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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, 1998
|_| Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from to
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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 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 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: $7,793,158.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 19, 1999, was $25,843,502 based on a total of
8,797,788 shares held by non-affiliates and on the last published sale price on
the Nasdaq National Market of $2.9375.
The number of shares of the Registrant's common stock outstanding as of
March 19, 1999 was 10,491,436.
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
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TABLE OF CONTENTS
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PART I
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Item 1. Description of Business.......................................................................... 3
Item 1A. Risk Factors..................................................................................... 18
Item 2. Description of Property.......................................................................... 25
Item 3. Legal Proceedings................................................................................ 26
Item 4. Submission of Matters to a Vote of Security Holders.............................................. 26
PART II
Item 5. Market for Common Equity and Related Stockholder Matters......................................... 27
Item 6. Management's Discussion and Analysis or Plan of Operation........................................ 28
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........................................................................... 38
Item 11. Security Ownership of Certain Beneficial Owners and Management................................... 41
Item 12. Certain Relationships and Related Transactions................................................... 43
Item 13. Exhibits and Reports on Form 8-K................................................................. 43
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THIS ANNUAL REPORT CONTAINS "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. ANY STATEMENTS CONTAINED HEREIN THAT ARE NOT
STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS.
WITHOUT LIMITING THE FOREGOING, THE WORDS "BELIEVES," "ANTICIPATES," "PLANS,"
"EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. THE FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE
AND ACHIEVEMENTS OF WHITE PINE TO DIFFER MATERIALLY FROM THOSE INDICATED BY THE
FORWARD-LOOKING STATEMENTS, INCLUDING THE OTHER FACTORS SET FORTH BELOW IN "ITEM
1A. RISK FACTORS."
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Unless the context requires otherwise, "White Pine," "we," "us" and
similar terms refer to White Pine Software, Inc. and its subsidiary.
CLASSPOINT, CU-SEEME, EXODUS, MEETINGPOINT, WEBTERM, WHITE PINE and 5PM
TERM are trademarks of White Pine. This Annual Report also contains additional
trademarks and trade names of White Pine and other companies.
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PART I
ITEM 1 DESCRIPTION OF BUSINESS
OVERVIEW
White Pine develops, markets and supports multiplatform desktop multimedia
software that facilitates worldwide video and audio communication and data
collaboration across the Internet, intranets, extranets and other networks using
the Internet protocol.
White Pine's group conferencing software products, CU-SeeMe and
MeetingPoint, create a client-server solution that allows users to participate
in real-time, multipoint, multimedia conferences from the users' desktop
computers, using existing Internet, intranet and extranet connections. By
developing multimedia conferencing products that require no proprietary
hardware, White Pine is able to offer multimedia conferencing at a substantially
lower price than vendors of traditional hardware-based systems and thereby
encourage businesses and others to adopt multimedia conferencing as a mass
communication medium.
- CU-SEEME is White Pine's desktop multimedia conferencing client
software for interacting with others using full color video, audio,
typed text and whiteboard communication. CU-SeeMe can be used over
the Internet or any Internet protocol-based network. CU-SeeMe has
afforded White Pine brand name recognition, an installed base and a
time-to-market advantage over other vendors seeking to develop
software multimedia conferencing solutions. White Pine continues to
develop and expand its CU-SeeMe offering. In November 1998, White
Pine began delivering CU-SeeMe 3.1.2, which includes an improved
Contact List feature. In March 1999, White Pine began delivering
CU-SeeMe Pro, a next-generation multimedia conferencing client
targeted at the enterprise market. CU-SeeMe Pro includes a new user
interface, feature and performance enhancements that make it
particularly suited for business and educational applications, and
integrated T.120 data collaboration via Microsoft NetMeeting. T.120
is the protocol that defines whiteboard, application sharing and
data collaboration for multipoint conferencing applications. White
Pine offers CU-SeeMe as packaged software and directly over the
Internet. White Pine also offers CU-SeeMe as a bundled package with
MeetingPoint and with White Pine's private label camera, the
CU-SeeMe Cam, and third-party cameras.
- MEETINGPOINT is White Pine's Internet multimedia conferencing
server software. Introduced in November 1997, MeetingPoint was
the first multimedia conferencing server software to implement
the International Telecommunications Union H.323 standard
for conferencing over packet networks. MeetingPoint enables
multipoint group conferences and full interoperability between
users of H.323 standard clients, including Microsoft NetMeeting,
Intel ProShare and PictureTel LiveLAN. In September 1998, White
Pine released MeetingPoint 3.5, which incorporated major
improvements in audio mixing, video switching and
interoperability, as well as improved conference administration
capabilities for scheduling, bandwidth management and security.
In May 1998, White Pine commenced commercial shipment of
MeetingPoint for Solaris, a UNIX-based user environment developed
by Sun Microsystems. MeetingPoint for Solaris is the only
software-only conferencing server available on a UNIX platform.
Building upon its core CU-SeeMe and MeetingPoint technologies, White Pine
introduced ClassPoint, its distance learning and training software, in April
1998. ClassPoint is an instructor-controlled learning environment with
multipoint video and audio, instructor-led Web tours, Web-based class set-up and
scheduling, and whiteboard and application sharing. White Pine believes
ClassPoint was the first completely integrated distance learning solution with
real-time, two-way interaction with audio, video and data. ClassPoint received
recognition as
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ADVANCED IMAGING magazine's Solution of the Year 1998 in the category
"Interactive Imaging & Communication, or Multimedia," as well as DVC's
"Networked Multimedia Award" for Best New Business Conferencing Product.
White Pine also offers desktop X Windows and terminal emulation software.
White Pine's legacy emulation products, WebTerm X, eXodus and 5PM Term, 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. WebTerm is White Pine's implementation of the X
server on Windows 95, 98 and NT, running in a browser environment. In November
1998, White Pine introduced WebTerm X 2.0, which embodies technology previously
developed in connection with White Pine's eXodus for Mac.
In 1998, White Pine enhanced its internally developed technology through
two technology acquisitions:
- In December 1998, White Pine acquired from the Cornell Research
Foundation trademark and other intellectual property rights
underlying certain CU-SeeMe and MeetingPoint technologies. White
Pine previously had licensed these technologies from the Cornell
Research Foundation.
- In July 1998, White Pine purchased certain assets, including
intellectual property, comprising certain T.120 whiteboard and data
collaboration technology from Labtam Communications, an Australian
corporation. White Pine is incorporating the purchased technology
into its MeetingPoint and ClassPoint conferencing solutions.
White Pine's customers include businesses, educational institutions,
government organizations and individual consumers. White Pine markets and sells
its products in the United States, Europe and the Pacific Rim through
distributors, resellers, strategic partners, original equipment manufacturers
and White Pine's direct sales organization, as well as directly over the
Internet.
White Pine's principal executive offices are located at 542 Amherst
Street, Nashua, New Hampshire 03063, and its telephone number is 603.886.9050.
White Pine's corporate Web site can be found at www.wpine.com or
www.cuseeme.com; information contained in White Pine's Web site is not part of
this Annual Report.
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STRATEGY
White Pine's objective is to be a leading supplier of multimedia
conferencing solutions. To achieve this objective, White Pine is implementing
the following strategies:
MAINTAIN TECHNOLOGICAL LEADERSHIP
Since 1996, White Pine has developed and introduced leading-edge
technology for the Internet protocol-based group conferencing market.
- CU-SeeMe, introduced in March 1996, was the first commercially
available Internet-based multimedia conferencing product. CU-SeeMe
has been featured in a number of on-line and industry publications
and won a substantial number of awards in its three years of
commercial availability, including: C/net's Best Buy designation in
January 1997, PC Computing's five-star rating in February 1997, PC
COMPUTING magazine's "A-List" designation in September 1997 and its
"1997 Most Valuable Product Award" in the Web Communications
category, CTI MAGAZINE's 1997 "Editors' Choice Award", NEW MEDIA
magazine's "1996 Hyper Award for Best Conferencing Software," and
BYTE magazine's "Best of PC Expo '96 Winner." CU-SeeMe currently is
the only desktop conferencing client capable of displaying up to
twelve simultaneous video windows.
- MeetingPoint, introduced in November 1997, was the industry's first
H.323 compliant multimedia conferencing server and remains the only
H.323 compliant multimedia conferencing server on a Solaris
platform. MeetingPoint has received a number of awards, including
CTI MAGAZINE'S "1997 Product of the Year" and "1998 Product of the
Year" in the "Video Conferencing" category and INTERNET TELEPHONY
magazine's "1997 Editors' Choice Award" and "1998 Product of the
Year." The announcement of continuous presence, exhibited as a
MeetingPoint add-on in late 1998 and scheduled to ship commercially
in the second fiscal quarter of 1999, further demonstrated White
Pine's technological leadership in the fledgling H.323 server
market.
- ClassPoint, which began shipping commercially in April 1998, builds
upon the CU-SeeMe and MeetingPoint group conferencing technology to
create an innovative distance learning and distance training
solution for educational, corporate and governmental organizations.
ClassPoint was named "Solution of the Year 1998" by ADVANCED IMAGING
magazine and "Best New Business Conferencing Product" at DVC '98
Spring.
White Pine intends to extend its leadership position in Internet protocol-based
conferencing by continuing to invest in research and development and to build
upon its existing technology. For example, White Pine has identified growing
market demand for voice over Internet protocol networks, or "VoIP," and believes
that much of the technology needed to enable VoIP is embedded in White Pine's
H.323 standards-based solutions.
FOCUS ON MARKET FOR MEETINGPOINT
White Pine believes its future success will depend significantly on its
ability to market MeetingPoint. White Pine believes that opportunities exist to
market MeetingPoint to Internet service providers, corporations and other
entities seeking to enable and promote multimedia group conferencing. Based on
the number of concurrent ports sold in a highly nascent market space, White Pine
estimates that, since the introduction of MeetingPoint in 1997, MeetingPoint has
accounted for substantially all of the revenue from the software H.323 market
and a significant majority of the revenue from the combined hardware and
software H.323 market. White Pine believes that its
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leadership position in this market space has positioned White Pine to achieve
revenue growth as the H.323 market matures and expands.
LEVERAGE CORE CONFERENCING TECHNOLOGY TO DEVELOP APPLICATIONS FOR VERTICAL
MARKETS
White Pine intends to build on its core CU-SeeMe and MeetingPoint
technology in order to develop and market integrated and application-oriented
solutions for key vertical markets, including applications that evidence the
market trend toward converged networks:
- White Pine believes the market for group conferencing is in the
early stages of a migration from the large, proprietary room-based
conferencing systems embodying the H.320 standard to desktop
conferencing solutions based on the newer H.323 standard. Desktop
multimedia conferencing is a relatively new phenomenon. Since the
majority of potential group conferencing sites today have no
solution whatsoever, White Pine believes that users will find an
H.323 videoconferencing solution less expensive and more easily
integrated than an H.320 product. Also, White Pine's software
products seamlessly allow H.320 users to communicate visually with
H.323 users, providing a cost effective migration path for corporate
entities that wish to preserve their investment in H.320 equipment
as they migrate to an Internet protocol-based H.323 environment.
- White Pine has identified market segments that desire simple data
collaboration, such as whiteboard sharing, that can be enabled using
White Pine's technology. Enterprises in these market segments are
seeking data collaboration until their internal networks are
upgraded to manage the increased bandwidth required by multiparty
group conferencing. White Pine's existing products offer data
collaboration support and can migrate easily to full multimedia
application support.
- The increasing pervasiveness and comparatively low cost of Internet
protocol-based networks are driving enterprises to investigate the
use of Internet protocol-based networks as a transport mechanism for
voice applications. Much of the technology required to enable VoIP
is already embedded within White Pine's products.
White Pine's scalable, cost-effective, software-based support for converged
network applications offers a platform for enterprises to reduce their cost
dramatically while enabling improvements in productivity.
BUILD INTELLECTUAL PROPERTY PORTFOLIO
White Pine's success depends heavily upon its proprietary technology. In
fiscal 1998, White Pine took several steps designed to increase and strengthen
its portfolio of proprietary rights:
- In July 1998, White Pine purchased certain assets, including
intellectual property, comprising certain T.120 whiteboard and data
collaboration technology from Labtam Communications. White Pine
plans to incorporate the purchased technology into its MeetingPoint
and ClassPoint conferencing solutions. Shipment of these products is
expected to commence in the second fiscal quarter of 1999.
- In November 1998, White Pine acquired ownership of the trademark,
source code and all intellectual property rights to the CU-SeeMe and
MeetingPoint technologies from the Cornell
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Research Foundation. This acquisition not only strengthened White
Pine's intellectual property portfolio, enabling further development
and improvement upon the existing technologies, but also secured the
worldwide CU-SeeMe community that existed in large part through
Cornell's freeware population while providing that same community
with a logical upgrade path.
- In December 1998, White Pine acquired from RADVision a one-time
source code snapshot of H.323 protocol stack. This acquisition will
allow White Pine to modify and enhance the code embedded in its
products.
- In March 1999, White Pine applied for a patent on a portion of the
technology underlying the continuous presence feature of
MeetingPoint.
White Pine intends to continue to build its intellectual property portfolio in
order to provide it with maximum control over the use of the technology
underlying its group conferencing products.
PRODUCTS
MULTIMEDIA CONFERENCING
White Pine's multimedia conferencing products, CU-SeeMe, MeetingPoint and
ClassPoint, provide real-time, multipoint video and audio communication and data
solution over the Internet, intranets, extranets and other networks using the
Internet protocol. By developing multimedia conferencing products that require
no proprietary hardware, White Pine is able to offer multimedia conferencing 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. White Pine's CU-SeeMe product has afforded White Pine brand name
recognition, an installed base and a time-to-market advantage over other vendors
seeking to develop software multimedia conferencing solutions.
CU-SEEME
CU-SeeMe is White Pine's desktop multimedia conferencing software for real
time person-to-person or group conferencing. CU-SeeMe works in conjunction with
White Pine's MeetingPoint conference server to provide a complete
software-based, multipoint conferencing solution.
CU-SeeMe can be used over the Internet or any Internet protocol-based
network, providing the user with the power to communicate globally without
expensive hardware. By operating over the Internet, CU-SeeMe substantially
broadens the base of businesses, organizations and individuals able to engage in
multimedia conferencing. This software-only solution runs on both Windows and
Macintosh platforms and offers full-color video, audio, chat window and
whiteboard communications. The user can participate in "Live over the Internet"
conferences, broadcasts or chats. CU-SeeMe can be launched directly from Web
pages with the user's favorite Web browser, using 28.8 Kbps modem, ISDN link or
better. For audio-only telephony use, CU-SeeMe works effectively over a 14.4
Kbps modem. CU-SeeMe is the only desktop conferencing client capable of
displaying up to twelve simultaneous video windows, allowing the user to see
everyone in a small-group conference without video switching. CU-SeeMe also is
the only cross-platform product capable of H.323 interoperability on Windows 95,
98 and NT and MacOS.
The initial version of CU-SeeMe, introduced in March 1996, was the first
commercially available Internet-based multimedia conferencing product. CU-SeeMe
has been featured in a number of on-line and industry publications and has won a
substantial number of awards in its three years of commercial availability,
including:
- C/net's Best Buy designation in January 1997,
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- PC COMPUTING magazine's five-star rating in February 1997, "A-List"
designation in September 1997 and "1997 Most Valuable Product Award"
in the Web Communications category,
- CTI MAGAZINE's 1997 "Editors' Choice Award,"
- NEW MEDIA magazine's "1996 Hyper Award for Best Conferencing
Software," and
- BYTE magazine's "Best of PC Expo '96 Winner."
CU-SeeMe was recognized by PC Data, a leading marketing intelligence firm, as
the Top-Selling Retail Multimedia Conferencing Title for the First Half of 1998.
White Pine current offers two versions of CU-SeeMe:
- CU-SEEME 3.1.2 began shipping in November 1998 and includes Contact
List feature. CU-SeeMe 3.1.2 is available on Windows 95, 98 and NT
and MacOS platforms, but with the introduction of CU-SeeMe Pro,
White Pine expects future sales of CU-SeeMe 3.1.2 to be made
principally to Macintosh users and original equipment
manufacturers. CU-SeeMe has a suggested retail price of $99.
