typically sells to customers for which there is a history of successful collection. New customers are subjected to a credit review process, which evaluates the customers' financial positions and ultimately their ability to pay. If it is determined from the outset of an arrangement that collectibility is not probable based upon the Company's credit review process, revenue is recognized on a cash-collected basis.
The Company allocates revenue on software arrangements involving multiple elements to each element based on the relative fair values of the elements. The Company's determination of fair value of each element in multiple-element arrangements is based on vendor-specific objective evidence (VSOE). The Company limits its assessment of VSOE for each element to the price charged when the same element is sold separately. The Company has analyzed all of the elements included in its multiple-element arrangements and determined that it has sufficient VSOE to allocate revenue to the new version coverage, maintenance and support services and professional services components of its perpetual license products. Accordingly, assuming all other revenue recognition criteria are met, revenue from perpetual licenses is recognized upon delivery using the residual method in accordance with SOP 98-9, and revenue from new version coverage, maintenance and support services is recognized ratably over their respective terms, usually one year new version coverage is included in license revenues. The Company recognizes revenue from time-based licenses over the term of the license period.
Certain of the Company's licenses include unspecified additional products. Revenue from contracts with unspecified additional products is recognized ratably over the contract term. The Company recognizes revenue from licenses that include unspecified additional software products and sold with extended payment terms that are not considered to be fixed and determinable in an amount that is the lesser of amounts due and payable or the ratable portion of the entire fee.
For arrangements under which licenses are purchased under a perpetual license model and maintenance and support fees are due on an as-deployed basis, but fees are not considered fixed and determinable, license fees are recognized quarterly as incremental subscribers are activated to use the services that are based on the Company's products. For similar arrangements under which fees are considered fixed and determinable, the Company recognizes the residual license amount after deferral of the fair value of maintenance and support for the expected deployment period.
The Company licenses its Mobile Browser software to wireless device manufacturers through its direct sales force. The Company recognizes revenues from Mobile Browser arrangements ratably over the period during which the services are performed, generally one year. The Company provides its wireless device manufacturer customers with support associated with their efforts to port its Mobile Browser software to their wireless devices, to correct software errors and to make available new releases.
The Company provides integration services relating to the deployment of products. The Company's professional services generally are not essential to the functionality of the software. The Company's software products are fully functional upon delivery and implementation and do not require any significant modification or alteration. Customers typically purchase these professional services to facilitate the adoption of the Company's technology and dedicate personnel to participate in the services being performed, but they may also decide to use their own resources or appoint other professional service organizations to provide these services. Software products are billed separately and independently from professional services, which are generally billed on a time-and-materials or milestone-achieved basis. The Company generally recognizes revenue from professional services as the services are performed.
(c) Cash, Cash Equivalents and Investments
Cash and cash equivalents consist of cash and highly liquid investments with remaining maturities of less than 90 days at the date of purchase with an investment rating by Moody's of A1 or higher and Standard & Poors of P-1 or higher. The Company is exposed to credit risk in the event of default by the financial institutions or the issuers of these investments to the extent of the amounts recorded on the balance sheet in excess of amounts that are insured by the FDIC.
The Company classifies its investments in debt and marketable equity securities as available-for-sale. Available-for-sale securities are carried at fair value with unrealized gains and losses recorded in accumulated other comprehensive income (loss) until realized. The Company uses the specific-identification method in determining cost in calculating realized gains and losses. The Company invests in short-term and long-term investments with an investment rating by Moody's of A1 or higher and Standard & Poors of P-1 or higher and a maturity of no greater than two years. Short-term investments have maturities of less than one year but longer than 90 days. Investments with remaining maturities greater than one year and less than two years, are classified as long-term investments. The objective of the Company's policy is to protect the value of its fixed income investment portfolio while minimizing principal risk.
(d) Financial Instruments and Concentration of Credit Risk
The carrying value of financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, and accounts payable, approximates fair value due to the short-term nature of these financial instruments. Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. The carrying values of debt outstanding as of June 30, 2001 and 2000 approximate their fair values. The fair value of available for sale debt securities are based on quoted market prices at the reporting date for those or similar investments.
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company sells its products and services principally to leading communication service providers and prominent wireless device manufacturers. Credit risk is concentrated in North America, Europe and Japan. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The Company maintains allowances for estimated credit losses based on management's assessment of the likelihood of collection.
(e) Account Receivable, net
Accounts receivable is recorded net of allowance for doubtful accounts totaling $10.5 million and $2.2 million as of June 30, 2001 and 2000, respectively.
(f) Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets, generally three to twelve years. Leasehold improvements are amortized over the shorter of the estimated useful lives of the assets or the lease term.
(g) Capitalized License Fees
The Company routinely enters into software license agreements which allow the Company to integrate third-party software into its products up to a specified number of users. These licenses are amortized to cost of goods sold as the third-party software products are sold up to a maximum period of 36 months, which is generally considered to be the maximum useful life of the software purchased.
(h) Impairment of Long-Lived Assets
The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of any asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
(i) Goodwill
The Company records goodwill when consideration paid in a purchase acquisition exceeds the fair value of net tangible assets and identified intangible assets acquired. The Company regularly performs reviews to determine if the carrying value of goodwill is impaired. The purpose for the review is to identify any facts or circumstances, either internal or external, which indicate that the carrying value of the goodwill cannot be recovered. No such impairment has been indicated to date. If, in the future, management determines the existence of impairment indicators, the Company would use undiscounted cash flows to initially determine whether impairment should be recognized. If necessary, the Company would perform a subsequent calculation to measure the amount of the impairment loss based on the excess of the carrying value over the fair value of the impaired goodwill. The fair value
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
would be calculated using the present value of estimated expected future cash flows. The cash flow calculation would be based on management's best estimates, using appropriate assumptions and projections at the time.
(j) Research and Development
Research and development costs are expensed as incurred until technological feasibility has been established. To date, the Company's software has been available for general release concurrent with or immediately following the establishment of technological feasibility and, accordingly, no development costs have been capitalized.
(k) Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(l) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be recovered.
(m) Accounting for Stock-Based Compensation
The Company uses the intrinsic-value method to account for all of its employee stock-based compensation plans. Expense associated with stock-based compensation is being amortized on an accelerated basis over the vesting period of the individual award consistent with the method described in Financial Accounting Standards Board (FASB) Interpretation No. 28 (FIN 28).
The Company accounts for stock options and warrants issued to non-employees in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation and Emerging Issues Task Force (EITF) Issue No. 96-18 Accounting for Equity Instruments that are issued to other than employees for acquiring or in conjunction with selling goods or services. The Company uses the Black-Scholes Option Pricing model to value options and warrants granted to non-employees.
(n) Foreign Currency Transactions
For foreign operations with the local currency as the functional currency, assets and liabilities are translated at year end exchange rates, and statements of operations are translated at the monthly average rates during the year. Exchange gains or losses arising from translation of such foreign entity financial statements are included as a component of accumulated other comprehensive income (loss).
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For foreign operations with the U.S. dollar as the functional currency, monetary assets and liabilities are remeasured at the year end exchange rates as appropriate and non-monetary assets and liabilities are remeasured at historical exchange rates. Statements of operations are remeasured at the monthly average rates during the year. Foreign currency transaction gains and losses are included in other income (expense), net, and to date, have not been material.
(o) Comprehensive Income (Loss)
Comprehensive income (loss) includes net loss, unrealized gains (losses) on marketable securities, and foreign currency translation adjustments. Tax effects of other comprehensive income (loss) have not been material.
Comprehensive income (loss) is comprised of:
June 30, ---------------------- 2001 2000 ----------- --------- Accumulated deficit.............................. $(1,058,673) $(368,679) Accumulated foreign currency translation adjustment...................................... (323) (172) Accumulated unrealized gain (loss) on marketable securities...................................... 76 (389) ----------- --------- $(1,058,920) $(369,240) =========== ========= |
(p) Net Loss Attributable to Common Stockholders Per Share
Basic and diluted net loss attributable to common stockholders per share is computed using the weighted-average number of outstanding shares of common stock excluding shares of restricted stock subject to repurchase summarized below. The following potential shares of common stock have been excluded from the computation of diluted net loss attributable to common stockholders per share for all periods presented because the effect would have been antidilutive (in thousands):
June 30, -------------------- 2001 2000 1999 ------ ------ ------ Shares issuable under stock options...................... 35,386 28,503 24,649 Shares of restricted stock subject to repurchase......... 270 766 706 Shares issuable pursuant to warrants to purchase common stock............................................ 237 242 355 Shares of convertible preferred stock on "as if converted" basis........................................ -- -- 3,302 |
The weighted-average exercise price of stock options outstanding was $42.10, $28.89 and $4.11, as of June 30, 2001, 2000 and 1999, respectively. The weighted-average purchase price of restricted stock was $0.36, $0.48 and $0.30, as of June 30, 2001, 2000 and 1999, respectively. The weighted-average exercise price of warrants was $2.38, $2.69 and $2.26, as of June 30, 2001, 2000 and 1999, respectively. In June 1999, all outstanding shares of the Company's convertible preferred stock were automatically converted into common stock upon completion of the Company's initial public offering (IPO) (see Note 5(a)). Also in June 1999, all outstanding shares of Software.com's convertible preferred stock were automatically converted into Software.com common stock upon completion of Software.com's IPO (see Note 5(a)). In April 2000, all outstanding shares of AtMobile convertible preferred stock were converted into Software.com common stock upon completion of the merger of Software.com and AtMobile (see Note 2).
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(q) Derivative Instruments and Hedging Activities
On July 1, 2000, the Company adopted Statement of Financial Accounting Standards No. 133 (SFAS No. 133), Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137 and SFAS No. 138. The cumulative transition adjustment upon adoption was insignificant. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities and requires that all derivatives be recognized as either assets or liabilities at fair value. If certain conditions are met, a derivative may be specifically designated and accounted for as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. If the derivative is designated as a hedging instrument, depending on the nature of the exposure being hedged, changes in fair value will either be offset against the change in fair value of the hedged asset, liability, or firm commitment through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. Derivatives or portions of derivatives that are not designated as hedging instruments are adjusted to fair value through earnings and are recognized in the period of change in their fair value.
The Company operates internationally and thus is exposed to potentially adverse movements in foreign currency rate changes. The Company has entered into foreign exchange forward contracts to reduce its exposure to foreign currency rate changes on receivables, payables and intercompany balances denominated in a non-functional currency. The objective of these contracts is to neutralize the impact of foreign currency exchange rate movements on the Company's operating results. These contracts require the Company to exchange currencies at rates agreed upon at the inception of the contracts. These contracts reduce the exposure to fluctuations in exchange rate movements because the gains and losses associated with foreign currency balances and transactions are generally offset with the gains and losses of the foreign exchange forward contracts. Because the impact of movements in currency exchange rates on forward contracts offsets the related impact on the underlying items being hedged, these financial instruments help alleviate the risk that might otherwise result from changes in currency exchange rates. The Company adjusts these instruments to fair value through earnings in the period of change in their fair value. The Company does not hold or issue financial instruments for speculative or trading purposes. The Company does not believe that ongoing application of SFAS No. 133 will significantly alter the Company's hedging strategies. However, its application may increase the volatility of other income and expense and other comprehensive income.
(r) Recent Accounting Pronouncements
The Company adopted Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements. (SAB 101) as amended by SAB 101A and 101B was adopted, on June 30, 2001 retroactive to July 1, 2000, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed the Securities and Exchange Commission (SEC). The adoption of SAB 101 did not have a material impact on its consolidated financial position or results of operations. SAB 101 outlines the basic criteria that must be met to recognize revenues and provides guidance for disclosure related to revenue recognition policies.
In late July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141 Business Combinations (SFAS No. 141) and SFAS No. 142 Goodwill and Other Intangible Assets (SFAS No. 142). SFAS No. 141 requires that all business combinations be accounted for using the purchase method of accounting; therefore, the pooling-of-
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
interests method of accounting is prohibited. SFAS No. 141 also requires that an intangible asset acquired in a business combination be recognized apart from goodwill if: (i) the intangible asset arises from contractual or other legal rights or (ii) the acquired intangible asset is capable of being separated from the acquired enterprise, as defined in SFAS No. 141. SFAS No. 141 is effective for all business combinations completed after June 30, 2001.
For business combinations completed prior to July 1, 2001 and accounted for by the purchase method, SFAS No. 141 provides that intangible assets that do not meet the separate identifiable intangible asset criteria prescribed by this pronouncement (e.g., assembled workforce, among others) be reclassified to goodwill as of the date of adoption. Conversely, if a portion of the purchase price had been assigned to an intangible asset that meets the criteria for recognition apart from goodwill and that intangible asset is classified as part of goodwill for financial reporting purposes, the carrying amount of that intangible asset must be reclassified and reported separately from goodwill as of the date of adoption (July 1, 2002).
SFAS No. 142 requires that goodwill should not be amortized but should be tested for impairment at the "reporting unit level" (Reporting Unit) at least annually and more frequently upon the occurrence of certain events, as defined by SFAS No. 142. A Reporting Unit is the same level as or one level below an "operating segment," as defined by SFAS No. 131 Disclosures About Segments of an Enterprise and Related Information. The Company's identifiable intangible assets are required to be amortized over their useful life and reviewed for impairment in accordance with SFAS No. 121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of (SFAS No. 121). Goodwill is not tested for impairment under SFAS No. 121, but instead is tested for impairment as prescribed in SFAS No. 142.
SFAS No. 142 requires that goodwill be tested for impairment in a two-step process. First, a company must compare the "estimated fair value" of a Reporting Unit to its carrying amount, including goodwill, to determine if the fair value of the Reporting Unit is less than the carrying amount, which would indicate that goodwill is impaired. If the Company determines that goodwill is impaired, the Company must compare the "implied fair value" of the goodwill to its carrying amount to determine if there is an impairment loss. The "implied fair value" is calculated by allocating the fair value of the Reporting Unit to all assets and liabilities as if the Reporting Unit had been acquired in a business combination and accounted for under SFAS No. 141.
For goodwill and intangible assets acquired in business combinations completed prior to July 1, 2001, SFAS No. 142 is effective for the Company beginning on July 1, 2002. Goodwill and intangible assets acquired in a business combination completed after June 30, 2001 are required to be accounted for in accordance with the provisions of SFAS No. 142.
As of June 30, 2001, the Company currently has recorded net goodwill of $1.1 billion. Under the current accounting, the Company is expected to have amortization expense of approximately $630 million in the next fiscal year.
The Company is currently evaluating the impact the adoption of these pronouncements may have on its financial position and results of operations; however, due to these pronouncements being issued in late July 2001 and due to the Company's expectations that the FASB will issue further guidance with respect to adoption of both SFAS Nos. 141 and 142, the Company is currently unable to determine the impact the adoption of these pronouncements may have on its financial position or results of operations.
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(2) Business Combinations
(a) Poolings of Interests
Software.com
On November 17, 2000, the Company merged with Software.com in a transaction that was accounted for as a pooling-of-interests. Accordingly, the financial information presented reflects the combined financial position and operations of the Company and Software.com for all dates and periods presented. Software.com was incorporated in October 1994. Software.com is an application service provider for wireless carriers and Internet content providers in search of a technology gateway that links and integrates Web-based content, commerce and applications with current and future generations of wireless devices. The Company issued 94,506,060 shares of its common stock in exchange for all of the issued and outstanding common stock of Software.com. The Company also reserved 12,520,161 shares for issuance in connection with the assumption of Software.com's outstanding options, and employee stock purchase plans. In connection with the merger, the Company and Software.com have incurred approximately $88.9 million in merger and integration expenses during the year ended June 30, 2001.
Prior to the combination, Software.com's fiscal year ended on December 31. As of the merger date, Software.com changed its fiscal year to June 30 to conform to the Company's fiscal year end. In recording the pooling-of-interests combination, Software.com's financial statements for the twelve months ended December 31, 1999 were combined with the Company's financial statement for the twelve months ended June 30, 1999. Software.com's financial statements for the twelve months ended June 30, 2000 were combined with the Company's financial statements for the twelve months ended June 30, 2000. Software.com's unaudited results of operations for the six months ended December 31, 1999 included revenues of $29.0 million, expenses of $37.2 million and net loss of $8.2 million. An adjustment has been made to stockholders' equity as of June 30, 2000, to eliminate the effect of including Software.com's unaudited results of operations for the six months ended December 31, 1999, in both the year ended June 30, 1999 and 2000.
Adjustments to conform Software.com's method of accounting for the amortization of stock-based compensation from the straight-line method to the method described in FIN 28 with that of the Company increased net loss for the years ended June 30, 2000 and 1999, by approximately $340,000 and $556,000, respectively. Intercompany revenues and costs of revenues totaling $921,000 and $354,000, respectively, have been eliminated in the consolidated financial statements for the year ended June 30, 2000. There were no intercompany transactions in the other periods presented. In addition, intercompany balances of accounts receivable, prepaid expenses and other current assets, deposits and other assets, and accounts payable have been eliminated as of June 30, 2000 and 1999.
AtMobile
On April 11, 2000, Software.com completed its merger with AtMobile, (formerly Global Mobility Systems) in a transaction accounted for as a pooling-of- interests. Accordingly, the financial information presented reflects the combined financial position and operations of the Company and AtMobile for all dates and periods presented. AtMobile was incorporated on August 16, 1996. AtMobile develops mass market Internet service applications that integrate both current and future generations of digital wireless phones with the Internet. Software.com issued 6,039,375 shares of its common stock in exchange for all of the issued and outstanding common stock of AtMobile as well as in exchange for all outstanding options and warrants to purchase AtMobile common stock. There were no conforming adjustments or intercompany eliminations required in the AtMobile merger.
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Mobility.Net
In April 1999, Software.com completed its merger with Mobility.Net, a company that offered products for Web messaging using a Java-based technology platform that complemented Software.com's product offerings. Software.com issued 2,543,000 shares of its common stock in exchange for all of the outstanding shares of Mobility.Net. The Mobility.Net merger was accounted for as a pooling- of-interests. Accordingly, the financial information presented reflects the combined financial position and operations of the Company and Mobility.Net for all dates and periods presented. There were no conforming adjustments or intercompany eliminations required in the Mobility.Net merger.
Separate Operating Results
Separate operating results of the combined entities prior to their date of combination for the years ended June 30, 2001, 2000 and 1999, are shown below (in thousands). The operating results of Mobility.net were not significant, and have been included in the operating results of Software.com.
Years ended June 30, ------------------------------ 2001 2000 1999 --------- --------- -------- Revenues: Openwave...................................... $ 393,366 $ 68,727 $ 13,442 Software.com.................................. 71,892 75,803 44,638 AtMobile...................................... -- 1,878 2,303 --------- --------- -------- Combined.................................... $ 465,258 $ 146,408 $ 60,383 ========= ========= ======== Net loss: Openwave...................................... $(655,276) $(264,788) $(20,763) Software.com.................................. (34,718) (18,278) (11,492) AtMobile...................................... -- (5,191) (5,185) --------- --------- -------- Combined.................................... $(689,994) $(288,257) $(37,440) ========= ========= ======== |
(b) Purchase Acquisitions
The Company has completed the following business combinations, which were accounted for as purchase acquisitions. The operating results of each acquired entity have been included in the consolidated statements of operations since the respective acquisition date.
In June 2000, Software.com completed its acquisition of bCandid Corporation (bCandid), a company based in Massachusetts. bCandid is a provider of carrier- class discussion server infrastructure software to service providers worldwide. The acquired intangible assets are being amortized on a straight-line basis over a period of two to four years, except for the amount recorded for in- process research and development, which was expensed on the acquisition date.
On June 14, 2000, the Company acquired all of the outstanding common stock of MyAble, a company based in Palo Alto, California. MyAble is a provider of hosted personalization services for wireline and wireless web technologies. The acquired intangible assets are being amortized on a straight-line basis over a period of three years.
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On May 4, 2000, the Company acquired all of the outstanding common stock of Velos 2 S.r.l. (Velos), a company based in Milan, Italy. The acquired intangible assets are being amortized on a straight-line basis over a period of three years.
On April 14, 2000, the Company acquired all of the outstanding common and preferred stock of Onebox.com, Inc. (Onebox), a company based in San Mateo, California. Onebox is a communications application service provider offering users unified e-mail, voicemail, facsimile, and wireless-enabled communication applications. The acquired intangible assets are being amortized on a straight- line basis over a period of three years, except for the amount recorded for in- process research and development, which was expensed on the acquisition date.
On March 4, 2000, the Company acquired all of the outstanding common and convertible preferred stock of Paragon Software (Holdings) Limited (Paragon), a company incorporated in England and Wales. Paragon is a provider of synchronization technology allowing PC-based personal information to be easily transferred to mobile devices. The acquired intangible assets are being amortized on a straight-line basis over a period of three years, except for the in-process research and development, which was expensed on the acquisition date.
On February 8, 2000, the Company acquired all of the outstanding common and redeemable convertible preferred stock of AtMotion, Inc. (AtMotion), a company based in Redwood City, California. AtMotion is a provider of Voice Portal technology. The acquired intangible assets are being amortized on a straight- line basis over a period of three years.
On October 27, 1999, the Company acquired substantially all of the assets of Angelica Wireless ApS (Angelica), including all software technology, intellectual property and certain customer agreements, and excluding the assumption of liabilities. Angelica is a developer of WAP software products complementary to the Company's MyPhone application suite software and is based in Copenhagen, Denmark. Goodwill is being amortized on a straight-line basis over a period of three years. The Company recorded deferred stock-based compensation in the amount of $1.7 million, which is being amortized on an accelerated basis over the vesting period of three years, consistent with the method described in FIN 28.
On October 26, 1999, the Company completed its acquisition of APiON Telecom Limited (APiON), a company based in Belfast, Northern Ireland. In addition, the Company also agreed to issue cash and common stock with an aggregate value of up to approximately $14.1 million to the then current and former employees of APiON. APiON is a provider of WAP software products to GSM network operators in Europe and had expertise in GSM Intelligent Networks, wireless data and WAP technology. Former employees of APiON received consideration totaling approximately $2.2 million in cash upon the closing of the acquisition and an additional $2.6 million at the one-year anniversary of the acquisition, with the remaining $1.7 million payable in cash or common stock of the Company on the second anniversary of the closing of the acquisition of APiON subject to forfeiture upon the occurrence of certain events. Current employees of APiON received approximately $2.5 million in cash upon the closing of the acquisition with the remaining $5.1 million payable in cash or common stock of the Company on each of the first two anniversaries of the closing of the acquisition of APiON contingent upon continued employment. The first payment to current and former employees of APiON was made in cash on the first anniversary of the closing of the acquisition. Should the Company elect to issue common stock for future payments to current and former employees of APiON, the actual number of shares to be issued will depend upon the fair value of the common stock on the distribution date.
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Common stock issued to former shareholders and cash paid to current and former employees of APiON at the closing of the acquisition was included in the purchase price. Cash or common stock paid or to be paid to former employees of APiON will be recorded as additional goodwill and will be amortized over the remaining useful life of the goodwill. Common stock potentially issuable in the future to current employees of APiON has been recorded as deferred stock-based compensation.
The acquired intangible assets are being amortized on a straight-line basis over a period of three years with the exception of the in-process research and development, which was expensed on the acquisition date. In connection with the acquisition, the Company recorded deferred stock-based compensation in the amount of approximately $5.1 million, which is being amortized on an accelerated basis over the vesting period of two years, consistent with the method described in FIN 28.
On October 20, 1999, Software.com acquired all of the outstanding stock of Telarc, Inc. (Telarc), a New York based corporation, which provides carrier- scale Short Messaging Service (SMS) technologies that complement Software.com's product offerings. The acquired intangible assets are being amortized on a straight-line basis over their estimated economic useful lives of three to five years, except for the amount recorded for in-process research and development, which was expensed on the acquisition date.
In addition, in conjunction with the acquisition of Telarc, Software.com entered into an employment agreement with an executive of Telarc under which the executive will receive a total of $3.5 million in cash in 10 equal quarterly installments beginning March 2000.
For each acquisition, the Company or Software.com determined the allocation between developed and in-process research and development. This allocation was based on whether technological feasibility has been achieved and whether there is an alternative future use for the technology. SFAS No. 86 sets guidelines for establishing technological feasibility. Technological feasibility is determined when a product reaches the "working model" stage, which is generally when a product is classified as a beta version release. As of the respective dates of the acquisitions of bCandid, Onebox, Paragon, APiON, and Telarc discussed above, the Company concluded that the purchased in-process research and development had no alternative future use and expensed it according to the provisions of FASB Interpretation No. 4, Applicability of SFAS No. 2 to Business Combinations Accounted for by the Purchase Method.
