AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 21, 1997
                                                     REGISTRATION NO. 333-
 
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                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                                ---------------
 
                                   FORM S-1
                            REGISTRATION STATEMENT
                                     UNDER
                          THE SECURITIES ACT OF 1933
 
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                                VERISIGN, INC.
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
                                                                   
            DELAWARE                                7371                            94-3221585
 (STATE OR OTHER JURISDICTION OF        (PRIMARY STANDARD INDUSTRIAL             (I.R.S. EMPLOYER
 INCORPORATION OR ORGANIZATION)         CLASSIFICATION CODE NUMBER)            IDENTIFICATION NUMBER)
--------------- 1390 SHOREBIRD WAY MOUNTAIN VIEW, CALIFORNIA 94043 (650) 961-7500 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) --------------- DANA L. EVAN CHIEF FINANCIAL OFFICER VERISIGN, INC. 1390 SHOREBIRD WAY MOUNTAIN VIEW, CALIFORNIA 94043 (650) 961-7500 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------- COPIES TO: LAIRD H. SIMONS III, ESQ. TIMOTHY TOMLINSON, ESQ. ROBERT P. LATTA, ESQ. JEFFREY R. VETTER, ESQ. TOMLINSON ZISKO MOROSOLI & MASER LLP CHRIS F. FENNELL, ESQ. MICHAEL J. MCADAM, ESQ. 200 PAGE MILL ROAD CHRIS E. MONTEGUT, ESQ. FENWICK & WEST LLP SECOND FLOOR WILSON SONSINI GOODRICH & ROSATI, TWO PALO ALTO SQUARE PALO ALTO, CALIFORNIA 94306 PROFESSIONAL CORPORATION PALO ALTO, CALIFORNIA 94306 (650) 325-8666 650 PAGE MILL ROAD (650) 494-0600 PALO ALTO, CALIFORNIA 94304-1050 (650) 493-9300
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [_] --------------- CALCULATION OF REGISTRATION FEE
===================================================================================================== PROPOSED MAXIMUM AGGREGATE AMOUNT OF TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE - ----------------------------------------------------------------------------------------------------- Common Stock, $.001 par value per share............ $40,000,000 $12,122 =====================================================================================================
(1) Estimated pursuant to Rule 457(o) solely for the purpose of calculating the amount of the registration fee. --------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PROSPECTUS (Subject to Completion) Issued November 21, 1997 Shares [LOGO OF VERISIGN] COMMON STOCK ----------- ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $ AND $ PER SHARE. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE. APPLICATION HAS BEEN MADE TO LIST THE SHARES OF COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "VRSN." ----------- THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 5 HEREOF. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ----------- PRICE $ A SHARE -----------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) -------- -------------- ----------- Per Share.................... $ $ $ Total(3)..................... $ $ $
- ----- (1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriters." (2) Before deducting expenses payable by the Company estimated at $ . (3) The Company has granted the Underwriters an option, exercisable within 30 days of the date hereof, to purchase up to an aggregate of additional Shares at the price to public less underwriting discounts and commissions for the purpose of covering over-allotments, if any. If the Underwriters exercise such option in full, the total price to public, underwriting discounts and commissions and proceeds to Company will be $ , $ and $ , respectively. See "Underwriters." ----------- The Shares are offered, subject to prior sale, when, as and if accepted by the Underwriters named herein and subject to approval of certain legal matters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the Underwriters. It is expected that delivery of the Shares will be made on or about , 1998 at the office of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in immediately available funds. ----------- MORGAN STANLEY DEAN WITTER HAMBRECHT & QUIST WESSELS, ARNOLD & HENDERSON , 1998 NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN AS CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ---------------- UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ---------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................. 3 The Company......................... 4 Risk Factors........................ 5 Use of Proceeds..................... 18 Dividend Policy..................... 18 Capitalization...................... 19 Dilution............................ 20 Selected Consolidated Financial Data............................... 21 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 22 Business............................ 30 Management.......................... 49 Certain Transactions................ 59 Principal Stockholders.............. 62 Description of Capital Stock........ 64 Shares Eligible for Future Sale..... 67 Underwriters........................ 69 Legal Matters....................... 70 Experts............................. 70 Additional Information.............. 71 Index to Consolidated Financial Statements......................... F-1
---------------- The Company intends to furnish its stockholders with annual reports containing consolidated financial statements audited by an independent public accounting firm and quarterly reports containing unaudited consolidated financial data for the first three quarters of each year. ---------------- VeriSign(TM) is a trademark of the Company and Channel Signing Digital IDSM, Digital IDSM, Digital ID CenterSM, EDI Server IDSM, Financial Server IDSM, Global Server IDSM, NetSureSM, Secure Server IDSM, Software Developer Digital IDSM, Universal Digital IDSM, VeriSign OnSiteSM, VeriSign SETSM, VeriSign V- CommerceSM and WorldTrustSM are service marks of the Company. This Prospectus also includes trademarks of companies other than the Company. ---------------- Unless the context otherwise requires, the terms "VeriSign" and the "Company" refer to VeriSign, Inc., a Delaware corporation, and its majority- owned subsidiary, VeriSign Japan K.K. ("VeriSign Japan"). Except as otherwise noted herein, information in this Prospectus (i) assumes no exercise of the Underwriters' over-allotment option, (ii) gives effect to the conversion of all outstanding shares of Preferred Stock of the Company into shares of Common Stock of the Company, which will occur upon the closing of this offering, (iii) gives effect to the increase in the authorized shares of Common Stock to 50,000,000 shares to be effected in December 1997 and (iv) gives effect to the filing, upon the closing of this offering, of a Restated Certificate of Incorporation, authorizing 5,000,000 shares of undesignated Preferred Stock. ---------------- CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING, AND MAY BID FOR, AND PURCHASE, SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS." 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the Consolidated Financial Statements and notes thereto appearing elsewhere in this Prospectus. THE COMPANY VeriSign is the leading provider of digital certificate solutions and infrastructure needed by companies, government agencies, trading partners and individuals to conduct trusted and secure communications and commerce over the Internet and over intranets and extranets using the Internet Protocol (collectively, "IP Networks"). The Company has established strategic relationships with industry leaders, including Cisco, McAfee Associates, Microsoft, Netscape, RSA, Security Dynamics, VeriFone and VISA, to enable widespread deployment of the Company's digital certificate technology and products and to assure their interoperability among a wide variety of applications. The Company's digital certificates, called Digital IDs, are enabled in millions of copies of Microsoft and Netscape Web browsers, tens of thousands of copies of popular Web servers and a variety of other software applications. The Company believes that it has issued more digital certificates than any other company, having issued over 1.5 million of its Digital IDs for individuals and over 35,000 of its Digital IDs for Web sites. In addition to providing Digital IDs for individuals and Web sites, the Company provides turn- key and custom digital certificate solutions needed by organizations, such as Dow Jones, NOVUS/Discover and VISA, to conduct trusted and secure communications and commerce over IP networks. The Company markets its products and services worldwide through multiple distribution channels, including the Internet, direct sales, telesales, VARs, systems integrators and OEMs, and intends to continue to expand these distribution channels. THE OFFERING Common Stock offered....................... shares Common Stock to be outstanding after the shares(1) offering.................................. Use of proceeds............................ For general corporate purposes, including capital expenditures and working capital. See "Use of Proceeds." Proposed Nasdaq National Market symbol..... VRSN
SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
PERIOD FROM NINE MONTHS APRIL 12, 1995 ENDED (INCEPTION) TO YEAR ENDED SEPTEMBER 30, DECEMBER 31, DECEMBER 31, ----------------- 1995 1996 1996 1997 -------------- ------------ ------- -------- CONSOLIDATED STATEMENT OF OPER- ATIONS DATA: Revenues....................... $ 382 $ 1,351 $ 774 $ 6,115 Total costs and expenses....... 2,524 12,365 7,168 20,891 Operating loss................. (2,142) (11,014) (6,394) (14,776) Net loss....................... (1,994) (10,243) (5,952) (12,722) Pro forma net loss per share(2)...................... $ (.74) $ (.47) $ (.75) Shares used in per share compu- tations(2).................... 13,836 12,532 17,006
SEPTEMBER 30, 1997 ------------------------------- PRO PRO FORMA ACTUAL FORMA(3) AS ADJUSTED(4) ------- -------- -------------- CONSOLIDATED BALANCE SHEET DATA: Cash, cash equivalents and short- term investments................... $13,612 $13,612 $ Total assets........................ 25,659 25,659 Stockholders' equity................ 15,876 17,876
- -------- (1) Based on the number of shares outstanding as of September 30, 1997. Excludes (i) 2,000,974 shares of Common Stock issuable upon the exercise of options then outstanding, with a weighted average exercise price of $1.49 per share, and a maximum of 3,790,282 shares reserved or to be reserved for issuance under the Company's stock plans. See "Capitalization," "Management--Employee Benefit Plans" and Note 6 of Notes to Consolidated Financial Statements. (2) See Note 1 of Notes to Consolidated Financial Statements for an explanation of the determination of the number of shares used in per share computations. (3) Pro forma to reflect (i) the conversion of all outstanding shares of Preferred Stock into shares of Common Stock upon the closing of this offering, (ii) the issuance in November 1997 of 250,000 shares of Common Stock, valued at $2.0 million, in connection with the execution of certain agreements with VeriFone, which included a settlement of claims of VeriFone, and (iii) the issuance in November 1997 of 100,000 shares of Common Stock, valued at $800,000, to Microsoft in connection with the execution of a preferred provider agreement. (4) Pro forma as adjusted to reflect the sale of the shares of Common Stock offered hereby at an assumed initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by the Company. See "Use of Proceeds" and "Capitalization." 3 THE COMPANY VeriSign is the leading provider of digital certificate solutions and infrastructure needed by companies, government agencies, trading partners and individuals to conduct trusted and secure communications and commerce over IP networks. A digital certificate functions as an electronic credential in the digital world, identifying the certificate owner, authenticating the certificate owner's membership in a given organization or community or establishing the certificate owner's authority to engage in a given transaction, thereby creating a framework for trusted interaction over IP networks. The Company has established strategic relationships with industry leaders, including Cisco, McAfee Associates, Inc. ("McAfee Associates"), Microsoft, Netscape, RSA Data Security Inc. ("RSA"), Security Dynamics Technologies, Inc. ("Security Dynamics"), VeriFone, Inc. ("VeriFone") and Visa International Service Association ("VISA"), to enable widespread deployment of the Company's digital certificate technology and products and to assure their interoperability among a wide variety of applications. The Company's digital certificates, called Digital IDs, are enabled in millions of copies of Microsoft and Netscape Web browsers, tens of thousands of copies of popular Web servers and a variety of other software applications. The Company believes that it has issued more digital certificates than any other company, having issued over 1.5 million of its Digital IDs for individuals and over 35,000 of its Digital IDs for Web sites. In addition to providing Digital IDs for individuals and Web sites, the Company also provides turn-key and custom solutions needed by organizations, such as Dow Jones, NOVUS/Discover and VISA, to conduct trusted and secure communications and commerce over IP networks. IP networks are revolutionizing communications and commerce because of their global reach, accessibility, use of open standards and ability to enable real- time interaction. The use of IP networks is beginning to extend beyond informal messaging, general information browsing and the exchange of non- sensitive data to a number of more valuable and sensitive activities including business-to-business transactions and electronic data interchange ("EDI"), online retail purchases and payments, Web-based access to account and benefits information and secure messaging for both personal and business use. Forrester Research estimates that Internet business-to-business commerce alone will grow from approximately $8 billion in 1997 to more than $327 billion in 2002. However, despite the convenience and the compelling economic incentives for the use of IP networks, they cannot reach their full potential as a platform for global communications and commerce until the current lack of trust and security associated with the use of these networks is resolved. Digital certificates are emerging as the leading technology for establishing a framework for trusted and secure communications and commerce over IP networks, with many Internet security protocols dictating the use of digital certificates. Just as an individual may have many forms of credit cards and IDs, he or she may require multiple digital certificates, each corresponding to a unique digital relationship between the individual and an organization. Thus, there is the potential need over time for hundreds of millions of digital certificates to be issued and managed. The Company has invested significant resources to develop a highly reliable and secure operations infrastructure, a modular software architecture and a comprehensive set of security and trust practices to enable trusted and secure communications and commerce over IP networks using digital certificates. The Company's Digital ID Centers in Mountain View, California and Kawasaki, Japan are designed to provide the high levels of availability, security and scaleability required to meet the needs of customers for high volume digital certificate issuance and management. The Company's modular WorldTrust software architecture, which serves as the foundation for the Company's products and services, automates many aspects of digital certificate issuance and lifecycle management and provides the scaleability necessary to deploy millions of digital certificates for distinct communities ranging from individual corporations to the entire population of Internet users. The Company also has been instrumental in defining comprehensive trust practices and procedures, which the Company believes has been important in establishing its reputation as the leading provider of digital certificate solutions. The Company's objective is to enhance its position as the leading provider of digital certificate solutions and infrastructure needed to conduct trusted and secure communications and commerce over IP networks. The Company's strategy to achieve this objective includes leveraging its leadership position to drive market penetration, leveraging and expanding strategic relationships with industry leaders, maintaining leadership in technology, infrastructure and practices and continuing to build the VeriSign brand. The Company markets its products and services worldwide through multiple distribution channels, including the Internet, direct sales, telesales, value-added resellers ("VARs"), systems integrators and original equipment manufacturers ("OEMs"), and intends to continue to expand these distribution channels. The Company was incorporated in Delaware in April 1995. The Company's executive offices are located at 1390 Shorebird Way, Mountain View, California 94043, its telephone number at this location is (650) 961-7500 and its Web site is located at http://www.verisign.com. Information contained in the Company's Web site is not part of this Prospectus. 4 RISK FACTORS In addition to the other information in this Prospectus, the following factors should be considered carefully in evaluating an investment in the shares of Common Stock offered hereby. This Prospectus contains forward- looking statements that involve risks and uncertainties. The Company's actual results may differ materially from the results discussed in such forward- looking statements. Factors that may cause such a difference include, but are not limited to, those discussed below, in the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" and elsewhere in this Prospectus. Limited Operating History; History of Losses and Anticipation of Future Losses. The Company was incorporated in April 1995 and began introducing its products and services in June 1995. Accordingly, the Company has only a limited operating history on which to base an evaluation of its business and prospects. The Company's prospects must be considered in light of the risks and uncertainties encountered by companies in the early stages of development, particularly companies in new and rapidly evolving markets. The Company's success will depend on many factors, including, but not limited to, the following: the rate and timing of the growth and use of IP networks for communications and commerce and the extent to which digital certificates are used for such communications and commerce; the demand for the Company's products and services; the levels of competition; the perceived security of communications and commerce over IP networks, and of the Company's infrastructure, products and services in particular; and the Company's continued ability to maintain its current and enter into additional strategic relationships. To address these risks the Company must, among other things: attract and retain qualified personnel; respond to competitive developments; successfully introduce new products and services; successfully introduce enhancements to its existing products and services to address new technologies and standards; and successfully market its digital certificates and its enterprise and electronic commerce solutions. There can be no assurance that the Company will succeed in addressing any or all of these risks, and the failure to do so would have a material adverse effect on the Company's business, operating results and financial condition. In addition, the Company has experienced substantial net losses in each fiscal period since its inception and, as of September 30, 1997, had an accumulated deficit of $25.0 million. Such net losses and accumulated deficit resulted from the Company's lack of substantial revenues and the significant costs incurred in the development and sale of the Company's products and services and in the establishment and deployment of the Company's operations infrastructure and practices. The Company's limited operating history, the emerging nature of its market and the factors described under "--Adoption of IP Networks" and "-- Potential Fluctuations in Quarterly Operating Results; Unpredictability of Future Revenues," among other factors, make prediction of the Company's future operating results difficult. In addition, the Company intends to increase its expenditures in all areas in order to execute its business plan. As a result, the Company expects to incur substantial additional losses for the foreseeable future. Furthermore, to the extent the Company's majority-owned subsidiary, VeriSign Japan, is unable to continue to fund its operations with investments from minority shareholders, the Company may be required to fund the operations of VeriSign Japan, which could have a material adverse effect on the Company's business, operating results and financial condition. Although the Company has experienced revenue growth in recent periods, there can be no assurance that such growth rates are sustainable and, therefore, they should not be considered indicative of future operating results. There can also be no assurance that the Company will ever achieve significant revenues or profitability or, if significant revenues and profitability are achieved, that they could be sustained. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Strategy." Adoption of IP Networks. In order for the Company to be successful, IP networks must be adopted as a means of trusted and secure communications and commerce to a sufficient extent and within an adequate time frame. Because trusted and secure communications and commerce over IP networks is new and evolving, it is difficult to predict with any assurance the size of this market and its growth rate, if any. To date, many businesses and consumers have been deterred from utilizing IP networks for a number of reasons, including, but not limited to, potentially inadequate development of network infrastructure, security concerns, inconsistent quality of service, lack of availability of cost-effective, high-speed service, limited numbers of local access points for corporate users, inability to integrate business applications on IP networks, the need to interoperate with multiple 5 and frequently incompatible products, inadequate protection of the confidentiality of stored data and information moving across IP networks and a lack of tools to simplify access to and use of IP networks. The adoption of IP networks for trusted and secure communications and commerce, particularly by individuals and entities that historically have relied upon traditional means of communications and commerce, will require a broad acceptance of new methods of conducting business and exchanging information. Companies and government agencies that already have invested substantial resources in other methods of conducting business may be reluctant to adopt a new strategy that may limit or compete with their existing efforts. Furthermore, individuals with established patterns of purchasing goods and services and effecting payments may be reluctant to alter those patterns. The use of IP networks for trusted and secure communications and commerce may not increase or may increase more slowly than expected because the infrastructure required to support widespread trusted and secure communications and commerce on such networks may not develop. For example, the Internet has experienced, and may continue to experience, significant growth in its number of users and amount of traffic. There can be no assurance that the Internet infrastructure will continue to support the demands placed on it by this continued growth or that the performance or reliability of the Internet will not be adversely affected by this continued growth. In addition, IP networks could lose their viability due to delays in the development or adoption of new standards and protocols to handle increased levels of activity or due to increased governmental regulation. Changes in or insufficient availability of communications services to support IP networks could result in slower response times and also adversely affect usage of IP networks. If the market for trusted and secure communications and commerce over IP networks fails to develop or develops more slowly than expected, or if the Internet infrastructure does not adequately support any continued growth, the Company's business, operating results and financial condition would be materially adversely affected. See "--Industry Regulation" and "Business--Industry Background" and "--Customers and Markets." No Assurance of Market Acceptance for Digital Certificates and the Company's Products and Services. The Company's products and services are targeted at the market for trusted and secure communications and commerce over IP networks, a market that is at an early stage of development and is rapidly evolving. Accordingly, demand for and market acceptance of digital certificate solutions are subject to a high level of uncertainty. There can be no assurance that digital certificates will gain market acceptance as a necessary element of trusted and secure communications and commerce over IP networks. In addition, there can be no assurance that the market for the Company's products and services will develop in a timely manner, or at all, or that demand for the Company's products and services will emerge or be sustainable. The factors that may affect the level of market acceptance of digital certificates and, consequently, the Company's products and services, include the following: market acceptance of products and services based upon authentication technologies other than those used by the Company; public perception of the security of digital certificates and of the inherent security levels of IP networks; the ability of the Internet infrastructure to accommodate increased levels of usage; and the enactment of government regulations affecting communications and commerce over IP networks. Even if digital certificates achieve market acceptance, there can be no assurance that the Company's products and services will adequately address the market's requirements. If digital certificates do not achieve market acceptance in a timely manner and sustain such acceptance, or if the Company's products and services in particular do not achieve or sustain market acceptance, the Company's business, operating results and financial condition would be materially adversely affected. See "Business--Industry Background" and "--Customers and Markets." Potential Fluctuations in Quarterly Operating Results; Unpredictability of Future Revenues. The Company's operating results have varied on a quarterly basis during its short operating history and may fluctuate significantly in the future as a result of a variety of factors, many of which are outside the Company's control. Factors that may affect the Company's quarterly operating results include the following: market acceptance of digital certificates; market acceptance of its products and services, particularly VeriSign OnSite, VeriSign V-Commerce and VeriSign SET; the long sales and implementation cycles for and potentially large order sizes of certain of the Company's products and services; the timing and execution of individual contracts; the timing of releases of new versions of Internet browsers or other third-party software products in which the Company's public root keys are embedded; customer renewal rates for the Company's products and services; the Company's 6 success in marketing other products and services to its existing customer base and to new customers; development of the Company's direct and indirect distribution channels; market acceptance of the Company's or competitors' new products and services; the amount and timing of expenditures relating to expansion of the Company's operations; price competition or pricing changes; general economic conditions and economic conditions specific to the Internet, intranet and extranet industries. Any one of these factors could cause the Company's revenues and operating results to vary significantly in the future. In addition, the Company will need to expand its operations and attract, integrate, retain and motivate a substantial number of sales and marketing and research and development personnel. The timing of such expansion and the rate at which new personnel become productive could cause material fluctuations in the Company's quarterly results of operations. See "Business--Industry Background" and "--Strategy." The Company's limited operating history and the emerging nature of its market make prediction of future revenues difficult. The Company's expense levels are based, in part, on its expectations regarding future revenues, and to a large extent such expenses are fixed, particularly in the short term. There can be no assurance that the Company will be able to predict its future revenues accurately and the Company may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall of revenues in relation to the Company's expectations could cause significant declines in the Company's quarterly operating results. Due to all of the foregoing factors, the Company's quarterly revenues and operating results are difficult to forecast. The Company believes that period- to-period comparisons of its operating results will not necessarily be meaningful and should not be relied upon as an indication of future performance. Also, it is likely that the Company's operating results will fall below the expectations of the Company, securities analysts or investors in some future quarter. In such event, the market price of the Company's Common Stock could be materially and adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." System Interruption and Security Breaches. The Company's success is largely dependent on the uninterrupted operation of its Digital ID Centers and its other computer and communications systems, which is dependent on the Company's ability to protect such systems from loss, damage or interruption caused by fire, earthquake, power loss, telecommunications failure or other events beyond the Company's control. Most of the Company's systems are located at, and most of its customer information is stored in, its facilities in Mountain View, California and Kawasaki, Japan, areas susceptible to earthquakes. Although the Company believes that its existing and planned precautions are adequate to prevent any significant loss of information or system outage, there can be no assurance that unanticipated problems will not cause such loss or failure. Any damage or failure that causes interruptions in the Company's Digital ID Centers and its other computer and communications systems could have a material adverse effect on the Company's business, operating results and financial condition. In addition, the ability of the Company to issue digital certificates is also dependent on the efficient operation of the Internet connections from customers to its Digital ID Centers. Such connections, in turn, are dependent upon efficient operation of Web browsers, Internet Service Providers ("ISPs") and Internet backbone service providers, all of which have had periodic operational problems or experienced outages in the past. Any such problems or outages could adversely affect customer satisfaction with the Company's products and services, which could have a material adverse effect on the Company's business, operating results and financial condition. The Company's success also depends in large part upon the scaleability of its systems, which have not been tested at high volumes. As such, it is possible that a substantial increase in demand for the Company's products and services could cause interruptions in the Company's systems that could adversely affect the Company's ability to deliver its products and services. Any such interruptions could have a material adverse effect on the Company's business, operating results and financial condition. The Company retains confidential customer information in its Digital ID Centers. It is critical to the Company's business strategy that the Company's facilities and infrastructure remain secure and that such facilities and infrastructure are perceived by the marketplace to be secure. Despite the implementation of security measures, the Company's infrastructure may be vulnerable to physical break-ins, computer viruses, attacks by 7 hackers or similar disruptive problems, and it is possible that in the future the Company may have to expend additional financial and other resources to further address such problems. Any physical or electronic break-ins or other security breaches or compromises of the private root keys stored at the Company's Digital ID Centers may jeopardize the security of information stored on the Company's premises or stored in and transmitted through the computer systems and networks of the businesses and individuals utilizing the Company's products or services, which could result in significant liability to the Company and could deter existing and potential customers from using the Company's products and services. Such an occurrence could result in adverse publicity and therefore adversely affect the market's perception of the security of communications and commerce over IP networks as well as of the security or reliability of the Company's products and services, which would have a material adverse effect on the Company's business, operating results and financial condition. See "Business--The VeriSign Solution," "--Strategy," "--Infrastructure," "--Security and Trust Practices" and "--Facilities." Competition. The Company's digital certificate solutions are targeted at the new and rapidly evolving market for trusted and secure communications and commerce over IP networks. Although the competitive environment in this market has yet to develop fully, the Company anticipates that it will be intensely competitive, subject to rapid change and significantly affected by new product and service introductions and other market activities of industry participants. The Company's primary competitors are Entrust Technologies, Inc. ("Entrust"), GTE CyberTrust Solutions Incorporated ("GTE/CyberTrust") and International Business Machines Corporation ("IBM"). The Company also experiences competition from a number of smaller companies that provide digital certificate solutions. The Company expects that competition from established and emerging companies in the financial and telecommunications industries will increase in the near term, and that the Company's primary long-term competitors may not yet have entered the market. Netscape has introduced software products that enable the issuance and management of digital certificates, and the Company believes that other companies could introduce such products. There can be no assurance that additional companies will not offer digital certificate solutions that are competitive with those of the Company. Increased competition could result in pricing pressures, reduced margins or the failure of the Company's products and services to achieve or maintain market acceptance, any of which could have a material adverse effect on the Company's business, operating results and financial condition. Several of the Company's current and potential competitors have longer operating histories and significantly greater financial, technical, marketing and other resources than the Company and therefore may be able to respond more quickly than the Company to new or changing opportunities, technologies, standards and customer requirements. Many of these competitors also have broader and more established distribution channels that may be used to deliver competing products or services directly to customers through bundling or other means. If such competitors were to bundle competing products or services for their customers, the demand for the Company's products and services might be substantially reduced and the ability of the Company to distribute its products successfully and the utilization of its services would be substantially diminished. In addition, browser companies that embed the Company's root keys or otherwise feature the Company as a provider of digital certificate solutions in their Web browsers or on their Web sites could also promote competitors of the Company or charge the Company substantial fees for such promotions in the future. New technologies and the expansion of existing technologies may increase the competitive pressures on the Company. There can be no assurance that competing technologies developed by others or the emergence of new industry standards will not adversely affect the Company's competitive position or render its products or technologies noncompetitive or obsolete. In addition, the market for digital certificates is nascent and is characterized by announcements of collaborative relationships involving competitors of the Company. The existence or announcement of such relationships could adversely affect the Company's ability to attract and retain customers. As a result of the foregoing and other factors, there can be no assurance that the Company will compete effectively with current or future competitors or that competitive pressures faced by the Company will not have a material adverse effect on the Company's business, operating results and financial condition. In connection with the Company's first round of financing, RSA contributed certain technology to the Company and entered into a noncompetition agreement with the Company pursuant to which RSA agreed that it 8 would not compete with the Company's certificate authority business for a period of five years. This noncompetition agreement will expire in April 2000. The Company believes that, because RSA (which is now a wholly-owned subsidiary of Security Dynamics) has already developed expertise in the area of cryptography, should it choose to enter any of the Company's markets, its barriers to entry would be lower than those that would be encountered by other potential competitors of the Company. If RSA were to enter into the digital certificate market, the Company's business, operating results and financial condition could be materially adversely affected. See "Business--Competition." Rapid Technological Change; New Product and Services Introductions. Substantially all of the Company's limited revenues to date have been derived from the sale of digital certificate products and related services. These products and services are expected to account for substantially all of the Company's revenues for the foreseeable future. The emerging market for digital certificate products and related services is characterized by rapid technological developments, frequent new product introductions and evolving industry standards. The emerging nature of this market and its rapid evolution will require that the Company continually improve the performance, features and reliability of its products and services, particularly in response to competitive offerings and that it introduce new products and services or enhancements to existing products and services as quickly as possible and prior to its competitors. The success of new product introductions is dependent on several factors, including proper new product definition, timely completion and introduction of new products, differentiation of new products from those of the Company's competitors and market acceptance of the Company's new products and services. There can be no assurance that the Company will be successful in developing and marketing new products and services that respond to competitive and technological developments and changing customer needs. The failure of the Company to develop and introduce new products and services successfully on a timely basis and to achieve market acceptance for such products and services could have a material adverse effect on the Company's business, operating results and financial condition. In addition, the widespread adoption of new Internet, networking or telecommunication technologies or standards or other technological changes could require substantial expenditures by the Company to modify or adapt its products and services. To the extent that a method other than digital certificates is adopted to enable trusted and secure communications and commerce over IP networks, sales of the Company's existing and planned products and services will be adversely affected and the Company's products and services could be rendered unmarketable or obsolete, which would have a material adverse effect on the Company's business, operating results and financial condition. The Company believes there is a time-limited opportunity to achieve market share, and there can be no assurance that the Company will be successful in achieving widespread acceptance of its products and services or in achieving market share before competitors offer products and services with features similar to the Company's current offerings. Any such failure by the Company could have a material adverse effect on the Company's business, operating results and financial condition. See "Business-- Products and Services" and "--Research and Development." Management of Growth and Expansion. The Company is currently experiencing a period of significant expansion. The Company's historical growth has placed, and such growth and any further growth is likely to continue to place, a significant strain on the Company's managerial, operational, financial and other resources. The Company has grown from 30 employees at December 31, 1995 to 162 employees at September 30, 1997. In addition, the Company has opened additional sales offices and has significantly expanded its operations during this time period. The Company's future success will depend, in part, upon the ability of its senior management to manage growth effectively, which will require the Company to implement additional management information systems, to develop further its operating, administrative, financial and accounting systems and controls and to maintain close coordination among its engineering, accounting, finance, marketing, sales and operations organizations. Any failure to implement or improve systems or controls or to manage any future growth and expansion effectively could have a material adverse effect on the Company's business, operating results and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Dependence on Key Personnel. The Company's future success will be highly dependent on the performance of its senior management team and other key employees, many of whom have worked together for only a short 9 period of time. For example, the Company has only recently hired its Vice President of Sales and Field Operations. The Company's success will also depend on its ability to attract, integrate, motivate and retain additional highly skilled technical and sales and marketing personnel. There is intense competition for senior management and technical and sales and marketing personnel in the areas of the Company's activities. In addition, the Company's stringent hiring practices for all operations personnel and executive management and for certain engineering personnel, which consist of background checks into prospective employees' criminal and financial histories, further limit the number of qualified persons for such positions. See "Business-- Security and Trust Practices." The Company has no employment agreements with any of its key executives. In addition, the Company does not maintain key person life insurance for any of its officers or key employees other than Stratton D. Sclavos, its President and Chief Executive Officer. The loss of the services of any of the Company's senior management team or other key employees or the failure of the Company to attract, integrate, motivate and retain additional key employees could have a material adverse effect on the Company's business, operating results and financial condition. See "Business-- Employees" and "Management." Need to Establish and Maintain Strategic Relationships. A significant business strategy of the Company is to enter into strategic or other similar collaborative relationships in order to offer products and services to a larger customer base than could be reached through direct sales and marketing efforts. The Company will need to enter into additional strategic relationships to execute its business plan. There can be no assurance that the Company will be able to enter into additional, or maintain its existing, strategic relationships on commercially reasonable terms, if at all. If the Company were unable to enter into additional strategic relationships or maintain its existing strategic relationships, it would be required to devote substantially more resources to the distribution, sale and marketing of its products and services than it would otherwise plan to do. Furthermore, as a result of the Company's emphasis on these relationships, the Company's success will depend both on the ultimate success of the other parties to such relationships, particularly in the use and promotion of IP networks for trusted and secure communications and commerce, and on the ability of these parties to market the Company's products and services successfully. Failure of one or more of the Company's strategic relationships to result in the development and maintenance of a market for the Company's products and services could have a material adverse effect on the Company's business, operating results and financial condition. In addition, the Company's existing strategic relationships do not and any future strategic relationships may not afford the Company any exclusive marketing or distribution rights. There can be no assurance that the other parties to such relationships view their relationships with the Company as significant for their own businesses or that they will not reduce their commitment to the Company at any time in the future. In addition, there can be no assurance that such parties will not pursue alternative technologies or develop alternative products and services in addition to or in lieu of the Company's products and services either on their own or in collaboration with others, including the Company's competitors. Any future inability of the Company to maintain its strategic relationships or to enter into additional strategic relationships could have a material adverse effect on the Company's business, operating results and financial condition. See "Business--Strategy," "--Strategic Relationships" and "--Marketing, Sales and Distribution." Risk of Defects. Products as complex as those offered or developed by the Company frequently contain undetected defects or failures that may be detected at any point in the product's life. There can be no assurance that, despite testing by the Company and potential customers, defects or errors will not occur in existing or new products, which could result in loss of or delay in revenues, loss of market share, failure to achieve market acceptance, diversion of development resources, injury to the Company's reputation, increased insurance costs or increased service and warranty costs, any of which could have a material adverse effect on the Company's business, operating results and financial condition. Furthermore, the Company often renders implementation, customization, consulting and other technical services in connection with the implementation of the Company's enterprise and electronic commerce solutions and its digital certificate service and product development agreements. The performance of these services typically involves working with sophisticated software, computing and networking systems. The Company's failure or inability to meet customer expectations or project milestones in a timely manner could also result in loss of or delay in revenues, loss of market share, failure to 10 achieve market acceptance, injury to reputation and increased costs. Because customers rely on the Company's digital certificate solutions for critical security applications, any significant defects or errors in the Company's products or services, or in the products of third parties that embed the Company's products, might discourage such third parties or other customers from utilizing the Company's products and services or result in tort or warranty claims, which could have a material adverse effect on the Company's business, operating results and financial condition. Although the Company attempts to reduce the risk of losses resulting from such claims through errors and omissions insurance, warranty disclaimers and liability limitation clauses in its sales agreements, there can be no assurance that such insurance coverage will adequately cover the Company for such claims or that such other measures will be effective in limiting the Company's liability. If a court refused to enforce the liability-limiting provisions of the Company's contracts for any reason, or if liabilities arose that were not contractually limited or adequately covered by insurance, the Company's business, operating results and financial condition could be materially and adversely affected. See "Business--Products and Services" and "--Research and Development." Potentially Lengthy Sales and Implementation Cycles for Certain Products and Services. A key element of the Company's strategy is to market certain of its products and services directly to large companies and government agencies. Based on its sales experience to date, the Company expects that the sale and implementation of its enterprise and electronic commerce solutions to such entities will typically involve a lengthy education process and a significant technical evaluation and commitment of capital and other resources. The sale and implementation of the Company's enterprise and electronic commerce solutions will be subject to the risk of delays associated with customers' internal budget and other procedures for approving large capital expenditures, deploying new technologies within their networks and testing and accepting new technologies that affect key operations. For these and other reasons, the sales and implementation cycles associated with certain of the Company's products and services are expected to be lengthy, potentially lasting from three to 12 months, and are expected to be subject to a number of significant risks that are beyond the Company's control. Because of the anticipated lengthy sales and implementation cycle and the potentially large size of such orders, if orders forecasted for a specific customer for a particular quarter are not realized or revenues are not otherwise recognized in that quarter, the Company's operating results for that quarter could be materially adversely affected. See "--Potential Fluctuations in Quarterly Operating Results; Unpredictability of Future Revenues" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Risks Relating to Cryptography Technology. The Company's digital certificate products and related services are dependent on the use of public key cryptography technology, which depends in part on the application of certain mathematical principles known as "factoring." The security afforded by public key cryptography technology is predicated on the assumption that the factoring of the composite of large prime numbers is difficult. Should an easy factoring method be developed, then the security afforded by encryption products utilizing public key cryptography technology would be reduced or eliminated. Furthermore, any significant advance in techniques for attacking cryptographic systems could also render some or all of the Company's existing products and services obsolete or unmarketable. There can be no assurance that such developments will not occur. Moreover, even if no breakthroughs in factoring or other methods of attacking cryptographic systems are made, factoring problems can theoretically be solved by computer systems significantly faster and more powerful than those presently available. If such improved techniques for attacking cryptographic systems are ever developed, the Company would likely have to reissue digital certificates to some or all of its customers, which could adversely affect market perception of the reliability of the Company's products and services or otherwise have a material adverse effect on the Company's business, operating results and financial condition. In the past there have been public announcements of the successful decoding of certain cryptographic messages. The publicity around any breaches could adversely affect the public perception as to the safety of the public key cryptography technology included in the Company's digital certificates. Such adverse public perception could have a material adverse effect on the Company's business, operating results and financial condition. See "Business--Industry Background" and "--Products and Services." Risks Associated with International Operations. Revenues of VeriSign Japan and revenues from other international customers accounted for approximately 15% of the Company's revenues for the nine 11 months ended September 30, 1997. A key component of the Company's strategy is to expand its international operations and its international sales and marketing activities. Expansion into these markets has required and will continue to require significant management attention and resources and may require the Company to localize its products and services for a particular market and to enter into international distribution and operating relationships. The Company has limited experience in localizing its products and in developing international distribution or operating relationships. There can be no assurance that the Company will be successful in expanding its product and service offerings into international markets. In addition to the uncertainty regarding the Company's ability to generate revenues from foreign operations and expand its international presence, there are certain risks inherent in doing business on an international basis, including, among others, regulatory requirements, legal uncertainty regarding liability, export and import restrictions, tariffs and other trade barriers, difficulties in staffing and managing foreign operations, longer payment cycles, problems in collecting accounts receivable, political instability, seasonal reductions in business activity and potentially adverse tax consequences, any of which could adversely affect the success of the Company's international operations. All of the Company's international revenues from sources other than VeriSign Japan are denominated in U.S. dollars. To the extent the Company expands its international operations and has additional portions of its international revenues denominated in foreign currencies, the Company could become subject to increased risks relating to foreign currency exchange rate fluctuations. There can be no assurance that one or more of the factors discussed above will not have a material adverse effect on the Company's future international operations and, consequently, on the Company's business, operating results and financial condition. See "--Industry Regulation," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business-- Strategy" and "--Marketing, Sales and Distribution." Uncertain Maintenance and Strengthening of the VeriSign Brand. The Company believes that maintaining and strengthening the VeriSign brand is critical to achieving widespread acceptance of its digital certificates and related products and services and that the importance of brand recognition will increase as competition in the market for digital certificates and related products and services increases. Promoting and positioning the VeriSign brand will depend largely on the success of the Company's marketing efforts and the ability of the Company to provide, on an uninterrupted basis, high quality, secure, trustworthy and cost effective digital certificate solutions. The Company will also be dependent on the success of its strategic relationships in order to promote its brand and increase brand awareness. See "--Need to Establish and Maintain Strategic Relationships." If current or potential customers do not perceive the Company's products and services as secure or trustworthy, the Company will be unsuccessful in maintaining and strengthening its brand. Furthermore, in order to promote the VeriSign brand in response to competitive pressures, the Company may find it necessary to increase its marketing budget or otherwise increase its financial commitment to creating and maintaining brand loyalty among customers. If the Company fails to promote and maintain its brand or incurs excessive expenses in an attempt to promote and maintain its brand, or if the Company's existing or future strategic relationships fail to promote the Company's brand or increase brand awareness, the Company's business, operating results and financial condition could be materially adversely affected. See "Business--Strategy" and "--Marketing, Sales and Distribution." Dependence on Authentication Information. The Company relies upon information provided by third-party sources to authenticate the identity of customers requesting certain of the Company's digital certificates. This information is presently only available from a limited number of sources and the Company currently procures such information from single sources. The Company's reliance on these single sources involves certain risks and uncertainties, including the possibility of delayed or discontinued availability. Any such delay or unavailability, coupled with any inability of the Company to develop alternative sources quickly and cost-effectively, could materially impair the Company's ability to deliver certain of its digital certificates on a timely basis and result in the cancellation of orders, increased costs and injury to reputation, which could have a material adverse effect on the Company's business, operating results and financial condition. The Company's reliance on third-party information sources for authentication has also limited the distribution of certain of its digital certificates outside of the United States, where access to such sources has been unavailable or limited. Additionally, accurate authentication of the identity of the individuals and entities to which the Company issues its digital certificates is necessary for such digital certificates to provide security. Therefore, the inaccuracy of authentication information 12 on which the Company relies, including information the Company receives from third parties, could result in material injury to the Company's reputation and tort or warranty claims from customers relying upon the Company's digital certificates, which could have a material adverse effect on the Company's business, operating results and financial condition. See "--Risk of Defects" and "Business--Products and Services." Industry Regulation. Exports of software products utilizing encryption technology are generally restricted by the U.S. and various foreign governments. All cryptographic products require export licenses from certain U.S. government agencies. Although the Company has obtained approval to export its Global Server ID product and none of the Company's other products and services is currently subject to export controls under U.S. law, there can be no assurance that the list of products and countries for which export approval is required, and the regulatory policies with respect thereto, will not be revised from time to time to include digital certificate products and related services, or that the Company will be able to obtain necessary regulatory approvals for the export of future products. The inability of the Company to obtain required approvals under these regulations could adversely affect the ability of the Company to make international sales. Furthermore, competitors of the Company may also seek to obtain approvals to export products that could increase the amount of competition faced by the Company. There are currently no federal laws or regulations that specifically control certification authorities, but a limited number of states have enacted legislation or regulations with respect to certification authorities. If the market for digital certificates grows, the United States, state or foreign governments may choose to enact further regulations governing digital certificate authorities or other providers of digital certificate products and related services. Such regulations or the costs of complying with such regulations could have a material adverse effect on the Company's business, operating results and financial condition. Many companies conducting commercial transactions over IP networks do not collect sales or other similar taxes with respect to shipments of goods into other states or foreign countries or with respect to other transactions conducted between parties in different states or countries. It is possible that states or foreign countries may seek to impose sales taxes on out of state companies that engage in commerce over IP networks. In the event that states or foreign countries succeed in imposing sales or other taxes on Internet commerce, the growth of the use of IP networks for commerce could slow substantially, which could have a material adverse effect on the Company's business, operating results and financial condition. Due to the increasing popularity of the Internet and other IP networks, it is possible that laws and regulations may be enacted covering issues such as user privacy, pricing, content and quality of products and services. For example, the Telecommunications Act of 1996 prohibits the transmission over the Internet of certain types of information and content. The increased attention focused upon these issues as a result of the adoption of other laws or regulations may reduce the rate of growth of the Internet or the use of other IP networks, which in turn could result in decreased demand for the Company's products and services or could otherwise have a material adverse effect on the Company's business, operating results and financial condition. See "Business--Industry Background." Intellectual Property; Potential Litigation. The Company relies primarily on a combination of copyrights, trademarks, trade secret laws, restrictions on disclosure and other methods to protect its intellectual property and trade secrets. The Company also enters into confidentiality agreements with its employees and consultants, and generally controls access to and distribution of its documentation and other proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use the Company's intellectual property or trade secrets without authorization. In addition, there can be no assurance that others will not independently develop substantially equivalent intellectual property. There can be no assurance that the precautions taken by the Company will prevent misappropriation or infringement of its technology. A failure by the Company to protect its intellectual property in a meaningful manner could have a material adverse effect on the Company's business, operating results and financial condition. In addition, litigation may be necessary in the future to enforce the Company's intellectual property rights, to protect the Company's trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of management and technical resources, either of which could have a material adverse effect on the Company's business, operating results and financial condition. 13 The Company also relies on certain licensed third-party technology, such as public key cryptography technology licensed from RSA. In these license agreements, the licensor has agreed to defend, indemnify and hold the Company harmless with respect to any claim by a third party that the licensed software infringes any patent or other proprietary right. Although these licenses are fully paid, there can be no assurance that the outcome of any litigation between the licensor and a third party or between the Company and a third party will not lead to royalty obligations of the Company for which the Company is not indemnified or for which such indemnification is insufficient, or that the Company will be able to obtain any additional license on commercially reasonable terms or at all. In the future, the Company may seek to license additional technology to incorporate in its products and services. There can be no assurance that any third-party technology licenses that the Company may be required to obtain in the future will be available to the Company on commercially reasonable terms or at all. The loss of or inability to obtain or maintain any of these technology licenses could result in delays in introduction of the Company's products or services until equivalent technology, if available, is identified, licensed and integrated, which could have a material adverse effect on the Company's business, operating results and financial condition. From time to time, the Company has received, and may receive in the future, notice of claims of infringement of other parties' proprietary rights. There can be no assurance that infringement or other claims will not be asserted or prosecuted against the Company in the future or that any past or future assertions or prosecutions will not materially adversely affect the Company's business, operating results and financial condition. Any such claims, with or without merit, could be time-consuming, result in costly litigation and diversion of technical and management personnel, cause product shipment delays or require the Company to develop non-infringing technology or enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to the Company, or at all. In the event of a successful claim of product infringement against the Company and the failure or inability of the Company to develop non-infringing technology or license the infringed or similar technology on a timely basis, the Company's business, operating results and financial condition could be materially adversely affected. See "Business--Intellectual Property." Year 2000 Compliance. Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field. These date code fields will need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, many companies' software and computer systems may need to be upgraded or replaced in order to comply with such "Year 2000" requirements. Although the Company believes that its products and systems are Year 2000 compliant, the Company utilizes third- party equipment and software that may not be Year 2000 compliant. Failure of such third-party equipment or software to operate properly with regard to the year 2000 and thereafter could require the Company to incur unanticipated expenses to remedy any problems, which could have a material adverse effect on the Company's business, operating results and financial condition. Furthermore, the purchasing patterns of customers or potential customers may be affected by Year 2000 issues as companies expend significant resources to correct their current systems for Year 2000 compliance. These expenditures may result in reduced funds available to implement the infrastructure needed to conduct trusted and secure communications and commerce over IP networks or to purchase products and services such as those offered by the Company, which could have a material adverse effect on the Company's business, operating results and financial condition. See "Business--Industry Background." Future Capital Needs; Uncertainty of Additional Funding. The Company may require additional capital to finance its growth and marketing and research and development projects beyond the next 12 months. The Company's capital requirements will depend on many factors including, but not limited to, demand for the Company's products and services and the extent to which such products achieve market acceptance and the timing of such market acceptance, the timing of and extent to which the Company invests in new technology, the expenses of sales and marketing and new product development, the extent to which competitors are successful in developing their own products and services and increasing their own market share and brand awareness, the success of the Company's strategic relationships, the costs involved in maintaining and enforcing intellectual property rights, the level and timing of revenues, available borrowings under line of credit 14 arrangements, the degree and timing of growth of IP networks for trusted and secure communications and commerce, and other factors. To the extent that resources are insufficient to fund the Company's activities, the Company may need to raise additional funds through public or private financing, strategic relationships or other arrangements. There can be no assurance that such additional funding, if needed, will be available on terms attractive to the Company, or at all. Strategic relationships, if necessary to raise additional funds, may require the Company to relinquish rights to certain of its technologies or products. The failure of the Company to raise capital when needed could have a material adverse effect on the Company's business, operating results and financial condition. If additional funds are raised through the issuance of equity securities, the percentage ownership of the Company by its then-current stockholders would be reduced. Furthermore, such equity securities might have rights, preferences or privileges senior to those of the Company's Common Stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." Certain Anti-Takeover Provisions. Upon completion of this offering, the Company's Board of Directors will have the authority to issue up to 5,000,000 shares of Preferred Stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. The issuance of Preferred Stock, while providing flexibility in connection with possible financings, acquisitions or other corporate purposes, may have the effect of delaying, deferring or preventing a change in control of the Company, may discourage bids for the Company's Common Stock at a premium over the market price of the Common Stock and may adversely affect the market price of, and the voting and other rights of the holders of, the Common Stock. The Company has no current plans to issue shares of Preferred Stock. In addition, certain provisions of the Company's Amended and Restated Bylaws will have the effect of delaying, deferring or preventing a change of control of the Company. These provisions will provide, among other things, that the Board of Directors is divided into three classes to serve staggered three-year terms, that stockholders may not take actions by written consent and that the ability of stockholders to call special meetings will be restricted. In addition, the Company is subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which will prohibit the Company from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. The Company's indemnity agreements provide and the Company's Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws will provide that the Company will indemnify officers and directors against losses that they may incur in investigations and legal proceedings resulting from their services to the Company, which may be broad enough to include services in connection with takeover defense measures. Such provisions may have the effect of preventing changes in the management of the Company. See "Description of Capital Stock." Shares Eligible for Future Sale. Sales of a substantial number of shares of Common Stock in the public market following this offering could adversely affect the market price of the Company's Common Stock. The number of shares of Common Stock available for sale in the public market is limited by restrictions under the Securities Act of 1933, as amended (the "Securities Act"), and lock-up agreements executed by each of the security holders of the Company under which such security holders have agreed not to sell or otherwise dispose of any of their shares for a period of 180 days after the date of this Prospectus without the prior written consent of Morgan Stanley & Co. Incorporated. Morgan Stanley & Co. Incorporated may, however, in its sole discretion and at any time without notice, release all or any portion of the shares subject to lock-up agreements. In addition to the shares of Common Stock offered hereby (assuming no exercise of the Underwriters' over- allotment option), there will be 17,018,509 shares of Common Stock outstanding as of the date of this Prospectus, all of which are "restricted" shares under the Securities Act. On the date of this Prospectus, no shares other than the shares offered hereby will be eligible for sale. Upon the expiration of lock-up agreements 180 days after the date of this Prospectus, an additional 16,668,509 shares will become eligible for sale in the public market, subject in the case of all but 2,661,052 shares to the volume limitations and other conditions of Rule 144 adopted under the Securities Act ("Rule 144"). The remaining 350,000 shares will become eligible for sale in November 1998, subject to the volume limitations and other conditions of Rule 144. In addition, the 15 Company intends to file a registration statement on Form S-8 with the Securities and Exchange Commission shortly after this offering covering (i) the 2,650,000 shares of Common Stock reserved or to be reserved for issuance under the Company's Equity Incentive Plan, Purchase Plan and Directors Plan, (ii) an additional number of shares of Common Stock to be reserved for issuance under the Equity Incentive Plan equal to the number of shares reserved for future issuance under the 1995 Stock Option Plan and 1997 Stock Option Plan as of the date of this Prospectus (717,482 as of October 31, 1997), and (iii) the shares subject to outstanding options granted under the Company's 1995 Stock Option Plan and 1997 Stock Option Plan as of the date of this Prospectus (2,362,528 as of October 31, 1997). The holders of approximately 14,719,339 shares of Common Stock are also entitled to certain rights with respect to registration of such shares of Common Stock for offer or sale to the public. If such holders, by exercising their registration rights, cause a large number of shares to be registered and sold in the public market, such sales could have a material adverse effect on the market price for the Company's Common Stock. See "Management--Director Compensation," "--Employee Benefit Plans," "Description of Capital Stock--Registration Rights" and "Shares Eligible for Future Sale." Acquisitions. The Company from time to time may acquire or invest in businesses, technologies and product lines that are complementary to the Company's business. Although the Company currently has no understandings, commitments or agreements with respect to any acquisitions, any such acquisitions would be accompanied by the risks commonly encountered in such transactions, including, among others, the difficulty of assimilating the operations and personnel of the acquired businesses, the potential disruption of the Company's ongoing business, the diversion of the Company's management from the day-to-day operations of the Company, the inability of the Company to incorporate acquired technologies successfully into the Company's products and services, the additional expense associated with amortization of acquired intangible assets, the potential impairment of the Company's relationships with its employees, customers and strategic partners, the inability of the Company to retain key technical and managerial personnel of the acquired business and the inability of the Company to maintain uniform standards, controls, procedures and policies. Because of these and other factors, any such acquisitions, if consummated, could have a material adverse affect on the Company's business, operating results and financial condition. See "Use of Proceeds." No Prior Trading Market; Possible Volatility of Stock Price. Prior to this offering, there has been no public market for the Common Stock of the Company and there can be no assurance that an active trading market will develop or be sustained upon completion of this offering. The initial public offering price, which will be established by negotiations between the Company and the representatives of the Underwriters based upon a number of factors, may not be indicative of prices that will prevail in the trading market. See "Underwriters" for a discussion of the factors to be considered in determining the initial public offering price. The stock market from time to time has experienced significant price and volume fluctuations. In addition, the market prices of securities of other technology companies, particularly Internet- related companies, have been highly volatile. Factors such as fluctuations in the Company's operating results, announcements of technological innovations or new products or services by the Company or its competitors, analysts' reports and projections, regulatory actions and general market conditions may have a significant effect on the market price of the Company's Common Stock. See "Underwriters." Control by Existing Stockholders. Upon completion of this offering, the present executive officers, directors and 5% stockholders of the Company and their affiliates will beneficially own approximately % of the Company's outstanding Common Stock ( % if the Underwriters' over-allotment option is exercised in full). As a result, these stockholders would be able to significantly influence the management and affairs of the Company and all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions such as a merger, consolidation or sale of substantially all of the Company's assets. Such concentration of ownership might have the effect of delaying or preventing a change in control of the Company and might affect the market price of the Company's Common Stock and the voting and other rights of the Company's other stockholders. See "Principal Stockholders." 16 Immediate and Substantial Dilution. Investors participating in this offering will incur immediate, substantial dilution in the amount of $ per share. To the extent that outstanding options to purchase the Company's Common Stock are exercised, there will be further dilution. See "Dilution." Unspecified Use of Proceeds. The Company plans to use substantially all of the net proceeds from this offering for general corporate purposes, including working capital and capital expenditures. The Company may also use a portion of the net proceeds from this offering to acquire or invest in businesses, technologies and product lines that are complementary to the Company's business. The Company has no present plans or commitments and is not currently engaged in any negotiations with respect to such transactions. As a result, the Company will have significant discretion as to the use of the net proceeds from this offering. Pending such uses, the Company intends to invest the net proceeds from this offering in short-term, interest-bearing, investment-grade securities. See "Use of Proceeds." 17 USE OF PROCEEDS The net proceeds to the Company from the sale of the shares of Common Stock offered by the Company hereby are estimated to be approximately $ million (approximately $ million if the Underwriters' over- allotment option is exercised in full), at an assumed initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by the Company. The primary purposes of this offering are to obtain additional equity capital, create a public market for the Company's Common Stock and facilitate future access by the Company to the public equity markets. The Company intends to use approximately $5.0 million of the net proceeds of this offering to fund its capital expenditures for 1998 and to utilize the remainder of the net proceeds of this offering primarily for general corporate purposes, including working capital. The Company may also use a portion of the net proceeds from this offering to acquire or invest in businesses, technologies and product lines that are complementary to the Company's business. The Company has no present plans or commitments and is not currently engaged in any negotiations with respect to such transactions. As a result, the Company will have significant discretion as to the use of the net proceeds from this offering. Pending such uses, the Company intends to invest the net proceeds from this offering in short-term, interest-bearing, investment-grade securities. See "Risk Factors--Acquisitions" and "--Unspecified Use of Proceeds." DIVIDEND POLICY The Company has never declared or paid any cash dividends on its Common Stock or other securities and does not anticipate paying any cash dividends in the foreseeable future. In addition, the terms of the Company's equipment line of credit agreement prohibit the payment of dividends on its capital stock. 18 CAPITALIZATION The following table sets forth the capitalization of the Company (i) as of September 30, 1997, (ii) on a pro forma basis, giving effect to the conversion of all outstanding shares of Preferred Stock into shares of Common Stock upon the closing of this offering, the issuance in November 1997 of 250,000 shares of Common Stock, valued at $2.0 million, in connection with the execution of certain agreements with VeriFone, which included a settlement of claims of VeriFone, and the issuance in November 1997 of 100,000 shares of Common Stock, valued at $800,000, to Microsoft in connection with the execution of a preferred provider agreement and (iii) on a pro forma as adjusted basis to reflect the receipt by the Company of the estimated net proceeds from the sale of the shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by the Company.
SEPTEMBER 30, 1997 -------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED -------- --------- ----------- (IN THOUSANDS) Stockholders' equity: Convertible Preferred Stock, $.001 par value; actual--10,282,883 shares authorized, 10,031,006 shares issued and outstanding; pro forma and pro forma as adjusted--5,000,000 shares authorized, no shares issued and outstanding ................................. $ 10 $ -- $ -- Common Stock, $.001 par value; actual-- 15,940,217 shares authorized, 6,568,257 shares issued and outstanding; pro forma-- 50,000,000 shares authorized, 16,949,263 shares issued and outstanding; pro forma as adjusted-- shares issued and outstanding(1)............................... 6 17 Additional paid-in capital.................... 41,651 44,450 Notes receivable from stockholders............ (644) (644) (644) Deferred compensation......................... (188) (188) (188) Accumulated deficit........................... (24,959) (25,759) (25,759) -------- -------- --------- Total stockholders' equity................... 15,876 17,876 -------- -------- --------- Total capitalization....................... $ 15,876 $ 17,876 $ ======== ======== =========
- -------- (1) Excludes (i) 2,000,974 shares of Common Stock issuable upon the exercise of options outstanding as of September 30, 1997 under the Company's 1995 Stock Option Plan (the "1995 Stock Option Plan"), with a weighted average exercise price of $1.49 per share, and 340,282 shares of Common Stock reserved for future issuance thereunder, (ii) 800,000 shares of Common Stock reserved for issuance under the Company's 1997 Stock Option Plan (the "1997 Stock Option Plan"), (iii) 2,000,000 shares of Common Stock reserved for issuance under the Company's 1998 Equity Incentive Plan (the "Equity Incentive Plan"), (iv) 400,000 shares of Common Stock to be reserved for issuance under the Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan"), (v) 250,000 shares of Common Stock reserved for issuance under the Company's 1998 Directors Stock Option Plan (the "Directors Plan") and (vi) 17,500 shares of Common Stock subject to a warrant that would become issuable in the event that the Company borrows funds under an equipment loan agreement. See "Management--Employee Benefit Plans," "Description of Capital Stock" and Note 6 of Notes to Consolidated Financial Statements. 19 DILUTION The pro forma net tangible book value of the Company's Common Stock as of September 30, 1997 was $17.9 million, or $1.05 per share. Pro forma net tangible book value per share is equal to the Company's total tangible assets less its total liabilities, divided by the pro forma shares of Common Stock outstanding as of September 30, 1997. After giving effect to the issuance and sale of the shares of Common Stock offered by the Company hereby (at an assumed initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by the Company), the Company's as adjusted net tangible book value as of September 30, 1997 would have been $ , or $ per share. This represents an immediate increase in pro forma net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to new public investors. The following table illustrates the per share dilution: Assumed initial public offering price per share.............. $ Pro forma net tangible book value per share at September 30, 1997.................................................. $1.05 Increase in pro forma net tangible book value per share attributable to new public investors...................... ----- As adjusted net tangible book value per share after offering.................................................... ------- Dilution per share to new public investors................... $ =======
The following table summarizes on a pro forma basis, as of September 30, 1997, the difference between the existing stockholders and the purchasers of shares of Common Stock in this offering (at an assumed initial public offering price of $ per share and before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by the Company) with respect to the number of shares of Common Stock purchased from the Company, the total cash consideration paid and the average price paid per share.
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ------------------ ------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ----------- ------- --------- Existing stockholders(1)...... 16,949,263 % $38,640,000 % $2.28 New public investors.......... ---------- ----- ----------- ----- Total....................... 100.0% $ 100.0% ========== ===== =========== =====
- -------- (1) Reflects (i) the conversion of the Preferred Stock upon the closing of this offering, (ii) the issuance in November 1997 of 250,000 shares of Common Stock, valued at $2.0 million, in connection with the execution of certain agreements with VeriFone, which included a settlement of claims of VeriFone, and (iii) the issuance in November 1997 of 100,000 shares of Common Stock, valued at $800,000, to Microsoft in connection with the execution of a preferred provider agreement. See "Certain Transactions" for a description of certain noncash consideration paid by Microsoft and RSA for the shares of Common Stock issued to them. See Note 8 of Notes to Consolidated Financial Statements for a description of certain noncash consideration paid for the shares of Common Stock issued in connection with the agreements with VeriFone. The foregoing discussion and tables assume no exercise of any stock options outstanding as of September 30, 1997 and no exercise of a warrant to purchase 17,500 shares of Common Stock that would become issuable in the event that the Company borrows funds under an equipment loan agreement. As of September 30, 1997, there were options outstanding to purchase a total of 2,000,974 shares of Common Stock with a weighted average exercise price of $1.49 per share. To the extent that any of these options are exercised, there will be further dilution to new public investors. See "Capitalization," "Management--Employee Benefit Plans" and Note 6 of Notes to Consolidated Financial Statements. 20 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with the Company's Consolidated Financial Statements and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Prospectus. The selected consolidated statement of operations data presented below for the period from April 12, 1995 (inception) to December 31, 1995, the year ended December 31, 1996 and the nine months ended September 30, 1997, and the selected consolidated balance sheet data as of December 31, 1995 and 1996 and September 30, 1997, are derived from consolidated financial statements of the Company that have been audited by KPMG Peat Marwick LLP, independent auditors, and are included elsewhere in this Prospectus. The selected consolidated statement of operations data for the nine months ended September 30, 1996 are derived from unaudited Consolidated Financial Statements included elsewhere in this Prospectus that have been prepared on substantially the same basis as the audited consolidated financial statements and, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company's consolidated operating results for such period. The operating results for the nine months ended September 30, 1997 are not necessarily indicative of the results to be expected for any other interim period, the full fiscal year or any future fiscal year.
PERIOD FROM APRIL 12, 1995 NINE MONTHS ENDED (INCEPTION) TO YEAR ENDED SEPTEMBER 30, DECEMBER 31, DECEMBER 31, ------------------ 1995 1996 1996 1997 -------------- ------------ -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OP- ERATIONS DATA: Revenues ..................... $ 382 $ 1,351 $ 774 $ 6,115 Costs and expenses: Cost of revenues............. 412 2,791 1,593 5,166 Sales and marketing.......... 790 4,876 2,768 7,264 Research and development..... 642 2,058 1,290 3,560 General and administrative... 680 2,640 1,517 2,901 Litigation settlement........ -- -- -- 2,000 ------- -------- -------- -------- Total costs and expenses... 2,524 12,365 7,168 20,891 ------- -------- -------- -------- Operating loss............. (2,142) (11,014) (6,394) (14,776) Other income (expense)........ 148 (67) 84 860 ------- -------- -------- -------- Loss before minority interest.................. (1,994) (11,081) (6,310) (13,916) Minority interest in net loss of subsidiary................ -- (838) (358) (1,194) ------- -------- -------- -------- Net loss................... $(1,994) $(10,243) $(5,952) $(12,722) ======= ======== ======== ======== Pro forma net loss per share(1)..................... $ (.74) $ (.47) $ (.75) ======== ======== ======== Shares used in per share com- putations (1)................ 13,836 12,532 17,006
DECEMBER 31, --------------- SEPTEMBER 30, 1995 1996 1997 ------- ------- ------------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash, cash equivalents and short-term invest- ments.......................................... $ 2,687 $29,983 $13,612 Working capital................................. 2,284 24,823 6,708 Total assets.................................... 4,052 36,503 25,659 Long-term obligations........................... -- -- -- Stockholders' equity............................ 3,376 28,555 15,876
- -------- (1) See Note 1 of Notes to Consolidated Financial Statements for an explanation of the determination of the number of shares used in per share computations. 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto appearing elsewhere in this Prospectus. The following discussion contains forward-looking statements. The Company's actual results may differ significantly from those projected in the forward- looking statements. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in "Risk Factors" and elsewhere in this Prospectus. OVERVIEW VeriSign is the leading provider of digital certificate solutions and infrastructure needed by companies, government agencies, trading partners and individuals to conduct trusted and secure communications and commerce over IP networks. The Company was incorporated in April 1995 and introduced its first product, the Secure Server ID for Netscape Commerce Servers, in June 1995. In October 1995, the Company introduced additional Server Digital IDs for the Web server products of Microsoft, IBM, Open Market and other vendors. In May 1996, the Company began providing online enrollment and issuance of client Digital IDs for Netscape Navigator through its Digital ID Center and began shipping another form of Digital ID known as a Software Developer Digital ID for Microsoft's Authenticode program. The Company began issuing Digital IDs for Microsoft's Internet Explorer through the Company's Digital ID Center in August 1996. During 1997, the Company introduced its Universal Digital IDs and three new types of server digital certificate products--its Global Server ID, Financial Server ID and EDI Server ID. In April 1996, the Company entered the enterprise and electronic commerce markets by introducing custom SET digital certificate solutions targeted at certified banks, payment processors and major card brands. During 1997, the Company introduced VeriSign OnSite and VeriSign V-Commerce, which are enterprise and electronic commerce digital certificate solutions that are targeted at mid-sized to large companies, managed intranets and extranets, payment card industry service providers and Web sites with large customer or user bases. During 1997, the Company began providing technology and products for digital certificate management to OEMs. Historically, the Company has derived substantially all of its revenues from the sale of Digital IDs and from fees for services rendered in connection with the Company's digital certificate solutions and digital certificate service and product development agreements. The purchase of a Digital ID allows the customer to use the Digital ID for a limited period of time, generally 12 months. After this period, the Digital ID must be renewed for continued usage by the customer. Renewal fees are typically lower than the fees charged for the initial Digital ID. Revenues from the sale or renewal of Digital IDs are deferred and recognized ratably over the life of the digital certificate. Revenues from the Company's enterprise and electronic commerce solutions consist of fees for the issuance of digital certificates, which are recognized ratably over the term of the particular license agreement relating to the enterprise or electronic commerce solution, and fees for set-up services, which are recognized upon completion of the service. Revenues from other services are recognized using the percentage-of-completion method for fixed- fee development arrangements, on a time-and-materials basis for consulting and training services or ratably over the term of the agreement for support and maintenance services. Deferred revenues increased from $46,000 at December 31, 1995 to $1.9 million at December 31, 1996 and to $3.1 million at September 30, 1997. In the future, the Company anticipates that it may receive additional revenues from sales of software products and value-added services, licensing and royalty fees from licenses of digital certificates and related technology and maintenance, and fees for customer support services. The Company markets its products and services worldwide through multiple distribution channels, including the Internet, direct sales, telesales, VARs, systems integrators and OEMs. Although a significant portion of its revenues to date has been generated through sales from the Company's Web site, the Company intends to increase its direct sales force, both domestically and internationally, and intends to continue to expand its other distribution channels. 22 In February 1996, the Company formed VeriSign Japan to provide digital certificate solutions to the Japanese market. In connection with the formation of this subsidiary, the Company licensed certain technology and contributed other assets. Subsequent to its formation, additional investors purchased minority interests in VeriSign Japan, and, as of September 30, 1997, the Company owned 51% of the outstanding capital stock of VeriSign Japan. Accordingly, the Company's consolidated financial statements include the accounts of the Company and this subsidiary and the Company's consolidated statements of operations reflect the elimination of the minority shareholders' share of the net losses of the subsidiary. Historically, VeriSign Japan has funded its net losses with investments from minority shareholders. However, to the extent VeriSign Japan is unable to continue to fund its operations principally from investments by minority shareholders, the Company may be required to fund the operations of this subsidiary, which could have a material adverse effect on the Company's business, operating results and financial condition. See "Business--VeriSign Japan." The Company has experienced substantial net losses in each fiscal period since its inception and, as of September 30, 1997, had an accumulated deficit of $25.0 million. Such net losses and accumulated deficit resulted from the Company's lack of substantial revenues and the significant costs incurred in the development and sale of the Company's products and services and in the establishment and deployment of the Company's operations infrastructure and practices. The Company intends to increase its expenditures in all areas in order to execute its business plan. As a result, the Company expects to incur substantial additional losses for the foreseeable future. Although the Company has experienced revenue growth in recent periods, there can be no assurance that such growth rates are sustainable and, therefore, they should not be considered indicative of future operating results. There can be no assurance that the Company will ever achieve significant revenues or profitability or, if significant revenues and profitability are achieved, that they could be sustained. See "Risk Factors--Limited Operating History; History of Losses and Anticipation of Future Losses." RESULTS OF OPERATIONS REVENUES The Company's revenues increased from $382,000 for the period from April 12, 1995 (inception) to December 31, 1995 (the "Inception Period") to $1.4 million for 1996 and to $6.1 million for the nine months ended September 30, 1997. Revenues from inception through December 31, 1996 were primarily derived from sales of the Company's Server Digital ID products. The increase in revenues from the Inception Period to 1996 was due primarily to increased market acceptance of Server Digital IDs and, to a lesser extent, SET digital certificate solutions. The increase in revenues from 1996 to the nine months ended September 30, 1997 was due primarily to increased sales of Server Digital IDs and to increased services revenues, which included revenues from digital certificate service and product development agreements. Revenues from the sale of Universal Digital IDs have been nominal because substantially all of the Company's Universal Digital IDs have been issued free of charge on a promotional basis. Revenues attributable to VISA accounted for approximately 21% and 16% of revenues for 1996 and for the nine months ended September 30, 1997, respectively. No other customer accounted for more than 10% of the Company's revenues during the Inception Period, 1996 or the nine months ended September 30, 1997. Revenues of VeriSign Japan and revenues from other international customers accounted for less than 10% of revenues for the Inception Period and 1996 and approximately 15% of revenues for the nine months ended September 30, 1997. COSTS AND EXPENSES The Company's costs and expenses have increased in absolute dollars since inception, primarily due to the overall growth of the Company. The total number of the Company's employees increased from 30 at December 31, 1995 to 162 at September 30, 1997. In addition, the Company opened several new offices, increased its sales and marketing and research and development efforts, and expanded its headquarters and Digital ID Centers during this period. The Company believes that it will need to continue to expand its operations 23 in order to execute its business strategy. Accordingly, the Company intends to continue to increase its costs and expenses in all areas for the foreseeable future. Cost of Revenues. Cost of revenues consists primarily of costs related to personnel providing digital certificate enrollment and issuance services, customer support and training, consulting and development services, and facilities and computer equipment used in such activities. Cost of revenues also includes fees paid to third parties to verify certificate applicants' identities and insurance premiums for the Company's NetSure warranty plan and errors and omission insurance. Cost of revenues increased from $412,000 for the Inception Period to $2.8 million for 1996 and to $5.2 million for the nine months ended September 30, 1997. Cost of revenues was not material during the Inception Period as a result of the Company's minimal revenues. The increases in 1996 and the nine months ended September 30, 1997 were due primarily to increased facilities costs and related overhead that resulted from building the Company's operations infrastructure, hiring full-time and temporary personnel to support the additional volume of issuances of Server Digital IDs, introduction of additional Server Digital ID products, introduction of the Company's NetSure warranty program, increased costs of errors and omission insurance, increased expenses for access to third-party databases and, during 1997, implementation of the Company's disaster recovery plan. Given the Company's limited operating history, limited history of issuing Digital IDs and evolving industry and business model, the Company believes that analysis of cost of revenues as a percentage of revenues is not yet meaningful. Sales and Marketing. Sales and marketing expenses consist primarily of costs related to sales, marketing and practices and external affairs personnel, including salaries, sales commissions and other personnel-related expenses, computer equipment and support services used in such activities, facilities costs, consulting fees and costs of marketing programs. Sales and marketing expenses increased from $790,000 for the Inception Period to $4.9 million for 1996 and to $7.3 million for the nine months ended September 30, 1997. These increases were due primarily to increased headcount and, to a lesser extent, increased expenditures for marketing programs. The Company anticipates that sales and marketing expenses will continue to increase in absolute dollars as it expands its direct sales force, hires additional marketing personnel and increases its marketing and promotional activities during 1998. In addition, the Company expects to record, during the fourth quarter of 1997, an $800,000 charge resulting from the issuance of 100,000 shares of Common Stock to Microsoft in connection with a preferred provider agreement. Research and Development. Research and development expenses consist primarily of costs related to research and development personnel, including salaries and other personnel-related expenses, consulting fees, facilities, and computer equipment and support services used in product and technology development. Research and development expenses increased from $642,000 for the Inception Period to $2.1 million for 1996 and to $3.6 million for the nine months ended September 30, 1997. These increases were due primarily to increased personnel to support the design, testing and deployment of, and technical support for, the Company's expanded product offerings and technology. The Company believes that timely development of new and enhanced products and technology are necessary to remain competitive in the marketplace. Accordingly, the Company intends to continue recruiting and hiring experienced research and development personnel and make other investments in research and development. Therefore, the Company expects that research and development expenditures will continue to increase in absolute dollars. To date, all research and development expenses have been expensed as incurred. General and Administrative. General and administrative expenses consist primarily of salaries and other personnel-related expenses for the Company's administrative, finance and human resources personnel, facilities and computer equipment, support services and professional services fees. General and administrative expenses increased from $680,000 for the Inception Period to $2.6 million for 1996 and $2.9 million for the nine months ended September 30, 1997. These increases were due primarily to increased staffing levels to manage and support the Company's expanding operations. The Company anticipates hiring additional personnel and incurring additional costs related to being a public company, including directors' and officers' liability insurance, investor relations programs and professional services fees. Accordingly, the Company anticipates that general and administrative expenses will continue to increase in absolute dollars. 24 Litigation Settlement. In September 1996, VeriFone, which subsequently became a wholly-owned subsidiary of Hewlett-Packard Company ("Hewlett- Packard"), filed a lawsuit against the Company alleging, among other things, trademark infringement. In November 1997, the parties executed a definitive agreement under which, among other things, the Company issued an aggregate of 250,000 shares of Common Stock, which were transferred to Hewlett-Packard, and the Company and VeriFone settled such claims. The settlement amount was recorded during the nine months ended September 30, 1997 as a charge of $2.0 million. OTHER INCOME (EXPENSE) Other income (expense) consists primarily of interest earned on the Company's cash, cash equivalents and short-term investments, less interest expense on bank borrowings of VeriSign Japan and the effect of foreign currency transaction gains and losses. The Company had other income of $148,000 for the Inception Period, other expense of $67,000 for 1996 and other income of $860,000 for the nine months ended September 30, 1997. The increase for the nine months ended September 30, 1997 was due to interest earned on the cash proceeds from the Company's November 1996 Series C Preferred Stock financing. INCOME TAXES No provision for federal and California income taxes has been recorded because the Company has experienced net losses since inception. As of September 30, 1997, the Company had federal and California net operating loss carryforwards of approximately $10.5 million in each jurisdiction. These federal and California net operating loss carryforwards will expire, if not utilized, in years 2010 through 2012 and in years 2000 through 2003, respectively. The Tax Reform Act of 1986 imposes substantial restrictions on the utilization of net operating losses and tax credits in the event of an "ownership change" of a corporation. The Company's ability to utilize net operating loss carryforwards may be limited as a result of an "ownership change" as defined in the Internal Revenue Code. The Company does not anticipate that a material limitation on its ability to use such carryforwards and credits will result from this offering. The Company has provided a full valuation allowance on the deferred tax asset because of the uncertainty regarding its realization. The Company's accounting for deferred taxes under Statement of Financial Accounting Standards No. 109 involves the evaluation of a number of factors concerning the realizability of the Company's deferred tax assets. In concluding that a full valuation allowance was required, management primarily considered such factors as the Company's history of operating losses and expected future losses and the nature of the Company's deferred tax assets. Although management's operating plans assume taxable and operating income in future periods, management's evaluation of all the available evidence in assessing the realizability of the deferred tax assets indicates that such plans were not considered sufficient to overcome the available negative evidence. See Note 7 of Notes to Consolidated Financial Statements. MINORITY INTEREST IN NET LOSS OF SUBSIDIARY Minority interest in the net losses of VeriSign Japan was $838,000 for 1996 and $1.2 million for the nine months ended September 30, 1997. This increase was due to the increased expenses incurred in establishing and expanding the operations of VeriSign Japan prior to recognizing significant revenues and to an increasing percentage of VeriSign Japan's capital stock being held by minority shareholders. VeriSign Japan is still in an early stage of operations and, therefore, the Company expects that the minority interest in net loss of subsidiary will continue to fluctuate in future periods. SELECTED QUARTERLY OPERATING RESULTS The following table sets forth certain consolidated statement of operations data for each quarter of 1996 and the first three quarters of 1997. This information has been derived from the Company's unaudited consolidated financial statements, which, in management's opinion, have been prepared on the same basis as the annual consolidated financial statements and include all adjustments, consisting only of normal recurring 25 adjustments, necessary for a fair presentation of the information for the quarters presented. This information should be read in conjunction with the Consolidated Financial Statements and notes thereto included elsewhere in this Prospectus. The operating results for any quarter are not necessarily indicative of the results for any future period.
THREE MONTHS ENDED --------------------------------------------------------------------- MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, 1996 1996 1996 1996 1997 1997 1997 -------- -------- --------- -------- -------- -------- --------- (IN THOUSANDS) Revenues................ $ 153 $ 246 $ 375 $ 577 $ 1,267 $ 2,249 $ 2,599 Costs and expenses: Cost of revenues....... 304 552 737 1,198 1,419 1,733 2,014 Sales and marketing.... 540 1,015 1,213 2,108 2,254 2,686 2,324 Research and development........... 350 417 523 768 1,029 1,222 1,309 General and administrative........ 396 408 713 1,123 953 864 1,084 Litigation settlement.. -- -- -- -- -- -- 2,000 ------- ------- ------- ------- ------- ------- ------- Total costs and expenses............ 1,590 2,392 3,186 5,197 5,655 6,505 8,731 ------- ------- ------- ------- ------- ------- ------- Operating loss....... (1,437) (2,146) (2,811) (4,620) (4,388) (4,256) (6,132) Other income (expense).. 35 35 14 (151) 469 166 225 ------- ------- ------- ------- ------- ------- ------- Loss before minority interest............ (1,402) (2,111) (2,797) (4,771) (3,919) (4,090) (5,907) Minority interest in net loss of subsidiary..... (2) (128) (228) (480) (305) (482) (407) ------- ------- ------- ------- ------- ------- ------- Net loss............. $(1,400) $(1,983) $(2,569) $(4,291) $(3,614) $(3,608) $(5,500) ======= ======= ======= ======= ======= ======= =======
