WHITE PINE SOFTWARE INC, 10KSB, 1997-03-21

WHITE PINE SOFTWARE INC
10KSB, 1997-03-21
PREPACKAGED SOFTWARE

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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

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FORM 10-KSB

(MARK ONE)

[X]Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 1996

[_]Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to

COMMISSION FILE NUMBER: 000-21415

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WHITE PINE SOFTWARE, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

DELAWARE 04-3151064
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

542 AMHERST STREET, NASHUA, NEW 03063
HAMPSHIRE (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)

(603) 886-9050
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: Common stock,
par value $.01 per share

Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

Yes [X] No [_]

Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to be the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [_]

State issuer's revenues for its most recent fiscal year. $11,666,000

The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 28, 1997, was $23,352,572, based on a total of
4,916,331 shares held by non-affiliates and on the last published sale price
on the Nasdaq National Market of $4 3/4.

The number of shares outstanding of the Registrant's common stock as of
February 28, 1997 was 9,084,313.

Transitional Small Business Disclosure Format (check one):

Yes [_] No [X]

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TABLE OF CONTENTS

<TABLE>
<C> <S> <C>
PART I
Item 1. Description of Business........................................ 3
Item 2. Description of Property........................................ 27
Item 3. Legal Proceedings.............................................. 27
Item 4. Submission of Matters to a Vote of Security Holders............ 28
PART II
Item 5. Market for Common Equity and Related Stockholder Matters....... 28
Item 6. Management's Discussion and Analysis or Plan of Operation...... 29
Item 7. Financial Statements........................................... 34
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.......................................... 34
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act............. 35
Item 10. Executive Compensation......................................... 37
Item 11. Security Ownership of Certain Beneficial Owners and
Management.................................................... 39
Item 12. Certain Relationships and Related Transactions................. 40
Item 13. Exhibits, List and Reports on Form 8-K......................... 42
</TABLE>

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This Annual Report contains and incorporates by reference forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The Company's actual
results could differ materially from the results contemplated in the forward-
looking statements as a result of a number of factors, including the risk
factors set forth under Item 1A below.

ITEM 1. DESCRIPTION OF BUSINESS

White Pine Software, Inc. (the "Company") develops, markets and supports
multiplatform desktop connectivity software that facilitates worldwide video
and audio communication and data collaboration across the Internet, intranets
and other networks that use the Internet Protocol ("IP"). The Company's
desktop videoconferencing software products, Enhanced CU-SeeMe and the White
Pine Reflector, create a client-server solution that allows users to
participate in real-time, multipoint videoconferences over the Internet and
intranets. The Company recently introduced WebTerm Toolbox, which allows users
to access host applications from within the browser, as a new suite of
products geared to providing Advanced Intranet Solutions to corporations,
educational organizations and government agencies. The Company also offers its
eXodus line of desktop X Windows software, which enables seamless
interoperability between local and remote environments, and its 5PM line of
terminal emulation software, which provides desktop access to data and
applications residing on enterprise legacy systems.

EXODUS, WHITE PINE, 5PM TERM and WEBTERM are trademarks of the Company. CU-
SEEME is a registered trademark of Cornell Research Foundation, Inc. All other
trademarks or trade names referred to in this Annual Report are the property
of their respective owners.

INDUSTRY BACKGROUND

As computer usage and functionality have grown over the last two decades,
businesses and other organizations have realized that they can greatly enhance
the value of their computing resources by increasing interconnectivity between
legacy host systems and networks of desktop personal computers ("PCs").
Terminal and X Windows emulation can be used within an enterprise to enable
desktop PCs to access data and applications residing in legacy systems. In the
1970s, connectivity across enterprise boundaries was further enhanced through
the development of IP, a communications protocol standard. In the 1990s, IP's
networking potential has been more fully realized with the emergence of the
Internet as a mass communications medium capable of transmitting text and
graphics and, more recently, audio and video. Organizations have also begun to
use IP to establish intranets, which use the Internet to connect information
systems within an enterprise as well as provide access to information systems
of other enterprises.

Legacy System Connectivity

Terminal emulators were developed in the early 1980s to mimic "dumb"
terminals that linked users to mainframe computers through a variety of
proprietary communication protocols. Subsequently, vendors developed cost-
effective, software-only products that both enabled PCs to emulate text
terminals for a variety of mainframe platforms and capitalized on the expanded
graphical capabilities of PCs by developing high-end, graphical software
emulators. Software terminal emulation, which can now be performed over the
Internet through IP, continues to provide easier and wider access to mission-
critical data and applications residing on enterprise legacy systems.

In 1984, software engineers at the Massachusetts Institute of Technology
broadly expanded enterprise connectivity by developing the X Window System ("X
Windows") as a standard, independent of platforms, networks and operating
systems, for workstations and PCs. X Windows, which is based on a client-
server computing model, permits a user to run multiple graphical applications
simultaneously on a variety of platforms from a single X Windows terminal.
Since 1990, virtually all X Windows applications have used IP networks to
establish connectivity for desktop PCs, enabling large numbers of PCs to
access data and applications across the enterprise, regardless of the
platform, network or operating system.

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Communication on the Internet and Intranets

Use of the Internet, an interconnected network of numerous public and
private networks that links over 130 countries, has exploded in the 1990s as a
result of the growing installed base of PCs and the emergence of the user-
friendly World Wide Web (the "Web"). At its heart lies IP, which allows for
uniform, seamless communications in a multi-vendor, multi-provider public
network. Recognizing that similar benefits can be realized by applying IP
within an enterprise, businesses and other organizations have begun to
establish private intranets that enable them to better distribute information
to employees, connect disparate equipment and protect their investment in
computer resources, as well as to share information with customers, vendors,
partners and others.

The rapid growth of the Internet has been largely attributable to its use as
a communications medium. Initially, the Internet facilitated text-based
communication applications. As multimedia PCs become commonplace, Internet
usage is expanding to take advantage of new multimedia capabilities for real-
time communications using Internet telephony and, ultimately,
videoconferencing.

Videoconferencing consists of real-time, one-way or two-way audio and video
communication. It enables users at remote locations to enjoy many of the
benefits of face-to-face meetings without the time and expense of travel.
Today, a substantial portion of videoconferencing systems remain hardware-
based with proprietary communication protocols and fit into three principal
classes: room-based systems priced at or above $40,000, "roll-about" systems
priced at less than $20,000, and hardware-based desktop systems priced as low
as $1,000. In the early 1990s, the International Telecommunications Union (the
"ITU") began to establish standards for interactive audio, video and data
communication over digital networks. By 1992, a number of vendors had
introduced, and demonstrated interoperability among, hardware-based
videoconferencing systems that complied with early ITU standards. While the
implementation of emerging industry standards and other technological
improvements have helped to increase sales of hardware-based videoconferencing
systems in recent years, the relatively high price and limited
interoperability of these systems have impeded the widespread adoption of
videoconferencing as a mass communication medium.

In an effort to expand the availability of videoconferencing as a
communications tool, a number of developers commenced efforts to develop
software-based videoconferencing technology that did not require expensive
proprietary hardware. In 1992, Cornell Information Technologies, a research
institute at Cornell University, introduced freeware known as CU-SeeMe
("Freeware CU-SeeMe"). This real-time black-and-white desktop
videoconferencing software enables users to communicate over the Internet,
independent of computer hardware and operating system, using low-cost, easily
available hardware, such as 28.8 kbps modems and standard videocapture boards
and video cameras.

Although Freeware CU-SeeMe lacks the reliability, functionality and features
that are necessary to succeed in today's commercial marketplace, its
popularity has demonstrated the potential market for a software-based
videoconferencing solution that is able to connect users through the Internet.
As industry standards for Internet-based videoconferencing emerge, more
developed IP-based solution are transforming the multimedia PCs already
installed in homes and offices into videoconferencing terminals at a fraction
of the price of today's hardware-based systems. Software solutions for
videoconferencing over the Internet and other IP-based networks not only
provide videoconferencing capabilities at a lower price but also permit the
addition of new features and the implementation of emerging standards.

THE WHITE PINE SOLUTION

White Pine develops, markets and supports a variety of cross-platform
connectivity software products, the majority of which the Company designed by
applying its substantial IP connectivity experience. The Company seeks to
develop innovative, lower-priced, software alternatives to hardware
connectivity products and to enhance its software solutions through additional
functionality and features. White Pine has been a leader in developing
standards-based connectivity products that allow customers to access
information within and across enterprises through local area networks
("LANs"), wide area networks ("WANs"), the Internet and intranets.

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The Company's videoconferencing products, Enhanced CU-SeeMe and the White
Pine Reflector, create a software-only client-server solution for real-time,
multipoint audio and video communication and data collaboration over the
Internet. By developing videoconferencing products that require no proprietary
hardware, White Pine is able to offer videoconferencing at a substantially
lower price than vendors of traditional hardware-based systems and thereby
encourage businesses and others to adopt it as a mass communication medium.
The Company's exclusive license agreement with Cornell Research Foundation,
Inc. (the "Cornell Foundation"), the technology licensing organization
associated with Cornell University, provided the Company with the underlying
technology for Enhanced CU-SeeMe and the White Pine Reflector and afforded the
Company brand name recognition, an installed base and a time-to-market
advantage over other vendors seeking to develop software videoconferencing
solutions.

Enhanced CU-SeeMe is available on multiple platforms and can be installed on
most multimedia PCs without any proprietary hardware. By operating over the
Internet, Enhanced CU-SeeMe substantially broadens the base of businesses,
organizations and individuals able to engage in videoconferencing. The White
Pine Reflector, the software-only server component of the Company's
videoconferencing solution, allows users of Enhanced CU-SeeMe to participate
in multipoint videoconferences with a nearly unlimited number of users. The
White Pine Reflector also solves the complex problem of enabling real-time
multipoint communication over the Internet between users operating at
different connection speeds without degrading the quality of the entire
conference to that of the slowest connection speed. Together, Enhanced CU-
SeeMe and the White Pine Reflector, with their low prices, cross-platform
capabilities and ease of use, enable corporations, government organizations,
educational institutions and individuals worldwide to interact in real time
without the time and expense of travel.

White Pine recently introduced WebTerm Toolbox, which allows users to access
host applications from within a World Wide Web ("Web") browser, as a new suite
of products geared to providing Advanced Intranet Solutions to corporations,
educational organizations and government agencies. White Pine's eXodus and 5PM
products allow users throughout an enterprise to access mission-critical data
and applications residing on legacy systems. These software products are
competitively priced and easy to use, and they include a comprehensive set of
features allowing for seamless integration with existing enterprise systems
and newer intranet applications.

STRATEGY

White Pine's principal business objective is to be a supplier of leading-
edge network connectivity solutions. The Company plans to build upon its
position as a leader in Internet-based videoconferencing and to offer
customers complete intranet solutions by continuing to expand its connectivity
product offerings. The key components of White Pine's strategy are as follows:

Maintain Technological and Time-to-Market Leadership. The Company's Enhanced
CU-SeeMe, introduced in March 1996, was the first commercially available
Internet-based videoconferencing product. The Company believes that Enhanced
CU-SeeMe's Internet-based videoconferencing technology, cross-platform
capabilities, software-only and hardware-independent architecture, and
scalability over a broad range of bandwidths provide significant competitive
advantages. Enhanced CU-SeeMe has been featured in a number of on-line and
industry publications and has won C/net's Best Buy January 1997, PC
Computing's five-star rating in its February 1997 issue, New Media Magazine's
"1996 Hyper Award," and Byte Magazine's "Best of PC Expo '96 Winner."

Leverage Name Recognition and Installed Base of Freeware CU-SeeMe. The
Company seeks to leverage the brand name recognition of its videoconferencing
product, Enhanced CU-SeeMe, and its predecessor, Freeware CU-SeeMe.

Leverage Strength of White Pine Reflector Technology. The Company believes
its success in the Internet-based videoconferencing market derives in part
from the capabilities of the White Pine Reflector, the Company's software-only
server technology for group videoconferencing. The Company plans to release
the next version of the White Pine Reflector, to be renamed "MeetingPoint," in
the second quarter of 1997. Meeting Point 3.0 is

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expected to incorporate advanced billing and tracking functionality,
standards-based whiteboard sharing, and interoperability supporting other
vendors' client software through the recently ratified H.323 standard for
audio/video communication. As industry standards develop, the Company intends
to release standards-compliant versions of the White Pine Reflector to permit
end-users to take advantage of its capabilities, regardless of whether they
are using Enhanced CU-SeeMe or a videoconferencing client system from another
vendor.

Establish and Extend Strategic Relationships. The Company intends to
establish new strategic and original equipment manufacturer ("OEM")
relationships and extend existing relationships with multinational firms that
provide unique marketing or distribution opportunities or technological
capabilities for Enhanced CU-SeeMe. The Company has already established
marketing and distribution relationships with companies such as Ingram Micro,
Inc., Tech Data Corporation, BBN Planet Corporation, Winnov, Inc., Philips and
Symantec. The Company also intends to use technology relationships to
accelerate the delivery of enhanced product features and services to the
Enhanced CU-SeeMe market. The Company has already established technology
relationships with Voxware, Inc. for voice compression technology, Four11
Corporation for global Internet conferencing "white pages," Utopia Inc. for
Web and intranet integration services and Databeam for standards-based
whiteboard sharing.

Continue Standards Implementation for Interoperability. The Company believes
that the continued adoption and implementation of industry standards for
interoperability are crucial to the growth of the videoconferencing market.
The Company is committed to implementing standards-based functionality into
upcoming releases of the White Pine Reflector. The Company actively
participates in key standards bodies, such as the International Multimedia
Teleconferencing Consortium, the Internet Engineering Task Force and the
X Consortium, and follows the development of standards by the ITU.

Increase Market Penetration Outside North America. The Company intends to
increase its international marketing activities for both the Company's
videoconferencing products and its legacy connectivity products by identifying
and engaging complementary distributors in each major international market.
The Company believes that this strategy will enable it to leverage each
distributor's presence and experience in its local market. To that end, the
Company has already established distribution relationships in Australia,
France, Hong Kong, Japan, Korea and the United Kingdom.

Extend Multiplatform Product Line to Web Browsers. Based upon the rapid
growth of the Internet and the Web, the Company believes that users will
increasingly rely less on computer operating systems, such as Microsoft
Windows and Macintosh OS, and more on Web browsers, such as Microsoft Internet
Explorer and Netscape Navigator, to access information and applications. To
meet the needs of businesses and other organizations that have increased their
use of the Internet and intranets, the Company has recently developed
connectivity packages, such as WebTerm, which utilize standard Web browsers to
provide complete terminal emulation over the Internet or a corporate intranet.

PRODUCTS

White Pine develops, markets and sells a variety of cross-platform software
connectivity products for use over the Internet, intranets and other IP-based
networks. The Company seeks to develop innovative, lower-priced software
alternatives to hardware solutions and to enhance its software solutions
through additional functionality and features. White Pine has been a leader in
developing standards-based connectivity products that allow customers to
access information within and across enterprises through LANs, WANs, the
Internet and intranets.

Videoconferencing

White Pine develops, markets and sells Enhanced CU-SeeMe and the White Pine
Reflector, which together create a software client-server videoconferencing
solution for businesses, educational institutions, government organizations
and individuals. These products enable a user to participate in live one-way,
two-way or multipoint

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audio and video communication and data collaboration over the Internet and
other IP networks at a significantly lower price than traditional hardware-
based videoconferencing solutions.

The following table sets forth the Company's videoconferencing products and
their respective platforms, dates of initial shipment, descriptions and
suggested retail prices.

<TABLE>
<CAPTION>
INITIAL SUGGESTED
OPERATING SYSTEM SHIPMENT RETAIL
CURRENT PRODUCT PLATFORMS DATE DESCRIPTION PRICE
--------------- ---------------- -------- ----------- ---------
<C> <C> <C> <S> <C>
Enhanced CU-SeeMe 2.0 Macintosh PowerPC June 1996 Desktop client software $99
Mac 68000 for videoconferencing
over IP networks
Enhanced CU-SeeMe 2.1 Windows December Desktop client software $99
1996 for videoconferencing
over IP networks
White Pine Reflector 2.1 Windows December Server software for $995 and up
NT,95,UNIX 1996 multipoint
videoconferencing set-up
and control
</TABLE>

The Company also licenses Enhanced CU-SeeMe and the White Pine Reflector as
a bundled package and offers site licenses and volume discounts for larger
purchases.

ENHANCED CU-SEEME

Installed on a multimedia PC equipped with low-cost, easily available
hardware, such as a 28.8 kbps modem, a standard videocapture board and a
standard video camera, Enhanced CU-SeeMe enables real-time audio and video
communication and data collaboration over the Internet and other IP networks.
Enhanced CU-SeeMe has the following capabilities and features:

. simultaneous viewing of up to eight videoconferencing participants;

. data collaboration through the WhitePineBoard, a form of whiteboard
software;

. participation in live "cybercast" events;

. intuitive, dynamic windowing of videoconferencing participants through
the Participants List, which indicates presence by video, voice or chat;

. automatic call initiation for frequently called addresses stored in the
Phone Book, with contact card exchange and software functions equivalent
to call-waiting and caller-ID;

. directory services for locating people on the Internet;

. browser support for direct launch of Enhanced CU-SeeMe from any Web
page; and

. ""chat'' function.

Enhanced CU-SeeMe allows users to videoconference over bandwidths as low as
28.8 kbps and to improve video resolution and frame rate by taking advantage
of the wider bandwidths provided by ISDN lines, LANs, cable modems and other
technologies. Enhanced CU-SeeMe incorporates a variety of audio and video
compression/decompression software ("codecs") for use with different
bandwidths and allows a user to select the appropriate audio and video codecs
for the user's particular bandwidth. Enhanced CU-SeeMe is designed to be
easily installed as a result of its interoperability with most standard, non-
proprietary hardware configurations.

White Pine commenced shipments of Enhanced CU-SeeMe 2.0 for certain Windows
and MacIntosh platforms in March 1996 and June 1996, respectively, and
released Enhanced CU-SeeMe 2.1 for Windows in October 1996, which provides
additional multicasting capability, improved audio performance and integrated
directory services. The Company intends to release Enhanced CU-SeeMe 3.0 for
Windows in the second quarter of 1997. Version 3.0 is expected to incorporate
new features such as enhanced directory services, and improved

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ease of use. The Company expects that Enhanced CU-SeeMe 3.0 in combination
with the Reflector 3.0 will support relevant Internet and ITU standards such
as H.323 that enable interoperability among videoconferencing systems of
different vendors and other application frameworks. The Company has also
announced its plans to provide interoperability between the Reflector and
Microsoft Corporation's NetMeeting communications and collaboration software.

Enhanced CU-SeeMe has been featured in a number of on-line and industry
publications and has won C/Net's Best Buy in January 1997, PC Computing's
five-star rating in its February 1997 issue, New Media Magazine's "1996 Hyper
Award," and Byte Magazine's "Best of PC Expo '96 Winner".

WHITE PINE REFLECTOR

The White Pine Reflector is the software-only server component of White
Pine's client/server videoconferencing solution. The White Pine Reflector
software allows groups of users to interact together in real-time utilizing
text chat and whiteboard sharing to full audio/video conferencing. The White
Pine Reflector can bring nearly any size group together, from traditional, 3-
or 4-person videoconferences to interactive cybercasts involving hundreds or
thousands of participants. Furthermore, the White Pine Reflector can connect
disparate types of end-users, bridging the variety of end-users operating
systems and network connection without dragging the quality of the conference
down to the lowest common denominator. The White Pine Reflector has the
following capabilities and features:

. capacity to accommodate up to an aggregate of 100 participants in one or
more simultaneous videoconferences on a single White Pine Reflector,
depending on the processing power of the computer on which the White
Pine Reflector is installed and the participants' connection speeds;

. videoconferencing with a nearly unlimited number of conference
participants through linkages to other White Pine Reflectors;

. ability to "cybercast" live events to large audiences through linkages
to other White Pine Reflectors;

. controlled bandwidth management;

. ability to utilize multicast-capable networks;

. conference security through conference identification, password and IP
address verification; and

. compatibility with multiple platforms, including Windows 95, Windows NT
and eleven versions of UNIX, including those offered by Sun
Microsystems, Inc., Digital Equipment Corporation, International
Business Machines Corporation, Hewlett-Packard Company and Santa Cruz
Operations, as well as Linux.

The following diagrams illustrate the use of Enhanced CU-SeeMe and the White
Pine Reflector in a simple group conference, an intranet group conference and
a cybercast.

SIMPLE GROUP CONFERENCE

[Graphic: A depiction of a computer monitor containing the word "Reflector"
("Reflector Symbol") connected by four lines of various widths to four
depictions of persons facing PCs. Above each of the four lines, in order of
decreasing width, are the terms "LAN," "WAN," "ISDN" and "28.8."]

The White Pine reflector allows videoconferencing among users with different
connection speeds without having to use the lowest common bandwidth.

INTRANET GROUP CONFERENCE

[Graphic: Two Reflector Symbols connected by a thick line. The words "Intranet
or Corporate WAN" appear above the line. The Reflector Symbol on the left is
connected by two lines of different widths to three depictions of persons
facing PCs. The word "ISDN" appears above the thinner line, and the word
"LAN" appears above the thicker line. The words "Home Office" appear below
the Reflector Symbol on the left. The Reflector

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Symbol on the right is connected by a line to three depictions of persons
facing PCs. The word "LAN" appears above the line. The words "Remote Office"
appear below the Reflector Symbol on the right.]

Multiple White Pine Reflectors can work together to maximize conference
quality and minimize bandwith use.

CYBERCAST MODE

[Graphic: A depiction of a person facing a PC connected by a line to a
Reflector Symbol, which in turn is connected by lines to three other
Reflector Symbols, two of which are connected by lines to two depictions of
persons facing PCs and one of which is connected by lines to three
depictions of persons facing PCs.]

White Pine Reflectors can be linked to reach a nearly unlimited number of
recipients.

The White Pine Reflector deploys software-only technology to allow users
with different connection speeds to conference with each other without
degrading the quality of the entire conference to that of the slowest
connection speed. The White Pine Reflector manages video and audio streams and
utilizes multicasting, if available, to minimize bandwidth use. For example,
groups of White Pine Reflectors can work together to minimize traffic over the
WAN, while utilizing multicast technology to minimize LAN traffic. The
Reflector also provides a significant point of control that network managers
can use to roll out videoconferencing in a controlled fashion and offers
conferencing services to both end-users and administrators, such as conference
security, conference monitoring, and remote configuration. The White Pine
Reflector runs on Windows NT/95 and 8 versions of UNIX, including those
offered by Sun, HP, IBM, Digital, and Silicon Graphics.

The Company commenced shipments of Version 2.0 of the White Pine Reflector
for certain platforms in the second quarter of 1996. Version 2.1, released in
December of 1996, fully utilizes standards-based multicasting technology and
added an intuitive graphical user interface for remotely configuring and
monitoring multiple White Pine Reflectors, and support for Internet
service/content providers to track and bill customers for video services. In
the second quarter of 1997 the Company expects to release the next version, to
be renamed "MeetingPoint," incorporating new conference management features
for intranet and Internet service provider ("ISP") customers such as advanced
billing and tracking functionality, and T.120 standards-based whiteboard
sharing. In addition, White Pine plans on supporting other vendors' client
software through the recently ratified H.323 standard for audio/video
communication over packet networks.

The Company believes that, to date, most users of Enhanced CU-SeeMe take
advantage of publicly available White Pine Reflectors and freeware multipoint
conferencing servers for group conferencing and cybercasts, such as the White
Pine Reflectors maintained by the National Aeronautics and Space
Administration, the National Science Foundation and the Global Schoolhouse
Project. The Company expects that an increasing number of White Pine
Reflectors will be maintained by businesses and other enterprises to permit
private videoconferencing and cybercasting over LANs, WANs and intranets.
Certain ISPs, such as BBN Planet Corporation and Utopia Inc., also maintain
White Pine Reflectors for use by their respective subscribers.

Legacy Connectivity Products

The Company offers legacy connectivity products that allow businesses and
other organizations to access data and applications residing on host
workstations, mini-computers and mainframe computers from most widely-used
desktop operating systems. Because the Company believes that users will
increasingly rely less on computer operating systems and more on Web browsers
to access information and applications, the Company intends to develop Web-
enabled versions of its legacy connectivity products for major Web browsers.

WebTerm

White Pine's WebTerm line of products provides both graphical windowing and
text-based emulation through Web browsers, such as Microsoft Internet Explorer
and Netscape Navigator. WebTerm Toolbox terminal plug-ins began shipping in
December 1996 and offer both Windows and Macintosh users complete VT420,
TN3270, and TN5250 terminal emulation through an organization's intranet for
total point-to-point access to their host computers. WebTerm Toolbox is
designed to simplify the installation and configuration of software

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and reduce the amount of product training required for users. The WebTerm
Toolbox's suggested retail price is $69 per emulation or $189 for all three
emulations.

WebTerm X, expected to ship in the second quarter 1997, offers a similar
product design but provides the ability to run native UNIX or VMS windowing
environments, known as X Windows, from within the user's Web browser on a
Windows 95 or Windows NT desktop computer. This provides access through the
Internet or an intranet to all applications on most types of workstations,
including those manufactured by IBM, Sun, Hewlett-Packard and Silicon Graphics.
The suggested retail price of WebTerm X is expected to be $169.

Graphical Windowing

White Pine's eXodus products provide a comprehensive line of multiplatform X
Windows solutions that permit seamless interoperability between local and
remote environments. The Company's predecessor introduced the first eXodus
product in 1989, and the Company most recently introduced eXodus 6.1 for
Macintosh in March 1997. Each eXodus product incorporates an X server that
connects users of most widely used desktop operating systems to UNIX, Windows
NT, VMS and other multi-user computer platforms. These products permit users to
establish connections over high-speed LANs as well as over standard telephone
lines.

Version 6.1 of eXodus has been developed to operate seamlessly with Microsoft
Internet Explorer and Netscape Navigator to offer integration into today's
expanding corporate Intranets. eXodus can also operate over high speed LANs,
ISDN lines, or standard analog telephone lines. The suggested retail price for
eXodus is $295.

Graphical Host Connectivity

White Pine offers software available to provide users on both Macintosh and
Windows computers with access to host applications using the well-established
ReGIS graphic format made popular on VMS host computers by Digital Equipment
Corporation. The suggested retail price of this software is $349.

Text-based Host Connectivity

White Pine's 5PM products provide terminal emulation solutions to access data
and applications residing on a variety of platforms, including those offered by
Digital Equipment Corporation, International Business Machines Corporation and
Hewlett-Packard Company, as well as those offered by Siemens AG and Unisys
Corporation, whose host systems are widely used in Europe. The Company offers
5PM Term, which provides full terminal emulation, scripting, hot keys, network
and serial connection software, file transfer utilities, keyboard pallets and
other features. All 5PM products have an identical interface regardless of
platform, allowing customers with large installed bases to purchase terminal
emulation solutions from a single vendor and thereby minimize support and
training costs. The suggested retail prices of 5PM Term for Macintosh range
from $249 for a single emulation to $399 for all emulations.

RESEARCH AND DEVELOPMENT

Since its inception, the Company has specialized in IP-based connectivity
solutions for corporate customers and now provides what it believes to be the
broadest line of multiplatform, software connectivity solutions in the market.
Over the past two years, the Company has successfully introduced new X server
and terminal emulation products for Windows and now offers competitive cross-
platform solutions. In June 1995, the Company secured from the Cornell Research
Foundation, Inc. (the "Cornell Foundation") the exclusive worldwide rights to
license the Freeware CU-SeeMe videoconferencing software and has since focused
its development efforts on producing commercial versions of this software.

The Company's research and development expenditures totalled $3,819,000,
$1,866,000 and $1,301,000 in the fiscal years ended December 31, 1996, and
1995, and the nine months ended December 31, 1994, respectively. The Company
intends to continue to devote substantial resources to research and
development.

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Based upon the rapid growth of the Internet and the Web, the Company believes
that users will increasingly rely less on computer operating systems and more
on Web browsers to access information and applications. As a result, the
Company has redirected its X server and terminal emulation development efforts
towards Web-enabled and plug-in products that will integrate with Web browsers
such as Microsoft Internet Explorer and Netscape Navigator. The Company began
shipping these Web-enabled products during the fourth quarter of 1996.

MARKETING AND DISTRIBUTION

The Company markets and sells its products through a combination of
distributors, OEMs and strategic partners, its direct sales organization and
over the Internet. The Company conducts marketing programs, including direct
mail, advertising, public relations, distribution of product literature and
other programs to support each of the channels, in order to position and
promote its products and services. The Company maintains a Web site where
prospective customers can obtain information about the Company's products and
services and download certain software for evaluation. Marketing personnel
provide price lists and product descriptions and assist the direct sales force
through lead generation and sales training. The Company's primary strategy for
marketing and distributing its videoconferencing products is to establish new
strategic and OEM relationships and extend existing relationships with
multinational firms that provide unique marketing or distribution opportunities
or technological capabilities for the Company's videoconferencing products. The
Company has already established distribution relationships in Australia,
France, Hong Kong, Japan, Korea and the United Kingdom. The Company has also
formed OEM or bundling relationships in order to provide customers with turnkey
solutions and to facilitate product sales through distribution channels. The
Company has established such relationships with Symantec, a developer and
marketer of software, Philips, a manufacturer of digital cameras, and Digital
Visions Inc. and Winnov, Inc., manufacturers of video boards. In 1996, the
Company began to employ Tech Data and Ingram Micro as first tier distributors
to deliver Enhanced CU-SeeMe to consumers through retail channels including
store chains and superstores, such as CompUSA, Egghead Software and RCS. The
Company also sells its software videoconferencing products and WebTerm Toolbox
directly from its Web site.

The Company also promotes its videoconferencing products by actively
participating in major videoconferencing and other tradeshows such as the
Networld+Interop, PC Expo, Comdex, Internet World, Telcon and MacWorld. The
Company periodically sponsors special events, such as cybercasts of the Little
League 50th Anniversary World Series and the 1996 Republican National
Convention, in an effort to enhance the visibility of the Company and its
products.

The Company markets and sells its legacy connectivity products in the United
States through its direct sales force and distributors and in other countries
primarily through distributor relationships.

International sales represented 30%, 23% and 11% of total revenue in the
fiscal years ended December 31, 1996 and 1995, and the nine months ended
December 31, 1994, respectively.

The Company's sales force is located in Nashua, New Hampshire, San Jose,
California and LaGaude, France.

CUSTOMERS

The Company's customers include businesses, government organizations,
educational institutions and individual consumers. The Company sells its
software to end users and to OEMs that bundle the Company's software with other
products.

Sales to Ingram Micro, Inc. represented 14%, 16% and 21% of the Company's
total revenue in the fiscal years ended December 31, 1996 and 1995, and the
nine months ended December 31, 1994, respectively. See Note 8 of Notes to the
Company's Consolidated Financial Statements. The loss of this customer could
have a material adverse effect on the Company's business, financial condition
and results of operations.

CUSTOMER SERVICE AND SUPPORT

White Pine is committed to maintaining customer satisfaction and loyalty.
White Pine employs technical customer representatives located in New Hampshire,
California and France to support and service its customer base. In the future,
the Company intends to hire additional technical customer representatives to
support the

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<PAGE>

increasing installed base of Enhanced CU-SeeMe. In the event demand for
customer service outpaces the Company's expectations, the Company may employ a
third-party help-desk organization to provide additional support. The Company
believes that certain of its distributors and OEM customers maintain separate
customer support organizations for their respective customers. The Company
provides back-up support to such organizations.

The Company maintains a technical support hotline to answer customer
inquiries and provides an on-line database of technical product information.
The Company's support staff also responds to e-mail inquiries and monitors
several e-mail mailing lists. Customer support specialists diagnose and solve
technical problems related not only to the Company's products but also to other
hardware and software with which the Company's products may interact. The
Company tracks all support requests, including current status reports and
historical customer interaction logs, using a series of customer databases. The
Company uses customer feedback as a source of ideas for product improvements
and enhancements.

The Company intends to provide maintenance for Enhanced CU-SeeMe through a
program of periodic technical upgrades. For a fee, the Company will provide
extended maintenance services to its White Pine Reflector customers and to
certain volume purchasers of Enhanced CU-SeeMe. Customers who purchase site
licenses for the White Pine Reflector are required to enter into a customer
support and maintenance agreement. The Company's X Windows and terminal
emulation customers can obtain service and support through the Company's eXtend
Support Program, which for a fee entitles customers to priority service through
a toll-free number and to free, automatic shipments of all enhancements and
upgrades for legacy connectivity products licensed from the Company.