The total purchase price of each purchase acquisition was allocated as follows (in thousands):
Allocated Purchase Price Components ----------------------------------------------------------------------------------------- Net Tangible Deferred Assets Purchase In-Process Developed Noncompete Other Stock Based (Liabilities) Price Goodwill R&D Technology Agreements Intangibles Compensation Acquired -------- -------- ---------- ---------- ---------- ----------- ------------ ------------- bCandid................. $ 68,700 $ 59,200 $ 2,000 $ 6,700 $ 300 $1,000 $ -- $ (500) MyAble.................. 18,400 18,400 -- -- -- -- -- -- Velos................... 2,000 800 -- -- -- -- 1,200 -- Onebox.................. 815,000 792,000 4,300 14,700 4,800 600 -- (1,400) Paragon................. 472,800 454,400 18,100 7,200 2,300 1,000 -- (10,200) AtMotion................ 286,700 243,300 -- 42,500 -- 700 -- 200 Angelica................ 3,700 2,000 -- -- -- -- 1,700 -- APiON................... 257,100 247,700 100 200 -- 1,700 5,100 2,300 Telarc.................. 11,600 2,300 3,200 5,700 -- 100 -- 300 |
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For each acquisition accounted for as a purchase, the Company paid the following (in thousands):
Purchase Price ----------------------------------------------- Assumption of Common Stock Stock Options --------------- -------------- Shares Amount Shares Amount Cash Total ------ -------- ------- ------ ------- -------- bCandid......................... 1,074 $ 68,700 -- $ -- $ -- $ 68,700 MyAble.......................... 194 16,400 23,112 1,900 100 18,400 Velos........................... 18 1,750 -- -- 250 2,000 Onebox.......................... 6,208 766,591 261,549 31,200 17,209 815,000 Paragon......................... 3,051 401,700 397,672 52,000 19,100 472,800 AtMotion........................ 2,280 277,200 67,825 8,000 1,500 286,700 Angelica........................ 16 1,700 -- -- 2,000 3,700 APiON........................... 2,393 240,900 -- -- 16,200 257,100 Telarc.......................... 341 10,000 -- -- 1,600 11,600 |
The options assumed in the above acquisitions were valued using the Black-
Scholes option pricing model with the following weighted average assumptions:
expected life of 1.1 years; 0% dividend yield; 80% volatility and risk free
interest rate of 6.0%.
The following table shows unaudited pro forma revenue, net loss and basic and diluted net loss per share of the Company, including the results of bCandid, MyAble, Velos, Onebox, Paragon, AtMotion, Angelica, APiON, and Telarc as if each company had been acquired as of July 1, 1998 (in thousands, except per share data):
Years ended June 30, -------------------- 2000 1999 --------- --------- Revenue.................................................. $ 153,086 $ 67,214 ========= ========= Net loss................................................. $(767,330) $(720,731) ========= ========= Basic and diluted net loss per share..................... $ (5.07) $ (8.70) ========= ========= Shares used in pro forma per share computation........... 151,211 82,804 ========= ========= |
In computing the pro forma net loss, the charges taken for in-process research and development have been excluded from the calculations. The pro forma results are not necessarily indicative of what would have occurred if the acquisitions had been in effect for the periods presented. In addition, they are not intended to be a projection of future results and do not reflect any synergies that might be achieved from combined operations.
(3) Balance Sheet Components
(a) Cash, Cash Equivalents, and Short-Term Investments
The following summarizes the Company's cash, cash equivalents, and short-term investments (in thousands):
June 30, ------------------ 2001 2000 -------- -------- Cash and cash equivalents: Cash................................................... $ 66,330 $ 11,415 Money market funds..................................... 70,626 56,966 Commercial paper....................................... 31,724 70,898 Less restricted cash equivalents....................... (6,693) (18,694) -------- -------- $161,987 $120,585 ======== ======== |
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 2001 ----------------------------------------- Gross Gross Estimated unrealized unrealized fair Cost gains losses value -------- ---------- ---------- --------- Short term investments Corporate bonds.................. $102,349 $ 197 $ (15) $102,527 Commercial paper................. 70,239 16 (2) 70,253 Certificates of deposit.......... 6,002 -- (2) 6,000 U.S. Treasury securities and obligations of U.S. government agencies............. 21,687 46 -- 21,733 Less restricted investments...... (14,007) -- -- (14,007) -------- ----- ----- -------- $186,270 $ 259 $ (19) $186,506 ======== ===== ===== ======== June 30, 2000 ----------------------------------------- Gross Gross Estimated unrealized unrealized fair Cost gains losses value -------- ---------- ---------- --------- Short term investments Corporate bonds.................. $126,917 $ -- $(251) $126,666 Commercial paper................. 157,579 20 (57) 157,542 Certificate of deposit........... 72,826 22 -- 72,848 U.S. Treasury securities and obligations of U.S. government agencies............. 47,492 -- (97) 47,395 Less restricted investments...... (2,006) -- (23) (2,029) -------- ----- ----- -------- $402,808 $ 42 $(428) $402,422 ======== ===== ===== ======== |
(b) Long-term investments and restricted cash and investments
The following summarizes the Company's long-term investments and restricted cash and investments:
June 30, 2001 --------------------------------------- Gross Gross Estimated unrealized unrealized fair Cost gains losses value ------- ---------- ---------- --------- Unrestricted corporate bonds (matures in year ended June 30, 2003)..................... $21,337 $ -- $(164) $21,173 Restricted cash and investments..... 20,700 -- -- 20,700 ------- ----- ----- ------- $42,037 $ -- $(164) $41,873 ======= ===== ===== ======= June 30, 2000 --------------------------------------- Gross Gross Estimated unrealized unrealized fair Cost gains losses value ------- ---------- ---------- --------- Restricted cash and investments..... $20,700 $ -- $ -- $20,700 ======= ===== ===== ======= |
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(c) Property and Equipment
Property and equipment consisted of the following (in thousands):
June 30, ---------------- 2001 2000 -------- ------- Computer equipment and software............................... $ 75,696 $39,286 Furniture and equipment....................................... 17,603 7,320 Leasehold improvements........................................ 40,866 3,955 -------- ------- 134,165 50,561 Less accumulated depreciation and amortization................ 35,583 15,737 -------- ------- $ 98,582 $34,824 ======== ======= |
Equipment acquired under capital leases aggregated $1.2 million and $4.0 million as of June 30, 2001 and 2000, respectively. Accumulated amortization on the equipment acquired under capital leases aggregated $766,000 and $1.1 million as of June 30, 2001 and 2000, respectively.
(d) Goodwill and Other Intangible Assets
Goodwill and other intangible assets consisted of the following (in thousands):
June 30, --------------------- 2001 2000 ---------- ---------- Goodwill................................................. $1,820,360 $1,815,080 Developed and core technology............................ 77,052 77,052 Noncompete agreements.................................... 7,400 7,400 Assembled workforce...................................... 4,480 4,480 Customer relationships................................... 600 600 ---------- ---------- 1,909,892 1,904,612 Less accumulated amortization............................ 852,964 216,682 ---------- ---------- $1,056,928 $1,687,930 ========== ========== |
Goodwill and the cost of identified intangible assets are amortized on a straight line basis over 3 to 5 years.
(e) Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
June 30, --------------- 2001 2000 ------- ------- Accrued salaries, benefits and commissions..................... $26,302 $10,605 Acquisition-related liabilities................................ 677 20,788 Other accrued liabilities...................................... 27,391 18,731 ------- ------- $54,370 $50,124 ======= ======= |
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(4) Debt
As of June 30, 2001 and 2000, the Company had promissory notes assumed in connection with the acquisitions, in the amounts of approximately $1,065,000 and 1,426,000, respectively. The notes are secured by Senior Loan and Security Agreements and bear interest at a rate between 10% and 17% per annum. The principal amounts due on the notes for the years-ended June 30, 2002 and 2003 will be $511,000 and $554,000, respectively.
In January 2000, AtMobile issued convertible promissory notes for bridge
financing aggregating $500,000. On February 18, 2000, these promissory notes
were converted into 30,048 shares of AtMobile Series D preferred stock (see
Note 5).
(5) Stockholders' Equity
(a) Initial Public Offerings
On June 11, 1999, the Company completed an IPO of 9,200,000 shares of its common stock at a price of $8.00 per share and received net proceeds of approximately $66.8 million. At the IPO date, all 40,348,000 outstanding shares of the Company's convertible preferred stock were automatically converted into common stock on a one-for-one basis.
On June 29, 1999, Software.com completed an IPO of 8,052,500 shares of its common stock at a price of $9.31 per share and received net proceeds of approximately $67.8 million. At the IPO date, all 10,198,000 outstanding shares of Software.com convertible preferred stock were automatically converted into Software.com common stock on a one-for-one basis.
Prior to the conversion of all outstanding Software.com convertible preferred stock into Software.com common stock upon completion of Software.com's IPO, the Series A Software.com preferred stock redemption price included a redemption premium of 10% per year compounded annually. Accordingly, the initial fair value of the Software.com Series A preferred stock was increased by periodic accretions, using the interest method, so that the carrying amount would equal the mandatory redemption amount at the redemption date. For the year ended June 30, 1999, such periodic accretions totaled $403,000, and are reflected as charges against accumulated deficit for each year.
(b) Secondary Offering
On November 16, 1999, the Company completed a secondary offering of 3,041,500 shares of its common stock at a price of $135.00 per share and received net proceeds of approximately $390.3 million.
(c) Stock Splits
On June 7, 1999, the Company effected a two-for-three reverse stock split of its convertible preferred stock and common stock. The accompanying consolidated financial statements have been retroactively restated to give effect to this reverse stock split.
On October 29, 1999, the Company effected a two-for-one stock split of its common stock. The accompanying consolidated financial statements have been retroactively restated to give effect to this stock split.
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(d) Stockholder Rights Agreement
On August 8, 2000, the Company has entered into a rights agreement that entitles each holder of the Company common stock to purchase one one-thousandth of a share of Series A Junior Participating Preferred Stock at a price of $500 per one one-thousandth of a share, subject to adjustment. Ten business days after a person or group of affiliated or associated persons acquires beneficial ownership of 15% or more of the outstanding shares of the Company common stock, other than as a result of repurchases of stock by the Company or certain inadvertent actions by institutional or certain other stockholders, and except pursuant to an offer for all outstanding shares of the Company common stock which the independent directors of the Company determine to be fair and in the best interests of the Company, each holder of a right to purchase one one-thousandth of a share of Series A Junior Participating Preferred Stock will thereafter have the right to receive, upon exercise of the right, shares of the Company common stock having a value equal to two times the exercise price of the right.
At any time until the tenth business day after a person or group of affiliated or associated persons acquires beneficial ownership of 15% or more of the outstanding shares of the Company common stock, the Company may redeem the rights in whole, but not in part, at a price of $0.001 per right. This rights agreement will terminate on August 18, 2008, unless such date is extended or the rights are redeemed by the Company prior to such date.
This rights agreement may have certain anti-takeover effects. The rights will cause substantial dilution to a person or group that attempts to acquire the Company in a manner which causes the rights to become discount rights unless the offer is conditional upon a substantial number of rights being acquired.
(e) AtMobile Convertible Preferred Stock
In connection with Software.com's merger with AtMobile in April 2000 (see Note
2(a)), all shares of convertible preferred stock previously issued by AtMobile
were converted into common shares of Software.com upon closing of the
transaction. The following table summarizes the historical issuances of
AtMobile convertible preferred stock. Each share of AtMobile preferred stock
was convertible into one share of AtMobile common stock.
Conversion of notes payable and Aggregate Net accrued Date Issued Series shares proceeds interest ----------- ------ --------- ----------- ----------- September 1997......................... A 1,182,117 $ 5,145,000 $ -- June 1999.............................. B 932,835 -- 4,076,000 August and November 1999............... C 1,073,060 3,295,000 -- August 1999............................ C 113,123 -- 350,000 February 2000.......................... D 1,132,707 12,504,000 5,026,000 --------- ----------- ---------- 4,433,842 $20,944,000 $9,452,000 ========= =========== ========== |
During June 1999, in connection with the issuance of the Series B AtMobile preferred stock, the board of directors of AtMobile declared a 2.19769223-to-1 stock split on the Series A AtMobile preferred stock. The effect of the split was to increase the number of authorized, issued and outstanding shares of Series A AtMobile preferred stock. The number of shares issued and outstanding has been retroactively adjusted to reflect these changes.
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(f) Non-employee Equity Transactions
The Company has issued the following warrants to purchase its common stock:
Fiscal Fair Year Number Exercise Value of of Price per Assump- Grant Shares Share Date Exercisable Fair Value Purpose tions Recorded as ------ ------- --------- ---------------------------- ---------- -------------------- ------- -------------------------- 1999 122,308 $ 0.11 On milestones from Jun. 1999 $2,500,000 Nonemployee services B Operating expense 2000 32,806 $ 4.37 July 1999 $ 94,000 Debt financing A Debt issuance costs 2000 10,694 $16.64 Feb. 2000 $ 178,000 Equity financing A Additional paid in capital 2000 20,076 $ 0.43 On milestones from Nov. 1999 $ 604,000 Nonemployee services B Operating expense 2001 5,000 $34.75 January 2001 $ 140,119 Nonemployee services C Operating expense 2001 5,000 $18.25 April 2001 $ 73,883 Nonemployee services C Operating expense |
The fair value of the warrants was calculated using the Black-Scholes option pricing model and the following assumptions:
Risk Dividend Contractual Free Rate Yield Volatility Life --------- -------- ---------- ------------ A................................. 6% -- 60% 1 to 7 years B................................. 6% -- 80% 10 years C................................. 6% -- 110% 5 years |
(g) Stock Plans
The Company is authorized to issue up to 54,449,477 shares of common stock in connection with its 1995 plan (formerly the Software.com, Inc. 1995 Stock Plan) and its 1996 plan (formerly the Phone.com, Inc. 1996 Stock Plan) (collectively the 1995 and 1996 Stock Plans) to directors, employees and consultants. The 1995 and 1996 Stock Plans provide for the issuance of stock purchase rights, incentive stock options, or nonstatutory stock options.
Under the 1995 and 1996 Stock Plans, the exercise price for incentive stock options is at least 100% of the fair market value of the Company's stock on the date of grant for employees owning less than 10% of the voting power of all classes of stock, and at least 110% of the fair market value on the date of grant for employees owning more than 10% of the voting power of all classes of stock. For nonstatutory options granted under the 1995 and 1996 Stock Plans, the exercise price is determined by the Board of Directors except that in the case of a nonstatutory option intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, the exercise price shall be no less than 100% of the fair market value of the stock on the date of grant.
Under the 1995 and 1996 Stock Plans, options generally expire ten years from the date of grant; however, the term of incentive stock options may be limited to five years if the optionee owns stock representing more than 10% of the voting power of all classes of stock. Vesting periods are determined by the Board of Directors and generally provide for shares to vest over a period of four years at 25% per year. As of June 30, 2001, there were a total of 798,131 shares available for grant under the 1995 and 1996 Stock plans.
In March 1999, the Company adopted the Openwave Systems Inc. 1999 Directors' Stock Option Plan (the Directors' Stock Plan) which provides for the grant of nonstatutory stock options to non-employee directors. Under the Directors' Stock Plan, a total of 1,200,000 shares of the Company's common stock have been reserved for issuance. Each non-employee director who becomes a member of the Board of Directors will initially be granted an
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
option to purchase 66,666 shares of the Company's common stock and thereafter an option to purchase an additional 5,000 shares of the Company's common stock on the first Board of Directors meeting date of each calendar quarter. Options granted under the Directors' Stock Plan vest immediately upon grant. The exercise price of options granted under the Directors' Stock Plan is equal to the fair market value of the Company's common stock on the date of grant. Under the Directors' Stock Plan, options have a term of five years. As of June 30, 2001 there were 1,160,000 shares available for grant under the Directors' Stock Plan.
In June 2001, the Company adopted the Openwave Systems Inc. 2001 Stock Compensation Plan (the 2001 Stock Plan). The 2001 Stock Plan provides for the issuance of nonstatutory stock options and stock purchase rights to directors, employees and consultants of the Company. The 2001 Stock Plan serves as the successor to certain plans of the Company and plans acquired by the Company including the Phone.com, Inc. 2000 Non-Executive Stock Option Plan, the Phone.com, Inc. 1995 Stock Plan, the Software.com, Inc. 2000 Nonstatutory Stock Option Plan, the Arabesque Communications, Inc, 1998 Stock Plan, the MyAble, Inc. 1999 Stock Plan, the Onebox.com, Inc. 1999 Stock Plan, the AtMobile.com, Inc. Amended and Restated 1997 Stock Option Plan, the bCandid Corporation 1999 Equity Incentive Plan, and the Mobility Net Corporation 1999 Stock Option Plan (the Predecessor Plans). No further grants will be made under the Predecessor Plans, however, each outstanding option granted under a Predecessor Plan shall continue to be governed by the terms and conditions of the Predecessor Plan under which it was granted.
A total of 6,228,135 shares of common stock have been reserved for issuance under the 2001 Stock Plan comprised of the sum of 4,500,000 newly reserved shares and the aggregate number of shares available for issuance under the Predecessor Plans.
Under the 2001 Stock Plan, the exercise price for nonstatutory options is determined by the Plan Administrator and may be above or below the fair market value of the Company's common stock on the date of grant. Options issued under the 2001 Stock Plan generally expire ten years from the date of grant. Vesting periods are determined by the Plan Administrator and generally provide for shares to vest over a period of four years at 25% per year. As of June 30, 2001, there were 6,228,135 shares available for grant under the 2001 Stock Plan.
The following table summaries the number of common shares available for issuance under the plans stated above as of June 30, 2001:
1995 and 1996 Stock Plans...................................... 798,131 Directors' Stock Plan.......................................... 1,160,000 2001 Stock Plan................................................ 6,228,135 --------- 8,186,266 ========= |
Stock Purchase Rights
Certain outstanding stock purchase rights are subject to a restricted stock purchase agreement whereby the Company has the right to repurchase the stock upon the voluntary or involuntary termination of the purchaser's employment with the Company at the purchaser's exercise price. The Company's repurchase right lapses at a rate determined by the stock plan administrator but at a minimum rate of 20% per year. Through June 30, 2001, the Company has issued 3,103,844 shares under restricted stock purchase agreements, of which 908,334 shares have
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
been repurchased and 269,708 shares remain subject to repurchase at a weighted- average purchase price of $0.34 per share. Certain of these restricted shares were issued to officers of the Company for full recourse promissory notes with interest rates ranging from 5.49% to 6.48%. All such promissory notes were issued prior to December 31, 2000.
The Company also has certain outstanding stock purchase rights in connection with the early exercise of stock options prior to vesting. Through June 30, 2001, the Company has issued 1,398,592 shares in connection with the exercise of unvested stock options, of which 42,608 shares have been repurchased and 307,504 shares remain subject to repurchase at a weighted-average purchase price of $1.42 per share.
Employee Stock Purchase Plans
In March 1999, the Company adopted the 1999 Openwave Systems Inc. Employee Stock Purchase Plan, formerly the Phone.com Purchase Plan (the Openwave Purchase Plan). A total of 1,200,000 shares of common stock were initially reserved for issuance under the Openwave Purchase Plan. The Openwave Purchase Plan provides for an automatic annual increase on the first day of the Company fiscal years beginning in 2000 through 2004 equal to the lesser of 1,000,000 shares or 1% of the Company's outstanding common stock on the last day of the immediately preceding fiscal year.
The Openwave Purchase Plan is intended to qualify under Section 423 of the Internal Revenue Code and contains four six-month purchase periods within twenty-four month offering periods. Eligible employees may purchase common stock through payroll deductions of up to 20% of compensation. The price of common stock purchased under the Openwave Purchase Plan is the lower of 85% of the fair market value of the Company's common stock at the beginning of the offering period and the end of each purchase period.
For the year ended June 30, 2001, employees purchased 779,425 shares of common stock at an average price of $13.72 per share under the Openwave Purchase Plan. As of June 30, 2001, 1,778,963 shares remained available for future issuance under the Openwave Purchase Plan.
In May 1999, Software.com adopted the 1999 Software.com, Inc. Employee Stock Purchase Plan (the Software Purchase Plan) intended to qualify under Section 423 of the Internal Revenue Code. A total of 1,610,500 shares of common stock were reserved for issuance under the Software Purchase Plan. Per the terms of the merger agreement with Phone.com, the last purchase under the Software Purchase Plan concluded on April 30, 2001 after which the Software Purchase Plan was suspended. The Software Purchase Plan contained four six-month purchase periods within twenty-four month offering periods. Under the Software Purchase Plan, eligible employees were permitted to purchase common stock of the Company through payroll deductions of up to 20% of compensation at a price equal to the lower of 85% of the fair market value of the Company's common stock at the beginning of the offering period and the end of each purchase period.
For the year ended June 30, 2001, employees purchased 553,003 shares of common stock at an average price of $11.44 per share under the Software Purchase Plan. As of June 30, 2001, no shares remained available for future issuance under the Software Purchase Plan.
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(i) Stock-Based Compensation
The Company uses the intrinsic-value method in accounting for its employee stock-based compensation plans. With respect to the stock options granted and restricted stock sold from October 1997 to June 1999, the Company recorded deferred stock-based compensation of approximately $4.7 million for the difference, if any, at the grant or issuance date between the exercise price of each stock option granted or purchase price of each restricted share sold and the fair value of the underlying common stock. This amount is being amortized on an accelerated basis over the vesting period, generally four to five years, consistent with the method described in FIN 28. During the year ended June 30, 2000, the Company recorded additional deferred stock-based compensation of approximately $8.0 million in conjunction with its acquisitions of APiON, Angelica, Telarc, and Velos (see Note 2(b)). During the years ended June 30, 2000, and 2001, the Company also recorded deferred stock-based compensation in the amount of $2.8 million and $7.8 million, respectively, for stock issued to employees at below fair market value at the time of the grant, which is being amortized over the vesting period of 48 months and 42 months, respectively, consistent with the method described in FIN 28.
During the year ended June 30, 2001, the CEO cancelled his option to purchase 6,000,000 shares of the Company's common stock. In exchange for the cancelled options, the Compensation Committee of the Board granted to the CEO a right to the future grant of an option to purchase 5,800,000 shares of the Company's common stock (the "Future Grant"), provided that he continues as an employee of the Company through and including the grant date of the Future Grant.
The Future Grant will be made on a date that falls between six and seven months from the April 12 cancellation date and will have an exercise price set at the then fair market value of the common stock. The new options will have the same vesting schedule and vesting commencement date as the cancelled options. The Company expects that there will be no accounting charges to the Company as a result of the Future Grant to the CEO.
On April 12, 2001, the Compensation Committee of the Board granted to the CEO 200,000 restricted shares of the Company's Common Stock. The restricted shares will vest as to 29,166 shares on May 12, 2001, and the remaining 170,834 shares in equal monthly installments through October 12, 2004. On the date of grant the Company recorded stock-based compensation expense of approximately $800,000 and deferred compensation related to the restricted stock grants of $4.6 million.
During the year ended June 30, 2001, an employee of the Company rescinded the exercise of an option to purchase 114,000 shares of the Company's common stock. The effect of the rescission was not material.
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Had compensation costs been determined in accordance with SFAS No. 123 Accounting for Stock-Based Compensation, for all of the Company's stock-based compensation plans, net loss attributable to common stockholders and basic and diluted net loss per share attributable to common stockholders would have been as follows (in thousands, except per share data):
Years ended June 30, -------------------------------- 2001 2000 1999 ----------- --------- -------- Net loss attributable to common stockholders: As reported............................... $ (689,994) $(288,257) $(37,440) Pro forma................................. $(1,142,126) $(397,732) $(45,193) Basic and diluted net loss per share attributable to common stockholders: As reported............................... $ (4.17) $ (2.06) $ (0.52) Pro forma................................. $ (6.90) $ (2.85) $ (0.63) |
The fair value of each option was estimated on the date of grant using the minimum value method prior to the IPO and the Black-Scholes option pricing model after the IPO, with no expected dividends and the following weighted- average assumptions:
Openwave Option Plan Years ended June 30, ---------------- 2001 2000 1999 ---- ---- ---- Expected Life (years)......................................... 3.50 3.59 3.36 Risk-Free interest rate....................................... 5.27% 6.32% 5.41% Volatility.................................................... 110% 103% 53% |
Under SFAS 123, the weighted average fair value of stock options granted were:
Openwave Option Plan Years ended June 30, ------------------- 2001 2000 1999 ------ ------ ----- Weighted average fair value................................ $42.13 $52.37 $4.71 |
The fair value of purchase rights granted under the Openwave Purchase Plan and the Software.com Purchase Plan was estimated on the date of grants using the Black-Scholes option-pricing model with no expected dividends and the following weighted-average assumptions.
