-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M3pc+WV9Bkg5JVdloOfLL7EWT12+L3LfU3F18ei6/cYNfP8FSViDTcPqc0GYkqsX qDRyh9Bqx58PhblvnI37SA== 0000950135-97-003346.txt : 19970813 0000950135-97-003346.hdr.sgml : 19970813 ACCESSION NUMBER: 0000950135-97-003346 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970812 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SECURITY DYNAMICS TECHNOLOGIES INC /DE/ CENTRAL INDEX KEY: 0000932064 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 042916506 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25120 FILM NUMBER: 97656174 BUSINESS ADDRESS: STREET 1: 20 CROSBY DRIVE CITY: BEDFORD STATE: MA ZIP: 01730 BUSINESS PHONE: 6176877000 MAIL ADDRESS: STREET 1: 20 CROSBY DRIVE CITY: BEDFORD STATE: MA ZIP: 01730 10-Q 1 SECURITY DYNAMICS TECHNOLOGIES, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1997 OR [ ] Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 Commission File Number: 0-25120 SECURITY DYNAMICS TECHNOLOGIES, INC. (Exact Name of Registrant as Specified in Its Charter) DELAWARE 04-2916506 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.) 20 CROSBY DRIVE BEDFORD, MA 01730 (Address of Principal Executive Offices) Registrant's Telephone Number, Including Area Code: (617) 687-7000 ----------------------------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes X No ------- ------- As of July 31, 1997, there were 37,815,552 shares of the Registrant's Common Stock, $.01 par value per share, outstanding. 2 SECURITY DYNAMICS TECHNOLOGIES, INC. FORM 10-Q FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 TABLE OF CONTENTS PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 1997 (unaudited) and December 31, 1996 3 Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 1997 and 1996 (unaudited) 4 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996 (unaudited) 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 16 Item 6. Exhibits and Reports on Form 8-K 17 Signature 18 Exhibit Index 19 2 - 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SECURITY DYNAMICS TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, 1997 DECEMBER 31, 1996 ----------------- ----------------- (Unaudited) ASSETS Current assets: Cash and equivalents $ 21,828 $ 9,512 Marketable securities 86,437 95,320 Accounts receivable (less allowance for doubtful accounts of $550 in 1997 and $527 in 1996) 17,391 13,293 Inventory 3,189 2,606 Prepaid expenses and other 5,837 4,204 Deferred taxes 304 -- -------- -------- Total current assets 134,986 124,935 -------- -------- Property and equipment - net 12,319 10,108 -------- -------- Other: Investments 2,187 2,924 Capitalized software cost, net and purchased technology 139 197 Deferred taxes 1,026 1,026 Other 943 752 -------- -------- Total Other 4,295 4,899 -------- -------- Total $151,600 $139,942 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 4,019 $ 5,119 Accrued payroll and related benefits 5,172 4,465 Accrued expenses and other 3,121 2,187 Income taxes payable -- 51 Deferred revenue 4,181 4,877 Deferred taxes -- 603 -------- -------- Total current liabilities 16,493 17,302 -------- -------- Minority interests 2,578 1,194 -------- -------- Commitments and contingencies Stockholders' equity: Common stock, $.01 par value; authorized, 80,000,000 shares; issued, 35,055,430 shares in 1997 and 34,389,593 shares in 1996; outstanding, 35,054,921 shares in 1997 and 34,389,297 shares in 1996 351 344 Additional paid-in capital 103,668 101,424 Retained earnings 26,651 16,420 Deferred stock compensation (141) (174) Treasury stock, common, at cost, 509 shares in 1997 and 296 shares in 1996 -- -- Cumulative translation adjustment (127) (48) Unrealized gain on marketable securities - net 2,127 3,480 -------- -------- Total stockholders' equity 132,529 121,446 -------- -------- Total $151,600 139,942 ======== ========
See notes to condensed consolidated financial statements. 3 - 4 SECURITY DYNAMICS TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended June 30, June 30, ------------------------ ------------------------ 1997 1996 1997 1996 ---------- --------- --------- ---------- Revenue $29,662 $17,421 $56,097 $32,283 Cost of revenue 6,201 3,647 12,241 7,161 ------- ------- ------- ------- Gross profit 23,461 13,774 43,856 25,122 ------- ------- ------- ------- Costs and expenses: Research and development 4,050 2,315 7,530 4,360 Marketing and selling 8,876 5,144 16,534 9,584 General and administrative 3,161 2,890 6,120 5,618 ------- ------- ------- ------- Total 16,087 10,349 30,184 19,562 ------- ------- ------- ------- Income from operations 7,374 3,425 13,672 5,560 Interest and other income 1,376 1,214 2,649 2,483 ------- ------- ------- ------- Income before provision for income taxes 8,750 4,639 16,321 8,043 Provision for income taxes 3,248 1,755 6,090 2,991 ------- ------- ------- ------- Net income $ 5,502 $ 2,884 $10,231 $ 5,052 ======= ======= ======= ======= Net income per common and common equivalent share $ 0.15 $ 0.08 $ 0.28 $ 0.14 ======= ======= ======= ======= Weighted average number of common and common equivalent shares outstanding 36,629 36,604 36,581 36,398 ======= ======= ======= =======
See notes to condensed consolidated financial statements. 4 - 5 SECURITY DYNAMICS TECHNOLOGIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Six Months Ended June 30, --------------------------------- 1997 1996 --------------- -------------- Cash flows from operating activities: Net income $ 10,231 $ 5,052 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Deferred taxes (10) (108) Depreciation and amortization 1,398 834 Stock compensation 33 166 Increase (decrease) in cash from changes in: Accounts receivable (4,293) (3,258) Inventory (583) (920) Prepaid expenses and other (536) (1,441) Accounts payable (1,091) 2,083 Accrued payroll and related benefits 736 (577) Accrued expenses and other 932 (220) Income taxes payable (946) (324) Deferred revenue (696) (464) -------- -------- Net cash provided by operating activities 5,175 823 -------- -------- Cash flows from investing activities: Purchases of marketable securities (48,027) (75,052) Proceeds from sales and maturities of marketable securities 55,628 36,382 Purchases of property and equipment (3,853) (2,544) Investments and other (143) (1,382) -------- -------- Net cash provided by (used for) investing activities 3,605 (42,596) -------- -------- Cash flows from financing activities: Proceeds from exercise of stock options 2,261 541 Proceeds from the sale of minority interests 1,384 -- -------- -------- Net cash provided by financing activities 3,645 541 -------- -------- Effects of exchange rate changes on cash and equivalents (109)) (37) -------- -------- Net increase (decrease) in cash and equivalents 12,316 (41,269) Cash and equivalents, beginning of period 9,512 49,284 -------- -------- Cash and equivalents, end of period $ 21,828 $ 8,015 ======== ========
See notes to condensed consolidated financial statements. 5 - 6 SECURITY DYNAMICS TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements include the accounts of Security Dynamics Technologies, Inc. (the "Company") and its wholly owned subsidiaries and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. In the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements, and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year. In July 1996, the Company completed a merger (the "Merger") with RSA Data Security, Inc. ("RSA"). The Merger has been accounted for as a pooling of interests, and therefore the consolidated financial statements for all periods prior to the Merger have been restated to include the accounts and operations of RSA with those of the Company. 2. Income Per Common Share Income per common share is computed using the weighted average number of common and common equivalent shares outstanding during each period presented. In February 1997, the Financial Accounting Standards Board issued Statement No. 128 ("SFAS No. 128"), "Earnings per Share", which is required to be adopted in the fourth quarter of 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15 and is intended to simplify the computation of earnings per share and to make the U.S. computations more comparable with international computations. The pro forma basic and diluted earnings per share (as defined by SFAS No. 128) for the three and six months ended June 30, 1997 would have been $0.16 and $0.15 and $0.29 and $0.28, respectively, and for the three and six months ended June 30, 1996 would have been $0.08 and $0.08 and $0.15 and $0.14, respectively. 6 - 7 3. Income Taxes The Company provides for income taxes at the end of each interim period based on the estimated effective tax rate for the full year. Cumulative adjustments to the tax provision are recorded in the interim period in which a change in the estimated annual effective rate is determined. Cash payments for income taxes were approximately $3,811 and $6,953 for the three and six months ended June 30, 1997 and $2,396 and $3,675 for the three and six months ended June 30, 1996, respectively. 4. Subsequent Events On July 15, 1997 (the "Effective Date"), the Company acquired DynaSoft AB ("DynaSoft"), a leading provider of security solutions for protecting access to corporate information and applications. The Company issued or reserved for issuance approximately 2.7 million shares of Common Stock in exchange for approximately 95% of the outstanding shares and certain of the outstanding options to acquire shares of DynaSoft. The Company also paid approximately $6 million to certain stockholders of DynaSoft in exchange for the remaining outstanding shares and options. Based on the closing price of the Company's Common Stock on the Nasdaq National Market on July 14, 1997, the transaction is valued at approximately $115 million. The transaction will be accounted for as a pooling of interests. The Company used authorized, but previously un-issued, shares of Common Stock in the acquisition. The number of shares of the Company's Common Stock issued in exchange for DynaSoft's shares was determined in an "arm's length" negotiation and the transaction was unanimously approved by the Boards of Directors of the Company and DynaSoft. In connection with the transaction, the Company and certain United States stockholders of DynaSoft entered into a Registration Rights Agreement, dated as of July 15, 1997, pursuant to which the Company has agreed to file a Registration Statement on Form S-3, on or prior to the 40th day following the Effective Date, for the purpose of registering under the Securities Act of 1933 the shares of Common Stock of the Company issued to such stockholders in the transaction. In addition, the Company, certain stockholders of DynaSoft, the representative of such DynaSoft stockholders and State Street Bank and Trust Company, as escrow agent, have entered into an Escrow Agreement, dated as of July 15, 1997, providing, among other things, that 10% of the shares of the Company's Common Stock received by such DynaSoft stockholders in the transaction will be held in escrow to reimburse the Company in connection with breaches of representations, warranties or covenants made by such DynaSoft stockholders. DynaSoft is based in Stockholm, Sweden and offers a range of security solutions, including secure single sign-on (SSSO) solutions, through its BoKS product family. DynaSoft markets its products worldwide through subsidiaries and also through OEM licensing agreements with Sun Microsystems, Inc., Hewlett-Packard Company, and other companies. 7 - 8 The following Unaudited Pro Forma Combined Financial Data has been derived from the historical financial statements of the Company and DynaSoft and give effect to the acquisition of DynaSoft as a pooling of interests. For the purposes of the pro forma combined financial data, the Company's financial data for the three and six months ended June 30, 1997 and for the three and six months ended June 30, 1996 have been combined with DynaSoft's financial data for the same periods. The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the acquisition of DynaSoft had been consumated prior to June 30, 1997 or of future operating results or financial position of the combined companies. UNAUDITED PRO FORMA COMBINED FINANCIAL DATA (In thousands, except per share data)
Three Months Ended Six Months Ended June 30, June 30, ---------------------------- -------------------------- 1997 1996 1997 1996 ----------- ----------- ------------ ----------- Revenue $32,955 $19,821 $61,374 $36,111 Net income 5,515 3,111 10,076 5,454 Net income per common and common equivalent share $ .14 $ .08 $ .26 $ .14 ======= ======= ======= ======= Weighted average number of common and common equivalent shares outstanding 39,527 39,039 39,418 38,398 ======= ======= ======= =======
8 - 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (IN THOUSANDS) OVERVIEW This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. For this purpose, any statements contained herein that are not statements of historical fact may bedeemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," and similar expressions are intended to identify forward-looking statements. There are a number of factors that could cause the Company's actual results to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, those set forth below under the caption "Certain Factors that May Affect Future Results." RESULTS OF OPERATIONS The following table sets forth income and expense items as a percentage of total revenue, and the percentage change in dollar amounts of such items, for the three and six months ended June 30, 1997 and 1996.