COMPETITION

The Company currently competes, or expects to compete, directly or indirectly
with the following categories of companies: (i) traditional hardware-based
videoconferencing companies, such as PictureTel Corporation, VTEL Corporation
and Compression Labs, Incorporated; (ii) emerging videoconferencing technology
companies, such as Cinecom Corporation, Connectix Corporation, Creative Labs,
Inc. and VDONet Corp.; (iii) vendors of operating systems and browsers such as
Microsoft Corporation, which recently introduced NetMeeting, a product that
enables point-to-point audio and data communication over the Internet, and
Netscape Communications Corporation, which recently acquired Insoft, Inc. and
its audio and videoconferencing technology; (iv) videoconferencing support
companies, such as VideoServer, Inc., Lucent Technologies, Inc. and Accord
Ltd.; and (v) other companies developing videoconferencing systems. Because the
barriers to entry in the software market are relatively low and the potential
market is large, the Company anticipates continued growth in the industry and
the entrance of new competitors in the future. Enhanced CU-SeeMe also competes
with videoconferencing software that is available on the Internet and can be
downloaded by users for either no charge or for extended evaluation. Freeware
CU-SeeMe and its related server are freely available over the Internet. See "--
Proprietary Rights."

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Ltd., the largest supplier of X server software products for the PC platform.
To the extent that these and other companies introduce new or enhanced PC X
server software products, the Company will face increased competition.

In the terminal emulation market, the Company currently competes with the
following categories of companies: (i) vendors of International Business
Machines Corporation host connectivity products, including Attachmate Corp. and
Wall Data Incorporated; (ii) vendors of TCP/IP terminal emulation products,
including FTP Software, Inc. and NetManage, Inc.; and (iii) vendors of Digital
Equipment Corporation and Hewlett-Packard Company host connectivity products,
including Walker Richer and Quinn Inc. In the Web-based terminal emulation
environment, the Company expects to compete, directly or indirectly, with
International Business Machines Corporation, Open Connect, Wall Data
Incorporated, Attachmate Corp., and Walker Richer and Quinn Inc.

Many of the Company's current and potential competitors, including
Hummingbird Communications Ltd., Intel Corporation, International Business
Machines Corporation, Microsoft Corporation, Netscape Communications
Corporation and PictureTel Corporation, have significantly longer operating
histories and/or significantly greater managerial, financial, marketing,
technical and other competitive resources, as well as greater name recognition,
than the Company. As a result, the Company's competitors may be able to adapt
more quickly to new or emerging technologies and changes in customer
requirements or may be able to devote greater resources to the promotion and
sale of their products and services. There can be no assurance that the Company
will be able to compete successfully with existing or new competitors. In
addition, competition could increase if new companies enter the market or if
existing competitors expand their service offerings. An increase in competition
could result in material price reductions or loss of market share by the
Company and could have a material adverse effect on the Company's business,
financial condition and results of operations.

To remain competitive, the Company will need to continue to invest in
research and development and sales and marketing. There can be no assurance
that the Company will have sufficient resources to make such investments or
that the Company will be able to make the technological advances necessary to
remain competitive. In addition, current and potential competitors have
established or may in the future establish collaborative relationships among
themselves or with third parties, including third parties with whom the Company
has a relationship, to increase the visibility and utility of their products
and services. Accordingly, it is possible that new competitors or alliances may
emerge and rapidly acquire a significant market share. Such an eventuality
could have a material adverse effect on the Company's business, financial
condition and results of operations.

GOVERNMENT REGULATION

The Telecommunications Act of 1996, which was enacted in February 1996,
purports to impose criminal liability on (i) any person that sends or displays
in a manner available to minors indecent or patently offensive material on an
interactive computer service such as the Internet and (ii) any entity that
knowingly permits facilities under its control to be used for such activities.
In June 1996, a special three-judge panel in federal district court found these
provisions unconstitutional and issued a preliminary injunction against their
enforcement. The U.S. Department of Justice has appealed this decision to the
U.S. Supreme Court. If these provisions are upheld or if similar provisions are
enacted in the future, they may inhibit the growth or use of the

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Internet and chill the development of Internet content, thereby decreasing the
demand for the Company's Internet videoconferencing products or otherwise
having a material adverse effect on the Company's business, financial condition
and results of operations.

In March 1996, the America's Carriers Telecommunication Association ("ACTA"),
a group of telecommunications common carriers, filed a petition (the "ACTA
Petition") with the Federal Communications Commission (the "FCC"), arguing that
providers (such as the Company) of computer software products that enable voice
transmission over the Internet (Internet "telephone" services) are operating as
common carriers without complying with various regulatory requirements and
without paying certain charges required by law. The ACTA Petition argues that
the FCC has the authority to regulate both the Internet and the providers of
Internet "telephone" services and requests that the FCC declare its authority
over interstate and international telecommunications services using the
Internet, initiate rulemaking proceedings to consider rules governing the use
of the Internet for the provision of telecommunications services, and order
providers of Internet "telephone" software to immediately cease the sale of
such software pending such rulemaking. Certain parties have filed comments with
the FCC regarding the ACTA Petition. The Company is unable to predict the
outcome of this proceeding. In December 1996 the FCC stated that it intended to
address the legal questions raised by the ACTA Petition in a future proceeding.
Any action by the FCC to grant the relief sought by ACTA or otherwise to
regulate use of the Internet as a medium of communication, including any action
to permit local exchange carriers to impose additional charges for connections
used for Internet access, could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Item 1A. Risk
Factors--Competition."

PROPRIETARY RIGHTS

The Company's videoconferencing products, Enhanced CU-SeeMe and the White
Pine Reflector, are commercial versions of Freeware CU-SeeMe and its related
server. Freeware CU-SeeMe and its related server were developed by Cornell
Information Technologies, a research institute at Cornell University, and are
freely available on the Web. In June 1995, the Company and the Cornell
Foundation entered into an Exclusive Software License Agreement (the "License
Agreement") that granted to the Company the exclusive worldwide right to
develop, modify, market, distribute and sublicense commercial versions of
Freeware CU-SeeMe and its related server, as well as the rights to appoint
licensee distributors and to use the trademark "CU-SeeMe." The License
Agreement requires that the Company pay royalties based on the Company's net
revenue from its commercial versions of Freeware CU-SeeMe and its related
server (subject to certain minimum per-copy royalties) and share sublicensing
income with the Cornell Foundation. The License Agreement also requires that
the Company make certain annual minimum royalty payments, including minimum
payments based on royalties from sublicenses. As of December 31, 1996, the
Company has not paid the minimum amount payable with respect to sublicensing
royalties for the period from June 1, 1995 through November 30, 1996. There can
be no assurance that the Company will meet its royalty obligations for the
current license period or any subsequent license year. Under the License
Agreement, the Company issued to the Cornell Foundation a warrant, which
Cornell exercised during December 1996 to purchase 20,000 shares of Common
Stock at an exercise price of $3.00 per share. The License Agreement has an
initial term expiring December 1, 1998 and renews automatically for periods of
one year unless and until terminated by either party for "cause" or by the
Company for convenience. For purposes of the License Agreement, "cause" means
failure by the Company to pay any amount due under the License Agreement
(including the failure by the Company to pay the minimum amount payable with
respect to sublicensing royalties for the period from June 1, 1995 through
November 30, 1996), if not cured within 30 days of written notice of such
failure to pay, or any material breach of the License Agreement by either
party, if not cured within 90 days of written notice of such breach. "Material
breach" includes failure to exercise due diligence to develop, manufacture and
market commercial versions of Freeware CU-SeeMe and its related server, failure
to grant sublicenses as required by the License Agreement, failure to maintain
quality control over the Company's commercial versions of Freeware CU-SeeMe and
its related server, and failure to develop and exploit the market to the extent
necessary to meet the Company's minimum royalty obligations under the License
Agreement. The failure of the Company to meet certain staffing, product
introduction and sublicensing obligations will permit the Cornell Foundation to
terminate the exclusivity provisions of the License Agreement.

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<PAGE>

As part of the License Agreement, the Cornell Foundation, acting through
Cornell Information Technologies, and the Company agreed to provide technical
support to each other to maintain the compatibility and interoperability of
Freeware CU-SeeMe and Enhanced CU-SeeMe and their respective servers. The
Cornell Foundation and Cornell University are entitled to use any portion of
the source code of the Company's commercial versions of Freeware CU-SeeMe and
its related server that may be necessary to maintain basic compatibility and
interoperability with Freeware CU-SeeMe and such server. The Company must
provide to the Cornell Foundation and Cornell University, at no cost, all
information required to maintain such compatibility and interoperability.

Under the terms of the License Agreement, the Company also agreed to offer
sublicenses to the source code of Freeware CU-SeeMe and its related server for
a nominal fee, provided that any sublicensee agrees (i) to distribute only
executable versions of Freeware CU-SeeMe and its related server, (ii) to
realize no profit or gain, either directly or indirectly, from the use or
distribution of Freeware CU-SeeMe or its related server, (iii) to grant each of
the Company and the Cornell Foundation, at no cost, a royalty-free, perpetual,
irrevocable, unrestricted license to use modifications and enhancements to
Freeware CU-SeeMe and its related server developed and distributed by the
sublicensee, as well as related documentation, and (iv) to freely distribute on
the Internet the executable code for Freeware CU-SeeMe and its related server
as modified by the sublicensee. Moreover, the Company agreed to permit third
parties to use unmodified source code of Freeware CU-SeeMe and its related
server for the development, manufacture and marketing of commercial products in
executable code form that incorporate unmodified or re-engineered versions of
Freeware CU-SeeMe or its related server, subject to reasonable licensing terms.

Under the terms of the License Agreement, the Cornell Foundation retained the
right on behalf of Cornell University to issue licenses and maintenance and
other releases of Freeware CU-SeeMe and its related server to third parties as
not-for-profit freeware. The Cornell Foundation and Cornell University may also
use any portion of Freeware CU-SeeMe and its related server to develop
commercial products and services to be licensed to others, provided that those
products and services do not compete directly with the Company's commercial
versions of Freeware CU-SeeMe and its related server. See "Item 1A. Risk
Factors--Dependence Upon License Agreement; Limited Proprietary Protection" and
"--Dependence Upon Third-Party Software."

EMPLOYEES

At February 28, 1997, the Company had 147 employees, including 54 in research
and development, 47 in sales and marketing, 20 in technical support, 22 in
general and administrative and in software manufacturing. Twenty four of these
employees were located in France and, in accordance with applicable law, were
represented by a labor union. The Company's remaining employees were located in
the United States and were not represented by any labor organization. The
Company has experienced no work stoppages and believes that its relations with
its employees are good.

FACILITIES

The Company's principal offices are located in Nashua, New Hampshire. In May
1996, the Company entered into a five-year lease, effective August 1, 1996, for
facilities in Nashua, New Hampshire with approximately 27,000 square feet of
office space. The Company also leases office space in San Jose, California and
LaGaude, France. The Company believes that its facilities are adequate for its
needs and that suitable additional or substitute space will be available as
needed. The Company also believes that its properties are adequately covered by
insurance.

ITEM 1A. RISK FACTORS

RECENT OPERATING LOSSES

The Company incurred losses from operations of $3,790,000 in the year ended
December 31, 1996 and $3,646,000 in the fiscal year ended December 31, 1995
(including a non-recurring write-off of purchased research and development
costs of $3,200,000). At December 31, 1996, the Company had an accumulated
deficit of approximately $13,612,000. In the fiscal years ended December 31,
1996 and 1995, the Company made

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<PAGE>

significant expenditures for product development and sales and marketing in
support of the product launch of Enhanced CU-SeeMe, which became commercially
available in March 1996. The Company expects that it will be required to
continue to invest heavily in product development and sales and marketing
programs in order to be competitive and capture market share, particularly in
the videoconferencing market. In addition, the Company has hired a significant
number of employees since January 1995 and expects to continue hiring
additional sales, customer service, management, software development and
technical support employees during 1997 as the Company continues to develop and
expand its operations. This significant increase in its workforce may
negatively impact the Company's results of operations in the future,
particularly if sales of new products fall below expectations.

Sales to Ingram Micro, Inc. represented 14%, 16% and 21% of the Company's
total revenue in the fiscal years ended December 31, 1996, 1995 and 1994,
respectively. The loss of, or a significant curtailment of purchases by, Ingram
Micro, Inc., including a loss or curtailment due to factors outside of the
Company's control, would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Item 1.
Description of Business--Customers" and Note 8 of Notes to the Company's
Consolidated Financial Statements.

As a result of the foregoing factors, the Company may incur further losses in
the future. There can be no assurance that the Company will achieve profitable
operations in any future period. In addition, as a result of the Company's
acquisition of About Software Corporation S.A. ("ASC") on a purchase accounting
basis in the fourth quarter of fiscal 1995 and the Company's decision to shift
its focus to the development, marketing and support of videoconferencing
software, the Company believes that period-to-period comparisons of its
financial results are not necessarily meaningful and should not be relied upon
as an indication of future performance. See "--Transition of Product Focus;
Dependence on New Products" and "Item 6. Management's Discussion and Analysis
or Plan of Operation."

COMPETITION

The market for videoconferencing products and services is extremely
competitive, and the Company expects that competition will intensify in the
future. The Company believes that the principal competitive factors in the
videoconferencing industry are price, video and audio quality,
interoperability, functionality, reliability, service and support, hardware
platforms supported, and vendor and product reputation. The Company believes
that its ability to compete successfully will depend on a number of factors
both within and outside its control, including the adoption and evolution of
industry standards, the pricing policies of its competitors and suppliers, the
timing of the introduction of new software products and services by the Company
and others, the Company's ability to hire and retain employees, and industry
and general economic trends. The Company anticipates that in the near future
the videoconferencing market will experience intense competition in the form of
product bundling or significant price reductions. The Company currently
competes, or expects to compete, directly or indirectly with the following
categories of companies: (i) traditional hardware-based videoconferencing
companies, such as PictureTel Corporation and VTEL Corporation; (ii) emerging
videoconferencing technology companies, such as VDONet Corp., Connectix
Corporation and Creative Labs, Inc. (iii) vendors of operating systems and
browsers such as Microsoft Corporation, which introduced NetMeeting, a product
that enables point-to-point audio and data communication over the Internet, and
announced NetShow, a product that enables broadcasting by videostreaming, and
Netscape Communications Corporation, which announced Communicator, a product
that enables point-to-point communication over the Internet (iv)
videoconferencing support companies, such as VideoServer, Inc., Lucent
Technologies, Inc. and Accord Ltd.; and (v) other companies developing
videoconferencing systems. PictureTel Corporation and Intel Corporation each
announced plans in 1996 to license products competitive with Enhanced CU-SeeMe
to manufacturers of personal computers and modems for inclusion in prepackaged
multimedia and other systems. In July 1996, Intel Corporation also announced a
cross-licensing agreement with Microsoft Corporation to share implementations
of certain industry standards and application frameworks, which the Company
expects will enhance the competitiveness of the products offered by both
companies. In addition, because the barriers to entry in the software market
are relatively low and the potential market is large, the Company anticipates
continued growth in the industry and the entrance of new

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<PAGE>

competitors in the future. Enhanced CU-SeeMe and the White Pine Reflector also
compete with videoconferencing software that is available on the Internet and
can be downloaded by users for either no charge or extended evaluation. The
Cornell Foundation makes Freeware CU-SeeMe and a related server freely
available over the Internet. See "Item 1. Description of Business--Proprietary
Rights."

In the market for X Windows products, the Company faces significant direct
competition from a number of PC X server software vendors, including
Hummingbird Communications Ltd., NetManage, Inc., Network Computing Devices,
Inc. and Walker Richer and Quinn Inc., as well as indirect competition from
manufacturers of dedicated X terminals. The Company's principal competitor in
this market is Hummingbird Communications Ltd., the largest supplier of X
server software products for the PC platform. To the extent that these and
other companies introduce new or enhanced PC X server software products, the
Company will face increased competition.

Many of the Company's current and potential competitors, including
Hummingbird Communications Ltd., Intel Corporation, International Business
Machines Corporation, Microsoft Corporation, Netscape Communications
Corporation and PictureTel Corporation, have significantly longer operating
histories and/or significantly greater managerial, financial, marketing,
technical and other competitive resources, as well as greater name recognition,
than the Company. As a result, the Company's competitors may be able to adapt
more quickly to new or emerging technologies and changes in customer
requirements and may be able to devote greater resources to the promotion and
sale of their products and services. There can be no assurance that the Company
will be able to compete successfully with existing or new competitors. In
addition, competition could increase if new companies enter the market or if
existing competitors expand their service offerings. An increase in competition
could result in material price reductions or loss of market share by the
Company and could have a material adverse effect on the Company's business,
financial condition and results of operations.

To remain competitive, the Company will need to continue to invest in
research and development and sales and marketing. There can be no assurance
that the Company will have sufficient resources to make such investments or
that the Company will be able to make the technological advances necessary to
remain competitive. In addition, current and potential competitors have
established or may in the future establish collaborative relationships among
themselves or with third parties, including third parties with whom the Company
may have relationships, to increase the visibility and utility of their
products and services. In addition, in 1996 and the first two months of 1997 a
number of the Company's competitors have acquired or made equity investments in
other companies in the videoconferencing and related industries, including
other competitors of the Company. Accordingly, it is possible that new
competitors or alliances may emerge and rapidly acquire significant market
shares. Such an eventuality could have a material adverse effect on the
Company's business, financial condition and results of operations.

DEVELOPING MARKET; UNPROVEN ACCEPTANCE OF THE COMPANY'S NEW PRODUCTS

The market for audio and video services and related software products for the
Internet and intranets, such as Enhanced CU-SeeMe and the White Pine Reflector,
has only recently begun to develop, is evolving rapidly and is expected to be
characterized by an increasing number of market entrants. The Company's future
success will depend in large part on the adoption of the Internet as a
principal medium for commercial and consumer videoconferencing. As is typical
in a new and rapidly evolving industry, demand for and market acceptance of
recently introduced products, such as Enhanced CU-SeeMe and the White Pine
Reflector, are subject to a high level of uncertainty. Certain factors,
including the present inability of subscribers of certain widely used on-line
Internet access providers to use Enhanced CU-SeeMe over these providers'
networks, the present inability to

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<PAGE>

videoconference with users of other vendors' videoconferencing systems,
difficulties in locating people on the Internet and uncertainty regarding
vendors' willingness to adopt industry standards, may limit demand for and
market acceptance of Enhanced CU-SeeMe and the White Pine Reflector, and may
have a material adverse effect on sales of Enhanced CU-SeeMe and the White Pine
Reflector and on the Company's business, financial condition and results of
operations. Also, enterprises that have already invested substantial resources
in other means of communicating information may be reluctant or slow to adopt
Internet videoconferencing. As a result of networking latencies, data packet
loss and significant variations in Internet infrastructure and users' set-ups
and configurations, the quality of audio communications over the Internet is
inferior to the quality of conventional telephone conversations and the quality
of video communications over the Internet may vary from connection to
connection and in certain instances may be inferior to the quality of hardware-
based videoconferencing systems. As a result, there can be no assurance that
videoconferencing communications over the Internet and intranets will become
widespread or that Enhanced CU-SeeMe or the White Pine Reflector will become
widely installed.

The market for connectivity packages which utilize standard web browsers,
such as WebTerm Toolbox, has only recently developed, is evolving rapidly and
is expected to be characterized by an increasing number of market entrants. The
future success of the Company's WebTerm product line will depend in large part
on the adoption of intranets as a principal medium for commercial usage for
connectivity of desktop PCs to host systems.

Moreover, the market for Internet services and software has developed only
recently. Commercial use of the Internet has been constrained by customer
demands for increased accessibility, reliability, speed, security and support,
and there can be no assurance that the infrastructure or complementary products
necessary for the Internet to become a viable medium of business communications
and activity in general, and as a medium of videoconferencing communications in
particular, will develop. In particular, there can be no assurance that access
to the Internet will continue to be available on a widespread basis, that the
Internet will not experience dramatic and unforeseen technological
difficulties, that the Internet will not be plagued by computer viruses or
other destructive technologies, that the introduction of complementary products
and technologies such as high speed modems and security procedures for
commercial transactions will not be delayed, that the development and adoption
of new standards and communications protocols will not be delayed, that the
current pricing structure for access to the Internet will continue, or that
growth in the number of users or the level of usage of the Internet will not
exceed the capacity of the Internet infrastructure to serve all potential
users. Moreover, critical issues concerning the commercial use of, distribution
of information on, and governmental regulation of the Internet (including
access, security, quality of services, price, ease of use, property ownership,
and liability and other legal issues) remain unresolved and may affect both the
growth of the Internet and the Company's business. As the Internet and the
related infrastructure continue to evolve, there can be no assurance that the
Internet will not develop in unforeseen directions that will have a material
adverse effect on the Company's business, financial condition and results of
operations. For example, because the performance of the Company's products
depends on, among other things, the availability of adequate bandwidth on
network connections, any significant reduction in the rate of improvement of
the available speed of network data transmission could have a material adverse
effect on the Company's business, financial condition and results of
operations.

If for any reason the market for Internet videoconferencing services fails to
grow, grows more slowly than anticipated or becomes saturated with competitors'
products, the Company's business, financial condition and results of operations
will be materially and adversely affected.

POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS

The Company has experienced fluctuations in its quarterly results of
operations and anticipates that such fluctuations will continue and could
increase. The Company's quarterly results of operations may vary significantly
depending on a number of factors, some of which are outside of the Company's
control. These factors include the timing of the introduction or acceptance of
new products offered by the Company or its competitors, changes in demand for
Internet services, changes in the mix of products provided by the Company,
changes in pricing strategies by the Company and its competitors, changes in
the markets served by the Company, changes in regulations affecting the
industry, changes in the Company's operating expenses, capital expenditures and
other costs relating to the expansion of operations, changes in its personnel
and general economic conditions. In addition, fluctuations in exchange rates
may render the Company's products less

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<PAGE>

competitive relative to local product offerings or result in foreign exchange
losses. To date, the Company has not engaged in exchange rate hedging
activities to minimize the risks of such fluctuations. Although the Company may
seek to implement hedging techniques in the future with respect to its foreign
currency transactions, there can be no assurance that such hedging techniques
will be successful. Historically, the Company's revenue in the third quarter of
each calendar year has been adversely affected by seasonal reductions in
business activity in Europe and certain other parts of the world during the
summer months. There can be no assurance that the Company will be able to
achieve or maintain profitability in the future or that its levels of
profitability will not vary significantly among quarterly periods. Fluctuations
in results of operations may result in volatility in the price of the Common
Stock.

A significant portion of the Company's expenses are fixed and difficult to
reduce in the event that revenue does not meet the Company's expectations, thus
magnifying the adverse effect of any revenue shortfall. Furthermore,
announcements by the Company or its competitors of new products, services or
technologies could cause customers to defer or cancel purchases of the
Company's products. Any such deferral or cancellation could have a material
adverse effect on the Company's business, financial condition and results of
operations. Accordingly, revenue shortfalls can cause significant variations in
results of operations from quarter to quarter and could have a material adverse
effect on the Company's business, financial condition and results of
operations.

As a result of the foregoing factors, it is possible that in some future
quarter the Company's results of operations will be below prior results or the
expectations of public market analysts and investors. In such event, the price
of the Common Stock would likely be materially and adversely affected. See
"Item 6. Management's Discussion and Analysis or Plan of Operation."

ABILITY TO MANAGE CHANGE

The Company has recently experienced significant growth in the number of its
employees, the demands on its operating and financial systems, and the
geographic area of its operations. This growth has resulted in new and
increased responsibilities for the Company's administrative, operational,
development and financial personnel. Additional expansion by the Company may
further strain the Company's management, financial and other resources. There
can be no assurance that the Company will be successful in hiring the personnel
necessary to manage its changing business. The Company's success depends to a
significant extent on the ability of its new executive officers to operate
effectively, both independently and as a group, and this ability may be impeded
by past and future geographic expansion of the Company internationally and
domestically. There can be no assurance that the Company's systems, procedures
and controls will be adequate to support expansion of the Company's operations.
The Company's future results of operations will depend on the ability of its
officers and key employees to manage changing business conditions and to
continue to improve its operational and financial control and reporting
systems. Any failure of the Company's management to manage change effectively
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Item 1. Description of Business--
Employees" and "--Facilities" and "Item 9. Directors, Executive Officers,
Promoters and Control Persons; Compliance with Section 16(a) of the Exchange
Act."

TRANSITION OF PRODUCT FOCUS; DEPENDENCE ON NEW PRODUCTS

Since its inception, the Company has derived a substantial portion of its
revenue from licenses of terminal emulation and X Windows software products.
These products are expected to continue to generate a significant but declining
portion of the Company's revenue for the foreseeable future. As a result, any
factor adversely affecting sales of these products, such as shifting of
management focus and Company resources, increased price competition, the
introduction of technologically superior products by competitors or the release
of competing products by companies with significantly greater resources and
name recognition, could have a material adverse effect on the Company's
business, financial condition and results of operations.

The Company introduced, in December 1996, connectivity packages which utilize
standard web browsers. These products are expected to initially generate a
small but increasing amount of revenue. As a result, any factor adversely
affecting sales of these products, such as the introduction of technologically
superior products by competitors or the release of competing products by
companies with significantly greater resources, could have a material adverse
effect on the Company's business, financial condition and results of
operations.

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In June 1995, the Company and the Cornell Foundation entered the License
Agreement which granted to the Company the exclusive worldwide right to
develop, modify, market, distribute and sublicense commercial versions of
Freeware CU-SeeMe and its related server. Since that time, the Company has
significantly redirected its efforts, and particularly its product development
and marketing efforts, to focus on its videoconferencing products. The Company
began shipping Enhanced CU-SeeMe and the White Pine Reflector in March 1996 and
May 1996, respectively, and therefore has had only a limited opportunity to
determine the extent to which these products will succeed in the marketplace. A
number of companies have introduced, or have announced plans to introduce,
videoconferencing software that will compete with Enhanced CU-SeeMe and the
White Pine Reflector, including software for use over the Internet. The
Company's future success will depend in significant part on its ability to
develop and introduce new products and to continue to improve the performance,
features and reliability of its products, including Enhanced CU-SeeMe and the
White Pine Reflector, in response to both competing product offerings and
evolving marketplace demands. There can be no assurance that the Company will
be successful in developing new products or that any new products will be
accepted in the marketplace. The Company's future success will also depend on
its ability to comply with developing industry standards for videoconferencing
over the Internet. The introduction of competing products that incorporate new
technology or the emergence of new industry standards may render the Company's
existing products obsolete and unmarketable. Any failure or inability of
Enhanced CU-SeeMe, the White Pine Reflector or other new products to perform
substantially as anticipated or to achieve market acceptance would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Item 1. Description of Business--Products" and "--
Competition."

DEPENDENCE UPON LICENSE AGREEMENT; LIMITED PROPRIETARY PROTECTION

The Company's success is heavily dependent upon its proprietary technology.
The Company's videoconferencing products, Enhanced CU-SeeMe and the White Pine
Reflector, are commercial versions of Freeware CU-SeeMe and its related server.
The Company's ability to develop, modify, market, distribute and sublicense
Enhanced CU-SeeMe and the White Pine Reflector, as well as the right to use the
trademark "CU-SeeMe," derives entirely from the License Agreement with the
Cornell Foundation. In order to maintain the exclusivity provisions of the
License Agreement, the Company must meet certain staffing, product introduction
and sublicensing obligations. There can be no assurance that the Company will
meet these obligations. Any failure to meet such obligations will permit the
Cornell Foundation to grant licenses to other companies, including competitors
of the Company, to develop, sell and sublicense commercial versions of Freeware
CU-SeeMe and its related server. In addition, the Company's right to issue
sublicenses is contingent upon the Company's continued marketing of commercial
versions of Freeware CU-SeeMe and its related server. Even if the Company
fulfills such obligations, the License Agreement has a fixed term ending
December 1, 1998. Although the License Agreement contains certain provisions
for automatic annual renewal, the License Agreement may be terminated by the
Cornell Foundation for "cause." Under the License Agreement, "cause" includes
failure by the Company to pay any amount due under the License Agreement, if
not cured within 30 days of written notice of such failure to pay, or any
"material breach" of the License Agreement by the Company, if not cured within
90 days of written notice of such breach. "Material breach" includes failure to
exercise due diligence to develop, manufacture and market commercial versions
of Freeware CU-SeeMe and its related server, failure to grant sublicenses as
required by the License Agreement, failure to maintain quality control over the
Company's commercial versions of Freeware CU-SeeMe and its related server, and
failure to develop and exploit the market to the extent necessary to meet the
Company's minimum royalty obligations under the License Agreement. Any
termination of the License Agreement would have a material adverse effect on
the Company's business, financial condition and results of operations. The
License Agreement requires that the Company pay royalties based on the
Company's net revenue from its commercial versions of Freeware CU-SeeMe and its
related server (subject to certain minimum per-copy royalties) and share
sublicensing income with the Cornell Foundation. The License Agreement also
requires that the Company make certain annual minimum royalty payments,
including minimum payments based on royalties from sublicensing. The failure to
pay any such minimum amount would constitute "cause" for termination of the
License Agreement, as described above. Moreover, Freeware CU-SeeMe and its
related server are freely available on the Internet. Such availability may
adversely affect sales of licenses for Enhanced CU-SeeMe and the White Pine
Reflector. The

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<PAGE>

Company also depends upon the Cornell Foundation, as the owner of the trademark
"CU-SeeMe," to protect and enforce rights in the trademark. Any failure of the
Cornell Foundation to protect or enforce such rights could substantially impair
the value of such trademark and the Company's rights to use such trademark.

The Company currently has no patents and relies primarily on copyright,
trademark and trade secrets law, as well as employee and third-party non-
disclosure agreements, to protect its intellectual property. There can be no
assurance that the steps taken by the Company to protect its proprietary rights
will be adequate to prevent misappropriation of its technology or independent
development by others of similar technology. Certain of the Company's products,
including Enhanced CU-SeeMe and the White Pine Reflector, are licensed to
customers under "shrink wrap" licenses included as part of the product
packaging. Although in certain sales the Company's shrink wrap licenses are
accompanied by specifically negotiated agreements signed by the licensee, in
most cases its shrink wrap licenses are not negotiated with or signed by
individual licensees. Certain provisions of the Company's shrink wrap licenses,
including provisions limiting the Company's liability and protecting against
unauthorized use, copying, transfer and disclosure of the licensed program, may
be unenforceable under the laws of certain jurisdictions. Also, the Company has
delivered certain technical data and information relating to Enhanced CU-SeeMe
and the White Pine Reflector to the United States government and, as a result,
the United States government may have unlimited rights to use such technical
data and information or to authorize others to use such technical data and
information. There can be no assurance that the United States government will
not authorize others to use such technical data and information for purposes
competitive with those of the Company. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent as
do laws in the United States. There can be no assurance that the protections
afforded by the laws of such countries will be adequate to protect the
Company's proprietary rights, the unenforceability of any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Litigation may be necessary to enforce the Company's
intellectual property rights or to protect the Company's trade secrets. Any
such litigation could result in substantial costs and diversion of resources
and could have a material adverse effect on the Company's business, financial
condition and results of operations.

Although the Company believes that its products and technology do not
infringe the proprietary rights of others, there can be no assurance that third
parties will not assert infringement and other claims against the Company or
that such claims will not be successful. From time to time, the Company has
received and may receive in the future notice of claims of infringement of
other parties' proprietary rights. Many participants in the software industry
have an increasing number of patents and have frequently demonstrated a
readiness to commence litigation based on allegations of patent or other
intellectual property infringement. Third parties may assert exclusive patent,
trademark, copyright and other intellectual property rights to technologies
that are important to the Company. There can be no assurance that infringement
or invalidity claims (or claims for indemnification resulting from infringement
claims) will not be asserted or prosecuted against the Company or that any such
assertion or prosecution will not have a material adverse effect on the
Company's business, financial condition or results of operations. Regardless of
the validity or the successful assertion of any such claims, the Company could
incur significant costs and diversion of resources in defending such claims,
which could have a material adverse effect on the Company's business, financial
condition and results of operations. Furthermore, any party making such claims
could secure a judgment awarding substantial damages, as well as injunctive or
other equitable relief, which could effectively block the Company's ability to
make, use, sell, distribute or market its products and services in the United
States or abroad. Any such judgment could have a material adverse effect on the
Company's business, financial condition and results of operations. In
circumstances where claims relating to proprietary technology or information
are asserted against the Company, the Company may seek licenses to such
intellectual property. There can be no assurance, however, that such licenses
would be available or, if available, that such licenses could be obtained on
terms that are commercially reasonable and acceptable to the Company. The
failure to obtain the necessary licenses or other rights could preclude the
sale, manufacture or distribution of the Company's products and, therefore,
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Item 1. Description of Business--
Proprietary Rights."

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RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

Revenue from international sales represented 30%, 23% and 11% of the
Company's total revenue in the fiscal years ended December 31, 1996, 1995 and
1994, respectively. The increased level of international revenue in the fiscal
years ended December 31, 1996 and 1995 reflected the acquisition of ASC on a
purchase accounting basis effective as of November 1, 1995. ASC generates a
majority of its revenue from outside the United States. As part of its business
strategy, the Company intends to seek opportunities to expand its product and
service offerings into additional international markets. The Company believes
that expansion into new international markets is critical to the Company's
ability to continue to grow and to market its products and services. There can
be no assurance that the Company will be successful in developing localized
versions of its products for new international markets or in marketing or
distributing products and services in these markets. The Company's
international business may be adversely affected by changing economic
conditions in foreign countries. The majority of the Company's sales are
currently denominated in U.S. dollars, but there can be no assurance that a
significantly higher level of future sales will not be denominated in foreign
currencies. To the extent the Company makes sales denominated in currencies
other than U.S. dollars, fluctuations in exchange rates may contribute to
fluctuations in the Company's business, financial condition and results of
operations. Conducting an international business inherently involves a number
of other difficulties and risks, such as export restrictions, export controls
relating to technology, compliance with existing and changing regulatory
requirements, tariffs and other trade barriers, difficulties in staffing and
managing international operations, longer payment cycles, problems in
collecting accounts receivable, software piracy, political instability,
seasonal reductions in business activity in Europe and certain other parts of
the world during the summer months, and potentially adverse tax consequences.
There can be no assurance that one or more of these factors will not have a
material adverse effect on any international operations established by the
Company and, consequently, on the Company's business, financial condition and
results of operations. See "Item 1. Description of Business--Strategy."