Openwave Software.com Purchase Plan Purchase Plan Years ended Years ended June 30, June 30, -------------- -------------- 2001 2000 2001 2000 ------ ------ ------ ------ Expected Life (years)........................... six-months to six-months two year to two year Risk-Free interest rate......................... 3.82% 5.53% 5.99% 5.99% Volatility...................................... 110% 110% 110% 90% |
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Under SFAS 123, the weighted average fair values of purchase rights granted were:
Openwave Software.com Purchase Plan Purchase Plan Years ended Years ended June 30, June 30, ------------- ------------- 2001 2000 2001 2000 ------ ------ ------ ------ Weighted average fair value......................... $21.31 $27.88 $25.09 $34.73 |
A summary of the status of the Company's options under its stock option plans is as follows (in thousands, except per share data):
Years ended June 30, ----------------------------------------------------- 2001 2000 1999 ----------------- ----------------- ----------------- Weighted- Weighted- Weighted- average average average exercise exercise exercise Shares price Shares price Shares price ------ --------- ------ --------- ------ --------- Outstanding at beginning of year................. 28,503 $28.89 24,649 $ 4.11 18,072 $1.46 Granted.................. 23,921 57.55 10,297 73.15 10,459 7.75 Assumed under purchase acquisitions............ -- -- 883 7.40 -- -- Cancelled................ (9,544) 71.30 (618) 41.38 (1,445) 1.77 Exercised................ (7,494) 3.98 (6,708) 1.79 (2,437) 1.48 ------ ------ ------ Outstanding at end of year.................... 35,386 $42.10 28,503 $28.89 24,649 $4.11 ====== ====== ====== Options exercisable at end of year............. 7,627 $36.21 5,841 $ 4.30 2,018 $0.79 ====== ====== ====== Weighted-average exercise prices equal to fair value at date of grant.. 23,699 $42.13 10,297 $52.38 9,499 $4.70 Weighted-average exercise prices less than fair value at date of grant.. 222 $ 8.23 -- $ -- 960 $1.48 |
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of June 30, 2001, the range of exercise prices and weighted-average remaining contractual life of outstanding options were as follows (number of options in thousands):
Weighted- average Weighted- Weighted- remaining average Number average Exercise Number contractual exercise of shares exercise price outstanding life (years) price exercisable price -------- ----------- ------------ --------- ----------- --------- $ 0.01--0.43 800 7.32 $ 0.26 571 $ 0.22 0.60--1.31 1,382 7.05 1.17 390 1.18 1.69--2.57 2,899 7.62 2.23 1,371 2.25 3.42--5.59 1,736 7.17 4.03 463 4.22 6.00--8.83 2,728 8.02 7.56 653 7.35 12.58--19.95 369 8.62 16.26 79 17.44 22.05--34.75 3,247 9.17 30.09 325 29.08 35.00 7,354 9.52 35.00 737 35.00 35.29--46.26 2,826 8.67 42.85 698 42.56 48.75--72.11 4,218 8.86 57.57 707 57.84 73.41--77.50 2,142 8.94 75.46 558 75.12 79.30--85.94 2,197 9.08 83.94 331 83.66 87.81--105.75 1,775 8.98 95.29 204 101.62 110.00--120.50 1,066 8.61 113.14 308 113.39 136.00--163.13 647 8.51 143.50 232 143.09 ------ ---- ------ ----- ------ 35,386 8.66 $42.10 7,627 $36.21 ====== ==== ====== ===== ====== |
(6) Leases
In March 2000, the Company entered into a lease for approximately 280,000 square feet of office space in Redwood City, California. Lease terms require a base rent of $3.25 per square foot per month as provided by the lease agreement and will increase by 3.5% annually on the anniversary of the initial month of the commencement of the lease. The lease is for a period of 12 years from the commencement date of the lease. The agreement required that the Company provide a letter of credit in the amount of $16.5 million. As of June 30, 2000, the Company guaranteed the letter of credit and pledged approximately $20.7 million, or 125% of the letter of credit, of cash equivalents and investments to be held in trust as security for the letter of credit. The restricted cash and investments held in trust under this agreement earned approximately 4.7% interest and the resulting income earned is not subject to any restrictions. The lease further required that the Company pay leasehold improvements which totaled $29.3 million as of June 30, 2001.
The Company also has numerous facility operating leases in other locations in the United States as well as other locations throughout the world. The Company also has various capital lease agreements.
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Annual minimum commitments for the noncancelable operating and capital leases as of June 30, 2001, net of sublease payments, are as follows (in thousands):
Year ending Capital Operating June 30, leases leases ----------- ------- --------- 2002................................................. $1,326 $ 22,001 2003................................................. 541 21,810 2004................................................. -- 21,521 2005................................................. -- 18,911 2006................................................. -- 16,715 Thereafter........................................... -- 89,165 ------ -------- Total minimum lease and principal payments........... 1,867 $190,123 ======== Amount representing imputed interest................. 402 ------ Present value of future lease payments............... 1,465 Current portion of capital lease obligations......... 1,265 ------ Noncurrent portion of capital lease obligations...... $ 200 ====== |
Future minimum lease payments under the operating leases have been reduced for the sublease rental income of approximately $3,144,000, $2,755,000, $1,591,000, and $1,512,000 for the years ending June 30, 2002, 2003, 2004, 2005, respectively. Rent expense for the years ended June 30, 2001, 2000, and 1999, was approximately $19.1 million, $9.1 million, and $3.6 million, respectively, net of sublease income of $1.1 million, $827,000, and $1.5 million, for the years ended June 30, 2001, 2000, and 1999, respectively.
(7) Income Taxes
The components of the Company's total income (loss) before provision for income taxes are as follows:
Year Ended June 30, ------------------------------ 2001 2000 1999 --------- --------- -------- (in thousands) United States of America........................ $(804,651) $(304,597) $(42,632) Foreign......................................... 127,645 18,359 7,911 --------- --------- -------- $(677,006) $(286,238) $(34,721) ========= ========= ======== |
The provision for income taxes are primarily comprised of current foreign tax.
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following reconciles the expected corporate federal income tax expense (computed by multiplying the Company's loss before income taxes by the statutory income tax rate of 34%) to the Company's income tax expense (in thousands):
Year Ended June 30, ----------------------------- 2001 2000 1999 --------- -------- -------- Federal tax at statutory rate................... $(230,182) $(97,321) $(11,616) Net operating losses not benefited.............. 49,125 11,397 8,902 Foreign tax rate differential................... 7,413 1,962 2,414 Goodwill amortization........................... 154,488 69,924 -- In process research and development............. -- 9,418 1,551 Merger, integration, and acquisition costs...... 30,302 3,301 -- Other........................................... 1,842 3,338 1,065 --------- -------- -------- Total tax expense............................. $ 12,988 $ 2,019 $ 2,316 ========= ======== ======== |
The tax effect of temporary differences that give rise to significant portions of the Company's deferred tax assets and liabilities are as follows (in thousands):
June 30, --------------------- 2001 2000 ---------- ---------- Deferred tax assets: Net operating loss carryforwards....................... $ 276,918 $ 135,444 Accruals and reserves not deductible for tax purposes.. 14,502 13,456 Property and equipment................................. 752 462 Start-up expenditures capitalized for tax purposes..... -- 129 Deferred stock-based compensation...................... 1,221 1,424 Research and development credit and other credits carryforwards......................................... 20,110 9,819 Intangibles related to acquisitions.................... 128,602 -- ---------- ---------- Total deferred tax assets............................ 442,105 160,734 Less: valuation allowance................................ (431,880) (130,767) ---------- ---------- Net deferred tax assets.............................. 10,225 29,967 Deferred tax liabilities: Intangibles related to acquisitions.................... (10,225) (29,967) ---------- ---------- Total deferred tax liabilities....................... (10,225) (29,967) ---------- ---------- Net deferred tax assets (liabilities)................ $ -- $ -- ========== ========== |
The Company's deferred tax liabilities resulted from its acquisitions during the year ended June 30, 2000, due to a difference in the financial statement basis and tax basis of net assets acquired.
In light of the Company's recent history of operating losses, the Company has recorded a valuation allowance for all of its deferred tax assets, except to the extent of deferred tax liabilities, as it is presently unable to conclude that it is more likely than not that deferred tax assets in excess of deferred tax liabilities will be realized.
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Approximately $196.7 million of the valuation allowance for deferred tax assets relating to net operating loss carryforwards is attributable to employee stock option deductions, the benefit from which will be allocated to additional paid- in capital rather than current earnings when and if subsequently realized. The benefit from approximately $7.6 million of the total $19.4 million valuation allowance for deferred tax assets related to research and development credit carryforwards will be allocated to additional paid-in capital rather than current earnings when and if subsequently realized.
As of June 30, 2001, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $744 million and $323 million, respectively. In addition, the Company has federal and California research and development credit carryforwards of approximately $12.4 million and $10.7 million, respectively. The federal net operating loss carryforwards and research and development credit carryforwards will expire from 2011 through 2021. The California net operating loss carryforwards will expire from 2004 through 2011.
The Tax Reform Act of 1986 imposes substantial restrictions on the utilization of net operating losses and tax credits in the event of an "ownership change" as defined. Some of the U.S. federal and California net operating loss carryforwards are subject to limitation as a result of these restrictions. The ownership change restrictions are not expected to impair the Company's ability to utilize the affected carryforward items. If there should be a subsequent ownership change, as defined, of the Company, its ability to utilize its carryforwards could be reduced.
(8) Geographic, Segment, Significant Customer Information
The Company's chief operating decision maker is considered to be the Company's Chief Executive Officer (CEO). The CEO reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenues by geographic region and by product for purposes of making operating decisions and assessing financial performance.
Prior to its merger with Software.com, the Company organized its operations based on a single operating segment: software that enables the delivery of Internet-based services to mass-market wireless telephones and related services. As a result of the merger with Software.com, the Company revised the operating segment to provide a structure that would facilitate the effective management of the combined business. The Company continues to operate in one distinct operating segment: the development and delivery of applications, infrastructure software, and customer services for communication service providers.
The Company also reorganized its product categories to reflect the new product
categories that were present subsequent to the merger. The disaggregated
information reviewed on a product category basis by the CEO includes:
Applications, Infrastructure Software, and Customer Services.
Applications enable end users to exchange electronic mail, facsimile, voice mail and multimedia messages from PC's, wireline telephones and mobile devices. The Company's applications also include, but are not limited to, e-mail and unified messaging products.
Infrastructure software contains the foundation software required to enable Internet connectivity to mobile devices and to build a rich set of applications for mobile users. Infrastructure software includes, but is not limited to, Mobile Access Gateway and Mobile Browser. One set of infrastructure software provides mobile location and
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
presence information and a directory that serves as a standards-based repository of information about users and devices in the network. In addition, another set of infrastructure software for mobile devices and PC's enables Internet connectivity, Web browsing and synchronization of information among networks, mobile devices and PC's, using a variety of protocols.
Finally, Customer Services are services provided by the Company to customers to help them design, install, deploy, manage, maintain and support its products and overall Internet implementations.
The disaggregated information reviewed on a product basis by the CEO is as follows (in thousands):
Years ended June 30, ------------------------- 2001 2000 1999 -------- -------- ------- Revenue: Applications....................................... $139,459 $ 51,759 $27,006 Infrastructure software............................ 205,548 41,710 5,278 Customer services.................................. 120,251 52,939 28,099 -------- -------- ------- $465,258 $146,408 $60,383 ======== ======== ======= |
The Company markets its products primarily from its operations in the United States. International sales are primarily to customers in Asia Pacific and Europe. Information regarding the Company's revenues in different geographic regions is as follows (in thousands):
Years ended June 30, ------------------------- 2001 2000 1999 -------- -------- ------- Americas............................................. $186,217 $ 59,906 $29,317 Europe, Middle East, Africa.......................... 139,904 39,713 18,649 Asia Pacific......................................... 139,137 46,789 12,417 -------- -------- ------- $465,258 $146,408 $60,383 ======== ======== ======= |
Information regarding the Company's revenues in different countries is as follows (in thousands):
Years ended June 30, ------------------------- 2001 2000 1999 -------- -------- ------- United States........................................ $155,901 $ 54,949 $26,771 Japan................................................ 102,193 27,098 6,703 United Kingdom....................................... 80,415 9,857 2,966 Other foreign countries.............................. 126,749 54,504 23,943 -------- -------- ------- $465,258 $146,408 $60,383 ======== ======== ======= |
The Company's long lived assets residing in countries other than in the United States are insignificant and thus have not been disclosed.
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant customer information is as follows:
% of Total Revenue % of Total Years ended June 30, Accounts ---------------------- Receivables 2001 2000 1999 June 30, 2001 ------ ------ ------ ------------- Customer: A.......................................... 2% 5% 21% 1% B.......................................... 14% -- -- 17% C.......................................... 15% -- -- 1% |
(9) Related Party Transactions
For the years ended June 30, 2001, 2000, and 1999, revenues from companies affiliated with AT&T Corporation, which is considered a related party due to its involvement with AT&T Ventures, a stockholder, totaled approximately $9.0 million, $4.1 million, and $4.3 million, respectively. As of June 30, 2001 and 2000, accounts receivable from such company totaled approximately $1.8 million.
(10) Litigation
On February 2, 2001, a complaint, Leon Stambler v. RSA Security Inc., Verisign Inc., First Data Corporation, Openwave Systems Inc. and Omnisky Corporation, Civil Action No. 01-0065, was filed in the U.S. District Court for the district of Delaware against the Company and certain other companies. The complaint alleges that the defendants have infringed claims of one or more patents that Mr. Stambler asserts have been granted to him. On March 26, 2001, the Company responded to the complaint. The Company denied the allegations that the Company has infringed any claim in either of the patents asserted against the Company. In addition, the Company asserted counterclaims against Mr. Stambler seeking a declaratory judgment that the asserted patents are not infringed by the Company and that the patents are also invalid and unenforceable. Although the parties have exchanged some written discovery, discovery is still in its initial stages and no trial date has been set. Based on the facts known to date, the Company believes that it has meritorious defenses and claims. The Company is unable to estimate the range of potential loss, if any.
On April 30, 2001, a complaint, Opuswave Networks, Inc. v. Openwave Systems Inc. and Alain Rossmann, Civil Action No. 01-1681, was filed in the U.S. District Court for the Northern District of California against the Company and a former affiliate of the Company. The complaint alleges that the defendants have infringed claims of a common law trademark that plaintiff asserts it has acquired. On June 5, 2001, the Company responded to the complaint. The Company denied the allegations that the Company has infringed any trademark rights asserted against the Company. In addition, the Company asserted counter-claims against the plaintiff seeking a declaratory judgment that the asserted trademark rights are not infringed by the Company. On June 13, 2001, Opuswave Networks responded to the counter-claims denying its allegations. Discovery has not commenced and no trial date has been set. Based on the facts known to date, the Company believes that it has meritorious defenses and intends to defend this suit. The Company is unable to estimate the range of potential loss, if any.
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(11) Subsequent Event
a) Tender Offer
On August 2, 2001, the Company announced a voluntary stock option exchange program for its employees, except for the Company's Chief Executive Officer and employees located in Australia. Members of the Company's Board of Directors and consultants holding options also were ineligible to participate. Under the program, Company employees had the opportunity to surrender previously granted outstanding stock options in exchange for an equal or lesser number of replacement options to be granted at a future date. Options to acquire a total of 35,832,309 shares of the Company's common stock with exercise prices ranging from $163.13 to $0.01 were eligible to be exchanged under the program. The Offer was open until 5:00 p.m., Pacific Daylight Time, on September 17, 2001.
As a result of the stock option exchange program, the Company is obliged to grant replacement options to acquire approximately 16.7 million shares of the Company's common stock. The exercise price of the replacement options will be equal to the fair market value of the Company's common stock on the future date of grant, which will be an unspecified date falling between March 18, 2002, and April 18, 2002. The program required a participant electing to exchange any options to also exchange any other options granted to him or her during the six months before or after September 17, 2001. The stock option exchange program was designed to comply with Financial Accounting Standards Board Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation, and is not expected to result in any additional compensation charges or variable award accounting.
b) Acquisition
On July 13, 2001, the Company consummated an agreement to acquire Avogadro, Inc. (Avogadro), a telecommunications infrastructure software developer. In connection with the acquisition, the Company issued approximately 2,700,000 shares of the Company's common stock in exchange for all of the outstanding common stock and preferred stock of Avogadro, and the assumption of options and warrants.
c) Openwave Stock Repurchase Program
The Company announced that its Board of Directors has authorized a stock repurchase program of up to 5 million shares. Any purchases under the Company stock repurchase program may be made in the open market, in privately negotiated transactions, or through the use of derivative securities. As of September 24, 2001 the Company has 4.9 million shares still available for repurchase under the current plan. The Company has repurchased 100,000 shares at a weighed average price of $13.00 on the open market. The Company has also sold 3.5 million put warrants that entitle the holder of each warrant to sell to the company, by cash, physical delivery or net share settlement at the Company's election, one share of common stock at a specified price. The total obligation of the put warrants is $44.3 million. The cumulative net proceeds of the sale of 3.5 million put warrants total $10.5 million.
d) Executive Staff Changes and Additional Compensation
In August 2001 Kevin Kennedy, former senior vice president of Cisco Systems, joined the Company as Chief Operating Officer (COO).
Since June 30, 2001, in association with the addition of the COO and additional compensation to other named executives, the Compensation Committee of the Board granted 210,000 restricted shares of the Company's common stock. The restricted shares will vest through July 2003. On the date of grants the Company recorded stock-based compensation of approximately $300,000 and deferred stock-based compensation of $2.8 million.
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(12) Quarterly Financial Information (unaudited)
The following is a summary of the Company's unaudited quarterly financial information for the most recent two fiscal years.
The Company has restated its consolidated statements of operations to reflect the November 17, 2000 merger with Software.com. The Company restated its consolidated financial statements for such periods to reflect that the merger was accounted for as a pooling-of-interests. The Company's restated quarterly consolidated financial position and statements of operations as of and for each of the quarterly periods in the year ended June 30, 2000, and the quarters ended December 31, and September 30, 2000 are as follows (in thousands, except per share amounts):
June 30, March 31, Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 2001 2001 2000 2000 2000 2000 1999 1999 ----------- ---------- ---------- ---------- ---------- ---------- --------- --------- (unaudited) ASSETS ------ Current assets Cash and cash equivalents........... $ 161,987 $ 166,064 $ 154,689 $ 142,277 $ 120,585 $ 183,993 $ 324,151 $ 79,391 Short-term investments........... 186,506 194,314 280,540 362,874 402,422 403,433 254,291 110,589 Accounts receivable, net................... 153,701 117,654 114,449 103,240 77,385 62,111 34,618 24,800 Prepaid expenses and other current assets................ 14,364 11,928 13,574 21,194 11,499 6,590 4,677 2,692 ----------- ---------- ---------- ---------- ---------- ---------- --------- -------- Total current assets.............. 516,558 489,960 563,252 629,585 611,891 656,127 617,737 217,472 Property and equipment, net.................... 98,582 91,421 68,425 40,336 34,824 25,449 14,974 10,826 Long-term and restricted cash and investments... 41,873 20,700 20,700 20,700 20,700 -- -- -- Deposits and other assets................. 11,774 11,760 7,157 3,989 5,880 3,897 2,380 1,930 Goodwill and other intangible assets, net.................... 1,056,928 1,215,697 1,374,786 1,529,590 1,687,930 941,750 239,900 -- ----------- ---------- ---------- ---------- ---------- ---------- --------- -------- $ 1,725,715 $1,829,538 $2,034,320 $2,224,200 $2,361,225 $1,627,223 $ 874,991 $230,228 =========== ========== ========== ========== ========== ========== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY -------------------- Current liabilities Current portion of capital lease obligations and long- term debt............. $ 1,776 $ 2,808 $ 2,929 $ 3,221 $ 3,367 $ 2,184 $ 1,607 $ 424 Accounts payable....... 20,600 7,306 10,614 10,045 14,176 9,446 6,470 8,491 Accrued liabilities.... 54,370 53,831 84,873 43,432 50,124 60,832 22,815 11,967 Deferred revenue....... 90,262 81,981 109,177 122,805 97,863 78,355 57,069 44,962 ----------- ---------- ---------- ---------- ---------- ---------- --------- -------- Total current liabilities......... 167,008 145,926 207,593 179,503 165,530 150,817 87,961 65,844 Capital lease obligations and long- term debt, less current portion................ 754 1,330 1,971 2,639 3,319 2,742 6,028 387 ----------- ---------- ---------- ---------- ---------- ---------- --------- -------- Total liabilities.... 167,762 147,256 209,564 182,142 168,849 153,559 93,989 66,231 ----------- ---------- ---------- ---------- ---------- ---------- --------- -------- Commitments and contingencies Stockholders' equity Common stock........... 170 167 166 165 161 147 137 128 Additional paid-in capital............... 2,623,466 2,602,286 2,594,537 2,585,229 2,569,416 1,673,948 905,476 255,229 Deferred stock-based compensation.......... (6,079) (2,810) (3,986) (5,196) (7,237) (8,066) (10,140) (2,293) Treasury stock......... -- -- -- -- -- (196) (196) (196) Accumulated other comprehensive income (loss)................ (247) (740) 289 (429) (561) (32) (6) -- Notes receivable from stockholders.......... (684) (139) (925) (1,011) (724) (837) (484) (484) Accumulated deficit.... (1,058,673) (916,482) (765,325) (536,700) (368,679) (191,300) (113,785) (88,387) ----------- ---------- ---------- ---------- ---------- ---------- --------- -------- Total stockholders' equity.............. 1,557,953 1,682,282 1,824,756 2,042,058 2,192,376 1,473,664 781,002 163,997 ----------- ---------- ---------- ---------- ---------- ---------- --------- -------- $ 1,725,715 $1,829,538 $2,034,320 $2,224,200 $2,361,225 $1,627,223 $ 874,991 $230,228 =========== ========== ========== ========== ========== ========== ========= ======== |
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Quarters ended ------------------------------------------------------------------------------------- June 30, March 31, Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 2001 2001 2000 2000 2000 2000 1999 1999 --------- --------- --------- --------- --------- --------- -------- --------- (unaudited) Revenues License................ $ 109,909 $ 98,021 $ 79,960 $ 57,100 $ 38,376 $ 25,270 $ 17,347 $12,133 Maintenance and support services...... 20,530 15,891 13,303 10,540 8,568 6,947 5,773 4,547 Professional services.............. 14,238 16,119 16,475 13,172 10,364 6,563 5,941 4,579 --------- --------- --------- --------- --------- -------- -------- ------- Total revenues....... 144,677 130,031 $ 109,738 $ 80,812 $ 57,308 $ 38,780 $ 29,061 $21,259 --------- --------- --------- --------- --------- -------- -------- ------- Cost of revenues License................ 5,758 4,334 6,214 5,639 3,490 1,198 966 1,088 Maintenance and support services...... 8,077 7,421 7,070 6,307 5,233 3,804 3,624 2,228 Professional services.............. 8,830 11,097 9,023 8,000 6,660 4,197 3,349 2,765 --------- --------- --------- --------- --------- -------- -------- ------- Total cost of revenues............ 22,665 22,852 22,307 19,946 15,383 9,199 7,939 6,081 --------- --------- --------- --------- --------- -------- -------- ------- Gross profit............ 122,012 107,179 87,431 60,866 41,925 29,581 21,122 15,178 --------- --------- --------- --------- --------- -------- -------- ------- Operating expenses Research and development........... 39,540 37,628 31,440 27,160 20,072 17,036 13,051 9,730 Sales and marketing.... 44,049 37,769 33,413 33,580 24,889 19,740 12,820 10,972 General and administrative........ 19,649 16,645 12,277 10,749 8,182 6,234 5,443 4,202 Stock-based compensation.......... 2,582 1,405 1,562 4,674 3,632 4,282 1,863 407 Amortization of goodwill and other intangible assets..... 158,828 159,309 159,731 158,414 152,923 49,720 13,971 -- In-process research and development....... -- -- -- -- 6,300 18,080 3,320 -- Merger, acquisition, and integration- related costs......... -- 5,756 83,094 -- 10,268 127 -- -- --------- --------- --------- --------- --------- -------- -------- ------- Total operating expenses............ 264,648 258,512 321,517 234,577 226,266 115,219 50,468 25,311 --------- --------- --------- --------- --------- -------- -------- ------- Operating loss....... (142,636) (151,333) (234,086) (173,711) (184,341) (85,638) (29,346) (10,133) Interest and other income, net............ 5,424 3,848 7,175 8,313 7,788 8,327 4,840 2,265 --------- --------- --------- --------- --------- -------- -------- ------- Loss before income taxes............... (137,212) (147,485) (226,911) (165,398) (176,553) (77,311) (24,506) (7,868) Income taxes............ (4,979) (3,672) (1,714) (2,623) (825) (204) (892) (98) --------- --------- --------- --------- --------- -------- -------- ------- Net loss ............ $(142,191) $(151,157) $(228,625) $(168,021) $(177,378) $(77,515) $(25,398) $(7,966) ========= ========= ========= ========= ========= ======== ======== ======= Basic and diluted net loss per share attributable to common stockholders........... $ (0.84) $ (0.91) $ (1.38) $ (1.04) $ (1.13) $ (0.56) $ (0.19) $ (0.06) ========= ========= ========= ========= ========= ======== ======== ======= Shares used in computing basic and diluted net loss per share attributable to common stockholders........... 168,833 166,943 165,088 162,026 156,971 139,215 132,251 128,444 ========= ========= ========= ========= ========= ======== ======== ======= |
OPENWAVE SYSTEMS INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance at Balance at beginning of year Additions Deductions end of year ----------------- --------- ---------- ----------- Allowance for doubtful accounts: Year ended June 30, 1999.................... $ 481 $ 790 $ 247 $ 1,024 Year ended June 30, 2000.................... $1,024 $ 1,425 $ 272 $ 2,177 Year ended June 30, 2001.................... $2,177 $19,597 $11,318 $10,456 |
EXHIBIT 2.1
AGREEMENT TO AMEND AGREEMENT AND PLAN OF MERGER
AGREEMENT TO AMEND AGREEMENT AND PLAN OF MERGER dated as of October 5, 2000, by and among Phone.com, Inc., a Delaware corporation ("Phone"), Silver Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Phone ("Sub"), and Software.com, Inc., a Delaware corporation ("Software").