Percentage Percentage of Total Period-to-Period of Total Period-to-Period Revenue Change Revenue Change ------- ------ ------- ------ Three months Ended June 30, Six months Ended June 30, 1997 1996 1997 1996 ---- ---- ---- ---- - ---------------------- Revenue 100.0% 100.0% 70.3% 100.0% 100.0% 73.8% Cost of revenue 20.9 20.9 70.0 21.8 22.2 70.9 ----- ----- ----- ----- ----- ----- Gross profit 79.1 79.1 70.3 78.2 77.8 74.6 ----- ----- ----- ----- ----- ----- Costs and expenses: Research and development 13.6 13.3 74.9 13.4 13.5 72.7 Marketing and selling 29.9 29.5 72.6 29.5 29.7 72.5 General and administrative 10.7 16.6 9.4 10.9 17.4 8.9 ----- ----- ----- ----- ----- ----- Total 54.2 59.4 55.4 53.8 60.6 54.3 ----- ----- ----- ----- ----- ----- Income from operations 24.9 19.7 115.3 24.4 17.2 145.9 Interest income and other 4.6 6.9 13.3 4.7 7.7 6.7 ----- ----- ----- ----- ----- ----- Income before provision for income taxes 29.5 26.6 88.6 29.1 24.9 102.9 Provision for income taxes 11.0 10.0 85.1 10.9 9.3 103.7 ----- ----- ----- ----- ----- ----- Net income 18.5% 16.6% 90.7% 18.2% 15.6% 102.5% ===== ===== ===== ===== ===== =====
9 - 10 REVENUE The Company's revenue is derived principally from the sales of SecurID tokens, software license fees from ACE/Server and ACM software products, licensing of B/Safe, Tipem and B/Cert toolkits, licensing of patented technology, sales of ACM hardware products and revenues from maintenance and professional services. Total revenue increased 70.3% in the second quarter of 1997 to $29,662 from $17,421 in the second quarter of 1996. Total revenue increased 73.8% in the first six months of 1997 to $56,097 from $32,283 in the first six months of 1996. This increase in revenue reflects increases in unit sales of all of the Company's products, except ACM/400 and ACM/1600 hardware products. During the second quarter and first six months of 1997 approximately 40% and 44%, respectively, of the increase in revenue was attributable to increased sales of SecurID tokens, approximately 30% and 27%, respectively, of the increase in revenue was attributable to increased toolkit licensing, and approximately 21% and 18%, respectively, of the increase in revenue was attributable to increased sales of ACE/Server and ACM software products. The balance of the increase in revenue resulted from increased fees from patent licenses and maintenance services offset by decreased hardware revenue. The Company believes that the overall increase in sales was attributable in part to growth of the information security market, with the Internet and corporate intranets continuing to play significant roles in developing new opportunities for the Company. International revenue (excluding Canada and Latin America) increased 110.7% in the second quarter of 1997 to $7,212 from $3,422 in the second quarter of 1996 and increased 101.8% in the first six months of 1997 to $11,577 from $5,738 in the first six months of 1996. International revenue accounted for 24.3% and 19.6% of total revenue in the second quarters of 1997 and 1996, respectively, and 20.6% and 17.8% of total revenue in the first six months of 1997 and 1996, respectively. These increases in international revenue were primarily attributable to the continuing expansion of the Company's international direct sales force and increased market penetration of the Company's products in foreign markets. COST OF REVENUE AND GROSS PROFIT The Company's cost of revenue consists primarily of costs associated with the manufacture and delivery of SecurID tokens and hardware products. The Company utilizes assembly contractors for most manufacturing. Cost of revenue also includes royalty fees incurred on the sale of ACE/Server software, royalty fees payable on the licensing of patented technology, customer support costs and production costs, which include labor costs associated with the programming of SecurID tokens, inspection and quality control functions and shipping costs. 10 -- 11 The Company's gross profit increased 70.3% in the second quarter of 1997 to $23,461, or 79.1% of revenue, from $13,774, or 79.1% of revenue, in the second quarter of 1996, and increased 74.6% in the first six months of 1997 to $43,856, or 78.2% of revenue, from $25,122, or 77.8% of revenue, in the first six months of 1996. During the second quarter and first six months of 1997 approximately 36% and 42%, respectively, of the increases in gross profit were attributable to increased unit sales of SecurID tokens, approximately 33% and 32%, respectively, of the increases in gross profit were attributable to increased licensing sales of toolkit technology, and approximately 24% and 20%, respectively, of the increases in gross profit were attributable to increased licensing sales of ACE/Server software. In addition, gross profit increased primarily due to increased patent licensing fees, royalties and maintenance revenues, offset by reduced sales of ACM/400 and ACM/1600 hardware units. Gross profit as a percentage of revenue increased primarily due to increased sales of software products and patent licensing fees, which have higher margins, relative to sales of hardware products. In the future, gross profit may continue to be affected by several factors, including changes in product mix and distribution channels, price reductions (resulting from volume discounts or otherwise), competition, increased costs of revenue (including increases in material costs associated with the manufacture of SecurID tokens and hardware products) and other factors. RESEARCH AND DEVELOPMENT Research and development expenses consist primarily of personnel costs as well as fees for development services provided by consultants. Research and development expenses increased 74.9% in the second quarter of 1997 to $4,050 from $2,315 in the second quarter of 1996, and increased 72.7% in the first six months of 1997 to $7,530 from $4,360 in the first six months of 1996. Research and development expenses increased as a percentage of revenue in the second quarter of 1997 to 13.6% from 13.3% in the second quarter of 1996, but decreased as a percentage of revenue in the first six months of 1997 to 13.4% from 13.5% in the first six months of 1996. During the second quarter and first six months of 1997 approximately 83.4% and 74.1%, respectively, of the increases in research and development expenses resulted from employment of additional staff. The remainder of the increases in research and development were attributable to purchases of computer equipment, resulting in higher depreciation charges, occupancy expenses and consulting expenses. MARKETING AND SELLING Marketing and selling expenses consist primarily of salaries, commissions and travel expenses of direct sales and marketing personnel and marketing program expenses. 11 -- 12 Marketing and selling expenses increased 72.6% in the second quarter of 1997 to $8,876 from $5,144 in the second quarter of 1996, and increased 72.5% in the first six months of 1997 to $16,534 from $9,584 in the first six months of 1996. Marketing and selling expenses increased as a percentage of revenue in the second quarter of 1997 to 29.9% from 29.5% in the second quarter of 1996, and decreased as a percentage of revenue in the first six months of 1997 to 29.5% from 29.7% in the first six months of 1996. During the second quarter and first six months of 1997 approximately 46% and 46%, respectively, of the increase in marketing and selling expenses resulted from employment of additional staff, approximately 10% and 13%, respectively, of the increases in marketing and selling expenses were attributable to sales commissions on increased revenues, and approximately 19% and 19%, respectively, of the increases in marketing and selling expenses resulted from increased travel expenses and marketing program expenses. GENERAL AND ADMINISTRATIVE General and administrative expenses consist primarily of personnel costs for administration, finance, human resources and general management as well as legal and accounting expenses. General and administrative expenses increased 9.4% in the second quarter of 1997 to $3,161 from $2,890 in the second quarter of 1996, and increased 8.9% in the first six months of 1997 to $6,120 from $5,618 in the first six months of 1996. General and administrative expenses decreased as a percentage of revenue in the second quarter of 1997 to 10.7% from 16.6% in the second quarter of 1996, and decreased as a percentage of revenue in the first six months of 1997 to 10.9% from 17.4% in the first six months of 1996. The increases in general and administrative expenses were due to the employment of additional staff offset by reduced legal expenses. Legal expenses decreased approximately $545 and $1,299 from the second quarter and first six months of 1996, respectively, compared to the second quarter quarter and first six months of 1997 due to the settlement of legal proceedings in 1996. INTEREST AND OTHER INCOME Interest and other income consists primarily of interest earned on the Company's cash balances and marketable securities. Interest income increased 13.3% in the second quarter of 1997 to $1,376 from $1,214 in the second quarter of 1996, and increased 6.7% in the first six months of 1997 to $2,649 from $2,483 in the first six months of 1996. PROVISION FOR INCOME TAXES The provision for income taxes increased to $3,248 during the second quarter of 1997 from $1,755 in the second quarter of 1996, and increased to $6,090 during the first six months of 1997 from $2,991 in the first six months of 1996 due to higher pre-tax income and a higher effective tax rate during the first six months of 1997. The Company's estimated effective tax rate decreased to 37.1% in the second quarter of 1997 from 37.8% in the second quarter of 1996, and increased to 37.3% in the first six months of 1997 from 37.2% in the first six months of 1996. 12 -- 13 NET INCOME As a result of the above factors, net income in the second quarter and the first six months of 1997 increased to $5,502 and $10,231, or 18.5% and 18.2% of revenue, respectively, from $2,884 and $5,052, or 16.6% and 15.6% of revenue, respectively, in the second quarter and the first six months of 1996. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1997, the Company had cash and marketable securities of $108,265 and working capital of $118,493. The Company has historically funded its operations primarily from cash generated from its operating activities. During the first six months of each of 1996 and 1997, the Company used the cash provided by operations principally for working capital needs. On July 15, 1997, the Company acquired DynaSoft AB, a Stockholm, Sweden-based provider of enterprise security and single sign-on solutions, for approximately 2.7 million shares of its Common Stock in exchange for approximately 95% of the outstanding shares and options to acquire shares of DynaSoft. The Company also paid approximately $6 million to certain stockholders of DynaSoft in exchange for the remaining outstanding shares and options. The transaction will be accounted for as a pooling of interests. See Note 4 of Notes to Condensed Consolidated Financial Statements. The Company's capital expenditures for the first six months of 1997 were $3,853 and related primarily to additional leasehold improvements, office furniture and equipment, as well as computer equipment for product development, testing and support to accommodate the Company's continued growth. The Company generated $2,261 of cash from the exercise of stock options and generated $1,384 of cash from the sale of minority interests in RSA's Japan subsidiary in the first six months of 1997. In March 1996, the Company entered into a noncancelable operating lease expiring in 2006 for corporate executive offices in Bedford, Massachusetts. The Company commenced its tenancy in August 1996. The new facility consists of approximately 75,000 square feet of office space, and the annual base rent for the first year is $956, increasing annually up to $1,180 for years five through ten. In June 1997, the Company entered into a noncancelable operating lease expiring in 2006 for additional facilities in Bedford, Massachusetts. The Company will commence its tenancy in August 1997. The new facility consists of approximately 32,000 square feet of office space, and the annual base rent for the first four years is $599, increasing up to $662 for years five through ten. In November 1996, the Company amended its agreement with Progress Software for the right to use certain of its software to enhance the functionality of the Company's ACE/Server software. In order to obtain favorable pricing the Company, pre-paid $1,500 and $1,250 during the first and fourth quarters of 1996, respectively, and pre-paid $2,500 during the first quarter of 1997. 13 -- 14 The Company intends to seek acquisitions of businesses, products and technologies that are complementary to those of the Company. The Company is continuing to identify and prioritize additional security technologies which it may wish to develop, either internally or through the licensing or acquisition of products from third parties. While the Company engages from time to time in discussions with respect to potential acquisitions, there can be no assurances that any such acquisitions will be made or that the Company will be able to successfully integrate any acquired business. In order to finance such acquisitions, it may be necessary for the Company to raise additional funds through public or private financings. Any equity or debt financings, if available at all, may be on terms which are not favorable to the Company and, in the case of equity financings, may result in dilution to the Company's stockholders. The Company believes that working capital will be sufficient to meet its anticipated cash requirements through at least 1998. ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement No. 128 ("SFAS 128"), "Earnings per Share", which is required to be adopted in the fourth quarter of 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. SFAS 128 supersedes Accounting Principles Board Opinion No. 15 and is intended to simplify the computation of earnings per share and to make the U.S. computations more comparable with international computations. See Note 2 to Notes to Condensed Consolidated Financial Statements. In June 1997 the Financial Accounting Standards Board issued Statements of Financial Accounting Standards Nos. 130 and 131, "Reporting Comprehensive Income" and "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 130" and "SFAS 131", respectively). The Company will be required to adopt the provisions of these statements in 1998. SFAS 130 provides new standards for reporting items considered to be "comprehensive income." Currently the only items presented in the Company's consolidated financial statements which meet these criteria are the unrealized gains and losses on marketable securities recorded as a component of stockholders' equity. SFAS 130 would not affect this classification, but would require more prominent disclosure of unrealized gains and losses on marketable securities. SFAS 131 establishes new standards for reporting information about operating segments. The provisions of SFAS 130 or SFAS 131 will not, when adopted, have a material impact on the Company's net income or financial position. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS The following important factors, among others, could cause actual results to differ materially from those indicated by forward-looking statements made in this Quarterly Report on Form 10-Q and presented elsewhere by management from time to time. A number of uncertainties exist that could affect the Company's future operating results, including, without limitation, general economic conditions, the Company's continued ability to develop and introduce products, the introduction of new products by competitors, pricing practices of competitors, expansion of the Company's sales distribution capability, the cost and availability of components and the Company's ability to control costs. 14 -- 15 The Company's success is dependent in part on its ability to complete its integration of the operations of DynaSoft and RSA in an efficient and effective manner. The successful combination of the Company, DynaSoft and RSA in a rapidly changing high technology industry may be more difficult to accomplish than in other industries. The combination of the two companies will require, among other things, integration of the companies' respective product offerings and coordination of their sales and marketing and research and development efforts. There can be no assurance that such integration will be accomplished smoothly or successfully. The difficulties of such integration may be increased by the necessity of coordinating geographically separated organizations. The integration of certain operations will require the dedication of management resources which may temporarily distract attention from the day-to-day business of the combined company. The inability of management to successfully integrate the operations of the three companies could have a material adverse effect on the business and results of operations of the Company. The Company's success is also dependent on the success of its Enterprise Security Services, which is a security solution being developed by the Company that would enable organizations to support and manage the growing use of public and private keys, digital signatures and digital certificates for assuring confidentiality and privacy on an enterprise-wide scale. The success of Enterprise Security Services is dependent on a number of factors, including without limitation delays in product development, undetected software errors or bugs, competitive pressures, technical difficulties, market acceptance of new technologies, including without limitation the use and implementation of various certificate management and key management technologies, changes in customer requirements and government regulations, delays in developing strategic partnerships and general economic conditions. The Company's success is highly dependent on its ability to enhance its existing products and to develop and introduce new products in a timely manner. If the Company were to fail to introduce new products on a timely basis, the Company's operating results could be adversely affected. To date, substantially all of the Company's revenues have been attributable to sales of its computer and network security products and related services, all of which are currently used with the Company's SecurID token technology and the licensing of toolkits and patent technology. As a result, any factor adversely affecting sales of these products and services could have a material adverse effect on the Company's financial condition and results of operations. Certain components of the Company's products are currently purchased from sole or limited sources and any interruption in the supply of such components could adversely affect the Company's operating results. The Company's quarterly operating results may vary significantly depending on a number of factors, including the timing of the introduction or enhancement of products by the Company or its competitors, the sizes, timing and shipment of individual orders, market acceptance of new products, changes in the Company's operating expenses, personnel changes, mix of products sold, changes in product pricing, development of the Company's direct and indirect distribution channels and general economic conditions. International sales have represented a significant portion of the Company's sales. The international business and financial performance of the Company may be affected by fluctuations in foreign exchange rates, difficulties in managing accounts receivable, tariff regulations and difficulties in obtaining export licenses. 15 -- 16 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the 1997 Annual Meeting of Stockholders of the Company (the "Annual Meeting") held on April 24, 1997, the following matters were acted upon by the stockholders of the Company: 1. The election of George M. Middlemas and Marino R. Polestra as Class III Directors for the ensuing three years; 2. The approval of an amendment to the Company's 1994 Stock Option Plan (the "1994 Plan") increasing from 4,820,000 to 6,570,000 the number of shares of Common Stock authorized under the 1994 Plan and the continuance of the 1994 Plan, as amended (the "Plan Amendment"); and 3. Ratification of the appointment of Deloitte & Touche LLP as independent auditors of the Company for the current year. The number of shares of Common Stock outstanding and entitled to vote at the Annual Meeting was 34,956,261. The other directors of the Company, whose terms of office as directors continued after the Annual Meeting, are Charles R. Stuckey, Jr., D. James Bidzos, Richard L. Earnest , Joseph B. Lassiter III and Sanford M. Sherizen. The results of the voting on each of the matters presented to stockholders at the Annual Meeting are set forth below:
Votes Votes Votes Broker For Withheld Against Abstentions Non-votes ---------- -------- --------- ----------- --------- 1. Election of Class III Directors: George M. Middlemas 29,934,223 80,342 N.A N.A. N.A. Marino R. Polestra 29,933,623 80,942 N.A. N.A. N.A. 2. Plan Amendment 18,426,146 N.A. 5,618,109 61,771 5,908,539 3. Ratification of Independent Auditors 29,970,684 N.A. 6,969 36,912 N.A.
