-----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, S1CuPom/gWMHUm9EecDZIEyqJxqDjaou9VZjSM9eHlCtercy6ApCTBpAoE6gDk/7 wE9c/uo2b+pXj4GFu1U0EQ== 0000891618-98-002744.txt : 19980608 0000891618-98-002744.hdr.sgml : 19980608 ACCESSION NUMBER: 0000891618-98-002744 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980403 FILED AS OF DATE: 19980605 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYMANTEC CORP CENTRAL INDEX KEY: 0000849399 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 770181864 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-17781 FILM NUMBER: 98643142 BUSINESS ADDRESS: STREET 1: 10201 TORRE AVE CITY: CUPERTINO STATE: CA ZIP: 95014 BUSINESS PHONE: 4082539600 MAIL ADDRESS: STREET 2: 10201 TORRE AVENUE CITY: CUPERTINO STATE: CA ZIP: 95014 10-K 1 FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED APRIL 3, 1998. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______. COMMISSION FILE NUMBER 0-17781 SYMANTEC CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 77-0181864 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 10201 TORRE AVENUE, CUPERTINO, CALIFORNIA 95014-2132 (Address of principal executive offices) (zip code) Registrant's telephone number, including area code: (408) 253-9600 - -------------------------------------------------------------------------------- Securities registered pursuant to Section 12(b) of the Act: NONE NONE (Title of each class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $0.01 PER SHARE (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filer pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the Symantec common stock on May 26, 1998 as reported on the Nasdaq National Market and with respect to the Delrina exchangeable stock on the Toronto Stock Exchange: $1,395,116,880 Number of shares outstanding of each of the registrant's classes of common stock, including 2,377,776 shares of Delrina exchangeable stock, as of May 26, 1998: 57,530,593 DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held September 17, 1998 are incorporated by reference into Part III. 2 SYMANTEC CORPORATION FORM 10-K FOR THE FISCAL YEAR ENDED APRIL 3, 1998 TABLE OF CONTENTS PART I.
Page ---- Item 1. Business............................................................... 1 Item 2. Properties............................................................. 9 Item 3. Legal Proceedings...................................................... 10 Item 4. Submission of Matters to a Vote of Security Holders.................... 10 PART II. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.. 11 Item 6. Selected Financial Data................................................ 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................... 13 Item 8. Financial Statements and Supplementary Data............................ 25 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................................. 25 PART III. Item 10. Directors and Executive Officers of the Registrant..................... 26 Item 11. Executive Compensation................................................. 28 Item 12. Security Ownership of Certain Beneficial Owners and Management......... 28 Item 13. Certain Relationships and Related Transactions......................... 28 PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........ 29 Signatures...................................................................... 57
3 PART I ITEM 1: BUSINESS. FORWARD-LOOKING STATEMENTS. The following discussion contains forward-looking statements that are subject to risks and uncertainties. There are several important factors that could cause actual results to differ materially from those anticipated by the forward-looking statements contained in the following discussion. Readers should pay particular attention to the risk factors set forth in this section and in the section of this report entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." Nothing in this report shall impose upon Symantec or any person a duty to update any forward looking statement. This document contains reference to trademarks and trade names of other companies. GENERAL. Symantec Corporation ("Symantec" or the "Company") is a world leader in utility software for business and personal computing. Symantec's business strategy is to satisfy customer needs by developing and marketing products across multiple operating platforms (currently those of Microsoft Corporation and Apple Computer, Inc.) that make customers productive and keep their computers safe and reliable - anywhere, anytime. The Company's predecessor, C&E Software, Inc., a California corporation, and that predecessor's operating subsidiary, Symantec Corporation, a California corporation, were formed in September 1983 and March 1982, respectively. The Company was incorporated in Delaware in April 1988 in connection with the September 1988 reincorporation of the Company's predecessor and its operating subsidiary into a single Delaware corporation. Since Symantec's initial public offering on June 23, 1989, the Company has completed acquisitions of 15 companies. Companies acquired during the past five years include: Fast Track, Inc. ("Fast Track") on May 28, 1996, Delrina Corporation ("Delrina") on November 22, 1995, Intec Systems Corporation ("Intec") on August 31, 1994, Central Point Software, Inc. ("Central Point") on June 1, 1994, SLR Systems, Inc. ("SLR") on May 31, 1994, Fifth Generation Systems, Inc. ("Fifth Generation") on October 4, 1993 and Contact Software International, Inc. ("Contact") on June 2, 1993. The Company acquired Peter Norton Computing, Inc. ("Norton") on August 31, 1990 and continues to use the Norton brand name for products subsequently developed and marketed by Symantec. All of these acquisitions were accounted for as poolings of interests. Accordingly, all financial information has been restated to reflect the combined operations of these companies and Symantec, with the exception of Fast Track, Intec and SLR, each of which had results of operations that were not material to Symantec's consolidated financial statements. During fiscal 1997, in a move to focus the Company's product offerings on specific customer needs, Symantec sold its FormFlow product line, acquired as part of the Delrina acquisition, to JetForm Corporation ("JetForm") and sold the assets and technology of its networking business unit to the Hewlett-Packard Company ("Hewlett-Packard"). See further discussion in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations. Symantec has a 52/53-week fiscal accounting year. Accordingly, all references as of and for the periods ended March 31, 1998, 1997 and 1996 reflect amounts as of and for the periods ended April 3, 1998, March 28, 1997 and March 29, 1996, respectively. The fiscal accounting year ended April 3, 1998 comprised 53 weeks of operations. PRODUCTS AND SERVICES. Symantec's products, comprising utility software for business and personal computing, are currently organized into the following three business units: Security and Assistance; Remote Productivity Solutions; and Internet Tools, Royalties and Other. The following table summarizes Symantec's principal products by business unit: 1 4 Principal Products SECURITY AND ASSISTANCE Norton AntiVirus(R) Norton AntiVirus(R) for Macintosh Norton CrashGuard(TM) Deluxe Norton Uninstall(TM) Deluxe Norton Utilities(R) Norton Web Services(TM) Norton Your Eyes Only(R) REMOTE PRODUCTIVITY SOLUTIONS ACT!(R) pcANYWHERE(R) WinFax PRO(TM) INTERNET TOOLS, ROYALTIES AND OTHER Symantec Visual Cafe(TM) (Database Development Edition) Symantec Visual Cafe(TM) (Professional Development Edition) Symantec Visual Cafe(TM) (Web Development Edition) Most of Symantec's products that are currently being developed and marketed feature LiveUpdate(TM), which enables the user, free of cost, to download application bug fix patches via an Internet connection to Symantec's corporate website. SECURITY AND ASSISTANCE The Security and Assistance business unit is dedicated to being indispensable in customers' daily use of computers by increasing productivity and keeping computers safe and reliable. Net revenues from this business unit comprised approximately 50% of total net revenues for the fiscal years ended March 31, 1998 and 1997 and 45% of total net revenues for the fiscal year ended March 31, 1996. Norton AntiVirus and Norton AntiVirus for Macintosh run in a computer's background and are designed to protect against, detect and eliminate computer viruses. The software covers multiple sources of infection, including the Internet, floppy disks, email attachments, shared files and networks. The software enables the user to download, via Symantec's LiveUpdate functionality, new virus definitions created by the Symantec AntiVirus Research Center (SARC) (TM) . The software runs under the Windows, Windows 95, Windows NT, MS-DOS, Macintosh and Power Macintosh operating systems. The Norton AntiVirus product line also includes support for Lotus Notes (Norton AntiVirus for Notes) and Novell NetWare (The Norton AntiVirus NetWare). Norton CrashGuard Deluxe runs in a computer's background and is designed to detect and fix a range of computer problems, including computer crashes and hard disk fragmentation. When the program detects a crash, it allows the computer user to unfreeze the crash and save any open files. The program also optimizes computer performance and provides basic virus detection and elimination. Norton CrashGuard Deluxe includes an interface to Norton Web Services, a paid subscription service that locates and installs patches, updates and drivers specific to a user's installed hardware and software. The program runs on the Windows 95 and Windows NT operating systems. Norton Uninstall Deluxe is designed to add and remove programs and files from a user's hard drive. InstallGuard, a feature of Norton Uninstall Deluxe, provides a one-button "undo" of program installations, restoring a computer's Windows registry and hard drive to its original condition prior to the installation. The program's system cleanup tools ensure that registry, files, icons and other system options are set for optimum performance. Norton Uninstall Deluxe runs on the Windows 95 and Windows NT operating systems. Norton Utilities is a set of "tools" designed to address system-level operations. In addition, Norton Utilities finds and repairs problems with Windows 95 applications and includes an interface to Norton Web Services, a paid subscription service that locates and installs patches, updates and drivers specific to a user's installed hardware and software. The program also offers crash protection, limited virus detection and repair and several new optimization utilities to accelerate a computer's performance. Norton Utilities runs on the Windows, Windows 95, Windows NT, MS-DOS, Macintosh and Power Macintosh operating systems. 2 5 Norton Web Services ("NWS") is designed to deliver an online subscription-based service site that downloads Norton technology to Windows 95 users via an Internet connection. NWS features Symantec's LiveUpdate Pro, a service that locates and installs patches, updates and drivers specific to a user's installed hardware and software. NWS was released by Symantec in December 1997. As such, this service did not generate material revenues in any fiscal years presented. The Company believes this service will generate increasing revenue amounts in future periods, but there can be no assurance this product will be commercially successful. Norton Your Eyes Only is designed to encrypt and decrypt private computer files, enable users to share files without compromising security, lock access to a personal computer when the personal computer is idle and prevent booting by unauthorized users. The program runs on the Windows 95 and Windows NT operating systems. REMOTE PRODUCTIVITY SOLUTIONS The Remote Productivity Solutions business unit focuses on helping remote professionals remain productive - anywhere, anytime. This business unit focuses on customer needs to access information, applications and data from any location. Net revenues from this business unit comprised approximately 40% of total net revenues for the fiscal year ended March 31, 1998, and approximately 35% of total net revenues for the fiscal years ended March 31, 1997 and 1996. ACT! is designed to combine a customizable database, calendar and activity management, automatic history logging, customizable reporting and communications via mail merge, telephone, email and fax into a single product. The product provides extensive data sharing support for Local Area Network ("LAN") teams and remote database synchronization for mobile users and small mobile teams. ACT! runs on the Windows, Windows 95, Windows NT, Windows CE, MS-DOS, Macintosh, Newton and Psion operating systems. pcANYWHERE is designed to offer reliable, fast and flexible PC-to-PC remote computing via serial or modem connections. pcANYWHERE enables the user to control one PC remotely from the keyboard of another PC. The offsite remote PC, laptop or PC terminal controls the operation of the distant host PC. In addition to enabling a remote user to run a distant PC, pcANYWHERE optionally allows users at the host (distant) machine to view the operations being conducted from the remote site. The software enables the user to run Windows, Windows 95, Windows NT, Windows CE or MS-DOS applications remotely, transfer files and perform other data operations. WinFax PRO is designed to enable users to send, receive and manage faxes. WinFax PRO provides background faxing, which allows users to continue working on other applications while sending or receiving a fax via the Internet or a fax machine. WinFax PRO also provides enhanced file compression, increasing the speed at which faxes are transmitted. Other features include a paging function, which enables the computer to page a user upon receipt of an incoming Fax or voice message, and a "call identify" function, which allows a user to view an incoming fax or phone number. WinFax PRO runs on the Windows, Windows 95 and Windows NT operating systems. INTERNET TOOLS, ROYALTIES AND OTHER The Internet Tools, Royalties and Other business unit includes products providing an easy to use Java development environment, as well as revenue streams from the sale to third-party computing companies of certain of the Company's software product lines and technologies, and revenues from products nearing the end of their life cycle. Net revenues from this business unit comprised approximately 10%, 15% and 20% of total net revenues for the fiscal years ended March 31, 1998, 1997 and 1996, respectively. Symantec Visual Cafe (Database Development Edition) is designed to provide a solution for building business critical Java applications with database connectivity. The program includes a forms designer for drag-and-drop Graphical User Interface design and dbAWARE project wizards that walk the user through defining a data source, adding components and the interactions between them. The program also builds Java applications and connects to multiple databases without writing source code. The Database Development Edition includes 100+ JavaBeans (series of pre-written source code) and 20 database templates, and connects to over 30 commercially available databases via industry standard protocols ("JDBC" or "ODBC"). Symantec Visual Cafe (Professional Development Edition) is designed to provide a Java Integrated Development Environment solution for creating Java applications and JavaBeans with features geared toward professional Java developers. Advanced power tools include native compilation, advanced Java Archive tools, Java Development Kit 1.1.5 support and Visual Page. In addition, to facilitate easier discovery of problems with source code, the program supports "debugging" directly within a Web browser. 3 6 Symantec Visual Cafe (Web Development Edition) is designed to provide a Rapid Application Java Development and a HTML Web authoring solution that provides support for Java Development Kit 1.1.5 and JavaBeans. The program includes a drag-and-drop interface, professional templates and Java applet and JavaBeans libraries. This product did not generate material revenues in any fiscal years presented. The Company believes this product will generate increasing revenue amounts in future periods, but there can be no assurance this product will be commercially successful. The Visual Cafe products run on Windows 95, Windows NT and Macintosh operating systems. The Java program code developed with these products, however, can be deployed on any platform that supports a Java Virtual Machine compliant with Sun Microsystem's JDK standards. SALES AND MARKETING, INTERNATIONAL SALES AND CUSTOMER SUPPORT. Symantec markets its products worldwide utilizing a multi-channel strategy of direct and indirect sales through independent software distributors, major retail chains and resellers. SALES AND MARKETING Symantec sells its products to both individuals and corporate users primarily through distributors and resellers. Symantec products are made available to customers through channels that include: distributors, retail, mail order, corporate resellers, value added resellers ("VAR's"), original equipment manufacturers ("OEM's"), partnerships, education, consulting, etc. Symantec also sells product upgrades and certain of its products through the use of direct mail and over the Internet. Symantec maintains distribution relationships with major independent distributors. These distributors stock Symantec's products for redistribution to independent dealers, consultants and other resellers. Symantec also maintains relationships with major retailers while marketing to these retailers through independent distributors. (See further discussion in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Retail Distribution Channel; New Distribution Channels.) The company's sales force works closely with its major distributor and reseller accounts to manage the flow of orders, inventory levels and sell-through to customers, as well as working closely with them to manage promotions and other selling activities. The company also sells volume license programs (corporate site licenses) through its distribution and corporate reseller channels. (See further discussion in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Site Licenses; Channel Fill.) Agreements with distributors are generally nonexclusive and may be terminated by either party without cause. Such distributors are not within the control of Symantec, are not obligated to purchase products from the Company and also represent other vendors' product lines. (See further discussion in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Retail Distribution Channel.) Information with respect to customers that represent more than 10% of the Company's revenues may be found in Note 16 of the Notes to Consolidated Financial Statements in Part IV, Item 14 of this Form 10-K. Symantec's return policy allows its distributors, subject to certain limitations, to return purchased products in exchange for new products or for credit towards future purchases. End users may return products through dealers and distributors within a reasonable period from the date of purchase for a full refund, and retailers may return older versions of products. Various distributors and resellers may have different return policies that may negatively impact the level of products which are returned to Symantec. Product returns occur when the Company introduces upgrades and new versions of products or when distributors order too much product. In addition, competitive factors often require the Company to offer rights of return for products that distributors or retail stores are unable to sell. (See further discussion in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Product Returns.) Symantec's marketing activities include advertising in trade, technical and business publications, on-line advertising, public relations, cooperative marketing with distributors, resellers and dealers, direct mailings to existing and prospective end users and participation in trade and computer shows. Additionally, the Company typically offers two types of rebate programs, volume incentive rebates and rebates to end users. Volume incentive rebates are made available to Symantec's distributors and resellers whereby the distributor or reseller earns a rebate based upon their purchases and sell-though of products to end users. Volume incentive rebates are accrued when revenue is recorded. From time to time, Symantec also makes rebates available to end users of various products who acquired the products 4 7 through major retailers. End user rebates are accrued when revenue is recorded. (See further discussion in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Sales and Marketing.) INTERNATIONAL REVENUES International revenues outside of North America represented approximately 32%, 29% and 32% of Symantec's net revenues in fiscal 1998, 1997 and 1996, respectively. The majority of Symantec's net revenues from certain European regions are derived from sales by affiliates of Symantec's major United States distributors. In other countries, Symantec sells its products through authorized distributors. In some countries, these distributors are restricted to specified territories. Symantec typically adapts products for local markets, including translating the documentation and software where necessary, and prepares marketing programs for each local market. Symantec has established marketing offices in Argentina, Australia, Brazil, Canada, Denmark, France, Germany, Holland, Hong Kong, Italy, Japan, Korea, Malaysia, Mexico, New Zealand, Russia, Singapore, South Africa, Sweden, Switzerland, Taiwan and the United Kingdom. These local offices facilitate Symantec's marketing and distribution in international markets. The Company's international operations are subject to certain risks common to international operations, such as government regulations, import restrictions, currency fluctuations, repatriation restrictions and, in certain jurisdictions, reduced protection for the Company's copyrights and trademarks. (See further discussion in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Foreign Operations.) Information with respect to international operations and export sales may be found in Note 16 of Notes to Consolidated Financial Statements in Part IV, Item 14 of this Form 10-K. CUSTOMER SUPPORT Symantec's product support program provides a wide variety of free and fee-based technical support services to its customers. Symantec provides its customers with free support via electronic and automated services as well as 90-days free telephone support for selected products. In August 1996, Symantec introduced LiveUpdate, which provides instant access to on-line application bug fix patches for most of Symantec's currently marketed and developed products. In addition, Symantec offers both domestic individual users and domestic corporate customers a variety of fee-based options designed to meet their technical support requirements. These fee-based support programs are revised from time to time as customer requirements change and as market trends dictate. Symantec also offers Chat Now!(TM), a fee-based technical support service via the Internet. Fee-based technical support services did not generate material revenues in any fiscal years presented and are not expected to generate material revenues in the near future. (See further discussion in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations Technical Support.) PRODUCT DEVELOPMENT, PARTNERSHIPS AND ACQUISITIONS. Symantec uses a multiple product sourcing strategy that includes internal development, licensing from third parties and acquisitions of technologies, product lines or companies, as necessary. Symantec typically develops new products and enhancements of existing products in its business units. Each group's responsibilities include design, development, documentation and quality assurance. Independent contractors are used for certain aspects of the product development process, and elements of certain Company products are licensed from third-party developers. During fiscal 1998, Symantec entered into strategic relationships with various companies including Entrust Technologies, Inc. ("Entrust"), Hewlett-Packard and Microsoft Corporation ("Microsoft"). Entrust has agreed to a joint development, cross-licensing and distribution arrangement with Symantec for the development of secure desktop suites which will provide comprehensive, easily managed desktop solutions. In addition, the secure desktop suites are expected to provide scalable certificate management and centralized key backup and recovery to the consumer, workgroup and enterprise. (See further discussion in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Reliance on Joint Business Arrangements.) Hewlett-Packard has agreed to incorporate Symantec's pcANYWHERE32 remote-control software package on all Hewlett-Packard Brio personal computers targeted for small and medium sized companies without an information technology staff. Hewlett-Packard will also provide pcANYWHERE32 free of charge to its resellers. Microsoft and Symantec have entered into a strategic relationship to deliver integrated technology capabilities to the Microsoft Outlook 98 messaging and collaboration client. The first project from this relationship will be the inclusion 5 8 of WinFax Starter Edition, which includes components of Symantec's WinFax PRO software, in Microsoft Outlook 98. The second project from this relationship is expected to be the integration between Symantec's new ACT! contact manager and Microsoft's Outlook 98. On May 19, 1998, IBM and Symantec Corporation entered into an agreement whereby Symantec will license IBM's immune system technology and patents. Symantec will combine this technology with its own technology to produce a range of products, including new solutions to support IBM platforms. As part of the agreement, IBM has also assigned its existing anti-virus customer and OEM contracts to Symantec and will recommend Norton AntiVirus to its corporate customers worldwide as the anti-virus solution of choice. In addition, IBM and Symantec intend to sell and market the Norton AntiVirus product line worldwide. (See further discussion in Note 17 of Notes to Consolidated Financial Statements in Part IV, Item 14 of this Form 10-K.) The Company is devoting substantial efforts to the development of software products that are designed to operate on various operating systems. Symantec's total research and development expenses were approximately $91 million, $89 million and $95 million in fiscal 1998, 1997 and 1996, respectively. Research and development expenditures are charged to operations as incurred. The current U.S. accounting standard, Statement of Financial Accounting Standards (SFAS) No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed," did not materially affect the Company in fiscal 1998 and 1996. In fiscal 1997, Symantec capitalized approximately $8 million of software development costs, primarily related to network administration technology, which was sold to Hewlett-Packard in March 1997, resulting in the write-off of approximately $7 million of unamortized costs during the fourth quarter of fiscal 1997. (See further discussion in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Operating System; Uncertainty of Research and Development Efforts; Length of Product Development Cycle.) Symantec uses strategic acquisitions, as necessary, to provide certain technology, people and products for its overall product strategy. The Company has completed a number of acquisitions and dispositions of technologies, companies and products and may acquire and dispose of other technologies, companies and products in the future. (See further discussion in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Management of Expanding Operations.) COMPETITION. The microcomputer software market is intensely competitive and is subject to rapid changes in both technology and the strategic direction of major microcomputer hardware manufacturers and operating system providers. The Company's competitiveness depends on its ability to enhance its existing products and to offer successful new products on a timely basis. The Company has limited resources and must restrict its product development efforts to a relatively small number of projects. (See further discussion in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Rapid Technological Change and Development Risks.) Operating system vendors such as Microsoft have added features to new versions of their products that provide some of the same functionality traditionally offered in Symantec's products. Symantec believes this trend may continue. Microsoft may incorporate advanced features in future versions of operating systems that may decrease the demand for certain of the Company's products, including those currently under development. In addition, a number of software developers have integrated antivirus capabilities into their Internet products. While Symantec plans to continue to improve its products with a view toward providing enhanced functionality over that provided in current and future operating systems, these efforts may not be successful and such improved products may not be commercially accepted by software users. Symantec will also attempt to work with operating system vendors in an effort to make its products compatible with those operating systems, yet differentiate those utility products from features included in the operating systems. However, these efforts may not be successful. Other competitors may license their products to other hardware and software original equipment manufacturers ("OEM's"). In addition, as software users move toward running programs from the Internet or over a LAN, the need for certain of Symantec's utility programs may decrease. (See further discussion in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Operating System; Microsoft Windows 98.) Symantec faces intense competition in each of the Company's three business units: Security and Assistance, Remote Productivity Solutions and Internet Tools, Royalties and Other. Examples of key competitors for business units include: 6 9 \Security and Assistance. Norton AntiVirus competes with VirusScan from Network Associates, Inc. ("Network Associates"), Dr. Solomon's Anti-Virus from Dr. Solomon's Software and Inoculan from Computer Associates International, Inc. Norton AntiVirus also competes with Trend Micro, Inc.'s InterScan VirusWall and PC-cillin Corp. Edition. Norton Utilities competes with First Aid and Oil Change from CyberMedia, Inc. ("CyberMedia") and Helix's Nuts & Bolts from Network Associates. Norton Uninstall Deluxe competes with UnInstaller from CyberMedia and CleanSweep from Quarterdeck. Norton CrashGuard Deluxe competes with First Aid 98 Deluxe from CyberMedia, PC Medic Deluxe from Network Associates and REALHELP from Quarterdeck Corporation ("Quarterdeck"). Norton Your Eyes Only competes with PGPdisk from Network Associates. Norton Web Services competes with Oil Change and First Aid from CyberMedia and TuneUp and REALHELP from Quarterdeck. Remote Productivity Solutions. pcANYWHERE competes with LapLink from Traveling Software, Inc., ReachOut from Stac, Inc. and Microcom by COMPAQ Computer Corporation. ACT! competes with other contact managers, such as GoldMine from GoldMine Software Corporation, Maximizer from Maximizer Technologies, Inc. and Janna Contact from Janna Systems, Inc. ACT! also competes, but less directly, with personal information managers, such as Organizer from IBM's Lotus division and Sidekick from Starfish Software. WinFax competes with Quarterdeck's Procomm Plus product line. Internet Tools, Royalties and Other. Symantec Visual Cafe (Database Development Edition) competes with Borland JBuilder Client/Server from Inprise Corporation, VisualAge for Java Enterprise from International Business Machines ("IBM") and PowerJ from Sybase, Inc. Symantec Visual Cafe (Professional Development Edition) competes with Microsoft's Visual J++, Inprise's Borland JBuilder Professional, IBM's VisualAge for Java Professional, SuperCede by SuperCede Inc. and Sun Microsystem's Java WorkShop. Symantec Visual Cafe (Web Development Edition) competes with Microsoft's Visual J++, Inprise's Borland JBuilder Professional and IBM's VisualAge for Java Standard. In addition, these and other Company products compete less directly with a number of other products that offer levels of functionality different from those offered by Symantec's products or that were designed for a somewhat different group of end users than those targeted by Symantec. Microsoft has incorporated advanced utilities including telecommunications, facsimile and data recovery utilities in Windows 95 and may include additional product features in Windows 98 or future releases of Windows NT that may decrease the demand for certain of the Company's products, including those currently under development. Additionally, as hardware vendors incorporate additional server-based network management and security tools into network operating systems, the demand may decrease for certain of the Company's products, including those currently under development. Also, Symantec's competitors may license certain of their products to Microsoft and OEM's for inclusion in their operating systems, which may reduce the demand for certain of the Company's products. (See further discussion in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Operating System; Microsoft Windows 98.) Symantec also competes with microcomputer hardware manufacturers that develop their own software products. Further, Symantec competes with other microcomputer software companies for access to the channels of retail distribution and for the attention of customers at the retail level and in corporate accounts. Finally, Symantec competes with other software companies in its efforts to acquire products or companies and to publish software developed by third parties. Symantec believes that competition in the industry will continue to intensify as most major software companies expand their product lines into additional product categories. Some of the Company's competitors have substantial financial, marketing and technological resources. (See further discussion in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Rapid Technological Change and Development Risks, Operating System and Retail Distribution Channel.) MANUFACTURING AND BACKLOG. Symantec's product development organization produces a set of master CD-ROM's or diskettes and documentation for each product that are then duplicated and packaged into products by the manufacturing organization. Most of Symantec's domestic manufacturing is performed by outside contractors under the supervision of Symantec's manufacturing organization. Purchasing of most raw materials and fulfillment of most orders is done by Symantec personnel in Symantec's Sunnyvale, California facility. The manufacturing steps that are subcontracted to outside organizations include the duplication of diskettes and CD-ROM's, printing of documentation materials and assembly of the final package. Symantec performs diskette duplication and assembly of the final package in its Dublin, Ireland 7 10 manufacturing facility for most products distributed outside of the United States and Canada. Most of Symantec's international CD-ROM manufacturing is performed by outside contractors in Dublin, Ireland. Symantec has often been able to acquire materials on a volume-discount basis and has had multiple sources of supply for certain materials. To date, Symantec has not experienced any material difficulties or delays in production of its software and related documentation and packaging. However, shortages may occur in the future. Symantec normally ships products within one week after receiving an order. Thus, Symantec does not consider backlog to be a significant indicator of future performance. PRICE COMPETITION. Price competition is sometimes intense with certain products in the microcomputer business software market and is expected to continue to increase and become even more significant in the future, and may result in reduced profit margins. (See further discussion in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Price Competition). SEASONALITY. While Symantec's diverse product line has tended to lessen fluctuations in quarterly net revenues, these fluctuations have occurred and may occur in the future. These fluctuations may be caused by a number of factors, including the timing of announcements and releases of new or enhanced versions of Symantec's products and product upgrades, the introduction of competitive products by existing or new competitors, reduced demand for any given product, seasonality in the end-of-period buying patterns of foreign software markets and the market's transition between operating systems. These factors may cause significant fluctuations in net revenues and, accordingly, operating results. (See further discussion in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Fluctuations in Quarterly Operating Results and Stock Price.) PRODUCT PROTECTION. Symantec regards its software as proprietary and relies on a combination of copyright, patent and trademark laws and license agreements in an attempt to protect its rights. However, Symantec is still subject to potential legal suits. (See further discussion in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Intellectual Property Rights, Litigation.) EMPLOYEES. As of March 31, 1998, Symantec employed approximately 2,300 people, including 1,200 in sales, marketing and related staff activities, 600 in product development and 500 in management, manufacturing, administration and finance. None of the employees is represented by a labor union, and Symantec has experienced no work stoppages. Symantec believes that its employee relations are good. Competition in recruiting personnel in the software industry is intense. Symantec believes that its future success will depend in part on its ability to recruit and retain highly skilled management, marketing and technical personnel. Symantec believes that it must provide personnel with a competitive compensation package, which necessitates the continued availability of stock options and shares to be issued under the Company's employee stock purchase plan, and requires ongoing shareholder approval of such incentive programs. (See further discussion in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Employee Risk.) 8 11 ITEM 2: PROPERTIES. Symantec's principal locations, all of which are leased, are as follows:
Approximate Expiration Size of Location Purpose (in square feet) Lease - -------- ------- ---------------- ----- North America Cupertino, California Corporate Headquarters Administration, sales and marketing 87,000 2003 Emerging Business and Research and development 161,000 2003 Remote Productivity Solutions Symantec Technology Future expansion * 143,000 2003 Center Sunnyvale, California Manufacturing 78,000 2000 Santa Monica, California Research and development and 98,000 2000 marketing Eugene, Oregon Customer service and technical 150,000 2006 support Beaverton, Oregon Research and development, sales 56,000 2001 and marketing Melville, New York Research and development and 27,000 2000 marketing Toronto, Canada Research and development, sales 66,000 2005 and technical support International Leiden, Holland Administration, sales, marketing 25,000 2003 and technical support Dublin, Ireland Administration, manufacturing 74,000 2026 and translations
Symantec's principal administrative and sales and marketing facility, as well as certain research and development and support facilities, are located in Cupertino, California. The Company leases a number of additional facilities for marketing and research and development in the United States and for marketing in Australia, Brazil, Canada, France, Germany, Holland, Hong Kong, Italy, Japan, Korea, Malaysia, Mexico, New Zealand, Russia, Singapore, South Africa, Sweden, Switzerland, Taiwan and the United Kingdom. Symantec believes its facilities are adequate for its current needs and additional or substitute space will be available as needed to accommodate any future expansion of its operations. * The Symantec Technology Center is currently under construction, with anticipated completion in fiscal 1999. 9 12 ITEM 3: LEGAL PROCEEDINGS. Information with respect to this Item may be found in Note 15 of Notes to Consolidated Financial Statements in Part IV, Item 14 of this Form 10-K. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the security holders during the quarter ended March 31, 1998. 10 13 PART II ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Symantec's common stock is traded on the Nasdaq National Market under the Nasdaq symbol "SYMC". The high and low closing sales prices set forth below are as reported on the Nasdaq National Market.