REVENUES The Company has experienced quarter-to-quarter sequential growth in revenues since its inception. These quarterly increases were due primarily to the increased number of Server Digital IDs sold during these periods. In addition, during the first quarter of 1997, the Company completed certain work required under various certificate service and product development agreements and, therefore, recognized the related portion of revenues during that quarter. The Company realized additional services fees during the second quarter of 1997 as a result of entering into new certificate service and product development agreements and completing work under existing certificate service and product development agreements. During the third quarter of 1997, revenues attributable to digital certificates grew as a result of the increased number of digital certificates sold and an approximately 15% per unit price increase. Revenues also increased in the third quarter of 1997 as a result of the completion of work under other certificate service and product development agreements. COSTS AND EXPENSES Cost of Revenues. Throughout 1996, the Company was developing a secure operations and customer support infrastructure as well as related systems. During the fourth quarter of 1996, the Company began building its new Digital ID Center to manage enrollment and issuance of large volumes of Digital IDs and moved its customer support and information systems teams into the new Digital ID Center. Accordingly, facilities costs and related overhead increased significantly in the first quarter of 1997. During the second and third quarters of 1997, the Company added full-time and temporary personnel, particularly for customer support and information systems, in order to support the additional volume of issuances of Server Digital IDs. The Company also devoted additional personnel resources to support work under the Company's product development agreements during this time period. During the second quarter of 1997, the Company introduced its NetSure warranty program, resulting in higher insurance premiums. During the third quarter of 1997, the Company also incurred increased expenses for access to third-party databases to verify certificate applicants' identities and expenses relating to the implementation of the Company's disaster recovery plan. 26 Sales and Marketing. The quarterly increases in sales and marketing expenses resulted primarily from the building of the Company's sales and marketing organization, which began in 1996. During the third and fourth quarters of 1996, the Company began expanding its marketing organization to include corporate, channel and product marketing programs. In each of the first three quarters of 1997, the Company added sales and marketing personnel to support its expanding product lines, which resulted in higher recruiting, benefits, travel and facilities costs. Sales and marketing expenses were higher in the second quarter of 1997 than the preceding two quarters and the following quarter due to increased expenses incurred pursuing international and domestic strategic relationships, increased public relations activities, Web site management costs and channel development activities. Research and Development. The sequential quarterly increases in research and development expenses were due primarily to increased personnel and related costs to support the design, testing and deployment of, and technical support for, the Company's expanded product offerings and technology. General and Administrative. The sequential quarterly increases in general and administrative expenses over the four quarters of 1996 were primarily related to the addition of personnel and related costs to support expansion of the Company's operations. During the fourth quarter of 1996, the Company incurred additional expenses for consulting services, increased legal fees relating to a large number of contract negotiations and increased expenses resulting from a growth in headcount. During the fourth quarter of 1996 and into 1997, the Company incurred increased expenses for a larger facility and for the implementation of additional systems and procedures. FACTORS AFFECTING OPERATING RESULTS The Company's operating results have varied on a quarterly basis during its short operating history and may fluctuate significantly in the future as a result of a variety of factors, many of which are outside the Company's control. Factors that may affect the Company's quarterly operating results include the following: market acceptance of digital certificates; market acceptance of its products and services, particularly VeriSign OnSite, VeriSign V-Commerce and VeriSign SET; the long sales and implementation cycles for and potentially large order sizes of certain of the Company's products and services; the timing and execution of individual contracts; the timing of releases of new versions of Internet browsers or other third-party software products in which the Company's public root keys are embedded; customer renewal rates for the Company's products and services; the Company's success in marketing other products and services to its existing customer base and to new customers; development of the Company's direct and indirect distribution channels; market acceptance of the Company's or competitors' new products and services; the amount and timing of expenditures relating to expansion of the Company's operations; price competition or pricing changes; general economic conditions and economic conditions specific to the Internet, intranet and extranet industries. Any one of these factors could cause the Company's revenues and operating results to vary significantly in the future. In addition, the Company will need to expand its operations and attract, integrate, retain and motivate a substantial number of sales and marketing and research and development personnel. The timing of such expansion and the rate at which new personnel become productive could cause material fluctuations in the Company's quarterly operating results. The Company's limited operating history and the emerging nature of its market make prediction of future revenues difficult. The Company's expense levels are based, in part, on its expectations regarding future revenues, and to a large extent such expenses are fixed, particularly in the short term. There can be no assurance that the Company will be able to predict its future revenues accurately and the Company may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall of revenue in relation to the Company's expectations could cause significant declines in the Company's quarterly operating results. Due to all of the foregoing factors, the Company's quarterly revenues and operating results are difficult to forecast. The Company believes that period- to-period comparisons of its operating results will not necessarily be meaningful and should not be relied upon as an indication of future performance. Also, it is likely that the 27 Company's operating results will fall below the expectations of the Company, securities analysts or investors in some future quarter. In such event, the market price of the Company's Common Stock could be materially and adversely affected. LIQUIDITY AND CAPITAL RESOURCES Since inception, the Company has financed its operations primarily through private sales of equity securities raising approximately $42.7 million. At September 30, 1997, the principal source of liquidity for the Company was $13.6 million of cash, cash equivalents and short-term investments. The Company also has an equipment loan agreement under which it may borrow up to $3.0 million for purchases of equipment. This equipment loan agreement expires on March 31, 1999. Any amounts borrowed under this equipment loan agreement would bear interest at the rate of 7.5% per annum and would be secured by the equipment purchased with the loan proceeds. In the event that the Company borrows under this equipment loan agreement, it will be obligated to issue to the lender a warrant to purchase 17,500 shares of Common Stock. The Company currently has no plans to borrow any amounts under this equipment loan agreement. VeriSign Japan has an available credit facility of 250,000,000 yen (approximately $2.1 million as of September 30, 1997) with a bank, which bears interest at a rate of 1.625% per annum and expires in January 1998. At September 30, 1997, VeriSign Japan had borrowed approximately $1.5 million under this facility, which borrowings were secured by certain assets of VeriSign Japan. VeriSign Japan also has available a revolving line of credit of up to $500,000 with a bank that bears interest at 1.625% per annum and expires in April 1998. The line of credit is secured by a letter of credit from the Company in the same amount. There were no borrowings outstanding under this line of credit as of September 30, 1997. The Company has had significant negative cash flows from operating activities in each fiscal period to date. Net cash used in operating activities for the Inception Period, 1996 and the nine months ended September 30, 1997 was $1.5 million, $6.0 million and $11.8 million, respectively. Net cash used in operating activities in each of these periods was primarily the result of net losses, offset in part by increases in accounts payable and accrued liabilities for the Inception Period and 1996 and deferred revenues in all three fiscal periods. Net cash used in investing activities for the Inception Period, 1996 and the nine months ended September 30, 1997 was $1.0 million, $4.4 million and $13.5 million, respectively. Net cash used in investing activities in these periods was primarily the result of capital expenditures for computer equipment, purchased software, office equipment, furniture, fixtures and leasehold improvements. In addition, for the nine months ended September 30, 1997, cash used in investing activities included $7.7 million of net purchases of short- term investments. Capital expenditures for property and equipment for the Inception Period, 1996 and the nine months ended September 30, 1997 aggregated $1.0 million, $4.2 million and $5.3 million, respectively. The Company's planned capital expenditures for the fourth quarter of 1997 and for 1998 are approximately $1.2 million and $5.0 million, respectively, primarily for computer equipment and other leasehold improvements. As of September 30, 1997, the Company also had commitments under noncancelable operating leases of $6.7 million through 2002. Cash provided by financing activities for the Inception Period, 1996 and the nine months ended September 30, 1997, was $5.3 million, $37.8 million and $1.3 million, respectively, resulting primarily from net proceeds from the sale of Preferred Stock by the Company. In addition, for 1996 and the nine months ended September 30, 1997, cash provided by financing activities of VeriSign Japan was $4.4 million and $1.2 million, respectively, resulting from the sale of its capital stock to minority investors and from the proceeds of its bank borrowings. The Company believes that the net proceeds from this offering, together with existing cash, cash equivalents and short-term investments, will be sufficient to meet its working capital and capital expenditure requirements for at least the next 12 months. The Company may need to raise additional funds through public or private financing, strategic relationships or other arrangements. There can be no assurance that such additional funding, if needed, will be available on terms attractive to the Company, or at all. Strategic relationships, if necessary to raise additional funds, may require the Company to relinquish rights to certain of its technologies or products. 28 The failure of the Company to raise capital when needed could have a material adverse effect on the Company's business, operating results and financial condition. If additional funds are raised through the issuance of equity securities, the percentage ownership of the Company of its then-current shareholders would be reduced. Furthermore, such equity securities might have rights, preferences or privileges senior to those of the Company's Common Stock. See "Risk Factors--Future Capital Needs; Uncertainty of Additional Financing." RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share, which adjusts the calculation of earnings per share under generally accepted accounting principles. SFAS No. 128 must be adopted by the Company during the first quarter of 1998. See Note 1 of Notes to Consolidated Financial Statements for the effect of SFAS No. 128 on the Company's pro forma net loss per share presentation. In October 1997, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") No. 97-2, Software Revenue Recognition, which supersedes SOP No. 91-1. The Company will be required to adopt SOP No. 97-2 prospectively for software transactions entered into beginning January 1, 1998. SOP No. 97-2 generally requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair values of the elements. The fair value of an element must be based on evidence that is specific to the vendor. If a vendor does not have evidence of the fair value for all elements in a multiple-element arrangement, all revenue from the arrangement is deferred until such evidence exists or until all elements are delivered. The Company's management anticipates that the adoption of SOP No. 97-2 will not have a material effect on the Company's operating results. 29 BUSINESS VeriSign is the leading provider of digital certificate solutions and infrastructure needed by companies, government agencies, trading partners and individuals to conduct trusted and secure communications and commerce over IP networks. The Company has established strategic relationships with industry leaders, including Cisco, McAfee Associates, Microsoft, Netscape, RSA, Security Dynamics, VeriFone and VISA, to enable widespread deployment of the Company's digital certificate technology and products and to assure their interoperability among a wide variety of applications over IP networks. The Company's Digital IDs are enabled in millions of copies of Microsoft and Netscape Web browsers, tens of thousands of copies of popular Web servers and a variety of other software applications. The Company believes that it has issued more digital certificates than any other company, having issued over 1.5 million of its Digital IDs for individuals and over 35,000 of its Digital IDs for Web sites. In addition to providing Digital IDs for individuals and Web sites, the Company provides turn-key and custom solutions needed by organizations such as Dow Jones, NOVUS/Discover and VISA, to conduct trusted and secure communications and commerce over IP networks. The Company markets its products and services worldwide through multiple distribution channels, including the Internet, direct sales, telesales, VARs, systems integrators and OEMs, and intends to continue to expand these distribution channels. INDUSTRY BACKGROUND GROWTH OF INTERNET COMMERCE AND COMMUNICATIONS IP networks are revolutionizing the ways in which companies, government agencies, trading partners and individuals communicate and conduct business. IP networks provide an attractive medium for communications and commerce because of their global reach, accessibility, use of open standards and ability to enable real-time interaction. Organizations are seeking to leverage the capabilities of IP networks to attract new customers, access new markets, improve customer service and satisfaction and lower support and distribution costs. Until recently, IP networks have been used primarily for informal messaging, general information browsing and the exchange of non-sensitive data. The use of IP networks is now beginning to extend beyond these initial uses to a number of more valuable and sensitive activities, including business-to-business transactions and Internet-based EDI, online retail purchases and payments, Web-based access to account and benefits information and secure messaging for both personal and business use. Forrester Research estimates that Internet business-to-business commerce alone will grow from less than $8 billion in 1997 to more than $327 billion in 2002. REQUIREMENT FOR TRUSTED INTERACTION OVER IP NETWORKS Although openness represents a fundamental strength of IP networks, their accessibility and the anonymity of users resulting from the lack of "face-to- face" interaction create threats to the privacy and integrity of information that is transmitted across or stored on these networks. Despite the convenience and the compelling economic incentives for the use of IP networks, they cannot reach their full potential as a platform for global communications and commerce until the current lack of security and trust associated with these networks is resolved. According to a study conducted in 1997 by Zona Research, Inc., 70% of the businesses and consumers surveyed listed concerns about trust and security as the main impediment to broader use of the Internet for commercial applications. Business concerns include the potential for theft of corporate or customer information, impersonation of employees, loss of reputation and economic loss through fraud. Consumer concerns include the possibility of merchant impersonation and fraud and the risk that third parties may be able to intercept and use personal information such as credit card numbers. Traditional security mechanisms such as passwords and personal identification numbers do not adequately address these issues, as they can be easily lost, forgotten or misappropriated. Some security concerns are being addressed through technologies such as encryption and firewalls, but these technologies do not address the need to establish and maintain a common framework of trust between parties conducting transactions or exchanging sensitive information in the digital world. 30 In the physical world, trust in communications and commerce is established through a combination of social, business and legal practices that, in some cases, have been developed over hundreds of years. These practices often include the use of physical credentials, such as credit cards, business licenses or employee badges, and the associated legal protections to avoid loss from theft or fraud. The diligence, practices, policies and reputations of the organizations standing behind the issuance, delivery, revocation and renewal of physical credentials provide a readily understood and accepted framework of trust for a given communication or transaction. The physical credentials that embody these proven practices and frameworks of trust and the social interactions that accompany their use cannot be utilized in the digital world. As a result, there is a need for a trusted and convenient way to verify the identity, authority and privilege of the parties involved in communications and commerce over IP networks and to assure their proper and trusted association with a specific organization or community. EMERGENCE OF DIGITAL CERTIFICATE TECHNOLOGY Digital certificates are emerging as the leading technology for establishing a framework for trusted and secure communications and commerce over IP networks, with many Internet security protocols dictating the use of digital certificates. A digital certificate is a specially prepared software file that functions as an electronic credential in the digital world, identifying the certificate owner, authenticating the certificate owner's membership in a given organization or community (credit card holder, employee, supply chain participant or citizen) and establishing the certificate owner's authority to engage in a given transaction. Utilizing the principles of public key cryptography, a digital certificate binds a pair of unique mathematical keys, one designated as "private" and securely maintained by its owner, and the other designated as "public" and embedded in the digital certificate. What the owner's private key digitally signs, only the corresponding public key can verify. When properly prepared, issued and administered, digital certificates create a framework for trusted interaction over IP networks, making it possible, for example, to verify with certainty the identity of an account holder or a Web-based business, the source of an electronic message or the integrity of electronically distributed software or content. Significant efforts are underway to utilize digital certificates as "vehicles of trust" for securely transmitting e-mail, accessing information on public and private Web sites, purchasing retail goods and services and conducting other financial transactions such as electronic securities trading. The leading vendors of Web browser, Web server, electronic mail, electronic payment and content distribution applications have incorporated digital certificate technology as the framework for establishing trusted and secure communications and commerce over IP networks and are embedding support for digital certificates in their products. A number of standard protocols that are being widely adopted for communications and commerce require the use of digital certificates. These protocols include the Secure Sockets Layer protocol ("SSL") for browser/server authentication and secure data transmission, the Secure Multipurpose Internet Mail Extensions protocol ("S/MIME") for secure e-mail and EDI, the Secure Electronic Transactions protocol ("SET") for secure electronic payments, and the Internet Protocol Security standard ("IP/SEC") for authentication of networking devices. Just as an individual may have many forms of credit cards and IDs, he or she may require multiple digital certificates, each corresponding to a unique digital relationship between the individual and an organization. Thus, there is the potential need over time for hundreds of millions of digital certificates to be issued and managed. CERTIFICATION AUTHORITIES AND THE NEED FOR TRUSTED INFRASTRUCTURE Digital certificates are prepared and managed by trusted parties known as Certification Authorities ("CAs"). To prepare a digital certificate for issuance, a CA embeds an individual's or an organization's public key along with specific personal information (name or e-mail address) or organizational information (domain name or affiliation) in the digital certificate, which is then cryptographically "signed" by the CA. The CA's digital signature acts as a tamper-proof electronic seal that verifies the integrity of the information within the digital certificate and validates its use within a specific organization or community. This digital signature is linked to the CA's public "root key," which is embedded in the browser, server or other application used by the 31 organization or community. Through the embedded public root key, a community member can automatically confirm the authenticity of a digital certificate-- and hence the certificate owner's identity, authority and privilege--to verify the source and integrity of any accompanying message or transaction request. A CA may digitally sign certificates for multiple organizations or communities, each having different rules, qualifications or procedures governing the admission of members. The CA may sign and issue certificates directly to the members of a given community or sign certificates on behalf of other entities (credit card issuers, corporations or government agencies) that wish to control the admission of members into their organizations and grant to them certain authority and privileges. The successful implementation and management of digital certificates as a mechanism for trusted and secure commerce and communications present a number of issues and challenges for a CA. The CA must establish and maintain rigorous practices, policies and procedures to manage the technical complexities of cryptographic key management and provide for the secure creation and distribution of digital certificates. The CA must carefully manage the entire lifecycle of all digital certificate issued, including identifying and conducting initial due diligence on the owners, tracking digital certificates, providing customer support for digital certificate owners, confirming in real- time the continued validity of each digital certificate and revoking or renewing the digital certificates. To be effective for large public and private communities needing digital certificates, a CA must also have a highly scaleable and flexible infrastructure, be able to provide a full range of digital certificate services in high volume on a 24 hour x 7 day basis and have its public root key embedded in and supported by a wide variety of applications utilized across IP networks. THE VERISIGN SOLUTION VeriSign is the leading provider of digital certificate solutions and infrastructure needed by companies, government agencies, trading partners and individuals to conduct trusted and secure communications and commerce over IP networks. The Company has established strategic relationships with industry leaders, including Cisco, McAfee Associates, Microsoft, Netscape, RSA, Security Dynamics, VeriFone and VISA to enable widespread deployment of the Company's digital certificate technology and products and to assure their interoperability among a wide variety of applications. The Company believes that it has issued more digital certificates than any other company, having issued over 1.5 million of its Digital IDs for individuals and over 35,000 of its Digital IDs for Web sites. The Company's digital certificates, are enabled in millions of copies of Microsoft and Netscape browsers, tens of thousands of copies of popular Web servers and a variety of software applications. In addition, Microsoft and Netscape have integrated enrollment for the Company's digital certificates into the registration process for their Web browsers, prominently feature the Company and its digital certificate solutions in certain of their products and on their Web sites, have integrated the Company's public root key into their browsers and engage in a variety of joint marketing activities with the Company. In addition to providing Digital IDs for individuals and Web sites, the Company also provides turn-key and custom solutions needed by organizations, such as Dow Jones, NOVUS/Discover and VISA, to conduct trusted and secure communications and commerce over IP networks. The Company issues and manages digital certificates directly from its Digital ID Centers for consumers, businesses and organizations that use IP networks for trusted and secure communications and commerce. The Company also offers a comprehensive range of digital certificate solutions tailored to meet the specific needs of customers, such as financial institutions and governmental agencies, that wish to issue their own, or have VeriSign issue on their behalf, digital certificates for use within their private intranets and extranets. These solutions vary based on the nature and complexity of the applications, the degree of control customers desire to maintain and the degree of operational responsibility customers wish to delegate. Each of the Company's solutions leverages its infrastructure for managing digital certificates to relieve customers from the burdensome responsibilities and costs of designing, establishing, maintaining and staffing their own digital certificate operations. The key components of the Company's solution are its scaleable, modular software architecture, highly reliable and secure operations and comprehensive security and trusted practices, which together provide a 32 platform designed for the timely, rapid deployment of large volumes of digital certificates and the ongoing management of such digital certificates throughout their lifecycles. . Scaleable, Modular Software Architecture. The Company has designed its software to provide the scaleability necessary to support the issuance and management of millions of certificates for distinct communities ranging from individual corporations to the entire population of Internet users. The Company's WorldTrust software automates many of the processes for digital certificate issuance and lifecycle management, including subscriber enrollment, authentication and administration services. The Company's modular software is also distributable over one or many computer systems to enhance scaleability and allow for certain functions of the digital certificate issuance and lifecycle management process to be deployed at customer or affiliate locations while maintaining a secure and reliable link to the Company's Digital ID Centers for back-end processing. . Highly Reliable and Secure Operations. The Company's Digital ID Centers, which are located in Mountain View, California and Kawasaki, Japan and operate on a 24 hour x 7 day basis, support all aspects of issuance and management of digital certificates as well as the delivery of its related digital certificate services. Through the use of state-of-the-art computer, telecommunications, network and monitoring systems, the Company's Digital ID Centers are designed to provide the high levels of availability, security and scaleability necessary to meet the needs of customers for high volume digital certificate issuance and management. . Comprehensive Security and Trusted Practices. The Company has been instrumental in defining comprehensive, industry-endorsed practices and procedures for the legal and business frameworks in which digital certificate relationships are established as well as the physical security and controls that are essential to operate secure, large-scale digital certificate management operations. The Company believes that these practices and procedures are a critical component to the creation of a digital certificate infrastructure required for trusted and secure communications and commerce over IP networks. STRATEGY The Company's objective is to enhance its position as the leading provider of digital certificate solutions and infrastructure needed by companies, government agencies, trading partners and individuals to conduct trusted and secure communications and commerce over IP networks. The Company's strategy to achieve this objective includes the following key elements: Leverage Leadership Position to Drive Market Penetration. The Company believes that it has developed a leading position in the market for digital certificate solutions and underlying trust infrastructure by being the first to market with a variety of digital certificate products and services, building strategic relationships with industry leaders, issuing more digital certificates than any other company, embedding its public root key in a variety of communications, commerce and other software applications and investing significant resources in developing its comprehensive trust infrastructure. The Company intends to leverage this leadership position to drive further adoption and deployment of its digital certificate solutions and associated trust services. In addition, the Company intends to maintain its first-to-market position by applying its knowledge and experience to new products and services that the Company believes will have significant market potential. Leverage and Expand Strategic Relationships with Industry Leaders. The Company has established strategic relationships with industry leaders, including Cisco, McAfee Associates, Microsoft, Netscape, RSA, Security Dynamics, VeriFone and VISA. The Company believes that these relationships, as well as others that it intends to pursue, will enable the widespread deployment of the Company's Digital IDs by allowing it to capitalize on the brand recognition and broad customer bases of such strategic partners. For example, both Microsoft and Netscape have incorporated the Company's public root key in their Web browsers and feature the Company and its digital certificate solutions in their products and on their Web sites. The Company believes that this support from Microsoft and Netscape enhances market awareness of the Company and provides a powerful endorsement of the Company's digital certificate solutions and infrastructure. Certain of the Company's strategic 33 relationships also involve joint marketing activities, which enhance the Company's ability to target large customers and expand overall brand awareness. The Company intends to pursue additional strategic relationships that the Company believes will enhance the marketing and distribution of its products and services. Maintain Leadership in Technology, Infrastructure and Practices. The Company has developed technical, operational and procedural expertise for the widespread implementation of secure digital certificate solutions. The Company intends to continue to enhance its technology, infrastructure and distributed product architecture to enable further operational scaleability in order to provide digital certificate solutions for a variety of industries with high volume certificate issuance requirements. In order to ensure the alignment of its technology with emerging trends, the Company actively participates in industry consortia, standards setting organizations and other trade groups. In addition, the Company is continually enhancing its internal "best practices" and controls to ensure the physical security of its facilities, maintain quality in the execution of its operations, verify the quality and consistency of its services and promote the global acceptance of its digital certificate solutions. Continue to Build the VeriSign Brand. The Company will continue to promote the VeriSign brand as synonymous with trusted and secure communications and commerce over IP networks. In order to accelerate the acceptance and penetration of its digital certificate solutions, the Company has developed joint marketing relationships with brand leaders such as Microsoft, Netscape, VeriFone and VISA and intends to pursue additional relationships with entities whose brands are well known and widely respected. The Company also utilizes a variety of marketing programs to promote market awareness of the Company and promote the VeriSign brand. Expand Global Marketing and Distribution. The Company will continue to expand its global marketing and distribution efforts to address the range of markets and applications for digital certificate solutions. The Company intends to add direct sales personnel and expand indirect channels, both domestically and internationally. The Company also plans to leverage its technology infrastructure to establish Digital ID Centers in appropriate international markets. The Company believes that this strategy affords the opportunity to create an international network of digital certificate providers operating under common technology, operations and legal practices to provide a standard for global interoperability. 34 PRODUCTS AND SERVICES The Company provides a comprehensive line of digital certificate solutions that are designed to enable trusted and secure communications and commerce over IP networks. All of these solutions and services are based upon the Company's WorldTrust software architecture, scaleable operations infrastructure and comprehensive security and trust practices. See "-- Technology and Architecture," "--Infrastructure" and "--Security and Trust Practices." The following table illustrates the range of the Company's products:
VERISIGN END-USER MARKET/CATEGORY PRODUCT/SERVICE DESCRIPTION LIST PRICE* Internet IDs Client Digital Universal Digital Digital certificates for $9.95-$29.95 Certificates IDs individuals for secure e-mail, per year access control and password replacement Server Digital Server Digital IDs Digital certificates for $249-$1,195 Certificates organizations' Web sites for per year encrypted server operations Content Signing Software Developer Digital certificates for $20-$400 Digital Certificates Digital IDs software developers, content per year publishers and distributors Channel Signing for authenticated software and Digital IDs content distribution - ---------------------------------------------------------------------------------------------- Enterprise and Electronic Commerce Enterprise Solutions VeriSign OnSite Turn-key digital certificate $5,000-$50,000 solutions for managed IP per year network applications for a wide range of mid-sized to large enterprises Integrated Electronic VeriSign V-Commerce Customized solutions for $50,000-$500,000 Commerce Solutions Fortune 1000 companies and Web per year sites with very large customer or user bases SET Certificate VeriSign SET Managed solutions for card $50,000-$500,000 Solutions brands, banks and payment per year processors
* The Company typically receives a percentage of the end-user list price for Internet IDs that are sold through the Company's distribution channels. The terms and conditions for the Company's enterprise, integrated electronic commerce and SET certificate solutions, including sales prices and discounts from list prices, may be negotiated in individual transactions based on certificate volumes, associated services and required customization and thus may vary from customer to customer. INTERNET IDS The Company issues Internet IDs directly to individuals and organizations engaged in communications and commerce over the Internet. These Internet IDs allow individuals, organizations and software developers to protect the privacy and integrity of their communications by establishing the identity, authority or privilege of the parties involved to avoid impersonations or identity "spoofing" and malicious security breaches. Since its inception, the Company has issued over 1.5 million of its Digital IDs for individuals and over 35,000 of its Digital IDs for Web sites. The purchase of a Digital ID allows the customer to use the Digital ID for a limited period of time, generally 12 months. After this period, the Digital ID must be renewed for continued usage by the customer. The Company has also established a warranty protection program, the NetSure Protection Plan, that is insured by United States Fidelity and Guaranty Company and provides warranty coverage at varying levels up to $250,000 in the event of economic loss due to the theft, impersonation, corruption or loss of an Internet ID. 35 Client Digital Certificates. VeriSign's Universal Digital IDs are issued directly to individuals to enable users to exchange digitally signed and encrypted e-mail using the S/MIME protocol. Universal Digital IDs can also be used to replace passwords for more convenient access to and enhanced security of Web sites. The Company currently offers two versions of Universal Digital IDs and plans to offer a third version in the second half of 1998. These versions are differentiated principally by the subscriber identity authentication procedures and due diligence performed by the Company prior to issuance and the amount of NetSure warranty protection provided: Universal Digital ID-Class 1. Class 1 Universal Digital IDs are the class of Universal Digital ID most commonly issued by the Company. The Company issues a Class 1 Universal Digital ID after authenticating a user's e-mail address by providing an activation code, via e-mail, that can be used to download the digital certificate from VeriSign's Web site. Class 1 Universal Digital IDs have NetSure warranty protection of $1,000. The Company offers a Class 1 Universal Digital ID for free on a 60-day trial basis, but the trial version does not include replacement, revocation, NetSure warranty protection or other related digital certificate services. To date, substantially all of the Class 1 Universal Digital IDs have been issued without charge on a trial or promotional basis. Universal Digital ID-Class 2. The Company issues a Class 2 Universal Digital ID after authenticating a user's personal identity by matching personal information provided by the user with information contained in established third-party consumer credit databases. To date, the Company has issued Class 2 Universal Digital IDs primarily to North American residents. Class 2 Universal Digital IDs have NetSure warranty protection of up to $25,000. Universal Digital ID-Class 3. VeriSign expects to introduce a Class 3 Universal Digital ID in the second half of 1998. A Class 3 Universal Digital ID will be issued after authentication of a user's identity through personal presence verification by VeriSign or one of its certified agents or affiliates. The Company anticipates that Class 3 Universal Digital IDs will have NetSure warranty protection of up to $50,000. Server Digital Certificates. The VeriSign Server Digital ID product line enables organizations to implement and operate secure Web sites using the SSL or S/MIME protocols in order to establish authenticated and private communications and commerce on IP networks. Prior to issuing a Server Digital ID, VeriSign establishes the authenticity of a Web site through a series of background checks that corroborate an organization's authority to do business under a given business name, as well as its right to operate a server with a specific domain name or URL. These procedures protect an organization against another server "spoofing" its site and also allows site visitors to establish the site's authenticity. VeriSign's Server Digital IDs enable an individual's Web browser to verify a Web site's identity automatically by checking the site's Server Digital ID. Once this authentication has occurred, an encrypted session based on SSL or the S/MIME messaging protocol can commence. These private communications sessions are virtually impenetrable by external parties, thereby protecting sensitive information from unauthorized access. The Company currently offers four versions of its Server Digital IDs, differentiated by the target application of the server that hosts the Server Digital ID. The Company provides NetSure warranty protection of up to $100,000 on each Secure Server ID, Global Server ID and Financial Server ID and up to $250,000 on each EDI Server ID. Secure Server ID. VeriSign Secure Server IDs enable Web sites to implement SSL security features for transactions and communications conducted between their Web servers and individual end users. A Secure Server ID can also be used in conjunction with a Universal Digital ID to restrict access to account information and content on a server hosted on an IP network. The Company's public root key is embedded in more than 40 server software applications. 36 Global Server ID. VeriSign Global Server IDs enable organizations to establish worldwide 128-bit encrypted SSL sessions using Netscape Communicator or appropriately configured Microsoft Internet Explorer software. Global Server IDs are available for use by U.S. corporations and U.S. and foreign banks approved by the United States Department of Commerce Bureau of Export Administration. VeriSign Global Server IDs are currently the only commercially available server digital certificates for Netscape and Microsoft products that utilize 128-bit encryption and can be used by approved organizations on a global basis. Financial Server ID. VeriSign Financial Server IDs are intended for use with financial applications using the Open Financial Exchange specification developed by Microsoft, Intuit Inc. ("Intuit") and CheckFree Corporation. Financial Server IDs are used by financial institutions for authentication of their Web servers and to enable the secure exchange of data between these organizations and customers engaged in home banking, brokerage and insurance services on the Internet. The Company's financial server public root key is embedded in Intuit's Quicken product and will be embedded in the next version of Microsoft Money. EDI Server ID. VeriSign EDI Server IDs are intended for organizations or individuals who participate in large online trading networks and who wish to engage in secure communications. EDI Server IDs ensure the integrity of messages, allow encrypted messages to be sent using a variety of EDI standards and enable messages to be digitally signed to ensure nonrepudiation. The Company's public root key is embedded in the Actra ECXpert product and other EDI applications. Content Signing Digital Certificates. The VeriSign content signing digital certificate product line enables content providers, publishers and vendors to digitally sign their content or distribution channels in order to ensure the authenticity and integrity of content delivered to end users. All of the Company's content signing digital certificates have NetSure warranty protection of between $25,000 and $50,000. The Company currently offers three versions of its content signing digital certificates, differentiated principally by the subscriber identity authentication procedures and due diligence performed by the Company prior to issuance and the amount of NetSure warranty protection provided: Individual Software Developer Digital ID. Individual Software Developer Digital IDs are issued after VeriSign authenticates the identity of an individual software publisher through the use of established third- party consumer credit and other databases. Commercial Software Developer Digital ID. Commercial Software Developer Digital IDs are issued after VeriSign authenticates the identity of a commercial software publisher by using registered credentials and online commercial databases to verify the company's identity. Both the Individual Software Developer Digital IDs and the Commercial Software Developer Digital IDs are designed for use by software developers that wish to digitally sign and distribute code electronically via the Internet, including ActiveX controls under the Microsoft Authenticode program or JAVA code in conjunction with the Netscape object signing technology. Channel Signing Digital ID. Channel Signing Digital IDs authenticate a distribution channel for software and content that is automatically distributed or "pushed" via IP networks using an application such as Marimba's Castanet, by authenticating that the software or content is from the indicated source and establishing that the software or content has not been tampered with or modified while en route over IP networks. ENTERPRISE AND ELECTRONIC COMMERCE The Company offers a broad range of turn-key and custom solutions tailored to meet the specific needs of companies, government agencies and other affiliated organizations that wish to issue digital certificates to customers, employees, trading partners or citizens. The Company's enterprise and electronic commerce solutions 37 can be used for a variety of applications, including: controlling access to sensitive data and account information; facilitating and protecting online payment card transactions; enabling digitally signed e-mail; or creating an electronic trading community. These solutions give customers the option of issuing private label digital certificates, which have limited use within their intranets and extranets, or VeriSign Digital IDs, which are interoperable with IP network applications enabled with the Company's public root key and can be customized to include customer-specific criteria. Enterprise and electronic commerce solutions vary based on the nature and complexity of the application, the degree of control customers desire to maintain, and the degree of operational responsibility customers wish to delegate. The modularity of the Company's WorldTrust architecture allows certain functions of the certification process, such as registration, authentication, issuance, revocation, renewal or replacement, to be deployed at customer sites while maintaining a link to VeriSign's Digital ID Centers for back-end processing. As a result, customers enjoy significant time-to- market and cost reduction benefits by leveraging the Company's trusted, scaleable infrastructure with complete certificate lifecycle management, high- speed servers, redundant telecommunications, data storage and daily back-up, full disaster recovery, availability of 24 hour x 7 day customer service and rigorous network and physical security. VeriSign OnSite. VeriSign OnSite combines the ease of use and low entry cost of a turn-key software product with the flexibility and scaleability of a fully managed service. VeriSign OnSite targets mid- to large-scale companies and government agencies that wish to set up and administer their own digital certificate solutions using VeriSign's trusted infrastructure. VeriSign OnSite provides browser-based software for front-end processing complete with configuration wizards, enrollment templates, authentication and administration tools, directory files and a secure link to the Company's Digital ID Centers for back-end processing. VeriSign OnSite provides several key benefits, including complete control over configuration, quick deployment, low cost and flexibility. VeriSign OnSite can be downloaded from one of the Company's Digital ID Centers or sold through one of the Company's direct or indirect sales channels and is priced on an annual subscription basis for a fixed quantity of digital certificates. VeriSign V-Commerce. VeriSign V-Commerce is a comprehensive, custom solution that enables large-scale electronic commerce activities on IP networks, such as virtual storefronts, electronic subscription services, content delivery and information access and broadcast. VeriSign V-Commerce targets Fortune 1000 companies, financial institutions and large government agencies with high- volume digital certificate issuance and management requirements. VeriSign V- Commerce solutions involve special set-up and consulting services to support the development and installation of custom digital certificate formats, subscriber services, authentication interfaces, administration tools and root keys. VeriSign V-Commerce solutions also support the deployment of certain of the digital certificate service functions at the customer's site or remote offices to allow for maximum control and flexibility. VeriSign V-Commerce enables companies and government agencies to realize the full potential of IP networks as a medium for trusted and secure communications and commerce by relying on the Company to develop, deploy and administer a large scale digital certificate implementation. VeriSign V-Commerce terms are negotiated based on the annual volume of digital certificates, associated services and customization required. VeriSign SET. VeriSign SET is an electronic commerce solution targeted at certified banks, payment processors or major credit card brands to enable cardholders, merchants and payment gateways to enroll for and obtain digital certificates for use with the SET specification without the expense of developing and hosting a custom digital certificate solution. The SET specification was developed by an industry consortium, including MasterCard and VISA, to enable secure payments and purchases over IP networks. SET digital certificates are used to identify the identity of participants in a SET transaction. The Company delivers SET services directly to certified banks or payment processors and to banks on behalf of major credit card brands, including Air Travel Card, Diner's Club, MasterCard, NOVUS/Discover and VISA. There are currently over 130 VISA member banks that are using VeriSign SET solutions in pilot programs. 38 SERVICES In addition to its broad set of digital certificate solutions, the Company also provides, or intends to provide, a range of services that augment its solutions with added value or trust functionality. These services include: Professional Consulting Services. The Company employs experts in cryptography and digital certificate management who offer consulting and training services to organizations implementing digital certificate solutions. VeriSign's professional services group provides a variety of design, development and implementation services, including interfacing with existing applications and databases, consulting on policies and procedures related to the management and deployment of digital certificates and the selection of related software and hardware (e.g., smart cards and readers) to complement a digital certificate solution. These consulting and training services are billed on a time and materials basis. Key Generation Ceremonies. For larger organizations wishing to establish customized storage of their digital certificate root keys as well as an auditable record of the root key generation process, the Company provides a custom "key generation ceremony" as part of its setup services, complete with videography, dedicated hardware and secret key sharing among trusted parties. These key generation services provide an added measure of security and an audit trail for the issuance and management of digital certificates. Status Services. The Company has currently developed services that will support real-time confirmation of the status of a particular digital certificate used in specific applications by providing a digitally signed receipt acknowledging "good," "revoked" or "unknown" status of a digital certificate to the requesting party. The Company currently uses a real-time status service to support Microsoft's Authenticode program. The Company expects to broaden the use of status services to other digital certificate markets during the first half of 1998. Time Stamping Services. The Company offers a time stamping service that allows software developers to add a verifiable time and date stamp to software content that they digitally sign with their Software Developer Digital IDs. The Company is currently developing time stamping services for a variety of other applications. Warranty and Insurance Plans. To extend its NetSure Protection Plan offerings, the Company is developing programs to make insurance products available to its enterprise and electronic commerce customers so that these customers can purchase insurance to cover losses resulting from the use of digital certificates on both a per certificate and per transaction basis. CUSTOMERS AND MARKETS VeriSign's target customers for its enterprise and electronic commerce digital certificate solutions include consumers, government agencies, financial institutions, content providers and other organizations requiring trusted and secure communications and commerce over IP networks. The following examples illustrate how certain organizations use VeriSign's digital certificate solutions: Credit Cards. A major credit card association wants to promote the use of its cards as the preferred payment method for purchases over the Internet. To accomplish this goal, it must give consumers the confidence to use their account numbers safely over the Internet while reducing the potential for losses due to fraud. This credit card association has adopted the SET protocol, which dictates the use of digital certificates for all parties involved in transactions, including cardholders, merchants, issuing banks, acquiring banks and payment gateways. The credit card association chose VeriSign to provide SET digital certificate solutions to the credit card association on behalf of its member banks. The benefits the credit card association and its member banks expect to receive include increased use of the card for purchases over the Internet, increased customer loyalty and a reduction in losses due to credit card fraud. The credit card association currently is currently conducting a pilot program with a number of member banks using VeriSign SET solutions, and the credit card association anticipates full scale deployment of the program in 1998. 39 Electronic Information Services. A major provider of electronic information services to financial institutions and other businesses wants to distribute its services more broadly, increase its penetration within its existing client base and replace its existing proprietary terminals, which are in each of its clients' locations, with an IP network-based service that can be delivered over its clients' existing PCs. VeriSign will provide a custom digital certificate solution, utilizing customer-branded client digital certificates, that enables this company to deliver and charge for its services accurately at each desktop. In addition, because the system is IP network-based, it provides a better user experience due to graphical user interfaces and other IP network-based features such as hyperlinks. The benefits the information services company expects to receive include reduced hardware costs, improved customer satisfaction, increased revenue opportunities, increased market acceptance and reduced implementation costs. The system is currently in beta testing with over 100 clients and the information services company expects to release it fully in early 1998. Banking. One of the top five U.S. banks wants to provide secure services such as home banking, commercial banking and credit card purchases to its business and consumer clients over the Internet. VeriSign will provide 128-bit Server Digital IDs and bank-branded client digital certificates for home and commercial banking as well as VeriSign SET digital certificates for the bank's credit card holders. The benefits the bank expects to receive include improved customer service, reduced service costs and broader geographic reach. The bank is currently utilizing VeriSign's 128-bit Server Digital IDs for home banking and commercial banking and anticipates offering bank-branded client digital certificates and VeriSign SET digital certificates in mid-1998. TECHNOLOGY AND ARCHITECTURE The Company employs a modular set of software applications and toolkits, which collectively make up its proprietary WorldTrust architecture, as the core platform for all of its digital certificate solutions. The modular design of the WorldTrust architecture enables the Company's digital certificate services to be distributed over one or many co-located or dispersed computer systems, allowing certain functions of the certification process, such as registration, authentication, issuance, revocation, renewal or replacement, to be deployed at customer or affiliate locations while maintaining a secure and reliable link to one of the Company's Digital ID Centers for back-end processing. These modules can also be replicated in order to handle increased volumes of digital certificates. Digital certificate service modules incorporated in the WorldTrust architecture include: Subscriber Services Module. The subscriber services module supports requests for digital certificate issuance, revocation, renewal and replacement . Software toolkits are provided to permit rapid customization and integration of digital certificate services with a customer's business-specific Web-based solutions. Authentication Services Module. The authentication services module supports manual, automated and delegated authentication of subscribers by designated sources prior to certificate issuance. Software toolkits and APIs are provided to allow for integration with various process models and database systems. Administration and Support Modules. The administration and support modules provide lifecycle services such as digital certificate revocation, renewal and reissuance, as well as a customer support knowledge base to facilitate general reporting of CA activity and Web-based and e-mail-based support of customers and end users. Directory Services Module. The directory services module utilizes database applications typically hosted at one of the Company's Digital ID Centers to support the storage of and access to digital certificates and associated information for a particular customer. Enterprise and electronic commerce customers can also download updated copies of their directory information to their systems. Service Control Module. The service control module is hosted at one of the Company's Digital ID Centers and acts as a gatekeeper, decoding and routing all certificate service requests based on customer type, application type, security protocol, authentication policies, certificate content and billing rules. This module utilizes a proprietary, data-driven programming model to define each service and dispatch the appropriate control and error commands to other modules. 40 Certificate Processing Module. The certificate processing module is hosted at one of the Company's Digital ID Centers and creates digital certificates with digital signatures on each certificate, delivers certificates to subscribers and stores a copy of each digital certificate for archive, audit and directory purposes. INFRASTRUCTURE The Company believes that its highly reliable and scaleable operations infrastructure represents a strategic advantage in providing digital certificate solutions. The Company's Digital ID Centers are located in Mountain View, California and Kawasaki, Japan. These centers operate on a 24 hour x 7 day basis, and support all aspects of issuance and management of digital certificates as well as delivery of related digital certificate services. By leveraging the Company's WorldTrust architecture, certain functionality of the Company's Digital ID Centers can be distributed in optimum configurations based on customer requirements for availability and capacity. Key features of the Company's infrastructure include: Distributed Servers. The Company deploys a large number of high-speed servers to support capacity and availability demands. Additional servers can be added to support increases in certificate volumes, new services introductions, new customers and higher levels of redundancy without service interruptions or response time degradation. The WorldTrust architecture provides automatic fail-over, load balancing and threshold monitoring on critical servers. Advanced Telecommunications. The Company deploys redundant telecommunications and routing hardware and maintains high-speed connections to multiple ISPs and throughout its internal network to ensure that its mission critical services are readily accessible to customers at all times. Network Security. The Company incorporates advanced architectural concepts such as protected domains, restricted nodes and distributed access control in its system architecture. The Company has also developed proprietary communications protocols within and between the WorldTrust architecture modules that it believes can prevent most known forms of electronic attacks. In addition, the Company employs the latest network security technologies including firewalls and intrusion detection software, and contracts with security consultants who perform periodic attacks and security risk assessments. The Company will continue to evaluate and deploy new technological defenses as they become available. See "Risk Factors--System Interruption and Security Breaches." Call Center and Help Desk. The Company provides a wide range of customer support services through a phone-based call center, e-mail help desk and Web- based self-help system. The Company's call center is staffed from 8 a.m. to 5 p.m. PST and employs an Automated Call Director system. The Web-based support services are available on a 24 hour x 7 day basis. E-mail support utilizes customized auto response systems to provide self-help recommendations and a staff of trained customer support agents. Disaster Recovery Plans. Although the Company believes its operations facilities are highly resistant to systems failure and sabotage, it has developed, and is in the process of implementing, a disaster recovery and contingency operations plan and has an agreement with Comdisco Corporation to provide replication of customer data, facilities and systems at another site so that its main services can be re-instated within 24 hours of a failure. In addition, all of the Company's digital certificate services are linked to advanced storage systems that provide data protection through techniques such as mirroring and replication. See "Risk Factors--System Interruption and Security Breaches." SECURITY AND TRUST PRACTICES The Company believes that its perceived level of trustworthiness as a CA will continue to be a significant determining factor in the acceptance of the Company's digital certificate solutions. The Company believes that its reputation as a trusted party will be based, to a large extent, on both the security of its physical infrastructure and the special practices used in its operations. The Company's Digital ID Centers include state-of-the-art physical and network security. The Company also seeks to take a leading role in defining and adhering to 41 industry-endorsed trust practices and procedures, which the Company believes are also critical to establishing its perceived trustworthiness as a CA. The Company has invested significant capital and human resources in its security and practices including: Employees. The Company uses stringent hiring and personnel management practices for all operations and certain engineering personnel as well as all executive management. The Company utilizes a licensed private investigation firm to conduct background checks into potential employees' criminal and financial histories and conducts periodic investigations of such personnel on an ongoing basis. Security Monitoring Systems. The Company has sophisticated access control and monitoring systems that help prevent unauthorized access to secure areas and provide 24 hour x 7 day monitoring and logging of activities within its facilities. These systems include electronic key and biometric access control devices, video monitoring and recording devices, deployment and automatic arming of motion detectors, glass breakage detectors and remote alarm system monitoring. Site Construction. The Company's Digital ID Centers have been built using construction techniques modeled after U.S. Army specifications for facilities accredited to handle classified information and contain a robust set of physical and environmental defenses. These defenses include double layer, slab-to-slab wall design, self-closing and locking metal doors at all secure entrances, man traps, tamper proof enclosures for cryptographic materials and fire prevention systems. Back-up Power Systems. The Company has invested in back-up power systems that automatically activate in the event of a failure in its primary power sources. These include uninterruptible power supply systems and a diesel generator and fuel supply. To ensure reliability, these systems are tested on a periodic basis. Audits. The Company's Practices and External Affairs Department periodically performs, and retains accredited third parties to perform, audits of its operational procedures under both internally-developed procedures and externally-recognized standards. Practices. The Company's Practices and External Affairs Department is responsible for the development of the Company's practices for issuing and managing digital certificates. These practices are set forth in the Company's Certification Practice Statement, which the Company provides in order to assure potential customers and strategic partners as to the trustworthiness of the Company's digital certificate solutions. The Practices and External Affairs Department is also responsible for the Company's accountability and security controls and regularly monitors all aspects of the Company's Digital ID Centers. Policy Making Activities. The Practices and External Affairs Department also takes a leading role in a variety of organizations that are defining standards for trusted and secure communications and commerce over IP networks. For example, the Company actively participates in the United Nations Commission on International Trade Law, which created the United Nations Model Law on Electronic Commerce, the American Bar Association's Information Security Committee, Section of Science and Technology, which has drafted digital signature guidelines, the International Chamber of Commerce ETERM Working Party, which is chaired by the Company's Vice President of Practices and External Affairs, and the U.S. State Department Advisory Committee on Electronic Commerce. VERISIGN JAPAN In February 1996, the Company formed VeriSign Japan in order to market and deliver its digital certificate solutions in Japan. VeriSign Japan has built and operates a secure Digital ID Center in Kawasaki, Japan, maintains sales and marketing, engineering and administrative staffs and offers customer support services, thus enabling it to provide the Company's digital certificate solutions to the Japanese market. As of September 30, 1997, VeriSign Japan had 20 employees. In 1996, additional strategic investors acquired 49% of the outstanding capital stock of VeriSign Japan. These investors are as follows: The Long Term Credit Bank of Japan, Ltd.; Mitsubishi Corporation; NEC Corporation; Nippon Investment & Finance Co., Ltd.; Nippon Steel Corporation; 42 NISSHO IWAI Corporation; NTT Data Corporation; NTT Electronics Corporation; NTT PC Communications, Inc.; The Sakura Bank, Limited; The Sanwa Bank, Limited; SOFTBANK Corporation; The Sumitomo Credit Service Co., Ltd.; and The Sumitomo Trust and Banking Company, Limited. STRATEGIC RELATIONSHIPS The Company has established strategic relationships with leading companies across a number of industry segments, including Cisco, Microsoft, Netscape, SecureOne (a consortium of McAfee Associates, RSA and Security Dynamics), Security Dynamics, VeriFone and VISA. Cisco. The Company has developed a custom software product to provide digital certificate functionality in Cisco-based intranet environments. As a result, intranets utilizing Cisco products will support applications that rely on VeriSign digital certificates for authentication and network management. The Company and Cisco also engage in a variety of joint marketing efforts. Cisco is a stockholder of the Company. Microsoft. The Company works with Microsoft to develop, promote and distribute a variety of client-based and server-based digital certificate solutions and has been designated as the preferred provider of digital certificates for Microsoft customers. The Company's public root key has been embedded in Microsoft's Internet Explorer since version 3.0, and users can easily enroll for VeriSign's Universal Digital IDs through this product. The Company also provides Server Digital IDs for Microsoft's Internet Information Server product. The Company and Microsoft also jointly promote a set of technologies and security policies for the secure authentication and distribution of software over the Internet and engage in other joint marketing activities. Microsoft is a principal stockholder of the Company. Netscape. The Company works with Netscape on a variety of technology projects and joint marketing activities. The Company's public root key has been embedded in Netscape's Navigator since version 2.0 and in Netscape's Communicator since version 4.0. The Company also has an agreement with Netscape through February 1998 which provides that Netscape will exclusively feature the Company as the premier provider of digital certificates on the Netscape Web site and also provides for the Company to have a first right of participation for any new Netscape products incorporating digital certificate technology. Enrollment for free, limited-use versions of the Company's Universal Digital IDs is integrated into the registration process of Netscape's Netcenter online service and users of Netscape browsers can easily enroll for standard VeriSign Universal Digital IDs through these products. Netscape SuiteSpot and SuiteSpot with 128-bit encryption capabilities can also utilize the Company's Server Digital IDs. The Company also supports Netscape's object signing technology, enabling software developers to digitally sign Java and JavaScript objects in order to authenticate the developer's identity and assure end users that the downloaded objects have not been tampered with or modified. SecureOne. The Company, McAfee Associates, RSA and Security Dynamics are jointly developing the SecureOne framework, which is designed to provide enterprises with a platform for developing and maintaining secure networks that link anti-virus, authentication, encryption and digital certificate technologies. The SecureOne framework integrates the programming interfaces of McAfee Associates' Virus Interface for Protective Early Response, Security Dynamics' Enterprise Security Services ("ESS") architecture, RSA's digital signature, cryptographic, messaging and transaction security engines and a VeriSign software developer toolkit to enable digital certificate functionality in secure applications. The companies have also agreed to integrate their security technologies through a series of cross-licensing agreements, and, as a result, the Company's Class 1 Universal Digital IDs are being issued on a trial basis to users of McAfee Associates' VirusScan Security Suite. Security Dynamics. The Company has entered into an agreement with Security Dynamics under which Security Dynamics will incorporate custom digital certificate technology developed by VeriSign into Security Dynamics' ESS architecture, which is used in certain of Security Dynamics' security solutions. Security Dynamics has also agreed to be a reseller of the Company's VeriSign OnSite product. The Company believes that Security Dynamics is a market leader in enterprise security and that, by including VeriSign technology and 43 products in Security Dynamics' products, the Company will have a broader potential market for its digital certificate solutions. Security Dynamics, through a controlled entity, is the largest stockholder of the Company. See "Certain Transactions" and "Principal Stockholders." VeriFone. The Company and VeriFone have executed a term sheet which provides that VeriFone will become a reseller of the Company's SET services and Server Digital ID products in connection with VeriFone's Internet payment solutions. In addition, VeriFone has agreed to promote VeriSign as the preferred provider of SET digital certificate services to its current and prospective customers and to use its best efforts to position the Company as a premier provider of SET and non-SET digital certificate services for use by Hewlett-Packard and its affiliated entities. VeriFone has also agreed to engage in a variety of joint marketing activities with the Company. Hewlett-Packard, VeriFone's parent company, is a stockholder of the Company. VISA. The Company has an agreement with VISA under which the Company provides SET digital certificate solutions to VISA on behalf of its member banks enabling them to offer branded SET-compliant digital certificates to their cardholders and merchants. To date, over 130 member banks worldwide are using VeriSign SET solutions in pilot programs. VISA is a principal stockholder of the Company. See "Certain Transactions" and "Principal Stockholders." MARKETING, SALES AND DISTRIBUTION MARKETING The Company utilizes a variety of marketing programs to increase brand awareness. In addition to joint marketing arrangements, the Company also engages in a variety of direct marketing programs that are focused on owners of Web servers, home and business PC users and enterprise professionals in mid-sized and large organizations. The Company addresses these customers through outbound e-mail, telemarketing and printed mail campaigns to stimulate product trial, purchase and usage. The Company also uses banner ads that link to the Company's Web site, participates in industry-specific events, trade shows, executive seminars, industry association activities and various national and international standards bodies. SALES AND DISTRIBUTION The Company markets its digital certificate solutions worldwide through multiple distribution channels. Internet Sales. The Company distributes many of its products through its Web sites. The Company believes that Internet distribution is particularly well- suited for sales of certain of its enterprise solutions and Internet IDs and can be used to serve a large number of Internet users from multiple countries. The Company also utilizes its Web site to assist in disseminating product information and in generating product leads and trials for a number of its products and services. Direct Sales. The Company's direct sales force targets mid-sized and large corporations, financial institutions, commercial Web sites and federal and state government agencies. The Company believes that these organizations have a substantial installed base of PCs, Web servers, IP networks and high-speed access to the Internet and are most likely to be able to benefit quickly from the use of digital certificates. The direct sales force also targets international organizations that the Company believes are the most suitable to act as VeriSign affiliates. In certain instances, the Company's direct sales force works with complementary VARs, hardware OEMs and systems integrators to deliver complete solutions for major customers. As of September 30, 1997, the Company had 19 direct sales and sales support personnel. The Company maintains sales offices and personnel in California, Georgia, Illinois, Maryland, Massachusetts, New York and Japan. Telesales. The Company currently outsources its telemarketing operations to a third party for use in customer prospecting, lead generation and lead follow-up. This marketing activity qualifies leads for further follow up by the direct sales force or resellers or leads the prospect to VeriSign's Web site so that the prospect can access information or enroll for enterprise or electronic commerce solutions. 44 VARs and Systems Integrators. The Company works with VARs and systems integrators to package and sell its enterprise and electronic commerce solutions and Internet IDs. The Company also has a VeriSign Business Partner Program that allows leading ISPs to offer VeriSign Server Digital IDs as an integral part of their secure Web site hosting services. Current members of this program include AOL Primehost, Epoch Internet, Hiway Technologies, Internet Servers, Inc., pcbank.net and PSINET, Inc. OEMs. The Company provides technology and products for certificate management to OEMs, which integrate the technology and products with value- added software or service offerings and sell the bundled solution to end user customers. Cisco and Security Dynamics have OEM relationships with the Company. See "--Strategic Relationships." International. The Company intends to market its products and services to international markets directly over the Internet and through resellers and affiliate relationships. The Company markets its products and services in Japan through VeriSign Japan, which maintains a secure Digital ID Center in Kawasaki, Japan, and employed 20 persons as of September 30, 1997. See "-- VeriSign Japan." RESEARCH AND DEVELOPMENT The Company believes that its future success will depend in large part on its ability to continue to maintain and enhance its current technologies, products and services. To this end, the Company leverages the modular nature of its WorldTrust software architecture to enable it to rapidly develop enhancements to its WorldTrust software and to deliver complementary new products and services. In the past, the Company has developed products and services both independently and through efforts with leading application developers and major customers. The Company has also, in certain circumstances, acquired or licensed technology from third parties, including public key cryptography technology from RSA. Although the Company will continue to work closely with developers and major customers in its product development efforts, it expects that most of its future enhancements to existing products and new products will be developed internally. The Company has several significant projects currently in development. These include the continued enhancement of the WorldTrust architecture and associated software toolkits to broaden functionality and provide additional packaging and integration options and the development of new services such as real-time status checking, secure timestamping and smart card personalization. As of September 30, 1997, VeriSign had 42 employees dedicated to research and development. The Company also employs independent contractors for documentation, usability, artistic design and editorial review. Research and development expenses were $642,000, $2.1 million and $3.6 million for the period from April 12, 1995 (inception) to December 31, 1995, 1996 and the nine months ended September 30, 1997, respectively. To date, all development costs have been expensed as incurred. The Company believes that timely development of new and enhanced products and technology are necessary to remain competitive in the marketplace. Accordingly, the Company intends to continue recruiting and hiring experienced research and development personnel and to make other investments in research and development. The market for digital certificate products and related services is an emerging market characterized by rapid technological developments, frequent new product introductions and evolving industry standards. The emerging nature of this market and its rapid evolution will require that the Company continually improve the performance, features and reliability of its products and services, particularly in response to competitive offerings and that it introduce new products and services or enhancements to existing products and services as quickly as possible and prior to its competitors. The success of new product introductions is dependent on several factors, including proper new product definition, timely completion and introduction of new products, differentiation of new products from those of the Company's competitors and market acceptance of the Company's new products and services. There can be no assurance that the Company will be successful in developing and marketing new products and services that respond to competitive and technological developments and changing customer needs. The failure of the Company to develop and introduce new products and services successfully on a timely basis 45 and to achieve market acceptance for such products and services could have a material adverse effect on the Company's business, operating results and financial condition. In addition, the widespread adoption of new Internet, networking or telecommunication technologies or standards or other technological changes could require substantial expenditures by the Company to modify or adapt its products and services. To the extent that a specific method other than digital certificates is adopted to enable trusted and secure commerce and communications over IP networks, sales of the Company's existing and planned products and services will be adversely affected and the Company's products and services could be rendered unmarketable or obsolete, which would have a material adverse effect on the Company's business, operating results and financial condition. The Company believes there is a time-limited opportunity to achieve market share, and there can be no assurance that the Company will be successful in achieving widespread acceptance of its products and services or in achieving market share before competitors offer products and services with features similar to the Company's current offerings. Any such failure by the Company could have a material adverse effect on the Company's business, operating results and financial condition. See "Risk Factors--Rapid Technological Change; New Product and Services Introductions." CUSTOMER SUPPORT The Company believes that a high level of customer support for commerce and enterprise customers as well as end users of digital certificates is necessary to achieve acceptance of its digital certificates and related products and services. The Company provides a wide range of customer support services through a staff of customer service personnel, call center, e-mail help desk and a Web-based self-help system. Since it introduced its first products over two years ago, the Company has developed a substantial knowledge base of customer support information based on its customer interactions and believes that this offers the Company a competitive advantage. The Company's call center is staffed from 8 a.m. to 5 p.m. PST and employs an Automated Call Director system to provide self-help services and, if necessary, to route support calls to available support personnel. The Company also offers Web- based support services that are available on a 24 hour x 7 day basis and that are frequently updated to improve existing information and to support new services. The Company's e-mail customer support service utilizes customized auto response systems to provide self-help recommendations and also utilizes a staff of trained customer support agents who typically respond to customer inquiries within 24 hours. As of September 30, 1997, the Company had 53 employees in its customer support organization. The Company also employs technical support personnel who work directly with its direct sales force, distributors and customers of its electronic commerce and enterprise solutions. The Company's annual maintenance agreements for its electronic commerce and enterprise solutions include technical support and upgrades. The Company also provides training programs for customers of its enterprise and electronic commerce solutions. COMPETITION The Company's digital certificate solutions are targeted at the new and rapidly evolving market for trusted and secure communications and commerce over IP networks. Although the competitive environment in this market has yet to develop fully, the Company anticipates that it will be intensely competitive, subject to rapid change and significantly affected by new product and service introductions and other market activities of industry participants. The Company's primary competitors are Entrust, GTE CyberTrust and IBM. The Company also experiences competition from a number of smaller companies that provide digital certificate solutions. The Company expects that competition from established and emerging companies in the financial and telecommunications industries will increase in the near term, and that the Company's primary long-term competitors may not yet have entered the market. Netscape has introduced software products that enable the issuance and management of digital certificates, and the Company believes that other companies could introduce such products. There can be no assurance that additional companies will not offer digital certificate solutions that are competitive with those of 46 the Company. Increased competition could result in pricing pressures, reduced margins or the failure of the Company's products and services to achieve or maintain market acceptance, any of which could have a material adverse effect on the Company's business, operating results and financial condition. Several of the Company's current and potential competitors have longer operating histories and significantly greater financial, technical, marketing and other resources than the Company and therefore may be able to respond more quickly than the Company to new or changing opportunities, technologies, standards and customer requirements. Many of these competitors also have broader and more established distribution channels that may be used to deliver competing products or services directly to customers through bundling or other means. If such competitors were to bundle competing products or services for their customers, the demand for the Company's products and services might be substantially reduced and the ability of the Company to distribute its products successfully and the utilization of its services would be substantially diminished. In addition, browser companies that embed the Company's root keys or otherwise feature the Company as a provider of digital certificate solutions in their Web browsers or on their Web sites could also promote competitors of the Company or charge the Company substantial fees for such promotions in the future. New technologies and the expansion of existing technologies may increase the competitive pressures on the Company. There can be no assurance that competing technologies developed by others or the emergence of new industry standards will not adversely affect the Company's competitive position or render its products or technologies noncompetitive or obsolete. In addition, the market for digital certificates is nascent and is characterized by announcements of collaborative relationships involving competitors of the Company. The existence or announcement of such relationships could adversely affect the Company's ability to attract and retain customers. As a result of the foregoing and other factors, there can be no assurance that the Company will compete effectively with current or future competitors or that competitive pressures faced by the Company will not have a material adverse effect on the Company's business, operating results and financial condition. See "Risk Factors--Competition." INTELLECTUAL PROPERTY The Company relies primarily on a combination of copyrights, trademarks, trade secret laws, restrictions on disclosure and other methods to protect its intellectual property and trade secrets. The Company also enters into confidentiality agreements with its employees and consultants, and generally controls access to and distribution of its documentation and other proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use the Company's intellectual property or trade secrets without authorization. In addition, there can be no assurance that others will not independently develop substantially equivalent intellectual property. There can be no assurance that the precautions taken by the Company will prevent misappropriation or infringement of its technology. A failure by the Company to protect its intellectual property in a meaningful manner could have a material adverse effect on the Company's business, operating results and financial condition. In addition, litigation may be necessary in the future to enforce the Company's intellectual property rights, to protect the Company's trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of management and technical resources, either of which could have a material adverse effect on the Company's business, operating results and financial condition. The Company also relies on certain licensed third-party technology, such as public key cryptography technology licensed from RSA. In these license agreements, the licensor has agreed to defend, indemnify and hold the Company harmless with respect to any claim by a third party that the licensed software infringes any patent or other proprietary right. Although these licenses are fully paid, there can be no assurance that the outcome of any litigation between the licensor and a third party or between the Company and a third party will not lead to royalty obligations of the Company for which the Company is not indemnified or for which such indemnification is insufficient, or that the Company will be able to obtain any additional license on commercially reasonable terms or at all. In the future, the Company may seek to license additional technology to incorporate in its products and services. There can be no assurance that any third party technology licenses that the Company may be required to obtain in the future will be available to the Company on commercially reasonable terms or at 47 all. The loss of or inability to obtain or maintain any of these technology licenses could result in delays in introduction of the Company's products or services until equivalent technology, if available, is identified, licensed and integrated, which could have a material adverse effect on the Company's business, operating results and financial condition. From time to time, the Company has received, and may receive in the future, notice of claims of infringement of other parties' proprietary rights. There can be no assurance that infringement or other claims will not be asserted or prosecuted against the Company in the future or that any past or future assertions or prosecutions will not materially adversely affect the Company's business, operating results and financial condition. Any such claims, with or without merit, could be time-consuming, result in costly litigation and diversion of technical and management personnel, cause product shipment delays or require the Company to develop non-infringing technology or enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to the Company, or at all. In the event of a successful claim of product infringement against the Company and the failure or inability of the Company to develop non-infringing technology or license the infringed or similar technology on a timely basis, the Company's business, operating results and financial condition could be materially adversely affected. See "Risk Factors--Intellectual Property; Potential Litigation." EMPLOYEES As of September 30, 1997, the Company had 162 full-time employees. Of the total, 38 were employed in sales and marketing, 42 in research and development, 53 in operations, seven in practices and external affairs, three in federal markets, and 19 in finance and administration. The Company has never had a work stoppage, and no employees are represented under collective bargaining agreements. The Company considers its relations with its employees to be good. The Company's ability to achieve its financial and operational objectives depends in large part upon its continuing ability to attract and retain highly qualified sales, technical and managerial personnel, and upon the continued service of its senior management and key sales and technical personnel, none of whom is bound by an employment agreement. Competition for such qualified personnel in the Company's industry and geographical location in the San Francisco Bay Area is intense, particularly in software development and product management personnel. See "Risk Factors--Dependence on Key Personnel." FACILITIES The Company's principal administrative, sales, marketing, research and development and operations facilities are located in two adjacent buildings in Mountain View, California, where they occupy approximately 44,000 square feet under leases expiring in 2001. The Company intends to obtain additional office space in 1998 contiguous to its headquarters. The Company believes that this additional space will be available and that its current facilities, together with this additional space, will be adequate to meet its needs for the foreseeable future. The Company also leases space for sales and support offices in Rosemont, Illinois; Atlanta, Georgia; Linthicum, Maryland; Cambridge, Massachusetts; and Melville, New York. In addition, VeriSign Japan leases space in Kawasaki, Japan for its offices and Digital ID Center. The Company's success is largely dependent on the uninterrupted operation of its Digital ID Centers and computer and communications systems. See "Risk Factors--System Interruption and Security Breaches." 48 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth certain information regarding the executive officers and directors of the Company as of October 31, 1997.
NAME AGE POSITION ---- --- -------- D. James Bidzos (1).............. 42 Chairman of the Board Stratton D. Sclavos.............. 36 President, Chief Executive Officer and Director Michael S. Baum.................. 45 Vice President of Practices and External Affairs Ethel E. Daly.................... 53 Vice President of Worldwide Operations Dana L. Evan..................... 38 Vice President of Finance and Administration and Chief Financial Officer Quentin P. Gallivan.............. 40 Vice President of Sales and Field Operations Nicholas F. Piazzola............. 51 Vice President of Federal Markets Arnold Schaeffer................. 34 Vice President of Engineering Richard A. Yanowitch............. 41 Vice President of Marketing Timothy Tomlinson (2)............ 47 Secretary and Director William Chenevich (1)............ 53 Director Kevin R. Compton (2)............. 39 Director David J. Cowan (1)............... 31 Director
- -------- (1) Member of the Compensation Committee (2) Member of the Audit Committee D. JAMES BIDZOS has served as Chairman of the Board of the Company since its founding in April 1995 and served as Chief Executive Officer of the Company from April 1995 to July 1995. He has also served as President and Chief Executive Officer of RSA since 1986. RSA was acquired by Security Dynamics in July 1996 and has been a wholly-owned subsidiary of Security Dynamics since that time. Mr. Bidzos has been an Executive Vice President and a director of Security Dynamics since its acquisition of RSA. STRATTON D. SCLAVOS has served as President and Chief Executive Officer and as a director of the Company since he joined the Company in July 1995. From October 1993 to June 1995, he was Vice President, Worldwide Marketing and Sales of Taligent, Inc. ("Taligent"), a software development company that was a joint venture among Apple Computer, Inc. ("Apple"), IBM and Hewlett-Packard. From May 1992 to September 1993, Mr. Sclavos was Vice President of Worldwide Sales and Business Development of GO Corporation, a pen-based computer company. Prior to that time, he served in various sales and marketing capacities for MIPS Computer Systems, Inc. and Megatest Corporation. Mr. Sclavos is also a director and a member of the compensation committee of Network Solutions, Inc. Mr. Sclavos holds a B.S. degree in Electrical and Computer Engineering from the University of California at Davis. MICHAEL S. BAUM has served as Vice President of Practices and External Affairs of the Company since he joined the Company in November 1995. From 1987 to October 1995, he was the founder and a principal of Independent Monitoring, a consulting firm specializing in digital commerce and information security law. Prior to that time, Mr. Baum was employed by BBN Corporation in various capacities. Mr. Baum holds a B.A. degree in History from Carnegie Mellon University, an M.B.A. degree in Management of Technology from the Wharton School of the University of Pennsylvania and a J.D. degree from Western New England School of Law. ETHEL E. DALY has served as Vice President of Worldwide Operations of the Company since she joined the Company in June 1996. From January 1995 to June 1996, she was Senior Vice President, Product Management and Marketing of Knight-Ridder Information, Inc., an online information services company. Prior to that time, from 1986 to January 1995, Ms. Daly worked for Charles Schwab and Company, a stock brokerage firm, most 49 recently as Managing Director, International Division. Prior to that time, she held the positions of Vice President of Marketing for Attalla Corporation and Vice President Electronic Banking of Crocker National Bank. Ms. Daly holds a B.A. degree in Psychology from San Francisco State University and a Masters of Business Management degree from Stanford University. DANA L. EVAN has served as Vice President of Finance and Administration and Chief Financial Officer of the Company since she joined the Company in June 1996. From 1988 to June 1996, she worked as a financial consultant in the capacity of chief financial officer, vice president of finance or corporate controller for various public and private companies and partnerships, including the Company from November 1995 to June 1996, Delphi Bioventures, a venture capital firm, from 1988 to June 1995, and Identix Incorporated, a manufacturer of biometric identity verification and imaging products, from 1991 to August 1993. Prior to 1988, she was employed by KPMG Peat Marwick LLP, most recently as a senior manager. Ms. Evan is a certified public accountant and holds a B.S. degree in Commerce with a concentration in Accounting and Finance from the University of Santa Clara. QUENTIN P. GALLIVAN has served as Vice President of Sales and Field Operations of the Company since he joined the Company in October 1997. From April 1996 to October 1997, he was Vice President for Asia Pacific and Latin America of Netscape, a software company. Prior to that time, Mr. Gallivan was with General Electric Information Services, an electronic commerce services company, most recently as Vice President, Sales and Services for the Americas. NICHOLAS F. PIAZZOLA has served as Vice President of Federal Markets of the Company since he joined the Company in December 1996. From 1969 to November 1996, he was employed by the United States National Security Agency (the "NSA"), most recently as Chief, Network Security Group from May 1994 to November 1996 and Chief, Infosec Research & Technology Group until April 1994. Mr. Piazzola holds a B.S. degree in Electrical Engineering from Villanova University and an M.S. degree in Electrical Engineering from the University of Maryland. ARNOLD SCHAEFFER has served as Vice President of Engineering of the Company since he joined the Company in January 1996. From March 1992 to December 1995, he was employed by Taligent, most recently as Vice President of Engineering, CommonPoint Products. Prior to working at Taligent, he served as a software engineer for Apple, Intellicorp and Hewlett-Packard. Mr. Schaeffer holds a B.S. degree in Information and Computer Science from the Georgia Institute of Technology and an M.B.A. degree from the University of California at Berkeley. RICHARD A. YANOWITCH has served as Vice President of Marketing of the Company since he joined the Company in May 1996. From July 1995 to May 1996, he was a management consultant to private software companies. From 1989 to June 1995, he held a series of marketing positions with Sybase, Inc., a software company, most recently as Vice President of Corporate Marketing. Prior to that time, he held various sales, marketing and operating positions with The Santa Cruz Operation, Inc., Digital Equipment Corporation, Lanier Harris Corporation and Brooks International Corporation. Mr. Yanowitch holds a B.A. degree in History from Swarthmore College and an M.B.A. degree in Entrepreneurial Management and Marketing from Harvard Business School. TIMOTHY TOMLINSON has been Secretary and a director of the Company since its founding in April 1995. He has been a partner of Tomlinson Zisko Morosoli & Maser LLP, a law firm, since 1983. Mr. Tomlinson is also a director of Portola Packaging, Inc. and Oak Technology, Inc. Mr. Tomlinson holds a B.A. degree in Economics, an M.B.A. degree and a J.D. degree from Stanford University. WILLIAM CHENEVICH has been a director of the Company since its founding in April 1995. He has been the Group Executive Vice President, Data Processing Systems of VISA, a financial services company, since October 1993. From May 1992 to October 1993, he was Executive Vice President and Chief Information Officer of Ahmanson Corporation, a financial services company. Mr. Chenevich holds a B.B.A. degree in Business and an M.B.A. degree in Management from the City College of New York. 50 KEVIN R. COMPTON has been a director of the Company since February 1996. He has been a general partner of Kleiner Perkins Caufield & Byers, a venture capital firm, since January 1990. Mr. Compton is also a director of Citrix Systems, Inc., Corsair Communications, Inc., Digital Generation Systems, Inc. and Global Village Communication Inc. Mr. Compton holds a B.S. degree in Business Management from the University of Missouri. DAVID J. COWAN has been a director of the Company since its founding in April 1995. He has been a general partner of Bessemer Venture Partners, a venture capital investment firm, since August 1996. Mr. Cowan has also been a manager of Deer IV & Co. LLC, a venture capital investment firm, since August 1996. Previously he was an associate with Bessemer Venture Partners from August 1992 to August 1996. Mr. Cowan also served as President and Chief Executive Officer of Visto Corporation, a computer software and service firm, from August 1996 to April 1997, and as Chief Financial Officer of the Company from April 1995 to June 1996. Mr. Cowan is also a director of Worldtalk Communications Corporation. Mr. Cowan holds an A.B. degree in Mathematics and Computer Science and an M.B.A. degree from Harvard University. The Company's Bylaws currently authorize no fewer than five and no more than seven directors. The Company's Board of Directors (the "Board") is currently comprised of six directors. Directors are elected by the stockholders at each annual meeting of stockholders to serve until the next annual meeting of stockholders or until their successors are duly elected and qualified. The existing directors were elected pursuant to the provisions of the Stockholders' Agreement described in "Certain Transactions," which agreement terminates upon the closing of this offering. Executive officers are elected by, and serve at the discretion of, the Board. The Company's Amended and Restated Bylaws, which will become effective upon the completion of this offering, provide that the Board will be divided into three classes, Class I, Class II and Class III, with each class serving staggered three-year terms. The Class I directors will stand for reelection or election at the 1998 annual meeting of stockholders. The Class II directors will stand for reelection or election at the 1999 annual meeting of stockholders and the Class III directors will stand for reelection or election at the 2000 annual meeting of stockholders. BOARD COMMITTEES The Board has established an Audit Committee to meet with and consider suggestions from members of management, as well as the Company's independent accountants, concerning the financial operations of the Company. The Audit Committee also has the responsibility to review audited financial statements of the Company and consider and recommend the employment of, and approve the fee arrangements with, independent accountants for both audit functions and for advisory and other consulting services. The Audit Committee is currently comprised of Messrs. Compton and Tomlinson. The Board has also established a Compensation Committee to review and approve the compensation and benefits for the Company's key executive officers, administer the Company's stock purchase, equity incentive and stock option plans and make recommendations to the Board regarding such matters. The Compensation Committee is currently comprised of Messrs. Bidzos, Chenevich and Cowan. DIRECTOR COMPENSATION Directors do not receive any cash fees for their service on the Board or any Board committee, but they are entitled to reimbursement of all reasonable out- of-pocket expenses incurred in connection with their attendance at Board and Board committee meetings. At the Company's founding in April 1995, the Company granted an option to purchase 25,000 shares of its Common Stock under the Company's 1995 Stock Option Plan to D. James Bidzos with an exercise price of $.12 per share. All Board members are eligible to receive stock options under the Company's stock option plans, and outside directors receive stock options pursuant to automatic grants of stock options under the 1995 Stock Option Plan. In July 1996, the Company granted to each of Messrs. Compton, Bidzos, Tomlinson, Cowan and Chenevich an option to purchase 10,000 shares of its Common Stock under the Company's 1995 Stock Option Plan with an exercise price of $8.00 per share. In June 1997, the Company granted to each of Messrs. Tomlinson, Bidzos, Cowan and Compton an option to purchase 3,500 shares of its Common Stock under the Company's 1995 Stock Option Plan with an exercise price of $8.00 per share. 51 In October 1997, the Board adopted, subject to stockholder approval, the 1998 Directors Stock Option Plan (the "Directors Plan") and reserved a total of 250,000 shares of the Company's Common Stock for issuance thereunder. Members of the Board who are not employees of the Company, or any parent, subsidiary or affiliate of the Company, are eligible to participate in the Directors Plan. The option grants under the Directors Plan are automatic and nondiscretionary, and the exercise price of the options is 100% of the fair market value of the Common Stock on the date of grant. Each eligible director who first becomes a member of the Board on or after the effective date of the Registration Statement of which this Prospectus forms a part (the "Effective Date") will initially be granted an option to purchase 15,000 shares (an "Initial Grant") on the date such director first becomes a director. On each anniversary of a director's Initial Grant (or most recent grant if such director was ineligible to receive an Initial Grant), each eligible director will automatically be granted an additional option to purchase 7,500 shares if such director has served continuously as a member of the Board since the date of such director's Initial Grant (or most recent grant if such director did not receive an Initial Grant). The term of such options is ten years, provided that they will terminate seven months following the date the director ceases to be a director or, if the Company so specifies in the grant, a consultant of the Company (twelve months if the termination is due to death or disability). All options granted under the Directors Plan will vest as to 6.25% of the shares each quarter after the date of grant, provided the optionee continues as a director or, if the Company so specifies in the grant, as a consultant of the Company. Additionally, immediately prior to the dissolution or liquidation of the Company or a "change in control" transaction, all options granted pursuant to the Directors Plan will accelerate and will be exercisable for a period of up to six months following the transaction, after which period any unexercised options will expire. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Mr. Bidzos, a member of the Compensation Committee, is an Executive Vice President and a director of Security Dynamics, which beneficially owns approximately 27.0% of the Company's Common Stock, and also served as the Company's Chief Executive Officer from April to July 1995. See "Certain Transactions." No interlocking relationship exists between the Board or Compensation Committee and the board of directors or compensation committee of any other company, nor has any such interlocking relationship existed in the past. 52 EXECUTIVE COMPENSATION The following table sets forth certain summary information concerning the compensation awarded to, earned by, or paid for services rendered to the Company in all capacities during 1997 by the Company's Chief Executive Officer and the four most highly compensated executive officers, other than the Chief Executive Officer, who were serving as executive officers at the end of 1997 (collectively, the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ------------ ANNUAL COMPENSATION AWARDS ----------------------------- ------------ SECURITIES OTHER ANNUAL UNDERLYING NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS(#) --------------------------- -------- ------- ------------ ------------ Stratton D. Sclavos................. $200,000 $80,922 -- 100,000 President and Chief Executive Officer Dana L. Evan........................ 145,000 36,568 -- 45,000 Vice President of Finance and Administration and Chief Financial Officer Michael S. Baum..................... 145,000 30,033 $15,000(1) 25,000 Vice President of Practices and External Affairs Arnold Schaeffer.................... 143,333 30,588 -- 58,000 Vice President of Engineering Richard A. Yanowitch................ 140,000 45,066 -- -- Vice President of Marketing
- -------- (1) Represents compensation that the Company paid Mr. Baum in exchange for his agreement to forego certain consulting projects. 53 OPTION GRANTS IN FISCAL 1997 The following table sets forth certain information regarding stock options granted to each of the Named Executive Officers during the year ended December 31, 1997.
INDIVIDUAL GRANTS(1) ---------------------------------------------------- POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF NUMBER OF PERCENT OF STOCK PRICE SECURITIES TOTAL OPTIONS APPRECIATION UNDERLYING GRANTED TO EXERCISE FOR OPTION TERMS(2) OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------- NAME GRANTED FISCAL YEAR(%)(3) PER SHARE(4) DATE 5% 10% - ---- ---------- ----------------- ------------ ---------- ---------- ---------- Stratton D. Sclavos..... 100,000 7.7 $7.00 11/4/04 $ 284,970 $ 664,102 Dana L. Evan............ 45,000 3.4 6.00 10/6/04 109,917 256,154 Michael S. Baum......... 25,000 1.9 6.00 10/6/04 61,065 142,308 Arnold Schaeffer........ 58,000 4.4 6.00 10/6/04 141,671 330,154 Richard A. Yanowitch.... -- -- -- -- -- --
- -------- (1) Options granted in 1997 were granted under the Company's 1995 Stock Option Plan or, in the case of Mr. Sclavos, the Company's 1997 Stock Option Plan. These options become exercisable with respect to 25% of the shares covered by the option on the first anniversary of the date of grant and with respect to an additional 6.25% of these shares each quarter thereafter. These options have a term of seven years. Upon certain changes in control of the Company, this vesting schedule will accelerate as to 50% of any shares that are then unvested. See "--Employee Benefit Plans" and "-- Compensation Arrangements" for a description of the material terms of these options. (2) Potential realizable values are net of exercise price but before taxes, and are based on the assumption that the Common Stock of the Company appreciates at the annual rate shown (compounded annually) from the date of grant until the expiration of the seven-year term. These numbers are calculated based on Securities and Exchange Commission requirements and do not reflect the Company's projection or estimate of future stock price growth. (3) The Company granted options to purchase 1,307,100 shares of Common Stock to employees from January 1 through November 15, 1997. (4) Options were granted at an exercise price equal to the fair market value of the Company's Common Stock, as determined by the Board of Directors. AGGREGATE OPTION EXERCISES IN FISCAL 1997 AND FISCAL YEAR-END OPTION VALUES The following table sets forth for each of the Named Executive Officers the shares acquired and the value realized on each exercise of stock options during the year ended December 31, 1997 and the year-end number and value of exercisable and unexercisable options:
NUMBER OF SECURITIES VALUE OF UNEXERCISED SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS ACQUIRED OPTIONS AT 12/31/97(1) AT 12/31/97(2) ON VALUE ------------------------- ------------------------- NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- -------- -------- ----------- ------------- ----------- ------------- Stratton D. Sclavos..... -- -- -- 100,000 Dana L. Evan............ -- -- -- 45,000 Michael S. Baum......... -- -- -- 25,000 Arnold Schaeffer........ -- -- -- 58,000 Richard A. Yanowitch.... -- -- -- --