- CU-SEEME PRO began shipping in March 1999 and represents White
Pine's next-generation client offering. CU-SeeMe Pro represents the
first major release of CU-SeeMe in nearly two years and is available
on Windows 95, 98 and NT platforms. CU-SeeMe Pro, which has a
suggested retail price of $99, includes the following features:
- full H.323 support, enabling direct interoperability
with other H.323 clients such as Microsoft NetMeeting,
Intel ProShare and PictureTel LiveLAN;
- integrated desktop application sharing, whiteboard and
data collaboration via Microsoft NetMeeting;
- a set-up wizard that automatically defines the optimal
settings based on the user's network connection and
capture device; and
- a "Conference Companion," which simplifies the way users
make connections, keep a contact list and access
directory services. This new feature replaces the
address list found in prior versions and enables a user
to make a connection using only an email address as
opposed to an Internet protocol address. It includes a
Web-based home page that can be customized for internal
use by businesses.
White Pine ships CU-SeeMe as packaged software and also makes CU-SeeMe
available for downloading over the Internet. White Pine also offers CU-SeeMe
as a bundled package with MeetingPoint and with third-party cameras. In
December 1998, White Pine began shipping CU-SeeMe bundled with White Pine's
private label camera, the CU-SeeMe Cam, a parallel port, 256 color desktop
camera. The CU-SeeMe Cam bundled package has a suggested list price of $149.
In March 1999, White Pine introduced its portal Web site,
www.cuseemeworld.com White Pine believes CU-SeeMe World will help promote
CU-SeeMe and MeetingPoint sales by:
- building a centralized community of group conferencing users;
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- facilitating user interaction through the utilization of member
directories, Web-based Internet Locator Service for locating users
online, "safe" email interchange in which email addresses are masked
and users exchange email via user names, and threaded discussion
groups;
- generating strategic alliances through sponsorships and partnering
opportunities; and
- encouraging content providers to offer structured conferencing and
programming.
White Pine believes that successful management of the site will not only promote
CU-SeeMe and MeetingPoint sales, but will generate advertising revenue and
strategic alliances through sponsorships and partnering opportunities.
MEETINGPOINT
MeetingPoint, the software-only server component of White Pine's
multimedia conferencing solution, allows users of CU-SeeMe to participate in
multipoint, multimedia conferences with a nearly unlimited number of users.
Administrators create and host conferences using MeetingPoint. End-users then
connect to the conference, using either CU-SeeMe or any other third-party H.323
compliant multimedia conferencing client product. MeetingPoint's core
"multimedia router" technology enables the group interaction to take place by
"routing" it to the other conference participants. MeetingPoint 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.
MeetingPoint, introduced in November 1997, was the industry's first
H.323 compliant multimedia conferencing server. MeetingPoint's software-only
architecture makes it scalable and deployable over a variety of hardware
platforms and operating systems, including Windows NT and Solaris, a
UNIX-based user environment developed by Sun Microsystems. MeetingPoint for
Solaris is the only software-only conferencing server available on a UNIX
platform. MeetingPoint received two leading industry awards within the first
few months of its release: "1997 Product of the Year" by CTI MAGAZINE in the
"Video Conferencing" category and the "1997 Editors' Choice Award" from
INTERNET TELEPHONY magazine. It garnered "1998 Product of the Year" from both
CTI MAGAZINE and INTERNET TELEPHONY magazine during its first year of
shipment.
In September 1998, White Pine released MeetingPoint 3.5, which
incorporated major improvements in audio mixing, video switching and
interoperability, as well as improved conference administration capabilities for
scheduling, bandwidth management and security. MeetingPoint 3.5.1, the current
version of MeetingPoint for both NT and Solaris platforms, was initially shipped
in February 1999. In addition, in May 1998 White Pine commenced commercial
shipment of MeetingPoint for Solaris, a UNIX-based user environment developed by
Sun Microsystems. MeetingPoint for Solaris is the only conferencing server
software available on a UNIX platform.
MeetingPoint is able to manage the amount of network resources that are
consumed as it hosts any type of group conference. The use of Internet
protocol-based networks for real-time communication is beginning a phase of
significant growth, with thousands of new users every day and creative new
applications being discovered weekly. However, multimedia requires significant
bandwidth. While emerging technologies like Fast Ethernet, ADSL and high-speed
cable modems promise expanded bandwidth in the near future, today most users
face network constraints. Home users, for example, are usually limited to 28.8
Kbps modem connections. Business, governmental and educational enterprises may
have 10 Mbps modem local area networks, but these are used for a variety of
traditional, mission-critical applications such as file sharing, e-mail and
printing. Even network service providers are challenged to stretch their network
resources to cover rapidly growing customer traffic. In those rare instances
where bandwidth is plentiful, it comes at a relatively high cost, especially for
wide area network links. Because of these network constraints, MeetingPoint's
bandwidth management capability allows users to make the
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most of the new collaboration, entertainment and learning possibilities that
network-based multimedia communications create, without having to make expensive
upgrades to the user's existing network infrastructure.
MeetingPoint's ability to manage the use of network resources while
hosting group conferencing arises from its core multimedia router technology.
This technology is focused on a single, very specific task: routing real-time
multimedia information among clients participating in group communications.
MeetingPoint manages and limits bandwidth use by using built-in intelligence
regarding the specific nature of multimedia data and real-time group
communications. Increased economies are achieved when wide-area communications
are routed through servers spread out across an organization's network, either
to network service provider "points of presence" or to remote offices on an
intranet.
In October 1998, White Pine became the first company to demonstrate
continuous presence for H.323 conferencing, as an add-on to MeetingPoint.
Continuous presence enhances the conferencing experience by enabling the
conference participants to see up to four video windows at one time. Prior to
the continuous presence capability, H.323 client users could only see the
participant that was talking, and not any of the other participants. White
Pine has made it possible, for the first time, for many popular H.323 clients
in a multipoint group conferencing environment to utilize continuous
presence, including users of Microsoft NetMeeting, Intel ProShare and
PictureTel LiveLAN. Continuous Presence is delivered to these desktop H.323
clients through a software add-on option to White Pine's MeetingPoint and
represents a feature add previously only available through H.320
conferencing. Continuous presence will be made generally available to the
public in the second fiscal quarter of 1999.
MeetingPoint 3.5.1 has a suggested retail price of $8,995 for a server
with 10 user connections. White Pine also offers MeetingPoint 3.5.1 at higher
prices for up to 100 users; capacity beyond 100 users may be obtained by linking
two or more MeetingPoint servers. White Pine also licenses CU-SeeMe and
MeetingPoint as a bundled package and offers site licenses and volume discounts
for larger purchases. White Pine has not established a price for MeetingPoint
with continuous presence functionality.
CLASSPOINT
ClassPoint, White Pine's first server solution, builds upon White Pine's
CU-SeeMe and MeetingPoint group conferencing technology to create a distance
learning and distance training solution. ClassPoint creates an instructor-led
"virtual classroom" that facilitates distance learning in any environment where
an instructor and students are in different locations. Because it enables the
fundamental interaction between the instructor and students, ClassPoint can be
used in classes for kindergarten through high school, or "K-12", in courses for
colleges and universities, and in home schooling. ClassPoint also offers
opportunities for distance training by businesses, government organizations and
others. ClassPoint enables simultaneous, real-time audio and video
communications, text chat, whiteboard sharing and Web touring. It also provides
a Web-based framework for materials to be shared before and after classes and
training sessions.
ClassPoint, which began shipping commercially in April 1998, was named
"Solution of the Year 1998" by ADVANCED IMAGING magazine and "Best New Business
Conferencing Product" at DVC '98 Spring. ClassPoint provides a framework for
education that can be used in a number of applications. K-12 schools can use it
to connect children and classrooms together from different cultures, bring in
guest lecturers, facilitate home schooling, enable teacher mentoring programs
and conduct moderated parent conferences. Colleges and universities can use
ClassPoint to increase their full-time enrollment by offering distance learning
courses. ClassPoint also enables colleges and universities to conduct on-line
lab and tutoring sessions, and to offer adult continuing education in
partnership with business and government. ClassPoint makes corporate training
increasingly accessible to all levels of employees by bringing it to the
desktop, enabling businesses to improve the availability and reach of their
training programs with a cost-efficient solution.
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White Pine offers licenses of ClassPoint in 10-, 25- and 50-user bundles,
with prices ranging from $6,395 to $22,995 for businesses and from $5,095 to
$17,995 for education, government and non-profit organizations. White Pine also
offers site licenses and volume discounts for larger purchases.
LEGACY SYSTEM CONNECTIVITY
White Pine's legacy emulation products, WebTerm X, eXodus and 5PM Term,
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. WebTerm X, which allows users to access
host applications from within a Web browser, is a suite of products geared to
providing advanced intranet solutions to corporations, educational organizations
and government agencies. White Pine's eXodus and 5PM Term products allow users
throughout an enterprise to access mission-critical data and applications
residing on legacy systems. These software products are competitively priced and
designed to be easy to use, and they include a comprehensive set of features
allowing for seamless integration with existing enterprise systems and newer
intranet applications.
BACKGROUND
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 the Internet protocol, 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 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 Internet protocol-based 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.
WEBTERM X
WebTerm X provides the means for Windows and MacOS users to access
critical information on a corporate intranet through their Web browsers. WebTerm
X can be used to:
- embed live, interactive terminal emulators and X Windows
applications within users' Web browser;
- centrally administer all configurations and updates from one
location with no user involvement; and
- automate interactions in the host window, reducing or eliminating
end-user application training.
In April 1998 White Pine introduced WebTerm X 2.0, which embodies
technology previously developed in connection with White Pine's eXodus for Mac.
WebTerm X 2.0 gives Windows 95, 98 and NT users access to X Windows
applications from their Web browser and as a stand-alone application. The
WebTerm
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X Administrator is a Webmaster or system administrator tool that centrally
configures Web pages with X Windows sessions.
Single-user WebTerm X products have suggested retail prices of $169 to
$229. White Pine also offers site licenses and volume discounts for larger
purchases.
EXODUS
eXodus is White Pine's family of X Windows connectivity products. Running
on all Windows-based systems and Macintosh platforms, eXodus is a comprehensive
connectivity package that provides easy access to all X Windows applications, as
well as many other legacy applications. eXodus provides the solution for
connecting to Unix, VMS and Windows NT environments via the X Windows protocol.
Connections to popular X Windows environments such as Common Desktop
Environment, Sun Open Windows, Hewlett Packard HP-VUE and Digital DECwindows are
seamless and simple.
The eXodus software for a single-user has a suggested retail price of $295
for either Windows or Macintosh. White Pine also offers site licenses and volume
discounts for larger purchases.
5PM TERM
5PM Term is a modular terminal emulation solution providing connections
from Windows and Macintosh desktops to IBM Mainframe, AS/400, UNIX, VAX and HP
hosts. 5PM Term replaces terminal screens and offers value-added features that
enable organizations to customize their environment with productivity
enhancements like multiple sessions, WatchMe macro scripting, HotKeys, HotSpots,
keyboard macros, toolbars, graphical keyboard mapping, full-screen support, and
on-line help. 5PM Term also has its own script editor with macro recording
function, which allows the non-technical user to create and modify the user's
own macros directly in 5PM Term.
5PM Term for a single user has a suggested retail price of between $249
and $399, depending upon the platform. White Pine also offers site licenses and
volume discounts for larger purchases.
RESEARCH AND DEVELOPMENT
White Pine's research and development activities traditionally have been
separated between legacy connectivity products and group conferencing products.
White Pine believes its future success depends on its group conferencing
solutions, and it has been migrating its research and development resources from
legacy connectivity technology to group conferencing technology. Approximately
93% of research and development expense in 1998 was attributable to development
of group conferencing products, compared with 87% in 1997 and 42% in 1996. White
Pine expects the percentage of its research and development resources devoted to
group conferencing products to increase further in the foreseeable future, as
White Pine intends to continue to limit its legacy connectivity research and
development to maintenance of existing products.
White Pine's research and development expenditures totalled $5.0 million
in 1998 and $5.7 million in 1997. White Pine intends to continue to devote
similar levels of resources to research and development in fiscal 1999, although
the actual amount of research and development expenses in 1999 will depend on a
number of factors, including the level of market acceptance of White Pine's
current products and the rate of technological change in the group conferencing
industry.
MARKETING AND DISTRIBUTION
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White Pine markets and sells its products through a combination of
distributors, original equipment manufacturers and strategic partners, its
Certified Alliance Partners program for resellers, its direct sales
organization, and directly over the Internet. White Pine's sales force is
located in Nashua, New Hampshire, San Jose, California, and La Gaude, France.
White Pine maintains a Web site at www.wpine.com and www.cuseeme.com where
prospective customers can obtain information about White Pine's products and
services and download its multimedia conferencing products and WebTerm X.
White Pine conducts marketing programs, including direct mail, advertising,
public relations and product literature, to support each of its sale channels
and to position and promote its products and services. Marketing personnel
provide price lists and product descriptions and assist the direct sales
force through lead generation and sales training.
White Pine's primary strategy for marketing and distributing its group
conferencing products is to establish new strategic and original equipment
manufacturer relationships and extend existing relationships with multinational
firms that provide particular marketing or distribution opportunities or
technological capabilities for White Pine's group conferencing products. White
Pine has already established distribution relationships in Austria, Australia,
Belgium, Egypt, Finland, France, Germany, Greece, Hong Kong, Hungary, Israel,
Italy, Japan, Korea, Netherlands, Norway, Slovania, South Africa, Spain, Sweden,
Switzerland and the United Kingdom. White Pine has also formed original
equipment manufacturer or bundling relationships in order to provide customers
with turnkey solutions and to facilitate product sales through distribution
channels. In 1996, White Pine began to employ Tech Data and Ingram Micro as
distributors to deliver CU-SeeMe to consumers through retail channels including
store chains and superstores.
On March 1, 1999, White Pine announced its portal Web site, "CU-SeeMe
World." White Pine believes this Web site may help to promote CU-SeeMe and
MeetingPoint sales by:
- building a centralized community of all group conferencing users;
- facilitating user interaction through the utilization of member
directories, Web-based ILS lookup, "safe" email interchange (email
addresses are masked and users exchange email via user names), and
threaded discussion groups;
- generating strategic alliances through sponsorships and partnering
opportunities; and
- encouraging content providers to offer structured conferencing and
programming.
White Pine 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.
CUSTOMERS
White Pine's customers include businesses, educational institutions,
government organizations and individual consumers. White Pine sells its software
to end users and to original equipment manufacturers that bundle White Pine's
software with other products.
Sales to Ingram Micro represented 26% of White Pine's total revenue in
fiscal 1998 and 14% of White Pine's total revenue in fiscal 1997. Sales to
Tech Data represented 14% of White Pine's total revenue in fiscal 1997, but
less than 10% of total revenue in fiscal 1998. The loss, of or a significant
curtailment of purchases by, these distributors, including a loss or
curtailment due to factors outside of White Pine's control, would have a
material adverse effect on White Pine's business.
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CUSTOMER SERVICE AND SUPPORT
White Pine is committed to maintaining customer satisfaction and loyalty.
It employs technical customer representatives located in Nashua, New Hampshire
and La Gaude, France to support and service its customer base. Certain of White
Pine's distributors and original equipment manufacturer customers maintain
separate customer support organizations for their respective customers. White
Pine provides back-up support to those organizations.
White Pine maintains a technical support hotline to answer customer
inquiries and provides an on-line database of technical product information.
White Pine'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 White Pine's products but also to other
hardware and software with which White Pine's products may interact. White Pine
tracks all support requests, including current status reports and historical
customer interaction logs, using a series of customer databases. White Pine uses
customer feedback as a source of ideas for product improvements and
enhancements.
In February 1999, White Pine began charging CU-SeeMe customers for
technical support on a per-incident basis if they are not covered by a
maintenance contract. Customers of MeetingPoint, ClassPoint and legacy
connectivity products can obtain service and support through White Pine's
support program, which for a fee entitles customers to priority service
through a toll-free number. The support program also affords customers, at no
additional cost, automatic shipments of all enhancements and upgrades for
licensed products.