Fiscal 1998 Fiscal 1997 -------------------------------------- -------------------------------------- Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, 1998 1997 1997 1997 1997 1996 1996 1996 -------- -------- -------- -------- -------- -------- -------- -------- High $ 29.00 $ 27.00 $ 25.50 $20.38 $18.38 $16.38 $12.75 $18.13 Low 20.88 19.19 19.44 12.50 12.63 9.88 8.75 11.00
Delrina exchangeable stock has been traded on the Toronto Stock Exchange under the symbol "DE" since the acquisition of Delrina by Symantec on November 22, 1995. The high and low closing sales prices set forth below are in Canadian dollars as reported on the Toronto Stock Exchange. Delrina exchangeable stock is exchangeable at the option of the stockholders on a one-for-one basis into Symantec common stock.
Fiscal 1998 Fiscal 1997 -------------------------------------- -------------------------------------- Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, 1998 1997 1997 1997 1997 1996 1996 1996 -------- -------- -------- -------- -------- -------- -------- -------- (In Canadian dollars) High $ 40.10 $ 39.00 $ 35.00 $28.00 $24.35 $22.00 $17.70 $25.00 Low 29.50 26.75 26.25 16.50 17.55 13.00 12.00 15.50
As of March 31, 1998, there were approximately 682 stockholders of record, including approximately 29 holders of record of Delrina exchangeable shares. The Company has never paid cash dividends on its stock with the exception of cash distributions to stockholders of acquired companies. In addition, the Company's bank line of credit and outstanding convertible subordinated debentures limit the payment of cash dividends on common stock (See Notes 6 and 7 of Notes to Consolidated Financial Statements in Part IV, Item 14 of this Form 10-K). 11 14 ITEM 6: SELECTED FINANCIAL DATA. The following selected financial data is qualified in its entirety by and should be read in conjunction with the more detailed consolidated financial statements and related notes included elsewhere herein. Symantec did not complete any acquisitions during fiscal 1998. During fiscal 1997, Symantec acquired Fast Track, Inc. ("Fast Track") in a transaction accounted for as a pooling of interests. As the results of operations of Fast Track were not material to Symantec's consolidated financial statements, amounts prior to the date of acquisition were not restated to reflect the combined operations of the companies. In fiscal 1996, Delrina Corporation was acquired. In fiscal 1995, acquisitions included Intec Systems Corporation, Central Point Software, Inc. and SLR Systems, Inc. In fiscal 1994, acquisitions included Fifth Generation Systems, Inc. and Contact Software International, Inc. Each of the fiscal 1996, 1995 and 1994 acquisitions was accounted for as poolings of interests. The Company has never paid cash dividends on its stock with the exception of distributions to stockholders of acquired companies. FIVE YEAR SUMMARY
Year Ended March 31, (In thousands, except -------------------------------------------------------------------------- net income (loss) per share) 1998 1997 1996 1995 1994 --------- --------- --------- --------- --------- Statements of Operations Data: Net revenues $ 578,361 $ 472,183 $ 445,432 $ 431,268 $ 403,206 Acquisition, restructuring and other expenses -- 8,585 27,617 9,545 56,094 Operating income (loss) 100,345 26,289 (48,279) 40,286 (47,290) Net income (loss) 85,089 26,038 (39,783) 33,409 (44,421) Net income (loss) per share - basic $ 1.52 $ 0.48 $ (0.76) $ 0.68 $ (0.96) Net income (loss) per share - diluted $ 1.42 $ 0.47 $ (0.76) $ 0.64 $ (0.96) Shares used to compute net income (loss) per share - basic 56,097 54,705 52,664 49,338 46,270 Shares used to compute net income (loss) per share - diluted 60,281 55,407 52,664 54,303 46,270
March 31, -------------------------------------------------------------------------- (In thousands) 1998 1997 1996 1995 1994 --------- --------- --------- --------- --------- Balance Sheet Data: Working capital $ 175,537 $ 129,569 $ 134,643 $ 143,405 $ 101,644 Total assets 476,460 339,398 282,674 305,356 262,335 Long-term obligations, less current portion 5,951 15,066 15,393 25,413 25,967 Stockholders' equity 317,507 217,979 180,317 184,874 129,193
12 15 ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS The following discussion contains forward-looking statements that are subject to risks and uncertainties. There are several important factors that could cause actual results to differ materially from those anticipated by the forward-looking statements contained in the following discussion. Readers should pay particular attention to the risk factors set forth within this section. Nothing in this report shall impose upon Symantec or any person a duty to update any forward-looking statement. OVERVIEW Symantec is a world leader in utility software for business and personal computing. Founded in 1982, the Company has offices in the United States, Canada, Asia, Australia, Europe, Africa, Latin America and South America. During the last three fiscal years, Symantec has acquired the following companies:
Shares of Acquired Symantec Company Common Stock Stock Options Companies Acquired Date Acquired Issued Assumed - ------------------ ------------- ------ ------- Fast Track, Inc. ("Fast Track") May 28, 1996 600,000 -- Delrina Corporation ("Delrina") November 22, 1995 13,684,174* 1,271,677
* Includes Delrina exchangeable stock that is traded on the Toronto Stock Exchange. Delrina stockholders received Delrina exchangeable stock in exchange for Delrina common stock at a rate of 0.61 per share. Delrina exchangeable stock may be converted into Symantec common stock on a one-for-one basis at each stockholder's option. Symantec did not complete any acquisitions during fiscal 1998. During fiscal 1997, Symantec acquired Fast Track, Inc. ("Fast Track") in a transaction accounted for as a pooling of interests. As the results of operations of Fast Track were not material to Symantec's consolidated financial statements, amounts prior to the date of acquisition were not restated to reflect the combined operations of the companies. In fiscal 1996, Delrina Corporation was acquired and was accounted for as a pooling of interests and amounts prior to the date of acquisition were restated to reflect the combined operations of the companies. 13 16 RESULTS OF OPERATIONS The following table sets forth each item from the consolidated statements of operations as a percentage of net revenues and the percentage change in the total amount of each item for the periods indicated.
Period-to-Period Percentage Increase (Decrease) ----------------------- Year Ended March 31, 1998 1997 ------------------------------------ Compared Compared 1998 1997 1996 to 1997 to 1996 ---- ---- ---- -------- -------- Net revenues 100% 100% 100% 22% 6% Cost of revenues 15 20 25 (7) (14) --- --- --- Gross margin 85 80 75 30 13 Operating expenses: Research and development 16 19 21 3 (6) Sales and marketing 45 47 52 18 (4) General and administrative 7 7 7 12 4 Acquisition, restructuring and other expenses -- 2 6 (100) (69) --- --- --- Total operating expenses 68 75 86 11 --- --- --- (8) Operating income (loss) 17 5 (11) 282 * Interest income 2 2 2 83 (4) Interest expense -- -- -- (13) (6) Other income (expense), net -- -- (1) (89) (21) --- --- --- Income (loss) before income taxes 19 7 (10) 269 * Provision (benefit) for income taxes 4 1 (1) 522 * --- --- --- Net income (loss) 15% 6% (9)% 227 * === === ===
* percentage change is not meaningful. NET REVENUES. Net revenues increased 22% from $472 million in fiscal 1997 to $578 million in fiscal 1998. Net revenues increased 6% from $445 million in fiscal 1996 to $472 million in fiscal 1997. Revenue growth in fiscal 1998 was largely due to sales of Windows 95 and Windows NT versions of the Company's principal products, as well as introductions of new products, growth in international sales outside of North America and royalty and revenue streams from the sale of certain technologies and product lines to third-party computing companies. PRODUCT GROUPS. During fiscal 1998 and 1997, Symantec experienced increased net revenues, over the prior fiscal year, from each of its principal product groups: Security and Assistance and Remote Productivity Solutions. The Security and Assistance business unit is dedicated to being indispensable to customers' daily use of computers by increasing productivity and keeping computers safe and reliable. The Security and Assistance business unit comprised approximately 50% of net revenues for both fiscal 1998 and 1997 and 45% of net revenues in fiscal 1996. Increased net revenues for the business unit in fiscal 1998 primarily related to sales of Windows 95, Windows NT and Macintosh versions of Norton Utilities, as well as the multi-platform workstations/servers version of Norton AntiVirus. New product releases of CrashGuard Deluxe and Norton Uninstall also contributed to the fiscal 1998 net revenue increase. Increased net revenues in fiscal 1997 were primarily attributable to increases in Norton AntiVirus revenues over the prior year. 14 17 The Remote Productivity Solutions business unit helps remote professionals remain productive and work reliably, anywhere, anytime. The Remote Productivity Solutions business unit comprised approximately 40% of the Company's net revenues for fiscal 1998, and 35% of net revenues for fiscal 1997 and 1996. Increased net revenues for the business unit in fiscal 1998 primarily related to sales of Windows 95 versions of WinFax PRO, Norton pcANYWHERE and ACT!. Increased net revenues in fiscal 1997, over fiscal 1996, were primarily attributed to the pcANYWHERE product line. During fiscal 1998 and 1997, the financial impact of product price reductions for certain of Symantec's principal products was more than offset by the increase in the volume of products sold, resulting in increased net revenues. Internet Tools, Royalties and Other, which includes products providing an easy to use Java development environment, as well as revenue streams from the sale of certain of the Company's software product lines and technologies, and revenues from products nearing the end of their life cycles, comprised approximately 10%, 15% and 20% of net revenues for fiscal 1998, 1997 and 1996, respectively. The business unit's net revenues decreased in fiscal 1998 and 1997 over the prior fiscal year, largely as a result of declining sales from products which Symantec no longer actively develops or markets. Also contributing to the fiscal 1998 decrease from the prior year was the fiscal 1997 recognition of $6 million of non-recurring consulting net revenues. Also included in Internet Tools, Royalties and Other are royalties and other revenue of approximately $46 million and $19 million recorded in fiscal 1998 and 1997, respectively, which partially offset the revenue declines mentioned above. These royalties and other revenues related to the sale of certain software products, technologies and certain tangible assets to JetForm Corporation ("JetForm") and the Hewlett-Packard Company ("Hewlett-Packard") during fiscal 1997. Revenues from these agreements may decline in fiscal 1999. See Note 12 of Notes to Consolidated Financial Statements in Part IV, Item 14 of this Form 10-K for further discussion of the technology licensing and sale transactions. The Java development tools product line continued to expand in fiscal 1998, resulting in increased revenues over fiscal 1997 and maintaining its fiscal 1997 percentage contribution to total net revenues in fiscal 1998. INTERNATIONAL. Net revenues from international sales outside of North America were $186 million and $138 million and represented 32% and 29% of total net revenues in fiscal years 1998 and 1997, respectively. The increase in net revenues was the result of Symantec's penetration of new and emerging markets in Latin America and Asia/Pacific, as well as increased sales in Europe. Net revenues from international sales declined by $4 million in fiscal 1997, from $142 million in fiscal 1996. This decrease was due largely to the recognition in fiscal 1996 of approximately $7 million of previously deferred revenue related to an acquired company. Foreign exchange rate fluctuations during fiscal 1998 and 1997 did not materially affect annual revenue. The impact of fluctuations in foreign exchange rates on international revenues is partially mitigated by operating expenses incurred in local currencies. PRODUCT RETURNS. The Company estimates and maintains reserves for product returns. The level of actual product returns and related product return provisions are largely a factor of the level of product sell-in (gross revenue) from normal sales activity and the replacement of obsolete quantities with the current version of the Company's products. Changes in the levels of product returns and related product returns provision are generally offset by changing levels of gross revenue and, therefore, the product return provision did not have a material impact on reported net revenues in any period presented. GROSS MARGIN. Gross margin represents net revenues less cost of revenues. Cost of revenues consists primarily of manufacturing expenses, costs for producing manuals, packaging costs, royalties paid to third parties under publishing contracts and amortization and write-off of capitalized software. Gross margins increased to 85% of net revenues in fiscal 1998 from 80% in fiscal 1997 and from 75% in fiscal 1996. Factors contributing to an increase in gross margin percentage during fiscal 1998 include reduction of direct material costs by shifting product media from more expensive diskettes to lower priced CD-ROM's and reductions in the size of bound manuals through a shift in documentation from paper manuals to electronic manuals included on CD-ROM's for all of the Company's principal products. Additional reductions occurred in manufacturing overhead costs due to improved economies of scale and reductions in capitalized software amortization and write-offs as 15 18 discussed below. In addition, fiscal 1998 royalty revenues from JetForm and Hewlett-Packard totaling $46 million had minimal costs of revenue. The increase in gross margin percentage in fiscal 1997 compared to fiscal 1996 was due to a decrease in capitalized software amortization and write-offs as discussed below. In addition, fiscal 1997 royalty revenues from JetForm and Hewlett-Packard totaling $19 million had minimal costs of revenue. CAPITALIZED SOFTWARE. During fiscal 1998, accounting standards requiring capitalization of certain software development costs did not materially affect the Company. During fiscal 1997, Symantec capitalized approximately $8 million of software development costs, primarily related to network administration technology. Prior to fiscal 1997, accounting standards requiring capitalization of certain software development costs did not materially affect the Company, except for amounts capitalized by Delrina prior to its acquisition by Symantec in fiscal 1996. Amortization of capitalized software, including amortization and write-off of both purchased product rights and capitalized software development expenses, totaled $1 million, $10 million and $19 million for fiscal 1998, 1997 and 1996, respectively. The decrease in amortization expense in fiscal 1998 is attributed to the write-off of approximately $8 million of unamortized capitalized software and unamortized purchased software product rights related to network administration technology written off as part of the sale of the networking business unit to Hewlett-Packard in March 1997. Amortization and write-off expense in fiscal year 1997 was lower than in 1996 due to capitalized software write-offs in fiscal 1996 related to de-emphasized products and Delrina Windows 3.1 products. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses represented 16%, 19% and 21% of net revenues in fiscal 1998, 1997 and 1996, respectively. Research and development expenditures are charged to operations as incurred. Research and development expenses increased 3% to $91 million in fiscal 1998 from $89 million in fiscal 1997 as the result of increased spending on new product development. The decrease in research and development expenses as a percentage of net revenues in fiscal 1998 largely resulted from the Company's decision to cease development of certain software products no longer actively marketed by Symantec. Another contributing factor was the elimination of certain network administration technology development due to the sale of Symantec's networking business unit to Hewlett-Packard during fiscal 1997. Research and development expenses decreased 6% to $89 million in fiscal 1997 from $95 million in fiscal 1996 due primarily to decreased product development efforts resulting from the Company's decision to cease developing certain software products and an increase in the capitalization of software development costs, including approximately $8 million related to network administration technology. In addition, a $2 million research and development expense reimbursement was received from Hewlett-Packard in fiscal 1997 under the previously mentioned technology sale agreement, which further reduced research and development expenses in fiscal 1997. SALES AND MARKETING EXPENSES. Sales and marketing expenses increased 18% to $261 million, or 45% of net revenues in fiscal 1998 from $221 million, or 47% of net revenues, in fiscal 1997. The increase in sales and marketing expenses in fiscal 1998 as compared to fiscal 1997 is primarily related to increased international sales and marketing activities. North American sales and marketing activities during fiscal 1998 decreased as a percentage of net revenues as compared to fiscal 1997 due to the elimination of activities related to the electronic forms and network administration software technologies and products which were sold in fiscal 1997. Sales and marketing expenses decreased 4% to $221 million, or 47% of net revenues, in fiscal 1997 from $230 million, or 52% of net revenues, in fiscal 1996. The decrease in sales and marketing expenses in fiscal 1997 as compared to fiscal 1996 was due primarily to the elimination of duplicative sales and marketing expenses as a result of the acquisition of Delrina by Symantec and the elimination of sales and marketing expenses related to the electronic forms software products which were sold in fiscal 1997. Reductions in expenditures for products no longer actively marketed by Symantec were offset by increased spending for new products released during the fiscal 1997. 16 19 GENERAL AND ADMINISTRATIVE EXPENSES. In fiscal 1998, general and administrative expenses increased by 12% to $38 million from $34 million in fiscal 1997 and from $33 million in fiscal 1996. General and administrative expenses were 7% of net revenues during fiscal 1998, 1997 and 1996. General and administrative expenses increased in fiscal 1998 as compared to fiscal 1997 at a rate proportionate to net revenue growth as the result of increased personnel expenses associated with the growth of the Company. The fiscal 1997 increase in general and administrative expenses, as compared to fiscal 1996, is primarily the result of management consulting expenditures, offset by benefits from the elimination of duplicative general and administrative expenses as a result of the acquisition of Delrina by Symantec in fiscal 1996. ACQUISITION, RESTRUCTURING AND OTHER EXPENSES. No acquisition, restructuring and other expenses were incurred in fiscal 1998. Acquisition Expenses. In connection with the acquisitions completed in fiscal 1997 and 1996 (see Summary of Significant Accounting Policies and Note 3 of Notes to Consolidated Financial Statements in Part IV, Item 14 of this Form 10-K), Symantec incurred significant acquisition-related expenses. Symantec recorded total acquisition charges of approximately $1 million in fiscal 1997 in connection with the acquisition of Fast Track. In connection with the acquisition of Delrina in fiscal 1996, Symantec recorded total acquisition charges of $22 million. These acquisition expenses primarily related to legal, accounting and financial advisory services, elimination of duplicative and excess facilities and equipment, personnel severance and outplacement services, and operational activities consolidation and discontinuance. Offsetting these costs was a reduction in accrued acquisition, restructuring and other expenses of approximately $2 million, as actual costs incurred related to certain prior acquisitions were less than costs previously accrued by the Company. Restructuring Expenses. In fiscal 1997, the Company recorded a charge of approximately $3 million for costs related to the restructuring of certain domestic and international sales and research and development operations, certain legal settlements and other expenses. In fiscal 1996, the Company incurred approximately $2 million for equipment and personnel relocation costs related to the consolidation of certain research and development activities. The restructuring plans have been completed. Other Expenses. In fiscal 1997, Symantec recorded an approximately $2 million charge in connection with the write-off of an equity investment and an approximately $3 million charge for the write-off of certain in-process research and development acquired by the Company. In fiscal 1996, Symantec incurred a $3 million loss on the sale of the assets of Time Line Solutions Corporation, a wholly-owned subsidiary. Additionally, in fiscal 1996, the Company recorded $3 million for estimated legal fees and other expenses. (See Note 15 of Notes to Consolidated Financial Statements in Part IV, Item 14 of this Form 10-K). Remaining acquisition, restructuring and other expense accruals as of March 31, 1998 were approximately $3 million. INTEREST INCOME, INTEREST EXPENSE AND OTHER INCOME (EXPENSE). Interest income was $13 million, $7 million and $8 million in fiscal 1998, 1997 and 1996, respectively. Interest income increased 83% in fiscal 1998 over fiscal 1997 due to higher average invested cash balances. Higher average cash balances during fiscal 1997 compared to fiscal 1996 were offset by lower interest rates on invested cash during fiscal 1997 compared to fiscal 1996. Interest expense was approximately $1 million in fiscal 1998, 1997 and 1996. Interest expense is principally related to Symantec's convertible subordinated debentures. (See Note 6 of Notes to Consolidated Financial Statements in Part IV, Item 14 of this Form 10-K). Other income (expense) is primarily comprised of foreign currency exchange gains and losses from fluctuations in currency exchange rates. 17 20 INCOME TAXES. The effective income tax provision rate for fiscal 1998 was 24%, which compares to an effective income tax provision rate of 14% in fiscal 1997 and an effective tax benefit rate of 10% in fiscal 1996. The 1998 income tax provision rate of 24% is lower than the U.S. statutory rate primarily due to the utilization of previously unbenefitted losses and tax credits and a lower statutory tax rate for the Company's Irish operations. In addition, fewer unbenefitted losses were available in fiscal 1998, which caused the fiscal 1998 tax rate to be higher than the fiscal 1997 tax rate. Realization of the $20 million of net deferred tax assets is dependent upon the Company's ability to generate sufficient future U.S. taxable income. Management believes that it is more likely than not that the asset will be realized based on forecasted U.S. earnings. The net deferred tax asset includes a valuation allowance of approximately $25 million. Approximately $23 million of the valuation allowance for deferred tax assets is attributable to unbenefitted stock option deductions, the benefit of which will be credited to equity when realized. The remaining $2 million of the valuation allowance represents net operating loss and tax credit carryforwards of various acquired companies that are limited by separate return limitations and under the "change of ownership" rules of Internal Revenue Code Section 382. Symantec projects the effective tax rate to be 32% in fiscal 1999. This rate is lower than the expected U.S. federal and state combined statutory rate of 40% due primarily to a lower tax rate from the Company's Irish operation. However, this projection is subject to change due to fluctuations in and the geographic allocation of earnings. (See further discussion in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations - Fluctuations in Quarterly Operating Results; Foreign Operations.) LIQUIDITY AND CAPITAL RESOURCES Cash, short-term investments and long-term investments increased $100 million to $260 million at fiscal 1998 year-end from $160 million at fiscal 1997 year-end. This increase was largely due to cash provided from operating activities, net proceeds from the exercise of stock options and net proceeds from the sales of common stock under the Company's Employee Stock Purchase Plan. In addition to cash, short-term investments and long-term investments of $260 million, the Company has $59 million of restricted investments related to collateral requirements under lease agreements entered into by Symantec during fiscal 1997. Symantec is obligated under certain lease agreements for two existing office buildings, one parcel of land and one office building under construction in Cupertino, California to maintain a restricted cash balance invested in U.S. treasury securities with maturities not to exceed three years. In accordance with the lease terms, these funds are not available to meet operating cash requirements. (See further discussion in Note 8 of Notes to Consolidated Financial Statements in Part IV, Item 14 of this Form 10-K). Net cash provided by operating activities was $131 million and was comprised of the Company's net income of $85 million, non-cash related expenses of $21 million and a net decrease in assets and liabilities of $25 million. Net trade accounts receivable increased $20 million to $65 million at the end of fiscal 1998 from $45 million at the end of fiscal 1997, primarily due to increased operating activities during fiscal 1998. With the growth of international sales to 32% of net revenues in fiscal 1998 from 29% of net revenues in fiscal 1997, Symantec is carrying an increased accounts receivable balance with longer average standard payment terms, as such longer payment terms are standard business practice in certain international markets. At March 31, 1998, international days sale outstanding was 48 days, as compared to 32 days for North America. During fiscal 1998, the Board of Directors of Symantec authorized the repurchase of up to 1,500,000 shares of Symantec common stock. At the end of fiscal 1998, a total of 1,000,000 shares were repurchased at prices ranging from $16.57 to $26.81 per share. The authorized repurchase period has expired for the remaining 500,000 shares. The repurchased shares have been reissued under the Company's employee stock purchase and option programs. The Company recently renewed its $10 million line of credit to expire in May 2000. The Company was in compliance with the debt covenants for this line of credit as of April 3, 1998. At the end of fiscal 1998, there were no borrowings outstanding and less than $1 million of standby letters of credit 18 21 outstanding under this line. Future acquisitions by the Company may cause the Company to be in violation of the line of credit covenants. However, the Company believes that if the line of credit were canceled or amounts were not available under the line, there would not be a material adverse impact on the financial results, liquidity or capital resources of the Company. If Symantec were to sustain significant losses, the Company could be required to reduce operating expenses, which could result in product delays; reassess acquisition opportunities, which could negatively impact the Company's growth objectives; and/or pursue further financing options. The Company believes existing cash and short-term investments and cash generated from operating results will be sufficient to fund operations for the next year. BUSINESS RISKS The preceding discussion contains forward-looking statements that are subject to risks and uncertainties. There are several important factors that could cause actual results to differ materially from those anticipated by the forward-looking statements contained in the following discussion. Readers should pay particular attention to the risk factors set forth within this section. Nothing in this report shall impose upon Symantec or any person a duty to update any forward-looking statement. FLUCTUATIONS IN QUARTERLY OPERATING RESULTS AND STOCK PRICE. Due to the factors noted below, the Company's earnings and stock price have been and may continue to be subject to significant volatility, particularly on a quarterly basis. Symantec has previously experienced shortfalls in revenue and earnings from levels expected by securities analysts and investors, which has had an immediate and significant adverse affect on the trading price of the Company's common stock. This may occur again in the future. RAPID TECHNOLOGICAL CHANGE AND DEVELOPMENT RISKS. The Company participates in a highly dynamic industry characterized by rapid change and uncertainty related to new and emerging technologies and markets. The recent trend toward server-based applications in networks and applications distributed over the Internet could have a material adverse affect on sales of the Company's products. Future technology or market changes may cause certain of Symantec's products to become obsolete more quickly than expected. The use of a Web browser (running on either a PC or network computer) to access client/server systems is emerging as an alternative to the traditional desktop access through operating systems resident on personal computers. Should the functionality associated with such system access reduce the need for Symantec's products, the Company's future net revenues and operating results may be adversely affected. PERSONAL COMPUTER AND HARDWARE GROWTH RATES. Fluctuations in customer spending from software to hardware as the result of technological advancements in hardware or price reductions of hardware have in the past, and may in the future, result in reduced revenues which would have a material adverse affect on operating results. OPERATING SYSTEM. The release and subsequent customer acceptance of current or enhanced operating systems are particularly important events that increase the uncertainty and increase the volatility of Symantec's results. Should the Company be unable successfully or timely to develop products that operate under existing or new operating systems, or should the functionality of such operating systems reduce the need for Symantec's products, the Company's future net revenues and operating results would be materially adversely affected. Microsoft has incorporated advanced utilities including telecommunications, facsimile and data recovery utilities in Windows 95 and may include additional product features in Windows 98 or future releases of Windows NT that may decrease the demand for certain of the Company's products, including those currently under development. Additionally, as hardware vendors incorporate additional server-based network management and security tools into network operating systems, the demand may decrease for certain of the Company's products, including those currently under development. Also, Symantec's competitors may license certain of their products to Microsoft and OEM's for inclusion in their operating systems, which may reduce the demand for certain of the Company's products. MICROSOFT WINDOWS 98. With the anticipated introduction of Microsoft's Windows 98 operating system, the Company's ability to generate revenue from many of its current products will depend on its ability to develop new versions and enhancements of those products in a timely manner for the Windows 98 operating system. Because the Department of Justice and various state entities have filed lawsuits against Microsoft which may delay the 19 22 introduction of Windows 98 or change the interfaces or feature set that will be incorporated into Windows 98, the Company's ability to develop appropriate products for Windows 98 may be impeded, and consumers may delay purchases of the Company's products or otherwise change purchase plans in a manner that could adversely affect the Company and its financial results. Adverse effects related to these events could become apparent as early as the June quarter of 1998. DEPENDENCE ON THE INTERNET. Critical issues concerning the commercial use of the Internet, including security, reliability, cost, ease of use, accessibility, quality of service and potential tax or other government regulation, remain unresolved and may affect the use of the Internet as a medium to support the functionality of the Company's products, as well as to distribute software. Should the Company be unable to incorporate changes in the Internet environment successfully or timely into its business operations and product development strategy, the Company's future net revenues and operating results may be adversely affected. PRICE COMPETITION. Price competition is sometimes intense for certain products in the microcomputer software market and is expected to continue to increase and become even more significant in the future, resulting in reduced profit margins. Should competitive pressures in the industry continue to increase, Symantec may be required to reduce software prices and/or increase its spending on sales, marketing and research and development as a percentage of net revenues, resulting in lower profit margins. These actions may not be sufficient to offset the impact of price competition in the Company's business and net revenues. INTEGRATED SUITES. In the future, Symantec and/or its competitors may move toward providing integrated suites of products. The price of integrated suites could be less than the sum of the prices of individual products included in these suites when such products are sold separately. The sales volume contribution to Symantec from integrated suites may not be sufficient to offset the gross margin impact of selling individual products at a reduced price using integrated product suites. Additionally, integrated suites may not achieve market acceptance and the Company's products may not be effective in competing with integrated suites either currently in the market or introduced in the future. QUARTERLY BUYING PATTERNS; ABSENCE OF BACKLOG. Most customers tend to make the majority of their purchases at the end of the fiscal quarter, in part because they are able, or believe that they are able, to negotiate lower prices and more favorable terms. This is particularly true of large corporate customers that negotiate large site licenses near the end of each quarter. This end-of-period buying pattern means that forecasts of quarterly and annual financial results are particularly vulnerable to the risk that they will not be achieved, either because expected sales do not occur or because they occur at lower prices or on less favorable terms to the Company. The Company operates with relatively little backlog; therefore, if near-term demand for the Company's products weakens in a given quarter, there could be an immediate, material adverse affect on net revenues and on the Company's operating results, which would likely result in a precipitous drop in stock price. RETAIL DISTRIBUTION CHANNEL. The Company's retail distribution customers also carry the products of Symantec's competitors. These retail distributors may have limited capital to invest in inventory, and their decisions to purchase the Company's products is partly a function of pricing, terms and special promotions offered by Symantec, as well as by its competitors over which the Company has no control and which it cannot predict. Agreements with distributors are generally nonexclusive and may be terminated by either party without cause. Certain distributors and resellers have experienced financial difficulties in the past. Distributors that account for significant sales of the Company may experience financial difficulties in the future, which could lead to reduced sales or write-offs and could adversely affect operating results of the Company. NEW DISTRIBUTION CHANNELS. Symantec may not be able to develop an effective method of distributing its software products utilizing each of the rapidly evolving software distribution channels, including the Internet. The presence of new channels could adversely impact existing channels and/or product pricing, which could have a material adverse impact on the Company's new revenues and profitability. 