- -------- (1) Options shown were granted under the Company's 1995 Stock Option Plan or, in the case of Mr. Sclavos, under the Company's 1997 Stock Option Plan, and are subject to vesting as described in footnote (1) to the option grant table above. See "--Employee Benefit Plans" and "--Compensation Arrangements" for a description of the material terms of these options. (2) Based on an assumed initial public offering price of $ . 54 No options were exercised during 1997 by the Named Executive Officers. No compensation intended to serve as incentive for performance to occur over a period longer than one year was paid pursuant to a long-term incentive plan during 1997 to any Named Executive Officer. The Company does not have any defined benefit or actuarial plan under which benefits are determined primarily by final compensation and years of service with any of the Named Executive Officers. EMPLOYEE BENEFIT PLANS 1995 Stock Option Plan. In April 1995, the Board adopted and the stockholders approved the 1995 Stock Option Plan. At that time, 2,145,000 shares of Common Stock were reserved for issuance under the 1995 Stock Option Plan, which number was increased to 4,145,000 shares in May 1996. As of September 30, 1997, options to purchase 1,803,744 shares had been exercised (net of repurchases), options to purchase an additional 2,000,974 shares of Common Stock were outstanding under the 1995 Stock Option Plan with a weighted average exercise price of $1.49 and 340,282 shares remained available for future grants. Following the closing of this offering, no additional options will be granted under the 1995 Stock Option Plan. Options granted under the 1995 Stock Option Plan are subject to terms substantially similar to those described below with respect to options to be granted under the Equity Incentive Plan. The 1995 Stock Option Plan does not provide for issuance of restricted stock or stock bonus awards. 1997 Stock Option Plan. In October 1997, the Board adopted and the Company's stockholders approved the 1997 Stock Option Plan. At that time, 800,000 shares of Common Stock were reserved for issuance under the 1997 Stock Option Plan. Following the closing of this offering, no options will be granted under the 1997 Stock Option Plan. Options granted under the 1997 Stock Option Plan are subject to terms substantially similar to those described below with respect to options granted under the Equity Incentive Plan. The 1997 Stock Option Plan does not provide for issuance of restricted stock or stock bonus awards. 1998 Equity Incentive Plan. In October 1997, the Board adopted, subject to stockholder approval, the Equity Incentive Plan. The total number of shares of Common Stock reserved for issuance thereunder is 2,000,000. The Equity Incentive Plan will become effective on the Effective Date and will serve as the successor to the 1995 Stock Option Plan and the 1997 Stock Option Plan (the "Prior Plans"). Options granted under the Prior Plans before their termination will remain outstanding according to their terms, but no further options will be granted under the Prior Plans after the Effective Date. Shares that: (a) are subject to issuance upon exercise of an option granted under the Prior Plans, or the Equity Incentive Plan that cease to be subject to such option for any reason other than exercise of such option; (b) have been issued pursuant to the exercise of an option granted under the Prior Plans or the Equity Incentive Plan with respect to which the Company's right of repurchase has not lapsed and are subsequently repurchased by the Company; (c) are subject to an award granted pursuant to restricted stock purchase agreements under the Equity Incentive Plan that are forfeited or are repurchased by the Company at the original issue price; or (d) are subject to stock bonuses granted under the Equity Incentive Plan that otherwise terminate without shares being issued, will again be available for grant and issuance under the Equity Incentive Plan. Any authorized shares not issued or subject to outstanding grants under the Prior Plans on the Effective Date will no longer be available for grant and issuance under the Prior Plans but will be available for grant and issuance under the Equity Incentive Plan. The Equity Incentive Plan will terminate in October 2007, unless sooner terminated in accordance with the terms of the Equity Incentive Plan. The Equity Incentive Plan authorizes the award of options, restricted stock awards and stock bonuses (each an "Award"). No person will be eligible to receive more than 400,000 shares in any calendar year pursuant to Awards under the Equity Incentive Plan other than a new employee of the Company who will be eligible to receive no more than 1,000,000 shares in the calendar year in which such employee commences employment. The Equity Incentive Plan will be administered by the Compensation Committee. The Compensation Committee has the authority to construe and interpret the Equity Incentive Plan and any agreement made thereunder, grant Awards and make all other determinations necessary or advisable for the administration of the Equity Incentive Plan. The Equity Incentive Plan provides for the grant of both incentive stock options ("ISOs") that qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified stock options 55 ("NQSOs"). ISOs may be granted only to employees of the Company or of a parent or subsidiary of the Company. NQSOs (and all other Awards other than ISOs) may be granted to employees, officers, directors, consultants, independent contractors and advisors of the Company or any parent or subsidiary of the Company, provided such consultants, independent contractors and advisors render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction ("Eligible Service Providers"). The exercise price of ISOs must be at least equal to the fair market value of the Company's Common Stock on the date of grant. The exercise price of NQSOs must be at least equal to 85% of the fair market value of the Company's Common Stock on the date of grant. The maximum term of options granted under the Equity Incentive Plan is ten years. Awards granted under the Equity Incentive Plan may not be transferred in any manner other than by will or by the laws of descent and distribution and may be exercised during the lifetime of the optionee only by the optionee (unless otherwise determined by the Compensation Committee and set forth in the Award agreement with respect to Awards that are not ISOs). Options granted under the Equity Incentive Plan generally expire three months after the termination of the optionee's service to the Company or a parent or subsidiary of the Company, except in the case of death or disability, in which case the options generally may be exercised up to 12 months following the date of death or termination of service. Options will generally terminate immediately upon termination for cause. In the event of the Company's dissolution or liquidation or a "change in control" transaction, outstanding Awards may be assumed or substituted by the successor corporation (if any). If a successor corporation (if any) does not assume or substitute the Awards, they will expire upon the effectiveness of the transaction. The Committee, in its discretion, may provide that the vesting of any or all Awards will accelerate prior to the effectiveness of the transaction. 1998 Employee Stock Purchase Plan. The Company intends to adopt the Purchase Plan and reserve approximately 400,000 shares of the Company's Common Stock for issuance thereunder. The Purchase Plan will be administered by the Compensation Committee of the Board. The Compensation Committee will have the authority to construe and interpret the Purchase Plan and its decisions in such capacity will be final and binding. The Purchase Plan will become effective on the first business day on which price quotations for the Company's Common Stock are available on the Nasdaq National Market. Employees generally will be eligible to participate in the Purchase Plan if they are customarily employed by the Company (or its parent or any subsidiaries that the Company designates) for more than 20 hours per week and more than five months in a calendar year and are not (and would not become as a result of being granted an option under the Purchase Plan) 5% stockholders of the Company (or its designated parent or subsidiaries). Eligible employees may select a rate of payroll deduction between 2% and 10% of their compensation and are subject to certain maximum purchase limitations that will be described in the Purchase Plan. A participant may change the rate of payroll deductions or withdraw from an Offering Period by notifying the Company in writing. Participation in the Purchase Plan will end automatically upon termination of employment for any reason. Except for the first offering, each offering under the Purchase Plan will be for a period of 12 months (the "Offering Period") and will consist of six-month purchase periods (each a "Purchase Period"). The first Offering Period is expected to begin on the first business day on which price quotations for the Company's Common Stock are available on the Nasdaq National Market and, depending on the effective date of this Registration Statement, may be greater or less than 12 months long. Offering Periods thereafter will begin on February 1 and August 1. The Compensation Committee may change the duration of Offering Periods (up to a maximum of 24 months) and the number and duration of Purchase Periods (up to a maximum of four per Purchase Period). The Compansation Committee will also be able to terminate any Offering Period as of the end of any Purchase Period within the affected Offering Period. Each participant will be granted an option on the first day of the Offering Period and such option will be automatically exercised on the last day of each Purchase Period during the Offering Period. The purchase price for the Company's Common Stock purchased under the Purchase Plan is 85% of the lesser of the fair market value of the Company's Common Stock on the first day of the applicable Offering Period and the last day of the applicable Purchase Period. The Board will have the power to change the duration of Offering Periods and Purchase Periods without stockholder approval, if such change is announced at least 15 days prior to the beginning of the Offering or Purchase Period to be affected. The Purchase Plan will be intended to qualify as an "employee stock purchase plan" under Section 423 of the Code. Rights granted under the Purchase Plan will not be transferable by a participant other than by will or the laws of descent and distribution. The Purchase Plan will provide that, in the event of the 56 proposed dissolution or liquidation of the Company, the Offering Period will terminate immediately prior to the consummation of such proposed action, provided that the Compensation Committee may fix a different date for termination of the Purchase Plan and may give each participant the opportunity to purchase shares under the Purchase Plan prior to such termination. The Purchase Plan will provide that, in the event of certain "change of control" transactions, the Plan will continue for all Offering Periods that began prior to the transaction and shares will be purchased based on the fair market value of the surviving corporation's stock on each Purchase Date. The Purchase Plan will terminate in December 2007, unless earlier terminated pursuant to the terms of the Purchase Plan. The Board will have the authority to amend, terminate or extend the term of the Purchase Plan, except that no such action may adversely affect any outstanding options previously granted under the Purchase Plan and stockholder approval is required to increase the number of shares that may be issued or change the terms of eligibility under the Purchase Plan. 401(k) Plan. The Board maintains the VeriSign, Inc. 401(k) Plan (the "401(k) Plan"), a defined contribution plan intended to qualify under Section 401 of the Code. All eligible employees who are at least 18 years old and have been employed by the Company for one month may participate in the 401(k) Plan. An eligible employee of the Company may begin to participate in the 401(k) Plan on the first day of January, April, July or October of the plan year coinciding with or following the date on which such employee meets the eligibility requirements. A participating employee may make pre-tax contributions of a whole percentage (not more than 15%) of his or her eligible compensation and up to 100% of any cash bonus, subject to limitations under the federal tax laws. Employee contributions and the investment earnings thereon are fully vested at all times. The 401(k) Plan permits, but does not require, additional matching and profit-sharing contributions by the Company on behalf of the participants. The Company has not made matching or profit- sharing contributions. Contributions by employees or the Company to the 401(k) Plan, and income earned on plan contributions, are generally not taxable to employees until withdrawn, and contributions by the Company, if any, should be deductible by the Company when made. The trustee under the 401(k) Plan, at the direction of each participant, invests the assets of the 401(k) Plan in selected investment options. Executive Loan Program of 1996. In November 1996, the Compensation Committee adopted the Company's Executive Loan Program of 1996 (the "Executive Loan Program"). Pursuant to the Executive Loan Program, the Company's Chief Executive Officer and each Vice President of the Company (each a "Qualified Borrower") are each entitled to borrow an aggregate of up to $250,000 from the Company. Each loan made under the Executive Loan Program is a full recourse loan and bears interest at the then-minimum interest rate to avoid imputation of income under federal, state and local tax laws. Interest on any loan made under the Executive Loan Program is due and payable on December 31 of each year in which such loan is outstanding. Principal and accrued interest are payable in full on any such loan upon the earlier of December 31, 2005 or 90 days after the termination of the Qualified Buyer's employment with the Company, unless extended by a separate written agreement approved by the Board. Each loan made under the Executive Loan Program must be secured by collateral represented by Common Stock of the Company or other marketable securities acceptable to the Board having a fair market value equaling or exceeding the principal amount of the loan. COMPENSATION ARRANGEMENTS Mr. Sclavos's employment offer letter of June 1995, as amended in October 1995, provided for an initial annual salary of $175,000 and an initial annual bonus of up to $50,000 per year. In addition, it provided for a loan to Mr. Sclavos of $48,000 which was to be forgiven after the first anniversary of Mr. Sclavos's employment with the Company. This loan was forgiven by the Board in October 1996. Mr. Sclavos was also granted an option to purchase 616,000 shares of Common Stock with an exercise price of $.12 per share. In October 1996, this option was amended such that it became immediately exercisable. Mr. Sclavos exercised this option in full in November 1996. In connection with this exercise, the Company loaned Mr. Sclavos $73,920 pursuant to the terms of the Executive Loan Program, representing the full exercise price of such option. As of September 30, 1997, 269,500 of the shares Mr. Sclavos received upon exercise of the option were subject to a right of repurchase on behalf of the Company. This right lapses as to 38,500 shares per quarter. Mr. Sclavos's employment is "at will" and thus can be terminated at any time, with or without cause. 57 Michael S. Baum, Dana L. Evan, Arnold Schaeffer and Richard A. Yanowitch were granted options to purchase 150,000, 170,000, 200,000 and 290,000 shares, respectively, of Common Stock under the 1995 Stock Option Plan, at exercise prices ranging from $.12 to $6.00. Each of these options is subject to the standard four-year vesting schedule under the 1995 Stock Option Plan or, in certain circumstances, is immediately exercisable, subject to the Company's right to repurchase shares subject to such options, which repurchase right lapses on a schedule similar to the vesting schedule for options granted under the 1995 Stock Option Plan. However, upon the occurrence of certain change-in- control transactions, fifty percent of each such Named Executive Officer's then-unvested options will become vested or, if applicable, the right of repurchase will lapse as to 50% of the shares covered by such right of repurchase. INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY As permitted by the Delaware General Corporation Law (the "DGCL"), the Company's Third Amended and Restated Certificate of Incorporation, which will become effective upon the closing of this offering, includes a provision that eliminates the personal liability of its directors for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) under section 174 of the DGCL (regarding unlawful dividends and stock purchases) or (iv) for any transaction from which the director derived an improper personal benefit. As permitted by the DGCL, the Company's Amended and Restated Bylaws, which will become effective upon the completion of this offering provide, that (i) the Company is required to indemnify its directors and officers to the fullest extent permitted by the DGCL, subject to certain very limited exceptions, (ii) the Company may indemnify its other employees and agents to the extent that it indemnifies its officers and directors, unless otherwise required by law, its Certificate of Incorporation, its Amended and Restated Bylaws, or agreement, (iii) the Company is required to advance expenses, as incurred, to its directors and executive officers in connection with a legal proceeding to the fullest extent permitted by the DGCL, subject to certain very limited exceptions and (iv) the rights conferred in the Amended and Restated Bylaws are not exclusive. The Company has entered into Indemnification Agreements with each of its current directors and certain of its executive officers and intends to enter into such Indemnification Agreements with each of its other executive officers to give such directors and executive officers additional contractual assurances regarding the scope of the indemnification set forth in the Company's Certificate of Incorporation and Amended and Restated Bylaws and to provide additional procedural protections. At present, there is no pending litigation or proceeding involving a director, officer or employee of the Company regarding which indemnification is sought, nor is the Company aware of any threatened litigation that may result in claims for indemnification. 58 CERTAIN TRANSACTIONS Since April 12, 1995, the Company's inception date, there has not been nor is there currently proposed, any transaction or series of similar transactions to which the Company or any of its subsidiaries was or is to be a party in which the amount involved exceeded or will exceed $60,000 and in which any director, executive officer, holder of more than 5% of the Common Stock of the Company or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest other than (i) compensation agreements and other arrangements, which are described where required in "Management," and (ii) the transactions described below. TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS The Company has financed its operations to date through a series of private Common Stock and Preferred Stock financings. Upon the closing of this offering, all shares of Preferred Stock will be converted into shares of Common Stock at a conversion rate of one share of Common Stock for each share of Preferred Stock. See "Description of Capital Stock." Common Stock at Formation. In April 1995, the Company sold an aggregate of 4,688,333 shares of its Common Stock at a purchase price of $.12 per share to certain individuals and entities. Among the purchasers were the following 5% stockholders, directors and entities affiliated with directors of the Company, who purchased the number of shares set forth opposite their respective names: RSA--4,000,000 shares; Bessemer Venture Partners DCI--258,333 shares; D. James Bidzos--125,000 shares; Kairdos L.L.C.--100,000 shares; and TZM Investment Fund--80,000 shares. Mr. Bidzos is the Chairman of the Board of the Company, the President and Chief Executive Officer of RSA and the General Manager and a member of Kairdos L.L.C. Mr. Tomlinson, a director of the Company, is a general partner of TZM Investment Fund and TZM Investment Fund is a member of Kairdos L.L.C. Mr. Cowan, a director of the Company, is a general partner of the general partner of Bessemer Venture Partners DCI. All purchasers paid cash except RSA, which contributed to the Company equipment, assets and technology pursuant to an Assignment dated as of April 18, 1995. In connection with the contribution of these assets to the Company, RSA entered into a BSAFE/TIPEM OEM Master License Agreement with the Company pursuant to which the Company was granted a perpetual, royalty free, nonexclusive, worldwide license to distribute certain products containing the RSA BSAFE and TIPEM products and a Non-Compete and Non-Solicitation Agreement pursuant to which RSA agreed, for a five-year period, not to compete with the Company's certificate authority business. Series A Preferred Stock. In April 1995, the Company also sold an aggregate of 4,306,883 shares of its Series A Preferred Stock at a cash purchase price of $1.20 per share to nine entities. Among the purchasers were the following 5% stockholders and entities affiliated with directors of the Company, who purchased the number of shares set forth opposite their respective names: Bessemer Venture Partners DCI--850,000 shares; VISA--850,000 shares; Intel Corporation--850,000 shares; Security Dynamics--425,000 shares and First TZMM Investment Partnership--23,550 shares. Mr. Bidzos is an Executive Vice President and a director of Security Dynamics. Mr. Tomlinson, a director of the Company, is a general partner of First TZMM Investment Partnership. Series B Preferred Stock. In February 1996, the Company sold an aggregate of 2,099,123 shares of its Series B Preferred Stock at a cash purchase price of $2.45 per share to 12 entities. Among the purchasers were the following 5% stockholders and entities affiliated with directors of the Company, who purchased the number of shares set forth opposite their respective names: Kleiner Perkins Caufield & Byers VII--1,153,207 shares; Bessemer Venture Partners DCI--187,819 shares; Intel Corporation--144,052 shares; VISA -- 144,052 shares; KPCB VII Founders Fund--125,947 shares; Security Dynamics-- 72,026 shares; KPCB Information Science Zaibatsu Fund II--32,799 shares; and First TZMM Investment Partnership--17,554 shares. Mr. Compton, a director of the Company, is a general partner of the general partner of Kleiner Perkins Caufield & Byers VII, KPCB VII Founders Fund and KPCB Information Science Zaibatsu Fund II. Stockholders' Agreement. In April 1995, the Company and each of the persons who were then stockholders (the "Parties") entered into a Stockholders' Agreement, which was amended at the time of the Series B 59 Preferred Stock financing and again in November 1996, when the Series C Preferred Stock financing was closed, to include as parties to the agreement the new holders of Preferred Stock. The Stockholders' Agreement, as amended, prohibits the Parties from transferring any of their shares of capital stock of the Company, without the prior consent of the Board and a majority in interest of the other Parties, to certain specified corporations and entities affiliated with such corporations. The Stockholders' Agreement also provides that no Party can vote shares of capital stock of the Company with voting rights in excess of 45% of the voting rights of the total voting capital stock of the Company entitled to vote on any matter, thereby prohibiting a Party with more than 45% of the voting rights of the total voting capital stock of the Company from controlling the voting on any given matter. Finally, the Stockholders' Agreement provides that, so long as any of Kleiner Perkins Caufield & Byers VII, Bessemer Venture Partners DCI, VISA and Intel Corporation retained at least 50% of the shares issued to them in the Series A or Series B Preferred Stock financing, or so long as RSA retains not less than the lesser of 10% of the issued and outstanding voting shares of the Company or 75% of the shares of Common Stock held by it immediately following the Series A Preferred Stock financing, the Company and the stockholders would cause and maintain the election to the Board of a representative of each of those five entities that satisfied their respective requirement. The Stockholders' Agreement terminates upon the closing of this offering. Co-Sale Agreement. In February 1996, the Company, each of the purchasers of Series B Preferred Stock and RSA entered into a Co-Sale Agreement, pursuant to which the holders of Series B Preferred Stock were granted rights to participate in certain sales of capital stock of the Company owned by RSA. Such co-sale rights will terminate upon the closing of this offering. Investors' Rights Agreement. In November 1996, the Company, all of the current holders of Preferred Stock and the purchasers of Common Stock in April 1995 entered into an Amended and Restated Investors' Rights Agreement (the "Investors' Rights Agreement") pursuant to which the holders of all such Preferred or Common Stock (the "Investors") have certain registration rights with respect to their shares of Common Stock following this offering. See "Description of Capital Stock--Registration Rights." Pursuant to the terms of the Investors' Rights Agreement, each of the Investors and Stratton Sclavos, the Company's President and Chief Executive Officer and a director of the Company, were granted a right of first offer with respect to certain future sales of securities by the Company. Officer Loans. In November 1996, in connection with the exercise of stock options granted under the 1995 Stock Option Plan, the Company permitted four executive officers, Richard A. Yanowitch, Ethel E. Daly, Dana L. Evan and Stratton D. Sclavos to purchase shares of Common Stock in exchange for promissory notes issued under its Executive Loan Program in the amounts of $217,500, $105,000, $93,750 and $73,920, respectively. See "Management-- Employee Benefit Plans--Executive Loan Program of 1996." In June 1997, in connection with the exercise of a stock option granted under the 1995 Stock Option Plan, the Company permitted Nicholas F. Piazzola, an executive officer, to purchase shares of Common Stock in exchange for a promissory note issued under the Executive Loan Program in the amount of $115,425. Each note is a recourse note that is secured by the shares purchased with that note. The notes bear interest at the rate of 6.95% per annum (6.87% in the case of Mr. Piazzola), payable quarterly, and are due and payable on the earlier of December 31, 2005 or the date the borrowers' employment relationship with the Company is terminated, unless otherwise extended by a separate written agreement approved by the Board. During the nine months ended September 30, 1997, the Company paid a bonus in the amount of the interest accrued under each such executive officer's promissory note in the amounts of $17,426, $8,412, $7,511 and $5,922 for Mr. Yanowitch, Ms. Daly, Ms. Evan and Mr. Sclavos, respectively. Development Agreement. In September 1997, the Company and Security Dynamics, the parent company of RSA, entered into a Master Development and License Agreement (the "Development Agreement"). Mr. Bidzos, the Chairman of the Board of the Company, is also a director of Security Dynamics. Pursuant to the Development Agreement, the Company will develop certain technology for Security Dynamics. The Development Agreement provides that Security Dynamics will pay the Company an initial license fee, $900,000 of which was paid in October 1997 and the remaining fee will be payable upon the achievement of certain milestones. Commencing in March 1998, Security Dynamics will also be required to pay the Company a monthly product support fee for a three-year period, and thereafter for successive annual terms, unless either of the parties elects to terminate 60 such product support within 60 days prior to the end of the term or Security Dynamics terminates support services at any time on 60 days prior written notice to the Company. For a yearly fee, Security Dynamics can purchase product maintenance services. For so long as Security Dynamics is paying such maintenance fees, the Company will be obligated, at no additional cost, to provide Security Dynamics with non-exclusive first-to-market access to new technologies developed by the Company that are relevant to the business of providing enterprise security solutions or solutions for secure business communications. The Company is also obligated, upon the request of Security Dynamics, to make its other technology available to Security Dynamics on certain "most favored pricing" terms. Microsoft Agreements. In November 1996, the Company sold an aggregate of 3,562,500 shares of its Series C Preferred Stock at a cash purchase price of $8.00 per shares to 11 entities. Among the purchasers was Microsoft, a 5% stockholder, which purchased 812,500 shares. In November 1997, the Company entered into a Certificate Authority Preferred Provider Agreement under which the Company will be featured as the preferred provider of digital certificates for Microsoft customers. Upon the execution of this agreement, the Company issued Microsoft 100,000 shares of Common Stock valued at $800,000. VISA Agreements. In April 1996, the Company entered into a Private Label Agreement with VISA under which the Company developed and operates a digital certificate system for VISA's member banks, based on a private VISA root key, that provides certificate registration and issuing and management functions through VeriSign's operations and Digital ID Center. This agreement expires two and one-half years from the earlier of the commencement of the pilot program or April 8, 1997. The Company received aggregate payments from VISA of $455,000 during 1996 and $675,000 during the nine months ended September 30, 1997, in the form of development fees, set-up fees and certificate volume- based subscriber fees. VISA is obligated to continue to pay subscriber fees for the remainder of the term of this agreement. VISA prepays these fees on a quarterly basis and are subject to offset against certificates issued. VISA is not entitled to any refunds in the event that sufficient certificates are not issued to offset any remaining prepaid subscriber fees. The Company is also obligated to provide VISA with certain "most favored pricing" rights. VISA has the right to terminate this agreement after April 1, 1998 by entering into a license agreement with the Company and paying licensing fees as well as a royalty for future certificates issued. In October 1996, the Company entered into a Private Label Agreement with VISA under which the Company developed a pilot digital certificate system, based on a private VISA root key, which provides certificate registration and issuing and management functions through VeriSign's operations and Digital ID Center in connection with the VISA Cash stored value card and the Chip Card Payment Service. This agreement expired in October 1997. The Company received aggregate payments of $40,000 during 1996 and $126,000 during the nine months ended September 30, 1997, in the form of development fees, operation fees and subscriber fees. Sublease with Security Dynamics. Since September 1996, the Company has sublet approximately 12,700 square feet of space for its offices in Cambridge, Massachusetts. This space is subleased from Security Dynamics pursuant to a sublease that expires in March 1998. The Company made lease payments to Security Dynamics of $17,646 during 1996 and $130,624 during the nine months ended September 30, 1997. The Company is obligated to pay monthly rent of approximately $19,000 for the remainder of 1997 and monthly rent of approximately $20,000 from January 1998 through the expiration date. The Company is also obligated to pay all electricity, heating, ventilation and air conditioning costs for the subleased premises. CERTAIN BUSINESS RELATIONSHIPS Legal Fees. During 1996 and the nine months ended September 30, 1997, the law firm of Tomlinson Zisko Morosoli & Maser LLP, of which Mr. Tomlinson is a partner, provided legal services to the Company on a variety of matters. During 1996 and the nine months ended September 30, 1997, the Company paid Tomlinson Zisko Morosoli & Maser LLP an aggregate of $344,120 and $106,252, respectively. The Company believes that the terms of each of the transactions described above, taken as a whole, were no less favorable to the Company than the Company could have obtained from unaffiliated third parties. 61 PRINCIPAL STOCKHOLDERS The following table sets forth certain information with respect to the beneficial ownership of the Company's Common Stock as of October 31, 1997 and as adjusted to reflect the sale of the shares of Common Stock offered hereby by: (i) each person who is known by the Company to own beneficially more than 5% of the Company's Common Stock, (ii) each director of the Company, (iii) each of the Named Executive Officers and (iv) all directors and executive officers of the Company as a group.
PERCENTAGE OF COMMON STOCK BENEFICIALLY NUMBER OF OWNED(1) SHARES -------------------- BENEFICIALLY BEFORE AFTER NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING(2) - ------------------------ ------------ -------- ----------- D. James Bidzos Security Dynamics Technologies, Inc. (3)... 4,740,151 28.4% Kevin R. Compton Kleiner Perkins Caufield & Byers (4)....... 1,315,078 7.9 David J. Cowan Bessemer Venture Partners DCI (5).......... 1,299,277 7.8 William Chenevich Visa International Service Association (6)....................................... 997,177 6.0 Intel Corporation (7)....................... 994,052 6.0 Stratton D. Sclavos (8)..................... 616,000 3.7 Richard A. Yanowitch (9).................... 290,000 1.7 Arnold Schaeffer (10)....................... 142,000 * Dana L. Evan (11)........................... 135,000 * Michael S. Baum (12)........................ 125,000 * Timothy Tomlinson (13)...................... 124,229 * All officers and directors as a group (13 persons) (14).............................. 10,013,912 60.1
- -------- * Less than 1% of the Company's outstanding Common Stock (1) Percentage ownership is based on 16,668,509 shares outstanding as of October 31, 1997, including shares issuable upon conversion of all outstanding Preferred Stock into Common Stock in connection with this offering, and shares outstanding after the offering. Shares of Common Stock subject to options currently exercisable or exercisable within 60 days of October 31, 1997 are deemed outstanding for the purpose of computing the percentage ownership of the person holding such options but are not deemed outstanding for computing the percentage ownership of any other person. Unless otherwise indicated below, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. (2) Assumes the Underwriters' over-allotment option is not exercised. (3) Represents 4,497,026 shares held of record by Security Dynamics or by wholly-owned subsidiaries thereof, 113,000 shares held of record by D. James Bidzos, 100,000 shares held of record by Kairdos L.L.C., 12,000 shares held of record by relatives and other associates of Mr. Bidzos, 15,000 shares subject to options held of record by D. James Bidzos that are exercisable within 60 days of October 31, 1997 and 3,125 shares subject to options that are held of record by Mr. Bidzos that are exercisable within 60 days of October 31, 1997. Mr. Bidzos, the Chairman of the Board of the Company, is the President of RSA, an Executive Vice President and a director of Security Dynamics and the General Manager and a member of Kairdos L.L.C. and Tolmi LLC. Mr. Bidzos disclaims beneficial ownership of the shares held by Kairdos L.L.C. and Tolmi LLC except for his proportional interest therein, and disclaims beneficial ownership of the shares held by Security Dynamics or its wholly-owned subsidiaries. The address for Mr. Bidzos and Security Dynamics is One Alewife Center, Cambridge, Massachusetts 02140. 62 (4) Represents 1,153,207 shares held of record by Kleiner Perkins Caufield & Byers VII L.P., 125,947 shares held of record by KPCB VII Founders Fund, 32,799 shares held of record by KPCB Information Science Zaibatsu Fund II and 3,125 shares subject to options held of record by Kevin Compton that are exercisable within 60 days of October 31, 1997. Mr. Compton, a director of the Company, is a general partner of the general partner of each of these entities. Mr. Compton disclaims beneficial ownership of shares held by such entities except for his proportional interest therein. The address for Mr. Compton and these entities is c/o Kleiner Perkins Caufield & Byers, 2750 Sand Hill Road, Menlo Park, California 94025. (5) Represents 1,296,152 shares held of record by Bessemer Venture Partners DCI and 3,125 shares subject to options held of record by Mr. Cowan that are exercisable within 60 days of October 31, 1997. Mr. Cowan, a director of the Company, is a general partner of the general partner of Bessemer Venture Partners DCI and is a manager of Deer III & Co. LLC. Mr. Cowan disclaims beneficial ownership of shares held by Bessemer Venture Partners DCI except for his proportional interest therein. The address for Mr. Cowan and Bessemer Venture Partners DCI is 535 Middlefield Road, Menlo Park, California 94025. (6) Represents 994,052 shares held by VISA and 3,125 shares subject to options held of record by Mr. Chenevich that are exercisable within 60 days of October 31, 1997. Mr. Chenevich, a director of the Company, is the Group Executive Vice President, Data Processing Systems of VISA. Mr. Chenevich disclaims beneficial ownership of shares held by VISA. The address for Mr. Chenevich and VISA is 900 Metro Center, Foster City, California 94404. (7) Represents shares held by Intel Corporation. The address for Intel Corporation is 2200 Mission College Blvd., Building SC-4, Santa Clara, California 95050. (8) Mr. Sclavos is President, Chief Executive Officer and a director of the Company. Of the shares shown in the table, as of October 31, 1997, 269,500 were subject to a repurchase right that lapses as to 38,500 of the shares each quarter. (9) Mr. Yanowitch is Vice President of Marketing of the Company. Of the shares shown in the table, as of October 31, 1997, 199,375 were subject to a repurchase right that lapses as to 18,125 of the shares each quarter. (10) Mr. Schaeffer is Vice President of Engineering of the Company. Of the shares shown in the table, as of October 31, 1997, 81,125 were subject to a repurchase right that lapses as to 8,875 of the shares each quarter. (11) Ms. Evan is Vice President of Finance and Administration and Chief Financial Officer of the Company. Of the shares shown in the table, as of October 31, 1997, 85,938 were subject to a repurchase right that lapses as to 7,812 of the shares each quarter. (12) Mr. Baum is Vice President of Practices and External Affairs of the Company. Of the shares shown in the table, as of October 31, 1997, 65,918 were subject to a repurchase right that lapses as to 7,324 of the shares each quarter. (13) Represents 50,000 shares held of record by TZM Investment Fund, 41,104 shares held of record by First TZMM Investment Partnership, 5,000 shares held of record by the Joy E. Tomlinson 1996 Trust, 5,000 shares held of record by the Tucker Tomlinson 1996 Trust, 10,000 shares held of record by the Allison A. Zisko 1996 Trust, 10,000 shares held of record by the Natalie L. Zisko 1996 Trust and 3,125 shares subject to options held of record by Mr. Tomlinson that are exercisable within 60 days of October 31, 1997. Mr. Tomlinson is a general partner of TZM Investment Fund and First TZMM Investment Partnership and a trustee of each trust. (14) Represents the shares described in footnotes (3)-(6) and (8)-(13) and an additional 230,000 shares held by other executive officers, of which 186,250 were subject to repurchase rights as of October 31, 1997 that lapse as to an aggregate of 14,375 shares each quarter. 63 DESCRIPTION OF CAPITAL STOCK As of October 31, 1997, assuming the conversion of all outstanding shares of Preferred Stock into shares of Common Stock, there were outstanding 16,668,509 shares of Common Stock, each with a par value of $.001, held of record by approximately 109 stockholders, and outstanding options to purchase 2,362,258 shares of Common Stock. The following summary of certain provisions of the Common Stock and Preferred Stock does not purport to be complete and is subject to, and qualified in its entirety by, the provisions of the Company's Certificate of Incorporation, which is included as an exhibit to the Registration Statement, of which this Prospectus forms a part, and by the provisions of applicable law. COMMON STOCK Upon the closing of this offering, the Company will be authorized to issue 50,000,000 shares of Common Stock. Subject to preferences that may be applicable to any Preferred Stock outstanding at the time, the holders of outstanding shares of Common Stock are entitled to receive dividends out of assets legally available therefor at such times and in such amounts as the Board from time to time may determine. Holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. Cumulative voting for the election of directors will not be authorized by the Company's Amended and Restated Certificate of Incorporation, which means that the holders of a majority of the shares voted can elect all of the directors then standing for election. The Common Stock is not entitled to preemptive rights and is not subject to conversion or redemption. Upon liquidation, dissolution or winding-up of the Company, the assets legally available for distribution to stockholders are distributable ratably among the holders of the Common Stock and any participating Preferred Stock outstanding at that time after payment of liquidation preferences, if any, on any outstanding Preferred Stock and payment of other claims of creditors. Each outstanding share of Common Stock is, and all shares of Common Stock to be outstanding upon completion of this offering will be upon payment therefor, duly and validly issued, fully paid and nonassessable. PREFERRED STOCK Upon the closing of this offering, each outstanding share of Preferred Stock (the "Convertible Preferred") will be converted into shares of Common Stock. See Note 6 of Notes to Consolidated Financial Statements for a description of the Convertible Preferred. Following the offering, the Company will be authorized to issue up to 5,000,000 shares of "blank check" Preferred Stock. The Board is authorized, subject to any limitations prescribed by Delaware law, to provide for the issuance of Preferred Stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the rights, preferences and privileges of the shares of each wholly unissued series and any qualifications, limitations or restrictions thereon, and to increase or decrease the number of shares of any such series (but not below the number of shares of such series then outstanding), without any further vote or action by the stockholders. The Board may authorize the issuance of Preferred Stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of Common Stock. The issuance of Preferred Stock may have the effect of delaying, deferring or preventing a change in control of the Company and may adversely affect the market price of the Common Stock, and the voting and other rights of the holders of Common Stock. The Company has no current plan to issue any shares of Preferred Stock. REGISTRATION RIGHTS Following this offering, the holders of approximately 14,719,339 shares of Common Stock (representing the purchasers of Common Stock at the founding of the Company in April 1995 and all of the purchasers of Preferred Stock) (the "Holders") will have certain rights to cause the Company to register those shares (the "Registrable Securities") under the Securities Act pursuant to the Investors' Rights Agreement. The holders of at least a majority of the Registrable Securities may require, after 180 days from the effective date of this 64 offering, that the Company use its best efforts to effect up to two registrations. Holders not part of the initial registration demand are entitled to notice of such registration and are entitled to include shares of Registrable Securities therein. These registration rights are subject to certain conditions and limitations, including (i) the right, under certain circumstances, of the underwriters of an offering to limit the number of shares included in such registration and (ii) the right of the Company to delay the filing of a registration statement for not more than 120 days after receiving the registration demand. The Company is obligated to pay all registration expenses incurred in connection with such registration (other than underwriters' discounts and commissions) and the reasonable fees and expenses of a single counsel to the selling Holders. In addition, if the Company proposes to register any of its securities under the Securities Act (other than a registration relating solely to the sale of securities to participants in a Company stock plan, a registration on a form that does not include substantially the same information as would be required in a registration statement covering the sale of the Registrable Securities or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered) in connection with the sale of such securities solely for cash, whether or not for sale for its own account, the Holders are entitled to notice of such registration and are entitled to include Registrable Securities therein. These rights are subject to certain conditions and limitations, including the right of the underwriters of an offering to limit the number of shares included in such registration under certain circumstances. The Company is obligated to pay all registration expenses incurred in connection with such registration other than underwriters' discounts and commissions. If the Company were to initiate a registration and include shares pursuant to this "piggyback" right, such sales might have an adverse effect on the Company's ability to raise capital. The Holders may also require the Company, on no more than two occasions in any twelve-month period, to register all or a portion of their Registrable Securities on Form S-3 under the Securities Act when such form becomes available for use by the Company, if the securities to be so registered represent an aggregate selling price to the public of not less than $1.0 million. The Holders who are not part of the initial registration demand are entitled to notice of such registration and are entitled to include shares of Registrable Securities therein. These registration rights are subject to certain conditions and limitations, including the right of the Company to delay the filing of a registration statement on Form S-3 for a period of not more than 60 days after receiving the registration demand. The Company is obligated to pay all registration expenses incurred in connection with such registration (other than underwriters' discounts and commissions) and the reasonable fees and expenses of a single counsel to the selling Holders. Each stockholder's registration rights will expire upon the earlier of the fifth anniversary of the closing of this offering or at such time as the stockholder can sell all of its securities under Rule 144(k). DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS Upon the closing of this offering, the Company will be subject to the provisions of Section 203 of the Delaware General Corporation Law (the "Anti- Takeover Law") regulating corporate takeovers. The Anti-Takeover Law prevents certain Delaware corporations, including those whose securities are listed on the Nasdaq National Market, from engaging, under certain circumstances, in a "business combination" (which includes a merger or sale of more than 10% of the corporation's assets) with any "interested stockholder" (a stockholder who owns 15% or more of the corporation's outstanding voting stock, as well as affiliates and associates of any such persons) for three years following the date that such stockholder became an "interested stockholder" unless (i) the transaction is approved by the Board of Directors prior to the date the "interested stockholder" attained such status, (ii) upon consummation of the transaction that resulted in the stockholder's becoming an "interested stockholder," the "interested stockholder" owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced (excluding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer), or (iii) on or subsequent to such date the "business combination" is approved by the Board of Directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding 65 voting stock that is not owned by the "interested stockholder." A Delaware corporation may "opt out" of the Anti-Takeover Law with an express provision in its original certificate of incorporation or an express provision in its certificate of incorporation or bylaws resulting from a stockholders' amendment approved by at least a majority of the outstanding voting shares. The Company has not "opted out" of the provisions of the Anti-Takeover Law. The statute could prohibit or delay mergers or other takeover or change-in- control attempts with respect to the Company and, accordingly, may discourage attempts to acquire the Company. The Company's Amended and Restated Bylaws, which will be in effect upon the completion of this offering, will provide for the division of the Board into three classes as nearly equal in size as possible with staggered three-year terms. The classification of the Board could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, control of the Company. In addition, the Amended and Restated Bylaws will provide that any action required or permitted to be taken by the stockholders of the Company at an annual meeting or special meeting of stockholders may only be taken if it is properly brought before such meeting and may not be taken by written action in lieu of a meeting. The Amended and Restated Bylaws will provide that special meetings of the stockholders may only be called by the Chairman of the Board, the Chief Executive Officer or, if none, the President of the Company or by the Board. The Company's Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws will provide that the Company will indemnify officers and directors against losses that they may incur in investigations and legal proceedings resulting from their services to the Company, which may include services in connection with takeover defense measures. Such provisions may have the effect of preventing changes in the management of the Company. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Company's Common Stock is ChaseMellon Shareholder Services, L.L.C. LISTING The Company has applied to list its Common Stock on the Nasdaq National Market under the symbol "VRSN." 66 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for the Common Stock of the Company. Future sales of substantial amounts of Common Stock in the public market could adversely affect prevailing market prices from time to time. Furthermore, since no shares will be available for sale shortly after this offering because of certain contractual and legal restrictions on resale (as described below), sales of substantial amounts of Common Stock of the Company in the public market after these restrictions lapse could adversely affect the prevailing market price and the ability of the Company to raise equity capital in the future. Upon completion of this offering, the Company will have outstanding an aggregate of shares of Common Stock, assuming no exercise of the Underwriters' over-allotment option and no exercise of outstanding options. Of these shares, all of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless such shares are purchased by "affiliates" of the Company as that term is defined in Rule 144 under the Securities Act (the "Affiliates"). The remaining 17,018,509 shares of Common Stock held by existing stockholders are "restricted securities" as that term is defined in Rule 144 under the Securities Act ("Restricted Shares"). Restricted Shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 or 701 promulgated under the Securities Act, which rules are summarized below. All officers, directors, stockholders and option holders of the Company have agreed not to offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly (or enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of), any shares of Common Stock or any securities convertible into or exercisable or exchangeable for shares of Common Stock, for a period of 180 days after the date of this Prospectus, without the prior written consent of Morgan Stanley & Co. Incorporated. Morgan Stanley & Co. Incorporated may in its sole discretion choose to release a certain number of these shares from such restrictions prior to the expiration of such 180 day period. As a result of such contractual restrictions and the provisions of Rule 144 and 701, the Restricted Shares will be available for sale in the public market as follows: (i) no shares will be eligible for immediate sale on the date of this Prospectus; (ii) 16,668,509 shares will be eligible for sale upon expiration of the lock-up agreements 180 days after the date of this Prospectus, subject in the case of all but 2,661,052 shares to the volume limitations and other conditions of Rule 144 described below; and (iii) the remaining 350,000 shares will become eligible for sale in November 1998, subject to the volume limitations and other conditions of Rule 144. In general, under Rule 144 as currently in effect, beginning 90 days after the date of this Prospectus, a person (or persons whose shares are aggregated) who has beneficially owned Restricted Shares for at least one year (including the holding period of any prior owner except an Affiliate) would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: (i) 1% of the number of shares of Common Stock then outstanding (which will equal approximately shares immediately after this offering); or (ii) the average weekly trading volume of the Common Stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about the Company. Under Rule 144(k), a person who is not deemed to have been an Affiliate of the Company at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years (including the holding period of any prior owner except an Affiliate), is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144; therefore, unless otherwise restricted, shares will qualify as "144(k) shares" on the date of this Prospectus and may be sold immediately upon the completion of this offering. Subject to certain limitations on the aggregate offering price of a transaction and other conditions, employees, directors, officers, consultants or advisors may rely on Rule 701 with respect to the resale of securities originally purchased from the Company prior to the date the issuer becomes subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), pursuant to written compensatory benefit plans or written contracts relating to the compensation of such persons. In addition, the Securities and Exchange Commission has indicated that Rule 701 will apply to typical stock options granted by an issuer before it 67 becomes subject to the reporting requirements of the Exchange Act, along with the shares acquired upon exercise of such options (including exercises after the date of this Prospectus). Securities issued in reliance on Rule 701 are restricted securities and, subject to the contractual restrictions described above, beginning 90 days after the date of this Prospectus, may be sold by persons other than Affiliates subject only to the manner of sale provisions of Rule 144, and by Affiliates under Rule 144 without compliance with its holding period requirements. Upon completion of this offering, the holders of approximately 14,719,339 shares of Common Stock currently outstanding or issuable upon conversion of Preferred Stock, or their transferees, will be entitled to certain rights with respect to the registration of such shares under the Securities Act. See "Description of Capital Stock--Registration Rights." Registration of such shares under the Securities Act would result in such shares becoming freely tradable without restriction under the Securities Act (except for share purchases by affiliates) immediately upon the effectiveness of such registration. The Company intends to file a registration statement under the Securities Act covering (i) 2,650,000 shares of Common Stock reserved or to be reserved for issuance under the Equity Incentive Plan, the Purchase Plan and the Directors Plan, (ii) an additional number of shares of Common Stock to be reserved for issuance under the Equity Incentive Plan equal to the number of shares reserved for future issuance under the Prior Plans as of the date of this Prospectus (717,482 as of October 31, 1997), and (iii) shares subject to outstanding options under the Prior Plans as of the date of this Prospectus (2,362,528 as of October 31, 1997). See "Management--Employee Benefit Plans." Such registration statement is expected to be filed and become effective as soon as practicable after the effective date of this offering. Accordingly, shares registered under such registration statement will, subject to Rule 144 volume limitations applicable to Affiliates, be available for sale in the open market, beginning 180 days after the date of the Prospectus, unless such shares are subject to vesting restrictions with the Company. 68 UNDERWRITERS Under the terms and subject to the conditions contained in an Underwriting Agreement dated the date hereof (the "Underwriting Agreement"), the Underwriters named below (the "Underwriters"), for whom Morgan Stanley & Co. Incorporated, Hambrecht & Quist LLC and Wessels, Arnold & Henderson, L.L.C. are acting as Representatives (the "Representatives"), have severally agreed to purchase, and the Company has agreed to sell to them, severally, the respective number of shares of Common Stock set forth opposite their respective names below:
NUMBER OF NAME SHARES ---- --------- Morgan Stanley & Co. Incorporated..................................... Hambrecht & Quist LLC................................................. Wessels, Arnold & Henderson, L.L.C. .................................. ------- Total............................................................. =======
The Underwriting Agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the shares of Common Stock offered hereby are subject to the approval of certain legal matters by their counsel and to certain other conditions. The Underwriters are obligated to take and pay for all of the shares of Common Stock offered hereby (other than those covered by the over-allotment option described below) if any such shares are taken. The Underwriters initially propose to offer part of the shares of Common Stock directly to the public at the initial public offering price set forth on the cover page hereof and part to certain dealers at a price that represents a concession not in excess of $ a share under the public offering price. Any Underwriter may allow, and such dealers may reallow, a concession not in excess of $ a share to other Underwriters or to certain dealers. After the initial offering of the shares of Common Stock, the offering price and other selling terms may from time to time be varied by the Representatives. The Company has granted to the Underwriters an option, exercisable for 30 days from the date of this Prospectus, to purchase up to an aggregate of additional shares of Common Stock at the initial public offering price set forth on the cover page hereof, less underwriting discounts and commissions. The Underwriters may exercise such option to purchase solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of Common Stock offered hereby. To the extent such option is exercised, each Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares of Common Stock as the number set forth next to such Underwriter's name in the preceding table bears to the total number of shares of Common Stock set forth next to the names of all Underwriters in the preceding table. The Underwriters have informed the Company that they do not intend sales to discretionary accounts to exceed five percent of the total number of shares of Common Stock offered by them. The Company has applied to list its Common Stock on the Nasdaq National Market under the symbol "VRSN." Each of the Company and the directors, executive officers, certain other stockholders and option holders of the Company has agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not during the period ending 180 days after the date of this Prospectus (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer, lend or dispose of, directly or indirectly, any shares 69 of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise, except under certain limited circumstances. The restrictions described in this paragraph to not apply to (a) the sale of Shares to the Underwriters, (b) the issuance by the Company of shares of Common Stock upon exercise of an option or a warrant outstanding on the date of this Prospectus and described as such in the Prospectus, (c) the issuance by the Company of shares of Common Stock under the Equity Incentive Plan, the Directors Plan and the Purchase Plan or (d) transactions by any person other than the Company relating to shares of Common Stock or other securities acquired in open market transactions after the completion of the offering of the Shares. In order to facilitate the offering of the Common Stock, the Underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Common Stock. Specifically, the Underwriters may over-allot in connection with the offering, creating a short position in the Common Stock for their own account. In addition, to cover over-allotments or to stabilize the price of the Common Stock, the Underwriters may bid for, and purchase, shares of Common Stock in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an Underwriter or a dealer for distributing the Common Stock in the offering, if the syndicate repurchases previously distributed Common Stock in transactions to cover syndicate short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the Common Stock above independent market levels. The Underwriters are not required to engage in these activities, and may end any of these activities at any time. In November and December 1996, the Company issued an aggregate of 3,625,000 shares of Series C Preferred Stock for an aggregate consideration of $29.0 million. In connection with such financing, Morgan Stanley & Co. Incorporated received an aggregate of $730,000 as a financial advisory fee. The Company and the Underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. PRICING OF THE OFFERING Prior to this offering, there has been no public market for the Common Stock or any other securities of the Company. The initial public offering price for the Common Stock will be determined by negotiations between the Company and the Representatives. Among the factors to be considered in determining the initial public offering price will be the future prospects of the Company and its industry in general, sales, earnings and certain other financial and operating information of the Company in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to those of the Company. The estimated initial public offering price range set forth on the cover page of this Preliminary Prospectus is subject to change as a result of market conditions and other factors. LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Fenwick & West LLP, Palo Alto, California. Certain legal matters in connection with this offering will be passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. EXPERTS The consolidated financial statements and schedule of VeriSign, Inc. and subsidiary as of December 31, 1995 and 1996 and September 30, 1997 and for the period from April 12, 1995 (inception) to December 31, 1995, the year ended December 31, 1996 and the nine month period ended September 30, 1997 have been included herein and in the Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP, independent auditors, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. 70 ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1 under the Securities Act with respect to the shares of Common Stock offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits and schedule thereto. Certain items are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the Common Stock offered hereby, reference is made to the Registration Statement and the exhibits and schedule thereto. Statements contained in this Prospectus regarding the contents of any contract or any other document to which reference is made are not necessarily complete, and, in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. A copy of the Registration Statement, and the exhibits and schedule thereto, may be inspected without charge at the public reference facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices located at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York 10048, and copies of all or any part of the Registration Statement may be obtained from such offices upon the payment of the fees prescribed by the Commission. The Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the site is http://www.sec.gov. 71 VERISIGN, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of KPMG Peat Marwick LLP, Independent Auditors...................... F-2 Consolidated Balance Sheets................................................ F-3 Consolidated Statements of Operations...................................... F-4 Consolidated Statements of Stockholders' Equity............................ F-5 Consolidated Statements of Cash Flows...................................... F-6 Notes to Consolidated Financial Statements................................. F-7
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders VeriSign, Inc.: We have audited the accompanying consolidated balance sheets of VeriSign, Inc. and subsidiary as of December 31, 1995 and 1996 and September 30, 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for the period from April 12, 1995 (inception) to December 31, 1995, for the year ended December 31, 1996, and for the nine months ended September 30, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of VeriSign, Inc. and subsidiary as of December 31, 1995 and 1996 and September 30, 1997, and the results of their operations and their cash flows for the period from April 12, 1995 (inception) to December 31, 1995, for the year ended December 31, 1996, and for the nine months ended September 30, 1997, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP San Francisco, California November 5, 1997, except as to Notes 8 and 10, which are as of November 20, 1997 F-2 VERISIGN, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, SEPTEMBER 30, 1997 --------------- -------------------- 1995 1996 ACTUAL PRO FORMA ------ ------- ------- ----------- ASSETS (UNAUDITED) Current assets: Cash and cash equivalents.............. $2,687 $29,983 $ 5,902 $ 5,902 Short-term investments................. -- -- 7,710 7,710 Accounts receivable, net of allowance for doubtful accounts of $30, $35, and $134, respectively.................... 195 751 2,245 2,245 Prepaid expenses and other current assets................................ 78 786 573 573 ------ ------- ------- ------- Total current assets................. 2,960 31,520 16,430 16,430 Property and equipment, net.............. 1,007 4,617 8,391 8,391 Other assets............................. 85 366 838 838 ------ ------- ------- ------- $4,052 $36,503 $25,659 $25,659 ====== ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable.......................... $ -- $ 258 $ 1,488 $ 1,488 Accounts payable....................... 414 2,461 1,221 1,221 Accrued liabilities.................... 216 2,034 3,904 1,904 Deferred revenue....................... 46 1,944 3,109 3,109 ------ ------- ------- ------- Total current liabilities............ 676 6,697 9,722 7,722 ------ ------- ------- ------- Minority interest in subsidiary.......... -- 1,251 61 61 ------ ------- ------- ------- Commitments Stockholders' equity: Convertible preferred stock, $.001 par value; actual--10,282,883 shares authorized; 4,306,883 shares issued and outstanding in 1995, 10,031,006 shares issued and outstanding in 1996 and 1997; aggregate liquidation preference of $5,038 in 1995 and $39,206 in 1996 and 1997; pro forma-- 5,000,000 shares authorized; no shares issued and outstanding................ 4 10 10 -- Common stock, $.001 par value; actual-- 15,940,217 shares authorized; 4,692,833, 6,376,708, and 6,568,257 shares issued and outstanding in 1995, 1996, and 1997, respectively; pro forma--50,000,000 shares authorized; 16,949,263 shares issued and outstanding........................... 5 6 6 17 Additional paid-in capital............. 5,361 41,319 41,651 44,450 Notes receivable from stockholders..... -- (543) (644) (644) Deferred compensation.................. -- -- (188) (188) Accumulated deficit.................... (1,994) (12,237) (24,959) (25,759) ------ ------- ------- ------- Total stockholders' equity........... 3,376 28,555 15,876 17,876 ------ ------- ------- ------- $4,052 $36,503 $25,659 $25,659 ====== ======= ======= =======
See accompanying notes to consolidated financial statements. F-3 VERISIGN, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
PERIOD FROM APRIL 12, 1995 NINE MONTHS ENDED (INCEPTION) TO YEAR ENDED SEPTEMBER 30, DECEMBER 31, DECEMBER 31, -------------------- 1995 1996 1996 1997 -------------- ------------ ----------- -------- (UNAUDITED) Revenues.................... $ 382 $ 1,351 $ 774 $ 6,115 Costs and expenses: Cost of revenues.......... 412 2,791 1,593 5,166 Sales and marketing....... 790 4,876 2,768 7,264 Research and development.. 642 2,058 1,290 3,560 General and administrative........... 680 2,640 1,517 2,901 Litigation settlement..... -- -- -- 2,000 ------- -------- ------- -------- Total costs and expenses............... 2,524 12,365 7,168 20,891 ------- -------- ------- -------- Operating loss.......... (2,142) (11,014) (6,394) (14,776) Other income (expense)...... 148 (67) 84 860 ------- -------- ------- -------- Loss before minority interest............... (1,994) (11,081) (6,310) (13,916) Minority interest in net loss of subsidiary......... -- (838) (358) (1,194) ------- -------- ------- -------- Net loss................ $(1,994) $(10,243) $(5,952) $(12,722) ======= ======== ======= ======== Pro forma net loss per share...................... $ (.74) $ (.47) $ (.75) ======== ======= ======== Shares used in per share computations............... 13,836 12,532 17,006
See accompanying notes to consolidated financial statements. F-4 VERISIGN, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY PERIOD FROM APRIL 12, 1995 (INCEPTION) TO SEPTEMBER 30, 1997 (IN THOUSANDS, EXCEPT SHARE DATA)
CONVERTIBLE NOTES PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE TOTAL ----------------- ----------------- PAID-IN FROM DEFERRED ACCUMULATED STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION DEFICIT EQUITY ---------- ------ --------- ------ ---------- ------------ ------------ ----------- ------------- Issuance of common stock to founders... -- $ - 688,333 $ 1 $ 82 $ - $ - $ - $ 83 Issuance of common stock to a founder in exchange for equipment, other assets, and technology.......... -- -- 4,000,000 4 115 -- -- -- 119 Issuance of common stock............... -- -- 4,500 -- -- -- -- -- -- Issuance of Series A convertible preferred stock..... 4,306,883 4 -- -- 5,164 -- -- -- 5,168 Net loss............. -- -- -- -- -- -- -- (1,994) (1,994) ---------- ---- --------- --- -------- ------ ------ --------- -------- Balances, December 31, 1995............ 4,306,883 4 4,692,833 5 5,361 -- -- (1,994) 3,376 Issuance of Series B convertible preferred stock..... 2,099,123 2 -- -- 5,141 -- -- -- 5,143 Issuance of Series C convertible preferred stock..... 3,625,000 4 -- -- 28,192 -- -- -- 28,196 Exercise of common stock options....... -- -- 1,637,375 1 559 (543) -- -- 17 Issuance of common stock............... -- -- 46,500 -- 3 -- -- -- 3 Issuance of capital stock by subsidiary to minority interest............ -- -- -- -- 2,063 -- -- -- 2,063 Net loss............. -- -- -- -- -- -- -- (10,243) (10,243) ---------- ---- --------- --- -------- ------ ------ --------- -------- Balances, December 31, 1996............ 10,031,006 10 6,376,708 6 41,319 (543) -- (12,237) 28,555 Deferred compensation related to common stock options, net of amortization of $13................. -- -- -- -- 201 -- (188) -- 13 Exercise of common stock options and advance to stockholder......... -- -- 244,494 -- 99 (116) -- -- (17) Issuance of common stock............... -- -- 25,180 -- 42 -- -- -- 42 Repurchase of common stock............... -- -- (78,125) -- (10) 10 -- -- -- Payments on notes receivable from stockholders........ -- -- -- -- -- 5 -- -- 5 Net loss............. -- -- -- -- -- -- -- (12,722) (12,722) ---------- ---- --------- --- -------- ------ ------ --------- -------- Balances, September 30, 1997............ 10,031,006 $ 10 6,568,257 $ 6 $ 41,651 $ (644) $ (188) $ (24,959) $ 15,876 ========== ==== ========= === ======== ====== ====== ========= ========
See accompanying notes to consolidated financial statements. F-5 VERISIGN, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PERIOD FROM APRIL 12, 1995 NINE MONTHS ENDED (INCEPTION) TO YEAR ENDED SEPTEMBER 30, DECEMBER 31, DECEMBER 31, -------------------- 1995 1996 1996 1997 -------------- ------------ ----------- -------- (UNAUDITED) Cash flows from operating ac- tivities: Net loss..................... $(1,994) $(10,243) $(5,952) $(12,722) Adjustments to reconcile net loss to net cash used in op- erating activities: Litigation settlement...... -- -- -- 2,000 Depreciation and amortization.............. 52 559 238 1,564 Minority interest in net loss of subsidiary........ -- (838) (358) (1,194) Changes in operating assets and liabilities: Accounts receivable...... (195) (556) (425) (1,494) Prepaid expenses and other current assets.... (79) (708) (203) 213 Accounts payable......... 437 2,047 524 (1,240) Accrued liabilities...... 216 1,818 447 (130) Deferred revenue......... 42 1,898 1,033 1,165 ------- -------- ------- -------- Net cash used in operating activities.... (1,521) (6,023) (4,696) (11,838) ------- -------- ------- -------- Cash flows from investing ac- tivities: Purchases of short-term investments............... -- -- -- (11,208) Maturities and sales of short-term investments.... -- -- -- 3,498 Purchases of property and equipment................. (1,008) (4,168) (1,702) (5,321) Other assets............... (35) (281) (264) (472) ------- -------- ------- -------- Net cash used in investing activities.... (1,043) (4,449) (1,966) (13,503) ------- -------- ------- -------- Cash flows from financing ac- tivities: Proceeds from bank borrowings................ -- 258 269 1,230 Proceeds from issuance of convertible preferred stock..................... 5,168 33,339 5,143 -- Proceeds from issuance of common stock.............. 83 20 19 30 Issuance of capital stock by subsidiary to minority interest.................. -- 4,151 2,803 -- ------- -------- ------- -------- Net cash provided by financing activities.... 5,251 37,768 8,234 1,260 ------- -------- ------- -------- Net change in cash and cash equivalents................. 2,687 27,296 1,572 (24,081) Cash and cash equivalents at beginning of period......... -- 2,687 2,687 29,983 ------- -------- ------- -------- Cash and cash equivalents at end of period............... $ 2,687 $ 29,983 $ 4,259 $ 5,902 ======= ======== ======= ======== Noncash financing and invest- ing activities: Issuance of common stock to a founder for equipment, other assets, and technology................ $ 119 $ -- $ -- $ -- ======= ======== ======= ======== Issuance of notes receivable collateralized by common stock........... $ -- $ 543 $ -- $ 116 ======= ======== ======= ========
See accompanying notes to consolidated financial statements. F-6 VERISIGN, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997 (INFORMATION FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 IS UNAUDITED) (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES VeriSign, Inc. (the "Company") was incorporated in Delaware in April 1995 when RSA Data Security, Inc. contributed equipment, other assets, and technology for common stock. This transfer of nonmonetary assets was recorded at the founder's historical cost basis. The Company provides digital certificate solutions and infrastructure needed by companies, government agencies, trading partners and individuals to conduct trusted and secure communications and commerce over the Internet and over intranets and extranets using the Internet Protocol. Consolidation In February 1996, the Company established a subsidiary in Japan. As of September 30, 1997, the Company owned approximately 51% of the subsidiary's outstanding shares of capital stock. The subsidiary provides the Company's digital certificate solutions throughout Japan. The accompanying consolidated financial statements include the accounts of the Company and its subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation. The Company accounts for changes in its proportionate share of the net assets of the subsidiary resulting from sales of capital stock by the subsidiary as equity transactions. Foreign Currency Translation The functional currency for the Company's subsidiary is the U.S. dollar. As a result, its financial statements are remeasured using a combination of current and historical exchange rates and any remeasurement adjustments are included in net loss, along with all transaction gains and losses for the period. Cash, Cash Equivalents, and Short-Term Investments The Company considers all highly liquid investments with maturities of three months or less at the date of acquisition to be cash equivalents. Cash and cash equivalents include money market funds, commercial paper, and various deposit accounts. Investments held by the Company are classified as "available-for-sale" and are carried at fair value based on quoted market prices. Such investments consist of U.S. government or agency securities and corporate bonds with original maturities beyond 3 months and less than 12 months. Unrealized gains and losses as of December 31, 1996, and September 30, 1997, and realized gains and losses for the year ended December 31, 1996 and for the nine months ended September 30, 1997, were not material. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, generally three to five years. Revenue Recognition Revenues from the sale or renewal of digital certificates are deferred and recognized ratably over the life of the digital certificate, generally 12 months. Revenues from services are recognized using the percentage-of- completion method, based on the ratio of costs incurred to total estimated costs for fixed-fee development arrangements, on a time-and-materials basis for consulting and training services or ratably over the term of the agreement for support and maintenance services. To the extent costs incurred and anticipated costs to complete F-7 VERISIGN, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) fixed-fee contracts in progress exceed anticipated billings, a loss is accrued for the excess. To date, the Company has not experienced such losses. Deferred revenue principally consists of payments for unexpired digital certificates. In October 1997, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") No. 97-2, Software Revenue Recognition, which supersedes SOP No. 91-1. The Company will be required to adopt SOP No. 97-2 prospectively for software transactions entered into beginning January 1, 1998. SOP No. 97-2 generally requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair values of the elements. The fair value of an element must be based on evidence that is specific to the vendor. If a vendor does not have evidence of the fair value for all elements in a multiple-element arrangement, all revenue from the arrangement is deferred until such evidence exists or until all elements are delivered. The Company's management anticipates that the adoption of SOP No. 97-2 will not have a material effect on the Company's operating results. Research and Development Costs Research and development costs are expensed as incurred. Costs incurred subsequent to establishing technological feasibility, in the form of a working model, are capitalized and amortized over their estimated useful lives. To date, software development costs incurred after technological feasibility has been established have not been material. Income Taxes The Company uses the asset and liability method to account for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded for deferred tax assets whose realization is not sufficiently likely. Stock-Based Compensation The Company accounts for its equity-based compensation plan using the intrinsic value method. Pro Forma Net Loss Per Share Pro forma net loss per share is computed using the weighted average number of shares of common stock and convertible preferred stock outstanding on an as-if converted basis and, when dilutive, common equivalent shares from options to purchase common stock using the treasury stock method. In accordance with certain Securities and Exchange Commission Staff Accounting Bulletins, such computations included all common and common equivalent shares issued within the 12 months preceding the initial public offering ("IPO") date as if they were outstanding for all prior periods presented using the treasury stock method and the estimated IPO price. The Financial Accounting Standards Board recently issued Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share, which must be adopted in the first quarter of 1998. At that time, the Company will be required to change the method currently used to compute net income (loss) per share and to restate amounts previously reported. Under the new requirements, basic net income (loss) per share is computed using the weighted average number of shares of common stock outstanding during the period and diluted net income (loss) per share is computed in a manner similar to the Company's existing policy. The Company expects that neither basic nor diluted net loss per share will differ materially from pro forma net loss per share presented in the accompanying consolidated financial statements. F-8 VERISIGN, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Concentration of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, short-term investments, and accounts receivable. The Company maintains its cash, cash equivalents, and short-term investments with high quality financial institutions and, as part of its cash management process, performs periodic evaluations of the relative credit standing of these financial institutions. The Company also performs ongoing credit evaluations of its customers and, generally, requires no collateral from its customers. The Company maintains an allowance for potential credit losses, but to date has not experienced significant write-offs. The Company had one customer, a large financial intermediary and 6% stockholder of the Company on a fully-diluted basis, that accounted for approximately 21% and 16% of the Company's revenues for the year ended December 31, 1996, and the nine months ended September 30, 1997, respectively, and 13% and 25% of accounts receivable as of December 31, 1996, and September 30, 1997, respectively. The Company had one customer, a South African systems integrator, and another customer, a financial services provider, which accounted for approximately 28% and 13%, respectively, of accounts receivable as of December 31, 1996. One other customer, a European smart card manufacturer, accounted for approximately 12% of accounts receivable as of September 30, 1997. Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Unaudited Pro Forma Consolidated Balance Sheet Upon closing of the Company's proposed initial public offering, all outstanding shares of preferred stock will be converted into 10,031,006 shares of common stock. The unaudited pro forma consolidated balance sheet as of September 30, 1997, reflects this conversion and also gives effect to the issuance of 250,000 shares of common stock from the litigation settlement described in Note 8 and the issuance of 100,000 shares of common stock described in Note 10. Interim Financial Statements The accompanying unaudited consolidated financial statements for the nine- month period ended September 30, 1996, have been prepared on substantially the same basis as the audited consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the consolidated financial information set forth therein. F-9 VERISIGN, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (2) CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS Available-for-sale securities included in cash, cash equivalents, and short- term investments are as follows (in thousands):
DECEMBER 31, ------------- SEPTEMBER 30, 1995 1996 1997 ------ ------ ------------- Corporate bonds......... $ -- $ -- $ 6,210 Money market funds...... 624 521 3,690 U.S. government and agency securities...... 2,027 84 1,000 Commercial paper........ -- -- 1,450 ------ ------ ------- $2,651 $ 605 $12,350 ====== ====== ======= Included in cash and cash equivalents....... $2,651 $ 605 $ 4,640 ====== ====== ======= Included in short-term investments............ $ -- $ -- $ 7,710 ====== ====== ======= (3) PROPERTY AND EQUIPMENT Property and equipment are summarized as follows (in thousands): DECEMBER 31, ------------- SEPTEMBER 30, 1995 1996 1997 ------ ------ ------------- Computer equipment and purchased software..... $ 692 $3,501 $ 6,645 Office equipment, furni- ture and fixtures...... 245 792 1,525 Leasehold improvements.. 122 934 2,453 ------ ------ ------- 1,059 5,227 10,623 Less accumulated depre- ciation and amortiza- tion................... 52 610 2,232 ------ ------ ------- $1,007 $4,617 $ 8,391 ====== ====== ======= (4) ACCRUED LIABILITIES A summary of accrued liabilities follows (in thousands): DECEMBER 31, ------------- SEPTEMBER 30, 1995 1996 1997 ------ ------ ------------- Employee compensation... $ 161 $ 566 $ 1,278 Professional fees....... 30 354 132 Financing charges....... -- 732 -- Accrued litigation set- tlement................ -- -- 2,000 Other................... 25 382 494 ------ ------ ------- $ 216 $2,034 $ 3,904 ====== ====== =======
(5) NOTES PAYABLE The Company's Japanese subsidiary has an available credit facility of 250,000,000 yen (approximately $2,083,000 as of September 30, 1997) with a bank, which bears interest at a rate of 1.625% per annum and expires in January 1998. Borrowings are secured by certain assets of the subsidiary. As of December 31, 1996, and September 30, 1997, borrowings under this facility aggregated $258,000 and $1,487,000, respectively. F-10 VERISIGN, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company's Japanese subsidiary also has available a revolving line of credit with a bank that provides up to $500,000, bears interest at 1.625% per annum and expires in April 1998. The line of credit is secured by a letter of credit in the same amount from the Company. There were no borrowings under this arrangement as of December 31, 1996 or September 30, 1997. In January 1997, the Company entered into an agreement for a non-revolving equipment line of credit with a financing company that provides up to $3,000,000, bears interest at 7.50% per annum and expires in March 1999. The line of credit is secured by the Company's fixed assets. The Company is obligated to grant a warrant to purchase up to 17,500 shares of common stock at $8.00 per share in the event the Company borrows funds under the equipment line of credit. There were no borrowings under this arrangement during the nine months ended September 30, 1997. (6) STOCKHOLDERS' EQUITY Convertible Preferred Stock As of September 30, 1997, convertible preferred stock consisted of the following:
SHARES SHARES ISSUED AND SERIES AUTHORIZED OUTSTANDING ------ ---------- ----------- A.................................................... 4,306,883 4,306,883 B.................................................... 2,101,000 2,099,123 C.................................................... 3,875,000 3,625,000 ---------- ---------- 10,282,883 10,031,006 ========== ==========
The rights, preferences, and privileges of the holders of preferred stock are as follows: . The holders of Series A, B, and C preferred stock are entitled to noncumulative dividends, if and when declared by the Board of Directors, of $0.10, $0.20, and $0.64 per share, respectively. . Shares of preferred stock are convertible to common stock at any time at the rate of one share of common stock for each share of preferred stock. The preferred stock automatically converts to common stock upon the closing of an underwritten public offering of the Company's common stock in which the aggregate proceeds for such shares is at least $15,000,000 and the per share price is at least $9.00 per share. . The holders of preferred stock are protected by certain antidilutive provisions. . Shares of Series A, B, and C preferred stock have a liquidation preference of $1.20, $2.40, and $8.00 per share, respectively, plus any declared and unpaid dividends. . The preferred stock generally votes equally with shares of common stock on an "as if converted" basis. No dividends have been declared or paid on the convertible preferred stock or common stock since inception of the Company. Common Stock Options As of September 30, 1997, a total of 4,145,000 shares of common stock were authorized for issuance under the 1995 Stock Option Plan. Options may be granted at an exercise price not less than 100% of the fair market value of the Company's common stock on the date of grant, as determined by the Board of Directors, for incentive stock options and 85% of such fair market value for nonqualified stock options. All options are granted at the discretion of the Company's Board of Directors and have a term not greater than 7 years from the date of grant. Options issued generally vest 25% on the first anniversary date and ratably over the following 12 quarters. F-11 VERISIGN, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A summary of stock option activity follows:
PERIOD FROM NINE MONTHS APRIL 12, 1995 YEAR ENDED ENDED (INCEPTION) TO DECEMBER 31, SEPTEMBER 30, DECEMBER 31, 1995 1996 1997 -------------------- --------------------- -------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE --------- --------- ---------- --------- --------- --------- Outstanding at beginning of period.............. -- $ -- 1,274,750 $.12 1,608,075 $ .80 Granted................. 1,398,750 .12 2,022,700 .83 714,050 2.82 Exercised............... -- -- (1,637,375) .34 (244,494) .41 Canceled................ (124,000) .12 (52,000) .13 (76,657) .80 --------- ---------- --------- Outstanding at end of period................. 1,274,750 .12 1,608,075 .80 2,000,974 1.49 ========= ========== ========= Exercisable at end of period................. 86,457 152,163 285,550 ========= ========== ========= Weighted average fair value of options granted during the period................. .03 .22 .75 ==== ==== =====
The following table summarizes information about stock options outstanding as of September 30, 1997:
WEIGHTED- RANGE AVERAGE WEIGHTED- OF REMAINING AVERAGE EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER PRICES OUTSTANDING LIFE PRICE EXERCISABLE -------- ----------- ----------- --------- ----------- $.12-.25...................... 453,286 5.0 years $ .15 159,210 $.75-1.50..................... 817,138 6.0 years $ .86 113,840 $2.25......................... 562,550 6.6 years $2.25 -- $4.00-8.00.................... 168,000 6.6 years $5.61 12,500
The Company applies the intrinsic value method in accounting for its equity- based compensation plan. Had compensation cost for the Company's equity-based compensation plan been determined consistent with the fair value approach set forth in SFAS No. 123, Accounting for Stock-Based Compensation, the Company's net loss for the period from April 12, 1995 (inception) to December 31, 1995, for the year ended December 31, 1996, and for the nine months ended September 30, 1997, would have been as follows (in thousands, except per share data):
DECEMBER 31, ----------------- SEPTEMBER 30, 1995 1996 1997 ------- -------- ------------- Net loss as reported...................... $(1,994) $(10,243) $(12,722) Pro forma net loss under SFAS No. 123..... (1,999) (10,294) (12,877) Pro forma net loss per share as reported.. (.74) (.75) Pro forma net loss per share under SFAS No. 123.................................. (.74) (.76)
The fair value of options granted during the period from April 12, 1995 (inception) to December 31, 1995, the year ended December 31, 1996 and the nine months ended September 30, 1997, is estimated on the date of grant using the minimum value method with the following weighted-average assumptions: no dividend yield; risk-free interest rates of 6.11%, 6.21%, and 6.39%, respectively; and an expected life of 5 years. F-12 VERISIGN, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Notes Receivable From Stockholders In November 1996, the Company loaned several officers an aggregate of $543,000, due December 31, 2005, bearing interest at a rate per annum of 6.95%, payable quarterly. In August 1997, the Company loaned an officer an aggregate of $116,000, due December 31, 2006, bearing interest at a rate per annum of 6.87%, payable quarterly. The loans are full recourse, are collateralized by pledges of shares of common stock of the Company that were purchased and may be prepaid in part or in full without notice or penalty. (7) INCOME TAXES The tax effects of temporary differences that give rise to significant portions of the Company's deferred tax assets are as follows (in thousands):
DECEMBER 31, -------------- SEPTEMBER 30, 1995 1996 1997 ----- ------- ------------- Deferred tax assets: Net operating loss carryforwards and deferred start-up costs................... $ 833 $ 4,016 $ 8,542 Accrued litigation settlement.............. -- -- 850 Tax credit carryforwards................... 57 177 504 Other...................................... 26 162 266 ----- ------- -------- 916 4,355 10,162 Valuation allowance.......................... (916) (4,355) (10,162) ----- ------- -------- Net deferred tax assets.................. $ -- $ -- $ -- ===== ======= ========
As of September 30, 1997, the Company has available net operating loss carryforwards for federal and California income tax purposes of approximately $10,453,000 and $10,506,000, respectively. The federal net operating loss carryforwards will expire, if not utilized, in years 2010 through 2012. The California net operating loss carryforwards will expire, if not utilized, in years 2000 through 2003. As of September 30, 1997, the Company has available for carryover research and experimental tax credits for federal and California income tax purposes of approximately $91,000 and $72,000, respectively. The federal research and experimental tax credits will expire, if not utilized, in years 2010 through 2012. California research and experimental tax credits carry forward indefinitely until utilized. The Company also has federal foreign tax credits of approximately $15,000, which expire, if not utilized, in the years 2001 through 2002. The Tax Reform Act of 1986 imposed substantial restrictions on the utilization of net operating losses and tax credits in the event of an "ownership change" of a corporation. Accordingly, the Company's ability to utilize net operating loss and credit carryforwards may be limited as a result of such an "ownership change" as defined in the Internal Revenue Code. (8) COMMITMENTS AND CONTINGENCIES Leases The Company leases its facilities under operating leases that extend through 2002. Future minimum lease payments under the Company's noncancelable operating leases as of September 30, 1997, are as follows (in thousands): Three months ended December 31, 1997................................. $ 428 1998................................................................. 1,631 1999................................................................. 1,667 2000................................................................. 1,679 2001................................................................. 1,293 Thereafter........................................................... 9 ------ Total minimum lease payments......................................... $6,707 ======
F-13 VERISIGN, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Net rental expense under operating leases for the period from April 12, 1995 (inception) to December 31, 1995, for the year ended December 31, 1996, and for the nine months ended September 30, 1997, was $141,000, $621,000, and $1,305,000, respectively. VeriFone In September 1996, VeriFone, Inc., which subsequently became a wholly-owned subsidiary of Hewlett-Packard Company, filed a lawsuit against the Company alleging, among other things, trademark infringement. In November 1997, both parties executed a definitive agreement under which, among other things, the Company issued an aggregate of 250,000 shares of common stock, which were transferred to Hewlett-Packard, and the Company and VeriFone settled such claims. The settlement amount was recorded during the nine months ended September 30, 1997 as a charge of $2.0 million. (9) GEOGRAPHIC INFORMATION Financial information by geographic area is as follows (in thousands):
UNITED DECEMBER 31, 1996 STATES JAPAN CONSOLIDATED ----------------- -------- ------- ------------ Revenues................................... $ 1,296 $ 55 $ 1,351 Operating loss............................. $ (9,281) $(1,733) $(11,014) Total assets, excluding cash and cash equivalents............................... $ 5,922 $ 598 $ 6,520 SEPTEMBER 30, 1997 Revenues................................... $ 5,893 $ 222 $ 6,115 Operating loss............................. $(12,543) $(2,233) $(14,776) Total assets, excluding cash and cash equivalents............................... $ 17,614 $ 2,143 $ 19,757
Intergeographic transactions have not been significant to date. Other revenues derived from international customers aggregated $668,000 for the nine months ended September 30, 1997. (10) OTHER SUBSEQUENT EVENTS In October 1997, the Board of Directors adopted and the stockholders approved the 1997 Stock Option Plan, for which 800,000 shares of the Company's common stock have been authorized for issuance. Terms of the 1997 Stock Option Plan are similar to those of the 1995 Stock Option Plan. In October 1997, the Board of Directors adopted, subject to stockholder approval, the 1998 Equity Incentive Plan. The 1998 Equity Incentive Plan succeeds the previous equity-based compensation plans and 2,000,000 shares have been authorized under the 1998 Equity Incentive Plan. Terms of the 1998 Equity Incentive Plan are similar to those of the 1995 Stock Option Plan. In October 1997, the Board of Directors adopted, subject to stockholder approval, the 1998 Directors Plan, for which 250,000 shares of the Company's common stock have been authorized. Terms of the 1998 Directors Plan are similar to those of the 1995 Stock Option Plan. In November 1997, the Company entered into a preferred provider agreement with Microsoft Corporation ("Microsoft") whereby the companies will develop, promote and distribute a variety of client-based and server-based digital certificate solutions and the Company will be designated as the premier provider of digital certificates for Microsoft customers. In connection with the agreement, the Company will issue 100,000 shares of common stock to Microsoft that will result in an $800,000 charge to operations during the fourth quarter of 1997. F-14 [LOGO OF VERISIGN, INC. APPEARS HERE] PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The expenses to be paid by the Registrant in connection with this offering are as follows. All amounts other than the SEC registration fee, NASD filing fee and Nasdaq National Market application fee are estimates. SEC Registration Fee................................................ $12,122 NASD Filing Fee..................................................... 4,500 Nasdaq National Market Application Fee.............................. 50,000 Printing............................................................ * Legal Fees and Expenses............................................. * Accounting Fees and Expenses........................................ * Road Show Expenses.................................................. * Blue Sky Fees and Expenses.......................................... * Transfer Agent and Registrar Fees................................... * Miscellaneous....................................................... * ------- Total............................................................. $ * =======
- -------- * To be filed by amendment ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's Board of Directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the "Securities Act"). As permitted by the Delaware General Corporation Law, the Registrant's Third Amended and Restated Certificate of Incorporation, which will become effective upon the completion of this offering, includes a provision that eliminates the personal liability of its directors for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Registrant or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) under section 174 of the Delaware General Corporation Law (regarding unlawful dividends and stock purchases) or (iv) for any transaction from which the director derived an improper personal benefit. As permitted by the Delaware General Corporation Law, the Registrant's Amended and Restated Bylaws, which will become effective upon the completion of this offering, provide that (i) the Registrant is required to indemnify its directors and officers to the fullest extent permitted by the Delaware General Corporation Law, subject to certain very limited exceptions, (ii) the Registrant may indemnify its other employees and agents to the extent that it indemnifies its officers and directors, unless otherwise required by law, its Certificate of Incorporation, its Amended and Restated Bylaws, or agreement, (iii) the Registrant is required to advance expenses, as incurred, to its directors and executive officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to certain very limited exceptions and (iv) the rights conferred in the Amended and Restated Bylaws are not exclusive. The Registrant has entered into Indemnification Agreements with each of its current directors and certain of its executive officers and intends to enter into such Indemnification Agreements with each of its other executive officers to give such directors and executive officers additional contractual assurances regarding the scope of the indemnification set forth in the Registrant's Certificate of Incorporation and to provide additional procedural protections. At present, there is no pending litigation or proceeding involving a director, officer or employee of the Registrant regarding which indemnification is sought, nor is the Registrant aware of any threatened litigation that may result in claims for indemnification. II-1 Reference is also made to Article VIII of the Underwriting Agreement, which provides for the indemnification of officers, directors and controlling persons of the Registrant against certain liabilities. The indemnification provisions in the Registrant's Certificate of Incorporation, Amended and Restated Bylaws and the Indemnification Agreements entered into between the Registrant and each of its directors and executive officers may be sufficiently broad to permit indemnification of the Registrant's directors and executive officers for liabilities arising under the Securities Act. The Registrant, with approval by the Registrant's Board of Directors, has applied for, and expects to obtain, directors' and officers' liability insurance. Reference is made to the following documents filed as exhibits to this Registration Statement regarding relevant indemnification provisions described above and elsewhere herein:
EXHIBIT DOCUMENT NUMBER -------- ------- Underwriting Agreement (draft dated November , 1997)............. 1.01 Form of Third Amended and Restated Certificate of Incorporation of Registrant........................................................ 3.02 Form of Amended and Restated Bylaws of Registrant.................. 3.04 Form of Indemnification Agreement.................................. 10.05
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. The following table sets forth information regarding all securities sold by the Registrant since April 12, 1995, the Company's inception date.
AGGREGATE NAME OR TITLE OF NUMBER PURCHASE FORM OF CLASS OF PURCHASER DATE OF SALE SECURITIES OF SHARES PRICE CONSIDERATION ------------------ ------------ ------------------ --------- ---------- ------------- 6 founding 4/18/95 Common Stock 4,688,333 $ 562,600 Cash/Property(1) stockholders........... 9 entities.............. 4/18/95 Series A Preferred 4,306,883 5,168,260 Cash Stock(2) 12 entities............. 2/20/96 Series B Preferred 2,099,123 5,142,851 Cash Stock(2) 12 entities............. 11/18/96 and 12/17/96 Series C Preferred 3,625,000 29,000,000 Cash Stock(2) 23 consultants.......... 3/28/96-10/24/97 Common Stock 72,180 113,350 Services 39 employee or director 2/27/96-10/29/97 Common Stock 1,943,115(3) 705,966 Cash optionees.............. (option exercises) Microsoft Corporation... 11/20/97 Common Stock 100,000 800,000 (4) VeriFone, Inc./Hewlett- Packard Company........ 11/20/97 Common Stock 250,000 2,000,000 (5)
- -------- (1) All founding stockholders paid cash except RSA Data Security, Inc., which contributed its equipment, other assets and technology, as described in Exhibit A to its Founder's Subscription Agreement. (2) Each share of Preferred Stock will convert automatically into one share of Common Stock. (3) Of these shares, 78,125 were repurchased by cancellation of a promissory note in the amount of $9,375, and 893,673 were subject to repurchase at October 31, 1996. The repurchase right lapses ratably over four years. (4) The shares of Common Stock were issued in connection with a preferred provider agreement with the Registrant. (5) The shares of Common Stock were issued in connection with the execution of certain agreements, including a settlement of claims, with VeriFone, Inc., which is owned by Hewlett-Packard Company. II-2 All sales of Common Stock to employees made pursuant to the exercise of stock options granted under the Registrant's stock option plans or pursuant to restricted stock purchase agreements, and all sales to consultants for services, were made pursuant to the exemption from the registration requirements of the Securities Act afforded by Rule 701 promulgated under the Securities Act. All other sales were made in reliance on Section 4(2) of the Securities Act and/or Regulation D promulgated under the Securities Act. These sales were made without general solicitation or advertising. Each purchaser was a sophisticated investor with access to all relevant information necessary to evaluate the investment who represented to the Registrant that the shares were being acquired for investment. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) The following exhibits are filed herewith:
EXHIBIT NUMBER EXHIBIT TITLE ------- ------------- 1.01 Underwriting Agreement (draft dated November 20, 1997). 3.01 Second Amended and Restated Certificate of Incorporation of the Registrant, as amended. 3.02 Form of Third Amended and Restated Certificate of Incorporation of the Registrant to be effective upon the closing of this offering.* 3.03 Bylaws of Registrant. 3.04 Form of Amended and Restated Bylaws of Registrant, to be adopted prior to the closing of this offering.* 4.01 Investors' Rights Agreement, dated November 15, 1996, among the Registrant and the parties indicated therein. 4.02 Stockholders' Agreement, dated April 18, 1995, among the Registrant and the parties indicated therein, and amendments dated February 20, 1996 and November 15, 1996. 4.03 Co-Sale Agreement, dated February 20, 1996, among the Registrant and the parties indicated therein. 5.01 Opinion of Fenwick & West LLP regarding legality of the securities being registered.* 10.01 Series A Preferred Stock Purchase Agreement, dated April 18, 1995, among the Registrant and the parties indicated therein. 10.02 Series B Preferred Stock Purchase Agreement, dated February 20, 1996, among the Registrant and the parties indicated therein. 10.03 Series C Preferred Stock Purchase Agreement, dated November 15, 1996, among the Registrant and the parties indicated therein. 10.04 Termination and Release Agreement, dated February 20, 1996, among the Registrant and the parties indicated therein. 10.05 Form of Indemnification Agreement entered into by the Registrant with each of its directors and executive officers. 10.06 Registrant's 1995 Stock Option Plan and related documents. 10.07 Registrant's 1997 Stock Option Plan. 10.08 Registrant's 1998 Directors' Stock Option Plan and related documents.* 10.09 Registrant's 1998 Equity Incentive Plan and related documents.* 10.10 Registrant's 1998 Employee Stock Purchase Plan and related documents.* 10.11 Registrant's Executive Loan Program of 1996.
II-3
EXHIBIT NUMBER EXHIBIT TITLE ------- ------------- 10.12 Founder's Subscription Agreement, dated April 18, 1995, between the Registrant and RSA Data Security, Inc. for purchase of Common Stock. 10.13 Form of Subscription Agreement, dated April 18, 1995, between the Registrant and certain founding Common Stock holders for purchase of Common Stock. 10.14 Form of Full Recourse Secured Promissory Note and Form of Pledge and Security Agreement entered into between the Registrant and certain executive officers. 10.15 Assignment Agreement, dated April 18, 1995, between the Registrant and RSA Data Security, Inc.* 10.16 BSAFE/TIPEM OEM Master License Agreement, dated April 18, 1995, between the Registrant and RSA Data Security, Inc., as amended. 10.17 Non-Compete and Non-Solicitation Agreement, dated April 18, 1995, between the Registrant and RSA Data Security, Inc. 10.18 Microsoft/VeriSign Certificate Technology Preferred Provider Agreement, effective as of May 1, 1997, between the Registrant and Microsoft Corporation.* 10.19 Master Development and License Agreement, dated September 30, 1997, between the Registrant and Security Dynamics Technologies, Inc.** 10.20 License Agreement, dated December 16, 1996, between the Registrant and VeriSign Japan K.K. 10.21 Loan Agreement, dated January 30, 1997, between the Registrant and Venture Lending & Leasing, Inc. 10.22 Security Agreement, dated January 30, 1997, between the Registrant and Venture Lending & Leasing, Inc. 10.23 VeriSign Private Label Agreement, dated April 2, 1996, between the Registrant and VISA International Service Association.** 10.24 VeriSign Private Label Agreement, dated October 3, 1996, between the Registrant and VISA International Service Association.** 10.25 Lease Agreement, dated August 15, 1996, between the Registrant and Shoreline Investments VII. 10.26 Lease Agreement, dated September 18, 1996, between the Registrant and Shoreline Investments VII. 10.27 Sublease Agreement, dated September 5, 1996, between the Registrant and Security Dynamics Technologies, Inc. 10.28 Employment Offer Letter Agreement, between the Registrant and Stratton Sclavos, dated June 12, 1995, as amended October 4, 1995. 11.01 Statement regarding computation of pro forma net loss per share. 21.01 Subsidiary of the Registrant. 23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01). 23.02 Consent of KPMG Peat Marwick LLP (see Page S-1 of the Registration Statement). 24.01 Power of Attorney (see Page II-6 of the Registration Statement). 27.01 Financial Data Schedule (available in EDGAR format only).
- -------- * To be supplied by amendment. ** Confidential treatment is being sought with respect to certain portions of this agreement. Such portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission. (b) The following financial statement schedule is filed herewith: Schedule II -- Valuation and Qualifying Accounts--Page S-2 II-4 Other financial statement schedules are omitted because the information called for is not required or is shown either in the financial statements or the notes thereto. ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Mountain View, State of California, on the 20th day of November, 1997. VERISIGN, INC. /s/ Stratton D. Sclavos By: _________________________________ Stratton D. Sclavos President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Stratton D. Sclavos, Dana L. Evan and Timothy Tomlinson, and each of them, his or her true and lawful attorneys-in- fact and agents, with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462 promulgated under the Securities Act, and all post- effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his, her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. In accordance with the requirements of the Securities Act, this Registration Statement was signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- PRINCIPAL EXECUTIVE OFFICER: /s/ Stratton D. Sclavos President, Chief Executive November 20, 1997 ____________________________________ Officer and Director Stratton D. Sclavos PRINCIPAL FINANCIAL AND PRINCIPAL ACCOUNTING OFFICER: /s/ Dana L. Evan Vice President of Finance November 20, 1997 ____________________________________ and Administration and Dana L. Evan Chief Financial Officer DIRECTORS: /s/ D. James Bidzos Chairman of the Board November 20, 1997 ____________________________________ D. James Bidzos /s/ William Chenevich Director November 20, 1997 ____________________________________ William Chenevich /s/ Kevin R. Compton Director November 20, 1997 ____________________________________ Kevin R. Compton /s/ David J. Cowan Director November 20, 1997 ____________________________________ David J. Cowan /s/ Timothy Tomlinson Director and Secretary November 20, 1997 ____________________________________ Timothy Tomlinson
II-6 REPORT ON SCHEDULE AND CONSENT OF KPMG PEAT MARWICK LLP The Board of Directors VeriSign, Inc.: The audits referred to in our report dated November 5, 1997, except as to Notes 8 and 10, which are as of November 20, 1997, included the related financial statement schedule for the period from April 12, 1995 (inception) to December 31, 1995, for the year ended December 31, 1996, and for the nine months ended September 30, 1997, included in the registration statement. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. We consent to the use of our reports included herein and to the reference to our firm under the headings "Selected Consolidated Financial Data" and "Experts" in the prospectus. /s/ KPMG Peat Marwick LLP San Francisco, California November 20, 1997 S-1 VERISIGN, INC. SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT THE CHARGED TO BALANCE AT THE BEGINNING OF COSTS AND END OF THE DESCRIPTION THE PERIOD EXPENSES WRITE-OFFS PERIOD - ----------- -------------- ---------- ---------- -------------- (IN THOUSANDS) Allowance for doubtful accounts: Period from April 12, 1995 (inception) to December 31, 1995........ $ -- $ 30 $ -- $ 30 Year ended December 31, 1996..................... $ 30 $ 22 $ 17 $ 35 Nine months ended September 30, 1997....... $ 35 $155 $ 56 $134
S-2 EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT TITLE ------- ------------- 1.01 Underwriting Agreement (draft dated November 20, 1997). 3.01 Second Amended and Restated Certificate of Incorporation of the Registrant, as amended. 3.03 Bylaws of Registrant. 4.01 Investors' Rights Agreement, dated November 15, 1996, among the Registrant and the parties indicated therein. 4.02 Stockholders' Agreement, dated April 18, 1995, among the Registrant and the parties indicated therein, and amendments dated February 20, 1996 and November 15, 1996. 4.03 Co-Sale Agreement, dated February 20, 1996, among the Registrant and the parties indicated therein. 10.01 Series A Preferred Stock Purchase Agreement, dated April 18, 1995, among the Registrant and the parties indicated therein. 10.02 Series B Preferred Stock Purchase Agreement, dated February 20, 1996, among the Registrant and the parties indicated therein. 10.03 Series C Preferred Stock Purchase Agreement, dated November 15, 1996, among the Registrant and the parties indicated therein. 10.04 Termination and Release Agreement, dated February 20, 1996, among the Registrant and the parties indicated therein. 10.05 Form of Indemnification Agreement entered into by the Registrant with each of its directors and executive officers. 10.06 Registrant's 1995 Stock Option Plan and related documents. 10.07 Registrant's 1997 Stock Option Plan. 10.11 Registrant's Executive Loan Program of 1996. 10.12 Founder's Subscription Agreement, dated April 18, 1995, between the Registrant and RSA Data Security, Inc. for purchase of Common Stock. 10.13 Form of Subscription Agreement, dated April 18, 1995, between the Registrant and certain founding Common Stock holders for purchase of Common Stock. 10.14 Form of Full Recourse Secured Promissory Note and Form of Pledge and Security Agreement entered into between the Registrant and certain executive officers. 10.16 BSAFE/TIPEM OEM Master License Agreement, dated April 18, 1995, between the Registrant and RSA Data Security, Inc., as amended. 10.17 Non-Compete and Non-Solicitation Agreement, dated April 18, 1995, between the Registrant and RSA Data Security, Inc. 10.19 Master Development and License Agreement, dated September 30, 1997, between the Registrant and Security Dynamics Technologies, Inc.** 10.20 License Agreement, dated December 16, 1996, between the Registrant and VeriSign Japan K.K. 10.21 Loan Agreement, dated January 30, 1997, between the Registrant and Venture Lending & Leasing, Inc. 10.22 Security Agreement, dated January 30, 1997, between the Registrant and Venture Lending & Leasing, Inc. 10.23 VeriSign Private Label Agreement, dated April 2, 1996, between the Registrant and VISA International Service Association.**
EXHIBIT NUMBER EXHIBIT TITLE ------- ------------- 10.24 VeriSign Private Label Agreement, dated October 3, 1996, between the Registrant and VISA International Service Association.** 10.25 Lease Agreement, dated August 15, 1996, between the Registrant and Shoreline Investments VII. 10.26 Lease Agreement, dated September 18, 1996, between the Registrant and Shoreline Investments VII. 10.27 Sublease Agreement, dated September 5, 1996, between the Registrant and Security Dynamics Technologies, Inc. 10.28 Employment Offer Letter Agreement, between the Registrant and Stratton Sclavos, dated June 12, 1995, as amended October 4, 1995. 11.01 Statement regarding computation of pro forma net loss per share. 21.01 Subsidiary of the Registrant. 23.02 Consent of KPMG Peat Marwick LLP (see Page S-1 of the Registration Statement). 24.01 Power of Attorney (see Page II-6 of the Registration Statement). 27.01 Financial Data Schedule (available in EDGAR format only).
- -------- ** Confidential treatment is being sought with respect to certain portions of this agreement. Such portions have been omitted from this filing and have been filed separately with the Securities and Exchange Commission. 2