PROPRIETARY RIGHTS
White Pine's success is heavily dependent upon its proprietary technology.
White Pine 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. White Pine has applied for a
patent on a portion of the technology underlying the continuous presence feature
of MeetingPoint. There can be no assurance that the steps taken by White Pine to
protect its proprietary rights will be adequate to prevent misappropriation of
its technology or independent development by others of similar technology.
Litigation may be necessary to enforce White Pine's intellectual property rights
or to protect White Pine's trade secrets. Any such litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on White Pine's business, financial condition and results of operations.
Moreover, while White Pine 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 White Pine or that
such claims will not be successful. See "Item 1A. Risk Factors--We may be unable
to protect our proprietary technology."
As described below, in fiscal 1998 White Pine took several steps to
acquire ownership of technology embedded in its software offerings.
ACQUISITION OF TECHNOLOGY FROM CORNELL RESEARCH FOUNDATION
White Pine's multimedia conferencing products, CU-SeeMe and MeetingPoint,
are commercial, enhanced versions of Freeware CU-SeeMe and its related server.
Freeware CU-SeeMe and its related server were developed by a research institute
at Cornell University and are freely available on the Web. In June 1995, White
Pine entered into an software license agreement with the Cornell Research
Foundation that granted to White Pine 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."
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White Pine commenced shipments of the initial commercial versions of
CU-SeeMe and the White Pine Reflector (the predecessor of MeetingPoint) in March
1996 and May 1996, respectively. In May 1997, White Pine renegotiated the terms
of the license agreement to provide for a $1,000,000 prepayment of royalties in
exchange for a decrease in the level of revenue-based royalties payable to the
Cornell Research Foundation. The renegotiated terms were retroactive to January
1, 1997, and White Pine remained subject to minimum royalty payments.
In November 1998, White Pine acquired the Cornell Research Foundation's
trademark and other intellectual property rights in Freeware CU-SeeMe, upon
which White Pine's current versions of CU-SeeMe are based, and the related
server technology, which underlies MeetingPoint. White Pine's management
anticipates that the acquisition will facilitate further development and
improvement of currently existing technologies. In addition, management believes
that the acquisition will secure the worldwide CU-SeeMe community that existed
in large part through the users of Freeware CU-SeeMe and will providing that
community with a logical upgrade path. The purchase price for these rights
consisted of (1) a note in the principal amount of $900,000, of which $300,000
is due on each of June 30, 2000, June 30, 2001 and June 30, 2002, and (2)
warrants to purchase 150,000 shares of White Pine's common stock at a price of
$1.00 per share. The warrants were issued in exchange for outstanding warrants
issued previously to the Cornell Research Foundation; these prior warrants had
an exchange price of $6.00 per share but otherwise had terms substantially
identical to those of the new warrants.
ACQUISITION OF TECHNOLOGY FROM LABTAM COMMUNICATIONS
In July 1998, White Pine purchased certain assets, including intellectual
property, comprising certain T.120 whiteboard and data collaboration technology
from Labtam Communications, an Australian corporation. The purchase price for
these assets consisted of 900,000 shares of White Pine's common stock and cash
payments of U.S.$628,000 in July 1998 and A$201,606 (or U.S.$133,000) in January
1999. The terms of, and consideration paid in, this transaction were the result
of arm's length negotiations between White Pine and Labtam Communications, which
had no relationship prior to the transaction. White Pine used its cash and cash
equivalents to pay the cash portion of the purchase price. An aggregate of
450,000 shares was deposited in escrow as security for potential claims by White
Pine against Labtam Communications for breaches of certain representations,
warranties, covenants and agreements contained in the purchase agreement
relating to the Labtam Assets. A total of 225,000 of the escrowed shares were
released to Labtam Communications in January 1999 and, in the absence of any
such claims, the remaining 225,000 escrowed shares will be released in July
1999.
White Pine plans to incorporate the purchased T.120 technology into its
MeetingPoint and ClassPoint conferencing solutions. T.120 is the protocol that
defines whiteboard, application sharing and data collaboration for multipoint
conferencing applications.
TECHNOLOGY ACQUISITION FROM RADVISION
In December 1998, White Pine acquired from RADVision a one-time source
code snapshot of a H.323 protocol stack. This acquisition will allow White
Pine to modify and enhance certain source code embedded in its products.
COMPETITION
The market for multimedia conferencing products and services is extremely
competitive, and White Pine expects that competition will intensify in the
future. White Pine believes that the principal competitive factors in the
multimedia group conferencing industry are price, video and audio quality,
interoperability, functionality, reliability, service and support, hardware
platforms supported, and vendor and product reputation. White Pine 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
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suppliers, the timing of the introduction of new software products and services
by White Pine and others, White Pine's ability to hire and retain quality
employees, and industry and general economic trends. In addition, because the
barriers to entry in the software market are relatively low and the potential
market is large, White Pine anticipates continued growth in the industry and the
entrance of new competitors in the future.
In offering CU-SeeMe, White Pine currently competes, or expects to
compete, directly or indirectly with the following categories of companies:
- traditional hardware-based videoconferencing companies such as
PictureTel and VTEL;
- vendors of operating systems and browsers such as Microsoft, which
offers NetMeeting, a product that enables video, audio and data
communication over the Internet;
- videoconferencing support companies such as VideoServer, Lucent
Technologies and Accord; and
- distance learning solution vendors, such as Centra Software and
Lotus.
Currently Microsoft's NetMeeting, introduced in 1997, presents the most direct
competition for CU-SeeMe. Microsoft is able to bundle NetMeeting with its
Windows 98 operating system. NetMeeting supports Windows 98, Windows 95 and
Windows NT and complies with H.323.
H.323 is being rapidly adopted by the industry as the global standard for
group conferencing products. A number of companies have announced
standards-based server products that compete directly with MeetingPoint,
including PictureTel, VideoServer and RADVision. It is likely that other
companies will also enter this market in the near future.
ClassPoint competes with other distance learning and distance training
products in educational, corporate and governmental markets. Competing products
include (a) Contigo Itinerary, which features Web-based Java PowerPoint
delivery, (b) Lotus LearningSpace, which has Domino-based materials delivery and
asynchronous discussions, (c) RealNetworks, which provides for one-to-many
streaming video and media, (d) PlaceWare Auditorium, which delivers interactive
presentations to multiple sites, and (e) Ilinc's LearnLinc, which has
instructor-controlled, multipoint audio and Web tours, with point-to-point video
supplied by Intel at an additional cost.
In the market for X Windows products, White Pine faces significant direct
competition from a number of PC X server software vendors, including Hummingbird
Communications, NetManage, Network Computing Devices and Walker Richer and
Quinn, as well as indirect competition from manufacturers of dedicated X
terminals. White Pine's principal competitor in this market is Hummingbird
Communications, 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, White Pine will face increased competition.
In the terminal emulation market, White Pine currently competes with the
following categories of companies:
- vendors of IBM host connectivity products, including Attachmate and
Wall Data;
- vendors of TCP/IP terminal emulation products, including NetManage
(both directly and through its recently acquired subsidiary, FTP
Software); and
- vendors of Digital Equipment Corporation and Hewlett-Packard host
connectivity products, including Walker Richer and Quinn.
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In the Web-based terminal emulation environment, White Pine expects to compete,
directly or indirectly, with IBM, Open Connect, Wall Data, Attachmate, and
Walker Richer and Quinn.
Many of White Pine's current and potential competitors, including
Hummingbird Communications, Intel, IBM, Microsoft, PictureTel and VideoServer,
have significantly longer operating histories and significantly greater
managerial, financial, marketing, technical and other competitive resources, as
well as greater name recognition, than White Pine. As a result, White Pine'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 White Pine 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 White Pine and could have a material adverse effect on White
Pine's business, financial condition and results of operations.
To remain competitive, White Pine will need to continue to invest in
research and development and sales and marketing. There can be no assurance that
White Pine will have sufficient resources to make such investments or that White
Pine 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 which White Pine 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 White Pine's business, financial condition and
results of operations.
EMPLOYEES
At March 19, 1999, White Pine had 110 full-time employees, including 42 in
research and development, 35 in sales and marketing, 16 in technical support,
and 17 in general and administrative and software manufacturing. Fifteen of
these employees were located in France and, in accordance with applicable French
law, were represented by a labor union. White Pine's other employees were
located in the United States and were not represented by any labor organization.
White Pine has experienced no work stoppages and believes that its relations
with its employees are good.
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ITEM 1A RISK FACTORS
WE MAY NOT BE PROFITABLE IN THE FUTURE
We may never generate significant revenue or be profitable. Since we began
operations, we have incurred substantial losses. In fiscal 1998 we incurred a
net loss of $8,424,000, and in fiscal 1997 we incurred a net loss of $6,826,000.
We had an accumulated deficit of $28,861,000 at December 31, 1998.
We expect to incur substantial losses for the foreseeable future, because
we intend to continue investing heavily in the development and marketing of
MeetingPoint and related follow-on applications such as ClassPoint. We expect
that the dollar amount of sales of our legacy connectivity products will
continue to decline for the foreseeable future. Sales of our legacy connectivity
products comprised 29% of total revenue in fiscal 1998 and 35% of total revenue
in fiscal 1997. In addition, we expect that revenue from CU-SeeMe will not
increase substantially, and may decrease, during the foreseeable future. We
cannot be certain that sales of MeetingPoint, ClassPoint and other new products
will offset any declines in revenue from CU-SeeMe and our legacy connectivity
products in fiscal 1999 or later years.
WE MUST RAISE CAPITAL IN FISCAL 1999
We expect that we will need to raise capital in fiscal 1999, either
through a private or public offering of debt or equity or as part of a strategic
partnership or joint venture. Our cash and cash equivalents decreased
substantially during fiscal 1998, from $14,704,000 at December 31, 1997 to
$6,421,000 at December 31, 1998. We continue to experience a significant
negative cash flow each month.
We cannot assure you that financing will be available on acceptable terms
or at all. If we are unable to raise funds, we may be unable to support our
projected operations and may be required to defer, for a period of time or
indefinitely, our research and development activities or our continued roll out
of new products and product versions. We have effected two focused personnel
reductions during the past two fiscal years in order to control costs, and we
may be required to effect further reductions if we are unsuccessful in raising
additional capital during fiscal 1999. Our capital requirements may vary
materially from those we now anticipate depending on a number of factors,
including:
- the level of our research and development activities;
- the rate of market acceptance of our software offerings; and
- the success of our sales, marketing and distribution strategy.
If we do not meet our goals with respect to revenue or if our costs are higher
than anticipated, substantial additional funds may be required.
WE FACE INTENSE COMPETITION FROM MANY PARTICIPANTS IN THE GROUP CONFERENCING
INDUSTRY
The market for multimedia conferencing products and services is extremely
competitive. Because the barriers to entry in the multimedia conferencing market
are relatively low and the potential market is large, we expect continued growth
in the industry and the entrance of new competitors in the future. Our
competitors vary among our different group conferencing products:
- In offering CU-SeeMe, we compete, or expect to compete, with (a)
traditional hardware-based videoconferencing companies such as
PictureTel and VTEL, (b) vendors of operating systems and browsers
such as Microsoft, which offers NetMeeting, a product that competes
directly with
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CU-SeeMe and is bundled with Windows 98, (c) group conferencing
support companies such as VideoServer, Lucent Technologies and
Accord and (d) distance learning solution vendors such as Centra
Software and Lotus.
- A number of companies have announced multimedia conferencing server
products that compete directly with MeetingPoint, including
PictureTel, VideoServer and RADVision.
- ClassPoint competes with other distance learning and distance
training products, including (a) Contigo Itinerary, which features
Web-based Java PowerPoint delivery, (b) Lotus LearningSpace, which
has Domino-based materials delivery and asynchronous discussions,
(c) RealNetworks, which provides for one-to-many streaming video and
media, (d) PlaceWare Auditorium, which delivers interactive
presentations to multiple sites, and (e) Ilinc's LearnLinc, which
has instructor-controlled, multipoint audio and Web tours, with
point-to-point video supplied by Intel at an additional cost.
Many of our current and potential competitors in the multimedia
conferencing market, particularly Intel, Microsoft, PictureTel and VideoServer,
have significantly longer operating histories and significantly greater
managerial, financial, marketing, technical and other competitive resources, as
well as greater name recognition, than we do. As a result, these companies 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 conferencing products and services.
As a result, we cannot assure you that we will be able to compete
successfully with existing or new competitors in the multimedia conferencing
market. We believe that our ability to compete successfully in this market will
depend on a number of factors both within and outside our control, including:
- the adoption and evolution of industry standards;
- the pricing policies of our competitors and suppliers;
- the timing of the introduction of new software products and services
by us and our competitors; and
- our ability to hire and retain highly qualified employees.
To remain competitive in the multimedia conferencing market, we must
continue to invest heavily in research and development and in sales and
marketing. We may not have sufficient resources to make those investments, or we
may not be able to make the technological advances necessary to continue to be
competitive. In addition, current and potential competitors have established or
may establish collaborative relationships among themselves and with third
parties 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, which could have a material adverse
effect on our business.
WE MUST MARKET MEETINGPOINT AND CLASSPOINT SUCCESSFULLY
We expect that sales of our legacy connectivity products will decline
during the foreseeable future and that sales of CU-SeeMe will not increase
significantly, and may decline, during the foreseeable future. As a result, our
future success will depend significantly on our ability to market MeetingPoint
and ClassPoint. MeetingPoint was first released in November 1997 and ClassPoint
was first released in April 1998, and we have had only a limited opportunity to
determine the extent to which these software products will succeed in the
marketplace.
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Moreover, the market for these products is developing and changing rapidly, and
there is a high level of uncertainty about the demand for and market acceptance
of these products.
In the longer term, our success will also depend upon our ability to
develop and introduce additional products based on our core technology and to
continue to improve the performance, features and reliability of our products,
including MeetingPoint and ClassPoint. We cannot assure you that we will be
successful in introducing these new and improved products, particularly if our
limited capital requirements us to reduce our projected research and development
activities.
OUR QUARTERLY RESULTS MAY FLUCTUATE AND CAUSE THE PRICE OF OUR COMMON STOCK TO
FALL
Our quarterly revenue and operating results are difficult to predict and
have fluctuated significantly from quarter to quarter. If our quarterly revenue
or operating results fall below the expectations of investors or public market
analysts, the price of our common stock could fall substantially. Our quarterly
operating results may vary significantly depending on a number of factors, some
of which are outside of our control. These factors include:
- the timing of the introduction or acceptance of new products offered
by us or our competitors;
- changes in demand for Internet services;
- changes in the mix of products sold by us;
- announcements of new products, services or technologies by us or our
competitors that cause customers to defer or cancel purchases of our
products;
- changes in pricing strategies by us or competitors;
- changes in regulations affecting the multimedia conferencing
industry; and
- changes in currency exchange rates.
As a result of these factors, we may not be able to predict our operating
results accurately. In addition, MeetingPoint and ClassPoint continue to undergo
long evaluation and sale cycles by potential users. The lengths of these cycles,
combined with the newness of these software products, make it particularly
difficult for us to predict the amount and timing of revenue from these
products.
We base our expense levels on our product development plans and our
estimates of future revenue. To a large extent, our expenses are fixed. We may
be unable to adjust our spending in time to compensate for any unexpected
revenue shortfall, thus magnifying the adverse effect of any revenue shortfall.
WE RELY ON TWO DISTRIBUTORS FOR A SIGNIFICANT PORTION OF OUR TOTAL REVENUE
Sales to Ingram Micro represented 26% of our total revenue in fiscal 1998
and 14% of our total revenue in fiscal 1997. Sales to Tech Data represented 14%
of our total revenue in fiscal 1997. The loss of, or a significant curtailment
of purchases by, these distributors, including a loss or curtailment due to
factors outside of our control, would have a material adverse effect on our
business.
WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY
Our business could be seriously harmed if we are unable to protect
adequately our proprietary software and our other proprietary intellectual
property rights. We may be unable to deter misappropriation of our proprietary
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technology, detect unauthorized use and take appropriate steps to enforce our
intellectual property rights. Our competitors could, without violating our
proprietary rights, develop technologies that are as good or better than our
technology.