DEPENDENCE ON KEY PERSONNEL

The Company's success to date has depended to a significant extent on Howard
R. Berke, its Chairman, President and Chief Executive Officer, David O. Bundy,
its Vice President of Engineering, Killko A. Caballero, its Senior Vice
President of Research and Development and Chief Technology Officer, Richard M.
Darer, Chief Financial Officer and Vice President of Administration, and a
number of other key management, engineering, research and development, sales
and operational personnel. Mr. Darer has resigned from the Company effective
March 21, 1997. White Pine has begun to search for a successor to Mr. Darer,
and may engage an interim chief financial officer until that search is
completed. Pending the appointment of a successor chief financial officer, no
assurance can be given that the departure of Mr. Darer will not adversely
affect the Company's business, financial condition and results of operations.
Further, the additional loss of the services of Mr. Berke, Mr. Bundy, or Mr.
Caballero or any of the Company's other key personnel could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company believes that its future success will depend in large
part on its ability to attract and retain highly qualified management,
engineering, research and development, sales and operational personnel. In
particular, the Company will need to hire and train additional software
developers in order to support and increase its recent software licensing
activities. Competition for all of these personnel is intense and there can be
no assurance that the Company will be successful in attracting and retaining
key personnel. The failure of the Company to hire, train and retain qualified
personnel could have a material adverse effect upon the Company's business,
financial condition and results of operations. The Company does not maintain
key person life insurance policies on its key personnel, except for a policy
with respect to Mr. Berke in the amount of $1.0 million. See "Item 1.
Description of Business--Employees" and "Item 9. Directors, Executive Officers,
Promoters and Control Persons; Compliance with Section 16(a) of the Exchange
Act."

RISKS ASSOCIATED WITH CREATING AND ACCESSING NEW DISTRIBUTION CHANNELS

The Company's primary strategy for marketing Enhanced CU-SeeMe and the White
Pine Reflector is to form channel relationships in key markets with major
distributors. The Company also intends to license Enhanced CU-SeeMe and the
White Pine Reflector to OEMs, value-added resellers ("VARs") and additional

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distributors for bundling with their products and services. The Company expects
that its future success will depend in large part upon these OEMs, VARs and
distributors. The performance of these OEMs, VARs and distributors will be
outside the control of the Company, and the Company is unable to predict the
extent to which these organizations will be successful in marketing and selling
Enhanced CU-SeeMe or the White Pine Reflector or products incorporating
Enhanced CU-SeeMe or the White Pine Reflector. The Company's failure to
establish relationships with OEMs, VARs and distributors could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, the Company is currently seeking to establish
distribution relationships with retail channels, including store chains,
superstores and catalog sales, for Enhanced CU-SeeMe. The Company has no prior
experience in selling software through retail channels, and no assurance can be
given that it will succeed in establishing a retail network for Enhanced CU-
SeeMe or that, if established, such a network will not result in unexpected
expenses for inventory, returned software, distribution or otherwise. The
Company's distributors typically carry the products of competitors of the
Company, many of whom have substantially greater financial resources than the
Company. The distributors have limited capital to invest in inventory, and
their decisions to purchase the Company's products and, in the case of retail
stores, to give them critical shelf space, are partly a function of pricing,
terms and special promotions offered by the Company and its competitors, over
which the Company has no control and which it cannot predict. See "Item 1.
Description of Business--Marketing and Distribution."

The Company also distributes certain of its products electronically through
the Internet. By distributing its products through the Internet, the Company
may decrease demand for its products and increase the likelihood of
unauthorized copying and use of its software. The Company has allowed and
intends to continue to allow customers to download certain of its products for
a free evaluation period.

RISK OF PRODUCT DEFECTS

Software developed and incorporated by the Company may contain significant
undetected errors when first released or as new versions are released. Although
the Company tests its software before commercial release, there can be no
assurance that errors in the software will not be found after customers begin
to use the software. Enhanced CU-SeeMe 2.1 for Windows, which was released in
the fourth quarter of 1996, corrects a number of such errors in Enhanced CU-
SeeMe 2.0. The Company intends to ship Enhanced CU-SeeMe 3.0, which the Company
expects will support relevant Internet and International Telecommunications
Union standards and incorporate a number of new features, in the first half of
1997. Any error in Enhanced CU-SeeMe 3.0, the White Pine Reflector or the
Company's other products may result in decreased revenue or increased expenses
because of adverse publicity, reduced orders, product returns, uncollectible
accounts receivable, delays in collecting accounts receivable, and additional
and unexpected costs of further product development to correct the errors. Any
of these results could have a material adverse effect on the Company's
business, financial condition and results of operations.

The Company is a defendant in 10 lawsuits pending in New York federal and
state courts in which the plaintiffs claim to suffer from carpal tunnel
syndrome, or "repetitive stress injuries," as a result of having used computer
keyboards that are alleged to have been defectively designed by a predecessor
of the Company. None of these suits has reached trial and additional
information detrimental to the Company could be developed in the course of
discovery. Although the Company has established a reserve for these suits that
the Company believes is adequate, there can be no assurance that the Company's
liabilities under these suits will not substantially exceed that reserve. See
"Item 3. Legal Proceedings."

DEPENDENCE ON THIRD-PARTY SOFTWARE

In addition to Freeware CU-SeeMe and its related server, the Company depends
upon certain other software and products that it licenses from third parties,
including voice compression technology from Voxware, Inc., global Internet
conferencing "white pages" software from Four11 Corporation, video codec
software from Crystal Net Corporation ("Crystal Net") and whiteboard software
from Group Technologies, Inc. d/b/a Group Logic, Inc. and DataBeam Corporation.
Certain of these licenses are for limited terms, have certain minimum royalty
obligations or may be terminated if the Company breaches the terms of the
license. There can be no assurance that these suppliers will continue to
license this software to the Company on commercially reasonable

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<PAGE>

terms. In late January 1997, Crystal Net delivered notice to the Company of
alleged breaches by the Company of certain terms of the existing license
agreement between the two companies. The Company is in the process of
investigating and responding to these allegations, but believes that the
resolution of these issues will not have a material adverse effect on the
Company's business, financial condition and results of operations.

Most of the Company's third-party licenses are non-exclusive and there can be
no assurance that the Company's competitors will not obtain licenses to and
utilize such software in competition with the Company. There can be no
assurance that licensors of software utilized in the Company's products will
continue to provide, enhance or support such software in the form utilized by
the Company, nor can there be any assurance that the Company will be able to
modify its own software to adapt to any changes in the licensed software. In
addition, there can be no assurance that financial or other difficulties that
may be experienced by such third-party suppliers will not have a material
adverse effect on the availability, quality or support of software incorporated
in the Company's products, or that, if such software becomes unavailable, the
Company would be able to find suitable alternatives on a timely basis and on
commercially reasonable terms. The loss of or inability to maintain any of
these licenses could result in the discontinuation of, or delays or reductions
in, product shipments unless and until equivalent technology is identified,
licensed and integrated with the Company's software, and could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Item 1. Description of Business--Proprietary Rights."

RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS

The Company may acquire or invest in companies, technologies or products that
complement the Company's business or its product offerings. Any future
acquisitions may result in a potentially dilutive issuance of equity
securities, the incurrence of additional debt, the write-off of software
development costs or the amortization of expenses related to goodwill and other
intangible assets, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. Future
acquisitions would involve numerous additional risks, including difficulties in
the assimilation of the operations, services, products and personnel of any
acquired company, the diversion of management's attention from other business
concerns, the disruption of the Company's business, the entry into markets in
which the Company has little or no direct prior experience and the potential
loss of key employees of any acquired company. There can be no assurance that
the Company would be successful in overcoming these risks or any other problems
encountered in connection with any such acquisition.

GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES

At present, there are few laws or regulations that specifically address
access to or commerce on the Internet. The increasing popularity and use of the
Internet, however, enhance the risk that the governments of the United States
and other countries in which the Company sells or expects to sell its products
will seek to regulate videoconferencing and the Internet with respect to, among
other things, user privacy, pricing, and the characteristics and quality of
products and services. Any such regulation could have a material adverse effect
on the Company's business, financial condition and results of operations. In
addition, because the Internet has only recently come into widespread use, it
is not yet clear how existing laws governing issues such as libel, privacy and
the ownership of intellectual property will apply to communications over the
Internet. The Company is unable to predict the impact, if any, that existing or
future legislation, legal decisions or regulations may have on its business,
financial condition or results of operations. The Telecommunications Act of
1996, which was enacted in February 1996, purports to impose criminal liability
on (i) any person that sends or displays in a manner available to minors
indecent or patently offensive material on an interactive computer service such
as the Internet and (ii) any entity that knowingly permits facilities under its
control to be used for such activities. In June 1996, a special three-judge
panel in federal district court found these provisions unconstitutional and
issued a preliminary injunction against their enforcement. The U.S. Department
of Justice has appealed this decision to the U.S. Supreme Court. If these
provisions are upheld or if similar provisions are enacted in the future, they
may inhibit the growth or use of the Internet and chill the development of
Internet content, thereby decreasing the demand for the Company's Internet
videoconferencing products or otherwise having a material adverse effect on the
Company's business, financial condition and results of operations. In March
1996, the America's Carriers Telecommunication Association ("ACTA"), a group of
telecommunications common carriers, filed a petition

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(the "ACTA Petition") with the Federal Communications Commission (the "FCC"),
arguing that providers (such as the Company) of computer software products that
enable voice transmission over the Internet (Internet "telephone" services) are
operating as common carriers without complying with various regulatory
requirements and without paying certain charges required by law. The ACTA
Petition argues that the FCC has the authority to regulate both the Internet
and the providers of Internet "telephone" services and requests that the FCC
declare its authority over interstate and international telecommunications
services using the Internet, initiate rulemaking proceedings to consider rules
governing the use of the Internet for the provision of telecommunications
services, and order providers of Internet "telephone" software to immediately
cease the sale of such software pending such rulemaking. Certain parties have
filed comments with the FCC regarding the ACTA Petition. The Company is unable
to predict the outcome of this proceeding. In December 1996 the FCC stated that
it intended to address the legal questions raised by the ACTA Petition in a
future proceeding. Any action by the FCC to grant the relief sought by ACTA or
otherwise to regulate use of the Internet as a medium of communication,
including any action to permit local exchange carriers to impose additional
charges for connections used for Internet access, could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Item 1. Description of Business--Government Regulation."

POSSIBLE VOLATILITY OF STOCK PRICE

Factors such as quarterly variations in the Company's results of operations,
announcements of technological innovations or new products by the Company, its
competitors and others, market conditions in the industry and changes in
financial estimates by public market analysts may cause the market price of the
Common Stock to fluctuate significantly. In addition, the stock market in
general has recently experienced substantial price and volume fluctuations,
which have affected the market prices of many high technology companies,
particularly Internet-related companies, and which have often been unrelated to
the operating performance of such companies. These broad market fluctuations
may materially and adversely affect the market price of the Common Stock.
Following periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against such a
company. Any such litigation against the Company could result in substantial
costs and diversion of management's attention and other resources, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Item 5. Market for Common Equity and Related
Stockholder Matters."

SUBSTANTIAL INFLUENCE OF EXISTING STOCKHOLDERS

As of February 28, 1997, the Company's executive officers, directors and five
percent stockholders beneficially owned an aggregate of approximately 24.8% of
the outstanding shares of Common Stock. As a result, these stockholders, if
acting together, would effectively be able to control most matters requiring
the approval of stockholders of the Company, including the election of
directors or the approval of significant corporate matters. This concentration
of ownership by existing stockholders may also have the effect of delaying or
preventing a change in control of the Company. See "Item 11. Security Ownership
of Certain Beneficial Owners and Management."

ANTI-TAKEOVER EFFECT OF CHARTER PROVISIONS, BY-LAWS AND DELAWARE LAW

The Restated Charter and the Restated By-Laws contain provisions that could
discourage takeover attempts or make more difficult the acquisition of a
substantial block of the Common Stock. The Restated Charter provides that
stockholders may act only at meetings of stockholders and not by written
consent in lieu of a stockholders' meeting. The Restated By-Laws provide that
special meetings of the Company's stockholders may be called by the President
and must be called by the President or the Secretary at the written request of
a majority of the directors. The Restated By-Laws provide that nominations for
directors may not be made by a stockholder at any annual or special meeting
thereof unless the stockholder intending to make a nomination notifies the
Company of its intentions a specified number of days in advance of the meeting
and furnishes to the Company certain information regarding itself and the
intended nominee. The Restated By-Laws also require a stockholder to provide to
the Secretary of the Company advance notice of business to be brought by such
stockholder before any annual or special meeting of stockholders as well as
certain information regarding such stockholder and others known to support such
proposal and any material interest they may have in the proposed business.
These

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<PAGE>

provisions could delay any stockholder actions that are favored by the holders
of a majority of the outstanding stock of the Company until the next
stockholders' meeting. These provisions may also discourage another person or
entity from making a tender offer for the Common Stock, because such person or
entity, even if it acquired a majority of the outstanding stock of the Company,
could only take action at a duly called stockholders' meeting and not by
written consent. In addition, the Board of Directors is authorized to issue
shares of Common Stock and Preferred Stock which, if issued, could dilute and
adversely affect various rights of the holders of Common Stock and, in
addition, could be used to discourage an unsolicited attempt to acquire control
of the Company.

The Company is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which 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 becomes an
interested stockholder, unless the business combination is approved in a
prescribed manner. The application of Section 203 may limit the ability of
stockholders to approve a transaction that they may deem to be in their best
interests. The foregoing and other provisions of the Restated Charter and the
Restated By-Laws and the application of Section 203 of the Delaware General
Corporation Law could deter certain takeovers or tender offers or could delay
or prevent certain changes in control or management of the Company, including
transactions in which stockholders might otherwise receive a premium for their
shares over then current market prices.

ABSENCE OF DIVIDENDS

The Company has never declared or paid any cash dividends on its capital
stock and does not currently expect to pay any cash dividends in the
foreseeable future. In addition, the terms of the Company's existing bank line
of credit and term loan prohibit the Company from declaring or paying cash
dividends on the Common Stock. See "Item 5. Market for Common Equity and
Related Stockholder Matters."

ITEM 2. DESCRIPTION OF PROPERTY

The Company conducts its operations from its headquarters in Nashua, New
Hampshire and facilities in San Jose, California and LaGaude, France. The
facility in New Hampshire contains approximately 27,000 square feet, including
16,000 square feet for engineering and office space, 4,500 square feet for
production space, and 6,500 square feet for storage.

The facility in California contains approximately 10,000 square feet of
engineering and office space. The facility in France contains approximately
8,000 square feet of engineering and office space and 2,000 square feet of
production space.

The Company leases its office in New Hampshire from an unaffiliated party
under the terms of a five year lease ending July 1, 2001 in which the Company
is responsible for maintenance, repairs, taxes, insurance, and utilities. Base
rent is $112,405 for 1997, $128,184 for 1998, $141,797 for 1999, $155,409 for
2000, and $95,287 till the lease ends in 2001. Renewal options for 3 two year
terms are available to the Company.

The Company leases its office in California from an unaffiliated party under
the terms of a five year lease ending December 31, 2001. The Company is
responsible only for its own utility expenses and increases in common operating
expenses beyond the level incurred in the first year of the lease. Base rent is
$153,936 for 1997, $153,936 for 1998, $163,176 for 1999, $163,176 for 2000, and
$172,968 in 2001. The Company has the right to exit the lease, with proper
notice, at any time after July 1, 1999.

The Company leases its office in France from several unaffiliated parties
under a series of similar leases which end July 31, 1999 in which the Company
is responsible for maintenance, repairs, taxes, insurance, and utilities. Base
rent is $87,101 for 1997, $69,851 for 1998 and $38,045 till the lease ends in
1999. No further option periods are available at this time.

ITEM 3. LEGAL PROCEEDINGS

The Company is a defendant in 10 lawsuits pending in New York federal and
state courts (the "RSI Suits") in which the plaintiffs claim to suffer from
carpal tunnel syndrome, or "repetitive stress injuries," as a result of having
used computer keyboards (the "Keyboards") that are alleged to have been
defectively designed. The

26
<PAGE>

Keyboards were supplied, and possibly designed and manufactured, by Ontel
Corporation. The assets of Ontel Corporation were purchased in 1982 by Visual
Technology, Inc. ("Visual"), a predecessor of Visual T.I., Inc. ("VTI"), which
in turn is a predecessor of the Company. See "The Company." The RSI Suits,
which seek money damages, were brought from February 1992 to June 1996 by
employees of New York Telephone, which purchased the Keyboards from Lockheed
Electronics Corporation. One or more of Visual, Ontel Corporation, Lockheed
Electronics Corporation and Key Tronics Corporation, a subcontractor for
certain of the Keyboards, are named as co-defendants in certain of the RSI
Suits. New York Telephone employees have also commenced 38 suits that name as
defendants only Visual and/or Ontel Corporation. The Company could be named as
a defendant in these cases. None of the RSI Suits has reached trial and
additional information detrimental to the Company could be developed in the
course of discovery.

In May 1993, VTI's product liability coverage terminated. Certain of the RSI
Suits appear to be based on claims that allegedly arose after May 1993, and
therefore may be uninsured. The insurers for VTI, the Company and others (the
"Insurers") are defending the RSI Suits under a reservation of rights. To date,
the Company's proportionate share of the defense costs of the RSI Suits has not
been material. There can be no assurance, however, that the Company will not
incur material legal expenses defending the RSI Suits. The Company has a
reserve of approximately $292,000 in connection with the RSI Suits, based upon
the Company's belief that (i) certain of the RSI Suits are covered by product
liability insurance, (ii) the Company is contractually indemnified by Lockheed
Electronics Corporation and/or Key Tronics Corporation against all or a portion
of the damages to which the Company may be subject and (iii) the Company has
defenses to substantially all of the claims under the RSI Suits. Although the
Company believes that its reserve for the RSI Suits is adequate, there can be
no assurance that the Company's liabilities under the RSI Suits will not
substantially exceed that reserve. New York Telephone and others may continue
to use certain of the Keyboards and, accordingly, there can be no assurance
that additional product liability claims will not be asserted against the
Company in the future.

From time to time, the Company has received and may receive in the future
notice of claims of infringement of other parties' proprietary rights. Although
the Company believes that its products and technology do not infringe the
proprietary rights of others, there can be no assurance that additional third
parties will not assert infringement and other claims against the Company or
that any infringement claims will not be successful. See "Risk Factors--
Dependence Upon License Agreement; Limited Proprietary Protection."

From time to time, the Company may be exposed to litigation arising out of
its products, services and operations. As of the date of this Prospectus, the
Company is not engaged in any legal proceedings of a material nature, other
than the RSI Suits.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of securities holders of the Company during
the fourth quarter of the fiscal year ended December 31, 1996.

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock commenced trading on the Nasdaq National Market on
October 11, 1996 under the symbol "WPNE". Prior to October 11, 1996, the Common
Stock was not publicly traded. The following table sets forth the high and low
closing sales price for each quarterly period since October 11, 1996 for the
Common Stock, as reported by the Nasdaq National Market.

<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
FISCAL 1996
Fourth Quarter (commencing October 11, 1996)................. 9 1/8 6 1/2
</TABLE>

As of February 28, 1997 there were 160 holders of record of the Common Stock
who held an aggregate of 9,079,313 shares of Common Stock as nominees for an
undisclosed number of beneficial holders.

27
<PAGE>

The Company has never declared or paid any cash dividends on its capital
stock. The Company currently anticipates that it will retain future earnings,
if any, to fund the development and growth of its business and therefore does
not expect to pay any cash dividends in the foreseeable future. Payment of
future dividends, if any, will be at the discretion of the Company's Board of
Directors after taking into account various factors, including the Company's
financial condition, results of operations, current and anticipated cash needs,
and plans for expansion. The terms of the Company's existing bank line of
credit and term loan prohibit the Company from declaring or paying cash
dividends on Common Stock. See "Item 6. Management's Discussion and Analysis or
Plan of Operation--Liquidity and Capital Resources."

28
<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

OVERVIEW

White Pine develops, markets and supports multiplatform desktop connectivity
software that facilitates worldwide video and audio communication and data
collaboration across the Internet, intranets and other networks that use the
IP. The Company's desktop videoconferencing software products, Enhanced CU-
SeeMe and the White Pine Reflector, create a client-server solution that
allows users to participate in real-time, multipoint videoconferences over the
Internet and intranets. The Company recently introduced WebTerm Toolbox, which
allows users to access host applications from within the browser, as a new
suite of products geared to providing Advanced Intranet Solutions to
corporations, educational organizations and government agencies. The Company
also offers its eXodus line of desktop X Windows software, which enables
seamless interoperability between local and remote environments, and its 5PM
line of terminal emulation software, which provides desktop access to data and
applications residing on enterprise legacy systems.

In June 1995, as a part of its continuing plan to focus on software
connectivity products, the Company entered into the License Agreement with the
Cornell Foundation, which granted to the Company the exclusive worldwide right
to develop, modify, market, distribute and sublicense commercial versions of
Freeware CU-SeeMe and its related software-only multipoint conferencing
server. The Company commenced shipments of the initial commercial versions of
Enhanced CU-SeeMe and the White Pine Reflector in March 1996 and May 1996,
respectively. The Company anticipates that its revenue growth, if any, will
depend on increased sales of Enhanced CU-SeeMe and the White Pine Reflector
and on sales of new software connectivity products, such as WebTerm Toolbox,
for the Internet and intranets. Accordingly, the Company intends to devote a
substantial portion of its research and development and sales and marketing
resources to technologies related to the Internet and intranets.

The Company's revenue is derived from software license fees and fees for
services related to its software products, primarily software maintenance
fees. The Company recognizes revenue in accordance with the American Institute
of Certified Public Accountants Statement of Position No. 91-1, "Software
Revenue Recognition." Software license revenue is recognized upon execution of
a contract or purchase order and shipment of the software, net of allowances
for estimated future returns, provided that no significant obligations on the
part of the Company remain outstanding and collection of the related
receivable is deemed probable by management. An allowance for product returns
is recorded by the Company at the time of sale and is measured periodically to
adjust to changing circumstances, including changes in retail sales. Software
maintenance fees, which are generally payable in advance and are non-
refundable, are recognized ratably over the period of the maintenance
contract, typically twelve months. Revenue from training and consulting
services is recognized as services are provided. Software license fees,
consulting fees and training fees that have been prepaid or invoiced but that
do not yet qualify for recognition as revenue under the Company's policy, and
prepaid maintenance fees not yet recognized as revenue, are reflected as
deferred revenue.

Research and development expenses are charged to income as incurred. In
accordance with the Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," the Company capitalizes software development costs once the
technological feasibility of a product has been established, which the Company
considers to occur when a commercially viable working model of a product has
been produced and tested. The total amount of capitalized software development
costs ($145,000 at December 31, 1996) is included in other assets.

Effective April 1, 1994, the Company changed its fiscal year end from March
31 to December 31.

29
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth certain consolidated financial data from the
Company's statement of operations as a percentage of total revenue for the
fiscal years ended December 31, 1994, 1995 and 1996.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Software license fees........................ 87.9% 83.8% 90.0%
Services and other........................... 12.1 16.2 10.0
-------- -------- --------
Total revenue.............................. 100.0 100.0 100.0
Cost of revenue................................ 13.2 17.4 19.0
Gross Profit................................... 86.8 82.6 81.0
-------- -------- --------
Operating expenses:
Sales and marketing.......................... 32.9 35.0 56.8
Research and development..................... 26.2 26.0 32.7
General and administrative................... 22.3 27.8 23.9
Write-off of purchased research and
development costs........................... -- 44.5 --
-------- -------- --------
Total operating expenses................... 81.4 133.3 113.5
-------- -------- --------
Income (loss) from operations.................. 5.4 (50.7) (32.5)
Interest income and other, net................. 2.9 2.0 2.0
Provision for income taxes..................... (0.4) (0.4) (0.7)
-------- -------- --------
Net income (loss).............................. 7.9% (49.1)% (31.2)%
======== ======== ========
</TABLE>

FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1995

The Company acquired all of the stock of ASC effective as of November 1,
1995 and accounted for the acquisition as a purchase transaction. As a result,
comparisons of the Company's results of operations for the year ended December
31, 1995 and 1996 are not necessarily meaningful. ASC developed the Company's
5PM line of terminal emulators.

Revenue. Total revenue increased by 62% to $11,666,000 in the year ended
December 31, 1996 from $7,184,000 in the year ended December 31, 1995. The
increase resulted primarily from the revenues generated from Enhanced CU-SeeMe
since its introduction in March 1996, and to a lesser extent from the
acquisition of ASC effective as of November 1, 1995. The increase was offset
in part by a moderate decrease in revenue from the Company's eXodus products
for the year ended December 31, 1996.

Revenue from sales outside the United States comprised 30% and 23% of total
revenue for the years ended December 31, 1996 and 1995, respectively. The
increase in revenue from sales outside the United States for the year ended
December 31, 1996 was directly related to the acquisition of ASC, which
generates a majority of its revenue from sales in Europe, and to a lesser
extent to increased sales of Enhanced CU-SeeMe through distributors in the
Asia-Pacific region.

During the years ended December 31, 1996 and 1995, Ingram Micro, Inc.
accounted for approximately 14% and 16%, respectively, of the Company's total
revenue.

Cost of Revenue. Cost of revenue consists principally of costs of product
media, manuals, packaging materials, product localization for international
markets, duplication and shipping, as well as royalties and associated
amortization of paid license fees relating to third-party software included in
the Company's products. In addition, cost of revenue includes a warranty
reserve, measured on a periodic basis, for the costs of upgrades and services.

30
<PAGE>

Cost of revenue as a percentage of total revenue increased to 19% for the
year ended December 31, 1996 as compared to 17% for the year ended December
31, 1995. The percentage increase resulted primarily from the higher cost of
revenue attributable to the new Enhanced CU-SeeMe product line as compared to
the Company's other products. Certain third-party software incorporated within
Enhanced CU-SeeMe bears higher royalty rates than the software incorporated in
the Company's other product lines and also requires payment of upfront fees
that are amortized over the respective periods of the software licenses. The
Company intends to continue its strategy of improving the features and
functionality of its products, particularly Enhanced CU-SeeMe, through the
incorporation of third-party software and, as a result, the cost of revenue as
a percentage of total revenue may continue to fluctuate.

Sales and Marketing. Sales and marketing expense consists primarily of costs
associated with sales and marketing personnel, sales commissions, trade shows,
advertising and promotional materials. Sales and marketing expense increased
by 163% to $6,632,000 in the year ended December 31, 1996 from $2,517,000 in
the year ended December 31, 1995, and increased as a percentage of total
revenue to 57% in the year ended December 31, 1996 from 35% in the year ended
December 31, 1995.

The dollar and percentage increases in sales and marketing expense for the
year ended December 31, 1996 were attributable to (i) the strengthening of the
Company's sales and marketing organization through the hiring of additional
personnel in channel development, marketing communication, technical support
and sales, (ii) the launch of Enhanced CU-SeeMe, which included increased
advertising, trade show participation and other marketing-related programs,
and (iii) to a lesser extent, the additional sales force in Europe employed as
part of the acquisition of ASC, effective as of November 1, 1995. The Company
intends to continue to increase sales and marketing efforts in connection with
its marketing and sales of Enhanced CU-SeeMe and to hire sales and marketing
personnel, but at a slower rate of increase than during the year ended
December 31, 1996.

Research and Development. Research and development expense consists
primarily of costs of personnel and equipment. Research and development
expense increased by 105% to $3,819,000 in the year ended December 31, 1996
from $1,866,000 in the year ended December 31, 1995; research and development
expense represented 33% and 26% of total revenue for the year ended December
31, 1996 and 1995, respectively.

The dollar and percentage increases in research and development expenses for
the year ended December 31, 1996 were attributable primarily to (i) the hiring
of additional personnel for the Enhanced CU-SeeMe product development team and
for the introduction of new products, such as Web-enabled versions of the
Company's access connectivity products, and (ii) to a lesser extent, the
employment of additional engineers as a result of the acquisition of ASC.

General and Administrative. General and administrative expense consists of
administrative, financial and general management activities, including legal,
accounting and other professional fees. General and administrative expense
increased by 40% to $2,794,000 in the year ended December 31, 1996 from
$2,001,000 in the year ended December 31, 1995 and decreased as a percentage
of total revenue to 24% in the year ended December 31, 1996 from 28% in the
year ended December 31, 1995.

The dollar increase in general and administrative expenses for the year
ended December 31, 1996 was attributable primarily to (i) the administrative
support of the Company's new European Headquarters in LaGaude, France as a
result of the acquisition of ASC and (ii) to a lesser extent, increased
personnel and systems costs related to the improved communications
infrastructure for the Company's Internet and intranet access and to the
strengthening of the Company's finance organization in preparation for the
Company's initial public offering.

31
<PAGE>

operations in fiscal 1995 upon consummation of the acquisition, due to a
determination that there was no future value to the Company.

Provision for Income Taxes. The Company's provision for income taxes
consists of federal alternative minimum taxes and state and foreign income
taxes. The Company expects that its effective tax rate for the foreseeable
future will be lower than the combined federal and state statutory rate
primarily as a result of the realization of net operating loss carryforwards.
See Note 5 of Notes to the Company's Consolidated Financial Statements.

FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR (NINE MONTHS)
ENDED DECEMBER 31, 1994

Effective April 1, 1994, the Company changed its fiscal year end from March
31 to December 31. As a result, comparisons of the Company's results of
operations for the fiscal years ended December 31, 1994 and 1995 are not
necessarily meaningful.

Revenue. Total revenue, consisting of revenues from eXodus and 5PM software
connectivity products and related services, increased by 45% to $7,184,000 in
the fiscal year ended December 31, 1995 from $4,965,000 in the fiscal year
ended December 31, 1994. Of this increase, approximately $1,400,000 was due to
the inclusion of an additional three months of operations in the fiscal year
ended December 31, 1995 and approximately $500,000 was due to the inclusion of
two months of operations of ASC in that fiscal year. To a lesser extent, the
increase in total revenue also reflected an increase in revenue from services
and other fees attributable to a contract for one customer; the Company does
not expect to continue to generate revenue from this customer at the same
level in the future, as the contract for services expired pursuant to its
terms.

Revenue from sales outside the United States comprised 23% and 11% of total
revenue for the fiscal years ended December 31, 1995 and 1994, respectively.
During the fiscal years ended December 31, 1995 and 1994, Ingram Micro, Inc.
accounted for approximately 16% and 21%, respectively, of the Company's total
revenue.

Cost of Revenue. Cost of revenue as a percentage of total revenue increased
to 17% for the fiscal year ended December 31, 1995 as compared to 13% for the
fiscal year ended December 31, 1994. This percentage increase resulted
primarily from the amortization of royalties and other fees under the License
Agreement for the Enhanced CU-SeeMe product line incurred after the execution
of the License Agreement in June 1995, but prior to the commercial
introduction of Enhanced CU-SeeMe.

Sales and Marketing. Sales and marketing expense increased by 54% to
$2,517,000 in the fiscal year ended December 31, 1995 as compared to
$1,637,000 in fiscal year ended December 31, 1994 and increased as a
percentage of total revenue to 35% from 33%. The percentage increase primarily
reflected increased trade show participation. The percentage increase also
resulted from the inclusion of European sales and marketing expense after the
acquisition of ASC, and to a lesser extent from the addition of sales and
marketing personnel, including staffing for channel development, technical
publications, technical support, marketing communication and sales, in
anticipation of the introduction of Enhanced CU-SeeMe.

Research and Development. Research and development expense increased by 43%
to $1,866,000 in the fiscal year ended December 31, 1995 as compared to
$1,301,000 for the fiscal year ended December 31, 1994 and represented 26% of
total revenue in both periods. The dollar increase was primarily attributable
to additions to the product development team for Enhanced CU-SeeMe.

General and Administrative. General and administrative expense increased by
81% to $2,001,000 in the fiscal year ended December 31, 1995 as compared to
$1,106,000 in the fiscal year ended December 31, 1994 and increased as a
percentage of total revenue to 28% from 22%. The dollar and percentage
increases were attributable approximately equally to the administrative
support of the Company's new office in LaGaude, France as a result of the
acquisition of ASC, increased personnel and other costs related to the
communications infrastructure for the Company's Internet and intranet access,
and higher professional fees.