WHEREAS, Phone, Sub and Software have entered into an Agreement and Plan of Merger, dated as of August 8, 2000, by and among Phone, Sub and Software (the "Merger Agreement"); and
WHEREAS, each of the respective Boards of Directors of Phone, Sub and Software has deemed it advisable and in the best interests of each of Phone, Sub and Software, respectively, and has resolved that the name of Phone from and after the Effective Time (as defined in the Merger Agreement) shall remain "Phone.com, Inc." until such time as the Board of Directors of Phone shall otherwise determine; and
WHEREAS, the respective Board of Directors of each of Phone, Sub and Software has deemed it advisable and in the best interests of each of Phone, Sub and Software, respectively, and has resolved that Phone will not amend the Phone ESPP (as defined in the Merger Agreement) to provide a special offering period that would permit Software.com employees to immediately participate in the Phone ESPP after the Effective Time; and
WHEREAS, each of the respective Boards of Directors of Phone, Sub and Software has deemed it advisable and in the best interests of each of Phone, Sub and Software, respectively, and has resolved that the Merger Agreement be amended to reflect the foregoing and certain other ministerial matters; and
WHEREAS, Section 7.3 of the Merger Agreement sets forth the manner in which the Merger Agreement may be amended.
NOW, THEREFORE, intending to be legally bound, the parties agree pursuant to
Section 7.3 of the Merger Agreement, to amend and modify the Merger Agreement
as set forth below to reflect the true intention and agreement of the parties:
Fifth recital ("Whereas" Amend the fifth recital ("Whereas" clause) to read clause) of the Merger in its entirety as follows "WHEREAS, the Board of Agreement Directors of Phone has resolved to recommend to Phone's stockholders the approval of the issuance of shares of Phone Common Stock (as hereinafter defined) pursuant to the Merger". Section 1.5 of the Merger Amend Section 1.5 to read in its entirety as Agreement follows: "At the Effective Time, subject to the requirements of Section 5.5, the certificate of incorporation and the by-laws of Merger Sub, as in effect immediately prior to the Effective Time, shall become the certificate of incorporation and by-laws of the Surviving Corporation, in each case until thereafter amended in accordance with applicable law, except that from and after the Effective Time, Article First of the certificate of incorporation shall read in its entirety as follows: "The name of the corporation is "Software.com, Inc.' (hereinafter, the "Corporation")." Section 2.1(d) of the Amend the heading in Section 2.1(d) to read in its Merger Agreement entirety as follows: (d) Assumption and Conversion of Software.com Options and Assumption of Software.com Stock Plans. Section 2.1(d)(ii) of the Amend the first sentence of Section 2.1(d)(ii) to Merger Agreement read in its entirety as follows: "As of the Effective Time, Phone shall assume in full each Software.com Option, all of the other rights and obligations of Software.com under the Software.com Stock Plans (as defined in Section 3.2(c)) as provided herein, and each Software.com Stock Plan." |
Section 2.1(e) of the Amend Section 2.1(e) by deleting the words: "; Merger Agreement provided, however, that Phone shall amend the Phone ESPP to provide for a special offering period that permits Software.com employees the ability to immediately participate in the Phone ESPP after the Effective Time, and that service with Software.com shall be treated as service with Phone for determining eligibility of Software.com's employees under the Phone ESPP" at the end of Section 2.1(e). Section 2.2(e)(ii) of the Amend Section 2.2(e)(ii) to read in its entirety Merger Agreement as follows: "Notwithstanding any other provision of this Agreement, each holder of shares of Software.com Common Stock converted pursuant to the Merger who would otherwise have been entitled to receive a fraction of a share of Phone Common Stock (after taking into account all Certificates delivered by such holder) shall receive, in lieu thereof, cash (without interest) in an amount equal to (i) such fraction multiplied by (ii) the average of the closing price of a share of Phone Common Stock for the ten (10) most recent trading days that Phone Common Stock has traded ending on the trading day immediately prior to the Effective Time, as reported on the Nasdaq National Market." Section 3.1(l) of the Amend Section 3.1(l) to read in its entirety as Merger Agreement follows: "The affirmative vote at the Phone Stockholders' Meeting (the "Phone Stockholder Approval") of the holders of a majority of all outstanding shares of Phone Common Stock present in person or by proxy and entitled to vote at a duly convened and held meeting of Phone stockholders to approve the issuance of shares of Phone Common Stock pursuant to the Merger is the only vote of the holders of any class or series of Phone's capital stock necessary to adopt this Agreement and approve the transactions contemplated hereby." Section 4.2(b) of the Amend Section 4.2(b) by deleting the words: "or Merger Agreement the Charter Amendment" at the end of clause (i). Section 5.1(b) of the Amend Section 5.1(b) by deleting the words: "and Merger Agreement the Phone Charter Amendment" at the end of Section 5.1(b). Add new Section 5.18 to Add a new Section 5.18 to read in its entirety as the Merger Agreement follows: "SECTION 5.18 Name of Phone. The parties agree that after the Effective Time, the name of Phone shall continue to be 'Phone.com, Inc.' until the Board of Directors of Phone shall otherwise determine." Section 7.1(e) of the Amend Section 7.1(e) by deleting the words: "and Merger Agreement the Charter Amendment" at the end of the clause (i)(A). |
Capitalized terms used herein and not defined herein shall have the meanings ascribed thereto in the Merger Agreement.
This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflict of laws thereof, and constitutes the entire agreement of Phone, Sub and Software with respect to the matters set forth herein. In the event of any conflict or inconsistency between the provisions of this Agreement and the provisions of the Merger Agreement, the provisions of this Agreement shall govern. Each and every other term, condition, covenant, representation, warranty and provision set forth in the Merger Agreement shall remain in full force and effect. All references to the Merger Agreement in any other agreement or document shall hereinafter be deemed to refer to the Merger Agreement as amended hereby.
Any amendment to or modification of this Agreement shall be effected in accordance with the provisions of Section 7.3 of the Merger Agreement.
This Agreement shall be effective as of the date first above written.
Phone.com, Inc.
/s/ Alan Black By: ---------------------------------- Name: Alan Black Title: Senior Vice President, Corporate Affairs and Chief Financial Officer |
Silver Merger Sub Inc.
/s/ Linda Speer By: ---------------------------------- Name: Linda R. Speer Title: Vice President |
Software.com, Inc.
/s/ Craig Shelburne By: ---------------------------------- Name: Craig A. Shelburne Title: Senior Vice President and General Counsel |
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
OPENWAVE SYSTEMS INC. (AS AMENDED)
ARTICLE I
The name of this corporation is Openwave Systems Inc. (the "Corporation").
ARTICLE II
The address of the registered office of the Corporation in the State of Delaware is:
The Corporation Trust Company
1209 Orange Street
Wilmington, DE 1980
County of New Castle
The name of the Corporation's registered agent at said address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.
ARTICLE IV
(A) CLASSES OF STOCK. The Corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the Corporation is authorized to issue is 1,005,000,000 shares, each with a par value of $0.001 per share. 1,000,000,000 of such shares shall be Common Stock, and 5,000,000 of such shares shall be Preferred Stock.
(B) The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized, within the limitations and restrictions stated in this Certificate of Incorporation, to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and the number of shares constituting any such series and the designation thereof, or any of them; and to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.
ARTICLE V
The number of directors of the Corporation shall be fixed from time to time by a bylaw or amendment thereof duly adopted by the Board of Directors.
ARTICLE VI
"Listing Event" as used in this Amended and Restated Certificate of
Incorporation shall mean the first annual meeting of stockholders following such
time as the Corporation meets the criteria set forth in subdivisions (1), (2) or
(3) of Section 2115(c) the California Corporations Code as of the record date of
such meeting.
For the management of the business and for the conduct of the affairs of the Corporation, and in further definition, limitation and regulation of the powers of the Corporation, its directors and its stockholders or any class thereof, as the case may be, it is further provided that, effective upon the occurrence of the Listing Event:
(i) The number of directors which shall constitute the entire Board of Directors, and the number of directors in each class, shall be fixed exclusively by one or more resolutions adopted from time to time by the Board of Directors. The Board of Directors shall be divided into three classes, designated as Class I, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. Until changed by a resolution of the Board of Directors, Class I shall consist of two directors, each of whom shall be designated by the Board of Directors; Class II shall consist of two directors, each of whom shall be designated by the Board of Directors; and Class III shall consist of one director, each of whom shall be designated by the Board of Directors.
Upon the occurrence of the Listing Event, the terms of office of the Class I directors shall expire, and Class I directors shall be elected for a full term of three years. At the first annual meeting of stockholders following the Listing Event, the term of office of the Class II directors shall expire, and Class II directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the Listing Event, the term of office of the Class III directors shall expire, and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting.
Any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal, or other causes shall be filled by either (i) the affirmative vote of the holders of a majority of the voting power of the then-outstanding shares of voting stock of the corporation entitled to vote generally in the election of directors (the "Voting Stock") voting together as a single class; or (ii) by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such newly created directorship shall be filled by the
stockholders, be filled only by the affirmative vote of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified.
(ii) There shall be no right with respect to shares of stock of the Corporation to cumulate votes in the election of directors.
(iii) Any director, or the entire Board of Directors, may be removed from office at any time (i) with cause by the affirmative vote of the holders of at least a majority of the voting power of the then-outstanding shares of the Voting Stock, voting together as a single class; or (ii) without cause by the affirmative vote of the holders of at least 66-2/3% of the voting power of the then-outstanding shares of the Voting Stock.
ARTICLE VII
No action shall be taken by the stockholders of the Corporation other than at an annual or special meeting of the stockholders, upon due notice and in accordance with the provisions of the Corporation's bylaws.
ARTICLE VIII
The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
ARTICLE IX
The Board of Directors of the Corporation is expressly authorized to make, alter or repeal Bylaws of the Corporation.
ARTICLE X
Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.
ARTICLE XI
The Corporation shall have perpetual existence.
ARTICLE XII
(A) To the fullest extent permitted by the General Corporation Law of Delaware, as the same may be amended from time to time, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law of Delaware is hereafter amended to authorize, with the approval of a corporation's stockholders, further reductions in the liability of the Corporation's directors for breach of fiduciary duty, then a director of the Corporation shall not be liable for any such breach to the fullest extent permitted by the General Corporation Law of Delaware, as so amended.
(B) Any repeal or modification of the foregoing provisions of this Article XII shall not adversely affect any right or protection of a director of the Corporation with respect to any acts or omissions of such director occurring prior to such repeal or modification.
ARTICLE XIII
(A) To the fullest extent permitted by applicable law, the Corporation is also authorized to provide indemnification of (and advancement of expenses to) such agents (and any other persons to which Delaware law permits the Corporation to provide indemnification) though bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the Delaware General Corporation Law, subject only to limits created by applicable Delaware law (statutory or non-statutory), with respect to actions for breach of duty to a corporation, its stockholders, and others.
(B) Any repeal or modification of any of the foregoing provisions of this Article XIII shall not adversely affect any right or protection of a director, officer, agent or other person existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director, officer or agent occurring prior to such repeal or modification
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
OPENWAVE SYSTEMS INC.
TABLE OF CONTENTS Page ---- ARTICLE I - CORPORATE OFFICES.......................................... 1 1.1 Registered Office............................................ 1 1.2 Other Offices................................................ 1 ARTICLE II - MEETINGS OF STOCKHOLDERS.................................. 1 2.1 Place of Meetings............................................ 1 2.4 Manner of Giving Notice; Affidavit of Notice................. 3 2.5 Advance Notice of Stockholder Nominees....................... 3 2.6 Quorum....................................................... 4 2.7 Adjourned Meeting; Notice.................................... 4 2.8 Conduct of Business.......................................... 4 2.9 Voting....................................................... 5 2.10 Waiver of Notice............................................. 5 2.11 Record Date for Stockholder Notice; Voting................... 5 2.12 Proxies...................................................... 6 ARTICLE III - DIRECTOR................................................. 6 3.1 Powers....................................................... 6 3.2 Number of Directors.......................................... 6 3.3 Election, Qualification and Term of Office of Directors...... 6 3.4 Resignation and Vacancies.................................... 6 3.5 Place of Meetings; Meetings by Telephone..................... 7 3.6 Regular Meetings............................................. 8 3.7 Special Meetings; Notice..................................... 8 3.8 Quorum....................................................... 8 3.9 Waiver of Notice............................................. 8 3.10 Board Action by Written Consent without a Meeting............ 9 3.11 Fees and Compensation of Directors........................... 9 3.12 Approval of Loans to Officers................................ 9 3.13 Removal of Directors......................................... 9 3.14 Chairman of the Board of Directors........................... 10 ARTICLE IV - COMMITTEES................................................ 10 4.1 Committees of Directors...................................... 10 4.2 Committee Minutes............................................ 11 4.3 Meetings and Action of Committees............................ 11 ARTICLE V - OFFICERS................................................... 11 5.1 Officers..................................................... 11 5.2 Appointment of Officers...................................... 11 5.3 Subordinate Officers......................................... 11 |
TABLE OF CONTENTS
(continued)
Page ---- 5.4 Removal and Resignation of Officers.......................... 12 5.5 Vacancies in Offices......................................... 12 5.6 Chief Executive Officer...................................... 12 5.7 President.................................................... 12 5.8 Vice Presidents.............................................. 12 5.9 Secretary.................................................... 13 5.10 Chief Financial Officer...................................... 13 5.11 Representation of Shares of Other Corporations............... 13 5.12 Authority and Duties of Officers............................. 14 |
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS....................................................... 14
6.1 Indemnification of Directors and Officers.................... 14 6.2 Indemnification of Others.................................... 14 6.3 Payment of Expenses in Advance............................... 14 6.4 Indemnity Not Exclusive...................................... 15 6.5 Insurance.................................................... 15 6.6 Conflicts.................................................... 15 |
ARTICLE VII - RECORDS AND REPORTS...................................... 16
7.1 Maintenance and Inspection of Records........................ 16 7.2 Inspection by Directors...................................... 16 7.3 Annual Statement to Stockholders............................. 16 |
ARTICLE VIII - GENERAL MATTERS......................................... 16
8.1 Checks....................................................... 16 8.2 Execution of Corporate Contracts and Instruments............. 17 8.3 Stock Certificates; Partly Paid Shares....................... 17 8.4 Special Designation on Certificates.......................... 17 8.5 Lost Certificates............................................ 18 8.6 Construction; Definitions.................................... 18 8.7 Dividends.................................................... 18 8.8 Fiscal Year.................................................. 18 8.9 Seal......................................................... 19 8.10 Transfer of Stock............................................ 19 8.11 Stock Transfer Agreements.................................... 19 8.12 Registered Stockholders...................................... 19 ARTICLE IX - AMENDMENTS................................................ 19 |
AMENDED AND RESTATED
BYLAWS
OF
OPENWAVE SYSTEMS INC.
ARTICLE I
The address of the Corporation's registered office in the State of Delaware is 2711 Centerville Road, Suite 400, Wilmington, County of New Castle. The name of its registered agent at such address is The Prentice-Hall Corporation System, Inc.
The Board of Directors may at any time establish other offices at any place or places where the Corporation is qualified to do business.
ARTICLE II
Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the Board of Directors. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the Corporation.
(a) The annual meeting of stockholders shall be held each year on a date and at a time designated by the Board of Directors. At the meeting, directors shall be elected and any other proper business may be transacted.
(b) Nominations of persons for election to the Board of Directors of the
Corporation and the proposal of business to be transacted by the stockholders
may be made at an annual meeting of stockholders (i) pursuant to the
Corporation's notice with respect to such meeting, (ii) by or at the direction
of the Board of Directors or (iii) by any stockholder of the Corporation who was
a stockholder of record at the time of giving of the notice provided for in this
Section 2.2,
who is entitled to vote at the meeting and who has complied with the notice procedures set forth in this Section 2.2.
(c) In addition to the requirements of Section 2.5, for nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of paragraph (b) of this Section 2.2, the stockholder must have given timely notice thereof in writing to the secretary of the Corporation and such business must be a proper matter for stockholder action under the General Corporation Law of Delaware. To be timely, a stockholder's notice shall be delivered to the secretary at the principal executive offices of the Corporation not less than 20 days nor more than 90 days prior to the first anniversary of the preceding year's annual meeting of stockholders; provided, however, that in the event that the date of the annual meeting is more than 30 days prior to or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 20th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. Such stockholder's notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) as to any other business that the stockholder proposes to bring before the meeting, a brief description of such business, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (A) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner and (B) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner.
(d) Only such business shall be conducted at an annual meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 2.2. The chairman of the meeting shall determine whether a nomination or any business proposed to be transacted by the stockholders has been properly brought before the meeting and, if any proposed nomination or business has not been properly brought before the meeting, the chairman shall declare that such proposed business or nomination shall not be presented for stockholder action at the meeting.
(e) For purposes of this Section 2.2, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service.
(f) Nothing in this Section 2.2 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
(a) A special meeting of the stockholders may be called at any time by the Board of Directors, or by the chairman of the board, or by the president.
(b) Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to such notice of meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in Section 2.5, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in Section 2.5.
All notices of meetings of stockholders shall be in writing or given by electronic transmission in the manner provided in Section 232 of the General Corporation Law of Delaware, and shall be sent or otherwise given in accordance with this Section 2.4 of these Bylaws not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting (or such longer or shorter time as is required by Section 2.5 of these Bylaws, if applicable). The notice shall specify the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called.
Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
Only persons who are nominated in accordance with the procedures set forth in this Section 2.5 shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors or by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 2.5. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that less than 60 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person,
(iii) the class and number of shares of the Corporation which are beneficially owned by such person and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including, without limitation, such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such stockholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such stockholder. At the request of the Board of Directors any person nominated by the Board of Directors for election as a director shall furnish to the secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 2.5. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the Bylaws, and if he or she should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded.
The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (a) the chairman of the meeting or (b) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.
When a meeting is adjourned to another time or place, unless these Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including the manner of voting and the conduct of business.
(a) The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements).
(b) Except as may be otherwise provided in the Certificate of Incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder.
Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws.
In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. If the Board of Directors does not so fix a record date:
(a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.
(b) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by a written proxy, signed by the stockholder and filed with the secretary of the Corporation, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware.
ARTICLE III
Subject to the provisions of the General Corporation Law of Delaware and any limitations in the Certificate of Incorporation or these Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors.
The number of directors constituting the entire Board of Directors shall be six.
Except as provided in Section 3.4 of these Bylaws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the Certificate of Incorporation or these Bylaws, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal.
Elections of directors need not be by written ballot.
Any director may resign at any time upon written notice to the attention of the secretary of the Corporation. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies. A vacancy created by the
removal of a director by the vote of the stockholders or by court order may be filled only by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the quorum. Each director so elected shall hold office until the next annual meeting of the stockholders and until a successor has been elected and qualified.
Unless otherwise provided in the Certificate of Incorporation or these Bylaws:
(a) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director.
(b) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the Corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the Certificate of Incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole Board of Directors (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable.
The Board of Directors of the Corporation may hold meetings, both regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.
Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors.
Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered apersonally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the Corporation. If the notice is mailed, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by telegram, it shall be delivered personally or by telephone or to the telegraph company at least 48 hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the Corporation.
At all meetings of the Board of Directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. If a quorum is not present at any meeting of the Board of Directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.
A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.
Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws.
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Written consents representing actions taken by the board or committee may be executed by telex, telecopy or other facsimile transmission, and such facsimile shall be valid and binding to the same extent as if it were an original.
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. No such compensation shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.
The Corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Corporation or of its subsidiary, including any officer or employee who is a director of the Corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the Corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Nothing in this Section 3.2 contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Corporation at common law or under any statute.
Unless otherwise restricted by statute, by the Certificate of Incorporation or by these Bylaws, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that if the stockholders of the Corporation are entitled to cumulative voting, if less than the entire Board of Directors is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors.
No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office.
The Corporation may also have, at the discretion of the Board of Directors, a chairman of the Board of Directors who shall not be considered an officer of the Corporation.
ARTICLE IV
The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more committees, with each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors or in the Bylaws of the Corporation, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (a) amend the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), (b) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (c) recommend to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, (d) recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or (e) amend the Bylaws of the Corporation; and, unless the board resolution establishing the committee, the Bylaws or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware.
Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Section 3.5 (place of meetings and
meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting) of these Bylaws, with such changes in
the context of such provisions as are necessary to substitute the committee and
its members for the Board of Directors and its members; provided, however, that
the time of regular meetings of committees may be determined either by
resolution of the Board of Directors or by resolution of the committee, that
special meetings of committees may also be called by resolution of the Board of
Directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
ARTICLE V
The officers of the Corporation shall be a chief executive officer, a
president, a secretary, and a chief financial officer. The Corporation may also
have, at the discretion of the Board of Directors, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these Bylaws. Any number of offices may be held by the same
person.
The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these Bylaws, shall be appointed by the Board of Directors, subject to the rights, if any, of an officer under any contract of employment.
The Board of Directors may appoint, or empower the chief executive officer or the president to appoint, such other officers and agents as the business of the Corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine.
Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board of Directors at any regular or special meeting of the Board of Directors or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the attention of the secretary of the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party.
Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors.
Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board, if any, the chief executive officer of the Corporation shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the Corporation. He or she shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the Board of Directors and shall have the general powers and duties of management usually vested in the office of chief executive officer of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.
Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board (if any) or the chief executive officer, the president shall have general supervision, direction, and control of the business and other officers of the Corporation. He or she shall have the general powers and duties of management usually vested in the office of president of a corporation and such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.
In the absence or disability of the chief executive officer and president, the vice presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a vice president designated by the Board of Directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as
from time to time may be prescribed for them respectively by the Board of Directors, these Bylaws, the president or the chairman of the board.
The secretary shall keep or cause to be kept, at the principal executive office of the Corporation or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive office of the Corporation or at the office of the Corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required to be given by law or by these Bylaws. He or she shall keep the seal of the Corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws.
The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director.
The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board of Directors. He or she shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the president, the chief executive officer, or the directors, upon request, an account of all his or her transactions as chief financial officer and of the financial condition of the Corporation, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors or the Bylaws.
The chairman of the board, the chief executive officer, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this Corporation, or any other person authorized by the Board of Directors or the chief executive officer or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this
Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this Corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by the person having such authority.
In addition to the foregoing authority and duties, all officers of the Corporation shall respectively have such authority and perform such duties in the management of the business of the Corporation as may be designated from time to time by the Board of Directors or the stockholders.
ARTICLE VI
The Corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its directors and officers against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the Corporation. For purposes of this Section 6.1, a "director" or "officer" of the Corporation includes any person (a) who is or was a director or officer of the Corporation, (b) who is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was a director or officer of a Corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation.
The Corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the Corporation. For purposes of this Section 6.2, an "employee" or "agent" of the Corporation (other than a director or officer) includes any person (a) who is or was an employee or agent of the Corporation, (b) who is or was serving at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was an employee or agent of a corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation.
Expenses incurred in defending any action or proceeding for which indemnification is required pursuant to Section 6.1 or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors shall be paid by the Corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VI.
The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any Bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the Certificate of Incorporation
The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of the General Corporation Law of Delaware.
No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears:
(a) That it would be inconsistent with a provision of the Certificate of Incorporation, these Bylaws, a resolution of the stockholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.
ARTICLE VII
The Corporation shall, either at its principal executive offices or at such place or places as designated by the Board of Directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the Corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Corporation at its registered office in Delaware or at its principal place of business.
Any director shall have the right to examine the Corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the Corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper.
The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the Corporation.