Our multimedia conferencing products are licensed to customers under
"shrink wrap" licenses included as part of the product packaging. In most cases
our shrink wrap licenses are not negotiated with or signed by individual
licensees. Some of the provisions of our shrink wrap licenses, including
provisions limiting our liability and protecting us against unauthorized use,
copying, transfer and disclosure of the licensed program, may be unenforceable
under the laws of certain jurisdictions. Also, we have delivered technical data
and information relating to CU-SeeMe and MeetingPoint to the United States
government, and as a result, the United States government may have unlimited
rights to use the technical data and information or to authorize others to use
the technical data and information. We can not assure you that the United States
government will not authorize others to use our technical data and information
for purposes competitive with our products. In addition, the laws of some
foreign countries do not protect our proprietary rights to the same extent as do
laws in the United States.
Because the protection of intellectual property rights is often critically
important to the success of companies in the multimedia conferencing industry,
our competitors or others could assert claims that our technologies infringe
their proprietary rights. From time to time, we have 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. For
example, a third party has objected to our use of the name "MeetingPoint." We
may not have the financial resources necessary to pursue any resulting
litigation to a final judgment, and we may not prevail in any litigation. In
defending against such litigation, we could incur significant legal and other
expenses and our management could be distracted from our principal business
operations. If any party making a claim against us were to prevail in litigation
against us, we may have to pay substantial damages. The court could also grant
injunctive or other equitable relief that could prevent us from offering our
products and services without a license or other permission from others. Any of
these outcomes could seriously harm our business.
WE FACE ADDITIONAL RISKS FROM OUR INTERNATIONAL OPERATIONS
Our international business involves a number of risks that could hurt our
operating results or contribute to fluctuations in those results. Our revenue
from international sales represented 26% of our total revenue during fiscal 1998
and 27% of our total revenue during fiscal 1997. We intend to seek opportunities
to expand our product and service offerings into additional international
markets, although we cannot be certain that we will succeed in developing
localized versions of our products for new international markets or in marketing
or distributing products and services in those markets.
The majority of our 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 we make sales
denominated in currencies other than U.S. dollars, fluctuations in exchange
rates may render our products less competitive relative to local product
offerings or result in foreign exchange losses. We have no experience in
implementing hedging techniques that might minimize our risks from exchange rate
fluctuations.
Our international business also involves a number of other difficulties
and risks, including risks associated with: changing economic conditions in
foreign countries; 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.
21
<PAGE>
OUR SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT
Many currently installed computer systems and software products only
accept two digits to identify the year in any date. These systems and products
might interpret the year 2000 as 1900. This could result in system failures,
delays or miscalculations. Systems or software that have not been developed or
enhanced recently may need to be upgraded or replaced to comply with Year 2000
requirements.
Our computer systems and software products may not be fully Year 2000
compliant. Based on our Year 2000 testing program, we believe that the portions
of our systems and software that we have developed are Year 2000 compliant. We
have not received Year 2000 readiness statements from a number of our system
vendors. In the event that vendors are not fully year 2000 compliant prior to
December 31, 1999, we could experience disruption and delays that could have a
material adverse impact on operations. We have determined that some of our older
legacy connectivity products are not Year 2000 compliant. We expect to
discontinue sales of these products. In addition, certain of the third-party
software or hardware used by our customers in conjunction with our software
products may not be Year 2000 compliant. For example, the host computers to
which our legacy connectivity products are connected may not be Year 2000
compliant.
Based upon our testing to date, we do not expect that our business will be
materially adversely affected by any failure of third-party software or hardware
to interpret Year 2000 data correctly. We cannot be certain, however, that we
will not be required to make significant expenditures as the result of Year
2000.
OUR SOFTWARE PRODUCTS MAY CONTAIN UNDETECTED DEFECTS
Software developed and incorporated by us may contain significant
undetected errors when first released or as new versions are released.
Although we test our software before commercial release, we cannot be certain
that errors in the software will not be found after customers begin to use
the software. Our current versions of CU-SeeMe and MeetingPoint were released
in the last six months. These releases correct a number of errors in prior
releases, support relevant standards and incorporate new features. Any
defects in these versions of CU-SeeMe or MeetingPoint or in ClassPoint may
result in significant decreases in revenue or increases in 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 defects.
OUR SUCCESS DEPENDS ON THE PERFORMANCE OF PARTICIPANTS IN OUR DISTRIBUTION
CHANNELS
We market our group conferencing products by forming channel
relationships in key markets with major distributors. We also license our
group conferencing products to original equipment manufacturers, value-added
resellers and additional distributors for bundling with their products and
services. We expect that our future success will depend in large part upon
these original equipment manufacturers, value-added resellers and
distributors. The performance of these original equipment manufacturers,
value-added resellers and distributors is outside our control, and we are
unable to predict the extent to which these organizations will be successful
in marketing and selling our group conferencing products or products
incorporating our group conferencing products. We cannot assure you that we
will be successful in establishing relationships with original equipment
manufacturers, value-added resellers and distributors, and if we fail, our
business could be seriously harmed.
Our distributors typically carry the products of some of our competitors
of White Pine. The distributors have limited capital to invest in inventory, and
their decisions to purchase our 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 our competitors, which we cannot predict or
control.
22
<PAGE>
We distribute certain of our products directly over the Internet. By
distributing our products over the Internet, we may increase the likelihood of
unauthorized copying and use of our software.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES MAY ADVERSELY AFFECT OUR BUSINESS
The application of existing laws to the Internet is uncertain and may take
years to resolve, particularly with respect to property ownership , user
privacy, freedom of expression, pricing, characteristics and quality of products
and services, taxation, advertising, intellectual property rights, information
security and the convergence of traditional telecommunications services with
Internet communications. Because the Internet is becoming increasingly popular,
various foreign or domestic governmental bodies may seek to adopt laws and
control use of the Internet. We cannot predict the nature of any such laws.
Legislation could subject us or our customers to potential liability or could
decrease the growth of the Internet, either of which could have an adverse
effect on our business.
In March 1996, ACTA, a group of telecommunications common carriers,
filed the ACTA Petition with the FCC, arguing that providers (such as us) 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. We are 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 but has not yet done so. ACTA has submitted petitions, similar to
its FCC filing, to certain state regulators, including public service
commissions. Any action by the FCC or state regulators 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 our business.
THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE
The market price of our common stock may be volatile for many reasons,
including:
- actual or anticipated variations in our revenue and operating
results;
- announcements of the development of improved technology;
- changes in estimates of our financial performance, or the dropping
of coverage, by securities analysts;
- conditions and trends in the Internet and group conferencing
industries;
- adoption of new accounting standards; and
- general market conditions.
Recently the stock markets have experienced extreme price and volume
fluctuations that have dramatically affected the market prices of the stocks of
many technology companies, particularly companies associated with the Internet.
These fluctuations often have been unrelated or disproportionate to the
operating performance of those companies. These factors may adversely affect the
market price of our common stock.
23
<PAGE>
VOLATILITY IN OUR STOCK PRICE MAY LEAD TO LITIGATION
Stockholders frequently commence securities class action litigation
against a company after a significant decrease in the company's stock price. If
our stock price drops and our stockholders commence litigation against us, we
could incur significant legal and other expenses defending the litigation and
our management could be distracted from our principal business operations.
Either of these outcomes could seriously harm our business.
DELAWARE LAW AND OUR CHARTER DOCUMENTS CONTAIN ANTI-TAKEOVER AND INDEMNIFICATION
PROVISIONS THAT MAY ADVERSELY AFFECT STOCKHOLDERS
Delaware corporate law and our charter documents contain provisions that
could delay or prevent a change of control, merger or other form of takeover
that our stockholders might find attractive. Certain of these provisions:
- prohibit us from engaging in a certain types of business
combinations with certain "interested stockholders" 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;
- provide that stockholders may act only at meetings of stockholders
and not by written consent in lieu of a stockholders' meeting;
- provide that special meetings of our stockholders may be called by
our President and must be called by our President or Secretary at
the written request of a majority of the directors;
- 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 us of its
intentions a specified number of days in advance of the meeting and
furnishes us with with certain information regarding itself and the
intended nominee;
- require a stockholder to provide to our Secretary with advance
notice of business to be brought by the stockholder before any
annual or special meeting of stockholders as well as certain
information regarding the stockholder and others known to support
such proposal and any material interest they may have in the
proposed business; and
- authorize our board to cause us to issue shares of common stock and
preferred stock that, if issued, could dilute and adversely affect
various rights of the holders of our common stock and, in addition,
could be used to discourage an unsolicited attempt to acquire
control of White Pine.
These provisions could limit the price that investors will pay for shares of our
common stock.
Our charter documents require us to indemnify our officers and directors
against certain liabilities and expenses that they may incur while defending
lawsuits brought against them as officers or directors. In most cases, these
indemnification provisions will prevent our stockholders from recovering damages
from our officers and directors for their acts or omissions on our behalf.
24
<PAGE>
ITEM 2 DESCRIPTION OF PROPERTY
White Pine conducts its operations from its headquarters in Nashua, New
Hampshire and facilities in San Jose, California and La Gaude, France.
The facility in New Hampshire contains approximately 27,000 square feet,
including 20,200 square feet for engineering and office space, 4,500 square feet
for production space and 2,300 square feet for storage. White Pine leases its
office in New Hampshire from an unaffiliated party under the terms of a
five-year lease ending July 1, 2001 under which White Pine is responsible for
maintenance, repairs, taxes, insurance and utilities. Base rent is $130,000 for
1999, $143,000 for 2000 and $82,000 for the first half of 2001. Renewal options
for 3 two-year terms are available to White Pine.
The facility in San Jose contains approximately 370 square feet of office
space. White Pine rents its office in California from an unaffiliated party
under the terms of a renewable six-month rental agreement expiring April 15,
1999. Base rent for this office space for 1999 is $23,000.
White Pine previously occupied 5,000 square feet of engineering and office
space at a different site in San Jose. This space has been subleased to an
unaffiliated party under the terms of a five-year lease ending December 31,
2001. White Pine's base income under the sublease exceeds its base rent under
the primary lease.
The facility in La Gaude contains approximately 8,000 square feet of
engineering and office space. White Pine leases its office in France from
several unaffiliated parties under a series of similar leases which end July 31,
1999, under which White Pine is responsible for maintenance, repairs, taxes,
insurance, and utilities. Base rent is $34,000 for the first seven months of
1999.
White Pine expects to extend or renew the leases for the San Jose and La
Gaude facilities and to continue to occupy those facilities for the foreseeable
future. If it is unable to extend or renew those leases on acceptable terms,
White Pine believes that alternative space is readily available at acceptable
rates.
25
<PAGE>
ITEM 3 LEGAL PROCEEDINGS
White Pine is a defendant in two lawsuits pending in New York federal
court (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 that are alleged to have been defectively designed. The
keyboards were supplied, and possibly designed and manufactured, by Ontel.
The assets of Ontel were purchased in 1982 by Visual Technology, a
predecessor of White Pine. The RSI Suits, which seek money damages, were
brought by employees of New York Telephone, which purchased the keyboards
from Lockheed Electronics. One or more of Visual Technology, Ontel, Lockheed
Electronics and Key Tronics, a subcontractor for certain of the keyboards,
are named as co-defendants in a number of suits, including the RSI Suits.
Neither of the RSI Suits has reached trial.
White Pine has established a reserve for legal fees and losses that
could arise from the RSI Suits and a number of similar actions against White
Pine. See note 5 of notes to consolidated financial statements. The amount of
this reserve is based upon White Pine's belief that (1) the RSI Suits may be
covered by product liability insurance, (2) White Pine is contractually
indemnified by Lockheed Electronics and Key Tronics against all or a portion
of the damages to which White Pine may be subject and (3) White Pine has
defenses to substantially all of the claims under the RSI Suits. White Pine
reduced this reserve from $291,000 to $51,000 as of December 31, 1998, in
recognition of the fact that four similar lawsuits had been resolved at no
expense to White Pine. Although White Pine believes that its reserve for the
RSI Suits is adequate, there can be no assurance that White Pine's
liabilities under the RSI Suits will not substantially exceed the reserve.
From time to time, White Pine has received and may receive in the future
notice of claims of infringement of other parties' proprietary rights. Although
White Pine 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 White Pine or that
any infringement claims will not be successful. See "Item 1A. Risk Factors--We
may be unable to protect our proprietary technology."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of securities holders of White Pine
during the fourth fiscal quarter of 1998.
26
<PAGE>
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
White Pine's common stock commenced trading on the Nasdaq National Market
on October 11, 1996 under the symbol "WPNE." The following table sets forth the
high and low closing sales price for the common stock for each quarter during
the past two fiscal years, as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
---------- ----------
<S> <C> <C>
FISCAL 1997:
First Quarter.................................. $6.625 $2.25
Second Quarter................................. 3.375 2.50
Third Quarter.................................. 4.9375 2.00
Fourth Quarter................................. 5.8125 2.625
FISCAL 1998:
First Quarter.................................. 3.125 2.000
Second Quarter................................. 3.28125 1.500
Third Quarter.................................. 2.15625 .84375
Fourth Quarter................................. 2.375 .75
</TABLE>
As of March 19, 1999 there were 153 holders of record of common stock who
held an aggregate of 10,491,436 shares of common stock as nominees for an
undisclosed number of beneficial holders.
White Pine has never declared or paid any cash dividends on its capital
stock. White Pine 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 White Pine's board of directors
after taking into account various factors, including White Pine's financial
condition, results of operations, current and anticipated cash needs, and plans
for expansion. The terms of White Pine's existing bank line of credit and term
loan prohibit White Pine 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."
27
<PAGE>
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
White Pine's revenue is derived from software license fees and fees for
services related to its software products, primarily software maintenance fees.
During fiscal 1997, White Pine recognized revenue in accordance with the
American Institute of Certified Public Accountants Statement of Position No.
91-1, "Software Revenue Recognition." For fiscal 1998, White Pine recognized
revenue in accordance with AICPA Statement of Position 97-2, 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 White Pine remain outstanding and
collection of the related receivable is deemed probable by
management. An allowance for product returns is recorded by White
Pine 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 White Pine's policy, and prepaid maintenance fees
not yet recognized as revenue, are reflected as deferred revenue.
Research and development expenses typically are charged to income as
incurred. 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 White Pine's
product development process, technological feasibility is established upon
completion of a commercially viable working model. Costs incurred prior to
the establishment of technology feasibility are charged to research and
development expense. Costs incurred by White Pine between completion of the
commercially viable working model and the point at which the product is ready
for general release have been capitalized. Capitalized software is amortized
based on its estimated economic life. White Pine capitalized $3,142,000 of
software costs in fiscal 1998 and did not capitalize any software costs in
fiscal 1997. White Pine purchased certain technology from the Cornell
Research Foundation and Labtam in fiscal 1998. See "Item 1. Description of
Business--Proprietary Rights." None of the purchased software was amortized
in fiscal 1998, because the first commercial shipments of products
incorporating the acquired technology are not expected to be made until
fiscal 1999.
Effective January 1, 1997, White Pine changed its interim fiscal reporting
periods from calendar quarters to quarters consisting of thirteen weeks.
28
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain consolidated financial data from
White Pine's statement of operations as a percentage of total revenue for fiscal
1998 and fiscal 1997.
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------
1998 1997
------- -------
<S> <C> <C>
Revenue:
Software license fees............................................... 89.2% 88.6%
Services and other.................................................. 10.8 11.4
------- -------
Total revenue.................................................. 100.0 100.0
Cost of revenue.......................................................... 21.1 17.1
------- -------
Gross profit................................................... 78.9 82.9
Operating expenses:
Sales and marketing................................................. 99.3 71.8
Research and development............................................ 64.7 51.8
General and administrative.......................................... 29.2 23.4
Restructuring charge................................................ -- 6.0
------- -------
Total operating expenses....................................... 193.2 153.0
------- -------
Income (loss) from operations............................................ (114.3) (70.1)
Interest income and other, net........................................... 6.3 8.4
Provision for income taxes............................................... (0.1) (0.1)
------- -------
Net income (loss).............................................. (108.1)% (61.8)%
------- -------
------- -------
</TABLE>
FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 1997
REVENUE
Total revenue decreased by 30% to $7,793,000 in fiscal 1998 from
$11,052,000 in fiscal 1997.