 
                                                                    EXHIBIT 1.01



                             _______________ SHARES


                                 VERISIGN, INC.

                         COMMON STOCK, $0.001 PAR VALUE



                             UNDERWRITING AGREEMENT



__________, 1998

 
                                    _____________, 1998



Morgan Stanley & Co. Incorporated
Hambrecht & Quist LLC
Wessels, Arnold & Henderson, L.L.C.
c/o Morgan Stanley & Co., Incorporated
1585 Broadway
New York, New York  10036

Dear Sirs and Mesdames:

          VeriSign, Inc., a Delaware corporation (the "COMPANY"), proposes to
issue and sell to the several Underwriters named in Schedule I hereto (the
"UNDERWRITERS") _______________ shares of its common stock, $0.001 par value
(the "FIRM SHARES").  The Company also proposes to issue and sell to the several
Underwriters not more than an additional ______________ shares of its common
stock, $0.001 par value (the "ADDITIONAL SHARES"), if and to the extent that
you, as Managers of the offering, shall have determined to exercise, on behalf
of the Underwriters, the right to purchase such shares of common stock granted
to the Underwriters in Section 2 hereof. The Firm Shares and the Additional
Shares are hereinafter collectively referred to as the "SHARES."  The shares of
common stock, $0.001 par value, of the Company to be outstanding after giving
effect to the sales contemplated hereby are hereinafter referred to as the
"COMMON STOCK."

          The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement, including a prospectus, relating to the
Shares.  The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), is hereinafter
referred to as the "REGISTRATION STATEMENT"; the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "PROSPECTUS."
If the Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to Rule 462(b) under the Securities
Act (the "RULE 462 REGISTRATION STATEMENT"), then any reference herein to the
term "REGISTRATION STATEMENT" shall be deemed to include such Rule 462
Registration Statement.

     As part of the offering contemplated by this Agreement, Morgan Stanley &
Co. Incorporated ("MORGAN STANLEY") has agreed to reserve out of the Shares set
forth opposite its name on Schedule I to this Agreement, up to ________________
shares, for 

 
sale to certain parties with whom the Company has business
relationships (collectively, "PARTICIPANTS"), (the "DIRECTED SHARE PROGRAM").
The Shares to be sold by Morgan Stanley pursuant to the Directed Share Program
(the "DIRECTED SHARES") will be sold by Morgan Stanley pursuant to this
Agreement at the public offering price.  Any Directed Shares not orally
confirmed for purchase by any Participants by the end of the first business day
after the date on which this Agreement is executed will be offered to the public
by Morgan Stanley as set forth in the Prospectus.

          1.   Representations and Warranties.  The Company represents and
warrants to and agrees with each of the Underwriters that:
 
          (a) The Registration Statement has become effective; no stop order
     suspending the effectiveness of the Registration Statement is in effect,
     and no proceedings for such purpose are pending before or threatened by the
     Commission.

          (b)  (i)  The Registration Statement, when it became effective, did
     not contain and, as amended or supplemented, if applicable, will not
     contain any untrue statement of a material fact or omit to state a material
     fact required to be stated therein or necessary to make the statements
     therein not misleading, (ii) the Registration Statement and the Prospectus
     comply and, as amended or supplemented, if applicable, will comply in all
     material respects with the Securities Act and the applicable rules and
     regulations of the Commission thereunder and (iii) the Prospectus does not
     contain and, as amended or supplemented, if applicable, will not contain
     any untrue statement of a material fact or omit to state a material fact
     necessary to make the statements therein, in the light of the circumstances
     under which they were made, not misleading, except that the representations
     and warranties set forth in this paragraph do not apply to statements or
     omissions in the Registration Statement or the Prospectus based upon
     information relating to any Underwriter furnished to the Company in writing
     by such Underwriter through you expressly for use therein.

          (c) The Company has been duly incorporated, is validly existing as a
     corporation in good standing under the laws of the jurisdiction of its
     incorpora  tion, has the corporate power and corporate authority to own its
     property and to conduct its business as described in the Prospectus and is
     duly qualified to transact business and is in good standing in each
     jurisdiction in which the conduct of its business or its ownership or
     leasing of property requires such qualification, except to the extent that
     the failure to be so qualified or be in good standing would not have a
     material adverse effect on the Company and its subsidiary, taken as a
     whole.

          (d) The Company has only one subsidiary, VeriSign Japan KK, a
     corporation incorporated under the laws of Japan (the "SUBSIDIARY").  The

                                      -2-

 
     Subsidiary has been duly incorporated is validly existing as a corporation
     in good standing under the laws of the jurisdiction of its incorporation,
     has the corporate power and authority to own its property and to conduct
     its business as described in the Prospectus and is duly qualified to
     transact business and is in good standing in each jurisdiction in which the
     conduct of its business or its ownership or leasing of property requires
     such qualification, except to the extent that the failure to be so
     qualified or be in good standing would not have a material adverse effect
     on the Company and the Subsidiary, taken as a whole.  The Subsidiary has
     _____ shares of capital stock issued and outstanding, of which the Company
     owns _____ shares.  All of the issued shares of capital stock of the
     Subsidiary have been duly and validly authorized and issued, are fully paid
     and non-assessable and those that are owned directly by the Company, are
     owned free and clear of all liens, encumbrances, equities or claims.  The
     Company does not own, directly or indirectly, an interest in any other
     corporation, partnership, business, trust or other entity required to be
     set forth in Exhibit 21.01 to the Registration Statement.

          (e) The Company and the Subsidiary have good and marketable title in
     fee simple to all real property and good and marketable title to all
     personal property owned by them which is material to the business of the
     Company and the Subsidiary, taken as a whole, in each case free and clear
     of all liens, encumbrances and defects except such as are described in the
     Prospectus or such as do not materially affect the value of such property
     and do not interfere with the use made and proposed to be made of such
     property by the Company and the Subsidiary; and any real property and
     buildings held under lease by the Company and the Subsidiary are held by
     them under valid, subsisting and enforceable leases with such exceptions as
     are not material and do not interfere with the use made and proposed to be
     made of such property and buildings by the Company and the Subsidiary, in
     each case except as described in or contemplated by the Prospectus.

          (f) The authorized capital stock of the Company conforms as to legal
     matters to the description thereof contained in the Prospectus.

          (g) The shares of Common Stock outstanding prior to the issuance of
     the Shares have been duly authorized, and are validly issued, fully paid
     and non-assessable.  Except as set forth or contemplated in the Prospectus,
     neither the Company nor the Subsidiary has outstanding any options to
     purchase, or any preemptive rights or other rights to subscribe for or to
     purchase, any securities or obligations convertible into, or any contracts
     or commitments to issue or sell, shares of its capital stock or any such
     options, rights, convertible securities or obligations.  All outstanding
     shares of capital stock of the Company and options and other rights to
     acquire capital stock have been issued in compliance with the registration
     and qualification provisions of all applicable federal and state securities
     laws and were not issued in violation of any preemptive rights, rights of
     first refusal or other similar rights.

                                      -3-

 
          (h) The Shares have been duly authorized and, when issued and
     delivered in accordance with the terms of this Agreement, will be validly
     issued, fully paid and non-assessable, and the issuance of such Shares will
     not be subject to any preemptive rights, rights of first refusal or similar
     rights.

          (i) This Agreement has been duly authorized, executed and delivered by
     the Company.

          (j) The execution and delivery by the Company of, and the performance
     by the Company of its obligations under, this Agreement will not contravene
     any provision of applicable law or the certificate of incorporation or by-
     laws of the Company or any agreement or other instrument binding upon the
     Company or the Subsidiary that is material to the Company and the
     Subsidiary, taken as a whole, or any judgment, order or decree of any
     governmental body, agency or court having jurisdiction over the Company or
     the Subsidiary, and no consent, approval, authorization or order of, or
     qualification with, any governmental body or agency is required for the
     performance by the Company of its obligations under this Agreement, except
     such as may be required by the securities or Blue Sky laws of the various
     states in connection with the offer and sale of the Shares or by the rules
     and regulations of the National Association of Securities Dealers, Inc.
     (the "NASD").

          (k) There has not occurred any material adverse change, or any
     development involving a prospective material adverse change, in the
     condition, financial or otherwise, or in the earnings, business or
     operations of the Company and the Subsidiary, taken as a whole, from that
     set forth in the Prospectus (exclusive of any amendments or supplements
     thereto subsequent to the date of this Agreement).

          (l) Subsequent to the respective dates as of which information is
     given in the Registration Statement and the Prospectus, (i) the Company and
     the Subsidiary have not incurred any material liability or obligation,
     direct or contingent, nor entered into any material transaction not in the
     ordinary course of business; (ii) the Company has not purchased any of its
     outstanding capital stock, nor declared, paid or otherwise made any
     dividend or distribution of any kind on its capital stock other than
     ordinary and customary dividends; and (iii) there has not been any material
     change in the capital stock, short-term debt or long-term debt of the
     Company and the Subsidiary, except in each case as described in or
     contemplated by the Prospectus.

          (m) There are no legal or governmental proceedings pending or
     threatened to which the Company or the Subsidiary is a party or to which
     any of the properties of the Company or the Subsidiary is subject that are
     required to be described in the Registration Statement or the Prospectus
     and are not so described 

                                      -4-

 
     or any statutes, regulations, contracts or other documents that are
     required to be described in the Registration Statement or the Prospectus or
     to be filed as exhibits to the Registration Statement that are not
     described or filed as required.

          (n) Each of the Company and the Subsidiary has all necessary consents,
     authorizations, approvals, orders, certificates and permits of and from,
     and has made all declarations and filings with, all federal, state, local,
     foreign and other governmental or regulatory authorities, all self-
     regulatory organizations and all courts and other tribunals, to own, lease,
     license and use its properties and assets and to conduct its business in
     the manner described in the Prospectus, except to the extent that the
     failure to obtain or file would not have a material adverse effect on the
     Company and the Subsidiary taken as a whole.  Neither the Company nor the
     Subsidiary has received any notice of proceedings related to the revocation
     or modification of any such consent, authorization, approval, order,
     certificate or permit which, singly or in the aggregate, if the subject of
     any unfavorable decision, ruling or finding, would result in a material
     adverse change in the condition, financial or otherwise, or in the
     earnings, business or operations of the Company, and the Subsidiary, taken
     as a whole, except as described in or contemplated by the Prospectus.

          (o) Each preliminary prospectus filed as part of the registration
     statement as originally filed or as part of any amendment thereto, or filed
     pursuant to Rule 424 under the Securities Act, complied when so filed in
     all material respects with the Securities Act and the applicable rules and
     regulations of the Commission thereunder, except for the omission of a
     price range and other information derived therefrom.

          (p) The Company is not and, after giving effect to the offering and
     sale of the Shares and the application of the proceeds thereof as described
     in the Prospectus, will not be an "investment company" as such term is
     defined in the Investment Company Act of 1940, as amended.

          (q) Except as described in the Prospectus, there are no contracts,
     agreements or understandings between the Company and any person granting
     such person the right to require the Company to file a registration
     statement under the Securities Act with respect to any securities of the
     Company or to require the Company to include such securities with the
     Shares registered pursuant to the Registration Statement.

          (r) The Company and the Subsidiary are insured by insurers of
     recognized financial responsibility against such losses and risks and in
     such amounts as are prudent and customary in the businesses in which they
     are engaged; neither the Company nor the Subsidiary has been refused any
     insurance coverage sought or applied for; and neither the Company nor the
     Subsidiary has 

                                      -5-

 
     any reason to believe that it will not be able to renew its existing
     insurance coverage as and when such coverage expires or to obtain similar
     coverage from similar insurers as may be necessary to continue its business
     at a cost that would not materially and adversely affect the condition,
     financial or otherwise, or the earnings, business or operations of the
     Company and the Subsidiary, taken as a whole, except as described in or
     contemplated by the Prospectus.

          (s) The Company and the Subsidiary (i) are in compliance with any and
     all applicable foreign, federal, state and local laws and regulations
     relating to the protection of human health and safety, the environment or
     hazardous or toxic substances or wastes, pollutants or contaminants
     ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or other
     approvals required of them under applicable Environmental Laws to conduct
     their respective businesses and (iii) are in compliance with all terms and
     conditions of any such permit, license or approval, except where such
     noncompliance with Environmental Laws, failure to receive required permits,
     licenses or other approvals or failure to comply with the terms and
     conditions of such permits, licenses or approvals would not, singly or in
     the aggregate, have a material adverse effect on the Company and the
     Subsidiary, taken as a whole.

          (t) There are no costs or liabilities associated with Environmental
     Laws (including, without limitation, any capital or operating expenditures
     required for clean-up, closure of properties or compliance with
     Environmental Laws or any permit, license or approval, any related
     constraints on operating activities and any potential liabilities to third
     parties) which would, singly or in the aggregate, have a material adverse
     effect on the Company and the Subsidiary, taken as a whole.

          (u) Except as disclosed in the Prospectus, (i) the Company and the
     Subsidiary own or possess, or can acquire on reasonable terms, adequate
     licenses or other rights to use all material patents, copyrights,
     trademarks, service marks, trade names, technology and know-how currently
     employed by them to conduct their respective businesses in the manner
     described in the Prospectus, (ii) neither the Company nor the Subsidiary
     has received any notice of infringement or conflict with (and neither the
     Company nor the Subsidiary knows of any infringement or conflict with)
     asserted rights of others with respect to any patents, copyrights,
     trademarks, service marks, trade names, trade secrets, technology or know-
     how (including, without limitation, trade secrets and other unpatented
     and/or unpatentable proprietary or confidential information, systems or
     procedures) which could reasonably be expected to result in any material
     adverse effect upon the Company and the Subsidiary, taken as a whole, and
     (iii) the discoveries, inventions, products or processes of the Company and
     the Subsidiary referred to in the Prospectus do not, to the knowledge of
     the Company or the Subsidiary, infringe or conflict with any right or
     patent of any third party, or any 

                                      -6-

 
     discovery, invention, product or process which is the subject of a
     published patent application filed by any third party, known to the Company
     or the Subsidiary which could reasonably be expected to have a material
     adverse effect on the Company and the Subsidiary, taken as a whole.

          (v) The Company and the Subsidiary maintain a system of internal
     accounting controls sufficient to provide reasonable assurance that (i)
     transactions are executed in accordance with management's general or
     specific authorizations; (ii) transactions are recorded as necessary to
     permit preparation of financial statements in conformity with generally
     accepted accounting principles and to maintain asset accountability; (iii)
     access to assets is permitted only in accordance with management's general
     or specific authorization; and (iv) the recorded accountability for assets
     is compared with the existing assets at reasonable intervals and
     appropriate action is taken with respect to any differences.

          (w) No material labor dispute with the employees of the Company or the
     Subsidiary exists, except as described in or contemplated by the
     Prospectus, or, to the knowledge of the Company, is imminent; and, without
     conducting any independent investigation, the Company is not aware of any
     existing, threatened or imminent labor disturbance by the employees of any
     of its principal suppliers, manufacturers or contractors that could
     reasonably be expected to have a material adverse effect on the Company and
     the Subsidiary, taken as a whole.

          (x) All outstanding shares of Common Stock, and all securities
     convertible into or exercisable or exchangeable for Common Stock, are
     subject to valid, binding and enforceable agreements (collectively, the
     "LOCK-UP AGREEMENTS") that restrict the holders thereof from selling,
     making any short sale of, granting any option for the purchase of, or
     otherwise transferring or disposing of, any of such shares of Common Stock,
     or any such securities convertible into or exercisable or exchangeable for
     Common Stock, for a period of 180 days after the date of the Prospectus
     without the prior written consent of the Company or Morgan Stanley & Co.
     Incorporated.

          (y) The Company (i) has notified each holder of a currently
     outstanding option issued under the VeriSign, Inc. 1995 Stock Option Plan
     and the VeriSign, Inc. 1997 Stock Option Plan (the "OPTION PLANS") and each
     person who has acquired shares of Common Stock pursuant to the exercise of
     any option granted under the Option Plans that, pursuant to the terms of
     the Option Plans and the option agreements pursuant to which options were
     granted, none of such options or shares may be sold or otherwise
     transferred or disposed of for a period of 180 days after the date of the
     initial public offering of the Shares and (ii) has imposed a stop-transfer
     instruction with the Company's transfer agent in order to enforce the
     foregoing lock-up provision imposed pursuant to the Option Plans and option
     agreements.

                                      -7-

 
          (z) As of the date the Registration Statement became effective, the
     Common Stock was authorized for listing on the Nasdaq National Market upon
     official notice of issuance.

          (aa)  The Company has complied with all provisions of Section 517.075,
     Florida Statutes relating to doing business with the Government of Cuba or
     with any person or affiliate located in Cuba.

          (bb)  The Company has not offered, or caused the Underwriters to 
     offer, Shares to any person pursuant to the Directed Share Program with the
     specific intent to unlawfully influence (i) a customer or supplier of the
     Company to alter the customer's or supplier's level or type of business
     with the Company, or (ii) a trade journalist or publication to write or
     publish favorable information about the Company or its products.

          2.   Agreements to Sell and Purchase.  The Company hereby agrees to
sell to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective numbers of Firm Shares set forth in Schedule I hereto
opposite its name at $______ a share (the "PURCHASE PRICE").

          On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Underwriters the Additional Shares, and the Underwriters shall have a
one-time right to purchase, severally and not jointly, up to _______________
Additional Shares at the Purchase Price.  If you, on behalf of the Underwriters,
elect to exercise such option, you shall so notify the Company in writing not
later than 30 days after the date of this Agreement, which notice shall specify
the number of Additional Shares to be purchased by the Underwriters and the date
on which such shares are to be purchased.  Such date may be the same as the
Closing Date (as defined below) but not earlier than the Closing Date nor later
than ten business days after the date of such notice.  Additional Shares may be
purchased as provided in Section 4 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares.  If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth in Schedule I hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.

          The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 180 days after the date of the Prospectus, (i) offer,
pledge, sell, contract to 

                                      -8-

 
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (A) the Shares to be sold
hereunder, (B) the issuance by the Company of shares of Common Stock upon the
exercise of stock options or warrants outstanding on the date hereof and
described as such in the Prospectus, or any other issuances of Common Stock
hereafter under the option or equity incentive plans described in the
Prospectus, or (C) the issuance by the Company of Common Stock under the
employee stock purchase plan described in the Prospectus.

          3. Terms of Public Offering.  The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable.  The Company is further
advised by you that the Shares are to be offered to the public initially at
$_____________ a share (the "PUBLIC OFFERING PRICE") and to certain dealers
selected by you at a price that represents a concession not in excess of $______
a share under the Public Offering Price, and that any Underwriter may allow, and
such dealers may reallow, a concession, not in excess of $_____ a share, to any
Underwriter or to certain other dealers.

          4. Payment and Delivery.  Payment for the Firm Shares shall be made 
to the Company in Federal or other funds immediately available in New York City
against delivery of such Firm Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on [____________], 1998, or at
such other time on the same or such other date, not later than [_________],
1998, as shall be designated in writing by you. The time and date of such
payment are hereinafter referred to as the "CLOSING DATE".

          Payment for any Additional Shares shall be made to the Company in
Federal or other funds immediately available in New York City against delivery
of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on the date specified in the
notice described in Section 2 or at such other time on the same or on such other
date, in any event not later than [_______], 1998, as shall be designated in
writing by you.  The time and date of such payment are hereinafter referred to
as the "OPTION CLOSING DATE".

          Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the 

                                      -9-

 
Option Closing Date, as the case may be. The certificates evidencing the Firm
Shares and Additional Shares shall be delivered to you on the Closing Date or
the Option Closing Date, as the case may be, for the respective accounts of the
several Underwriters, with any transfer taxes payable in connection with the
transfer of the Shares to the Underwriters duly paid, against payment of the
Purchase Price therefor.

          5.   Conditions to the Underwriters' Obligations.  The obligations of
the Company to sell the Shares to the Underwriters and the several obligations
of the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than 5:30 p.m. (New York City time) on the date hereof.

          The several obligations of the Underwriters are subject to the
following further conditions:

          (a) Subsequent to the execution and delivery of this Agreement and
     prior to the Closing Date:

                  (i) there shall not have occurred any downgrading, nor shall
          any notice have been given of any intended or potential downgrading or
          of any review for a possible change that does not indicate the
          direction of the possible change, in the rating accorded any of the
          Company's securities by any "nationally recognized statistical rating
          organization," as such term is defined for purposes of Rule 436(g)(2)
          under the Securities Act; and

                  (ii)  there shall not have occurred any change, or any
          development involving a prospective change, in the condition,
          financial or otherwise, or in the earnings, business or operations of
          the Company and the Subsidiary, taken as a whole, from that set forth
          in the Prospectus (exclusive of any amendments or supplements thereto
          subsequent to the date of this Agreement) that, in your judgment, is
          material and adverse and that makes it, in your judgment,
          impracticable to market the Shares on the terms and in the manner
          contemplated in the Prospectus.

          (b) The Underwriters shall have received on the Closing Date a
     certificate, dated the Closing Date and signed by an executive officer of
     the Company, to the effect set forth in Section 5(a) above and to the
     effect that the representations and warranties of the Company contained in
     this Agreement are true and correct as of the Closing Date and that the
     Company has complied with all of the agreements and satisfied all of the
     conditions on its part to be performed or satisfied hereunder on or before
     the Closing Date.

          The officer signing and delivering such certificate may rely upon  his
     or her knowledge as to proceedings threatened.

                                      -10-

 
          (c) The Underwriters shall have received on the Closing Date an
     opinion of Fenwick & West LLP, special securities counsel for the Company,
     dated the Closing Date, to the effect that:

                  (i) the Company has been duly incorporated, is validly
          existing as a corporation in good standing under the laws of the
          jurisdiction of its incorporation, has the corporate power and
          corporate authority to own its property and to conduct its business as
          described in the Prospectus and is duly qualified to transact business
          and is in good standing in each jurisdiction in which the conduct of
          its business or its ownership or leasing of property requires such
          qualification, except to the extent that the failure to be so
          qualified or be in good standing would not have a material adverse
          effect on the Company and the Subsidiary, taken as a whole; 

                  (ii)  the authorized capital stock of the Company conforms in
          all material respects as to legal matters to the description thereof
          contained in the Prospectus;

                  (iii)  the shares of Common Stock outstanding prior to the
          issuance of the Shares have been duly authorized, are validly issued,
          and non-assessable, and to such counsel's knowledge, are fully paid;

                  (iv)  the Shares have been duly authorized and, when issued 
          and delivered in accordance with the terms of this Agreement, will be
          validly issued, fully paid and non-assessable, and the issuance of
          such Shares will not be subject to any preemptive right or right of
          first refusal pursuant to the Company's certificate of incorporation
          or bylaws or, to such counsel's knowledge, similar rights;

                  (v) this Agreement has been duly authorized, executed and
          delivered by the Company;

                  (vi)  the execution and delivery by the Company of, and the
          performance by the Company of its obligations under, this Agreement
          will not contravene any provision of applicable law or the certificate
          of incorporation or by-laws of the Company or, to such counsel's
          knowledge, any agreement or other instrument binding upon the Company
          or the Subsidiary that is material to the Company and the Subsidiary,
          taken as a whole, or, to such counsel's knowledge, any judgment, order
          or decree of any governmental body, agency or court having
          jurisdiction over the Company or the Subsidiary that specifically
          refers to or is binding on the Company or the Subsidiary, and no
          consent, approval, authorization or order of, or qualification with,
          any governmental body or agency is 

                                      -11-

 
          required for the performance by the Company of its obligations under
          this Agreement, except such as may be required by the securities or
          Blue Sky laws of the various states in connection with the offer and
          sale of the Shares by the Underwriters or the rules and regulations of
          the NASD (as to which such counsel need not express any opinion);

                  (vii)  the statements (A) in the Prospectus under the captions
          ["RISK FACTORS--SHARES ELIGIBLE FOR FUTURE SALE," "DIVIDEND POLICY,"
          "CERTAIN TRANSACTIONS," "SHARES ELIGIBLE FOR FUTURE SALE"]
          "Description of Capital Stock" and "Underwriters" and (B) in the
          Registration Statement in Items 14 and 15, in each case insofar as
          such statements constitute summaries of the legal matters, documents
          or proceedings referred to therein, fairly present the information
          called for with respect to such legal matters, documents and
          proceedings and fairly summarize the matters referred to therein;

                  (viii)  such counsel does not know of any legal, regulatory or
          governmental proceedings pending or threatened to which the Company or
          the Subsidiary is a party or to which any of the properties of the
          Company or the Subsidiary is subject that are required to be described
          in the Registration Statement or the Prospectus and are not so
          described or of any statutes, regulations, contracts or other
          documents that are required to be described in the Registration
          Statement or the Prospectus or to be filed as exhibits to the
          Registration Statement that are not described or filed as required;

                  (ix)  the Company is not and, after giving effect to the
          offering and sale of the Shares and the application of the proceeds
          thereof as described in the Prospectus, will not be an "investment
          company" as such term is defined in the Investment Company Act of
          1940, as amended;

                  (x) to such counsel's knowledge: (1) based solely on oral
          advice of the Staff of the Commission,  the Registration Statement has
          become effective under the Securities Act; (2) no stop order
          proceedings with respect to the Registration Statement have been
          instituted or are pending or threatened under the Securities Act and
          nothing has come to such counsel's attention to lead it to believe
          that such proceedings are contemplated; and (3) any required filing of
          the Prospectus and any supplement thereto pursuant to Rule 424(b)
          under the Securities Act has been made in the manner and within the
          time period required by such Rule 424(b);

                                      -12-

 
               (xi)  no shares of Common Stock are required to be registered
          under the Registration Statement and no person or entity has any right
          to cause any shares of Common Stock to be registered under the
          Registration Statement, pursuant to the Company's certificate of
          incorporation or by-laws or, to such counsel's knowledge, any
          agreement or other right, which rights have not been validly waived;
          and

               (xii)  based on a letter from the NASDAQ Stock Market, the
          shares to be sold under this Agreement to the Underwriters are duly
          authorized for quotation on the NASDAQ National Market; and

               (xiii)  in addition to the matters set forth above, counsel
          rendering the foregoing opinion shall also include a statement to the
          effect that nothing has come to the attention of such counsel that
          causes it to believe that (i) the Registration Statement (except as to
          the financial statements, the notes thereto and the other financial
          and statistical data contained therein, as to which such counsel need
          not express any opinion or belief) at the date the Registration
          Statement became effective contained any untrue statement of a
          material fact or omitted to state a material fact required to be
          stated therein or necessary to make the statements therein not
          misleading, (2) the Prospectus (except as to the financial statements,
          the notes thereto and the other financial and statistical data
          contained therein, as to which such counsel need not express any
          opinion or belief) as of its date contained or contains any untrue
          statement of a material fact or omitted or omits to state a material
          fact necessary in order to make the statements therein, in the light
          of the circumstances under which they were made, not misleading or (3)
          the Registration Statement or the Prospectus (except as to the
          financial statements, the notes thereto and the other financial and
          statistical data contained therein, as to which such counsel need not
          express any opinion or belief) did not comply as to form in all
          material respects with the Securities Act and the applicable rules and
          regulations thereunder.

          (d) The Underwriters shall have received on the Closing Date an
     opinion of Wilson Sonsini Goodrich & Rosati, counsel for the Underwriters,
     dated the Closing Date, covering the matters referred to in Sections
     5(c)(iv), 5(c)(v), 5(c)(vi) (but only as to the statements in the
     Prospectus under "Description of Capital Stock" and "Underwriters") and
     5(c)(xviii) above.

          With respect to Section 6(c)(xiii) above, Fenwick & West and Wilson
     Sonsini Goodrich & Rosati may state that their opinion and belief are based
     upon their participation in the preparation of the Registration Statement
     and Prospectus and any amendments or supplements thereto and review and
     discussion of the 

                                      -13-

 
     contents thereof, but are without independent check or verification, except
     as specified.

          The opinion of Fenwick & West described in Section 5(c) above shall be
     rendered to the Underwriters at the request of the Company and shall so
     state therein.

          (e) The Underwriters shall have received, on each of the date hereof
     and the Closing Date, a letter dated the date hereof or the Closing Date,
     as the case may be, in form and substance satisfactory to the Underwriters,
     from KPMG Peat Marwick LLP, independent public accountants, containing
     statements and information of the type ordinarily included in accountants'
     "comfort letters" to underwriters with respect to the financial statements
     and certain financial information contained in the Registration Statement
     and the Prospectus; provided that the letter delivered on the Closing Date
     shall use a "cut-off date" not earlier than the date hereof.

          (f) The "Lock-up Agreements," each substantially in the form of
     Exhibit A hereto, between you and certain shareholders, officers and
     directors of the Company relating to sales and certain other dispositions
     of shares of Common Stock or certain other securities, delivered to you on
     or before the date hereof, shall be in full force and effect on the Closing
     Date.

          (g) The Shares shall have received approval for listing, upon official
     notice of issuance, on the Nasdaq National Market.

          (h) The Underwriters shall have received on the Closing Date an
     opinion of counsel to the Subsidiary, dated the Closing Date, to the effect
     that:

                  (i) the Subsidiary has been duly incorporated, is validly
          existing as a corporation in good standing under the laws of the
          jurisdiction of its incorporation, has the corporate power and
          corporate authority to own its property and to conduct its business as
          described in the Prospectus and is duly qualified to transact business
          and is in good standing in each jurisdiction in which the conduct of
          its business or its ownership or leasing of property requires such
          qualification, except to the extent that the failure to be so
          qualified or be in good standing would not have a material adverse
          effect on the Company and the Subsidiary, taken as a whole;

                  (ii)  the Subsidiary has _____ shares of capital stock issued
          and outstanding, of which the Company owns _____ shares; and all of
          the issued shares of capital stock of the Subsidiary have been duly
          and validly authorized and issued, are fully paid and non-assessable
          and such shares 

                                      -14-

 
          which are owned by the Company are owned directly by the Company, free
          and clear of all liens, encumbrances, equities or claims; and

          (iii) the execution and delivery by the Company of, and the
          performance by the Company of its obligations under, this Agreement
          will not contravene any provision of the certificate of incorporation
          or by-laws of the Subsidiary.

          All the agreements, opinions, certificates and letters mentioned above
or elsewhere in this Agreement shall be deemed in compliance with the provisions
hereof only if Wilson Sonsini Goodrich & Rosati, counsel for the Underwriters,
shall be reasonably satisfied that they comply in form and scope.

          The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of the Additional
Shares and other matters related to the issuance of the Additional Shares.

          6.   Covenants of the Company.  In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:

          (a) To furnish to you, without charge, four (4) signed copies of the
     Registration Statement (including exhibits thereto) and for delivery to
     each other Underwriter a conformed copy of the Registration Statement
     (without exhibits thereto) and to furnish to you in New York City, without
     charge, prior to 5:00 p.m. New York City time on the business day next
     succeeding the date of this Agreement and during the period mentioned in
     Section 6(c) below, as many copies of the Prospectus and any supplements
     and amendments thereto or to the Registration Statement as you may
     reasonably request.

          (b) Before amending or supplementing the Registration Statement or the
     Prospectus, to furnish to you a copy of each such proposed amendment or
     supplement and not to file any such proposed amendment or supplement to
     which you reasonably object, and to file with the Commission within the
     applicable period specified in Rule 424(b) under the Securities Act any
     prospectus required to be filed pursuant to such Rule.

          (c) If, during such period after the first date of the public offering
     of the Shares as in the opinion of counsel for the Underwriters the
     Prospectus is required by law to be delivered in connection with sales by
     an Underwriter or dealer, any event shall occur or condition exist as a
     result of which it is necessary to amend or supplement the Prospectus in
     order to make the statements therein, in the light of the circumstances
     when the Prospectus is delivered to a purchaser, not misleading, or if, in
     the reasonable opinion of counsel for the Underwriters, it is necessary to
     amend or supplement the Prospectus to comply with applicable law, forthwith
     to prepare, file with the Commission and furnish, at its own expense, to
     the Underwriters and to the dealers (whose names and addresses you will
     furnish 

                                      -15-

 
     to the Company) to which Shares may have been sold by you on behalf
     of the Underwriters and to any other dealers upon request, either
     amendments or supplements to the Prospectus so that the statements in the
     Prospectus as so amended or supplemented will not, in the light of the
     circumstances when the Prospectus is delivered to a purchaser, be
     misleading or so that the Prospectus, as amended or supplemented, will
     comply with law.

          (d) To endeavor to qualify the Shares for offer and sale under the
     securities or Blue Sky laws of such jurisdictions as you shall reasonably
     request.

          (e) To make generally available to the Company's security holders and
     to you as soon as practicable an earning statement covering the twelve-
     month period ending March 31, 1999 that satisfies the provisions of Section
     11(a) of the Securities Act and the rules and regulations of the Commission
     thereunder.

          (f) During a period of three years from the effective date of the
     Registration Statement, the Company will furnish to you copies of (i) all
     reports to its stockholders and (ii) all reports, financial statements and
     proxy or information statements filed by the Company with the Commission or
     any national securities exchange.

          (g) The Company will apply the proceeds from the sale of the Shares as
     set forth under "Use of Proceeds" in the Prospectus.

          (h) The Company will use its best efforts to obtain and maintain in
     effect the quotation of the Shares on the Nasdaq National Market and will
     take all necessary steps to cause the Shares to be included on the Nasdaq
     National Market as promptly as practicable and to maintain such inclusion
     for a period of three years after the date hereof or until such earlier
     date as the Shares shall be listed for regular trading privileges on
     another national securities exchange approved by you.

          (i) The Company will comply with all registration, filing and
     reporting requirements of the Securities Exchange Act of 1934, as amended
     (the "EXCHANGE ACT"), which may from time to time be applicable to the
     Company.

          (j) The Company will comply with all provisions of all undertakings
     contained in the Registration Statement.

          (k) Prior to the Closing Date, the Company will not, directly or
     indirectly,  issue any press release or other communication and will not
     hold any press conference with respect to the Company, or its financial
     condition, results of operations, business, properties, assets, or
     prospects or this offering, without your prior written consent.

                                      -16-

 
          (l) The Company agrees:  (i) to enforce the terms of each Lock-up
     Agreement and (ii) issue stop-transfer instructions to the transfer agent
     for the Common Stock with respect to any transaction or contemplated
     transaction that would constitute a breach of or default under the
     applicable Lock-up Agreement. In addition, except with the prior written
     consent of Morgan Stanley, the Company agrees (i) not to amend or
     terminate, or waive any right under, any Lock-up Agreement, or take any
     other action that would directly or indirectly have the same effect as an
     amendment or termination, or waiver of any right under, any Lock-up
     Agreement, that would permit any holder of shares of Common Stock, or
     securities convertible into or exercisable or exchangeable for Common
     Stock, to sell, make any short sale of, grant any option for the purchase
     of, or otherwise transfer or dispose of, any of such shares of Common Stock
     or other securities prior to the expiration of 180 days after the date of
     the Prospectus, and (ii) not to consent to any sale, short sale, grant of
     an option for the purchase of, or other disposition or transfer of shares
     of Common Stock, or securities convertible into or exercisable or
     exchangeable for Common Stock, subject to a Lock-up Agreement.

          (m) The Company will place a restrictive legend on any shares of
     Common Stock acquired pursuant to the exercise, after the date hereof and
     prior to the expiration of the 180-day period after the date of the
     Prospectus, of any option granted under the Option Plan, which legend shall
     restrict the transfer of such shares prior to the expiration of such 180-
     day period.  In addition, the Company agrees that, without the prior
     written consent of Morgan Stanley, it will not release any stockholder or
     option holder from the market standoff provision imposed by the Company
     pursuant to the terms of the Option Plan earlier than 180 days after the
     date of the initial public offering of the Shares.

          (n) Whether or not the transactions contemplated in this Agreement are
     consummated or this Agreement is terminated, to pay or cause to be paid all
     expenses incident to the performance of its obligations under this
     Agreement, including:  (i) the fees, disbursements and expenses of the
     Company's counsel and the Company's accountants in connection with the
     registration and delivery of the Shares under the Securities Act and all
     other fees or expenses in connection with the preparation and filing of the
     Registration Statement, any preliminary prospectus, the Prospectus and
     amendments and supplements to any of the foregoing, including all printing
     costs associated therewith, and the mailing and delivering of copies
     thereof to the Underwriters and dealers, in the quantities hereinabove
     specified, (ii) all costs and expenses related to the transfer and delivery
     of the Shares to the Underwriters, including any transfer or other taxes
     payable thereon, (iii) the cost of printing or producing any Blue Sky or
     Legal Investment memorandum in connection with the offer and sale of the
     Shares under state securities laws and all expenses in connection with the
     qualification of the Shares for offer and sale under state securities laws
     as provided in Section 6(d) 

                                      -17-

 
     hereof, including filing fees and the reasonable fees and disbursements of
     counsel for the Underwriters in connection with such qualification and in
     connection with the Blue Sky or Legal Investment memorandum, (iv) all
     filing fees and the reasonable fees and disbursements of counsel to the
     Underwriters incurred in connection with the review and qualification of
     the offering of the Shares by the National Association of Securities
     Dealers, Inc., (v) all fees and expenses in connection with the preparation
     and filing of the registration statement on Form 8-A relating to the Common
     Stock and all costs and expenses incident to listing the Shares on the
     Nasdaq National Market, (vi) the cost of printing certificates representing
     the Shares, (vii) the costs and charges of any transfer agent, registrar or
     depositary, (viii) the costs and expenses of the Company relating to
     investor presentations on any "road show" undertaken in connection with the
     marketing of the offering of the Shares, including, without limitation,
     expenses associated with the production of road show slides and graphics,
     fees and expenses of any consultants engaged in connection with the road
     show presentations with the prior approval of the Company, travel and
     lodging expenses of the representatives and officers of the Company and any
     such consultants, and one half the cost of any aircraft chartered or
     limousines hired in connection with the road show, and (ix) all other costs
     and expenses incident to the performance of the obligations of the Company
     hereunder for which provision is not otherwise made in this Section. It is
     understood, however, that except as provided in this Section, Section 7
     entitled "Indemnity and Contribution", and the last paragraph of Section 9
     below, the Underwriters will pay all of their costs and expenses, including
     fees and disbursements of their counsel, travel, meals and lodging expenses
     of the representatives and officers of the Underwriters, the costs of
     conference rooms and meals for "road show" meetings, one half the cost of
     any aircraft chartered or limosines hired in connection with the "road
     show" stock transfer taxes payable on resale of any of the Shares by them
     and any advertising expenses connected with any offers they may make.

          (o) That in connection with the Directed Share Program, the Company
     will ensure that the Directed Shares will be restricted to the extent
     required by the NASD or the NASD rules from sale, transfer, assignment,
     pledge or hypothecation for a period of three months following the date of
     the effectiveness of the Registration Statement.  Morgan Stanley will
     notify the Company as to which Participants will need to be so restricted.
     The Company will direct the transfer agent to place stop transfer
     restrictions upon such securities for such period of time.

          (p) To pay all fees and disbursements of counsel incurred by the
     Underwriters in connection with the Directed Share Program and stamp
     duties, similar taxes or duties or other taxes, if any, incurred by the
     Underwriters in connection with the Directed Share Program.

                                      -18-

 
     Furthermore, the Company covenants with Morgan Stanley that the Company
will comply with all applicable securities and other applicable laws, rules and
regulations in each foreign jurisdiction in which the Directed Shares are
offered in connection with the Directed Share Program.

          7.   Indemnity and Contribution.  (a)  The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the "Exchange Act," from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) caused by any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein; and provided further that the foregoing indemnity agreement
with respect to any preliminary prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages or
liabilities purchased Shares, or any person controlling such Underwriter, if a
copy of the Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Underwriter to such person, if required by law so to have
been delivered, at or prior to the written confirmation of the sale of the
Shares to such person, and if the Prospectus (as so amended or supplemented)
would have cured the defect giving rise to such losses, claims, damages or
liabilities, unless such failure is the result of noncompliance by the Company
with Section 6(a) hereof.

          (b)  The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act ("UNDERWRITER ENTITIES"), from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) (i) caused by any untrue statement or alleged untrue
statement of a material fact contained in the prospectus wrapper material
prepared by or with the consent of the Company for distribution in foreign
jurisdictions in connection with the Directed Share Program attached to the
Prospectus or any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement therein, when considered in conjunction with the
Prospectus or any applicable 

                                      -19-

 
preliminary prospectus, not misleading; (ii) caused by the failure of any
Participant to pay for and accept delivery of the shares which, immediately
following the effectiveness of the Registration Statement, were subject to a
properly confirmed agreement to purchase; or (iii) related to, arising out of,
or in connection with the Directed Share Program, provided that, the Company
shall not be responsible under this subparagraph (iii) for any losses, claim,
damages or liabilities (or expenses relating thereto) that are finally
judicially determined to have resulted from the bad faith or gross negligence of
Underwriter Entities.

          (c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
such Underwriter, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.

          (d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Section 7(a), 7(b) or 7(c), such person (the "INDEMNIFIED
PARTY") shall promptly notify the person against whom such indemnity may be
sought (the "INDEMNIFYING PARTY") in writing and the Indemnifying Party, upon
request of the Indemnified Party, shall retain counsel reasonably satisfactory
to the Indemnified Party to represent the Indemnified Party and any others the
Indemnifying Party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding.  In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the Indemnifying Party and the Indemnified Party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them.  It is understood that the Indemnifying Party
shall not, in respect of the legal expenses of any Indemnified Party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all such Indemnified Parties and that all such fees
and expenses shall be reimbursed as they are incurred.  Such firm shall be
designated in writing by Morgan Stanley & Co. Incorporated, in the case of
parties indemnified pursuant to Section 7(a) or 7(b), and by the Company, in the
case of parties indemnified pursuant to Section 7(c). The Indemnifying Party
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the Indemnifying Party agrees to indemnify the
Indemnified Party from and against any loss or liability by reason of such
settlement or judgment. 

                                      -20-

 
Notwithstanding the foregoing sentence, if at any time an Indemnified Party
shall have requested an Indemnifying Party to reimburse the Indemnified Party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the Indemnifying Party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
Indemnifying Party of the aforesaid request and (ii) such Indemnifying Party
shall not have reimbursed the Indemnified Party in accordance with such request
prior to the date of such settlement. No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Party is or
could have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Party from all liability on claims that are the subject matter
of such proceeding. Notwithstanding anything contained herein to the contrary,
if indemnity may be sought pursuant to Section 7(b) hereof in respect of such
action or proceeding, then in addition to such separate firm for the Indemnified
Parties, the Indemnifying Party shall be liable for the reasonable fees and
expenses of not more than one separate firm (in addition to any local counsel)
for Morgan Stanley for the defense of any losses, claims, damages and
liabilities arising out of the Directed Share Program, and all persons, if any,
who control Morgan Stanley within the meaning of either Section 15 of the Act or
Section 20 of the Exchange Act.

          (e) To the extent the indemnification provided for in Section 7(a),
7(b) or 7(c) is unavailable to an Indemnified Party or insufficient in respect
of any losses, claims, damages or liabilities referred to therein, then each
Indemnifying Party under such paragraph, in lieu of indemnifying such
Indemnified Party thereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on the
other hand from the offering of the Shares or (ii) if the allocation provided by
clause 7(e)(i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
7(e)(i) above but also the relative fault of the Company on the one hand and of
the Underwriters on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations.  The relative benefits received
by the Company on the one hand and the Underwriters on the other hand in
connection with the offering of the Shares shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by the Company and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate Public
Offering Price of the Shares.  The relative fault of the Company on the one hand
and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Underwriters and the parties'

                                      -21-

 
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.  The Underwriters' respective obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective number of Shares they have purchased hereunder, and not joint.

          (f) The Company and the Underwriters agree that it would not be just
or equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in Section 7(e).  The amount paid or
payable by an Indemnified Party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim.  Notwithstanding the
provisions of this Section 7, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission.  No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.  The remedies provided for in this Section 7 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any Indemnified Party at law or in equity.

          (g) The indemnity and contribution provisions contained in this
Section 7 and the representations, warranties and other statements of the
Company contained in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter or by or on behalf of the Company, its officers or directors or
any person controlling the Company and (iii) acceptance of and payment for any
of the Shares.

          8.   Termination.  This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your 

                                      -22-

 
judgment, is material and adverse and (b) in the case of any of the events
specified in clauses 8(a)(i) through 8(a)(iv), such event, singly or together
with any other such event, makes it, in your judgment, impracticable to market
the Shares on the terms and in the manner contemplated in the Prospectus.

          9.   Effectiveness; Defaulting Underwriters.  This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.

          If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule I bears to the
aggregate number of Firm Shares set forth opposite the names of all such non-
defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased pursuant to this Section 9 by an amount in excess of one-
ninth of such number of Shares without the written consent of such Underwriter.
If, on the Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased, and arrangements satisfactory to you and the Company for
the purchase of such Firm Shares are not made within 36 hours after such
default, this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter or the Company.  In any such case either you or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected.  If, on the Option Closing Date, any Underwriter
or Underwriters shall fail or refuse to purchase Additional Shares and the
aggregate number of Additional Shares with respect to which such default occurs
is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default.  Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.

          If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall 

                                      -23-

 
be unable to perform its obligations under this Agreement, the Company will
reimburse the Underwriters or such Underwriters as have so terminated this
Agreement with respect to themselves, severally, for all out-of-pocket expenses
(including the fees and dis bursements of their counsel) reasonably incurred by
such Underwriters in connection with this Agreement or the offering contemplated
hereunder.

          10.  Counterparts.  This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.

          11.  Applicable Law.  This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.

                                      -24-

 
          12.  Headings.  The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.

                              Very truly yours,

                              VERISIGN, INC.



                              By:
                                 ---------------------------------------
                                 Name:
                                 Title:



Accepted as of the date hereof

Morgan Stanley & Co. Incorporated
Hambrecht & Quist LLC
Wessels, Arnold & Henderson, L.L.C.

Acting severally on behalf
  of themselves and the
  several Underwriters named
  in Schedule I hereto.

By: Morgan Stanley & Co. Incorporated



     By:
        ------------------------------
        Name:
        Title:

                                      -25-

 
                                                                      SCHEDULE I




                                                          NUMBER OF
                                                         FIRM SHARES
UNDERWRITER                                            TO BE PURCHASED

Morgan Stanley & Co. Incorporated

Hambrecht & Quist LLC
 
Wessels, Arnold & Henderson, L.L.C.

[NAMES OF OTHER UNDERWRITERS]
 
 
 
 
 
 
 
 
                                                              ______________
                     Total...........
                                                              ==============

                                                                       EXHIBIT A

                               LOCK-UP AGREEMENT



                                                            November 6, 1997



Morgan Stanley & Co. Incorporated
Hambrecht & Quist LLC
Wessels, Arnold & Henderson, L.L.C.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY  10036

Dear Sirs and Mesdames:


     The undersigned understands that Morgan Stanley & Co. Incorporated ("Morgan
Stanley") proposes to enter into an Underwriting Agreement (the "Underwriting
Agreement") with VeriSign, Inc., a Delaware corporation (the "Company"),
providing for the public offering (the "Public Offering") by the several
Underwriters, including Morgan Stanley (the "Underwriters"), of shares (the
"Shares") of the Common Stock, one-tenth of one cent ($0.001) par value per
share, of the Company (the "Common Stock").

     To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, the undersigned
hereby agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 180 days after the date of the final prospectus relating
to the Public Offering (the "Prospectus"), (1) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or excisable or exchangeable for Common Stock or
(2) enter into any swap or other arrangement that transfers to another, in whole
or in part, any of the economic consequences of ownership of Common Stock,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise.  The foregoing sentence shall not apply to (a) the sale of any Shares
to the Underwriters pursuant to the Underwriting Agreement or (b) transactions
relating to shares of Common Stock or other securities acquired in open market
transactions after the completion of the Public Offering.  In addition, the
undersigned agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 180 days after the date of the Prospectus, make any
demand for or exercise any right with respect to, the registration of any shares
of Common Stock or any security convertible into or exercisable or exchangeable
for Common Stock.

     Whether or not the Public Offering actually occurs depends on a number of
factors, including market conditions.  Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.

                                    Very truly yours,



                                    (Name)



                                    (Address)

 
                                                                    EXHIBIT 3.01

                           CERTIFICATE OF AMENDMENT 
                      OF THE SECOND AMENDED AND RESTATED
                        CERTIFICATE OF INCORPORATION OF
                                VERISIGN, INC.


          VeriSign, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "CORPORATION"), whose original 
                                               -----------
Certificate of Incorporation was filed in the Office of the Secretary of State
of the State of Delaware on April 12, 1995 under the name of Digital
Certificates International, Inc., and subsequently amended and restated on
November 14, 1996, does hereby certify:

          The following resolutions amending the Corporation's Second Amended 
and Restated Certificate of Incorporation, approved by the Corporation's Board 
of Directors and Stockholders, were duly adopted in accordance with the 
provisions of Section 242 of the Delaware General Corporation Law, including 
written consent of the Stockholders of the Corporation and written notice to the
non-consenting Stockholders of the Corporation in accordance with the provisions
of Section 228 of the Delaware General Corporation Law:

     RESOLVED, that Subsection 5.9.2.1.1(B) of Article Four of the Second
     Amended and Restated Certificate of Incorporation of this Corporation
     be amended and restated to read as follows:

          (B) to officers, directors or employees of, or consultants or
          vendors to, the Company pursuant to stock option or stock
          purchase plans or agreements on terms approved by the Board of
          Directors, but not exceeding 5,045,000 shares of Common Stock
          (net of any repurchases of such shares or cancellations or
          expirations of options), subject to adjustment for all stock
          dividends, subdivisions and combinations;

 
Certificate of Amendment of the 
Second Amended and Restated Certificate
of Incorporation of VeriSign, Inc.
Page 2

          IN WITNESS WHEREOF, Verisign, Inc. has caused this Certificate to be 
signed and attested by its duly authorized officers, this 18th day of November, 
1997.

                                        VERISIGN, INC.

                                        /s/ Stratton Sclavos
                                        -----------------------------------
                                        Stratton Sclavos, President


Attest:

/s/ Timothy Tomlinson
- -----------------------------
Timothy Tomlinson, Secretary
     


                                    SECOND
                              AMENDED AND RESTATED
                          CERTIFICATE OF INCORPORATION
                                       OF
                                 VERISIGN, INC.
                             a Delaware corporation



  ONE:  The name of the corporation is VeriSign, Inc.

  TWO: The address of the corporation's registered office in the State of
Delaware is 1050 S. State Street, in the City of Dover, in the County of Kent.
The registered agent in charge thereof is CorpAmerica, Inc., 1050 S. State
Street, Dover, Delaware 19901.

  THREE:  The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
law of Delaware.

  FOUR:  The aggregate number of shares which the corporation shall have
authority to issue is Thirty-One Million Eight Hundred Seventy-Five Thousand
(31,875,000) consisting of (i) Twenty-One Million Five Hundred Ninety-Two
Thousand One Hundred Seventeen (21,592,117) shares of Common Stock, One-Tenth of
One Cent ($0.001) par value per share (the "COMMON STOCK"), and (ii) Four
                                            ------------                 
Million Three Hundred Six Thousand Eight Hundred Eighty Three (4,306,883) shares
of Series A Convertible Preferred Stock, One-Tenth of One Cent ($0.001) par
value per share (the "SERIES A PREFERRED STOCK"), Two Million One Hundred One
                      ------------------------                               
Thousand (2,101,000) shares of Series B Convertible Preferred Stock, One-Tenth
of One Cent ($0.001) par value per share (the "SERIES B PREFERRED STOCK") and
                                               ------------------------      
Three Million Eight Hundred Seventy-Five Thousand (3,875,000) shares of the
Series C Convertible Preferred Stock, One-Tenth of One Cent ($0.001) par value
per share (the "SERIES C PREFERRED STOCK"). A statement of the designations,
                ------------------------                                    
powers, preferences, rights, qualifications, limitations and restrictions in
respect of the shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Common Stock is as follows:

  1.   DEFINITIONS.  For purposes of this Article Four, the following
       -----------                                                   
terms shall have the following definitions:

       1.1   "ACQUISITION" shall mean any consolidation or merger of the Company
with or into any other corporation or other entity or person, or any other
corporate reorganization in which the stockholders of the

 
Second Amended and Restated               
Certificate of Incorporation
of VeriSign, Inc.
Page 2

Company immediately prior to such consolidation, merger or reorganization, own
less than 50% of the surviving corporation's or its parent corporation's voting
power immediately after such consolidation, merger or reorganization, or any
transaction or series of related transactions in which in excess of fifty
percent (50%) of the Company's voting power is transferred with the same result.

       1.2   "ASSET SALE" shall mean a sale, lease or other disposition of all
or substantially all of the assets of the Company.

       1.3   "BOARD" shall mean the Board of Directors of the Company.

       1.4   "COMPANY" shall mean this corporation.

       1.5   "PREFERRED STOCK" shall refer to the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock.

       1.6   "SUBSIDIARY" shall mean any corporation at least fifty percent
(50%) of whose outstanding voting stock shall at the time be owned, directly or
indirectly, by the Company or by one or more such subsidiaries.

       1.7   "CONVERSION PRICE" shall mean One Dollar and Twenty Cents ($1.20)
with respect to the Series A Preferred Stock, as adjusted herein, Two Dollars
and Forty-Five Cents ($2.45) with respect to the Series B Preferred Stock, as
adjusted herein, and Eight Dollars ($8.00) with respect to the Series C
Preferred Stock, as adjusted herein.

       1.8   "ORIGINAL ISSUE DATE" shall mean (i) with respect to the Series A
Preferred Stock the date the first share of Series A Preferred Stock is issued,
(ii) with respect to the Series B Preferred Stock the date the first share of
Series B Preferred Stock is issued and (iii) with respect to the Series C
Preferred Stock the date the first share of Series C Preferred Stock is issued.

       1.9   "CAPITAL STOCK" shall mean all issued and outstanding shares of
Preferred Stock and Common Stock.

 
Second Amended and Restated               
Certificate of Incorporation
of VeriSign, Inc.
Page 3

  2.   DIVIDEND AND DISTRIBUTIONS.
       -------------------------- 

       2.1   The holders of the outstanding shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock shall be entitled to
receive, when and as declared by the Board, out of any funds legally available
therefor, dividends at the rate of Ten Cents ($0.10) per share of Series A
Preferred Stock per annum, Twenty Cents ($0.20) per share of Series B Preferred
Stock per annum and Sixty-Four Cents ($0.64) per share of Series C Preferred
Stock per annum, (subject in all cases to appropriate adjustments for stock
splits, stock dividends, combinations or other recapitalizations). Such
dividends shall not be cumulative. No cash dividend shall be declared or paid
with respect to the Series A Preferred Stock, the Series B Preferred Stock or
the Series C Preferred Stock unless at the same time a like proportionate cash
dividend for the same dividend period, ratably in proportion to the respective
annual dividend rates set forth above, is declared and paid with respect to the
Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock .

       2.2   Unless full dividends on the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock for the then current fiscal
year shall have been paid or declared and a sum sufficient for the payment
thereof set apart: (i) no dividend whatsoever (other than a dividend payable
solely in Common Stock) shall be paid or declared, and no distribution shall be
made on the Common Stock or pursuant to Section 2.3 below, and (ii) no shares of
Common Stock or Preferred Stock shall be purchased, redeemed or acquired by the
Company and no moneys shall be paid into or set aside, or made available for a
sinking fund, for the purchase, redemption or acquisition thereof; provided,
however, that this restriction shall not apply to the repurchase of shares of
Common Stock from directors, officers, employees or consultants of the Company
or of any Subsidiary pursuant to agreements under which the Company has the
option, but not the obligation, to repurchase such shares upon the occurrence of
certain events, including the termination of employment.

       2.3   The holders of the outstanding shares of Common Stock and Preferred
Stock shall at all times be treated as a single class with respect to dividends
and distributions (excluding dividends in or distributions

 
Second Amended and Restated               
Certificate of Incorporation
of VeriSign, Inc.
Page 4

of shares of Common Stock, but including, dividends or distributions of other
securities of the Company), other than those set forth in Sections 2.1 and 2.2
hereof, and, provided the conditions in Section 2.2 hereof are satisfied, such
single class, in addition to the dividends payable to the Preferred Stock
pursuant to Section 2.1, shall be entitled to dividends when, as and if declared
by the Board, out of any funds legally available therefor; provided, however,
that each share of Preferred Stock shall be entitled to dividends and
distributions equal to the aggregate amount of such dividends and distributions
which the holder of that number of shares of Common Stock into which such shares
of the Preferred Stock may be converted (on the record date fixed for
determining payment of such dividend or distribution) shall be entitled to
receive.

  3.   LIQUIDATION.
       ----------- 
               
       3.1   In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the holders of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock shall be entitled
to receive before any payment or declaration and setting apart for payment of
any amount shall be made in respect of the Common Stock, out of the assets of
the Company available for distribution to its stockholders, whether such assets
are capital, surplus or earnings, an amount equal to the following for each
share of Series C Preferred Stock (subject to appropriate adjustments for stock
splits, stock dividends, combinations or other recapitalizations): (i) $8.00 per
share if the aggregate amount available for distribution to all shares of
Capital Stock is equal to $16.00 or less per share calculated assuming the
Preferred Stock has been converted into Common Stock; (ii) $4.00 per share if
the aggregate amount available for distribution to all shares of Capital Stock
is greater than $16.00 but less than or equal to $24.00 per share calculated
assuming the Preferred Stock has been converted into Common Stock; (iii) $0.00
if the aggregate amount available for distribution to all shares of Capital
Stock is in excess of $24.00 per share calculated assuming the Preferred Stock
has been converted into Common Stock; an amount equal to the following for each
share of Series B Preferred Stock (subject to appropriate adjustments for stock
splits, stock dividends, combinations or other recapitalizations): (i) $2.40 per

 
Second Amended and Restated               
Certificate of Incorporation
of VeriSign, Inc.
Page 5

share if the aggregate amount available for distribution to all shares of
Capital Stock is equal to $4.80 or less per share calculated assuming the
Preferred Stock has been converted into Common Stock; (ii) $1.20 per share if
the aggregate amount available for distribution to all shares of Capital Stock
is greater than $4.80 but less than or equal to $7.20 per share calculated
assuming the Preferred Stock has been converted into Common Stock; (iii) $0.00
if the aggregate amount available for distribution to all shares of Capital
Stock is in excess of $7.20 per share calculated assuming the Preferred Stock
has been converted into Common Stock; and an amount equal to the following for
each share of Series A Preferred Stock (subject to appropriate adjustment for
stock splits, stock dividends, combinations or other recapitalizations): (i)
$1.20 per share if the aggregate amount available for distribution to all shares
of Capital Stock is equal to $2.40 or less per share calculated assuming the
Preferred Stock has been converted into Common Stock; (ii) $0.60 per share if
the aggregate amount available for distribution to all shares of Capital Stock
is greater than $2.40 but less than or equal to $3.60 per share calculated
assuming the Preferred Stock has been converted into Common Stock; (iii) $0.00
if the aggregate amount available for distribution to all shares of Capital
Stock is in excess of $3.60 per share calculated assuming the Preferred Stock
has been converted into Common Stock. In addition to the amounts set forth in
the preceding sentence, the Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock then outstanding shall be entitled to be paid an
amount equal to all declared and unpaid dividends thereon to and including the
date full payment shall be tendered to the holders of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock with respect to such
liquidation, dissolution or winding up. If the assets to be distributed to the
holders of the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock upon any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, shall be insufficient to permit the payment to
such stockholders of the full preferential amounts as set forth above, then all
of the assets of the Company legally available for distribution shall be
distributed ratably among the holders of the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock in proportion to the
aggregate

 
Second Amended and Restated               
Certificate of Incorporation
of VeriSign, Inc.
Page 6

liquidation preferences of the respective series, and ratably among the holders
of such series in proportion to the amount of such stock owned by each such
holder.