ARTICLE VIII
From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money,
notes or other evidences of indebtedness that are issued in the name of or payable to the Corporation, and only the persons so authorized shall sign or endorse those instruments.
The Board of Directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
The shares of the Corporation shall be represented by certificates, provided that the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the Corporation by the chairman or vice-chairman of the Board of Directors, or the chief executive officer or the president or vice- president, and by the chief financial officer or an assistant treasurer, or the secretary or an assistant secretary of the Corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.
The Corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the Corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.
If the Corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full
or summarized on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Corporation and canceled at the same time. The Corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or the owner's legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the General Corporation Law of Delaware shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person.
The directors of the Corporation, subject to any restrictions contained in (a) the General Corporation Law of Delaware or (b) the Certificate of Incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the Corporation's capital stock.
The directors of the Corporation may set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the Corporation, and meeting contingencies.
The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors and may be changed by the Board of Directors.
The Corporation may adopt a corporate seal, which may be altered at pleasure, and may use the same by causing it or a facsimile thereof, to be impressed or affixed or in any other manner reproduced.
Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books.
The Corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the Corporation to restrict the transfer of shares of stock of the Corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware.
The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE IX
The Bylaws of the Corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the Corporation may, in its Certificate of Incorporation, confer the power to adopt, amend or repeal Bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal Bylaws.
EXHIBIT 4.1
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK,
$0.001 PAR VALUE, OF
OPENWAVE SYSTEMS INC.
CERTIFICATE OF STOCK
Transferable only on the books of the Corporation by the holder hereof in person or by duly authorized Attorney upon surrender of this certificate properly endorsed. This certificate is not valid until countersigned and registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
/s/ [CORPORATE SEAL /s/ OF OPENWAVE SYSTEMS INC.] CHIEF FINANCIAL OFFICER PRESIDENT AND CHIEF EXECUTIVE OFFICER |
Openwave Systems Inc.
The Corporation will furnish without charge to each stockholder who so requests a copy of the powers, designations, preferences and relative, participating, optional or other special rights to each class of stock or series thereof and the qualifications, limitations, or restrictions of such preferences and/or rights.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-.........Custodian TEN ENT - as tenants by the (Cust) (Minor) entireties under Uniform Gifts to JT TEN - as joint tenants with Minors Act................. right of survivorship (State) and not as tenants in common |
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _____________________________ hereby sell(s), assign(s) and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
_________________________________________________________________________ Shares represented by the within Certificate, and do hereby irrevocably constitute and appoint
________________________________________________________________________Attorney to transfer the said shares on the books of the within named Corporation with full power of substitution in the premises.
Dated ____________________________ NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT X_______________________________ MUST CORRESPOND WITH THE NAME(S) AS (SIGNATURE) WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, X_______________________________ WITHOUT ALTERATION OR ENLARGEMENT OR (SIGNATURE) ANY CHANGE WHATEVER. --------------------------------------- |
EXHIBIT 10.5
OPENWAVE SYSTEMS INC.
1999 EMPLOYEE STOCK PURCHASE PLAN/1/
(As Amended effective November 17, 2000)
(As Further Amended effective May 1, 2001)
The following constitute the provisions of the 1999 Employee Stock Purchase Plan of Openwave Systems Inc.
1. Purpose. The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code.
2. Definitions.
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the Common Stock of the Company.
(d) "Company" means Openwave Systems Inc., a Delaware corporation.
(e) "Compensation" means all base straight time gross earnings, sales commissions, incentive compensation, incentive payments, bonuses, shift premium, payments for overtime and other compensation.
(f) "Continuous Status as an Employee" means the absence of any interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the Administrator, provided that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company policy adopted from time to time; or (iv) in the case of transfers between locations of the Company or between the Company and its Designated Subsidiaries.
(g) "Contributions" means all amounts credited to the account of a participant pursuant to the Plan.
(h) "Corporate Transaction" means a sale of all or substantially all of the Company's assets, or a merger, consolidation or other capital reorganization of the Company with or into another corporation, or any other transaction or series of related transactions in which the Company's stockholders immediately prior thereto own less than 50% of the voting stock of the Company (or its successor or parent) immediately thereafter.
(i) "Designated Subsidiaries" means the Subsidiaries which have been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan; provided however that the Board shall only have the discretion to designate Subsidiaries if the issuance of options to such Subsidiary's Employees pursuant to the Plan would not cause the Company to incur adverse accounting charges.
(j) "Employee" means any person, including an Officer, who is customarily employed for at least twenty (20) hours per week and more than five (5) months in a calendar year by the Company or one of its Designated Subsidiaries.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(l) "Offering Date" means the first business day of each Offering Period of the Plan.
(m) "Offering Period" means a period of twenty-four (24) months commencing on November 1 and May 1 of each year, except for the first Offering Period as set forth in Section 4(a).
(n) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(o) "Plan" means this Employee Stock Purchase Plan.
(p) "Purchase Date" means the last day of each Purchase Period of the Plan.
(q) "Purchase Period" means a period of six (6) months within an Offering Period, except for the Purchase Periods in the first Offering Period as set forth in Section 4(b).
(r) "Purchase Price" means with respect to a Purchase Period an amount equal to 85% of the Fair Market Value (as defined in Section 7(b) below) of a Share of Common Stock on the Offering Date or on the Purchase Date, whichever is lower; provided, however, that in the event (i) of any increase in the number of Shares available for issuance under the Plan as a result of a stockholder-approved amendment to the Plan, and (ii) all or a portion of such additional Shares are to be issued with respect to one or more Offering Periods that are underway at the time of such increase ("Additional Shares"), and (iii) the Fair Market Value of a Share of Common Stock on the date of such increase (the "Approval Date Fair Market Value") is higher than the Fair Market Value on the Offering Date for any such Offering Period, then in such instance the Purchase Price with respect to Additional Shares shall be 85% of the Approval Date Fair Market Value or the Fair Market Value of a Share of Common Stock on the Purchase Date, whichever is lower.
(s) "Share" means a share of Common Stock, as adjusted in accordance with Section 19 of the Plan.
(t) "Subsidiary" means a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary.
3. Eligibility.
(a) Any person who is an Employee as of the Offering Date of a given Offering Period shall be eligible to participate in such Offering Period under the Plan, subject to the requirements of Section 5(a) and the limitations imposed by Section 423(b) of the Code; provided however that eligible Employees may not participate in more than one Offering Period at a time.
(b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) if, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any subsidiary of the Company, or (ii) if such option would permit his or her rights to purchase stock under all employee stock purchase plans (described in Section 423 of the Code) of the Company and its Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) of the Fair Market Value (as defined in Section 7(b) below) of such stock (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time.
4. Offering Periods and Purchase Periods.
(a) Offering Periods. The Plan shall be generally implemented by a series of Offering Periods of twenty-four (24) months' duration, with new Offering Periods (other than the first Offering Period) commencing on or about November 1 and May 1 of each year (or at such other time or times as may be determined by the Board of Directors). The first Offering Period shall commence on the beginning of the effective date of the Registration Statement on Form S-1 for the initial public offering of the Company's Common Stock (the "IPO Date") and continue until April 30, 2001. The Plan shall continue until terminated in accordance with Section 19 hereof. The Board of Directors of the Company shall have the power to change the duration and/or the frequency of Offering Periods with respect to future offerings without stockholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Offering Period to be affected.
(b) Purchase Periods. Each Offering Period shall generally consist of four (4) consecutive purchase periods of six (6) months' duration. The last day of each Purchase Period shall be the "Purchase Date" for such Purchase Period. A Purchase Period commencing on November 1 shall end on the next April 30. A Purchase Period commencing on May 1 shall end on the next October 31. The first Purchase Period of the first Offering Period shall commence on the IPO Date and shall end on January 31, 2000 with subsequent Purchase Periods ending on April 30, 2000, October 31, 2000 and April 30, 2001. The Board of Directors of the Company shall have the power to change the duration and/or frequency of Purchase Periods with respect to future purchases without stockholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the first Purchase Period to be affected.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by completing a subscription agreement on the form provided by the Company and filing it with the Company's payroll office prior to the applicable Offering Date, unless a later time for filing the subscription agreement is set by the Board for all eligible Employees with respect to a given Offering Period. The subscription agreement shall set forth the percentage of the participant's Compensation (subject to Section 6(a) below) to be paid as Contributions pursuant to the Plan.
(b) Payroll deductions shall commence on the first payroll following the Offering Date and shall end on the last payroll paid on or prior to the last Purchase Period of the Offering Period to which the subscription agreement is applicable, unless sooner terminated by the participant as provided in Section 10.
6. Method of Payment of Contributions.
(a) A participant shall elect to have payroll deductions made on each payday during the Offering Period in an amount not less than one percent (1%) and not more than twenty percent (20%) (or such other percentage as the Board may establish from time to time before an Offering Date) of such participant's Compensation on each payday during the Offering Period. All payroll deductions made by a participant shall be credited to his or her account under the Plan. A participant may not make any additional payments into such account.
(b) A participant may discontinue his or her participation in the Plan as provided in Section 10, or, on one occasion only during each Purchase Period may either increase or decrease the rate of his or her Contributions with respect to the Purchase Period by completing and filing with the Company a new subscription agreement authorizing a change in the payroll deduction rate. The change in rate shall be effective as of the beginning of the next calendar month following the date of filing of the new subscription agreement, if the agreement is filed at least ten (10) business days prior to such date and, if not, as of the beginning of the next succeeding calendar month.
(c) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) herein, a participant's payroll deductions may be decreased during any Purchase Period scheduled to end during the current calendar year to 0%. Payroll deductions shall re-commence at the rate provided in such participant's subscription agreement at the beginning of the first Purchase Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in Section 10.
7. Grant of Option.
(a) On the Offering Date of each Offering Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on each Purchase Date a number of Shares of the Company's Common Stock determined by dividing such Employee's Contributions accumulated prior to such Purchase Date and retained in the participant's account as of the Purchase Date by the applicable Purchase Price; provided however that the maximum number of Shares an Employee may purchase during each Purchase Period shall be 5,000 Shares (after giving effect to the 2-1 stock split in November 1999 and subject to any further adjustment pursuant to Section 19 below), and provided further that such purchase shall be subject to the limitations set forth in Sections 3(b) and 13.
(b) The fair market value of the Company's Common Stock on a given date (the "Fair Market Value") shall be determined by the Board in its discretion based on the closing sales price of the Common Stock for such date (or, in the event that the Common Stock is not traded on such date, on the immediately preceding trading date), as reported by the National Association of Securities Dealers Automated Quotation (Nasdaq) National Market or, if such price is not reported, the mean of the bid and asked prices per share of the Common Stock as reported by Nasdaq or, in the event the Common Stock is listed on a stock exchange, the Fair Market Value per share shall be the closing sales price on such exchange on such date (or, in the event that the Common Stock is not traded on such date, on the immediately preceding trading date), as reported in The Wall Street Journal. For purposes of the Offering Date under the first Offering Period under the Plan, the Fair Market Value of a share of the Common Stock of the Company shall be the Price to Public as set forth in the final prospectus filed with the Securities and Exchange Commission pursuant to Rule 424 under the Securities Act of 1933, as amended.
8. Exercise of Option. Unless a participant withdraws from the Plan as provided in Section 10, his or her option for the purchase of Shares will be exercised automatically on each Purchase Date of an Offering Period, and the maximum number of full Shares subject to the option will be purchased at the applicable Purchase Price with the accumulated Contributions in his or her account. No fractional Shares shall be issued. The Shares purchased upon exercise of an option hereunder shall be deemed to be transferred to the participant on the Purchase Date. During his or her lifetime, a participant's option to purchase Shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Purchase Date of
each Offering Period, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the Shares purchased
upon exercise of his or her option. Any payroll deductions accumulated in a
participant's account which are not sufficient to purchase a full Share shall be
retained in the participant's account for the subsequent Purchase Period or
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 below. Any other amounts left over in a participant's account after a
Purchase Date shall be returned to the participant.
10. Voluntary Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the Contributions credited to his or her account under the Plan at any time prior to each Purchase Date by giving written notice to the Company. All of the participant's Contributions credited to his or her account will be paid to him or her promptly after receipt of his or her notice of withdrawal and his or her option for the current period will be automatically terminated, and no further Contributions for the purchase of Shares will be made during the Offering Period.
(b) Upon termination of the participant's Continuous Status as an Employee prior to the Purchase Date of an Offering Period for any reason, including retirement or death, the Contributions credited to his
or her account will be returned to him or her or, in the case of his or her death, to the person or persons entitled thereto under Section 14, and his or her option will be automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as an Employee of the Company for at least twenty (20) hours per week during the Offering Period in which the employee is a participant, he or she will be deemed to have elected to withdraw from the Plan and the Contributions credited to his or her account will be returned to him or her and his or her option terminated.
(d) A participant's withdrawal from an offering will not have any effect upon his or her eligibility to participate in a succeeding offering or in any similar plan which may hereafter be adopted by the Company.
11. Automatic Withdrawal. If the Fair Market Value of the Shares on any Purchase Date of an Offering Period is less than the Fair Market Value of the Shares on the Offering Date for such Offering Period, then every participant shall automatically (i) be withdrawn from such Offering Period at the close of such Purchase Date and after the acquisition of Shares for such Purchase Period, and (ii) be enrolled in the Offering Period commencing on the first business day subsequent to such Purchase Period. Participants shall automatically be withdrawn as of October 31, 1999 from the Offering Period beginning on the IPO Date and re-enrolled in the Offering Period beginning on November 1, 1999 if the Fair Market Value of the Shares on the IPO Date is greater than the Fair Market Value of the Shares on October 31, 1999, unless a participant notifies the Administrator prior to October 31, 1999 that he or she does not wish to be withdrawn and re-enrolled.
12. Interest. No interest shall accrue on the Contributions of a participant in the Plan.
13. Stock.
(a) Subject to adjustment as provided in Section 19, the maximum number of Shares which shall be made available for sale under the Plan shall be 1,200,000 Shares (after giving effect to the 2-1 stock split in November 1999), plus an automatic annual increase on the first day of each of the Company's fiscal years beginning in 2000, 2001, 2002, 2003 and 2004 equal to the lesser of (i) 1,000,000 Shares (after giving effect to the 2-1 stock split in November 1999), or (ii) one percent (1%) of the Shares outstanding on the last day of the immediately preceding fiscal year. If the Board determines that, on a given Purchase Date, the number of shares with respect to which options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Offering Date of the applicable Offering Period, or (ii) the number of shares available for sale under the Plan on such Purchase Date, the Board may in its sole discretion provide (x) that the Company shall make a pro rata allocation of the Shares of Common Stock available for purchase on such Offering Date or Purchase Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Purchase Date, and continue all Offering Periods then in effect, or (y) that the Company shall make a pro rata allocation of the shares available for purchase on such Offering Date or Purchase Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Purchase Date, and terminate any or all Offering Periods then in effect pursuant to Section 20 below. The Company may make pro rata allocation of the Shares available on the Offering Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional Shares for issuance under the Plan by the Company's stockholders subsequent to such Offering Date.
(b) The participant shall have no interest or voting right in Shares covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be registered in the name of the participant or in the name of the participant and his or her spouse.
14. Administration. The Board, or a committee named by the Board, shall supervise and administer the Plan and shall have full power to adopt, amend and rescind any rules deemed desirable and appropriate for the
administration of the Plan and not inconsistent with the Plan, to construe and interpret the Plan, and to make all other determinations necessary or advisable for the administration of the Plan.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary who is to receive any Shares and cash, if any, from the participant's account underthe Plan in the event of such participant's death subsequent to the end of a Purchase Period but prior to delivery to him or her of such Shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to the Purchase Date of an Offering Period. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant (and his or her spouse, if any) at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such Shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such Shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.
16. Transferability. Neither Contributions credited to a participant's account nor any rights with regard to the exercise of an option or to receive Shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution, or as provided in Section 15) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Section 10.
17. Use of Funds. All Contributions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such Contributions.
18. Reports. Individual accounts will be maintained for each participant in the Plan. Statements of account will be given to participating Employees at least annually, which statements will set forth the amounts of Contributions, the per Share Purchase Price, the number of Shares purchased and the remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization; Corporate Transactions.
(a) Adjustment. Subject to any required action by the stockholders of the Company, the number of Shares covered by each option under the Plan which has not yet been exercised and the number of Shares which have been authorized for issuance under the Plan but have not yet been placed under option (collectively, the "Reserves"), as well as the maximum number of shares of Common Stock which may be purchased by a participant in a Purchase Period, the number of shares of Common Stock set forth in Section 13(a)(i) above, and the price per Share of Common Stock covered by each option under the Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock (including any such change in the number of Shares of Common Stock effected in connection with a change in domicile of the Company), or any other increase or decrease in the number of Shares effected without receipt of consideration by the Company; provided however that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an option.
(b) Corporate Transactions. In the event of a dissolution or liquidation of the Company, any Purchase Period and Offering Period then in progress will terminate immediately prior to the consummation of
such action, unless otherwise provided by the Board. In the event of a Corporate Transaction, each option outstanding under the Plan shall be assumed or an equivalent option shall be substituted by the successor corporation or a parent or Subsidiary of such successor corporation. In the event that the successor corporation refuses to assume or substitute for outstanding options, each Purchase Period and Offering Period then in progress shall be shortened and a new Purchase Date shall be set (the "New Purchase Date"), as of which date any Purchase Period and Offering Period then in progress will terminate. The New Purchase Date shall be on or before the date of consummation of the transaction and the Board shall notify each participant in writing, at least ten (10) days prior to the New Purchase Date, that the Purchase Date for his or her option has been changed to the New Purchase Date and that his or her option will be exercised automatically on the New Purchase Date, unless prior to such date he or she has withdrawn from the Offering Period as provided in Section 10. For purposes of this Section 19, an option granted under the Plan shall be deemed to be assumed, without limitation, if, at the time of issuance of the stock or other consideration upon a Corporate Transaction, each holder of an option under the Plan would be entitled to receive upon exercise of the option the same number and kind of shares of stock or the same amount of property, cash or securities as such holder would have been entitled to receive upon the occurrence of the transaction if the holder had been, immediately prior to the transaction, the holder of the number of Shares of Common Stock covered by the option at such time (after giving effect to any adjustments in the number of Shares covered by the option as provided for in this Section 19); provided however that if the consideration received in the transaction is not solely common stock of the successor corporation or its parent (as defined in Section 424(e) of the Code), the Board may, with the consent of the successor corporation, provide for the consideration to be received upon exercise of the option to be solely common stock of the successor corporation or its parent equal in Fair Market Value to the per Share consideration received by holders of Common Stock in the transaction.
The Board may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per Share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of Shares of its outstanding Common Stock, and in the event of the Company's being consolidated with or merged into any other corporation.
20. Amendment or Termination.
(a) The Board may at any time and for any reason terminate or amend the Plan. Except as provided in Section 19, no such termination of the Plan may affect options previously granted, provided that the Plan or an Offering Period may be terminated by the Board on a Purchase Date or by the Board's setting a new Purchase Date with respect to an Offering Period and Purchase Period then in progress if the Board determines that termination of the Plan and/or the Offering Period is in the best interests of the Company and the stockholders or if continuation of the Plan and/or the Offering Period would cause the Company to incur adverse accounting charges as a result of a change after the effective date of the Plan in the generally accepted accounting rules applicable to the Plan. Except as provided in Section 19 and in this Section 20, no amendment to the Plan shall make any change in any option previously granted which adversely affects the rights of any participant. In addition, to the extent necessary to comply with Rule 16b-3 under the Exchange Act, or under Section 423 of the Code (or any successor rule or provision or any applicable law or regulation), the Company shall obtain stockholder approval in such a manner and to such a degree as so required.
(b) Without stockholder consent and without regard to whether any participant rights may be considered to have been adversely affected, the Board (or its committee) shall be entitled to change the Offering Periods and Purchase Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's Compensation, and establish such other limitations or procedures as the Board (or its committee) determines in its sole discretion advisable which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such Shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, applicable state securities laws and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.
23. Term of Plan; Effective Date. The Plan shall become effective upon the IPO Date. It shall continue in effect for a term of twenty (20) years unless sooner terminated under Section 20.
24. Additional Restrictions of Rule 16b-3. The terms and conditions of
options granted hereunder to, and the purchase of Shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the Shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
OPENWAVE SYSTEMS INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
New Election ______
Change of Election ______
1. I, ________________________, hereby elect to participate in the Openwave Systems Inc. 1999 Employee Stock Purchase Plan (the "Plan") for the Offering Period ______________, ____ to _______________, ____, and subscribe to purchase shares of the Company's Common Stock in accordance with this Subscription Agreement and the Plan.
2. I elect to have Contributions in the amount of ____% of my Compensation, as those terms are defined in the Plan, applied to this purchase. I understand that this amount must not be less than 1% and not more than 20% of my Compensation during the Offering Period. (Please note that no fractional percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the Offering Period at the rate stated in Item 2 of this Subscription Agreement. I understand that all payroll deductions made by me shall be credited to my account under the Plan and that I may not make any additional payments into such account. I understand that all payments made by me shall be accumulated for the purchase of shares of Common Stock at the applicable purchase price determined in accordance with the Plan. I further understand that, except as otherwise set forth in the Plan, shares will be purchased for me automatically on the Purchase Date of each Offering Period unless I otherwise withdraw from the Plan by giving written notice to the Company for such purpose.
4. I understand that I may discontinue at any time prior to the Purchase Date my participation in the Plan as provided in Section 10 of the Plan. I also understand that I can increase or decrease the rate of my Contributions on one occasion only with respect to either an increase or a decrease during any Purchase Period by completing and filing a new Subscription Agreement with such increase or decrease taking effect as of the beginning of the calendar month following the date of filing of the new Subscription Agreement, if filed at least ten (10) business days prior to the beginning of such month. Further, I may change the rate of deductions for future Offering Periods by filing a new Subscription Agreement, and any such change will be effective as of the beginning of the next Offering Period. In addition, I acknowledge that, unless I discontinue my participation in the Plan as provided in Section 10 of the Plan, my election will continue to be effective for each successive Offering Period.
5. I have received a copy of the Company's most recent description of the Plan and a copy of the complete "Openwave Systems Inc. 1999 Employee Stock Purchase Plan." I understand that my participation in the Plan is in all respects subject to the terms of the Plan.
6. Shares purchased for me under the Plan should be issued in the name(s) of (name of employee or employee and spouse only):
7. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print) ____________________________________ (First) (Middle) (Last) ____________________ ____________________________________ (Relationship) (Address) ____________________________________ |
8. I understand that if I dispose of any shares received by me pursuant to the Plan within 2 years after the Offering Date (the first day of the Offering Period during which I purchased such shares) or within 1 year after the Purchase Date, I will be treated for federal income tax purposes as having received ordinary compensation income at the time of such disposition in an amount equal to the excess of the fair market value of the shares on the Purchase Date over the price which I paid for the shares, regardless of whether I disposed of the shares at a price less than their fair market value at the Purchase Date. The remainder of the gain or loss, if any, recognized on such disposition will be treated as capital gain or loss.
I hereby agree to notify the Company in writing within 30 days after the date of any such disposition, and I will make adequate provision for federal, state or other tax withholding obligations, if any, which arise upon the disposition of the Common Stock. The Company may, but will not be obligated to, withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to the sale or early disposition of Common Stock by me.
9. If I dispose of such shares at any time after expiration of the 2-year and 1-year holding periods, I understand that I will be treated for federal income tax purposes as having received compensation income only to the extent of an amount equal to the lesser of (1) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares under the option, or (2) 15% of the fair market value of the shares on the Offering Date. The remainder of the gain or loss, if any, recognized on such disposition will be treated as capital gain or loss.
I understand that this tax summary is only a summary and is subject to change. I further understand that I should consult a tax advisor concerning the tax implications of the purchase and sale of stock under the Plan.
10. I hereby agree to be bound by the terms of the Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Plan.
SIGNATURE: _____________________________
SOCIAL SECURITY #: _____________________
DATE: __________________________________
SPOUSE'S SIGNATURE (necessary
if beneficiary is not spouse):
OPENWAVE SYSTEMS INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I, __________________________, hereby elect to withdraw my participation in the Openwave Systems Inc. 1999 Employee Stock Purchase Plan (the "Plan") for the Offering Period that began on _________ ___, _____. This withdrawal covers all Contributions credited to my account and is effective on the date designated below.
I understand that all Contributions credited to my account will be paid to me within ten (10) business days of receipt by the Company of this Notice of Withdrawal and that my option for the current period will automatically terminate, and that no further Contributions for the purchase of shares can be made by me during the Offering Period.
The undersigned further understands and agrees that he or she shall be eligible to participate in succeeding offering periods only by delivering to the Company a new Subscription Agreement.
Dated:___________________ _______________________________ Signature of Employee _______________________________ Social Security Number |
EXHIBIT 10.6
OPENWAVE SYSTEMS INC.