16 -- 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits The Exhibits listed in the Exhibit Index immediately preceding such Exhibits are filed as part of this Quarterly Report on Form 10-Q. b) Reports on Form 8-K: None. 17 -- 18 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SECURITY DYNAMICS TECHNOLOGIES, INC. Dated: August 11, 1997 /s/ Arthur W. Coviello, Jr. -------------------------------------------- Arthur W. Coviello, Jr. Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) 18 -- 19 EXHIBIT INDEX ITEM DESCRIPTION 10.1 Amendment No. 3 to 1994 Stock Plan Option Plan, as amended 10.2 First Amendment to Lease, dated as of May 10, 1997, between the Registrant and Beacon Properties, L.P. *10.3 Second Amendment to Progress Software Application Partner Agreement, dated as of November 29, 1995, between the Registrant and Progress Software Corporation *10.4 Third Amendment to Progress Software Application Partner Agreement, dated as of November 15, 1996, between the Registrant and Progress Software Corporation 11 Computation of Income Per Common and Common Equivalent Share. 27 Financial Data Schedule. - -------------------- *Confidential treatment requested as to certain portions, which portions are omitted and filed separately with the Securities and Exchange Commission. 19 -- EX-10.1 2 AMENDMENT NO. 3 TO 1994 STOCK OPTION PLAN 1 EXHIBIT 10.1 SECURITY DYNAMICS TECHNOLOGIES, INC. AMENDMENT NO. 3 TO 1994 STOCK OPTION PLAN The 1994 Stock Option Plan (the "Plan") of Security Dynamics Technologies, Inc. is hereby amended as follows (capitalized terms used herein and not defined herein shall have the respective meaning ascribed to such terms in the Plan): The first sentence of Section 4 of the Plan shall be deleted in its entirety and replaced with the following: "Subject to adjustment as provided in Section 15 below, the maximum number of shares of Common Stock which may be issued and sold under the Plan is 6,570,000 shares." Except as aforesaid, the Plan shall remain in full force and effect. Adopted by the Board of Directors on February 12, 1997 Approved by the stockholders on April 24, 1997 EX-10.2 3 FIRST AMENDMENT TO LEASE 1 EXHIBIT 10.2 Crosby Corporate Center Bedford, Massachusetts ("Park") FIRST AMENDMENT TO LEASE Date: May 10, 1997 LANDLORD: Beacon Properties, L.P. TENANT: Security Dynamics Technologies, Inc. LEASE EXECUTION DATE: March 11, 1996 EXISTING PREMISES: The entirety of 20 Crosby Drive (Building No. 1) in the Park, as more particularly described in the Lease RENT COMMENCEMENT DATE: August 1, 1996 TERMINATION DATE: July 31, 2006 PREVIOUS LEASE AMENDMENTS: None FIRST AMENDMENT ADDITIONAL PREMISES: The entirety of Building No. 3 in the Park, substantially as shown on Lease Plan, Exhibit 2, First Amendment, dated May 10, 1997. The First Amendment Additional Premises have two floors. The first floor contains 15,863 square feet of Total Rentable Area and the second floor contains 15,652 square feet of Total Rentable Area. WHEREAS, Tenant desires to lease additional premises in the Park, to wit, the First Amendment Additional Premises; WHEREAS, Landlord is willing to lease the First Amendment Additional Premises to Tenant on the terms and conditions hereinafter set forth; 2 NOW THEREFORE, the above-referenced lease ("the Lease") is hereby amended as follows: 1. DEMISE OF FIRST AMENDMENT ADDITIONAL PREMISES Landlord hereby demises and leases to Tenant, and Tenant hereby hires and takes from Landlord, the First Amendment Additional Premises. Said demise of the First Amendment Additional Premises shall be upon the terms set forth on Exhibit 1, First Amendment Version, Sheets 1, 2, and 3, dated May 10, 1997, and upon all of the terms and conditions of the Lease to the extent not inconsistent with said Exhibit 1 and provisions of this First Amendment. Wherever the term "Building" is used in the Lease in connection with the First Amendment Additional Premises, such term shall be deemed to refer to Building No. 3 in the Park. 2. TERM COMMENCEMENT DATE IN RESPECT OF FIRST AMENDMENT ADDITIONAL PREMISES The Term Commencement Date in respect of the First Amendment Additional Premises shall be the date that each party executes and delivers this First Amendment. 3. RENT COMMENCEMENT DATES IN RESPECT OF THE FIRST AMENDMENT ADDITIONAL PREMISES Subject to the provisions of Subparagraph B of Paragraph 6 of this First Amendment, the Rent Commencement Dates in respect of the First Amendment Additional Premises shall be as follows: First Floor: The earlier of: (x) August 4, 1997, or (y) the date that Tenant commences to use the first floor of the First Amendment Additional Premises, or any portion thereof, for business purposes Second Floor: The earlier of: (x) January 5, 1998, or (y) the date that Tenant commences to use the second floor of the Second Amendment Additional Premises, or any portion thereof, for business purposes 4. COMMENCEMENT OF TENANT'S OBLIGATIONS TO PAY TAX EXCESS AND OPERATING EXPENSE EXCESS A. Notwithstanding anything to the contrary herein or in the Lease contained, Tenant's obligation to pay Tax Excess in respect of the entirety of the First Amendment Additional Premises shall commence as of July 1, 1998. -2- 3 B. Notwithstanding anything to the contrary herein or in the Lease contained, Tenant's obligation to pay Operating Expense Excess in respect of the entirety of the First Amendment Additional Premises shall commence as of January 1, 1998. 5. CONDITION OF FIRST AMENDMENT ADDITIONAL PREMISES Tenant shall take the First Amendment Additional Premises "as-is", in the condition in which the First Amendment Additional Premises are in as of the Term Commencement Date in respect of the First Amendment Additional Premises, without any obligation on the part of Landlord to perform any work in order to prepare the First Amendment Additional Premises for Tenant's occupancy, and, except as set forth in Article 7(f) and Exhibit 7 of the Lease, without any representation by Landlord to Tenant as to the condition of the First Amendment Additional Premises. Without limiting the foregoing, Articles 4.1-4.8 of the Lease and Exhibits 4 and 4A of the Lease shall have no applicability to the First Amendment Additional Premises. Notwithstanding the foregoing, Landlord shall, at its sole cost and expense, install a separate electric submeter measuring the consumption of electric current in the First Amendment Additional Premises. 6. LANDLORD BASE BUILDING CODE COMPLIANCE WORK ISSUES A. The parties have identified certain items of work ("Base Building Code Compliance Work") listed on Exhibit 4, First Amendment, dated May 10, 1997, a copy of which is attached hereto and made a part hereof, which must be performed in order to bring the Base Building into compliance with applicable state and local law. Tenant shall perform such Base Building Code Compliance Work as part of the improvements which Tenant will be performing in the First Amendment Additional Premises. Landlord shall, at Tenant's election, either pay to Tenant or Tenant's contractor the cost of performing other items ("Landlord Cost Items") of Base Building Code Compliance Work, as identified on said Exhibit 4. Landlord shall pay for the Landlord Cost Items within thirty (30) days of its receipt of a requisition therefore after the completion of the applicable item of work. Such requisition shall include evidence reasonably satisfactory to Landlord of the amount of such Landlord Cost Item. B. The parties acknowledge that it is possible that, prior to Tenant's occupancy of the First Amendment Additional Premises, the Town of Bedford may order that work ("Additional Code Compliance Work"), other than the Base Building Code Compliance Work identified on Exhibit 4, First Amendment, be performed in order to bring the Base Building into compliance with law and in order to allow Tenant to legally occupy the First Amendment Additional Premises. If either Landlord and/or Tenant is so ordered to perform any Additional Code Compliance Work, then: -3- 4 (1) At Landlord's election, either: (i) Landlord shall pay to Tenant or Tenant's contractor the cost of performing the Additional Landlord Cost Items, as hereinafter defined, or (ii) Landlord shall engage its own contractor to perform the Additional Landlord Cost Items, and (2) The Rent Commencement Date in respect of the affected floor of the First Amendment Additional Premises shall be extended by the length of time (if any) that Tenant's occupancy of such floor of the First Amendment Additional Premises is delayed as the result of the performance of the Additional Landlord Cost Items. C. For the purposes of this Paragraph 6, "Additional Landlord Cost Items" shall be defined as any Additional Code Compliance Work other than such work as required as the result of Tenant's particular or unusual use or construction of any portion of the First Amendment Additional Premises. General business office use shall not be considered to be a particular or unusual use of the First Amendment Additional Premises, and construction necessary to allow for general business office use shall not be considered to be particular or unusual construction. Without limiting the foregoing, construction of a seating area in the sunken area on the first floor of the First Amendment Additional Premises shall not be considered to be particular or unusual use or construction. 7. TENANT'S EARLY TERMINATION RIGHT Tenant's early termination right, as set forth in Paragraph 1 of the Rider to the Lease shall have no applicability to the First Amendment Additional Premises (i.e. if Tenant exercises its early termination right under said Paragraph 1 with respect to the Existing Premises, the Lease shall remain in full force and effect with respect to the First Amendment Additional Premises). 8. TENANT'S EXTENSION OPTION Tenant's extension option with respect to the First Amendment Additional Premises may NOT be exercised independently of Tenant's extension option with respect to the Existing Premises (i.e. Tenant may NOT extend the term of the Lease with respect to the First Amendment Additional Premises without exercising its right to extend the term of the Lease with respect to the Existing Premises). However, Tenant's extension option with respect to the Existing Premises shall be independent of Tenant's extension option with respect to the First Amendment Additional Premises (i.e. Tenant shall have the right to extend the term of the Lease with respect to the Existing Premises without exercising its right to extend the term of the Lease with respect to the First Amendment Additional Premises). -4- 5 9. PARKING A. Tenant shall have the exclusive right, in connection with its demise of the First Amendment Additional Premises, to use the three (3) parking spaces located in the area shown as "Tenant's Building No. 3 Exclusive Parking Area" on Exhibit 3, First Amendment. Tenant's right to use Tenant's Building No. 3 Exclusive Parking Area shall be upon all of the same terms and conditions as are applicable to Tenant's right to use Tenant's Exclusive Parking Area, as set forth in Article 2.3 of the Lease. B. The present (i.e. as of the Execution Date) configuration of the common and exclusive parking areas in the Park is as set forth on Exhibit 3, First Amendment. C. Tenant's right to use Tenant's Exclusive Parking Area on an exclusive basis is appurtenant solely to Tenant's demise of the Existing Premises and Tenant's right to use Tenant's Building No. 3 Exclusive Parking Area on an exclusive basis is appurtenant solely to Tenant's demise of the First Amendment Additional Premises (i.e. from and after the termination of the term of the Lease in respect of the Tenant's Exclusive Parking Area, Tenant shall have no further right to use Tenant's Exclusive Parking Area on an exclusive basis and from and after the termination of the term of the Lease in respect of Tenant's Building No. 3 Exclusive Parking Area, Tenant shall have no further right to use Tenant's Exclusive Building No. 3 Parking Area). 10. LANDLORD'S TERMINATION RIGHTS BASED UPON VACANCY Landlord's termination right under Article 5.4 of the Lease shall apply to the Existing Premises independently of the First Amendment Additional Premises, provided however, that the Vacancy Period, as defined in Article 5.4, applicable to the First Amendment Additional Premises shall be three hundred sixty-five (365) consecutive days. In other words: A. If Tenant ceases to use all, or substantially all, of the Existing Premises for one hundred twenty (120) consecutive days, but Tenant continues to use the First Amendment Additional Premises, then Landlord shall have the right to terminate the term of the Lease in respect of the Existing Premises in accordance with Article 5.4, but Landlord shall not have the right to terminate the term of the Lease with respect to the First Amendment Additional Premises. B. If Tenant ceases to use all, or substantially all, of the First Amendment Additional Premises for the three hundred sixty-five (365) consecutive days, but Tenant continues to use the Existing Premises, then Landlord shall have the right to terminate the term of the Lease in respect of the First Amendment Additional Premises, but Landlord shall not have the right to terminate the term of the Lease with respect of the Existing Premises. -5- 6 11. TERMINATION RIGHTS BASED UPON CASUALTY AND TAKING In the event of a casualty or a taking which affects only one of the Buildings which would allow either party to exercise its rights, under either Article 18 or 20 of the Lease, to terminate the Lease, then, notwithstanding anything to the contrary herein contained, neither party shall have the right to terminate the term of the Lease with respect to the Building which is not affected by such casualty or taking. 12. TENANT'S SECURITY Tenant shall not be required to provide additional security (i.e. in addition to the $750,000.00 Letter of Credit which Tenant delivered to Landlord in connection the execution of the Lease) in connection with its demise of the First Amendment Additional Premises. The parties confirm and agree that said $750,000.00 Letter of Credit shall secure Tenant's obligations under the Lease, as hereby amended. 13. SIGNAGE Subject to obtaining Landlord's approval of the particulars therefor which shall not be unreasonably withheld, and Tenant's obtaining all necessary governmental approvals therefor, Tenant may at its sole cost and expense install an exterior monument sign in front the First Amendment Additional Premises. Such sign shall identify Tenant and shall be in a location approved by Landlord. If Tenant installs such monument sign, Tenant shall maintain the same in good order and repair at all times and shall remove the same from the Park at the expiration or earlier termination of the term of the Lease in respect of the First Amendment Additional Premises. 14. EXHIBIT 1 Exhibit 1, Sheets 1, 2, 3, and 4, dated March 11, 1996 shall have no applicability to the First Amendment Additional Premises and in lieu thereof, Exhibit 1, First Amendment Version, Sheets 1, 2, 4, and 4, dated May 10, 1997 shall apply to the First Amendment Additional Premises. -6- 7 15. As hereby amended, the Lease is ratified, confirmed, and approved in all respects. EXECUTED UNDER SEAL as of the date first above written. LANDLORD: BEACON PROPERTIES, L.P. By BEACON PROPERTIES CORPORATION, General Partner By /s/ Douglas S. Mitchell ------------------------------------ (Name) (Title) Hereunto Duly Authorized Date Signed 5/30/97 ----------------------------- TENANT: SECURITY DYNAMICS TECHNOLOGIES, INC. By /s/ A. W. CoviellO, Jr. C.O.O. ------------------------------------ (Name) (Title) Hereunto Duly Authorized Date Signed 5/15/97 ----------------------------- -7- 8 EXHIBIT 1, FIRST AMENDMENT VERSION, SHEET 1 BUILDING NO. 3 CROSBY CORPORATE CENTER BEDFORD, MASSACHUSETTS Execution Date: May 10, 1997 Tenant: SECURITY DYNAMICS TECHNOLOGIES, INC. (a Delaware corporation) Mailing Address: 20 Crosby Drive, Bedford, Massachusetts 01730 Landlord: Beacon Properties, L.P., a Delaware limited partnership (the sole general partner of which is Beacon Properties Corporation, a Maryland corporation.) Mailing Address: 50 Rowes Wharf, Boston, Massachusetts 02110, Attention: General Partner Park: The land, buildings and other improvements thereon, from time to time, located off Crosby Drive in the Town of Bedford, Middlesex County, Commonwealth of Massachusetts known as Crosby Corporate Center, substantially as shown on the plan, and as more particularly described in the legal description, both of which are attached to the Lease as Exhibit 3. Building: 24 Crosby Drive, Bedford, MA (Building Three in the Park). Art.2 First Amendment Additional Premises: The entirety of the Building, substantially as shown on Lease Plan, Exhibit 2, First Amendment. Art. 3.1 Term Commencement Date in respect of the First Amendment Additional Premises: The date that the First Amendment is executed and delivered by both parties -1- 9 EXHIBIT 1, FIRST AMENDMENT VERSION, SHEET 2 BUILDING NO. 3 CROSBY CORPORATE CENTER BEDFORD, MASSACHUSETTS Art. 3.2 Termination Date in respect of First Amendment Additional Premises: Subject to the provisions of the Lease, July 31, 2006 Art. 5 Use of First Amendment Additional Premises: General office purposes, research, development, light manufacturing and any uses ancillary thereto. Art. 6 Yearly Rent:
Yearly Rent Rental Rate Per Square Foot of Total FAAP Lease Monthly Rentable Year Yearly Rent Payment Area 1-4 $598,785.00 $49,898.75 $19.00 5-July 31, $661,815.00 $55,151.25 $21.00 2006
For the purposes hereof, an "FAAP Lease Year" shall be defined as any twelve (12) month period during the term of the Lease in respect of the First Amendment Additional Premises commencing as of the Rent Commencement Date in respect of the first floor of the First Amendment Additional Premises, or as of any anniversary of such Rent Commencement Date. Notwithstanding anything to the contrary herein contained, the Yearly Rent payable in respect of the period from the Rent Commencement Date in respect of the first floor of the First Amendment Additional Premises through the day immediately preceding the Rent Commencement Date in respect of the second -2- 10 EXHIBIT 1, FIRST AMENDMENT VERSION, SHEET 3 BUILDING NO. 3 CROSBY CORPORATE CENTER BEDFORD, MASSACHUSETTS floor of the First Amendment Additional Premises shall be $25,116.42 per month. Rent Commencement Dates: See Paragraph 3 of the First Amendment Art. 7 Total Rentable Area in respect of First Amendment Additional Premises: First Floor: 15,863 square feet Second Floor: 15,652 square feet ------------------------------------ Total: 31,515 square feet
Art. 8 Electricity: Electric current for lighting and outlet plug use will be sub-metered and paid to Landlord in accordance with Articles 8.1 and 8.5 of the Lease. Base Electric Cost: $.96 per square foot of Total Rentable Area per year Electric Rate: $.096 per kilowatt hour Initial Estimated Monthly Electric Payment: $2,521.20 per month Art. 9 Operating Cost Base: The actual amount of Operating Costs for calendar year 1997, as the same may be adjusted to account for vacancies in the Park in accordance with Article 9.1 (g)(5) of the Lease. -3- 11 EXHIBIT 1, FIRST AMENDMENT VERSION, SHEET 4 BUILDING NO. 3 CROSBY CORPORATE CENTER BEDFORD, MASSACHUSETTS Tenant's Operating Cost Percentage: One hundred percent (100%) of the Building. Tax Base: The actual amount of Taxes for fiscal tax year 1998 (i.e. July 1, 1997-June 30, 1998 Tenant's Tax Percentage: 9.31% (i.e., the percentage determined by dividing the Total Rentable Area of the Premises, 31,515 square feet, by the Total Rentable Area of the Park, 338,563 square feet). Art. 29.3 Co-Brokers: Spaulding & Slye and Beacon Management Company. Art. 29.5 Arbitration: Massachusetts; Superior Court LANDLORD: TENANT: BEACON PROPERTIES, L.P. SECURITY DYNAMICS TECHNOLOGIES, INC. By: Beacon Properties Corporation, General Partner By: /s/ A. W. Coviello, Jr. --------------------------- Name: Title: C.O.O. By: /s/ Douglas S. Mitchell Duly Authorized ------------------------- Douglas S. Mitchell Senior Vice President Date Signed: 5/30/97 Date Signed: 5/15/97 ------------------ ------------------ -4- 12 LEASE PLAN, EXHIBIT 2, FIRST AMENDMENT, SHEET 1, FLOOR 1, DATE: MAY 10, 1997 [Detailed floor plan of floor 1 of leased premises] 13 LEASE PLAN, EXHIBIT 2, FIRST AMENDMENT, SHEET 2, FLOOR 2, DATE: MAY 10, 1997 [Detailed floor plan of floor 2 of leased premises] 14 EXHIBIT 4, FIRST AMENDMENT BASE BUILDING CODE COMPLIANCE 1. Seal any openings in the exit stairs. 2. Verify, and add where necessary, fire dampers in the base penetrations including any which may be required in the exit stairs and open well grills. 3. Correct the transition between the sidewalk ramp and the front entry platform. 4 Correct, if necessary, the speed of the door closure at front entrance for compliance. (This shall be done after a final HVAC balancing of the space). 5. Remove the knob hardware on all existing doors that will remain, and replace with code compliant lever hardware. 6. Correct the height of the fire strobe at second level entrance to Left Stair. 7. Install code compliant signage at all four HC Toilet Rooms and at the Elevator. 8. Verify with the Building Inspector the ability to substitute Tenant water coolers for water fountains on floors one and two. If unacceptable, two will be added based upon final tenant layout plans. 9. Reglaze and repaint the metal windows at the rear of first floor and in upper clerestory and replace glass with insulated glazing units if possible. If new insulating glazing units are not feasible, then replace windows with new insulated glazing system (Note: This is not a code compliancey issue). 10. Repair or replace, as required, the rear exit door. 11. Repair exterior plaster soffit above rear exit door. 12. Replace the missing fixture in first floor gang toilet room. 13. Return the pressure pump to service. 14. Correct, if necessary, the emergency lighting requirements of the toilet rooms. EX-10.3 4 SECOND AMENDMENT TO PROGRESS SOFTWARE AGREEMENT 1 EXHIBIT 10.3 Confidential Materials omitted and filed separately with the Securites and Exchange Commission. Asterisks denote such omissions. SECOND AMENDMENT TO PROGRESS SOFTWARE APPLICATION PARTNER AGREEMENT SECOND AMENDMENT made as of the 29th day of November, 1995 to the Progress Software Application Partner Agreement (the "Agreement") by and between Progress Software Corporation ("PSC") and Security Dynamics Inc. ("AP") dated as of the 5th day of December, 1994 previously amended by the Progress Software Application Partner Agreement Addendum (the "Addendum") by and between PSC and AP dated as of the 5th day of December, 1994 and a subsequent amendment to the agreement dated as of the 19th day of October, 1995 (the "Amendment"). The terms and conditions of the Addendum and the Amendment shall be entirely superseded by this Second Amendment. PSC hereby acknowledges payment by AP of the $50,000 development license fee and the initial maintenance fee set forth in Section 7 of Attachment A to this Second Amendment and the $75,000 conversion license fee set forth in Section 11 of Attachment A. The parties agree that, effective as of the 5th day of December, 1994, the Agreement shall be amended as follows: 1. Capitalized terms used but not defined in this Second Amendment shall have the same meaning as in the Agreement. 2. Section 1.1 of the Agreement shall be modified by (a) deleting the words "in PSC's judgment" located in Section 1.1 between the words "provided that," and "the products AP supplies" and (b) adding the following sentence to the end of Section 1.1: "AP may distribute PSC product licenses to AP customers directly, or indirectly through a distributor subject to distributor's compliance with the terms and conditions of this Agreement." 3. Section 4.1 of the Agreement shall be modified by inserting the following: "(except that AP shall remove the capability to create new databases from all copies of PSC products installed at an AP customer site by removing certain utility files mutually designated by the parties from time to time)" 4. Section 4.3 of the Agreement shall be modified by adding the following sentence to the end of Section 4.3: 2 Confidential Materials omitted and filed separately with the Securites and Exchange Commission. Asterisks denote such omissions. "PSC shall use any information obtained from such audit solely for the purposes of insuring compliance with the terms and conditions of this Agreement." 5. Section 5.1 of the Agreement shall be modified by (a) inserting the following at the beginning of Section 5.1: "For a period of ninety (90) days following receipt of a PSC product by an AP customer or one hundred and eighty (180) days from receipt of a PSC product by an AP GSA contract customer, PSC shall warrant to AP that the PSC product operates substantially in accordance with accompanying PSC documentation and that the media is free from defect. AP's sole remedy for a claim brought under this Section 5.1, shall be to return the relevant PSC product to PSC for repair or replacement at PSC's sole option. AP shall remove the capability to create new databases from all copies of PSC products installed by AP by removing certain utility files mutually designated by the parties from time to time and, except for the foregoing modification, this limited warranty shall not apply if the PSC product has been modified or altered by AP and/or AP's customer. This warranty shall apply only to claims made by AP within the above-mentioned warranty period."; (b) modifying the sentence beginning with "OTHER THAN THE LIMITED WARRANTY" so that the words "SET FORTH ABOVE AND THE LIMITED WARRANTY" are inserted between "OTHER THAN THE LIMITED WARRANTY" and ", IF ANY," and (c) deleting the last sentence of Section 5.1. 6. Section 6.1 of the Agreement shall be deleted in its entirety and replaced with the following: "The liability of PSC, if any, for damages arising out of this Agreement shall be limited to an amount equal to the lesser of: (a) the aggregate amounts paid by AP and received by PSC under this Agreement or (b) ************************ *************** and shall in no event include incidental or consequential damages of any kind, even if PSC has been informed of the possibility of such damages. Notwithstanding the foregoing, the above-described limitation of liabilities shall not apply to (a) claims covered under the indemnification clause in Section 9.2 below or (b) claims of personal injury or death or damage to tangible property based solely on the operation of the PSC product, -2- 3 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Arterisks denote such omissions. unaltered or modified only as expressly authorized by PSC under the terms and conditions of this Agreement or any addenda mutually executed by PSC and AP. The liability of AP, if any, for damages arising out of this Agreement shall be limited to an amount equal to the lesser of: (a) the sum of the aggregate amounts paid by AP under this Agreement and any outstanding amounts owed by AP to PSC under this Agreement or (b) ************* ************** and shall in no event include incidental or consequential damages of any kind, even if AP had been informed of the possibility of such damages. Notwithstanding the foregoing, the above-described limitation of liabilities shall not apply to (a) claims covered under the indemnification clause in Section 9.1 below, (b) claims resulting from AP's breach of its obligations under Section 4.1 above or (c) any claims resulting from AP's failure to make any payments described in this Agreement or any addenda mutually executed by PSC and AP. With regard to any claims PSC may have in connection with AP's failure to make payments described in this Agreement or any addenda mutually executed between AP and PSC, the liability of AP shall be limited to the amounts owing to PSC including all interest accrued pursuant to Section 2.4 of the Agreement." 7. Section 9.1 of the Agreement shall be deleted in its entirety and replaced with the following: "AP AGREES TO INDEMNIFY AND HOLD HARMLESS PSC AND ITS OFFICERS, DIRECTORS, EMPLOYEES, AND AGENTS, FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, COSTS AND LIABILITIES (INCLUDING ALL REASONABLE ATTORNEY'S FEES) OF ANY KIND WHATSOEVER, ARISING OUT OF (A) THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF AP, (B) AP'S FAILURE TO MEET ITS OBLIGATIONS UNDER SECTION 5.3 HEREIN OR (C) AP'S SALE OR USE OF THE PSC PRODUCT, EXCEPT TO THE EXTENT ANY SUCH CLAIMS, DEMANDS, COSTS AND LIABILITIES (INCLUDING REASONABLE ATTORNEY'S FEES) ARISE PRIMARILY OUT OF AN ACT OR OMISSION BY PSC. AP'S OBLIGATIONS UNDER THIS SECTION 9.1 SHALL BE SUBJECT TO PSC PROVIDING PROMPT NOTICE, IN WRITING, TO AP OF ANY CLAIM OR PROCEEDING WITH THE SCOPE OF THIS INDEMNIFICATION AND GIVING AP SOLE CONTROL OF THE DEFENSE OF ANY SUCH CLAIM OR PROCEEDING AND ALL NEGOTIATIONS FOR ITS COMPROMISE OR SETTLEMENT." 8. Section 9.2 of the Agreement shall be added as follows: -3- 4 "PSC agrees to indemnify and hold AP and its officers, directors, employees and agents harmless from and against any and all claims, demands, costs and liabilities (including all reasonable attorney's fees) of any kind whatsoever, arising directly out of any claim that a PSC product infringes a U.S. patent or copyright of any third party provided AP notifies PSC promptly in writing of any such claim or proceeding, and further provided that AP give PSC sole control of the defense of any such claim or proceeding and all negotiations for its compromise or settlement. Should any PSC product become, or in PSC's sole opinion be likely to become, the subject of a claim of infringement, PSC shall have the right, at PSC's option and expense, (i) to procure for AP the right to continue using it, (ii) to replace or modify it with a non-infringing version of substantially equivalent function and performance or (iii) reasonably failing the above, to refund to AP the depreciated value of the relevant PSC product(s) upon AP's return of the PSC Product(s) to PSC. The depreciated value shall be determined by the straight line method, for a five (5) year life, applied to the amount actually paid by AP for the relevant PSC product license(s). PSC shall have no liability or obligation to AP hereunder for any infringement based upon (i) the combination of a PSC product with other products not produced by PSC, (ii) the use of other than a current version of the PSC product or (iii) the use of a version of a PSC product including modifications or alterations not expressly authorized by PSC under the terms and conditions of this Agreement or any addenda mutually executed by PSC and AP. The provisions of this Section 9.2 are in lieu of all other obligations, including without limitation the implied warranty of noninfringement, and state the sole, exclusive and entire liability of PSC, and the exclusive and entire remedy of AP, with respect to any claim of patent or copyright infringement by any PSC product. Further, to the extent AP is required in specific substantial foreign or worldwide transactions to provide indemnification concerning foreign patent or copyright rights to its customers with respect to AP's products, PSC will similarly indemnify against infringement under such foreign patent or copyright laws with regard to PSC products on the above stated terms. The determination of the requirement for such indemnification shall be made solely by AP in the exercise of its reasonable judgment." 9. Section 11.8 of the Agreement shall be deleted in its entirety and replaced with the following: "The parties agree that the provisions of Sections 2, 4, 5, 6 and 9 shall survive the expiration or earlier termination of this Agreement for any reason." 10. Section 11.9 of the Agreement shall be added as follows: "AP shall comply fully with all U.S. export laws including but not limited to the relevant regulations of the United States Department of Commerce and -4- 5 with the United States Export Administration Act to assure that the PSC products are not exported or re-exported by AP and/or AP's distributors and resellers in violation of United States law." 11. For a period of time commencing on the effective date of the Agreement and expiring upon completion of a three (3) year period following the date of first commercial availability of AP's PROGRESS-based application (the "Term"), the special terms and conditions concerning pricing, production and distribution of PSC product licenses set forth in Attachment A hereto shall be in full force and effect. No later than six (6) months prior to the expiration of the Term, the parties shall, in good faith, commence negotiations for a new Attachment A with special terms and conditions concerning pricing, production and distribution of PSC product licenses and, no later than four (4) months prior to the expiration of the Term, shall make a determination as to whether an agreement for a new Attachment A can be reached between the parties. In the event the parties are unable to reach an agreement for a new Attachment A, for a period of six (6) months from the date such determination is made (such date being no later than four (4) months prior to the expiration of the Term), AP shall have the right to distribute PSC products in accordance with the special pricing, production and distribution provisions contained in the existing Attachment A. Thereafter, AP shall (a) cease making and distributing copies of PSC products from a master and (b) either return or certify the destruction of all masters provided by PSC pursuant to Section 1 of Attachment A or copies thereof; and, provided AP has not breached any material term or condition of the Agreement, this Second Amendment or Attachment A and failed to cure such breach within the time period specified in Section 10.2 of the Agreement, AP shall have the right to purchase PSC product licenses and services pursuant to the standard terms and conditions of the Agreement. In the event that the Agreement terminates or expires, notwithstanding the foregoing, no PSC product license distributed to a direct or indirect customer of AP prior to the termination of the Agreement shall be effected by such termination. 