20 23 SITE LICENSES. Symantec sells volume license programs (corporate site licenses) through the distribution channel and through corporate resellers. Average site license revenue per unit is lower than the average revenue per unit from retail versions shipped through the retail distribution channel. Symantec may increase unit sales under volume licensing programs in the future, which could have a material adverse impact on the operating results of the Company. Additionally, Symantec's products may not be effective in competing with products either currently in the market or introduced in the future, and the Company's failure to compete effectively could have a material adverse impact on the operating results of the Company. CHANNEL FILL. The Company's pattern of net revenues and earnings may be affected by "channel fill." Distributors may fill their distribution channels in anticipation of price increases, sales promotions or incentives. Inventories may be decreased between the date Symantec announces a new version or new product and the date of release, because distributors, dealers and end users often delay purchases, cancel orders or return products in anticipation of the availability of the new version or new product. The impact of channel fill is somewhat mitigated by the Company's deferral of revenue associated with inventories estimated to be in excess of appropriate levels in the distribution channel; however, net revenues may still be materially affected favorably or adversely by the effects of channel fill, particularly in periods where a large number of new products are simultaneously introduced. Channels may also become filled simply because the distributors do not sell their inventories to retail distribution or end users as anticipated. If sell-through does not occur at a sufficient rate, distributors will delay purchases or cancel orders in later periods or return prior purchases in order to reduce their inventories. While such order delays or cancellations can cause fluctuations in net revenues from one quarter to the next, the impact is substantially mitigated by the Company's deferral of revenue associated with inventories estimated to be in excess of appropriate levels in the distribution channel. PRODUCT RETURNS. Product returns can occur when the Company introduces upgrades and new versions of products or when distributors have excess inventories. Symantec's return policy allows its distributors, subject to certain limitations, to return purchased products in exchange for new products or for credit towards future purchases. End users may return products through dealers and distributors within a reasonable period from the date of purchase for a full refund, and retailers may return older versions of products. The Company estimates and maintains reserves for product returns. However, future returns could exceed the reserves established by the Company, which could have a material adverse affect on the operating results of the Company. FOREIGN OPERATIONS. A significant portion of Symantec's revenues, manufacturing costs and operating expenses is transacted in foreign currencies. As a result, the Company's results may be materially and adversely affected by fluctuations in currency exchange rates, as well as increases in duty rates, exchange or price controls or other restrictions on foreign currencies. The Company expects that its non-U.S. dollar denominated sales activities may increase in the future. Symantec utilizes natural hedging to mitigate Symantec's transaction exposures and hedges certain residual balance sheet positions through the use of one-month forward contracts. These strategies may not continue to be effective, and the Company may not be successful in minimizing or accurately forecasting transaction gains or losses. The Company's international operations are subject to certain risks common to international operations, such as government regulations, import restrictions, currency fluctuations, repatriation restrictions and, in certain jurisdictions, reduced protection for the Company's copyrights and trademarks and economic volatility. SALES AND MARKETING. Symantec believes substantial sales and marketing efforts are essential to achieve revenue growth and to maintain and enhance Symantec's competitive position. There can be no assurance that these sales and marketing efforts will be successful. TECHNICAL SUPPORT. Consistent with many companies in the software industry, technical support costs comprise a significant portion of the Company's operating costs and expenses. The Company's technical support levels are based, in a large part, on projections of future sales levels. Over the short term, the Company may not be able to respond to fluctuations in customer demand for support services or modify the format of the Company's support services to compete with changes in support services provided by competitors. While the Company performs 21 24 extensive quality control review over its technical support services provided by corporate personnel and, to a lesser extent, over support services outsourced to third-party vendors, customer satisfaction with the services rendered may not be favorable. In the event of customer dissatisfaction, future product and upgrade sales to that customer base may be negatively impacted. Fee-based technical support services did not generate material revenues in any fiscal year presented and are not expected to generate material revenues in the near future. UNCERTAINTY OF RESEARCH AND DEVELOPMENT EFFORTS. Symantec believes significant research and development expenditures will be necessary in order to remain competitive. While the Company performs extensive usability and beta testing of new products, any products currently being developed by Symantec may not be technologically successful, resulting products may not achieve market acceptance, and the Company's products may not be effective in competing with products either currently in the market or introduced in the future. LENGTH OF PRODUCT DEVELOPMENT CYCLE. The length of Symantec's product development cycle has generally been greater than Symantec originally expected. Although such delays have undoubtedly had a material adverse affect on Symantec's business, Symantec is not able to quantify the magnitude of net revenues that were deferred or lost as a result of any particular delay because Symantec is not able to predict the amount of net revenues that would have been obtained had the original development expectations been met. Delays in future product development are likely to occur and could have a material adverse affect on the amount and timing of future revenues. Due to the inherent uncertainties of software development projects, Symantec does not generally disclose or announce the specific expected shipment dates of the Company's product introductions. OPERATING LEVERAGE. Consistent with many companies in the software industry, employee and facility related expenditures comprise a significant portion of the Company's operating costs and expenses. The Company's expense levels are based, in a large part, on projections of future revenue levels. Given the fixed nature of these expenses over the short term, if revenue levels fall below expectations, Symantec's operating results are likely to be adversely affected. MANAGEMENT OF EXPANDING OPERATIONS. Symantec continually evaluates its product and corporate strategy and has in the past and will in the future undertake organizational changes, product and marketing strategy modifications which are designed to maximize market penetration, maximize use of limited corporate resources and develop new products and product channels. These organizational changes increase the risk that objectives will not be met due to the allocation of valuable limited resources to implement changes. Further, due to the uncertain nature of any of these undertakings, these efforts may not be successful, and that the Company may not realize any benefit from these efforts. RELIANCE ON JOINT BUSINESS ARRANGEMENTS. Symantec has entered, and may in the future enter, into various development or joint business arrangements for the purpose of developing new software products or enhancements to existing software products. Depending on the nature of each such arrangement, the development, distribution, sale or marketing of the resulting product may be controlled either by Symantec or its business partner. Resulting products from joint business arrangements may not be technologically successful, may not achieve market acceptance and may not be effective in competing with products either currently in the market or introduced in the future. Symantec distributes certain of its products through value-added reseller ("VAR") and independent software vendor ("ISV") customers whereby Symantec's products are included with hardware products prior to sale through retail channels. VAR and ISV licensing agreements are generally non-exclusive and do not require the VAR or ISV to make minimum purchases. If the Company is not successful in maintaining its current relationships and securing license agreements with additional VARs and ISVs, or if the Company's VAR and ISV customers are not successful in selling their products, the Company's future net revenues and operating results may be adversely affected. ACQUIRED COMPANIES. Symantec has completed a number of acquisitions and may acquire other companies in the future. Acquisitions involve a number of special risks, including the diversion of management's attention to assimilation of the operations and personnel of the acquired companies in an efficient and timely manner, the retention of key employees, the difficulty of presenting a unified corporate image, the coordination of research and development and sales efforts and the integration of the acquired products. In addition, because the employees of acquired companies have frequently remained in their existing, geographically diverse facilities, the Company has not realized certain economies of scale that might otherwise have been achieved. 22 25 Symantec typically incurs significant expenses in connection with acquisitions, which have a significant adverse impact on the Company's profitability and financial resources. Future acquisitions may have a significant adverse impact on the Company's future profitability and financial resources. EMPLOYEE RISK. Competition in recruiting personnel in the software industry is intense. Symantec believes that its future success will depend in part on its ability to recruit and retain highly skilled management, marketing and technical personnel. Symantec believes that it must provide personnel with a competitive compensation package, which necessitates the continued availability of stock options which requires ongoing stockholder approval. BUSINESS DISRUPTION. A disruption in communications between the Company's geographically dispersed order entry and product shipping centers, particularly at the end of a fiscal quarter, would likely result in an unexpected shortfall in net revenues and could result in an adverse impact on operating results. Disruptions in communications and Internet connectivity may also cause delays in customer access to Symantec's Internet-based services or product sales. A business disruption could occur as a result of natural disasters or the interruption in service by communications carriers, and may cause delays in product development that could adversely impact future net revenues of the Company. LITIGATION. Symantec is involved in a number of judicial and administrative proceedings incidental to its business (See Note 15 of Notes to Consolidated Financial Statements in Part IV, Item 14 of this Form 10-K). The Company intends to defend and/or pursue all of these lawsuits vigorously and, although an unfavorable outcome could occur in one or more of the cases, the final resolution of these lawsuits, individually or in the aggregate, is not expected to have a material adverse affect on the financial position of the Company. However, depending on the amount and timing of an unfavorable resolution of these lawsuits, it is possible that the Company's future results of operations or cash flows could be materially adversely affected in a particular period (See Note 15 of Notes to Consolidated Financial Statements in Part IV, Item 14 of this Form 10-K). INTELLECTUAL PROPERTY RIGHTS. Symantec regards its software as proprietary and relies on a combination of copyright, patent and trademark laws and license agreements in an attempt to protect its rights. Despite these precautions, it may be possible for unauthorized third parties to copy aspects of Symantec's products or to obtain and use information that Symantec regards as proprietary. All of Symantec's products are protected by copyright, and Symantec has a number of patents and patent applications pending. However, existing patent and copyright laws afford limited practical protection. In addition, the laws of some foreign countries do not protect Symantec's proprietary rights in its products to the same extent as do the laws of the United States. Symantec's products are not copy protected. As the number of software products in the industry increases and the functionality of these products further overlap, Symantec believes that software developers will become increasingly subject to infringement claims. This risk is potentially greater for companies, such as Symantec, that obtain certain of their products through publishing agreements or acquisitions, since they have less direct control over the development of those products. In addition, an increasing number of patents are being issued that are potentially applicable to software, and allegations of patent infringement are becoming increasingly common in the software industry. It is impossible to ascertain all possible patent infringement claims because new patents are being issued continually, the subject of patent applications is confidential until a patent is issued, and it may not be apparent even from a patent that has already been issued whether it is potentially applicable to a particular software product. This increases the risk that Symantec's products may be subject to claims of patent infringement. Although such claims may ultimately prove to be without merit, they are time consuming and expensive to defend. Symantec has been involved in disputes claiming patent infringement in the past, is currently involved in a number of such disputes and litigation, and may be involved in the future in such disputes and/or litigation. If Symantec is alleged to infringe one or more patents, it may choose to litigate the claim and/or seek an appropriate license. If litigation were to commence and a license were not available on reasonable terms or if another party were found to have a valid patent claim against Symantec, such a result could have a material adverse affect on Symantec's business, operating results and financial condition (See Note 15 of Notes to Consolidated Financial Statements in Part IV, Item 14 of this Form 10-K). 23 26 SOFTWARE DEFECTS AND PRODUCT LIABILITY. Software products frequently contain errors or defects, especially when first introduced or when new versions or enhancements are released. In the past, for example, Symantec's anti-virus software products have incorrectly detected viruses which do not exist. Although the Company has not experienced any material adverse effects resulting from any such defects or errors to date, defects and errors could be found in current versions, future upgrades to current products or newly developed and released products, despite testing prior to release. Software defects could result in delays in market acceptance or unexpected reprogramming costs, which could have a material adverse affect on the Company's operating results. While Symantec has not been the target of software viruses specifically designed to impede the performance of the Company's products, there can be no assurance that such viruses will not be created in the future. The Company's license agreements with its customers contain provisions designed to limit the exposure to potential product liability claims. It is possible, however, that the limitation of liability provisions contained in such license agreements may not be valid as a result of federal, state, local laws or ordinances or unfavorable judicial decisions. A successful product liability claim could have a material adverse affect on the Company's business, operating results and financial condition. YEAR 2000 - PRODUCT LIABILITY. While the Company believes that most of its currently developed and actively marketed products are Year 2000 compliant for significantly all functionality, these software products could contain errors or defects related to the Year 2000. Versions of the Company's products which are not the most currently released or which are not currently being developed may not be Year 2000 compliant. The Company sells some of its older product lines, which are not being actively developed and updated, as such these products are not necessarily Year 2000 compliant. Symantec is currently party to a lawsuit related to the alleged inability of pre-version 4.0 Norton AntiVirus products to function properly in respect to Year 2000. Symantec believes that this lawsuit has no merit and intends to defend itself vigorously. The final resolution of this lawsuit is not expected to have a material adverse affect on the results of operations and financial condition of the Company, although it is not possible to estimate the possible loss. However, depending on the amount and timing of an unfavorable resolution of this lawsuit, it is possible that the Company's future results of operations or cash flows could be materially adversely affected in a particular period. (See Note 15 of Notes to Consolidated Financial Statements in Part IV, Item 14 of this Form 10-K). YEAR 2000 - CORPORATE SYSTEMS. The Company has completed an assessment of its computer systems and software and is modifying or replacing portions of its software so that its operating systems will function properly with respect to dates in the Year 2000 and thereafter. The Company is currently evaluating system interfaces with third-party systems, such as those of key suppliers, distributors and financial institutions, for Year 2000 functionality. The Year 2000 project cost is not expected to be material. The project is estimated to be significantly completed during the 1998 calendar year. The Company believes that, with modifications to existing software and conversions to new software, the Year 2000 issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 issue could have a material adverse impact on the operations of the Company. Additionally, the systems of other companies with which Symantec does business may not address any Year 2000 problems on a timely basis, which could have an adverse affect on Symantec's systems or business transactions. As testing of Year 2000 functionality of the Company's systems must occur in a simulated environment, the Company will not be able to test full system Year 2000 interfaces and capabilities prior to Year 2000. The Company believes that its exposure on Year 2000 issues is not material to its business as a whole. 24 27 ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ANNUAL FINANCIAL STATEMENTS. See Part IV, Item 14 of this Form 10-K. SELECTED QUARTERLY DATA Symantec has a 52/53-week fiscal accounting year. Accordingly, all quarterly fiscal periods presented comprised 13 weeks, with the exception of the quarter ended June 30, 1997, which comprised 14 weeks. (In thousands, except net income per share; unaudited)
Fiscal 1998 Fiscal 1997 -------------------------------------------- -------------------------------------------- Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, 1998 1997 1997 1997 1997 1996 1996 1996 -------- -------- -------- -------- -------- -------- -------- -------- Net revenues $156,092 $148,240 $139,013 $135,016 $129,706 $124,081 $109,178 $109,218 Gross margin 134,561 125,649 116,624 114,096 100,352 102,105 88,448 87,734 Acquisition, restructuring and other expenses * -- -- -- -- -- -- 7,290 1,295 Net income ** 24,138 21,836 20,580 18,535 8,269 13,852 882 3,035 Net income per share - basic $ 0.43 $ 0.39 $ 0.37 $ 0.33 $ 0.15 $ 0.25 $ 0.02 $ 0.06 diluted $ 0.40 $ 0.37 $ 0.35 $ 0.32 $ 0.15 $ 0.25 $ 0.02 $ 0.06
* See Note 13 of Notes to Consolidated Financial Statements. ** Quarterly operating results for the period ended March 31, 1997 includes revenue and charges related to the sale of Symantec's networking business unit (see Note 12 of Notes to Consolidated Financial Statements). ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 25 28 PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information required by this Item with respect to Directors may be found in the section captioned "Election of Symantec Directors" appearing in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on September 17, 1998 (the "Proxy Statement"). Such information is incorporated herein by reference. Information required by this Item with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, may be found in the section captioned "Section 16(a) Beneficial Ownership Reporting Compliance" appearing in the Proxy Statement. EXECUTIVE OFFICERS OF THE REGISTRANT: The executive officers of the Company are as follows:
NAME AGE POSITION - ---- --- -------- Gordon E. Eubanks, Jr. 51 President and Chief Executive Officer Howard A. Bain III 52 Vice President, Worldwide Operations and Chief Financial Officer Christopher Calisi 38 Vice President, Remote Productivity Solutions Business Unit Dieter Giesbrecht 54 Vice President, Europe, Middle East and Africa ("EMEA") Enrique T. Salem 32 Vice President, Security and Assistance Business Unit and Chief Technical Officer Dana E. Siebert 38 Vice President, Americas Derek Witte 41 Vice President, General Counsel and Secretary
Executive officers are chosen by and serve at the discretion of the Board of Directors. There is no family relationship between any director or executive officer of Symantec and any other director or executive officer of Symantec. GORDON E. EUBANKS, JR. is the President and Chief Executive Officer of Symantec. He has served as a director of Symantec since November 1983 and as the President and Chief Executive Officer of Symantec since October 1986. Mr. Eubanks also served as Symantec's Chairman of the Board from November 1983 to October 1986 and from November 1990 to January 1993. Previously, Mr. Eubanks was Vice President of Digital Research, Inc.'s commercial systems division where he was responsible for the development and marketing of all system software products. He left Digital Research, Inc. in September 1983. Mr. Eubanks founded Compiler Systems, Inc. and authored its products: CBASIC, one of the first successful languages on personal computers, and CB80, a compiled version of CBASIC. Compiler Systems, Inc. was acquired by Digital Research, Inc. in August of 1981. Mr. Eubanks received his Bachelor of Science degree in Electrical Engineering from Oklahoma State University. He received his Masters degree in Computer Science from Naval Postgraduate School in Monterey, California. Mr. Eubanks was a commissioned officer in the United States Navy from 1970 to 1979 serving in the Nuclear Submarine Force. Mr. Eubanks is a member of the IEEE and ACM. HOWARD A. BAIN III is currently Vice President, Worldwide Operations and CFO, at Symantec Corporation. Mr. Bain has over twenty-five years of experience in all phases of corporate operations and challenges. Prior to joining Symantec in October 1991 as Vice President, Finance, he was CFO for several private venture financed technology companies (RTP semiconductor manufacturing equipment, BiCMOS SRAM's, laser-based large screen projection systems for HDTV and computer graphics applications, and high performance disk drives for personal computers) where he assisted those management teams in growing their businesses through raising over $50 million in venture capital and controlling hyper-growth. His previous experience includes senior financial and accounting management positions with Fairchild Camera and Instrument Corporation and as a consultant with Arthur Andersen & Company. Mr. Bain is a CPA and holds a B.S. from California Polytechnic University. 26 29 CHRISTOPHER CALISI is Vice President, Remote Productivity Solutions Business Unit of Symantec. From 1992 to 1996, Mr. Calisi held several positions within Symantec's Remote Access Business Unit, including Development Manager, Director of Development, General Manager and most recently, Vice President, Communication Products. Mr. Calisi joined Symantec in 1992 from Unify Corporation, a relational database and 4GL tools vendor where he served as the Manager of Sales Engineers. Prior to Unify Corporation, Mr. Calisi held development positions with several relational database vendors, including Britton Lee, Oracle and Computer Associates. Mr. Calisi holds a Bachelor of Science degree from the State University of New York at Empire State and has received executive training at the Wharton School. Mr. Calisi holds several copyrights for software innovations from 1981 through 1986 and is an associate of the IEEE Committee. Mr. Calisi became an executive officer of Symantec in May 1996. DIETER GIESBRECHT is Vice President, EMEA (Europe, Middle East and Africa) of Symantec. Mr. Giesbrecht joined Symantec in September 1996. From 1995 until joining Symantec, he was Vice President of Attachmate Europe based in Paris, France and was responsible for the EMEA region. From 1991 to 1995, he held several executive functions within Lotus Development Europe including Managing Director UK and Managing Director Central Europe. He has a degree in Electronics Engineering from the Technical University of Furtwangen located in Germany. Mr. Giesbrecht is a member of the Institute of Directors. ENRIQUE T. SALEM is Vice President, Security and Assistance Business Unit and Chief Technical Officer. Mr. Salem joined Symantec in April 1990 and has held numerous positions including Director of Development and General Manager of Advanced Utilities Group. Previous to joining Symantec, he was Vice President in Security Pacific National Bank, Merchant Bank Division, where he was responsible for the development and deployment of a global trading system. Mr. Salem holds a Bachelor of Arts degree in Computer Science from Dartmouth College. He is a member of the Board of Directors of the Software Council of Southern California and a member of the IEEE. Mr. Salem became an executive officer of Symantec in October 1996. DANA E. SIEBERT is Vice President, Americas. Previously, Mr. Siebert served as Vice President, Worldwide Sales of Symantec and prior to that, Vice President, Worldwide Services of Symantec. Mr. Siebert joined Symantec in September 1987. From 1985 to 1987, he was a Sales Manager at THINK Technologies where he was responsible for U.S. corporate, OEM and international sales. Previously, he held a number of sales management positions in high technology companies including Wang Laboratories, Computerland Corporation and Burroughs Corporation. Mr. Siebert is a member of the Board of Directors of TimeLine Solutions and Percon, Inc. Mr. Siebert holds a Bachelor of Science degree in Business Administration from the University of New Hampshire and is a member of the Software Publishers Association. DEREK WITTE is Vice President, General Counsel and Secretary of Symantec. Mr. Witte joined Symantec in October 1990. From October 1987 until joining Symantec, Mr. Witte was Associate General Counsel and later Director of Legal Services for Claris Corporation, a software subsidiary of Apple Computer, Inc. Between January and October 1987, Mr. Witte was Assistant General Counsel at Worlds of Wonder, Inc. Previously, Mr. Witte practiced law with the San Francisco-based law firms of Brobeck, Phleger & Harrison and Heller Ehrman White and McAuliffe during the periods between 1981 and 1983 and 1983 and 1987, respectively. Mr. Witte holds a law degree and a Bachelor of Arts degree in Economics from the University of California at Berkeley. Mr. Witte has been a member of the California bar since 1981. 27 30 ITEM 11: EXECUTIVE COMPENSATION. Information with respect to this Item may be found in the section captioned "Executive Compensation" appearing in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on September 17, 1998. Such information is incorporated herein by reference. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information with respect to this Item may be found in the section captioned "Security Ownership of Certain Beneficial Owners and Management" appearing in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on September 17, 1998. Such information is incorporated herein by reference. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information with respect to this Item may be found in the section captioned "Executive Compensation - Certain Transactions" appearing in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held on September 17, 1998. Such information is incorporated herein by reference. 28 31 PART IV ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. Upon written request, the Company will provide, without charge, a copy of the Company's annual report on Form 10-K, including the consolidated financial statements, financial statement schedules and any exhibits for the Company's most recent fiscal year. All requests should be sent to: Shelley Wilson Investor Relations Symantec Corporation 10201 Torre Avenue Cupertino, California 95014-2132 408-446-8891 (a) The following documents are filed as part of this report:
Page Number ------ 1. Consolidated Financial Statements. Report of Ernst & Young LLP, Independent Auditors........................... 35 Consolidated Balance Sheets as of March 31, 1998 and 1997................... 36 Consolidated Statements of Operations for the Years Ended March 31, 1998, 1997 and 1996........................................... 37 Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 1998, 1997 and 1996..................................... 38 Consolidated Statements of Cash Flow for the Years Ended March 31, 1998, 1997 and 1996........................................... 39 Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements....................................... 40 2. Financial Statement Schedules. The following financial statement schedule of Symantec Corporation for the years ended March 31, 1998, 1997 and 1996 is filed as part of this Form 10-K and should be read in conjunction with the Consolidated Financial Statements of Symantec Corporation. Schedule II Valuation and Qualifying Accounts...................................... 58
Schedules other than that listed above have been omitted since they are either not required, not applicable, or the information is otherwise included. 3.Exhibits. The following exhibits are filed as part of, or incorporated by reference into, this Form 10-K: 3.01 The Registrant's Restated Certificate of Incorporation. (Incorporated by reference to Annex G filed with the Registrant's Joint Management Information Circular and Proxy Statement (No. 000-17781) dated October 17, 1995.) 3.02 The Registrant's Bylaws, as currently in effect. (Incorporated by reference to Exhibit 3.02 filed with the Registrant's Registration Statement on Form S-1 (No. 33-28655) originally filed May 19, 1989, and amendment No. 1 thereto filed June 21, 1989, which Registration Statement became effective June 22, 1989.) 4.01 Registration Rights Agreement. (Incorporated by reference to Exhibit 4.02 filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 4.02 Amendment No. One to Registration Rights Agreement. (Incorporated by reference to Exhibit 4.03 filed with the Registrant's Annual Report on Form 10-K for the year ended April 2, 1993.) 4.03 Amendment No. Two to Registration Rights Agreement (Incorporated by reference to Exhibit 4.04 filed with the Registrant's Annual Report on Form 10-K for the year ended April 2, 1993.) 4.04 Plan of Arrangement and Exchangeable Share Provisions related to the acquisition of Delrina. (Incorporated by reference to Annex D filed with the Registrant's Joint Management Information Circular and Proxy Statement dated October 17, 1995.) 29 32 4.05 Support Agreement dated July 5, 1995 between Symantec and Delrina. (Incorporated by reference to Annex E filed with the Registrant's Joint Management Information Circular and Proxy Statement dated October 17, 1995.) 4.06 Form of Voting and Exchange Trust Agreement dated July 5, 1996 between Symantec and Delrina. (Incorporated by reference to Annex F filed with the Registrant's Joint Management Information Circular and Proxy Statement dated October 17, 1995.) 10.01 Amended Agreement Respecting Certain Rights of Publicity. (Incorporated by reference to Exhibit 10.04 filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 10.02 Non-Competition and Non-Solicitation Agreement between Registrant and Peter Norton and Ronald Posner. (Incorporated by reference to Exhibit 10.06 filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 10.03* 1988 Employees Stock Option Plan, as amended to date. (Incorporated by reference to Exhibit 4.02 filed with the Registrant's Registration Statement on Form S-8 (No. 33-88694) filed January 23, 1995.) 10.04* 1989 Employee Stock Purchase Plan, as amended to date. (Incorporated by reference to Exhibit 4.01 filed with the Registrant's Registration Statement on Form S-8 (No. 333-18353) filed December 20, 1996.) 10.05* Form of Stock Option Agreement and Form of Stock Option Exercise Request, as currently in effect, under the Registrant's 1988 Employees Stock Option Plan. (Incorporated by reference to Exhibit 10.10 filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 10.06* 1988 Directors Stock Option Plan, as amended to date. (Incorporated by reference to Exhibit 10.09 filed with the Registrant's Annual Report on Form 10-K for the year ended April 2, 1993.) 10.07* 1993 Directors Stock Option Plan, as amended. (Incorporated by reference to Exhibit 10.07 filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994) 10.08* Form of Stock Option Grant and Stock Option Exercise Notice and Agreement under the Registrant's 1988 Directors Stock Option Plan. (Incorporated by reference to Exhibit 10.12 filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 10.09* 1994 Patent Incentive Plan. (Incorporated by reference to Exhibit 4.01 filed with the Registrant's Registration Statement on Form S-8 (No. 33-60141) filed June 9, 1995.) 10.10* Symantec Corporation 1996 Equity Incentive Plan. (Incorporated by reference to Exhibit 4.01 filed with the Registrant's Registration Statement on Form S-8 (No. 333-18355) filed December 20, 1996.) 10.11* Symantec Corporation 1996 Equity Incentive Plan, as amended. (Incorporated by reference to Exhibit 4.01 filed with the Registrant's Registration Statement on Form S-8 (No. 333-39175) filed October 31, 1997.) 10.12* Symantec Corporation Deferred Compensation Plan dated as of November 7, 1996. (Incorporated by reference to Exhibit 10.11 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.13 Participation Agreement dated as of October 18, 1996, by and among Symantec Corporation, Sumitomo Bank Leasing and Financing, Inc., The Sumitomo Bank, Limited, San Francisco Branch and the other Various Financial Institutions Identified Herein and the Sumitomo Bank, Limited, San Francisco Branch. (Incorporated by reference to Exhibit 10.01 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended September 27, 1996.) 10.14 Appendix A to Participation Agreement, Master Lease, Lease Supplements Loan Agreements, Pledge Agreement, Lessor Mortgages, and Guaranty. (Incorporated by reference to Exhibit 10.02 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended September 27, 1996.) 10.15 Master Lease and Deed of Trust, as amended, dated as of October 18, 1996 between Symantec Corporation and Sumitomo Bank Leasing and Finance, Inc. (Incorporated by reference to Exhibit 10.14 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) - -------------------- * Indicates a management contract or compensatory plan or arrangement. 30 33 10.16 Guaranty dated as of October 18, 1996, made by Symantec Corporation in favor of Various Financial Institutions and The Sumitomo Bank, Limited, San Francisco Branch. (Incorporated by reference to Exhibit 10.05 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended September 27, 1996.) 10.17 Pledge Agreement dated as of October 18, 1996, made by Symantec Corporation, in favor of Sumitomo Bank, Limited, San Francisco Branch for the benefit of the Lenders, and Donaldson, Lufkin, Jenrette Securities Corporations, as collateral agent. (Incorporated by reference to Exhibit 10.06 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended September 27, 1996.) 