1999 DIRECTORS' STOCK OPTION PLAN(1)
1. PURPOSES OF THE PLAN. The purposes of this Directors' Stock Option Plan are to attract and retain the best available personnel for service as Directors of the Company, to provide additional incentive to the Outside Directors of the Company to serve as Directors, and to encourage their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CHANGE OF CONTROL" means a sale of all or substantially all of the Company's assets, or any merger or consolidation of the Company with or into another corporation other than a merger or consolidation in which the holders of more than 50% of the shares of capital stock of the Company outstanding immediately prior to such transaction continue to hold (either by the voting securities remaining outstanding or by their being converted into voting securities of the surviving entity) more than 50% of the total voting power represented by the voting securities of the Company, or such surviving entity, outstanding immediately after such transaction.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMON STOCK" means the Common Stock of the Company.
(e) "COMPANY" means Openwave Systems Inc., a Delaware corporation.
(f) "CONTINUOUS STATUS AS A DIRECTOR" means the absence of any interruption or termination of service as a Director.
(g) "CORPORATE TRANSACTION" means a dissolution or liquidation of the Company, a sale of all or substantially all of the Company's assets, or a merger, consolidation or other capital reorganization of the Company with or into another corporation.
(h) "DIRECTOR" means a member of the Board.
(i) "EMPLOYEE" means any person, including any officer or Director, employed by the Company or any Parent or Subsidiary of the Company. The payment of a
(1) Formerly known as the Unwired Planet, Inc. 1999 Directors' Stock Option Plan. This Plan was updated on June 25, 2001 to reflect the name change and to reflect the 2-1 stock split of the Company's outstanding common stock effected in November 1999.
director's fee by the Company shall not be sufficient in and of itself to constitute "employment" by the Company.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(k) "OPTION" means a stock option granted pursuant to the Plan. All options shall be nonstatutory stock options (i.e., options that are not intended to qualify as incentive stock options under Section 422 of the Code).
(l) "OPTIONED STOCK" means the Common Stock subject to an Option.
(m) "OPTIONEE" means an Outside Director who receives an Option.
(n) "OUTSIDE DIRECTOR" means a Director who is not an Employee.
(o) "PARENT" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code.
(p) "PLAN" means this 1999 Directors' Stock Option Plan.
(q) "SHARE" means a share of the Common Stock, as adjusted in accordance with Section 11 of the Plan.
(r) "SUBSIDIARY" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 11 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 1,200,000 Shares of Common Stock (the "Pool"). The Shares may be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan has been terminated, become available for future grant under the Plan. In addition, any Shares of Common Stock that are retained by the Company upon exercise of an Option in order to satisfy the exercise price for such Option, or any withholding taxes due with respect to such exercise, shall be treated as not issued and shall continue to be available under the Plan. If Shares that were acquired upon exercise of an Option are subsequently repurchased by the Company, such Shares shall not in any event be returned to the Plan and shall not become available for future grant under the Plan.
4. ADMINISTRATION OF AND GRANTS OF OPTIONS UNDER THE PLAN.
(a) ADMINISTRATOR. Except as otherwise required herein, the Plan shall be administered by the Board.
(b) PROCEDURE FOR GRANTS. All grants of Options hereunder shall be automatic and nondiscretionary and shall be made strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of Shares to be covered by Options granted to Outside Directors.
(ii) Each Outside Director who becomes an Outside Director after the effective date of this Plan (a "New Outside Director") shall be automatically granted an Option to purchase 66,666 Shares (the "First Option") on the date on which such person first becomes an Outside Director, whether through election by the stockholders of the Company or appointment by the Board to fill a vacancy.
(iii) Each New Outside Director shall thereafter be automatically granted an Option to purchase 5,000 Shares (a "Subsequent Option") on the first Board of Directors meeting date of each calendar quarter that begins at least one year following the grant date of the First Option to such New Outside Director (but in no event earlier than October 1, 2000).
(iv) Each Outside Director who is not a New Outside Director shall automatically be granted a Subsequent Option to purchase 5,000 Shares on the first Board of Directors meeting date of each calendar quarter beginning on or after October 1, 2000.
(v) Notwithstanding the provisions of subsections (ii) and (iii) hereof, in the event that a grant would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased upon exercise of Options to exceed the Pool, then each such automatic grant shall be for that number of Shares determined by dividing the total number of Shares remaining available for grant by the number of Outside Directors receiving an Option on the automatic grant date. Any further grants shall then be deferred until such time, if any, as additional Shares become available for grant under the Plan through action of the stockholders to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder.
(vi) Notwithstanding the provisions of subsections (ii) and (iii) hereof, any grant of an Option made before the Company has obtained stockholder approval of the Plan in accordance with Section 17 hereof shall be conditioned upon obtaining such stockholder approval of the Plan in accordance with Section 17 hereof.
(vii) The terms of each option granted hereunder shall be as follows:
(1) each option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Section 9 below;
(2) the exercise price per Share shall be 100% of the fair market value per Share on the date of grant of each option, determined in accordance with Section 8 hereof; and
(3) each option shall be exercisable in its entirety immediately upon grant.
(c) POWERS OF THE BOARD. Subject to the provisions and restrictions of the Plan, the Board shall have the authority, in its discretion: (i) to determine, upon review of relevant information and in accordance with Section 8(b) of the Plan, the fair market value of the Common Stock; (ii) to determine the exercise price per Share of Options to be granted, which exercise price shall be determined in accordance with Section 8 of the Plan; (iii) to interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations relating to the Plan; (v) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted hereunder; and (vi) to make all other determinations deemed necessary or advisable for the administration of the Plan.
(d) EFFECT OF BOARD'S DECISION. All decisions, determinations and interpretations of the Board shall be final and binding on all Optionees and any other holders of any Options granted under the Plan.
(e) SUSPENSION OR TERMINATION OF OPTION. If the Chief Executive Officer or his or her designee reasonably believes that an Optionee has committed an act of misconduct, such officer may suspend the Optionee's right to exercise any Option pending a determination by the Board (excluding the Outside Director accused of such misconduct). If the Board (excluding the Outside Director accused of such misconduct) determines an Optionee has committed an act of embezzlement, fraud, dishonesty, nonpayment of an obligation owed to the Company, breach of fiduciary duty or deliberate disregard of the Company rules resulting in loss, damage or injury to the Company, or if an Optionee makes an unauthorized disclosure of any Company trade secret or confidential information, engages in any conduct constituting unfair competition, induces any Company customer to breach a contract with the Company or induces any principal for whom the Company acts as agent to terminate such agency relationship, neither the Optionee nor his or her estate shall be entitled to exercise any Option whatsoever. In making such determination, the Board of Directors (excluding the Outside Director accused of such misconduct) shall act fairly and shall give the Optionee an opportunity to appear and present evidence on Optionee's behalf at a hearing before the Board or a committee of the Board.
5. ELIGIBILITY. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) above. An Outside Director who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
The Plan shall not confer upon any Optionee any right with respect to continuation of service as a Director or nomination to serve as a Director, nor shall it interfere in any way with any rights which the Director or the Company may have to terminate his or her directorship at any time.
6. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective on the effectiveness of the registration statement under the Securities Act of 1933, as amended, relating
to the Company's initial public offering of securities. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13 of the Plan.
7. TERM OF OPTIONS. The term of each Option shall be five (5) year(s)
from the date of grant thereof unless an Option terminates sooner pursuant to
Section 9 below.
8. EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per Share exercise price for the Shares to be issued pursuant to exercise of an Option shall be 100% of the fair market value per Share on the date of grant of the Option.
(b) FAIR MARKET VALUE. The fair market value shall be determined by the Board; provided however that in the event the Common Stock is traded on the Nasdaq National Market or listed on a stock exchange, the fair market value per Share shall be the closing sales price on such system or exchange on the date of grant of the Option (or, in the event that the Common Stock is not traded on such date, on the immediately preceding trading date), as reported in The Wall Street Journal, or if there is a public market for the Common Stock but the Common Stock is not traded on the Nasdaq National Market or listed on a stock exchange, the fair market value per Share shall be the mean of the bid and asked prices of the Common Stock in the over-the-counter market on the date of grant, as reported in The Wall Street Journal (or, if not so reported, as otherwise reported by the National Association of Securities Dealers Automated Quotation ("Nasdaq") System).
(c) FORM OF CONSIDERATION. The consideration to be paid for the Shares to be issued upon exercise of an Option shall consist entirely of cash, check, other Shares of Common Stock having a fair market value on the date of surrender equal to the aggregate exercise price of the Shares as to which the Option shall be exercised (which, if acquired from the Company, shall have been held for at least six months), or any combination of such methods of payment and/or any other consideration or method of payment as shall be permitted under applicable corporate law.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option granted hereunder shall be exercisable at such times as are set forth in Section 4(b) above; provided however that no Options shall be exercisable prior to stockholder approval of the Plan in accordance with Section 17 below has been obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may consist of any consideration and method of payment allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. A share certificate for the number of Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
(b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. If an Outside
Director ceases to serve as a Director, he or she may, but only within ninety
(90) days after the date he or she ceases to be a Director of the Company,
exercise his or her Option to the extent that he or she was entitled to exercise
it at the date of such termination. Notwithstanding the foregoing, in no event
may the Option be exercised after its term set forth in Section 7 has expired.
To the extent that such Outside Director was not entitled to exercise an Option
at the date of such termination, or does not exercise such Option (to the extent
he or she was entitled to exercise) within the time specified above, the Option
shall terminate and the Shares underlying the unexercised portion of the Option
shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. Notwithstanding Section 9(b) above, in the event a Director is unable to continue his or her service as a Director with the Company as a result of his or her total and permanent disability (as defined in Section 22(e)(3) of the Code), he or she may, but only within twelve (12) months from the date of such termination, exercise his or her Option to the extent he or she was entitled to exercise it at the date of such termination. Notwithstanding the foregoing, in no event may the Option be exercised after its term set forth in Section 7 has expired. To the extent that he or she was not entitled to exercise the Option at the date of termination, or if he or she does not exercise such Option (to the extent he or she was entitled to exercise) within the time specified above, the Option shall terminate and the Shares underlying the unexercised portion of the Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee: (A) during the term of the Option who is, at the time of his or her death, a Director of the Company and who shall have been in Continuous Status as a Director since the date of grant of the Option, or (B) three (3) months after the termination of Continuous Status as a Director, the Option may be exercised, at any time within twelve (12) months following the date of death, by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the date of death or the date of termination, as applicable. Notwithstanding the foregoing, in no event may the Option be exercised after its term set forth in Section 7 has expired. To the extent that an Optionee was not entitled to exercise the Option at the date of death or termination or if he or she does not exercise such Option (to the extent he or she was entitled to exercise) within the time specified above, the Option shall terminate and the Shares underlying the unexercised portion of the Option shall revert to the Plan.
10. NONTRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution or pursuant to a qualified domestic relations order (as defined by the Code or the rules thereunder). The designation of a beneficiary by an Optionee does not constitute a transfer. An Option may be exercised during the lifetime of an Optionee only by the Optionee or a transferee permitted by this Section.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.
(a) ADJUSTMENT. Subject to any required action by the stockholders of
the Company, the number of shares of Common Stock covered by each outstanding
Option, the number of Shares of Common Stock set forth in Sections 4(b)(ii) and
(iii) above, and the number of Shares of Common Stock which have been authorized
for issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, as well as the price per Share of Common Stock covered by each such
outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock (including any such change in the number of Shares of Common
Stock effected in connection with a change in domicile of the Company) or any
other increase or decrease in the number of issued Shares of Common Stock
effected without receipt of consideration by the Company; provided however that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option.
(b) CORPORATE TRANSACTIONS; CHANGE OF CONTROL. In the event of a Corporate Transaction, each outstanding Option shall be assumed or an equivalent option shall be substituted by the successor corporation or a Parent or Subsidiary of such successor corporation, unless the successor corporation does not agree to assume the outstanding Options or to substitute equivalent options, in which case the Options shall terminate upon the consummation of the transaction; provided however that in the event of a Change of Control, each optionee shall have the right to exercise all of his or her options to purchase Shares, immediately prior to the consummation of the transaction.
For purposes of this Section 11(b), an Option shall be considered assumed, without limitation, if, at the time of issuance of the stock or other consideration upon such Corporate Transaction or Change of Control, each Optionee would be entitled to receive upon exercise of an Option the same number and kind of shares of stock or the same amount of property, cash or securities as the Optionee would have been entitled to receive upon the occurrence of such transaction if the Optionee had been, immediately prior to such transaction, the holder of the number of Shares of Common Stock covered by the Option at such time (after giving effect to any adjustments in the number of Shares covered by the Option as provided for in this Section 11); provided however that if such consideration received in the transaction was not
solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon exercise of the Option to be solely common stock of the successor corporation or its Parent equal to the Fair Market Value of the per Share consideration received by holders of Common Stock in the transaction.
(c) CERTAIN DISTRIBUTIONS. In the event of any distribution to the Company's stockholders of securities of any other entity or other assets (other than dividends payable in cash or stock of the Company) without receipt of consideration by the Company, the Administrator may, in its discretion, appropriately adjust the price per Share of Common Stock covered by each outstanding Option to reflect the effect of such distribution.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for all purposes, be the date determined in accordance with Section 4(b) hereof. Notice of the determination shall be given to each Outside Director to whom an Option is so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate the Plan from time to time in such respects as the Board may deem advisable; provided that, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act (or any other applicable law or regulation), the Company shall obtain approval of the stockholders of the Company to Plan amendments to the extent and in the manner required by such law or regulation.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or termination of the Plan that would impair the rights of any Optionee shall not affect Options already granted to such Optionee and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Notwithstanding any other provision of the Plan or any agreement entered into by the Company pursuant to the Plan, the Company shall not be obligated, and shall have no liability for failure, to issue or deliver any Shares under the Plan unless such issuance or delivery would comply with the legal requirements relating to the administration of stock option plans under applicable U.S. state corporate laws, U.S. federal and applicable state securities laws, the Code, any stock exchange or Nasdaq rules or regulations to which the Company may be subject and the applicable laws of any other country or jurisdiction where Options are granted under the Plan, as such laws, rules, regulations and requirements shall be in place from time to time (the "Applicable Laws"). Such compliance shall be determined by the Company in consultation with its legal counsel.
As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.
16. OPTION AGREEMENT. Options shall be evidenced by written option agreements in such form as the Board shall approve.
17. STOCKHOLDER APPROVAL. If required by the Applicable Laws, continuance of the Plan shall be subject to approval by the stockholders of the Company. Such stockholder approval shall be obtained in the manner and to the degree required under the Applicable Laws.
OPENWAVE SYSTEMS INC.
1999 DIRECTORS' STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANT
Optionee
OptioneeAddress1
OptioneeAddress2
You have been granted an option to purchase Common Stock of Openwave Systems Inc. (the "Company") as follows:
Date of Grant GrantDate Vesting Commencement Date VestingStartDate Exercise Price per Share ExercisePrice Total Number of Shares Granted SharesGranted Total Exercise Price TotalExercisePrice Expiration Date ExpirDate Vesting Schedule This Option may be exercised, in whole or in part, in accordance with the following schedule: VestingSchedule Termination Period This Option may be exercised for 90 days after termination of Optionee's Continuous Status as a Director, or such longer period as may be applicable upon death or Disability of Optionee as provided in the Plan, but in no event later than the Expiration Date as provided above. |
By your signature and the signature of the Company's representative below, you and the Company agree that this option is granted under and governed by the terms and conditions of the 1999 Directors' Stock Option Plan and the Nonstatutory Stock Option Agreement, all of which are attached and made a part of this document.
OPTIONEE: OPENWAVE SYSTEMS INC. _____________________________ By: _____________________________ Signature Title: __________________________ _____________________________ Print Name |
OPENWAVE SYSTEMS INC.
1999 DIRECTORS' STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
1. GRANT OF OPTION. The Board of Directors of the Company hereby grants to the Optionee named in the Notice of Stock Option Grant attached as Part I of this Agreement (the "Optionee"), an option (the "Option") to purchase a number of Shares, as set forth in the Notice of Stock Option Grant, at the exercise price per share set forth in the Notice of Stock Option Grant (the "Exercise Price"'), subject to the terms and conditions of the 1999 Directors' Stock Option Plan (the "Plan"), which is incorporated herein by reference. (Capitalized terms not defined herein shall have the meanings ascribed to such terms in the Plan.) In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Nonstatutory Stock Option Agreement, the terms and conditions of the Plan shall prevail.
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Stock Option Grant and the applicable provisions of the Plan and this Nonstatutory Stock Option Agreement. In the event of Optionee's death, disability or other termination of Optionee's employment or consulting relationship, the exercisability of the Option is governed by the applicable provisions of the Plan and this Nonstatutory Stock Option Agreement.
(b) METHOD OF EXERCISE. This Option is exercisable by delivery of an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the "Exercised Shares"), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with all relevant provisions of law and the requirements of any stock exchange or quotation service upon which the Shares are then listed. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares.
3. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check;
(c) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price; or
(d) surrender of other Shares which (i) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
(6) months on the date of surrender, and (ii) have a Fair Market Value on the
date of surrender equal to the aggregate Exercise Price of the Exercised Shares.
4. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution or pursuant to a domestic relations order (as defined by the Code or the rules thereunder) and may be exercised during the lifetime of Optionee only by the Optionee or a transferee permitted by Section 10 of the Plan. The terms of the Plan and this Nonstatutory Stock Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee.
5. TERM OF OPTION. This Option may be exercised only within the term set out in the Notice of Stock Option Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Nonstatutory Stock Option Agreement.
6. TAX CONSEQUENCES. Set forth below is a brief summary of certain federal and California tax consequences relating to this Option under the law in effect as of the date of grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS OR HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) EXERCISING THE OPTION. Since this Option does not qualify as an incentive stock option under Section 422 of the Code, the Optionee may incur regular federal and California income tax liability upon exercise. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the fair market value of the Exercised Shares on the date of exercise over their aggregate Exercise Price.
(b) DISPOSITION OF SHARES. If the Optionee holds the Option Shares for more than one year, gain realized on disposition of the Shares will be treated as long-term capital gain for federal and California income tax purposes.
By your signature and the signature of the Company's representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Nonstatutory Stock Option Agreement. Optionee has reviewed the Plan and this Nonstatutory Stock Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Nonstatutory Stock Option Agreement and fully understands all provisions of the Plan and Nonstatutory Stock Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Nonstatutory Stock Option Agreement.
OPENWAVE SYSTEMS INC.
__________________________ By: _____________________________ Optionee Title: __________________________ |
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the terms and conditions of the Plan and this Nonstatutory Stock Option Agreement. In consideration of the Company's granting his or her spouse the right to purchase Shares as set forth in the Plan and this Nonstatutory Stock Option Agreement, the undersigned hereby agrees to be irrevocably bound by the terms and conditions of the Plan and this Nonstatutory Stock Option Agreement and further agrees that any community property interest shall be similarly bound. The undersigned hereby appoints the undersigned's spouse as attorney-in-fact for the undersigned with respect to any amendment or exercise of rights under the Plan or this Nonstatutory Stock Option Agreement.
Spouse of Optionee
EXHIBIT A
OPENWAVE SYSTEMS INC. EXERCISE NOTICE
Optionee Name: ______________________________________________________ Social Security # : __________________________ Home Address: _______________________________________________________ Daytime Phone Number: ________________________ _______________________________________________________ ------------------------------------------------------------------------------------------------------------------------------------ OPTION(S) EXERCISED: (1) x (2) = (3) Grant Grant Price Number of Shares Total Exercise Plan Number Grant Date NQ** or ISO? Per Share To be exercised Option Price ------------------------------------------------------------------------------------------------------------------------------------ $ $ ------------------------------------------------------------------------------------------------------------------------------------ $ $ ------------------------------------------------------------------------------------------------------------------------------------ $ $ ------------------------------------------------------------------------------------------------------------------------------------ $ $ ------------------------------------------------------------------------------------------------------------------------------------ Subtotal $ ----------------- ** Total NQ Taxes Due: $ ----------------- Totals $ ------------------------------------------------------------------------------------------------------------------------------------ PAYMENT AND ISSUANCE INSTRUCTIONS: Attached is my check # __________ in the amount of $_____________ to pay for the exercise of my stock option as listed above. ISSUE THE SHARES AS DESIGNATED BELOW: [ ] My E*Trade account OR Mail a certificate to my home address Account #: _______________________________________ My Credit Suisse First Boston account Account #: _______________________________________ ------------------------------------------------------------------------------------------------------------------------------------ REPRESENTATIONS: _____ I do NOT have access to, nor am I aware of, any inside information regarding Openwave Systems Inc. which Initial could or has influenced my decision to purchase and/or sell this stock. _____ I hereby agree to notify Openwave Systems Inc. upon the transfer/sale of my shares acquired under any ISO Initial exercise and agree to hold harmless Openwave Systems Inc. regarding the reporting of income subject to the transfer/sale of these shares. I am not relying on Openwave Systems Inc. or E*TRADE Business Solutions Group for any tax advice. OFFICERS AND DIRECTORS ONLY I AM an officer and/or director of Openwave Systems Inc. and I (initial for each response): ________ have reviewed my transactions relative to Section 16. ________ have held this option 6 months from date of grant. ________ wish/wish not to file an 83 (b) Election. ________ am required to sell pursuant to Rule 144 & have filed the necessary documentation. ________ understand a Form 4 will be required because of this transaction. ------------------------------------------------------------------------------------------------------------------------------------ The undersigned holder of the stock option(s) described above irrevocably exercises such option(s) as set forth and herewith makes payment therefore, all at the price and on the terms and conditions specified in the stock option agreement(s) pertaining to the option(s) exercised. INSTRUCTIONS: MAIL THIS COMPLETED EXERCISE FORM AND CHECK, MADE PAYABLE TO: Openwave Systems Inc. at 1400 Seaport Blvd., Redwood City, CA 94063, Attn: Stock Administration _________________________________________ _____________________________________ Optionee Signature Date ------------------------------------------------------------------------------------------------------------------------------------ |
EXHIBIT 10.16
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of _____, 2001 and effective as of April 12, 2001, by and between Openwave Systems Inc., a Delaware corporation and its subsidiaries (collectively, the "Corporation"), and _________________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in his/her capacity as a director, officer or other fiduciary of an affiliate of the Corporation;
WHEREAS, the current By-laws and Amended and Restated Certificate of Incorporation (collectively, the "Charter Documents") require the Corporation to indemnify and advance expenses to its directors and officers to the full extent permitted by the Delaware General Corporation Law, as amended (as applicable, the "Code") and the Agent intends to continue serving as a director or officer of the Corporation in part in reliance on such Charter Documents and Code;
WHEREAS, the Charter Documents and the Code, by their non-exclusive nature, permit contracts between the Corporation and its agents, officers, employees and other agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve the Corporation, the Corporation has determined and agreed to enter into this Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service to the Corporation, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the Corporation or under separate contract, if any such contract exists, as a director, officer or other fiduciary of an affiliate of the Corporation (including any employee benefit plan of the Corporation) faithfully and to the best of his ability so long as he is duly elected and qualified in accordance with the provisions of the Charter Documents or the charter documents of such affiliate; provided, however, that Agent may at any time and for any reason resign from such position (subject to any contractual obligation that Agent may have assumed apart from this Agreement) and that the Corporation or any affiliate shall have no obligation under this Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT.
(a) The Corporation hereby agrees to hold harmless and indemnify Agent to the fullest extent authorized or permitted by the provisions of the Charter Documents and the Code, as the same may be amended from time to time (but, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than the Charter Documents or the Code permitted prior to adoption of such amendment).
(b) Notwithstanding the foregoing, (i) the obligations of the Corporation under Section 2(a) shall be subject to the condition that the Reviewing Party (as defined below) shall not have determined (in a written opinion, in any case in which the Independent Legal Counsel referred to in Section 11(a) hereof is involved) that Agent would not be permitted to be indemnified under applicable law, and (ii) the obligation of the Corporation to make an advance pursuant to Section 8 shall be subject to the condition that, if, when and to the extent that the Reviewing Party determines that Agent would not be permitted to be so indemnified under applicable law, the Corporation shall be entitled to be reimbursed by Agent (who hereby agrees to reimburse the Corporation) for all such amounts theretofore paid; provided, however, that if Agent has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Agent should be indemnified under applicable law, any determination made by the Reviewing Party that Agent would not be permitted to be indemnified under applicable law shall not be binding and Agent shall not be required to reimburse the Corporation for any advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). If there has not been a Change in Control (as defined below), the Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Corporation's Board of Directors who were directors immediately prior to such Change in Control), the Reviewing Party shall be the Independent Legal Counsel referred to in Section 11(a) hereof. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Agent substantively would not be permitted to be indemnified in whole or in part under applicable law, Agent shall have the right to commence litigation in any court in the State of Delaware having subject matter jurisdiction thereof and in which venue is proper seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Corporation hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Corporation and Agent.