12. Except as modified herein, all provisions of the Agreement are hereby confirmed and in all respects this Second Amendment and the Agreement shall be read and construed together as if the provisions of this Second Amendment had been part of the Agreement. No other modifications or additions are made to the Agreement. The Agreement as modified by this Second Amendment (including Attachment A to the Second Amendment) is the entire agreement between the parties regarding the subject matter thereof and supersedes and merges all prior proposals, understandings and all other prior -5- 6 agreements, oral and written, between the parties relating to this Agreement. Except as they may be modified or amended by this Addendum, the terms and conditions of the Agreement shall remain in effect until the termination of the Agreement. In the event of conflict or inconsistency between the terms and conditions of the Agreement and this Second Amendment, the terms and conditions of this Second Amendment shall govern. IN WITNESS WHEREOF, this Second Amendment has been executed under seal for and on behalf of each of the parties hereto by their duly authorized officers as of the date first specified above. SECURITY DYNAMICS, INC. PROGRESS SOFTWARE CORPORATION By: /s/ Arthur W. Coviello, Jr. By: /s/ Michael J. Crismorid ----------------------------------- ----------------------------------- Name: Arthur W. Coviello, Jr. Name: Michael J. Crismorid --------------------------------- --------------------------------- Title: Exec. V.P. Title: VP - North American Sales -------------------------------- -------------------------------- -6- EX-10.4 5 THIRD AMENDMENT TO PROGRESS SOFTWARE AGREEMENT 1 EXHIBIT 10.4 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote such omissions. THIRD AMENDMENT TO PROGRESS SOFTWARE APPLICATION PARTNER AGREEMENT THIRD AMENDMENT to the Progress Software Corporation Application Partner Agreement is entered into as of the 15th day of November, 1996 ("Effective Date"), by and between Progress Software Corporation, a Massachusetts corporation with its principal place of business at 14 Oak Park, Bedford, Massachusetts 01730 ("PSC"), and Security Dynamics Technologies, Inc., a Massachusetts corporation with its principal place of business at 20 Crosby Drive, Bedford, Massachusetts 01730 ("AP"). WHEREAS, PSC and AP entered into a Progress Software Application Partner Agreement effective as of December 5, 1994 (the "Agreement"); and WHEREAS, PSC and AP previously amended the Agreement by entering into the Progress Software Application Partner Agreement Addendum effective as of December 5, 1994 (the "Addendum") and a subsequent amendment to the Agreement dated as of October 19, 1995 (the "Amendment"); and WHEREAS, PSC and AP entered into a Second Amendment to the Agreement dated as of November 29, 1995 (the "Second Amendment") which completely superseded the terms and conditions of the earlier Addendum and Amendment and specified new special pricing and distribution terms and conditions in an Attachment A relating to certain PSC products distributed by AP or AP's distributors in conjunction with AP's PROGRESS(R)-based applications; and WHEREAS, PSC and AP desire to enter into a new Attachment A setting forth certain modified special pricing and distribution terms and conditions which shall, as of the Effective Date of this Third Amendment, completely supersede the earlier Attachment A incorporated into the Second Amendment; NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. Capitalized terms used but not defined in this Third Amendment shall have the same meaning as in the Agreement or Second Amendment. 2. Section 1.1 of the Agreement is modified by adding the following language to the end of the existing text: "In connection with AP's above specified marketing rights, during the term of this Agreement, PSC hereby grants to AP, and AP hereby accepts from PSC, a non-exclusive, non-transferable license to sublicense, 2 directly or indirectly through its authorized value-added reseller or distributor channels, PSC products to AP's customers, within the Territory and solely in accordance with the following terms and conditions: A. All sublicenses of AP, and AP's distributors and value-added resellers, for PSC products shall be substantially in the form of the shrinkwrap license agreement (attached hereto as SCHEDULE A) or the bilateral executed license agreement (attached hereto as SCHEDULE B); and in any event shall provide that: i. Title to software products of AP's supplier, including patents, copyrights and property rights applicable thereto, shall at all times remain solely and exclusively with such supplier; ii. All terms and conditions contained in AP's license agreement, or the license agreement of AP's distributors or value-added resellers, limiting the liability of AP shall include language limiting the liability of AP's suppliers to the same extent and in the same manner. iii. All products of AP's suppliers provided to an AP customer in conjunction with AP's software application will not be used as standalone products or independently from AP's software application. Notwithstanding the above requirement that the sublicenses of AP, and AP's distributors and value-added resellers, for PSC products be substantially in the form of either the form set forth in Schedule A or Schedule B, the parties agree that AP shall have the right, in its sole discretion, to directly, or indirectly through its distributors or value-added resellers, modify the limitation of liability provisions in the end-user license agreement subject to AP's compliance with the terms and conditions set forth in (ii) above. B. AP agrees to indemnify and hold harmless PSC and its officers, directors, employees, and agents, from and against any and all claims, demands, costs and liabilities (including all reasonable attorney's fees) of any kind whatsoever arising out of a claim by an end-user of AP or AP's distributors or value-added resellers against PSC and relating to AP's software application, provided that to the extent a claim is based upon an act or omission of PSC, AP's indemnification obligations under such circumstances shall be limited as follows: AP shall be required to indemnify PSC only to the extent that the claims, demands, costs, and liabilities exceed two times (2x) the total -2- 3 amount of royalties reported by AP to PSC for the PSC products which were delivered to the end-user and the subject of the end-user's claim and only up to a maximum amount equal to the limitation of AP's liability included in the end-user license agreement with such end-user. AP's indemnification obligations under this Section 1.1(B) shall be subject to PSC providing prompt notice, in writing, to AP of any claim or proceeding within the scope of this indemnification and giving AP sole control of the defense of any such claim or proceeding and all negotiations for its compromise or settlement. The limitation on AP's liability as set forth in Section 6.1 of this Agreement shall not apply to claims within the scope of the indemnification provisions set forth in this Section 1.1(B). Notwithstanding the foregoing, in the event a court of competent jurisdiction determines that the limitation of liability included by AP directly, or indirectly through its distributors or value-added resellers, in the end-user license agreement is unenforceable, AP shall have no obligation to indemnify PSC pursuant to this Section 1.1(B). C. AP shall not, directly or indirectly through its value-added resellers or distributors, make any warranties, express or implied, on behalf of PSC with respect to the PSC products or any other products supplied by AP to its customers. Nothing in this Section 1.1(C) shall limit or modify the warranty made by PSC to AP pursuant to Section 5.1 of this Agreement or the remedies available to AP as set forth therein. D. The sublicense grant described in this Section 1.1 applies only to PSC products bundled with AP's PROGRESS-based software application and distributed by AP directly or indirectly through its value-added resellers and distributors. E. Prior to the sublicense grant described herein, AP licensed its software to each AP customer subject to a bilateral executed license agreement between AP and its customer, except that AP was required to include a notice in its packaging informing the AP customer that use of the PSC products was subject to the PSC end-user license agreement also required to be included in AP's packaging. The following limitation on PSC's liability shall apply with respect to deliveries of PSC products to such customers prior to the Effective Date of the Third Amendment to this Agreement: (i) If AP included the PSC end-user license agreement in AP's packaging in accordance with the procedures described above, PSC agrees that it will rely upon the PSC end-user license agreement by and between PSC and AP's customer to establish the limit on PSC's -3- 4 liability with respect to any claims AP's customer may have with respect to PSC products licensed by PSC pursuant to such PSC end-user license agreement or (ii) If AP failed to include the PSC end-user license agreement in AP's packaging in accordance with the procedures described above, the limit on PSC's liability, if any, for any claims AP's customer may have relating to the PSC products delivered to such customer will be deemed to be the total license fee obtained by PSC from AP in connection with such PSC product delivery and AP shall indemnify and hold harmless PSC and its officers, directors, employees, and agents, from and against any and all claims, demands, costs and liabilities (including all reasonable attorney's fees) of any kind whatsoever arising out of a claim by a customer of AP or AP's distributors or value-added resellers against PSC to the extent such claims, demands, costs or liabilities exceed such limitation. The limitation on AP's liability as set forth in Section 6.1 of this Agreement shall not apply to claims within the scope of the indemnification provisions set forth in this Section 1.1(E)(ii). Without limiting the foregoing, in situations where AP did fail to include the PSC end-user license agreement in AP's packaging, AP shall be deemed to have had the right to sublicense the PSC product(s) to AP's customer and such failure shall not negatively impact the right of AP's customer to use the PSC products in conjunction with AP's PROGRESS-based application. The following limitation on PSC's liability shall apply with resect to subsequent deliveries of PSC products to each of AP's customers subject to AP's form of bilateral executed agreement in effect prior to the Effective Date of this Third Amendment: (iii) PSC's liability, if any, to the AP customer will be limited to actual direct damages to the extent caused primarily by the acts or omissions of PSC in fulfilling its obligations under this Agreement subject to a maximum liability equal to two times (2x) the total amount of royalties reported by AP to PSC for the PSC products which were delivered to the AP customer and are the subject of the AP customer's claim and AP shall indemnify PSC in accordance with the terms and conditions set forth in Section 1.1(B) above. F. AP agrees that in the event than an end-user breaches the provisions of AP's end-user license agreement with respect to its use of the PSC products supplied thereunder, PSC shall be entitled to require, at its own expense, that all available remedies in relation to such breach be pursued, and AP shall, at PSC's expense in connection therewith, reasonably -4- 5 cooperate fully in pursuing such remedies, including, if reasonably necessary, by participating in a litigation or other proceeding as a party. Notwithstanding the foregoing, PSC shall, prior to taking any action to enforce the AP end-user license agreement against any AP end-user, notify AP in writing of any breach by such end-user of the terms and conditions of AP's end-user license agreement and AP shall have thirty (30) days from the receipt of such notice to investigate the circumstances relating to such claimed breach. If, at the end of such thirty (30) day period, the breach has not been cured, PSC may take such action as described above to enforce the terms and conditions of the AP end-user license agreement. If PSC reasonably determines that it is necessary to seek equitable relief prior to the expiration of the above-mentioned thirty (30) day notice period in order to protect its rights to the PSC products, PSC shall notify AP of such determination and the parties shall cooperate in the effort to obtain the necessary equitable relief. In the event that the products of both parties are adversely effected by such end-user's breach, then the parties shall cooperate in relation to their enforcement efforts and shall each bear their own expenses in connection with the enforcement of the AP end-user license with respect to their product(s) without prejudice to either party's settlement efforts. In the event AP grants to its value added resellers or distributors a right to sublicense AP's PROGRESS-based application (including PSC products), AP shall include in its agreement with such value added reseller or distributor, provisions sufficient to allow AP to carry out its obligations under this Section 1.1(F). G. Neither AP nor its distributors or value-added resellers are authorized to grant to any customer a sublicense to use PSC products other than as provided herein. H. Notwithstanding anything to the contrary in this Section 1.1, the provisions of this Section 1.1 (including but not limited to AP's indemnification obligations hereunder) shall in no way limit, modify or negate PSC's indemnification obligations relating to infringement claims based on the PSC products set forth in Section 9.2 herein." 3. Section 3.3 of the Agreement shall be modified by adding the following to the end of the text of Section 3.3: "or bundle the PSC product, including system media and manuals, with AP's PROGRESS-based application subject to the sublicense grant set forth in Section 1.1 above." 4. Section 6.1 of the Agreement (previously modified pursuant to Section 6 of the Second Amendment) shall be modified by deleting the first paragraph in its entirety and replacing it with the following: -5- 6 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Arterisks denote such omissions. "The liability of PSC, if any, to AP for damages arising out of this Agreement shall be subject to a maximum liability on an individual claim basis not to exceed two times (2x) the total royalties reported by AP to PSC for the PSC products which were delivered to the AP customer and are the subject of AP's claim, provided, however, that the aggregate liability of PSC under this Agreement shall not exceed the greater of (a) ********* **************** or (b) the total amount of royalties reported by AP to PSC for PSC products delivered to AP customers during the ninety day period immediately prior to the date the claim is made by AP. In no event shall PSC's liability include incidental or consequential damages of any kind, even if PSC has been informed of the possibility of such damages. Notwithstanding the foregoing, the above-described limitation of liability shall not apply to (a) claims covered under the indemnification clause in Section 9.2 below or (b) claims of personal injury or death or damage to tangible property based solely on the operation of the PSC product, unaltered or modified only as expressly authorized by PSC under the terms and conditions of this Agreement or any addenda mutually executed by PSC and AP." 5. Section 9.2 of the Agreement (added pursuant to Section 8 of the Second Amendment) shall be modified by deleting the fourth sentence in its entirety and replacing it with the following: "PSC shall have no liability or obligation to AP hereunder for any infringement based upon (i) the combination of a PSC product with other products not produced by PSC if such infringement claim would have been avoided but for such combination, (ii) the use of other than a current version of the PSC product or (iii) the use of a version of a PSC product including modifications or alterations not expressly authorized by PSC under the terms and conditions of this Agreement or any addenda mutually executed by PSC and AP." 6. PSC and AP have negotiated a new Attachment A to the Second Amendment specifying special terms and conditions concerning pricing, production and distribution of PSC product licenses. Attached hereto is the new Attachment A incorporated by reference into this Third Amendment. The terms and conditions of the new Attachment A shall become effective on the Effective Date of this Third Amendment and shall remain in full force and effect until August 20, 2001 (the "Term"). The terms and conditions of the new Attachment A shall, as of the Effective Date of this Third Amendment, completely supersede the terms and conditions set forth in the prior Attachment A referenced in the Second Amendment. No later than six (6) months prior to the expiration of the Term, the parties shall, in good faith, commence negotiations for a replacement Attachment