10.18 Assignment of Lease and Rent, as amended, dated as of October 18, 1996, from Sumitomo Bank Leasing and Finance, Inc., to The Sumitomo Bank, Limited, San Francisco Branch. (Incorporated by reference to Exhibit 10.17 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.19 Agreement of Purchase and Sale of Cupertino City Center One between Cigna Property and Casualty Insurance Company and Symantec Corporation. (Incorporated by reference to Exhibit 10.18 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.20 Agreement for Purchase and Sale and Escrow Instructions of 10201 Torre Avenue, Cupertino, CA. (Incorporated by reference to Exhibit 10.19 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.21 Agreement for Purchase and Sale and Escrow Instructions, as amended, dated as of May 31, 1996. (Incorporated by reference to Exhibit 10.20 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.22 Loan Agreement dated as of October 18, 1996, among Sumitomo Bank Leasing and Finance, Inc., Various Financial Institutions Identified Herein and The Sumitomo Bank, Limited, San Francisco Branch. (Incorporated by reference to Exhibit 10.21 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.23 Construction Agency Agreement dated as of March 3, 1997, between Sumitomo Bank Leasing and Finance, Inc., and Symantec Corporation. (Incorporated by reference to Exhibit 10.22 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.24 Symantec - CC5 Office Building and Parking Structure, as amended, dated as of May 5, 1997, made by and between Symantec Corporation and Webcor Builders. (Incorporated by reference to Exhibit 10.23 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.25 Office building lease dated as of April 10, 1991, between the Registrant and Maguire Thomas Partners Colorado Place regarding property located in Santa Monica, California. (Incorporated by reference to Exhibit 10.25 filed with the Registrant's Annual Report on Form 10-K for the year ended March 31, 1991.) 10.26 Office building lease dated as of February 27, 1991, between the Registrant and Kim Camp No. VII regarding property located in Sunnyvale, California. (Incorporated by reference to Exhibit 10.26 filed with the Registrant's Annual Report on Form 10-K for the year ended March 31, 1991.) 10.27 Office building lease dated as of April 19, 1995, between the Registrant and CIGNA Property and Casualty Insurance Company regarding property located in Cupertino, California. (Incorporated by reference to Exhibit 10.16 filed with the Registrant's Annual Report on Form 10-K for the year ended March 31, 1995.) 10.28 Office building lease, as amended, dated as of December 1, 1995 between Delrina (Canada) Corporation and Sherway Centre Limited regarding property located in Toronto, Canada. (Incorporated by reference to Exhibit 10.01 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended December 29, 1995.) 10.29 Form of Indemnity Agreement with Officers and Directors. (Incorporated by reference to Exhibit 10.17 filed with the Registrant's Registration Statement on Form S-1 (No. 33-28655) originally filed May 19, 1989, and amendment No. 1 thereto filed June 21, 1989, which Registration Statement became effective June 22, 1989.) 31 34 10.30* Full Recourse Promissory Note and Pledge Agreement between the Company and Gordon E. Eubanks, Jr. (Incorporated by reference to Exhibit 10.19 filed with the Registrant's Annual Report on Form 10-K for the year ended April 2, 1993.) 10.31* Form of Promissory Note and Pledge Agreement between the Company and certain executives. (Incorporated by reference to Exhibit 10.20 filed with the Registrant's Annual Report on Form 10-K for the year ended April 2, 1993.) 10.32* Form of Housing Assistance Agreement between the Company and certain executives. (Incorporated by reference to Exhibit 10.26 filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 10.33 Note Purchase Agreement, dated April 2, 1993, among Symantec Corporation, Morgan Guaranty Trust Company of New York, as Trustee, J. P. Morgan Investments Management, Inc., as Investment Manager and The Northwestern Mutual Life Insurance Company, including Form of Convertible Subordinated Notes. (Incorporated by reference to Exhibit 10.30 filed with the Registrant's Annual Report on Form 10-K for the year ended April 2, 1993.) 10.34* The Registrant's Section 401(k) Plan, as amended. (Incorporated by reference to Exhibit 10.25 filed with the Registrants Annual Report on Form 10-K for the year ended March 31, 1995.) 10.35* Form of Executive Compensation Agreement between the Company and certain executives. (Incorporated by reference to Exhibit 10.25 filed with the Registrants Annual Report on Form 10-K for the year ended March 31, 1995.) 10.36 Assignment of Copyright and Other Intellectual Property Rights. (Incorporated by reference to appendix to Prospectus/Proxy Statement filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 10.37* Employment and Consulting Agreement among Symantec Corporation, Symantec Acquisition Corp. and Charles M. Boesenberg. (Incorporated by reference to Exhibit 10.32 filed with the Registrant's Annual Report of Form 10-K for the year ended April 1, 1994.) (Confidential treatment has been granted with respect to portions of this exhibit.) 10.38* Stock Option Grant between the Company and Charles Boesenberg. (Incorporated by reference to Exhibit 10.29 filed with the Registrants Annual Report on Form 10-K for the year ended March 31, 1995.) 10.39 Authorized Distributor Agreement between Symantec Corporation and Ingram Micro, Inc. (Incorporated by reference to Exhibit 10.34 filed with the Registrant's Quarterly Report of Form 10-Q for the quarter ended July 1, 1994.) (Confidential treatment has been granted with respect to portions of this exhibit.) 10.40 Authorized Distributor Agreement between Symantec Corporation and Merisel Americas, Inc. (Incorporated by reference to Exhibit 10.35 filed with the Registrant's Quarterly Report of Form 10-Q for the quarter ended July 1, 1994.) (Confidential treatment has been granted with respect to portions of this exhibit.) 10.41* Employment and Non-competition Agreement between Symantec Corporation and Dennis Bennie. (Incorporated by reference to Exhibit 10.02 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended December 29, 1995.) 10.42 Combination Agreement between Symantec Corporation and Delrina Corporation dated July 5, 1995. (Incorporated by reference to Exhibit 10.01 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.) 10.43 Asset Purchase Agreement dated as September 26, 1996, by and between Delrina and JetForm. (Incorporated by reference to Exhibit 2.01 filed with the Registrant's Current Report of Form 8-K filed September 26, 1996.) 10.44 Asset Purchase Agreement, as amended, dated as of March 28, 1998, by and between Delrina and JetForm. - ---------------- * Indicates a management contract or compensatory plan or arrangement. 32 35 10.45 Asset Purchase Agreement, as amended, dated as of March 27, 1997 by and between Hewlett-Packard Company and Symantec Corporation. (Incorporated by reference to Exhibit 10.43 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.46 Master agreement, dated May 18, 1998, between International Business Machines Corporation and Symantec Corporation. (Confidential treatment has been requested with respect to portions of this exhibit.) 10.47 Class action complaint filed by the law firm of Milberg Weiss Bershad Hynes & Lerach in Superior Court of the State of California, County of Santa Clara against the Company and several of its current and former officers and directors. (Incorporated by reference to Exhibit 10.35 filed with the Registrant's Annual Report of Form 10-K for the year ended March 31, 1996.) 21.01 Subsidiaries of the Registrant. 23.01 Consent of Ernst & Young LLP, Independent Auditors. 27.01 Financial Data Schedule for the Year Ended March 31, 1996 (restated) 27.02 Financial Data Schedule for the Year Ended March 31, 1997 (restated) 27.03 Financial Data Schedule for the Year Ended March 31, 1998 (b) Reports on Form 8-K: None (c) Exhibits: The Registrant hereby files as part of this Form 10-K the exhibits listed in Item 14(a)3, as set forth above. (d) Financial Statement Schedules: The Registrant hereby files as part of this Form 10-K the schedule listed in Item 14(a)2, as set forth on page 58. 33 36 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Report of Ernst & Young LLP, Independent Auditors............................... 35 Consolidated Balance Sheets as of March 31, 1998 and 1997....................... 36 Consolidated Statements of Operations for the years ended March 31, 1998, 1997 and 1996 ....................................................................... 37 Consolidated Statements of Stockholders' Equity for the years ended March 31, 1998, 1997 and 1996............................................................. 38 Consolidated Statements of Cash Flow for the years ended March 31, 1998, 1997 and 1996 ....................................................................... 39 Summary of Significant Accounting Policies...................................... 40 Notes to Consolidated Financial Statements...................................... 43
34 37 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders Symantec Corporation We have audited the accompanying consolidated balance sheets of Symantec Corporation as of March 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended March 31, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Symantec Corporation at March 31, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP San Jose, California April 30, 1998, except for Note 17, as to which the date is May 19, 1998. 35 38 SYMANTEC CORPORATION CONSOLIDATED BALANCE SHEETS
March 31, ----------------------- (In thousands) 1998 1997 --------- --------- ASSETS Current assets: Cash and short-term investments $ 225,883 $ 160,082 Trade accounts receivable 65,158 45,375 Inventories 3,175 4,476 Deferred income taxes 19,677 12,823 Other 14,646 13,166 --------- --------- Total current assets 328,539 235,922 Long-term investments 34,258 -- Restricted investments 59,370 47,448 Equipment and leasehold improvements 50,030 51,610 Other 4,263 4,418 --------- --------- $ 476,460 $ 339,398 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 34,171 $ 30,328 Accrued compensation and benefits 21,332 16,241 Other accrued expenses 64,532 51,508 Income taxes payable 24,634 8,276 Current portion of convertible subordinated debentures 8,333 -- --------- --------- Total current liabilities 153,002 106,353 Convertible subordinated debentures and other 5,951 15,066 Commitments and contingencies Stockholders' equity: Preferred stock (authorized: 1,000; issued and outstanding: none) -- -- Common stock (authorized: 100,000; issued and outstanding: 57,109 and 55,427 shares) 571 554 Capital in excess of par value 311,106 291,548 Notes receivable from stockholders (144) (144) Cumulative translation adjustment (12,716) (7,580) Retained earnings (deficit) 18,690 (66,399) --------- --------- Total stockholders' equity 317,507 217,979 --------- --------- $ 476,460 $ 339,398 ========= =========
The accompanying Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements are an integral part of these statements. 36 39 SYMANTEC CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended March 31, ------------------------------------- (In thousands, except net income (loss) per share) 1998 1997 1996 --------- --------- --------- Net revenues $ 578,361 $ 472,183 $ 445,432 Cost of revenues 87,431 93,544 108,975 --------- --------- --------- Gross margin 490,930 378,639 336,457 Operating expenses: Research and development 91,332 88,924 94,672 Sales and marketing 261,190 220,811 229,703 General and administrative 38,063 34,030 32,744 Acquisition, restructuring and other expenses -- 8,585 27,617 --------- --------- --------- Total operating expenses 390,585 352,350 384,736 --------- --------- --------- Operating income (loss) 100,345 26,289 (48,279) Interest income 13,160 7,182 7,512 Interest expense (1,218) (1,402) (1,495) Other income (expense), net (190) (1,691) (2,130) --------- --------- --------- Income (loss) before income taxes 112,097 30,378 (44,392) Provision (benefit) for income taxes 27,008 4,340 (4,609) --------- --------- --------- Net income (loss) $ 85,089 $ 26,038 $ (39,783) ========= ========= ========= Net income (loss) per share - basic $ 1.52 $ 0.48 $ (0.76) ========= ========= ========= Net income (loss) per share - diluted $ 1.42 $ 0.47 $ (0.76) ========= ========= ========= Shares used to compute net income (loss) per share - basic 56,097 54,705 52,664 ========= ========= ========= Shares used to compute net income (loss) per share - diluted 60,281 55,407 52,664 ========= ========= =========
The accompanying Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements are an integral part of these statements. 37 40 SYMANTEC CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Notes Capital in Receivable Cumulative Retained Total Common Excess of from Translation Earnings Stockholders' (In thousands) Stock Par Value Stockholders Adjustment (Deficit) Equity --------- --------- --------- --------- --------- --------- Balances, March 31, 1995 $ 508 $ 248,766 $ (144) $ (7,213) $ (57,043) $ 184,874 Net loss -- -- -- -- (39,783) (39,783) Delrina net loss for the quarter ended June 30, 1995 -- -- -- -- 4,834 4,834 Issued common stock: 2,021 shares under stock plans and other 20 21,101 -- -- -- 21,121 833 shares from conversion of convertible debentures 8 9,641 -- -- -- 9,649 Translation adjustment -- -- -- (378) -- (378) --------- --------- --------- --------- --------- --------- Balances, March 31, 1996 536 279,508 (144) (7,591) (91,992) 180,317 Net income -- -- -- -- 26,038 26,038 Acquisition of Fast Track: Issued 600 shares of common stock 6 (5) -- -- -- 1 Acquired company's accumulated deficit -- -- -- -- (445) (445) Issued common stock: 1,191 shares under stock plans and other 12 12,045 -- -- -- 12,057 Translation adjustment -- -- -- 11 -- 11 --------- --------- --------- --------- --------- --------- Balances, March 31, 1997 554 291,548 (144) (7,580) (66,399) 217,979 Net income -- -- -- -- 85,089 85,089 Issued common stock: 2,622 shares under stock plans and other 26 33,179 -- -- -- 33,205 60 shares from conversion of convertible debentures 1 715 -- -- -- 716 Repurchase 1,000 shares of common stock (10) (21,336) -- -- -- (21,346) Income tax benefit related to stock options -- 7,000 -- -- -- 7,000 Translation adjustment -- -- -- (5,136) -- (5,136) --------- --------- --------- --------- --------- --------- Balances, March 31, 1998 $ 571 $ 311,106 $ (144) $ (12,716) $ 18,690 $ 317,507 ========= ========= ========= ========= ========= =========
The accompanying Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements are an integral part of these statements. 38 41 SYMANTEC CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW
Year Ended March 31, ------------------------------------- (In thousands) 1998 1997 1996 --------- --------- --------- OPERATING ACTIVITIES: Net income (loss) $ 85,089 $ 26,038 $ (39,783) Delrina net loss for the quarter ended June 30, 1995 -- -- 4,834 Acquired company's accumulated deficit -- (445) -- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization of equipment and leasehold improvements 25,231 22,770 19,717 Amortization and write-off of capitalized software costs 1,466 10,477 19,141 Write-off of equipment and leasehold improvements 1,225 4,010 3,403 Deferred income taxes (6,915) 21 (989) Net change in assets and liabilities: Trade accounts receivable (22,873) 11,621 19,137 Inventories 1,040 3,432 1,450 Other current assets (1,839) 1,304 (6,461) Capitalized software costs -- (7,656) (3,286) Other assets (556) 2,720 2,465 Accounts payable 5,568 7,373 (2,368) Accrued compensation and benefits 5,371 1,502 1,313 Accrued other expenses 14,018 6,182 (8,786) Income taxes payable 17,051 5,031 1,211 Income tax benefit from stock options 7,000 -- -- --------- --------- --------- Net cash provided by operating activities 130,876 94,380 10,998 --------- --------- --------- INVESTING ACTIVITIES: Capital expenditures (26,339) (27,195) (35,767) Purchased intangibles (948) (698) (461) Purchases of marketable securities (230,891) (180,000) (154,500) Proceeds from sales of marketable securities 174,087 203,098 168,681 Purchases of long-term, restricted investments (11,922) (47,448) -- --------- --------- --------- Net cash used in investing activities (96,013) (52,243) (22,047) --------- --------- --------- FINANCING ACTIVITIES: Repurchase of Company's common stock (21,346) -- -- Net proceeds from sales of common stock and other 33,108 11,703 20,295 --------- --------- --------- Net cash provided by financing activities 11,762 11,703 20,295 --------- --------- --------- Effect of exchange rate fluctuations on cash and cash equivalents (3,370) 141 2,339 Increase in cash and cash equivalents 43,255 53,981 11,585 Beginning cash and cash equivalents 95,758 41,777 30,192 --------- --------- --------- Ending cash and cash equivalents $ 139,013 $ 95,758 $ 41,777 ========= ========= ========= SUPPLEMENTAL CASH FLOW DISCLOSURES: Income taxes paid (net of refunds) during the year $ 6,037 $ 392 $ 906 Interest paid on convertible subordinated debentures and long-term obligations $ 1,150 $ 1,182 $ 1,299
The accompanying Summary of Significant Accounting Policies and Notes to Consolidated Financial Statements are an integral part of these statements. 39 42 SYMANTEC CORPORATION SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Symantec Corporation ("Symantec" or the "Company") develops, markets and supports utility software for business and personal computing. Symantec's products are currently organized into the following three business units: Security and Assistance; Remote Productivity Solutions; and Internet Tools, Royalties and Other. Customers consist primarily of individual users, corporations, higher education institutions and government agencies, which are mainly located in North America, Europe, Asia/Pacific, Latin America and South America. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Symantec Corporation and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Basis of Presentation During fiscal year 1998, no companies were acquired by Symantec. During fiscal 1997 and 1996, Symantec acquired Delrina Corporation ("Delrina") and Fast Track, Inc. ("Fast Track") in transactions accounted for as poolings of interests. All financial information of has been restated to reflect the combined operations of Symantec. The results of operations of Fast Track were not material to Symantec's consolidated financial statements, and therefore, amounts prior to the year of acquisition were not combined with Symantec's financial statements. Symantec has a 52/53-week fiscal accounting year. Accordingly, all references as of and for the periods ended March 31, 1998, 1997 and 1996 reflect amounts as of and for the periods ended April 3, 1998, March 28, 1997 and March 29, 1996, respectively. The fiscal year ending on April 3, 1998 is comprised of a 53-week period. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Foreign Currency Translation The functional currency of the Company's foreign subsidiaries is the local currency. Assets and liabilities denominated in foreign currencies are translated using the exchange rate on the balance sheet dates. The cumulative translation adjustments resulting from this process are shown separately as a component of stockholders' equity. Revenues and expenses are translated using average exchange rates prevailing during the year. Foreign currency transaction gains and losses are included in the determination of net income (loss). Revenue Recognition Symantec recognizes revenue upon shipment when no significant vendor obligations remain and collection of the receivable, net of provisions for estimated future returns, is probable. Symantec offers the right of return of its products under various programs. The Company estimates and maintains reserves for product returns. Revenues related to significant post-contract support agreements (generally product maintenance agreements) are deferred and recognized over the period of the agreements. The estimated cost of providing insignificant post-contract support (generally telephone support) is accrued at the time of the sale and is included in sales and marketing expense. Royalty revenues are recognized as earned unless collection of such revenues is not assured. When collection is not assured, revenues are recognized as payments are received. Cash Equivalents, Investments and Restricted Investments Symantec considers investments in highly liquid instruments purchased with an original maturity of 90 days or less to be cash equivalents. All of the Company's cash equivalents, short-term investments, long-term investments and restricted investments are classified as available-for-sale as of the balance sheet date. These securities are reported at fair market value and any unrealized gains and losses are included in stockholders' equity. Realized gains and losses and declines in value judged to be other-than-temporary are included in interest income. The cost of securities sold is based upon the specific identification method. 40 43 SYMANTEC CORPORATION SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED Derivative Financial Instruments Symantec utilizes natural hedging to mitigate the Company's foreign currency exposures and hedges certain residual exposures through the use of one-month foreign exchange forward contracts. The Company enters into foreign exchange forward contracts with financial institutions primarily to minimize currency exchange risks associated with certain balance sheet positions. Gains and losses on the contracts are included in other income (loss) in the period as gains and losses on the underlying transactions are recognized and generally offset. The fair value of foreign currency exchange forward contracts approximates cost due to the short maturity periods. Inventories Inventories are valued at the lower of cost or market. Cost is principally determined using currently adjusted standards, which approximate actual cost on a first-in, first-out basis. Equipment and Leasehold Improvements Equipment and leasehold improvements are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization is provided on a straight-line basis over the estimated useful lives of the respective assets, generally the shorter of the lease term or three to seven years. Capitalized Software Purchased product rights are comprised of acquired software ("product rights") and are stated at cost less accumulated amortization. Amortization is provided on the greater of the straight-line basis over the estimated useful lives of the respective assets, generally three to five years, or on the basis of the ratio of current revenues to current revenues plus anticipated future revenues. Income Taxes Income taxes are computed in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Net Income (Loss) Per Share In 1997, the Financial Accounting Standards Board issued Statement No. 128, "Accounting for Earnings Per Share," ("SFAS 128"). SFAS 128 replaced the calculation of primary and fully diluted net income (loss) per share with basic and diluted net income (loss) per share. Accordingly, prior period net income (loss) per share have been restated in accordance with SFAS 128. Basic net income (loss) per share is computed using the weighted average number of common shares outstanding during the periods. Diluted net income (loss) per share is computed using the weighted average number of common shares outstanding and potentially dilutive common shares during the periods. Diluted earnings per share includes the assumed conversion of all of the outstanding convertible subordinated debentures, if dilutive in the period. Concentrations of Credit Risk The Company's product revenues are concentrated in the personal computer software industry, which is highly competitive and rapidly changing. Significant technological changes in the industry or customer requirements, or the emergence of competitive products with new capabilities or technologies, could adversely affect operating results. In addition, a significant portion of the Company's revenue and net income is derived from international sales and independent agents and distributors. Fluctuations of the U.S. dollar against foreign currencies, changes in local regulatory or economic conditions, piracy or nonperformance by independent agents or distributors could adversely affect operating results. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of short-term and long-term investments, restricted investments and trade accounts receivable. The Company's investment portfolio is diversified and consists of investment grade securities. The Company is exposed to credit risks in the event of default by these institutions to the extent of the amount recorded on the balance sheet. The credit risk in the Company's trade accounts receivable is substantially mitigated by the Company's credit evaluation process, reasonably short collection terms and the geographical dispersion of sales transactions. The Company generally does not require collateral and maintains reserves for potential credit losses and such losses have been within management's expectations. 41 44 SYMANTEC CORPORATION SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED Impairment of Long-Lived Assets Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," applicable for the fiscal year beginning April 1, 1996, did not have a material affect on the Company's consolidated financial condition or results of operations. Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements and is required to be adopted by Symantec beginning in fiscal 1999. Symantec is evaluating the potential impact of this accounting pronouncement on required disclosures. The Company anticipates that its unrealized gain and loss on investments and cumulative translation adjustment balances will be included as components of comprehensive income. Additionally, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which establishes standards for the way that public business enterprises report information in annual statements and interim financial reports regarding operating segments, products and services, geographic areas and major customers. SFAS 131 will be effective for Symantec for fiscal 1999 year-end and will apply to both annual and interim financial reporting subsequent to this date. Symantec is evaluating the potential impact of these accounting pronouncements on required disclosures. SFAS 131 is not expected to have a material impact on the financial condition or results of operations of the Company. In October 1997 and March 1998, the Accounting Standards Executive Committee ("AcSEC") issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition" and SOP 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition," respectively, which provide guidance on applying generally accepted accounting principles in recognizing revenue on software transactions and is effective for Symantec's transactions entered into subsequent to April 3, 1998. AcSEC is currently deliberating the potential permanent deferral of certain provisions of SOP 97-2. The Company does not believe that the implementation of SOP 97-2 and SOP 98-4 will have a material adverse affect on expected revenues or earnings. However, in the event subsequent interpretations are contrary to the Company's revenue accounting practices, the Company believes it can change its current business practices to comply with this guidance and avoid any material adverse affect on reported revenues and earnings. There can be no assurance this will be the case. Reclassifications Certain previously reported amounts have been reclassified to conform to the current presentation format with no impact on net income (loss). All financial information has been restated to conform to this presentation. 42 45 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BALANCE SHEET INFORMATION
March 31, ----------------------- (In thousands) 1998 1997 --------- --------- Cash, cash equivalents and short-term investments: Cash $ 28,236 $ 33,755 Cash equivalents 110,777 62,003 Short-term investments 86,870 64,324 --------- --------- $ 225,883 $ 160,082 ========= ========= Trade accounts receivable: Receivables $ 69,574 $ 49,675 Less: allowance for doubtful accounts (4,416) (4,300) --------- --------- $ 65,158 $ 45,375 ========= ========= Inventories: Raw materials $ 1,091 $ 1,736 Finished goods 2,084 2,740 --------- --------- $ 3,175 $ 4,476 ========= ========= Equipment and leasehold improvements: Computer hardware and software $ 107,724 $ 91,533 Office furniture and equipment 29,407 27,706 Leasehold improvements 21,038 17,697 --------- --------- 158,169 136,936 Less: accumulated depreciation and amortization (108,139) (85,326) --------- --------- $ 50,030 $ 51,610 ========= ========= Other assets: Purchased product rights $ 1,358 $ 591 Capitalized software costs 2,414 2,465 Less: accumulated amortization of purchased product rights (563) (55) Less: accumulated amortization of capitalized software costs (1,739) (964) Other assets 2,793 2,381 --------- --------- $ 4,263 $ 4,418 ========= ========= Other accrued expenses: Deferred revenue $ 25,537 $ 11,550 Marketing development funds 12,815 12,529 Other 26,180 27,429 --------- --------- $ 64,532 $ 51,508 ========= =========
NOTE 2. INCOME STATEMENT INFORMATION
Year Ended March 31, ----------------------------- (In thousands) 1998 1997 1996 ------- ------- ------- Technical support costs included in sales and marketing $38,582 $35,111 $34,487 Advertising expense $46,814 $39,147 $43,015
Technical support costs included in sales and marketing relate to the estimated cost of providing insignificant post-contract support (generally telephone support) that is accrued at the time of product sale. Advertising expenditures are charged to operations as incurred except for certain direct mail campaigns which are deferred and amortized over the expected period of benefit. Deferred advertising costs have not been material in all periods presented. 43 46 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 3. BUSINESS COMBINATIONS AND PURCHASED PRODUCT RIGHTS During the three fiscal years ended March 31, 1998, Symantec completed acquisitions of the following companies:
Shares of Acquired Symantec Company Common Stock Stock Options Companies Acquired Date Acquired Issued Assumed - ------------------ ------------- ------ ------- Fast Track, Inc. ("Fast Track") May 28, 1996 600,000 -- Delrina Corporation ("Delrina") November 22, 1995 13,684,174* 1,271,677
* Includes Delrina exchangeable stock that is traded on the Toronto Stock Exchange. Delrina stockholders received Delrina exchangeable stock in exchange for Delrina common shares at a rate of 0.61 per share. Delrina exchangeable stock may be converted at any time into Symantec common stock on a one-for-one basis at each stockholder's option. Both acquisitions were accounted for as poolings of interests. In connection with the acquisitions of the companies listed above, Symantec incurred significant acquisition expenses (See Note 13 of Notes to Consolidated Financial Statements). Due to differing year ends of Symantec and Delrina, financial information for dissimilar fiscal year ends was combined. Delrina's fiscal year ended June 30, 1995 was combined with Symantec's fiscal year ended March 31, 1995. Accordingly, Delrina's results of operations for the quarter ended June 30, 1995 were duplicated in the combined statements of operations for fiscal 1996 and 1995 and accordingly, Delrina's net loss for the quarter ended June 30, 1995 was credited to stockholder's equity. Delrina reported net revenues of $19.8 million and a net loss of $4.8 million in the quarter ended June 30, 1995. The results of operations of Fast Track were not material to Symantec's consolidated financial statements, and therefore, amounts prior to the date of acquisition were not restated to reflect the combined operations of the companies. NOTE 4. CAPITALIZED SOFTWARE In fiscal 1998, capitalization of certain software development costs in accordance with Statement of Financial Accounting Standards No. 86 did not materially affect the Company. Amortization expense for capitalized software development costs was approximately $0.8 million in fiscal 1998. In fiscal 1997, Symantec capitalized approximately $7.7 million of software development costs, primarily related to network administration technology, which was sold to Hewlett-Packard in March 1997, resulting in the write off of approximately $7.0 million of unamortized costs during the fourth quarter of fiscal 1997 (See Note 12 of Notes to Consolidated Financial Statements). Amortization expense for capitalized software development costs was approximately $2.9 million in fiscal 1997. Prior to fiscal 1997, capitalization of certain software development costs in accordance with Statement of Financial Accounting Standards No. 86 did not materially affect the Company, except for amounts capitalized by Delrina prior to its acquisition by Symantec in fiscal 1996. The related amortization expense was approximately $5.6 million in fiscal 1996. NOTE 5. CASH EQUIVALENTS, INVESTMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS Available-For-Sale Investments and Trading Investments All cash equivalents, short-term investments, long-term investments and restricted investments have been classified as available-for-sale securities. During fiscal 1998, the Company maintained a trading asset portfolio to generate returns that offset changes in certain liabilities related to deferred compensation arrangements. The trading assets, which consist of marketable equity securities and have a fair value of approximately $0.2 million, have been included in the available-for-sale tabular disclosure, due to immateriality. 44 47 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED As of March 31, 1998 and 1997, the estimated fair value of the cash equivalents, short-term investments and long-term investments consisted of the following:
Cash equivalents, short and long-term investments 1998 1997 -------- -------- (In thousands) Money market funds $ 15,685 $ 2,598 Corporate securities 161,848 69,326 Bank securities and deposits 41,655 20,755 US government and government sponsored securities 12,717 33,648 -------- -------- Total available-for-sale and trading investments $231,905 $126,327 ======== ========
The estimated fair value of marketable securities by contractual maturity as of March 31, 1998 are as follows:
Cash equivalents, short and long-term investments 1998 -------- (In thousands) Due in one year or less $197,647 Due after one year through three years 18,685 Due after three years 15,573 -------- $231,905 ========
Fair values of cash equivalents, short-term investments and long-term investments and trading assets approximate cost due to one or more of the following: the short-term maturities of the investments, absence of changes in underlying interest rates and/or the absence of changes in security credit ratings. As of March 31, 1998 and 1997, the estimated fair value of the restricted investments consisted of the following:
Restricted Investments 1998 1997 ------- ------- (In thousands) Money market funds $ -- $ 6 US government and government sponsored securities 59,370 47,442 ------- ------- $59,370 $47,448 ======= =======
The estimated fair value of restricted marketable securities by contractual maturity as of March 31, 1998 are as follows:
Restricted Investments 1998 ------- (In thousands) Due in one year or less $54,334 Due after one year through three years 5,036 ------- $59,370 =======