"Reviewing Party" shall mean any appropriate person or body consisting of a member or members of the Corporation's Board of Directors or any other person or body appointed by the Board who is not a party to the particular claim for which Agent is seeking indemnification, or Independent Legal Counsel.
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the indemnification otherwise provided for herein, and subject only to the exclusions set forth in Sections 4 and 7 hereof, the Corporation hereby further agrees to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees), witness fees, damages, judgments, fines and amounts paid in settlement and any other amounts that Agent becomes legally obligated to pay because of any claim or claims made against or by him in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitrational, administrative or investigative (including an action by or in the right of the Corporation) to which Agent is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that Agent is, was or at any time becomes a director, officer, employee or other agent of Corporation, or is or was serving or at any time serves at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Agent by the Corporation under the non-exclusivity provisions of the Code and the Charter Documents.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent for an accounting of profits made from the purchase or sale by Agent of securities of the Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and amendments thereto or similar provisions of any federal, state or local statutory law;
(b) on account of Agent's conduct that was knowingly fraudulent or deliberately dishonest or that constituted willful misconduct;
(c) on account of Agent's conduct that constituted a breach of Agent's duty of loyalty to the Corporation or resulted in any personal profit or advantage to which Agent was not legally entitled;
(d) for which payment is actually made to Agent under a valid and collectible insurance policy or under a valid and enforceable indemnity clause, bylaw or agreement, except in respect of any excess beyond payment under such insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect, both the Corporation and Agent have been advised that the Securities and Exchange Commission believes that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof) initiated by Agent, or any proceeding by Agent against the Corporation or its directors, officers, employees or other agents, unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the Corporation, (iii) such indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers vested in the Corporation under the Code, or (iv) the proceeding is initiated pursuant to Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the Corporation contained herein shall continue during the period Agent is a director, officer, employee or other agent of the Corporation (or is or was serving at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) and shall continue thereafter so long as Agent shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitrational, administrative or investigative, by reason of the fact that Agent was serving in the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this Agreement to indemnification by the Corporation for a portion of the expenses (including attorneys' fees), witness fees, damages, judgments, fines and amounts paid in settlement and any other amounts that Agent becomes legally obligated to pay in connection with any action, suit or proceeding referred to in Section 3 hereof even if not entitled hereunder to indemnification for the total amount thereof, and the Corporation shall indemnify Agent for the portion thereof to which Agent is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days after receipt by Agent of notice of the commencement of any action, suit or proceeding, Agent will, if a claim in respect thereof is to be made against the Corporation under this Agreement, notify the Corporation of the commencement thereof; but the omission so to notify the Corporation will not relieve it from any liability which it may
have to Agent otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which Agent notifies the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate therein at its own expense;
(b) except as otherwise provided below, the Corporation may, at its option and jointly with any other indemnifying party similarly notified and electing to assume such defense, assume the defense thereof, with counsel reasonably satisfactory to Agent. After notice from the Corporation to Agent of its election to assume the defense thereof, the Corporation will not be liable to Agent under this Agreement for any legal or other expenses subsequently incurred by Agent in connection with the defense thereof except for reasonable costs of investigation or otherwise as provided below. Agent shall have the right to employ separate counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Agent unless (i) the employment of counsel by Agent has been authorized by the Corporation, (ii) Agent shall have reasonably concluded that there may be a conflict of interest between the Corporation and Agent in the conduct of the defense of such action or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of Agent's separate counsel shall be at the expense of the Corporation. The Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Corporation or as to which Agent shall have made the conclusion provided for in clause (ii) above; and
(c) the Corporation shall not be liable to indemnify Agent under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent, which shall not be unreasonably withheld. The Corporation shall be permitted to settle any action except that it shall not settle any action or claim in any manner which would impose any penalty or limitation on Agent without Agent's written consent, which may be given or withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final disposition of any proceeding, promptly following request therefor, all expenses incurred by Agent in connection with such proceeding upon receipt of an undertaking by or on behalf of Agent to repay said amounts if it shall be determined ultimately that Agent is not entitled to be indemnified under the provisions of this Agreement, the Charter Documents, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by this Agreement to Agent shall be enforceable by or on behalf of Agent in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in
whole or in part, or (ii) no disposition of such claim is made within twenty
(20) days of request therefor. Agent, in such enforcement action, if successful
in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any action for which a claim for
indemnification is made under Section 3 hereof (other than an action brought to
enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of Directors
or its shareholders) to have made a determination prior to the commencement of
such enforcement action that indemnification of Agent is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its shareholders) that such indemnification is improper
shall be a defense to the action or create a presumption that Agent is not
entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the Corporation shall be surrogated to the extent of such payment to all of the rights of recovery of Agent, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Corporation effectively to bring suit to enforce such rights.
11. CHANGE IN CONTROL AND ESTABLISHMENT OF TRUST.
(a) The Corporation agrees that if there is a Change in Control (as defined below) of the Corporation (other than a Change in Control which has been approved by a majority of the Corporation's Board of Directors who were directors immediately prior to such Change in Control) then with respect to all matters thereafter arising concerning the rights of Agent to indemnity payments and advances under this Agreement or any other agreement or Corporation By-law now or hereafter in effect relating to claims, the Corporation shall seek legal advice only from Independent Legal Counsel (as defined below) selected by Agent and approved by the Corporation (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Corporation and Agent as to whether and to what extent the Agent would be permitted to be indemnified under applicable law. The Corporation agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to indemnify fully such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. Change in Control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or a corporation owned directly or indirectly by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Corporation representing 20% or more of the total voting power represented by the Corporation's then outstanding securities of the Corporation that generally vote in the election of directors, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Corporation and any new director whose election by the Board of Directors or nomination for election by the Corporation's stockholders was approved by a vote of at least two- thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved (collectively, the "Incumbent Directors"), cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Corporation approve a merger or consolidation of the Corporation with any other corporation, other than a merger or consolidation which would result in the securities of the Corporation that generally vote in the election of directors of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into such types of securities of the surviving entity) at least 80% of the total voting power represented by the such types of securities of the Corporation or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of (in one transaction or a series of transactions) all or substantially all the Corporation's assets. "Independent Legal Counsel" shall mean an attorney or firm of attorneys, selected in accordance with the provisions of this section, who shall not have otherwise performed services for the Corporation or Agent within the last five years (other than with respect to matters concerning the rights of Agent under this Agreement, or of other indemnitees under similar indemnity agreements).
(b) In the event of a Potential Change in Control (as defined below), the Corporation shall, upon written request by Agent, create a trust for the benefit of Agent and from time to time upon written request of Agent shall fund such trust in an amount sufficient to satisfy any and all expenses reasonably anticipated at the time of each such request to be incurred in connection with investigating, preparing for and defending any claim, and any and all judgments, fines, penalties and settlement amounts of any and all claims from time to time actually paid or claimed, reasonably anticipated or proposed to be paid, provided that in no event shall more than $500,000 be required to be deposited in any trust created hereunder in excess of amounts deposited in respect of reasonably anticipated expenses, and provided further that in no event shall more than $25,000,000 in the aggregate be required to be deposited in any such trust and any such trusts created pursuant to similar indemnification agreements to which the
Company is a party. The amount or amounts to be deposited in the trust pursuant to the foregoing funding obligation shall be determined by the Reviewing Party, in any case in which the Independent Legal Counsel referred to above is involved. The terms of the trust shall provide that upon a Change in Control (i) the trust shall not be revoked or the principal thereof invaded, without the written consent of the Agent, (ii) the trustee shall advance, within two business days of a request by the Agent, any and all expenses to the Agent (and the Agent hereby agrees to reimburse the trust under the circumstances under which the Agent would be required to reimburse the Corporation under Section 2(b) of this Agreement), (iii) the trust shall continue to be funded by the Corporation in accordance with the funding obligation set forth above, (iv) the trustee shall promptly pay to Agent all amounts for which Agent shall be entitled to indemnification pursuant to this Agreement or otherwise, and (v) all unexpended funds in such trust shall revert to the Corporation upon a final determination by the Reviewing Party or a court of competent jurisdiction, as the case may be, that Agent has been fully indemnified under the terms of this Agreement. The trustee shall be chosen by Agent. Nothing in this Section 11 shall relieve the Corporation of any of its obligations under this Agreement. Potential Change in Control shall be deemed to have occurred if (i) the Corporation enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (ii) any person (including the Corporation) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control; (iii) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or a corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, who is or becomes the beneficial owner, directly or indirectly, of securities of the Corporation representing 9.5% or more of the combined voting power of the Corporation's then outstanding securities that generally vote in the election of directors, increases his beneficial ownership of such securities by five percentage points (5%) or more over the percentage so owned by such person; or (iv) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. Notwithstanding anything to the contrary set forth herein, in the event of a request by Agent to create a trust under this Section 11(b), the Corporation shall not be obligated to establish such trust if at least a majority of the Incumbent Directors in office at that time, and prior to the consummation of a Change in Control, determine that the creation of such trust would not be in the best interests of the Corporation.
12. NON-EXCLUSIVITY OF RIGHTS. The rights of Agent hereunder shall be in addition to any other rights Agent may have under the Corporation's By- laws or the Code or otherwise. To the extent that a change in the Code (whether by statute or
judicial decision) permits greater indemnification by agreement than would be afforded currently under the Corporation 's By-laws and this Agreement, it is the intent of the parties hereto that Agent shall enjoy by this Agreement the greater benefits so afforded by such change.
13. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall continue after Agent has ceased to be a director, officer, employee or other agent of the Corporation or to serve at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise and shall inure to the benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporation, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place.
14. SEPARABILITY. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be invalid for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. Furthermore, if this Agreement shall be invalidated in its entirety on any ground, then the Corporation shall nevertheless indemnify Agent to the fullest extent provided by the Charter Documents, the Code or any other applicable law.
15. BURDEN OF PROOF. In connection with any determination by the Reviewing Party or otherwise as to whether Agent is entitled to be indemnified hereunder the burden of proof shall be on the Corporation to establish that Agent is not so entitled.
16. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Agent, Agent's spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Corporation shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action such shorter period shall govern.
17. ENTIRE AGREEMENT; EFFECTIVENESS. This Agreement contains the entire agreement of the parties hereto, and supersedes any and all prior
agreements and understandings, both oral and written, between the parties with respect to the subject matter hereof.
18. GOVERNING LAW. This Agreement shall be interpreted and enforced in accordance with the laws of the State of Delaware.
19. AMENDMENT AND TERMINATION. No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto.
20. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute but one and the same Agreement.
21. HEADINGS. The headings of the sections of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof.
22. NOTICES. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given (i) upon delivery if delivered by hand to the party to whom such communication was directed, (ii) upon the third business day after the date on which such communication was mailed if mailed by certified or registered mail with postage prepaid, (iii) upon the first business day after the date on which such communication was sent by a nationally recognized overnight delivery service, with delivery confirmed, or (iv) upon delivery by facsimile, with receipt confirmed, addressed as follows:
(a) If to Agent, at the address indicated on the signature page hereof.
(b) If to the Corporation, to
Openwave Systems Inc.
1400 Seaport Boulevard
Redwood City, California 94063
Attention: General Counsel
Fax: (650) 480-4315
or to such other address as may have been furnished to Agent by the Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.
OPENWAVE SYSTEMS INC.
AGENT
EXHIBIT 10.18
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the 18th day of September, 2000 (the "Effective Date"), by and between Donald Listwin (the "Executive") and Phone.com, Inc., a Delaware corporation (the "Corporation").
For ease of reference, this Agreement is divided into the following parts:
FIRST PART: TERM OF EMPLOYMENT, DUTIES AND SCOPE, COMPENSATION AND BENEFITS DURING EMPLOYMENT SECOND PART: COMPENSATION AND BENEFITS IN CASE OF INVOLUNTARY TERMINATION THIRD PART: COMPENSATION AND BENEFITS IN CASE OF A CHANGE IN CONTROL FOURTH PART: PARACHUTE PAYMENTS, CONFIDENTIAL INFORMATION, SUCCESSORS, MISCELLANEOUS PROVISIONS, SIGNATURE PAGE |
FIRST PART: TERM OF EMPLOYMENT, DUTIES AND SCOPE, COMPENSATION AND BENEFITS DURING EMPLOYMENT |
(d) Termination of Agreement. This Agreement shall expire when all obligations of the parties hereunder have been satisfied.
During the Agreement, the Corporation agrees to pay the Executive as
compensation for services a base salary at the annual rate of $250,000, or at
such higher rate as the Compensation Committee of the Board may determine from
time to time. Such salary shall be payable in accordance with the standard
payroll procedures of the Corporation. The annual compensation specified in this
Section 3, together with any increases in such compensation that the
Compensation Committee of the Board may grant from time to time, is referred to
in this Agreement as "Base Compensation."
During the Agreement, the Corporation shall award the Executive annual incentive compensation ("Incentive Compensation") based upon a target which shall be at least 50% of the Base Compensation, with the actual annual incentive award determined in accordance with the achievement of financial and other performance measures. Executive shall also have the opportunity to earn two (2) times the annual target based upon attainment of objectives defined by the Compensation Committee. A minimum bonus equal to at least the target bonus shall be guaranteed and paid in full as soon as practicable after the end of fiscal year 2001. Any compensation paid to the Executive as Incentive Compensation shall be in addition to the Base Compensation. The Compensation Committee of the Board will review the Executive's Incentive Compensation annually to ensure that the target remains competitive.
vest as to twenty-five percent (25%) of the options on the first anniversary of the Effective Date and ratably thereafter at the rate of 1/48 of such option award per month.
During the Agreement, the Executive shall be eligible to participate in all employee and executive benefit plans and executive compensation programs maintained by the Corporation, including (without limitation) savings or profit- sharing plans, deferred compensation plans, stock option, incentive or other bonus plans, life, disability, health, accident and other insurance programs, and similar plans or programs. Executive shall also be covered under the Corporation's standard director and officer insurance and indemnification programs.
While rendering services to the Corporation, the Executive is authorized to incur and shall be reimbursed for all necessary and reasonable travel, entertainment and other business expenses.
If Executive's employment with the Corporation is terminated at any time due to death or Disability, Executive shall receive (a) one (1) year of health coverage, comparable to that provided to other senior executives of the Corporation, for himself (if termination was due to Disability) and his family and (b) continuance of life insurance coverage on his life for one (1) year following termination (if termination was due to Disability). To the extent that the Corporation finds it undesirable to cover the Executive under the group life insurance and health plans of the Corporation, the Corporation shall provide the Executive (at its own expense) with the same level of coverage under individual policies.
SECOND PART: COMPENSATION AND BENEFITS IN CASE OF INVOLUNTARY TERMINATION
This Second Part of the Agreement, consisting of Sections 9 through 10, describes the benefits and compensation, if any, payable in case of a Qualifying Termination of employment. The Third Part of the Agreement, consisting of Sections 11 and 12, describes benefits and compensation, if any, payable in case of a Change in Control.
In the event that, during the Agreement, the Executive's employment terminates in a Qualifying Termination, as defined in Section 10(a), then, after executing the release of claims described in Section 10(c), the Executive shall be entitled to receive the payments and benefits described in Section 8 and Section 10(b).
(1) The Corporation terminates the Executive's employment for any reason other than Cause, Death or Disability; or
(2) The Executive experiences an Involuntary Termination not resulting from a Change in Control. For purposes of this Agreement, Involuntary Termination shall mean the occurrence of any of the following without the Executive's prior written consent: (i) a greater than 10% reduction in Executive's base compensation, incentive compensation target and benefits except if a majority of the Board of Directors vote to reduce the salary of the Executive and the rest of the Corporation's executive officers by the same percentage amount for the same time period, (ii) a material change in Executive's status or his responsibilities (excluding loss of title as President of the Corporation), (iii) the Corporation's failure to continue Executive as its CEO, (iv) the Corporation's failure to nominate Executive for re- election as a member of the Board of Directors (unless Executive's employment is terminated for Cause), (v) if Executive is not at all times the Chief Executive Officer of the Corporation's ultimate parent entity (if any), or (vi) a requirement to relocate, except for office relocations that would not increase the Executive's one-way commute distance by more than thirty (30) miles. For purposes of greater clarity, termination for Cause, death or Disability shall not give rise to an Involuntary Termination.
(1) One (1) times the Executive's Base Compensation in effect on the date of the termination of employment;
(2) One (1) times the Executive's target Incentive Compensation for the year in which Executive's employment is terminated;
(3) 50% of Executive's then unvested stock options shall become vested and Executive shall have one (1) year after the date of Qualifying Termination to exercise all vested options and Executive's remaining unvested options, if any, shall not expire until the earlier of (i) their original expiration date or (ii) one (1) year after the date of Qualifying Termination; and
(4) The same level of health and life insurance coverage provided under
Section 8 above. This coverage will be provided for one (1) year
after termination of employment with COBRA benefits to begin
thereafter. The obligation of the Corporation to provide continued
health and life insurance benefits under this Section 10 shall cease
if Executive becomes employed by another employer and such employer
provides the Executive with life insurance and health plan coverage
that is comparable to the coverage contemplated by this Section 10.
THIRD PART: COMPENSATION AND BENEFITS IN CASE OF A CHANGE IN CONTROL
(a) If Executive is still employed by the Corporation and there is a Change in Control, 50% of Executive's then unvested stock options shall become vested. His remaining unvested stock options shall continue to vest at the same rate of vesting as before the Change in Control subject to Section 11(b) below.
(b) If a Qualifying Termination occurs in connection with a Change in Control or within eighteen (18) months after a Change in Control, the Executive will receive a cash severance payment equal to one (1) times the sum of his Base Compensation and target Incentive Compensation less any severance payments previously made under Section 10(b) above. Such severance will be paid in a lump sum within ten (10) days of the Qualifying Termination. Executive shall receive the same health and life insurance benefits provided in Section 8. Additionally, all of Executive's unvested stock options, if any, shall vest in full and Executive shall have one (1) year after the date of Qualifying Termination to exercise his vested options.
For all purposes under this Agreement, "Change in Control" shall be as defined below.
(i) The stockholders of the Corporation approve an agreement for the sale of all or substantially all of the assets of the Corporation to a person or entity; or
(ii) The stockholders of the Corporation approve a merger or consolidation of the Corporation with any other corporation, other than a merger or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Corporation or such surviving entity outstanding immediately after such merger or consolidation;
(iii) Completion of a tender or exchange offer or other transaction or series of transactions by a person or entity that results in less than a majority of the outstanding voting shares of the surviving corporation being held, immediately after such transaction or series of transactions, by the holders of the voting shares of the Corporation outstanding immediately prior to such transaction or series of transactions.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions (i) immediately following which the record holders of the common stock of the Corporation immediately prior to such transaction or series of transactions continue to have substantially the
same proportionate ownership in an entity which owns all or substantially all of the assets of the Corporation immediately following such transaction or series of transactions or (ii) involving the proposed merger between the Corporation and Software.com, Inc.; or
(iv) Approval by the stockholders of the Corporation of a complete liquidation or dissolution of the Corporation.
FOURTH PART: PARACHUTE PAYMENTS, CONFIDENTIAL INFORMATION, SUCCESSORS, MISCELLANEOUS PROVISIONS, SIGNATURE PAGE
In the event that the severance and other benefits provided for in this Agreement or otherwise payable to the Executive (i) constitute "parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) but for this Section 13, would be subject to the excise tax imposed by Section 4999 of the Code (or any corresponding provisions of state income tax law), then the Executive's severance benefits under Section 11 shall be either
(a) delivered in full, or
(b) delivered as to such lesser extent which would result in no
portion of such severance benefits being subject to excise tax under Section
4999 of the Code, whichever of the foregoing amounts, taking into account the
applicable federal, state and local income taxes and the excise tax imposed by
Section 4999, results in the receipt by the Executive on an after-tax-basis, of
the greater amount of severance benefits, notwithstanding that all or some
portion of such severance benefits may be taxable under Section 4999 of the
Code. Unless the Corporation and the Executive otherwise agree in writing, any
determination required under this Section 13 shall be made in writing by the
Corporation's accountants, whose determination shall be conclusive and binding
upon the Executive and the Corporation for all purposes. For purposes of making
the calculations required by this Section 13, the accountants may make
reasonable assumptions and approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations concerning the application of
Sections 280G and 4999 of the Code. The Corporation and the Executive shall
furnish to the accountants such information and documents as the accountants may
reasonably request in order to make a determination under this Section 13. The
Corporation shall bear all costs the accountants may reasonably incur in
connection with any calculations contemplated by this Section 13. In the event
that subsection (a) above applies, then Executive shall be responsible for any
excise taxes imposed with respect to such severance and other benefits. In the
event that subsection (b) above applies, then each benefit provided hereunder
shall be proportionately reduced to the extent necessary to avoid imposition of
such excise taxes.
The Corporation and the Executive will enter into the Corporation's standard Employee Inventions and Assignment Agreement which shall govern use by the Executive of the Corporation's confidential information.
to all or substantially all of the Corporation's business and/or assets, by an agreement in substance and form satisfactory to the Executive, to assume this Agreement and to agree expressly to perform this Agreement in the same manner and to the same extent as the Corporation would be required to perform it in the absence of a succession. The Corporation's failure to obtain such agreement prior to the effectiveness of a succession shall be a breach of this Agreement and shall entitle the Executive to all of the compensation and benefits to which the Executive would have been entitled hereunder if the Corporation had involuntarily terminated the Executive's employment without Cause or Disability, on the date when such succession becomes effective. For all purposes under this Agreement, the term "Corporation" shall include any successor to the Corporation's business and/or assets that executes and delivers the assumption agreement described in this Section 15(a) or that becomes bound by this Agreement by operation of law.
writing. In the case of the Corporation, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of the Board.
EXECUTIVE
/s/ Donald Listwin ------------------------------------------- Donald Listwin |
PHONE.COM, INC.
By /s/ Alain Rossmann --------------------------------------- Its Chairman -------------------------------------- |
Exhibit 10.22
July 26, 2001
Mike Mulica
SVP - OCO, Sales
Dear Mike,
At the Board of Directors meeting on July 20, 2001 a number of changes were made to the executive compensation structure. As a result we've made some significant changes to your compensation package. The details of the changes are outlined below:
Base Pay: . Your base salary will be increased from $250,000 to $300,000 per year, effective August 1, 2001. Variable Pay: . Your target bonus opportunity will be increased from 75% of your base salary to 100% of your base salary, retroactive to January 1, 2001. This bonus opportunity is based on achieving revenues of $600k for 2001. Achieving the stretch revenue goal of $640k for 2001 will double your overall annual bonus opportunity. . A midyear bonus payout of $150,000 (minus your current draw) has already been initiated. . Your monthly draw will be increased to your OTE level, to $25,000/month, effective July 1, 2001. Stock Options: . All of your unexercised stock options, both vested and unvested, may be voluntarily cancelled (as part of the BOD approved cancel and regrant program) in order to get new options at a later date. You may consider the 11/1/99 and 1/3/00 stock option grants as part of this cancel and re-grant program. The 20-business day election period will begin August 13, 2001. The re-grant will occur between March 12 and April 12, 2002. . We have modified the vesting schedule for the 100,000 stock options granted to you on 1/2/01. 100% of these options will vest on January 2, 2002, if you achieve the 2001 stretch revenue goal of $640k. If you do not achieve the annual revenue goal of $640k, then 25% of this option grant will vest, with the remaining 75% vesting on a monthly basis over the next 3 years. Restricted Stock: . I am pleased to grant you 30,000 shares of restricted stock, effective July 20, 2001, with a grant price of $17.97/share. Restrictions on these shares lapse on July 20, 2003. Sincerely, |
Don Listwin
Chairman, President and CEO
Openwave
EXHIBIT 10.25
[LOGO APPEARS HERE]
December 19, 2000 Revised
Allen Snyder
17660 Saddlewood Rd
Monument, CO 80132
Dear Allen:
I am delighted to make you this offer to join Openwave Systems Inc. Each person at Openwave will help shape our values and direction; each person will add his or her unique strengths and perspectives.
The offer is for you to join us as Senior Vice President, Customer Advocacy, reporting to Don Listwin. Your monthly salary will be $18,333.33 per month or $220,000.00 on an annualized basis, and your on target earnings will be $380,000.00 on an annualized basis with the bonus component based upon your performance in achieving defined objectives in your position as Senior Vice President, Customer Advocacy. You will also receive a $150,000.00 sign on bonus. Should your employment with Openwave terminate for any reason, within your first twelve months of employment, you agree to pay back the bonus on a pro-rated basis, with pro-ration based upon the number of months of your service with the Company. As an employee, you are also eligible to receive our standard employee benefits.