A with -6- 7 special terms and conditions concerning pricing, production and distribution of PSC product licenses and, no later than four (4) months prior to the expiration of the Term, shall make a determination as to whether an agreement for a replacement Attachment A can be reached between the parties. In the event the parties are unable to reach an agreement for a replacement Attachment A for a period of six (6) months from the date such determination is made (such date being no later than four (4) months prior to the expiration of the Term), AP shall have the right to distribute PSC products in accordance with the special pricing, production and distribution provisions contained in the current Attachment A. Thereafter, AP shall (a) cease making and distributing copies of PSC products from a master and (b) either return or certify the destruction of all masters provided by PSC pursuant to Section 1 of Attachment A, or copies thereof; and, provided AP has not breached any material term or condition of the Agreement, the Second Amendment, this Third Amendment or the Attachment A hereto, and failed to cure such breach within the time period specified in Section 10.2 of the Agreement, AP shall have the right to purchase PSC product licenses and services pursuant to the standard terms and conditions of the Agreement and to use any unused portion of the PSC product allowance described in Section 11 of Attachment A in connection with such purchases. Under no circumstances shall AP be entitled to a refund of any advance payments made to PSC pursuant to Section 11 of Attachment A. Nothing in this Section 2 shall alter or modify PSC's right, pursuant to Section 10.2 of the Agreement, to terminate the Agreement, the Second Amendment and this Third Amendment (including Attachment A) at any time if AP fails to cure a material breach of its obligations within thirty (30) days of receipt of written notice from PSC. In the event that the Agreement terminates or expires, notwithstanding the foregoing, no PSC product license distributed to a direct or indirect customer of AP prior to the termination of the Agreement shall be effected by such termination. Furthermore, no PSC product licenses acquired by AP for internal development and support of its PROGRESS-based application shall be effected by such termination provided that at the time of the above-mentioned termination or expiration of the Agreement, AP has not breached its obligations under the PSC end-user license agreement which accompanied such PSC products and AP continues to use the PSC products solely for internal development and support of its PROGRESS-based application in accordance with the terms and conditions of such PSC end-user license agreement. 7. The new Attachment A attached hereto is incorporated by reference and made a part of this Third Amendment. Except as may be modified or amended by this Third Amendment, the terms and conditions of the Agreement (as previously amended by the Second Amendment) shall remain in effect until the termination -7- 8 of the Agreement. No other modifications or additions are made to the Agreement. The Agreement, Second Amendment and this Third Amendment constitutes the entire agreement between the parties with respect to the subject matter hereof. In the event of conflict among the terms and conditions of the Agreement, the Second Amendment, or this Third Amendment, the order of precedence shall be: first, this Third Amendment, second, the Second Amendment (which completely superseded the earlier Addendum and Amendment) and third and finally, the Agreement. IN WITNESS WHEREOF, this Third Amendment has been executed under seal for and on behalf of each of the parties hereto by their duly authorized representative as of the date first set forth above. PROGRESS SOFTWARE CORPORATION By: /S/ Michael J. Crismorid ------------------------- Name: Michael J. Crismorid --------------------- Title: V.P. - North American Sales ---------------------------- SECURITY DYNAMICS TECHNOLOGIES, INC. By: /S/ Linda E. Saris ------------------- Name: Linda E. Saris --------------- Title: V.P. - Operations ------------------ -8- 9 SCHEDULE A PLEASE READ CAREFULLY BEFORE OPENING THIS PACKAGE. BY OPENING THIS PACKAGE, YOU AGREE TO BE BOUND BY THE TERMS OF THIS LICENSE AGREEMENT. This is a legal agreement between the end user ("You") and Security Dynamics Technologies, Inc. ("SDI"). This Agreement may be superseded by conflicting and supplemental previously agreed to and signed Software License Agreement. LICENSE AGREEMENT 1. GRANT OF LICENSE. SDI grants You a non-exclusive, non-transferable license, to use one copy of the following SDI software program in object form only (the "SOFTWARE") in accordance with the instructions contained in its user documentation. 2. COPYRIGHT. The SOFTWARE, its component parts and user interface, and associated documentation, are owned by SDI or its suppliers and are protected by United States laws and international treaty provisions. Therefore, You must treat the SOFTWARE and SDI documentation like any other copyrighted materials except that you may (a) make copies of the SOFTWARE solely for backup and archival purposes, and (b) make a reasonable number of copies of the user documentation for your internal use only, provided all copyright, notices, trademarks and other proprietary legends contained on the original SOFTWARE are reproduced on the copies and that they are not removed from the original SOFTWARE itself. 3. OTHER RESTRICTIONS. You may not cause or permit disclosure, copy (except as permitted above), rent, license, sublicense, lease, disseminate or distribute the SOFTWARE, by any means or in any form, without the prior written consent of SDI. You may not use any component part of the SOFTWARE owned by an SDI supplier as a standalone program or in any way independent from the SOFTWARE provided to You by SDI. You may not modify, enhance, supplement, create derivative work from, adapt, translate, reverse engineer, decompile, disassemble or otherwise reduce the SOFTWARE to human readable form. 4. LIMITED WARRANTY. SDI grants a limited warranty only to You that the SOFTWARE will perform substantially in accordance with the accompanying documentation prepared by SDI for a period of 90 days from the date of receipt by You. Any and all related and subsequent support issues shall be directed to the party You purchased this license from, unless You have entered into a separate support service contract directly with SDI. 5. CUSTOMER REMEDIES. SDI's entire liability and your exclusive remedy for breach of the Limited Warranty shall be of SDI's option, either (a) return of the price paid by You solely for the SOFTWARE and which is returned to SDI and determined by SDI not to be in compliance, or (b) repair and replacement of the SOFTWARE which 10 does not meet SDI's Limited Warranty. Any replacement SOFTWARE will be warranted for the remainder of the original warranty period or 30 days, whichever is longer. The Limited Warranty is void if failure of the SOFTWARE has resulted from causes other than normal use, including but not limited to, unauthorized repairs, maintenance or modifications to the SOFTWARE, accident, abuse, negligence, misapplication, or failure to use the SOFTWARE in accordance with the SDI user documentation. THE FOREGOING EXPRESS WARRANTIES ARE IN LIEU OF ALL LIABILITIES OR OBLIGATIONS ON THE PART OF SDI. EXCEPT FOR THE FOREGOING EXPRESS WARRANTIES MADE BY SDI, SDI AND ITS SUPPLIERS DISCLAIM ALL WARRANTIES, BOTH EXPRESS AND IMPLIED, WITH RESPECT TO THE SOFTWARE, ITS QUALITY AND PERFORMANCE AND THE ACCOMPANYING WRITTEN MATERIALS, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. The Limited Warranty specified above gives You specific legal rights. You may have others which vary from state to state. Some states do not allow limitations of duration of an implied warranty, so the above may not apply to You. 6. LIMITATION OF LIABILITY. SDI AND ITS SUPPLIERS' LIABILITY WILL BE LIMITED IN ANY EVENT TO ACTUAL DIRECT DAMAGES TO THE EXTENT CAUSED SOLELY BY THE ACTS OR OMISSIONS OF SDI SUBJECT TO A MAXIMUM LIABILITY OF THE GREATER OF $25,000 OR THE AMOUNT PAID FOR THE SPECIFIC PRODUCT OR SERVICE WHICH DIRECTLY CAUSED SUCH DAMAGE. IN NO EVENT SHALL SDI OR ITS SUPPLIERS BE LIABLE FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL, EXEMPLARY OR INCIDENTAL DAMAGES WHATSOEVER (INCLUDING, WITHOUT LIMITATION, DAMAGE FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS, DAMAGE OR DESTRUCTION OF DATA, LOSS OF GOOD WILL, OR OTHER PECUNIARY LOSS) WHETHER BASED IN CONTRACT OR TORT, INCLUDING NEGLIGENCE, ARISING OUT OF THE USE OF OR INABILITY TO USE THE SOFTWARE, EVEN IF SDI OR ITS SUPPLIERS HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. Because some states do not allow the exclusion or limitation of liability for consequential or incidental damages, the above limitation may not apply to You. 7. GENERAL. This Agreement constitutes the entire understanding between SDI and You with respect to subject matter hereof. Terms and conditions as set forth in any purchase order or other extraneous documents (except for previously agreed to and signed to Software License Agreements) which differ from, conflict with, or are not included in this License Agreement, shall not become part of this Agreement unless specifically accepted by SDI in writing. U.S. GOVERNMENT RESTRICTED RIGHTS LEGEND: The Software is provided with RESTRICTED RIGHTS. Use, duplication, or disclosure by the U.S. Government is subject to restrictions as set forth in subparagraph (c)1)(ii) of the Rights In Technical Data and Computer Software clause at DFARS 252.227-7013 or subparagraphs (c)(1) and (2) of the Commercial Computer Software-Restricted Rights clause at 48 CFR 52.227-19, as -2- 11 applicable. The contractor/manufacturer is Security Dynamics Technologies, Inc., 20 Crosby Drive, Bedford, Massachusetts 01730-1437, U.S.A. This Agreement shall be governed by the laws of the Commonwealth of Massachusetts. IF YOU DO NOT AGREE TO BE BOUND BY THE ABOVE LICENSE TERMS AND CONDITIONS, PLEASE CONTACT THE PARTY YOU PURCHASED THIS LICENSE FROM FOR REFUND AND RETURN INFORMATION RELATED TO THE NONACCEPTANCE OF THE LICENSE TERMS AND CONDITIONS. -3- 12 SCHEDULE B SECURITY DYNAMICS AGREEMENT #__________ SECURITY DYNAMICS TECHNOLOGIES, INC. AGREEMENT FOR PURCHASE OF EQUIPMENT AND LICENSE OF SOFTWARE (The "Agreement") This Agreement is made this day of , 19 by and between SECURITY DYNAMICS TECHNOLOGIES, INC., a Delaware corporation with its principal place of business at 20 Crosby Drive, Bedford, Massachusetts 01730 ("SDI"), and , a corporation, having its principal place of business at and its affiliates and subsidiaries listed on Schedule A attached herein (collectively the "Customer"). The products sold and/or licensed under this Agreement consist of hardware, software and firmware (the "Products"). Unless otherwise expressly provided in this Agreement, all sales or licenses of Products by SDI are made in accordance with and subject to the following terms and conditions. By its execution of this Agreement the Customer agrees to purchase and SDI agrees to sell and/or license the Products on the terms and conditions set forth herein and in accordance with pricing and delivery terms separately agreed by the parties. Subsequent orders for Products must be in writing and must reference this Agreement by number. 1. PAYMENT AND TAXES. Payment terms for the Products are net thirty (30) days from delivery of Product. Overdue payments shall be subject to a finance charge of 1% per month (12% per year), plus all expenses incurred by SDI in collecting such overdue amounts. Prices are exclusive of all taxes now in force or enacted in the future, all of which shall be paid by the Customer, except for such taxes as are imposed on SDI's income. The Customer is responsible for obtaining and providing to SDI any certificates of exemption or similar document required to exempt any tax liability. 2. DELIVERY AND INSTALLATION. Customer shall be responsible for all transportation and handling charges which shall be prepaid by SDI and added to the invoice. Shipping dates are based upon prompt receipt of all necessary information from the Customer. SDI shall not be liable for any delay in delivery due to causes beyond its control. SDI will select methods and routes of shipment. Title and risk of loss shall pass to Customer upon delivery to Customer. All claims for non-conforming shipments must be made in writing to SDI within thirty (30) days of delivery of goods to the Customer. Any claims not made within that period shall be deemed waived and released. Unless otherwise 13 agreed to in writing by SDI the Customer assumes sole responsibility for the installation of Products at the Customer's premises. 3. SOFTWARE LICENSE. (a) Definitions. "Software" shall mean all software and firmware, including (i) all computer programs, in any form, incorporated in or used in connection with the Products and provided by SDI to the Customer, consisting of a series of instructions or statements in machine-readable, object code form only, and all modifications thereto made by SDI which SDI provides to the Customer; and (ii) all user documentation including manuals, handbooks and other written materials relating to the Products provided by SDI to the Customer. (b) Grants of License. SDI hereby grants, and the Customer hereby accepts, a perpetual, non-exclusive, non-transferable license, to use one copy of the Software in accordance with the instructions contained in the Software's user documentation. The Customer may make copies of the Software for backup, testing or archival purposes only and may make a reasonable number of copies of the user documentation for its internal use only provided the Customer also reproduces on such copies any copyright notice, trademark and other proprietary legends contained on the Software and does not remove them from the original. (c) Ownership, Intellectual Property Rights and Non-Disclosure. (i) SDI or its suppliers own the Software. Title to the Software, including patents, copyrights and property rights applicable thereto, shall at all times remain solely and exclusively with SDI or its suppliers, and the Customer shall not take any action inconsistent with such title. The Software is protected by United States Copyright Law and international treaty provisions and SDI intends that the Customer will use the Software only in accordance with the terms and conditions of this Agreement. (ii) The Customer shall not cause or permit disclosure (except to its employees, agents and consultants with a "need to know" and who are bound, in writing, by obligations of non-disclosure suitable to protect SDI's interests in the Software but no less restrictive than the Customer's obligations herein), copying (except as set forth in Section 3(b) herein), sublicensing or other dissemination of the Software, in whole or in part, to any third party without the prior written consent of SDI. The Customer may not use any component part of the Software owned by an SDI supplier as a standalone program or in any way independent from Software provided by SDI to Customer. The Customer shall not modify, enhance, supplement, create derivative works from, reverse engineer, reverse compile or otherwise reduce the Software to human readable form without the prior written consent of SDI. The Customer shall promptly report to SDI any violation of this clause and shall take such further steps as may be reasonably requested by SDI to remedy any such violation and to prevent future violations. -2- 14 (d) Term of License. SDI may terminate the license of the Software granted hereunder, by written notice to the Customer, if the Customer fails to comply with this Section 3; or SDI may terminate the license of the Software granted hereunder if a material breach of any other provision of this Agreement remains uncured thirty (30) days after receipt of written notice from SDI. Within ten (10) days after any termination of this license hereunder, the Customer shall either return to SDI or certify to SDI that the original and all copies (including partial copies) of the Software have been destroyed. Any further obligations of the parties shall cease upon termination of this Agreement; provided, that the terms and conditions of Sections 3(c), 5 and 7 continue in full force and effect. 