The Company's available-for-sale restricted investments relate to certain collateral requirements for lease agreements associated with Symantec's corporate facilities in Cupertino, California. Fair values of the restricted investments approximate cost due to one or more of the following: the short-term maturities of the investments, absence of changes in underlying interest rates and/or the absence of changes in security credit ratings. Unrealized gains (losses) on all available-for-sale securities are reported as a component of stockholders' equity and are not material. During the period covered by the financial statements, the Company has not used any derivative instrument for trading purposes. Symantec utilizes some natural hedging to mitigate the Company's foreign currency exposures and the Company hedges certain residual exposures through the use of one-month foreign exchange forward contracts. The Company enters into foreign exchange forward contracts with financial institutions primarily to protect against currency exchange risks associated with certain balance sheet positions. The fair value of foreign 45 48 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED exchange forward contracts are based on quoted market prices. At March 31, 1998, outstanding forward exchange contracts had a notional amount of approximately $47.5 million, all of which mature in 35 days or less. The net liability of forward contracts was a notional amount of approximately $47.5 million at March 31, 1998. The fair value of foreign currency exchange forward contracts approximates cost due to the short maturity periods and the minimal fluctuations in foreign currency exchange rates. The Company does not hedge its translation risk. NOTE 6. CONVERTIBLE SUBORDINATED DEBENTURES On April 2, 1993, the Company issued convertible subordinated debentures totaling $25.0 million. The debentures bear interest at 7.75% payable semiannually and are convertible into Symantec common stock at $12 per share at the option of the investor. The debentures are due in three equal annual installments beginning in 1999 and are redeemable at the option of the investors in the event of a change in control of Symantec or the sale of all or substantially all of the assets of the Company. Symantec, at its option, may redeem the notes at any time with 30 to 60 days notice; however, the Company could incur a prepayment penalty for early redemption. The holders are entitled to certain registration rights relating to the shares of common stock resulting from the conversion of the debentures. The Company reserved 2,083,333 shares of common stock to be issued upon conversion of these debentures. The debentures limit the payment of cash dividends and the repurchase of capital stock to a total of $10.0 million plus 25% of cumulative net income subsequent to April 2, 1993. On April 26, 1995, convertible subordinated debentures totaling $10.0 million were converted into 833,333 shares of Symantec common stock, leaving 1,250,000 shares of common stock reserved for future conversion as of March 31, 1997. During October 1997, convertible subordinated debentures totaling $0.7 million were converted into 59,666 shares of Symantec common stock, leaving 1,190,334 shares of common stock reserved for future conversions as of March 31, 1998. The estimated fair value of the $14.3 million convertible subordinated debentures was approximately $32.8 million at March 31, 1998. The estimated fair value was based on the total shares of common stock reserved for issuance upon conversion of the debentures at the closing price of the Company's common stock at March 31, 1998, which exceeded the conversion price of $12 per share, plus accrued interest. NOTE 7. LINE OF CREDIT The Company recently renewed its $10.0 million bank line of credit to expire in May 2000. The line of credit is available for general corporate purposes and bears interest at the banks' reference (prime) interest rate (8.50% at March 31, 1998), the U.S. offshore rate plus 1.25%, a CD rate plus 1.25% or LIBOR plus 1.25%, at the Company's discretion. The line of credit requires bank approval for the payment of cash dividends. Borrowings under this line are unsecured and are subject to the Company maintaining certain financial ratios and profits. The Company was in compliance with the line of credit covenants as of March 31, 1998. At March 31, 1998, there was less than $1 million of standby letters of credit outstanding under this line of credit. There were no borrowings outstanding under this line at March 31, 1998. NOTE 8. COMMITMENTS Symantec leases all of its facilities and certain equipment under operating leases that expire at various dates through 2026. The Company currently subleases some space under various operating leases which will expire at various dates through 2001. 46 49 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The future fiscal year minimum operating lease commitments were as follows at March 31, 1998: (In thousands) 1999 $ 16,841 2000 15,305 2001 12,086 2002 8,672 2003 8,169 Thereafter 21,288 --------- Operating lease commitments 82,361 Sublease income (3,890) --------- Net operating lease commitments $ 78,471 =========
Rent expense charged to operations totaled approximately $14.1 million, $12.4 million and $11.3 million for the years ended March 31, 1998, 1997 and 1996, respectively. In fiscal 1997, Symantec entered into lease agreements for two existing office buildings, land and one office building currently under construction in Cupertino, California. Lease payments are based on the three-month LIBOR in effect at the beginning of each fiscal quarter. Symantec has the right to acquire the related properties at any time during the seven-year lease period. If at the end of the lease term Symantec does not renew the lease, purchase the property under lease or arrange a third party purchase, then the Company will be obligated to the lessor for a guaranteed residual amount equal to a specified percentage of the lessor's purchase price of the property. Symantec would also be obligated to the lessor for all or some portion of this amount if the price paid by the third party is below the guaranteed residual amount. The guaranteed residual payment on the lease agreements for the two existing office buildings totals approximately $38.4 million. The guaranteed residual payment on the lease agreements for the land and office building under construction was approximately $19.4 million at March 31, 1998 and will increase to approximately $31.7 million at the completion of the construction during fiscal year 1999. As security against these guaranteed residual payments, Symantec is required to maintain a corresponding investment in U.S. Treasury securities with maturities not to exceed three years. Symantec is restricted in its use of these investments per the terms of the lease agreement. At March 31, 1998, the investments total approximately $59.4 million and are classified as non-current restricted investments within the financial statements. The Company currently occupies a portion of these office buildings and has assumed the right to sub-lease income provided by the other tenants. The sub-lease agreements have terms expiring in August 1999 through February 2001. NOTE 9. INCOME TAXES The components of the provision (benefit) for income taxes were as follows:
Year Ended March 31, ---------------------------------------- (In thousands) 1998 1997 1996 -------- -------- -------- Current: Federal $ 13,615 $ 514 $ (5,882) State 4,879 302 130 International 15,368 3,472 2,149 -------- -------- -------- 33,862 4,288 (3,603) Deferred: Federal (5,788) 565 (1,006) State (2,247) 126 -- International 1,181 (639) -- -------- -------- -------- (6,854) 52 (1,006) -------- -------- -------- $ 27,008 $ 4,340 $ (4,609) ======== ======== ========
47 50 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The difference between the Company's effective income tax rate and the federal statutory income tax rate as a percentage of income (loss) before income taxes was as follows:
Year Ended March 31, ------------------------ 1998 1997 1996 ---- ---- ---- Federal statutory rate 35.0% 35.0% (35.0)% State taxes, net of federal benefit 1.5 2.9 0.3 Non-deductible acquisition expenses -- -- 6.8 Impact of international operations (4.0) (9.2) -- Losses for which no benefit is currently recognizable -- -- 16.9 Benefit of pre-acquisition losses of acquired entities (10.1) (16.5) -- Other, net 1.7 2.1 0.7 ---- ---- ---- 24.1% 14.3% (10.3)% ==== ==== ====
The principal components of deferred tax assets were as follows:
March 31, --------------------- (In thousands) 1998 1997 -------- -------- Tax credit carryforwards $ 6,821 $ 9,158 Net operating loss carryforwards 3,161 7,969 Inventory valuation accounts 2,806 2,327 Other reserves and accruals not currently tax deductible 12,828 8,570 Accrued compensation and benefits 3,512 2,392 Deferred revenue 4,155 10,187 Sales incentive programs 5,555 5,005 Allowance for doubtful accounts 1,365 984 Acquired software 1,139 2,613 Accrued acquisition, restructuring and other expenses 931 1,077 Other 2,599 2,868 -------- -------- 44,872 53,150 Valuation allowance (25,195) (40,327) -------- -------- $ 19,677 $ 12,823 ======== ========
Realization of the $19.7 million of net deferred tax asset that is reflected in the financial statements is dependent upon the Company's ability to generate sufficient future U.S. taxable income. Management believes that it is more likely than not that the asset will be realized based on forecasted U.S. earnings. Approximately $23.3 million of the valuation allowance for deferred tax assets is attributable to unbenefitted stock option deductions, the benefit of which will be credited to equity when realized. The remaining $1.8 million of the valuation allowance represents net operating loss and tax credit carryforwards of various acquired companies that are limited by separate return limitations and under the "change of ownership" rules of Internal Revenue Code Section 382. The change in the valuation allowance for the years ended March 31, 1998, 1997 and 1996 was a net decrease of $15.1 million and $5.4 million, and a net increase of $14.8 million, respectively. Pretax income (loss) from international operations was approximately $65.0 million, $24.9 million and $(4.1) million for the years ended March 31, 1998, 1997 and 1996, respectively. At March 31, 1998, the Company had tax credit carryforwards of approximately $7.0 million that expire in fiscal 1999 through 2013. 48 51 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 10. EMPLOYEE BENEFITS 401(k) Plan Symantec maintains a salary deferral 401(k) plan for all of its domestic employees. The plan allows employees to contribute up to 15% of their pretax salary up to the maximum dollar limitation prescribed by the Internal Revenue Code. Symantec matches 100% of the first $500 of employees' contributions and then 50% of the employee's contribution up to 6% of the employees' eligible compensation. Company contributions under the plan were $2.2 million, $2.0 million and $1.5 million for the years ended March 31, 1998, 1997 and 1996, respectively. Employee Stock Purchase Plan In October 1989, the Company established the 1989 Employee Stock Purchase Plan and a total of 3.4 million shares of common stock have been reserved for issuance under this plan. Subject to certain limitations, Company employees may purchase, through payroll deductions of 2 to 10% of compensation, shares of common stock at a price per share that is the lesser of 85% of the fair market value as of the beginning of the offering period or the end of the purchase period. As of March 31, 1998, approximately 2.4 million shares had been issued and 1.0 million shares remain to be issued under the Employee Stock Purchase Plan. Stock Award Plans During fiscal 1996, the Company registered 400,000 shares to be issued under the terms of the 1994 Patent Incentive Plan. The purpose of this plan is to increase awareness of the importance of patents to the Company's business and to provide employees with incentives to pursue patent protection for new technologies that may be valuable to the Company. The Company's executive officers are not eligible for awards under the 1994 Patent Incentive Plan. As of March 31, 1998, approximately 16,000 shares had been issued under this plan. In March 1998, the Board of Directors approved the terms of the 1998 Star Award Bonus Plan, under which the Company may grant up to 5,000 shares of common stock to employees who perform exceptionally in a given quarter. Directors and executive officers are not eligible to receive awards under this plan. Stock awards under this plan are recorded as compensation expense at the time of issuance. The Board of Directors reserved 20,000 shares of common stock for issuance under this plan. As of March 31, 1998, no shares had been issued under this plan. Stock Option Plans The Company maintains stock option plans pursuant to which an aggregate total of approximately 20.1 million shares of Common stock have been reserved for issuance as incentive and nonqualified stock options to employees, officers, directors, consultants, independent contractors and advisors to the Company (or of any parent, subsidiary or affiliate of the Company as the Board of Directors or committee may determine). The purpose of these plans are to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company by offering them an opportunity to participate in the Company's future performance through awards of stock options and stock bonuses. Under the terms of these plans, the option exercise price may not be less than 100% of the fair market value on the date of grant, the options have a maximum term of ten years and generally vest over a four-year period. On May 14, 1996, Symantec stockholders approved the 1996 Equity Incentive Plan (the "96 Plan") which superseded the 1988 Option Plan (the "88 Plan") and made available approximately 2.7 million shares. On September 25, 1996, stockholders approved an amendment to the 96 Plan to make available for issuance up to approximately 1.3 million additional shares representing the number of options previously granted pursuant to the 88 Plan that had expired, were canceled or were unexercisable for any reason without having been exercised in full. On September 18, 1997, stockholders approved an amendment to increase the number of shares reserved for issuance by approximately 2.6 million to 6.7 million shares. During March 1996, the Board of Directors authorized the Company to offer to each employee with stock options having an exercise price greater than $13.10 (the "Old Options") the opportunity to cancel the affected grants and receive a new grant for the same number of shares dated March 4, 1996 (the "New Options"). On the date of grant, the New Options had an exercise price equal to $13.10 and a stock price of $12.63. Under the terms of this stock option cancellation and regrant, all options began vesting as of the new grant date and no portion of any regranted options were exercisable until March 4, 1997. Options representing a total of approximately 2.3 million shares of common stock were canceled and regranted. The weighted average fair value of these New Options was $14.79. 49 52 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The President and Chief Executive Officer, the then Executive Vice President, Worldwide Operations and Chief Financial Officer, the majority of the then members of the Executive Staff, and all members of the Board of Directors elected to exclude themselves from this stock option cancellation and regrant. Stock option and warrant activity was as follows:
Weighted Average Number Exercise (In thousands, except exercise price per share) of Shares Price --------- --------- Outstanding at March 31, 1995 8,989 $ 14.36 Granted 5,990 16.56 Exercised (1,601) 10.40 Canceled (3,660) 22.14 --------- Outstanding at March 31, 1996 9,718 13.43 Granted 2,681 13.90 Exercised (684) 9.89 Canceled (2,673) 14.21 --------- Outstanding at March 31, 1997 9,042 13.61 Granted 3,857 22.74 Exercised (2,158) 12.73 Canceled (1,413) 15.29 --------- Outstanding at March 31, 1998 9,328 17.32 =========
(In thousands) March 31, ---------------------- Balances are as follows: 1998 1997 ------ ------ Authorized but unissued 10,785 11,901 Available for future grants 1,457 2,859 Exercisable and vested 3,173 4,066
The following tables summarize information about options outstanding at March 31, 1998:
Outstanding options Exercisable options -------------------------------- -------------------- Weighted average Weighted Weighted Number of contractual average Number of average shares (in life exercise shares (in exercise Range of Exercise Prices thousands) (in years) price thousands) price -------- ----- -------- -------- ------ $1.00 - $13.10 3,246 6.93 $ 11.43 1,579 $11.25 $13.13 - $22.63 3,252 7.87 16.13 1,454 15.83 $22.75 - $39.13 2,830 9.56 25.44 140 28.03 -------- -------- 9,328 8.06 17.32 3,173 14.09 ======== ========
These options will expire if not exercised by specific dates ranging from April 1998 to March 2008. Prices for options exercised during the three-year period ended March 31, 1998 ranged from $0.07 to $25.25. Pro Forma Information The Company has elected to follow APB Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123, "Accounting for Stock-Based Compensation," requires the use of option 50 53 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED valuation models that were not developed for use in valuing employee stock options. Under APB No. 25, because the exercise price of the Company's employee stock options generally equals the market price of the underlying stock on the date of grant, no compensation expense is recognized in the Company's financial statements. Pro forma information regarding net income and earnings per share is required by SFAS No. 123. This information is required to be determined as if the Company had accounted for its employee stock options (including shares issued under the Employee Stock Purchase Plan, collectively called "options") granted subsequent to March 31, 1995 under the fair value method of that statement. The fair value of options granted in fiscal years 1997 and 1998 reported below has been estimated at the date of grant using a Black-Scholes option pricing model assuming no expected dividends and the following weighted average assumptions:
Employee Employee Stock Stock Options Purchase Plan ------------------------------ ------------------------------ Range of Exercise Prices 1998 1997 1996 1998 1997 1996 -------- -------- -------- -------- -------- -------- Expected life (years) 4.84 4.34 4.34 0.50 0.50 0.50 Expected volatility 0.61 0.63 0.74 0.55 0.74 0.60 Risk free interest rate 5.4% 6.7% 6.0% 5.2% 5.4% 5.4%
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the fair value of its options. The weighted-average estimated fair values of employee stock options for fiscal year 1998 and 1997 were $13.44 and $7.81 per share, respectively. The weighted-average estimated fair value of employee stock purchase rights granted under the Employee Stock Purchase Plan during fiscal year 1998 and 1997 were $14.71 and $7.74, respectively. For purposes of pro forma disclosures, the estimated fair values of the options is amortized to expense over the options' vesting period (for employee stock options) and the six-month purchase period (for stock purchases under the Employee Stock Purchase Plan). The Company's pro forma information is as follows:
Year Ended March 31, -------------------------------------- (In thousands) 1998 1997 1996 --------- --------- --------- Net income (loss) - Basic - Pro forma $ 68,601 $ 14,123 $ (47,015) Net income (loss) - Diluted - Pro forma 69,293 14,123 (47,015) Net income (loss) per share - Basic - Pro forma 1.29 0.28 (0.89) Net income (loss) per share - Diluted - Pro forma 1.19 0.27 (0.89)
The effects on pro forma disclosures of applying SFAS No. 123 are not likely to be representative of the effects on pro forma disclosures of future years. Because SFAS 123 is applicable only to options granted subsequent to March 31, 1995, its pro forma effect will not be fully reflected until approximately fiscal 2000. NOTE 11. COMMON STOCK REPURCHASE On April 29, 1997, the Board of Directors of Symantec authorized the repurchase of up to 1,000,000 shares of Symantec common stock by June 13, 1997. As of June 13, 1997, management completed the repurchase of 500,000 shares at prices ranging from $16.57 to $17.00 per share. Authorization to repurchase the remaining 500,000 shares has expired as of March 31, 1998. Additionally, on November 24, 1997, the Board of Directors of Symantec authorized the repurchase of up to 500,000 shares of Symantec common stock. As of December 4, 1997 management completed the repurchase of 500,000 shares at prices ranging from $25.25 to $26.81 per share. 51 54 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 12. SALE OF PRODUCT RIGHTS During September 1996, Symantec sold its electronic forms software products and related tangible assets to JetForm for approximately $100.0 million, payable over four years in quarterly installments through the June 2000 quarter. During February 1998, the purchase agreement was amended to accelerate certain quarterly payments during the remaining payment term in exchange for a reduction in the total sale price to approximately $92.5 million. JetForm has the option to tender payment in either cash or in registered JetForm common stock, within a contractually defined quantity threshold. Due to the uncertainty regarding the ultimate collectibility of these installments, Symantec is recognizing the related revenue as payments are due and collectibility is assured from JetForm. Symantec recognized revenue of approximately $24.1 million and $18.3 million from JetForm during fiscal 1998 and 1997, respectively. In March 1997, Symantec sold the software products and related tangible assets of its Networking Business Unit to Hewlett-Packard, resulting in the receipt of approximately $1.0 million of revenue and a $2.0 million research and development reimbursement in fiscal 1997. Additionally, a two-year quarterly royalty payment stream, not to exceed a present value of $27.0 million as of March 1997, commenced beginning in fiscal 1998, which is solely contingent on future sales of certain Hewlett-Packard products. Due to the uncertainty regarding the amounts upon which these royalties will be determined, Symantec is recognizing these amounts as they are reported by Hewlett-Packard. Symantec recognized royalty revenue of approximately $21.5 million from Hewlett-Packard during fiscal 1998. In connection with the sale to Hewlett-Packard, during fiscal 1997, Symantec wrote off approximately $7.0 million of unamortized software development costs and approximately $0.6 million of unamortized purchased product rights, as well as incurred approximately $2.0 million of legal, accounting and other costs associated with the transaction. NOTE 13. ACQUISITION, RESTRUCTURING AND OTHER EXPENSES Acquisition, restructuring and other expenses consist of the following:
Year Ended March 31, --------------------------------- (In thousands) 1998 1997 1996 --------- -------- -------- Centralization and restructuring expenses $ -- $ 3,185 $ -- Write off of acquired in-process research and development costs -- 3,050 -- Write off of equity investment -- 1,750 -- Fast Track, Inc. acquisition -- 600 -- Delrina acquisition -- -- 22,000 Loss on sale of Time Line Solutions Corporation assets -- -- 2,653 Relocation of certain research and development activities -- -- 2,229 Central Point acquisition -- -- (2,300) Legal fees and expenses -- -- 2,000 Other -- -- 1,035 --------- -------- -------- Total acquisition, restructuring and other expenses $ -- $ 8,585 $ 27,617 ========= ======== ========
During fiscal 1997, Symantec recorded a $1.8 million charge in connection with the write-off of an equity investment in a privately held company and a $3.1 million charge for the write off of certain in-process research and development costs acquired by the Company. Additionally, during fiscal 1997, the Company recorded a charge of $3.2 million, which included $2.4 million for personnel severance and outplacement charges, for costs related to the restructuring of certain domestic and international sales and research and development operations, settlement of a lawsuit and other expenses. The restructuring plans were substantially completed during fiscal 1997. Symantec recorded total acquisition charges of $0.6 million in the quarter ended June 30, 1996 in connection with the acquisition of Fast Track, Inc. 52 55 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED In connection with the acquisition of Delrina (See Note 3 to Notes to Consolidated Financial Statements) in fiscal 1996, Symantec recorded total acquisition charges of $22.0 million, which included $8.8 million for legal, accounting and financial advisory services, $6.4 million for the elimination of duplicative and excess facilities and equipment, $3.7 million for personnel severance and outplacement expenses and $3.1 million for the consolidation and discontinuance of certain operational activities and other acquisition-related expenses. During fiscal 1996, Symantec sold the assets of Time Line Solutions Corporation, a wholly-owned subsidiary, to a group comprised of Time Line Solution Corporation's management and incurred a $2.7 million loss on the sale. The Company incurred $2.2 million for the relocation costs of moving equipment and personnel, during fiscal 1996, as the result of the consolidation of certain research and development activities of the Company's Third Generation Language and Fourth Generation Language development groups. During fiscal 1996, the Company recorded $2.0 million for estimated legal fees expected to be incurred in connection with a securities class action complaint filed in March 1996 and other legal expenses (See Note 15 to Consolidated Financial Statements). Symantec also expensed $1.0 million, which included a loss on the sale of certain assets and liabilities of a subsidiary and other expenses, during fiscal 1996. During fiscal 1996, the Company recognized a reduction in accrued acquisition, restructuring and other expenses of $2.3 million, as actual costs incurred were less than costs previously accrued by the Company in connection with the acquisitions of Central Point Software, Inc. and SLR Systems, Inc. in fiscal 1995. As of March 31, 1998, total accrued cash related acquisition and restructuring expenses were $2.5 million and included $0.5 million for the elimination of duplicative and excess facilities and $2.0 million for other acquisition related expenses. NOTE 14. NET INCOME (LOSS) PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement ("SFAS") No. 128, "Earnings Per Share", which was required to be adopted on December 31, 1997. As a result, the Company has changed the method used to compute earnings per share and has restated all prior periods.
Year Ended March 31, -------------------------------- (In thousands, except per share data) 1998 1997 1996 -------- -------- -------- BASIC NET INCOME (LOSS) PER SHARE Net income (loss) $ 85,089 $ 26,038 $(39,783) ======== ======== ======== Weighted average number of common shares outstanding during the period 56,097 54,705 52,664 ======== ======== ======== Basic net income (loss) per share $ 1.52 $ 0.48 $ (0.76) ======== ======== ======== DILUTED NET INCOME (LOSS) PER SHARE Net income (loss) $ 85,089 $ 26,038 $(39,783) Interest on convertible subordinated debentures, net of income tax effect 692 -- -- -------- -------- -------- Net income (loss), as adjusted $ 85,781 $ 26,038 $(39,783) ======== ======== ======== Weighted average number of common shares outstanding during the period 56,097 54,705 52,664 Shares issuable from assumed exercise of options 2,964 702 -- Shares issuable from assumed conversion of convertible subordinated debentures 1,220 -- -- -------- -------- -------- Total shares for purpose of calculating diluted net income (loss) per share 60,281 55,407 52,664 ======== ======== ======== Diluted net income (loss) per share $ 1.42 $ 0.47 $ (0.76) ======== ======== ========
For the twelve months ended March 31, 1997, 1,250,000 shares of convertible subordinated debentures and $708,000 of interest expense were excluded from the computation of diluted net income per share because the effect would have been anti-dilutive. 53 56 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 15. LITIGATION On March 18, 1996, a class action complaint was filed by the law firm of Milberg, Weiss, Bershad, Hynes & Lerach in Superior Court of the State of California, County of Santa Clara, against the Company and several of its current and former officers and directors. The complaint alleges that Symantec insiders inflated the stock price and then sold stock based on inside information that sales were not going to meet analysts' expectations. The complaint seeks damages in an unspecified amount. The complaint has been refiled twice in state court, most recently on January 13, 1997, following Symantec's motions directed to previous complaints. On January 7, 1997, the same plaintiffs filed a complaint in federal court based on the same facts as the state court complaint, for violation of the Securities Exchange Act of 1934. The court dismissed that complaint, and plaintiffs served an amended complaint in April 1998. Symantec believes that neither the state court complaint nor the federal court complaint has any merit and will vigorously defend itself against both complaints. On April 23, 1997, Symantec filed a lawsuit against McAfee Associates, Inc., which pursuant to a merger has become Network Associates, Inc. ("Network Associates"), in the United States District Court, Northern District of California, for copyright infringement and unfair competition. On October 6, 1997, the court found that Symantec had demonstrated a likelihood of success on the merits of certain copyright claims, and issued a preliminary injunction (i) prohibiting Network Associates from infringing Symantec's rights in specified materials by marketing, selling, transferring or directly or indirectly copying into any new Network Associates product or new version of an existing product that has Symantec code, (ii) requiring Network Associates to notify distributors who are still selling versions of PC Medic 97 that have Symantec's code to tell customers that they should upgrade to versions that do not contain Symantec code, and (iii) requiring Network Associates to provide Symantec and the court with a sample of the notice to be used. On October 17, 1997, Symantec amended its complaint to include additional claims for copyright infringement and misappropriation of trade secrets, based on additional evidence found in the discovery process. On April 1, 1998, Symantec amended its complaint to add claims for misappropriation of trade secrets, RICO (Racketeer Influenced and Corrupt Organizations Act) and related claims based on additional evidence uncovered in the litigation. Symantec continues to investigate the extent to which Network Associates may have misappropriated Symantec's intellectual property, and plans to aggressively pursue its remedies under this lawsuit, which include both injunctive relief and monetary damages. On May 13, 1997, Trend Micro Incorporated ("Trend") filed a lawsuit in the United States District Court, Northern District of California, against Symantec Corporation and Network Associates, alleging patent infringement. Trend claims that Norton AntiVirus for Internet E-mail Gateways and Norton AntiVirus for Firewalls infringe a patent owned by Trend. The lawsuit was settled on April 6, 1998, on terms that were not material to Symantec. On August 22, 1997, Network Associates filed a lawsuit against Symantec in the Superior Court of the State of California, County of Santa Clara, alleging defamation, trade libel, unfair competition and unjust enrichment. The complaint alleged that damages to Network Associates could approximate $1 billion. Network Associates dismissed the lawsuit on or about December 30, 1997. The court awarded Symantec costs and attorneys' fees in connection with this matter on April 10, 1998. On September 15, 1997, Hilgraeve Corporation filed a lawsuit in the United States District Court, Eastern District of Michigan, against Symantec Corporation, alleging that unspecified Symantec products infringe a patent owned by Hilgraeve. The lawsuit requests damages, injunctive relief and costs and attorney fees. Symantec believes this claim has no merit and intends to defend the action vigorously. On February 4, 1998, CyberMedia, Inc., filed a lawsuit in the United States District Court for the Northern District of California against Symantec Corporation, ZebraSoft Inc., and others, alleging that Symantec Norton Uninstall Deluxe infringes CyberMedia's copyright, and asserting related state law claims. The suit requests damages, injunctive relief, costs and attorneys fees. In May 1998, CyberMedia filed a motion seeking an order prohibiting sale or development of the challenged code. A hearing is set for mid-July. Symantec believes this claim has no merit and intends to defend the action vigorously. 54 57 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED On February 19, 1998, a class action complaint was filed by the Milberg, Weiss, Bershad, Hynes & Lerach law firm in Santa Clara County Superior Court, on behalf of a class of purchasers of pre-version 4.0 Norton AntiVirus products. A similar complaint was filed in the same court on March 6, 1998 by an Oregon law firm. The complaints purport to assert claims for breach of implied warranty, fraud, unfair business practices and violation of California's Consumer Legal Remedies Act arising from the alleged inability of earlier versions of Norton AntiVirus(R) to function properly after the year 2000. The complaints seek unspecified damages and injunctive relief. Symantec believes that these actions have no merit and intends to defend itself vigorously. In connection with the May 1998 technology licensing agreement with IBM (see Note 17. Subsequent Event), previously asserted claims of patent infringement asserted by IBM with respect to certain of the Company's products were resolved. The terms of resolution were not material. Over the past few years, it has become common for software companies, including Symantec, to receive claims of patent infringement. Symantec is currently evaluating claims of patent infringement asserted by several parties, with respect to certain of the Company's products. While the Company believes that it has valid defenses to these claims, there can be no assurance that the outcome of any related litigation or negotiation would not have a material adverse impact on the Company's future results of operations or cash flows. Symantec is involved in a number of other judicial and administrative proceedings incidental to its business. The Company intends to defend all of the aforementioned pending lawsuits vigorously and although adverse decisions (or settlements) may occur in one or more of the cases, the final resolution of these lawsuits, individually or in the aggregate, is not expected to have a material adverse affect on the financial condition of the Company, although it is not possible to estimate the possible loss or losses from each of these cases. However, depending on the amount and timing of an unfavorable resolution of these lawsuits, it is possible that the Company's future results of operations or cash flows could be materially adversely affected in a particular period. The Company has accrued certain estimated legal fees and expenses related to certain of these matters; however, actual amounts may differ materially from those estimated amounts. NOTE 16. SEGMENT INFORMATION Symantec operates in the microcomputer software industry business segment. The Company markets its products in North America and international countries primarily through retail and distribution channels. INFORMATION BY GEOGRAPHIC AREA
Year Ended March 31, ------------------------------------- (In thousands) 1998 1997 1996 --------- --------- --------- Net revenues: U.S. operations: North American customers $ 392,224 $ 334,210 $ 303,280 International customers 11,882 6,451 16,609 Intercompany 52 79 6,015 --------- --------- --------- 404,158 340,740 325,904 Other international operations: Customers 174,255 131,522 125,543 Intercompany 1,380 745 11,387 --------- --------- --------- 175,635 132,267 136,930 Eliminations (1,432) (824) (17,402) --------- --------- --------- $ 578,361 $ 472,183 $ 445,432 ========= ========= ========= Operating income (loss): U.S. operations $ 69,200 $ 11,415 $ (58,296) International operations 29,649 12,931 8,201 Eliminations 1,496 1,943 1,816 --------- --------- --------- $ 100,345 $ 26,289 $ (48,279) ========= ========= =========
55 58 SYMANTEC CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
March 31, -------------------------------------- (In thousands) 1998 1997 1996 -------- -------- -------- Identifiable assets: U.S. operations $389,174 $281,748 $234,155 International operations 87,286 57,650 48,519 -------- -------- -------- $476,460 $339,398 $282,674 ======== ======== ========
Intercompany sales between geographic areas are accounted for at prices representative of unaffiliated party transactions. "U.S. operations" include sales to customers in the United States and exports of finished goods directly to international customers, primarily in Canada. Exports and international OEM transactions are primarily denominated in U.S. dollars. "Other international operations" primarily include export sales from the Irish manufacturing subsidiary to European and Asia/Pacific customers. International revenues, which include net revenues from other international operations and exports made by U.S. operations, were 32%, 29% and 32% of total revenue for fiscal 1998, 1997 and 1996, respectively. SIGNIFICANT CUSTOMERS The following customers accounted for more than 10% of net revenues during fiscal 1998, 1997 and 1996:
Year Ended March 31, --------------------------------- 1998 1997 1996 ---- ---- ---- Ingram Micro, Inc. 33% 27% 27% Tech Data Corp. 11 * * Merisel 10 * 10
* Amount is less than 10%. NOTE 17. SUBSEQUENT EVENT On May 19, 1998, IBM and Symantec Corporation entered into an agreement whereby Symantec will license IBM's immune system technology and patents. Symantec will combine this technology with its own technology to produce a range of products, including new solutions to support IBM platforms. As part of the agreement, IBM has also assigned its existing anti-virus customer and OEM contracts to Symantec and will recommend Norton AntiVirus to its corporate customers worldwide as the anti-virus solution of choice. In addition, IBM and Symantec intend to sell and market the Norton AntiVirus product line worldwide. Symantec will pay IBM $16 million in cash, plus future royalties and assume obligations of approximately $3 million in connection with this technology acquisition. Symantec expects to record a charge of approximately $16 million for in-process research and development acquired from IBM in the June 1998 quarter. 56 59 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SYMANTEC CORPORATION (Registrant) By /s/ Gordon E. Eubanks, Jr. ------------------------------- (Gordon E. Eubanks, Jr., President and Chief Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated below.