Subject to the approval of the CEO or Board of Directors of Openwave you will be granted an option to purchase 300,000 shares of Common Stock at an exercise price equal to the closing price of the Common Stock on the date of grant. The vesting commencement date and the date of grant will be the same. The shares will vest over four years with a one year cliff, meaning that one fourth of your shares will be vested one year from your vesting commencement date and the remaining shares will vest monthly thereafter. Vesting will, of course, depend on your continued employment with Openwave.
Subject to the approval of the CEO or Board of Directors, you will also be granted an additional option to purchase 50,000 shares of Common Stock at an exercise price equal to the closing price of the Common Stock on the date of grant. The vesting commencement date and the date of grant will be the same. These shares are 100% vested after nine months based upon the completion of mutually agreed initial deliverables. Vesting will, of course, depend on your continued employment with Openwave.
You should be aware that your employment with Openwave is for no specified period and constitutes "at will" employment. As a result, you are free to resign at any time, for any reason or for no reason. Similarly, Openwave is free to conclude its employment relationship with you at any time, with or without cause. Should your employment be terminated except "for cause" during the first 24 months of employment, you will be eligible to receive a severance package equal to 12 months of target pay and benefits, excluding the further vesting of option. After 24 months of employment, this severance package will be equal to six months of target pay and benefits again excluding the further vesting of options.
"Cause" shall mean (i) gross negligence or willful misconduct in the performance of the Employee's duties to the Company; (ii) repeated unexplained or unjustified absence from the Company; (iii) a material and willful violation of any federal or state law; (iv) refusal or failure to act in accordance with any specific direction or order of the Company; (v) commission of any act of fraud with respect to the Company; or (vi) conviction of a felony or a crime involving moral turpitude causing material harm to the standing and reputation of the Company, in each case as determined by the Board of Directors of the Company.
You will be offered to sign a "double trigger" agreement, which calls for accelerated vesting of our stock if you are terminated within an 18-month period after the Company is acquired.
[LOGO APPEARS HERE]
You are invited to attend Day One Orientation on your first day of work during which you will learn more about Openwave's business, culture and benefits. Orientation will be held from 9:00AM to 11:00AM in the Multi-Purpose Room at 101 Saginaw. For purposes of Federal Immigration Law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated.
Upon joining Openwave you will be required to sign a confidentiality and invention agreement in which you will be asked to protect the company's confidential information and to assign to the company any inventions produced in the course of your work.
Please review these terms to make sure they are consistent with your understanding. If so, please send the original signed offer letter in the provided envelope to Riley Palmer or fax to 650-503-2900 no later than Thursday December 21, 2000.
Your acceptance of this offer represents a unique opportunity for Openwave both to grow and to succeed. I want to thank you for the commitment you have made to our common vision and look forward to working with you.
Accepted by:
------------------------- --------------------------- Don Listwin Allen Snyder President and CEO Start date: ---------------- |
EXHIBIT 10.26
[LOGO APPEARS HERE]
August 28, 2001 Revised
Kevin Kennedy
690 Loyola Drive
Los Altos, CA 94124
Dear Kevin:
I am delighted to make you this offer to join Openwave Systems Inc. effective August 22, 2001. This offer letter serves to confirm our previous discussions.
The offer is for you to join us as Chief Operating Officer, reporting to me. Your responsibilities will include: Product Development, Marketing, IT, Business Development, Market Development, Corporate Development, including mergers and acquisitions, and Office of Customer Operations {OCO Sales & Customer Advocacy}.
. Your monthly salary will be $31,250 per month, or $375,000.00 on an annualized basis.
. You are eligible to participate in the Corporate Bonus Program with a target of 75% of your annual salary. Your actual payout for the 2001 plan year will be based on your actual base salary earned during 2001. Corporate performance determines the payout pool, while your individual performance determines your actual payout. The program is subject to specific terms and conditions, which will be provided under separate cover. During your first 12 months of employment only, Openwave will guarantee corporate performance at target level.
. Providing you are employed as a regular full time employee by Openwave Systems Inc. (or one of its subsidiaries) on the following dates, and based upon the completion of mutually agreed upon initial deliverables, Openwave will pay you the gross cash bonus corresponding with each respective date listed below:
September 1, 2001 $250,000 November 1, 2001 $250,000 January 1, 2002 $250,000 |
Should your employment with Openwave voluntarily terminate within your first twelve (12) months of employment, you agree to pay back the bonuses on a pro-rated basis, with pro-ration based upon the number of months of your service with the Company.
. Subject to the approval of the Compensation Committee of the Board of Directors of Openwave you will be granted options to purchase 2,500,000 shares of Common Stock. This will be broken into three separate grants; the first grant of 2,000,000 shares will be made within two(2) weeks of your start date and subsequent grants for 250,000 shares each, will be granted in February, 2002 and August, 2002, respectively, on dates determined by the Compensation Committee at an exercise price equal to the closing price of the Common Stock on the respective grant dates. The vesting commencement date and the date of grant will be the same. The shares will vest over four years with a one year cliff, meaning that one fourth of your shares will be vested one year from your vesting commencement date and the remaining shares will vest monthly thereafter. Vesting will, of course, depend on your continued employment with Openwave.
. Providing you are employed as a regular full time employee by Openwave Systems Inc. (or one of its subsidiaries) on the following dates, and based upon the completion of mutually agreed upon deliverables, Openwave will pay you the net cash bonus (bonus will be grossed up for taxes) corresponding with each respective date listed below:
June 30, 2002 $235,000 September 30, 2002 $210,000 December 31, 2002 $206,000 March 31, 2003 $205,000 June 30, 2003 $203,000 August 31, 2003 $200,000 |
[LOGO APPEARS HERE] |
. Subject to the approval of the Compensation Committee of the Board of Directors of Openwave, you will be granted, as of your date of employment, 150,000 shares of restricted stock. The shares will vest as follows: 25,000 shares will be immediately vested upon date of grant, and 25,000 shares will vest at the end of each calendar quarter beginning 12/31/01, with 100% vesting on 12/31/02. Vesting will, of course, depend on your continued employment with Openwave.
. Openwave will provide you with a loan of $1,200,000 which you may use to assist in the payment of taxes on the grant of restricted stock, should you decide to file an 83(b) election. Details and terms of the loan will be provided in the loan document.
. As an employee, you are also eligible to receive our standard employee benefits.
. You should be aware that your employment with Openwave is for no specified period and constitutes "at will" employment. As a result, you are free to resign at any time, for any reason or for no reason. Similarly, Openwave is free to conclude its employment relationship with you at any time, with or without cause. Should your employment be terminated except "for cause" during the first 24 months of employment, you will be eligible to receive a severance package equal to 12 months of target pay and benefits, excluding the further vesting of option. After 24 months of employment, this severance package will be equal to six months of target pay and benefits, excluding the further vesting of options.
"Cause" shall mean (i) gross negligence or willful misconduct in the performance of the Employee's duties to the Company; (ii) repeated unexplained or unjustified absence from the Company; (iii) a material and willful violation of any federal or state law; (iv) refusal or failure to act in accordance with any specific direction or order of the Company; (v) commission of any act of fraud with respect to the Company; or (vi) conviction of a felony or a crime involving moral turpitude causing material harm to the standing and reputation of the Company, in each case as determined by the Board of Directors of the Company.
You will be offered to sign a change of control agreement that provides for 75% accelerated vesting of stock and stock options upon a change of control and the remaining 25% vested if your employment is deemed involuntarily terminated as a result of a substantial diminishment of responsibilities within a 12-month period after the Company is acquired. In addition, under these circumstances, and upon your termination the outstanding balance on any loans extended to you by Openwave will also be forgiven and "grossed up" for any taxes then due on income resulting from forgiveness of the indebtedness. More details will be provided in the change of control agreement, which will be provided under separate cover.
You are invited to attend Day One Orientation on your first day of work during which you will learn more about Openwave's business, culture and benefits. Our Human Resources Department will contact you regarding the specific details for your orientation. For purposes of Federal Immigration Law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated.
Upon joining Openwave you will be required to sign confidentiality and invention agreement in which you will be asked to protect the company's confidential information and to assign to the company any inventions produced in the course of your work.
[LOGO APPEARS HERE]
Please review these terms to make sure they are consistent with your understanding. If so, please sign and return this offer letter via fax to Alicia Villegas at 650 480-7414.
Your acceptance of this offer represents a unique opportunity for Openwave both to grow and to succeed. I want to thank you for the commitment you have made to our common vision and look forward to working with you.
Accepted by: --------------------------- ----------------------------- Don Listwin Kevin Kennedy President and CEO |
EXHIBIT 10.27
PROMISSORY NOTE
$400,000.00 August 6, 2001 Redwood City, California
FOR VALUE RECEIVED, Michael Mulica ("BORROWER"), an employee of Openwave Systems Inc, a Delaware corporation ("COMPANY") hereby unconditionally promises to pay to the order of Company, in lawful money of the United States of America and in immediately available funds, the principal sum of Four Hundred Thousand Dollars ($400,000.00) (the "LOAN") together with accrued and unpaid interest thereon, each due and payable on the dates and in the manner set forth below.
It is the intent of the parties that the purpose of this Promissory Note (this "Note") is not for consumer, family or household purposes.
1. REPAYMENT. Principal under this note shall be payable in four equal installments as follows:
Payment Due Date Principal Amount Due ---------------- -------------------- August 6, 2002 $100,000 August 6, 2003 $100,000 August 6, 2004 $100,000 August 6, 2005 all then outstanding principal and any other amounts due hereunder. |
If a payment under this Note is due on a holiday, weekend or other day in which federal banks are not generally open in the United States, then the payment shall be due on the next following day in which federal banks in the United States are open for business. Notwithstanding the foregoing, if Borrower's employment with the Company terminates for any reason (including resignation, death, or disability), all amounts due under this Note shall automatically become due and payable in full thirty days following the date such employment terminates.
2. INTEREST RATE. The outstanding principal amount hereof shall bear interest from the date hereof until payment in full at the rate of 3.94% per annum (which is the Applicable Federal Rate). Interest shall be compounded annually, due and payable annually in arrears, and calculated on the basis of a 360 day year consisting of twelve 30-day months, for the actual number of days elapsed. Notwithstanding the foregoing, to the extent that Borrower is employed by the Company on any date that interest is regularly scheduled to become due under this Note (i.e., on the first year and each subsequent year anniversary of this Loan), then all interest due on
each such respective anniversary date automatically shall be forgiven in its entirety. Borrower understands that in accordance with applicable law, any interest forgiven under this Note will likely constitute income to him for tax purposes. Any principal repayment or interest payment on the Loan hereunder not paid when due, whether at stated maturity, by acceleration or otherwise, shall bear interest at ten percent (10%) per annum, to the extent legally permissible.
3. PLACE/MANNER OF PAYMENT. All amounts payable hereunder shall be payable at the corporate headquarters of the Company unless another place of payment shall be specified in writing by Company.
4. APPLICATION OF PAYMENTS. Payments on this Note shall be applied first to penalties and collection costs, including attorney's fees, if any, second to accrued interest, if any, and thereafter to the outstanding principal balance hereof.
5. DEFAULT. If Borrower fails to pay timely any of the principal amount, accrued interest, or other amount due under this Note within five (5) business days after the date the same becomes due and payable, all unpaid principal, accrued interest and other amounts owing hereunder shall, at the option of Company, become immediately due, payable and collectible by Company pursuant to applicable law. Company shall have all rights and may exercise any remedies available to it under law, successively or concurrently. Borrower expressly acknowledges and agrees that Company shall have the right to offset any obligations of Borrower hereunder against salaries, bonuses, commissions, severance, accrued vacation upon employment termination, or any other amounts that may be payable to Borrower by Company.
6. WAIVER. Borrower waives presentment and demand for payment, notice of dishonor, protest and notice of protest of this Note, and shall pay all costs of collection when incurred, including, without limitation, reasonable attorneys' fees, costs and other expenses. The right to plead any and all statutes of limitations as a defense to any demands hereunder is hereby waived to the full extent permitted by law.
7. ATTORNEY'S FEES. In the event of any litigation concerning this Note, the Prevailing Party shall be entitled to a reasonable sum of attorneys' fees, costs, and litigation expenses, whether or not such action is prosecuted to judgment. "Prevailing Party" shall mean, without limitation, a party who agrees to dismiss an action upon payment by the other party of sums allegedly due or performance of covenants allegedly breached, or who obtains substantially the relief sought by that party. In the event that the Company is the Prevailing Party, the Company shall also be entitled to reasonable costs associated with the collection of the Note.
8. GOVERNING LAW. This Note shall be governed by, and construed and enforced in accordance with, the internal laws of the State of California.
9. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to the benefit of and be binding on any successor to Borrower and shall extend to any holder hereof. Borrower shall not, without the prior written consent of holder, assign any of its rights or obligations hereunder.
INTENDING TO BE LEGALLY BOUND, Borrower has executed this Note as of the date and year first above written.
EXHIBIT 10.28
PROMISSORY NOTE
$300,000.00 August 20, 2001 Redwood City, California
FOR VALUE RECEIVED, Alan Black ("BORROWER"), an employee of Openwave Systems Inc, a Delaware corporation ("COMPANY") hereby unconditionally promises to pay to the order of Company, in lawful money of the United States of America and in immediately available funds, the principal sum of Three Hundred Thousand Dollars ($300,000.00) (the "LOAN") together with accrued and unpaid interest thereon, each due and payable on the dates and in the manner set forth below.
It is the intent of the parties that the purpose of this Promissory Note (this "Note") is not for consumer, family or household purposes.
1. REPAYMENT. Principal under this note shall be payable in four equal installments as follows:
Payment Due Date Principal Amount Due ---------------- -------------------- August 10, 2002 $100,000 August 10, 2003 $100,000 August 10, 2004 $100,000 |
If a payment under this Note is due on a holiday, weekend or other day in which federal banks are not generally open in the United States, then the payment shall be due on the next following day in which federal banks in the United States are open for business. Notwithstanding the foregoing, if Borrower's employment with the Company terminates for any reason (including resignation, death, or disability), all amounts due under this Note shall automatically become due and payable in full thirty days following the date such employment terminates.
2. INTEREST RATE. The outstanding principal amount hereof shall bear interest from the date hereof until payment in full at the rate of 3.94% per annum (which is the Applicable Federal Rate). Interest shall be compounded annually, due and payable annually in arrears, and calculated on the basis of a 360 day year consisting of twelve 30-day months, for the actual number of days elapsed. Notwithstanding the foregoing, to the extent that Borrower is employed by the Company on any date that interest is regularly scheduled to become due under this Note (i.e., on the first year and each subsequent year anniversary of this Loan), then all interest due on each such respective anniversary date automatically shall be forgiven in its entirety. Borrower understands that in accordance with applicable law, any interest forgiven under this Note will likely constitute income to him for tax purposes. Any principal repayment or interest payment
on the Loan hereunder not paid when due, whether at stated maturity, by acceleration or otherwise, shall bear interest at ten percent (10%) per annum, to the extent legally permissible.
3. PLACE/MANNER OF PAYMENT. All amounts payable hereunder shall be payable at the corporate headquarters of the Company unless another place of payment shall be specified in writing by Company.
4. APPLICATION OF PAYMENTS. Payments on this Note shall be applied first to penalties and collection costs, including attorney's fees, if any, second to accrued interest, if any, and thereafter to the outstanding principal balance hereof.
5. DEFAULT. If Borrower fails to pay timely any of the principal amount, accrued interest, or other amount due under this Note within five (5) business days after the date the same becomes due and payable, all unpaid principal, accrued interest and other amounts owing hereunder shall, at the option of Company, become immediately due, payable and collectible by Company pursuant to applicable law. Company shall have all rights and may exercise any remedies available to it under law, successively or concurrently. Borrower expressly acknowledges and agrees that Company shall have the right to offset any obligations of Borrower hereunder against salaries, bonuses, commissions, severance, accrued vacation upon employment termination, or any other amounts that may be payable to Borrower by Company.
6. WAIVER. Borrower waives presentment and demand for payment, notice of dishonor, protest and notice of protest of this Note, and shall pay all costs of collection when incurred, including, without limitation, reasonable attorneys' fees, costs and other expenses. The right to plead any and all statutes of limitations as a defense to any demands hereunder is hereby waived to the full extent permitted by law.
7. ATTORNEY'S FEES. In the event of any litigation concerning this Note, the Prevailing Party shall be entitled to a reasonable sum of attorneys' fees, costs, and litigation expenses, whether or not such action is prosecuted to judgment. "Prevailing Party" shall mean, without limitation, a party who agrees to dismiss an action upon payment by the other party of sums allegedly due or performance of covenants allegedly breached, or who obtains substantially the relief sought by that party. In the event that the Company is the Prevailing Party, the Company shall also be entitled to reasonable costs associated with the collection of the Note.
8. GOVERNING LAW. This Note shall be governed by, and construed and enforced in accordance with, the internal laws of the State of California.
9. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to the benefit of and be binding on any successor to Borrower and shall extend to any holder hereof. Borrower shall not, without the prior written consent of holder, assign any of its rights or obligations hereunder.
INTENDING TO BE LEGALLY BOUND, Borrower has executed this Note as of the date and year first above written.
EXHIBIT 10.29
PROMISSORY NOTE
$1,192,500
September 27, 2001
Redwood City, California
FOR VALUE RECEIVED, Kevin Kennedy ("BORROWER"), an employee of Openwave Systems Inc, a Delaware corporation ("COMPANY") hereby unconditionally promises to pay to the order of Company, in lawful money of the United States of America and in immediately available funds, the principal sum of One Million One Hundred Ninety Two Thousand Five Hundred Dollars ($1,192,500.00) (the "LOAN") together with accrued and unpaid interest thereon, each due and payable on the dates and in the manner set forth below.
It is the intent of the parties that the purpose of this Promissory Note (this "Note") is not for consumer, family or household purposes.
1. REPAYMENT. Principal under this note shall be payable in six installments as follows:
Payment Due Date Principal Amount Due ---------------- -------------------- July 1, 2002 $198,750 October 1, 2002 $198,750 January 1, 2003 $198,750 April 1, 2003 $198,750 July 1, 2003 $198,750 Sept 1, 2003 $198,750 |
If a payment under this Note is due on a holiday, weekend or other day in which federal banks are not generally open in the United States, then the payment shall be due on the next following day in which federal banks in the United States are open for business. Notwithstanding the foregoing, if Borrower's employment with the Company terminates for any reason (including resignation, death, or disability), all amounts due under this Note shall automatically become due and payable in full thirty days following the date such employment terminates.
2. INTEREST RATE. The outstanding principal amount hereof shall bear interest from the date hereof until payment in full at the rate of 3.94% per annum. Interest shall be
compounded annually, due and payable annually in arrears, and calculated on the basis of a 360 day year consisting of twelve 30-day months, for the actual number of days elapsed. Notwithstanding the foregoing, to the extent that Borrower is employed by the Company on any date that interest is regularly scheduled to become due under this Note (i.e., on the first year and each subsequent year anniversary of this Loan), then all interest due on each such respective anniversary date automatically shall be forgiven in its entirety. Borrower understands that in accordance with applicable law, any interest forgiven under this Note will likely constitute income to him for tax purposes. Any principal repayment or interest payment on the Loan hereunder not paid when due, whether at stated maturity, by acceleration or otherwise, shall bear interest at ten percent (10%) per annum, to the extent legally permissible.
3. PLACE/MANNER OF PAYMENT. All amounts payable hereunder shall be payable at the corporate headquarters of the Company unless another place of payment shall be specified in writing by Company.
4. APPLICATION OF PAYMENTS. Payments on this Note shall be applied first to penalties and collection costs, including attorney's fees, if any, second to accrued interest, if any, and thereafter to the outstanding principal balance hereof.
5. DEFAULT. If Borrower fails to pay timely any of the principal amount, accrued interest, or other amount due under this Note within five (5) business days after the date the same becomes due and payable, all unpaid principal, accrued interest and other amounts owing hereunder shall, at the option of Company, become immediately due, payable and collectible by Company pursuant to applicable law. Company shall have all rights and may exercise any remedies available to it under law, successively or concurrently. Borrower expressly acknowledges and agrees that Company shall have the right to offset any obligations of Borrower hereunder against salaries, bonuses, commissions, severance, accrued vacation upon employment termination, or any other amounts that may be payable to Borrower by Company.
6. WAIVER. Borrower waives presentment and demand for payment, notice of dishonor, protest and notice of protest of this Note, and shall pay all costs of collection when incurred, including, without limitation, reasonable attorneys' fees, costs and other expenses. The right to plead any and all statutes of limitations as a defense to any demands hereunder is hereby waived to the full extent permitted by law.
7. ATTORNEY'S FEES. In the event of any litigation concerning this Note, the Prevailing Party shall be entitled to a reasonable sum of attorneys' fees, costs, and litigation expenses, whether or not such action is prosecuted to judgment. "Prevailing Party" shall mean, without limitation, a party who agrees to dismiss an action upon payment by the other party of sums allegedly due or performance of covenants allegedly breached, or who obtains substantially the relief sought by that party. In the event that the Company is the Prevailing Party, the Company shall also be entitled to reasonable costs associated with the collection of the Note.
8. GOVERNING LAW. This Note shall be governed by, and construed and enforced in accordance with, the internal laws of the State of California.
9. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to the benefit of and be binding on any successor to Borrower and shall extend to any holder hereof. Borrower shall not, without the prior written consent of holder, assign any of its rights or obligations hereunder.
INTENDING TO BE LEGALLY BOUND, Borrower has executed this Note as of the date and year first above written.
EXHIBIT 21
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Openwave Systems Argentina S.R.L. Argentina Openwave Systems Systems Brasil Ltda Brazil Openwave Systems (Canada) Ltd. Canada Openwave Systems (Denmark) ApS Denmark Openwave Systems (France) SAS France Software.com France S.A.R.L. France Openwave Systems Deutschland GmbH Germany Openwave Systems (H.K.) Ltd. Hong Kong Software.com Hong Kong Ltd Hong Kong Openwave Systems (Italia) Srl Software on Italia S.r.l. Italy Openwave Systems Japan KK Japan Openwave Systems yuhan hoesa Korea Phone.com (Mexico) S. de R.L. Mexico Phone.com B.V. Netherlands Software.com B.V. Netherlands Adros Contractors Ltd. Northern Ireland Openwave Systems (Ireland) Ltd. Northern Ireland Openwave Systems (NI) Ltd. Northern Ireland Openwave Systems (ROI) Ltd. Republic of Ireland Openwave Sytems (Singapore) Pte Ltd Singapore After 6/30/01 Openwave Systems (Holdings) Ltd. United Kingdom Openwave Systems (Newbury) Ltd. United Kingdom Openwave Systems (Developments) Ltd. United Kingdom Openwave Systems (Europe) Ltd. United Kingdom Software.com Ltd. United Kingdom AtMobile.com, Inc. United States AtMotion, Inc. United States BCandid Corp. United States Global Mobility Network, Inc. United States Highland Software, Inc. United States ISPNews, Inc. United States Mobility.Net Corp. United States MyAble, Inc. United States Onebox.com, Inc. United States Openwave Systems, Inc. United States Software.com International, Inc. United States Openwave Technologies Inc. (FKA Software.com,Inc.) United States Phone.com Foreign Holdings LLC United States Paragon Software, Inc. United States Software.com Telarc, Inc. United States |
EXHIBIT 23.1
REPORT ON FINANCIAL STATEMENT SCHEDULE AND
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Openwave Systems Inc.:
The audits referred to in our report dated July 23, 2001, except as to Note 11, which is as of September 25, 2001, included the related financial statement schedule as of June 30, 2001, and for each of the years in the three-year period ended June 30, 2001. The financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits. In our opinion, based on our audit and the reports of other auditors, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We consent to the incorporation by reference in the registration statements (Nos. 333-81215, 333-35394, 333-36832, 333-40850, 333-67200, 333-67186, 333- 44926, 333-40840, 333-54726, 333-46142) on Form S-8 of Openwave Systems Inc. (formerly Phone.com, Inc.) of our reports dated July 23, 2001, except as to Note 11, which is as of September 25, 2001, relating to the consolidated balance sheets of Openwave Systems Inc. and subsidiaries as of June 30, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity and comprehensive loss, and cash flows for each of the years in the three-year period ended June 30, 2001, and the related financial statement schedule, which reports appear herein.
/s/ KPMG LLP Mountain View, California September 26, 2001 |
EXHIBIT 23.2
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-81215, 333-35394, 333-36832, 333-40850, 333-67200, 333-67186, 333-44926, 333-40840, 333-54726, 333-46142) of Openwave Systems Inc. (formerly Phone.com) of our report dated July 12, 2000, with respect to the supplemental consolidated statement of operations, stockholders' equity (deficit) and cash flows of Software.com, Inc. for the year ended December 31, 1999 and the related supplemental consolidated financial statement schedule. Such report is included in the Openwave Systems Inc. Form 10-K for the year ended June 30, 2001.
Woodland Hills, California
September 21, 2001