32
<PAGE>

Write-off of Purchased Research and Development Costs. The Company acquired
ASC effective as of November 1, 1995 and accounted for the acquisition as a
purchase transaction. The assets acquired from ASC included "in-process
technology" with a fair value of approximately $3,200,000. These costs were
charged to operations in fiscal 1995 upon consummation of the acquisition, due
to a determination that there was no future value to the Company.

Provision for Income Taxes. The Company's provision for income taxes in the
fiscal years ended December 31, 1995 and 1994 consisted of federal alternative
minimum taxes and state and foreign income taxes. The Company expects that its
effective tax rate for the foreseeable future will be lower than the combined
federal and state statutory rate primarily as a result of the realization of
net operating loss carryforwards. See Note 5 of Notes to the Company's
Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

During the year ended December 31, 1996, the Company financed its operations
primarily through the use of cash and other liquid assets, a private placement
of equity securities in March and April 1996 and its initial public offering
of common stock in October 1996.

The Company's operating activities used cash of $3,069,000 in the year ended
December 31, 1996, primarily as a result of increased sales and marketing and
research and development activities related to the release, support and
promotion of Enhanced CU-SeeMe in March 1996. Accounts receivable increased to
$2,553,000 from $1,439,000 on December 31, 1995, primarily related to the
increase in revenue in the year ended December 31, 1996 as compared to the
year ended December 31, 1995.

The Company's investing activities used cash of $1,121,000 in the year ended
December 31, 1996. Cash used in investing activities was primarily for the
purchase of capital expenditures, and for third-party software licenses.
Capital expenditures totaled $703,000 for the year ended December 31, 1996.
These expenditures consisted principally of purchases of computer and
networking systems and office equipment.

The Company's financing activities provided cash of $25,689,000 in the year
ended December 31, 1996. The Company received gross proceeds of $2,300,000
from a private placement of equity securities in March and April 1996. On
October 17, 1996, the Company completed its initial public offering of common
stock. The Company issued and sold 3,000,000 shares of common stock in the
public offering for net proceeds of approximately $23,743,000, after deducting
the underwriting discount and an estimated $1,350,000 of offering expenses.

On December 20, 1996, the Company entered into a new commercial loan
agreement with Fleet Bank-NH (the "Bank") providing for a $3,000,000 revolving
line of credit and a separate term loan in the initial principal amount of
$53,000. The revolving line of credit expires on June 30, 1998. Borrowings
under the line of credit and the term loan are secured by substantially all of
the Company's assets, including a $515,000 certificate of deposit and all of
the Company's computer software products (including all source code, object
code, copyrights, trademarks and patents, if any, relating thereto). Amounts
outstanding under the line of credit and the term loan bear interest at the
Bank's prime rate plus 0.5% (8.75% at December 31, 1996).

The commercial loan agreement requires that the Company provide the Bank
with certain periodic financial reports and comply with certain financial and
other ratios, including maintenance of a minimum net worth, a maximum ratio of
total liabilities to tangible net worth, a minimum ratio of current assets to
current liabilities and cumulative profitability levels for the years 1997 and
1998. At December 31, 1996 and December 31, 1995, no borrowings were
outstanding under the revolving line of credit and $38,867 and $49,000 were
outstanding under the term loan, respectively. At December 31, 1996 the
available borrowing amount was $1,939,000 based on qualified accounts
receivables.

At December 31, 1996, the Company had cash and cash equivalents of
$23,298,000 and working capital of $22,570,000. The Company believes that its
current cash and cash equivalents (including proceeds from its initial

33
<PAGE>

public offering), funds (if any) generated from operations and borrowings
under its bank line of credit, will be sufficient to fund the Company's
operations and capital expenditures through fiscal 1997. Thereafter, the
Company's liquidity will be materially dependent upon its internally generated
funds and its ability to obtain funds from additional equity or debt
financings from external sources.

INFLATION

Although certain of the Company's expenses increase with general inflation
in the economy, inflation has not had a material impact on the Company's
financial condition or results of operations to date.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." SFAS No. 121 addresses the accounting for the impairment
of long-lived assets, certain identifiable intangible assets and goodwill when
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The Company's adoption of SFAS No. 121 in 1996
has not had, and is not expected to have, a material impact on its results of
operations or financial condition.

In November 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 addresses the
financial accounting and reporting standards for stock-based employee
compensation plans. SFAS No. 123 permits an entity either to record the
effects of stock-based employee compensation plans in its financial statements
or to present pro forma disclosures in the notes to its financial statements.
In connection with its adoption of SFAS No. 123 during 1996, the Company has
elected to provide the appropriate disclosures in Note 9 of its consolidated
financial statements.

ITEM 7. FINANCIAL STATEMENTS

The following statements are included after page 46 of this Annual Report
and form a part hereof.

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................ F-1
Consolidated Balance Sheets as of December 31, 1995 and 1996.............. F-2
Consolidated Statements of Operations for the nine months ended December
31, 1994 and the years ended December 31, 1995 and 1996.................. F-3
Consolidated Statements of Stockholders' Equity for the nine months ended
December 31, 1994 and the years ended December 31, 1995 and 1996......... F-4
Consolidated Statements of Cash Flows for the nine months ended December
31, 1994 and the years ended December 31, 1995 and 1996.................. F-5
Notes to Consolidated Financial Statements................................ F-6
</TABLE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There were no changes or disagreements with accountants on accounting or
financial disclosure matters during the nine months ended December 31, 1994,
and the fiscal years ended December 31, 1995 and 1996.

34
<PAGE>

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

DIRECTORS AND EXECUTIVE OFFICERS

The Directors and executive officers of the Company, and their ages and
positions as of February 28, 1997, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Howard R. Berke......... Chairman, President, Chief Executive Officer and
42 Director
Richard M. Darer........ 43 Chief Financial Officer and Vice President of
Administration(1)
Killko A. Caballero..... 37 Senior Vice President of Research and
Development, Chief Technology Officer and
Director
David O. Bundy.......... 38 Vice President of Engineering
Jack A. Dutzy........... 52 Vice President of Sales, Americas
Carl A. Koppel.......... 46 Vice President of Sales, International
Brian L. Lichorowic..... 35 Vice President of Marketing
Arthur H. Bruno(2)(3)... 62 Director
Jonathan G. Morgan(2)... 42 Director
Pierre-Gabriel 35
Vallee(3).............. Director
</TABLE>
- --------
(1) Mr. Darer resigned effective March 21, 1997
(2) Member of the Compensation Committee
(3) Member of the Audit Committee

HOWARD R. BERKE has been the President and Chief Executive Officer of the
Company since January 1994 and has also served as the Chairman and a director
of the Company since February 1994. Mr. Berke served as the President and
Chief Executive Officer of Grafpoint, a software company, from April 1992 to
December 1993. Mr. Berke was a founder of Rehabilitation Technologies, Inc., a
medical products company, and served as its Executive Vice President from June
1988 to April 1992. Mr. Berke received an M.B.A. from the University of
Chicago and a B.A. from Yale University.

RICHARD M. DARER joined the Company in May 1996 as Chief Financial Officer
and Vice President of Administration and resigned effective March 21, 1997.
Mr. Darer served as Vice President, Treasurer and Controller of Sequoia
Systems, Inc., a computer systems company, from January 1996 to May 1996, and
Corporate Controller from July 1994 to December 1995. From 1982 to 1994, Mr.
Darer held several positions in financial management at Computervision
Corporation, a CAD/CAM software and services company, the most recent of which
was the Controller of the Computervision Group. Mr. Darer received an M.B.A.
from the Harvard Graduate School of Business Administration, an M.S. from
Northeastern University and a B.S. from the Polytechnic Institute of Brooklyn.

KILLKO A. CABALLERO has been a director of the Company and has served as the
Company's Senior Vice President of Research and Development and Chief
Technology Officer since November 1995. Mr. Caballero was a co-founder of ASC
and served as its President, Chief Executive Officer and Chairman of the Board
from July 1991 until he joined the Company. Mr. Caballero received a B.A. in
computer science from the University of Geneva and a degree in mechanical
engineering from the Engineering School of Geneva, Switzerland.

DAVID O. BUNDY has served as the Company's Vice President of Engineering
since January 1994. Mr. Bundy was the Vice President and Principal Engineer of
the Company (then known as Visual International, Inc.) from August 1993 to
December 1993, of Visual T.I., Inc. from September 1991 until it merged into
Visual International, Inc. in August 1993, and of Visual Technology, Inc. from
September 1988 until it merged with Visual T.I., Inc. in September 1991.

35
<PAGE>

JACK A. DUTZY joined the Company in October 1995 as Vice President of
Marketing and Strategic Sales and was elected Vice President of Sales,
Americas in July 1996. Mr. Dutzy served as Director of Sales--Americas of
Proteon, Inc., a networking company, from January 1987 to July 1992 and as its
Director of Sales and Marketing--Americas from April 1994 to April 1995. From
July 1992 to December 1992, Mr. Dutzy served as Vice President of Sales and
Marketing of Microtouch Systems, Inc., a touch screen company. Mr. Dutzy
received a B.S. in Physics from Michigan State University.

CARL A. KOPPEL has served as the Company's Vice President of Sales,
International since July 1996. Mr. Koppel served as the Company's Vice
President of Sales from November 1995 to July 1996 and as Director of
International Sales from April 1994 to October 1995. Mr. Koppel served as Vice
President of International Sales and Marketing for Grafpoint from September
1992 until he joined the Company. Mr. Koppel served as President of U.S.
operations of JSB Corporation, a computer software company headquartered in
the United Kingdom, from July 1991 to September 1992. Mr. Koppel received a
B.Sc. in Electrical Engineering from the Strathclyde University in Scotland.

BRIAN L. LICHOROWIC joined the Company in August 1996 as Vice President of
Marketing. From January 1996 to August 1996, Mr. Lichorowic served as
Executive Director Strategic Alliance for CyberCash Inc., a company
specializing in secure Internet transactions. Mr. Lichorowic was a co-founder
of InterCon Systems Corporation, a wholly owned subsidiary of PSINet Inc. that
specializes in software and Internet services, and served as its Vice
President of Marketing from January 1991 to December 1995. Mr. Lichorowic
received a B.A. in Business Administration from Boston University and an
M.B.A. from Lynn University.

ARTHUR H. BRUNO has served as a director of the Company since February 1994.
Mr. Bruno is the Chairman, President and Chief Executive Officer of Castelle,
a networking and telecommunications company, positions that he has held since
October 1993. Since July 1991, Mr. Bruno has served as a Vice President of and
consultant to Hambrecht & Quist LLC, a venture capital company. From 1991 to
1993, Mr. Bruno served as the Company's Chairman and Chief Executive Officer.

JONATHAN G. MORGAN has served as a director of the Company since May 1996.
Since June 1993, Mr. Morgan has been Managing Director/Group Head of
Investment Banking-Technology of Prudential Securities Incorporated, an
investment banking firm. From June 1992 to June 1993, Mr. Morgan was Managing
Director/Group Head of Corporate Finance of the San Francisco office of Sutro
& Co., Inc., an investment banking firm. From January 1992 to June 1992, he
acted as an independent financial consultant and from May 1985 to January 1992
he served as the Managing Director/Head of Mergers and Acquisitions of
Montgomery Securities, an investment banking firm.

PIERRE-GABRIEL VALLEE has served as a director of the Company since May
1994. Since December 1994, Mr. Vallee has been acting as Managing Director of
Innolion SA, a subsidiary of the French bank Credit Lyonnais. From 1991 to
1993, Mr. Vallee was Chairman of Opindus/Speic, a group of companies in the
mechanical engineering field. Mr. Vallee holds degrees from L'Ecole Nationale
Superieure des Arts et Metiers, L'Institute d'Etudes Politiques Paris and
L'Institut de Haute Finance.

Directors of the Company are elected to serve until the next annual meeting
of stockholders (or special meeting in lieu thereof) and until their
successors are duly elected and qualified. Executive officers of the Company
are appointed by and serve at the discretion of the Board of Directors.

The Board of Directors has a Compensation Committee, which provides
recommendations concerning salaries and incentive compensation for directors,
officers and employees of and consultants to the Company, and an Audit
Committee, which reviews the results and scope of the audit and other services
provided by the Company's independent auditors.

The Company does not pay fees to members of the Board of Directors and
presently has no plans to pay directors' fees. On July 18, 1996, the Company
granted Mr. Morgan a nonqualified option to purchase 5,000 shares of Common
Stock at an exercise price of $6.00 per share.

36
<PAGE>

SECTION 16(A) REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and Directors, and persons who own more than ten percent of the
Company's Common Stock, to file with the Securities and Exchange Commission
reports of ownership on Form 3 and reports of changes in ownership on Forms 4
and 5. Such officers, Directors and ten-percent stockholders are also required
to furnish the Company with copies of all Section 16(a) reports they file.
Based solely on its review of the copies of such forms received by the Company
and on written representations from certain reporting persons that no Form 5s
were required by the Company for such persons, the Company believes that all
Section 16(a) reports applicable to its officers, Directors and ten-percent
stockholders with respect to the fiscal year ended December 31, 1996 were
filed on a timely basis, with the exception of Form 4s for David O. Bundy,
Jack A. Dutzy and Carl A. Koppel reporting purchases of Common Stock on
October 17, 1996, all of which Form 4s were filed in January 1997.

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth certain information concerning the
compensation earned by the Company's Chief Executive Officer and the other
three executive officers whose compensation for services rendered in all
capacities to the Company was in excess of $100,000 for the fiscal years ended
December 31, 1996 (collectively, the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------- ------------
AWARDS
------------
SECURITIES
UNDERLYING ALL OTHER
OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) SARS(#)(1) ($)
--------------------------- ---- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Howard R. Berke....... 1996 $165,600 -- (2) -- --
Chief Executive
Officer and President 1995 $148,433 $50,000 -- --
1994(3) $ 91,750 $37,000 209,067(4) $79,812(5)
Killko A. Caballero... 1996 $ 90,420 $10,000 -- --
Senior Vice President
of Research and 1995 $ 15,070 -- -- --
Development and Chief
Technology Officer 1994(3) -- -- -- --
David O. Bundy........ 1996 $110,000 $15,000 10,000(6) --
Vice President of
Engineering 1995 $ 89,661 $20,000 -- --
1994(3) $ 76,750 $ 3,500 15,000(7) --
Jack A. Dutzy......... 1996 $103,000(8) $13,557 25,000(9) --
Vice President of
Sales, Americas 1995 $ 22,917 $ 2,500 -- --
1994(3) -- -- -- --
</TABLE>
- --------
(1) All of the options have a maximum term of 10 years, subject to earlier
termination in the event of the optionee's cessation of service with the
Company. The options are exercisable during the optionee's lifetime only
by the optionee; they are exercisable by the optionee only while the
optionee is an employee or advisor of the Company and for certain limited
periods of time thereafter in the event of termination of employment.
(2) Mr. Berke's bonus for 1996 consisted of options which were granted on
January 10, 1997 and, upon vesting, will be exercisable to acquire an
aggregate of 150,000 shares of Common Stock at a price of $6.00 per share.
(3) Fiscal year 1994 consisted of the nine months ended December 31, 1994
(4) Options were granted on February 22, 1994 under the Stock Option Plan
(1993). One thirty-sixth of the options vest on a monthly basis commencing
on February 22, 1994.
(5) Represents relocation expenses.
(6) Options were granted on February 29, 1996 and May 6, 1996 under the Stock
Option Plan (1995) and the Stock Option Plan (1993), respectively. One
thirty-sixth of the options granted vest on a monthly basis commencing on
the respective dates of grant.
(7) Options were granted on June 2, 1994 under the Stock Option Plan (1994).
One thirty-sixth of the options vest on a monthly basis commencing on June
2, 1994.
(8) Includes $14,252 earned as commissions.
(9) Options were granted on February 29, 1996. Five thirty-sixths of the
options vested on March 1, 1996, and one thirty-sixth of the options vest
on a monthly basis thereafter.

37
<PAGE>

OPTION GRANTS AND EXERCISE

The following table summarizes (i) option grants to the Named Executive
Officers during the year ended December 31, 1996 and (ii) the value of the
options held by the Named Executive Officers at December 31, 1996. No options
were granted to Mr. Berke or Mr. Caballero during the year ended December 31,
1996.

OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATES
SECURITIES TOTAL OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN BASE PRICE PER EXPIRATION ----------------------------
NAME GRANTED (#) FISCAL YEAR SHARE(#/SH) DATE 5% 10%
---- ----------- ------------- -------------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
David O. Bundy.......... 5,000(2) 1.8% $2.50 2/29/06 $ 7,861 $ 19,922
5,000(3) 1.8% $5.00 5/6/01 $ 15,722 $ 39,844
Jack A. Dutzy........... 25,000(4) 8.7% $2.50 2/29/06 $ 39,306 $ 99,609
</TABLE>
- --------
(1) The amounts shown represent hypothetical gains that could be achieved for
the respective options if exercised at the end of their option terms.
These gains are based on assumed rates of stock appreciation of five
percent and ten percent, compounded annually from the date the respective
options were granted to the date of their expiration. The gains shown are
net of the option price, but do not include deductions for taxes or other
expenses that may be associated with the exercise. Actual gains, if any,
on stock option exercises will depend on future performance of the Common
Stock, the optionholders' continued employment through the option term and
the date on which the options are exercised.
(2) Options were granted on February 29, 1996 under the Stock Option Plan
(1995). One thirty-sixth of the options granted vest on a monthly basis
commencing on February 29, 1996.
(3) Options were granted on May 6, 1996 under the Stock Option Plan (1993).
One thirty-sixth of the options granted vest on a monthly basis commencing
on May 6, 1996.
(4) Options were granted on February 29, 1996. Five thirty-sixths of the
options vested on March 1, 1996, and one thirty-sixth of the options vest
on a monthly basis thereafter.

The following table sets forth information with respect to the exercise of
stock options by the Named Executive Officers during the year ended December
31, 1996 and unexercised options held by the Named Executive Officers on
December 31, 1996.

AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED VALUE AT FISCAL YEAR END(#) FISCAL YEAR END($)(1)
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Howard R. Berke......... 20,000 $100,000 183,260/ 5,807 $1,270,375/$36,294
Killko A. Caballero..... -- -- -- / -- -- / --
David O. Bundy.......... -- -- 35,556/ 9,444 $ 225,489/$38,261
Jack A. Dutzy........... -- -- 7,079/17,921 $ 33,625/$85,125
</TABLE>
- --------
(1) The closing sale price for the Company's Common Stock as reported on the
Nasdaq National Market on December 31, 1996 was $7.25. Value is calculated
on the basis of the difference between the option exercise price and
$7.25, multiplied by the number of shares of Common Stock underlying the
options.

38
<PAGE>

EMPLOYMENT AGREEMENTS

On January 3, 1994, the Company entered into an agreement with Howard R.
Berke, whereby Mr. Berke agreed to serve as the President and Chief Executive
Officer of the Company. The initial term of the agreement ended on January 3,
1996, but the agreement automatically renews for successive two-year periods
unless it is terminated by either party with at least 30 days' prior written
notice. Pursuant to the agreement, Mr. Berke received an initial base salary
of $165,000, which is reviewed annually and was increased to $175,000 as of
January 1, 1997. Mr. Berke is entitled to receive an incentive bonus of up to
50% of his base compensation, based upon goals established by the Board of
Directors and other performance measures determined in the discretion of the
Board of Directors. Pursuant to the agreement, Mr. Berke was granted a stock
option to purchase 209,067 shares of Common Stock at an exercise price of
$1.00 per share. If Mr. Berke's employment is terminated without cause, Mr.
Berke will be entitled to a pro rata portion of (i) his incentive bonus earned
through the termination date and (ii) his salary for six months or until he
becomes employed elsewhere, whichever occurs first; if his new salary is lower
than his base salary at the Company, however, the Company will pay the
difference for the balance of this six-month period. If his employment is
terminated with cause, he is entitled to receive 15 days' salary. Pursuant to
an amendment to the agreement, the Company reimbursed Mr. Berke for $79,812 in
moving and temporary accommodation expenses in December 1994. Mr. Berke is
entitled to participate in all employee benefits, including health, vision,
dental and retirement plans, that the Company provides to its employees
generally. The agreement provides that Mr. Berke will not directly or
indirectly compete with the Company or solicit its employees, customers or
prospective customers on behalf of himself or any entity that engages in any
business involving the sale, distribution, development or research concerning
computer software in breach of the agreement during the term of the agreement
and for a period of one year following the date of the termination of his
employment.

The Company entered into a Nondisclosure and Noncompetition Agreement with
David O. Bundy dated February 15, 1996. Pursuant to the agreement, Mr. Bundy
agreed that while employed by the Company and for a period of 18 months
following the termination of his employment with the Company for any reason,
he will not, directly or indirectly, compete with the Company or solicit any
of the Company's employees, contractors, suppliers, existing customers or
prospective customers on behalf of himself or any other entity that engages in
the sale, distribution or development of or research concerning computer
software and technology in breach of the agreement. Either party may terminate
the agreement by giving the other party 30 days' prior written notice. If Mr.
Bundy's employment is terminated without cause during the term of the
agreement, he will be entitled to his base salary for six months or until he
becomes employed elsewhere, whichever occurs first; provided, however, that if
his new salary is lower than his base salary at the Company, the Company will
pay the difference for the balance of this six-month period. Pursuant to the
agreement, Mr. Bundy was granted a stock option to purchase 5,000 shares of
Common Stock at an exercise price of $2.50 per share.

On October 10, 1995, the Company entered into a two-year employment
agreement with Killko A. Caballero, whereby Mr. Caballero agreed to serve as
Senior Vice President of Product Development and Chief Technical Officer of
the Company. Pursuant to the agreement, Mr. Caballero receives a base salary
of $100,000, which is reviewed annually, and is eligible to receive an annual
fiscal year incentive bonus with a maximum annual amount of $20,000. During
the first year of the agreement, Mr. Caballero was guaranteed to receive one-
half of the incentive bonus. He is entitled to participate in all employee
benefits, including health, vision, dental and retirement plans, that the
Company provides to its employees generally. If Mr. Caballero's employment is
terminated without cause during the first two years of the term of the
agreement, Mr. Caballero will be entitled to (i) a pro rata portion of his
incentive bonus earned through the termination date and (ii) his salary for
six months or until he becomes employed elsewhere, whichever occurs first;
provided, however, that if his new salary is lower than his base salary at the
Company, the Company will pay the difference for the balance of this six-month
period. During the second year of the agreement, if Mr. Caballero's employment
is terminated without cause and (i) he is entitled to some payment of base
salary and incentive bonus and (ii) he is unable to secure employment in the
United States within ninety days and this results in his deportation, the
Company shall pay him $10,000 in relocation fees. The agreement provides that
Mr. Caballero will not directly or indirectly compete with the Company or
solicit its employees, customers or prospective customers on behalf of himself
or any entity that engages in any business involving the sale, distribution,
development or research concerning computer software in breach of the
agreement during the term of the agreement and for a period of one year
following the date of his termination.

39
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of February 28, 1997, by (i) each
person (or group of affiliated persons) known by the Company to own
beneficially more than five percent of the outstanding shares of Common Stock,
(ii) each of the Directors of the Company, (iii) each of the Named Executive
Officers and (iv) all Directors and executive officers of the Company as a
group:

<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS(1) OWNED OWNED
- ------------------- ------------ ------------
<S> <C> <C>
Arthur H. Bruno(3).................................. 1,540,358 17.0%
Hambrecht & Quist Group(4).......................... 1,405,234 15.5%
One Bush Street
San Francisco, California 94104
Sofinnova Entities(5)............................... 766,286 8.4%
51 Rue Saint Georges
Paris, France 75009
Charles Lingel...................................... 595,840 6.6%
c/o Infoconix Inc.
704 228th Avenue, N.E.
Suite 414
Redmond, Washington 98053
Killko A. Caballero................................. 403,325 4.4%
Howard R. Berke(6).................................. 209,067 2.3%
David O. Bundy(6)................................... 39,900 *
Jack A. Dutzy(6).................................... 14,230 *
Jonathan G. Morgan(6)............................... 1,251 *
Pierre-Gabriel Vallee............................... -- --
All Directors and executive officers as a group (10
persons)(6)........................................ 2,257,428 24.8%
</TABLE>
- --------
* Represents less than 1% of the outstanding shares of Common Stock.
(1) The address of all persons who are executive officers or Directors of the
Company is in care of the Company, 542 Amherst Street, Nashua, New
Hampshire 03063.
(2) Unless otherwise noted, each person or group identified possesses sole
voting and investment power with respect to such shares, subject to
community property laws, where applicable. Shares not outstanding but
deemed beneficially owned by virtue of the right of a person or group to
acquire them within 60 days of February 28, 1997 are treated as
outstanding only for purposes of determining the amount and percentages
beneficially owned by such person or group.
(3) Includes 1,405,234 shares held by the Hambrecht & Quist Group as described
in Note 4 and 85,000 shares subject to stock options exercisable within 60
days of February 28, 1997. Mr. Bruno is a Vice President of and a
consultant to Hambrecht & Quist LLC. Mr. Bruno disclaims beneficial
ownership of the shares held by the Hambrecht & Quist Group.
(4) Consists of 623,167 shares held by H&Q London Ventures, 7,271 shares held
by Hambrecht & Quist Group, 206,917 shares held by H & Q Ventures IV,
206,917 shares held by H&Q Ventures International CV, 444 shares held by
H&Q Venture Partners, 285,768 shares held by William R. Hambrecht,16
shares held by Hamquist and 74,734 shares held by Phoenix Venture (BVI),
Ltd.

40
<PAGE>

(5) Consists of approximately 221,767 shares held by Sofinnova S.A., 337,499
shares held by Sofinnova Capital FCPR and 207,020 shares held by C.V.
Sofinnova Ventures Partners II. Sofinnova S.A., a management and direct
investment company, manages the funds of Sofinnova Capital FCPR, and its
wholly-owned subsidiary manages the funds of C.V. Sofinnova Venture
Partners II.
(6) Includes shares subject to stock options exercisable within 60 days of
February 28, 1997.

ITEM 12. CERTAIN TRANSACTIONS

FINANCING AND STOCKHOLDER AGREEMENTS

In December 1995, in connection with the Company's purchase of all of the
outstanding shares of ASC, the Company agreed to issue 403,325 shares of its
Common Stock to Killko A. Caballero, a Director and the Senior Vice President
of Research and Development and Chief Technology Officer of the Company, in
exchange for 7,904 shares of ASC. In the same transaction, the Company agreed
to issue an aggregate of 766,286 shares of Common Stock to Sofinnova S.A.,
Sofinnova Capital FCPR, and CV Sofinnova Ventures Partners II (together, the
"Sofinnova Entities"), which own beneficially more than 5% of the outstanding
shares of Common Stock of the Company, in exchange for an aggregate of 15,017
shares of ASC.

In March 1996, all of the Company's stockholders who then owned beneficially
more than five percent of the outstanding shares of Common Stock, Arthur H.
Bruno, a Director of the Company, and all of the current executive officers of
the Company other than Richard M. Darer entered into an agreement with the
Company and certain other stockholders of the Company (the "Shareholders'
Agreement") pursuant to which the parties to the agreement were granted a right
of participation in and a right of first refusal with respect to certain sales
of shares by certain management stockholders. The parties to the Shareholders'
Agreement were also granted a preemptive right to purchase all or part of their
pro rata shares of New Securities (as defined in the Shareholders' Agreement)
issued by the Company. The Shareholders' Agreement was amended in July 1996
such that it terminated immediately prior to the consummation of the Company's
initial public offering on October 17, 1996.

Pursuant to the Shareholders' Agreement, the parties to the Shareholders'
Agreement entered into a Designation and Election of Directors agreement
whereby the parties agreed to vote all the shares of the Company's stock held
by them so as to fix the number of the Directors of the Company at five and to
elect to the Board of Directors of the Company individuals designated by
specified stockholders and affiliates of the Company. The Directors initially
designated pursuant to this agreement were Arthur H. Bruno, Howard R. Berke,
Pierre-Gabriel Vallee and Killko A. Caballero. A representative of the
Sofinnova Entities served as the fifth director until Jonathan G. Morgan, an
outside director, was elected in May 1996. In addition, the Sofinnova Entities
were granted the right to have a representative attend all meetings of the
Company's Board of Directors in a non-voting capacity as long as they hold at
least 50% of the shares owned by them as of December 15, 1995. This agreement
terminated upon termination of the Shareholders' Agreement, immediately prior
to the consummation of the Company's initial public offering on October 17,
1996.

EMPLOYMENT AGREEMENTS

For a description of certain employment and other arrangements between the
Company and its executive officers, see "Management--Executive Compensation"
and "--Employment Agreements."

REGISTRATION RIGHTS

In connection with prior issuances of shares of the Company's Common Stock,
$.01 par value per share, and Comon Stock, $5.83 par value per share ("$5.83
Stock"), the Company granted certain rights with respect to the registration
under the Securities Act of 1933, as amended (the "Securities Act"), of the
shares of outstanding Common Stock and the shares of Common Stock issuable upon
the conversion or exercise of any other securities owned by certain
stockholders of the Company. Based on securities outstanding as of February 28,
1997, it is estimated that such stockholders hold an aggregate of 5,844,974
shares of Common Stock, including 394,511 shares of Common Stock (the
"Registrable Converted Shares") issuable upon conversion of outstanding shares
of $5.83 Stock, and options to purchase an aggregate of 294,044 shares of
Common Stock (collectively, the "Registrable Shares").

41
<PAGE>

The holders of more than 50% of the then-outstanding Registrable Converted
Shares are entitled, at any time, to request that the Company file a
registration statement under the Securities Act covering the sale of some or
all of the Registrable Converted Shares then held by such holders, provided
that (i) the Company is not required to effect more than one such demand
registration, (ii) the effective date of such registration statement shall not
occur prior to April 10, 1997 and (iii) the aggregate market value of the
Registrable Converted Shares registered pursuant to such request shall not
exceed $2,300,000. The holders of more than 50% of the then-outstanding
Registrable Shares are entitled, at any time after April 9, 1997, to request
that the Company file a registration statement under the Securities Act
covering the sale of some or all of the Registrable Shares then held by such
holders, provided that the Company is not required to effect more than one such
demand registration. Within 75 days of receipt of any such request, the Company
must file a Registration Statement with respect to such Registrable Converted
Shares or Registrable Shares, as the case may be, and must use its best efforts
to cause the offering of such shares to be registered under the Securities Act.
The underwriters (if any) of any offering of such shares have the right,
subject to certain conditions, to limit the number of Registrable Shares
included in the registration. Moreover, the Company must use its best efforts
to qualify for registration on Form S-3 (or any comparable or successor form).
Once the Company has qualified to use Form S-3 to register securities under the
Securities Act, the holders of Registrable Converted Shares shall have the
right to request an unlimited number of registrations on Form S-3, provided
that the Company is not required to register Registrable Shares having an
aggregate market value less than $1,000,000. The Company is not required to
register any Registrable Shares if in the opinion of its counsel such shares
may be sold without registration under the Securities Act in the manner and in
the quantity in which such shares were proposed to be sold.

Each holder of Registrable Shares has agreed that, upon the request of the
Company and the managing underwriter of an offering by the Company of Common
Stock or other securities of the Company pursuant to a registration statement,
such holder shall agree not to sell publicly or otherwise transfer or dispose
of any Registrable Shares or other securities of the Company for up to 180 days
following the effective date of such registration statement, provided that all
holders of Registrable Shares holding not less than the number of shares of
Common Stock held by such holder (including shares of Common Stock issuable
upon exercise or conversion of other securities) and all officers and directors
of the Company shall enter into similar agreements.

In general, all fees, costs and expenses of such registrations (other than
underwriting discounts, selling commissions and certain fees and expenses of
counsel to the selling stockholders) will be borne by the Company. The Company
and the holders of Registrable Shares have agreed to indemnify each other from
certain liabilities relating to any registration in which any Registrable
Shares are included, including liabilities arising under the Securities Act.
The Company has also undertaken that, upon the request of the underwriter of
any offering of Registrable Shares, the Company shall agree to customary
contribution provisions on the part of the Company.