       3.2   After the payment or distribution to the holders of the Preferred
Stock of the full amounts as forth in Section 3.1, the holders of the Preferred
Stock and Common Stock then outstanding, as a single class, shall be entitled
pro rata, based on the number of shares outstanding, to all the remaining assets
of the Company; provided, however, that each share of Preferred Stock shall be
entitled to receive amounts equal to the aggregate amount of assets which the
holder would have been entitled had the Preferred Stock been converted into
Common Stock (on the date fixed for determining distribution of such assets).

       3.3   An Acquisition or an Asset Sale shall be considered a liquidation
under this Section 3. The provisions of this Section 3.3 may be waived by the
approval by vote or written consent of the holders of at least a majority of the
Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock then outstanding, voting together as a single class on an as
converted basis.

  4    VOTING RIGHTS.  Except as otherwise expressly provided herein or as
       -------------                                                      
required by law, the holders of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Common Stock shall be entitled to vote on
all matters. Each share of Common Stock shall be entitled to one vote and each
share of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock shall be entitled to that number of votes equal to the largest
number of whole shares of Common Stock into which such shares of Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, as the
case may be, may be converted as of the close of business on the record date
fixed for the meeting of the stockholders of the Company or the effective date
of any written consent of the stockholders of the Company (with any fractional
share determined on an aggregate basis for each holder being rounded up to the
next whole share). Except as otherwise expressly provided herein or as required
by law, the holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Common Stock shall vote together as a single class
on an as converted basis.

 
Second Amended and Restated               
Certificate of Incorporation
of VeriSign, Inc.
Page 7

  5    CONVERSION.  The holders of the Series A Preferred Stock, Series B
       ----------                                                        
Preferred Stock and Series C Preferred Stock shall have the following conversion
rights (the "CONVERSION RIGHTS").
             -----------------   

       5.1   RIGHT TO CONVERT.  Each share of the Series A Preferred Stock,
             ----------------                                              
Series B Preferred Stock and Series C Preferred Stock shall be convertible at
the option of the holder thereof, at any time after the date of issuance of such
share, into that number of fully paid and nonassessable shares of Common Stock
(or other securities or property pursuant to Sections 5.6 or 5.7 below) which
shall result from dividing (i) One Dollar and Twenty Cents ($1.20) for each
share of Series A Preferred Stock, (ii) Two Dollars and Forty-Five Cents ($2.45)
for each share of Series B Preferred Stock and (iii) Eight Dollars ($8.00) for
each share of Series C Preferred Stock by the Conversion Price at the time in
effect with respect to such series.

     5.2     AUTOMATIC CONVERSION.
             -------------------- 

             5.2.1   Each share of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock shall automatically be converted into that
number of fully paid and non-assessable shares of Common Stock (or other
securities or property pursuant to Sections 5.6 or 5.7 below) which shall result
from dividing (i) One Dollar and Twenty Cents ($1.20) for each share of Series A
Preferred Stock, (ii) Two Dollars and Forty-Five Cents ($2.45) for each share of
Series B Preferred Stock and (iii) Eight Dollars ($8.00) for each share of
Series C Preferred Stock by the Conversion Price then in effect with respect to
such series immediately upon the earlier of: (i) the date of effectiveness of a
registration statement under the Securities Act of 1933, as amended, or any
successor statute, for a firmly underwritten offering of Common Stock which will
provide proceeds to the Company of Fifteen Million Dollars ($15,000,000) or more
and which has a per share price of not less than Nine Dollars ($9.00)
(appropriately adjusted for stock splits, stock dividends and share combinations
after the date of incorporation of the Company), or (ii) the date of approval of
such conversion, by vote or written consent, of the holders of sixty-six and
two-thirds percent (66-2/3%) of the Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock then outstanding, voting together as a single
class on an as converted basis.

 
Second Amended and Restated               
Certificate of Incorporation
of VeriSign, Inc.
Page 8

             5.2.2   Upon the occurrence of any event specified in Section
5.2.1, the outstanding shares of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock shall be converted automatically, without any
further action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Company or its transfer agent.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of occurrence of the event causing automatic conversion
and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock at such time on such date
unless the transfer books of the Company are closed on such date, in which event
such person shall be deemed to have become a stockholder of record on the next
succeeding date on which the transfer books are open, but the Conversion Price
with respect to the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock shall be that in effect on such prior time and date.

             5.2.3   Upon the automatic conversion of the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock , the holders of
such Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock shall surrender the certificates representing such shares, duly endorsed,
at the office of the Company or of any transfer agent for the particular series
of Preferred Stock, or shall notify the Company or transfer agent that such
certificates have been lost, stolen or destroyed and shall execute an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection therewith. Thereupon, the Company shall promptly issue and
deliver at such office to such holder of Series A Preferred Stock and/or Series
B Preferred Stock and/or Series C Preferred Stock new certificates for the
number of shares of Common Stock to which such holder is entitled. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, the conversion may, at the
option of any holder tendering Preferred Stock for conversion, be conditioned
upon the closing with the underwriters of the sale of securities pursuant to
such offering, in which event the person(s) entitled to receive the Common Stock
upon 

 
Second Amended and Restated               
Certificate of Incorporation
of VeriSign, Inc.
Page 9

conversion of the Preferred Stock shall not be deemed to have converted such
Preferred Stock until immediately prior to the closing of such sale of
securities.

       5.3   MECHANICS OF VOLUNTARY CONVERSION.
             --------------------------------- 

             5.3.1   Before any holder of shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock shall be entitled
voluntarily to convert the same into shares of Common Stock, such holder shall
surrender the certificates representing such shares, duly endorsed, at the
office of the Company or of any transfer agent for the particular series of
Preferred Stock, or shall notify the Company or transfer agent that such
certificates have been lost, stolen or destroyed and shall execute an agreement
reasonably satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection therewith, and shall give written notice to the
Company at such office that such holder elects to convert the same, stating
therein the number of shares of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock being converted.  Thereupon, the Company
shall promptly issue and deliver at such office to such holder of Series A
Preferred Stock and/or Series B Preferred Stock and/or Series C Preferred Stock
new certificates for the number of shares of Common Stock to which such holder
shall be entitled.

             5.3.2   Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock to be converted, or delivery of the above-described notification
and indemnity, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock at such time on such
date, unless the transfer books of the Company are closed on such date, in which
event such person or persons shall be deemed to have become a stockholder or
stockholders of record on the next succeeding date on which the transfer books
are open, but the Conversion Price with respect to the Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock shall be that in effect on
such prior time and date. Upon conversion of only a  

 
Second Amended and Restated               
Certificate of Incorporation
of VeriSign, Inc.
Page 10

portion of the number of shares of Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock represented by a certificate surrendered for
conversion, the Company shall issue and deliver to the holder of the certificate
so surrendered for conversion, at the expense of the Company, a new certificate
covering the number of shares of Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock as the case may be, representing the
unconverted portion of the certificate so surrendered.

       5.4   DIVIDEND PAYMENT UPON CONVERSION.  Upon any conversion of shares
             --------------------------------                                
of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred
Stock into shares of Common Stock, the Company shall pay all declared, but
unpaid, dividends on the shares of Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock, as the case may be, being converted;
provided, however, that if the Company shall be prohibited by law from making
all such payments in cash, the Company shall, in lieu of making a full cash
payment of all such accrued and unpaid dividends, make payment thereof in cash
to the extent permitted by law and shall pay the balance in whole shares of
Common Stock, valued at the Conversion Price then in effect with respect to the
particular series of Preferred Stock being converted, plus cash in lieu of any
fractional share.

       5.5   ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS.  If the Company
             --------------------------------------------                 
shall at any time effect a subdivision of the outstanding shares of Common Stock
(or other securities into which the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock may be converted), then, and in
each such case, the Conversion Price as in effect immediately before such
subdivision with respect to the Series A Preferred Stock, the Series B Preferred
Stock and the Series C Preferred Stock shall be proportionately decreased and,
conversely, if the Company shall at any time combine the outstanding shares of
Common Stock (or other securities into which the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock may be converted),
then, and in each such case, the Conversion Price with respect to the Series A
Preferred Stock, the 

 
Second Amended and Restated               
Certificate of Incorporation
of VeriSign, Inc.
Page 11

Series B Preferred Stock and the Series C Preferred Stock as in effect
immediately before such combination shall be proportionately increased.

       5.6   ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION.  If
             ----------------------------------------------------------     
the Common Stock (or other securities into which the Series A Preferred Stock,
the Series B Preferred Stock and the Series C Preferred Stock may be converted)
shall at any time be reclassified or otherwise changed, whether by
reorganization, reclassification or otherwise (other than by a merger,
consolidation or sale of assets described in Section 5.7), then, and in each
such event, each share of Series A Preferred Stock, each share of Series B
Preferred Stock and each share of Series C Preferred Stock shall thereafter be
convertible into the kind and amount of shares of stock and other securities or
property which the holder of that number of shares of Common Stock (or other
securities) into which such share of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock, as the case may be, shall be
convertible immediately prior to such event would be entitled to receive upon
the occurrence of such event.

       5.7   MERGER, CONSOLIDATION AND SALE OF ASSETS.  If the Company shall at
             ----------------------------------------                          
any time merge or consolidate with or into another corporation (other than where
the Company is the surviving corporation and there is no reclassification or
change in the Common Stock or other securities into which the Series A Preferred
Stock, the Series B Preferred Stock and the Series C Preferred Stock may be
converted) or shall sell all or substantially all of its properties and assets
to any other person, then, as a part of such merger, consolidation or sale,
provision shall be made to assure that the holders of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock shall thereafter be
entitled to receive, upon conversion of any Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock, the kind and amount of shares of
stock and other securities or property of the Company, or of the successor
corporation resulting from such merger, consolidation or sale, that the holders
of that number of shares of Common Stock (or other securities) into which the
Series A Preferred Stock, the Series B Preferred Stock or the Series C Preferred
Stock, as the case may be, shall be convertible 

 
Second Amended and Restated               
Certificate of Incorporation
of VeriSign, Inc.
Page 12

immediately prior to such merger, consolidation or sale would be entitled to
receive on such merger, consolidation or sale.

       5.8   ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND DISTRIBUTIONS. If the
             -------------------------------------------------------        
Company at any time or from time to time after the applicable Original Issue
Date with respect to the Series A Preferred Stock, the Series B Preferred Stock
or the Series C Preferred Stock makes, or fixes a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in additional shares of Common Stock, in each such
event the Conversion Price of the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock that is then in effect shall be
decreased as of the time of such issuance or, in the event such record date is
fixed, as of the close of business on such record date by multiplying the
applicable Conversion Price of the Series A Preferred Stock, the Series B
Preferred Stock or the Series C Preferred Stock, as the case may be, then in
effect by a fraction (i) the numerator of which is the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date and (ii) the denominator
of which is the number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date plus the number of shares of Common Stock issuable in payment of
such dividend or distribution; provided, however, that if such record date is
fixed and such dividend is not fully paid or if such distribution is not fully
made on the date fixed therefor, the Conversion Price with respect to the Series
A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock
shall be recomputed accordingly as of the close of business on such record date
and thereafter the Conversion Price with respect to the Series A Preferred
Stock, the Series B Preferred Stock and the Series C Preferred Stock shall be
adjusted pursuant to this Section 5.8 to reflect the actual payment of such
dividend or distribution.

       5.9   ADJUSTMENT OF CONVERSION PRICE.  The Conversion Price shall be
             ------------------------------                                
subject to adjustment from time to time upon the happening of certain events, as
follows:

 
Second Amended and Restated               
Certificate of Incorporation
of VeriSign, Inc.
Page 13

             5.9.1   SALE OF STOCK. If the Company issues or sells Additional
                     -------------                                           
Shares (as defined below) (other than upon conversion of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock, or in a transaction
or as the result of a transaction described in Sections 5.4, 5.5, 5.6, 5.7 or
5.8) at any time after the applicable Original Issue Date with respect to the
Series A Preferred Stock, the Series B Preferred Stock  or the Series C
Preferred Stock for a consideration per share less than the Conversion Price for
the Series A Preferred Stock, the Series B Preferred Stock or the Series C
Preferred Stock then in effect (a "DILUTION SALE"), the Conversion Price of the
                                   -------------                               
Series A Preferred Stock, the Series B Preferred Stock or the Series C Preferred
Stock, as the case may be, then in effect shall be adjusted to an amount
obtained by multiplying the applicable Conversion Price then in effect with
respect to such series by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issue plus the
number of shares of Common Stock, which the aggregate consideration received by
the Company for the total number of Additional Shares so issued would purchase
at such Conversion Price in effect immediately prior to such issuance, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of such Additional Shares so
issued.  For purposes of the above calculation, the number of shares of Common
Stock outstanding immediately prior to such issue shall be calculated as if all
shares of Preferred Stock had been fully converted immediately prior to such
issuance of Additional Shares.

             5.9.2   ISSUE OR SALE OF COMMON STOCK EQUIVALENTS.
                     ----------------------------------------- 
                     5.9.2.1   For purposes of this Article Four, the following
terms shall have the following definitions:

                               5.9.2.1.1   "ADDITIONAL SHARES" shall mean all
shares of Common Stock issued (or, pursuant to Section 5.9.2.2 deemed to be
issued) by the Company after the applicable Original Issue Date with respect to
the Series A Preferred Stock, the Series B Preferred Stock or the Series C
Preferred Stock other than shares of Common Stock issued or issuable:

 
Second Amended and Restated               
Certificate of Incorporation
of VeriSign, Inc.
Page 14

                                           (A) upon conversion of shares of
Preferred Stock;
                                           (B) to officers, directors or
employees of, or consultants or vendors to, the Company pursuant to stock option
or stock purchase plans or agreements on terms approved by the Board of
Directors, but not exceeding four million two hundred forty-five thousand
(4,245,000) shares of Common Stock (net of any repurchases of such shares or
cancellations or expirations of options), subject to adjustment for all stock
dividends, subdivisions and combinations;

                                           (C) to lenders or strategic customers
or partners of the Company on terms approved by the Board of Directors pursuant
to warrants or otherwise, but not exceeding one hundred twenty-five thousand
(125,000) shares of Common Stock (net of any repurchases of such shares or
cancellations or expirations of options or warrants), subject to adjustments for
any stock dividend, subdivisions and combinations;

                                           (D) as a dividend or distribution
solely on Preferred Stock; or

                                           (E) for which adjustment of the
Conversion Price is made pursuant to Sections 5.5, 5.6, 5.7 or 5.8.

                               1.1.1.1.1   "CONVERTIBLE SECURITIES" means any
security which is directly or indirectly convertible into Common Stock.

                               1.1.1.1.2   "PARTICIPATING SECURITIES" means any
security which participates with Common Stock in dividends or upon liquidation.

                               1.1.1.1.3   "RIGHTS" means any option, warrant or
right to purchase Additional Shares, Convertible Securities or Participating
Securities.

                               1.1.1.1.4   "COMMON STOCK EQUIVALENTS" means,
collectively, Convertible Securities, Participating Securities and Rights, or
any of them.


Second Amended and Restated
Certificate of Incorporation
of VeriSign, Inc.
Page 15
 
                               1.1.1.1.5   "EFFECTIVE PRICE" means the quotient
obtained by dividing (i) Minimum Consideration by (ii) Maximum Shares upon
Exercise.

                               1.1.1.1.6   "MAXIMUM SHARES UPON EXERCISE" means
the maximum number of shares of Common Stock issuable at any time during the
term of a Common Stock Equivalent upon complete exercise or full conversion of
the Convertible Securities or Rights or presently represented by Participating
Securities, computed without regard to contingent adjustments to the number of
shares issuable upon exercise or conversion (other than adjustments caused
solely by the passage of time which increase the Maximum Shares upon Exercise).
For the purpose of calculating Maximum Shares upon Exercise, the number of
shares of Common Stock represented by each share of Participating Securities
shall be the highest (excluding infinitely large numbers and numbers calculated
by dividing by zero) of: (a) that proportion of the dividends of the Company to
which a share of Participating Securities is entitled because of its right of
participation compared to the proportion of dividends of the Company to which a
share of Common Stock is entitled; (b) that proportion of any liquidation
distribution of the Company to which a share of Participating Securities is
entitled because of its right of participation compared to the proportion of any
liquidation distribution of the Company to which a share of Common Stock is
entitled; or (c) the maximum number of shares of Common Stock issuable upon
conversion or exercise of a Participating Security at any time during the term
of any Participating Security which is also a Convertible Security, upon
complete conversion or exercise thereof, without regard to contingent
adjustments to the number of shares issuable upon exercise or conversion (other
than adjustments caused solely by the passage of time which increase Maximum
Shares upon Exercise).

                               1.1.1.1.7   "MINIMUM CONSIDERATION" means the
minimum aggregate consideration payable at any time for the purchase of the
Common Stock Equivalents and, during the term of the Common Stock Equivalents,
upon complete exercise or full conversion of the Common Stock Equivalents

 
Second Amended and Restated
Certificate of Incorporation
of VeriSign, Inc.
Page 16

computed without regard to contingent adjustments to exercise or conversion
price (other than adjustments caused solely by the passage of time which reduce
Minimum Consideration).

                     1.1.1.2   The issue or sale of Common Stock Equivalents for
an Effective Price less than the Conversion Price then in effect shall be a
Dilution Sale and the Conversion Price shall be adjusted as set forth in Section
5.9.1 hereof provided that for the purposes of such adjustment: (a) the
consideration received for such Dilution Sale shall be the product of (i)
Effective Price and (ii) Maximum Shares upon Exercise; and (b) the number of
shares issued in the present Dilution Sale shall be the Maximum Shares upon
Exercise.

                     1.1.1.3   If the Company has issued Convertible Securities
or Rights causing an adjustment to the Conversion Price pursuant to this Section
5.9, and said Convertible Securities or Rights subsequently expire without being
converted or exercised, by reason of lapse of time or otherwise, and (except
payment of the principal, interest and a reasonable prepayment premium or the
redemption price and a reasonable redemption premium in the case of a
convertible note or Preferred Stock voluntarily paid or redeemed by the Company,
respectively) without payment of any kind or nature to, or for the benefit of,
any present or prior holder of the Convertible Securities or Rights by any party
in connection with such Convertible Securities or Rights, then, and in such
event, the Conversion Price shall be recalculated and adjusted in accordance
with Section 5 hereof as if such Convertible Securities or Rights had never been
issued, but taking into account all events which would have been Dilution Sales
if such Convertible Securities or Rights are disregarded; provided, however,
that this Section 5.9.2.3 shall not have any effect on any conversion of
Preferred Stock prior to the expiration date of such expired Convertible
Securities or Rights.

             1.1.2   DILUTION IN CASE OF OTHER STOCK OR SECURITIES.  In case any
                     ---------------------------------------------              
securities, other than Common Stock of the Company, shall at the time be
receivable by any holder of Series A Preferred Stock, Series B Preferred Stock
or Series C Preferred Stock upon the conversion of such series, and in case any
additional shares of such securities or any securities convertible into or
exchangeable for such securities shall be 

 
Second Amended and Restated
Certificate of Incorporation
of VeriSign, Inc.
Page 17

issued or sold for a consideration such as to dilute the conversion rights of
the Series A Preferred Stock, the Series B Preferred Stock or the Series C
Preferred Stock, as the case may be, then, and in each such case, the Conversion
Price with respect to such series shall be adjusted substantially in the manner
provided in this Section 5 so as to protect the holders of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock against the effect
of such dilution.

             1.1.3   DETERMINATION OF VALUE OF NON-CASH CONSIDERATION.  Upon any
                     ------------------------------------------------           
issue or sale for consideration other than cash, or consideration part of which
is other than cash, of any Additional Shares, Common Stock Equivalents or other
securities, the amount of the consideration other than cash received by the
Company shall be deemed to be the fair value of such consideration as determined
in good faith by the Board.  In case any Additional Shares or Common Stock
Equivalents shall be issued or sold together with other securities or assets of
the Company for a consideration which covers both, the consideration for the
issue or sale of such Common Stock or Common Stock Equivalents shall be deemed
to be the portion of such consideration allocated thereto in good faith by the
Board.

       1.2   TIME OF ADJUSTMENTS TO CONVERSION PRICE.
             --------------------------------------- 

             1.2.1   All adjustments to Conversion Price, unless otherwise
specified herein, shall be effective as of the earlier of:

                     1.2.1.1  the date of issue of the security causing the
adjustment;
                     1.2.1.2  the date of sale of the security causing the
adjustment;
                     1.2.1.3  the effective date of a division or combination of
shares; or

                     1.2.1.4  the record date of any action of holders of the
Company's capital stock of any class taken for the purpose of dividing or
combining shares or entitling stockholders to receive a distribution or
dividends payable in Common Stock or Common Stock Equivalents.

 
Second Amended and Restated
Certificate of Incorporation
of VeriSign, Inc.
Page 18

             1.2.2   If the Company shall issue Common Stock Equivalents with
different Effective Prices and such Common Stock Equivalents would under this
Section 5 require multiple adjustments to the Conversion Price with respect to
the Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock on the same day, then the Conversion Price with respect to the
Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock shall be adjusted seriatim for each type of Common Stock
Equivalent with a different Effective Price, adjusting the Conversion Price with
respect to the Series A Preferred Stock, the Series B Preferred Stock and the
Series C Preferred Stock first for the Common Stock Equivalent with the highest
Effective Price, followed by the adjustment for the Common Stock Equivalent with
the next highest Effective Price and so on until all adjustments to the
Conversion Price with respect to the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock have been made.

       1.3   NOTICE OF ADJUSTMENTS. In each case of an adjustment or 
             ---------------------
readjustment of a Conversion Price, the Company at its expense, shall cause the
Chief Financial Officer of the Company to compute such adjustment or
readjustment and prepare a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (a) the consideration received
or to be received by the Company for any Additional Shares or Common Stock
Equivalents issued or sold or deemed to have been issued or sold, (b) the number
of shares of Common Stock outstanding or deemed to be outstanding, and (c) the
adjusted Conversion Price. The Company shall promptly mail a copy of each such
certificate to each holder of Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock affected by such adjustment. The Company shall,
upon the written request at any time of any holder of Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth such adjustment or
readjustment, the Conversion Price at the time in effect and the number of
shares of Common Stock and the amount, if any, of other property which at the
time would be

 
Second Amended and Restated
Certificate of Incorporation
of VeriSign, Inc.
Page 19

received upon the conversion of a share of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock.

       1.4   DURATION OF ADJUSTED CONVERSION PRICE.  Following each adjustment
             -------------------------------------                            
of the Conversion Price with respect to the Series A Preferred Stock, the Series
B Preferred Stock and the Series C Preferred Stock such adjusted Conversion
Price shall remain in effect until further adjustment of such Conversion Price
hereunder.

       1.5   MINIMUM ADJUSTMENT.  No adjustment of a Conversion Price shall be
             ------------------                                               
made in an amount less than One Cent ($0.01) per share (subject to appropriate
adjustments for stock splits and stock dividends, and provided that at such time
as events causing adjustments accumulating One Cent ($0.01) or more have
occurred adjustments to Conversion Price shall be made), and no adjustment of a
Conversion Price shall have the effect of increasing a Conversion Price above
such Conversion Price in effect immediately prior to such adjustment (except for
the upward adjustments provided in Sections 5.5, 5.8 and 5.9).

      1.6    NOTICES OF RECORD DATE.  In the event of any reclassification of or
             ----------------------                                          
other change in the capital stock of the Company or any merger or consolidation
of the Company, transfer of all or substantially all of the assets of the
Company to any other person or voluntary or involuntary dissolution, liquidation
or winding up of the Company, the Company shall mail to each holder of shares of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock,
at least sixty (60) days prior to the record date of such event a notice
specifying the date on which such event is expected to become effective and the
time, if any, that is to be fixed as to when the holders of record of shares of
Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
upon such event.

      1.7    FRACTIONAL SHARES.  No fractional shares of Common Stock shall be
             -----------------                                                
issued upon conversion of Shares of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock.  The number of shares of Common Stock to
which a holder of shares of Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock shall be entitled shall be based on the aggregate
number of shares of Series A 

 
Second Amended and Restated
Certificate of Incorporation
of VeriSign, Inc.
Page 20

Preferred Stock, Series B Preferred Stock and Series C Preferred Stock then
being converted by such holder and the number of shares of Common Stock issuable
upon such aggregate conversion. In lieu of any fractional share to which such
holder would otherwise be entitled, the Company shall pay cash equal to the fair
market value of such fraction based on the fair market value of one (1) share of
Common Stock on the date of conversion, as determined in good faith by the
Board.

       1.8   RESERVATION OF STOCK ISSUABLE UPON CONVERSION.  The Company shall
             ---------------------------------------------                    
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock (or other securities into which the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock may be converted)
solely for the purpose of effecting the conversion of the Series A Preferred
Stock, the Series B Preferred Stock and the Series C Preferred Stock, such
number of its shares of Common Stock (or such other securities) as shall, from
time to time, be sufficient to effect the conversion of all outstanding shares
of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock. If at any time the number of authorized but unissued shares of Common
Stock (or such other securities) shall not be sufficient to effect the
conversion of all the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock then outstanding, the Company will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock (or such other securities) to
such number of shares as shall be sufficient for such purpose.

       1.9   STATUS OF CONVERTED STOCK.  In case any shares of Series A 
             -------------------------                                 
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock shall be
converted pursuant hereto, the shares so converted shall be canceled and the
authorized number of shares of Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock, as the case may be, shall he reduced
accordingly.

       1.10  WAIVER OF ADJUSTMENT OF CONVERSION PRICE.
             ---------------------------------------- 

 
Second Amended and Restated
Certificate of Incorporation
of VeriSign, Inc.
Page 21

             1.10.1  Notwithstanding anything herein to the contrary, the
operation of, and any adjustment of the Conversion Price pursuant to, this
Section 5, may be waived with respect to any specific share or shares of
Preferred Stock, either prospectively or retroactively and either generally or
in a particular instance by a writing executed by the registered holder of such
share or shares. Any waiver pursuant to this Section 5.18 shall bind all future
holders of shares of Preferred Stock for which such rights have been waived. In
the event that a waiver of adjustment of Conversion Price under this Section
5.18 results in different Conversion Prices for shares of the same series of
Preferred Stock, the Secretary of the Company shall maintain a written ledger
identifying the Conversion Price for each share of such series of Preferred
Stock. Such information shall be made available to any person upon request. For
the purposes of Section 5.18, if different shares of the same series of
Preferred Stock have more than one Conversion Price as a result of a waiver of
adjustment of the Conversion Price under this Section 5.18, the Conversion Price
for triggering any future adjustment of the Conversion Price of shares of such
series of Preferred Stock which have not had such adjustment waived shall be the
lowest Conversion Price in effect with respect to shares of such series of
Preferred Stock.

             1.10.2  Each holder of Preferred Stock agrees that in the event
that:

                     1.10.2.1 the Company shall give a holder of Preferred Stock
twenty calendar day's notice of the Company's intent to make a Dilution Sale
together with the terms and conditions of such Dilution Sale, and

                     1.10.2.2 the Company shall offer to sell to such holder, at
the same price per share as in the Dilution Sale, that portion (a "PRO RATA
                                                                   --------
PORTION") of such Dilution Sale which equals the proportion that the number of
- -------                                                                       
shares of Common Stock issuable upon conversion of the Preferred Stock then held
by such holder bears to the total number of shares of Common Stock of the
Company issuable upon conversion of the Preferred Stock then outstanding, or
such lesser portion as the Company may specify in writing, and

 
Second Amended and Restated
Certificate of Incorporation
of VeriSign, Inc.
Page 22


                     1.10.2.3 such holder fails to tender to the Company, other
than at the written request of the Company, the purchase price of such holders'
Pro Rata Portion (or such lessor portion as the Company may specify in writing)
of such Dilution Sale on the scheduled closing of such Dilution Sale (which
shall not be less than 20 days after the written notice provided in 5.18.2.1.
above), then no adjustment of the Conversion Price shall be made with respect to
such Dilution Sale (other than adjustments made prior to the time of such
Dilution Sale), and any future adjustment with respect to future Dilution Sales
shall be deemed waived, with respect to the shares of Preferred Stock then held
of record by such holder.

             1.10.3  In the event the provisions of this Section 5.18 result in
more than one Conversion Price for the same series of Preferred Stock, the
Secretary of the Company shall keep a written ledger identifying the Conversion
Price in effect for each share of such series of Preferred Stock outstanding,
which information shall be made available to any person upon request.

             1.10.4  The waiver of adjustment of Conversion Price provided for
in this Section 5.18 shall bind any transferee of shares of Preferred Stock.
Each holder of Preferred Stock agrees that prior to transferring any shares of
Preferred Stock to any person or entity such holder will ensure that such
transferee shall have delivered to the Company a written acknowledgement of the
provisions of this Section 5.18.

        1.11 NO IMPAIRMENT.  The Company will not, by amendment of its
             -------------                                            
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 5 and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the
holders of the Preferred Stock against impairment.

 
Second Amended and Restated
Certificate of Incorporation
of VeriSign, Inc.
Page 23

  2.   RESTRICTIONS AND LIMITATIONS.
       ---------------------------- 

       2.1   RESTRICTIONS.  At all times that any shares of Series A Preferred
             ------------                                                     
Stock and/or the Series B Preferred Stock and/or Series C Preferred Stock are
outstanding, the Company shall not, and shall not permit any Subsidiary to,
without the approval by vote or written consent of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock then outstanding, voting
together as a single class on an as converted basis:

             2.1.1   Purchase, redeem or otherwise acquire (or pay into, or set
aside for, a sinking fund for such purpose) any Common Stock or any other equity
security; provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock from directors, officers, employees or
consultants of the Company, or any Subsidiary, pursuant to agreements under
which the Company has the option, but not the obligation, to repurchase such
shares (at cost) upon the occurrence of certain events, including termination of
employment.

             2.1.2   Increase the authorized number of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Common
Stock.

             2.1.3   Authorize or issue, or obligate itself to issue, any equity
security, including any other security convertible into or exercisable for any
equity security, senior to, or on a parity with, the Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock as to dividend, liquidation
preferences, redemption rights, voting rights or otherwise.

             2.1.4   Effect any Acquisition or Asset Sale.

             2.1.5   Effect any recapitalization or reorganization of the
Capital Stock of the Company.

       2.2   AMENDMENTS TO CERTIFICATE.  The Company shall not amend its
             -------------------------                                  
Certificate of Incorporation without the approval by vote or written consent of
the holders of at least sixty-six and two-thirds percent (66-2/3%) of the Series
A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock

 
Second Amended and Restated
Certificate of Incorporation
of VeriSign, Inc.
Page 24

then outstanding, voting together as a single class on an as converted basis, if
such amendment would increase the authorized number of shares of Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock or change
any of the rights, preferences or privileges of shares of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock or limitations
provided herein for the benefit of the Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock. Without limiting the generality of
the preceding sentence, the Company will not amend its Certificate of
Incorporation without the approval by vote or written consent of at least sixty-
six and two-thirds percent (66-2/3%) of the shares of the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock then outstanding,
voting together as a single class on an as converted basis if such amendment
would:

             2.2.1   Reduce the amount payable to the holders of the Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company,
or change the relative seniority of the liquidation preferences of the holders
of such Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock as compared to the rights upon liquidation of the holders of any
other capital stock of the Company;

             2.2.2   Make the Series A Preferred Stock, Series B Preferred Stock
or Series C Preferred Stock redeemable at the option of the Company;

             2.2.3   Cancel or modify the Conversion Rights provided in Section
5 hereof.

       2.3   VOTING RIGHTS.  For purposes of this Section 6, each share of
             -------------                                                
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
shall be entitled to that number of votes set forth in Section 4.

       2.4   ADDITIONAL RESTRICTIONS.
             ----------------------- 

             2.4.1 At all times that any shares of Series A Preferred Stock are
outstanding, the Company shall not, and shall not permit any Subsidiary to,
without the approval by vote or written consent of the

 
Second Amended and Restated
Certificate of Incorporation
of VeriSign, Inc.
Page 25

holders of at least a majority of the Series A Preferred Stock then outstanding,
voting as a separate class on an as converted basis:

                     2.4.1.1   increase the authorized number of shares of
Series A Preferred Stock.

                     2.4.1.2   authorize or issue or obligate itself to issue,
any equity security senior to or on a parity with the Series A Preferred Stock
as to dividend, liquidation preference, redemption rights, voting rights or
otherwise.

                     2.4.1.3   alter or change the rights, preferences or
privileges of the shares of Series A Preferred Stock.

             2.4.2   At all times that any shares of Series B Preferred Stock
are outstanding, the Company shall not, and shall not permit any Subsidiary to,
without the approval by vote or written consent of the holders of at least 
sixty-six and two-thirds percent (66-2/3%) of the Series B Preferred Stock then
outstanding voting as a separate class on an as converted basis:

                     2.4.2.1   increase the authorized number of shares of
Series B Preferred Stock.

                     2.4.2.2   authorize or issue, or obligate itself to issue,
any equity security senior to or on a parity with the Series B Preferred Stock
as to dividend, liquidation preferences, redemption rights voting rights or
otherwise.

                     2.4.2.3   alter or change the rights, preferences or
privileges of the shares of Series B Preferred Stock.

             2.4.3   At all times that any shares of Series C Preferred Stock
are outstanding, the Company shall not, and shall not permit any Subsidiary to,
without the approval by vote or written consent of the holders of at least 
sixty-six and two-thirds percent (66-2/3%) of the Series C Preferred Stock then
outstanding voting as a separate class on an as converted basis:

                     2.4.3.1   increase the authorized number of shares of
Series C Preferred Stock.

 
Second Amended and Restated
Certificate of Incorporation
of VeriSign, Inc.
Page 26

                     2.4.3.2  authorize or issue, or obligate itself to issue,
any equity security senior to or on a parity with the Series C Preferred Stock
as to dividend, liquidation preferences, redemption rights voting rights or
otherwise.

                    2.4.3.3    alter or change the rights, preferences or
privileges of the shares of Series C Preferred Stock.

  3.   CONSTRUCTION.  A reference in this Article Four to any Section shall
       ------------                                                        
mean a Section of this Article Four and shall include a reference to every
Section the number of which begins with the number of the Section to which
reference is specifically made.

  FIVE:  The Board of Directors of the Company is expressly authorized to
make, alter or repeal bylaws of the corporation but the Stockholders may make
additional bylaws and may alter or repeal any bylaw whether adopted by them or
otherwise.

  SIX:   Elections of directors need not be by written ballot except to the
extent provided in the bylaws of the Company.

  SEVEN: The Company shall have a perpetual existence.

  EIGHT: A.  EXCULPATION.  A director of the Company shall not be personally
             -----------                                                    
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
law or (iv) for any transaction from which the director derived any improper
personal benefit.  If the Delaware General Corporation law is hereafter amended
to further reduce or to authorize, with the approval of the Company's
stockholders, further reductions in the liability of the Company's directors for
breach of fiduciary duty, then a director of the Company shall not be liable for
any such breach to the fullest extent permitted by the Delaware General
Corporation Law as so amended.

 
Second Amended and Restated
Certificate of Incorporation
of VeriSign, Inc.
Page 27

         B.    INDEMNIFICATION.  To the extent permitted by applicable law, this
               ---------------                                                  
Company is also authorized to provide indemnification of (and advancement of
expenses to) agents (and any other persons to which Delaware law permits this
Company to provide indemnification) through bylaw provisions, agreements with
such agents or other persons, vote of stockholders or disinterested directors or
otherwise, in excess of the indemnification and advancement otherwise permitted
by Section 145 of the Delaware General Corporation Law, subject only to limits
created by applicable Delaware law (statutory or non-statutory), with respect to
actions for breach of duty to the Company, its stockholders, and others.

         C.    EFFECT OF REPEAL OR MODIFICATION.  Any repeal or modification of
               --------------------------------                                
any of the foregoing provisions of this Article Eight shall not adversely affect
any right or protection of a director, officer, agent or other person existing
at the time of, or increase the liability of any director of the Company with
respect to any acts or omissions of such director occurring prior to, such
repeal or modification.

               [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 
Second Amended and Restated
Certificate of Incorporation
of VeriSign, Inc.
Page 28

     IN WITNESS WHEREOF, the Second Amended and Restated Certificate of
Incorporation of VeriSign, Inc. has been signed and attested as of this 14th day
of November, 1996.


                                     /s/ Stratton Sclavos
                                     ---------------------------------
                                     Stratton Sclavos, President

ATTEST:



/s/ Timothy Tomlinson
- ---------------------------------
Timothy Tomlinson, Secretary



                [SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
                         CERTIFICATE OF INCORPORATION]


                                                                    EXHIBIT 3.03

                                    Bylaws

                                      of

                   DIGITAL CERTIFICATES INTERNATIONAL, INC.


                                   ARTICLE I

                                 Stockholders

    Section 1.  Annual Meeting.  An annual meeting of the stockholders of the
    ----------  --------------                                               
corporation, for the election of the Directors to succeed those whose terms
expire and for the transaction of such other business as may properly come
before the meeting, shall be held at such place, on such date and at such time
as the Board of Directors shall each year fix.

    Section 2.  Special Meetings.  Special meetings of the stockholders may be
    ----------  ----------------                                              
called by the President or by order of the Board of Directors, and shall be
called by the Secretary (or in the case of the death, absence, incapacity or
refusal of the Secretary, by any other officer) upon written application by one
or more stockholders who together hold of record at least 10 percent in interest
of the capital stock entitled to vote at such meeting.

    Section 3.  Place of Meetings.  All meetings of stockholders shall be held
    ----------  -----------------                                             
at the principal office of the corporation unless a different place is fixed by
the person or persons calling the meeting and stated in the notice of the
meeting.

    Section 4.  Notices of Meetings and Adjourned Meetings.  A written notice of
    ----------  ------------------------------------------                      
each annual or special meeting of the stockholders stating the place, date, and
hour thereof, shall be given by the Secretary (or the person or persons calling
the meeting), not less than 10 nor more than 60 days before the date of the
meeting, to each stockholder entitled to vote thereat, by leaving such notice
with him or her or at his or her residence or usual place of business, or by
depositing it postage prepaid in the United States mail, directed to each
stockholder at his or her address as it appears on the records of the
corporation.  Notices of all meetings of stockholders shall state the purpose or
purposes for which the meeting is called.  An affidavit of the 

 
Bylaws of
Digital Certificates International, Inc.
Page 2


Secretary, Assistant Secretary, or transfer agent of the corporation that the
notice has been given shall, in the absence of fraud, be primary facie evidence
of the facts stated therein. No notice need be given to any person with whom
communication is unlawful or to any person who has waived such notice either (a)
in writing (which writing need not specify the business to be transacted at, or
the purpose of, the meeting) signed by such person before or after the time of
the meeting or (b) by attending the meeting except for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. When a meeting is
adjourned to another time and place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken except that, if the adjournment is for more than 30 days or
if, after the adjournment, a new record date is fixed for the adjourned meeting,
a notice of the adjourned meeting shall be given in the manner provided in this
Section 4.

    Section 5.  Quorum.  At any meeting of the stockholders, a quorum for the
    ----------  ------                                                       
transaction of business shall consist of one or more individuals appearing in
person or represented by proxy and owning or representing a majority of the
shares of the corporation then outstanding and entitled to vote thereat, unless
or except to the extent that the presence of a larger number may be required by
law (including as required from time to time by the Delaware General Corporation
Law or the Certificate of Incorporation of the corporation).  Where a separate
vote by a class or classes is required, a majority of the shares of such class
or classes then oustanding and entitled to vote present in person or by proxy
shall constitute a quorum entitled to take action with respect to that vote on
that matter.  If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote
thereat who are present, in person or by proxy, may adjourn the meeting to
another place, date, or time.

    Section 6.  Organization.  Such person as the Board of Directors may have
    ----------  ------------                                                 
designated or, in the absence of such a person, the President of the corporation
or, in his or her absence, such person as may be chosen by the holders of a
majority of the shares entitled to vote thereat who are present, in person or by
proxy, 

 
Bylaws of
Digital Certificates International, Inc.
Page 3


shall call to order any meeting of the stockholders and act as chairman of the
meeting. In the absence of the Secretary of the corporation, the secretary of
the meeting shall be such person as the chairman appoints.

    Section 7.  Conduct of Business.  The chairman of any meeting of
    ----------  -------------------                                 
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seem to him or her in order.

    Section 8.  Voting.  Unless otherwise provided in the Certificate of
    ----------  ------                                                  
Incorporation and subject to the provisions of Section 6 of Article IV hereof,
each stockholder shall have one vote for each share of stock entitled to vote
held by him or her of record according to the records of the corporation.
Persons holding stock in a fiduciary capacity shall be entitled to vote the
shares so held.  Persons whose stock is pledged shall be entitled to vote unless
the pledgor in a transfer on the books of the corporation has expressly
empowered the pledgee to vote the pledged shares, in which case only the pledgee
or his or her proxy shall be entitled to vote.  If shares stand of record in the
names of two or more persons or if two or more persons have the same fiduciary
relationship respecting the shares then, unless the Secretary is given written
notice to the contrary and is furnished with a copy of the instrument or order
appointing them or creating the relationship wherein it is so provided to the
contrary:  (a) if only one votes, his or her act binds all; (b) if more than one
vote, the act of the majority so voting binds all; and (c) if more than one vote
and the vote is evenly split, the effect shall be as provided by law.

    Section 9.  Proxies.  Each stockholder entitled to vote at a meeting of
    ----------  -------                                                    
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or any group of persons to act
for him or her by proxy, but no such proxy shall be voted or acted upon after
three years from its date, unless the proxy provides for a longer period.

    Section 10. Action at Meeting.  When a quorum is present at any meeting,
    ----------  -----------------                                           
action of the stockholders on any matter properly 

 
Bylaws of
Digital Certificates International, Inc.
Page 4


brought before such meeting, other than the election of directors, shall
require, and may be effected by, the affirmative vote of the holders of a
majority in interest of the stock present or represented by proxy and entitled
to vote on the subject matter, except where a different vote is expressly
required by law, the Certificate of Incorporation or these By-laws, in which
case such express provision shall govern and control. The election of directors
shall be determined by a plurality of votes cast. If the Certificate of
Incorporation so provides, no ballot shall be required for the election of
directors unless requested be a stockholder present or represented at the
meeting and entitled to vote in the election.

    Section 11.  Stockholder Lists.  The officer who has charge of the stock
    -----------  -----------------                                          
ledger of the corporation shall prepare and make available, at least 10 days
before every meeting of stockholders, a complete list of stockholders entitled
to vote at the meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder.  Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least 10 days prior to the meeting, either at a place of inspection within
the city where the meeting is to be held (which place of inspection shall be
specified in the notice of the meeting) or, if not so specified, at the place
where the meeting is to be held.  Such list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.  The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list required by this section or the books of the corporation, or to vote in
person or by proxy at any meeting of stockholders.

    Section 12.  Action by Written Consent.  Any action required by law to be
    -----------  -------------------------                                   
taken at any annual or special meeting of stockholders of the corporation, or
any action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
and dated and signed by the holders of outstanding stock having not less than
the minimum number of votes that would be 

 
Bylaws of
Digital Certificates International, Inc.
Page 5


necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted, are delivered to the
corporation by delivery to its registered office in Delaware, its principal
place of business, or an officer or agent of the corporation having custody of
the book in which proceedings of stockholders are recorded. Delivery made to the
corporation's registered office shall be made by hand or by certified or
registered mail, return receipt requested. Every written consent shall bear the
date of signature of each stockholder who signs the consent and no written
consent shall be effective to take the corporate action referred to therein
unless, within 60 days of the date the earliest dated consent is delivered to
the corporation, a written consent or consents signed by a sufficient number of
holders to take action are delivered to the corporation in the manner described
in this Section. Prompt notice of the taking of corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. Such consents shall be filed
with the records of the proceedings of the stockholders.


                                  ARTICLE II

                                   Directors

    Section 1.  Powers.  The business and affairs of the corporation shall be
    ----------  ------                                                       
managed by or under the direction of the Board of Directors, which may exercise
all such powers of the corporation and do all such lawful acts and things as are
not by law or these By-laws directed or required to be exercised or done by the
stockholders.

    Section 2.  Number of Directors.  The Board of Directors shall consist of no
    ----------  -------------------                                             
less than five (5) members nor more than seven (7) members, the number thereof
to be fixed from time to time by resolution of the Board of Directors.  Any
amendment of these By-laws changing the authorized number of directors may be
adopted only by the affirmate vote of the stockholders holding a majority of the
outstanding capital stock of the Company entitled to vote.

 
Bylaws of
Digital Certificates International, Inc.
Page 6


    Section 3.  Election and Tenure.  Each Director shall be elected by
    ----------  -------------------                                    
plurality vote of the stockholders at the annual meeting or as provided in
Section 5 of this Article II.  Each Director shall serve until his or her
successor is elected and qualified, or until his or her earlier resignation or
removal.

    Section 4.  Qualification.  No Director need be a stockholder.
    ----------  -------------                                     

    Section 5.  Removal.  Any Director or the entire Board of Directors may be
    ----------  -------                                                       
removed with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of the Directors except as otherwise provided by
law.

    Section 6.  Resignation.  Any Director of the corporation may resign at any
    ----------  -----------                                                    
time by giving written notice to the Board of Directors, to the Chairman of the
Board, if any, to the President, or to the Secretary, and any member of a
committee may resign therefrom at any time by giving notice as aforesaid or to
the chairman or secretary of such committee.  Any such resignation shall take
effect at the time specified therein, or, if the time be not specified, upon
receipt thereof; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.

    Section 7.  Vacancies and Newly Created Directorships.  Vacancies and newly
    ----------  -----------------------------------------                      
created directorships resulting from any increase in the authorized number of
Directors may be filled (a) by the stockholders at any meeting or by written
consent, (b) by a majority of the Directors then in office, although less than a
quorum, or (c) by a sole remaining Director.  Whenever the holders of any class
or classes of stock or series thereof are entitled to elect one or more
Directors by the Certificate of Incorporation, vacancies and newly created
directorships of such class or classes or series may be filled by a majority of
the Directors elected by such class, classes or series then in office or by the
sole remaining director so elected.  When one or more Directors shall resign
from the Board, effective at a future date, a majority of Directors who are
entitled to act on the filling of such vacancy or vacancies and who are then in
office, including those who have so resigned, shall have power to fill such
vacancy or vacancies by vote to take effect when such resignation or
resignations shall become effective.

 
Bylaws of
Digital Certificates International, Inc.
Page 7


    Section 8.  Annual Meeting.  The first meeting of each newly elected board
    ----------  --------------                                                
may be held without notice immediately after an annual meeting of stockholders
(or a special meeting of stockholders held in lieu of an annual meeting) at the
same place as that at which such meeting of stockholders was held; or such first
meeting may be held at such place and time as shall be fixed by the consent in
writing of all the Directors, or may be called in the manner hereinafter
provided with respect to the call of special meetings.

    Section 9.  Regular Meetings.  Regular meetings of the Directors may be held
    ----------  ----------------                                                
at such times and places as shall from time to time be fixed by resolution of
the Board, and no notice need be given of regular meetings held at times and
places so fixed, PROVIDED, HOWEVER, that any resolution relating to the holding
of regular meetings shall remain in force only until the next annual meeting of
stockholders and that, if at any meeting of Directors at which a resolution is
adopted fixing the times or place or places for any regular meetings any
Director is absent, no meeting shall be held pursuant to such resolution without
notice to or waiver by such absent Director pursuant to Section 11 of this
Article II.

    Section 10.  Special Meetings.  Special meetings of the Directors may be
    -----------  ----------------                                           
called by the Chairman of the Board, if any, the President, or by at least one-
third of the Directors then in office (rounded up to the nearest whole number),
and shall be held at the place and on the date and hour designated in the call
thereof.

    Section 11.  Notices.  Notices of any special meeting of the Directors shall
    -----------  -------                                                        
be given to each Director by the Secretary or an Assistant Secretary (a) by
mailing to him or her, postage prepaid, and addressed to him or her at his or
her address as registered on the books of the corporation, or if not so
registered at his or her last known home or business address, a written notice
of such meeting at least 4 days before the meeting, (b) by delivering such
notice by hand or by telegram, telecopy or telex to him or her at least 48 hours
before the meeting, addressed to him or her at such address, or (c) by giving
such notice in person or by telephone at least 48 hours in advance of the
meeting.  In the absence of all 

 
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such officers, such notice may be given by the officer or one of the Directors
calling the meeting. Notice need not be given to any Director who has waived
notice (a) in writing executed by him or her before or after the meeting and
filed with the records of the meeting, or (b) by attending the meeting except
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. A notice or waiver of notice of a meeting of the Directors need not
specify the business to be transacted at or the purpose of the meeting.

    Section 12.  Quorum.  At any meeting of the Directors, a majority of the
    -----------  ------                                                     
authorized number of Directors shall constitute a quorum for the transaction of
business. If a quorum shall not be present at any meeting of the Board of
Directors, a majority of those present (or, if not more than two Directors are
present, any Director present) may adjourn the meeting from time to time to
another place, date or time, without notice other than announcement at the
meeting prior to adjournment, until a quorum shall be present.

    Section 13.  Participation in Meetings by Conference Telephone.  One or
    -----------  -------------------------------------------------         
more members of the Board of Directors, or any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this Section 13 shall constitute presence in person at such meeting.

    Section 14.  Conduct of Business; Action by Written.  At any meeting of
    -----------  --------------------------------------                    
the Board of Directors at which a quorum is present, business shall be
transacted in such order and manner as the Board may from time to time
determine, and all matters shall be determined by the vote of a majority of the
Directors present, except as otherwise provided in these By-laws or required by
law.  Action may be taken by the Board of Directors, or any committee thereof,
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
records of proceedings of the Board or committee.

 
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    Section 15.  Place of Meetings.  The Board of Directors may hold its
    -----------  -----------------                                      
meetings, and have an office or offices, within or without the State of
Delaware.

    Section 16.  Compensation.  The Board of Directors shall have the authority
    -----------  ------------                                                  
to fix stated salaries for Directors for their service in such capacity and to
provide for payment of a fixed sum and expenses of attendance, if any, for
attendance at each regular or special meeting of the Board.  The Board shall
also have the authority to provide for payment of a fixed sum and expenses of
attendance, if any, payable to members of committees for attending committee
meetings.  Nothing herein contained shall preclude any Director from serving the
corporation in any other capacity and receiving compensation for such services.

    Section 17.  Committees.  The Board of Directors, by resolution passed by a
    -----------  ----------                                                    
majority of the number of Directors required at the time to constitute a full
Board as fixed in or determined pursuant to these By-laws as then in effect, may
from time to time designate one or more committees, each committee to consist of
one or more of the Directors of the corporation.  The Board may designate one or
more Directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee.  In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
she or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.  Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have
such power or authority in reference to amending the Certificate of
Incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the Board of Directors as provided in Subsection (a) of Section 151 of the
Delaware General Corporation Law, fix the designations and any preferences or
rights of such shares or fix the number of shares in a series of 

 
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stock or authorize the increase or decrease in the shares of any series),
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property or assets, recommending to the stockholders a dissolution
of the corporation or a revocation of a dissolution, or amending the By-laws of
the corporation. Such a committee may, to the extent expressly provided in the
resolution of the Board of Directors, have the power or authority to declare a
dividend or to authorize the issuance of stock.

    (b)  At any meeting of any committee, a majority of the whole committee
shall constitute a quorum and, except as otherwise provided by these By-laws or
required by law, the affirmative vote of at least a majority of the members
present at a meeting at which there is a quorum shall be the act of the
committee.

    (c)  Each committee, except as otherwise provided by resolution of the Board
of Directors, shall fix the time and place of its meetings within or without the
State of Delaware, shall adopt its own rules and procedures, and shall keep a
record of its acts and proceedings and report the same from time to time to the
Board of Directors.

                                  ARTICLE III

                                    Officers

    Section 1.  Officers and Their Election.  The officers of the corporation
    ----------  ---------------------------                                  
shall be a Chief Executive Officer, a President, a Secretary, a Chief Financial
Officer and such Vice Presidents, Assistant Secretaries, Assistant Chief
Financial Officers and other officers as the Board of Directors may from time to
time determine and elect or appoint.  The Board of Directors may appoint one of
its members to the office of Chairman of the Board and another of its members to
the office of Vice-Chairman of the Board and from time to time define the powers
and duties of these offices notwithstanding any other provisions of these By-
laws.  All officers shall be elected by the Board of Directors and shall serve
at the will of the Board of Directors.  Any officer may, but need not, be a
Director.  Two or more offices may be held by the same person.

 
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    Section 2.  Term of Office.  The Chief Executive Officer, the President, the
    ----------  --------------                                                  
Chief Financial Officer and the Secretary shall, hold office until his or her
successor is elected and qualified or until his or her earlier resignation or
removal.

    Section 3.  Vacancies.  Any vacancy at any time existing in any office may
    ----------  ---------                                                     
be filled by the Board of Directors.

    Section 4.  Chairman of the Board.  The Board of Directors may, in its
    ----------  ---------------------                                     
discretion, elect a Chairman of the Board from among its members.  He or she may
be the Chief Executive Officer of the corporation if so designated by the Board,
and he or she shall preside at all meetings of the Board of Directors at which
he or she is present and shall exercise and perform such other powers and duties
as may from time to time be assigned to him or her by the Board of Directors or
prescribed by the Bylaws.

    Section 5.  Chief Executive Officer.  The Board of Directors may elect a
    ----------  -----------------------                                     
Chief Executive Officer of the corporation who may also be the Chairman of the
Board or President of the corporation or both.  It shall be his or her duty and
he or she shall have the power to see that all orders and resolutions of the
Board of Directors are carried into effect.  He or she shall from time to time
report to the Board of Directors all matters within his or her knowledge which
the interests of the corporation may require to be brought to its notice.  The
Chief Executive Officer, when present, shall preside at all meetings of the
stockholders and, unless there shall be a Chairman of the Board, of the Board of
Directors, unless otherwise provided by the Board of Directors.

    Section 6.  President.  If there is no Chief Executive Officer, the
    ----------  ---------                                              
President shall be the chief executive officer of the corporation except as the
Board of Directors may otherwise provide.  The President shall perform such
duties and have such powers additional to the foregoing as the Board of
Directors shall designate.

    Section 7.  Vice Presidents.  In the absence or disability of the President,
    ----------  ---------------                                                 
his or her powers and duties shall be performed by the vice president, if only
one, or, if more than one, by the one designated for the purpose by the Board of
Directors.  Each vice 

 
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president shall perform such duties and have such powers additional to the
foregoing as the Board of Directors shall designate.

    Section 8.  Chief Financial Officer.  The Chief Financial Officer shall be
    ----------  -----------------------                                       
the treasurer of the corporation and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all monies and other valuable effects in the name and to the credit of
the corporation in such depositories as shall be designated by the Board of
Directors or in the absence of such designation in such depositories as he or
she shall from time to time deem proper.  The Chief Financial Officer (or any
Assistant Chief Financial Officer) shall sign all stock certificates as
treasurer of the corporation.  He or she shall disburse the funds of the
corporation as shall be ordered by the Board of Directors, taking proper
vouchers for such disbursements.  He or she shall promptly render to the Chief
Executive Officer and to the Board of Directors such statements of his or her
transactions and accounts as the Chief Executive Officer and Board of Directors
respectively may from time to time require.  The Chief Financial Officer shall
perform such duties and have such powers additional to the foregoing as the
Board of Directors may designate.

    Section 9.  Assistant Chief Financial Officers.  In the absence or
    ----------  ----------------------------------                    
disability of the Chief Financial Officer, his or her powers and duties shall be
performed by the Assistant Chief Financial Officer, if only one, or if more than
one, by the one designated for the purpose by the Board of Directors.  Each
Assistant Chief Financial Officer shall perform such duties and have such powers
additional to the foregoing as the Board of Directors shall designate.

    Section 10. Secretary.  The Secretary shall issue notices of all meetings
    ----------- ---------                                                    
of stockholders, of the Board of Directors and of committees thereof where
notices of such meetings are required by law or these By-laws.  He or she shall
record the proceedings of the meetings of the stockholders and of the Board of
Directors and shall be responsible for the custody thereof in a book to be kept
for that purpose.  He or she shall also record the proceedings of the committees
of the Board of Directors unless such committees appoint their own respective
secretaries.  Unless the Board of 

 
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Directors shall appoint a transfer agent and/or registrar, the Secretary shall
be charged with the duty of keeping, or causing to be kept, accurate records of
all stock outstanding, stock certificates issued and stock transfers. He or she
shall sign such instruments as require his or her signature. The Secretary shall
have custody of the corporate seal and shall affix and attest such seal on all
documents whose execution under seal is duly authorized. In his or her absence
at any meeting, an Assistant Secretary or the Secretary pro tempore shall
perform his or her duties thereat. He or she shall perform such duties and have
such powers additional to the foregoing as the Board of Directors shall
designate.

    Section 11.  Assistant Secretaries.  In the absence or disability of the
    -----------  ---------------------                                      
Secretary, his or her powers and duties shall be performed by the Assistant
Secretary, if only one, or, if more than one, by the one designated for the
purpose by the Board of Directors.  Each Assistant Secretary shall perform such
duties and have such powers additional to the foregoing as the Board of
Directors shall designate.

    Section 12.  Salaries.  The salaries and other compensation of officers,
    -----------  --------                                                   
agents and employees shall be fixed from time to time by or under authority from
the Board of Directors.  No officer shall be prevented from receiving a salary
or other compensation by reason of the fact that he or she is also a Director of
the corporation.

    Section 13.  Removal.  The Board of Directors may remove any officer, either
    -----------  -------                                                        
with or without cause, at any time.

    Section 14.  Bond.  The corporation may secure the fidelity of any or all of
    -----------  ----                                                           
its officers or agents by bond or otherwise.

    Section 15.  Resignations.  Any officer, agent or employee of the
    -----------  ------------                                        
corporation may resign at any time by giving written notice to the Board of
Directors, to the Chairman of the Board, if any, to the Chief Executive Officer
or to the Secretary of the corporation.  Any such resignation shall take effect
at the time specified therein, or, if the time be not specified, upon receipt
thereof; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.

 
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                                  ARTICLE IV

                                 Capital Stock

    Section 1.  Stock Certificates; Uncertificated Shares.  The shares of
    ----------  -----------------------------------------                
capital stock of the corporation shall be represented by certificates, provided
that the Board of Directors may provide by resolution or resolutions that some
or all of any or all classes or series of its stock may be uncertificated
shares.  Any such resolution shall not apply to shares represented by a
certificate until such certificate is surrendered to the corporation (or the
transfer agent or registrar, as the case may be).  Notwithstanding the adoption
of such a resolution, every holder of stock represented by certificates and upon
request every holder of uncertificated shares shall be entitled to have a
certificate signed by, or in the name of, the corporation by the Chairman or
Vice-Chairman of the Board of Directors or the President or a Vice President,
and by the Chief Financial Officer (in his or her capacity as treasurer) or an
Assistant Chief Financial Officer (in his or her capacity as assistant
treasurer), or the Secretary or an Assistant Secretary, certifying the number of
shares owned by him or her in the corporation.  Any or all of the signatures on
the certificate may be a facsimile.  In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before the certificate is issued, such certificate may nevertheless be issued by
the corporation with the same effect as if he or she were such officer, transfer
agent or registrar at the date of issue.

    Section 2.  Classes of Stock.  If the corporation shall be authorized to
    ----------  ----------------                                            
issue more than one class of stock or more than one series of and class, the
face or back of each certificate issued by the corporation to represent such
class or series shall either (a) set forth in full or summarize the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions thereof, or (b) contain a statement that the
corporation will furnish a statement of the same without charge to each
stockholder who so requests.  Within a reasonable time after the issuance or
transfer 

 
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of uncertificated shares, the corporation shall send to the registered holder
thereof such written notice as may be required by law as to the information
required by law to be set forth or stated on stock certificates.

    Section 3.  Transfer of Stock.  Shares of stock shall be transferable only
    ----------  -----------------                                             
upon the books of the corporation pursuant to applicable law and such rules and
regulations as the Board of Directors shall from time to time prescribe.  The
Board of Directors may at any time or from time to time appoint a transfer agent
or agents or a registrar or registrars for the transfer or registration of
shares of stock.  Except where a certificate is issued in accordance with
Section 5 of Article IV of these By-laws, one or more outstanding certificates
representing in the aggregate the number of shares involved shall be surrendered
for cancellation before a new certificate is issued representing such shares.

    Section 4.  Holders of Record.  Prior to due presentment for registration of
    ----------  -----------------                                               
transfer the corporation may treat the holder of record of a share of its stock
as the complete owner thereof exclusively entitled to vote, to receive
notifications and otherwise entitled to all the rights and powers of a complete
owner thereof, notwithstanding notice to the contrary.

    Section 5.  Stock Certificates.  The Board of Directors may direct that a
    ----------  ------------------                                           
new stock certificate or certificates, or uncertificated shares, be issued in
place of any certificate or certificates theretofore issued by the corporation
alleged to have been lost, stolen, or destroyed upon the making of an affidavit
of that fact by the person claiming the certificate of stock to be lost, stolen
or destroyed.  When authorizing such issue of a new certificate or certificates,
or uncertificated shares, the Board of Directors may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate or certificates or his or her legal
representative, to give the corporation a bond sufficient to indemnify it
against any claim that may be made against the corporation on account of the
alleged loss, theft, or destruction, of such certificates or the issuance of
such new certificate or certificates, or uncertificated shares.

 
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    Section 6.  Record Date.  (a) In order that the corporation may determine
    ----------  -----------                                                  
the stockholders entitled to notice of or to vote at any meeting of
stockholders, or to receive payment of any dividend or other distribution or
allotment of any rights or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action
other than stockholder action by written consent, the Board of Directors may fix
a record date, which record date shall not precede the date on which the
resolution fixing the record date is adopted and which record date shall not be
more than 60 nor less than 10 days before the date of any meeting of
stockholders, nor more than 60 days prior to the time for such other action as
hereinbefore described; provided, however, that if no record date is fixed by
the Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held, and, for determining stockholders entitled to receive
payment of and dividend or other distribution or allotment of rights or to
exercise any rights of change, conversion or exchange of stock or for any other
purpose, the record date shall be at the close of business on the day on which
the Board of Directors adopts a resolution relating thereto.  A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.

    (b)  In order that the corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall be not more than 10 days after the date upon which the
resolution fixing the record date is adopted. Any stockholder of record seeking
to have the stockholders authorize or take corporate action by written consent
shall, by written notice to the Secretary, request the Board of Directors to fix
a record date. The Board of Directors shall promptly, but in all events within
10 days after the date on which such a request is received, adopt a resolution
fixing the record date. If no record 

 
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date has been fixed by the Board of Directors and no prior action by the Board
of Directors is required by the Delaware General Corporation Law, the record
date shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the corporation in the
manner prescribed by Article I, Section 12 hereof. If no record date has been
fixed by the Board of Directors and prior action by the Board of Directors is
required by the Delaware General Corporation Law with respect to the proposed
action by written consent of stockholders, the record date for determining
stockholders entitled to consent to corporate action in writing shall be at the
close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.

                                   ARTICLE V

                            Miscellaneous Provisions

    Section 1.  Interested Directors and Officers.  (a) No contract or
    ----------  ---------------------------------                     
transaction between the corporation and one or more of its Directors or
officers, or between the corporation and any other corporation, partnership,
association, or other organization in which one or more of its Directors or
officers are Directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the Director or officer is
present at or participates in the meeting of the Board or committee thereof
which authorizes the contract or transaction, or solely because his or her or
their votes are counted for such purpose, if:

         (i)    the material facts as to his or her relationship or interest and
    as to the contract or transaction are disclosed or are known to the Board of
    Directors or the committee, and the Board or committee in good faith
    authorizes the contract or transaction by the affirmative vote of a majority
    of the disinterested Directors, even though the number of disinterested
    Directors is less than a quorum; or

         (ii)   the material facts as to his or her relationship or interest and
    as to the contract or transaction are disclosed or are known to the
    stockholders entitled to vote thereon, and

 
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    the contract or transaction is specifically approved in good faith by vote
    of the shareholders; or

         (iii)  the contract or transaction is fair as to the corporation as of
    the time it is authorized, approved or ratified, by the Board of Directors,
    a committee thereof, or the shareholders.

    (b)  Common or interested Directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.

    Section 2.  Indemnification.
    ----------  --------------- 

    (a)  Right to Indemnification.  The corporation shall indemnify and hold
         -------------------------                                          
harmless each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a Director or an officer of the
corporation or is or was serving at the request of the corporation as a
Director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director, officer,
to the fullest extent authorized by law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the corporation to provide broader indemnification rights than
such law permitted the corporation to provide prior to such amendment), against
all expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by such indemnitee in connection therewith; provided,
however, that, except as provided in Subsection (c) of this Section with respect
to proceedings to enforce rights to indemnification, the corporation shall
indemnify any such indemnitee in connection with a proceeding (or part thereof) 
initiated by such indemnitee only if such proceeding (or

 
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part thereof) was authorized by the Board of Directors of the corporation; and
provided further that as to any matter disposed of by a compromise payment by
such person, pursuant to a consent decree or otherwise, no indemnification
either for said payment or for any other expenses shall be provided unless such
compromise and indemnification therefor shall be appropriated:

         (i)    by a majority vote of a quorum consisting of disinterested
    Directors;

         (ii)   if such a quorum cannot be obtained, then by a majority vote of
    a committee of the Board of Directors consisting of all the disinterested
    Directors;

         (iii)  if there are not two or more disinterested Directors in office,
    then by a majority of the Directors then in office, provided they have
    obtained a written finding by special independent legal counsel appointed by
    a majority of the Directors to the effect that, based upon a reasonable
    investigation of the relevant facts as described in such opinion, the person
    to be indemnified appears to have acted in good faith in the reasonable
    belief that his or her action was in the best interests of the corporation
    (or, to the extent that such matter relates to service with respect to an
    employee benefit plan, in the best interests of the participants or
    beneficiaries of such employee benefit plan);

         (iv)   by the holders of a majority of the shares of stock entitled to
    vote for the election of Directors, which majority may include interested
    Directors and officers; or

         (v)    by a court of competent jurisdiction.

An "interested" Director or officer is one against whom in such capacity the
proceeding in question or other proceeding on the same or similar grounds is
then pending.  The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
                                                 ---------------       
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he or she reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect to
any criminal action or 

 
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proceeding, had reasonable cause to believe that his or her conduct was
unlawful.

    (b)  Right to Advancement of Expenses.  The right to indemnification
         ----------------------------------                             
conferred in Subsection (a) of this Section shall include the right to be paid
by the corporation the expenses incurred in defending any such proceeding in
advance of its final disposition (hereinafter an "advancement of expenses");
provided, however, that, if the Delaware General Corporation Law requires, an
advancement of expenses incurred by an indemnitee in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee,
to repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal (hereinafter a
"final adjudication") that such indemnitee is not entitled to be indemnified for
such expenses under this Section or otherwise, which undertaking may be accepted
without reference to the financial ability of such person to make repayment.

    (c)  Right of Indemnitee to Bring Suit.  If a claim under Subsection (a) or
         ---------------------------------                                     
(b) of this Section is not paid in full by the corporation within 60 days after
a written claim has been received by the corporation, except in the case of a
claim for an advancement of expenses, in which case the applicable period shall
be 20 days, the indemnitee may at any time there after bring suit against the
corporation to recover the unpaid amount of the claim.  If successful in whole
or in part in any such suit, or in a suit brought by the corporation to recover
an advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit.  In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the indemnitee
to enforce a right to an advancement of expenses) it shall be a defense that,
and (ii) any suit by the corporation to recover an advancement of expenses
pursuant to the terms of an undertaking the corporation shall be entitled to
recover such expenses upon a final adjudication that, the indemnitee has not met
any applicable standard for indemnification set forth in the 

 
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Delaware General Corporation Law. Neither the failure of the corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Section or otherwise shall be on the corporation.

    (d)  Non-exclusivity of Rights.  The rights to indemnification and to the
         -------------------------                                           
advancement of expenses conferred in this Section shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
certificate of incorporation, by-law, agreement, vote of disinterested Directors
or otherwise.  The corporation's indemnification under this Section 2 of any
person who is or was a Director or officer of the corporation, or is or was
serving, at the request of the corporation, as a Director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall be reduced by any amounts such person receives as
indemnification (i) under any policy of insurance purchased and maintained on
his or her behalf by the corporation, (ii) from such other corporation,
partnership, joint venture, trust or other enterprise, or (iii) under any other
applicable indemnification provision.

    (e)  Joint Representation.  If both the corporation and any person to be
         --------------------                                               
indemnified are parties to an action, suit or proceeding (other than an action
or suit by or in the right of the corporation to procure a judgment in its
favor), counsel representing the corporation therein may also represent such
indemnified person (unless such dual representation would involve 

 
Bylaws of
Digital Certificates International, Inc.
Page 22


such counsel in a conflict of interest in violation of applicable principles of
professional ethics), and the corporation shall pay all fees and expenses of
such counsel incurred during the period of dual representation other than those,
if any, as would not have been incurred if counsel were representing only the
corporation; and any allocation made in good faith by such counsel of fees and
disbursements payable under this paragraph by the corporation versus fees and
disbursements payable by any such indemnified person shall be final and binding
upon the corporation and such indemnified person.

    (f)  Indemnification of Employees and Agents of the Corporation.  Except to
         ----------------------------------------------------------            
the extent that rights to indemnification and advancement of expenses of
employees or agents of the corporation may be required by any statute, the
Certificate of Incorporation, this Section or any other by-law, agreement, vote
of disinterested Directors or otherwise, the corporation may, to the extent
authorized from time to time by the Board of Directors, grant rights to
indemnification and to the advancement of expenses to any employee or agent of
the corporation to the fullest extent of the provisions of this Section with
respect to the indemnification and advancement of expenses of Directors and
officers of the corporation.

    (g)  Insurance.  The corporation may maintain insurance, at its expense, to
         ---------                                                             
protect itself and any Director, officer, employee or agent of the corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law (as currently in effect or hereafter
amended), the corporation's Certificate of Incorporation or these By-laws.

    (h)  Nature of Indemnification Right; Modification of Repeal of
         ----------------------------------------------------------
Indemnification.  Each person who is or becomes a Director or officer as
- ---------------                                                         
described in subsection (a) of this Section 2 shall be deemed to have served or
to have continued to serve in such capacity in reliance upon the indemnity
provided for in this Section 2.  All rights to indemnification (and the
advancement of expenses) under this Section 2 shall be deemed to be provided by
a contract between the corporation and the person who serves as a 

 
Bylaws of
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Page 23


Director or officer of the corporation at any time while these By-laws and other
relevant provisions of the Delaware General Corporation Law and other applicable
law, if any, are in effect. Such rights shall continue as to an indemnitee who
has ceased to be a Director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators. Any
modification or repeal of this Section 2 shall not adversely affect any right or
protection existing under this Section 2 at the time of such modification or
repeal.

    Section 3.  Stock in Other Corporations.  Subject to any limitations that
    ----------  ---------------------------                                  
may be imposed by the Board of Directors, the President or any person or persons
authorized by the Board of Directors may, in the name and on behalf of the
corporation, (a) call meetings of the holders of stock or other securities of
any corporation or other organization, stock or other securities of which are
held by this corporation, (b) act, or appoint any other person or persons (with
or without powers of substitution) to act in the name and on behalf of the
corporation, or (c) express consent or dissent, as a holder of such securities,
to corporate or other action by such other corporation or organization.

    Section 4.  Checks, Notes, Drafts and Other Instruments.  Checks, notes,
    ----------  -------------------------------------------                 
drafts and other instruments for the payment of money drawn or endorsed in the
name of the corporation may be signed by any officer or officers or person or
persons authorized by the Board of Directors to sign the same.  No officer or
person shall sign any such instrument as aforesaid unless authorized by the
Board of Directors to do so.

    Section 5.  Corporate Seal.  The seal of the corporation shall be circular
    ----------  --------------                                                
in form, bearing the name of the corporation, the word "Delaware", and the year
of incorporation, and the same may be used by causing it or a facsimile thereof
to be impressed or affixed or in any other manner reproduced.

    Section 6.  Books and Records.  The books, accounts and records of the
    ----------  -----------------                                         
corporation, except as may be otherwise required by law, may be kept outside of
the State of Delaware, at such place or places as the Board of Directors may
from time to time appoint.  Except as may otherwise be provided by law, the
Board of 

 
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Page 24


Directors shall determine whether and to what extent the books, accounts,
records and documents of the corporation, or any of them, shall be open to the
inspection of the stockholders.

    Section 7.  Severability.  If any term or provision of the By-laws, or the
    ----------  ------------                                                  
application thereof to any person or circumstances or period of time, shall to
any extent be invalid or unenforceable, the remainder of the By-laws shall be
valid and enforced to the fullest extent permitted by law.

    Section 8.  Interpretations.  Words importing persons include firms,
    ----------  ---------------                                         
associations and corporations, all words importing the singular number include
the plural number and vice versa, and all words importing the masculine gender
include the feminine gender.

    Section 9.  Amendments.  These By-laws may at any time and from time to time
    ----------  ----------                                                      
be amended or repealed by the stockholders or, if such power is conferred by the
Certificate of Incorporation, by the Board of Directors, except that any By-law
added or amended by the stockholders may be altered or repealed only by the
stockholders if such By-law expressly so provides.

 
Bylaws of
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Page 25


                                 CERTIFICATION



    I, the undersigned, do hereby certify that:

    (1)  I am the duly elected and acting Secretary of Digital Certificates
International, Inc., a Delaware corporation; and

    (2)  The foregoing Bylaws, comprising twenty-three (23) pages, including
this Certification, constitute the Bylaws of said corporation as duly adopted by
the Board of Directors of this corporation on April 12, 1995.

    IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal
of said corporation this 12th day of April, 1995.