Signature Title Date --------- ----- ---- CHIEF EXECUTIVE OFFICER: /s/ Gordon E. Eubanks, Jr. President, Chief Executive June 5, 1998 - ------------------------------------ (Gordon E. Eubanks, Jr.) Officer and Director CHIEF FINANCIAL OFFICER: /s/ Howard A. Bain III Vice President, June 5, 1998 - ------------------------------------ (Howard A. Bain III) Worldwide Operations and Chief Financial Officer CHIEF ACCOUNTING OFFICER: /s/ Ronald W. Kisling Vice President Controller and June 5, 1998 - ------------------------------------ (Ronald W. Kisling) Chief Accounting Officer DIRECTORS: /s/ Carl D. Carman Chairman of the Board June 5, 1998 - ------------------------------------ (Carl D. Carman) /s/ Tania Amochaev Director June 5, 1998 - ------------------------------------ (Tania Amochaev) /s/ Charles M. Boesenberg Director June 5, 1998 - ------------------------------------ (Charles M. Boesenberg) /s/ Walter W. Bregman Director June 5, 1998 - ------------------------------------ (Walter W. Bregman) /s/ Robert R. B. Dykes Director June 5, 1998 - ------------------------------------ (Robert R. B. Dykes) /s/ Robert S. Miller Director June 5, 1998 - ------------------------------------ (Robert S. Miller)
57 60 SCHEDULE II SYMANTEC CORPORATION VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
Balance at Charged to Balance at Beginning Costs and End of Period Expenses Deductions of Period ------- ------- ------- ------- Allowance for doubtful accounts: Year ended March 31, 1996 $ 4,852 $ 903 $ (739) $ 5,016 Year ended March 31, 1997 5,016 1,599 (2,315) 4,300 Year ended March 31, 1998 4,300 1,036 (920) 4,416
58 61 Symantec Corporation Form 10-K For the Fiscal Year Ended April 3, 1998 Exhibit Index 3.01 The Registrant's Restated Certificate of Incorporation. (Incorporated by reference to Annex G filed with the Registrant's Joint Management Information Circular and Proxy Statement (No. 000-17781) dated October 17, 1995.) 3.02 The Registrant's Bylaws, as currently in effect. (Incorporated by reference to Exhibit 3.02 filed with the Registrant's Registration Statement on Form S-1 (No. 33-28655) originally filed May 19, 1989, and amendment No. 1 thereto filed June 21, 1989, which Registration Statement became effective June 22, 1989.) 4.01 Registration Rights Agreement. (Incorporated by reference to Exhibit 4.02 filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 4.02 Amendment No. One to Registration Rights Agreement. (Incorporated by reference to Exhibit 4.03 filed with the Registrant's Annual Report on Form 10-K for the year ended April 2, 1993.) 4.03 Amendment No. Two to Registration Rights Agreement (Incorporated by reference to Exhibit 4.04 filed with the Registrant's Annual Report on Form 10-K for the year ended April 2, 1993.) 4.04 Plan of Arrangement and Exchangeable Share Provisions related to the acquisition of Delrina. (Incorporated by reference to Annex D filed with the Registrant's Joint Management Information Circular and Proxy Statement dated October 17, 1995.) 62 4.05 Support Agreement dated July 5, 1995 between Symantec and Delrina. (Incorporated by reference to Annex E filed with the Registrant's Joint Management Information Circular and Proxy Statement dated October 17, 1995.) 4.06 Form of Voting and Exchange Trust Agreement dated July 5, 1996 between Symantec and Delrina. (Incorporated by reference to Annex F filed with the Registrant's Joint Management Information Circular and Proxy Statement dated October 17, 1995.) 10.01 Amended Agreement Respecting Certain Rights of Publicity. (Incorporated by reference to Exhibit 10.04 filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 10.02 Non-Competition and Non-Solicitation Agreement between Registrant and Peter Norton and Ronald Posner. (Incorporated by reference to Exhibit 10.06 filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 10.03* 1988 Employees Stock Option Plan, as amended to date. (Incorporated by reference to Exhibit 4.02 filed with the Registrant's Registration Statement on Form S-8 (No. 33-88694) filed January 23, 1995.) 10.04* 1989 Employee Stock Purchase Plan, as amended to date. (Incorporated by reference to Exhibit 4.01 filed with the Registrant's Registration Statement on Form S-8 (No. 333-18353) filed December 20, 1996.) 10.05* Form of Stock Option Agreement and Form of Stock Option Exercise Request, as currently in effect, under the Registrant's 1988 Employees Stock Option Plan. (Incorporated by reference to Exhibit 10.10 filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 10.06* 1988 Directors Stock Option Plan, as amended to date. (Incorporated by reference to Exhibit 10.09 filed with the Registrant's Annual Report on Form 10-K for the year ended April 2, 1993.) 10.07* 1993 Directors Stock Option Plan, as amended. (Incorporated by reference to Exhibit 10.07 filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994) 10.08* Form of Stock Option Grant and Stock Option Exercise Notice and Agreement under the Registrant's 1988 Directors Stock Option Plan. (Incorporated by reference to Exhibit 10.12 filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 10.09* 1994 Patent Incentive Plan. (Incorporated by reference to Exhibit 4.01 filed with the Registrant's Registration Statement on Form S-8 (No. 33-60141) filed June 9, 1995.) 10.10* Symantec Corporation 1996 Equity Incentive Plan. (Incorporated by reference to Exhibit 4.01 filed with the Registrant's Registration Statement on Form S-8 (No. 333-18355) filed December 20, 1996.) 10.11* Symantec Corporation 1996 Equity Incentive Plan, as amended. (Incorporated by reference to Exhibit 4.01 filed with the Registrant's Registration Statement on Form S-8 (No. 333-39175) filed October 31, 1997.) 10.12* Symantec Corporation Deferred Compensation Plan dated as of November 7, 1996. (Incorporated by reference to Exhibit 10.11 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.13 Participation Agreement dated as of October 18, 1996, by and among Symantec Corporation, Sumitomo Bank Leasing and Financing, Inc., The Sumitomo Bank, Limited, San Francisco Branch and the other Various Financial Institutions Identified Herein and the Sumitomo Bank, Limited, San Francisco Branch. (Incorporated by reference to Exhibit 10.01 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended September 27, 1996.) 10.14 Appendix A to Participation Agreement, Master Lease, Lease Supplements Loan Agreements, Pledge Agreement, Lessor Mortgages, and Guaranty. (Incorporated by reference to Exhibit 10.02 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended September 27, 1996.) 10.15 Master Lease and Deed of Trust, as amended, dated as of October 18, 1996 between Symantec Corporation and Sumitomo Bank Leasing and Finance, Inc. (Incorporated by reference to Exhibit 10.14 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) - -------------------- * Indicates a management contract or compensatory plan or arrangement. 63 10.16 Guaranty dated as of October 18, 1996, made by Symantec Corporation in favor of Various Financial Institutions and The Sumitomo Bank, Limited, San Francisco Branch. (Incorporated by reference to Exhibit 10.05 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended September 27, 1996.) 10.17 Pledge Agreement dated as of October 18, 1996, made by Symantec Corporation, in favor of Sumitomo Bank, Limited, San Francisco Branch for the benefit of the Lenders, and Donaldson, Lufkin, Jenrette Securities Corporations, as collateral agent. (Incorporated by reference to Exhibit 10.06 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended September 27, 1996.) 10.18 Assignment of Lease and Rent, as amended, dated as of October 18, 1996, from Sumitomo Bank Leasing and Finance, Inc., to The Sumitomo Bank, Limited, San Francisco Branch. (Incorporated by reference to Exhibit 10.17 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.19 Agreement of Purchase and Sale of Cupertino City Center One between Cigna Property and Casualty Insurance Company and Symantec Corporation. (Incorporated by reference to Exhibit 10.18 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.20 Agreement for Purchase and Sale and Escrow Instructions of 10201 Torre Avenue, Cupertino, CA. (Incorporated by reference to Exhibit 10.19 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.21 Agreement for Purchase and Sale and Escrow Instructions, as amended, dated as of May 31, 1996. (Incorporated by reference to Exhibit 10.20 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.22 Loan Agreement dated as of October 18, 1996, among Sumitomo Bank Leasing and Finance, Inc., Various Financial Institutions Identified Herein and The Sumitomo Bank, Limited, San Francisco Branch. (Incorporated by reference to Exhibit 10.21 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.23 Construction Agency Agreement dated as of March 3, 1997, between Sumitomo Bank Leasing and Finance, Inc., and Symantec Corporation. (Incorporated by reference to Exhibit 10.22 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.24 Symantec - CC5 Office Building and Parking Structure, as amended, dated as of May 5, 1997, made by and between Symantec Corporation and Webcor Builders. (Incorporated by reference to Exhibit 10.23 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.25 Office building lease dated as of April 10, 1991, between the Registrant and Maguire Thomas Partners Colorado Place regarding property located in Santa Monica, California. (Incorporated by reference to Exhibit 10.25 filed with the Registrant's Annual Report on Form 10-K for the year ended March 31, 1991.) 10.26 Office building lease dated as of February 27, 1991, between the Registrant and Kim Camp No. VII regarding property located in Sunnyvale, California. (Incorporated by reference to Exhibit 10.26 filed with the Registrant's Annual Report on Form 10-K for the year ended March 31, 1991.) 10.27 Office building lease dated as of April 19, 1995, between the Registrant and CIGNA Property and Casualty Insurance Company regarding property located in Cupertino, California. (Incorporated by reference to Exhibit 10.16 filed with the Registrant's Annual Report on Form 10-K for the year ended March 31, 1995.) 10.28 Office building lease, as amended, dated as of December 1, 1995 between Delrina (Canada) Corporation and Sherway Centre Limited regarding property located in Toronto, Canada. (Incorporated by reference to Exhibit 10.01 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended December 29, 1995.) 10.29 Form of Indemnity Agreement with Officers and Directors. (Incorporated by reference to Exhibit 10.17 filed with the Registrant's Registration Statement on Form S-1 (No. 33-28655) originally filed May 19, 1989, and amendment No. 1 thereto filed June 21, 1989, which Registration Statement became effective June 22, 1989.) 64 10.30* Full Recourse Promissory Note and Pledge Agreement between the Company and Gordon E. Eubanks, Jr. (Incorporated by reference to Exhibit 10.19 filed with the Registrant's Annual Report on Form 10-K for the year ended April 2, 1993.) 10.31* Form of Promissory Note and Pledge Agreement between the Company and certain executives. (Incorporated by reference to Exhibit 10.20 filed with the Registrant's Annual Report on Form 10-K for the year ended April 2, 1993.) 10.32* Form of Housing Assistance Agreement between the Company and certain executives. (Incorporated by reference to Exhibit 10.26 filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 10.33 Note Purchase Agreement, dated April 2, 1993, among Symantec Corporation, Morgan Guaranty Trust Company of New York, as Trustee, J. P. Morgan Investments Management, Inc., as Investment Manager and The Northwestern Mutual Life Insurance Company, including Form of Convertible Subordinated Notes. (Incorporated by reference to Exhibit 10.30 filed with the Registrant's Annual Report on Form 10-K for the year ended April 2, 1993.) 10.34* The Registrant's Section 401(k) Plan, as amended. (Incorporated by reference to Exhibit 10.25 filed with the Registrants Annual Report on Form 10-K for the year ended March 31, 1995.) 10.35* Form of Executive Compensation Agreement between the Company and certain executives. (Incorporated by reference to Exhibit 10.25 filed with the Registrants Annual Report on Form 10-K for the year ended March 31, 1995.) 10.36 Assignment of Copyright and Other Intellectual Property Rights. (Incorporated by reference to appendix to Prospectus/Proxy Statement filed with the Registrant's Registration Statement on Form S-4 (No. 33-35385) initially filed June 13, 1990.) 10.37* Employment and Consulting Agreement among Symantec Corporation, Symantec Acquisition Corp. and Charles M. Boesenberg. (Incorporated by reference to Exhibit 10.32 filed with the Registrant's Annual Report of Form 10-K for the year ended April 1, 1994.) (Confidential treatment has been granted with respect to portions of this exhibit.) 10.38* Stock Option Grant between the Company and Charles Boesenberg. (Incorporated by reference to Exhibit 10.29 filed with the Registrants Annual Report on Form 10-K for the year ended March 31, 1995.) 10.39 Authorized Distributor Agreement between Symantec Corporation and Ingram Micro, Inc. (Incorporated by reference to Exhibit 10.34 filed with the Registrant's Quarterly Report of Form 10-Q for the quarter ended July 1, 1994.) (Confidential treatment has been granted with respect to portions of this exhibit.) 10.40 Authorized Distributor Agreement between Symantec Corporation and Merisel Americas, Inc. (Incorporated by reference to Exhibit 10.35 filed with the Registrant's Quarterly Report of Form 10-Q for the quarter ended July 1, 1994.) (Confidential treatment has been granted with respect to portions of this exhibit.) 10.41* Employment and Non-competition Agreement between Symantec Corporation and Dennis Bennie. (Incorporated by reference to Exhibit 10.02 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended December 29, 1995.) 10.42 Combination Agreement between Symantec Corporation and Delrina Corporation dated July 5, 1995. (Incorporated by reference to Exhibit 10.01 filed with the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.) 10.43 Asset Purchase Agreement dated as September 26, 1996, by and between Delrina and JetForm. (Incorporated by reference to Exhibit 2.01 filed with the Registrant's Current Report of Form 8-K filed September 26, 1996.) 10.44 Asset Purchase Agreement, as amended, dated as of March 28, 1998, by and between Delrina and JetForm. - -------------------- * Indicates a management contract or compensatory plan or arrangement. 65 10.45 Asset Purchase Agreement, as amended, dated as of March 27, 1997 by and between Hewlett-Packard Company and Symantec Corporation. (Incorporated by reference to Exhibit 10.43 filed with the Registrant's Annual Report on Form 10-K for the year ended March 28, 1997.) 10.46 Master agreement, dated May 18, 1998, between International Business Machines Corporation and Symantec Corporation. (Confidential treatment has been granted with respect to portions of this exhibit.) 10.47 Class action complaint filed by the law firm of Milberg Weiss Bershad Hynes & Lerach in Superior Court of the State of California, County of Santa Clara against the Company and several of its current and former officers and directors. (Incorporated by reference to Exhibit 10.35 filed with the Registrant's Annual Report of Form 10-K for the year ended March 31, 1996.) 21.01 Subsidiaries of the Registrant. 23.01 Consent of Ernst & Young LLP, Independent Auditors. 27.01 Financial Data Schedule for the Year Ended March 31, 1996 (restated) 27.02 Financial Data Schedule for the Year Ended March 31, 1997 (restated) 27.03 Financial Data Schedule for the Year Ended March 31, 1998 (b) Reports on Form 8-K: None (c) Exhibits: The Registrant hereby files as part of this Form 10-K the exhibits listed in Item 14(a)3, as set forth above. (d) Financial Statement Schedules: The Registrant hereby files as part of this Form 10-K the schedule listed in Item 14(a)2, as set forth on page 58. EX-10.44 2 ASSET PURCHASE AGREEMENT, DATED MARCH 28, 1998 1 EXHIBIT 10.44 THIS AMENDMENT dated as of the 12th day of February, 1998 to the Asset Purchase Agreement made as of September 10, 1996 as amended (the "Purchase Agreement") by and among DELRINA CORPORATION, DELRINA (CANADA) CORPORATION (collectively, "Delrina") and JETFORM CORPORATION ("JetForm"). WHEREAS JetForm and Delrina wish to amend certain provisions of the Purchase Agreement as set forth below; NOW THEREFORE in consideration of the mutual covenants and agreements contained in this Amending Agreement and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged) the parties hereto agree as follows: ARTICLE 1 - INTERPRETATION 1.01 Interpretation. Unless otherwise specified, all capitalized terms used in this Amending Agreement and not otherwise defined in this Amending Agreement shall have the meanings given to them in the Purchase Agreement. Where reference is made in this Amending Agreement to a article, section, paragraph or clause number, it shall refer to such article, section, paragraph or clause in the Purchase Agreement. Except as amended hereby, the parties confirm that the Purchase Agreement remains in full force and effect in accordance with the terms thereof and the terms not hereby amended shall apply to this Amending Agreement as though stated herein. ARTICLE 2 - AMENDMENTS TO PURCHASE AGREEMENT 2.01 Amount of Purchase Price. The reference to $100,000,000.00 contained in the second line of Section 2.2 is hereby changed to $92,504,000.00. 2.02 Issuance of Purchaser's Common Shares. Clause 2.4(1)(a) is hereby deleted and the following shall be substituted in lieu thereof: "(a) with respect to the payments payable by Purchaser under this Agreement up to and including the payment due on December 27, 1998, the total market value of the Purchaser's Common Shares held by the Vendor immediately following such issuance shall be the lesser of $21 million and 9.9% of the Purchaser's outstanding shares on such date; and with respect to the payments payable by Purchaser under this Agreement thereafter, the total market value of the Purchaser's Common Shares held by the Vendor immediately following such issuance shall be less than $14.0 million. The Purchaser agrees not to issue any of its Common Shares to the Vendor if such issuance would cause the total market value of Purchaser's Common Shares immediately following such issuances to exceed such applicable maximum market value stated above. Vendor shall advise Purchaser of any acquisition or disposition of Common Shares by Vendor. With respect to the payments due on and from March 27, 2 1998 to June 27, 1999, inclusive, the Purchaser further agrees to pay not less than amount specified in Schedule 2.3 opposite such payment date under the heading "Minimum Cash Payment" by certified cheque, bank draft, wire transfer or in other immediately available U.S. funds; and" 2.03 Notices. The reference to Blake, Cassels & Graydon in clause 8.4(1)(ii) is hereby changed to: "LaBarge Weinstein Xerox Tower 333 Preston Street, 11th Floor Ottawa, Ontario K1S 5N4 Attention: Deborah Weinstein Facsimile: (613) 231-3900" 2.04 Schedule 2.3. Schedule 2.3 is deleted and replaced with the schedule set out as Exhibit "A" attached hereto. IN WITNESS WHEREOF the parties have executed this Agreement as of the date first above written. DELRINA CORPORATION By: /s/ Derek Witte ------------------------------ Authorized Officer DELRINA (CANADA) CORPORATION By: /s/ Derek Witte ------------------------------ Authorized Officer JETFORM CORPORATION By: /s/ Kenneth J. Killin ------------------------------ Authorized Officer 3 EXHIBIT "A" TO AMENDING AGREEMENT SCHEDULE 2.3 Payment of Purchase Price
DATE AMOUNT MINIMUM CASH PAYMENT - ---- ------ -------------------- (in millions of U.S. $) (in millions of U.S. $) September 27, 1996 7.2 December 27, 1996 5.5 March 27, 1997 5.5 June 27, 1997 6.713 September 27, 1997 4.738 December 27, 1997 4.936 March 27, 1998 7.837 1.302 June 27, 1998 7.833 1.2015 September 27, 1998 8.567 1.4205 December 27, 1998 8.537 1.307 March 27, 1999 7.972 0.876 June 27, 1999 6.912 0.198 September 27, 1999 5.058 December 27, 1999 3.207 March 27, 2000 1.604 June 27, 2000 0.390 ------- $92.504
EX-10.46 3 MASTER AGREEMENT, DATED MAY 18, 1998 1 EXHIBIT 10.46 MASTER AGREEMENT AGREEMENT NO. 4998FL0009 BETWEEN INTERNATIONAL BUSINESS MACHINES CORPORATION 11400 BURNET ROAD AUSTIN, TX 78758 AND SYMANTEC CORPORATION 10201 TORRE AVENUE CUPERTINO, CA 95014 Certain information is this Master Agreement has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 2 This is a Master Agreement (hereinafter "Agreement") between International Business Machines Corporation (hereinafter "IBM") with an address for purposes of this Agreement at 11400 Burnet Road, Austin, TX 78758 and Symantec Corporation and Symantec Limited (hereinafter, collectively, "Symantec") with an address for purposes of this Agreement at 10201 Torre Avenue, Cupertino, CA 95014 dated May 18, 1998 ("Effective Date"). WHEREAS, IBM is the owner of or has rights to certain Code, including Code generally referred to as IBM AntiVirus; WHEREAS, IBM has entered into various contracts with Customers and QEMs related to IBM AntiVirus; and WHEREAS, Symantec desires to obtain the assignment of such various contracts and obtain a license to such IBM AntiVirus and other Code to provide support pursuant to the various contracts with Customers and OEMs; NOW, THEREFORE, IBM AND SYMANTEC AGREE AS FOLLOWS: 1 DEFINITIONS .1 CODE shall mean computer programming code, including both Object Code and Source Code. a. OBJECT CODE shall mean Code substantially in binary form, and includes header files of the type necessary for use or interoperation with other computer programs. It is directly executable by a computer after processing or linking, but without compilation or assembly. Object Code is all Code other than Source Code. b. SOURCE CODE shall mean Code in a form which when printed out or displayed is readable and understandable by a programmer of ordinary skills. It includes related source code level system documentation, comments and procedural code. Source Code does not include Object Code. 1.2 COLLABORATION AGREEMENT shall mean the Collaboration Agreement between the parties dated the same day as this Agreement, as amended from time to time. 1.3 CORPUS shall mean a collection of uninfected programs that is used to help ensure a low rate of false positives in an antivirus product, for example, by testing a virus definition on the Corpus to determine that it does not identify a virus, or proactively by using the characteristics of the Corpus to select a virus definition that is projected to have a low rate of false positives. 1.4 CUSTOMER shall mean a party that has licensed or acquired IBM AntiVirus from IBM or an IBM OEM for internal use and not for distribution. 1.5 CUSTOMER AGREEMENTS shall mean the forms of contracts and licenses that are used by IBM to license IBM AntiVirus to Customers, including without limitation Subscriptions, together 3 with all attachments and other documents that form a part of such contracts and licenses, in each case which relate to IBM AntiVirus, and which arc attached to this Agreement in Part A of Attachment 2. 1.6 DERIVATIVE WORK shall mean a work that is based on an underlying work and that would be a copyright infringement if prepared without the authorization of the copyright owners of the underlying work. Derivative Works are subject to the ownership rights and licenses of a party or of others in the underlying work. 1.7 DEVELOPMENT DOCUMENTATION shall mean manuals and other materials such as logic manuals, flow charts and principles of operation that are useful for development and support purposes. 1.8 END USER DOCUMENTATION shall mean user manuals and other materials which are generally provided with the IBM AntiVirus to Customers. 1.9 HARMFUL CODE shall mean viruses, worms, or other code that are intentionally designed to damage, interfere with or otherwise adversely affect computers, programs or files without the consent or intent of the computer user. 1.10 IBM ANTIVIRUS shall mean the Code IBM has made generally available to Customers that detects and removes computer viruses as described more fully in Attachment 1. 1.11 IBM ANTIVIRUS ADMINISTRATION PROGRAM shall mean the latest version of the Code that gathers known and suspected computer viruses from personal computers and workstations, and distributes code to detect and remove computer viruses from such personal computers and workstations. 1.12 IBM ANTIVIRUS ANALYSIS PROGRAM shall mean the latest version of the Code that replicates and analyzes computer viruses and prepares code that detects and removes computer viruses, other than the Corpus and virus collections. 1.13 IBM ANTIVIRUS IMMUNE SYSTEM shall mean the latest version of the IBM AntiVirus Communication Subsystem Program, IBM AntiVirus Administration Program and the IBM AntiVirus Analysis Program. 1.14 IBM ANTIVIRUS COMMUNICATION SUBSYSTEM PROGRAM shall mean the latest version of the Code that performs transmission of suspected viruses and code that removes and detects viruses between the IBM AntiVirus Administration Program and the IBM AntiVirus Analysis Program. 1.15 IMMUNE AGENT shall mean portions of a Symantec Anti Virus Immune System that are designed to execute solely on a client or server that resides on the end user's premises. 1.16 IMMUNE ENABLED ANTI VIRUS PRODUCTS shall mean any product containing the mark referenced in Section 8.4 or products whose principle function is to detect and remove computer viruses and malicious code and that are capable of accessing any Symantec Anti 4 Virus Immune System and which implementation exists as of the date of sale or license of a unit such product. 1.17 MAINTENANCE SUPPORT is the service provided when a customer identifies an Error. There are three levels of support: a. LEVEL 1 is the service provided in response to the customer's initial contact identifying an Error. b. LEVEL 2 is the service provided to reproduce and attempt to correct the Error, or to find that the service provider cannot reproduce the Error, C. LEVEL 3 is the service provided to isolate the Error at the component level of the Products, The service provider distributes the Error correction or circumvention, or gives notice if no correction or circumvention is found. 1.18 IMMUNE SERVICES shall mean services provided by Symantec that utilize the Symantec AntiVirus Immune System for the purpose of detection and removal of computer viruses and malicious code. 1.19 NET RECEIPTS shall mean Symantec's gross receipts (exclusive of taxes (other than taxes on Symantec's income), product handling and processing charges, insurance and transportation costs) from all sales, licenses, shipments and distributions of Immune Enabled AntiVirus Products; NAV Netware, NAV for OS/2, NAV for Notes for OS/2, NAV for Notes for System 390 and NAV for Notes for AS/400 following the later dates specified in the table in Section 4.4 applicable to such products in the event that Symantec elects not to complete immune system enablement for such products pursuant to Section 4.4; and provision of Immune Services less any credits, rebates or refunds for the sale, licensing, shipment or distribution of the foregoing products and services . Net receipts will not include any receipts from the foregoing products distributed to end users as defect replacement copies of the foregoing products for which Symantec receives any payment under $10.00, and no amount will be credited or paid to IBM with respect to any receipts under $10.00 from copies of the foregoing products supplied for promotional purposes to the press, trade, sales representatives or potential customers for the foregoing products. 1.20 OEM shall mean a business entity that is a third party licensed by IBM to distribute IBM AntiVirus to Customers in conjunction with their products. 1.21 OEM AGREEMENTS SHALL MEAN THE CONTRACTS and licenses pursuant to which IBM has licensed IBM AntiVirus to OEMs together with all attachments and other documents that form a part of such contracts and licenses, in each case which relate to IBM AntiVirus, and which are attached to this Agreement in Part A of Attachment 2. 1.22 SUBSIDIARY shall mean an entity during the time that more than 50% of its voting stock is owned or controlled, directly or indirectly, by another entity. If there is no voting stock, a Subsidiary is an entity during the time that more than 50% of its decision-making power is controlled, directly or indirectly, by another entity. 5 1.23 SUBSCRIPTION shall mean materials provided to Customers that permit Customers to submit orders for updates to the IBM AntiVirus. Copies of Subscriptions are set forth in Part A of Attachment 2. 1.24 SYMANTEC ANTI VIRUS IMMUNE SYSTEM shall mean any implementation of all or part of the IBM AntiVirus Immune System done by or for Symantec that implements an analysis subsystem, communications subsystem and administration subsystem. 1.25 TOOLS shall mean devices, test cases, programming documentation, media or other items required for the development, maintenance or support of IBM AntiVirus, other than the Corpus and virus collections. 1.26 YEAR 2000 READY shall mean that a product or deliverable when used in accordance with its associated documentation is capable of correctly processing, providing and/or receiving date data within and between the twentieth and twenty-first centuries, provided that all products (for example, hardware software and firmware) used with the product or deliverable properly exchange accurate date data with it. 2 ASSIGNMENT 2.1 IBM hereby assigns to Symantec and Symantec hereby accepts the assignment of (a) the contracts and licenses with Customers identified in Part B of Attachment 2 to the extent that the contracts and licenses relate to IBM AntiVirus and (b) the OEM Agreements to the extent that the OEM Agreements relate to IBM AntiVirus. [*] Any attachments, schedules or exhibits which are not a part of Attachment 2, but which relate to contracts or licenses contained in Attachment 2, shall not be considered part of the contracts or licenses assumed by Symantec. 2.2 Symantec further agrees to assume contracts and licenses with OEMs identified by IBM after the execution of this Agreement as long as IBM provides the information required by Section 3.4 and the contracts and licenses are identical to the OEM Agreements (including all attachments and other documents that form a part of such contracts and licenses, to the extent that they relate to the IBM AntiVirus) [*]. [*] *Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 6 2.3 Symantec further agrees to assume contracts and licenses with Customers identified by IBM after the execution of this Agreement as long as IBM provides the information required by Section 3.4 and the contracts and licenses are identical to the Customer Agreements (including all attachments and other documents that form a part of such contracts and licenses, to the extent that they relate to the IBM AntiVirus) [*]. [*] 2.4 [*] 2.5 Symantec agrees to make a good faith effort to transition all the Customers listed on Part B of Attachment 2 to Norton Anti Virus ("NAV") which effort will be comprised of no less than the following steps: TRANSITION ACTIONS [*] Symantec will produce a program to help replace IBM AntiVirus with NAV (IBM will provide technical specifications, consulting advice and access to unique porting platforms, as requested by Symantec. Symantec will grant a royalty free license to IBM to use such *Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 7 program.) [*] 3 RESPONSIBILITIES OF IBM 3.1 IBM will deliver to Symantec one copy of the IBM AntiVirus and IBM AntiVirus Immune System, in Object Code and Source Code form within thirty (30) days after execution of this Agreement. 3.2 IBM will deliver to Symantec one copy of the Tools in Object code form upon execution of this Agreement within thirty (30) days after execution of this Agreement. 3.3 IBM will deliver to Symantec one copy of the Development Documentation and End User Documentation within thirty (30) days after execution of this Agreement. 3.4 IBM will use reasonable efforts to attach as part of Attachment 2 as of execution of this Agreement, (a) a list of all Customers and OEMs to whom IBM has licensed IBM AntiVirus including the type of contract or license entered into with each Customer and OEM, the location of the Customer or OEM, a contact address and name for each Customer and OEM, and the expiration date or commencement date of the contract or license, (b) copies of each type of contract and license used by IBM to license IBM AntiVirus to Customers, (together with all attachments and other documents that form a part of such contracts and licenses), in each case which relate to IBM AntiVirus and (c) copies of each contract and license under which IBM has licensed IBM AntiVirus to OEMs, together with all attachments and other documents that form a part of such contracts and licenses, in each case which relate to IBM AntiVirus. In the event Symantec requests a copy of a contract or license with a Customer, IBM agrees to use reasonable efforts to deliver to Symantec such copy. To the extent that such contract and licenses require access to personnel, facilities or information that is unique to IBM that cannot be provided by Symantec to the satisfaction of a Customer, then IBM will provide such access to the extent required to satisfy the obligations under such contracts. Additionally, if any of the Customer Agreements or OEM Agreements require on site support, then IBM will continue to provide such support to the extent required to satisfy the obligation under such contracts. 3.5 IBM agrees to promptly provide to Symantec all Subscriptions received by IBM from Customers following the execution of this Agreement. *Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 8 3.6 Within ninety (90) days following each calendar quarter IBM agrees to remit to Symantec all revenue for Subscriptions received by IBM after [*]. IBM will provide Symantec a report with such remittance that identifies the revenue by region, and by country, if available. 3.7 [*] 3.8 IBM will provide assistance to Symantec to port or develop Symantec products that support the platforms specified in Section 4.3 in accordance with the terms of the IBM Solution Developer Program Agreement, a copy of which is attached as Attachment 3. IBM will provide to Symantec, at no charge, OS/390, AIX, OS/400, OS/2 and Lotus Notes on all the foregoing platforms, in all available languages and all necessary equipment to Symantec for such porting or development. Notwithstanding the provisions of the Solution Developer Program Agreement, Symantec may make a reasonable number of copies of the foregoing software for development use at multiple locations. If Symantec chooses to subcontract the development of the OS/390 product set forth in Section 4.3, Symantec will inform IBM and IBM, at its discretion, may license a copy of the OS/390 Software to the subcontractor. Symantec will disclose to IBM any and all locations where the software is installed. The Solution Developer Program Agreement shall remain in effect as long as Symantec has development obligations under this Agreement. Any such equipment shall be provided in accordance with an Equipment and Program Loan Agreement, a copy of which is attached as Attachment 4. 3.9 IBM will use reasonable efforts to deliver to Symantec, quarterly, in Source Code form one copy of all Derivative Works of the IBM AntiVirus Immune System prepared by IBM Research Division, during such quarter, outside the scope of the Collaboration Agreement which relate to the provision of the IBM AntiVirus Immune System. 3.10 IBM will, to the extent required by the contracts and licenses assumed by Symantec, provide Symantec Level 3 Maintenance Support and virus definitions for the IBM Anti-Virus until December 31, 1998. IBM does not warrant that all defects will be corrected or that virus definitions will be created for all computer viruses. Thereafter through the end of the year 2000, IBM and Symantec will each offer to provide such Level 3 Maintenance Support and virus definitions on the basis set forth below. [*] *Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 9 3.11 If IBM is responsible for the Level 3 Maintenance Support and virus definitions as stated in Section 3.10 above, Symantec will prior to requesting such Level 3 Maintenance Support from IBM provide Level 1 and Level 2 Maintenance Support to Customers and will get from each Customer and provide to IBM: their name, daytime phone number, email address, company name, regular mail address; the name and version number of the operating system, the name and version number of IBM AntiVirus installed, the name of the virus if known, the exact wording of any messages displayed, the symptoms of the problem and what the Customer was doing when the problem first occurred, whether the Customer tried to solve the problem and if so, how, and whether the problem is repeatable and if so, how it can be repeated. 4 RESPONSIBILITIES OF SYMANTEC 4.1 Subject to Section 2.1 above, Symantec agrees to comply with and fulfill the terms and conditions of the contracts and licenses assigned to Symantec including providing any required enhancements, updates or support to the Customers and OEMs. 4.2 Symantec will collect and may retain all unpaid charges under the assigned contracts and licenses. IBM is not liable for any failure by a Customer or OEM to make payment under any assigned contract or license. Symantec is not entitled to receive any portion of any payment previously received by IBM from a Customer, distributor, dealer or OEM, except as set forth in section 3.6 and [*]. 4.3 Symantec will port or develop Symantec antivirus products that support the following platforms and will make such antivirus products generally available within the following periods:
Platform Date -------- ---- Lotus Notes for OS/2("NAV for Notes [*] for OS/2") Lotus Notes for OS/390("NAV for Notes [*] for OS/390") Lotus Notes for AIX("NAV for Notes [*] for AIX") Lotus Notes for OS/400("NAV [*] for Notes for OS/400") Native OS/2("NAV for OS/2") [*]
Symantec agrees to provide updates to its antivirus products within a reasonable period of time, not to exceed six (6) months, following the general availability from IBM of a new *Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 10 version of any of the foregoing platforms to support such version. Symantec agrees that the Symantec antivirus products ported or developed to support the IBM platforms specified above also will support the following languages:
[*] [*] [*] [*]
Symantec will make other languages (e.g., [*]) available upon mutual agreement of the parties or if the development investment on the part of Symantec would result in at least a [*] revenue to expense ratio for each language. If the development investment on the part of Symantec would not result in at least a [*] revenue to expense ratio for a language, then Symantec will provide the revenue to expense analysis to the applicable IBM business unit Vice President and Symantec 's applicable business unit Vice President will contact the IBM business unit Vice President and review the investment decision including detailed information concerning revenue and expenses on the language support. Symantec acknowledges that if it does not make available antivirus products that support the IBM platforms, provide updates for any new version on a timely basis, or support the specified languages, IBM will suffer irreparable harm and will be entitled to all equitable remedies, including specific performance, for the support of such platforms, versions. 4.4 Symantec will use reasonable efforts to implement and use the Symantec Anti Virus Immune System to provide antivirus products and services to end users by the earliest date set forth below. The following Symantec products will be enabled to access the Symantec AntiVirus Immune System and will initially be made available to Customers between the following periods:
Product Time Period ------- ----------- NAV for NT 5.0 desktop & server [*] NAV for Windows 98 desktop [*] NAV Administration [*] NAV Exchange (on NT 5.0) [*] NAV Notes (on NT 5.0) [*] NAV Notes on Solaris [*] NAV for Notes for AIX [*] NAV Netware [*]
*Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 11 NAV for OS/2 [*] NAV for Notes for OS/2 [*] NAV for Notes for System 390 [*] NAV for Notes for AS/400 [*]
Symantec will make reasonable efforts to complete the products listed above on or before the time periods applicable to each product. However, IBM agrees that if completion of a product can not be accomplished by the end of its specified time period then Symantec may take up to an additional [*] to complete the product. The foregoing dates are based on Symantec's assumptions regarding the current state of the IBM AntiVirus Immune System. If the assumptions are materially inaccurate, the parties agree to negotiate in good faith, new dates. Symantec agrees that any subsequent version, release or follow-on product to the products specified above will be enabled to access the Symantec AntiVirus Immune System upon their general availability Symantec may, after discussion with IBM, elect not to complete the immune system enablement for NAV Netware, NAV for OS/2, NAV for Notes for OS/2, NAV for Notes for System 390 and NAV for Notes for AS/400 if the development investment on the part of Symantec would not result in at least a [*] revenue to expense ratio for each such product. If the development investment on the part of Symantec would not result in at least a [*] revenue to expense ratio for a port, then Symantec will provide the revenue to expense analysis to the applicable IBM business unit Vice President and Symantec's applicable business unit Vice President will contact the IBM business unit Vice President and review the investment decision including detailed information concerning revenue and expenses on the completion of the Symantec Anti Virus Immune System support for the product. Such discussion shall occur no less than six (6) months prior to the first date indicated above. 4.5 Symantec will deliver to IBM on a timely basis in Source Code form one copy of all Derivative Works of the IBM AntiVirus and IBM AntiVirus Administration Program prepared by or for Symantec. 4.6 If IBM asks Symantec to develop a product which is enabled to access the Symantec Anti Virus Immune System for a platform marketed by IBM or a platform to be marketed by IBM which is at least at the alpha stage of development and which are not specified in Section 4.4 and IBM provides to Symantec a detailed functional specification for such product, then Symantec will within [*] after receipt of such specification tell IBM whether Symantec will commit to create such product within [*]. If Symantec declines to create such product, then the marketing or distribution of such a product by IBM whether or not immune enabled, will not be deemed to be a breach of IBM's obligations under Section 8.0. 4.7 In the event Symantec decides to outsource the operation of the Symantec Anti Virus Immune System to another party, before contacting any third party Symantec will provide *Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 12 IBM a written request to perform such operation. IBM shall have sixty (60) days to respond with an offer to accept or reject Symantec's request. Failure to respond in such sixty (60) day period shall constitute rejection. 5 PAYMENT 5.1 PAYMENTS TO IBM In consideration for the intellectual property, in-process research and development provided by IBM, and other rights granted hereunder, Symantec will pay to IBM: 5.1.1 Technology Payments. Symantec will make the following technology payments to IBM on or before the specified dates:
[*] [*] [*] [*]
5.1.2 Royalties while [*]. In addition to the technology payments set forth in Section 5.1.1, while [*], Symantec will pay royalties to IBM on all Net Receipts during such period in excess of [*]. The royalty rate on the Net Receipts in excess of [*] shall be:
Time Period Royalty Rate ----------- ------------ [*] [*]
In addition to the technology payments set forth in Section 5.1.1, while [*] Symantec will pay royalties on all Net Receipts during such period in excess of [*] at royalty rate of [*]. Notwithstanding the foregoing, the royalties shall not exceed the maximums for each time period set forth below:
Time Period Maximum Royalty ----------- --------------- [*] [*]
*Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 13 [*] [*]
5.1.3 Royalties following [*]. In the event of and following [*] the royalty rate shall be [*]. In addition to the technology payments set forth in Section 5.1.1, Symantec will pay IBM royalties on all Net Receipts after [*], in excess of the Net Receipts listed below if [*] during the specified time period:
Time Period When Net Receipts [*] Threshold ------------------ --------- [*] [*]
Notwithstanding the foregoing, in the event [*], the royalties shall not exceed the maximums for the time period during which [*] and any subsequent time periods as set forth below:
Time Period Maximum Royalty ----------- --------------- [*] [*]
5.1.4 Royalties following [*]. Following the [*], the royalty rate shall be [*]. In addition to the technology payments set forth in Section 5.1.1, Symantec will pay IBM royalties on all Net Receipts after [*], in excess of the Net Receipts listed below if [*] during the specified time period:
Time Period When Net Receipts [*] Threshold ----------------- --------- [*] [*]
Following [*], royalties shall be paid on all Net Receipts. *Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 14 Notwithstanding the foregoing, in the event [*], the royalties shall not exceed the maximums for the time period during which [*] and any subsequent time periods as set forth below:
Time Period Maximum Royalty ----------- --------------- [*] [*]
5.1.5 Royalties following [*]. In the event of and following [*], the royalty rate shall be [*]. In addition to the technology payments set forth in Section 5.1.1, Symantec will pay IBM royalties on all Net Receipts after the date of [*]. 5.1.6 In no event shall the provisions of Sections 5.1.2, 5.1.3, 5.1.4, and 5.1.5 operate concurrently. 5.1.7 Obligations to pay royalties or make payment pursuant to Sections 5.1.2, 5.1.3, 5.1.4, 5.1.5, and 5.5 do not cease upon expiration of this Agreement. 5.1.8 The royalties to be paid by Symantec on Net Receipts pursuant to Sections 5.1.2 5.1.3, 5.1.4, 5.1.5 or 8.6 shall not exceed the maximums for each time period set forth below:
Time Period Maximum Royalty ----------- --------------- [*] [*]
Symantec shall not pay any royalties on Net Receipts after [*]. *Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 15 5.1.9 PAYMENT OF ROYALTIES For each royalty payment period set forth above, Symantec will pay to IBM all accrued and unpaid royalties within forty-five (45) days after the end of each of its fiscal quarters. Amounts received by Symantec in foreign currencies will be deemed converted into United States dollars at the average exchange rates used by Symantec in its financial statements for the month of receipt. With each royalty payment Symantec will deliver to IBM a report which will provide all reasonably necessary information for the computation of the payments, if any, due or credited to IBM for such payment period. All payments made by Symantec under this Agreement shall be sent to IBM at one of the following addressee: By mail: IBM, Director of Licensing The Bank of New York 48 Wall Street New York, New York 10286 United States of America [*] [*] 5.2 SOFTWARE BUNDLES If Immune Enabled Anti-Virus Products are sold or licensed or Immune Services are provided with other separately marketed software products or services in a package for a single price, the Net Receipts attributable to the Immune Enabled Anti-Virus Products or Immune Services component of such package will be determined by prorating the Net Receipts from the sale or license of the package according to the published list, suggested retail or estimated retail price (as applicable) of the Immune Enabled Anti-Virus Products or Immune Services component of the package relative to the other separate software products contained in the package. 5.3 In addition to the technology payments and royalties in Section 5.1, Symantec agrees to pay to IBM a royalty of [*] of the license fees received by Symantec (copies provided to the IBM Personal Systems Group are royalty free) for copies of the IBM AntiVirus distributed pursuant to section 7.1. Such royalties will be paid to IBM quarterly within forty five (45) days following the end of each fiscal calendar quarter. 5.4 Symantec will maintain records, in accordance with generally accepted accounting principles, of all transaction which are subject to royalties for a period of three years from the date the royalty accrues. If IBM deems it necessary, IBM or an accounting organization retained by IBM shall have access to such records, upon reasonable notice, for the purpose of audit during normal business hours, for so long as such records are required to be maintained by Symantec. 5.5 Symantec will develop for [*] *Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 16 [*] 6 SYMANTEC LICENSE GRANT TO IBM 6.1 In the event that IBM terminates this Agreement for breach pursuant to Section 12.2, a purchase or series of purchases occurs that causes a single entity to own thirty (30%) percent or more of the outstanding voting stock of Symantec, or Symantec sells or transfers to a third party substantially all of the assets, including intellectual property rights, contracts and licenses, that are used by Symantec to provide and/or support antivirus products and services, Symantec will promptly provide to IBM one up to date copy of the Symantec antivirus products for Lotus Notes for OS/2, Lotus Notes for OS/390, Lotus Notes for AIX, Lotus Notes for OS/400 and Native OS/2 ("Platforms") identified in section 4.3 in Source Code form and grants to IBM a paid-up, worldwide, nonexclusive, nontransferable right and license, under copyrights, to execute, reproduce, display, perform, prepare Derivative Works based upon, and distribute internally or externally the Symantec antivirus products in Source Code or Object Code form and authorize others to do any or all of the foregoing; provided that the foregoing shall only apply to versions of such anti virus products that support the Platforms or follow-on or successor Platforms thereto. 6.2 Symantec grants to IBM a paid-up, worldwide, nonexclusive, nontransferable right and license, under copyrights, to execute, reproduce, display, perform, prepare Derivative Works based upon, and distribute internally or externally any Derivative Work of the IBM AntiVirus Immune System prepared by or for Symantec that are not Immune Agents in Source Code or Object Code form and authorize others to do any or all of the foregoing. 7 IBM LICENSE GRANTS TO SYMANTEC 7.1 IBM grants to Symantec a worldwide, nonexclusive, nontransferable right and license, under copyrights, to execute, reproduce, display, perform, and prepare Derivative Works based upon the IBM AntiVirus and distribute copies of IBM AntiVirus and Derivative Works thereof internally in Source Code and Object Code and externally in Object Code to existing Customers of IBM AntiVirus and to licensees of the OS/2 operating system, and authorize others to do any or all of the foregoing. The license to distribute to licensees of the OS/2 operating system shall terminate two (2) years after Symantec makes an OS/2 version of its anti virus products generally available. 7.2 IBM grants to Symantec a worldwide, nonexclusive, nontransferable right and license, under copyrights, to execute, reproduce, display, perform, and prepare Derivative Works based upon the IBM AntiVirus and distribute copies of IBM AntiVirus and Derivative Works thereof internally and externally in Source Code and Object Code form to existing OEMs of IBM AntiVirus and authorize such OEMs to distribute IBM AntiVirus and Derivative Works thereof in accordance with the terms of the OEM Agreements. *Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 17 7.3 IBM grants to Symantec a worldwide, nonexclusive, nontransferable right and license, under copyrights, to execute, reproduce, display, perform, prepare Derivative Works based upon, and distribute internally in Source Code or Object Code form and externally to end users in Object Code form the IBM AntiVirus Analysis Program, and Derivative Works thereof and authorize others to distribute to end users the Immune Agents. 7.4 IBM grants to Symantec a worldwide, nonexclusive, nontransferable right and license, under copyrights, to execute, reproduce, display, perform, prepare Derivative Works based upon, and distribute internally in Source Code or Object Code form and externally in Object Code form the IBM AntiVirus Administration Program and IBM AntiVirus Communications Subsystem Program, and Derivative Works thereof and authorize others to distribute the IBM Anti Virus Administration Program, the IBM Anti Virus Communications Subsystem Program and Derivative Works thereof to end users. 7.5 IBM grants to Symantec a worldwide, nonexclusive, nontransferable right and license, under copyrights, to execute, reproduce, display, perform, prepare Derivative Works based upon, and distribute internally and externally copies of the End User Documentation. 7.6 IBM grants to Symantec a worldwide, nonexclusive, nontransferable right and license, under copyrights, to execute, reproduce, display, perform and distribute internally Development Documentation for the purposes of developing and providing Symantec antivirus products and services to end users. 7.7 IBM grants to Symantec a worldwide, nonexclusive, nontransferable right and license, under copyrights, to execute, reproduce, display, perform and distribute internally the Tools in Object Code only for the sole purpose of performing the obligation and duties set forth in the contracts and licenses assigned to Symantec. 7.8 In the event that Symantec terminates this Agreement for breach pursuant to Section 12.2, IBM will promptly provide Symantec one up to date copy of the IBM AntiVirus and IBM AntiVirus Immune System in Source Code form and grants to Symantec a worldwide, nonexclusive, nontransferable right and license, under copyrights, to execute, reproduce, display, perform, prepare Derivative Works based upon, and distribute internally or externally the IBM AntiVirus and IBM AntiVirus Immune System, in Source Code or Object Code form, and authorize others to do any or all of the foregoing. 7.9 Symantec may use the program name(s), logos, trademarks, and/or trade names used by IBM to identify and promote IBM AntiVirus: a. in connection with the marketing and distribution of IBM AntiVirus to Customers, OEMs, and licensees of OS/2; and b. subject to the guidelines set forth in Attachment 5. Symantec agrees to promptly modify any advertising or promotional materials that do not comply with these guidelines. If Symantec receives any complaints about the use of such program name(s), logos, trademarks, or trade names Symantec agrees to promptly notify 18 IBM. When Symantec ceases distributing IBM AntiVirus, Symantec agrees to stop using the program name(s), logos, trademarks, and trade names. If Symantec does not stop, Symantec agree to pay any expenses and fees IBM incurs in getting Symantec to stop. Symantec agrees not to register or use any name(s) logos, trademarks or trade names that are confusingly similar to IBM name(s), logos, trademarks, or trade names. IBM's name(s), logos, trademarks and trade names and any goodwill resulting from Symantec's use of them belong to IBM. 8 OTHER COVENANTS 8.1 IBM agrees that for a period of [*] commencing on the Effective Date, neither IBM nor its Subsidiaries will license or otherwise grant the right to distribute or use the IBM Anti Virus Immune System to any third party who receives annual revenue in excess of [*] from the licensing of products that detect and remove computer viruses [*], or authorize others to grant such rights. IBM shall not be in breach of this provision if it licenses the IBM Anti Virus Immune System to a third party who subsequent to obtaining such license receives annual revenues of [*] from the licensing of products that detect and remove computer viruses. The foregoing provisions shall not apply to the extent IBM makes the IBM Anti Virus Immune System available to existing Customers to satisfy its obligations under existing contracts or licenses with such Customers which have been assigned back to IBM pursuant to Section 2.0 or which have been offered to Symantec under Section 2.0 hereof and are not assumed by Symantec pursuant to such section. 8.2 Following IBM's announcement of version 3.02 of IBM AntiVirus, IBM agrees that IBM and its Subsidiaries will not for a period of [*] make commercially available to distributors, resellers, end users or OEMs any IBM logo'd product whose principle function is to detect and remove Harmful Code. The foregoing shall not apply to the extent that IBM makes IBM AntiVirus available to existing Customers to satisfy its obligations under existing contracts and licenses with such Customers which have been assigned back to IBM pursuant to Section 2.0 or which have been offered to Symantec under Section 2.0 hereof and are not assumed by Symantec pursuant to such section. 8.3 Following IBM's announcement of version 3.02 of IBM AntiVirus, IBM agrees that IBM and its Subsidiaries will not for a period of [*] announce as generally available worldwide to distributors, resellers, end users or OEMs any IBM logo'd product whose sole function is to detect and remove Harmful Code. The foregoing shall not apply to the extent that IBM makes IBM AntiVirus available to existing Customers to satisfy its obligations under existing contracts or licenses with such Customers which have been assigned back to IBM pursuant to Section 2.0 or which have been offered to Symantec under Section 2.0 hereof and are not assumed by Symantec pursuant to such section. 8.4 If IBM in its sole discretion decides to license Symantec to use a trademark in the distribution and promotion of Symantec's products that implement or are enabled to access the Symantec Anti Virus Immune System and subject to a successful trademark clearance by IBM, IBM agrees that Symantec may use the mark identified pursuant to and subject to *Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 19 the terms of the Trademark Agreement in connection with Symantec products that contain or support the IBM AntiVirus Immune System. 8.5 IBM agrees that for a period of [*] commencing on the Effective Date, IBM and its Subsidiaries will not license or otherwise grant to any third party [*] or authorize any third party to do the foregoing. 8.6 If IBM breaches the provisions of Section 8.1, and IBM agrees or a court finally determines that such breach has not been cured within the cure period provided in Section 14.14, Symantec's sole and exclusive remedy for such breach and any other breaches of that section shall be that Symantec is relieved of its obligations to pay royalties under sections 5.1.2, 5.1.3, 5.1.4 and 5.1.5 commencing upon the date of the breach. Thereafter, Symantec will pay a royalty of [*] on all Net Receipts in excess of a Threshold Amount calculated as follows: Threshold Amount [*] Notwithstanding the foregoing, the royalties shall not exceed the maximums for each time period set forth below:
Time Period Maximum Royalty ----------- --------------- [*] [*]
Upon Symantec's good faith notice of breach to IBM, Symantec may cease paying royalties under Sections 5.1.2, 5.1.3, 5.1.4 and 5.1.5. In the event that Symantec withholds payment of royalties and a court finally determines that IBM has not breached the provisions of Section 8.1, then Symantec shall pay IBM all withheld royalties plus interest at the prime interest rate reported in the Wall Street Journal at the time of payment. After the court has first determined that IBM did not breach the provisions of Section 8.1 after Symantec's claim to the contrary, then Symantec may not withhold royalties for any future claim under this Section until a court has finally determined that such future claim was validly made. 8.7 If IBM breaches the provisions of Sections 8.2 or 8.5, and IBM agrees or a court finally determines that such breach has not been cured within the cure period provided in section 14.15, Symantec's sole and exclusive remedy shall be to recover actual damages up to a maximum of [*]. 8.8 If IBM breaches the provisions of Section 8.3 and IBM agrees or a court finally determines that such breach has not been cured within the cure period provided in Section 13.15, Symantec's sole and exclusive remedy for such breach and any other breaches of this section shall be: (a) the licenses specified in Sections 7.3, 7.4 and 7.7 for the IBM AntiVirus Immune System shall be royalty free and Symantec's obligations to pay further royalties under Section 5.1.2, 5.1.3, 5.1.4 and 5.1.5 shall immediately cease upon the breach, and (b) IBM shall pay actual damages up to a maximum of [*]. Upon Symantec's good *Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 20 faith notice of breach to IBM, Symantec may cease paying royalties under Section 5.1.2,5.1.3,5.1.4 and 5.1.5. In the event that Symantec withholds payment of royalties and a court finally determines that IBM has not breached the provisions of Section 8.3 , then Symantec shall pay IBM all withheld royalties plus interest at the prime interest rate reported in the Wall Street Journal at the time of payment. After the court has first determined that IBM did not breach provisions of Section 8.3 after Symantec's claim to the contrary, then Symantec may not withhold royalties for any future claim under this section until a court has finally determined that such future claim was validly made. 8.9 For the purposes of this Section 8.0, a product or service whose sole or principle function is the detection and removal of Harmful Code shall not include products or services such as, but not limited to, network protection tools that monitor, report and prevent network denial of service attacks and host invasion attacks; intrusion detection mechanisms that monitor or analyze system activities to detect and report possible system attacks; platform integrity and access control mechanisms such as those found in the Java Virtual Machine (VM) that verify byte code is valid, signed by a valid authority and limit the resources made available to byte code loaded by the WM; embedded generic "hooks" for integration of content-sweeping/scanning into products; content filtering mechanisms such as for unauthorized disclosure by e-mail packages (such as Lotus Notes and Lotus cc:Mail); firewall products; debuggers; and current IBM products other than IBM AntiVirus; even if such products and services detect and remove Harmful Code. 8.10 Symantec will make its customer satisfaction data available to IBM within ninety (90) days after Symantec conducts or has another company conduct its survey and receives the results of its customer satisfaction surveys. 8.11 [*], IBM shall be relieved of its obligations under this Section 8.0. Notwithstanding the foregoing, in no event will the provisions of Sections 8.1, 8.2, 8.3 and 8.5 extend for longer than [*]. 8.12 In the event that Symantec breaches this Agreement and such breach is not cured within the cure period set forth in Section 14.14, IBM shall be relieved of its obligations under this Section 8.0. 9 IBM REPRESENTATIONS AND WARRANTIES 9.1 IBM represents and warrants that it has the right to grant the licenses set forth in Section 7 and to assign the contracts and licenses assigned to Symantec. IBM makes no representation or warranty concerning Symantec's ability to terminate the assigned contracts and licenses, Symantec's ability to substitute Symantec products pursuant to such contracts and licenses or a Customer's or OEM's plans regarding termination of the assigned contracts and licenses or acceptance of the substitution of Symantec products pursuant to the contracts and licenses. 9.2 IBM represents and warrants that it is not under, and will not assume any contractual obligation that prevents IBM from performing its obligations or conflicts with the rights and *Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 21 licenses granted in this Agreement. 9.3 IBM represents and warrants that version 3.0 and higher of the IBM AntiVirus is Year 2000 Ready. 10 SYMANTEC REPRESENTATIONS AND WARRANTIES 10.1 Symantec represents and warrants that it will comply with the duties and obligations set forth in the contracts and licenses assigned to Symantec. 10.2 Symantec represents and warrants that it is not under, and will not assume any contractual obligation that prevents Symantec from performing its obligations or conflicts with the rights and licenses granted in this Agreement. 10.3 Symantec represents and warrants that any product that replaces or is substituted for the IBM AntiVirus provided to Customers and OEMs is Year 2000 Ready. 11 INDEMNIFICATION 11.1 Symantec will defend IBM, its Subsidiaries, and its and their successors and assigns from and against any and all suits and pay all costs, damages, and attorney's fees that a court finally awards arising out of any alleged or actual: a. infringement of any third party's patents by any modification made by Symantec to the IBM AntiVirus, IBM AntiVirus Administration Program, or IBM AntiVirus Communications Subsystem Program; b. infringement of any third party's copyrights by any modification made by Symantec to the IBM AntiVirus and IBM AntiVirus Immune System; c. infringement of any third party's patents or copyrights by any Symantec product that replaces or may be substituted for the IBM AntiVirus provided to Customers or OEMs pursuant to the contracts and licenses assigned to Symantec; d. breach by Symantec of any assigned contract or license; e. breach of Symantec's representations or warranties set forth in Section 10; or f. breach by Symantec of any representation, warranty or promise express or implied, made to any Customer or OEM. Symantec's obligations to defend and indemnify IBM are conditioned upon IBM: a. promptly providing Symantec notice of any such claim and b. allowing Symantec to control and cooperating with Symantec in, the defense of the claim and settlement negotiations. 22 In addition, if an infringement claim appears likely or is made, Symantec will use reasonable efforts, at Symantec's expense to: a. obtain the necessary rights for IBM to use the IBM AntiVirus, IBM AntiVirus Administration Program, IBM AntiVirus Communication Subsystem Program or IBM AntiVirus Analysis Program, in accordance with Section 6.2; or b. modify the IBM AntiVirus, IBM AntiVirus Administration Program, IBM AntiVirus Communications Subsystem Program, IBM AntiVirus Analysis Program or Symantec product to resolve the claim. If Symantec is unable to do either of the foregoing within a reasonable period of time, Symantec may terminate the license grant set forth in Section 6.2. Symantec shall have no obligations to defend or indemnify IBM regarding any claim of infringement based upon any of the following: a. IBM's modification of any Derivative Works of the IBM AntiVirus and the IBM AntiVirus Immune System prepared by or for Symantec which are licensed to IBM pursuant to Section 6.2 or the Derivative Work's use in other than its specified operating environment; or b. the combination, operation, or use of any Derivative Works of the IBM AntiVirus and the IBM AntiVirus Immune System prepared by or for Symantec which are licensed to IBM pursuant to Section 6.2 with any product, data or apparatus IBM did not provide. 11.2 IBM will defend Symantec, its Subsidiaries, and its and their successors and assigns from and against any and all suits and pay all costs, damages, and attorney's fees that a court finally awards arising out of alleged or actual: a. infringement of any third party's patents by IBM AntiVirus, IBM AntiVirus Administration Program or IBM AntiVirus Communications Subsystem Program as it exists when delivered to Symantec; b. infringement of any third party's patents by any modification made by IBM to the IBM AntiVirus, IBM AntiVirus Administration Program, or IBM AntiVirus Communications Subsystem Program; c. infringement of any third party's copyrights by IBM AntiVirus and IBM AntiVirus Immune System and modifications thereto made by IBM as they exist when delivered to Symantec; d. breach of any representation, warranty or promise express or implied, made by IBM to any Customer or OEM; 23 e. breach by IBM of the assigned contracts and licenses which breach occurs prior to the assignment of the contracts and licenses to Symantec; and f. breach of IBM's representations and warranties set forth in Section 9.0. IBM's obligations to defend and indemnify Symantec are conditioned upon Symantec: a. promptly providing IBM notice of any such claim and b. allowing IBM to control, and to cooperating with IBM in, the defense of the claim and settlement negotiations. In addition, if an infringement claim appears likely or is made, IBM will use reasonable efforts at IBM's expense to: a. obtain the necessary rights for Symantec to use the IBM AntiVirus, IBM AntiVirus Administration Program, IBM AntiVirus Communication Subsystem Program or IBM AntiVirus Analysis Program in accordance with Section 7.0; or b. modify the IBM AntiVirus, IBM AntiVirus Administration Program, IBM AntiVirus Communication Subsystem Program, or IBM AntiVirus Analysis Program to resolve the claim. If IBM is unable to do either of the foregoing within a reasonable period of time, IBM may terminate thc license grants set forth in Section 7.0 affected by the claim of infringement. IBM shall have no obligations to defend or indemnify Symantec regarding any claim of infringement based upon any of the following: a. Symantec's modification of the IBM AntiVirus, IBM AntiVirus Administration Program, IBM AntiVirus Communication Subsystem Program or IBM AntiVirus Analysis Program or its use in other than its specified operating environment; or b. the combination, operation, or use of the IBM AntiVirus, IBM AntiVirus Administration Program, IBM AntiVirus Communication Subsystem or IBM AntiVirus Analysis Program with any product, data or apparatus IBM did not provide. 12 TERM AND TERMINATION 12.1 This Agreement begins on the Effective Date and ends on the third anniversary following the Effective Date unless terminated sooner under the terms of this Agreement. 12.2 Subject to sections 14.13 and 14.14, either party may terminate this Agreement for the other's material breach by providing the breaching party with a written notice that describes the breach. 24 12.3 Expiration or termination of this Agreement does not affect any licenses granted in this Agreement for the IBM AntiVirus, IBM AntiVirus Immune System, Development Documentation, End User Documentation, Tools or Derivative Works thereof. Except as provided in Section 5.5 in the event of termination by IBM for breach by Symantec, IBM will not be obligated to make any payments that would have become due under this Agreement on or after the effective date of termination, other than per copy royalty payments incurred, if any. 12.4 Expiration or termination of this Agreement does not affect any licenses granted to any third parties. 12.5 Subject to Section 13.3, any provisions of this Agreement that by their nature extend beyond termination or expiration will survive in accordance with their terms. These include Symantec License Grant to IBM, Payment, IBM License Grant to Symantec, IBM Representations and Warranties, Symantec Representations and Warranties Indemnification, Limitations of Liability, and General. These terms will apply to either party's successors and assigns. 13 LIMITATION OF LIABILITIES 13.1 Neither party shall be liable for indirect, incidental or consequential damages, including, but not limited to, lost profits, under any part of this Agreement even if advised in advance of the possibility of such damages. The above limitations of liability, however, shall not apply to any of the parties' indemnification obligations contained herein. 13.2 Except as set forth in Section 12, in no event shall either patty be liable for any damages whatsoever arising out or related to this Agreement, in excess of [*], The foregoing does not apply to obligations to make payments under this Agreement. 13.3 EXCEPT AS SET FORTH IN SECTIONS 9 AND 10, THE IBM ANTIVIRUS, IBM ANTIVIRUS IMMUNE SYSTEM, SYMANTEC ANTIVIRUS PRODUCTS FOR OS/2, LOTUS NOTES FOR OS/390, LOTUS NOTES FOR AIX, LOTUS NOTES FOR OS/400, NATIVE OS/2 AND DERIVATIVE WORKS THEREOF ARE PROVIDED "AS IS." EXCEPT AS SET FORTH IN SECTIONS 9 AND 10, NEITHER PARTY MAKES ANY WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE IBM ANTIVIRUS, IBM ANTIVIRUS IMMUNE SYSTEM, SYMANTEC ANTIVIRUS PRODUCTS FOR OS/2, LOTUS NOTES FOR OS/390, LOTUS NOTES FOR AIX, LOTUS NOTES FOR OS/400, NATIVE OS/2 OR DERIVATIVE WORKS THEREOF. BOTH PARTIES EXPRESSLY DISCLAIM THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 14 GENERAL *Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 25 14.1 The parties agree that information exchanged under this Agreement that is considered by either party to be confidential will be subject to the terms of the Confidential Disclosure Agreement (CDA) 499AU6756 dated December 19, 1997 and its Supplements. In addition, neither party will not provide to the other party any confidential information of any third party unless provided under the CDA. 14.2 Each party agrees not to disclose to any third party the terms of this Agreement, or anything related to the Parties' relationship hereunder, without the express written consent of the other party (any such written consent shall require, at a minimum a prior written confidential obligation by such third parties), except as may be required by law or government rule or regulation or to establish its rights under this Agreement; provided, however, that if one of the parties is seeking to disclose such information for any reason, then the disclosing party shall limit the disclosure to the extent required, shall allow the other party to review the information to be disclosed prior to such disclosure, and shall apply, where available, for confidentiality, protective orders, and the like. Such review by the other party shall not be construed to make the non-disclosing party responsible for the contents of the disclosure and the disclosing party shall remain solely responsible for such contents. 