4. WARRANTY. (a) SDI warrants that the Products shall in all material respects be free from defects in material and workmanship and shall operate substantially in conformance with SDI's specifications as set forth in its user documentation for a period of ninety (90) days from the date of their receipt by the Customer. SDI's sole obligation with respect to claims of non-conformance made within the warranty period shall be, upon receipt of a problem report, at its option, to correct all code errors determined by SDI to be such or to repair or replace any item which it determines to be defective. (b) All SecurID Token Modules are guaranteed for the Token's purchased life, unless subjected to reasonable use or physical abuse, to perform substantially in conformance with the specifications set forth in its user documentation in all material respects so long as the implementation and use requirements set forth in the applicable Product's user documentation are maintained. (c) Limitations of Warranty. The foregoing warranties shall not apply if (i) repair or replacement is required as a result of causes other than normal use, including, without limitation, repair, maintenance or modification of the Products by persons other than SDI or SDI-authorized personnel, accident, fault or negligence of the Customer, operator error or improper use or misuse of the Products, or causes external to the Products such as, but not limited to, failure of electrical power or fire or water damage; or (ii) the Software is used with software or equipment other than the computer processing units for which it was designed. THE FOREGOING EXPRESS WARRANTIES ARE IN LIEU OF ALL LIABILITIES OR OBLIGATIONS ON THE PART OF SDI. OTHER THAN THE EXPRESS WARRANTIES MADE BY SDI AS SET FORTH IN THIS SECTION 4, SDI AND ITS SUPPLIERS DISCLAIM ALL WARRANTIES WITH RESPECT TO THE PRODUCTS, EITHER EXPRESS OR IMPLIED, (INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE). 5. LIMITATION OF LIABILITY. EXCEPT AS PROVIDED IN THIS SECTION 5, SDI'S AND ITS SUPPLIERS, LIABILITY WILL BE LIMITED IN ANY EVENT TO ACTUAL DIRECT DAMAGES TO THE EXTENT CAUSED SOLELY BY THE ACTS OF OMISSIONS OF SDI SUBJECT TO A MAXIMUM LIABILITY OF THE GREATER OF -3- 15 $25,000 OR THE AMOUNT PAID FOR THE SPECIFIC PRODUCT OR SERVICE WHICH DIRECTLY CAUSED SUCH DAMAGE. IN NO EVENT WILL SDI BE LIABLE FOR INCIDENTAL, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES, LOST BUSINESS PROFITS, OR LOSS, DAMAGE OR DESTRUCTION OF DATA, REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), BREACH OF WARRANTY OR OTHERWISE, EVEN IF SDI AND ITS SUPPLIERS HAVE BEEN ADVISED AS TO THE POSSIBILITY OF THE SAME. NO LIMITATION AS TO DAMAGES FOR PERSONAL INJURY IS HEREBY INTENDED. No action, whether in contract or tort, including negligence, arising out of or in connection with this Agreement, may be brought by either party more than two years after the cause of action has accrued. This Section 5 shall not apply to awards based on any claim under the provisions of Section 6 or actions by SDI for violations or infringements of SDI's rights relating to the Software licensed hereunder. 6. PATENT AND COPYRIGHT INDEMNITY. If notified promptly in writing of any action brought against the Customer based on a claim that the current, unaltered release of the Products supplied to the Customer infringes a patent, copyright, trade secret or other intellectual property right, SDI shall defend such action at its expense and pay any costs (including reasonable attorney's fees) or damages finally awarded in such action that are attributable to such claim, provided that SDI shall have sole control of the defense of any such action and all negotiations for its settlement or compromise. If a final injunction is obtained against the Customer's use of any of the Products by reason of such infringement, or if in SDI's opinion any of the Products supplied to the Customer hereunder is likely to become the subject of a successful claim of infringement, SDI shall, at its option and expense, either procure for the Customer the right to continue using such Products, replace or modify the same so that it becomes non-infringing, or grant the Customer a prorated refund (depreciated on a straight-line five (5) year basis) for such Products and accept its return. Notwithstanding the foregoing, SDI shall not have any liability to the Customer under this Section 6 if the infringement or claim is based upon (i) the use of any of the Products in combination with other equipment or software that is not furnished by SDI if such claim would have been avoided were it not for such combination, or (ii) Products that have been modified or altered by the Customer. The Customer shall indemnify and hold SDI harmless against any expense, judgment or loss for infringement of any patents, copyrights, trademarks or other intellectual property rights as a result of SDI's compliance with the Customer's designs, specifications or instructions. No cost or expenses shall be incurred for the account of SDI without the prior written consent of SDI. THE FOREGOING STATES THE ENTIRE LIABILITY OF SDI WITH RESPECT TO INFRINGEMENT OF PATENTS, COPYRIGHTS, TRADE SECRETS OR ANY OTHER INTELLECTUAL PROPERTY RIGHTS BY ANY OF THE PRODUCTS OR ANY PART THEREOF OR THEIR OPERATION. 7. INJUNCTIVE RELIEF. Because unauthorized use or transfer of the Software, or any portion thereof, may diminish substantially the value of such materials and may irrevocably harm SDI, if the Customer breaches the provisions of Section 3(c) of this -4- 16 Agreement, SDI shall (without limiting its other rights or remedies) be entitled to equitable relief (including but not limited to injunctive relief) to protect its interests. 8. NOTICES. All notices given by either party to the other party under this Agreement shall be in writing and personally delivered or sent by registered or certified mail, return receipt requested, to the other party's Manager of Contracts or Manager of Purchasing at its address set forth above. 9. GENERAL. (a) In the event Customer exports any of the Products, Customer assumes the responsibility for compliance with all applicable export regulations. (b) U.S. GOVERNMENT RESTRICTED RIGHTS LEGEND: The Software is provided with RESTRICTED RIGHTS. Use, duplication, or disclosure by the U.S. Government is subject to restrictions as set forth in subparagraph (c)(1)(ii) of the Rights in Technical Data and Computer Software clause at DFARS 252.227-7013 or subparagraphs (c)(1) and (2) of the Commercial Computer Software - Restricted Rights clause at 48 CFR 52.227-19, as applicable. The contractor/manufacturer is Security Dynamics Technology, Inc., 20 Crosby Drive, Bedford, Massachusetts 01730-1437, U.S.A. (c) The validity, construction and interpretation of this Agreement and the rights and duties of the parties hereto shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts. (d) This Agreement constitutes the entire understanding between the Customer and SDI with respect to the subject matter hereof, and SDI makes no representations to the Customer except as expressly set forth herein. Terms and conditions set forth in any purchase order or other document provided by the Customer to SDI which differ from, conflict with or are not included in this Agreement shall not be part of any agreement between SDI and the Customer unless specifically accepted by SDI in writing. This Agreement shall not be deemed or construed to be modified, amended or waived, in whole or in part, except by written agreement of the parties hereto. (e) The Customer may not assign this Agreement, or any of its rights or obligations hereunder, without the prior written consent of SDI which consent shall not be unreasonably withheld. (f) The failure of either party, in any one or more instances, to enforce any of the terms of this Agreement shall not be construed as a waiver of future enforcement of that or any other term. If any provision of this Agreement shall for any reason be held illegal or unenforceable, such provision shall be deemed separable from the remaining provisions of this Agreement and shall in no way affect or impair the validity or enforceability of the remaining provisions of this Agreement. -5- 17 (g) Neither party shall be liable for failure to perform under this Agreement due to causes beyond its control. The undersigned hereby agree to the terms and conditions set forth herein and in any Addendum attached hereto and signed by both parties. Customer:_________________________________________________ Name:_____________________________________________________ Signed:___________________________________________________ Title:____________________________________________________ Date:_____________________________________________________ Security Dynamics Technologies, Inc.: Name:_____________________________________________________ Signed:___________________________________________________ Title:____________________________________________________ Date:_____________________________________________________ -6- 18 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote such omissions. ATTACHMENT A TO THE THIRD AMENDMENT 1. For each operating system environment specified in EXHIBIT A, PSC shall provide to AP, unless AP already has in its possession, a master disk set of PSC products generally available in such operating system environment and necessary to accomplish the AP customer configuration described below. Upon request thereafter, PSC shall provide one master disk set for each additional operating system environment supported by PSC or provide generally available updates to the original operating system environments at the then-current published PSC media handling charges. AP shall have a license to reproduce and distribute the PSC product(s) solely in conjunction with AP's PROGRESS(R)-based application(s) for the AP customer configurations described below. AP shall have sole responsibility for reproducing and distributing the PSC products to its customers. AP shall deliver one PSC programming book and one PSC language reference guide, or substitute PSC manuals as mutually agreed to in writing by PSC and AP, (each such guide, book or manual provided to AP at no additional charge other than shipping and handling) with each license to an AP customer. All additional PSC documentation will be provided to AP at a ********* discount off the then-current PSC price lists. These licenses are all restricted to AP's database environment and are not to be licensed for any application development or modifications other than outlined above. 2. As of the Effective Date of the Third Amendment, AP declares that the software prices for AP's PROGRESS-based applications and services are as follows:
LICENSE CATEGORY #USERS SOFTWARE LICENSE FEE MAINTENANCE FEE - ---------------- ------ -------------------- --------------- A 1-10 ****** ******* B 11-25 ****** ******* C 26-50 ****** ******* D 51-100 ****** ******* E 101-200 ****** ******* F 201-400 ****** ******* G 401-750 ****** ******* H 751-1000 ****** ******* I 1001-2500 ****** ******* J 2501-5000 ****** ******* K 5001-7500 ****** ******* L 7501-10000 ****** ******* M 10001-15000 ****** *******
19 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote such omissions. N 15001-20000 ****** ******* O 20001-30000 ****** ******* P 30001-40000 ****** ******* 40001> ************************** STANDARD OPTIONS Duress Alarm............................... ******
The above AP prices are in U.S. dollars. AP agrees to notify PSC in writing of any application price changes or changes in AP's standard discount schedule (attached as EXHIBIT B) in AP's quarterly report immediately following the change. 3. For each AP PROGRESS-based application license deployed with PSC products in accordance with Section 1 above, AP shall pay PSC a license fee equal to ****************** of the net price (less discount) charged by AP to its customer for the PROGRESS-based application in accordance with the price list set forth in Section 2 above (as modified for any AP price changes) and the AP discount schedule attached as EXHIBIT B (as modified for any AP discount changes). Notwithstanding the foregoing, the license fee shall be calculated by multiplying the above-mentioned percentage by the fee charged by AP to its customer or distributor based on the following: - If AP sells a license for its PROGRESS-based application to an AP customer for up to 1,000 users (i.e., a license fall into one of the categories A through H listed above), the license fee owed to PSC shall be calculated by multiplying the above-mentioned percentage rate by the license fee set forth in AP's then-current commercial price list after the standard quantity discounts and/or GSA discounts have been deducted. - If AP sells a license for its PROGRESS-based application to an AP customer for more than 1,000 users (i.e., a license falling into one of the categories I through Q listed above), the license fee owed to PSC shall be the amount obtained by multiplying the above-mentioned percentage rate by the actual license fee charged by AP to its customer. The ***************** royalty rate described above shall be subject to an increase to ***************** in accordance with the provisions set forth in Section 12 herein. -2- 20 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote such omissions. 4. For each AP customer who obtains a license for PSC products in conjunction with AP's PROGRESS-based application license, the fee for PSC's initial year of maintenance shall be equal to *********************** of the maintenance fee collected by AP pursuant to the maintenance price list set forth in Section 2 above (as modified for any AP price changes). Subsequent years, maintenance shall be, on an annual basis, ********************* of the basic maintenance fee collected by AP; provided, however, that such amount shall not be less than *************** of the amount paid by AP to PSC in the immediately preceding year. Maintenance includes phone support, bug fixes and generally available updates not offered or priced as a separate product on PSC's price list. AP agrees to enact a centralized support staff to communicate technical issues with the PSC technical support staff located in Bedford, Massachusetts. AP shall provide PSC with a list of AP representatives designated by AP as authorized callers for PSC support. AP may update this list from time to time upon written notice to PSC. Neither PSC nor its subsidiaries will provide support directly to a customer of AP without first notifying AP. When AP upgrades one or more of its customers to a higher user count and charges such customer(s) an upgrade fee, these upgrade fees shall be subject to the percentage royalty provisions set forth in Sections 3 and 4 herein for PSC's license and maintenance royalty fees respectively. AP shall include information about any such PSC license and maintenance royalties in accordance with the reporting requirements of Section 5 herein. Notwithstanding anything to the contrary herein, PSC shall have no obligation to continue offering maintenance or technical support for any particular release of a PSC product once a subsequent release becomes generally available, except that PSC shall continue to offer Limited Technical Support (as defined below) to AP for a period of three (3) months following the date PSC's subsequent release becomes generally available. Further, in the event PSC retires any PSC product(s) on one or more operating system environments, PSC's only obligation to AP (or any of AP's customers) for maintenance or technical support of such retired PSC product(s) shall be to offer Limited Technical Support (as defined below) for a period of three (3) months following the date PSC designates such PSC product(s) as being retired. The "Limited Technical Support" shall be defined as technical support to address P-1 problems with the PSC product(s) which severely impact the operation or deployment of AP's PROGRESS-based application including situations where there is a database down, crashing of a server, or other serious -3- 21 performance problem substantially delaying the deployment of AP's PROGRESS-based application and such P-l problems are the direct result of the operation of the PSC product(s). PSC's obligation to provide Limited Technical Support for a prior release of a PSC product (as specified herein) shall be conditioned upon AP demonstrating best efforts to maintain forward compatibility of its PROGRESS-based application with new releases of PSC products and offer timely updates to its PROGRESS-based application (no later than six (6) months from the first availability date of the new PSC product release). 5. Commencing with the month during which the Effective Date of this Third Amendment falls, AP shall at the end of each three month period provide the following reports to PSC: - AP PROGRESS-based application deployment reports including for each copy of AP's PROGRESS-based application licensed to an AP customer, the customer ID, location, number of users, PSC serial number, AP's license fee (or upgrade license fee in the case of an upgrade to an existing license), zip code (if site location is in the U.S.), country and country postal code (if site location is outside the U.S.) - Maintenance report including for each copy of AP's PROGRESS-based application under maintenance, a customer id, location, PSC serial number, and AP's annual maintenance fee (or AP's incremental increase in the maintenance fee in the case of an upgrade of an existing license) Such required reports will be due by the 15th day of the month following each three month period and shall cover copies of AP PROGRESS-based application licensed, upgraded and/or maintenance collected directly by AP or one of its authorized distributors or value-added resellers during the prior quarter. Payment in full for license and maintenance fees owed to PSC for the prior quarter are due with these reports. 