                              /s/ Timothy Tomlinson
                              -----------------------------------
                              Timothy Tomlinson, Secretary



                                                                    EXHIBIT 4.01

                             AMENDED AND RESTATED

                          INVESTORS' RIGHTS AGREEMENT



                               November 15, 1996

 
                               TABLE OF CONTENTS
                               -----------------

Page ---- 1. Registration Rights........................................... 1. ------------------- 1.1 Definitions........................................... 1. ----------- 1.2 Request for Registration.............................. 2. ------------------------ 1.3 Company Registration.................................. 4. -------------------- 1.4 Obligations of the Company............................ 4. -------------------------- 1.5 Furnish Information................................... 5. ------------------- 1.6 Expenses of Demand Registration....................... 5. ------------------------------- 1.7 Expenses of Company Registration...................... 6. -------------------------------- 1.8 Underwriting Requirements............................. 6. ------------------------- 1.9 Delay of Registration................................. 7. --------------------- 1.10 Indemnification....................................... 7. --------------- 1.11 Reports Under Securities Exchange Act of 1934......... 9. --------------------------------------------- 1.12 Form S-3 Registration................................. 9. --------------------- 1.13 Assignment of Registration Rights..................... 10. --------------------------------- 1.14 Limitations on Subsequent Registration Rights......... 11. --------------------------------------------- 1.15 "Market Stand-Off" Agreement.......................... 11. ---------------------------- 1.16 Termination of Registration Rights.................... 12. ---------------------------------- 2. Covenants of the Company...................................... 12. ------------------------ 2.1 Delivery of Financial Statements...................... 12. -------------------------------- 2.2 Special Covenants..................................... 12. ----------------- 2.3 Termination of Information and Inspection Covenants... 13. --------------------------------------------------- 2.4 Right of First Offer.................................. 13. -------------------- 2.5 Key-Person Insurance.................................. 15. -------------------- 2.6 Directors' Expenses................................... 15. ------------------- 2.7 Certain Board Approval................................ 15. ---------------------- 2.8 Confidentiality....................................... 15. --------------- 3. Miscellaneous................................................. 15. ------------- 3.1 Successors and Assigns................................ 15. ---------------------- 3.2 Governing Law......................................... 15. ------------- 3.3 Counterparts.......................................... 15. ------------ 3.4 Titles and Subtitles.................................. 16. -------------------- 3.5 Notices............................................... 16. ------- 3.6 Expenses.............................................. 16. -------- 3.7 Amendments and Waivers................................ 16. ----------------------
TABLE OF CONTENTS -----------------
Page ---- 3.8 Severability.......................................... 16. ------------ 3.9 Aggregation of Stock.................................. 16. -------------------- 3.10 Entire Agreement; Amendment; Waiver................... 16. ----------------------------------- 3.11 Representation........................................ 16. -------------- 3.12 Limitations on Disposition............................ 17. --------------------------
SCHEDULE A - Schedule of Investors SCHEDULE B - Schedule of Stockholders iii. AMENDED AND RESTATED -------------------- INVESTORS' RIGHTS AGREEMENT --------------------------- THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT is made as of the 15th day of November, 1996, by and between VeriSign, Inc., a Delaware corporation (the "Company"), and the investors listed on Schedule A hereto, each ---------- of which is herein referred to as an "Investor." RECITALS -------- WHEREAS, certain of the Investors hold shares of the Company's Series A Preferred Stock and/or Series B Preferred Stock and/or Common Stock (the "Prior Investors") and possess registration rights, information rights, rights of first refusal, and other rights pursuant to that certain Investor's Rights Agreement dated February 20, 1996 (the "Prior Rights Agreement"); WHEREAS, certain Investors are parties to the Series C Preferred Stock Purchase Agreement of even date herewith between the Company and certain of the Investors (the "Series C Agreement"); WHEREAS, in order to induce the Company to enter into the Series C Agreement and to induce the Investors who are parties to the Series C Agreement to invest funds in the Company, the Prior Investors and the Company have agreed to enter into this Agreement amending and restating the Prior Rights Agreement in order to govern the rights of the Investors to cause the Company to register shares of Common Stock and certain other matters as set forth herein; NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties hereto agree as follows: 1. Registration Rights. The Company covenants and agrees as ------------------- follows: 1.1 Definitions. For purposes of this Section 1: ----------- (a) The term "Act" means the Securities Act of 1933, as amended. (b) The term "Form S-3" means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. (c) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.13 hereof (d) The term "1934 Act" shall mean the Securities Exchange Act of 1934, as amended. (e) The term "register", "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document. (f) The term "Registrable Securities" means (i) the Common Stock issuable or issued upon conversion of the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock, (ii) any additional Common Stock of the Company held of record by a Holder and (iii) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of the shares referenced in (i) and (ii) above, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which his rights under this Section 1 are not assigned. For purposes of Section 1.3 hereof only, the definition of Registrable Securities shall also include the shares of Common Stock of the Company set forth on Schedule B attached hereto. ---------- (g) The number of shares of "Registrable Securities then outstanding" shall be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are, Registrable Securities. (h) The term "SEC" shall mean the Securities and Exchange Commission. 1.2 Request for Registration. ------------------------ (a) If the Company shall receive at any time after the earlier of (i) January 1, 1997, or (ii) three (3) months after the effective date of the first registration statement for a public offering of securities of the Company (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or a SEC Rule 145 transaction), a written request from the Holders of a majority of the Registrable Securities then outstanding that the Company file a registration statement under the Act, then the Company shall: 2. (i) within ten (10) days of the receipt thereof, give written notice of such request to all Holders; and (ii) effect as soon as practicable, and in any event within one hundred twenty (120) days of the receipt of such request, the registration under the Act of all Registrable Securities which the Holders request to be registered, subject to the limitations of subsection 1.2(b), within twenty (20) days of the mailing of such notice by the Company in accordance with Section 3.5. (b) If the Holders initiating the registration request hereunder ("Initiating Holders") intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to subsection 1.2(a) and the Company shall include such information in the written notice referred to in subsection 1.2(a). The underwriter will be selected by the Company and shall be reasonably acceptable to a majority in interest of the Initiating Holders. In such event, the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 1.4(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder; provided, however, that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting. (c) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 1.2, a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer taking action with respect to such filing for a period of not more than one hundred twenty (120) days after receipt of the request of the Initiating Holders; provided, however, that the Company may not utilize this right more than once in any twelve-month period. 3. (d) In addition, the Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 1.2: (i) After the Company has effected two (2) registrations pursuant to this Section 1.2 and such registrations have been declared or ordered effective; (ii) During the period starting with the date thirty (30) days prior to the Company's good faith estimate of the date of filing of, and ending on a date one hundred eighty (180) days after the effective date of, a registration subject to Section 1.3 hereof; provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; or (iii) If the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 1.12 below and that may be effectively marketed by means of the Form S-3 prospectus that the Company proposes to use. 1.3 Company Registration. If (but without any obligation to do so) -------------------- the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its stock or other securities under the Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan, a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities which are also being registered), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within twenty (20) days after mailing of such notice by the Company in accordance with Section 3.5, the Company shall, subject to the provisions of Section 1.8, cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered. 1.4 Obligations of the Company. Whenever required under this -------------------------- Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to ninety (90) days or until the distribution contemplated in the Registration Statement has been completed; provided, however, that such 90-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included 4. in such registration at the request of an underwriter of Common Stock (or other securities) of the Company. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed. (h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereto and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration. 1.5 Furnish Information. ------------------- (a) It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information 5. regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. (b) The Company shall have no obligation with respect to any registration requested pursuant to Section 1.2 or Section 1.12 if, due to the operation of subsection 1.5(a), the number of shares or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Company's obligation to initiate such registration as specified in subsection 1.2(a) or subsection 1.12(b), whichever is applicable. 1.6 Expenses of Demand Registration. All expenses other than ------------------------------- underwriting discounts and commissions (which shall be borne pro rata by the selling Holders based on the number of Registrable Securities registered by each such Holder) incurred in connection with registrations, filings or qualifications pursuant to Section 1.2, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company and the reasonable fees and disbursements of one counsel for the selling Holders shall be borne by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 1.2; provided further, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness following disclosure by the Company of such material adverse change, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 1.2. 1.7 Expenses of Company Registration. The Company shall bear and -------------------------------- pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 1.3 for each Holder, including (without limitation) all registration, filing, and qualification fees, printers and accounting fees relating or apportionable thereto and the fees and disbursements of one counsel for the selling Holders, but excluding underwriting discounts and commissions relating to Registrable Securities (which shall be borne pro rata by the selling Holders based on the number of Registrable Securities registered by each such Holder). 1.8 Underwriting Requirements. In connection with any offering ------------------------- involving an underwriting of shares of the Company's capital stock, the Company shall not be required under Section 1.3 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the 6. underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling stockholders according to the total amount of securities entitled to be included therein owned by each selling stockholder or in such other proportions as shall mutually be agreed to by such selling stockholders) but in no event shall (i) the amount of securities of the selling Holders included in the offering be reduced below twenty percent (20%) of the total amount of securities included in such offering, unless such offering is the initial public offering of the Company's securities in which case the selling stockholders may be excluded if the underwriters make the determination described above and no other stockholder's securities are included or (ii) notwithstanding (i) above, any shares being sold by a stockholder exercising a demand registration right similar to that granted in Section 1.2 be excluded from such offering. For purposes of the preceding parenthetical concerning apportionment, for any selling stockholder which is a holder of Registrable Securities and which is a partnership or corporation, the partners, retired partners and stockholders of such holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling stockholder", and any pro-rata reduction with respect to such "selling stockholder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling stockholder" as defined in this sentence. 1.9 Delay of Registration. No Holder shall have any right to --------------------- obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1. 1.10 Indemnification. In the event any Registrable Securities are --------------- included in a registration statement under this Section 1: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the 1934 Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, or the 1934 Act, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or 7. supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, or any rule or regulation promulgated under the Act, or the 1934 Act; and the Company will pay to each such Holder, underwriter or controlling person any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.10(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person. (b) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, or the 1934 Act, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.10(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.10(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this subsection 1.10(b) exceed the gross proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 1.10 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.10, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if 8. representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.10 to the extent and only to the extent the failure to timely deliver such notice has prejudiced the indemnified party's ability to defend such action, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.10. (d) If the indemnification provided for in this Section 1.10 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (e) The obligations of the Company and Holders under this Section 1.10 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.11 Reports Under Securities Exchange Act of 1934. With a view to --------------------------------------------- making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after ninety (90) days after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public; (b) take such action, including the voluntary registration of its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as 9. practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective; (c) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and (d) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. 1.12 Form S-3 Registration. In case the Company shall receive from --------------------- any Holder or Holders a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and (b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.12: (1) if Form S-3 is not available for such offering by the Holders; (2) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters' discounts or commissions) of less than $1,000,000; (3) if the Company shall furnish to the Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than 60 days after receipt of the request of the Holder or Holders under this Section 1.12; provided, however, that the Company shall not utilize this 10. right more than once in any twelve month period; (4) if the Company has, within the twelve (12) month period preceding the date of such request, already effected two registrations on Form S-3 for the Holders pursuant to this, Section 1.12; or (5) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. (c) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. All expenses incurred in connection with a registration requested pursuant to this Section 1.12, including (without limitation) all registration, filing, qualification, printer's and accounting fees and the reasonable fees and disbursements of one counsel for all selling Holders and counsel for the Company, but excluding any underwriters' discounts or commissions associated with Registrable Securities (which shall be borne pro rata by the selling Holders based on the number of Registrable Securities registered by each such Holder), shall be borne by the Company. Registrations effected pursuant to this Section 1.12 shall not be counted as demands for registration or registrations effected pursuant to Sections 1.2 or 1.3, respectively. 1.13 Assignment of Registration Rights. The rights to cause the --------------------------------- Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such securities, provided: (a) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; (b) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, including without limitation the provisions of Section 1.15 below; and (c) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act. For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee, the holdings of transferees and assignees of a partnership who are partners or retired partners of such partnership (including spouses and ancestors, lineal descendants and siblings of such partners or spouses who acquire Registrable Securities by gift, will or intestate succession) shall be aggregated together and with the partnership; provided that all assignees and transferees who would not qualify individually for assignment of registration rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under this Section 1. 1.14 Limitations on Subsequent Registration Rights. From and after --------------------------------------------- the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the outstanding Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder (a) to include such securities in any registration filed under Section 1.2 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of its 11. securities will not reduce the amount of the Registrable Securities of the Holders which is included or (b) to make a demand registration which could result in such registration statement being declared effective prior to the earlier of either of the dates set forth in subsection 1.2(a) or within one hundred twenty (120) days of the effective date of any registration effected pursuant to Section 1.2. 1.15 "Market Stand-Off" Agreement. Each Investor hereby agrees that, ---------------------------- during the period of duration specified by the Company and an underwriter of common stock or other securities of the Company, following the effective date of a registration statement of the Company filed under the Act, it shall not, to the extent requested by the Company and such underwriter, directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of the Company held by it at any time during such period except common stock included in such registration; provided, however, that: (a) such agreement shall not exceed one hundred eighty (180) days; and (b) all officers and directors of the Company and all other persons with registration rights (whether or not pursuant to this Agreement) enter into similar agreements or the Company imposes stock transfer restrictions on such person's shares pursuant to the following paragraph. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Investor (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. 1.16 Termination of Registration Rights. ---------------------------------- (a) No Holder shall be entitled to exercise any right provided for in this Section 1 after the earlier of (i) five (5) years following the consummation of the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the initial firm commitment underwritten offering of its securities to the general public, or (ii) such time as the Holder can sell all of such stock under Rule 144(k) (or successor rule) promulgated by the SEC. 2. Covenants of the Company. ------------------------ 2.1 Delivery of Financial Statements. The Company shall deliver to -------------------------------- each Investor who holds a minimum of 50,000 shares of Series A Preferred Stock and/or Series B Preferred Stock and/or Series C Preferred Stock (subject to appropriate adjustment for stock splits, stock dividends, combinations and other recapitalizations): 12. (a) as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of stockholder's equity as of the end of such year, and a schedule as to the sources and applications of funds for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles ("GAAP"), and audited and certified by independent public accountants of nationally recognized standing selected by the Company; (b) as soon as practicable, but in any event within thirty (30) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited profit or loss statement, schedule as to the sources and application of funds for such fiscal quarter and an unaudited balance sheet and a statement of stockholder's equity as of the end of such fiscal quarter; (c) as soon as practicable, but in any event thirty (30) days prior to the end of each fiscal year, a budget and operating plan for the next fiscal year, prepared on a monthly basis, including balance sheets and sources and applications of funds statements for such months and, as soon as prepared, any other budgets or revised budgets prepared by the Company. 2.2 Special Covenants. ----------------- (a) The Company shall deliver to each Investor as soon as practicable, but in any event within thirty (30) days after the end of each of the first three (3) quarters of each fiscal year of the Company, a statement showing the number of shares of each class and series of capital stock and securities convertible into or exercisable for shares of capital stock outstanding at the end of the period, the number of common shares issuable upon conversion or exercise of any outstanding securities convertible or exercisable for common shares and the exchange ratio or exercise price applicable thereto, all in sufficient detail as to permit such Investor to calculate its percentage equity ownership in the Company. (b) The Company shall deliver to each Investor such other information relating to the financial condition, business, prospects or corporate affairs of the Company as such Investor or any assignee of such Investor may from time to time request, provided, however, that the Company shall not be obligated under this subsection (b) or any other subsection of Section 2.2 to provide information which it deems in good faith to be a trade secret or similar confidential information. (c) The Company shall permit each Investor, at its expense, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by such Investor; provided, however, that the Company shall not be 13. obligated pursuant to this subsection (c) to provide access to any information which it reasonably considers to be a trade secret or similar confidential information. 2.3 Termination of Information and Inspection Covenants. The --------------------------------------------------- covenants set forth in Sections 2.1, 2.2 and 2.4 shall terminate as to Investors and be of no further force or effect when the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the firm commitment underwritten offering of its securities to the general public is consummated. In addition, notwithstanding anything to the contrary in this Section 2, the Company shall have no obligation to deliver any information pursuant to the provisions of Section 2.1(c)(i) which the Company believes to be a trade secret or similar confidential information or (ii) to any Investor whom the Company's Board of Directors reasonably determines is a direct or indirect competitor or potential competitor of the Company or any of its affiliated entities. 2.4 Right of First Offer. Subject to the terms and conditions -------------------- specified in this Section 2.4, the Company hereby grants to each Investor and to Mr. Stratton Sclavos (who, solely for purposes of this Section 2.4 shall be considered an "Investor") a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined). For purposes of this Section 2.4, Investor includes any general partners and affiliates of an Investor. An Investor shall be entitled to apportion the right of first offer hereby granted it among itself and its partners and affiliates in such proportions as it deems appropriate. Each time the Company proposes to offer any shares of, or securities convertible into or exercisable for any shares of, any class of its capital stock ("Shares"), the Company shall first make an offering of such Shares to each Investor in accordance with the following provisions: (a) The Company shall deliver a notice by registered or certified mail ("Notice") to the Investors (but need not send a notice to an Investor's general partners and affiliates) stating (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such Shares. (b) Within twenty (20) calendar days after receipt of the Notice, the Investor may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Shares which equals the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion of the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock then held by such Investor bears to the total number of shares of Common Stock of the Company then outstanding (assuming full conversion of all convertible securities). The Company shall promptly, in writing, inform each Investor which purchases all the shares available to it ("Fully-Exercising Investor") of any other Investor's failure to do likewise. During the ten-day period commencing after receipt of such information, each Fully-Exercising Investor shall be entitled to obtain that portion of the Shares for which Investors were entitled to subscribe but which were not subscribed for by the Investors which is equal to the proportion that the number of shares of Common Stock issued 14. and held, or issuable upon conversion of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock then held, by such Fully-Exercising Investor bears to the total number of shares of Common Stock issued and held, or issuable upon conversion of the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock then held, by all Fully-Exercising Investors who wish to purchase some of the unsubscribed shares. (c) If all Shares which Investors are entitled to obtain pursuant to subsection 2.4(b) are not elected to be obtained as provided in subsection 2.4(b) hereof, the Company may, during the ninety (90)-day period following the expiration of the period provided in subsection 2.4(b) hereof, offer the remaining unsubscribed portion of such Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than those specified in the Notice. If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within ninety (90) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to the Investors in accordance herewith. (d) The right of first offer in this Section 2.4 shall not be applicable (i) to the issuance and sale of the Series C Preferred Stock to be purchased at the Closing, as defined in the Series C Agreement, (ii) to the issuance or sale of not to exceed 4,370,000 shares of Common Stock (or options therefor) to employees, consultants, directors or officers of the Company, members of advisory boards of the Company, entities of strategic significance to the Company, or lenders or vendors to the Company (and not repurchased at cost by the Company in connection with the termination of employment or service relationship) subsequent to the date of this Agreement, (iii) to securities offered to the public generally pursuant to a registration statement, (iv) to the issuance of securities pursuant to the conversion or exercise of convertible or exercisable securities, (v) to the issuance of securities in connection with a bona fide business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise, or (vi) to stock issued in connection with any split, stock dividend or recapitalization by the Company. (e) The right of first offer set forth in this Section 2.4 may not be assigned or transferred, except that (i) such right is assignable by each Investor to any wholly owned subsidiary or parent of, or to any corporation or entity that is, within the meaning of the Act, controlling, controlled by or under common control with, any such Investor, (ii) such right is assignable to an assignee purchasing at least fifty percent (50%) of the outstanding Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock originally purchased by such Investor and (iii) such right is assignable between and among any of the Investors. (f) That certain Right of First Refusal Agreement dated July 26, 1995 between the Company and Mr. Stratton Sclavos is hereby terminated and is replaced in its entirety by this Section 2.4. 15. 2.5 Key-Person Insurance. As long as any shares of Series A -------------------- Preferred Stock, Series B Preferred Stock or Series C Preferred Stock remain outstanding, the Company shall maintain, from financially sound and reputable insurers, a term life insurance policy in the amount of at least $1,000,000 on the life of Stratton Sclavos for so long as such individual remains an employee of the Company. Such policy names the Company as loss payee and shall not be cancelable by the Company without prior approval of the Board of Directors. 2.6 Directors' Expenses. The Company shall reimburse reasonable ------------------- out-of-pocket expenses incurred by the Directors in attending Board of Directors' meetings. 2.7 Certain Board Approval. The Company agrees that it will obtain ---------------------- the Board of Directors' prior approval before entering into any agreement with RSA Data Security, Inc., a Delaware corporation, which is outside of the ordinary course of the Company's business and provides for payments to or by the Company in excess of $25,000. 2.8 Confidentiality. Kleiner Perkins Caulfield & Byers acknowledges --------------- that any member of the Board of Directors appointed by it shall have the fiduciary duties applicable to members of the Board of Directors under law with respect to the information provided under Article 2 of this Agreement. 3. Miscellaneous. ------------- 3.1 Successors and Assigns. Except as otherwise provided herein, the ---------------------- terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 3.2 Governing Law. This Agreement shall be governed by and construed ------------- under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California. 3.3 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 3.4 Titles and Subtitles. The titles and subtitles used in this -------------------- Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 3.5 Notices. Unless otherwise provided, any notice required or ------- permitted under this Agreement shall be given in writing and shall be deemed effectively given upon 16. personal delivery to the party to be notified or five (5) days after deposit with the United States Post Office, by registered or certified mail, postage prepaid and addressed to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate by ten (10) days' advance written notice to the other parties. 3.6 Expenses. If any action at law or in equity is necessary to -------- enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 3.7 Amendments and Waivers. Any term of this Agreement may be ---------------------- amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this Section 3.7 shall be binding upon each holder of any Registrable Securities then outstanding, each future holder of all such Registrable Securities, and the Company. 3.8 Severability. If one or more provisions of this Agreement are ------------ held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 3.9 Aggregation of Stock. All shares of Registrable Securities -------------------- held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 3.10 Entire Agreement. This Agreement (including the Exhibits ---------------- hereto, if any) constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. 3.11 Representation. By executing this Agreement, each Investor -------------- acknowledges and agrees that it has been advised to, and has had an opportunity to, consult with its own attorney in connection with this Agreement. In connection with the execution of the Prior Rights Agreement, each Investor executing same acknowledges and agrees that Brobeck, Phleger & Harrison LLP represented Kleiner Perkins Caulfield & Byers solely and that each such Investor had been advised to, and had an opportunity to, consult with its own attorney in connection with the Prior Rights Agreement. 3.12 Limitations on Disposition. Each Investor agrees not to make any -------------------------- disposition of any Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock (or any securities issued upon the conversion thereof) unless and until the transferee has 17. agreed in writing for the benefit of the Company to be bound by this Section 3.12, provided and to the extent such section is then applicable, and: (a) There is then in effect a Registration Statement under the Act covering such proposed disposition and such disposition is made in accordance with such Registration Statement; or (b) (i) Such Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (ii) if reasonably requested by the Company, such Investor shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except in unusual circumstances. (c) Notwithstanding the provisions of paragraphs (a) and (b) above, no such registration statement or opinion of counsel shall be necessary for a transfer by an Investor which is a partnership to a partner of such partnership or a retired partner of such partnership who retires after the date hereof, or to the estate of any such partner or retired partner or the transfer by gift, will or intestate succession of any partner to his spouse or to the siblings, lineal descendants or ancestors of such partner or his spouse, if the transferee agrees in writing to be subject to the terms of this Section 3.12 to the same extent as if he were an original Investor hereunder. (d) Nothing in this Agreement prohibits a party from selling, assigning, transferring or pledging shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Common Stock to an affiliate of such party whether foreign, domestic or otherwise, provided that Section 1.13 is satisfied. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 18. This Amendment is hereby executed as of the date first above written. COMPANY: VERISIGN, INC., a Delaware corporation By: /s/ Stratton Sclavos ------------------------------------ Stratton Sclavos, President Address: 2593 Coast Avenue Mountain View, CA 94043 PRIOR INVESTORS: AMERITECH DEVELOPMENT CORPORATION By: /s/ Thomas Touton ------------------------------------ Name: Thomas Touton Title: Vice President - Venture Capital Address: 30 South Wacker Drive, 37th Floor Chicago, IL 60606 BESSEMER VENTURE PARTNERS DCI By: Bessemer Venture Partners III, L.P. Managing General partner By: Deer III & Co. By: /s/ Robert H. Buescher -------------------------------- Name: Robert H. Buescher ------------------------------ Title: Partner ----------------------------- Address: 1025 Old Country Road Suite 205 Westbury, NY 11590 /s/ D. James Bidzos ---------------------------------------- D. James Bidzos Address: c/o RSA Data Security, Inc. 100 Marine Parkway, Suite 500 Redwood City, CA 94065 FIRST TZMM INVESTMENT PARTNERSHIP By: /s/ Timothy Tomlinson ----------------------------------------- Name: Timothy Tomlinson Title: General Partner Address: c/o Tomlinson Zisko Morosoli & Maser LLP 200 Page Mill Road, 2nd Floor Palo Alto, CA 94306 FISCHER SECURITY CORPORATION L.L.C. By: /s/ Addison M. Fischer ----------------------------------------- Name: Addison M. Fischer ---------------------------------- Title: Managing Director Address: 4073 Mercantile Avenue Naples, FL 33942 GC&H INVESTMENTS By: /s/ James C. Kitch ----------------------------------------- Name: James C. Kitch ---------------------------------- Title: Executive Partner ---------------------------------- Address: 3000 Sand Hill Road Building 3, Suite 230 Menlo Park, CA 94025 INTEL CORPORATION By: /s/ Satish Rishi ----------------------------------------- Name: Satish Rishi --------------------------------------- Title: Assistant Treasurer -------------------------------------- [SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT] Address: 2200 Mission College Boulevard Santa Clara, CA 95052 KAIRDOS L.L.C. By: /s/ D. James Bidzos --------------------------------------- Name: D. James Bidzos Title: Manager Address: c/o D. James Bidzos RSA Data Security, Inc. 100 Marine Parkway, Suite 500 Redwood City, Ca 94065 KLEINER PERKINS CAULFIELD & BYERS VII By: /s/ Kevin R. Compton --------------------------------------- Name: Kevin R. Compton Title: General Partner Address: 2750 Sand Hill Road Menlo Park, CA 94025 KPCB INFORMATION SCIENCE ZAIBATSU FUND II By: /s/ Kevin R. Compton --------------------------------------- Name: Kevin R. Compton Title: General Partner Address: 2750 Sand Hill Road Menlo Park, CA 94025 KPCB VII FOUNDERS FUND By: /s/ Kevin R. Compton --------------------------------------- Name: Kevin R. Compton Title: General Partner [SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT] Address: 2750 Sand Hill Road Menlo Park, CA 94025 MITSUBISHI CORPORATION By:_______________________________________ Name: Hironori Aihara Title: Managing Director Address: 6-3, Marunouchi 2-Chome Chiyoda-ku, Tokyo 100-86 Japan /s/ Ronald Rivest ------------------------------------------ Ronald Rivest Address: 24 Candia Street Arlington, MA 02174 RSA DATA SECURITY, INC. By: /s/ D. James Bidzos --------------------------------------- Name: D. James Bidzos Title: CEO Address: 100 Marine Parkway, Suite 500 Redwood City, CA 94065 SECURITY DYNAMICS TECHNOLOGIES, INC. By: /s/ Charles R. Stuckey --------------------------------------- Name: Charles R. Stuckey ------------------------------------- Title: Chairman and CEO ------------------------------------ Address: 20 Crosby Drive Bedford, MA 01730 TZM INVESTMENT FUND By: /s/ Timothy Tomlinson --------------------------------------- [SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT] Name: Timothy Tomlinson Title: General Partner Address: c/o Tomlinson Zisko Morosoli & Maser LLP 200 Page Mill Road, 2nd Floor Palo Alto, CA 94306 VISA INTERNATIONAL SERVICE ASSOCIATION By: /s/ William Chenevich --------------------------------------- Name: William Chenevich -------------------------------- Title: EVP -------------------------------- Address: c/o Andrew Konstantaras Legal Department VISA 900 Metro Center Boulevard Foster City, CA 94404 Acknowledged and Agreed Solely with Respect to Section 2.4: /s/ Stratton Sclavos - ------------------------------ ________________ Stratton Sclavos Address: 2593 Coast Avenue Mountain View, CA 94043 INVESTORS: CISCO SYSTEMS, INC. By: /s/ Cisco Systems, Inc. --------------------------------- Name: __________________________ Title: __________________________ Address: 170 West Tasman Drive [SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT] Building J-4 San Jose, CA 95134 Attention: Mike Volpi MICROSOFT CORPORATION By: /s/ Gregory B. Maffei ------------------------------------------ Name: Gregory B. Maffei ----------------------------------- Title: VP Corporate Development; Treasurer ----------------------------------- Address: One Microsoft Way Redmond, WA 98052-6399 Attn: Robert A. Eshelman ------------------------------ COMCAST INVESTMENT HOLDINGS, INC. By: /s/ Julian A. Brodsky ------------------------------------------ Name: Julian A. Brodsky ----------------------------------- Title: Vice Chairman ----------------------------------- Address: 1500 Market Street Philadelphia, PA 19102 Attn: General Counsel VENTURE FUND I, LP By: /s/ Neal Douglas ------------------------------------------ Name: Neal Douglas ----------------------------------- Title: General Partner ----------------------------------- Address: c/o AT&T Ventures 3000 Sand Hill Road, Bldg. 4, Suite 235 Menlo Park, CA 94025 Attn: Neal Douglas INTUIT INC. [SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT] By: /s/ James J. Heeger ------------------------------------------ Name: James J. Heeger ----------------------------------- Title: SVP/CFO ----------------------------------- Address: 2535 Garcia Avenue P. O. Box 7850 Mountain View, CA 94039-7850 Attn: General Counsel REUTERS NEWMEDIA INC. By: /s/ Reuters Newmedia Inc. ------------------------------------------ Name: ___________________________________ Title: CFO, Reuters America Holdings Inc. ----------------------------------- Address: c/o Reuters America Holdings 1700 Broadway New York, NY 10019 Attn: Devin Wenig, Legal Dept. FIRST DATA CORPORATION By: /s/ Scott Loftesness ------------------------------------------ Name: Scott Loftesness ----------------------------------- Title: Executive Vice President ----------------------------------- Address: 700 Hansen Way ----------------------------------- Palo Alto, CA 94304 ----------------------------------- ___________________________________ SOUTHBANK VENTURES, INC. By: /s/ Yoshitaka Kitao ------------------------------------------ Name: Yoshitaka Kitao [SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT] Title: President Address: 24-1 Nihonbashi-Hakozakicho Chuo-ku, Tokyo 103 Japan MERRILL LYNCH GROUP, INC. By: /s/ Theresa Lang -------------------------------- Name: Theresa Lang ------------------------- Title: President ------------------------- Address: Merrill Lynch & Co., Inc. World Financial Center North Tower 280 Vesey Street New York, NY 10281-1334 Attn: Andrea Lowenthal, Esq. AMERINDO TECHNOLOGY GROWTH FUND II By: /s/ Albert W. Vilar -------------------------------- Name: Albert W. Vilar ------------------------- Title: Director ------------------------- Address: c/o Amerindo Investment Advisors 399 Park Avenue, 18th Floor New York, NY 10022 ATTRACTOR L.P. By: /s/ Harvey Allison -------------------------------- Name: Harvey Allison ------------------------- Title: MM of Attractor Ventures LLC GD of Attractor ------------------------- Address: 2730 Sand Hill Road, Suite 280 Menlo Park, CA 94025 [SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT] Attn: Harvey Allison CHANCELLOR LGT ASSET MANAGEMENT By: /s/ Joan DeSantis -------------------------------- Name: Joan DeSantis ------------------------- Title: Nominee Partner ------------------------- Address: 1166 Avenue of the Americas New York, NY 10036 Attn: Alessandro Piol [SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT] SCHEDULE A Schedule of Investors Number Purchase Name of shares price - --------------------------- ------------------- ----------------- Cisco Systems, Inc. 812,500 $6,500,000.00 Microsoft Corporation 812,500 6,500,000.00 Venture Fund I, LP 250,000 2,000,000.00 COMCAST Investment Holdings, Inc. 250,000 2,000,000.00 First Data Corporation 250,000 2,000,000.00 Intuit Inc. 250,000 2,000,000.00 Reuters NewMedia Inc. 250,000 2,000,000.00 SOFTBANK Ventures, Inc. 250,000 2,000,000.00 Merrill Lynch & Co., Inc. 250,000 2,000,000.00 Amerindo Technology Growth Fund II 62,500 500,000.00 Attractor L.P. 62,500 500,000.00 Chancellor LGT Asset Management 62,500 500,000.00 ------------------- ----------------- TOTAL: 3,562,500 $28,500,000.00 SCHEDULE D Schedule of Stockholders EXHIBIT D --------- Schedule of Stockholders ------------------------ Series A Preferred Stockholders No. of Shares - ------------------------------- ------------- Ameritech Development Corporation 452,000 Bessemer Venture Partners DCI 850,000 First TZMM Investment Partnership 23,550 Fischer Security Corporation 425,000 GC&H Investments 33,333 Intel Corporation 850,000 Mistsubishi Corporation 425,000 Security Dynamics Technologies, Inc. 425,000 Visa International Service Association 850,000 ----------- TOTAL 4,306,883 Series B Preferred Stockholders No. of Shares - ------------------------------- ------------- Kleiner Perkins Caufield & Byers VII 1,153,207 KPCB VII Founders Fund 125,947 KPCB Information Science Zaibatsu III 32,799 Bessemer Venture Partners DCI 187,819 Mitsubishi Corporation 72,026 Security Dynamics Technologies, Inc. 72,026 Intel Corporation 144,052 Ameritech Development Corporation 72,026 GC&H Investments 5,589 Visa International Service Association 144,052 Fischer Security Corporation L.L.C. 72,026 First TZMM Investment Partnership 17,554 --------- TOTAL 2,099,123 Schedule of Stockholders Page 2 Common Stockholders No. of Shares - ------------------- ------------- The Allison A. Zisko 1996 Trust 10,000 Webster Augustine 55,000 Michael Baum 125,000 Bessemer Venture Partners DCI 258,333 D. James Bidzos 125,000 Lynette Covington 2,000 Ethel Daly 140,000 Cheryl Erickson 2,000 Dana L. Evan 135,000 Joni F. Harris 1,000 Hart Enterprises, LLC 500 Interim Services, Inc. 2,500 The Joy E. Tomlinson 1996 Trust 5,000 Kairdos L.L.C. 100,000 Betty J. Kinser 12,000 Lisa Kleissner 1,000 Peter Landrock 6,000 Lynn McNulty 1,000 Ram A. Moskovitz 625 The Natalie L. Zisko 1996 Trust 10,000 Jason Paul 6,250 Ronald Rivest 125,000 RSA Data Security, Inc. 4,000,000 Schedule of Stockholders Page 3 Common Stockholders (cont'd) No. of Shares - ---------------------------- ------------- Arn Schaeffer 142,000 Stratton Sclavos 616,000 The Tucker Tomlinson 1996 Trust 5,000 TZM Investment Fund 50,000 Richard Yanovitch 290,000 George Ziemba 125,000 ---------- TOTAL 6,351,208


                                                                    EXHIBIT 4.02

                            STOCKHOLDERS' AGREEMENT


     This Stockholders' Agreement (this "AGREEMENT") is made and entered into
                                         ---------                      
as of April 18, 1995, by and among the entities and individuals set forth on
Schedule A hereto (hereinafter referenced individually as a "STOCKHOLDER" and
- ----------                                                   -----------     
collectively as "STOCKHOLDERS") and Digital Certificates International, Inc., a
                 ------------                                                  
Delaware corporation (the "COMPANY").
                           -------   

                                R E C I T A L S

     A.   The Company has been organized for the purpose of providing RSA
certificate services.

     B.   Customers of the Company may be competitors of one or more of the
Stockholders. As a result, the Stockholders believe that in order for the
Company to succeed, no single Stockholder should control the Company.

     C.   The Stockholders wish to agree among themselves that no single
Stockholder shall control, directly or indirectly, more than forty-five percent
(45%) of the voting rights of the outstanding capital stock of the Company.

     D.   To prevent control, beneficially or of record, directly or indirectly,
by a single Stockholder in excess of such forty-five percent (45%), the
Stockholders wish to provide that no Stockholder owning, beneficially or of
record, directly or indirectly, more than forty-five percent (45%) of the
outstanding voting capital stock of the Company will vote or cause to be voted
more than forty-five percent (45%) of the shares eligible to be voted on any
matter.


                               A G R E E M E N T

     NOW, THEREFORE, in reliance on the foregoing Recitals and in consideration
of the mutual covenants hereinafter set forth, the parties agree as follows:

1.   SHARES SUBJECT TO THIS AGREEMENT
     --------------------------------

     Each Stockholder owns the number of shares of Common or Preferred Stock of
the Company set forth on Schedule A. All of such shares and any additional
                         ----------
shares of capital stock of the Company of any type, whether Common or Preferred,
or rights to acquire Common or Preferred Stock which may be acquired, directly
or indirectly, by the Stockholders in the future shall also be subject to this
Agreement. All of the shares set forth on Schedule A together with all such
                                          ----------
future acquired shares and

 
Stockholders' Agreement
Stockholders/Digital Certificates International, Inc.
Page 2                                                    

rights to acquire shares are hereafter referenced respectively as each
Stockholder's "SHARES."
               ------  

2.   CERTAIN REPRESENTATIONS; INDEMNITY
     ----------------------------------

          2.1  REPRESENTATIONS. Each of the Stockholders acknowledges and
               ---------------                                            
represents that: (i) this Agreement was prepared with his, her or its knowledge
and consent by legal counsel for the Company; (ii) he, she or it was advised by
such counsel to consider seeking independent legal counsel to review this
Agreement on his, her or its behalf; (iii) he, she or it had adequate time to
seek the advice of such independent counsel and to review this Agreement; (iv)
he, she or it either obtained such advice or knowingly and intentionally chose
not to seek such advice; (v) he, she or it fully understands this Agreement and
all of its terms and provisions, including, but not limited to, those provisions
which significantly restrict his, her or its ability to sell, transfer or
otherwise dispose of his, her or its Shares; and (vi) the restrictions imposed
upon his, her or its Shares pursuant to this Agreement are reasonable.

          2.2  INDEMNITY. Each Stockholder agrees to indemnify and hold the
               ---------
Company and the other Stockholders harmless from and against any and all
liabilities, costs or expenses, including reasonable attorneys' fees, resulting
from or arising out of any sale, transfer or other disposition of his, her or
its Shares otherwise than in accordance with the terms and provisions of this
Agreement.

3.   RESTRICTIONS ON TRANSFERS.  Except as otherwise specifically provided in
     -------------------------                                               
this Section 3, no Stockholder (or any successor in interest to any Stockholder)
shall have the right or the power, directly or indirectly, to sell, assign (with
or without consideration), donate, give away, grant an option or proxy with
respect to, pledge, hypothecate or otherwise transfer or encumber, voluntarily
or involuntarily or by reason of operation of law (for example, but not limited
to, a trustee in bankruptcy or a buyer at any creditor's or court sale), or to
commit or agree to do any of the foregoing (hereinafter referenced collectively
as a "TRANSFER") any of such Stockholder's Shares, or any right or interest
      --------                                                             
therein to any Prohibited Party (as defined below), without the prior written
consent of the Board of Directors of the Company and a majority in interest of
the other Stockholders. For purposes of this Agreement, a "majority in interest"
of the other Stockholders shall refer to parties to this Agreement holding
shares of capital stock with more than 50% of the aggregate number of votes of
all of the shares of capital

 
Stockholders' Agreement
Stockholders/Digital Certificates International, Inc.
Page 3

stock held by all parties hereto consenting to or approving a matter. Any
purported Transfer contrary to, or in violation of, the provisions of this
Agreement, shall not entitle the purported transferee thereof to have any such
Shares transferred on the stock ledger or books of the Company, or obligate the
Company to issue certificates evidencing such purported Transfer, nor shall such
purported transferee be vested with voting rights or any other rights of a
stockholder of the Company, and in all events, such Shares shall remain subject
to the provisions of this Agreement. "PROHIBITED PARTY" shall mean Cylink
                                      ----------------
Corporation, a California corporation ("CYLINK"), Caro-Kann Corporation, a
                                        ------
California corporation ("CARO-KANN"), Pittway Corporation, a Delaware
                         ---------   
corporation ("PITTWAY"), or any entity affiliated with Cylink, Caro-Kann or
              -------    
Pittway.

 
Stockholders' Agreement
Stockholders/Digital Certificates International, Inc.
Page 4

4.   VOTING RIGHTS
     -------------

          4.1  RIGHT TO VOTE UPON EXCEEDING 45% THRESHOLD.
               ------------------------------------------ 

               4.1.1  EXCLUDED SHARES. The Stockholders and the Company agree
                      ---------------
that no Stockholder shall vote, directly or indirectly, Shares with voting
rights in excess of forty-five percent (45%) of the voting rights of the total
outstanding voting capital stock of the Company entitled to vote on any matter
including without limitation election of Directors. For this purpose, Shares
shall be considered entitled to vote if they are issued and outstanding and
shall not be excluded because the holder thereof is interested in the matter. In
the event that any Stockholder directly or indirectly owns, beneficially or of
record, or has the right to vote capital stock of the Company with voting rights
in excess of such percentage, such Stockholder agrees that it shall not cast
votes on any matter on which the Stockholders are entitled to act whether at a
meeting or by written consent in excess of forty-five percent (45%) of the total
number of votes eligible to be cast thereon after excluding a number of shares
held directly or indirectly by the Stockholder which would exceed such forty-
five percent (45%) threshold. For example, if a Stockholder holds Five Million
(5,000,000) shares of Common Stock representing fifty percent (50%) of the votes
of the issued and outstanding shares of capital stock entitled to vote, such
Stockholder agrees that it shall not cast more than Four Million Ninety Thousand
Nine Hundred Nine (4,090,909) votes. Any stockholder acquiring, directly or
indirectly, the right to cast more than forty-five percent (45%) of the
aggregate votes of the issued and outstanding voting capital stock of the
Company shall immediately give notice of such event to the Company together with
the particulars thereof setting forth the total number of shares of voting
capital stock held, directly or indirectly, by such Stockholder or as to which
such Stockholder is entitled to vote, directly or indirectly. Every Stockholder
agrees that the Company shall not count any votes cast by them, directly or
indirectly, in excess of forty-five percent (45%) of the total number of votes
eligible to be voted on any matter as calculated above.

               4.1.2  PRO RATA VOTING. The holder of Shares not voted pursuant
                      ---------------
to Section 4.1.1 shall vote such shares in the following fashion. If the
exclusion of such shares causes the number of shares eligible to be voted on a
matter to be less in the aggregate than the minimum number of shares required
under Delaware General Corporation Law, the Company's Certificate of
Incorporation or Bylaws, such Stockholder shall vote such shares 

 
Stockholders' Agreement
Stockholders/Digital Certificates International, Inc.
Page 5

pro rata based on the number of votes actually cast on the matter excluding the
Shares being voted pursuant to this Section 4.1.2. For example, if the Company
has 10,000,000 shares issued and outstanding and entitled to vote, and a single
Stockholder has 8,000,000 shares, that Stockholder would be entitled to cast
1,636,364 votes pursuant to Section 4.1.1. Assuming 2,000,000 shares were voted
for the matter and 1,636,364 votes were voted against the matter, such
Stockholder would vote 3,500,000 shares for the matter and 2,863,636 shares
against the matter pursuant to this Section 4.1.2. If there are sufficient
Shares available to vote such that the mandatory voting provisions contained
above in this Section 4.1.2 do not apply, then a Stockholder holding Shares not
voted because of Section 4.1.1 may, but is not obligated to, vote such shares
pro rata as set forth above in this Section 4.1.2.

          4.2  CERTAIN INVOLUNTARY HOLDINGS.  In the event that a Stockholder
               ----------------------------                                  
acquires or otherwise owns, beneficially or of record, directly or indirectly,
shares of the Company's voting capital stock causing such Stockholder to hold
more than forty-five percent (45%) of the issued and outstanding voting capital
stock of the Company as a result of a merger, acquisition, redemption or other
transaction on the part of the Company, the Company shall provide written notice
to such Stockholder, which shall set forth the number of shares which such
Stockholder (and any Permitted Transferees of such Stockholder) must not vote in
order to comply with this Section 4.

          4.3  OWNERSHIP OF SHARES.  For purposes of this Section 4, a
               -------------------                                    
Stockholder shall be deemed to own all shares of the voting capital stock or
rights to acquire voting capital stock of the Company held beneficially or of
record, directly or indirectly, by the Stockholder.  A Stockholder shall be
deemed to own shares of capital stock or rights to acquire capital stock
indirectly if: he, she or it (a) owns more than fifty percent (50%) of the
outstanding voting securities of the entity that directly or indirectly owns
such shares or acquisition rights, or (b) controls, is controlled by or is under
common control with the individual or entity that directly or indirectly owns
such shares or acquisition rights.

          4.4  BOARD REPRESENTATION.  So long as Bessemer Venture Partners III
               --------------------                                           
L.P. or its general partner or affiliates of such general partner ("BESSEMER")
                                                                    --------  
owns not less than fifty percent (50%) of the shares of the Preferred Stock it
holds as set forth on Schedule A as of the date Bessemer first executes this
Agreement (or an equivalent amount of Common Stock issued upon 

 
Stockholders' Agreement
Stockholders/Digital Certificates International, Inc.
Page 6

conversion thereof), the Company and the Stockholders shall cause and maintain
the election to the Board of Directors of a representative of Bessemer. So long
as RSA Data Security, Inc., a Delaware corporation ("RSA"), owns not less than
                                                     ---  
the lesser of (a) ten percent (10%) of the issued and outstanding voting shares
of the Company (on an as converted basis) or (b) seventy-five percent (75%) of
the shares of Common Stock held by it as set forth on Schedule A as of the date
RSA first executes this Agreement, the Company and the Stockholders shall cause
and maintain the election to the Board of Directors of a representative of RSA.
In addition, the Company and the Stockholders shall cause and maintain the
election to the Board of Directors of a representative of Visa International
Service Association for so long as it or its affiliates own not less than 50
percent (50%) of the shares of the Preferred Stock it holds as set forth on
Schedule A as of the date it first executes this Agreement (or an equivalent
amount of Common Stock issued upon conversion thereof).

          4.5  EMPLOYEES AS DIRECTORS.  The Stockholders agree that, in
               ----------------------                                  
addition to the RSA representative set forth in Section 4.4 hereof, they shall
not vote for:  (i) more than one employee of the Company nominated to serve on
the Board of Directors of the Company, and (ii) no officers or affiliates of RSA
nominated to serve on the Board of Directors of the Company, unless a majority
of all of the Shares (on an as converted basis) held by the Stockholders and a
majority of the Preferred Stock held by parties hereto, consent in writing to
the nomination of such person to the Board of Directors prior to such vote.

          4.6  LIMITATION ON EFFECTIVENESS.
               ---------------------------

               4.6.1  This Section 4 shall not be effective until the Company
shall have sold Preferred Stock with a gross purchase price received by the
Company of Three Million Dollars ($3,000,000) or more and, unless earlier
terminated pursuant to Section 6, shall continue for a period of ten (10) years
from the date of this Agreement. This Agreement may be extended for an
additional ten (10) years upon the written consent of the holders of more than
sixty percent (60%) of the Shares. Such written consent must be delivered to the
Secretary of the Company and the registered office of the Company in Delaware
not earlier than the eighth anniversary of the effectiveness of this Agreement
and not later than 30 days before the termination hereof.

               4.6.2  This Section 4 shall not apply in instances where a class
vote (Common voting as a class and 

 
Stockholders' Agreement
Stockholders/Digital Certificates International, Inc.
Page 7

Preferred voting as a class) is required by law, the Company's Certificate of
Incorporation or the Company's Bylaws on matters relating to the merger,
consolidation or sale of all or substantially all of the assets of the Company.

               4.6.3  This Section 4 shall not apply where only a single
Stockholder is entitled to vote on a matter.

               4.6.4  This Section 4 shall not apply in instances where its
implementation would make it impossible under law, under the Company's
Certificate of Incorporation, or the Company's Bylaws to obtain a legal, valid
and binding vote on a matter.

5.   LEGEND ON SHARE CERTIFICATES
     ----------------------------

     In addition to any legends reflecting the restrictions on transfer imposed
under federal and applicable state securities laws, each share certificate
evidencing the Shares shall have endorsed on it the following:

     THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
     RESTRICTIONS ON TRANSFER, VOTING AND OTHER RESTRICTIONS PURSUANT TO
     THE TERMS OF A STOCKHOLDERS' AGREEMENT, DATED APRIL 18, 1995 BETWEEN
     THE ISSUER AND THE REGISTERED HOLDER HEREOF, A COPY OF WHICH AGREEMENT
     IS ON FILE AT THE PRINCIPAL OFFICE OF THE ISSUER.

6.   MISCELLANEOUS PROVISIONS
     ------------------------

          6.1  FURTHER ASSURANCES. Each Stockholder and the Company agrees to
               ------------------
take any and all actions and to execute any and all documents reasonably
necessary to effectuate the terms and intent of this Agreement.

          6.2  TERMINATION OF AGREEMENT. This Agreement shall terminate upon:
               ------------------------                                       

               6.2.1  The written agreement of the Company and the holders of at
least sixty-six and two-thirds percent (66 2/3%) of the Shares which are at that
time subject to the terms of this Agreement;

               6.2.2  The dissolution of the Company;

 
Stockholders' Agreement
Stockholders/Digital Certificates International, Inc.
Page 8

               6.2.3  A merger of the Company with or into another corporation
whereby the Stockholders do not continue to hold the Shares or do not receive
shares of the surviving corporation;

               6.2.4  The closing of a sale or exchange of all outstanding
shares of capital stock of the Company; or

               6.2.5  The public sale by the Company of securities pursuant to a
registration under the Securities Act of 1933, as amended.

          The termination of this Agreement shall not affect any right, remedy
or obligation existing hereunder prior to the effective date of such
termination.

          6.3  SPECIFIC PERFORMANCE.  The parties hereto agree that because the
               --------------------                                        
Shares have a unique and special value and cannot be readily purchased or sold
in any regular market, irreparable damage would be suffered if the terms and
provisions of this Agreement were breached and were not specifically
enforceable. Accordingly, the parties hereto agree that in the event of a breach
of this Agreement by any party hereto, the other parties hereto would not have
an adequate remedy at law and shall therefore be entitled to obtain equitable
relief from a court of competent jurisdiction enjoining the breaching party from
violating any of the terms or provisions hereof, declaring any transaction in
breach hereof rescinded and requiring specific performance of the terms hereof.

          6.4  GOVERNING LAWS.  IT IS THE INTENTION OF THE PARTIES HERETO THAT
               --------------                                                 
THE INTERNAL LAWS OF THE STATE OF DELAWARE, U.S.A. (IRRESPECTIVE OF ITS CHOICE
OF LAW PRINCIPLES) SHALL GOVERN THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION
OF ITS TERMS, AND THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF
THE PARTIES HERETO. THE PARTIES HEREBY EXCLUDE THE UNITED NATIONS CONVENTION ON
CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS FROM THIS AGREEMENT. THE PARTIES
HEREBY AGREE THAT ANY SUIT TO ENFORCE ANY PROVISION OF THIS AGREEMENT OR ARISING
OUT OF OR BASED UPON THIS AGREEMENT OR THE BUSINESS RELATIONSHIP BETWEEN ANY OF
THE PARTIES HERETO SHALL BE BROUGHT EXCLUSIVELY IN THE UNITED STATES DISTRICT
COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA OR THE SUPERIOR OR MUNICIPAL COURT
IN AND FOR THE COUNTY OF SAN MATEO, CALIFORNIA, U.S.A. Each party hereby agrees
that such courts shall have exclusive in personam jurisdiction and venue with
                                      -----------                            
respect to such party, and each party hereby 

 
Stockholders' Agreement
Stockholders/Digital Certificates International, Inc.
Page 9

submits to the exclusive in personam jurisdiction and venue of such courts.
                         -----------                                       

          6.5  BINDING UPON SUCCESSORS AND ASSIGNS.  Subject to, and unless
               -----------------------------------                         
otherwise provided in, this Agreement, each and all of the covenants, terms,
provisions, and agreements contained herein shall be binding upon, and inure to
the benefit of, the permitted successors, executors, heirs, representatives,
administrators and assigns of the parties hereto.  Prior to any assignment
hereunder, the assignee shall agree in writing to be bound by all of the terms
and provisions of this Agreement.  Upon any such assignment, such assignee shall
be considered another party to this Agreement, shall hold the shares he, she or
it purchases subject to all of the provisions of this Agreement and shall make
no transfers other than as permitted herein.  Except as set forth herein,
nothing in this Agreement prohibits a party from selling, assigning,
transferring or pledging shares of Preferred Stock or Common Stock of the
Company to an affiliate of said party, whether foreign, domestic or otherwise.

          6.6  SEVERABILITY.  If any provision of this Agreement, or the
               ------------                                             
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall be interpreted so as best to reasonably
effect the intent of the parties hereto.  The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision which will achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision.

          6.7  ENTIRE AGREEMENT.  This Agreement, the exhibits hereto, the
               ----------------                                           
documents referenced herein, and the exhibits thereto, constitute the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and thereof and supersede all prior and contemporaneous agreements
or understandings, inducements or conditions, express or implied, written or
oral, between the parties with respect hereto and thereto.  The express terms
hereof control and supersede any course of performance or usage of the trade
inconsistent with any of the terms hereof.

          6.8  COUNTERPARTS.  This Agreement may be executed in any number of
               ------------                                                  
counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts 

 
Stockholders' Agreement
Stockholders/Digital Certificates International, Inc.
Page 10

hereof, individually or taken together, shall bear the signatures of all of the
parties reflected hereon as signatories.

          6.9  OTHER REMEDIES.  Any and all remedies herein expressly
               --------------                                        
conferred upon a party shall be deemed cumulative with and not exclusive of any
other remedy conferred hereby or by law on such party, and the exercise of any
one remedy shall not preclude the exercise of any other.

          6.10 AMENDMENT AND WAIVERS.  Any term or provision of this Agreement
               ---------------------                                
may be amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the Shares which are at that time subject to the
terms of this Agreement. The waiver of any breach hereof for default in payment
of any amount due hereunder or default in the performance hereof shall not be
deemed to constitute a waiver of any other default or succeeding breach or
default.

          6.11 SURVIVAL OF AGREEMENTS.  All covenants, agreements, 
               ----------------------                             
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby.

          6.12 NO WAIVER.  The failure of any party to enforce any of the
               ---------                                                 
provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.

 
Stockholders' Agreement
Stockholders/Digital Certificates International, Inc.
Page 11

          6.13 ATTORNEYS' FEES.
               --------------- 

               6.13.1 Should suit or arbitration be brought to enforce or
interpret any part of this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys' fees to be fixed by the court or arbitrator
(including without limitation, costs, expenses and fees on any appeal). If
either party to this Agreement shall bring any action for any relief against the
other, declaratory or otherwise, arising out of this Agreement, the losing party
shall pay to the prevailing party a reasonable sum for attorneys fees incurred
in bringing such suit and enforcing any judgment granted therein, all of which
shall be deemed to have accrued upon the commencement of such action and shall
be paid whether or not such action is prosecuted to judgment. Any judgment or
order entered in such action shall contain a specific provision providing for
the recovery of attorney fees and costs incurred in enforcing such judgment. For
the purposes of this section, attorney fees shall include, without limitation,
fees incurred in the following: (i) postjudgment motions; (ii) contempt
proceedings; (iii) garnishment, levy, and debtor and third party examinations;
(iv) discovery; and (v) bankruptcy litigation.

               6.13.2 In addition to attorneys' fees recoverable pursuant to
Section 6.13.1 above, the prevailing party in any suit or arbitration shall be
entitled to recover its reasonable attorneys' fees incurred in enforcing the
final judgment or arbitration award. Such right to attorneys' fees pursuant to
this Section 6.13 is severable from the other provisions of this Agreement,
shall survive the initial judgment or award in favor of the prevailing party,
and is not to be deemed to be merged into such judgment or award.

          6.14 NOTICES.  Whenever any party hereto desires or is required to
               -------
give any notice, demand or request with respect to this Agreement, each such
communication shall be in writing and shall be given or made by, telecopy,
telegraph, cable, mail or other delivery and telecopied, telegraphed, cabled,
mailed or delivered to the intended recipient at the addresses specified below:

     If to the Company:                 c/o Mr. D. James Bidzos
                                        RSA Data Security, Inc.
                                        100 Marine Parkway, Suite 500
                                        Redwood City, CA 94065

 
Stockholders' Agreement
Stockholders/Digital Certificates International, Inc.
Page 12                                                     

     with a copy to:                    Timothy Tomlinson, Esq.
                                        Tomlinson Zisko Morosoli & Maser
                                        200 Page Mill Road, Second Floor
                                        Palo Alto, CA  94306

     If to a Stockholder                At the address of such person as
     or a Permitted                     set forth on the stock record books
     Transferee:                        of the Company

Except as may be otherwise provided elsewhere in this Agreement, all such
communications shall be deemed to have been duly given when transmitted by
telecopier with verified receipt by the receiving telecopier, when delivered to
the telegraph or cable office, when personally delivered, or in the case of a
mailed notice, five (5) days after being deposited in the United States
certified or registered mail, postage prepaid. Any party may change its address
for such communications by giving notice thereof to the other parties in
conformance with this section.

          6.15 CONSTRUCTION OF AGREEMENT.  This Agreement has been negotiated 
               -------------------------                                     
by the respective parties hereto and their attorneys and the language hereof
shall not be construed for or against any party.  A reference in this Agreement
to any Section shall include a reference to every Section the number of which
begins with the number of the Section which reference is specifically made
(e.g., a reference to Section ERROR! REFERENCE SOURCE NOT FOUND. shall include a
reference to Sections ERROR! REFERENCE SOURCE NOT FOUND. and ERROR! REFERENCE
SOURCE NOT FOUND.).  The titles and headings herein are for reference purposes
only and shall not in any manner limit the construction of this Agreement, which
shall be considered as a whole.

          6.16 NO JOINT VENTURE.  Nothing contained in this Agreement shall
               ----------------                                            
be deemed or construed as creating a joint venture or partnership between any of
the parties hereto.  No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party.  No party shall have
the power to control the activities and operations of any other.  No party shall
have any power or authority to bind or commit any other.  No party shall hold
itself out as having any authority or relationship in contravention of this
Section.

          6.17 PRONOUNS.  All pronouns and any variations thereof shall be
               --------                                                   
deemed to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.

 
Stockholders' Agreement
Stockholders/Digital Certificates International, Inc.
Page 13                                                     

          6.18 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS.  No provisions of this
               -----------------------------------------                        
Agreement are intended nor shall be interpreted to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, partner of any party hereto or any other
person, unless specifically provided otherwise herein, and, except as so
provided, all provisions hereof shall be personal solely between the parties to
this Agreement.

          6.19 EMPLOYMENT.  Nothing in this Agreement shall be construed as
               ----------                                                  
granting a Stockholder or any other party hereto any right to continued
employment with the Company or any subsidiary of the Company.  Except as the
Company and a Stockholder may otherwise agree in writing, a Stockholder's
employment shall be terminable by the Company or any such subsidiary at will.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first hereinabove written.

                              COMPANY:

                              Digital Certificates International, Inc.
                              c/o RSA Data Security, Inc. 
                              Redwood City, CA 94065
                              100 Marine Parkway, Suite 500
                              Redwood City, CA 94065


                              DIGITAL CERTIFICATES INTERNATIONAL, INC.,
                              a Delaware corporation

                              By: /s/ David Cowan
                                 -----------------------------
                              Name: David Cowan               
                                   ---------------------------
                              Title: Chairman                 
                                    --------------------------


 
Stockholders' Agreement
Stockholders/Digital Certificates International, Inc.
Page 14                                                     

                         STOCKHOLDERS:

                         Bessemer Venture Partners DCI
                         1025 Old County Road, Suite 205
                         Westbury, NY 11590


                         By:  BESSEMER VENTURE PARTNERS DCI

                         By:  Bessemer Venture Partners III L.P.
                              Managing General Partner

                         By:  Deer III & Co.

                         By: /s/ Robert H. Buesher
                            ----------------------------------
                         Name: Robert H. Buesher
                              --------------------------------
                         Title: Partner


                         Mitsubishi Corporation
                         6-3, Marunouchi 2- Chome,
                         Chiyoda-ku, Tokyo 100-86
                         Japan

                         MITSUBISHI CORPORATION

                         By: /s/ Yukihiro Kayama
                            ----------------------------------
                         Name: Yukihiro Kayama

                         Title: Senior Assistant to Managing Director
                         Information Systems and Services Group

                         Security Dynamics Technologies, Inc.
                         One Alewife Center
                         Cambridge, MA 02140-2312

                         SECURITY DYNAMICS TECHNOLOGIES, INC.

                         By: /s/ Charles R. Stuckey Jr.
                            ----------------------------------
                         Name: Charles R. Stuckey Jr.
                              --------------------------------
                         Title: President and CEO
                               -------------------------------


 
Stockholders' Agreement
Stockholders/Digital Certificates International, Inc.
Page 15                                                     

                         Intel Corporation
                         2200 Mission College Blvd.
                         Santa Clara, CA 95052

                         INTEL CORPORATION

                         By: /s/ Arvind Sodhani
                             ---------------------------------

                         Name: Arvind Sodhani
                               -------------------------------

                         Title: Vice President and Treasurer
                                ------------------------------

                         Ameritech Development Corporation
                         30 South Wacker Drive, 37th Floor
                         Chicago, Ill  60606

                         AMERITECH DEVELOPMENT CORPORATION

                         By: /s/ Thomas Touton
                             ---------------------------------

                         Name: Thomas Touton

                         Title: Vice President - Venture Capital

                         GC&H Investments       
                         3000 Sand Hill Road                                   
                         Building 3, Suite 230
                         Menlo Park, CA 94025

                         GC&H INVESTMENTS
 
                         By: /s/ James C. Kitch
                             ---------------------------------

                         Name: James C. Kitch
                               -------------------------------

                         Title: Executive Partner
                                ------------------------------

 
Stockholders' Agreement
Stockholders/Digital Certificates International, Inc.
Page 16                                                     
                         VISA International Service Association

                         c/o Andrew Konstantaras
                         Legal Department
                         VISA
                         900 Metro Center Boulevard
                         Foster City, CA 94404
 
                         VISA INTERNATIONAL SERVICE ASSOCIATION

                         By: /s/ William L. Powar
                             ---------------------------------

                         Name: William L. Powar
                               -------------------------------

                         Title: Vice President
                                ------------------------------

                         Fischer Security Corporation
                         4073 Mercantile Avenue
                         Naples, FL  33942

                         FISCHER SECURITY CORPORATION L.L.C.

                         By: /s/ Addison M. Fischer
                             ---------------------------------

                         Name: _______________________________

                         Title: ______________________________

                         First TZMM Investment Partnership
                         c/o Tomlinson Zisko Morosoli & Maser
                         200 Page Mill Road, Second Floor
                         Palo Alto, CA  94306

                         FIRST TZMM INVESTMENT PARTNERSHIP

                         By: /s/ Timothy Tomlinson
                             ---------------------------------

                         Name: Timothy Tomlinson
                               -------------------------------

                         Title: Partner
                                ------------------------------

 
Stockholders' Agreement
Stockholders/Digital Certificates International, Inc.
Page 17                                                     

                         RSA Data Security, Inc.
                         100 Marine Parkway
                         Suite 500
                         Redwood City, CA 94065

                         RSA DATA SECURITY, INC.

                         By: /s/ D. James Bidzos
                             -----------------------------

                         Name: D. James Bidzos
                               ---------------------------

                         Title: __________________________


                         /s/ Ronald Rivest
                         ---------------------------------
                         Ronald Rivest
                         24 Candia Street
                         Arlington, MA 02174



                         /s/ D. James Bidzos
                         ---------------------------------
                         D. James Bidzos
                         c/o RSA Data Security, Inc.
                         100 Marine Parkway, Suite 500
                         Redwood City, CA 94065


                         Kairdos L.L.C.
                         c/o D. James Bidzos
                         RSA Data Security, Inc.
                         100 Marine Parkway, Suite 500
                         Redwood City, CA 94065


                         KAIRDOS L.L.C.

                         By: /s/ D. James Bidzos
                             -----------------------------

                         Name: D. James Bidzos
                               ---------------------------

                         Title: __________________________

 
Stockholders' Agreement
Stockholders/Digital Certificates International, Inc.
Page 18                                                     

                         TZM INVESTMENT FUND
                         c/o Tomlinson Zisko Morosoli & Maser
                         200 Page Mill Road, Second Floor
                         Palo Alto, CA 94306

                         TZM INVESTMENT FUND

                         By: /s/ William E. Zisko 
                            --------------------------- 
                         Name: William E. Zisko 
                              ------------------------- 
                         Title: General Partner
                               ------------------------ 


 
Stockholders' Agreement
Stockholders/Digital Certificates International, Inc.
Page 19                                                     

                                  SCHEDULE A

                                 STOCKHOLDERS
                                 ------------

NUMBER AND CLASS NAME OF STOCKHOLDER OF SHARES OWNED - ------------------- --------------- PREFERRED --------- Bessemer Venture Partners DCI 850,000 Intel Corporation 850,000 Visa International Services Association 850,000 Mitsubishi Corporation 425,000 Security Dynamics Technologies, Inc. 425,000 Ameritech Development Corporation 425,000 Fischer Security Corp. 425,000 GC&H Investments 33,333 First TZMM Investment Partnership 23,550 COMMON ------ Bessemer Venture Partners DCI 258,333 Ronald Rivest 125,000 D. James Bidzos 125,000 Kairdos L.L.C. 100,000 TZM Investment Fund 80,000 RSA Data Security, Inc. 4,000,000
AMENDMENT NO. 1 TO STOCKHOLDERS' AGREEMENT ------------------------------------------ This Amendment No. 1 ("Amendment") to the Stockholders' Agreement dated April 18, 1995 (the "Agreement") is made as of this 20th day of February, 1996 by and among VeriSign, Inc. (formerly Digital Certificates International, Inc.), a Delaware corporation (the "Company"), each of the individuals and entities listed on Schedule A to the Agreement (the "Existing Stockholders"), and each of ---------- the individuals and entities listed as New Stockholders on the signature page to this Amendment (the "New Stockholders"). Capitalized terms used herein which are not defined herein shall have the definition ascribed to them in the Agreement. RECITALS -------- The Company desires to sell and issue to the New Stockholders and the New Stockholders desire to purchase from the Company, shares of the Company's Series B Preferred Stock pursuant to that certain Series B Preferred Stock Purchase Agreement of even date herewith (the "Series B Agreement"). The Existing Stockholders desire for the New Stockholders to invest in the Company and, as a condition thereof and to induce such investment, the Existing Stockholders and the Company are willing to enter into this Amendment to permit the New Stockholders to become a party to the Agreement. The New Stockholders desire to invest in the Company and, as a condition thereof and in order to induce the Company to accept such investment, the New Stockholders are willing to enter into this Amendment to become parties to the Agreement. In consideration of the foregoing and the promises and covenants contained herein and other good and valuable consideration the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. ADDITIONAL PARTIES TO THE AGREEMENT. ----------------------------------- The New Stockholders hereby enter into and become parties to the Agreement. Schedule A to the Agreement is amended to include the New Stockholders and the - ---------- shares of the Company's capital stock purchased pursuant to the Series B Agreement. 2. AMENDMENTS TO AGREEMENT. ----------------------- 2.1 The New Stockholders and the Existing Stockholders are collectively referred to as "Stockholders" for the purposes of the Agreement. 2.2 Section 4.4 of the Agreement is amended in its entirety to read as follows: "4.4 Board Representation. So long as Bessemer -------------------- Venture Partners III L.P. or its general partner or affiliates of such general partner ("Bessemer") owns not less than fifty -------- percent (50%) of the shares of the Preferred Stock it holds as set forth on Schedule A as of the date Bessemer first executes this Agreement (or an equivalent amount of the Common Stock issued upon conversion thereof), the Company and the Stockholders shall cause and maintain the election to the Board of Directors of a representative of Bessemer. So long as Kleiner Perkins Caufield & Byers VII or its general partners or affiliates or partners of such general partners ("Kleiner") owns not less than ------- fifty percent (50%) of the shares the Preferred Stock it holds as set forth on Schedule A as of the date Kleiner first becomes a party to this Agreement (or an equivalent amount of the Common Stock issued upon conversion thereof), the Company and the Stockholders shall cause and maintain the election to the Board of Directors of a representative of Kleiner. So long as RSA Data Security, Inc., a Delaware corporation ("RSA"), owns not less than the lesser of --- (a) ten percent (10%) of the issued and outstanding voting shares of the Company (on an as converted basis) or (b) seventy-five percent (75%) of the shares of Common Stock held by it as set forth on Schedule A as of the date RSA first executes this Agreement, the Company and the Stockholders shall cause and maintain the election to the Board of Directors of a representative of RSA. In addition, the Company and the Stockholders shall cause and maintain the election to the Board of Directors of a representative of each of the following Stockholders for so long as it or its affiliates owns not less than 50 percent (50%) of the shares of the Preferred Stock it holds as set forth on Schedule A as of the date it first executes this Agreement (or an equivalent amount of Common Stock issued upon conversion thereof): Intel Corporation and VISA." 2.3 Section 6.10 of the Agreement is amended in its entirety to read as follows: "6.10 Amendment and Waivers. Except as otherwise --------------------- provided herein, any term or provision of this Agreement may be amended, and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a writing signed by the holders of at least sixty-six and two-thirds percent (66 2/3%) of the Shares which are at that time subject to the terms of this Agreement. Notwithstanding the above, with respect to Section 4.4 hereof and the election of representatives of Kleiner, Bessemer, RSA, Intel Corporation and VISA to the Board of Directors, this Agreement shall not be amended to remove such Board seats without the written consent of Kleiner, Bessemer, RSA, Intel Corporation or VISA with respect to their respective Board seats." 3. CONSENT. ------- Each Existing Stockholder, pursuant to any rights such Existing Stockholder may have under the Agreement, hereby, on behalf of itself and the other Stockholders under the Agreement consents to adding the New Stockholders as parties to the Agreement. 4. EFFECT OF AMENDMENT. ------------------- Except as amended and set forth above, the Agreement shall continue in full force and effect. 5. COUNTERPARTS. ------------ This Amendment may be executed in any number of counterparts, each which will be deemed an original, and all of which together shall constitute one instrument . 6. SEVERABILITY. ------------ If one or more provisions of this Amendment are held to be unenforceable under applicable law, such provision shall be excluded from this Amendment and the balance of the Amendment shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 7. ENTIRE AGREEMENT. ---------------- This Amendment, together with the Agreement, constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. 8. GOVERNING LAW. ------------- This Amendment shall be governed by and construed under the laws of the State of Delaware as applied to agreements among Delaware residents entered into and to be performed entirely within Delaware. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] This Amendment is hereby executed as of the date first above written. COMPANY: VERISIGN, INC., a Delaware corporation By:/s/ Stratton Sclavos ---------------------------------------- Stratton Sclavos, President Address: -------------------------------------------- -------------------------------------------- EXISTING STOCKHOLDERS: BESSEMER VENTURE PARTNERS DCI By: Bessemer Venture Partners III L.P. Managing General Partner By: Deer III & Co. By: /s/ Robert H. Buescher --------------------------------------- Name: Robert H. Buescher -------------------------------------- Title: Partner ------------------------------------ Address: 1025 Old Country Road, Suite 205 Westbury, NY 11590 MITSUBISHI CORPORATION By: ________________________________________ Name: Yukihiro Kayama Title: Senior Assistant to Managing Director Information Systems and Services Group Address: 6-3, Marunouchi 2-Chome Chiyoda-ku, Tokyo 100-86 Japan [SIGNATURE PAGE TO AMENDMENT NO. 1 TO STOCKHOLDERS' AGREEMENT] SECURITY DYNAMICS TECHNOLOGIES, INC. By:/s/ Charles R. Stuckey Jr. ----------------------------------------- Name: Charles R. Stuckey Jr. -------------------------------------- Title: President and CEO -------------------------------------- Address: One Alewife Center Cambridge, MA 02140-2312 INTEL CORPORATION By: /s/ Arvind Sodhani ----------------------------------------- Name: Arvind Sodhani ---------------------------------------- Title: Vice President and Treasurer ---------------------------------------- Address: 2200 Mission College Blvd. Santa Clara, CA 95052 AMERITECH DEVELOPMENT CORPORATION By:/s/ Thomas Touton ----------------------------------------- Name: Thomas Touton Title: Vice President - Venture Capital Address: 30 South Wacker Drive, 37th Floor Chicago, IL 60606 GC&H INVESTMENTS By:/s/ James C. Kitch ---------------------------------------- Name: James C. Kitch -------------------------------------- Title: Executive Partner ------------------------------------ Address: 3000 Sand Hill Road Building 3, Suite 230 Menlo Park, CA 94025 [SIGNATURE PAGE TO AMENDMENT NO. 1 TO STOCKHOLDERS' AGREEMENT] RSA DATA SECURITY, INC. By:/s/ D. James Bidzos ---------------------------------------- Name: D. James Bidzos ------------------------------------- Title: CEO ------------------------------------- Address: 100 Marine Parkway, Suite 500 Redwood City, CA 94065 /s/ Ronald Rivest ------------------------------------------- Ronald Rivest Address: 24 Candia Street Arlington, MA 02174 /s/ D. James Bidzos ------------------------------------------- D. James Bidzos Address: c/o RSA Data Security, Inc. 100 Marine Parkway, Suite 500 Redwood City, CA 94065 KAIRDOS L.L.C. By:/s/ D. James Bidzos ---------------------------------------- Name: D. James Bidzos ---------------------------------------- Title: Manager ------------------------------------- Address: c/o D. James Bidzos RSA Data Security, Inc. 100 Marine Parkway, Suite 500 Redwood City, CA 94065 [SIGNATURE PAGE TO AMENDMENT NO. 1 TO STOCKHOLDERS' AGREEMENT] FIRST TZMM INVESTMENT PARTNERSHIP By: /s/ Timothy Tomlinson ---------------------------------------- Title: General Partner -------------------------------------- Address: c/o Tomlinson Zisko Morosoli & Maser 200 Page Mill Road, Second Floor Palo Alto, CA 94306 VISA INTERNATIONAL SERVICE ASSOCIATION By: /s/ Visa International Service Association ---------------------------------------- Title: Group EVP -------------------------------------- Address: c/o Andrew Konstantaras Legal Department VISA 900 Metro Center Boulevard Foster City, CA 94404 FISHCER SECURITY CORPORATION L.L.C. By: /s/ Addison Fischer ---------------------------------------- Title: Managing Director -------------------------------------- Address: 4073 Mercantile Avenue Naples, FL 33942 NEW STOCKHOLDERS: KLEINER PERKINS CAUFIELD & BYERS VII By: /s/ Kevin R. Compton ----------------------------------------- Name: Kevin R. Compton --------------------------------------- Title: General Partner -------------------------------------- Address: 2750 Sand Hill Road Menlo Park, CA 94025 [SIGNATURE PAGE TO AMENDMENT NO. 1 TO STOCKHOLDERS' AGREEMENT] KPCB VII FOUNDERS FUND By: /s/ Kevin R. Compton ---------------------------------------- Name: Kevin R. Compton -------------------------------------- Title: General Partner ------------------------------------- Address: 2750 Sand Hill Road Menlo Park, CA 94025 [SIGNATURE PAGE TO AMENDMENT NO. 1 TO STOCKHOLDERS' AGREEMENT] KPCB INFORMATION SCIENCE ZAIBATSU FUND II By: /s/ Kevin R. Compton ----------------------------------------- Name: Kevin R. Compton --------------------------------------- Title: General Partner -------------------------------------- Address: 2750 Sand Hill Road Menlo Park, CA 94025 [SIGNATURE PAGE TO AMENDMENT NO. 1 TO STOCKHOLDERS' AGREEMENT] AMENDMENT NO. 2 TO STOCKHOLDERS' AGREEMENT ------------------------------------------ This Amendment No. 2 ("Amendment") to the Stockholders' Agreement dated April 18, 1995, as amended February 20, 1996 (the "Agreement"), is made as of this 15th day of November, 1996 by and among VeriSign, Inc. (formerly Digital Certificates International, Inc.), a Delaware corporation (the "Company"), each of the individuals and entities listed on Schedule A to the Agreement and on the ---------- signature pages to Amendment No. 1 thereto dated February 20, 1996 (now collectively defined as the "Current Stockholders"), and each of the individuals and entities listed as New Stockholders on the signature page to this Amendment (the "New Stockholders"). Capitalized terms used herein which are not defined herein shall have the definition ascribed to them in the Agreement. RECITALS -------- The Company desires to sell and issue to the New Stockholders and the New Stockholders desire to purchase from the Company, shares of the Company's Series C Preferred Stock pursuant to that certain Series C Preferred Stock Purchase Agreement of even date herewith (the "Series C Agreement"). The Current Stockholders desire for the New Stockholders to invest in the Company and, as a condition thereof and to induce such investment, the Current Stockholders and the Company are willing to enter into this Amendment to permit the New Stockholders to become a party to the Agreement. The New Stockholders desire to invest in the Company and, as a condition thereof and in order to induce the Company to accept such investment, the New Stockholders are willing to enter into this Amendment to become parties to the Agreement. In consideration of the foregoing and the promises and covenants contained herein and other good and valuable consideration the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. ADDITIONAL PARTIES TO THE AGREEMENT. ----------------------------------- The New Stockholders hereby enter into and become parties to the Agreement. Schedule A to the Agreement is amended to include the New ---------- Stockholders and the shares of the Company's capital stock purchased pursuant to the Series C Agreement. 2. STOCKHOLDERS DEFINITION. ----------------------- The New Stockholders and the Current Stockholders are collectively referred to as "Stockholders" for the purposes of the Agreement. 3. CONSENT. ------- Each Current Stockholder, pursuant to any rights such Current Stockholder may have under the Agreement, hereby, on behalf of itself and the other Current Stockholders under the Agreement consents to adding the New Stockholders as parties to the Agreement. 4. EFFECT OF AMENDMENT. ------------------- Except as amended and set forth above, the Agreement shall continue in full force and effect. 5. COUNTERPARTS. ------------ This Amendment may be executed in any number of counterparts, each of which will be deemed an original, and all of which together shall constitute one instrument. 6. SEVERABILITY. ------------ If one or more provisions of this Amendment are held to be unenforceable under applicable law, such provision shall be excluded from this Amendment and the balance of the Amendment shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 7. ENTIRE AGREEMENT. ---------------- This Amendment, together with the Agreement, constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. 8. GOVERNING LAW. ------------- This Amendment shall be governed by and construed under the laws of the State of Delaware as applied to agreements among Delaware residents entered into and to be performed entirely within Delaware. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] -2- This Amendment is hereby executed as of the date first above written. COMPANY: VERISIGN, INC., a Delaware corporation By: /s/ Stratton Sclavos ----------------------------------------------- Stratton Sclavos, President Address: 2593 Coast Avenue Mountain View, CA 94043 CURRENT STOCKHOLDERS: AMERITECH DEVELOPMENT CORPORATION By: /s/ Thomas Touton ----------------------------------------------- Name: Thomas Touton Title: Vice President - Venture Capital Address: 30 South Wacker Drive, 37th Floor Chicago, IL 60606 BESSEMER VENTURE PARTNERS DCI By: Bessemer Venture Partners III, L.P. Managing General partner By: Deer III & Co. By: /s/ Robert H. Buescher ----------------------------------------- Name: Robert H. Buescher --------------------------------------- Title: Partner -------------------------------------- Address: 1025 Old Country Road Suite 205 Westbury, NY 11590 /s/ D. James Bidzos -------------------------------------------------- D. James Bidzos [SIGNATURE PAGE TO AMENDMENT NO. 2 TO STOCKHOLDERS' AGREEMENT] -3- Address: c/o RSA Data Security, Inc. 100 Marine Parkway, Suite 500 Redwood City, CA 94065 FIRST TZMM INVESTMENT PARTNERSHIP By: /s/ Timothy Tomlinson ----------------------------------------------- Name: Timothy Tomlinson Title: General Partner Address: c/o Tomlinson Zisko Morosoli & Maser LLP 200 Page Mill Road, 2nd Floor Palo Alto, CA 94306 FISCHER SECURITY CORPORATION L.L.C. By:________________________________________________ Name:______________________________________________ Title: Managing Director Address: 4073 Mercantile Avenue Naples, FL 33942 GC&H INVESTMENTS By: /s/ James C. Kitch ----------------------------------------------- Name: James C. Kitch ---------------------------------------- Title: Executive Partner ---------------------------------------- Address: 3000 Sand Hill Road Building 3, Suite 230 Menlo Park, CA 94025 INTEL CORPORATION By: /s/ Satish Rishi ----------------------------------------------- Name: Satish Rishi ---------------------------------------- [SIGNATURE PAGE TO AMENDMENT NO. 2 TO STOCKHOLDERS' AGREEMENT] -4- Title: Assistant Treasurer ---------------------------------------- Address: 2200 Mission College Boulevard Santa Clara, CA 95052 KAIRDOS L.L.C. By: /s/ D. James Bidzos ----------------------------------------------- Name: D. James Bidzos Title: Manager Address: c/o D. James Bidzos RSA Data Security, Inc. 100 Marine Parkway, Suite 500 Redwood City, Ca 94065 KLEINER PERKINS CAULFIELD & BYERS VII By: /s/ Kevin R. Compton ----------------------------------------------- Name: Kevin R. Compton Title: General Partner Address: 2750 Sand Hill Road Menlo Park, CA 94025 KPCB INFORMATION SCIENCE ZAIBATSU FUND II By: /s/ Kevin R. Compton ----------------------------------------------- Name: Kevin R. Compton Title: General Partner Address: 2750 Sand Hill Road Menlo Park, CA 94025 KPCB VII FOUNDERS FUND By: /s/ Kevin R. Compton ----------------------------------------------- [SIGNATURE PAGE TO AMENDMENT NO.2 TO STOCKHOLDERS' AGREEMENT] -5- Name: Kevin R. Compton Title: General Partner Address: 2750 Sand Hill Road Menlo Park, CA 94025 MITSUBISHI CORPORATION By:________________________________________________ Name: Hironori Aihara Title: Managing Director Address: 6-3, Marunouchi 2-Chome Chiyoda-ku, Tokyo 100-86 Japan /s/ Ronald Rivest --------------------------------------------------- Ronald Rivest Address: 24 Candia Street Arlington, MA 02174 RSA DATA SECURITY, INC. By: /s/ D. James Bidzos ------------------------------------------------ Name: D. James Bidzos Title: CEO Address: 100 Marine Parkway, Suite 500 Redwood City, CA 94065 SECURITY DYNAMICS TECHNOLOGIES, INC. By: /s/ Charles R. Stuckey Jr. ------------------------------------------------ Name: Charles R. Stuckey Jr. ---------------------------------------- Title: Chairman and CEO ---------------------------------------- [SIGNATURE PAGE TO AMENDMENT NO.2 TO STOCKHOLDERS' AGREEMENT] -6- Address: 20 Crosby Drive Bedford, MA 01730 TZM INVESTMENT FUND By: /s/ Timothy Tomlinson ------------------------------------------------ Name: Timothy Tomlinson Title: General Partner Address: c/o Tomlinson Zisko Morosoli & Maser LLP 200 Page Mill Road, 2nd Floor Palo Alto, CA 94306 VISA INTERNATIONAL SERVICE ASSOCIATION By: /s/ William L. Chenevich ------------------------------------------------ Name: William L. Chenevich ----------------------------------------- Title: Group Executive V.P. ----------------------------------------- Address: c/o Andrew Konstantaras Legal Department VISA 900 Metro Center Boulevard Foster City, CA 94404 NEW STOCKHOLDERS: CISCO SYSTEMS, INC. By: /s/ Cisco Systems, Inc. ------------------------------------------------ Name: _________________________________________ Title: _________________________________________ Address: 170 West Tasman Drive Building J-4 San Jose, CA 95134 Attention: Mike Volpi [SIGNATURE PAGE TO AMENDMENT NO. 2 TO STOCKHOLDERS' AGREEMENT] -7- MICROSOFT CORPORATION By: /s/ Gregory B. Maffei ------------------------------------------------ Name: Gregory B. Maffei ----------------------------------------- Title: VP, Corporate Development, Treasurer ----------------------------------------- Address: One Microsoft Way Redmond, WA 98052-6399 Attn: COMCAST INVESTMENT HOLDINGS, INC. By: /s/ Julian A. Brodsky ------------------------------------------------ Name: Julian A. Brodsky ----------------------------------------- Title: Vice Chairman ----------------------------------------- Address: 1500 Market Street Philadelphia, PA 19102 Attn: General Counsel VENTURE FUND I, LP By: /s/ Neal Douglas ------------------------------------------------ Name: Neal Douglas ------------------------------------------ Title: General Partner ------------------------------------------ Address: c/o AT&T Ventures 3000 Sand Hill Road, Bldg. 4, Suite 235 Menlo Park, CA 94025 Attn: Neal Douglas INTUIT INC. [SIGNATURE PAGE TO AMENDMENT NO. 2 TO STOCKHOLDERS' AGREEMENT] -8- By: /s/ James J. Heeger ------------------------------------------------ Name: James J. Heeger ----------------------------------------- Title: SVP/CFO ----------------------------------------- Address: 2535 Garcia Avenue P. O. Box 7850 Mountain View, CA 94039-7850 Attn: General Counsel REUTERS NEWMEDIA INC. By: /s/ Reuters Newmedia Inc. ------------------------------------------------ Name: _________________________________________ Title: CFO Reuters America Holdings, Inc. ----------------------------------------- Address: c/o Reuters America Holdings 1700 Broadway New York, NY 10019 Attn: Devin Wenig, Legal Dept. FIRST DATA CORPORATION By: /s/ Scott Loftesness ------------------------------------------------ Name: Scott Loftesness ----------------------------------------- Title: Executive Vice President - EFS ----------------------------------------- Address: 400 Hansen Way ----------------------------------------- Palo Alto, CA 94304 ----------------------------------------- SOFTBANK VENTURES, INC. By: /s/ Yoshitaka Kitao ------------------------------------------------ Name: Yoshitaka Kitao [SIGNATURE PAGE TO AMENDMENT NO. 2 TO STOCKHOLDERS' AGREEMENT] -9- Title: President Address: 24-1 Nihonbashi-Hakozakicho Chuo-ku, Tokyo 103 Japan MERRILL LYNCH GROUP, INC. By: /s/ Theresa Lang ------------------------------------ Name: Theresa Lang ---------------------------------- Title: President --------------------------------- Address: Merrill Lynch & Co., Inc. World Financial Center North Tower 280 Vesey Street New York, NY 10281-1334 Attn: Andrea Lowenthal, Esq. AMERINDO TECHNOLOGY GROWTH FUND II By: /s/ Alberto W. Vilar ------------------------------------ Name: Alberto W. Vilar ----------------------------------- Title: Director ---------------------------------- Address: c/o Amerindo Investment Advisors 399 Park Avenue, 18th Floor New York, NY 10022 ATTRACTOR L.P. By: /s/ Harvey Allison ------------------------------------ Name: Harvey Allison ---------------------------------- Title: MM of Attractor Ventures LLC --------------------------------- [SIGNATURE PAGE TO AMENDMENT NO. 2 TO STOCKHOLDERS' AGREEMENT] -10- Address: 2730 Sand Hill Road, Suite 280 Menlo Park, CA 94025 Attn: Harvey Allison CHANCELLOR LGT ASSET MANAGEMENT By: /s/ Joar DeSantis ----------------------------------------------- Name: Joar DeSantis ----------------------------------------- Title: Nominee Partner ----------------------------------------- Address: 1166 Avenue of the Americas New York, NY 10036 Attn: Alessandro Piol GEMPLUS By: /s/ Mark Lassus ----------------------------------------------- Name: Mark Lassus ----------------------------------------- Title: President and CEO ----------------------------------------- Address: Parc D'Activities De Gemenos 13881 Gemenos France Attn: Marc Lassus [SIGNATURE PAGE TO AMENDMENT NO. 2 TO STOCKHOLDERS' AGREEMENT] -11-


                                                                    EXHIBIT 4.03
                                                                    
                               CO-SALE AGREEMENT
                               -----------------

     THIS CO-SALE AGREEMENT ("Agreement") is made as of the 20th day of
February, 1996 by and between VeriSign, Inc., a Delaware corporation (the
"Company"), the individuals and entities listed on Schedule A attached hereto
(the "Investors"), and RSA Data Security, Inc., a Delaware corporation
("Holder").