14.3 Except as specifically provided herein, nothing in this Agreement shall be construed as: (1) prohibiting or restricting either party or their Subsidiaries from independently developing, having developed independently, acquiring, licensing, distributing or marketing products, services and other materials which are competitive in any form or (2) guaranteeing that either party or its Subsidiaries shall announce, or otherwise offer for sale or lease, any product or service, except as expressly set forth in this Agreement. Nothing in this Agreement shall be construed as affecting either party's pricing of products or services. Nothing in this Agreement obligates IBM or its Subsidiaries to announce or market products or services in any quantity or in any particular manner. 14.4 Each party is acting solely as an independent company. This Agreement shall not be construed to establish any form of partnership, agency, franchise or joint venture of any kind between Symantec and IBM, nor to constitute either party as the agent, employee, legal representative, or any other form of representative of the other. This Agreement shall not be construed to provide for any sharing of profits or losses between the parties. Each party acknowledges that is has not relied on any promises, inducements, representations, or other statements made by the other party regarding the commercial viability, profitability or success of any products or services, and that each party's decision to enter into this Agreement is made independently from the other party. 14.5 This Agreement shall be governed by, and the legal relations between the parties hereto shall be determined in accordance with, the substantive laws of the State of New York, without regard to any conflict of laws principles, as if this Agreement was executed in and fully performed within the State of New York. The United Nations' Convention on International Sale of Goods shall not apply to this Agreement. Each party hereby waives any right to a trial by jury in any dispute arising under or in connection with this Agreement, and agrees that any dispute hereunder be tried by a judge without a jury. 26 14.6 No right, interest, privilege or obligation of this Agreement shall be assigned or delegated by either party, without the other party's prior written permission. Any act in derogation of the foregoing shall be null and void. Notwithstanding the foregoing, a party may delegate its obligations to perform development work or support work hereunder, but such party shall remain obligated for performance of such work. 14.7 All communications between the parties under this Agreement shall be carried out through or under the supervision of the following contract coordinators: For IBM: For Symantec: James D. Wade Derek Witte, Symantec Corporation Internal Zip 4106 10201 Torre Avenue International Business Machines Cupertino,CA 95014 Corporation 11400 Burnet Road Austin, Texas 78758 Phone: (512) 823-9527 Phone: (408) 446-7100 Fax: (512) 823-8712 Fax: (408) 252-5101 Any legal notice shall be deemed received (a) two (2) days after mailing if sent by certified mail return receipt requested or (b) on the date confirmation is received if sent by facsimile transmittal, to the party set forth above. Each party may change the aforesaid contract coordinators or addresses at any time by written notice to the other party's contract coordinator. 14.8 Headings used in this Agreement are for convenience of reference only intended to be party of; or to affect the meaning or interpretation of, this Agreement. 14.9 In the event of an inconsistency, the order of precedence shall be (a) Attachments to this Agreement, and then (b) this Agreement. 14.10 If any provision of this Agreement is held to be illegal, invalid, or unenforceable, the legality and enforceability of the remaining provisions shall not be affected or impaired. 14.11 No amendment, modification or waiver of any provision of this Agreement shall be effective, unless it is set forth in a writing which refers to the provisions so affected and is signed by an authorized representative of each party. No failure or delay by either party in exercising any right, power or remedy will operate as a waiver of any such right, power or remedy. 14.12 Neither party relies on any promises, inducements or representations made by the other or expectations of more business dealings except as expressly provided in this Agreement. This Agreement accurately expresses the parties agreement. 14.13 IBM and Symantec agree to use the following process to attempt to resolve any disputes between IBM and Symantec arising out of or in connection with this Agreement including 27 any alleged breach. IBM and Symantec each shall designate a representative to resolve such disputes. Within ten (10) days after the party asserting a dispute provides notice to the other party such representatives shall meet or confer by telephone and fully discuss all disputes in an attempt to achieve a prompt resolution. In the event that such dispute is not resolved within ten (10) business days after such initial meeting or discussion by such representatives, the dispute shall be submitted to senior management representatives designated by each party on its own behalf. Within ten (10) days after the dispute is submitted to the senior management representatives, such senior management representatives shall meet or confer by telephone and fully discuss such dispute in an attempt to achieve a prompt resolution. If such dispute is not resolved within ten (10) business days after such initial meeting or discussion by the mutual agreement of such senior management representatives of IBM and Symantec, each party shall be free subject to section 14.15 to exercise any of the remedies available to it (a) pursuant to the terms of this Agreement or (b) otherwise at law or equity, consistent with the terms of this Agreement. 14.14 In the event of a breach of this Agreement and following completion of the dispute resolution process in Section 15.13, the breaching party shall be provided an opportunity to cure the breach. The breaching party will use reasonable efforts to cure the breach within forty-five (45) days after receiving notice of such breach from the non-breaching party. However, if the breach by its nature cannot be remedied in forty-five (45) days, but can be remedied in a reasonable time thereafter, the breaching party will take reasonable steps to remedy the breach, notify the other party of the action plans, progress towards completion and complete such remedial action promptly. In such event, the notice period will be suspended while the breaching party takes these actions. 14.15 Neither party will bring a legal action relating to the subject matter of this Agreement more than two (2) years after the cause of action arose. 14.16 This Agreement may be signed in one or more counterparts, each of which will be considered an original, but all of which together form one and the same instrument. Once signed, both parties agree any reproduction of this Agreement made by reliable means (for example, photocopy or facsimile) shall be considered an original unless prohibited by law. 14.17 Either party shall be excused from any delay or failure in performance hereunder, caused by acts of God, earthquake, labor disputes and strikes, riots, war, and change in governmental requirements or other events beyond such party's control. The obligations and rights of the party so excused shall be extended on a day-to-day basis for the period of time equal to that of the underlying cause of the delay. 14.18 The provisions of this Agreement, including its Attachments, constitute the entire agreement between the parties and supersedes all prior, oral or written intentions, proposals, understandings, communications and agreements relating to the subject matter of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their 28 respective authorized representatives. ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO: INTERNATIONAL BUSINESS MACHINES SYMANTEC CORPORATION CORPORATION BY: BY: Signature Signature NAME: James D. Wade NAME: Type or Print Type or Print TITLE: Software Contracts TITLE: DATE: DATE: SYMANTEC LIMITED BY Signature NAME: Derek Witte Type or Print TITLE: Director DATE: 29 ATTACHMENT 1 The following are the Versions and Releases for IBM AntiVirus: IBM AntiVirus Version or Release 2.2, 2.4, 2.4.1, 2.5, 2.5.1,2.5.2, 3.0 and 3.0.1. Each Version and Release was made available in a Desktop and an Enterprise Edition. 30 ATTACHMENT 2 Part A 1. End User Contract and Licenses OEM Contracts and Subscriptions. Delivered to Symantec in Cupertino, CA upon execution of this Agreement. Part B 1. Customer Lists Delivered to Symantec in Cupertino, CA upon execution of this Agreement. 31 ATTACHMENT 3 IBM SOLUTION DEVELOPER PROGRAM AGREEMENT IBM is committed to providing our customers with the highest quality products and to increasing customer satisfaction. We recognize the benefit of making it easier for commercial solution developers to acquire our software so they may, in turn, develop and market their own software to the general public. Our goal is for your software to be of the highest quality, be compatible with our software platforms and be generally available in the marketplace. SECTION 1 - YOUR RESPONSIBILITIES 1.1 In order to qualify for the IBM Solution Developer program discounts, you hereby represent and warrant that you are a commercial company whose primary business is either the development and marketing of software to end users not affiliated with your company, or the providing of software consulting services to end users not affiliated with your company. We may require you to provide us with a non-confidential business plan covering your use of IBM technologies. 1.2 You will use the software provided under this agreement solely for the purposes authorized and will pay us the generally available license fees for such software if you use them for any other purpose or if we determine that you do not qualify for any discounts received. 1.3 You will use commercially reasonable efforts to take full advantage of the advanced features of our software and hardware platforms. 1.4 You will use commercially reasonable efforts to ensure that all of your software developed using the software provided under this Agreement will not contain any "viruses" or other harmful code. You will test these products in a manner consistent with industry standards and will use commercially reasonable efforts to fix any problems with them. 1.5 Nothing contained herein grants us any rights or obligations with regard to your products. SECTION 2 - IBM RESPONSIBILITIES 2.1 At our option, we will provide you with Evaluation Software. Evaluation Software is provided under its generally available license agreement except that it is provided on an "AS IS" basis without technical support (except where specified in the program documentation) and it may only be used for evaluation, demonstration, development and testing purposes. It may not be used for fee work or productive use and may not be transferred to any third party. Evaluation Software is generally provided free of charge and is limited to one copy per Commercial Developer membership. 2.2 At our option, we will provide you with Discount Software. Discount Software is provided under its generally available license agreement except that it may only be used for evaluation, demonstration, development and testing purposes to develop software that will primarily be marketed to end users. It may not be used for fee work or productive use and may not be transferred to any third party. Discount Software is provided at a reduced price and we reserve the right to limit the number of orders we accept. You hereby grant us the right to use your name and logo on lists and in advertisements stating that you use the Discount Software provided. 2.3 We will issue you a Commercial Developer membership number when you apply, and on our approval of your application we will allow you to place orders. We will maintain an order desk which will have a list of all eligible software, and fees if applicable. 2.4 Discounts offered under this Agreement do not apply to publications, accessories, or documentation and may not be combined with any other discount, revenue commitment or allowance. SECTION 3 - GENERAL 3.1 IBM reserves the right to modify, withdraw, charge fees for or limit your participation in this offering at any time. Additional terms and conditions may apply to any specific offering, or geography. We will notify you if additional or different terms and conditions apply. 3.2 Each of us is an independent contractor and will be responsible for the direction and compensation of its own employees. Each of us is free to have similar agreements with others and offer products competitive to those covered by this Agreement. Each of us will independently set the prices for our own products. 3.3 Either of us may terminate this Agreement, with or without cause, on 30 days' written notice. Upon termination, you must return or destroy all copies of software products provided under this Agreement. If you wish to keep the Software, you must pay us the difference between the amount you paid and the generally available license fees for such software. Any terms of this Agreement which by their nature extend beyond the termination remain in effect until fulfilled. 3.4 For any product(s) that are not generally commercially available ("GA"), such product(s) and any technical support provided shall be considered to be Confidential Information of IBM. Prior to GA, you agree not to disclose such Confidential Information without IBM's prior consent. You will treat the Confidential Information with the same care and discretion to avoid disclosure, publication, or dissemination as you use with your own similar information. No obligation of confidentiality will apply to any information that (i) you already possess, or rightfully receive from a third party, (ii) you develop independently, or (iii) becomes publicly available without breach of this Agreement. You understand that this information is subject to change by IBM at any time without notice and agree that you will not hold IBM responsible for any reliance you place on any such information. Other than as indicated above, any information disclosed under this Agreement will be considered non-confidential. Any other confidential information to be disclosed between us will be governed by a separate Agreement for Exchange of Confidential Information (AECI). 3.5 We encourage you to advertise the fact that your products operate with IBM's software products, operating systems and hardware platforms. This Agreement does not, however, grant you any rights in any of IBM's patents, copyrights, trademarks, trade names of service marks. 3.6 In the event of a default in the performance of this Agreement, IBM will only be liable to you for any actual direct damages up to the total amount paid by you under this Agreement. Neither of us will be liable for any lost profits, lost savings, indirect, incidental or other consequential damages, even if advised of their possibility. Neither of us will bring a claim under this Agreement more than two (2) years after the claim arose. 3.7 This Agreement represents the entire agreement between us and supersedes all prior agreements on the subject. It can only be modified by a signed writing and cannot be assigned to others. Failure by either of us to insist on strict performance, does not prevent us from doing so at a later time. 3.8 This Agreement is governed by the laws of the country in which the transaction is performed except that: 1. if the transaction is performed in the United States, this Agreement is governed by the laws of the State of New York; 2. if the transaction is performed in Canada, the laws of the Province of Ontario govern this Agreement. Accepted and Agreed to International Business Machines Corporation --------------------------------------- This registration is for a company that is primarily concerned with the development of software for the commercial marketplace. This registration is for one development location of your company only. Additional memberships must be obtained for subsidiaries, affiliates, or other development locations to receive benefits under this program. This application allows IBM to state publicly that your company is a member of the IBM solution developer program. IBM may, without notice: 1. Modify or discontinue any or all services provided under this program, or 2. Discontinue your participation in the program. The information that you provide in this application is, to the best of your knowledge, correct. IBM reserves the right to accept or not accept your application. --------------------------------------- 32 ATTACHMENT 4 EQUIPMENT AND PROGRAM LOAN AGREEMENT [IBM LOGO] EQUIPMENT AND PROGRAM LOAN AGREEMENT ________________________________________________________________________________ If you have signed the IBM Customer Agreement, its Attachment for Trial or Loan of Products should be used in place of this Agreement. The Recipient (you) and International Business Machines Corporation (IBM) agree that the following terms and conditions apply when IBM loans you equipment and programs including associated user manuals and similar documentation (Loaned Items). Loaned Items may also be referred to as Loaned Equipment or Loaned Programs, as applicable. 1. ASSOCIATED CONTRACT DOCUMENTS The Attachment to this Agreement (Attachment) lists the Loaned Items and specifies any additional terms and conditions. A revised Attachment sets forth any additions or deletions to the listed Loaned Items and any changes to the terms and conditions. Your continued use of the Loaned Items or acceptance of additional Loaned Items after your receipt of a revised Attachment will constitute your acceptance of such revised Attachment. When the loan is made in conjunction with a referenced Agreement, IBM will specify the Reference Agreement Number. In this event, the referenced Agreement will describe the purpose of the loan. Otherwise, the purpose of the loan is specified below (Purpose of Loan). 2. TERM AND TERMINATION This Agreement ends on the earliest of 1) the specified Agreement Expiration Date, 2) the date this Agreement is terminated in accordance with this Section, or 3) the date the referenced Agreement, if any, is terminated. The Agreement Expiration Date may only be extended by IBM's issuance and your acceptance of a revised Attachment specifying such later Date. You may terminate this Agreement by providing written notice to IBM. If you fail to meet any of your obligations under this Agreement or the referenced Agreement, IBM may terminate this Agreement by giving written notice to you, indicating the effective date of termination. 3. LOAN PERIOD IBM will provide the Loaned Items to you on or about the Estimated Delivery Date(s) specified in the Attachment. IBM provides this Estimated Delivery Date(s) to you for planning purposes only. The Loan Period for each Loaned Item will extend from the actual date IBM delivers the Loaned Item(s) to you, until the earliest of: (a) the applicable Return Date specified in the Attachment or revised Return Date specified in a revised Attachment. ________________________________________________________________________________ PAGES 2 AND 3 AND ____ ATTACHMENT PAGE(S) ARE ALSO PART OF THIS AGREEMENT. The parties acknowledge that they have read this Agreement, understand it, and agree to be bound by its terms and conditions. Further, they agree that the complete and exclusive statement of the agreement between the parties relating to the Loaned Items provided hereunder consists of 1) this Agreement, 2) its Attachment(s) and 3) the referenced Agreement, if any, including those effective in the future. This statement of the agreement supersedes all proposals or other prior agreements, oral or written, and all other communications between the parties relating to the Loaned Items provided hereunder. International Business Machines Recipient's name: Corporation Armonk, New York 10804 By ___________________________________ By _____________________________________ Authorized signature Authorized signature Name (type or print): Name (type or print): Date: Date: This Agreement number: Reference Agreement number: IBM Office number: Recipient's Customer number IBM Office address: Recipient's address: Agreement Expiration Date: Purpose of Loan (To be completed only if no referenced Agreement): Page 1 of 3 33 b) the date you acquire i) title to the Loaned Equipment or ii) a continuing license to the Loaned Program, should such acquisition or licensing be available to you under Section 13; or c) the date this Agreement ends. 4. AUTHORIZED USE IBM provides Loaned Items to you solely for use in accordance with the terms of this Agreement and for the purpose(s) described either in this Agreement or in the referenced Agreement (Authorized Use). You may not use the Loaned Items for any other purposes. 5. OWNERSHIP AND LICENSE IBM or a third party retains title to all Loaned Items. You may not transfer Loaned Items to anyone else. For Loaned programs which are not subject to another supplier's or publisher's license agreement, IBM grants you a license to use, store, modify and make sufficient copies to support your Authorized Use under this Agreement. Such copies will be deemed to be Loaned Items. For Loaned Programs which are subject to another supplier's or publisher's license agreement, however, the terms and conditions of that supplier or publisher are passed to you through IBM. Such terms and conditions will be shipped with the Loaned Program. Any authorized copies made by you will be deemed to be Loaned Items. 6. LICENSED INTERNAL CODE If the Loaned Equipment contains Licensed Internal Code (Code), so identified by IBM, IBM grants you a license only to execute such Code to enable the Loaned Equipment to perform in accordance with IBM's official published specifications. You may not reverse assemble, reverse compile, decode, translate, or make any copies of the Code. You must return the original copy of the Code to IBM at the conclusion of the Loan Period. 7. DELIVERY AND INSTALLATION IBM will deliver the Loaned Items to the location(s) specified in the Attachment. You will 1) set-up all Loaned Equipment IBM designates as Customer Set-Up, 2) install all non-IBM equipment and 3) install all Loaned Programs. IBM will be responsible for the installation of all other Loaned Items. Installation by IBM will be during IBM's normal business hours. 8. RISK OF LOSS OR DAMAGE IBM relieves you of the risk of loss of, or damage to, all Loaned Items, except for loss or damage resulting from your breach of this Agreement including use other than Authorized Use. 9. SECURITY You will provide, at no cost to IBM, adequate security to protect the Loaned Items from theft, damage or misuse. You will use reasonable care in the use of all Loaned Items. You will provide an operating environment for the Loaned Items consistent with the related user documentation. You will keep the Loaned Items at the location(s) specified in the Attachment. You will not move the Loaned Items to another location without IBM's prior written approval. 10. SERVICE AND SUPPORT IBM will use reasonable efforts to provide or arrange for service and support to cause the Loaned Items to operate in accordance with applicable published specifications. You will permit IBM personnel full, free and safe access to your facilities, during normal business hours, for the purpose of inspection, preventive maintenance service or remedial maintenance service. 11. ALTERATIONS AND ATTACHMENTS An alteration to Loaned Equipment may be made only upon IBM's prior written approval. An attachment to Loaned Equipment may be made without notice to IBM. You will remove any alteration or attachment and restore Loaned Equipment to its unaltered condition before its return to IBM or upon IBM's notice to you that the alteration or attachment creates a safety hazard or renders maintenance of the Loaned Equipment impractical. 12. CHANGES IBM may make substitutions for Loaned Items or may provide additional items to you during the term of this Agreement. Such additions or deletions will be specified in a revised Attachment. 13. DISPOSITION OF LOANED ITEMS Return to IBM You will return the Loaned Equipment to IBM at the end of the Loan Period, except as may be provided for in this Section. You will return the Loaned Equipment to IBM in the same condition as when delivered to you, reasonable wear and tear excepted. You will return the original and all copies of the Loaned Programs at the end of the Loan Period, except as may be provided for in this Section. You will permit IBM personnel access during IBM's normal business hours to allow IBM to remove the Loaned Items. Acquisition and Continued Licensing IBM will determine the availability of Loaned Equipment for your acquisition and Loaned Programs for your continued licensing beyond the applicable Loan Period. You must inform IBM, prior to the end of the applicable Loan Period, of your interest in the acquisition of specific Loaned Equipment or the continued licensing of specific Loaned Programs. IBM will then notify you in writing either 1) of the terms and conditions under which you may acquire such Loaned Equipment or continue to license such Loaned Programs or 2) that the Loaned Items are not available for acquisition or continued licensing. Purchase of Loaned Equipment will be governed by the provisions of the IBM Customer Agreement and its applicable Attachments (or any equivalent agreement signed by both of us). Continued licensing of Loaned Programs will be governed by the provisions of the applicable IBM license agreement or another supplier's or publisher's Page 2 of 3 34 license agreement. IBM will identify to you the applicable agreement which governs such licensing. 14. DISCLAIMER OF WARRANTY IBM PROVIDES LOANED ITEMS ON AN "AS IS" BASIS. IBM MAKES NO WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO SUCH ITEMS, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 15. PATENTS AND COPYRIGHTS If the operation of a Loaned Item becomes, or IBM believes is likely to become, the subject of a claim that it infringes a patent or copyright in the United States or Puerto Rico, you will permit IBM, at its option and expense, either to secure the right for you to continue using the Loaned Item or to replace or modify it so that it becomes noninfringing. However, if neither of the foregoing alternatives is available on terms which are reasonable in IBM's judgment, you will return the Loaned Item upon IBM's written request. IBM will have no obligation with respect to any such claim based upon your modification of IBM equipment, programs or programming or their combination, operation or use with any non-IBM apparatus, data or programs. IBM will not have any liability regarding patent or copyright infringement for non-IBM Loaned Items. This Section states IBM's entire obligation to you regarding infringement or the like. 16. CONFIDENTIAL INFORMATION The parties agree that all information exchanged hereunder will be nonconfidential. If the loan requires the exchange of confidential information or includes an unannounced IBM product, such loan will also require that you and IBM enter into a separate confidentiality agreement. 17. LIMITATION OF REMEDIES IBM's entire liability and your exclusive remedy for actual damages from any cause whatsoever relating to the subject matter of this Agreement will be limited to the amount of the actual loss or damage, up to the greater of $100,000 or the charges for the Loaned Item that is the subject of the claim. This limitation will apply, except as otherwise stated in this Section, regardless of the form of action, whether in contract or in tort, including negligence. This limitation will not apply to claims by you for bodily injury or damage to real property or tangible personal property for which IBM is legally liable. In no event will IBM be liable for any lost profits, lost savings, incidental damages, or other economic consequential damages, even if IBM has been advised of the possibility of such damages. In addition, IBM will not be liable for any damages claimed by you based on any third party claim. In no event will IBM be liable for any damages caused by your failure to perform your responsibilities. 18. GENERAL You may not assign this Agreement without IBM's prior written consent. Any attempted assignment without such consent is void. Loaned Items are to be installed only in the United States or Puerto Rico. IBM will pay normal transportation charges, both from and to IBM-designated locations, for each Loaned Item. You will pay any rigging charges. You will furnish all labor for unpacking and packing except as IBM otherwise specifies or when performed at an IBM-designated location. IBM may provide services described in this Agreement by using IBM-selected independent contractors. Neither party is responsible for failure to fulfill its obligations under this Agreement due to causes beyond its control. Neither party may bring an action, regardless of form, arising out of this Agreement more than two years after the cause of action arose. In the event of the termination or expiration of this Agreement, the provisions of this Agreement which by their nature extend beyond the expiration or termination of this Agreement shall remain in effect beyond such expiration or termination until fulfilled. If there is a conflict between this Agreement and an Attachment, the terms and conditions of the Attachment will prevail. Except as modified by an Attachment, the terms of this Agreement remain in full force and effect. The terms of any Attachment not inconsistent with a subsequent Attachment remain in full force and effect. The laws of the State of New York govern this Agreement. Page 3 of 3 35 [IBM LOGO] ATTACHMENT TO EQUIPMENT AND PROGRAM LOAN AGREEMENT ________________________________________________________________________________ Name and Address of Recipient: IBM Address: This Agreement number: IBM Office number: Recipient's Installation Address: Recipient's IBM Customer number: Check one of the following: Original Attachment ___ Revised Attachment ___ Date of Revision: Revision number: LIST OF LOANED ITEMS:
Type/Model Plant Order Estimated or Program or Serial Delivery Return Number Number Date Date* Description Charges - --------------------------------------------------------------------------------
*To be completed only if earlier than the Agreement Expiration Date specified in this Agreement. Page __ of __ 36 ATTACHMENT 5 TRADEMARK USAGE GUIDELINES Symantec agrees to comply with the following trademark usage guidelines: 1) Symantec's logo and product name should be the primary identity in Symantec's communications. 2) Information about Symantec and its marketing expertise can be highlighted within the content of the communications (e.g., headline, body copy imagery). 3) Proper trademark attribution must be supplied for each IBM trademark at its first use. Attribution can be in the text or in a footnote. The attribution should be generally of the form "trademark is/are trademarks of the IBM Corporation in the United States and other countries." 4) The first reference in text to all IBM product names should be preceded by IBM. 5) Each trademark must be used as an adjective qualifying a noun that is a generic description of the product. The trademark should also be used in the singular form. 6) Capitalize the initial letter of each IBM product name, unless the trademarked name is different; in this case write it as it is trademarked. 7) Do not misspell or use lower case letters when using the name IBM in text. 8) The proper and complete name of an IBM product must be used in the first or most prominent reference to the product. 9) Symantec's materials must be clearly perceived as communications from Symantec and not IBM. 10) Symantec will not reference IBM products and services for which it is not authorized. 11) Symantec will not disparage IBM or competitive products or services. 12) If Symantec references IBM products and non-IBM products together, the IBM content must be at least equal in size to the other brands. 13) Symantec will not use any IBM trademark or product name in a telephone number that will be promoted using alphabetic rather than numeric characters, or in a domain name, URL, or e-mail address. EX-21.01 4 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.01 SYMANTEC CORPORATION SUBSIDIARIES OF SYMANTEC
Name of Subsidiary State or Country of Incorporation - ------------------ --------------------------------- AntiVirus Update (AVU) GmbH Germany Delrina Corporation (Canada) Canada Delrina (Canada) Corporation Canada Delrina (Delaware) Corporation Delaware, USA Delrina (Germany) GmbH Germany Delrina (UK) Corporation Limited United Kingdom Delrina (US) Corporation California, USA Delrina (Wyoming) Limited Liability Company Wyoming, USA Delrina International Corporation (Barbados) Barbados Fifth Generation Systems GmbH Germany Gocorp Sdn. Bhd. Malaysia 1087013 Ontario Limited Canada Sym (UK) Holding, Ltd. United Kingdom Symantec (Deutschland) GmbH Germany Symantec (Japan) KK Japan Symantec (UK) Ltd. ("Symantec UK") United Kingdom Symantec Australia Pty. Ltd. Australia Symantec do Brasil Ltda. Brazil Symantec EURL (France) France Symantec Financing B.V. (Netherlands) Netherlands Symantec Foreign Holding, Inc. Delaware, USA Symantec Foreign Sales Corporation (Barbados) Barbados Symantec Hong Kong Ltd. Hong Kong Symantec Korea Ltd. Korea Symantec Limited (Ireland) Ireland Symantec Nordic A.B. Sweden Symantec S.A. (Pty) Ltd. South Africa Symantec (Singapore) PTE Ltd. Singapore Symantec SRL (Italy) Italy Zortech (UK) Ltd. United Kingdom Zortech Limited ("Zortech") United Kingdom
EX-23.01 5 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS 1 EXHIBIT 23.01 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 33-31444, 33-32065, 33-33654, 33-37066, 33-42440, 33-44203, 33-46927, 33-51612, 33-54396, 33-55300, 33-64290, 33-70558, 33-80360, 33-88694, 33-60141, 33-64507, 333-07223, 333-18353, 333-18355, 333-39175 and Form S-3 Nos. 33-82012 and 33-63513) of our report dated April 30, 1998, except for Note 17, as to which the date is May 19, 1998, with respect to the consolidated financial statements and schedule of Symantec Corporation included in this Annual Report (Form 10-K) for the year ended March 31, 1998. ERNST & YOUNG LLP San Jose, California June 5, 1998 EX-27.01 6 FINANCIAL DATA SCHEDULE RESTATED FOR 3/31/96
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SYMANTEC CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS MAR-31-1996 APR-01-1995 MAR-31-1996 41,777 87,422 62,003 (5,016) 7,893 221,607 117,509 (65,811) 282,674 86,964 15,393 0 0 536 179,781 282,674 445,432 445,432 108,975 108,975 384,736 903 1,495 (44,392) (4,609) (39,783) 0 0 0 (39,783) (0.76) (0.76) For the Purposes of This Exhibit. Primary means Basic.
EX-27.02 7 FINANCIAL DATA SCHEDULE RESTATED FOR 3/31/97
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SYMANTEC CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS MAR-31-1997 APR-01-1996 MAR-31-1997 95,758 64,324 49,675 (4,300) 4,476 235,922 136,936 (85,326) 339,398 106,353 15,066 0 0 554 217,425 339,398 472,183 472,183 93,544 93,544 352,350 1,599 1,402 30,378 4,340 26,038 0 0 0 26,038 0.48 0.47 For the Purposes of This Exhibit. Primary means Basic.
EX-27.03 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SYMANTEC CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS MAR-31-1998 APR-01-1997 MAR-31-1998 139,013 86,870 69,574 (4,416) 3,175 328,539 158,169 (108,139) 476,460 153,002 14,284 0 0 571 316,936 476,460 578,361 578,361 87,431 87,431 390,585 1,036 1,218 112,097 27,008 85,089 0 0 0 85,089 1.52 1.42 For the Purposes of This Exhibit. Primary means Basic.
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