42
<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Amended and Restated Certificate of Incorporation of the Company
3.2* Proposed form of Amended and Restated Certificate of Incorporation
of the Company to become effective immediately following the
offering
3.3* By-Laws of the Company, as amended
3.4* Proposed form of Amended and Restated By-Laws of the Company to
become effective upon the closing of the offering
4.1* Specimen certificate for common stock, $.01 par value, of the
Company
5.1* Opinion of Foley, Hoag & Eliot LLP
10.1 Standard Office Lease-Gross (American Industrial Real Estate
Association) dated October 24, 1996 by and between PBP Limited
Partnership, as lessor and the Company, as lessee.
10.2* White Pine Software, Inc. Stock Option Plan (1993), as amended
10.3* White Pine Software, Inc. Stock Option Plan (1994)
10.4* White Pine Software, Inc. Stock Option Plan (1995), as amended
10.5* White Pine Software, Inc. Stock Option Plan (1996)
10.6* White Pine Software, Inc. 1996 Incentive and Nonqualified Stock
Option Plan
10.7* White Pine Software, Inc. 1996 Employee Stock Purchase Plan
10.8* Employment Agreement dated January 3, 1994 with Howard R. Berke,
as amended
10.9* Employment Agreement dated October 10, 1995 with Killko A.
Caballero
10.10* Nondisclosure and Noncompetition Agreement dated February 15, 1996
with David O. Bundy
10.11+ Exclusive Software License Agreement dated June 1, 1996 between
Cornell Research Foundation, Inc. and the Company
10.12* Common Stock Purchase Warrant of the Company dated July 31, 1996,
issued to Cornell Research Foundation, Inc.
10.13* Commercial Loan Agreement dated December 30, 1994 between Fleet
Bank--NH and the Company, as amended
10.16* Collateral Assignment and Security Agreement dated December 30,
1994 between Fleet Bank--NH and the Company, as amended
10.17* $53,000 Commercial Promissory Note of the Company dated August 25,
1995, issued to Fleet Bank--NH
10.20 $3,000,000 Revolving Line of Credit Promissory Note
10.21* Stock Purchase Agreement dated March 19, 1996 among certain
investors and the Company, as amended
10.22* Stock Purchase Agreement dated April 17, 1996 between J.F. Shea,
Co., Inc. and the Company, as amended
10.23* Amended and Restated Registration Rights Agreement dated March 19,
1996 among certain stockholders of the Company and the Company, as
amended
</TABLE>

43
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.24* Acquisition Agreement dated October 10, 1995 among former
stockholders of About Software Corporation S.A. and the Company
10.25* Indenture of Lease dated May 15, 1996 by Nash-Tamposi Limited
Partnership, Five N Associates, Ballinger Properties, L.L.C. and
the Company
11.1 Statement re computation of per share earnings
21.1* List of subsidiaries of the Company
23.1 Consent of Ernst & Young LLP
27.1 Financial Data Schedule for fiscal year ended December 31, 1996
</TABLE>
- --------
+ Incorporated by reference to the Company's Registration Statement on Form SB-
2 (File No. 333-09525) in the form in which it was declared effective by the
Securities and Exchange Commission. Subject to application for confidential
treatment.
* Incorporated by reference to the Company's Registration Statement on Form SB-
2 (File No. 333-09525) in the form in which it was declared effective by the
Securities and Exchange Commission.

(b) Reports on Form 8-K

None.

44
<PAGE>

SIGNATURES

IN ACCORDANCE WITH SECTION 13 OR 15(D) OF THE EXCHANGE ACT, THE REGISTRANT
CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, AS OF MARCH 21, 1997.

WHITE PINE SOFTWARE, INC.

/s/ Howard R. Berke
By: _________________________________
HOWARD R. BERKE PRESIDENT AND
CHIEF EXECUTIVE OFFICER

Each person whose signature appears below hereby appoints Howard R. Berke and
Christine J. Cox and each of them severally, acting alone and without the
other, his (or her) true and lawful attorney-in-fact with the authority to
execute in the name of each such person, and to file with the Securities and
Exchange Commission, together with any exhibits thereto and other documents
therewith, any and all amendments to this Annual Report on Form 10-KSB
necessary or advisable to enable the Registrant to comply with the rules,
regulations, and requirements of the Securities Act of 1934, as amended, in
respect thereof, which amendments may make such other changes in the Annual
Report as the aforesaid attorney-in-fact executing the same deems appropriate.

IN ACCORDANCE WITH THE EXCHANGE ACT, THIS REPORT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED;
AS OF MARCH 21, 1997.

SIGNATURE TITLE DATE

/s/ Howard R. Berke President, Chief March 21, 1997
- ------------------------------------- Executive Officer
HOWARD R. BERKE and Director
(Principal
Executive Officer)

/s/ Richard M. Darer Chief Financial March 21, 1997
- ------------------------------------- Officer and Vice
RICHARD M. DARER President of
Administration
(Principal
Financial and
Accounting Officer)

/s/ Killko A. Caballero Director March 21, 1997
- -------------------------------------
KILLKO A. CABALLERO

/s/ Arthur H. Bruno Director March 21, 1997
- -------------------------------------
ARTHUR H. BRUNO

/s/ Jonathan G. Morgan Director March 21, 1997
- -------------------------------------
JONATHAN G. MORGAN

/s/ Director March 21, 1997
- -------------------------------------
PIERRE-GABRIEL VALLEE

45
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors
White Pine Software, Inc.

We have audited the accompanying consolidated balance sheets of White Pine
Software, Inc. and subsidiary as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the nine months ended December 31, 1994, and for the years ended
December 31, 1995 and 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of White Pine
Software, Inc. and subsidiary at December 31, 1995 and 1996, and the
consolidated results of their operations and their cash flows for the nine
months ended December 31, 1994, and for the years ended December 31, 1995 and
1996, in conformity with generally accepted accounting principles.

Manchester, New Hampshire
January 26, 1997

F-1
<PAGE>

WHITE PINE SOFTWARE, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 1,773,855 $ 23,298,274
Accounts receivable, less allowance of $116,000 at
December 31, 1995 and $163,000 at December 31,
1996............................................. 1,438,528 2,552,710
Inventories....................................... 178,546 113,130
Prepaid expenses.................................. 149,607 422,342
Other current assets.............................. 19,210 27,743
----------- ------------
Total current assets.......................... 3,559,746 26,414,199
Property and equipment:
Computer equipment................................ 1,429,560 1,862,502
Furniture and fixtures............................ 371,189 521,364
Software.......................................... 330,972 188,326
Equipment......................................... 105,204 169,438
Leasehold improvements............................ 25,175 223,922
----------- ------------
2,262,100 2,965,552
Accumulated depreciation and amortization........... (1,648,839) (1,901,948)
----------- ------------
613,261 1,063,604
Other assets:
Third party licenses, less accumulated
amortization of $242,000 at December 31, 1995 and
$724,000 at December 31, 1996.................... 765,983 701,961
Goodwill, less accumulated amortization of $40,000
at December 31, 1995 and $278,000 at December 31,
1996............................................. 1,152,768 914,855
Other assets...................................... 345,650 309,664
----------- ------------
2,264,401 1,926,480
----------- ------------
Total assets........................................ $ 6,437,408 $ 29,404,283
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................. $ 465,924 $ 363,399
Accrued expenses and other accrued liabilities.... 1,648,260 2,540,775
Deferred revenue.................................. 445,786 827,361
Current portion of long-term debt................. 217,986 112,321
----------- ------------
Total current liabilities..................... 2,777,956 3,843,856
Long-term debt, less current portion................ 385,017 113,339
Long-term portion of accrued third-party licenses... 494,074 210,744
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares--7,500,000 at December 31,
1995 and 15,000,000 at December 31, 1996;
Issued and outstanding shares--5,589,764 at
December 31, 1995 and 9,030,730 at December 31,
1996........................................... 55,898 90,307
Additional paid-in capital........................ 12,637,430 38,669,653
Accumulated deficit............................... (9,974,900) (13,611,558)
Currency translation adjustments.................. 61,933 87,942
----------- ------------
Total stockholders' equity.................... 2,780,361 25,236,344
----------- ------------
Total liabilities and stockholders' equity.......... $ 6,437,408 $ 29,404,283
=========== ============
</TABLE>

See Notes to Consolidated Financial Statements

F-2
<PAGE>

WHITE PINE SOFTWARE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
DECEMBER 31, ------------------------
1994 1995 1996
------------ ----------- -----------
<S> <C> <C> <C>
Revenue:
Software license fees................ $4,364,458 $ 6,017,710 $10,500,322
Services and other................... 600,304 1,166,035 1,165,407
---------- ----------- -----------
Total revenue...................... 4,964,762 7,183,745 11,665,729
Cost of revenue........................ 654,996 1,247,094 2,211,694
---------- ----------- -----------
Gross profit........................... 4,309,766 5,936,651 9,454,035
Operating expenses:
Sales and marketing.................. 1,636,786 2,516,604 6,631,527
Research and development............. 1,301,259 1,865,830 3,819,001
General and administrative........... 1,105,620 2,000,521 2,793,536
Write-off of purchased research and
development costs................... -- 3,200,000 --
---------- ----------- -----------
Total operating expenses........... 4,043,665 9,582,955 13,244,064
---------- ----------- -----------
Income (loss) from operations.......... 266,101 (3,646,304) (3,790,029)
Other income (expense):
Interest income...................... 65,785 82,212 251,143
Other, net........................... 79,809 68,131 (20,595)
---------- ----------- -----------
145,594 150,343 230,548
---------- ----------- -----------
Income (loss) before provision for
income taxes.......................... 411,695 (3,495,961) (3,559,481)
Provision for income taxes............. 18,000 30,024 77,177
---------- ----------- -----------
Net income (loss)...................... $ 393,695 $(3,525,985) $(3,636,658)
========== =========== ===========
Net income (loss) per common and common
equivalent share...................... $ 0.06 $ (0.65) $ (0.55)
========== =========== ===========
Weighted average number of common and
common equivalent shares outstanding.. 6,084,775 5,450,884 6,618,108
========== =========== ===========
</TABLE>

See Notes to Consolidated Financial Statements

F-3
<PAGE>

WHITE PINE SOFTWARE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CURRENCY TOTAL
------------------------ PAID-IN- ACCUMULATED TRANSLATION STOCKHOLDERS'
SHARES PAR VALUE CAPITAL DEFICIT ADJUSTMENTS EQUITY
----------- ----------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at April 1,
1994................... 35,905,298 $ 35,905 $ 8,673,177 $ (6,842,610) -- $ 1,866,472
Net income............. 393,695 393,695
Common Stock issued
upon exercise of stock
options............... 4,167 4 414 418
Repurchase and
cancellation of 50,000
shares of Common
Stock................. (50,000) (50) (4,950) (5,000)
----------- ----------- ----------- ------------ ------- -----------
Balances at December 31,
1994................... 35,859,465 35,859 8,668,641 (6,448,915) -- 2,255,585
Net loss............... (3,525,985) (3,525,985)
Adjustment for one-for-
ten reverse stock
split................. (32,273,518) -- --
Common Stock issued in
connection with a
business combination
accounted for as a
purchase.............. 1,990,956 19,910 3,962,002 3,981,912
Common Stock issued
upon exercise of stock
options............... 12,861 129 6,787 6,916
Currency translation
adjustment............ $61,933 61,933
----------- ----------- ----------- ------------ ------- -----------
Balances at December 31,
1995................... 5,589,764 55,898 12,637,430 (9,974,900) 61,933 2,780,361
Net loss............... (3,636,658) (3,636,658)
Common Stock issued as
$5.83 par value common
stock redeemable as
$.01 par value common
stock................. 394,511 2,300,000 (66,298) 2,233,702
Common Stock issued as
conversion from
redeemable $5.83 par
value common stock to
$.01 par value common
stock................. (2,296,055) 2,296,055 --
Common Stock issued in
connection with an
initial public
offering of 3,000,000
shares................ 3,000,000 30,000 23,713,318 23,743,318
Common Stock issued in
connection with the
exercise of a stock
warrant............... 20,000 200 59,800 60,000
Common Stock issued
upon exercise of stock
options............... 26,512 265 29,347 29,612
Cancellation of
fractional shares..... (57) (1) 1 --
Currency translation
adjustment............ 26,009 26,009
----------- ----------- ----------- ------------ ------- -----------
Balances at December 31,
1996................... 9,030,730 $ 90,307 $38,669,653 $(13,611,558) $87,942 $25,236,344
=========== =========== =========== ============ ======= ===========
</TABLE>

See Notes to Consolidated Financial Statements

F-4
<PAGE>

WHITE PINE SOFTWARE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED
NINE MONTHS ENDED DECEMBER 31,
DECEMBER 31, ------------------------
1994 1995 1996
----------------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).................. $ 393,695 $(3,525,985) $(3,636,658)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation..................... 181,700 238,014 253,109
Amortization of goodwill and
third-party licenses............ -- 312,717 719,935
Write-off of purchased research
and development costs........... -- 3,200,000 --
Provision for bad debts.......... -- 116,449 46,798
Other............................ (34,066) (48,316) --
Changes in operating assets and
liabilities:
Accounts receivable............ (246,425) (52,014) (1,160,980)
Inventories.................... (52,132) 9,730 65,416
Prepaid expenses............... (84,906) 45,161 (272,735)
Other assets................... 19,994 (35,623) 27,453
Accounts payable............... (44,321) 148,170 (102,526)
Accrued expenses and other
accrued liabilities........... (312,815) 211,369 609,186
Deferred revenue............... 46,701 22,149 381,575
---------- ----------- -----------
Net cash provided by (used in)
operating activities.............. (132,575) 641,821 (3,069,427)
INVESTING ACTIVITIES
Purchase of property and equipment,
net............................... (184,696) (329,510) (703,452)
Purchase of third party licenses,
net............................... -- (377,438) (418,000)
Acquisition costs incurred in a
business combination accounted for
as a purchase..................... -- (175,000) --
Cash acquired in a business
combination accounted for as a
purchase.......................... -- 117,532 --
Other.............................. (20,181) (73,095) --
---------- ----------- -----------
Net cash used in investing
activities........................ (204,877) (837,511) (1,121,452)
FINANCING ACTIVITIES
Proceeds from long-term debt....... -- 53,000 --
Principal payments on long-term
debt.............................. (55,118) (23,336) (377,343)
Proceeds from common stock issued
as $5.83 par value common stock
redeemable as $.01 par value
common stock...................... -- -- 2,233,702
Proceeds from common stock issued
in connection with an initial
public offering................... -- -- 23,743,318
Proceeds from common stock issued
in connection with the exercise of
a stock warrant................... -- -- 60,000
Proceeds from common stock issued
upon exercise of stock options.... 418 6,916 29,612
Repurchase of common stock......... (5,000) -- --
---------- ----------- -----------
Net cash provided by (used in)
financing activities.............. (59,700) 36,580 25,689,289
Currency translation effect on cash
and cash equivalents.............. -- 61,933 26,009
---------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents.................. (397,152) (97,177) 21,524,419
Cash and cash equivalents at
beginning of period............... 2,268,184 1,871,032 1,773,855
---------- ----------- -----------
Cash and cash equivalents at end of
period............................ $1,871,032 $ 1,773,855 $23,298,274
========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest............. $ 299 $ 8,713 $ 37,172
========== =========== ===========
Cash paid for taxes................ $ 2,763 $ 18,596 $ 88,550
========== =========== ===========
</TABLE>

See Notes to Consolidated Financial Statements

F-5
<PAGE>

WHITE PINE SOFTWARE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1996

1. ACCOUNTING POLICIES

Description of Business

White Pine Software, Inc. (the Company) develops, markets and supports
multiplatform desktop connectivity software that facilitates worldwide video
and audio communication and data collaboration across the Internet, intranets
and other networks that use the Internet Protocol. The Company's desktop
videoconferencing software products allow users to participate in real-time,
multipoint videoconferences over the Internet and intranets. The Company
recently introduced WebTerm Toolbox, which allows users to access host
applications from within the browser, as a new suite of products geared to
providing Advanced Intranet Solutions to corporations, educational
organizations, and government agencies. The Company also offers desktop X
Windows and terminal emulation software. The Company's customers include
businesses, government organizations, educational institutions and individual
consumers. The Company markets and sells its products in the United States,
Europe, and the Pacific Rim through distributors, a combination of strategic
partners and OEMs, and its direct sales organization, as well as over the
Internet. The Company, formerly known as Visual International, Inc., was
incorporated in April 1992.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly-owned foreign subsidiary, About Software Corporation S.A.
(ASC), and ASC's wholly-owned subsidiary. All significant intercompany
accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Fiscal Year

Effective April 1, 1994, the Company changed its fiscal year end from March
31 to December 31.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and investments in high
grade commercial paper having maturities of three months or less when
purchased. Commercial paper qualifying as cash equivalents totaled $22,440,000
and $725,000 at December 31, 1996 and 1995, respectively. These investments
have been categorized as held to maturity under the provisions of Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities. Accordingly, the balances are stated at amortized
cost, which approximates fair value, because of the short maturity of these
instruments.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash, cash equivalents and
accounts receivable. Cash and cash equivalents include cash on deposit in
checking accounts, commercial paper, and certificates of deposit. These cash
and cash equivalents are maintained with high credit quality financial
institutions.

F-6
<PAGE>

WHITE PINE SOFTWARE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1996

The Company performs ongoing credit evaluations of its customers and
generally requires no collateral. The Company maintains reserves for potential
credit losses; historically, such losses have not been material and have been
within management's expectations. At December 31, 1996, two customers
accounted for approximately 51% of accounts receivable.

Included in the Company's balance sheet at December 31, 1996 are the assets
of the Company's foreign subsidiary, ASC, of which approximately $637,000 of
tangible assets are located in France.

Fair Value of Financial Instruments

The carrying amounts reported in the balance sheet for the Company's cash
and cash equivalents and borrowings approximate fair value.

Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or
market. Allowances for excess and obsolete items are provided as necessary.

Property and Equipment

Property and equipment are stated at cost and are being depreciated using
the straight-line and accelerated methods over the estimated useful lives of
two to seven years. Leasehold improvements are stated at cost and are being
amortized over the lesser of the term of the lease or the estimated useful
life of the asset.

Third-Party Licenses

The cost of agreements entered into with third parties for the right to use
the third parties' technology in the Company's products is amortized on a
straight-line basis over the lives of the agreements.

Income Taxes

Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.

Revenue Recognition

Software license revenue is recognized upon receipt of a firm customer order
and shipment of the software, net of allowances for estimated future returns,
provided that no significant obligations remain on the part of the Company and
collection of the related receivable is deemed probable. Revenue under certain
license agreements is recognized upon execution of a signed contract and
fulfillment of the contractual obligations, provided that no significant
obligations remain on the part of the Company and collection is deemed
probable.

Software maintenance fees, which are generally payable in advance and are
non-refundable, are recognized ratably over the period of the maintenance
contract, typically twelve months. Revenue from training and consulting
services is recognized as services are provided.

F-7
<PAGE>

WHITE PINE SOFTWARE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1996

Software license fees, consulting fees, and training fees that have been
prepaid or invoiced but that do not yet qualify for recognition as revenue
under the Company's policy, and prepaid maintenance fees not yet recognized as
revenue, are reflected as deferred revenue.

Capitalized Software

Statement of Financial Accounting Standards No. 86, Accounting for the Costs
of Computer Software to be Sold, Leased or Otherwise Marketed, requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based upon the Company's product
development process, technological feasibility is established upon completion
of a commercially viable working model. Costs incurred by the Company between
completion of the commercially viable working model and the point at which the
product is ready for general release have been capitalized. Such amounts,
approximating $145,000 as of December 31, 1996, are included in other assets
and are being amortized over a three-year period; these amounts are
principally attributable to the Company's acquisition of ASC (See Note 2).

Foreign Currency Translation

The financial statements of the Company's foreign subsidiary have been
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52, Foreign Currency Translation. All balance sheet
amounts have been translated using the exchange rates in effect at the balance
sheet date. Statement of operations amounts have been translated using average
exchange rates. The gains and losses resulting from the changes in exchange
rates from the date of acquisition of ASC (see Note 2) to December 31, 1996
have been reported separately as a component of stockholders' equity.

The aggregate transaction gains and losses were insignificant for all
periods presented.

Advertising Costs

All costs related to advertising the Company's products are expensed in the
period incurred. Amounts charged to expense were $1,179,000, $518,000, and
$314,000 during the years ended December 31, 1996 and 1995, and the nine
months ended December 31, 1994, respectively.

Net Income (Loss) Per Common and Common Equivalent Share

Net income (loss) per common and common equivalent share is computed using
the weighted average number of shares of common stock and dilutive common
equivalent shares outstanding during the period. All shares, options and
warrants issued during the 12-month period prior to the Company's initial
public offering, have been included in the calculation as if they were
outstanding, using the treasury stock method. Common equivalent shares consist
of the incremental common shares issuable upon the exercise of stock options
and warrants using the treasury stock method.

2. BUSINESS COMBINATIONS

On November 1, 1995, the Company acquired all of the outstanding common
stock of ASC, a French developer of connectivity software, and its wholly-
owned subsidiary, About Software Corporation, a California corporation. The
acquisition was made with the issuance of 1,990,956 shares of the Company's
common stock, valued at $2.00 per share (exclusive of approximately $175,000
of acquisition costs).

The acquisition was accounted for using the purchase method of accounting
and, accordingly, the results of operations of ASC are included in the
financial statements since the date of acquisition. In connection with the
acquisition, the Company acquired assets with a fair market value of
approximately $4,234,000 and assumed

F-8
<PAGE>

WHITE PINE SOFTWARE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1996

liabilities of approximately $1,270,000. Included in assets acquired was
purchased research and development costs ("in-process technology") with a fair
value of approximately $3,200,000, which was charged to income upon
consummation of the acquisition, due to a determination that there was no
future value to the Company. The excess of the purchase price over the fair
market value of net assets acquired of approximately $1,193,000 has been
allocated to goodwill and is being amortized on a straight-line basis over 5
years.

The following unaudited pro forma information presents a summary of
operating results of the Company and ASC as if the acquisition had been made
as of April 1, 1994:

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
----------------- ------------
<S> <C> <C>
Pro forma revenue........................... $6,296,000 $ 9,227,000
Pro forma net loss.......................... $ (566,000) $(1,171,000)
Pro forma net loss per common and common
equivalent share........................... $ (.09) $ (.21)
</TABLE>

These pro forma results are for illustrative purposes only and include
certain adjustments, such as additional amortization expense as a result of
goodwill and other intangible assets. They do not purport to be indicative of
the actual operating results which would have occurred had the transaction
been consummated as of those earlier dates, nor are they indicative of results
of operations which may occur in the future.

3. INDEBTEDNESS

Line of Credit

The Company has a line of credit with a financial institution which provides
for maximum available borrowings of $3,000,000. Interest on the line is
payable monthly at the bank's prime rate plus .5% (8.75% at December 31,
1996). Borrowings under the line are due on demand and are secured by
substantially all assets of the Company, including a $515,000 certificate of
deposit. This agreement expires on June 30, 1998. At December 31, 1996, there
were no amounts outstanding under the line of credit.

The line of credit agreement contains various restrictive covenants, the
most significant of which include the maintenance of a minimum net worth, a
maximum ratio of total liabilities to tangible net worth, a minimum ratio of
current assets to current liabilities, and profitability levels.

Long-term Debt
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
-------- --------
<S> <C> <C>
Secured term bank loans, due in monthly installments of $615
to $7,237, which includes interest ranging from 7.25% to
11.55%, with final installments due from March 1998 to
October 1998 (paid off in December 1996)................... $344,000 --
Secured, non-interest bearing, term loan from a foreign
governmental agency, due in annual installments of $50,938,
with the final installment due in September 1999........... 180,000 186,000
Note payable, due in monthly installments of $883 plus
interest at 9.5%, with remaining balances due August 2000.. 49,000 39,000
Other....................................................... 30,000 --
-------- --------
603,000 225,000
Less current portion........................................ 218,000 112,000
-------- --------
$385,000 $113,000
======== ========
</TABLE>

F-9
<PAGE>

WHITE PINE SOFTWARE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1996

Aggregate maturities of long-term debt are as follows: 1997--$112,000;
1998--$61,000; 1999--$45,000; and 2000--$7,000.

Total interest expense for the years ended December 31, 1996 and 1995, and
the nine months ended December 31, 1994, was approximately $37,000, $7,000,
and $0, respectively, and is included in other expense.

4. ACCRUED EXPENSES AND OTHER ACCRUED LIABILITIES

Accrued expenses and other accrued liabilities consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Accrued compensation expense and related benefits.... $ 684,000 $ 798,000
Pending litigation................................... 293,000 292,000
Third-party licenses................................. 136,000 523,000
Other accruals....................................... 535,000 928,000
---------- ----------
$1,648,000 $2,541,000
========== ==========
</TABLE>

The Company is a co-defendant in various lawsuits filed in federal and state
courts in New York. The lawsuits seek damages for alleged injuries sustained
while using products which the plaintiffs assert were designed and
manufactured by a predecessor of the Company. Although the Company is
defending these claims, exposure is partially limited by insurance and
indemnification by the primary contractor. While management believes that
losses from these claims are not probable (as defined for purposes of
Statement of Financial Accounting Standards No. 5), it has an accrual of
approximately $292,000 as of December 31, 1996 for legal fees and potential
losses which could arise from such claims. The actual amount of such losses
may range from $0 to $8,250,000, which represents the sum of the damages
sought by the plaintiffs in such lawsuits.

5. INCOME TAXES

The Company's deferred tax assets and related valuation allowances are as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets................................ $ 2,700,000 $ 4,200,000
Valuation allowance for deferred tax assets........ (2,700,000) (4,200,000)
----------- -----------
Net deferred tax asset............................. $ -- $ --
=========== ===========
</TABLE>

Deferred tax assets consist primarily of net operating and capital loss
carryforwards and accrued liabilities.

The Company recorded a valuation allowance of $4,200,000 and $2,700,000 at
December 31, 1996 and 1995, respectively, against its deferred tax assets
since it is believed to be more likely than not that the net operating loss
carryforwards and other temporary differences will not provide a future tax
benefit.

At December 31, 1996, the Company had cumulative federal net operating loss
carryforwards of approximately $9,735,000 for income tax purposes. The
availability of the net operating loss carryforwards to offset future taxable
income is subject to significant annual limitations. The amount available for
fiscal 1997 to

F-10
<PAGE>

WHITE PINE SOFTWARE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1996

reduce future federal income taxes payable is limited to approximately
$3,100,000. The loss carryforwards expire at various dates through 2011.

6. PROFIT SHARING PLAN

The Company has a Profit Sharing Plan (the "Plan") under Section 401(k) of
the Internal Revenue Code for all employees meeting age and service
requirements. Eligible employees may elect to contribute up to 16% of their
compensation, subject to limitations established by the Internal Revenue Code.
The Company may elect to contribute a discretionary amount to the Plan which
would be allocated to the employees based upon the employees' contributions to
the Plan. There have been no discretionary contributions to date.

7. LEASE COMMITMENTS

Operating Leases

The Company leases its office facilities under various operating leases
expiring at various times through fiscal 2001.

Future minimum annual rental commitments under the lease agreements for the
years ending December 31 are as follows:

Total rent expense for the years ended December 31, 1996 and 1995, and the
nine months ended December 31, 1994 was approximately $399,000, $292,000, and
$200,000, respectively, and is included in general and administrative
expenses.

8. SIGNIFICANT CUSTOMERS AND GEOGRAPHICAL SALES

During the years ended December 31, 1996 and 1995, and the nine months ended
December 31, 1994, one customer accounted for approximately 14%, 16%, and 21%,
respectively, of the Company's total revenue.

The Company's sales by geographic locations are summarized in the table
below:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
United States and Canada............ $4,404,000 $5,713,000 $ 8,394,000
Europe.............................. 312,000 976,000 1,911,000
Pacific Rim......................... 249,000 495,000 1,361,000
---------- ---------- -----------
$4,965,000 $7,184,000 $11,666,000
========== ========== ===========
</TABLE>

F-11
<PAGE>

WHITE PINE SOFTWARE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1996

9. STOCKHOLDERS' EQUITY

Stock Option Plans

The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25) and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, Accounting for Stock-based Compensation, requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.

The Company has various stock option plans which provide for the issuance of
incentive and non-qualified stock options. The Board of Directors, which
administers the plans, has the authority to determine to whom options may be
granted, period of exercise, the option price at the date of grant, and what
other restrictions, if any, should apply. In connection with the acquisition
of ASC on November 1, 1995, the Board of Directors increased the number of
authorized shares reserved under the plans to 970,000 shares and granted
104,500 options to certain ASC employees. The options provide for vesting
schedules and allow for special vesting opportunities in the case of job loss
due to merger activities.

Pro forma information regarding net loss and loss per common and common
equivalent share is required by Statement 123, which also requires that the
information be determined as if the Company has accounted for its employee
stock options granted subsequent to December 31, 1994 under the fair value
method of that Statement. The fair value for these options was estimated at
the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for 1996 and 1995, respectively: risk-
free interest rates of 6.2% and 6.0%; dividend yields of 0% and 0%; volatility
factors of the expected market price of the Company's common stock of .5 and
.5; and a weighted-average expected life of the option of 4.9 years and 4
years.

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands except for per share
information):

<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Pro forma net loss.......................................... $3,543 $3,786
Pro forma loss per share.................................... $ .65 $ .57
</TABLE>

Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until
1997.

F-12
<PAGE>

WHITE PINE SOFTWARE, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1996

A summary of the Company's stock option activity, and related information
for the nine months and years ended December 31 follows:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Balance at April 1, 1994......................... 383,342 $0.52
Granted........................................ 338,664 1.01
Exercised...................................... (417) 1.00
Cancelled...................................... -- --
---------
Balance at December 31, 1994..................... 721,589 0.75
Granted........................................ 207,548 1.94
Exercised...................................... (12,861) 0.54
Cancelled...................................... (33,527) 1.23
---------
Balance at December 31, 1995..................... 882,749 1.01
Granted........................................ 262,350 6.47
Exercised...................................... (26,511) 1.12
Cancelled...................................... (30,151) 2.20
---------
Balance at December 31, 1996..................... 1,088,437 $2.29
=========
</TABLE>

At December 31, 1996, 803,837 stock options outstanding have exercise prices
ranging from $0.50 to $2.00. The weighted-average exercise price of these
options is $0.93, and the weighted-average remaining contractual life of these
options is 6.67 years. Of these options, 704,262 are exercisable at a
weighted-average exercise price of $0.82.

Also at December 31, 1996, 284,600 stock options outstanding have exercise
prices ranging from $5.00 to $8.00. The weighted-average exercise price of
these options is $6.13, and the weighted-average remaining contractual life of
these options is 9.57 years. Of these options, 262,350 were granted during
1996 at a weighted average fair value of $3.21. In addition, 28,389 are
exercisable at a weighted-average exercise price of $4.24.

Recapitalization

In September 1995, the Company's Board of Directors declared a one-for-ten
reverse stock split of the Company's Common Stock that became effective March
18, 1996. All per share amounts and number of shares in the accompanying
financial statements have been retroactively adjusted to reflect the reverse
stock split.

On February 29, 1996, the Board of Directors and the stockholders approved
an amendment to the Company's charter to authorize 500,000 shares of $5.83 par
value common stock and to decrease the number of authorized shares of $.01 par
value common stock to 7,500,000 shares.

On March 19, 1996, the Company entered into a Stock Purchase Agreement with
certain investors whereby, for consideration of $2,000,000, the Company issued
343,053 shares of $5.83 par value common stock.

On April 17, 1996, the Company entered into a Stock Purchase Agreement with
an additional investor whereby, for consideration of $300,000, the Company
issued 51,458 shares of $5.83 par value common stock.

In October 1996, the Company filed an amendment and restatement of its
charter to, among other things, cause each share of $5.83 par value common
stock to be converted into one share of $.01 par value common stock on the
closing date of the Company's initial public offering (October 17, 1996).

F-13

<PAGE>

STANDARD OFFICE LEASE--GROSS

AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION

[LOGO APPEARS HERE]

1. Basic Lease Provisions ("Basic Lease Provisions")

1.1 Parties: This Lease, dated, for reference purposes only, October 24,
1996, is made by and between PBP Limited Partnership, (herein called "Lessor")
and WHITE PINE SOFTWARE, Inc., a Delaware Corporation, doing business under the
name of White Pine Software, (herein called "Lessee").

1.2 Premises: Suite Number(s) two (2) floors, consisting of approximately
9,163 feet, more or less, as defined in paragraph 2 and as shown on Exhibit "A"
hereto (the "Premises").

1.3 Building: Commonly described as being located at 1485 Saratoga Avenue
(Bldg. 2), in the City of San Jose, County of Santa Clara, State of California,
as more particularly described in Exhibit "A" hereto, and as defined in
paragraph 2.

1.4 Use: general office purposes, subject to paragraph 6.

1.5 Term: 60 months commencing January 01, 1997 ("Commencement Date") and
ending December 31, 2001, as defined in paragraph 3.

1.6 Base Rent: Twelve Thousand Eight Hundred Twenty Eight and no/100
Dollars per month, payable on the 1st day of each month, per paragraph 4.1
($12,828.00).

1.7 Base Rent Increase: On See paragraph 50 the monthly Base Rent payable
under paragraph 1.6 above shall be adjusted as provided in paragraph 4.3 below.

1.8 Rent Paid Upon Execution: Twelve Thousand Eight Hundred Twenty Eight
and no/100 Dollars ($12,828.00) for rent commencing January 1, 1997 through and
including January 31, 1997.

1.9 Security Deposit: Ten Thousand and no/100 Dollars ($10,000.00) -
receipt of which is hereby acknowledged.

1.10 Lessee's Share of Operating Expense Increase: 100% as defined in
paragraph 4.2.

2. Premises, Parking and Common Areas.

2.1 Premises: The Premises are a portion of a building, herein sometimes
referred to as the "Building" identified in paragraph 1.3 of the Basic Lease
Provisions. "Building" shall include adjacent parking structures used in
connection therewith. The Premises, the Building, the Common Areas, the land
upon which the same are located, along with all other buildings and improvements
thereon or thereunder, are herein collectively referred to as the "Office
Building Project." Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
the real property referred to in the Basic Lease Provisions, paragraph 1.2, as
the "Premises," including rights to the Common Areas as hereinafter specified.