6. During the Term of this Attachment A, AP shall have the right to produce an unlimited number of copies of the PSC products described in Section 1 of this Attachment A and distribute them free of charge to AP locations solely for the purpose of demonstrating AP's PROGRESS-based application (or updates thereto) to existing or potential AP customers. As part of such demonstration activities, AP may install the above-referenced PSC products at an AP customer location solely for the above-mentioned demonstration purposes; provided however, that if AP intends to leave the demonstration software with the customer, AP shall first enter into a demonstration license agreement with such AP customer containing terms and conditions substantially similar to those set forth in AP's demonstration license agreement attached hereto as EXHIBIT C and at a minimum -4- 22 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote such omissions. will contain: (a) a license term of no more than thirty (30) days, (b) a requirement that the end-user, upon expiration or earlier termination of the demonstration license agreement, return the demonstration software to AP, (c) a disclaimer of warranty disclaiming all warranties relating to the demonstration software and (d) a conspicuous notice of any time-out, disabling, or other mechanisms, if any, limiting the functionality of the demonstration software. AP shall also have the right to produce and distribute, free of charge, copies of the PSC products described in Section 1 of this Attachment A to each of AP's support centers worldwide. Such PSC products shall be used by AP solely for the purpose of providing technical support to AP's customers. For each support center, the number of simultaneous users (defined as the number of simultaneous display devices running a PROGRESS product or accessing a PROGRESS database) of one or more copies of any of the PSC products shall collectively be limited to ******** simultaneous users. 7. AP paid PSC a one-time non-refundable development license fee of **************************** and an initial maintenance fee of ******************* of the above-mentioned license fee. In exchange for these fees, PSC granted to AP a development license (described below) for each of the operating system platforms listed in EXHIBIT D along with twenty (20) PSC documentation sets, all of which were licensed to AP for installation at an AP site located in the United States solely for the development, testing and support of AP's PROGRESS-based application. Additionally, each such development license was covered under a twelve (12) month initial maintenance term. Bach PSC development license granted to AP was limited to 16 developers and included ProVISION clients, E/SQL, Database Servers, client networking and server networking products generally available on the applicable operating system platform. As of the Effective Date of the Third Amendment, PSC shall include in the above-mentioned license grant a PSC product development license for the SINIX operating system platform subject to a license fee of ****** and a maintenance fee of *************** of such license fee. Thereafter, at any time during the Term of this Attachment A, upon request, PSC shall provide a disk set for each additional requested operating system environment available on PSC's then-current price list in exchange for payment by AP of a license fee of ******* per operating system environment and a maintenance fee of ****************** of such license fee for the initial twelve (12) month maintenance term. These additional development licenses will be subject to the same product descriptions, user number limitations and geographical restrictions as described above. During -5- 23 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote such omissions. the Term of this Attachment A, renewal annual maintenance will be available at the same maintenance rates plus an increase not to exceed **************** of the maintenance fee for the immediately preceding maintenance term. PSC maintenance for the development licenses described in this Section 7 shall be subject to the same limitations as described in Section 4 above. During the Term of this Attachment A, AP shall have the right to purchase PSC development product licenses for installation at its development site(s) outside the United States in accordance with the provisions below. AP shall submit orders for PSC development product licenses to PSC's headquarters in Bedford, Massachusetts. The license fees for such PSO development product license(s) shall be subject to the then-current local country price list less a ******************* discount. 8. PSC agrees that pricing terms and conditions applicable to AP shall be substantially similar to and no less favorable than those offered to similarly situated APs, taking into consideration sales volume, the AP vertical market, geographic territory, commitment level, and other business terms and conditions applying to those APs. 9. All dollar amounts referenced in this Attachment A are in U.S. dollars and all payments by AP to PSC shall be made by AP in U.S. dollars. 10. Notwithstanding anything to the contrary in this Attachment A, the special pricing, production and distribution terms and conditions set forth herein shall under no circumstances apply to third party product(s) distributed by PSC under license from such third part(ies). 11. AP previously paid to PSC a one time nonrefundable conversion fee of **************************************. In exchange for payment of such conversion fee, PSC granted to AP the right to install at each Qualified AP Customer site the generally available PSC products required to convert the then-current AP licensed users at such Qualified AP Customer site as of September 18, 1995 over to AP's PROGRESS-based application. A "Qualified AP Customer" is an existing AP customer who, as of September 18, 1995, AP considered to be currently under AP maintenance and remains current under AP maintenance. During the term of this Attachment A, AP shall continue to have a right to exercise the above-mentioned conversion option for Qualified AP Customers (on or prior to September 18, 1995) who have not yet been converted to AP's PROGRESS-based application. The -6- 24 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote such omissions. above-mentioned conversion fee shall include the PSC maintenance fee for each converted Qualified AP Customer through the remainder of that Qualified AP Customer's current maintenance term in effect at the time of the conversion. Thereafter, all renewal maintenance fees shall be subject to the terms and conditions set forth in Section 4 above. Following the conversion of each Qualified AP Customer to AP's PROGRESS-based application, AP will be subject to all of the terms and conditions of this Attachment A with respect to such Qualified AP Customer including, but not limited to, the provisions regarding annual maintenance fees, upgrade fees, and reporting requirements set forth above. 12. AP shall pay to PSC a nonrefundable advance payment in the amount of $3.75 million in accordance with the payment schedule set forth below. In exchange for such payment, PSC will provide AP with a $3.75 million allowance against the license and initial maintenance fees for deployment licenses incurred by AP on or after the Effective Date of this Attachment A pursuant to Sections 3 and 4 above. AP's payment to PSC of $3.75 million shall be due and payable to PSC in accordance with the following schedule: $1,250,000 due by December 27, 1996 $1,250,000 due by January 24, 1997 $1,250,000 due by February 28, 1997
Once AP has completely used all of the $3.75 million allowance mentioned above, the royalty percentage rate used to calculate the deployment license fees owed to PSC under Section 3 shall be increased from ********************************* for the remainder of the Term of this Attachment A. 13. PSC and AP shall schedule two semi-annual product planning review sessions between senior executives and/or directors of PSC and AP to discuss and exchange information, subject to an appropriate form of mutual nondisclosure agreement, about each company's future product plans and requirements. Unless otherwise expressly specified in a written agreement executed on behalf of both parties, nothing communicated during such discussions shall be construed by either party as an obligation of the other party to make any modifications and/or additions to its software products. Each party shall have the right, in its sole discretion, to update its future product plans without advance notice to the other party. -7- 25 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote such omissions. 14. Upon AP's request, PSC shall, at AP's expense, jointly develop with AP and deliver a customized course curriculum focused on the use of PSC product(s) within AP's PROGRESS-based application. If the customized course curriculum is: (a) developed from existing standard PROGRESS course curricula and course materials and (b) delivered at PSC's Bedford, Massachusetts headquarters to a minimum of six (6) and a maximum of twenty (20) students per class, then PSC will provide such course development and delivery services to AP at a ***************** discount per student per day off the then-current daily per student educational service rate. The educational service fee described above will cover all course materials, classroom space, PSC instructor time and student meals at PSC's facility during the scheduled course dates. The current educational service rate as of the Effective Date of this Amendment is ****/student/day. This rate is subject to change without advance notice to AP. AP may use up to ************* ******************* of the product/maintenance allowance described in Section 12 above in paying the educational service fees described herein. Notwithstanding the foregoing, if the conditions set forth in (a) and (b) above are not satisfied, then the fees associated with the customized course curriculum development and delivery will be subject to mutual negotiation and agreement between the parties. 15. The term of this Attachment A is specified in Section 2 of the Third Amendment. In the event of conflict or inconsistency between the terms and conditions of the Agreement, the Second Amendment (including the prior Attachment A), the Third Amendment or this Attachment A, the priority of governance shall be first the terms and conditions of this Attachment A, then the Third Amendment, then the Second Amendment and then the Agreement. PROGRESS SOFTWARE CORPORATION SECURITY DYNAMICS, INC. By: /S/ Michael J. Crismorid By: /S/ Linda E. Saris --------------------------------- --------------------------------- Name: Michael J. Crismorid Name: Linda E. Saris ------------------------------- ------------------------------- Title: V.P. - North American Sales Title: V.P. - Operations ------------------------------ ------------------------------ -8- 26 EXHIBIT A OPERATING SYSTEM ENVIRONMENTS: NT SunOS Solaris HP-UX AIX SCO DEC UNIX SINIX This list is for the Operating Systems as they exist in addition to all required hardware platforms as they become available subject to the provisions of Section 1 of Attachment A. 27 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote such omissions. EXHIBIT B CONFIDENTIAL FOR INTERNAL USE ONLY SECURITY DYNAMICS TECHNOLOGIES, INC. PRICE SHEET EFFECTIVE JULY 1, 1996 ACE/SERVER AND ACM/5100 DISCOUNTS
CATEGORY A/B/C CATEGORY D-P # PURCHASED DISCOUNT % DISCOUNT % ----------- ---------- ---------- 1 ** ** 2 ** ** 3 ** ** 4 ** ** 5 ** ** 6 ** ** 7 ** ** 8 ** ** 9 ** ** 10 ** **
EXAMPLE: 5 units CATEGORY B = 5 x ********************** or 8 units CATEGORY E = 8 x ********************** or For the 11th unit and up, use a *** discount for Categories A/B/C and *** for Categories D-P 28 Confidential Materials omitted and filed separately with the Securities and Exchange Commission. Asterisks denote such omissions. EXAMPLE: 11 units CATEGORY D = 10 x ******************** + 1 x ************************ = **************************** or ******/system. SUPPLEMENTARY PRICING INFORMATION ... NOT FOR DISTRIBUTION 29 EXHIBIT C SECURITY DYNAMICS ("SDI") NO-OBLIGATION EVALUATION REQUEST We would like to take advantage of your 30 day FREE No-Obligation evaluation for the SDI products listed below. Please send the necessary equipment, software and documentation ("evaluation materials") to perform testing of the products. We will adhere to the Terms and Conditions stated below. Name ___________________________ Title ____________________________ Company ________________________ Phone # __________________________ Street ____________________________________________________________ City ______________________________ St. __________ Zip ____________ CPU Mfg. ________________ Model __________ O/S Version ____________ EVALUATION TERMS AND CONDITIONS: We understand the SDI evaluation materials are proprietary and as such will keep all evaluation materials in confidence including the following: no disclosure to anyone other than our employees with a need to know, no duplication of manuals or software, no reverse engineering or reduction of any software to human readable form, and no export of any evaluation materials. We understand that SDI is the owner and retains title to all evaluation materials. At conclusion of the evaluation period, we will either return an executed License Agreement and purchase order, or return or destroy, in the case of software, the evaluation materials, including documentation, and erase all software from computer memory within ten days. The evaluation period will commence upon our receipt of the evaluation materials. No evaluation materials will be installed in any commercial or production application until a License Agreement has been signed. Risk of loss and damage to the evaluation materials shall remain with us until its return to SDI. All evaluation materials are provided "as is" and in no event will SDI be liable for any incidental, special, indirect, or consequential damages resulting from this evaluation, and in any event, the cumulative liability of SDI will be limited to the purchase price of the evaluation material. THERE IS NO COMMITMENT ON OUR PART TO PURCHASE EVALUATION MATERIALS. EVALUATION MATERIALS: QUANTITY MODEL DESCRIPTION - -------- ----- ----------- ________ _____________________ ____________________________________ ________ _____________________ ____________________________________ ________ _____________________ ____________________________________ ________ _____________________ ____________________________________ Signature_____________________________ Date_______________________________ 30 EXHIBIT D OPERATING ENVIRONMENTS: In accordance with and subject to the terms and conditions set forth in Section 7 of Attachment A, AP has a development license for certain PSC products (as described in Section 7) on the following operating system platforms: OSF NT SunOS Solaris HP-UX AIX IRIX OS/400 SCO NOVELL Open VMS OS/2 Subject to AP's payment of the additional fees set forth in Section 7 of Attachment A, PSC shall add the SINIX operating system platform to the above-mentioned list. Any additional platforms will be subject to the terms and conditions set forth in Section 7 of Attachment A. EX-11 6 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 SECURITY DYNAMICS TECHNOLOGIES, INC AND SUBSIDIARIES COMPUTATION OF INCOME PER COMMON AND COMMON EQUIVALENT SHARE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS JUNE 30, ENDED JUNE 30, 1997 1996 1997 1996 ------- ------- ------- ------- PRIMARY Weighted average number of common and common equivalent shares outstanding: Common stock 35,038 33,986 34,952 33,848 Common equivalent shares resulting from stock options (treasury stock method) 1,591 2,618 1,629 2,550 ------- ------- ------- ------- Total 36,629 36,604 36,581 36,398 ======= ======= ======= ======= Net income $ 5,502 $ 2,884 $10,231 $ 5,052 ======= ======= ======= ======= Net income per common and common equivalent share $ .15 $ .08 $ .28 $ .14 ======= ======= ======= =======
FULLY DILUTED Weighted average number of common and common equivalent shares outstanding: Common stock 35,038 33,986 34,952 33,848 Common equivalent shares resulting from stock options (treasury stock method) 1,789 2,661 1,835 2,658 ------- ------- ------- ------- Total 36,827 36,647 36,787 36,506 ======= ======= ======= ======= Net income $ 5,502 $ 2,884 $10,231 $ 5,052 ======= ======= ======= ======= Net income per common and common equivalent share $ .15 $ .08 $ .28 $ .14 ======= ======= ======= =======
20 -- EX-27 7 FINANCIAL DATA SCHEDULE
5 0000932064 SECURITY DYNAMICS TECHNOLOGIES, INC. 1,000 US DOLLARS 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 1 21,828 86,437 17,941 550 3,189 134,986 17,068 4,749 151,600 16,493 0 0 0 351 132,178 151,600 56,097 56,097 12,241 42,245 0 90 0 16,321 6,090 10,231 0 0 0 10,231 0.28 0.28 INCOME-PRETAX INCLUDES $2,649 INTEREST AND OTHER INCOME. TOTAL LIABILITY AND EQUITY INCLUDES $2,578 MINORITY INTEREST.
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