Revenue from conferencing software decreased by 9% to $5,781,000 in fiscal
1998 from $6,369,000 in fiscal 1997. This decrease resulted from a 41% decline
in revenue from client conferencing software, which decreased to $2,833,000 in
fiscal 1998 from $4,777,000 in fiscal 1997. The decline in client conferencing
revenue was offset in part by an 85% increase in revenue from server
conferencing software, which grew to $2,948,000 in fiscal 1998 from $1,592,000
in fiscal 1997. The growth in server conferencing revenue principally resulted
from the release of MeetingPoint in November 1997 and ClassPoint in April 1998.
The growth rate of server conferencing revenue has been determined in part by
product performance and customer acceptance and adoption. White Pine is
experiencing relatively lengthy, two-step sales cycles for MeetingPoint and
ClassPoint. The first step typically extends from one to three months and
results in sales of small quantities of the server products for pilot programs.
White Pine expects that the second step will extend considerably longer, from
six months to over a year, as customers decide whether to move beyond the pilot
programs to deployment of MeetingPoint on a company-wide basis or deployment of
ClassPoint as an operational long-distance learning program.
White Pine's legacy connectivity product sales continued to decline as
White Pine focused fewer resources on these older product lines. Legacy
connectivity revenue declined by 43% to $2,226,000 in fiscal 1998 from
$3,880,000 in fiscal 1997. The percentage of total revenue represented by
revenue from legacy connectivity products decreased to 29% in fiscal 1998 from
35% in fiscal 1997. Maintenance and other revenue has decreased in conjunction
with the decline in legacy connectivity revenue, as the majority of maintenance
agreements historically have related to legacy connectivity products.
29
<PAGE>
White Pine anticipates that maintenance revenue will begin to increase in
conjunction with the growth in the server conferencing revenue. White Pine
believes that continued but minimal additional investment in the legacy
connectivity products in future quarters will slow the decline in connectivity
revenue in the short term, providing White Pine with an additional period to
build the sales base for its server products.
White Pine anticipates that client conferencing and legacy connectivity
revenue will continue to decline for the foreseeable future. It expects that
revenue growth, if any, will depend on increased sales of MeetingPoint,
ClassPoint and other multimedia server solutions. Accordingly, White Pine
intends to continue to devote a substantial portion of its research and
development and sales and marketing resources to technologies related to group
conferencing. White Pine currently expects that increases in revenue from these
server conferencing solutions will offset decreases in client conferencing and
legacy connectivity revenue. There can be no assurance, however, that White Pine
will be successful in generating server conferencing revenue in an amount
sufficient to offset declines in revenue from client conferencing and legacy
connectivity products, or at all. The actual amount of revenue generated by
White Pine's server conferencing software may vary significantly depending on a
number of factors, including the unproven market status and acceptability of the
products, significant and increasing competition for those products and other
factors described under "Item 1A. Risk Factors." Even if White Pine meets its
internally projected revenue targets, White Pine expects that it will incur a
net loss during fiscal 1999.
Revenue from sales outside the United States comprised 26% of total
revenue in fiscal 1998 and 27% of total revenue in fiscal 1997. See "Item 1A.
Risk Factors--We face additional risks from our international operations."
Sales to Ingram Micro represented 26% and 14% of White Pine's total
revenue in the each of fiscal 1998 and fiscal 1997. In addition, sales to Tech
Data represented 14% of White Pine's total revenue in fiscal 1997, but less than
10% of total revenue in fiscal 1998. See "Item 1A. Risk Factors--We rely on two
resellers for a significant portion of our total revenue."
COST OF REVENUE
Cost of revenue consists principally of royalties and associated
amortization of paid license fees relating to third-party software included in
White Pine's products, as well as costs of product media, manuals, packaging
materials, cameras, duplication and shipping. Cost of revenue as a percentage of
total revenue increased to 21% in fiscal 1998 as compared to 17% in fiscal 1997.
The percentage increase resulted primarily from the increased sales volume of
lower-margin servers as compared with higher-margin legacy connectivity products
and, to a lesser extent, increased sales of lower-margin camera bundles in the
fourth fiscal quarter of 1998.
In May 1997, White Pine renegotiated the terms of the license agreement
to provide for a $1,000,000 prepayment of royalties in exchange for a
decrease in the level of revenue-based royalties payable to the Cornell
Research Foundation. The renegotiated terms were retroactive to January 1,
1997, and White Pine remained subject to minimum royalty payments. In the
fourth fiscal quarter of 1998, White Pine acquired the Cornell Research
Foundation's trademark and other intellectual property rights in CU-SeeMe,
upon which White Pine's current versions of CU-SeeMe are based, and the
related server technology, which underlies MeetingPoint. The purchase price
for these rights consisted of (1) a note in the principal amount of $900,000,
of which $300,000 is due on each of June 30, 2000, June 30, 2001 and June 30,
2002, and (2) warrants to purchase 150,000 shares of White Pine's common
stock at a price of $1.00 per share. The warrants were issued in exchange for
outstanding warrants issued previously to the Cornell Research Foundation;
these prior warrants had an exchange price of $6.00 per share but otherwise
had terms substantially identical to those of the new warrants. As a result
of this acquisition, White Pine is no longer required to pay any royalties to
the Cornell Research Foundation. See "Item 1. Description of
Business--Proprietary Rights."
30
<PAGE>
White Pine intends to continue its strategy of improving the features and
functionality of its products, particularly MeetingPoint and future products
incorporating MeetingPoint technology, through the incorporation of third-party
software. 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 decreased by 3% to $7,739,000
in fiscal 1998 from $7,939,000 in fiscal 1997, and increased as a percentage of
total revenue to 99% in fiscal 1998 from 72% in fiscal 1997. The dollar decrease
in sales and marketing expense in fiscal 1998 was primarily attributable to
decreased advertising, offset in part by increases in sales headcount and travel
expense.
RESEARCH AND DEVELOPMENT
Research and development expense consists primarily of costs of personnel
and noncapitalized equipment. Research and development expense decreased by 12%
to $5,042,000 in fiscal 1998 from $5,722,000 in fiscal 1997. Research and
development expense represented 65% of total revenue for fiscal 1998 and 52% of
total revenue for fiscal 1997. The dollar decrease in research and development
expense was attributable primarily to reduced headcount and consulting support,
as well as limited software supply spending. A company-wide restructuring in
June 1997 reduced the number of research and development personnel, the cost
benefits of which were fully realized in fiscal 1998. See "Restructuring Charge"
below.
GENERAL AND ADMINISTRATIVE
General and administrative expense consists of costs of administrative,
financial and general management activities, including legal, accounting and
other professional fees. General and administrative expense decreased by 12% to
$2,278,000 in fiscal 1998 from $2,586,000 in fiscal 1997. It represented 29% of
total revenue in fiscal 1998 and 23% of total revenue in fiscal 1997. The dollar
decrease in general and administrative expense was due primarily to reduced
headcount, consolidation of operations conducted at White Pine's office in La
Gaude, France, decreased legal fees, and a one-time $240,000 reversal of a
portion of the reserve for the RSI Suits. See "Item 3. Legal Proceedings."
RESTRUCTURING CHARGE
In the second fiscal quarter of 1997, White Pine reorganized its
operations and recorded a restructuring charge in the amount of $661,000 as a
result of a change in senior management and a reduction in its workforce. This
amount consisted primarily of severance payments, outplacement expenses, and
related fees for 26 employees who were laid off at the quarter end. The
reorganization reflected White Pine's decision to focus its resources on its
Web-based conferencing and connectivity products, and to terminate support,
development, and sales of certain older product lines.
In the third fiscal quarter of 1998, White Pine reduced its total
headcount by ten persons, of which seven were engaged in research and
development, one in general and administration activities, and two in marketing.
White Pine estimates that the reorganization will provide cost savings of
approximately $1,000,000 annually. There was no restructuring charge recorded as
a result of this transaction, and severance payments were charged to their
respective operating expense line items. Severance payments outstanding at
December 31, 1998 were immaterial.
PROVISION FOR INCOME TAXES
31
<PAGE>
White Pine's provision for income taxes consists of federal alternative
minimum taxes and state and foreign income taxes. White Pine recorded a tax
provision of $5,000 for fiscal 1998 and $7,000 for fiscal 1997. At December 31,
1998, White Pine had cumulative federal net operating loss carryforwards of
$22,000,000. See note 6 of notes to consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
White Pine used cash of $8,283,000 in fiscal 1998, as compared with
$8,594,000 cash used in fiscal 1997. Cash used in fiscal 1998 was comprised
largely of the following:
- the net loss of $8,424,000;
- cash payments of $770,000 in connection with the acquisition of
assets from Labtam Communications (see "Item 1. Description of
Business--Proprietary Rights");
- $340,000 in licensing renewal fees; and
- $191,000 in severance payments.
These cash outlays were offset in part by receivable collections of $284,000 and
the benefit of prepaid expenses in the amount of $436,000.
On December 20, 1996, White Pine entered into a 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 was subsequently extended through August 30, 1998. On
October 27, 1998, the line of credit was renewed and reduced to $1,000,000.
Borrowings under the line of credit and the term loan are secured by
substantially all of White Pine's assets, including a $515,000 certificate of
deposit and all of White Pine's computer software products. Amounts outstanding
under the line of credit and the term loan bear interest at the Bank's prime
rate plus 0.5% (8.25% at December 31, 1998). At December 31, 1998, no borrowings
were outstanding under the revolving line of credit and a total of $17,000 was
outstanding under the term loan.
The commercial loan agreement requires that White Pine provide the Bank
with certain periodic financial reports and comply with certain financial and
other ratios, including maintenance of a minimum tangible net worth, and minimum
cash levels. White Pine did not comply with the tangible net worth covenant as
of December 31, 1998, but obtained from the bank a waiver of noncompliance as of
that date.
The line of credit agreement expires on June 30, 1999. White Pine
currently does not expect to seek to extend or renew this agreement.
At December 31, 1998, White Pine had cash and cash equivalents of
$6,421,000 and working capital of $6,626,000. Although considered adequate in
management's judgment, White Pine's current cash and cash equivalents, funds
generated from operations (if any) and borrowings under its bank line of
credit may not be sufficient to fund White Pine's projected operations and
capital expenditures through fiscal 1999. White Pine expects that it will
seek to raise funds, either through a private or public offering of debt or
equity or as part of a strategic partnership, in fiscal 1999. There can be no
assurance that any such financing will be available on acceptable terms or at
all. If White Pine is unable to raise these funds, it may be unable to
support its projected operations and may be required to defer for a period of
time or indefinitely its research and development activities or its continued
roll out of new products and product versions. In addition, White Pine may be
required to effect more significant personnel reductions if it is
unsuccessful in raising additional funds during fiscal 1999. See "Item 1A.
Risk Factors--We must raise capital in fiscal 1999."
32
<PAGE>
YEAR 2000 COMPLIANCE
White Pine has formed a Year 2000 readiness team to evaluate all of its
systems, including its information technology systems. White Pine's internal
team is currently accumulating a list of all computer applications and
infrastructure to determine Year 2000 compliance. White Pine has tested its two
mission-critical software programs and has determined those systems to be Year
2000 compliant. These software programs run the companies accounting,
manufacturing, support, customer service and sales systems. White Pine has
received Year 2000 readiness statements from a majority of its vendors. These
vendors will be required to address compliance issues and to ensure these issues
are resolved in a timely manner. In the event that White Pine's vendors are not
fully year 2000 compliant prior to December 31, 1999, White Pine could
experience disruption and delays that could have a material adverse impact on
operations. White Pine is developing contingency plans to help alleviate
potential problems resulting from vendor Year 2000 readiness issues. These plans
are scheduled to be completed by the end of 1999.
In addition, White Pine has tested its multimedia conferencing and legacy
connectivity products for Year 2000 compliance. It has determined that its
conferencing products and most of its connectivity products are Year 2000
compliant. A few older connectivity products are not Year 2000 compliant. White
Pine has no plans to update the code on these older connectivity products and
will not market these products in 2000. White Pine has offered to sell the code
for these older products to customers in the installed base, in order to allow
the customers to choose to fix the code or to migrate to a new software package.
The revenue amount related to selling these older non-compliant connectivity
products is not material.
To date, White Pine has not engaged any outside support to assist in the
Year 2000 compliance process. Its out-of-pocket expenses for this process have
totalled less than $25,000 and relate principally to the purchase of testing
equipment and software. White Pine expects that it will continue to resolve any
compliance issues utilizing internal resources and that future out-of-pocket
expenses will not exceed an additional $25,000.
See "Item 1A. Risk Factors--Our systems may not be Year 2000 compliant."
INFLATION
Although certain of White Pine's expenses increase with general inflation
in the economy, inflation has not had a material impact on White Pine's
financial condition or results of operations to date.
RECENT ACCOUNTING PRONOUNCEMENTS
White Pine adopted Statement of Financial Accounting Standards No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION ("SFAS
131"), in fiscal 1998. SFAS 131 establishes standards for reporting information
regarding operating segments in annual financial statements and requires
selected information for those segments to be presented in interim financial
reports issued to stockholders. SFAS 131 also establishes standards for related
disclosures about products and services and geographic areas. Operating segments
are identified as components of an enterprise about which separate discrete
financial information is available for evaluation by the chief operating
decision maker, or decision making group, in making decisions how to allocate
resources and assess performance. White Pine's chief decision maker, as defined
under SFAS 131, is Killko Caballero, White Pine's Chief Executive Officer and
President. To date, White Pine has viewed its operations as principally one
segment, software sales and associated services. As a result, the financial
information disclosed in White Pine's consolidated financial statements
materially represents all of the financial information related to White Pine's
principal operating segment.
Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 133"), requires companies
to record derivatives on the balance sheet as assets or liabilities,
33
<PAGE>
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. SFAS 133 is effective beginning
in 2000. The adoption of SFAS 133 is not expected to have a material impact on
the financial position or results of operations of White Pine.
Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE, requires companies to
capitalize qualifying computer software costs that are incurred during the
application development stage and amortize them over the estimated useful
life of the software. Statement of Position 98-1 is effective for White Pine
as of January 1, 1999. The adoption of Statement of Position 98-1 is not
expected to have a material impact on the financial position or results of
operations of White Pine.
Statement of Position 98-9, MODIFICATION OF SOP 97-2, SOFTWARE REVENUE
RECOGNITION, WITH RESPECT TO CERTAIN TRANSACTIONS, modifies certain provisions
of Statement of Position 97-2. White Pine's accounting policy on software
revenue recognition currently is in compliance with Statement of Position 97-2,
as amended by Statement of Position 98-9, and adoption of this Statement of
Position, as currently issued, is not expected to have a material impact on the
financial position or results of operations of White Pine.
ITEM 7. FINANCIAL STATEMENTS
The following statements are included after page 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, 1998 and 1997............................................... F-2
Consolidated Statements of Operations for the years ended December 31, 1998 and 1997....................... F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998 and 1997............. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1998 and 1997....................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</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 fiscal 1998 or fiscal 1997.
34
<PAGE>
PART III
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 White Pine, and their ages and
positions as of March 19, 1999, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- ---------
<S> <C> <C>
Killko A. Caballero....................... 39 Chief Executive Officer, President and Director
Christine J. Cox.......................... 40 Chief Financial Officer and Vice President of Finance
David O. Bundy............................ 40 Chief Technical Officer
John E. Kelly............................. 45 Vice President of Worldwide Sales and Marketing
Arthur H. Bruno(1)........................ 65 Director
Jonathan G. Morgan(1)..................... 44 Director
Adam Stettner............................. 35 Director
</TABLE>
- -----------
(1) Member of the Audit Committee and Compensation Committee.
KILLKO A. CABALLERO was appointed as Chief Executive Officer in December
1998, and has been the President of White Pine since August 1997. He has served
as a director since November 1995. Mr. Caballero served as interim President
during June and July 1997, and as Senior Vice President of Research and
Development and Chief Technology Officer from November 1995 until June 1997. Mr.