     WHEREAS, the Company, Holder and certain of the Investors (the "Series A
Investors") are parties to that certain Series A Preferred Stock Purchase
Agreement dated April 18, 1995 (the "Series A Agreement"), pursuant to which
Holder has granted certain co-sale rights, as more particularly set forth in
Section 10 of the Series A Agreement, to the Series A Investors.

     WHEREAS, Holder desires to terminate its obligations under Section 10 of
the Series A Agreement, and whereas the Company and the Series A Investors are
willing to allow Holder to terminate such obligations in consideration of Holder
entering into this Agreement.

     WHEREAS, the Company and Holder desire for certain of the Investors (the
"Series B Investors") to purchase shares of the Company's Series B Preferred
Stock pursuant to that certain Series B Preferred Stock Purchase Agreement of
even date herewith (the "Series B Agreement"), and as a condition thereof and to
induce such investment, the Company and Holder are willing to enter into this
Agreement.


     NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:

I.   RIGHT OF CO-SALE.
     ---------------- 

     1.1 Grant. Should Holder receive a bona fide offer (the "Purchase
         -----
Offer") from any person or entity ("Offeror"), to purchase from Holder any
Common Stock or Preferred Stock of the Company (collectively, "Capital Stock"),
now owned or hereafter acquired by Holder upon specific terms and conditions
(including a specified purchase price payable in cash or other property), then
Holder shall promptly notify each of the Investors of the terms and conditions
of such Purchase Offer.

     1.2 Exercise of Co-Sale Right. Each of the Investors shall have the
         -------------------------
right, exercisable upon written notice to Holder within ten (10) business days
after receipt of the notice of the Purchase Offer referenced in Section 1.1
above, to participate in Holder's sale of the Capital Stock pursuant to the
specified terms and conditions of such Purchase Offer. To the extent one or more
of the Investors exercises such right of participation in accordance with the
terms and conditions set forth below, the number of shares of Capital Stock
which Holder may sell pursuant to such Purchase Offer shall be correspondingly
reduced. The right of participation of each of the Investors shall be subject to
the following terms and conditions:

         a. Each of the Investors may sell all or any part of that number
of shares of Common Stock (or Preferred Stock convertible into such number of
shares of Common Stock) of the Company equal to the product obtained by
multiplying (i) the maximum aggregate number of Common Stock and Preferred Stock
(on an as-converted to Common Stock basis) covered by the Purchase Offer by (ii)
a fraction, the numerator of which is the number of shares of Common Stock of
the Company at the time owned by the Investor (assuming for such purpose the
conversion of any Preferred Stock owned by the Investor into Common Stock) and
the denominator of which is the combined number of shares of Common Stock of the
Company at the time owned by the Holder and the Investors (assuming for such
purpose the conversion of any Preferred Stock owned by Holder and the
Investors).

 
              b. To the extent one or more of the Investors elect not to sell
the full number of shares said Investors are entitled to sell pursuant to
Section 1.2(a) above, the Holder's right to participate in the sale shall be
increased by a corresponding number of shares.

              c. Each of the Investors may effect its participation in the sale
by delivering to a closing agent reasonably acceptable to such Investors and the
Holder ("Agent") for transfer to the Offeror one or more certificates, properly
endorsed for transfer, which represent (i) the number of shares of Common Stock
which the Investor elects to sell pursuant to this Section 1.2 or (ii) that
number of shares of Preferred Stock which is at such time convertible into the
number of shares of Common Stock which the Investor elects to sell pursuant to
this Section 1.2; provided, however, that if the Offeror objects to the delivery
of Preferred Stock in lieu of Common Stock, the participating Investor or
Investors may convert and deliver Common Stock.

     1.3 Payment of Proceeds. The stock certificates which the Investors deliver
         -------------------
to the Agent pursuant to Section 1.2 above shall be transferred by the Agent to
the buyer thereof in consummation of the sale of the stock pursuant to the terms
and conditions specified in the Section 1.1 notice to the Investors. The Holder
agrees to cause the buyer thereof to make payment therefor to the Agent and the
Agent shall promptly thereafter remit to each Investor that portion of the sale
proceeds to which the Investor is entitled by reason of said Investor's
participation in such sale.

     1.4  Non-Exercise.  The exercise or non-exercise of the rights of the
          ------------                                                    
Investors hereunder to participate in one or more sales of stock made by Holder
shall not adversely affect their rights to participate in any subsequent stock
sales by Holder.

II.  EXEMPT TRANSFERS.
     ---------------- 

     2.1  Permitted Transactions.  The participation rights of the Investors
          ----------------------                                            
contained in this Agreement shall not pertain or apply to any pledge of the
Company's capital Stock made by Holder which creates a mere security interest,
nor shall such rights pertain or apply to any sales or transfers of the
Company's Capital Stock to shareholders of Holder or affiliates of Holder or its
shareholders, provided such shareholders or affiliates shall furnish the
Investors with a written agreement agreeing to be bound by and comply with all
of the provisions of this Agreement.  Such transferred Capital Stock shall
remain "Capital Stock" hereunder, and such transferee shall be treated as
"Holder" for purposes of this Agreement.


III. PROHIBITED TRANSFERS.
     -------------------- 

     3.1  Put Option.  In the event Holder should sell any Capital Stock of the
          ----------                                                           
Company in contravention of the participation rights of the Investors under this
Agreement (a "Prohibited Transfer"), the Investors shall have, in addition to
such other remedies as may be available in law, in equity or otherwise, the
option to sell to Holder a number of shares of Common Stock of the Company
(either directly or through delivery of Preferred Stock at the time convertible
into such number of shares of Common Stock) equal to the number of shares such
Investor would have had the right to sell in the Prohibited Transfer, on the
following terms and conditions:

          a. The price per share at which the shares are to be sold to the
Holder shall be equal to the price per share paid by the buyer to the Holder in
the Prohibited Transfer.

          b. The Investors shall deliver to the Holder, within ninety (90) days
after they have received notice from the Holder or otherwise become aware of the
Prohibited Transfer, the certificate or certificates representing shares to be
sold, each certificate to be properly endorsed for transfer.

                                      -2-

 
          c. The Holder shall, upon receipt of the certificates for the
repurchased shares, pay the aggregate purchase price therefor, by certified
check or bank draft made payable to the order of the Investor exercising the put
option set forth in this Article III.

IV.  LEGEND REQUIREMENTS.
     ------------------- 

     4.1  Legend. Each certificate representing the Capital Stock owned by
          ------
Holder shall be endorsed with the following legend:

          "THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS
          CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A
          CERTAIN CO-SALE AGREEMENT BY AND BETWEEN THE REGISTERED
          HOLDER (OR HIS PREDECESSOR IN INTEREST) AND CERTAIN
          INVESTORS IN THE CAPITAL STOCK OF THE COMPANY. A COPY OF
          SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE
          COMPANY."

     4.2  Removal.  The Section 4.1 legend shall be removed upon termination of
          -------                                                              
this Agreement in accordance with the provisions of Section 5.1.

V.   TERMINATION.
     ----------- 

     5.1  Termination.
          ----------- 

          a. The rights of each Investor under Article I of this Agreement and
the correlative obligations of Holder with respect to such Investor shall
terminate at such time as such Investor shall no longer be the owner of any
shares of Capital Stock of the Company. Unless sooner terminated in accordance
with the preceding sentence, Article I of this Agreement shall terminate upon
the first to occur of the following events:

             (i)   the liquidation or dissolution of the Company;

             (ii)  the execution by the Company of a general assignment for the
benefit of creditors or the appointment of a receiver or trustee to take
possession of the property and assets of the Company; or

             (iii) immediately prior to the closing of a bona fide firm
commitment underwritten public offering of the Company's Common Stock registered
under the Securities Act of 1933 on Form S-1 (or any successor form designated
by the Securities and Exchange Commission), resulting in aggregate gross
proceeds to the Company of at least $15,000,000 at an offering price to the
public of not less than $7.50 per share (appropriately adjusted to reflect any
stock splits, stock dividends or similar events).

VI.  MISCELLANEOUS PROVISIONS.
     ------------------------ 

     6.1  Notice. Any notice required or permitted to be given to a party
          ------
pursuant to the provisions of this Agreement shall be in writing and shall be
effective upon personal delivery or five (5) days after deposit in the U.S. mail
(or equivalent independent service), postage prepaid and properly addressed to
the party to be notified as set forth below such party's signature or at such
other address as such party may designate by ten (10) days' advance written
notice to the other parties hereto.

                                      -3-

 
     6.2  Severability.  In the event one or more of the provisions of this
          ------------                                                     
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed and interpreted in such manner as to be effective and valid
under applicable law.

     6.3  Waiver or Modification. Any amendment or modification of this
          ----------------------
Agreement shall be effective only if evidenced by a written instrument executed
Holder, (ii) the Company, and (iii) Investors, or their assignees, holding not
less than a majority of the Common Stock issued or issuable upon conversion of
the Preferred Stock then held by the Investors. Notwithstanding the foregoing,
this Agreement may be amended to add additional Investors without the consent of
the Holder.

     6.4  Governing Law.  This Agreement shall be governed by and construed in
          -------------                                                       
accordance with the laws of the State of California as applied in contracts
among California residents entered into and performed entirely within
California.

     6.5  Attorneys' Fees. In the event of any dispute involving the terms
          ---------------
hereof, the prevailing parties shall be entitled to collect legal fees and
expenses from the other party to the dispute.

     6.6  Further Assurances. Each party agrees to act in accordance herewith
          ------------------
and not to take any action which is designed to avoid the intention hereof.

     6.7  Ownership. Holder represents and warrants that he is the sole legal
          ---------
and beneficial owner of the shares of stock subject to this Agreement and that
no other person has any interest (other than a community property interest) in
such shares.

     6.8  Successors and Assigns. This Agreement and the rights and obligations
          ----------------------
of the parties hereunder shall inure to the benefit of, and be binding upon,
their respective successors, assigns and legal representatives. This Agreement
and the rights and obligations of the parties hereunder is specifically
assignable by the Investors.

     6.9  Aggregation of Stock. For the purposes of determining the availability
          --------------------
of any rights under this Agreement, the holdings of transferees and assignees of
an individual or a partnership who are spouses, ancestors, lineal descendants or
siblings of such individual or partners or retired partners of such partnership
(including spouses and ancestors, lineal descendants and siblings of such
partners or spouses who acquire Common Stock by gift, will or intestate
succession) shall be aggregated together with the individual or partnership, as
the case may be, for the purpose of exercising any rights or taking any action
under this Agreement.

     6.10 Counterparts.  This Agreement may be executed in two or more
          ------------                                                
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

     6.11 Separate Counsel. Each party to this Agreement acknowledges and agrees
          ----------------
that such party has been provided the opportunity and encouraged to consult with
counsel of such party's own choosing with respect to this Agreement and that
Brobeck, Phleger & Harrison LLP solely represents the interests of Kleiner
Perkins Caufield & Byers VII, KPCB VII Founders Fund and KPCB Information
Science Zaibatsu Fund II.

                                      -4-

 
               [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

                                      -5-

 
     IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year indicated above.


COMPANY:         VERISIGN, INC., a Delaware corporation

                                    By:/s/ Stratton Sclavos
                                       -----------------------------------------
                                         Stratton Sclavos, President

                    Address:        2593 Coast Ave
                                    --------------------------------------------
                                    Mountain View, CA 94043
                                    --------------------------------------------

INVESTORS:       KLEINER PERKINS CAUFIELD & BYERS VII

                                    By:/s/ Kevin R. Compton
                                       -----------------------------------------

                                    Name: Kevin Compton
                                          --------------------------------------

                                    Title: General Partner
                                          --------------------------------------

                    Address:        2750 Sand Hill Road
                                    Menlo Park, CA  94025


                                    KPCB VII FOUNDERS FUND

                                    By:/s/ Kevin R. Compton
                                       -----------------------------------------

                                    Name: Kevin Compton
                                          --------------------------------------

                                    Title: General Partner
                                          --------------------------------------

                    Address:        2750 Sand Hill Road
                                    Menlo Park, CA  94025

                                                 
                     [SIGNATURE PAGE TO CO-SALE AGREEMENT]

 
                              KPCB INFORMATION SCIENCE ZAIBATSU FUND II


                              By:/s/ Kevin R. Compton
                                 ---------------------------------------------
                              Name:___________________________________________

                              Title: General Partner
                                    ------------------------------------------
                        
                    Address:  2750 Sand Hill Road
                              Menlo Park, CA  94025

                              BESSEMER VENTURE PARTNERS DCI

                              By:  Bessemer Venture Partners III L.P. 
                                  Managing General Partner

                                   By:  Deer III & Co.
                              
                              
                              BY:   /s/ Robert H. Buescher
                                   -------------------------------------------
                              Name: __________________________________________

                              Title: Partner
                                    ------------------------------------------

                    Address:  1025 Old Country Road, Suite 205
                              Westbury, NY  11590

                              MITSUBISHI CORPORATION

                              By:_____________________________________________

                              Name:  Yukihiro Kayama

                              Title: Senior Assistant to Managing Director
                                      Information Systems and Services Group

                    Address:  6-3, Marunouchi 2-Chome
                              Chiyoda-ku, Tokyo 100-86
                              Japan




                     [SIGNATURE PAGE TO CO-SALE AGREEMENT]


 
                              SECURITY DYNAMICS TECHNOLOGIES, INC.


                              By:/s/ Charles R. Stuckey, Jr.
                                 ----------------------------------------------
                              Name: Charles R. Stuckey, Jr.
                                    -------------------------------------------
                              Title: President and CEO
                                    -------------------------------------------

                    Address:  One Alewife Center
                              Cambridge, MA  02140-2312


                              INTEL CORPORATION


                              By: /s/ Arvind Sodhani
                                 ---------------------------------------------
                              Name:___________________________________________

                              Title: Vice President and Treasurer
                                    ------------------------------------------
                    Address:  2200 Mission College Blvd.
                              Santa Clara, CA  95052


                              AMERITECH DEVELOPMENT CORPORATION


                              By: /s/ Thomas Touton
                                 ---------------------------------------------

                              Name:  Thomas Touton

                              Title:  Vice President - Venture Capital

                    Address:  30 South Wacker Drive, 37th Floor
                              Chicago, IL  60606


                              GC&H INVESTMENTS


                              By: /s/ James C. Kitch
                                 ----------------------------------------------
                              Name: James C. Kitch
                                   --------------------------------------------
                              Title: Executive Partner
                                    -------------------------------------------

                    Address:  3000 Sand Hill Road
                              Building 3, Suite 230
                              Menlo Park, CA  94025

 
                              VISA INTERNATIONAL SERVICE ASSOCIATION


                              By: /s/ William Chenevich
                                 -------------------------------
                              Name: William Chenevich
                                   -----------------------------
                              Title: Group EVP
                                    ----------------------------
                    Address:  c/o Andrew Konstantaras
                              Legal Department
                              VISA
                              900 Metro Center Boulevard
                              Foster City, CA  94404


                              FISCHER SECURITY CORPORATION L.L.C.


                              By: /s/ Addison M. Fischer
                                 -------------------------------
                              Name:  Addison M. Fischer
                                   -----------------------------
                              Title: Managing Director
                                    ----------------------------
                    Address:  4073 Mercantile Avenue
                              Naples, FL  33942


                              FIRST TZMM INVESTMENT PARTNERSHIP


                              By: /s/ Timothy Tomlinson
                                 -------------------------------
                              Name: Timothy Tomlinson
                                   -----------------------------
                              Title: General Partner
                                    ----------------------------
                    Address:  c/o Tomlinson Zisko Morosoli & Maser
                              200 Page Mill Road, 2nd Floor
                              Palo Alto, CA  94306


     HOLDER:  RSA DATA SECURITY, INC.


                              By: /s/ D. James Bidzos
                                 -------------------------------
                                   D. James Bidzos, President

                    Address:  100 Marine Parkway, Suite 500
                              Redwood City, CA  94065


                     [SIGNATURE PAGE TO CO-SALE AGREEMENT]


 
                                VeriSign, Inc.

                                  Schedule A
                                  ----------

                                   INVESTORS
                                   ---------


                KLEINER, PERKINS, CAUFIELD & BYERS VII 

                KPCB VII FOUNDERS FUND KPCB

                INFORMATION SCIENCE ZAIBATSU FUND II 

                BESSEMER VENTURE PARTNERS DCI

                MITSUBISHI CORPORATION                     

                SECURITY DYNAMICS TECHNOLOGIES, INC.      

                INTEL CORPORATION                         

                AMERITECH DEVELOPMENT CORPORATION         

                GC&H INVESTMENTS                          

                VISA INTERNATIONAL SERVICE ASSOCIATION    

                FISCHER SECURITY CORPORATION L.L.C.       

                FIRST TZMM INVESTMENT PARTNERSHIP          

                                      A-1


                                                                   EXHIBIT 10.01

                    DIGITAL CERTIFICATES INTERNATIONAL, INC.

                  SERIES A PREFERRED STOCK PURCHASE AGREEMENT
                  -------------------------------------------



     This Series A Preferred Stock Purchase Agreement is made as of April 18,
1995, by and between Digital Certificates International, Inc. (the "COMPANY"),
                                                                    -------   
RSA Data Security, Inc., a Delaware corporation ("RSA"), and the purchasers
                                                  ---                      
listed on Exhibit A (collectively referenced as the "PURCHASERS" and
                                                     ----------     
individually as a "PURCHASER").
                   ---------   

                                       1
                            Sale of Preferred Stock
                            -----------------------

     Subject to the terms and conditions hereof, the Company will sell and issue
to the Purchasers, and the Purchasers, severally and not jointly, will purchase
from the Company, the number of shares of the Company's Series A Preferred Stock
(the "PREFERRED STOCK") set forth opposite each Purchaser's name on Exhibit A,
      ---------------                                                         
at a price of One Dollar and Twenty Cents ($1.20) per share.

                                       2
                               Closing; Delivery
                               -----------------

     2.1  Closings. The closings of the purchase and sale of the Preferred Stock
          -------- 
hereunder shall take place at such time or times as elected by the Company as
set forth below. Each such closing is hereafter referenced as a "Closing". The
Company shall schedule closings as it deems appropriate until such time as Four
Million Three Hundred Six Thousand Eight Hundred Eighty-Three (4,306,883) shares
of Preferred Stock have been sold or until December 31, 1995 whichever shall
first occur. A majority of the holders of the Preferred Stock may approve an
extension of such date. Each such closing shall be held at the offices of the
Company or such other place as the Purchasers and the Company shall mutually
agree.

     2.2  Delivery. At each Closing, the Company shall deliver to each Purchaser
          --------       
a certificate representing the Preferred Stock which such Purchaser is
purchasing at such Closing against delivery to the Company by such Purchaser of
a bank check or bank wire (or other check acceptable to the Company) payable to
the Company's order or by delivery of evidences of indebtedness of the Company
for cancellation by the Company, all in the aggregate amount of the purchase
price of such Preferred Stock.

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 2

                                      3 
                 Representations and Warranties of the Company
                 ---------------------------------------------

     The Company and where specifically indicated RSA, hereby jointly and
severally (only in those cases in which a representation or warranty is made as
to the same matter by both the Company and RSA) represent and warrant to each
Purchaser that all of the statements made below in this Section 3 are true and
correct in all respects upon each Closing.  These representations and warranties
are subject to the exceptions set forth on Exhibit B (the "SCHEDULE OF
                                                           -----------
EXCEPTIONS") furnished to each Purchaser, specifically identifying the relevant
- ----------                                                                     
Section hereof, which exceptions shall be deemed to be representations and
warranties as if made hereunder.

     3.1  Organization and Standing. The Company is a corporation duly
          -------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware and has full power and authority to own and operate its properties and
assets, to execute and deliver this Agreement, the Registration Rights Agreement
attached hereto as Exhibit C (the "REGISTRATION RIGHTS AGREEMENT"), the
                                   -----------------------------
Stockholders Agreement attached hereto as Exhibit D (the "STOCKHOLDERS
                                                          ------------
AGREEMENT"), the OEM Master License Agreement attached hereto as Exhibit M (the
- ---------
"OEM AGREEMENT"), the Non-Compete and Non-Solicitation Agreement attached as
 -------------
Exhibit N (the "NON-COMPETE AGREEMENT"), the Assignment attached as Exhibit I
                ---------------------
(the "ASSIGNMENT"), and to carry on its business as now conducted and as
      ----------
proposed to be conducted in the Business Plan (Version 2.0) dated November, 1994
and attached hereto as Exhibit E, heretofore furnished to each Purchaser
("BUSINESS PLAN"). This Agreement, the Registration Rights Agreement, the
  -------------
Stockholders Agreement, the OEM Agreement, the Non-Compete Agreement and the
Assignment are collectively referenced hereinafter as the "AGREEMENTS". The
                                                           ----------
Company is not required to be qualified as a foreign corporation in any
jurisdiction except California; provided, however, that the Company need not be
qualified in any jurisdiction in which a failure to qualify would not have a
material and adverse effect on its operations or financial condition. The
Company is duly qualified as a foreign corporation in California.

     3.2  Capitalization. The authorized capital stock of the Company consists
          --------------
of Fifteen Million Nine Hundred Forty Thousand Two Hundred Seventeen
(15,940,217) shares of Common Stock and Six Million Eight Hundred Fifty-Six
Thousand Eight Hundred Eighty-Four (6,856,884) shares of Preferred Stock, none
of such Common or Preferred will be issued and outstanding prior to the first
Closing. The Preferred Stock has the rights, preferences, privileges and
restrictions set forth in the Certificate of Incorporation

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 3


("CERTIFICATE") of the Company in the form of Exhibit F. The Company has
  -----------
reserved Six Million Eight Hundred Fifty-Six Thousand Eight Hundred Eighty-Four
(6,856,884) shares of Common Stock for issuance upon conversion of the Preferred
Stock. The Company has adopted a 1995 Stock Option Plan (the "PLAN") under which
                                                              ----
Two Million One Hundred Forty-Five Thousand (2,145,000) shares of Common Stock
are available for sale pursuant to stock options to employees, officers,
directors, advisory board members and consultants. Copies of the Plan and form
of option agreement have been delivered to counsel for Purchasers. There are no
other preemptive rights, options, warrants, conversion privileges or other
rights or agreements presently outstanding for the purchase or acquisition from
the Company of any of its authorized but unissued stock, other than the rights
created by this Agreement. The list of the Company's security holders attached
as Exhibit G is a true, correct and complete list of the owners and number of
shares held by each owner, of record and, to the best knowledge of the Company,
beneficially, of all outstanding securities of the Company as of the first
Closing. The list of the Company's option holders attached hereto as Exhibit G
is a true, correct and complete list of all option holders of the Company, the
number of shares under option to each such person, the exercise price per share
for all shares subject to option and the vesting schedule for each option. All
outstanding securities of the Company were issued in compliance with applicable
federal and state securities laws.

     3.3  Subsidiaries. The Company has no subsidiaries and does not otherwise
          ------------
own or control, directly or indirectly, any equity interest in any corporation,
association, joint venture, partnership or other business entity.

     3.4  Authorization. All corporate action on the part of the Company, its
          -------------
officers, directors and shareholders necessary for the authorization, execution,
delivery and performance of the Agreements by the Company, the authorization,
sale, issuance and delivery of the Preferred Stock sold to the Purchasers
hereunder (and the shares of Common Stock issuable upon conversion of such
Preferred Stock) and the performance of all of the Company's obligations
thereunder has been taken. The Agreements, when executed and delivered by the
Company, shall constitute a valid and binding obligation of the Company,
enforceable in accordance with their terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies. The Preferred Stock sold to the Purchasers hereunder, when
payment therefor has been received by the Company, will be validly issued, full
paid and nonassessable; the shares of Common Stock issuable upon conversion of
such Preferred Stock have been duly and validly reserved and, when issued in

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 4


compliance with the provisions of the Certificate, will be validly issued, full
paid and nonassessable; and such Preferred Stock and such shares of Common Stock
will be free of any liens or encumbrances, other than those created by or
imposed upon the holders thereof through no action of the Company; provided,
however, that such Preferred Stock (and the shares of Common Stock issuable upon
conversion thereof) may be subject to restrictions on transfer under state and
federal securities laws as set forth herein and under the Stockholders Agreement
and Registration Rights Agreement.  The sale of Preferred Stock hereunder and
its conversion into Common Stock are not subject to any preemptive rights or
rights of first refusal.

     3.5  Governmental Consent, Etc. No consent, approval or authorization of or
          -------------------------
designation, declaration or filing with any governmental authority on the part
of the Company is required in connection with the valid execution and delivery
of this Agreement, or the offer, sale or issuance of Preferred Stock hereunder
or the shares of Common Stock issuable upon conversion of such Preferred Stock,
or the consummation of any other transaction contemplated hereby, except, if
required, the filing of Form D with the Securities and Exchange Commission and
qualifications or filings under applicable state blue sky laws, which
qualifications, if required, will have been obtained and will be effective on
the Closing, and any such filings will be made within the time prescribed.

     3.6  Proprietary Rights. The Company and RSA hereby represent and warrant
          ------------------
that the Company possesses and has good, valid and marketable title, free and
clear of all security interests, liens, claims, charges, encumbrances or any
other defects in title of any nature whatsoever to, or has the valid,
enforceable right to use (pursuant to written agreements, true and correct
copies of which have been submitted to counsel for Purchasers), all trademarks,
trademark rights, trade names, trade name rights, licenses, franchises, service
marks, patents, patent applications, copyrights, inventions, discoveries,
improvements, processes, trade secrets, formulae, proprietary rights or data,
shop rights, ideas or know-how necessary to conduct its business as now being
conducted or as proposed to be conducted in the Business Plan, without conflict
with or infringement upon any valid rights of others and the lack of which could
materially and adversely affect the operations or condition, financial or
otherwise, of the Company. The Company has caused all present and past executive
officers, directors, employees, consultants and other agents of the Company, and
shall use its best efforts to cause all future officers, directors, employees,
consultants and other agents of the Company, to execute proprietary information
agreements substantially in the form of Exhibit H. There are no outstanding
options, licenses or agreements of any kind relating to the foregoing,

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 5


nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes of any other person or entity other than such
licenses or agreements arising from the purchase of "off the shelf" or standard
products.  The Company has not received any communications alleging that the
Company has violated or, by conducting its business as proposed, would violate
any of the patents, trademarks, service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity.  None of the
Company's employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with their duties to the Company or that would conflict with the
Company's business as proposed to be conducted.  Neither the execution nor
delivery of the Agreements, nor the carrying on of the Company's business by the
employees of the Company, nor the conduct of the Company's business as proposed
to be conducted in the Business Plan, will conflict with or result in a breach
of the terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which RSA, the Company or any employee of
the Company is now obligated.  The Company does not believe it is or will be
necessary to utilize any inventions, trade secrets or proprietary information of
any of its employees made prior to their employment by the Company, except for
inventions, trade secrets or proprietary information that have been assigned to
the Company.

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 6


     3.7  Labor Matters. The Company: (i) is not bound by or subject to any
          ------------- 
collective bargaining agreement with respect to any of its employees nor has any
labor union requested or, to the best knowledge of the Company, sought to
represent any of the employees, representatives or agents of the Company, (ii)
does not have any current labor problems or disputes, pending or threatened,
(iii) does not have in effect any "employee pension benefit plans" (as defined
in Section 3(2) of the Employee Retirement Income Security Act of 1974) or
employee benefit or similar plans qualified under Section 401 of the Internal
Revenue Code of 1986, as amended, and (iv) does not maintain, has not in the
past maintained and is not and has not been a contributor to any multi-employer
plan or single employer plan, as defined in Section 4001 of the Employee
Retirement Income Security Act of 1974, as amended, for the employees of the
Company or any trade or business (whether or not incorporated) which, together
with the Company, would be deemed to be a "single employer" within the meaning
of such Section 4001. The Company has complied in all material respects with all
laws relating to the employment of labor, including provisions relating to
wages, hours, equal opportunity, collective bargaining and payment of Social
Security and other taxes.

     3.8  Certain Transactions. The Company is not indebted, directly or
          -------------------- 
indirectly, to any of its officers or directors, or to their respective
immediate family, in any amount whatsoever, except for salaries and fees accrued
in the ordinary course of business; none of said officers or directors or
members of their immediate families, are indebted to the Company or have any
direct or indirect ownership interest in any firm or corporation with which the
Company is affiliated or with which the Company has a business relationship
except RSA Data Security, Inc., or any firm or corporation which competes with
the Company (except with respect to any interest in less than five percent (5%)
of the stock of any corporation whose stock is publicly traded). No officer,
director or stockholder, or any member of their immediate families, is, directly
or indirectly, interested in any material contract with the Company. The Company
is not a guarantor or indemnitor of any indebtedness of any other person, firm
or corporation.

     3.9  Voting Arrangements. Except as set forth in this Agreement and the
          -------------------
Stockholders Agreement, to the best knowledge of the Company, there are no
outstanding stockholder agreements, purchase agreements, voting trusts, proxies
or other arrangements or understandings, either written or oral, among the
stockholders of the Company relating to either the voting or the disposition of
their respective shares.

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 7


     3.10   Compliance with Other Instruments, None Burdensome, Etc.  The
            -------------------------------------------------------- 
Company is not in violation of any term of its Certificate of Incorporation or
Bylaws, as amended and in effect on and as of each Closing. The Company is not
in violation in any respect of any term or provision of any mortgage,
indebtedness, indenture, contract, agreement, instrument, judgment or decree,
order, statute, rule or regulation applicable to it where such violation would
adversely affect the Company, its operations or financial condition. The
execution, delivery and performance of and compliance with this Agreement, and
the issuance of the Preferred Stock sold hereunder and the shares of Common
Stock issuable upon conversion of such Preferred Stock, have not resulted and
will not result in any violation of or conflict with, or constitute a material
default under, any mortgage, indebtedness, indenture, contract, agreement,
instrument, judgment or decree, order, statute, rule or regulation applicable to
it, or result in the creation of any mortgage, pledge, lien, encumbrance or
charge upon any of the properties or assets of the Company; and there is no such
term or provision which adversely affects the Company, its operations or
financial condition as presently conducted or as contemplated to be conducted.
The Company and, to the best knowledge of the Company, its officers, directors
and key employees, are not parties to any mortgage, indebtedness, indenture,
contract, agreement, instrument, judgment, decree or order restricting its
ability to enter or compete in any line of business or market.

     3.11   Litigation, Etc. The Company and RSA hereby represent and warrant
            ---------------
that there are no actions, suits, proceedings or investigations pending against
the Company or its properties, before any court or governmental agency (nor, to
the best knowledge of the Company or RSA, is there any reasonable basis therefor
or threat thereof), which, either in any case or in the aggregate, might result
in any material adverse change in the business or financial condition of the
Company, or in any material impairment of the right or ability of the Company to
carry on its business as now conducted or as proposed to be conducted in the
Business Plan or in any material liability on the part of the Company, or any
change in the current equity ownership of the Company, and none which questions
the validity of this Agreement or any action taken or to be taken in connection
herewith. The foregoing includes, without limiting its generality, actions
pending or threatened (or any basis therefor known to the Company or RSA)
involving the prior employment of any of the Company's employees, their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers or third parties or their
obligations under any agreements with prior employers or the execution and
delivery of the Assignment.

     3.12   Financial Statements.
            -------------------- 

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 8


            3.12.1  Attached hereto as Exhibit J is the Company's pro forma
unaudited balance sheet as of the first Closing (the "BALANCE SHEET").
                                                      -------------

            3.12.2  The Company has no debt, liability or obligation of any
nature, whether accrued, absolute, contingent or otherwise, and whether due or
to become due, that is not reflected or reserved against in the Balance Sheet,
except for those (i) that may have been incurred after the date thereof and (ii)
that are not required by generally accepted accounting principles to be included
in a balance sheet or the notes thereto. All debts, liabilities and obligations
incurred after the date of the Balance Sheet were incurred in the ordinary
course of business and are usual and normal in amount, both individually and in
the aggregate.

            3.12.3  The Balance Sheet was prepared according to generally
accepted accounting principles consistently applied to the extent they apply to
pro forma balance sheets and presents fairly the financial position of the
Company, except that it does not contain all of the footnotes required by
generally accepted accounting principles.

     3.13   Material Liabilities. The Company has no liabilities which are,
            --------------------
individually or in the aggregate, material to the financial condition or
operating results of the Company which have not been disclosed on the Balance
Sheet.

     3.14   Taxes. The Company has prepared and filed all federal, state and
            -----
local income, withholding, sales, real property, personal property and other tax
returns that are required to be filed by it and has paid or made provision for
the payment of all taxes that have become due pursuant to such returns. None of
such returns has been audited by any state or federal agency. No deficiency
assessment or proposed adjustment of the Company's federal, state and or local
taxes is pending, and the Company has no knowledge of any proposed liability for
any tax to be imposed upon the Company for which there is not an adequate
reserve reflected in the Balance Sheet.

     3.15   Title.  The Company and RSA hereby represent and warrant that the
            -----                                                   
Company has good and marketable title to its property and assets. Such
properties and assets are not subject to any material liens, mortgages, pledges,
encumbrances or charges of any kind, except (a) as reflected in the Company's
Balance Sheet, (b) for liens for current taxes not yet delinquent, (c) for liens
imposed by law and incurred in the ordinary course of business for obligations
not yet due to carriers, warehousemen, laborers, materialmen and the like, (d)
for liens in respect of pledges or deposits under workers'

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 9

compensation laws or similar legislation or (e) for minor defects in title, none
of which individually or in the aggregate materially interferes with the use of
such property. All leases, if any, pursuant to which the Company leases real or
personal property are in good standing and are valid and effective in accordance
with their respective terms, assuming due execution by the other parties to such
agreements, and, to the best knowledge of the Company, there exists no default
or other occurrence or condition which could result in a material default or
termination of any thereof.

     3.16   Agreements; Action.
            ------------------ 

            3.16.1  Except for agreements explicitly contemplated hereby,
indemnity agreements, agreements with RSA copies of which have been provided to
counsel for the Purchasers, and agreements between the Company and its employees
with respect to the sale of the Company's Common Stock, there are no agreements,
understandings or proposed transactions between the Company and any of its
officers, directors, affiliates or any affiliate thereof.

            3.16.2  There are no agreements, understandings, instruments,
contacts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or to its knowledge by which it is bound which may
involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $10,000 (other than obligations of, or payments to, the
Company arising from purchase and sale agreements entered into in the ordinary
course of business), except agreements assigned to the Company by RSA copies of
which have been provided to counsel for Purchasers, or (ii) the license of any
patent, copyright, trade secret or other proprietary right to or from the
Company (other than licenses arising from the purchase of "off the shelf" or
other standard products), except agreements with RSA copies of which have been
provided to Company for Purchasers, or (iii) provisions restricting or affecting
the development, manufacture or distribution of the Company's product or
service, except agreements with RSA copies of which have been provided to
Company for Purchasers or (iv) indemnification by the Company with respect to
infringements of proprietary rights (other than indemnification obligations
arising from purchase or sale agreement entered into in the ordinary course of
business), except agreements with RSA copies of which have been provided to
counsel for Purchasers.

            3.16.3  The Company has not (i) incurred any indebtedness for money
borrowed or any other liabilities (other than with respect to dividend
obligations, distributions, indebtedness or other obligations incurred in the
ordinary course of business or as disclosed in the Balance Sheet) individually
in excess of $10,000 or,

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 10

in the case of indebtedness and/or liabilities individually less than $10,000,
in excess of $25,000 in the aggregate, (ii) made any loans or advances to any
person, other than ordinary advances for travel expenses, or (iv) after the date
of the Balance Sheet sold, exchanged or otherwise disposed of any of its assets
or rights, other than the sale of its inventory in the ordinary course of
business.

     3.17   Compliance with Laws; Permits. To its knowledge, the Company is not 
            -----------------------------
in violation of any applicable statute, rule, regulation, order or restriction
of any domestic or foreign government or any instrumentality or agency thereof
in respect of the conduct of its business or the ownership of its properties
which violation would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company. The
Company has all franchises, permits, licenses and any similar authority
necessary for the conduct of its business as now being conducted by it, the lack
of which could materially and adversely affect the business, properties,
prospects or financial condition of the Company and believes it can obtain,
without undue burden or expense, any similar authority for the conduct of its
business as planned to be conducted.

     3.18   Environmental and Safety Laws. To its knowledge, the Company is not 
            -----------------------------
in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to its knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation.

     3.19   Offering Valid. Assuming the accuracy of the representations and
            --------------
warranties of the Purchasers contained in Section 4 hereof, the offer, sale and
issuance of the Preferred Stock and the Common Stock issued upon conversion
thereof (the "Conversion Shares") will be exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act")
and will have been registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification requirements of
all applicable state securities laws. Neither the Company nor any agent on its
behalf has solicited or will solicit any offers to sell or has offered to sell
or will offer to sell all or any part of the Preferred Stock to any person or
persons so as to bring the sale of such Preferred Stock by the Company within
the registration provisions of the Securities Act.

     3.20   Full Disclosure. The Agreements, the Exhibits hereto and all other 
            ---------------
documents delivered by the Company to Purchasers or their attorneys or agents in
connection herewith or therewith or with the

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 11

transactions contemplated hereby or thereby are complete and accurate, taken as
a whole do not contain any untrue statement of a material fact nor, to the
Company's knowledge, omit to state a material fact necessary in order to make
the statements contained herein or therein not misleading. Notwithstanding the
foregoing, the Business Plan provided to the Purchasers was prepared by the
management of the Company in a good faith effort to describe the Company's
proposed business and product and the markets therefor. The assumptions applied
in preparing the Business Plan appeared reasonable to management as of the date
thereof. To the Company's knowledge, there are no facts which (individually or
in the aggregate) materially adversely affect the business, assets, liabilities,
financial condition, prospects or operations of the Company that have not been
set forth in the Agreements, the Exhibits hereto or in other documents delivered
to Purchasers or their attorneys or agents in connection herewith.

     3.21   Qualified Small Business. The Company represents and warrants to the
            ------------------------
Purchasers that, to the best of its knowledge, the Preferred Stock should
qualify as "Qualified Small Business Stock" as defined in Section 1202(c) of the
Internal Revenue Code of 1986, as amended (the "Code") as of the date hereof.
The Company will use reasonable efforts to comply with the reporting and
recordkeeping requirements of Section 1202 of the Code and any regulations
promulgated thereunder.

     3.22   Section 83(b) Elections.  To the Company's knowledge, all elections
            -----------------------                                  
and notices permitted by Section 83(b) of the Internal Revenue Code and any
analogous provisions of applicable state tax laws have been timely filed by all
employees who have purchased shares of the Company's Common Stock under
agreements that provide for the vesting of such shares.

     3.23   Real Property Holding Corporation. The Company is not a real 
            ---------------------------------
property holding corporation within the meaning of Internal Revenue Code Section
897(c)(2) and any regulations promulgated thereunder.

     3.24   Insurance. The Company has or will obtain promptly following the
            ---------
Closing insurance policies with coverage customary for companies similarly
situated to the Company.

     3.25   Future Business.  RSA represents and warrants that it has no present
            ---------------                                                     
intention of entering the escrowed key repository business.

     3.26   Certain Consents. RSA represents and warrants that it has obtained 
            ----------------
all necessary third party consents to the assignment of the

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 12

contracts assigned by RSA to the Company pursuant to the provisions of the
Assignment Agreement between RSA and the Company dated April 12, 1995.


                                       4
                 Representations and Warranties of Purchasers
                 --------------------------------------------

     Each Purchaser, as of the date each Purchaser closes, hereby, severally and
not jointly, represents and warrants to the Company with respect to its purchase
of the Preferred Stock hereunder that:

     4.1  Experience. Purchaser has substantial experience in evaluating and
          ----------
investing in private placement transactions so that Purchaser is capable of
evaluating the merits and risks of an investment in the Company and has the
capacity to protect its own interests in connection with the purchase of the
Preferred Stock. Purchaser understands that the investment to be made in
connection with the acquisition of Preferred Stock is speculative and involves
significant risk. Purchaser has the ability to bear the economic risk of this
investment and can afford a complete loss of the purchase price.

     4.2  Investment. Purchaser is acquiring the Preferred Stock and the
          ----------
underlying Common Stock to be issued on conversion thereof for investment for
its own account, and not with the view to, or for resale in connection with, any
"distribution" of all or any portion thereof within the meaning of the
Securities Act. Purchaser understands that the Preferred Stock to be purchased
hereunder and the underlying Common Stock to be issued on conversion thereof
have not been registered under the Securities Act by reason of a specific
exemption from the registration provisions of the Securities Act which depends
upon, among other things, the bona fide nature of Purchaser's investment intent
and the accuracy of Purchaser's representations as expressed herein. If other
than an individual, Purchaser (other than Bessemer Venture Partners DCI) also
represents that it has not been organized solely for the purpose of acquiring
the Preferred Stock.

     4.3  Rule 144. Purchaser acknowledges that the Preferred Stock being
          --------
purchased hereunder and the underlying Common Stock to be issued on conversion
thereof must be held indefinitely unless subsequently registered under the
Securities Act or unless an exemption from such registration is available.
Purchaser is aware of the provisions of Rule 144 promulgated under the
Securities Act which permit limited resale of shares purchased in a private
placement, subject to the satisfaction of certain conditions, including, among
other things, the existence of a public market for the shares, the availability
of

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 13

certain current public information about the Company, the resale occurring
after the expiration of minimum holding periods after a party has purchased and
paid for the security to be sold, the sale being effected through a "broker's
transaction" or in transactions directly with a "market maker" (as provided by
Rule 144(f)) and the number of shares being sold during any three-month period
not exceeding specified limitations (except as provided in Rule 144(k)).

     4.4  No Public Market. Purchaser understands that no public market now
          ----------------
exists for any of the securities issued by the Company, that the Company has
made no assurances that a public market will ever exist for the Preferred Stock
being acquired hereunder or the Common Stock issuable on conversion thereof and
that, even if such a public market exists at some future time, the Company may
not then be satisfying the current public information requirements of Rule 144.

     4.5  Access to Data. Purchaser has received and reviewed the Company's
          --------------
Business Plan and Balance Sheet. In addition (but without limiting the effect of
the Company's representations and warranties contained in this Agreement),
Purchaser and its representatives have met with representatives of the Company
and thereby have had the opportunity to request information and ask questions
of, and receive answers from, said representatives concerning the Company and
the terms and conditions of this transaction, as well as to obtain any
additional information requested by Purchaser. Any questions raised by Purchaser
or its representatives concerning this transaction have been answered to the
satisfaction of Purchaser. Purchaser's decision to purchase the Preferred Stock
is based on the answers to such questions as Purchaser and its representatives
have raised concerning the transaction and on its own evaluation of the risks
and merits of the purchase and the Company's proposed business activities.

     4.6  Authorization. This Agreement when executed and delivered by Purchaser
          -------------
will constitute a valid and legally binding obligation of Purchaser, enforceable
in accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.


                                       5
                      Conditions to Closing of Purchasers
                      -----------------------------------

     Purchasers' obligations to purchase the Preferred Stock at the Closing are,
at the option of each such Purchaser, subject to the fulfillment as of the
Closing of the following conditions:

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 14

     5.1  Representations and Warranties. The representations and warranties
          ------------------------------
made by the Company and RSA in Section 3 hereof shall be true and correct in all
material respects as of the date of this Agreement, and shall be true and
correct in all material respects on each Closing, with the same force and effect
as if they had been made on and as of said date.

     5.2  Performance. The Company shall have performed and complied with all
          -----------
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing;
provided, however, that the obligations of the Purchasers shall not be
conditional upon the issuance by the Company of the Preferred Stock to any
Purchaser listed on Exhibit A which has not performed or tendered the
performance of its obligations under this Agreement required to be performed on
or prior to the Closing.

     5.3  Qualifications. All authorizations, approvals or permits, if any, of
          --------------
any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Preferred Stock pursuant to this Agreement shall have been duly obtained and
shall be effective on and as of the Closing.

     5.4  Minimum Investment. The Purchasers shall have purchased at the first
          ------------------
Closing an aggregate of at least Two Million Five Hundred Fifty Thousand
(2,550,000) shares of Preferred Stock.

     5.5  Stock Certificates. The Company shall have delivered to each Purchaser
          ------------------
a certificate for the Preferred Stock purchased by such Purchaser.

     5.6  Stockholders Agreement. The Company, RSA and the Purchasers shall have
          ----------------------
executed and delivered the Stockholders Agreement in the form of Exhibit D
hereto.

     5.7  Registration Rights Agreement. The Company, RSA and the Purchasers
          -----------------------------
shall have executed and delivered the Registration Rights Agreement in the form
of Exhibit C hereto.

     5.8  Assignment Agreement. The Company and RSA shall have executed and
          --------------------
delivered the Assignment Agreement in the form of Exhibit I hereto.

     5.9  OEM Master License Agreement. The Company and RSA shall have executed
          ----------------------------
and delivered the OEM Master License Agreement in the form of Exhibit M hereto.

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 15

     5.10   Non-Compete Agreement. The Company and RSA shall have executed and
            ---------------------
delivered the Non-Compete and Non-Solicitation Agreement in the form of Exhibit
N hereto.

     5.11   Ameritech Agreement. The Company shall have executed and delivered 
            -------------------
an agreement with Ameritech Development Corp. containing substantially the
provisions set forth on Exhibit O hereto.

     5.12   Opinion of Company's Counsel. Each Purchaser shall have received 
            ----------------------------
from counsel to the Company an opinion addressed to it, dated as of the Closing,
in substantially the form of Exhibit K.

     5.13   Company Compliance Certificate.  Each of the Company and RSA 
            ------------------------------                              
respectively, shall have delivered to each Purchaser a certificate of the
Company and RSA, respectively, in the form of Exhibits L(1) and L(2), executed
by the President of the Company, and the President of RSA, respectively, dated
as of the Closing, certifying, as applicable, to the fulfillment of the
conditions specified in Sections 5.1, 5.2, 5.3 and 5.5 of this Agreement, and
stating that there has been no adverse change in the business, affairs,
prospects, operations, properties, assets or condition of the Company since the
date of the Business Plan.

                                       6
                       Conditions to Closing of Company
                       --------------------------------

     The Company's obligation to sell and issue the Preferred Stock to the
Purchasers at a Closing is, at the option of the Company, subject to the
fulfillment of the following conditions:

     6.1    Representations. The representations and warranties made by 
            ---------------
Purchasers in Section 4 hereof shall be true and correct in all material
respects when made, and shall be true and correct in all material respects on
the Closing, with the same force and effect as if they had been made on and as
of said date.

     6.2    Blue Sky. The Company shall have obtained all necessary Blue Sky law
            --------
permits and qualifications, or secured exemptions therefrom, required by any
state for the offer and sale of the Preferred Stock and the Common Stock
issuable upon conversion of the Preferred Stock.

     6.3    Stockholders Agreement. The Company, RSA and the Purchasers shall 
            ----------------------
have executed and delivered the Stockholders Agreement in the form of Exhibit D
hereto.

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 16

     6.4    Registration Rights Agreement.  The Company, RSA and the Purchasers
            -----------------------------
shall have executed and delivered the Registration Rights Agreement in the form
of Exhibit C hereto.

     6.5    Payment of Purchase Price. Each Purchaser shall have delivered to 
            -------------------------
the Company the purchase price for the Preferred Stock.

     6.6    Minimum Investment. The Purchasers shall have purchased at the 
            ------------------
Closing an aggregate of at least Two Million Five Hundred Fifty Thousand
(2,550,000) shares of Preferred Stock.

                                       7
            Affirmative Covenants of the Company and the Purchasers
            -------------------------------------------------------

     The Company and each Purchaser, where indicated below, hereby covenant and
agree as follows:

     7.1    Financial Information. As long as a Purchaser holds Preferred Stock
            ---------------------
convertible into at least 50,000 shares of Common Stock or 50,000 shares of
Common Stock issued upon conversion of the Preferred Stock, or a combination of
such Preferred Stock or Common Stock, as adjusted for recapitalizations, stock
splits, stock dividends and the like, the Company will provide the following
reports to such Purchaser:

            7.1.1  As soon as practicable after the end of each fiscal year, and
in any event within ninety (90) days thereafter, consolidated balance sheets of
the Company and its subsidiaries, if any, as of the end of such fiscal year, and
consolidated statements of income and consolidated statements of cash flows of
the Company and its subsidiaries, if any, for such year, all certified by
independent public accountants of national standing selected by the Company
together with a copy of the auditor's letter to management of required
communications.

            7.1.2  As soon as practicable after the end of the first (1st),
second (2nd) and third (3rd) quarterly accounting periods in each fiscal year of
the Company, and in any event within thirty (30) days thereafter, a consolidated
balance sheet of the Company and its subsidiaries, if any, as of the end of each
such quarterly period, and consolidated statements of income and consolidated
statements of cash flows of the Company and its subsidiaries, if any, for such
period and for the current fiscal year to date, prepared in accordance with
generally accepted accounting principles (other than for accompanying notes),
all in reasonable detail and signed, subject to changes resulting from year-end
audit adjustments, by the principal financial or accounting officer of the
Company.

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 17

            7.1.3  Contemporaneously with delivery to holders of Common Stock, a
copy of each report of the Company delivered to holders of Common Stock.

     7.2    Additional Information. As long as a Purchaser holds Preferred Stock
            ----------------------
convertible into at least 50,000 shares of Common Stock or 50,000 shares of
Common Stock issued upon conversion of the Preferred Stock, or a combination of
such Preferred Stock or Common Stock, as adjusted for recapitalizations, stock
splits, stock dividends and the like, the Company will provide the following
reports to such Purchaser as soon as practicable after the end of each month,
and in any event within thirty (30) days thereafter, unaudited consolidated
balance sheets of the Company as at the end of such month, unaudited
consolidated statements of income, and, if prepared for the Company's Board of
Directors or officers, unaudited consolidated statements of cash flow for each
month and for the current fiscal year to date. Such financial statements shall
be prepared in accordance with generally accepted accounting principles
consistently applied (other than accompanying notes), all in reasonable detail
and signed, subject to year-end audit adjustments, by the principal financial or
accounting officer of the Company.

     7.3    Forecasts and Operating Plan. As long as a Purchaser holds Preferred
            ----------------------------
Stock convertible into at least 50,000 shares of Common Stock or 50,000 shares
of Common Stock issued upon conversion of the Preferred Stock, or a combination
of such Preferred Stock and Common Stock, as adjusted for recapitalizations,
stock splits, stock dividends and the like, the Company will provide the
following report to such Purchaser:

            7.3.1  Within thirty (30) days before the end of each fiscal year, a
projected monthly income, cash flow and balance sheet statement for the ensuing
twelve (12) months.

            7.3.2  Thirty (30) days before the end of each fiscal year, a
comprehensive operating plan, including the annual budget, which must be
presented to the Board of Directors for approval.

     7.4    Termination of Covenants. The covenants set forth in Sections 7.1,
            ------------------------
7.2 and 7.3 shall terminate and be of no further force or effect when the
Company has registered a class of securities under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended (the "1934 ACT"). In addition,
                                                  --------
notwithstanding anything to the contrary in this Section 7, the Company shall
have no obligation to deliver any information pursuant to the provisions of
Section 7.3 to any Purchaser or stockholder whom the Board of Directors
reasonably

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 18

determines directly or indirectly competes with the Company or any of its
affiliated entities.

     7.5    Confidentiality.
            --------------- 

            7.5.1  Each Purchaser shall keep confidential and not disclose or
deliver to third parties and not use for such Purchasers own purposes all
information and financial statements delivered under Section 7.1, 7.2 and 7.3 or
otherwise received by such Purchaser as a Director of the Company or as a holder
of securities issued under this Agreement, and, in addition, any and all other
information identified in writing as proprietary to the Company or Confidential
(the "INFORMATION"). At the request of the Company, any person designated
      -----------
by each Purchaser to receive Information shall execute an agreement
acknowledging that such person shall be bound by the obligations set forth in
this Section 7.5, but subject to the exceptions set forth in subsection 7.5.2
below. This Section 7.5, and subsections 7.5.2 and 7.5.3 below, shall survive
termination or expiration of this Agreement.

            7.5.2  The obligation of confidentiality and restrictions on use
imposed upon each Purchaser by this Section 7.5 shall not apply to any
Information that such Purchaser can demonstrate was:

                   7.5.2.1  in the public domain before the date of this
Agreement or subsequently came into the public domain other than through any
disclosure or delivery thereof by such Purchaser; or

                   7.5.2.2  lawfully received by such Purchaser or any of its
affiliates without a binder of confidentiality from a source other than the
Company; or

                   7.5.2.3  disclosed without restriction by, or with the prior
written approval of, the Company.

            7.5.3  Notwithstanding anything to the contrary contained in this
Section 7.5, any Purchaser may disclose or deliver any such Information to the
extent such Purchaser shall have been advised by counsel that such disclosure or
delivery is necessary for that Purchaser to comply with any law or regulation or
to enforce any provision of this Agreement; provided, however, that such
Purchaser shall give the Company reasonable advance notice of any such proposed
disclosure or delivery, shall use its reasonable best efforts to secure from any
person obtaining access to the Information pursuant to this Section 7.5.3 an
agreement in writing to be bound by the provisions of this Section 7.5 and shall
advise the Company in writing of the manner of such disclosure.

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 19

            7.5.4  Injunctive Remedy.  Each Purchaser agrees that rmedies at law
                   -----------------                             
may be inadequate to protect against breach of this Section 7.5 and hereby
agrees to the granting of injunctive relief in favor of the Company without
proof of actual damages for any breach of this Section 7.5.

     7.6    Key Man Insurance.  The Company shall obtain not later than ninety
            -----------------                                          
days (90) after the date of this agreement and keep in effect for a period of
two (2) years from the date of the Closing, term life insurance in the amount of
One Million Dollars ($1,000,000) on the life of D. James Bidzos, with proceeds
payable to the Company. Within ninety (90) days after employing a new Chief
Executive Officer, the Company shall obtain and keep in effect for a period of
ten (10) years from the date of employment of such Chief Executive Officer, term
life insurance in the amount of One Million Dollars ($1,000,000) on the life of
such Chief Executive Officer with the proceeds payable to the Company.

     7.7    Directors' Expenses. The Company shall reimburse reasonable
            -------------------
out-of-pocket expenses incurred by Directors in attending Board of Directors'
meetings.

     7.8    Certain Board Approval.  The Company agrees that it will obtain the
            ----------------------                                  
Board of Directors' prior approval before entering into any agreement with RSA
which is outside the ordinary course of the Company's business and provides for
payments to or by the Company in excess of Twenty-Five Thousand Dollars
($25,000).

     7.9    Reserved Shares.  The Company agrees to reserve sufficient shares of
            ---------------                                           
Common Stock for issuance upon conversion of the Preferred Stock.

                                       8
                Restrictions on Transferability of Securities;
                ----------------------------------------------
              Registration Rights; Compliance with Securities Act
              ---------------------------------------------------

     The Preferred Stock being purchased hereunder and the Common Stock issuable
upon conversion of such Preferred Stock shall not be sold, assigned, transferred
or pledged except in accordance with the Registration Rights Agreement and the
Stockholders Agreement.  Nothing in this Agreement prohibits a Purchaser from
selling, assigning, transferring or pledging such stock to an affiliate of such
Purchaser, whether foreign, domestic or otherwise.

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 20

                                       9
                      Purchasers' Right of First Refusal
                      ----------------------------------

     The Company hereby grants to each Purchaser the right of first refusal to
purchase, pro rata, all or any part of any New Securities (as defined in Section
9.1) which the Company may, from time to time, propose to sell and issue.  Each
Purchaser's pro rata share, for purposes of this right of first refusal, is the
ratio (assuming, for purposes of calculating such ratio, complete conversion of
all outstanding shares of Preferred Stock and complete conversion of all
outstanding convertible securities of the Company other than the Preferred
Stock) of the number of shares of Common Stock then held by such Purchaser to
the total number of shares of Common Stock of the Company.  This right of first
refusal shall be subject to the following provisions:

     9.1    "NEW SECURITIES" shall mean any shares of Common Stock or Preferred
             --------------                                          
Stock of the Company, whether now authorized or not, and rights, options or
warrants to purchase said Common Stock or Preferred Stock, and securities of any
type whatsoever that are, or may become, convertible into Preferred Stock;
provided that "New Securities" does not include (i) the first Four Million Three
Hundred Six Thousand Eight Hundred Eighty-Three (4,306,883) shares of Series A
Preferred Stock issued by the Company, (ii) shares of Common Stock issuable upon
conversion of any Preferred Stock, (iii) shares of Common Stock issuable upon
conversion or exercise of securities outstanding on the date hereof, (iv)
securities offered to the public generally pursuant to a registration statement,
(v) securities issued pursuant to the acquisition of another corporation by the
Company by merger, purchase of substantially all of the assets or other
reorganization whereby the Company or its shareholders immediately prior to such
transaction owns not less than fifty-one percent (51%) of the voting power of
such corporation or the surviving entity, (vi) up to 2,395,000 shares of the
Company's Common Stock (and related warrants or options exercisable for Common
Stock) issued to employees, officers and directors of the Company, consultants
to the Company, members of advisory boards of the Company, entities of strategic
significance to the Company, or lenders to the Company, (vii) any security if
Purchasers holding a majority of the outstanding Preferred Stock purchased
hereunder (or the shares of Common Stock issued upon conversion thereof, or any
combination of such Preferred Stock and such shares of Common Stock) consent in
writing that the right of first refusal shall not apply to such securities,
(viii) stock issued pursuant to any rights or agreements, including, without
limitation, convertible securities, options and warrants, provided that the
rights of first refusal established by this Section 9.1 applied with respect to
the initial sale or grant by the Company of such rights or

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 21

agreements or was not applicable, and (ix) stock issued in connection with any
stock split, stock dividend or recapitalization by the Company.

     9.2    In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Purchaser written notice of its intention,
describing the type of New Securities and the price and terms upon which the
Company proposes to issue the same. Each Purchaser shall have twenty (20) days
from the date of receipt of any such notice to agree to purchase up to the
Purchaser's pro rata share of such New Securities for the price and upon the
terms specified in the notice by giving written notice to the Company and
stating therein the quantity of New Securities to be purchased. Each Purchaser
shall have a right of overallotment such that if any Purchaser fails to exercise
his right hereunder to purchase his pro rata portion of New Securities, the
other Purchasers may purchase the nonpurchasing Purchaser's portion on a pro
rata basis, within ten (10) days from the date such nonpurchasing Purchaser
fails to exercise his right hereunder to purchase his pro rata share of New
Securities.

     9.3    In the event that Purchasers fail to exercise in full the right of
first refusal within said twenty (20) plus ten (10) day period, the Company
shall have one hundred eighty (180) days thereafter to sell or enter into an
agreement (pursuant to which the sale of New Securities covered thereby shall be
closed, if at all, within ninety (90) days from the date of said agreement) to
sell the New Securities respecting which the Purchasers' option was not
exercised, at a price and upon terms no more favorable to the buyers of such
securities then specified in the Company's notice to Purchasers. In the event
the Company has not sold the New Securities or entered into an agreement to sell
the New Securities within said one hundred eighty (180) day period (or sold and
issued New Securities in accordance with the foregoing within ninety (90) days
from the date of said agreement), the Company shall not thereafter issue or sell
any New Securities, without first offering such securities to each Purchaser in
the manner provided above.

     9.4    The right of first refusal granted under this Agreement shall expire
upon the closing of the first public offering of the Common Stock of the Company
to the general public which is effected pursuant to a registration statement
filed with, and declared effective by, the Commission under the Securities Act.

     9.5    The right of first refusal hereunder is only assignable, in whole or
in part, by a Purchaser to any affiliate of such Purchaser or to an assignee
purchasing at least fifty percent (50%) of the outstanding Preferred Stock
purchased hereunder by such Purchaser.

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 22

Any assignment of rights hereunder shall not affect a Purchaser's rights based
on Preferred Stock or Common Stock Purchaser continues to hold.

                                      10
                         Purchasers' Right of Co-Sale
                         ----------------------------

     10.1   Sales By RSA Data Security, Inc.
            --------------------------------

            10.1.1  Should RSA ("PRINCIPAL SHAREHOLDER") receive a bona fide
                                 ---------------------  
offer (the "PURCHASE OFFER") from any person or entity ("OFFEROR"), to purchase
            --------------                               -------   
from said Principal Shareholder Common Stock or Preferred Stock (collectively
"CAPITAL STOCK"), of the Company now owned or hereafter acquired by the
 -------------
Principal Shareholder upon specific terms and conditions (including a specified
purchase price payable in cash or other property), then said Principal
Shareholder shall promptly notify the Purchasers of the terms and conditions of
such Purchase Offer (for purposes of this Section 10.1 only, the Principal
Shareholder proposing to sell shares pursuant to this Section shall be
referenced as the "SELLING PRINCIPAL SHAREHOLDER").
                   -----------------------------
 
            10.1.2  Each of the Purchasers shall have the right, exercisable
upon written notice to the Selling Principal Shareholder within ten (10)
business days after receipt of the notice of the Purchase Offer referenced in
Section 10.1.1 above, to participate in the Selling Principal Shareholder's sale
of the Capital Stock pursuant to the specified terms and conditions of such
Purchase Offer. To the extent one or more of the Purchasers exercises such right
of participation in accordance with the terms and conditions set forth below,
the number of shares of Capital Stock which the Selling Principal Shareholder
may sell pursuant to such Purchase Offer shall be correspondingly reduced. The
right of participation of each of the Purchasers shall be subject to the
following terms and conditions:

                    10.1.2.1  Each of the Purchasers may sell all or any part of
that number of shares of Common Stock (or Preferred Stock convertible into such
number of shares of Common Stock) of the Company equal to the product obtained
by multiplying (i) the maximum aggregate number of shares of Common Stock
covered by the Purchase Offer by (ii) a fraction, the numerator of which is the
number of shares of Common Stock of the Company at the time owned by the
Purchaser (assuming for such purpose conversion of the Preferred Stock) and the
denominator of which is the combined number of shares of Common Stock of the
Company at the time owned by the Selling Principal Shareholder and the
Purchasers (assuming for such purpose conversion of the Preferred Stock).

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 23

                    10.1.2.2  To the extent one or more of the Purchasers elect
not to sell the full number of shares said Purchasers are entitled to sell
pursuant to Section 10.1.2.1 above, the Selling Principal Shareholder's right to
participate in the sale shall be increased by a corresponding number of shares.

                    10.1.2.3  Each of the Purchasers may effect its
participation in the sale by delivering to a closing agent acceptable to such
Purchasers and Selling Principal Shareholder ("AGENT") for transfer to the
                                               -----
Offeror one or more certificates, properly endorsed for transfer, which
represent (i) the number of shares of Common Stock which the Purchaser elects to
sell pursuant to this Section 10.1.2 or (ii) that number of shares of Preferred
Stock which is at such time convertible into the number of shares of Common
Stock which the Purchaser elects to sell pursuant to this Section 10.1.2;
provided, however, that if the Offeror objects to the delivery of Preferred
Stock in lieu of Common Stock, the participating Purchaser or Purchasers may
convert and deliver Common Stock as provided in subparagraph (i) above.

            10.1.3  The stock certificates which the Purchasers deliver to Agent
pursuant to Section 10.1.2 shall be transferred by the Agent to the buyer
thereof in consummation of the sale of the stock pursuant to the terms and
conditions specified in the Section 10.1.1 notice to the Purchasers. Selling
Principal Shareholder agrees to cause the buyer thereof to make payment therefor
to Agent and Agent shall promptly thereafter remit to each Purchaser that
portion of the sale proceeds to which the Purchaser is entitled by reason of
said Purchaser's participation in such sale.

            10.1.4  The exercise or non-exercise of the rights of the Purchasers
hereunder to participate in one or more sales of stock made by any Principal
Shareholder shall not adversely affect their rights to participate in subsequent
stock sales by any Principal Shareholder.

            10.1.5  The participation rights of the Purchasers contained in this
Section 10 shall not pertain or apply to any pledge of Company Common Stock made
by a Principal Shareholder which creates a mere security interest, nor shall
such rights pertain or apply to any sales or transfers of Company Common Stock
to shareholders of the Principal Shareholder or affiliates of the Principal
Shareholder or its shareholders, provided such shareholders or affiliates shall
furnish the Purchasers with a written agreement agreeing to be bound by and
comply with all the provisions of this Section 10 applicable to the Principal
Shareholder.

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 24

     10.2   Prohibited Transfers.
            -------------------- 

            10.2.1  In the event a Selling Principal Shareholder should sell any
Common Stock of the Company in contravention of the participation rights of the
Purchasers under this Section 10 (a "PROHIBITED TRANSFER"), the Purchasers shall
                                     -------------------
have the put option provided below.

            10.2.2  In the event a Prohibited Transfer occurs, the Purchasers
shall have the option to sell to the Principal Shareholder effecting the
Prohibited Transfer a number of shares of stock of the Company (either directly
or through delivery of convertible Preferred Stock purchased hereunder) equal to
the number of shares such Purchaser would have had the right to sell in the
Prohibited Transfer on the following terms and conditions:

                    10.2.2.1  The price per share at which the shares are to be
sold to the Principal Shareholder shall be equal to the price per share paid by
the buyer to the Principal Shareholder in the Prohibited Transfer.

                    10.2.2.2  The Purchasers shall deliver to the Principal
Shareholder, within ninety (90) days after they have received notice from the
Principal Shareholder or otherwise become aware of the Prohibited Transfer, the
certificate or certificates representing shares to be sold, each certificate to
be properly endorsed for transfer.

                    10.2.2.3  The Principal Shareholder shall, upon receipt of
the certificates for the repurchased shares, pay the aggregate purchase price
therefor, by certified check or bank draft made payable to the order of the
Purchaser exercising the put option.

     10.3   Legended Certificates.
            --------------------- 

            10.3.1  Each certificate representing shares of the Common Stock of
the Company now or hereafter owned by the Principal Shareholder shall be
endorsed with the following legend:

     THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS
     CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF SECTION 10
     OF THAT CERTAIN PREFERRED STOCK PURCHASE AGREEMENT, DATED APRIL
     17, 1995, AMONG THE COMPANY, THE HOLDER OF THIS CERTIFICATE,
     CERTAIN INVESTORS IN PREFERRED STOCK OF THE COMPANY AND OTHER
     PRINCIPAL SHAREHOLDERS AS SET FORTH THEREIN. COPIES OF SUCH
     AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY
     THE HOLDER OF RECORD OF 

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 25

     THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY AT THE PRINCIPAL
     EXECUTIVE OFFICE OF THE COMPANY.

            10.3.2  The Section 10.3.1 legend shall be removed upon termination
of this Section 10 in accordance with the provisions of Section 10.4.

     10.4   Termination of Right.  The rights of each Purchaser under this
            --------------------                                     
Section 10 and the correlative obligations of the Principal Shareholders with
respect to such Purchaser shall terminate at such time as that Purchaser shall
no longer be the owner of any shares of capital stock of the Company. Unless
sooner terminated in accordance with the preceding sentence, this Section 10
shall terminate upon the first to occur of the following events:

            10.4.1  the liquidation or dissolution of the Company;

            10.4.2  the execution by the Company of a general assignment for the
benefit of creditors or the appointment of a receiver or trustee to take
possession of the property and assets of the Company; or

            10.4.3  the registration of a class of the Company's securities
under Section 12 of the 1934 Act.

                                      11
                                Indemnification
                                ---------------

     11.1   Indemnification.  RSA shall indemnify, hold harmless, reimburse
            ---------------                                      
and defend each Purchaser against any loss, liability or other damages,
including reasonable costs of investigation, interest, penalties and attorneys'
and accountants' fees incurred in connection with, or arising from, or
attributable to (i) the lawsuit identified as RSA Data Security, Inc. v. Cylink
                                              ---------------------------------
Corporation, et al. (Santa Clara County Superior Court Case No. CV 740794), (ii)
- ------------------
the lawsuit identified as Cylink Corporation v. RSA Data Security, Inc. and
                          -------------------------------------------------
Related Cross Actions (United States District Court, Northern District of
- ---------------------
California, Oakland Division, Case No. C 94 02332 CW), (iii) the lawsuit
identified as Schlafly v. Public Key Partners and RSA Data Security, Inc.,
               -------------------------------------------
(United States District Court, Northern District of California, San Jose
Division, Case No. C 94 20512 SW (PVT), (iv) the failure of the Company to have
good and marketable title free (except as described in the Assignment (defined
below)) from all security interests, liens, claims, charges, encumbrances, or
any other defects in title of any nature whatsoever to all assets and other
interests transferred to the Company by RSA pursuant to the Assignment of even
date herewith between the Company and RSA (the "Assignment"), (v) any

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 26

claim, suit or proceeding on the basis of infringement of any intellectual
property right delivered to the Company pursuant to the Assignment or any claim
that RSA had no right to transfer and assign such right and (vi) the failure of
the assets and other rights transferred to DCI pursuant to the Assignment to be
sufficient for the Company to conduct the certification business described in
the Business Plan.

     11.2   Purchase Option; Limit on Liability.  In lieu of the payment of any
            -----------------------------------                         
amounts pursuant to Section 11.1 above, RSA may elect, within ninety days after
the initial claim for indemnification is made by a Purchaser at its sole option,
to purchase from any Purchaser claiming indemnification hereunder the shares of
Preferred Stock (or equivalent shares of Common Stock received upon conversion
thereof) acquired by such Purchaser pursuant to this Agreement at their
aggregate fair market value, but only if the aggregate indemnification claim can
reasonably be expected to exceed One Million Five Hundred Thousand Dollars
($1,500,000.00). The fair market value of such shares shall be agreed upon by
RSA and such Purchaser within thirty (30) days (the "INITIAL PERIOD") after
                                                     --------------  
RSA's election to purchase shares hereunder. In the event RSA and such Purchaser
are unable to reach an agreement during the Initial Period, the determination of
fair market value shall be made pursuant to the appraisal procedure set forth in
Section 11.3 below. Upon the purchase of any such shares, RSA shall have no
further liability hereunder to any such selling Purchaser. Notwithstanding
anything herein to the contrary, RSA shall have no indemnification liability to
any Purchaser under this Section 11 in excess of the aggregate purchase price
paid by such Purchaser for the shares of Preferred Stock acquired by such
Purchaser pursuant to this Agreement. The preceding sentence is not to be
construed as a limitation on the fair market value to be paid by RSA to a
Purchaser in the event RSA elects to acquire a Purchaser's shares pursuant to
this Section 11.2

     11.3   Appraisal Procedure.  Any appraisal pursuant to this Section 11 
            -------------------                                         
shall be conducted by three (3) independent appraisers, one of whom shall be
appointed by RSA, the second by the Purchaser and the third selected by the
first two (2) appraisers so selected, and, if such appraisers cannot in good
faith agree upon the fair market value, such fair market value shall be the
median of the appraisers' individual valuations. Fair market value determined
under this Section 11 shall be inclusive of an amount representing the value of
the goodwill of the Company, shall be calculated as of the date the claim for
indemnification was initially made and shall be exclusive of any diminution or
decrease in the fair market value as a result of the occurrence of the events
for which indemnification is being claimed. The cost of any such appraisal shall
be borne fifty percent (50%) by

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 27

the Purchaser and fifty percent (50%) by RSA. Each Purchaser and RSA agree to
use their respective reasonable best efforts to commence the appraisal procedure
as soon as practicable after the expiration of the Initial Period. Should any
party fail or refuse to appoint an appraiser within thirty (30) days after
expiration of the Initial Period, the appraiser appointed by the other party
shall be the sole appraiser and such appraisal shall be binding on all parties
hereto and their successors and assigns. Each appraiser appointed hereunder must
be unaffiliated with and independent of the person appointing such appraiser.
Each appraiser must have reasonable professional qualifications as an appraiser
for the appraisal to be prepared hereunder.


                                      12
                                 Miscellaneous
                                 -------------

     12.1   Governing Laws.  This Agreement shall be governed by and construed
            --------------                                          
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.

     12.2   Successors and Assigns.  The terms and conditions of this Agreement
            ----------------------                                   
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto or their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.

     12.3   Severability.  If any provision of this Agreement, or the 
            ------------                                             
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall be interpreted so as best to reasonably
effect the intent of the parties hereto.  The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision which will achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision.

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 28

     12.4   Entire Agreement.  This Agreement, the exhibits hereto, the 
            ----------------                                           
documents referenced herein and the exhibits thereto, constitute the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and thereof and supersede all prior and contemporaneous agreements
or understandings, inducements or conditions, express or implied, written or
oral, between the parties with respect hereto and thereto.  The express terms
hereof control and supersede any course of performance or usage of the trade
inconsistent with any of the terms hereof.

     12.5   Counterparts.  This Agreement may be executed in any number of
            ------------                                               
counterparts, each of which shall be an original as against any party whose
signature appears thereon, and all of which together shall constitute one and
the same instrument.

     12.6   Finder's Fees.  The parties hereto each represent to every other
            -------------                                             
party that such party neither is, nor will be, obligated for any finder's or
broker's fee or commission in connection with the transactions contemplated
herein. Each party agrees to indemnify and to hold harmless all other parties
from any liability for any commission or compensation in the nature of a
finder's or broker's fee (and the costs and expenses of defending against such
liability or asserted liability) for which such indemnifying party, its
employees, agents or representatives is responsible.