2.2 Vehicle Parking: So long as Lessee is not in default, and subject to
the rules and regulations attached hereto, and as established by Lessor from
time to time, Lessee shall be entitled to rent and use n/a parking spaces in the
Office Building Project at the monthly rate applicable from time to time for
monthly parking as set by Lessor and/or its licensee.

2.2.1 If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect, then Lessor shall
have the right, without notice, in addition to such other rights and remedies
that it may have, to remove or tow away the vehicle involved and charge the cost
to Lessee, which cost shall be immediately payable upon demand by Lessor.

2.2.2 The monthly parking rate per parking space will be $ n/a per
month at the commencement of the term of this Lease, and is subject to change
upon five (5) days prior written notice to Lessee. Monthly parking fees shall
be payable one month in advance prior to the first day of each calendar month.

2.3 Common Areas-Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Office Building Project that are provided and designated by the Lessor
from time to time for the general non-exclusive use of Lessor, Lessee and of
other lessees of the Office Building Project and their respective employees,
suppliers, shippers, customers and invitees, including but not limited to common
entrances, lobbies, corridors, stairways and stairwells, public restrooms,
elevators, escalators, parking areas to the extent not otherwise prohibited by
this Lease, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, ramps, driveways, landscaped areas and decorative walls.

2.4 Common Areas-Rules and Regulations. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit B with respect
to the Office Building Project and Common Areas, and to cause its employees,
suppliers, shippers, customers, and invitees to so abide and conform. Lessor or
such other person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time, to
modify, amend and enforce said rules and regulations. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees, their agents, employees and invitees of the Office Building
Project.

2.5 Common Areas-Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:

(a) To make changes to the Building interior and exterior and Common
Areas, including, without limitation, changes in the location, size, shape,
number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, decorative walls, landscaped areas and walkways;
provided, however, Lessor shall at all times provide the parking facilities
required by applicable law;

(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;

(c) To designate other land and improvements outside the boundaries of
the Office Building Project to be a part of the Common Areas provided that
such other land and improvements have a reasonable and functional relationship
to the Office Building Project;

(d) To add additional buildings and improvements to the Common Areas;

(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;

(f) To do and perform such other acts and make such other changes in,
to or with respect to the Common Areas and Office Building Project as Lessor
may, in the exercise of sound business judgment deem to be appropriate.

3. Term.

3.1 Term. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.

3.2 Delay in Possession. Notwithstanding said Commencement Date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date and subject to paragraph 3.2.2, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease or
the obligations of Lessee hereunder or extend the term hereof; but, in such
case, Lessee shall not be obligated to pay rent or perform any other obligation
of Lessee under the terms of this Lease, except as may be otherwise provided in
this Lease, until possession of the Premises is tendered to Lessee, as
hereinafter defined; provided, however, that if Lessor shall not have delivered
possession of the Premises within sixty (60) days following said Commencement
Date, as the same may be extended under the terms of a Work Letter executed by
Lessor and Lessee, Lessee may, at Lessee's

. 1984 American Industrial Real Estate Association

FULL SERVICE GROSS
PAGE 1 of 10 PAGES
<PAGE>

option, by notice in writing to Lessor within ten (10) days thereafter, cancel
this Lease. In which event the parties shall be discharged from all obligations
hereunder; provided, however, that, as to Lessee's obligations, Lessee first
reimburses Lessor for all costs incurred for Non-Standard Improvements and, as
to Lessor's obligations, Lessor shall return any money previously deposited by
Lessee (less any offsets due Lessor for Non-Standard Improvements); and provided
further, that if such written notice by Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect.

3.2.1 Possession Tendered-Defined. Possession of the Premises shall
be deemed tendered to Lessee ("Tender of Possession") when (1) the improvements
to be provided by Lessor under this Lease are substantially completed, (2) the
Building utilities are ready for use in the Premises, (3) Lessee has reasonable
access to the Premises, and (4) ten (10) days shall have expired following
advance written notice to Lessee of the occurrence of the matters described in
(1), (2) and (3) above of this paragraph 3.2.1.

3.2.2 Delays Caused by Lessee. There shall be no abatement of rent,
and the sixty (60) day period following the Commencement Date before which
Lessee's right to cancel this Lease accrues under paragraph 3.2, shall be deemed
extended to the extent of any delays caused by acts or omissions of Lessee,
Lessee's agents, employees and contractors.

3.3 Early Possession. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.

3.4 Uncertain Commencement. In the event commencement of the Lease term
is defined as the completion of the improvements, Lessee and Lessor shall
execute an amendment to this Lease establishing the date of Tender of Possession
(as defined in paragraph 3.2.1) or the actual taking of possession by Lessee,
whichever first occurs, as the Commencement Date.

4. Rent.

4.1 Base Rent. Subject to adjustment as hereinafter provided in paragraph
4.3, and except as may be otherwise expressly provided in this Lease, Lessee
shall pay to Lessor the Base Rent for the Premises set forth in paragraph 1.6 of
the Basic Lease Provisions, without offset or deduction. Lessee shall pay
Lessor upon execution hereof the advance Base Rent described in paragraph 1.8 of
the Basic Lease Provisions. Rent for any period during the term hereof which is
for less than one month shall be prorated based upon the actual number of days
of the calendar month involved. Rent shall be payable in lawful money of the
United States to Lessor at the address stated herein or to such other persons or
at such other places as Lessor may designate in writing.

4.2 Operating Expense Increase. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share, as hereinafter
defined, of the amount by which all Operating Expenses, as hereinafter defined,
for each Comparison Year exceeds the amount of all Operating Expenses for the
Base Year, such excess being hereinafter referred to as the "Operating Expense
Increase," in accordance with the following provisions:

(a) "Lessee's Share" is defined, for purposes of this Lease, as the
percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage has been determined by dividing the approximate square footage of
the Premises by the total approximate square footage of the rentable space
contained in the Office Building Project. It is understood and agreed that the
square footage figures set forth in the Basic Lease Provisions are
approximations which Lessor and Lessee agree are reasonable and shall not be
subject to revision except in connection with an actual change in the size of
the Premises or a change in the space available for lease in the Office Building
Project.

(b) "Base Year" is defined as the calendar year in which the Lease
term commences.

(c) "Comparison Year" is defined as each calendar year during the term
of this Lease subsequent to the Base Year; provided, however, Lessee shall have
no obligation to pay a share of the Operating Expense Increase applicable to the
first twelve (12) months of the Lease Term (other than such as are mandated by a
governmental authority, as to which government mandated expenses Lessee shall
pay Lessee's Share, notwithstanding they occur during the first twelve (12)
months). Lessee's Share of the Operating Expense Increase for the first and
last Comparison Years of the Lease Term shall be prorated according to that
portion of such Comparison Year as to which Lessee is responsible for a share of
such increase.

(d) "Operating Expenses" is defined, for purposes of this Lease, to
include all costs, if any, incurred by Lessor in the exercise of its reasonable
discretion, for:

(i) The operation, repair, maintenance, and replacement, in
neat, clean, safe, good order and condition, of the Office Building Project,
including but not limited to, the following:

(aa) The Common Areas, including their surfaces, coverings,
decorative items, carpets, drapes and window coverings, and including parking
areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways,
stairways, parkways, driveways, landscaped areas, striping, bumpers, irrigation
systems, Common Area lighting facilities, building exteriors and roofs, fences
and gates;

(bb) All heating, air conditioning, plumbing, electrical
systems, life safety equipment, telecommunication and other equipment used in
common by, or for the benefit of, lessees or occupants of the Office Building
Project, including elevators and escalators, tenant directories, fire detection
systems including sprinkler system maintenance and repair.

(ii) Trash disposal, janitorial and security services;

(iii) Any other service to be provided by Lessor that is else-
where in this Lease stated to be an "Operating Expense";

(iv) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof;

(v) The amount of the real property taxes to be paid by Lessor
under paragraph 10.1 hereof;

(vi) The cost of water, sewer, and other publicly mandated
services to the Office Building Project; The payment of P.G. & E. shall be at
Lessee's sole cost and expense.

(vii) Labor, salaries and applicable fringe benefits and costs,
materials, supplies and tools, used in maintaining and/or cleaning the Office
Building Project and accounting and a management fee attributable to the
operation of the Office Building Project;

(viii) Replacing and/or adding improvements mandated by any
governmental agency and any repairs or removals necessitated thereby amortized
over its useful life according to Federal income tax regulations or guildelines
for depreciation thereof (including interest on the unamortized balance as is
then reasonable in the judgment of Lessor's accountants);

(ix) Replacements of equipment or improvements that have a
useful life for depreciation purposes according to Federal income tax guidelines
of five (5) years or less, as amortized over such life.

(e) Operating Expenses shall not include the costs of replacements of
equipment or improvements that have a useful life for Federal income tax
purposes in excess of five (5) years unless it is of the type described in
paragraph 4.2(d)(viii), in which case their cost shall be included as above
provided.

(f) Operating Expenses shall not include any expenses paid by any
lessee directly to third parties, or as to which Lessor is otherwise reimbursed
by any third party, other tenant, or by insurance proceeds.

(g) Lessee's Share of Operating Expense Increase shall be payable by
Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time in advance of Lessee's Share
of the Operating Expense Increase for any Comparison Year, and the same shall be
payable monthly or quarterly, as Lessor shall designate, during each Comparison
Year of the Lease term, on the same day as the Base Rent is due hereunder. In
the event that Lessee pays Lessor's estimate of Lessee's Share of Operating
Expense Increase as aforesaid, Lessor shall deliver to Lessee within sixty (60)
days after the expiration of each Comparison Year a reasonably detailed
statement showing Lessee's Share of the actual Operating Expense Increase
incurred during such year. If Lessee's payments under this paragraph 4.2(g)
during said Comparison Year exceed Lessee's Share as indicated on said
statement, Lessee shall be entitled to credit the amount of such overpayment
against Lessee's Share of Operating Expense Increase next falling due. If
Lessee's payments under this paragraph during said Comparison Year were less
than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor
the amount of the deficiency within ten (10) days after delivery by Lessor to
Lessee of said statement. Lessor and Lessee shall forthwith adjust between them
by cash payment any balance determined to exist with respect to that portion of
the last Comparison Year for which Lessee is responsible as to Operating Expense
Increases, notwithstanding that the Lease term may have terminated before the
end of such Comparison Year.

PAGE 2 OF 10 PAGES
<PAGE>

5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
security deposit set forth in Paragraph 1.9 of the Basic Lease Provisions as
security for Lessee's faithful performance of Lessee's obligations hereunder. If
Lessee fails to pay rent or other charges due hereunder, or otherwise defaults
with respect to any provision of this Lease, Lessor may use, apply or retain all
or any portion of said deposit for the payment of any rent or other charge in
default for the payment of any other sum to which Lessor may become obligated by
reason of Lessee's default, or to compensate Lessor for any loss or damage which
Lessor may suffer thereby. If Lessor so uses or applies all or any portion of
said deposit, Lessee shall within ten (10) days after written demand therefor
deposit cash with Lessor in an amount sufficient to restore said deposit to the
full amount then required of Lessee. If the monthly Base Rent shall, from time
to time, increase during the term of this Lease, Lessee shall, at the time of
such increase, deposit with Lessor additional money as a security deposit so
that the total amount of the security deposit held by Lessor shall at all times
bear the same proportion to the then current Base Rent as the initial security
deposit bears to the Initial Base Rent set forth in Paragraph 1.6 of the Basic
Lease Provisions, Lessor shall not be required to keep said security deposit
separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not heretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.

6. Use.

6.1 Use. The Premises shall be used and occupied only for the purpose set
forth in paragraph 1.4 of the Basic Lease Provisions or any other use which is
reasonably comparable to that use and for no other purpose.

6.2 Compliance with Law.

(a) Lessor warrants to Lessee that the Premises, in the state existing
on the date that the Lease term commences, but without regard to alterations or
improvements made by Lessee or the use for which Lessee will occupy the
Premises, does not violate any covenants or restrictions of record, or any
applicable building code, regulation or ordinance in effect on such Lease term
Commencement Date. In the event it is determined that this warranty has been
violated, then it shall be the obligation of the Lessor, after written notice
from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such
violation.

(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by Lessee of the Premises.
Lessee shall conduct its business in a lawful manner and shall not use or permit
the use of the Premises or the Common Areas in any manner that will tend to
create waste or a nuisance or shall tend to disturb other occupants of the
Office Building Project.

6.3 Condition of Premises.

(a) Lessor shall deliver the Premises to Lessee in a clean condition on
the Lease Commencement Date (unless Lessee is already in possession) and Lessor
warrants to Lessee that the plumbing, lighting, air conditioning, and heating
system in the Premises shall be in good operating condition. In the event that
it is determined that this warranty has been violated, then it shall be the
obligation of Lessor, after receipt of written notice from Lessee setting forth
with specificity the nature of the violation, to promptly, at Lessor's sole
cost, rectify such violation.

(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises and the Office Building Project in their condition existing as of
the Lease Commencement Date or the date that Lessee takes possession of the
Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use, and that neither Lessor nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Lessee's
business.

7. Maintenance, Repairs, Alterations and Common Area Services.

7.1 Lessor's Obligations. Lessor shall keep the Office Building Project,
including the Premises, interior and exterior walls, roof, and common areas, and
the equipment whether used exclusively for the Premises or in common with other
premises, in good condition and repair; provided, however, Lessor shall not be
obligated to paint, repair or replace wall coverings, or to repair or replace
any improvements that are not ordinarily a part of the Building or are above
then Building standards. Except as provided in paragraph 9.5, there shall be no
abatement of rent or liability of Lessee on account of any injury or
interference with Lessee's business with respect to any improvements,
alterations or repairs made by Lessor to the Office Building Project or any part
thereof. Lessee expressly waives the benefits of any statute now or hereafter in
effect which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Premises in good order, condition and repair.

7.2 Lessee's Obligations.

(a) Notwithstanding Lessor's obligation to keep the Premises in good
condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear. Lessee shall be responsible for the cost of
painting, repairing or replacing wall coverings, and to repair or replace any
Premises improvements that are not ordinarly a part of the Building or that are
above then Building standards. Lessor may, at its option, upon reasonable
notice, elect to have Lessee perform any particular such maintenance or repairs
the cost of which is otherwise Lessee's responsibility hereunder.

(b) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good maintenance practices by Lessee. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, alterations, furnishings and equipment.
Except as otherwise stated in this Lease, Lessee shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall paneling, ceilings
and plumbing on the Premises and in good operating condition.

7.3 Alterations and Additions.

(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, Utility Installations or repairs in, on or
about the Premises, or the Office Building Project. As used in this paragraph
7.3 the term "Utility Installation" shall mean carpeting, window and wall
coverings, power panels, electrical distribution systems, lighting fixtures, air
conditioning, plumbing, and telephone and telecommunication wiring and
equipment. At the expiration of the term, Lessor may require the removal of any
or all of said alterations, improvements, additions or Utility Installations,
and the restoration of the Premises and the Office Building Project to their
prior condition, at Lessee's expense. Should Lessor permit Lessee to make its
own alterations, improvements, additions, or Utility Installations, Lessee shall
use only such contractor as has been expressly approved by Lessor, and Lessor
may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien
and completion bond in an amount equal to one and one-half times the estimated
cost of such improvements, to insure Lessor against any liabilty for mechanic's
and materialman's liens and to insure completion of the work. Should Lessee make
any alterations, improvements, additions, or Utility Installations without the
prior approval of Lessor, or use a contractor not expressly approved by Lessor,
Lessor may, at any time during the term of this Lease, require that Lessee
remove any part or all of the same.

(b) Any alterations, improvements, additions or Utility Installations in
or about the Premises or the Office Building Project that Lessee shall desire to
make shall be presented to Lessor in written form, with proposed detailed plans.
If Lessor shall give its consent to Lessee's making such alteration,
improvement, addition or Utility Installation, the consent shall be deemed
conditioned upon Lessee acquiring a permit to do so from the applicable
governmental agencies furnishing a copy thereof to Lessor prior to the
commencement of the work, and compliance by Lessee with all conditions of said
permit in a prompt and expeditious manner.

(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialman's lien against the Premises, the Building or the Office Building
Project, or any interest therein.

(d) Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in the Premises by Lessee, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises or the
Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy

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any such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises, the Building or the Office Building
Project, upon the condition that if Lessor shall require, Lessee shall furnish
to Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises, the Building and the Office Building Project free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's reasonable attorneys' fees and costs in participating in such
action if Lessor shall decide it is to Lessor's best interest so to do.

(e) All alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made to the Premises by Lessee, including but not limited to, floor
coverings, panelings, doors, drapes, built-ins, moldings, sound attenuation, and
lighting and telephone or communication systems, conduit, wiring and outlets,
shall be made and done in a good and workmanlike manner and of good and
sufficient quality and materials and shall be the property of Lessor and remain
upon and be surrendered with the Premises at the expiration of the Lease term,
unless Lessor requires their removal pursuant to paragraph 7.3(a). Provided
Lessee is not in default, notwithstanding the provisions of this paragraph
7.3(e), Lessee's personal property and equipment, other than that which is
affixed to the Premises so that it cannot be removed without material damage to
the Premises or the Building, and other than Utility Installations, shall remain
the property of Lessee and may be removed by Lessee subject to the provisions of
paragraph 7.2.

(f) Lessee shall provide Lessor with as-built plans and specifications for
any alterations, improvements, additions or Utility Installations.

7.4 Utility Additions. Lessor reserves the right to install new or additional
utility facilities throughout the Office Building Project for the benefit of
Lessor or Lessee, or any other lessee of the Office Building Project, including,
but not by way of limitation, such utilities as plumbing, electrical systems,
communication systems, and fire protection and detection systems, so long as
such installations do not unreasonably interfere with Lessee's use of the
Premises.

8. Insurance; Indemnity.

8.1 Liability Insurance--Lessee. Lessee shall, at Lessee's expense, obtain and
keep in force during the term of this Lease a policy of Comprehensive General
Liability Insurance utilizing an Insurance Services Office standard form with
Broad Form General Liability Endorsement (GL0404), or equivalent, in an amount
of not less than $1,000,000 per occurrence of bodily injury and property damage
combined or in a greater amount as reasonably determined by Lessor and shall
insure Lessee with Lessor as an additional insured against liability arising out
of the use, occupancy or maintenance of the Premises. Compliance with the above
requirement shall not, however, limit the liability of Lessee hereunder.

8.2 Liability Insurance--Lessor. Lessor shall obtain and keep in force during
the term of this Lease a policy of Combined Single Limit Bodily Injury and Broad
Form Property Damage Insurance, plus coverage against such other risks Lessor
deems advisable from time to time, insuring Lessor, but not Lessee, against
liability arising out of the ownership, use, occupancy or maintenance of the
Office Building Project in an amount not less than $5,000,000.00 per occurrence.

8.3 Property Insurance--Lessee. Lessee shall, at Lessee's expense, obtain and
keep in force during the term of this Lease for the benefit of Lessee,
replacement cost fire and extended coverage insurance, with vandalism and
malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.

8.4 Property Insurance--Lessor. Lessor shall obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or damage
to the Office Building Project Improvements, but not Lessee's personal property,
fixtures, equipment or tenant improvements, in the amount of the full
replacement cost thereof, as the same may exist from time to time, utilizing
Insurance Services Office standard form, or equivalent providing protection
against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, plate glass, and such other perils as
Lessor deems advisable or may be required by a lender having a lien on the
Office Building Project. In addition, Lessor shall obtain and keep in force,
during the term of this Lease, a policy of rental value insurance covering a
period of one year, with loss payable to Lessor, which insurance shall also
cover all Operating Expenses for said period. Lessee will not be named in any
such policies carried by Lessor and shall have no right to any proceeds
therefrom. The policies required by these paragraphs 8.2 and 8.4 shall contain
such deductibles as Lessor or the aforesaid lender may determine. In the event
that the Premises shall suffer an insured loss as defined in paragraph 9.1(f)
hereof, the deductible amounts under the applicable insurance policies shall be
deemed an Operating Expense. Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies carried by Lessor. Lessee shall
pay the entirety of any increase in the property insurance premium for the
Office Building Project over what it was immediately prior to the commencement
of the term of this Lease if the increase is specified by Lessor's insurance
carrier as being caused by the nature of Lessee's occupancy or any act or
omission of Lessee.

8.5 Insurance Policies. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such Insurance within seven (7) days after the
Commencement Date of this Lease. No such policy shall be cancellable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall at least thirty (30) days prior to
the expiration of such policies, furnish Lessor with renewals thereof.

8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and relieve
the other, and waive their entire right of recovery against the other, for
direct or consequential loss or damage arising out of or incident to the perils
covered by property insurance carried by such party, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. If necessary all property insurance policies required under this Lease
shall be endorsed to so provide.

8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor and its agents,
Lessor's master or ground lessor, partners and lenders, from and against any and
all claims for damage to the person or property of anyone or any entity arising
from Lessee's use of the Office Building Project, or from the conduct of
Lessee's business or from any activity, work or things done, permitted or
suffered by Lessee in or about the Premises or elsewhere and shall further
indemnify and hold harmless Lessor from and against any and all claims, costs
and expenses arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, employees or invitees and from and against all costs, attorney's
fees, expenses and liabilities incurred by Lessor as the result of any such use,
conduct, activity, work, things done, permitted or suffered, breach, default or
negligence, and in dealing reasonably therewith, including but not limited to
the defense or pursuit of any claim or any action or proceeding involved
therein; and in case any action or proceeding be brought against Lessor by
reason of any such matter, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid
any such claim in order to be so indemnified. Lessee, as a material part of the
consideration to Lessor, hereby assumes all risk of damage to property of Lessee
or injury to persons, in, upon or about the Office Building Project arising from
any cause and Lessee hereby waives all claims in respect thereof against Lessor.

8.8 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor shall
not be liable for injury to Lessee's business or any loss of income therefrom
or for loss of or damage to the goods, wares, merchandise or other property of
Lessee. Lessee's employees, invitees, customers, or any other person in or
about the Premises or the Office Building Project, nor shall Lessor be liable
for injury to the person of Lessee, Lessee's employees, agents or contractors,
whether such damage or injury is caused by or results from theft, fire, steam,
electricity, gas, water or rain, or from the breakage, leakage, obstruction or
other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures, or from any other cause, whether said damage
or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or from other sources or places, or
from new construction or the repair alteration or improvement of any part of the
Office Building Project, or of the equipment, fixtures or appurtenances
applicable thereto, and regardless of whether the cause of such damage or injury
or the means of repairing the same is inaccessible, Lessor shall not be liable
for any damages arising from any act or neglect of any other lessee, occupant or
user of the Office Building Project, nor from the failure of Lessor to enforce
the provisions of any other lease of any other lessee of the Office Building
Project.

8.9 No Representation of Adequate Coverage. Lessor makes no representation
that the limits or forms of coverage of insurance specified in this paragraph 8
are adequate to cover Lessee's property or obligations under this Lease.

9. Damage or Destruction.

9.1 Definitions.

(a) "Premises Damage" shall mean if the Premises are damaged or destroyed
to any extent.

(b) "Premises Building Partial Damage" shall mean if the Building of which
the Premises are a part is damaged or destroyed to the extent that the cost to
repair is less than fifty percent (50%) of the then Replacement Cost of the
Building.

(c) "Premises Building Total Destruction" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent (50%) or more of the then Replacement Cost of
the Building.

(d) "Office Building Project Buildings" shall mean all of the buildings
on the Office Building Project site.

(e) "Office Building Project Buildings Total Destruction" shall mean if
the Office Building Project Buildings are damaged or destroyed to the extent
that the cost of repair is fifty percent (50%) or more of the then Replacement
Cost of the Office Building Project Buildings.

(f) "Insured Loss" shall mean damage or destruction which was caused by
an event required to be covered by the insurance described in paragraph 8. The
fact that an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.

(g) "Replacement Cost" shall mean the amount of money necessary to be
spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee's expense.

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9.2 Premises Damage; Premises Building Partial Damage.

(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is an
Insured Loss and which falls into the classification of either Premises Damage
or Premises Building Partial Damage, then Lessor shall, as soon as reasonably
possible and to the extent the required materials and labor are readily
available through usual commercial channels, at Lessor's expense, repair such
damage (but not Lessee's fixtures, equipment or tenant improvements originally
paid for by Lessee) to its condition existing at the time of the damage, and
this Lease shall continue in full force and effect.

(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an Insured Loss and which falls within the classification of Premises Damage or
Premises Building Partial Damage, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense),
which damage prevents Lessee from making any substantial use of the Premises,
Lessor may at Lessor's option either (i) repair such damage as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after the date of the occurrence of such damage of Lessor's
intention to cancel and terminate this Lease as of the date of the occurrence of
such damage, in which event this Lease shall terminate as of the date of the
occurrence of such damage.

9.3 Premises Building Total Destruction; Office Building Project Total
Destruction. Subject to the provisions of paragraphs 9.4 and 9.5, if at any time
during the term of this Lease there is damage, whether or not it is an Insured
Loss, which falls into the classifications of either (i) Premises Building Total
Destruction, or (ii) Office Building Project Total Destruction, then Lessor may
at Lessor's option either (i) repair such damage or destruction as soon as
reasonably possible at Lessor's expense (to the extent the required materials
are readily available through usual commercial channels) to its condition
existing at the time of the damage, but not Lessee's fixtures, equipment or
tenant improvements, and this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after the date of
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease, in which case this Lease shall terminate as of the date of the occurrence
of such damage.

9.4 Damage Near End of Term.

(a) Subject to paragraph 9.4(b), if at any time during the last
twelve (12) months of the term of this Lease there is substantial damage to the
Premises, Lessor may at Lessor's option cancel and terminate this Lease as of
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.

(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than twenty (20) days after the occurrence of an
Insured Loss falling within the classification of Premises Damage during the
last twelve (12) months of the term of this Lease. If Lessee duly exercises such
option during said twenty (20) day period, Lessor shall, at Lessor's expense,
repair such damage, but not Lessee's fixtures, equipment, or tenant
improvements, as soon as reasonably possible and this Lease shall continue in
full force and effect. If Lessee fails to exercise such option during said
twenty (20) day period, then Lessor may at Lessor's option terminate and cancel
this Lease as of the expiration of said twenty (20) day period by giving written
notice to Lessee of Lessor's election to do so within ten (10) days after the
expiration of said twenty (20) day period notwithstanding any term or provision
in the grant of option to the contrary.

9.5 Abatement of Rent; Lessee's Remedies.

(a) In the event Lessor repairs or restores the Building or Premises
pursuant to the provisions of this paragraph 9, and any part of the Premises are
not usable (including loss of use due to loss of access or essential services),
the rent payable hereunder (including Lessee's Share of Operating Expense
Increase) for the period during which such damage, repair or restoration
continues shall be abated, provided (1) the damage was not the result of the
negligence of Lessee, and (2) such abatement shall only be to the extent the
operation and profitability of Lessee's business as operated from the Premises
is adversely affected. Except for said abatement of rent, if any, Lessee shall
have no claim against Lessor for any damage suffered by reason of any such
damage, destruction, repair or restoration.

(b) If Lessor shall be obligated to repair or restore the Premises or
the Building under the provisions of this Paragraph 9 and shall not commence
such repair or restoration within ninety (90) days after such occurrence, or if
Lessor shall not complete the restoration and repair within six (6) months after
such occurrence, Lessee may at Lessee's option cancel and terminate this Lease
by giving Lessor written notice of Lessee's election to do so at any time prior
to the commencement or completion, respectively, of such repair or restoration.
In such event this Lease shall terminate as of the date of such notice.

(c) Lessee agrees to cooperate with Lessor in connection with any
such restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.

9.6 Termination-Advance Payments. Upon termination of this Lease pursuant
to this paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.

9.7 Waiver. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.

10. Real Property Taxes.

10.1 Payment of Taxes. Lessor shall pay the real property tax, as defined
in paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.

10.2 Additional Improvements. Lessee shall not be responsible for paying
any Increase in real property tax specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.

10.3 Definition of "Real Property Tax." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Office Building Project or any portion thereof
by any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage, or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Office Building Project or in any
portion thereof, as against Lessor's right to rent or other income therefrom,
and as against Lessor's business of leasing the Office Building Project. The
term "real property tax" shall also include any tax, fee, levy, assessment or
charge (i) in substitution of, partially of totally, any tax, fee, levy,
assessment or charge hereinabove included within the definition of "real
property tax," or (ii) the nature of which was hereinbefore included within the
definition of "real property tax," or (iii) which is imposed for a service or
right not charged prior to June 1, 1978, or, if previously charged, has been
increased since June 1, 1978, or, (iv) which is imposed as a result of a change
in ownership, as defined by applicable local statutes for property tax purposes,
of the Office Building Project or which is added to a tax or charge herein
before included within the definition of real property tax by reason of such
change of ownership, or (v) which is imposed by reason of this transaction, any
modifications or changes hereto, or any transfers hereof.

10.4 Joint Assessment. If the improvements or property, the taxes for which
are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not
separately assessed, Lessee's portion of that tax shall be equitably determined
by Lessor from the respective valuations assigned in the assessor's work sheets
or such other information (which may include the cost of construction) as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.

10.5 Personal Property Taxes.

(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere.

(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.

11. Utilities.

11.1 Services Provided by Lessor. Lessor shall provide heating,
ventilation, air conditioning, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines, water
for reasonable and normal drinking and lavatory use, and replacement light bulbs
and/or fluorescent tubes and ballasts for standard overhead fixtures.

11.2 Services Exclusive to Lessee. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately metered
to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.

11.3 Hours of Service. Said services and utilities shall be provided during
generally accepted business days and hours or such other days or hours as may
hereafter be set forth. Utilities and services required at other times shall be
subject to advance request and reimbursement by Lessee to Lessor of the cost
thereof.

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11.4 Excess Usage by Lessee. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power, or suffer or permit any act that causes extra burden upon the
utilities or services, including but not limited to security services, over
standard office usage for the Office Building Project. Lessor shall require
Lessee to reimburse Lessor for any excess expenses or costs that may arise out
of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion,
install at Lessee's expense supplemental equipment and/or separate metering
applicable to Lessee's excess usage or loading.

11.5 Interruptions. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.

12. Assignment and Subletting.

12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a material
default and breach of this Lease without the need for notice to Lessee under
paragraph 13.1. "Transfer" within the meaning of this paragraph 12 shall include
the transfer or transfers aggregating: (a) if Lessee is a corporation, more than
twenty-five percent (25%) of the voting stock of such corporation, or (b) if
Lessee is a partnership, more than twenty-five percent (25%) of the profit and
loss participation in such partnership.

12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by
or is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate";
provided that before such assignment shall be effective, (a) said assignee shall
assume, in full, the obligations of Lessee under this Lease and (b) Lessor shall
be given written notice of such assignment and assumption. Any such assignment
shall not, in any way, affect or limit the liability of Lessee under the terms
of this Lease even if after such assignment or subletting the terms of this
Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.

12.3 Terms and Conditions Applicable to Assignment and Subletting.

(a) Regardless of Lessor's consent, no assignment or subletting shall
release Lessee of Lessee's obligations hereunder or alter the primary liability
of Lessee to pay the rent and other sums due Lessor hereunder including Lessee's
Share of Operating Expense increase, and to perform all other obligations to be
performed by Lessee hereunder.

(b) Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment.

(c) Neither a delay in the approval or disapproval of such assignment
or subletting, nor the acceptance of rent, shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for the breach of any of the terms or
conditions of this paragraph 12 or this Lease.

(d) If Lessee's obligations under this Lease have been guaranteed by
third parties, then an assignment or sublease, and Lessor's consent thereto
shall not be effective unless said guarantors give their written consent to such
sublease and the terms thereof.

(e) The consent by Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent and such
action shall not relieve such persons from liability under this Lease or said
sublease; however, such persons shall not be responsible to the extent any such
amendment or modification enlarges or increases the obligations of the Lessee or
sublessee under this Lease or such sublease.

(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.

(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgement that no default then
exists under this Lease of the obligations to be performed by Lessee nor shall
such consent be deemed a waiver of any then existing default except as may be
otherwise stated by Lessor at the time.

(h) The discovery of the fact that any financial statement relied upon
by Lessor in giving its consent to an assignment or subletting was materially
false shall, at Lessor's election, render Lessor's said consent null and void.

12.4 Additional Terms and Conditions Applicable to Subletting. Regardless
of Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be deemed
included in all subleases under this Lease whether or not expressly incorporated
therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease; provided, however, that until
a default shall occur in the performance of Lessee's obligations under this
Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against said sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.

(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublessee as is satisfactory to Lessor, and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublease shall, by reason of entering into a
sublease under this Lease, be deemed, for the benefit of Lessor, to have assumed
and agreed to conform and comply with each and every obligation herein to be
performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.

(c) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor at its option and without any obligation to
do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee under
such sublease.

(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.

(e) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within three (3) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee.

12.5 Lessor's Expenses. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys', architects', engineers' or other
consultants' fees.

12.6 Conditions to Consent. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the proposed
assignee or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Office Building Project and not in violation of
any exclusives or rights then held by other tenants, and (b) the proposed
assignee or sublessee be at least as financially responsible as Lessee was
expected to be at the time of the execution of this Lease or of such assignment
or subletting, whichever is greater.