Caballero was a co-founder of White Pine Software, Europe (formerly About
Software), and served as President, Chief Executive Officer and Chairman of the
Board of White Pine Software, Europe from July 1991 until November 1995.
CHRISTINE J. COX was appointed as Chief Financial Officer in December
1998, and has been the Vice President of Finance of White Pine since August
1997, and Corporate Controller from October 1996 to August 1997. Ms. Cox served
as Division Controller and Treasurer of Sequoia Systems, Inc., a fault-tolerant
and business-critical microcomputer company, from May 1996 to October 1996,
Operations Controller from June 1995 to May 1996, and held other financial
management positions from August 1993 to June 1995.
DAVID O. BUNDY has served as Chief Technology Officer since July 1998 and
as Vice President of Engineering of White Pine from January 1994 to July 1998.
Mr. Bundy was the Vice President and Principal Engineer of White Pine (then
known as Visual International, Inc.) from August 1993 to December 1993 and of
Visual T.I., Inc. from September 1991 until it merged into Visual International,
Inc. in August 1993.
JOHN E. KELLY has served as the Vice President of Worldwide Sales and
Marketing since March 1999. Mr. Kelly founded Aura Networks, a developer of
datacentric digital loop carrier products, in May 1997, and served as the
President of Aura Networks from May 1997 until November 1998. From 1993 to
April 1997, Mr. Kelly was Vice President of Marketing at Intraplex,
Incorporated, a developer of digital network products for broadcast and
wireless communications, which was acquired by Harris Corporation in November
1998.
ARTHUR H. BRUNO has served as a director of White Pine since February
1994, and as Chairman of the Board since June 1997. Mr. Bruno has served as the
Chairman of Castelle, Inc., a networking and telecommunications company, since
October 1993, as Chief Executive Officer of Castelle, Inc., from October 1993
through April 1997 and from November 1997 to date and as President of Castelle,
Inc. from October 1993 through April 1997. From 1991 to 1993, Mr. Bruno served
as White Pine's Chairman and Chief Executive Officer.
35
<PAGE>
JONATHAN G. MORGAN has served as a director of White Pine 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.
ADAM STETTNER has served as a director of White Pine since March 1999.
Mr. Stettner has been the managing director of the Special Situations
Technology Fund since April 1997. He has also served as the President of
Stettner Consultants, Inc., a computer consulting company, from 1989 to date.
Special Situations Technology Fund and affiliated funds beneficially own
11.8% of White Pine's common stock. See "Item 11. Security Ownership of
Certain Beneficial Owners and Management."
Directors of White Pine 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 White Pine 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 White Pine, and an Audit Committee,
which reviews the results and scope of the audit and other services provided by
White Pine's independent auditors.
White Pine does not pay fees to members of the board of directors and
presently has no plans to pay directors' fees. White Pine grants stock options
to members of White Pine's Board who are not employees of White Pine or any
parent or subsidiary of White Pine ("Outside Directors") pursuant to the White
Pine Software, Inc. 1997 Director Stock Option Plan (the "Director Plan"). The
purpose of the Director Plan is to encourage ownership of capital stock of White
Pine by Outside Directors in order to help White Pine attract and retain persons
of exceptional competence to White Pine's Board and to furnish an added
incentive for Outside Directors to increase their efforts on behalf of White
Pine. Arthur H. Bruno, Jonathan G. Morgan and Adam Stettner are Outside
Directors for purposes of the Director Plan.
Under the terms of the Director Plan, White Pine grants automatic formula
stock options to Outside Directors as follows:
- upon the initial election of any Outside Director to the board of
directors, such director is entitled to receive a stock option to
purchase 15,000 shares of common stock (subject to adjustment as
provided in the Director Plan); and
- upon the re-election of any Outside Director to the board of
directors, such director is entitled to receive a stock option to
purchase 10,000 shares of common stock (subject to adjustment as
provided in the Director Plan), provided that he or she has served
as an Outside Director of White Pine for at least the three months
immediately preceding that meeting.
The exercise price of the options granted under the Director Plan must equal the
fair market value of the common stock on the grant date. Each option granted
under the Director Plan is subject to vesting under the terms of such plan and
expires upon the earlier of (a) the tenth anniversary of the grant date and (b)
the first anniversary of the date on which the option holder ceased serving as
an Outside Director of White Pine.
Pursuant to the Director Plan, each of Messrs. Bruno and Morgan received
an option to purchase 15,000 shares of common stock in September 1997 upon the
adoption of the Director Plan by the stockholders of White Pine. Mr. Stettner
received an option to purchase 15,000 shares of common stock in March 1999 upon
his election to the board of directors.
36
<PAGE>
In addition, on December 16, 1998, the board of directors voted to grant
to each of Messrs. Bruno and Morgan, as the only outside directors then serving,
options to purchase 35,000 shares of common stock at the price of $1.875 per
share, which represented the closing price of the common stock on such date.
These options were issued under White Pine's 1996 Incentive and Nonqualified
Stock Option Plan. They vest over a two-year period, except that vesting will
accelerate in full in the event the Financial Accounting Standards Board adopts
certain proposed changes to the method of accounting for options granted to
outside directors. Based on publicly available reports, White Pine believes
those changes may be adopted in or around September 1999.
SECTION 16(a) REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires White Pine's
directors and officers, and persons who own more than ten percent of White
Pine'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 White Pine with copies of all Section 16(a) reports they file. Based
solely on its review of the copies of such forms received by White Pine and on
written representations from certain reporting persons that no Form 5s were
required by White Pine for such persons, White Pine believes that all Section
16(a) reports applicable to its officers, directors and ten-percent stockholders
with respect to fiscal 1998 were filed on a timely basis, except that Arthur
Bruno filed in December 1998 a Form 4 required to have been filed on
September 10, 1998.
37
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation earned by White Pine's chief executive officer and the other two
executive officers whose compensation for services rendered in all capacities to
White Pine exceeded $100,000 during fiscal 1998 (collectively, the "Named
Executive Officers").
All of the options described in the following table have a maximum term of
seven to ten years, subject to earlier termination in the event of the
optionee's cessation of service with White Pine. The options are exercisable
during the optionee's lifetime only by the optionee; they are exercisable by the
optionee only while the optionee is an employee or advisor of White Pine and for
certain limited periods of time thereafter in the event of termination of
employment.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
----------------
ANNUAL AWARDS
COMPENSATION ----------------
------------------------- SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
- -------------------------------- ----- ------------ ------------ ---------------- ------------------
<S> <C> <C> <C> <C> <C>
Killko A. Caballero........................... 1998 $150,445 -- 35,000 --
Chief Executive Officer and President 1997 124,347 $20,000 50,000
1996 90,420 15,000 -- --
David O. Bundy................................ 1998 132,405 -- 20,000 20,000
Chief Technology Officer 1997 119,909 15,000 60,000 --
1996 110,000 15,000 10,000 --
Christine J. Cox.............................. 1998 105,467 -- 20,000 --
Chief Financial Officer and 1997 83,384 15,000 37,000 --
Vice President of Finance 1996 11,688 1,000 6,000 --
</TABLE>
The other compensation paid to Mr. Bundy in fiscal 1998 consisted of
amounts paid in connection with Mr. Bundy's relocation, at the request of White
Pine, to New Hampshire.
OPTION GRANTS AND EXERCISES
The following table summarizes (a) option grants to the Named Executive
Officers during fiscal 1998 and (b) the value of the options held by the Named
Executive Officers at December 31, 1998. The amounts shown in the last two
columns represent hypothetical gains that could be achieved for the respective
options if exercised at the end of their option terms. These gains are based on
assumed rates of stock appreciation of five percent and ten percent, compounded
annually from the date the respective options were granted to the date of their
expiration. The gains shown are net of the option price, but do not include
deductions for taxes or other expenses that may be associated with the exercise.
Actual gains, if any, on stock option exercises will depend on future
performance of the common stock, the option holders' continued employment
through the option term and the date on which the options are exercised.
38
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
---------------------------------------------------------- POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES
NUMBER OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS EXERCISE OR APPRECIATION FOR
UNDERLYING GRANTED TO BASE PRICE OPTION TERM
OPTIONS EMPLOYEES IN PER EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR SHARE($/SH) DATE 5% 10%
- ------- ------------ --------------- --------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Killko A. Caballero............ 35,000 7% $1.875 12/16/08 41,271 104,589
David O. Bundy................. 20,000 4% $1.875 12/16/08 23,584 59,765
Christine J. Cox............... 20,000 4% $1.875 12/16/08 23,584 59,765
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
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,
1998 and unexercised options held by the Named Executive Officers on December
31, 1998. The closing sale price for White Pine's common stock as reported on
the Nasdaq National Market on December 31, 1998 was $2.375. For purposes of the
last column in the table, value is calculated on the basis of the difference
between the option exercise price and $2.375, multiplied by the number of shares
of common stock underlying the options.
<TABLE>
<CAPTION>
SHARES NUMBER OF VALUE OF UNEXERCISED
ACQUIRED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
ON VALUE AT FISCAL YEAR END(#) FISCAL YEAR END($)
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------- ------------ ------------- ----------------------------- ----------------------------
<S> <C> <C> <C> <C>
Killko A. Caballero......... -- -- 12,500/72,500 --/$17,500
David O. Bundy.............. -- -- 60,485/59,515 $58,125/$10,000
Christine J. Cox............ -- -- 11,375/42,625 --/$10,000
</TABLE>
EMPLOYMENT AND SEPARATION AGREEMENTS
White Pine 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 White Pine and for a period of 19 months following
the termination of his employment with White Pine for any reason, he will not,
directly or indirectly, compete with White Pine or solicit any of White Pine'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 thirty 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 White Pine, White Pine will pay the difference for the
balance of this six-month period. Pursuant to the agreement, Mr. Bundy was
granted a stock option on February 29, 1996 to purchase 5,000 shares of common
stock at an exercise price of $2.50 per share.
On March 16, 1998, Robert Hadden resigned as Vice President of Sales of
White Pine. In connection with the resignation, White Pine entered into a
separation agreement with Mr. Hadden, effective as of March 16, 1998. Pursuant
to the terms of the agreement, Mr. Hadden received payments for a period of six
months beginning March 17, 1998 and ending on September 16, 1998. The payments
were made at an annualized rate of $100,000.
39
<PAGE>
White Pine and Christine J. Cox entered into a letter agreement dated
August 5, 1997 with respect to Ms. Cox's employment as Vice President of
Finance. The letter agreement establishes a base salary of $100,000 per year
and provides for a maximum annual incentive bonus of $15,000, based upon
achievement of specific milestones to be established by White Pine. If Ms.
Cox's employment is terminated without cause during the term of the
agreement, she will be entitled to her base salary for six months. The letter
agreement does not provide for any minimum period of employment, and
therefore Ms. Cox continues to be an at-will employee of White Pine.
40
<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 March 19, 1999, by (a) each person
(or group of affiliated persons) known by White Pine to own beneficially more
than five percent of the outstanding shares of common stock, (b) each of the
directors of White Pine, (c) each of the Named Executive Officers and (d) all
directors and executive officers of White Pine as a group. Unless otherwise
noted:
- The address of all persons who are executive officers or directors
of White Pine is in care of White Pine, 542 Amherst Street, Nashua,
New Hampshire 03063.
- Each person or group identified in the table 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 March 19, 1999 are treated
as outstanding only for purposes of determining the amount and
percentages beneficially owned by such person or group.
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OWNED OWNED
- --------------------- ------------ -------------
<S> <C> <C>
Austin W. Marxe and David Greenhouse................................................. 1,237,500 11.8%
153 East 53 Street, 51st Floor
New York, New York 10022
Adam Stettner........................................................................ 1,237,500 11.8
153 East 53 Street, 51st Floor
New York, New York 10022
Labtam Communications Pty. Ltd
Dawson N. Johns and Anthony J. Oxley................................................. 675,000 6.5
33 Malcolm
Braeside, Victoria, Australia
Hambrecht & Quist Group.............................................................. 868,028 8.3
One Bush Street
San Francisco, California 94104
Consortium de Realisation............................................................ 820,330 7.8
27-29 rue Le Peletier
75009 Paris, France
Charles Lingel....................................................................... 562,340 5.4
c/o Infoconix Inc.
704 228th Avenue, N.E., #414
Redmond, Washington 98053
Killko A.
Caballero............................................................................ 415,824 4.0
Arthur H. Bruno...................................................................... 150,124 1.4
David O. Bundy....................................................................... 68,505 *
Jonathan G. Morgan................................................................... 19,445 *
Christine J. Cox..................................................................... 16,695 *
All directors and executive officers as a group (6 persons).......................... 1,908,093 17.8
</TABLE>
- -----------------------
* Represents less than 1% of the outstanding shares of common stock.
41
<PAGE>
The information reported regarding Messrs. Marxe and Greenhouse is based
on Amendment No. 2 to Schedule 13D, filed with the Securities and Exchange
Commission on February 11, 1999 by Special Situations Fund III, L.P., MGP
Advisers Limited Partnership, Special Situations Technology Fund, L.P., SST
Advisers, L.L.C., Special Situations Cayman Fund, L.P., AWM Investment Company,
Inc., Austin W. Marxe and David Greenhouse. Of the 1,237,500 shares, (a) 824,200
shares are beneficially owned by Special Situations Fund III, L.P. and MGP
Advisers Limited Partnership (the general partner of and investment advisor to
Special Situations Fund III, L.P.), (b) 143,600 shares are beneficially owned by
Special Situations Technology Fund, L.P. and SST Advisers, L.L.C. (the general
partner of and investment advisor to Special Situations Technology Fund, L.P.),
and (c) 269,700 shares are beneficially owned by Special Situations Cayman Fund,
L.P. and AWM Investment Company Inc. (the general partner of and investment
advisor to Special Situations Cayman Fund, L.P.). Messrs. Marxe and Greenhouse,
who serve as officers, directors and members or principal shareholders of the
three investment advisers, claim sole voting and dispositive powers for all of
the 1,237,500 shares.
The 1,237,500 shares deemed to be beneficially owned by Mr. Stettner
consist solely of the shares described in the preceding paragraph. Mr. Stettner
is an employee of an entity controlled by Messrs. Marxe and Greenhouse. Mr.
Stettner disclaims ownership of all of these shares, other than the 143,600
shares owned by Special Situations Technology Fund, L.P., of which he is the
managing director.
The information reported regarding Labtam Communications, Dawson N. Johns
and Anthony J. Oxley relates to shares issued to Labtam Communications in
exchange for certain assets sold to White Pine. See "Item 1.
Business--Proprietary Rights--Acquisition of Technology from Labtam
Communications." Labtam Communications is controlled by Messrs. Johns and Oxley.
The information excludes an additional 225,000 shares subject to certain escrow
arrangements, which will not terminate until July 1999.
The information reported regarding the Hambrecht & Quist Group is based
on Amendment No. 2 to Schedule 13G filed with the Securities and Exchange
Commission on February 12, 1999 by H&Q London Ventures, Venture Associates
(BVI) Limited, Hamquist, Hambrecht & Quist Venture Partners, H&Q Venture
Partners LLC, Hambrecht & Quist California and Hambrecht & Quist Group. Of
the 868,028 shares, (a) 623,167 shares are directly owned by H&Q London
Ventures, (b) 243,861 shares are directly owned by Hambrecht & Quist Venture
Partners and (c) 1,000 shares are directly owned by Hambrecht & Quist Group.
All of the reporting parties claim shared voting and dispositive powers for
all of the 868,028 shares.
The information reported regarding the Consortium de Realisation is
based on a Schedule 13G filed with the Securities and Exchange Commission on
October 2, 1997 by Consortium de Realisation, CDR Enterprises and Land Free
Investment. All of the 820,330 shares are directly owned by Land Free
Investment, which is a direct subsidiary of CDR Enterprises and an indirect
subsidiary of Consortium de Realisation. All of the reporting parties claim
shared voting and dispositive powers for all of the 820,330 shares.