     12.7   Expenses.  The Company and each Purchaser shall pay all costs and 
            --------                                               
expenses that it incurs with respect to the negotiation, execution, delivery and
performance of this Agreement. In this regard, the Company shall pay Tomlinson,
Zisko, Morosoli & Maser up to an aggregate of Sixty Thousand Dollars ($60,000)
of its and RSA's legal fees in addition to all expenses related thereto for
legal work performed in connection with the formation of the Company and the
negotiation, execution, delivery and performance of this Agreement. The Company
shall reimburse Cooley, Godward, Castro, Huddleson & Tatum, counsel to
Purchasers, up to Thirty-Five Thousand Dollars ($35,000) of its legal fees and
expenses for legal work performed in connection with the negotiation, execution,
delivery and performance of this Agreement. The Company shall reimburse Farella,
Braun & Martel, counsel to Visa International Service Association, up to Ten
Thousand Dollars ($10,000) of its legal fees and expenses for legal work
performed in connection with the negotiation, execution, delivery and
performance of this Agreement.

     12.8   Public Announcements.  The Company, RSA and each Purchaser agree not
            --------------------                                      
to issue any press release or make any public statement with respect to the
transactions contemplated by this Agreement or the identity of any of the
Purchasers without the prior approval of all of

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 29

the Purchasers both as to the making of such release or statement and as to the
form and content thereof, except to the extent that such party is advised by
counsel, in good faith, that such release or statement is required as a matter
of law.

     12.9   Other Remedies.  Any and all remedies herein expressly conferred 
            --------------                                        
upon a party shall be deemed cumulative with, and not exclusive of, any other
remedy conferred hereby or by law on such party, and the exercise of any one
remedy shall not preclude the exercise of any other.

     12.10  Amendment and Waivers.  Any term or provision of this Agreement may
            ---------------------                                
be amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof for default in payment of any amount due
hereunder or default in the performance hereof shall not be deemed to constitute
a waiver of any other default or succeeding breach or default.

     12.11  Survival of Agreements. All covenants, agreements, representations
            ----------------------
and warranties made herein shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby. The
representations, warranties, covenants and agreements of the Company contained
in or made pursuant to this Agreement shall survive the execution and delivery
of this Agreement and the Closing and shall in no way be affected by any
investigation of the subject matter thereof made by or on behalf of the
Purchasers.

     12.12  Attorneys' Fees.  Should suit be brought to enforce or interpret 
            ---------------                                       
any part of this Agreement, the prevailing party shall be entitled to recover,
as an element of the costs of suit and not as damages, reasonable attorneys'
fees to be fixed by the court (including, without limitation, costs, expenses
and fees on any appeal). The prevailing party shall be the party entitled to
recover its costs of suit, regardless of whether such suit proceeds to final
judgment. A party not entitled to recover its costs shall not be entitled to
recover attorneys' fees. No sum for attorneys' fees shall be counted in
calculating the amount of a judgment for purposes of determining if a party is
entitled to recover costs or attorneys' fees.

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 30

     12.13  Notices. Whenever any party hereto desires or is required to give 
            -------
any notice, demand or request with respect to this Agreement, each such
communication shall be in writing and shall be effective only if it is delivered
by personal service or mailed, United States certified mail, return receipt
requested, postage prepaid, addressed as follows:

            Company:           Digital Certificates International, Inc.
                               c/o RSA Data Security, Inc. 
                               100 Marine Parkway, Suite 500
                               Redwood City, CA 94065      
                               Attn:  President             

            If to Company,                                    
            with a copy to:    Timothy Tomlinson, Esq.     
                               Tomlinson Zisko Morosoli & Maser  
                               200 Page Mill Road, Second Floor  
                               Palo Alto, CA 94306               
                                                                      
            
            Purchasers:        At the address(es) set forth on 
                               Exhibit A hereto 

            Such communications shall be effective when they are received by the
addressee thereof; but if sent by certified mail in the manner set forth above,
they shall be effective five (5) days after being deposited in the United States
mail. Any party may change its address for such communications by giving notice
thereof to the other parties in conformity with this Section.

     12.14  Construction of Agreement.  This Agreement has been negotiated by
            -------------------------                          
the respective parties hereto and their attorneys and the language hereof shall
not be construed for or against any party. A reference in this Agreement to any
Section shall include a reference to every Section the number of which begins
with the number of the Section to which reference is specifically made (e.g., a
                                                                        ---- 
reference to Section 5.8 shall include a reference to Sections 5.8.1 and
5.8.1.1). The titles and headings herein are for reference purposes only and
shall not in any manner limit the construction of this Agreement which shall be
considered as a whole. A reference to a Schedule, Exhibit or Section means a
Schedule, Exhibit or Section of this Agreement, unless the context expressly
otherwise requires.

     12.15  Purchaser Investigation.  Each Purchaser acknowledges that it is not
            -----------------------                                   
relying upon any person, firm or corporation (other than the Company, its
officers and directors) in making its investment or decision to invest in the
Company. Each of the Purchasers, severally

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 31

and not jointly, represents to each of the other Purchasers that it has been
solely responsible for its own "due-diligence" investigation of the Company and
its management and business, and for its own analysis of the merits and risks of
this investment. Each Purchaser agrees that no Purchaser nor the respective
controlling persons, officers, directors, partners, agents or employees of any
such Purchaser, shall be liable to any other Purchaser for any actions taken in
connection with the purchase of Preferred Stock in accordance with the terms of
this Agreement.

     12.16  No Endorsement.  Purchasers understand that no federal or state
            --------------                                           
securities administrator has made any finding or determination relating to the
fairness of investment in the Company or purchase of the Preferred Stock
hereunder and that no federal or state securities administrator has recommended
or endorsed the offering of securities by the Company hereunder.

     12.17  California Corporate Securities Law.  THE SALE OF THE SECURITIES
            -----------------------------------                  
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.

     12.18  Pronouns.  All pronouns and any variations thereof shall be deemed
            --------                                                   
to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.

     12.19  Further Assurances.  Each party agrees to cooperate fully with the
            ------------------                                       
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to better evidence and reflect the transactions described herein
and contemplated hereby, and to carry into effect the intents and purposes of
this Agreement.

     12.20  Absence of Third Party Beneficiary Rights.  No provisions of this
            -----------------------------------------                   
Agreement are intended nor shall be interpreted to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder or partner of any party hereto, or any other
person, unless specifically provided otherwise herein and, except as so
provided, all provisions hereof shall be personal solely between the parties to
this Agreement.

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 32

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 33

     IN WITNESS WHEREOF, the foregoing Agreement is hereby executed as of the
date first above written.

                    COMPANY:

                    Digital Certificates International, Inc.
                    c/o RSA Data Security, Inc.
                    100 Marine Parkway, Suite 500
                    Redwood City, CA 94065

                    DIGITAL CERTIFICATES INTERNATIONAL, INC.

                    By: /s/ David Cowan
                       ----------------------------------

                    Name: David Cowan
                         --------------------------------

                    Title: Chairman of the Board
                          -------------------------------

                    RSA:

                    RSA Data Security, Inc.
                    100 Marine Parkway, Suite 500
                    Redwood City, CA 94065

                    RSA DATA SECURITY, INC.

                    By: /s/ D. James Bidzos
                       ----------------------------------

                    Name:   D. James Bidzos
                         --------------------------------

                    Title: ______________________________

                    PURCHASERS:

                    Bessemer Venture Partners DCI
                    1025 Old County Road, Suite 205
                    Westbury, NY 11590

                    BESSEMER VENTURE PARTNERS DCI

                    By:  Bessemer Venture Partners III L.P.
                         Managing General Partner

                    By:  Deer III & Co.

                    By: /s/ Robert H. Beuscher
                        ---------------------------------

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 34



                    Name: Robert H. Buescher
                         --------------------------------
                    Title:  Partner


                    Mitsubishi Corporation
                    6-3, Marunouchi 2-Chome,
                    Chiyoda-ku, Tokyo 100-86
                    Japan

                    MITSUBISHI CORPORATION

                    By: /s/ Mitsubishi Corporation
                       ----------------------------------
                    Name: Yukihiro Kayama

                    Title: Senior Assistant to Managing Director
                           Information Systems and Services Group


                    Security Dynamics Technologies, Inc.
                    One Alewife Center
                    Cambridge, MA  02140-2312

                    SECURITY DYNAMICS TECHNOLOGIES, INC.

                    By: /s/ Charles R. Stuckney Jr.
                       ----------------------------------
                    Name:   Charles R. Stuckney Jr.
                         --------------------------------
                    Title:  President and CEO
                          -------------------------------


                    Intel Corporation
                    2200 Mission College Blvd.
                    Santa Clara, CA  95052

                    INTEL CORPORATION

                    By: /s/ Arvind Sodhani
                       ----------------------------------
                    Name:   Arvind Sodhani
                         --------------------------------
                    Title:  Vice President and Treasurer
                          -------------------------------

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 35


                    Ameritech Development Corporation
                    30 South Wacker Drive, 37th Floor
                    Chicago, Ill  60606

                    AMERITECH DEVELOPMENT CORPORATION

                    By: /s/ Thomas Touton
                       ----------------------------------
                    Name:  Thomas Touton

                    Title: Vice President - Venture Capital


                    GC&H Investments
                    3000 Sand Hill Road
                    Building 3, Suite 230
                    Menlo Park, CA  94025

                    GC&H INVESTMENTS

                    By: /s/ James C. Kitch
                       ----------------------------------
                    Name:   James C. Kitch
                         --------------------------------
                    Title:  Executive Partner
                          -------------------------------

                    VISA International Service Association
                    c/o Andrew Konstantaras
                    Legal Department
                    VISA
                    900 Metro Center Boulevard
                    Foster City, CA 94404

                    VISA INTERNATIONAL SERVICE ASSOCIATION

                    By: /s/ William L. Powar
                       ----------------------------------
                    Name:   William L. Powar
                         --------------------------------
                    Title:  Vice President
                          -------------------------------

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 36



                    Fischer Security Corporation L.L.C.
                    4073 Mercantile Avenue
                    Naples, FL 33942

                    FISCHER SECURITY CORPORATION L.L.C.

                    By: /s/ Addison M. Fischer
                       ----------------------------------
                    Name:   Addison M. Fischer
                         --------------------------------
                    Title: ______________________________


                    First TZMM Investment Partnership
                    c/o Tomlinson Zisko Morosoli & Maser
                    200 Page Mill Road, 2nd Floor
                    Palo Alto, CA  94306

                    FIRST TZMM INVESTMENT PARTNERSHIP

                    By: /s/ Timothy Tomlinson
                       ----------------------------------
                    Name:   Timothy Tomlinson
                         --------------------------------
                    Title:  Partner
                          -------------------------------

 
Digital Certificates International, Inc.
Series A Preferred Stock Purchase Agreement
Page 37


                                   EXHIBIT A

                               LIST OF PURCHASERS
                               ------------------

Purchaser Shares - --------- ---------- Bessemer Venture Partners DCI 850,000 Visa International Service Association 850,000 Intel Corporation 850,000 Fischer Security Corporation L.L.C. 425,000 Ameritech Development Corporation 425,000 Mitsubishi Corporation 425,000/*/ Security Dynamics Technologies, Inc. 425,000 GC&H Investments 33,333 First TZMM Investment Partnership 23,550 ---------- TOTAL 4,306,883
__________ /*/ It is understood that such shares will be purchased by Mitsubishi International at a closing to be held as soon as practicable after the date hereof upon receipt of all necessary executed closing documents. Digital Certificates International, Inc. Series A Preferred Stock Purchase Agreement Page 38 EXHIBIT B COMPANY'S SCHEDULE OF EXCEPTIONS -------------------------------- The following exceptions to the representations and warranties of the Company and RSA are exceptions to all representations and warranties in Section 3, the section references below are for reference purposes only. 3.1 As of the date hereof, the Company has not qualified to do business as a foreign corporation in California. The Company agrees to use its best efforts to qualify as a foreign corporation in California as soon as practicable after the date hereof. 3.6 The Company and RSA are parties to the following agreements: 13. Assignment from RSA to the Company relating to the assignment of certain technology and other assets to the Company ("ASSIGNMENT"). ---------- 14. Master OEM Agreement from RSA to the Company relating to certain rights to TIPEM. 15. Non-Compete and Non-Solicitation Agreement whereby RSA agrees not to compete in certain fields and RSA and the Company agree not to solicit each other's employees. 16. RSA is assigning to the Company all of the contracts set forth on Exhibit E to the Assignment. 17. RSA has obtained all required consents except the consent to the assignment to the Company of (i) the Commercial Hierarchy Certifier Agreement between RSA and Apple Computer, Inc. dated November 5, 1993, (ii) certain sections of that certain Technology Software License Agreement between RSA and Microsoft Corporation dated May 24, 1991, and (iii) certain sections of that certain Second Encryption Software License Agreement between RSA and Apple Computer, Inc. dated as of September 25, 1990. RSA agrees to use its best efforts to obtain such consents as soon as practicable after the date hereof. Digital Certificates International, Inc. Series A Preferred Stock Purchase Agreement Page 39 3.8 The Company has agreements with its shareholders, officers and directors as follows: 18. The agreements listed under Section 3.6 above. 19. The Company has entered an Indemnity Agreement with each of its directors. 20. The Company has entered a Founders Subscription Agreement with RSA whereby RSA purchased 4,000,000 shares of the Company's Common Stock. 21. The Company has entered Subscription Agreements with D. James Bidzos, a Director, and Ronald Rivest, a member of its Advisory Committee and Kairdos L.L.C., in which D. James Bidzos is Manager and a member and Timothy Tomlinson, a Director of the Company, is a member. 22. The Company has entered a Registration Rights Agreement in the form of Exhibit C hereto, to which certain directors and shareholders of the Company --------- are parties. 23. The Company has entered a Stockholders Agreement in the form of Exhibit D hereto to which certain directors and shareholders of the Company are - --------- parties. 24. The Company has entered in an engagement letter with Tomlinson Zisko Morosoli & Maser. Timothy Tomlinson, a Director of the Company, is a partner in Tomlinson Zisko Morosoli & Maser. 25. The Company has entered into a Subscription and Repurchase Agreement with Bessemer Venture Partners DCI. David Cowan, a Director of the Company, is an affiliate of Bessemer Venture Partners IV. 26. The Company has entered a Subscription and Repurchase Agreement with TZM Investment Fund whereby TZM Investment Fund acquired 80,000 shares of the Common Stock of the Company. Timothy Tomlinson, a Director of the Company, is a partner in TZM Investment Fund. 27. The Company intends to offer its services to its shareholders and the Company already may have commenced negotiation of contracts with some or all of its shareholders. Digital Certificates International, Inc. Series A Preferred Stock Purchase Agreement Page 40 11. As a result of his position as an officer, director and stockholder of both RSA and the Company, D. James Bidzos may be deemed to have an interest in any contract between the Company and RSA. 3.10 RSA has obtained all required consents except the consent to the assignment to the Company of (i) the Commercial Hierarchy Certifier Agreement between RSA and Apple Computer, Inc. dated November 5, 1993, (ii) certain sections of that certain Technology Software License Agreement between RSA and Microsoft Corporation dated May 24, 1991, and (iii) certain sections of that certain Second Encryption Software License Agreement between RSA and Apple Computer, Inc. dated as of September 25, 1990. RSA agrees to use its best efforts to obtain such consents as soon as practicable after the date hereof. 3.11 RSA is party to the following litigation: 3.11.1 RSA Data Security, Inc. v. Cylink Corporation, et al. ----------------------------------------------------- (Arbitration), Santa Clara County Superior Court Case No. CV 740794. 3.11.2 Cylink Corporation v. RSA Data Security, Inc. and Related --------------------------------------------------------- Cross-Action, (Patent Litigation), United States District Court, Northern - ------------ District of California, Oakland Division, Case No. C 94 02332 CW. 3.11.3 Schlafly v. Public Key Partners and RSA Data Security, Inc., ----------------------------------------------------------- United States District Court, Northern District of California, San Jose Division, Case No. C 94 20512 SW (PVT). 3.15 At present, the Company shares space with RSA. A space sharing or sublease arrangement will be entered after the First Closing hereunder. 3.16.1 The Company has appointed as its general legal counsel the law firm of Tomlinson Zisko Morosoli & Maser of which Timothy Tomlinson, a Director, is a general partner. 3.16.2 See the contracts listed on Exhibit E to the Assignment. 3.20 The Business Plan was prepared in November 1994. Since that time RSA has conducted the Company's business in the ordinary course. The Business Plan assumed investment in October 1994 which did not occur. Section X of the Business Plan is superseded in its entirety by the Transaction Documents. Digital Certificates International, Inc. Series A Preferred Stock Purchase Agreement Page 41 3.26 As of the date hereof, RSA has not obtained consent to the assignment to the Company of (i) the Commercial Hierarchy Certifier Agreement between RSA and Apple Computer, Inc. dated November 5, 1993, (ii) certain sections of that certain Technology Software License Agreement between RSA and Microsoft Corporation dated May 24, 1991, and (iii) certain sections of that certain Second Encryption Software License Agreement between RSA and Apple Computer, Inc. dated as of September 25, 1990. RSA agrees to use its best efforts to obtain such consents as soon as practicable after the date hereof. Digital Certificates International, Inc. Series A Preferred Stock Purchase Agreement Page 55 EXHIBIT O AMERITECH AGREEMENT TERMS ------------------------- (a) Ameritech Development Corporation, a Purchaser ("Ameritech"), is subject to certain "line of business" restrictions under the Modification of Final Judgment in the United States vs. AT &T, Civil Action 82-0192 (D.D.C.) (as ----------------------- the same may be modified from time to time, the "MFJ"). Ameritech shall have the right to require the Company to repurchase all of the Series A Preferred Stock, Common Stock, and other securities of the Company owned beneficially or of record by Ameritech (collectively, the "Ameritech Securities") subject to the conditions of this paragraph (a) as follows: (i) If a court of competent jurisdiction or the United States Department of Justice ("the D.O.J.") determines that (x) the original purchase of the Ameritech Securities was a violation of, or (y) the continuing ownership by Ameritech of the Ameritech Securities will violate the line of business restrictions of the MFJ to which Ameritech is subject and orders that Ameritech divest the Ameritech Securities or, in the case of the D.O.J., advises Ameritech that it intends to seek such divestiture, or counsel to Ameritech advises Ameritech that the divestiture of the Ameritech Securities is advisable under the MFJ, then Ameritech shall have the right to require the Company to purchase the Ameritech Securities at a purchase price which shall equal the fair market value of the Ameritech Securities (as determined pursuant to the paragraph (b) below) on the date of such judicial order to determination, unless such purchase would violate any provision of the General Corporation Law of the State of Delaware or the corporate laws of any other State applicable to the Company at such time. If the Company is obligated to purchase Ameritech Securities it will issue a note for the purchase price bearing interest at the annual rate of two percent above the rate of interest announced at such time by the First National Bank of Chicago as its prime commercial lending rate, compounded annually. The interest on such note will be payable quarterly and the principal of such note will mature and be payable on the earlier of (i) two years from the date of the note, (ii) 90 days after all shares Digital Certificates International, Inc. Series A Preferred Stock Purchase Agreement Page 56 of the Company's Preferred Stock have been converted to Common Stock, (iii) the date on which cash dividends are paid on the Preferred Shares or Common Stock, (iv) the date on which the Company is acquired by a third party, whether through a sale of assets, sale of capital stock, merger, consolidation or otherwise or (v) the consummation of an underwritten public offering by the Company of any of its securities. (ii) For a period of 60 days prior to exercising its right to require the Company to repurchase Ameritech Securities, Ameritech shall have the right to sell the Ameritech Securities to a third party; provided, -------- however, that the Company shall have a right of first refusal to ------- purchase the Ameritech Securities. in the event that Ameritech reaches general agreement with a third party regarding the sale of the Ameritech Securities within such 60 day period, Ameritech will give the Company written notice describing the price and general terms of the proposed sale (the "Sale Notice"). The Company may elect to purchase all (but not less than all) of the Ameritech Securities for the same price and upon the same terms and conditions as set forth in the Sale Notice by giving written notice of such election to Ameritech within 15 days after receiving the sale Notice. The closing of the purchase of the Ameritech Securities by the Company pursuant to this subsection (ii) shall take place promptly (and in any event within 15 days) following the Company's delivery of written notice to the Purchaser. (b) The fair market value of the Ameritech Securities shall be determined by a nationally known venture capitalist or investment banker mutually agreeable to the Company and the Ameritech. The costs of such appraisal shall be borne equally by the Company and Ameritech. (c) The rights granted to Ameritech under this Section __ are personal to Ameritech and may not be assigned to any other party other than its stockholders and affiliates which acquire the Ameritech Securities in compliance with this agreement. (d) Termination. The provisions of this Section __ shall terminate and ----------- have no further force and effect upon the first to occur of: (i) The occurrence of both (1) the consummation of the first underwritten public offering by the Company of any of its equity securities, the aggregate market value of which on the Digital Certificates International, Inc. Series A Preferred Stock Purchase Agreement Page 57 date of such offering shall be at least $10,000,000; and (2) the availability to the original purchaser of the Ameritech Securities of the resale provisions of Rule 144(k) promulgated under the Act or any then equivalent regulation; or (ii) The termination of ownership by the original purchaser of the Ameritech Securities and its affiliates of all of the Ameritech Securities.


                                                                   EXHIBIT 10.02
 
                                VERISIGN, INC.



                  SERIES B PREFERRED STOCK PURCHASE AGREEMENT



                             ____________________

                               February 20, 1996

 
                               TABLE OF CONTENTS
                               -----------------

Page ---- 1. Purchase and Sale of Stock............................................ 1 1.1 Sale and Issuance of Series B Preferred Stock.................. 1 1.2 Closing........................................................ 1 2. Representations and Warranties of the Company......................... 2 2.1 Organization; Good Standing; Qualification..................... 2 2.2 Authorization.................................................. 2 2.3 Valid Issuance of Preferred and Common Stock................... 3 2.4 Governmental Consents.......................................... 3 2.5 Capitalization and Voting Rights............................... 3 2.6 Subsidiaries................................................... 4 2.7 Agreements; Action............................................. 4 2.8 Related-Party Transactions..................................... 5 2.9 Registration Rights............................................ 5 2.10 Permits........................................................ 5 2.11 Compliance with Other Instruments.............................. 6 2.12 Litigation..................................................... 6 2.13 Returns and Complaints......................................... 6 2.14 Disclosure..................................................... 7 2.15 Offering....................................................... 7 2.16 Title to Property and Assets; Leases........................... 7 2.17 Financial Statements........................................... 7 2.18 Changes........................................................ 8 2.19 Patents and Trademarks......................................... 9 2.20 Manufacturing and Marketing Rights............................. 10 2.21 Labor Agreements and Actions................................... 10 2.22 Proprietary Information and Inventions Agreements.............. 10 2.23 Tax Returns, Payments, and Elections........................... 10 2.24 Insurance...................................................... 11 2.25 Environmental and Safety Laws.................................. 11 2.26 Forfeiture..................................................... 11 2.27 Minute Books................................................... 11 3. Representations, Warranties and Covenants of the Investors............ 12 3.1 Representations and Warranties................................. 12 3.2 Covenants...................................................... 13 4. California Commissioner of Corporations............................... 14 4.1 Corporate Securities Law....................................... 14 5. Conditions of Investor's Obligations at Closing....................... 15 5.1 Representations and Warranties................................. 15 5.2 Performance.................................................... 15 5.3 Compliance Certificate......................................... 15 5.4 Qualifications................................................. 15 5.5 Proceedings and Documents...................................... 15 5.6 Board of Directors............................................. 15 5.7 Opinion of Company Counsel..................................... 15 5.8 Investors' Rights Agreement.................................... 16
i. 5.9 Co-Sale Agreement.............................................. 16 5.10 Amendment No. 1 to Stockholders' Agreement..................... 16 5.11 Additional Agreement........................................... 16 5.12 Indemnification................................................ 16 6. Conditions of the Company's Obligations at Closing.................... 16 6.1 Representations and Warranties................................. 16 6.2 Payment of Purchase Price...................................... 16 6.3 Qualifications................................................. 16 7. Miscellaneous......................................................... 16 7.1 Entire Agreement............................................... 16 7.2 Survival of Warranties......................................... 17 7.3 Successors and Assigns......................................... 17 7.4 Governing Law.................................................. 17 7.5 Counterparts................................................... 17 7.6 Titles and Subtitles........................................... 17 7.7 Notices........................................................ 17 7.8 Finder's Fee................................................... 17 7.9 Expenses....................................................... 18 7.10 Attorneys' Fees................................................ 18 7.11 Amendments and Waivers......................................... 18 7.12 Severability................................................... 18 7.13 Aggregation of Stock........................................... 18
SCHEDULE A - Schedule of Investors EXHIBIT A - Amended and Restated Certificate of Incorporation EXHIBIT B - Investors' Rights Agreement EXHIBIT C - Co-Sale Agreement EXHIBIT D - Schedule of Stockholders EXHIBIT E - Amendment No. 1 to Stockholders' Agreement EXHIBIT F - Form of Indemnification Agreement EXHIBIT G - Additional Agreement Schedule of Exceptions ii. SERIES B PREFERRED STOCK PURCHASE AGREEMENT ------------------------------------------- THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the 20th day of February, 1996, by and between VeriSign, Inc., a Delaware corporation (the "Company"), and each of the persons listed on Schedule -------- A hereto, each of which is herein referred to as an "Investor." - - THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Purchase and Sale of Stock. -------------------------- 1.1 Sale and Issuance of Series B Preferred Stock. --------------------------------------------- (a) The Company shall adopt and file with the Secretary of State of Delaware on or before the Closing (as defined below) an Amended and Restated Certificate of Incorporation in the form attached hereto as Exhibit A --------- (the "Restated Certificate"). (b) Subject to the terms and conditions of this Agreement, each Investor agrees, severally and not jointly, to purchase at the Closing and the Company agrees to sell and issue to each Investor, severally and not jointly, at the Closing that number of shares of the Company's Series B Preferred Stock set forth opposite each Investor's name on Schedule A hereto ---------- at a price of $2.45 per share. 1.2 Closing. The purchase and sale of the Series B Preferred ------- Stock shall take place at the offices of Brobeck, Phleger & Harrison LLP, Two Embarcadero Place, 2200 Geng Road, Palo Alto, California, at 11:00 a.m., on January __, 1996, or at such other time and place as the Company and Investors acquiring in the aggregate more than half the shares of Series B Preferred Stock sold pursuant hereto shall mutually agree in writing (which time and place are designated as the "Closing"). At the Closing, the Company shall deliver to each Investor a certificate representing the shares of Series B Preferred Stock that such Investor is purchasing against payment of the purchase price therefor by check, wire transfer, cancellation of indebtedness, or such other form of payment as shall be mutually agreed upon by such Investor and the Company. In the event that payment by an Investor is made, in whole or in part, by cancellation of indebtedness, then such Investor shall surrender to the Company for cancellation at the Closing any evidence of such indebtedness or shall execute an instrument of cancellation in form and substance acceptable to the Company. In addition, the Company at the Closing shall deliver to any Investor choosing to pay any part of the purchase price of the Stock by cancellation of indebtedness, a check in the amount of any interest accrued on such indebtedness through the Closing. 2. Representations and Warranties of the Company. The Company hereby --------------------------------------------- represents and warrants to each Investor that, except as set forth on the Schedule of Exceptions attached hereto, specifically identifying the relevant subparagraph(s) hereof, which exceptions shall be deemed to be representations and warranties as if made hereunder: 2.1 Organization; Good Standing; Qualification. The Company is a ------------------------------------------ corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, has all requisite corporate power and authority to own and operate its properties and assets and to carry on its business as now conducted and as proposed to be conducted, to execute and deliver this Agreement, that certain Investors' Rights Agreement dated as of even date herewith the form of which is attached hereto as Exhibit B (the --------- "Investors' Rights Agreement"), that certain Co-Sale Agreement dated as of even date herewith the form of which is attached hereto as Exhibit C (the "Co-Sale --------- Agreement"), that certain Amendment No. 1 to Stockholders' Agreement dated as of even date herewith the form of which is attached hereto as Exhibit E (the --------- "Stockholders' Agreement") and any other agreement to which the Company is a party the execution and delivery of which is contemplated hereby (the "Ancillary Agreements"), to issue and sell the Series B Preferred Stock and the Common Stock issuable upon conversion thereof, and to carry out the provisions of this Agreement, the Investors' Rights Agreement, the Co-Sale Agreement, the Stockholders' Agreement, the Restated Certificate and any Ancillary Agreements. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would have a material adverse effect on its business, properties, prospects or financial condition. 2.2 Authorization. All corporate action on the part of the ------------- Company, its officers, directors, and stockholders necessary for the authorization, execution and delivery of this Agreement the Investors' Rights Agreement, the Co-Sale Agreement, the Stockholders' Agreement and any Ancillary Agreements, the performance of all obligations of the Company hereunder and thereunder at the Closing and the authorization, issuance (or reservation for issuance), sale, and delivery of the Series B Preferred Stock being sold hereunder and the Common Stock issuable upon conversion thereof has been taken or will be taken prior to the Closing, and this Agreement, the Investors' Rights Agreement, the Co-Sale Agreement, the Stockholders' Agreement and any Ancillary Agreements constitute valid and legally binding obligations of the Company, enforceable in accordance with their respective terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent the indemnification provisions contained in the Investors' Rights Agreement may be limited by applicable federal or state securities law. 2.3 Valid Issuance of Preferred and Common Stock. The Series B -------------------------------------------- Preferred Stock that is being purchased by the Investors hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid, and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under this Agreement, the Investors' Rights Agreement and the Co-Sale Agreement, the Stockholders' Agreement and under applicable state and federal securities laws. The Common Stock issuable upon conversion of the Series B Preferred Stock purchased under this Agreement has been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Restated Certificate, will be duly and validly issued, fully paid, and nonassessable and will be free of restrictions on transfer other than restrictions on transfer under this Agreement, the Investors' Rights Agreement, the Co-Sale Agreement and the Stockholders' Agreement and under applicable state and federal securities laws. 2.4 Governmental Consents. No consent, approval, qualification, order --------------------- or authorization of, or filing with, any local, state, or federal governmental authority is required on the part of the Company in connection with the Company's valid execution, delivery, or performance of this Agreement, the offer, sale or issuance of the Series B Preferred Stock by the Company or the issuance of Common Stock upon conversion of the Series B Preferred Stock, except (i) the filing of the Restated Certificate with the Secretary of State of the State of Delaware, and (ii) such filings as have been made prior to the Closing, except that any notices of sale required to be filed with the Securities and Exchange Commission (the "SEC") under 2. Regulation D of the Securities Act of 1933, as amended (the "1933 Act"), or such post-closing filings as may be required under applicable state securities laws, which will be timely filed within the applicable periods therefor. 2.5 Capitalization and Voting Rights. The authorized capital of -------------------------------- the Company consists, or will consist prior to the Closing, of: (i) Preferred Stock. 6,407,883 shares of Preferred Stock, --------------- par value $0.001 (the "Preferred Stock"), of which 4,306,883 shares have been designated Series A Convertible Preferred Stock ("Series A Preferred Stock"), all of which are issued and outstanding, and 2,101,000 shares have been designated Series B Convertible Preferred Stock ("Series B Preferred Stock"), up to all of which will be sold pursuant to this Agreement. The rights, privileges and preferences of the Series A and Series B Preferred Stock will be as stated in the Restated Certificate. (ii) Common Stock. 15,592,117 shares of common stock ------------ ("Common Stock"), par value $0.001 of which 4,688,333 shares are issued and outstanding. (iii) The outstanding shares of Series A Preferred Stock and Common Stock are owned by the stockholders and in the numbers specified in Exhibit D hereto. - --------- (iv) The outstanding shares of Series A Preferred Stock and Common Stock have been issued in accordance with the registration or qualification provisions of the 1933 Act and any relevant state securities laws or pursuant to valid exemptions therefrom. (v) Except for (A) the conversion privileges of the Series A and Series B Preferred Stock, (B) the rights provided in Section 2.4 of the Investors' Rights Agreement, and (C) currently outstanding options to purchase 1,615,750 shares of Common Stock granted to employees pursuant to the Company's 1995 Stock Option Plan (the "Option Plan"), there are not outstanding any options, warrants, rights (including conversion or preemptive rights and rights of first refusal) or agreements for the purchase or acquisition from the Company of any shares of its capital stock. In addition to the aforementioned options, the Company has reserved an additional 529,250 shares of its Common Stock for purchase upon exercise of options to be granted in the future under the Option Plan. The Company is not a party or subject to any agreement or understanding, and, to the best of the Company's knowledge, there is no agreement or understanding between any persons that affects or relates to the voting or giving of written consents with respect to any security or the voting by a director of the Company. 2.6 Subsidiaries. The Company does not own or control, directly ------------ or indirectly, any interest in any other corporation, association, or other business entity. The Company is not a participant in any joint venture, partnership, or similar arrangement. 2.7 Agreements; Action. ------------------ (a) Except for agreements explicitly contemplated hereby, by the Investors' Rights Agreement, the Co-Sale Agreement, the Stockholders' Agreement, any Ancillary Agreements and that certain Stockholders' Agreement dated April 18, 1995 among the Company, the Series A Preferred Stockholders and the other parties named therein, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors, affiliates, or any affiliate thereof. 3. (b) The Company does not have any contract, agreement, lease, commitment or proposed transaction, written or oral, absolute or contingent, other than (i) contracts for the purchase of supplies and services that were entered into in the ordinary course of business and that do not involve more than $50,000, and do not extend for more than one (1) year beyond the date hereof, (ii) sales contracts entered into in the ordinary course of business, and (iii) contracts terminable at will by the Company on no more than thirty (30) days notice without cost or liability to the Company and that do not involve any employment or consulting arrangement and are not material to the conduct of the Company's business. For the purpose of this Section, employment and consulting contracts and contracts with labor unions, and license agreements and any other agreements relating to the acquisition or disposition of the Company's technology, shall not be considered to be contracts entered into in the ordinary course of business. (c) The Company has not (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or any other liabilities individually in excess of $50,000 or, in the case of indebtedness and/or liabilities individually less than $50,000, in excess of $150,000 in the aggregate, (iii) made any loans or advances to any person, other than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. (d) For the purposes of subsections (b) and (c) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Company has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections. 2.8 Related-Party Transactions. No employee, officer, or -------------------------- director of the Company or member of his or her immediate family thereof is indebted to the Company, nor is the Company indebted (or committed to make loans or extend or guarantee credit) to any of them. To the best of the Company's knowledge, none of such persons has any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation that competes with the Company, except that employees, officers or directors of the Company and members of their immediate families may own stock in publicly traded companies that may compete with the Company. To the best of the Company's knowledge, no officer or director or any member of their immediate families is, directly or indirectly, interested in any material contract with the Company. 2.9 Registration Rights. Except as provided in the Investors' ------------------- Rights Agreement, the Company is not obligated to register under the 1933 Act any of its presently outstanding securities or any of its securities that may subsequently be issued. 2.10 Permits. The Company has all franchises, permits, licenses, ------- and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could materially and adversely affect the business, properties, prospects or financial condition of the Company and believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted. The Company is not in default in any material respect under any of such franchises, permits, licenses or other 4. similar authority. 2.11 Compliance with Other Instruments. The Company is not in --------------------------------- violation or default in any material respect of any provision of its Restated Certificate or Bylaws or in any material respect of any provision of any mortgage, indenture, agreement, instrument or contract to which it is a party or by which it is bound or, to the best of its knowledge, of any federal or state judgment, order, writ, decree, statute, rule or regulation applicable to the Company. The execution, delivery and performance by the Company of this Agreement, the Investors' Rights Agreement, the Co-Sale Agreement, the Stockholders' Agreement and any Ancillary Agreements, and the consummation of the transactions contemplated hereby and thereby will not result in any such violation or be in material conflict with or constitute, with or without the passage of time or giving of notice, either a material default under any such provision or an event that results in the creation of any material lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization, or approval applicable to the Company, its business or operations, or any of its assets or properties. 2.12 Litigation. There is no action, suit, proceeding or ---------- investigation pending or currently threatened against the Company that questions the validity of this Agreement, the Investors' Rights Agreement, the Co-Sale Agreement, the Stockholders' Agreement or any Ancillary Agreements or the right of the Company to enter into such agreements, or to consummate the transactions contemplated hereby or thereby, or that might result, either individually or in the aggregate, in any material adverse change in the assets, business properties, prospects or financial condition of the Company, or in any material change in the current equity ownership of the Company. The foregoing includes, without limitation, any action, suit, proceeding, or investigation pending or currently threatened involving the prior employment of any of the Company's employees, their use in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employers, their obligations under any agreements with prior employers, or negotiations by the Company with potential backers of, or investors in, the Company or its proposed business. The Company is not a party to, or to the best of its knowledge, named in any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit or proceeding by the Company currently pending or that the Company currently intends to initiate. 2.13 Returns and Complaints. The Company has received no customer ---------------------- complaints concerning alleged defects in the design of its products that, if true, would materially adversely affect the operations or financial condition of the Company. 2.14 Disclosure. The Company has provided each Investor with all ---------- the information reasonably available to it without undue expense that such Investor has requested for deciding whether to purchase the Series B Preferred Stock and all information which the Company believes is reasonably necessary to enable such Investor to make such decision. To the best of the Company's knowledge after reasonable investigation, neither this Agreement nor any other written statements or certificates made or delivered in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading. 2.15 Offering. Subject in part to the truth and accuracy of each -------- Investor's representations set forth in this Agreement, the offer, sale and issuance of the Series B Preferred Stock and Common Stock issuable upon the conversion thereof as contemplated by this Agreement are exempt from the registration requirements of the 1933 Act, and neither the 5. Company nor any authorized agent acting on its behalf will take any action hereafter that would cause the loss of such exemption. 2.16 Title to Property and Assets; Leases. Except (a) as ------------------------------------ reflected in the Financial Statements (defined in Section 2.17), (b) for liens for current taxes not yet delinquent, (c) for liens imposed by law and incurred in the ordinary course of business for obligations not past due to carriers, warehousemen, laborers, materialmen and the like, (d) for liens in respect of pledges or deposits under workers' compensation laws or similar legislation, or (e) for minor defects in title, none of which, individually or in the aggregate materially interferes with the use of such property, the Company owns its property and assets free and clear of all mortgages, liens, claims and encumbrances. With respect to the property and assets it leases, the Company is in compliance with such leases and, to the best of its knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances, subject to clauses (a)-(e) above. 2.17 Financial Statements. The Company has delivered to each -------------------- Investor its unaudited financial statements (balance sheet and profit and loss statement, statement of shareholders' equity and statement of changes in financial position, at December 31, 1995 and for the fiscal year then ended (the "Financial Statements"). The Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods indicated and with each other, except that they may not contain all footnotes required by GAAP. The Financial Statements fairly present the financial condition and operating results of the Company as of the dates, and for the periods, indicated therein, subject to normal year-end audit adjustments which are neither individually nor in the aggregate material. Except as set forth in the Financial Statements, the Company has no material liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to December 31, 1995 and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under GAAP to be reflected in the Financial Statements, which, in both cases, individually or in the aggregate, are not material to the financial condition or operating results of the Company. Except as disclosed in the Financial Statements, the Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation. The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with GAAP. 2.18 Changes. To the best of the Company's knowledge, since ------- December 31, 1995, there has not been: (a) Any change in the assets, liabilities, financial condition or operating results of the Company from that reflected in the Financial Statements, except changes in the ordinary course of business that have not been, in the aggregate, materially adverse; (b) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the business, properties, prospects or financial condition of the Company (as such business is presently conducted and as it is proposed to be conducted); (c) any waiver or compromise by the Company of a valuable right or of a material debt owed to it; (d) any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by the Company, except in the ordinary course of business and which is not material to the business, properties, prospects or financial condition of 6. the Company (as such business is presently conducted and as it is proposed to be conducted); (e) any material change to a material contract or arrangement by which the Company or any of its assets is bound or subject, except any such change made in the ordinary course of business; (f) any material change in any compensation arrangement or agreement with any employee, officer, director, or stockholder; (g) any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or other intangible assets; (h) any resignation or termination of employment of any key officer of the Company; and the Company, to the best of its knowledge, does not know of the impending resignation or termination of employment of any such officer; (i) receipt of notice that there has been a loss of, or material order cancellation by, any major customer of the Company; (j) any mortgage, pledge, transfer of a security interest in, or lien, created by the Company, with respect to any of its material properties or assets, except liens for taxes not yet due or payable; (k) any loans or guarantees made by the Company to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business; (l) any declaration, setting aside or payment or other distribution in respect of any of the Company's capital stock, or any direct or indirect redemption, purchase or other acquisition of any of such stock by the Company; (m) to the best of the Company's knowledge, any other event or condition of any character that might materially and adversely affect the business, properties, prospects or financial condition of the Company (as such business is presently conducted and as it is proposed to be conducted); or (n) any agreement or commitment by the Company to do any of the things described in this Section 2.18. 2.19 Patents and Trademarks. To the best of its knowledge (but ---------------------- without having conducted any special investigation or patent search) the Company owns or possesses sufficient legal rights to all patents, trademarks, servicemarks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes necessary for its business as now conducted and as proposed to be conducted without any conflict with or infringement of the rights of others. The Schedule of Exceptions contains a complete list of patents and pending patent applications of the Company. Except for agreements with its own employees or consultants, substantially in the form referenced in Section 2.22 below, there are no outstanding options, licenses, or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity. The Company has not received 7. any communications alleging that the Company has violated or, by conducting its business as proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights, trade secrets or other proprietary rights of any other person or entity. The Company is not aware that any of it employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of such employee's best efforts to promote the interests of the Company or that would conflict with the Company's business as proposed to be conducted. Neither the execution nor delivery of this Agreement, nor the carrying on of the Company's business by the employees of the Company, nor the conduct of the Company's business as proposed, will, to the best of the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees is now obligated. The Company does not believe it is or will be necessary to use any inventions of any of its employees (or persons it currently intends to hire) made prior to their employment by the Company. 2.20 Manufacturing and Marketing Rights. The Company has ---------------------------------- not granted rights to manufacture, produce, assemble, license, market, or sell its products to any other person and is not bound by any agreement that affects the Company's exclusive right to develop, manufacture, assemble, distribute, market, or sell its products. 2.21 Labor Agreements and Actions. To the best knowledge ---------------------------- of the Company, there is no strike, or labor dispute or union organization activities pending or threatened between it and its employees. To the best knowledge of the Company, none of the Company's employees belongs to any union or collective bargaining unit. To the best of its knowledge, the Company has complied in all material respects with all applicable state and federal equal employment opportunity and other laws related to employment. To the best of the Company's knowledge, no employee of the Company is or will be in violation of any judgment, decree or order, or any term of any employment contract, patent disclosure agreement or other contract or agreement relating to the relationship of any such employee with the Company or any other party because of the nature of the business conducted or to be conducted by the Company or to the utilization by the employee of his best efforts with respect to such business. The Company is not party to or bound by any currently effective employment contract, deferred compensation agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement, or other employee compensation agreement. The Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate their employment with the Company, nor does the Company have a present intention to terminate the employment of any of the foregoing. Subject to general principles related to wrongful termination of employees, the employment of each officer and employee of the Company is terminable at the will of the Company. 2.22 Proprietary Information and Inventions Agreements. ------------------------------------------------- Each employee and officer of the Company has executed a Proprietary Information and Inventions Agreement substantially in the form or forms that have been delivered to special counsel for the Investors. 2.23 Tax Returns, Payments, and Elections. The Company has ------------------------------------ filed all tax returns and reports as required by law. These returns and reports are true and correct in all material respects. The Company has paid all taxes and other assessments due, except those contested by it in good faith. The provision for taxes of the Company as shown in the Financial Statements is adequate for taxes due or accrued as of the date thereof. The Company has not elected pursuant to the Internal Revenue Code of 1986, as amended (the "Code"), to be treated as 8. an S corporation or a collapsible corporation pursuant to Section 341(f) of Section 1362(a) of the Code, nor has it made any other elections pursuant to the Code (other than elections which relate solely to methods of accounting, depreciation or amortization) which would have a material effect on the business, properties, prospects or financial condition of the Company. The Company has never had any tax deficiency proposed or assessed against it and has not executed any waiver of any statute of limitations on the assessment or collection of any tax or governmental charge. None of the Company's federal income tax returns and none of its state income or franchise tax or sales or use tax returns has ever been audited by governmental authorities. Since the date of the Financial Statements, the Company has made adequate provisions on its books of account for all taxes, assessments and governmental charges with respect to its business, properties and operations for such period. The Company has withheld or collected from each payment made to each of its employees, the amount of all taxes (including, but not limited to, federal income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be withheld or collected therefrom, and has paid the same to the proper tax receiving officers or authorized depositaries. 2.24 Insurance. The Company has in full force and effect --------- fire and casualty insurance policies, with extended coverage, sufficient in amount (subject to reasonable deductibles) to allow it to replace any of its properties that might be damaged or destroyed. The Company has in full force and effect term life insurance, payable to the Company, on the lives of Mr. D. James Bidzos and Mr. Stratton Sclavos in the amount of $1,000,000 each. The Company has in full force and effect products liability insurance in amounts customary for companies similarly situated. 2.25 Environmental and Safety Laws. To the best of its ----------------------------- knowledge, the Company is not in violation of any applicable statute, law, or regulation relating to the environment or occupational health and safety, and to the best of its knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law, or regulation. 2.26 Forfeiture. No shareholders of the Company have ---------- purchased any shares of the Company's capital stock subject to a risk of forfeiture. 2.27 Minute Books. The copy of the minute books of the ------------ Company provided to the Investor's special counsel contain minutes of all meetings of directors and stockholders and all actions by written consent without a meeting by the directors and stockholders since the time of incorporation and reflect all actions by the directors (and any committee of directors) and stockholders with respect to all transactions referred to in such minutes accurately in all material respects. 3. Representations, Warranties and Covenants of the Investors. ---------------------------------------------------------- 3.1 Representations and Warranties. Each Investor hereby ------------------------------ severally and not jointly represents and warrants to the Company, with respect to such Investor's purchase of Series B Preferred Stock that: (a) Authorization. It has full power and authority ------------- to enter into this Agreement and that this Agreement constitutes a valid and legally binding obligation of such Investor. 9. (b) Purchase Entirely for Own Account. This Agreement --------------------------------- is made with each Investor in reliance upon such Investor's representation to the Company, which by such Investor's execution of this Agreement such Investor hereby confirms, that the Series B Preferred Stock to be purchased by such Investor and the Common Stock issuable upon conversion thereof (collectively, the "Stock") will be acquired for investment for such Investor's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, each Investor further represents that such Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Stock. (c) Reliance Upon Investors' Representations. It ---------------------------------------- understands that the Series B Preferred Stock is not, and any Common Stock acquired on conversion thereof at the time of issuance may not be, registered under the 1933 Act on the ground that the sale provided for in this Agreement and the issuance of securities hereunder is exempt from registration under the 1933 Act pursuant to section 4(2) thereof, and that the Company's reliance on such exemption is predicated on the Investors' representations set forth herein. Each Investor realizes that the basis for the exemption may not be present if, notwithstanding such representations, such Investor has in mind merely acquiring shares of the Stock for a fixed or determinable period in the future, or for a market rise, or for sale if the market does not rise. No Investor has any such intention. (d) Receipt of Information. It believes it has ---------------------- received all the information it considers necessary or appropriate for deciding whether to purchase the Series B Preferred Stock. Each Investor further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Series B Preferred Stock and the business, properties, prospects and financial condition of the Company and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify the accuracy of any information furnished to it or to which it had access. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of the Investors to rely thereon. (e) Investment Experience. Each Investor is an --------------------- investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Series B Preferred Stock. If other than an individual, Investor also represents it has not been organized for the purpose of acquiring the Series B Preferred Stock. (f) Accredited Investor. Each Investor (other than ------------------- Bessemer Venture Partners DCI) is an "accredited investor" within the meaning of SEC Rule 501 of Regulation D, as presently in effect. (g) Restricted Securities. It understands that the --------------------- shares of Series B Preferred Stock it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the 1933 Act, only in certain limited 10. circumstances. In this connection, each Investor represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Act. 3.2 Covenants. Each Investor hereby covenants as follows: --------- (a) Legends. To the extent applicable, each ------- certificate or other document evidencing any of the Series B Preferred Stock or any Common Stock issued upon conversion thereof shall be endorsed with the legends set forth below, and each Investor covenants that, except to the extent such restrictions are waived by the Company, such Investor shall not transfer the shares represented by any such certificate without complying with the restrictions on transfer described in the legends endorsed on such certificate: (i) "The shares represented hereby have not been registered under the Securities Act of 1933, as amended, and may not be sold, transferred, assigned, pledged, or hypothecated absent an effective registration thereof under such Act or compliance with Rule 144 promulgated under such Act, or unless the Company has received an opinion of counsel, satisfactory to the Company and its counsel, that such registration is not required." (ii) Any legend required by the laws of the State of California, including any legend required by the California Department of Corporations and Sections 417 and 418 of the California Corporations Code. (b) Further Limitations on Disposition. Without in ---------------------------------- any way limiting the representations set forth above, each Investor further agrees not to make any disposition of all or any portion of the Series B Preferred Stock or any Common Stock issuable upon the conversion thereof unless and until the transferee has agreed in writing for the benefit of the Company to be bound by this Section 3.2(b), provided and to the extent such section is then applicable, the Investors' Rights Agreement, the Co-Sale Agreement, the Stockholders' Agreement and any applicable Ancillary Agreements and: (i) There is then in effect a Registration Statement under the Act covering such proposed disposition and such disposition is made in accordance with such Registration Statement; or (ii) A. Such Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and B. if reasonably requested by the Company, such Investor shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except in unusual circumstances. (iii) Notwithstanding the provisions of paragraphs (i) and (ii) above, no such registration statement or opinion of counsel shall be necessary for a transfer by an Investor which is a partnership to a partner of such partnership or a retired partner of such partnership who retires after the date hereof, or to the estate of any such partner or retired partner or the transfer by gift, will or intestate succession of any partner to his spouse or to the siblings, lineal descendants or ancestors of such partner or his spouse, if the transferee agrees in writing to be subject to the terms hereof to the same extent as if he were an original Investor hereunder. 11. (iv) Nothing in this Agreement prohibits a party from selling, assigning, transferring or pledging shares of Series B Preferred Stock or Common Stock to an affiliate of such party whether foreign, domestic or otherwise, provided that Section 3.2(b) is satisfied. 4. California Commissioner of Corporations. --------------------------------------- 4.1 Corporate Securities Law. THE SALE OF THE SECURITIES ------------------------ WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 5. Conditions of Investor's Obligations at Closing. The ----------------------------------------------- obligations of each Investor under subsection 1.1(b) of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions, the waiver of which shall not be effective against any Investor who does not consent in writing thereto: 5.1 Representations and Warranties. The representations ------------------------------ and warranties of the Company contained in Section 2 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of such Closing. 5.2 Performance. The Company shall have performed and ----------- complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 5.3 Compliance Certificate. The President of the Company ---------------------- shall deliver to each Investor at the Closing a certificate certifying that the conditions specified in Sections 5.1 and 5.2 have been fulfilled and stating that there shall have been no adverse change in the business, affairs, operations, properties, assets or condition of the Company since the date of its Financial Statements. 5.4 Qualifications. All authorizations, approvals, or -------------- permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Stock pursuant to this Agreement shall be duly obtained and effective as of the Closing. 5.5 Proceedings and Documents. All corporate and other ------------------------- proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to the Investors' special counsel, which shall have received all such counterpart original and certified or other copies of such documents as it may reasonably request. 5.6 Board of Directors. Immediately prior to the Closing, ------------------ Kevin 12. Compton shall have been elected as member of the Company's Board of Directors. 5.7 Opinion of Company Counsel. Each Investor shall have -------------------------- received from Tomlinson Zisko Morosoli & Maser LLP, counsel for the Company, an opinion, dated the date of the Closing, in form and substance satisfactory to special counsel to Kleiner Perkins Caufield & Byers. 5.8 Investors' Rights Agreement. The Company and each --------------------------- Investor shall have entered into the Investors' Rights Agreement in the form attached hereto as Exhibit B. --------- 5.9 Co-Sale Agreement. The Company, each Investor and RSA ----------------- Data Security, Inc. shall each have entered into a Co-Sale Agreement in the form attached hereto as Exhibit C. --------- 5.10 Amendment No. 1 to Stockholders' Agreement. The ------------------------------------------ Company, each Investor and two-thirds (2/3) in interest of the signatories to that certain Stockholders' Agreement dated April 18, 1995 shall have entered into an Amendment No. 1 to Stockholders' Agreement in the form attached hereto as Exhibit E. --------- 5.11 Additional Agreement. The Company and Ameritech -------------------- Development Corp. shall have entered into an Agreement containing substantially the same terms as set forth in Exhibit G attached hereto. --------- 5.12 Indemnification. The Company and Kevin Compton shall --------------- have entered into an Indemnification Agreement in the form hereto attached hereto as Exhibit F. --------- 6. Conditions of the Company's Obligations at Closing. The -------------------------------------------------- obligations of the Company to each Investor under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions by such Investor: 6.1 Representations and Warranties. The representations ------------------------------ and warranties of the Investor contained in Section 3 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 6.2 Payment of Purchase Price. Each Investor shall have ------------------------- delivered the purchase price specified in Section 1.2. 6.3 Qualifications. All authorizations, approvals, or -------------- permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Series B Preferred Stock pursuant to this Agreement shall be duly obtained and effective as of the Closing. 7. Miscellaneous. ------------- 7.1 Entire Agreement. This Agreement and the documents ---------------- referred to herein constitute the entire agreement among the parties and no party shall be liable or bound to any other party in any manner by any warranties, representations, or covenants except as specifically set forth herein or therein. 7.2 Survival of Warranties. The warranties, ---------------------- representations and 13. covenants of the Company and Investors contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing. 7.3 Successors and Assigns. Except as otherwise provided ---------------------- herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including permitted transferees of any shares of Series B Preferred Stock sold hereunder or any Common Stock issued upon conversion thereof). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 7.4 Governing Law. This Agreement shall be governed by ------------- and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California. 7.5 Counterparts. This Agreement may be executed in two ------------ or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 7.6 Titles and Subtitles. The titles and subtitles used -------------------- in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 7.7 Notices. Unless otherwise provided, any notice ------- required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified by hand or professional courier service or five (5) days after deposit with the United States Post Office, by registered or certified mail, postage prepaid and addressed to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate by ten (10) days' advance written notice to the other parties. 7.8 Finder's Fee. Each party represents that it neither ------------ is nor will be obligated for any finder's fee or commission in connection with this transaction. Each Investor severally and not jointly agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which the Investor or any of its officers, partners, employees, or representatives is responsible. The Company agrees to indemnify and hold harmless each Investor from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 7.9 Expenses. Irrespective of whether the Closing is -------- effected, the Company shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement. If the Closing is effected, the Company shall, at the Closing, reimburse the reasonable fees of special counsel for the Investors not to exceed $20,000 and shall, upon receipt of a bill therefor, reimburse the out of pocket expenses of such counsel. 7.10 Attorneys' Fees. If any action at law or in equity is --------------- necessary to enforce or interpret the terms of this Agreement, the Investors' Rights Agreement, the Co-Sale 14. Agreement, the Stockholders' Agreement or the Restated Certificate, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 7.11 Amendments and Waivers. Any term of this Agreement ---------------------- may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of more than 50% of the Common Stock (that has not been sold to the public) issued or issuable upon conversion of the Series B Preferred Stock. Any amendment or waiver effected in accordance with this Section shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities have been converted), each future holder of all such securities, and the Company. 7.12 Severability. If one or more provisions of this ------------ Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 7.13 Aggregation of Stock. All shares of the Series B -------------------- Preferred Stock held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 15. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. COMPANY: VERISIGN, INC., a Delaware corporation By: /s/ Stratton Sclavos ------------------------------------ Stratton Sclavos, President Address: 2593 Coast Ave ----------------------------------------- Mountain View, CA 94043 ----------------------------------------- INVESTORS: KLEINER PERKINS CAUFIELD & BYERS VII By: /s/ Kevin R. Compton ------------------------------------ Its: General Partner ------------------------------------ Address: 2750 Sand Hill Road Menlo Park, CA 94025 KPCB VII FOUNDERS FUND By: /s/ Kevin R. Compton ------------------------------------ Its: General Partner ------------------------------------ Address: 2750 Sand Hill Road Menlo Park, CA 94025 KPCB INFORMATION SCIENCE ZAIBATSU FUND II By: /s/ Kevin R. Compton ------------------------------------ [SIGNATURE PAGE TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT] Its: General Partner ------------------------------------ Address: 2750 Sand Hill Road Menlo Park, CA 94025 RSA DATA SECURITY, INC. By: /s/ D. James Bidzos ---------------------------------- Title: CEO ---------------------------------- Address: 100 Marine Parkway, Suite 500 Redwood City, CA 94065 KAIRDOS L.L.C. By: /s/ D. James Bidzos ---------------------------------- Title: Manager ---------------------------------- Address: c/o D. James Bidzos RSA Data Security, Inc. 100 Marine Parkway, Suite 500 Redwood City, CA 94065 TZM INVESTMENT FUND By: /s/ Timothy Tomlinson ---------------------------------- Title: General Partner ---------------------------------- Address: c/o Tomlinson Zisko Morosoli & Maser 200 Page Mill Road, Second Floor Palo Alto, CA 94306 [SIGNATURE PAGE TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT] BESSEMER VENTURE PARTNERS DCI By: Bessemer Venture Partners III, L.P., Its Managing General Partner By: Deer III & Co., Its Partner By: /s/ Bessemer Venture Partners DCI ---------------------------------- Address: 1025 Old Country Road, Suite 205 Westbury, NY 11590 MITSUBISHI CORPORATION By: /s/ Mitsubishi Corporation --------------------------------------- Title: ____________________________________ Address: 6-3, Marunouchi 2-Chome Chiyoda-ku, Tokyo 100-86 Japan SECURITY DYNAMICS TECHNOLOGIES, INC. By: /s/ Charles R. Stuckey Jr. --------------------------------------- Title: President and CEO ------------------------------------ Address: One Alewife Center Cambridge, MA 02140-2312 [SIGNATURE PAGE TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT] INTEL CORPORATION By: /s/ Arvind Sodhani --------------------------------------- Title: Vice President and Treasurer ------------------------------------ Address: 2200 Mission College Boulevard Santa Clara, CA 95052 AMERITECH DEVELOPMENT CORPORATION By: /s/ Thomas Touton --------------------------------------- Title: VP. Venture Capital ------------------------------------ Address: 30 South Wacker Drive, 37th Floor Chicago, IL 60606 GC&H INVESTMENTS By: /s/ James C. Kitch --------------------------------------- Title: Executive Partner ------------------------------------ Address: 3000 Sand Hill Road Building 3, Suite 230 Menlo Park, CA 94025 [SIGNATURE PAGE TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT] VISA INTERNATIONAL SERVICE ASSOCIATION By: /s/ William L. Chevenich --------------------------------------- Title: Group EVP ------------------------------------- Address: c/o Andrew Konstantaras Legal Department VISA 900 Metro Center Boulevard Foster City, CA 94404 FISCHER SECURITY CORPORATION L.L.C. By: /s/ Addison M. Fischer --------------------------------------- Title: Managing Director ------------------------------------- Address: 4073 Mercantile Avenue Naples, FL 33942 FIRST TZMM INVESTMENT PARTNERSHIP By: /s/ Timothy Tomlinson --------------------------------------- Title: General Partner ------------------------------------- Address: c/o Tomlinson Zisko Morosoli & Maser 200 Page Mill Road, Second Floor Palo Alto, CA 94306 [SIGNATURE PAGE TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT] SCHEDULE A ---------- Schedule of Investors ---------------------
Number Purchase Name of Shares Price - --------------------------------------------------- ------------------ -------------------- Kleiner Perkins Caufield & Byers VII 1,153,207 $2,825,357.15 KPCB VII Founders Fund 125,947 $ 308,570.15 KPCB Information Science Zaibatsu Fund II 32,799 $ 80,357.55 Bessemer Venture Partners DCI 187,819 $ 460,156.55 Mitsubishi Corporation 72,026 $ 176,463.70 Security Dynamics Technologies,Inc. 72,026 $ 176,463.70 Intel Corporation 144,052 $ 352,927.40 Ameritech Development Corporation 72,026 $ 176,463.70 GC&H Investments 5,589 $ 13,693.05 Visa International Service Association 144,052 $ 352,927.40 Fischer Security Corporation L.L.C. 72,026 $ 176,463.70 First TZMM Investment Partnership 17,554 $ 43,007.30 --------- ------------- TOTAL: 2,099,123 $5,142,851.35
EXHIBIT D --------- Schedule of Stockholders ------------------------
Series A Preferred Stockholders No. of Shares - ------------------------------- ------------- Ameritech Development Corporation 425,000 Bessemer Venture Partners DCI 850,000 First TZMM Investment Partnership 23,550 Fischer Security Corporation 425,000 GC&H Investments 33,333 Intel Corporation 850,000 Mitsubishi Corporation 425,000 Security Dynamics Technologies,Inc. 425,000 Visa International Service Association 850,000 --------- TOTAL: 4,306,883 Common Stockholders No. of Shares - ------------------- ------------- Bessemer Venture Partners DCI 258,333 D. James Bidzos 125,000 Kairdos L.L.C. 100,000 RSA Data Security, Inc. 4,000,000 Ronald Rivest 125,000 TZM Investment Fund 80,000 --------- TOTAL: 4,688,333
D-1


                                                                   EXHIBIT 10.03

                                VERISIGN, INC.
                  SERIES C PREFERRED STOCK PURCHASE AGREEMENT



                               November 15, 1996

 
                               TABLE OF CONTENTS
                               -----------------
Page ---- 1. Purchase and Sale of Stock......................................... 1 1.2 Sale and Issuance of Series C Preferred Stock............... 1 1.2 Closing..................................................... 1 2. Representations and Warranties of the Company...................... 1 1.1 Organization; Good Standing; Qualification.................. 2 1.2 Authorization............................................... 2 1.3 Valid Issuance of Preferred and Common Stock................ 2 1.4 Governmental Consents....................................... 3 1.5 Capitalization and Voting Rights............................ 3 1.6 Subsidiaries................................................ 4 1.7 Agreements; Action.......................................... 4 1.8 Related-Party Transactions.................................. 5 1.9 Registration Rights......................................... 6 1.10 Permits..................................................... 6 1.11 Compliance with Other Instruments........................... 6 1.12 Litigation.................................................. 6 1.13 Returns and Complaints...................................... 7 1.14 Disclosure.................................................. 7 1.15 Offering.................................................... 7 1.16 Title to Property and Assets; Leases........................ 7 1.17 Financial Statements........................................ 8 1.18 Changes..................................................... 8 1.19 Patents and Trademarks......................................10 1.20 Manufacturing and Marketing Rights..........................11 1.21 Labor Agreements and Actions................................11 1.22 Proprietary Information and Inventions Agreements...........12 1.23 Tax Returns, Payments, and Elections........................12 1.24 Insurance...................................................12 1.25 Environmental and Safety Laws...............................13 1.26 Forfeiture..................................................13 1.27 Minute Books................................................13 2. Representations, Warranties and Covenants of the Investors.........13 2.1 Representations and Warranties..............................13
i VeriSign, Inc. Series C Preferred Stock Purchase Agreement Page ii 2.2 Covenants...................................................15
ii 3. California Commissioner of Corporations...................16 3.1 Corporate Securities Law............................16 4. Conditions of Investor's Obligations at Closing...........16 4.1 Representations and Warranties......................17 4.2 Performance.........................................17 4.3 Compliance Certificate..............................17 4.4 Qualifications......................................17 4.5 Opinion of Company Counsel..........................17 4.6 Investors' Rights Agreement.........................17 4.7 Stockholders' Agreement.............................17 5. Conditions of the Company's Obligations at Closing........17 5.1 Representations and Warranties......................18 5.2 Payment of Purchase Price...........................18 5.3 Qualifications......................................18 6. Miscellaneous.............................................18 6.1 Entire Agreement....................................18 6.2 Survival of Warranties..............................18 6.3 Successors and Assigns..............................18 6.4 Governing Law.......................................18 6.5 Counterparts........................................19 6.6 Titles and Subtitles................................19 6.7 Notices.............................................19 6.8 Finder's Fee........................................19 6.9 Expenses............................................19 6.10 Attorneys' Fees.....................................19 6.11 Amendments and Waivers..............................20 6.12 Severability........................................20 6.13 Aggregation of Stock................................20
iii Schedules and Exhibits ---------------------- SCHEDULE A - Schedule of Investors EXHIBIT A - Second Amended and Restated Certificate of Incorporation EXHIBIT B - Amended and Restated Investor's Rights Agreement EXHIBIT C - Amendment No. 2 to Stockholders' Agreement EXHIBIT D - Schedule of Stockholders EXHIBIT E - Form of Legal Opinion iv SERIES C PREFERRED STOCK PURCHASE AGREEMENT ------------------------------------------- THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is made as of the 15th day of November, 1996, by and between VeriSign, Inc., a Delaware corporation (the "Company"), and each of the persons listed on Schedule A hereto, each of which is herein referred to as an "Investor." THE PARTIES HEREBY AGREE AS FOLLOWS: 3. Purchase and Sale of Stock. --------------------------- 3.1 Sale and Issuance of Series C Preferred Stock. ---------------------------------------------- (a) The Company shall adopt and file with the Secretary of State of Delaware on or before the Closing (as defined below) an Amended and Restated Certificate of Incorporation in the form attached hereto as Exhibit A (the --------- "Restated Certificate"). (b) Subject to the terms and conditions of this Agreement, each Investor agrees, severally and not jointly, to purchase at the Closing and the Company agrees to sell and issue to each Investor, severally and not jointly, at the Closing that number of shares of the Company's Series C Preferred Stock set forth opposite each Investor's name on Schedule A hereto at a price of $8.00 per ---------- share. 3.2 Closing. The purchase and sale of the Series C Preferred Stock ------- shall take place at the offices of Tomlinson Zisko Morosoli & Maser LLP, 200 Page Mill Road, 2nd Floor, Palo Alto, California, at 11:00 a.m., on November 15, 1996, or at such other time and place as the Company and Investors acquiring in the aggregate more than half the shares of Series C Preferred Stock to be sold pursuant hereto shall mutually agree in writing (which time and place are designated as the "Closing"). At the Closing, the Company shall deliver to each Investor a certificate representing the shares of Series C Preferred Stock that such Investor is purchasing against payment of the purchase price therefor by check, wire transfer, or such other form of payment as shall be mutually agreed upon by such Investor and the Company. 4. Representations and Warranties of the Company. The Company hereby --------------------------------------------- represents and warrants to each Investor that, except as set forth on the Schedule of Exceptions attached hereto, specifically identifying the relevant subparagraph(s) 1 VeriSign, Inc. Series C Preferred Stock Purchase Agreement Page 2 hereof, which exceptions shall be deemed to be representations and warranties as if made hereunder: 4.1 Organization; Good Standing; Qualification. The Company is a ------------------------------------------ corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, has all requisite corporate power and authority to own and operate its properties and assets and to carry on its business as now conducted and as proposed to be conducted, to execute and deliver this Agreement, that certain Amended and Restated Investors' Rights Agreement dated as of even date herewith the form of which is attached hereto as Exhibit B (the "Investors' Rights Agreement"), that certain Amendment No. 2 to Stockholders' Agreement dated as of even date herewith the form of which is attached hereto as Exhibit C (the "Stockholders' Agreement") and any other agreement to which the - --------- Company is a party the execution and delivery of which is contemplated hereby (the "Ancillary Agreements"), to issue and sell the Series C Preferred Stock and the Common Stock issuable upon conversion thereof, and to carry out the provisions of this Agreement, the Investors' Rights Agreement, the Stockholders' Agreement, the Restated Certificate and any Ancillary Agreements. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would have a material adverse effect on its business, properties, prospects or financial condition. 4.2 Authorization. All corporate action on the part of the Company, ------------- its officers, directors, and stockholders necessary for the authorization, execution and delivery of this Agreement, the Investors' Rights Agreement, the Stockholders' Agreement and any Ancillary Agreements, the performance of all obligations of the Company hereunder and thereunder at the Closing and the authorization, issuance (or reservation for issuance), sale, and delivery of the Series C Preferred Stock being sold hereunder and the Common Stock issuable upon conversion thereof has been taken or will be taken prior to the Closing, and this Agreement, the Investors' Rights Agreement, the Stockholders' Agreement and any Ancillary Agreements constitute valid and legally binding obligations of the Company, enforceable in accordance with their respective terms except (i) as limited by applicable bankruptcy, solvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies and 2 VeriSign, Inc. Series C Preferred Stock Purchase Agreement Page 3 (iii) to the extent the indemnification provisions contained in the Investors' Rights Agreement may be limited by applicable federal or state securities law. 4.3 Valid Issuance of Preferred and Common Stock. The Series C --------------------------------------------- Preferred Stock that is being purchased by the Investors hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid, and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under this Agreement, the Investors' Rights Agreement, the Stockholders' Agreement and under applicable state and federal securities laws. The Common Stock issuable upon conversion of the Series C Preferred Stock purchased under this Agreement has been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Restated Certificate, will be duly and validly issued, fully paid, and nonassessable and will be free of restrictions on transfer other than restrictions on transfer under this Agreement, the Investors' Rights Agreement and the Stockholders' Agreement and under applicable state and federal securities laws. 4.4 Governmental Consents. No consent, approval, qualification, ---------------------- order or authorization of, or filing with, any local, state, or federal governmental authority is required on the part of the Company in connection with the Company's valid execution, delivery, or performance of this Agreement, the offer, sale or issuance of the Series C Preferred Stock by the Company or the issuance of Common Stock upon conversion of the Series C Preferred Stock, except (i) the filing of the Restated Certificate with the Secretary of State of the State of Delaware, and (ii) such filings as have been made prior to the Closing, except that any notices of sale required to be filed with the Securities and Exchange Commission (the "SEC") under Regulation D of the Securities Act of 1933, as amended (the "1933 Act"), or such post-closing filings as may be required under applicable state securities laws, which will be timely filed within the applicable periods therefor. 4.5 Capitalization and Voting Rights. The authorized capital of the --------------------------------- Company consists, or will consist prior to the Closing, of: (i) Preferred Stock. 10,282,883 shares of Preferred Stock, par ---------------- value $0.001 (the "Preferred Stock), of which 4,306,883 shares have been designated Series A Convertible Preferred Stock ("Series A Preferred Stock"), all of which are issued and outstanding, 2,101,000 shares have been designated Series B 3 VeriSign, Inc. Series C Preferred Stock Purchase Agreement Page 4 Convertible Preferred Stock ("Series B Preferred Stock"), of which 2,099,123 shares are issued and outstanding and 3,875,000 shares have been designated Series C Convertible Preferred Stock ("Series C Preferred Stock"), up to all of which will be sold pursuant to this Agreement. The rights, privileges and preferences of the Series A, Series B and Series C Preferred Stock will be as stated in the Restated Certificate. (ii) Common Stock 21,592,117 shares of common stock (Common ------------ Stock), par value $0.001 of which 6,351,208 shares are issued and outstanding. (iii) The outstanding shares of Series A and Series B Preferred Stock and Common Stock are owned by the stockholders and in the numbers specified in Exhibit D hereto. --------- (iv) The outstanding shares of Series A and Series B Preferred Stock and Common Stock have been issued in accordance with the registration or qualification provisions of the 1933 Act and any relevant state securities laws or pursuant to valid exemptions therefrom. (v) Except for (A) the conversion privileges of the Series A, Series B and Series C Preferred Stock, (B) the rights provided in Section 2.4 of the Investors' Rights Agreement, and (C) currently outstanding options to purchase 1,213,075 shares of Common Stock granted to employees pursuant to the Company's 1995 Stock Option Plan (the "Option Plan), there are not outstanding any options, warrants, rights (including conversion or preemptive rights and rights of first refusal) or agreements for the purchase or acquisition from the Company of any shares of its capital stock. In addition to the aforementioned options, the Company has reserved an additional 1,307,050 shares of its Common Stock for purchase upon exercise of options to be granted in the future under the Option Plan. The Company is not a party or subject to any agreement or understanding, and, to the best of the Company's knowledge, there is no agreement or understanding between any persons that affects or relates to the voting or giving of written consents with respect to any security or the voting by a director of the Company. 4.6 Subsidiaries. The Company does not own or control, directly or ------------- indirectly, any interest in any other corporation, association, or other business entity. 4 VeriSign, Inc. Series C Preferred Stock Purchase Agreement Page 5 The Company is not a participant in any joint venture, partnership, or similar arrangement. 4.7 Agreements; Action. ------------------- (a) Except for agreements explicitly contemplated hereby, by the Investors' Rights Agreement, the Stockholders' Agreement, any Ancillary Agreements, and that certain Stockholders' Agreement dated April 18, 1995 among the Company, the Series A Preferred Stockholders and the other parties named therein and Amendment No. 1 thereto dated as of February 20, 1996, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors, affiliates, or any affiliate thereof. (b) The Company does not have any contract, agreement, lease, commitment or proposed transaction, written or oral, absolute or contingent, other than (i) contracts for the purchase of supplies and services that were entered into in the ordinary course of business and that do not involve more than $50,000, and do not extend for more than one (1) year beyond the date hereof, (ii) sales contracts entered into in the ordinary course of business, and (iii) contracts terminable at will by the Company on no more than thirty (30) days notice without cost or liability to the Company and that do not involve any employment or consulting arrangement and are not material to the conduct of the Company's business. For the purpose of this Section, employment and consulting contracts and contracts with labor unions, and license agreements and any other agreements relating to the acquisition or disposition of the Company's technology, shall not be considered to be contracts entered into in the ordinary course of business. (c) The Company has not (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or any other liabilities individually in excess of $50,000, in the case of indebtedness and/or liabilities individually less than $50,000, in excess of $150,000 in the aggregate, (iii) made any loans or advances to any person, other than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. 5 VeriSign, Inc. Series C Preferred Stock Purchase Agreement Page 6 (d) For the purposes of subsections (b) and (c) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Company has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections. 4.8 Related-Party Transactions. No employee, officer, or director -------------------------- of the Company or member of his or her immediate family is indebted to the Company, nor is the Company indebted (or committed to make loans or extend or guarantee credit) to any of them. To the best of the Company's knowledge, none of such persons has any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation that competes with the Company, except that employees, officers or directors of the Company and members of their immediate families may own stock in publicly traded companies that may compete with the Company. To the best of the Company's knowledge, no officer or director or any member of their immediate families is, directly or indirectly, interested in any material contract with the Company. 4.9 Registration Rights. Except as provided in the Investors' Rights -------------------- Agreement, the Company is not obligated to register under the 1933 Act any of its presently outstanding securities or any of its securities that may subsequently be issued. 4.10 Permits. The Company has all franchises, permits, licenses, and -------- any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could materially and adversely affect the business, properties, prospects or financial condition of the Company and believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted. The Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority. 4.11 Compliance with Other Instruments. The Company is not in --------------------------------- violation or default in any material respect of any provision of its Restated Certificate or Bylaws or in any material respect of any provision of any mortgage, indenture, agreement, instrument or contract to which it is a party or by which it is bound or, to 6 VeriSign, Inc. Series C Preferred Stock Purchase Agreement Page 7 the best of its knowledge, of any federal or state judgment, order, writ, decree, statute, rule or regulation applicable to the Company. The execution, delivery and performance by the Company of this Agreement, the Investors' Rights Agreement, the Stockholders' Agreement and any Ancillary Agreements, and the consummation of the transactions contemplated hereby and thereby will not result in any such violation or be in material conflict with or constitute, with or without the passage of time or giving of notice, either a material default under any such provision or an event that results in the creation of any material lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization, or approval applicable to the Company, its business or operations, or any of its assets or properties. 4.12 Litigation. There is no action, suit, proceeding or investigation ---------- pending or currently threatened against the Company that questions the validity of this Agreement, the Investors' Rights Agreement, the Stockholders' Agreement or any Ancillary Agreements or the right of the Company to enter into such agreements, or to consummate the transactions contemplated hereby or thereby, or that might result, either individually or in the aggregate, in any material adverse change in the assets, business, properties, prospects or financial condition of the Company or in any material change in the current equity ownership of the Company. The foregoing includes, without limitation, any action, suit, proceeding, or investigation pending or currently threatened involving the prior employment of any of the Company's employees, their use in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employers, their obligations under any agreements with prior employers, or negotiations by the Company with potential backers of, or investors in, the Company or its proposed business. The Company is not a party to or, to the best of its knowledge, named in any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit or proceeding by the Company currently pending or that the Company currently intends to initiate. 4.13 Returns and Complaints. The Company has received no ---------------------- customer complaints concerning alleged defects in the design of its products that, if true, would materially adversely affect the operations or financial condition of the Company. 7 VeriSign, Inc. Series C Preferred Stock Purchase Agreement Page 8 4.14 Disclosure. The Company has provided each Investor with all the ----------- information reasonably available to it without undue expense that such Investor has requested for deciding whether to purchase the Series C Preferred Stock and all information which the Company believes is reasonably necessary to enable such Investor to make such decision. To the best of the Company's knowledge after reasonable investigation neither this Agreement nor any other written statements or certificates made or delivered in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading. 4.15 Offering. Subject in part to the truth and accuracy of each -------- Investor's representations set forth in this Agreement, the offer, sale and issuance of the Series C Preferred Stock and Common Stock issuable upon the conversion thereof as contemplated by this Agreement are exempt from the registration requirements of the 1933 Act, and neither the Company nor any authorized agent acting on its behalf will take any action hereafter that would cause the loss of such exemption. 4.16 Title to Property and Assets; Leases. Except (a) as reflected ------------------------------------- in the Financial Statements (defined in Section 2.17), (b) for liens for current taxes not yet delinquent, (c) for liens imposed by law and incurred in the ordinary course of business for obligations not past due to carriers, warehousemen, laborers, materialmen and the like, (d) for liens in respect of pledges or deposits under workers' compensation laws or similar legislation, or (e) for minor defects in title, none of which, individually or in the aggregate materially interferes with the use of such property, the Company owns its property and assets free and clear of all mortgages, liens, claims and encumbrances. With respect to the property and assets it leases, the Company is in compliance with such leases and, to the best of its knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances, subject to clauses (a)-(e) above. 4.17 Financial Statements. The Company has delivered to each Investor --------------------- its audited financial statements (balance sheet and profit and loss statement, statement of shareholders' equity and statement of changes in financial position) for the fiscal year ended December 31, 1995 (th