13. Default; Remedies.

13.1 Default. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:

(a) The vacation or abandonment of the Premises by Lessee. Vacation of
the Premises shall include the failure to occupy the Premises for a continuous
period of sixty (60) days or more, whether or not the rent is paid.

(b) The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment or
subletting), 13.1(a) (vacation or abandonment). 13.1(e) (insolvency), 13.1(f)
(false statement), 16(a) (estoppel certificate), 30(b) (subordination), 33
(auctions), or 41.1 (easements), all of which are hereby deemed to be material,
non-curable defaults without the necessity of any notice by Lessor to Lessee
thereof.

(c) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.

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(d) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee
other than those referenced in subparagraphs (b) and (c), above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's
noncompliance is such that more than thirty (30) days are reasonably required
for its cure, then Lessee shall not be deemed to be in default if Lessee
commenced such cure within said thirty (30) day period and thereafter diligently
pursues such cure to completion. To the extent permitted by law, such thirty
(30) day notice shall constitute the sole and exclusive notice required to be
given to Lessee under applicable Unlawful Detainer statutes.

(e) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in 11 U.S.C. /S/101 or any successor statute thereto (unless, in the
case of a petition filed against Lessee, the same is dismissed within sixty (60)
days; (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.

(f) The discovery by Lessor that any financial statement given to Lessor by
Lessee, or its successor in interest or by any guarantor of Lessee's obligation
hereunder, was materially false.

13.2 Remedies. In the event of any material default or breach of this Lease by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default:

(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee all damages incurred by Lessor
by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.

(b) Maintain Lessee's right to possession in which case this Lease shall
continue in effect whether or not Lessee shall have vacated or abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.

(c) Pursue any other remedy now or hereafter available to Lessor under the
laws or judicial decisions of the state wherein the Premises are located. Unpaid
installments of rent and other unpaid monetary obligations of Lessee under the
terms of this Lease shall bear interest from the date due at the maximum rate
then allowable by law.

13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails to
perform obligations required of Lessor within a reasonable time, but in no event
later than thirty (30) days after written notice by Lessee to Lessor and to the
holder of any first mortgage or deed of trust covering the Premises whose name
and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
pursues the same to completion.

13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to
Lessor of Base Rent, Lessee's Share of Operating Expense Increase or other sums
due hereunder will cause Lessor to incur costs not contemplated by this Lease,
the exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed on Lessor by the terms of any mortgage or trust
deed covering the Office Building Project. Accordingly, if any installment of
Base Rent, Operating Expense Increase, or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to 6% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder.

14. Condemnation. If the Premises or any portion thereof or the Office
Building Project are taken under the power of eminent domain, or sold under the
treat of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of the
date the condemning authority takes title or possession, whichever first occurs;
provided that if so much of the Premises or the Office Building Project are
taken by such condemnation as would substantially and adversely affect the
operation and profitability of Lessee's business conducted from the Premises,
Lessee shall have the option, to be exercised only in writing within thirty (30)
days after Lessor shall have given Lessee written notice of such taking (or in
the absence of such notice, within thirty (30) days after the condemning
authority shall have taken possession), to terminate this Lease as of the date
the condemning authority takes such possession. If Lessee does not terminate
this Lease in accordance with the foregoing, this Lease shall remain in full
force and effect as to the portion of the Premises remaining, except that the
rent and Lessee's Share of Operating Expense Increase shall be reduced in the
proportion that the floor area of the Premises taken bears to the total floor
area of the Premises. Common Areas taken shall be excluded from the Common Areas
usable by Lessee and no reduction of rent shall occur with respect thereto or by
reason thereof. Lessor shall have the option in its sole discretion to terminate
this Lease as of the taking of possession by the condemning authority, by giving
written notice to Lessee of such election within thirty (30) days after receipt
of notice of a taking by condemnation of any part of the Premises or the Office
Building Project. Any award for the taking of all or any part of the Premises of
the Office Building Project under the power of eminent domain or any payment
made under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any separate award for loss of or
damage to Lessee's trade fixtures, removable personal property and unamortized
tenant improvements that have been paid for by Lessee. For that purpose the cost
of such improvements shall be amortized over the original term of this Lease
excluding any options. In the event that this Lease is not terminated by reason
of such condemnation, Lessor shall to the extent of severance damages received
by Lessor in connection with such condemnation, repair any damage to the
Premises caused by such condemnation except to the extent that Lessee has been
reimbursed therefor by the condemning authority Lessee shall pay any amount in
excess of such severance damages required to complete such repair.

16. Estoppel Certificate.

(a) Each party (as "responding party") shall at any time upon not less than
ten (10) days' prior written notice from the other party ("requesting party")
execute, acknowledge and deliver to the requesting party a statement in writing
(i) certifying that this Lease is unmodified and in full force and effect (or,
if modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect) and the date

<PAGE>

to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively rolled upon
by any prospective purchaser or encumbrancer of the Office Building Project or
of the business of Lessee.

(b) At the requesting party's option, the failure to deliver such statement
within such time shall be a material default of this Lease by the party who is
to respond, without any further notice to such party, or it shall be conclusive
upon such party that (i) this Lease is in full force and effect, without
modification except as may be represented by the requesting party, (ii) there
are no uncured defaults in the requesting party's performance, and (iii) if
Lessor is the requesting party, not more than one month's rent has been paid in
advance.

(c) If Lessor desires to finance, refinance, or sell the Office Building
Project, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three (3) years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.

17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer of such title
or interest, Lessor herein named (and in case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall, subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.

18. Severability. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.

19. Interest on Past-due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
than allowable by law or judgments from the date due. Payment of such interest
shall not excuse or cure any default by Lessee under this Lease; provided,
however, that interest shall not be payable on late charges incurred by Lessee
nor any amounts upon which late charges are paid by Lessee.

20. Time of Essence. Time is of the essence with respect to the obligations to
be performed under this Lease.

21. Additional Rent. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense Increase and any other expenses payable by Lessee hereunder shall be
deemed to be rent.

22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor or any employee or agents of any of said persons has made any oral
or written warranties or representations to Lessee relative to the condition or
use by Lessee of the Premises or the Office Building Project and Lessee
acknowledges that Lessee assumes all responsibility regarding the Occupational
Safety Health Act, the legal use and adaptability of the Premises and the
compliance thereof with all applicable laws and regulations in effect during the
term of this Lease.

23. Notices. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to Lessee
or to Lessor at the address noted below or adjacent to the signature of the
respective parties, as the case may be. Mailed notices shall be deemed given
upon actual receipt at the address required, or forty-eight hours following
deposit in the mail, postage prepaid, whichever first occurs. Either party may
by notice to the other specify a different address for notice purposes except
that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice purposes. A copy of all notices required
or permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from time to time
hereafter designate by notice to Lessee.

24. Waivers. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.

25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form," memorandum of this
Lease for recording purposes.

26. Holding Over. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, except that the rent payable
shall be 125% of the rent payable immediately preceding the termination date of
------
this Lease, and all Options, if any, granted under the terms of this Lease shall
be deemed terminated and be of no further effect during said month to month
tenancy.

27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.

28. Covenants and Conditions. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.

29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Office Building Project is located and any litigation concerning this
Lease between the parties hereto shall be initiated in the county in which the
Office Building Project is located.

30. Subordination.

(a) This Lease, and any Option or right of first refusal granted hereby, at
Lessor's option, shall be subordinate to any ground lease, mortgage, deed of
trust, or any other hypothecation or security now or hereafter placed upon the
Office Building Project and to any and all advances made on the security thereof
and to all renewals, modifications, consolidations, replacements and extensions
thereof. Notwithstanding such subordination Lessee's right to quiet possession
of the Premises shall not be disturbed if Lessee is not in default and so long
as Lessee shall pay the rent and observe and perform all of the provisions of
this Lease, unless this Lease is otherwise terminated pursuant to its terms. If
any mortgagee, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.

(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).

31. Attorneys' Fees.

31.1 If either party or the broker(s) named herein bring an action to enforce
the terms hereof or declare rights hereunder, the prevailing party in any such
action, trial or appeal thereon, shall be entitled to his reasonable attorney's
fees to be paid by the losing party as fixed by the court in the same or a
separate suit, and whether or not such action is pursued to decision or
judgment. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder

31.2 The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred in good faith.

31.3 Lessor shall be entitled to reasonable attorneys' fees and all other
costs and expenses incurred in the preparation and service of notice of default
and consultations in connection therewith, whether or not a legal transaction is
subsequently commenced in connection with such default.

32. Lessor's Access.

32.1 Lessor and Lessor's agents shall have the right to enter the Premises at
reasonable times for the purpose of inspecting the same, performing any services
required of Lessor, showing the same to prospective purchasers, lenders, or
lessees, taking such safety measures, erecting such scaffolding or other
necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use of the
Premises. Lessor may at any time place on or about the Premises or the Building
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Premises any ordinary "For Lease"
signs.

32.2 All activities of Lessor pursuant to this paragraph shall be without
abatement of rent, nor shall Lessor have any liability to Lessee for the same.

. 1004 American Industrial Real Estate Association

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32.3 Lessor shall have the right to retain keys to the Premises and to unlock
all doors in or upon the Premises other than to files, vaults and safes, and in
the case of emergency to enter the Premises by any reasonably appropriate means,
and any such entry shall not be deemed a forceable or unlawful entry or detainer
of the Premises or an eviction. Lessee waives any charges for damages or
injuries or interference with Lessee's property or business in connection
therewith.

33.Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of any auction on the Premises or Common Areas in violation
of this paragraph shall constitute a material default of this Lease.

34.Signs. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Office Building Project.

35.Merger. The voluntary or other surrender of this Lease by Lessee, or a mutual
cancellation thereof, or a termination by Lessor, shall not work a merger, and
shall, at the option of Lessor, terminate all or any existing subtenancies or
may, at the option of Lessor, operate as an assignment to Lessor of any or all
of such subtenancies.

36.Consents. Except for paragraphs 33 (auctions) and 34 (signs) hereof, wherever
in this Lease the consent of one party is required to an act of the other party
such consent shall not be unreasonably withheld or delayed.

37.Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.

38.Quiet Possession. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Office Building Project.

39.Options.

39.1 Definitions. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option of right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within the
Office Building Project or other property of Lessor; (3) the right or option to
purchase the Premises or the Office Building Project, or the right of first
refusal to purchase the Premises or the Office Building Project or the right of
first offer to purchase the Premises or the Office Building Project, or the
right or option to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor or the right of first offer to
purchase other property of Lessor.

39.2 Options Personal. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original
Lessee while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee; provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.

39.3 Multiple Options. In the event that Lessee has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the prior
option to extend or renew this Lease has been so exercised.

39.4 Effect of Default on Options.

(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary, (i) during the time commencing
from the date Lessor gives to Lessee a notice of default pursuant to paragraph
13.1(c) or 13.1(d) and continuing until the noncompliance alleged in said notice
of default is cured, or (ii) during the period of time commencing on the day
after a monetary obligation to Lessor is due from Lessee and unpaid (without any
necessity for notice thereof to Lessee) and continuing until the obligation is
paid, or (iii) in the event that Lessor has given to Lessee three or more
notices of default under paragraph 13.1(c), or paragraph 13.1(d), whether or not
the defaults are cured, during the 12 month period of time immediately prior to
the time that Lessee attempts to exercise the subject Option, (iv) if Lessee has
committed any non-curable breach, including without limitation those described
in paragraph 13.1 (b), or is otherwise in default of any of the terms, covenants
or conditions of this Lease.

(b) The period of time within which an Option may be exercised shall not
be extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of paragraph 39.4(a).

(c) All rights of Lessee under the provisions of an Option shall terminate
and be of no further force or effect, notwithstanding Lessee's due and timely
exercise of the Option, if, after such exercise and during the term of this
Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a
period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(d) within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, or
(iii) Lessor gives to Lessee three or more notices of default under paragraph
13.1(c), or paragraph 13.1(d), whether or not the defaults are cured, or (iv) if
Lessee has committed any non-curable breach, including without limitation those
described in paragraph 13.1(b), or is otherwise in default of any terms,
covenants and conditions of this Lease.

40.Security Measures-Lessor's Reservations.

40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Office Building Project or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).

40.2 Lessor shall have the following rights:

(a) To change the name, address or title of the Office Building Project
or building in which the Premises are located upon not less than 90 days prior
written notice;

(b) To, at Lessee's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate;

(c) To permit any lessee the exclusive right to conduct any business as
long as such exclusive does not conflict with any rights expressly given herein;

(d) To place such signs, notices or displays as Lessor reasonably deems
necessary or advisable upon the roof, exterior of the buildings or the Office
Building Project or on pole signs in the Common Areas;

40.3 Lessee shall not:

(a) Use a representation (photographic or otherwise) of the Building or
the Office Building Project or their name(s) in connection with Lessee's
business;

(b) Suffer or permit anyone, except in emergency, to go upon the roof of
the Building.

41.Easements.

41.1 Lessor reserves to itself the right, from time to time, to grant such
easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.

41.2 The obstruction of Lessee's view, air, or light by any structure erected
in the vicinity of the Building, whether by Lessor or third parties, shall in no
way affect this Lease or impose any liability upon Lessor.

42.Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.

FULL SERVICE-GROSS

PAGE 9 OF 10 PAGES

<PAGE>

43. Authority. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.

44. Conflict. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provision, if any, shall be
controlled by the typewritten or handwritten provisions.

45. No Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.

46. Lender Modification. Lessee agrees to make such reasonable modifications to
this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.

47. Multiple Parties. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.

48. Work Letter. This Lease is supplemented by that certain Work Letter of even
date executed by Lessor and Lessee, attached herein as Exhibit C, and
incorporated herein by this reference.

49. Attachments. Attached hereto are the following documents which constitute a
part of this Lease:

50. Rent. The rent schedule shall be as follows:
----
January 01, 1997 through and including December 31, 1998 - $12,828.00/mo.
January 01, 1999 through and including December 31, 2000 - $13,598.00/mo.
January 01, 2001 through and including December 31, 2001 - $14,414.00/mo.

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.

IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION
TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES
AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF
THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES SHALL
RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE
LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

<TABLE>
<CAPTION>
<S> <C>
LESSOR LESSEE

PRP LIMITED PARTNERSHIP WHITE PINE SOFTWARE, A Delaware Corporation
- ----------------------------------------------------- -----------------------------------------------------

By /s/ Alan R. Pinn By /s/ Howard Berke
- ----------------------------------------------------- -----------------------------------------------------
Alan R. Pinn Howard Berke

Its Partner Its President/CEO
----------------------------------------- -----------------------------------------

By By
- ----------------------------------------------------- -----------------------------------------------------
Alan R. Pinn Howard Berke

Its Its
----------------------------------------- -----------------------------------------

Executed at 1475 Saratoga Ave., Suite 250 Executed at 542 Amherst Street
------------------------------------------ ------------------------------------------
San Jose, CA 95129 Nashua, NH 03063

on 1-8-1997 on 3 January, 1997
--------------------------------------------------- ---------------------------------------------------

Address 1475 Saratoga Ave., Suite 250 Address 1485 Saratoga Ave.
---------------------------------------------- -----------------------------------------------
San Jose, CA 95129 San Jose, CA 95129

Telephone: (408) 252-9131 Telephone: (603) 886-9050
</TABLE>

1984 AMERICAN INDUSTRIAL FULL SERVICE-GROSS
REAL ESTATE
ASSOCIATION PAGE 10 OF 10

For these forms write or call the American Industrial Real Estate Association,
350 South Figueroa Street, Suite 275, Los Angeles, CA 90071, (213) 687-8777.
1984 - By American Industrial Real Estate Association. All rights reserved. No
part of these words may be reproduced in any form without permission in writing.
<PAGE>

STANDARD OFFICE LEASE

FLOOR PLAN

[LOGO OF AIR APPEARS HERE]

PINN BROTHERS OFFICE PARK

1471 - 1485 SARATOGA AVENUE

SAN JOSE

[ART DESCRIPTION TO COME APPEARS HERE]

SARATOGA AVE.

EXHIBIT A
Page 1

STANDARD OFFICE LEASE

FLOOR PLAN

[LOGO OF AIR APPEARS HERE]

[TECHNICAL DRAWING DEPICTING A FIRST FLOOR OFFICE PLAN APPEARS HERE]

FIRST FLOOR PLAN EXHIBIT A
---------------- Page 2

STANDARD OFFICE LEASE

FLOOR PLAN

[LOGO OF AIR APPEARS HERE]

[TECHNICAL DRAWING OF SECOND FLOOR PLAN APPEARS HERE]

SECOND FLOOR PLAN EXHIBIT A
----------------- Page 3

1984 AMERICAN FULL SERVICE-GROSS
INDUSTRIAL REAL
ESTATE ASSOCIATION
<PAGE>

RULES AND REGULATIONS FOR
STANDARD OFFICE LEASE

[LOGO APPEARS HERE]

Dated: October 24, 1996

By and Between PBP LIMITED PARTNERSHIP ("Lessor") and WHITE PINE SOFTWARE,
a Delaware Corporation ("Lessee")

GENERAL RULES

1. Lessee shall not suffer or permit the obstruction of any Common Areas,
including driveways, walkways, and stairways.

2. Lessor reserves the right to refuse access to any persons Lessor in good
faith judges to be a threat to the safety, reputation, or property of the Office
Building Project and its occupants.

3. Lessee shall not make or permit any noise or odors that annoy or interfere
with other lessees or persons having business within the Office Building
Project.

4. Lessee shall not keep animals or birds within the Office Building Project,
and shall not bring bicycles, motorcycles or other vehicles into areas not
designated as authorized for same.

5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.

6. Lessee shall not alter any lock or install new or additional locks or
bolts.

7. Lessee shall be responsible for the inappropriate use of any toilet rooms,
plumbing or other utilities. No foreign substances of any kind are to be
inserted therein.

8. Lessee shall not deface the walls, partitions or other surfaces of the
premises or Office Building Project.

9. Lessee shall not suffer or permit any thing in or around the Premises or
Building that causes excessive vibration or floor loading in any part of the
Office Building Project.

10. Furniture, significant freight and equipment shall be moved into or out of
the building only with the Lessor's knowledge and consent, and subject to such
reasonable limitations, techniques and timing, as may be designated by Lessor.
Lessee shall be responsible for any damage to the Office Building Project
arising from any such activity.

11. Lessee shall not employ any service or contractor for services or work to
be performed in the Building, except as approved by Lessor.

12. Lessor reserves the right to close and lock the Building on Saturdays,
Sundays and legal holidays, and on other days between the hours of 7 P.M. and 7
A.M. of the following day. If Lessee uses the Premises during such periods,
Lessee shall be responsible for securely locking any doors it may have opened
for entry.

13. Lessee shall return all keys at the termination of its tenancy and shall
be responsible for the cost of replacing any keys that are lost.

14. No window coverings, shades or awnings shall be installed or used by
Lessee.

15. No Lessee, employee or invitees shall go upon the roof of the Building.

16. Lessee shall not suffer or permit smoking or carrying of lighted cigars or
cigarettes in areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.

17. Lessee shall not use any method of heating or air conditioning other than
as provided by Lessor.

18. Lessee shall not install, maintain or operate any vending machines upon
the Premises without Lessor's written consent.

19. The Premises shall not be used for lodging or manufacturing, cooking or
food preparation.

20. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any applicable governmental agency.

21. Lessor reserves the right to waive any one of these rules or regulations,
and/or as to any particular Lessee, and any such waiver shall not constitute a
waiver of any other rule or regulation or any subsequent application thereof to
such Lessee.

22. Lessee assumes all risks from theft or vandalism and agrees to keep its
Premises locked as may be required.

23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants. Lessee
agrees to abide by these and such rules and regulations.

PARKING RULES

1. Parking areas shall be used only for parking by vehicles no longer than
full size, passenger automobiles herein called "Permitted Size Vehicles."
Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized
Vehicles."

2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessor for such activities.

3. Parking stickers or identification devices shall be the property of Lessor
and be returned to Lessor by the holder thereof upon termination of the holder's
parking privileges. Lessee will pay such replacement charge as is reasonably
established by Lessor for the loss of such devices.

4. Lessor reserves the right to refuse the sale of monthly Identification
devices to any person or entity that willfully refuses to comply with the
applicable rules, regulations, laws and/or agreements.

5. Lessor reserves the right to relocate all or a part of parking spaces from
floor to floor, within one floor, and/or to reasonably adjacent offsite
location(s), and to reasonably allocate them between compact and standard size
spaces, as long as the same complies with applicable laws, ordinances and
regulations.

6. Users of the parking area will obey all posted signs and park only in the
areas designated for vehicle parking.

7. Unless otherwise instructed, every person using the parking area is
required to park and lock his own vehicle. Lessor will not be responsible for
any damage to vehicles, injury to persons or loss of properly, all of which
risks are assumed by the party using the parking area.

8. Validation, if established, will be permissible only by such method or
methods as Lessor and/or its licensee may establish at rates generally
applicable to visitor parking.

9. The maintenance, washing, waxing or cleaning of vehicles in the parking
structure or Common Areas is prohibited.

10. Lessee shall be responsible for seeing that all of its employees, agents
and invitees comply with the applicable parking rules, regulations, laws and
agreements.

11. Lessor reserves the right to modify these rules and/or adopt such other
reasonable and non-discriminatory rules and regulations as it may deem necessary
for the proper operation of the parking area.

12. Such parking use as is herein provided is intended merely as a license
only and no bailment is intended or shall be created hereby.

FULL SERVICE-GROSS

EXHIBIT B

PAGE 1 OF 1 PAGES

<PAGE>

ADDENDUM TO LEASE AGREEMENT DATED OCTOBER 24, 1996
BY AND BETWEEN WHITE PINE SOFTWARE, INC.,
A DELAWARE CORPORATION, LESSEE,
AND PBP LIMITED PARTNERSHIP, LESSOR

RECITALS
--------

A. WHITE PINE SOFTWARE, INC. (Hereinafter "Lessee") and PBP LIMITED
PARTNERSHIP (hereinafter "Lessor") wish to amend the above-captioned
Lease Agreement (hereinafter "Lease").

B. It is the intention of Lessor and Lessee that the provisions of this
Addendum shall govern and take precedence over any provisions contained
in the Lease and any exhibits or attachments thereto that are
inconsistent with the terms and provisions of this Addendum.

C. Any reference to the Lease in the following Addendum shall be deemed to
include this Addendum, unless otherwise specified.

D. This Addendum consists of Paragraph 51 through 61.

NOW THEREFORE, the parties amend the Lease as follows:

51. PG&E
----

Notwithstanding any of the provisions in Paragraph 4.2 of this Lease,
Lessor and Lessee hereby agree that Lessee's Premises shall be separately
metered for PG&E usage. The monthly cost for PG&E consumption for the
Premises shall be the sole responsibility of Lessee and shall commence
December 01, 1996 and continue during the entire term of this Lease.

52. JANITORIAL SERVICE
------------------

During the term, Lessee shall have the right to pay directly for janitorial
and window washing services and receive a fair value rental credit. In this
case, janitorial and window washing will be maintained to keep the Premises
in good order and condition.

53. COMPLIANCE WITH LAW
-------------------

a) Notwithstanding anything to the contrary in the Lease, Lessor warrants
to Lessee that the Premises and the Building, including the underlying
land and all improvements thereon, in its state on the date that the
Lease term commences, (i) is in compliance with all applicable
covenants and restrictions of record, statutes, ordinances, codes,
rules, regulations, orders, and requirements, including without
limiting the generality of the foregoing all building codes and all
applicable requirements relating to the generation, storage, handling,
transportation, disposal and/or discharge into the environment of toxic
or otherwise hazardous substances and (ii) is free from contamination
by any toxic or otherwise hazardous substances. Lessor shall defend,
indemnify, and hold harmless Lessee from and against any and all
liability, loss, suits, claims, actions, costs and expense, including
without limitation any attorneys fees, arising from any breach of the
foregoing warranty.
<PAGE>

b) Lessor shall defend, indemnify, and hold harmless Lessee from and against
any and all liability, loss, suits, claims, actions, costs and expense,
including without limitation any attorneys fees, arising from any
contamination of the Premises or the Building including the underlying land
and all improvements thereon, by any toxic or otherwise hazardous
substances occurring after commencement of the term hereof but not caused
by Lessee.

54. OPERATING COSTS
---------------

Notwithstanding anything to the contrary contained in the Lease, the
following costs shall be excluded from the definition of Operating Expenses
pursuant to Paragraph 4.2 (d) of the Lease:

1. All costs without limitation, including the exterior common area
maintenance, relating to any other building located in the Office
Park in which the Premises and the Building are located;

2. Costs incurred due to Lessor's violation of any terms or
conditions of this Lease;

3. Overhead profit increments paid to Lessor's subsidiaries,
affiliates, or entities controlled by Lessor for management or
other services on or to the Premises or Building or for supplies
or other materials to the extent that the costs of the services,
supplies, or materials exceeds the cost that would have been
provided by unaffiliated parties on a competitive basis;

4. Costs incurred by Lessor for alterations or additions that are
considered capital improvements and replacements under generally
accepted accounting principles;

5. Any compensation paid to clerks, attendants or other persons in
commercial concessions operated by Lessor;

6. All costs for items or services for which Lessee is required to
reimburse Lessor or third persons directly pursuant to the terms
of the Lease;

7. Repairs and other work for which Lessor has or will be paid from
insurance proceeds or by other third parties;

8. Any costs, fines or penalties incurred due to violation by Lessor
of any governmental rule of authority;

9. Management costs unless they are included in the computation of
operating costs for the base year and do not exceed similar costs
incurred in comparable office buildings in the area;

10. Costs for sculpture, paintings, or other objects of art (nor
insurance thereon or extraordinary security in connection
therewith); and

11. Any other expenses that under generally accepted accounting
principles and practice would not be considered a normal
maintenance and operating expense.

<PAGE>

55. REAL PROPERTY TAXES; EXCLUSIONS
-------------------------------

Notwithstanding the provisions of Paragraph 10.2 of the Lease, Lessor shall
be solely responsible for:

a) Any increases in real property taxes and/or assessments that result
from "new construction," other than construction caused by Lessee or
construction caused by Lessor in the performance of its obligations
under this Lease. For purposes of this Paragraph, "new construction"
shall have the same meaning as in Section 70 and Sections 60-62,
respectively, of the California Revenue and Taxation Code or any
amendments or successive statutes to those sections.

b) Lessor's inheritance, gift or estate taxes.

56. REAL PROPERTY TAXES; AMORTIZATION OF ASSESSMENTS
------------------------------------------------

Notwithstanding the provisions of Paragraph 10.3 of the Lease, Lessee's
obligation to pay any increase in Operating Expenses, following the Base
Year, due to general or special assessments shall be calculated on the
basis of the amount due if Lessor had allowed the assessment to go to bond
and the assessment was to be paid in installments, even if Lessor pays the
assessment in full.

57. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES
----------------------------------------------------------

Notwithstanding the provisions of Paragraph 7.1 of the Lease, Lessor while
complying with its obligations under said Paragraph, shall not unreasonably
interfere with Lessee's use and occupation of the Premises. Notwithstanding
the provisions of Paragraph 7.1 of the Lease, Lessor shall be liable for
loss or injury caused by Lessor's negligent or intentional acts or
omissions.

58. ALTERATIONS & ADDITIONS
-----------------------

Notwithstanding the provisions of Paragraph 7.3 of the Lease, at such time
as Lessor approves Lessee's proposed alterations or additions, or upon
Lessee giving Lessor ninety (90) days written notice of their intent to
vacate the Premises at the end of the lease term, Lessee shall also request
Lessor to indicate to Lessee in writing whether and to what extent Lessor
shall require Lessee to remove such alterations or additions at the
expiration of the Lease and restore the Premises to their prior condition.
Lessor must provide Lessee with a list, if any, no later than thirty (30)
days prior to expiration of lease term.

59. LIMITATION ON INDEMNIFICATION
-----------------------------

Notwithstanding the provisions of Paragraph 8.7 of the Lease, Lessee's
indemnification of Lessor pursuant thereto shall not extend to any
liability caused by the intentional or negligent acts or omissions of
Lessor, or by Lessor's breach of any warranty or obligation under this
Lease.

60. DAMAGE OR DESTRUCTION
---------------------

Notwithstanding anything to the contrary contained in Paragraph 9 of the
Lease, the following provisions shall apply:

<PAGE>

a) The registered architect or engineer appointed by the Lessor
shall render a good faith opinion as to whether restoration of
---- -----
the Premises or the Building can be completed within 60 days
after the commencement of such restoration.

b) In the event that the Lessor is obligated to restore damage to
the Premises or the Building pursuant to the provisions of
Paragraph 9.2(a) or chooses to restore the Premises or Building
pursuant to Paragraph 9.2(b) of the Lease, Lessor shall promptly
commence and at all times thereafter diligently pursue such
restoration, and Lessee shall have the right to terminate this
Lease if such restoration or repair is not substantially
completed within 120 day period after occurrence of the casualty.

c) Lessee shall not be entitled to any compensation or damages for
loss of the use of the whole or any part of the Premises and/or
any inconvenience or annoyance occasioned by any such damage,
repair reconstruction or restoration, except to the extent that
such damage, inconvenience and/or annoyance is the result of
Lessor's intentional or negligent acts or omissions.

61. CONDEMNATION; LESSEE'S AWARD
----------------------------

In addition to the awards to which Lessee is entitled pursuant to the
provisions to Paragraph 14 of the Lease, Lessee shall be entitled to, and
Lessor shall have no claim upon, any amount specifically awarded to Lessee,
including but not limited to any amount awarded to Lessee for Lessee's
relocation expenses.

LESSOR LESSEE

PBP LIMITED PARTNERSHIP WHITE PINE SOFTWARE, Inc.
A Delaware Corporation

By: /s/ Alan R. Pinn By: /s/ Howard Berke
----------------------- -------------------------
Alan R. Pinn Howard Berke

Its: Partner Its: President/CEO

Dated: 1-8- , 1996 Dated: 3 January , 1996
------------------ ------------------

Address: 1475 Saratoga Avenue Address: 542 Amherst Street
Suite 250 Nashua, NH 03063
San Jose, CA 95129

Telephone: (408)252-9131 Telephone: (603)886-9050
<PAGE>

RIDER TO ADDENDUM TO LEASE AGREEMENT DATED
OCTOBER 24, 1996 BY AND BETWEEN WHITE PINE SOFTWARE, INC.,
A DELAWARE CORPORATION, LESSEE,
AND PBP LIMITED PARTNERSHIP, LESSOR

Rider No. 1 (to Paragraph 1.5)
- ------------------------------

Lessee may at Lessee's option cancel and terminate this Lease by giving
Lessor one hundred eighty (180) days written notification of Lessee's
election to do so at any time after January 1, 1999. In such event this
Lease shall terminate one hundred eighty (180) days after the date of such
notice.

Rider No. 2 (to Paragraph 12.4)
- -------------------------------

Lessee hereby assigns and transfers to Lessor all of Lessee's interest in
all rentals and incomes arising from any sublease heretofore or hereafter
made by Lessee, and Lessor may collect such rent and income and apply same
toward Lessee's obligations under this Lease; provided however, that until
a default shall occur in the performance of Lessee's obligations under this
Lease, Lessee may receive and enjoy any and all rent collected from
sublessee in excess of the rent schedule agreed to by Lessor and Lessee.

Rider No. 3 (to Paragraph 26)
- -----------------------------

If Lessee, with Lessor's consent, remains in possession of the Premises or
any part hereof after the expiration of the term hereof, such occupancy
shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, except that the rent payable
shall be one hundred twenty-five percent (125%) of the rent payable
immediately preceding the termination date of this Lease, and all options,
if any, granted under the terms of this Lease shall be deemed terminated
and be of no further effect during said month to month tenancy.

Rider No. 4 [to Paragraph 30(b)]
- --------------------------------

Notwithstanding the foregoing, (i) the aforesaid subordination shall not be
effective as to any future mortgages, deeds of trust or other instruments,
nor shall Lessee be required to deliver any instrument as aforesaid, until
Lessee shall have received a non-disturbance agreement, in the customary
form from the holder thereof, and (ii) Lessor hereby agrees to deliver to
Lessee a non-disturbance agreement, in the customary form, from the holders
of all existing mortgages, deeds of trust or other similar instruments with
respect to the Premises.

<PAGE>

Rider No. 5 (to Paragraph 32.1)
- -------------------------------

Except in the case of an emergency, Lessor shall give at least twenty-
four (24) hours advance notice to Lessee before entering the Premises.

Rider No. 6 (to General Rules No. 12)
- -------------------------------------

Lessor reserves the right to close and lock the Building on Saturdays,
Sundays and legal holidays. If Lessee uses the Premises during such
periods, Lessee shall be responsible for securely locking any doors it
may have opened for entry.

Rider No. 7 (to General Rules No. 19)
- -------------------------------------

The Premises may be used for any uses permitted under the City Ordinances
of the City of San Jose.