The information reported regarding Mr. Lingel is based on Amendment No. 1
to Schedule 13G filed with the Securities and Exchange Commission on February
11, 1998 by Charles Lingel.
The information reported regarding the directors and executive officers
includes options, exercisable by the following, within 60 days of March 19,
1999, to purchase the indicated numbers of shares of common stock:
<TABLE>
<S> <C>
Killko A. Caballero.................................. 12,500
Arthur H. Bruno...................................... 100,000
David O. Bundy....................................... 67,500
Jonathan G. Morgan................................... 19,445
Christine J. Cox..................................... 15,000
</TABLE>
42
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a description of certain employment and other arrangements between
White Pine and its executive officers, see "Management--Employment and
Separation Agreements."
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
3.1(1) Amended and Restated Certificate of Incorporation of White
Pine Software, Inc.
3.2(1) Amended and Restated By-Laws of White Pine Software, Inc.
4.1(1) Specimen certificate for common stock, $.01 par value, of
White Pine Software, Inc.
10.1(1) Standard Office Lease-Gross (American Industrial Real Estate
Association) dated October 24, 1996 by and between PBP
Limited Partnership, as lessor and White Pine Software,
Inc., as lessee.
10.2(1) Indenture of Lease dated May 15, 1996 by Nash-Tamposi
Limited Partnership, Five N Associates, Ballinger
Properties, L.L.C. and White Pine Software, Inc.
10.3(1) White Pine Software, Inc. Stock Option Plan (1993), as
amended
10.4(1) White Pine Software, Inc. Stock Option Plan (1994)
10.5(1) White Pine Software, Inc. Stock Option Plan (1995), as
amended
10.6(1) White Pine Software, Inc. Stock Option Plan (1996)
10.7(1) White Pine Software, Inc. 1996 Incentive and Nonqualified
Stock Option Plan
10.8 White Pine Software, Inc. 1996 Amended and Restated Employee
Stock Purchase Plan
10.9(3) White Pine Software, Inc. 1997 Director Stock Option Plan
10.10(3) Severance Agreement dated June 4, 1997 between White Pine
Software, Inc. and Howard R. Berke
10.11(1) Nondisclosure and Noncompetition Agreement dated February
15, 1996 with David O. Bundy
10.12(3) Severance Agreement dated March 16, 1998 between White Pine
Software, Inc. and Robert Hadden
10.13 Letter agreement dated August 5, 1997 between White Pine
Software, Inc. and Christine J. Cox
10.14(1) Commercial Loan Agreement dated December 30, 1994 between
Fleet Bank-NH and White Pine Software, Inc., as amended
10.15(1) Collateral Assignment and Security Agreement dated December
30, 1994 between Fleet Bank-NH and White Pine Software,
Inc., as amended
10.16(1) Commercial Promissory Note of White Pine Software, Inc.
dated August 25, 1995, issued to Fleet Bank-NH
10.17(2) Revolving Line of Credit Promissory Note
10.18(1) Stock Purchase Agreement dated March 19, 1996 among certain
investors and White Pine Software, Inc., as amended
10.19(1) Stock Purchase Agreement dated April 17, 1996 between J.F.
Shea, Co., Inc. and White Pine Software, Inc., as amended
10.20(1) Amended and Restated Registration Rights Agreement dated
March 19, 1996 among certain stockholders of White Pine
Software, Inc. and White Pine Software, Inc., as amended
</TABLE>
43
<PAGE>
<TABLE>
<S> <C>
10.21(1) Acquisition Agreement dated October 10, 1995 among former
stockholders of About Software Corporation S.A. and White
Pine Software, Inc.
10.22(4) Sale of Assets Agreement dated as of July 6, 1998 by and
among White Pine Software, Inc., Labtam Communications Pty.
Ltd., Creative Software Technologies Pty. Ltd., Dawson Noy
Johns and Anthony James Oxley
10.23 Technology Transfer Agreement dated as of November 11,
1998 between White Pine Software, Inc. and Cornell Research
Foundation, Inc.
11.1 Statement re computation of per share earnings
21.1(3) List of subsidiaries of White Pine Software, Inc.
23.1 Consent of Ernst & Young LLP
27.1 Financial Data Schedule for fiscal year ended December 31,
1998
</TABLE>
- --------------------
(1) Incorporated by reference to White Pine'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.
(2) Incorporated by reference to White Pine's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996.
(3) Incorporated by reference to White Pine's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1997.
(4) Incorporated by reference to White Pine's Current Report on Form 8-K filed
on July 23, 1998.
(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 31, 1998.
WHITE PINE SOFTWARE, INC.
By: /s/ Killko A. Caballero
---------------------------------------------
Killko A. Caballero
CHIEF EXECUTIVE OFFICER AND PRESIDENT
By: /s/ Christine J. Cox
---------------------------------------------
Christine J. Cox
CHIEF FINANCIAL OFFICER AND VICE PRESIDENT OF
FINANCE
Each person whose signature appears below hereby appoints Killko A.
Caballero 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 31, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
----------- -----
<S> <C>
/s/ Killko A. Caballero
- ---------------------------------------------------- Chief Executive Officer, President and Director
Killko A. Caballero (PRINCIPAL EXECUTIVE OFFICER)
/s/ Christine J. Cox
- ---------------------------------------------------- Chief Financial Officer and Vice President of Finance
Christine J. Cox (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
/s/ Arthur H. Bruno
- ---------------------------------------------------- Chairman of the Board and Director
Arthur H. Bruno
/s/ Jonathan G. Morgan
- ---------------------------------------------------- Director
Jonathan G. Morgan
/s/ Adam Stettner
- ---------------------------------------------------- Director
Adam Stettner
</TABLE>
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, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1998 and 1997, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Manchester, New Hampshire
March 30, 1999
F-1
<PAGE>
WHITE PINE SOFTWARE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
------------ ------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents..................................................... $6,420,686 $14,703,644
Accounts receivable, less allowance of $146,000 at
December 31, 1998 and $124,000 at December 31, 1997........................ 2,122,275 2,403,194
Inventories................................................................... 64,916 98,455
Prepaid expenses.............................................................. 328,562 1,263,223
Other current assets.......................................................... 108,871 114,943
------------ ------------
Total current assets...................................................... 9,045,310 18,583,459
------------ ------------
Property and equipment:
Computer equipment............................................................ 1,227,647 2,282,583
Furniture and fixtures........................................................ 245,823 546,726
Software...................................................................... 536,285 623,641
Equipment..................................................................... 88,733 185,185
Leasehold improvements........................................................ 240,552 201,251
------------ ------------
2,339,040 3,839,386
Accumulated depreciation and amortization..................................... (985,405) (2,325,827)
------------ ------------
Property and equipment, net............................................... 1,353,635 1,513,559
------------ ------------
Other assets:
Third party licenses, less accumulated amortization of $460,000
at December 31, 1998 and $1,140,000 at December 31, 1997................... 933,914 669,044
Purchased software, less accumulated amortization
of $0 at December 31, 1998................................................. 3,141,521 --
Trademark, less amortization of $13,000 at December 31, 1998.................. 951,104 --
Goodwill, less accumulated amortization of $756,000 at
December 31, 1998 and $517,000 at December 31, 1997........................ 437,463 676,078
Other assets.................................................................. 132,823 168,000
------------ ------------
Total other assets........................................................ 5,596,825 1,513,122
------------ ------------
Total assets....................................................................... $15,995,770 $21,610,140
------------ ------------
------------ ------------
</TABLE>
(CONTINUED)
F-2
<PAGE>
WHITE PINE SOFTWARE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
<S> <C> <C>
Accounts payable.............................................................. $491,626 $ 573,704
Accrued expenses and other accrued liabilities................................ 1,555,055 1,976,538
Deferred revenue.............................................................. 345,945 246,440
Current portion of long-term debt............................................. 26,521 55,010
------------ ------------
Total current liabilities................................................. 2,419,147 2,851,692
Long-term debt, less current portion............................................... 7,067 32,588
Other long-term liabilities........................................................ 1,154,808 --
Stockholders' equity:
Preferred stock (undesignated), $.01 par value; 5,000,000 shares
authorized; no shares issued or outstanding at December 31, 1998
or December 31, 1997....................................................... -- --
Common stock, $.01 par value; 30,000,000 shares authorized;
10,460,227 shares issued and outstanding at December 31, 1998
and 9,305,714 shares issued and outstanding at December 31, 1997........... 104,602 93,057
Additional paid-in capital.................................................... 41,137,186 38,984,024
Accumulated deficit........................................................... (28,861,083) (20,437,194)
Accumulated other comprehensive income/
currency translation adjustments........................................... 34,043 85,973
------------ ------------
Total stockholders' equity................................................ 12,414,748 18,725,860
------------ ------------
Total liabilities and stockholders' equity......................................... $15,995,770 $21,610,140
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
WHITE PINE SOFTWARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenue:
Software license fees .............. $ 6,948,222 $ 9,797,290
Services and other ................. 844,936 1,254,487
------------ ------------
Total revenue ..................... 7,793,158 11,051,777
------------ ------------
Cost of revenue ....................... 1,645,249 1,889,893
------------ ------------
Gross profit .......................... 6,147,909 9,161,884
Operating expenses:
Sales and marketing ................ 7,739,075 7,939,254
Research and development ........... 5,041,872 5,721,856
General and administrative ......... 2,277,849 2,585,709
Restructuring ...................... -- 660,871
------------ ------------
Total operating expenses .......... 15,058,796 16,907,690
------------ ------------
Loss from operations .................. (8,910,887) (7,745,806)
Other income (expense):
Interest income .................... 577,393 1,036,723
Other, net ......................... (85,089) (109,792)
------------ ------------
Other income, net ................. 492,304 926,931
------------ ------------
Loss before provision for income taxes (8,418,583) (6,818,875)
Provision for income taxes ............ 5,306 6,761
------------ ------------
Net loss .............................. $ (8,423,889) $ (6,825,636)
------------ ------------
------------ ------------
Net loss per share: Basic.......... $ (0.86) $ (0.75)
------------ ------------
------------ ------------
Diluted ....... $ (0.86) $ (0.75)
------------ ------------
------------ ------------
Weighted average number of common and
common equivalent shares outstanding 9,798,307 9,147,661
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
WHITE PINE SOFTWARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME/
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 DECEMBER 31, 1996... 9,030,730 $ 90,307 $ 38,669,653 $(13,611,558) $ 87,942 $ 25,236,344
Net loss........................ (6,825,636) (6,825,636)
Common stock issued
upon exercise of stock options 249,086 2,491 239,989 242,480
Common stock issued
as payment for license fees... 11,111 111 41,555 41,666
Common stock issued
under Employee Stock Purchase
Plan......................... 14,787 148 32,827 32,975
Foreign currency trans-
lation adjustment........... (1,969) (1,969)
---------- --------- ------------ ------------ -------- -----------
BALANCES AT DECEMBER 31, 1997.. 9,305,714 93,057 38,984,024 (20,437,194) 85,973 18,725,860
Net loss....................... (8,423,889) (8,423,889)
Common stock issued
upon exercise of stock
options...................... 198,111 1,981 199,036 -- -- 201,017
Common stock issued
under Employee Stock
Purchase Plan................ 56,402 564 70,456 -- -- 71,020
Common stock issued
upon purchase of intangible
assets....................... 900,000 9,000 1,819,170 -- -- 1,828,170
Warrants....................... 64,500 64,500
Foreign currency trans-
lation adjustment........... (51,930) (51,930)
---------- --------- ------------ ------------ -------- -----------
Balances at December 31, 1998.. 10,460,227 $104,602 $41,137,186 $(28,861,083) $34,043 $12,414,748
---------- --------- ------------ ------------ -------- -----------
---------- --------- ------------ ------------ -------- -----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
WHITE PINE SOFTWARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997
------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss .................................................................. $(8,423,889) $ (6,825,636)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ........................................ 522,766 458,694
Amortization of goodwill and third-party licenses .................... 533,043 655,965
Loss on disposal of fixed assets ..................................... 30,000 --
Common stock issued as payment for license fees ...................... -- 41,666
Changes in operating assets and liabilities:
Accounts receivable ............................................... 283,866 117,272
Inventories ....................................................... 33,430 11,132
Prepaid expenses .................................................. 435,859 (842,139)
Other assets ...................................................... 43,821 35,441
Accounts payable .................................................. (180,912) 225,443
Accrued expenses and other accrued liabilities .................... (616,318) (507,367)
Deferred revenue .................................................. 96,929 (567,079)
------------- ------------
Net cash used in operating activities ............................ (7,241,405) (7,196,608)
------------- ------------
INVESTING ACTIVITIES
Purchase of property and equipment, net ................................... (371,310) (931,977)
Purchase of third party licenses, net ..................................... (163,846) (383,841)
Purchase of purchased software ............................................ (685,351) --
------------- ------------
Net cash used in investing activities ............................ (1,220,507) (1,315,818)
------------- ------------
FINANCING ACTIVITIES
Principal payments on long-term debt and third-party licenses ............. (55,830) (327,809)
Proceeds from common stock issued upon exercise of stock options .......... 201,017 242,480
Proceeds from common stock issued under employee stock purchase plan ...... 71,020 32,975
------------- ------------
Net cash provided by (used in) financing activities .............. 216,207 (52,354)
------------- ------------
Currency translation effect on cash and cash equivalents .................. (37,253) (29,850)
------------- ------------
Net decrease in cash and cash equivalents ................................. (8,282,958) (8,594,630)
Cash and cash equivalents at beginning of period .......................... 14,703,644 23,298,274
------------- ------------
Cash and cash equivalents at end of period ................................ $ 6,420,686 $ 14,703,644
------------- ------------
------------- ------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
WHITE PINE SOFTWARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. During 1997 and 1998, the
Company experienced significant operating losses and negative cash flows from
operations. In presenting the Company's financial statements on a going
concern basis, management has considered the Company's historical financial
results, current cash position, and a number of other factors affecting the
Company's future operating results and cash flows, including internal revenue
and expense projections and anticipated industry trends. Management expects
to seek to raise capital in fiscal 1999, and remains committed to taking all
appropriate and necessary actions to effect timely cost reductions and cash
preservation in the event management's revenue and cash flow expectations are
not substantially met during fiscal 1999. No assurance can be given that
financing can be obtained on acceptable terms or at all. Management believes
that, based on its plans, the Company will have sufficient cash to support
operations during fiscal 1999.
DESCRIPTION OF BUSINESS
The Company develops, markets and supports multiplatform desktop
multimedia software that facilitates worldwide video and audio communication and
data collaboration across the Internet, intranets and other networks using the
Internet protocol. The Company's desktop multimedia conferencing software
products, CU-SeeMe and MeetingPoint, create a client-server solution that allows
users to participate in real-time, multipoint multimedia conferences over the
Internet and intranets. Further building upon the core CU-SeeMe and MeetingPoint
technologies, the Company developed ClassPoint, an integrated vertical solution
for distance learning and distance training, that began shipping commercially in
April 1998. The Company also offers desktop X Windows and terminal emulation
software. The Company's customers include businesses, educational institutions,
government organizations and individual consumers.
The Company markets and sells its products in the United States, Canada,
Europe and the Pacific Rim through distributors, a combination of strategic
partners and original equipment manufacturers, and its direct sales
organization, as well as over the Internet.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned foreign subsidiary, White Pine Software, Europe. 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.
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 $5,432,000 and
$13,440,000 at December 31, 1998 and 1997, 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.
INTANGIBLE ASSETS
Intangible assets are amortized on a straight line basis over three to
five years, except that trademark is amortized over twelve years.
F-7
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
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.
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, 1998, two customers accounted
for approximately 59% of accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for the Company's cash
and cash equivalents and borrowings approximates fair value.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method)
or market.
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. A total of $1,767,000 of property and equipment was fully
depreciated and retired during 1998.
Included in the Company's balance sheets at December 31, 1998 and 1997 are
the assets of the Company's foreign subsidiary, White Pine Software, Europe, of
which $254,000 and $506,000, respectively, of tangible assets were located in
France.
THIRD-PARTY LICENSES
The costs of agreements entered into with third parties for the right to
use the third parties' technology in the Company's products are amortized on a
straight-line basis over the lives of the agreements or the expected life of the
technology, whichever is less.