Rider No. 8 Non-Disturbance
- ---------------------------

In the event of a foreclosure of the Deed of Trust, so long as there
exist no breach, default, or event of default on the part of Lessee under
the Lease, the leasehold interest of Lessee under the Lease shall not be
extinguished or terminated by reason of such foreclosure, but rather the
Lease shall continue in full force and Lender and any successor in
interest to Lender shall recognize and accept Lessee as lessee under the
Lease subject to the terms and provisions of Lease.

LESSOR LESSEE

PBP LIMITED PARTNERSHIP WHITE PINE SOFTWARE, Inc.,
A Delaware Corporation

By: /s/ Alan R. Pinn By: /s/ Howard Berke
---------------------- ----------------------
Alan R. Pinn Howard Berke

Its: Partner Its: President/CEO

Dated: January 8, 1997 Dated: January 3, 1997

Address: 1475 Saratoga Avenue Address: 542 Amherst Street
Suite 250 Nashua, NH 03063
San Jose, CA 95129

Telephone: (408) 252-9131 Telephone: (603) 886-9050

<PAGE>

FLEET BANK - NH
AMENDMENT TO COMMERCIAL LOAN AGREEMENT
AND LOAN DOCUMENTS

This Amendment (the "Amendment") is made as of this 20th day of
----
December, 1996, by and among WHITE PINE SOFTWARE, INC., a Delaware corporation
with its principal place of business at 542 Amherst Street, Nashua, New
Hampshire 03063 ("Borrower") and FLEET BANK - NH, a bank organized under the
laws of the State of New Hampshire with a principal address of NH NA E02A, 1155
Elm Street, Manchester, New Hampshire 03101 (the "Bank").

WITNESSETH:
----------

WHEREAS, pursuant to a certain Commercial Loan Agreement dated December
30, 1994 between the Bank and the Borrower (the "Loan Agreement"), the Bank has
extended to the Borrower a certain Revolving Line of Credit Loan in the current
principal amount of up to One Million Dollars ($1,000,000.00), which Revolving
Line of Credit Loan is evidenced by a certain Revolving Line of Credit Note
dated December 30, 1994 in the principal amount of One Million Dollars
($1,000,000.00) made by the Borrower payable to the order of the Bank (said
Revolving Line of Credit Note, as amended, modified, renewed and replaced being
hereinafter referred to as the "Old Revolving Line of Credit Note") and which is
secured pursuant to the Loan Documents (as defined in the Loan Agreement); and

WHEREAS, the Borrower has requested, and the Bank has agreed, to
increase the Revolving Line of Credit Loan and in connection therewith to make
certain other modifications to the terms and conditions of the Loan Agreement
and the Loan Documents, all as hereinafter set forth.

NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Bank and the Borrower agree as
follows:

1. Amendment to Loan Agreement.
---------------------------

(a) The Loan Agreement shall be and hereby is amended by increasing
the maximum available dollar amount under the Revolving Line of Credit Loan as
referenced in clause (1) of Section I. A. of the Loan Agreement to Three Million
Dollars ($3,000,000.00), subject to the limitation set forth in clause (2) of
Section I. A. of the Loan Agreement.

(b) The Review Date as set forth in Section I. C of the Loan Agreement
shall be and hereby is amended to mean June 30, 1998 and each anniversary of
such date to which the Bank in its sole discretion elects to renew and extend
the Revolving Line of Credit Loan.

(c) Section I of Schedule A of the Loan Agreement shall be and hereby
is amended by inserting (i) 75% as the "Applicable Percentage of Acceptable
Accounts", (ii) zero as the

1
<PAGE>

"Applicable Percentage of Acceptable Inventory", (iii) sixty (60) as the
applicable number of days under clause (ii) in the Definition of Acceptable
Accounts, (iv) replace "date of invoice" in line six (6) under clause (ii) in
the Definition of Acceptable Accounts with "due date"; and (v) monthly in the
requirement for delivery of reconciliation of account and accounts receivable.

(d) Section I of Schedule B of the Loan Agreement shall be and hereby
is amended by deleting the same and inserting in place thereof the following:

I. Fees Payable by BORROWER.
------------------------

Initial Commitment Fee: $2,500.00 payable on the date hereof.

Unused Commitment Fee: .25% per annum of the daily average of unadvanced
amounts under the Revolving Line of Credit (based upon the maximum
available amount thereunder of $3,000,000.00), determined and payable
quarterly in arrears during such times as the BORROWER has funds
invested for management with Fleet Investment Advisors of less than
$12,000,000.00.

(e) Section IV of Schedule B of the Loan Agreement shall be and hereby
is amended by deleting the same and inserting in place thereof the following:

1. BORROWER shall have a Tangible Net Worth (as hereinafter defined)
equal to at least Eighteen Million Dollars ($18,000,000.00) as at
December 31, 1996 and as at each fiscal quarter end thereafter.
"Tangible Net Worth" means total shareholders' equity less intangible
----
assets, all as determined in accordance with generally accepted
accounting principles from BORROWER'S financial statements delivered to
the BANK in accordance with the covenants of the BORROWER in the Loan
Agreement (the "Financial Statements").

2. BORROWER's "Cumulative Loss" (as hereinafter defined) for the year to
date as of the end of each fiscal quarter during the fiscal year ending
December 31, 1997 shall not exceed One Million Eight Hundred Thousand
Dollars ($1,800,000.00). For purposes hereof, "Cumulative Loss" shall
mean the BORROWER's net income [loss] for the fiscal year to date as of
the applicable fiscal quarter ending on the date of determination, all
as determined in accordance with generally accepted accounting
principals from the Financial Statements.

3. BORROWER shall have "Net Income" (as hereinafter defined) of not less
than Fifty Thousand Dollars ($50,000.00) for each fiscal quarter
beginning after December 31, 1997. For purposes hereof, "Net Income"
shall mean the BORROWER's net income for the applicable fiscal quarter
ending on the date of determination, all as determined in accordance
with generally accepted accounting principals from the Financial
Statements; and

2
<PAGE>

4. BORROWER shall maintain a ratio of Current Assets (as hereinafter
defined) to Current Liabilities (as hereinafter defined) as at December
31, 1996 and as at the end of each fiscal quarter thereafter of not less
than 1.75:1. For purposes hereof, "Current Assets" shall mean the amount
of cash, cash equivalents, marketable securities, and accounts
receivable as at the fiscal quarter ending on the date of determination,
all as determined in accordance with generally accepted accounting
principals from the Financial Statements. For purposes hereof, "Current
Liabilities" shall mean the amount of current liabilities (excluding
deferred income) as at the fiscal quarter ending on the date of
determination, all as determined in accordance with generally accepted
accounting principals from the Financial Statements.

5. BORROWER shall maintain a ratio of Total Liabilities (as hereinafter
defined) to Tangible Net Worth as at December 31, 1996 and as at the end
of each fiscal quarter thereafter of not greater than 1.1:1. For
purposes hereof, "Total Liabilities" shall mean the aggregate amount of
all liabilities as at the fiscal quarter ending on the date of
determination, all as determined in accordance with generally accepted
accounting principals from the Financial Statements.

6. BORROWER shall maintain Cash Equivalents (as hereinafter defined) of
not less than Four Million Dollars ($4,000,000.00) at all times. For
purposes hereof, "Cash Equivalents" shall mean the aggregate amount of
all cash, bank accounts, certificates of deposit, marketable securities
(i.e. equity securities listed on the New York or American stock
exchanges or quoted on the National Association of Securities Dealers
Automated Quotation system (NASDAQ), state or municipal bonds, or United
States Treasury securities), and funds invested for management with
Fleet Investment Advisors as at the fiscal quarter ending on the date of
determination, all as determined in accordance with generally accepted
accounting principals from the Financial Statements.

7. BORROWER shall report and certify to BANK compliance with the
financial covenants hereinabove within thirty (30) days of the end of
each fiscal quarter on the form attached hereto as Exhibit B-2 or on
such other form or forms as may from time to time be specified by the
BANK.

2. Substitution and Replacement of Old Revolving Line of Credit Note.
-----------------------------------------------------------------
The Bank and the Borrower agree that the Old Revolving Line of Credit Note shall
be substituted and replaced in full by the Revolving Line of Credit Note of even
date herewith in the principal amount of Three Million Dollars ($3,000,000.00)
made by the Borrower payable to the order of the Bank (the "Revolving Line of
Credit Note"), which note shall be executed contemporaneously with the execution
of this Amendment, such that the indebtedness of the Borrower currently due and
owing to the Bank under the Revolving Line of Credit Loan as evidenced by the
Old Revolving Line of Credit Note shall hereafter be evidenced by the Revolving
Line of Credit Note.

3
<PAGE>

3. Amendment of Security Agreements. Each of the security agreements
--------------------------------
and collateral assignments of the Borrower to the benefit of the Bank dated
December 30, 1994 included among the Loan Documents shall be and hereby are
amended by including within the definition of the obligations secured thereunder
the Revolving Line of Credit Loan as renewed, increased, and amended hereby.

4. Amendment of Other Loan Documents. Each of the other Loan Documents
---------------------------------
as defined in the Loan Agreement, whether or not specifically referenced herein
or hereby, shall be and hereby is amended to reflect the terms and conditions of
this Amendment and to include within the scope of such Loan Documents and the
description of the loan and note therein, and the obligations secured thereby,
the Revolving Line of Credit Loan as increased and amended hereby.

5. Confirmation of Loan Documents. The Borrower hereby confirms, agrees
------------------------------
and acknowledges that the Revolving Line of Credit Note is and shall be subject
to the terms and conditions of the Loan Agreement and the Loan Documents, as
amended hereby, which shall remain in full force and effect as long as any
Obligations (as defined in the Loan Agreement) are due and owing to the Bank by
the Borrower and which are hereby expressly acknowledged, agreed to, reaffirmed,
and consented to by the Borrower.

6. Reaffirmation of Representations and Warranties. The Borrower hereby
-----------------------------------------------
confirms, reasserts, and restates all of its representations and warranties
under the Loan Agreement and the Loan Documents as of the date hereof.

7. Reaffirmation of Affirmative Covenants. The Borrower hereby
--------------------------------------
confirms, reasserts, and restates its affirmative covenants as set forth in the
Loan Agreement and the Loan Documents, as amended hereby, as of the date hereof.

8. Reaffirmation of Negative Covenants. The Borrower hereby confirms,
-----------------------------------
reasserts, and restates its negative covenants as set forth in the Loan
Agreement and the Loan Documents, as of the date hereof.

9. Binding Agreement. This Amendment shall be binding upon and inure to
-----------------
the benefit of the parties hereto and their respective successors and assigns.

10. No Further Effect. Except as amended hereby, the terms and
-----------------
conditions of the Loan Agreement and the Loan Documents as set forth therein and
as heretofore amended, modified, and renewed shall remain in full force and
effect.

11. Costs and Expenses of Bank. The Borrower agrees to reimburse the
--------------------------
Bank for all reasonable costs, expenses, and fees, including attorneys' fees,
associated with the documentation of this Amendment. Borrower consents to Bank
charging Borrower's Revolving Line of Credit Loan account for any such costs,
expenses and fees.

4
<PAGE>

IN WITNESS WHEREOF, the Borrower and the Bank have executed and delivered this
Agreement as of the date first set forth above.

BORROWER:

WHITE PINE SOFTWARE, INC.

By:/s/Howard R. Berke - President and CEO
-----------------------------------------
/s/Gary Anderson
- ----------------------------------
Witness Signature and Title / Duly Authorized

BANK:

FLEET BANK - NH

/s/Robin J. LaPointe By: /s/Kenneth R. Sheldon VP
- ---------------------------------- -------------------------------
Witness Kenneth R. Sheldon, Vice President

5
<PAGE>

FLEET BANK - NH
COMMERCIAL LOAN AGREEMENT

SCHEDULE B

EXHIBIT B-2

COMPLIANCE CERTIFICATE

Fleet Bank - NH
NH/NA/E02A
1155 Elm Street
Manchester, NH 03101

ATTENTION: Kenneth R. Sheldon, Vice President

Ladies and Gentlemen:

Pursuant to the provisions of a certain Commercial Loan Agreement dated
December 30, 1994, as amended to date (the "Loan Agreement"), by and between
White Pine Software, Inc. (collectively, the "BORROWER") and Fleet Bank - NH
(the "Bank"), the undersigned hereby certifies as follows:

1. That the financial statements (the "Financial Statements") of the
BORROWER delivered to the Bank with this certificate are true and accurate in
all material respects for the periods covered therein as of the date hereof.

2. That during the periods set forth in the Financial Statements, the
BORROWER was in compliance with the Financial Covenants set forth in Section IV
of Schedule B of the Loan Agreement, and, specifically, that as of the ending
date of the periods covered by the Financial Statements, the BORROWER had a:

(a) Tangible Net Worth of $___________________________
(Requirement: Not less than $18,000,000.00); and

(b) Cumulative Loss of $_______________ (Requirement: Not to
exceed $1,800,000.00 during fiscal year 1997); and

6
<PAGE>

(d) A ratio of Current Assets to Current Liabilities of
_______________ (Requirement: Not less than 1.75:1); and

(e) A ratio of Total Liabilities to Tangible Net Worth of
_____________ (Requirement: Not greater than 1.10:1); and

(f) Cash Equivalents of $___________________________ (Requirement:
Not less than $4,000,000.00).

3. The representations and warranties contained in the Loan Agreement
are otherwise true and correct in all material respects on and as of the date
hereof as if made on and as of such date and all covenants contained in the Loan
Agreement have been and continue to be met.

Terms defined in the Loan Agreement and not otherwise expressly defined herein
are used herein with the meanings so defined in the Loan Agreement.

IN WITNESS WHEREOF, the undersigned has executed this certificate on
this ___ day of ___________________, 199__.

WHITE PINE SOFTWARE, INC.

By:
---------------------
Print name and title below

------------------------

7
<PAGE>

RSA 399-B STATEMENT OF FINANCE CHARGES
--------------------------------------

In connection with the loan transaction consummated on this 20th day of
December, 1996, by and between FLEET BANK - NH, a bank organized under the laws
of the State of New Hampshire with an address of Mail Stop NH NA E02A, 1155 Elm
Street, Manchester, New Hampshire 03101 ("Bank") and WHITE PINE SOFTWARE, INC.,
a Delaware corporation with its principal place of business at 542 Amherst
Street, Nashua, New Hampshire 03063 (the "Borrower"), pursuant to the Commercial
Loan Agreement dated December 30, 1994 entered into by and between the Borrower
and the Bank, as amended by the Amendment to Commercial Loan Agreement and Loan
Documents of even date herewith (the "Loan Agreement"), the Borrower is hereby
informed and advised pursuant to New Hampshire RSA 399-B that Borrower shall be
liable for and shall pay the following charges (all capitalized terms not
defined herein shall have the meanings ascribed to them in the Loan Agreement):

1. Interest. Interest is payable on the outstanding principal balance of
--------
the Revolving Line of Credit Loan in the increased amount of up to Three Million
Dollars ($3,000,000.00) at an annual variable rate equal to the Bank's Base
Rate, so-called, plus one-half of one percent (0.5%) per annum; provided that
under certain circumstances the annual variable rate may be reduced to the
Bank's Base Rate under the Note. The "Base Rate" shall be the Base Rate of the
Bank as established and changed by the Bank from time to time whether or not
such rate shall be otherwise published. Each time the Base Rate changes, the
interest rate shall change contemporaneously with such change in the Base Rate.
Interest is calculated and charged daily on the basis of a 360-day banking year.

2. Payments of Interest. Borrower shall make payments of accrued interest
--------------------
on the outstanding principal balance of the Loan on a monthly basis.

3. Closing Costs and Expenses. The Borrower shall pay all closing costs
--------------------------
incurred by the Bank in connection with the closing of or enforcement of the
Loan including, without limitation, attorneys' fees and costs (including
document preparation costs), recording and filing fees, title insurance premium,
appraisal fees, court costs, sheriffs' fees, audit fees and any other expenses
incurred by the Bank in the closing of and enforcement of the Loan, including,
but not limited to attorneys fees and expenses in the amount of $760.00 incurred
in connection with the amendments this day.

4. Bank Fees. The Borrower shall pay the Bank the following fees:
---------

Commitment Fee: $2,500.00 due and payable on the date hereof.

Unused Commitment Fee: .25% per annum of the daily average of unadvanced
amounts under the Loan (based upon the maximum available amount thereunder
of $3,000,000.00), determined and payable quarterly in arrears during such
times as the Borrower has funds invested for management with Fleet
Investment Advisors of less than $12,000,000.00.

1
<PAGE>

5. Late Charges. In the event any installment of principal or interest on
------------
the Loan is not paid when due, the Bank may assess a late payment charge of five
percent (5%) of the amount of principal and/or interest which is more than ten
(10) days overdue.

6. Default Rate. If an Event of Default occurs under the Loan Agreement,
------------
the Borrower shall pay interest on all credits outstanding at the contract rate
under the Note therefor, plus an additional two percent (2%) per annum.

The Borrower hereby acknowledges receipt of a copy of this Statement at or
before the loan closing of even date, and confirms that this transaction is a
commercial loan not subject to federal truth-in-lending laws and regulations,
including without limitation, the Real Estate Settlement Procedures Act and
Regulation Z.

Disclosed by Bank and acknowledged by Borrower this 20th day of December, 1996.

BORROWER:

WHITE PINE SOFTWARE, INC.

By: /s/Howard R. Berke - President and CEO
-----------------------------------------
/s/Gary Anderson
- -----------------------
Witness Signature and Title/ Duly Authorized

2
<PAGE>

REVOLVING LINE OF CREDIT PROMISSORY NOTE
----------------------------------------

$3,000,000.00 U.S. Nashua, NH December 20,
1996

FOR VALUE RECEIVED, WHITE PINE SOFTWARE, INC., a Delaware corporation with
its principal place of business at 542 Amherst Street, Nashua, New Hampshire
03063 (the "Borrower"), promises to pay to the order of FLEET BANK - NH, a bank
incorporated under the laws of the State of New Hampshire with a principal
address of Mail Stop NH NA E02A, 1155 Elm Street, Manchester, New Hampshire
03101 (the "Bank"), at such address, or such other place or places as the holder
hereof may designate in writing from time to time hereafter, the maximum
principal sum of THREE MILLION DOLLARS ($3,000,000.00), or so much thereof as
may be advanced or readvanced by the Bank to the Borrower from time to time
hereafter (such amounts defined as the "Debit Balance" below), together with
interest as provided for herein below, in lawful money of the United States of
America.

The Borrower's "Debit Balance" shall mean the debit balance in an account
on the books of the Bank, maintained in the form of a ledger card, computer
records or otherwise in accordance with the Bank's customary practice and
appropriate accounting procedures wherein there shall be recorded the principal
amount of all advances made by the Bank to the Borrower, all principal payments
made by the Borrower to the Bank hereunder, and all other appropriate debits and
credits. The Bank shall render to the Borrower a statement of account with
respect thereto on a monthly basis. Such statement shall indicate the Borrower's
then current Debit Balance and any interest amounts due and payable from the
Borrower to Bank. The statement shall be considered correct and be considered
accepted by the Borrower, and shall conclusively bind the Borrower, unless
Borrower notifies the Bank to the contrary within thirty (30) days after the
date of mailing.

Under the Revolving Line of Credit Loan evidenced by this Note (the "Line
of Credit"), the Bank agrees to lend to the Borrower, and the Borrower may
borrow, up to the maximum principal sum provided for in this Note in accordance
with and subject to the terms, conditions, and limitations of this Note and the
Commercial Loan Agreement dated December 30, 1994 entered into by and between
the Borrower and the Bank, as amended to date and as the same may be amended
from time to time (the "Loan Agreement"). The holder of this Note is entitled to
all of the benefits and rights of the Bank under the Loan Agreement. However,
neither this reference to the Loan Agreement nor any provision thereof shall
impair the absolute and unconditional obligation of the Borrower to pay the
principal and interest of this Note as herein provided. Terms not otherwise
defined herein shall have the meanings ascribed to them in the Loan Agreement.

The Borrower shall make requests for advances under this Note as provided
in the Loan Agreement. The Borrower agrees that the Bank may make all advances
under this Note by direct deposit to any demand account of the Borrower with the
Bank or in such other manner as may be provided in the Loan Agreement, and that
all such advances shall represent binding obligations of
<PAGE>

REVOLVING LINE OF CREDIT PROMISSORY NOTE
----------------------------------------

$3,000,000.00 U.S. Nashua, NH December 20 ,
1996 ----

The Borrower's "Debit Balance" shall mean the debit balance in an account on
the books of the Bank, maintained in the form of a ledger card, computer records
or otherwise in accordance with the Bank's customary practice and appropriate
accounting procedures wherein there shall be recorded the principal amount of
all advances made by the Bank to the Borrower, all principal payments made by
the Borrower to the Bank hereunder, and all other appropriate debits and
credits. The Bank shall render to the Borrower a statement of account with
respect thereto on a monthly basis. Such statement shall indicate the
Borrower's then current Debit Balance and any interest amounts due and payable
from the Borrower to Bank. The statement shall be considered correct and be
considered accepted by the Borrower, and shall conclusively bind the Borrower,
unless Borrower notifies the Bank to the contrary within thirty (30) days after
the date of mailing.

Under the Revolving Line of Credit Loan evidenced by this Note (the "Line of
Credit"), the Bank agrees to lend to the Borrower, and the Borrower may borrow,
up to the maximum principal sum provided for in this Note in accordance with and
subject to the terms, conditions, and limitations of this Note and the
Commercial Loan Agreement dated December 30, 1994 entered into by and between
the Borrower and the Bank, as amended to date and as the same may be amended
from time to time (the "Loan Agreement"). The holder of this Note is entitled
to all of the benefits and rights of the Bank under the Loan Agreement.
However, neither this reference to the Loan Agreement nor any provision thereof
shall impair the absolute and unconditional obligation of the Borrower to pay
the principal and interest of this Note as herein provided. Terms not otherwise
defined herein shall have the meanings ascribed to them in the Loan Agreement.

The Borrower shall make requests for advances under this Note as provided in
the Loan Agreement. The Borrower agrees that the Bank may make all advances
under this Note by direct deposit to any demand account of the Borrower with the
Bank or in such other manner as may be provided in the Loan Agreement, and that
all such advances shall represent binding obligations of
<PAGE>

the Borrower.

The Borrower acknowledges that this Note is to evidence the Borrower's
obligation to pay its Debit Balance, plus interest and any other applicable
charges as determined from time to time, and that it shall continue to do so
despite the occurrence of intervals when no Debit Balance exists because the
Borrower has paid the previously existing Debit Balance in full.

Interest shall be calculated and charged daily, based on the actual days
elapsed over a three hundred sixty (360) day banking year, on the unpaid
principal balance outstanding from time to time at an annual variable rate equal
to the Bank's Base Rate, so called, plus one-half of one percent (0.5%) per
----
annum; provided, however, that at such time and during such period as the
-------- -------
Borrower maintains funds in excess of Fifteen Million Dollars ($15,000,000.00)
under investment management with Fleet Investment Advisors the annual variable
interest rate hereunder shall be equal to the Base Rate. The Base Rate shall be
the Base Rate of the Bank as established and changed by the Bank from time to
time whether or not such rate shall be otherwise published or Borrower is
provided with notice thereof. Each time the Base Rate changes, the interest
rate hereunder shall change contemporaneously with such change in the Base Rate.
The Borrower acknowledges that the Base Rate is used for reference purposes only
as an index and is not necessarily the lowest interest charged by the Bank on
commercial loans.

Pending an Event of Default as provided in the Loan Agreement and herein
below, the Bank shall extend the Line of Credit through and until June 30,
1998, and, if the Line of Credit is renewed and extended by the Bank pursuant
to the Loan Agreement, through and until each anniversary of such date with
respect to which the Line of Credit is renewed and extended (June 30, 1998, and
each anniversary thereof to which the Line of Credit is renewed and extended,
being a "Review Date"). The Borrower shall (i) make payments of principal from
time to time as provided in the Loan Agreement and (ii) make payments of
interest monthly in arrears commencing thirty (30) days from the date hereof
(or on any day within 30 days of the date hereof agreed to by the Borrower and
the Bank to provide for a convenient payment date) and continuing on the same
date of each month thereafter through and until the earlier of the acceleration
of this Note upon an Event of Default as provided herein below or any Review
Date with respect to which the Line of Credit is not renewed by the Bank,
whereupon all principal, accrued and unpaid interest, and any other charges
provided for hereunder, shall be due and payable in full. In the event that
the Line of Credit is renewed pursuant to the Loan Agreement as of any Review
Date, this Note shall thereafter continue to evidence amounts advanced and due
under the Line of Credit as renewed.

This Note is being executed and delivered in accordance with the terms of
the Loan Agreement and the documents defined therein as the "Loan Documents".
The payment and performance of the obligations contained in the Loan Documents
are secured by the collateral granted to the Bank therein (the "Collateral") and
the security granted to the Bank in the Loan Documents.

At the option of the Bank, this Note shall become immediately due and
payable in full,

2
<PAGE>

without further demand or notice, if any payment of interest or principal is not
made when due hereunder or upon the occurrence of any other Event of Default
under the terms hereof, under the Loan Agreement, or under any of the other Loan
Documents.

The holder may impose upon the Borrower a delinquency charge of five percent
(5%) of the amount of interest not paid on or before the tenth (10th) day after
such installment is due. The entire principal balance hereof, together with
accrued interest, shall after maturity, whether by demand, acceleration or
otherwise, bear interest at the contract rate of this Note plus an additional
two percent (2%) per annum.

The Borrower agrees that any other property upon or in which the Borrower
has granted or hereafter grants the holder a mortgage or security interest,
securing the payment and performance of any other liability of the Borrower to
the holder, shall also constitute Collateral. As additional Collateral, the
Borrower grants (1) a security interest in, or pledges, assigns and delivers to
the holder, as appropriate, all deposits, credits and other property now or
hereafter due from the holder to the Borrower; and (2) the right to set off and
apply (and a security interest in said right), from time to time hereafter and
without demand or notice of any nature, all, or any portion, of such deposits,
credits and other property, against the indebtedness evidenced by this Note
whether the other Collateral, if any, is deemed adequate or not.

The Borrower, and every maker, endorser, or guarantor of this Note, jointly
and severally, agree to pay on demand all reasonable out-of-pocket costs of
collection hereof, including reasonable attorneys' fees, whether or not any
foreclosure or other action is instituted by the holder in its discretion.

No delay or omission on the part of the holder in exercising any right,
privilege or remedy shall impair such right, privilege or remedy or be construed
as a waiver thereof or of any other right, privilege or remedy. No waiver of
any right, privilege or remedy or any amendment to this Note shall be effective
unless made in writing and signed by the holder. Under no circumstances shall
an effective waiver of any right, privilege or remedy on any one occasion
constitute or be construed as a bar to the exercise of or a waiver of such
right, privilege or remedy on any future occasion.

The acceptance by the holder hereof of any payment after any default
hereunder shall not operate to extend the time of payment of any amount then
remaining unpaid hereunder or constitute a waiver of any rights of the holder
hereof under this Note.

All rights and remedies of the holder, whether granted herein or otherwise,
shall be cumulative and may be exercised singularly or concurrently, and the
holder shall have, in addition to all other rights and remedies, the rights and
remedies of a secured party under the Uniform Commercial Code of New Hampshire.
The holder shall have no duty as to the collection or protection of the
Collateral or of any income thereon, or as to the preservation of any rights
pertaining thereto beyond the safe custody thereof. Surrender of this Note,
upon payment or otherwise, shall not affect the right of the holder to retain
the Collateral as security for the

3
<PAGE>

payment and performance of any other liability of the Borrower to the holder.

The Borrower, and every maker, endorser, or guarantor of this Note, hereby
jointly waive, to the fullest extent permitted by law, presentment, notice,
protest and all other demands and notices and assents (1) to any extension of
the time of payment or any other indulgence, (2) to any substitution, exchange
or release of Collateral, and (3) to the release of any other person primarily
or secondarily liable for the obligations evidenced hereby.

This Note and the provisions hereof shall be binding upon the Borrower and
the Borrower's heirs, administrators, executors, successors, legal
representatives and assigns and shall inure to the benefit of the holder, the
holder's heirs, administrators, executors, successors, legal representatives and
assigns.

The word "holder" as used herein shall mean the payee or endorsee of this
Note who is in possession of it, or the bearer, if this Note is at the time
payable to the bearer.

This Note may not be amended, changed or modified in any respect except by a
written document which has been executed by each party. This Note constitutes a
New Hampshire contract to be governed by the laws of such state and to be paid
and performed therein.

The provisions of this Note are expressly subject to the condition that in
no event shall the amount paid or agreed to be paid to the holder hereunder and
deemed interest under applicable law exceed the maximum rate of interest on the
unpaid principal balance hereunder allowed by applicable law, if any, (the
"Maximum Allowable Rate"), which shall mean the law in effect on the date
hereof, except that if there is a change in such law which results in a higher
Maximum Allowable Rate being applicable to this Note, then this Note shall be
governed by such amended law from and after its effective date. In the event
that fulfillment of any provisions of this Note results in the interest rate
hereunder being in excess of the Maximum Allowable Rate, the obligation to be
fulfilled shall automatically be reduced to eliminate such excess. If
notwithstanding the foregoing, the holder receives an amount which under
applicable law would cause the interest rate hereunder to exceed the Maximum
Allowable Rate, the portion thereof which would be excessive shall automatically
be applied to and deemed a prepayment of the unpaid principal balance hereunder
and not a payment of interest.

This Note is executed and delivered in replacement of, but not in novation
or discharge of, the Revolving Line of Credit Promissory Note of the undersigned
in the principal amount of One Million Dollars ($1,000,000.00) dated December
30, 1994 (the "Old Note"). All references to the Old Note in the Loan Agreement
or any other Loan Document shall be deemed to refer to this Note.

4
<PAGE>

Executed and delivered this 20 day of December, 1996.
-------

BORROWER:

WHITE PINE SOFTWARE, INC.
By:/s/Howard R. Berke - President and CEO
-------------------------------------------
Signature and Title / Duly Authorized

/s/Gary Anderson
- ----------------
Witness

<PAGE>

EXHIBIT 11.1

STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE

<TABLE>
<CAPTION>
NINE MONTHS YEARS ENDED
ENDED DECEMBER 31,
DECEMBER 31, ------------------------
1994 1995 1996
------------ ----------- -----------
<S> <C> <C> <C>
Weighted average shares outstanding.... 3,585,578 3,592,009 6,575,576
Net dilutive effect of stock options--
based on the treasury stock method
using the initial public offering
price of $9.00 per share.............. 640,322 -- --
Effect of common and common equivalent
shares issued by the Company during
the twelve-month period immediately
preceding the Company's registration
for initial public offering, as if
they were outstanding for all periods
presented prior to the registration
for initial public offering, using the
treasury stock method, as described
above................................. 1,858,875 1,858,875 42,532
---------- ----------- -----------
Total shares......................... 6,084,775 5,450,884 6,618,108
========== =========== ===========
Net income (loss)...................... $ 393,695 $(3,525,985) $(3,636,658)
========== =========== ===========
Net income (loss) per common and common
share equivalent...................... $ 0.06 $ (0.65) $ (0.55)
========== =========== ===========
</TABLE>

<PAGE>

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement on
Form S-8 pertaining to the:

White Pine Software, Inc. Stock Option Plan (1992),

White Pine Software, Inc. Stock Option Plan (1993),

White Pine Software, Inc. Stock Option Plan (1994),

White Pine Software, Inc. Stock Option Plan (1995),

Letter Agreement between White Pine Software, Inc. and Jack Dutzy dated as of
October 13, 1995,

Letter Agreement between White Pine Software, Inc. and Andrew Hully dated as
of March 25, 1996,

Letter Agreement between White Pine Software, Inc. and Richard Kennerly
delivered as of April 16, 1996,

Letter Agreement between White Pine Software, Inc. and Richard M. Darer dated
as of May 28, 1996,

White Pine Software, Inc. 1996 Incentive and Nonqualified Stock Option Plan,

of our report dated January 26, 1997, with respect to the consolidated
financial statements of White Pine Software, Inc. included in the Annual Report
(Form 10-KSB) for the year ended December 31, 1996.

Ernst & Young LLP

Manchester, New Hampshire
March 19, 1997

<PAGE>

<ARTICLE> 5
<CIK> 0001006591
<NAME> WHITE PINE SOFTWARE, INC.
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 23,298,274
<SECURITIES> 0
<RECEIVABLES> 2,715,957
<ALLOWANCES> 163,247
<INVENTORY> 113,130
<CURRENT-ASSETS> 450,085
<PP&E> 2,965,552
<DEPRECIATION> 1,901,948
<TOTAL-ASSETS> 29,404,283
<CURRENT-LIABILITIES> 3,843,855
<BONDS> 0
0
0
<COMMON> 90,307
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 29,404,283
<SALES> 0
<TOTAL-REVENUES> 11,665,729
<CGS> 0
<TOTAL-COSTS> 2,211,694
<OTHER-EXPENSES> 13,244,064
<LOSS-PROVISION> 46,798
<INTEREST-EXPENSE> 37,228
<INCOME-PRETAX> (3,559,481)
<INCOME-TAX> 77,177
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,636,658)
<EPS-PRIMARY> (0.55)
<EPS-DILUTED> (0.55)

</TABLE>