INCOME TAXES
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities. These
amounts are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
F-8
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
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 provisions of Statement of
Position No. 97-2, SOFTWARE REVENUE RECOGNITION, of the American Institute of
Certified Public Accountants ("AICPA").
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.
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
Software development costs meeting recoverability tests are capitalized
under Statement of Financial Accounting Standards No. 86, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED. The cost
of software capitalized is amortized based on its estimated economic life.
During the years ended December 31, 1998 and 1997, the Company capitalized
$3,142,000 and $0, respectively, of software costs. During these years, the
Company did not amortize any purchased software, as the first commercial
shipment is not expected until the second quarter of fiscal 1999. (See
"Acquisition from Labtam Communications Pty. Ltd." in 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 White Pine Software, Europe to December
31, 1998, have been reported separately as a component of stockholders' equity.
The aggregate transaction gains and losses are 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 $655,000 and $907,000
during the years ended December 31, 1998 and 1997, respectively.
F-9
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION ("SFAS
131"), in fiscal 1998. SFAS 131 establishes standards for reporting information
regarding operating segments in annual financial statements and requires
selected information for those segments to be presented in interim financial
reports issued to stockholders. SFAS 131 also establishes standards for related
disclosures about products and services and geographic areas. Operating segments
are identified as components of an enterprise about which separate discrete
financial information is available for evaluation by the chief operating
decision maker, or decision making group, in making decisions how to allocate
resources and assess performance. The Company's chief decision maker, as defined
under SFAS 131, is its Chief Executive Officer and President. To date, the
Company has viewed its operations as principally one segment, software sales and
associated services. As a result, the financial information disclosed herein
materially represents all of the financial information related to the Company's
principal operating segment.
Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 133"), requires companies
to record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. SFAS 133 is effective beginning in
2000. The adoption of SFAS 133 is not expected to have a material impact on the
financial position or results of operations of the Company.
Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE, requires companies to capitalize
qualifying computer software costs that are incurred during the application
development stage and amortize them over the software's estimated useful life.
Statement of Position 98-1 is effective for the Company as of January 1, 1999.
The adoption of Statement of Position 98-1 is not expected to have a material
impact on the financial position or results of operations of the Company.
Statement of Position 98-9, MODIFICATION OF SOP 97-2, SOFTWARE REVENUE
RECOGNITION, WITH RESPECT TO CERTAIN TRANSACTIONS, modifies certain provisions
of Statement of Position 97-2. The Company's accounting policy on software
revenue recognition is currently in compliance with Statement of Position 97-2,
as amended by Statement of Position 98-9, and adoption of this Statement of
Position, as currently issued, is not expected to have a material impact on the
financial position or results of operations of the Company.
2. TECHNOLOGY ACQUISITIONS
ACQUISITION FROM LABTAM COMMUNICATIONS PTY. LTD.
On July 8, 1998, the Company purchased certain assets, including
intellectual property, comprising certain T.120 whiteboarding and data
collaboration technology from Labtam Communications Pty. Ltd. The purchase
price for these assets consisted of 900,000 shares of the Company's Common
Stock and cash payments of U.S $628,000 in July 1998 and A$201,606 (or
U.S.$133,000) in January 1999. The Company recorded capitalized software of
$2,641,000 in connection with the acquisition, consisting of (i) $1,828,000
attributable to the Common Stock issued in the acquisition, based upon the
Common Stock's closing price of $2.03 on July 8, 1998, (ii) the two cash
payments totalling $761,000 and (iii) $52,000 of accounting, legal and other
fees incurred in connection with the acquisition.
F-10
<PAGE>
2. TECHNOLOGY ACQUISITIONS (CONTINUED)
ACQUISITION FROM CORNELL RESEARCH FOUNDATION, INC.
In the fourth fiscal quarter of 1998, White Pine obtained certain
trademark and intellectual property rights to CU-SeeMe and the underlying
MeetingPoint technology from Cornell Research Foundation, Inc. The purchase
price for these rights consisted of (i) a note in the principal amount of
$900,000, of which $300,000 is due on each of June 30, 2000, June 30, 2001 and
June 30, 2002, and (ii) warrants to purchase 150,000 shares of the Company's
Common Stock at a price of $1.00 per share. The Company recorded as trademark a
total of $964,500 in connection with the acquisition, consisting of the $900,000
principal amount of the long-term note and $64,500 attributable to the warrants,
which were valued in accordance with SFAS 123. The warrants were issued in
exchange for outstanding warrants issued previously to Cornell Research
Foundation, Inc.; these prior warrants had an exchange price of $6.00 per share
but otherwise had terms substantially identical to those of the new warrants.
The acquired trademark rights were capitalized and are being amortized
over their estimated economic life of twelve years.
As a result of the acquisition, the Company recorded as capitalized
software a total of $500,000 previously recorded as prepaid royalties.
3. RESTRUCTURING
In the fiscal quarter ended July 4, 1997, the Company reorganized its
operations and recorded a restructuring charge in the amount of $661,000 as a
result of a change in senior management and a reduction in its workforce. This
amount consisted primarily of severance payments, outplacement expenses, and
related fees for 26 employees who were laid off at the quarter end. The
reorganization reflected the Company's decision to focus its resources on its
Web-based conferencing and connectivity products, and to terminate support,
development and sales of certain older product lines.
4. INDEBTEDNESS
LINE OF CREDIT
The Company has a line of credit with a financial institution providing
for maximum available borrowings of $1,000,000. Interest on the line is payable
monthly at the bank's prime rate plus 0.5% (8.25% at December 31, 1998).
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. At December
31, 1998, there were no amounts outstanding under the line of credit.
The line of credit agreement contains two restrictive covenants, which
require maintenance of a minimum tangible net worth and a minimum cash level.
The Company did not comply with the tangible net worth covenant as of December
31, 1998, but obtained from the bank a waiver of noncompliance as of that date.
The line of credit agreement expires on June 30, 1999. The Company does
not currently expect to seek to renew or extend this agreement.
F-11
<PAGE>
4. INDEBTEDNESS (CONTINUED)
LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
------- -------
<S> <C> <C>
Secured, non-interest bearing, term loan from a foreign,
governmental agency due in annual installments of $44,408,
with the final installment due in September 1999.............................. $16,000 $59,000
Note payable, due in monthly installments of $883 plus interest
at 9.5%, with the remaining balance due in August 2000........................ 17,000 28,000
------- -------
33,000 87,000
Less current portion.............................................................. 26,000 55,000
------- -------
$7,000 $32,000
------- -------
------- -------
</TABLE>
Aggregate maturities of long-term debt are as follows: 1999--$26,000 and
2000--$7,000.
Total interest expense for the years ended December 31, 1998 and 1997 was
$4,000 and $59,000, respectively, and is included in other expense.
5. ACCRUED EXPENSES AND OTHER ACCRUED LIABILITIES
Accrued expenses and other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
Accrued compensation and related benefits................................... $ 647,000 $ 782,000
Pending litigation.......................................................... 51,000 291,000
Royalties................................................................... 246,000 229,000
Other accruals.............................................................. 611,000 675,000
---------- ----------
$1,555,000 $1,977,000
---------- ----------
---------- ----------
</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 by Statement of Financial Accounting Standards No.
5, ACCOUNTING FOR CONTINGENCIES), it has accrued a reserve for legal fees and
potential losses that could arise from such claims. The Company reduced this
reserve from $291,000 to $51,000 as of December 31, 1998, in recognition of the
fact that all but two of the lawsuits had been resolved. The other suits were
resolved without expense to the Company. The $240,000 was credited to general
and administrative expense in 1998.
6. INCOME TAXES
The Company's deferred tax assets and related valuation allowances are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1997
----------- -------------
<S> <C> <C>
Deferred tax assets....................................................... $ 8,866,000 $ 6,500,000
Valuation allowance for deferred tax assets............................... (8,866,000) (6,500,000)
----------- -------------
Net deferred tax asset........................................ $ 0 $ 0
----------- -------------
----------- -------------
</TABLE>
F-12
<PAGE>
6. INCOME TAXES (CONTINUED)
Deferred tax assets consist primarily of net operating and capital loss
carryforwards and accrued liabilities.
The Company recorded a valuation allowance of $8,866,000 and $6,500,000 at
December 31, 1998 and 1997, 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, 1998, the Company had cumulative federal net operating
loss carryforwards of approximately $22,000,000 for income tax purposes. The
availability of the net operating loss carryforwards to offset future taxable
income is subject to significant annual limitations. The loss carryforwards
expire at various dates through 2012.
7. LEASE COMMITMENTS
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:
<TABLE>
<CAPTION>
<S> <C>
1999......................................................................................... $271,000
2000......................................................................................... 227,000
2001......................................................................................... 170,000
----------
$668,000
----------
----------
</TABLE>
Total rent expense for the years ended December 31, 1998 and 1997, was
approximately $253,000 and $332,000, respectively.
8. SIGNIFICANT CUSTOMERS AND GEOGRAPHICAL SALES
During the years ended December 31, 1998 and 1997, one customer accounted
for approximately 26% of the Company's total revenue.
The Company's sales by geographic location are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1998 1997
----------- -------------
<S> <C> <C>
United States and Canada................................................. $5,887,000 $8,228,000
Europe................................................................... 1,449,000 1,554,000
Pacific Rim.............................................................. 457,000 1,270,000
----------- -------------
$7,793,000 $11,052,000
----------- -------------
----------- -------------
</TABLE>
9. EMPLOYEE BENEFITS
401(k) PLAN
The Company maintains a plan under Section 401(k) of the Internal Revenue
Code of 1986 (the "401(k) Plan") 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 401(k) Plan
which would be allocated to the employees based upon the employees'
contributions to the 401(k) Plan. There have been no discretionary contributions
to date.
F-13
<PAGE>
9. EMPLOYEE BENEFITS (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
In 1996, the Company adopted its 1996 Employee Stock Purchase Plan (the
"ESPP"). Under the ESPP, an aggregate of 100,000 shares of Common Stock are
reserved for purchase by qualified employees, at 85% of the appropriate market
price. On December 16, 1998, the Board of Directors voted to amend the ESPP to,
among other things, increase the number of reserved shares to 200,000 shares and
delete a provision that had prohibited certain "highly compensated" officers of
the Company from participating in the ESPP. The Company expects to present the
ESPP amendments for approval at the 1999 Annual Meeting of Stockholders. In
1997, the Company issued 14,787 shares under the ESPP at $2.23 per share. In
1998, the Company issued 56,402 shares. A total of 17,474 shares were issued at
$2.23 per share, and 38,928 shares were issued at $0.82 per share.
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
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, requires use of option valuation models that were not developed
for use in valuing employee stock options. No compensation expense is recognized
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.
1996 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN. In 1996, the Company
adopted its 1996 Incentive and Nonqualified Stock Option Plan (the "1996 Plan").
Under the 1996 Plan, 550,000 shares of Common Stock are available for grant to
employees. On September 30, 1997 the Company amended the 1996 Plan to increase
the number of available shares from 550,000 to 1,000,000. Option prices and
exercise periods are determined by the Board of Directors on the date of grant.
All options granted under the 1996 Plan become exercisable in installments over
a three to four year period commencing from the date of grant and expire ten
years from the date of grant. At December 31, 1998, a total of 541,902 shares
were reserved and available for issuance under the 1996 Plan.
1997 DIRECTOR STOCK OPTION PLAN. In 1997, the Company adopted the 1997
Director Stock Option Plan (the "Director Plan"). The Company has reserved
150,000 shares of Common Stock under the Director Plan. The Director Plan
authorizes a one-time automatic grant of options to acquire 15,000 shares of
Common Stock as an initial award for being an outside director. Each subsequent
year at re-election, directors are granted an additional 10,000 options. All
options granted are exercisable at the next annual meeting subsequent to being
granted. All options expire ten years from the date of grant and have an
exercise price equal to the fair market value of the Company's Common Stock on
the date of grant. At December 31, 1998, a total of 120,000 shares were
reserved and available for issuance under the Director Plan.
OPTION REPRICING. On August 5, 1997, the Board of Directors authorized the
repricing of 128,550 stock options that had a weighted average exercise price of
$5.33 to the fair market value of $2.50 per share, if elected by the option
holder. As a part of the repricing, vesting periods for the repriced options
were extended from three years to four years.
F-14
<PAGE>
9. EMPLOYEE BENEFITS (CONTINUED)
SFAS 123 DISCLOSURES
Pro forma information regarding net loss and loss per common and common
equivalent share is required by SFAS 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:
<TABLE>
<CAPTION>
OPTIONS ESPP
-------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Expected life (years).............................................. 4.05 4.1 0.50 0.5
Interest rate...................................................... 5.5% 6.2% 5.5% 6.2%
Volatility......................................................... 0.97 0.6 0.97 0.6
</TABLE>
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 is as follows (in thousands, except per share
information):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Pro forma net loss............................................................... $(8,925) $(7,403)
Pro forma net loss per share: Basic............................................ $(0.91) $(0.81)
Diluted.......................................... $(0.91) $(0.81)
</TABLE>
Option activity under the Company's stock option plans is summarized
below:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------- -------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year................ 1,408,248 $2.65 1,088,437 $2.29
Granted......................................... 492,650 1.82 864,050 3.46
Expired or canceled............................. (594,143) 4.12 (295,536) 5.02
Exercised....................................... (198,111) 1.01 (248,703) 0.97
---------- -----------
Outstanding at end of year...................... 1,108,644 1.88 1,408,248 2.65
---------- -----------
---------- -----------
Exercisable at end of year...................... 462,828 1.67 673,261 1.71
</TABLE>
F-15
<PAGE>
9. EMPLOYEE BENEFITS (CONTINUED)
The following table presents weighted-average price and fair value
information about options granted equal to and greater than fair market value
during fiscal years 1998 and 1997:
<TABLE>
<CAPTION>
NUMBER WEIGHTED WEIGHTED
OF AVERAGE AVERAGE
OPTIONS EXERCISE FAIR
EXERCISE PRICE ON DATE OF GRANT GRANTED PRICE VALUE
------------------------------- ------- ----- -----
<S> <C> <C> <C>
1998
Equal to fair market value..... 492,650 $1.82 $1.29
Less than fair market value.... -- N/A N/A
-------
492,650
-------
-------
1997
Equal to fair market value..... 797,550 $3.54 $3.54
Less than fair market value.... 66,500 $2.50 $3.47
-------
864,050
-------
-------
</TABLE>
The following table presents weighted-average price and life information
about significant option groups outstanding at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------ -------------------------
WEIGHTED
RANGE AVERAGE WEIGHTED WEIGHTED
OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUT- CONTRACTUAL EXERCISE EXER- EXERCISE
PRICES STANDING LIFE PRICE CISABLE PRICE
- --------------- ----------- --------------- ----------- ---------- -----------
1998
<S> <C> <C> <C> <C> <C>
$0.50 - $0.80 185,392 2.55 years $0.53 185,392 $0.53
0.84 - 1.25 171,454 8.74 years 1.15 37,954 1.00
1.50 - 1.88 254,350 9.69 years 1.85 18,500 1.50
2.00 - 2.63 439,148 8.29 years 2.43 178,445 2.36
3.75 - 7.88 58,300 8.58 years 4.38 42,537 4.39
--------- -------
1,108,644 462,828
--------- -------
--------- -------
1997
$0.50 - $0.80 280,392 4 years $0.52 280,392 $0.52
1.00 - 2.00 267,956 7 years 1.30 246,570 1.25
2.50 - 3.88 610,650 9 years 2.70 65,612 2.69
5.00 - 7.88 249,250 9 years 6.38 80,687 6.40
--------- -------
1,408,248 673,261
--------- -------
--------- -------
</TABLE>
F-16
<PAGE>
EXHIBIT 10.8
WHITE PINE SOFTWARE, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
(Amended and Restated as of December 16, 1998)
SECTION 1. PURPOSE
This White Pine Software, Inc. 1996 Employee Stock Purchase Plan, as
amended and restated as of December 16, 1998 (the "Plan"), is intended to
provide a method whereby employees of White Pine Software, Inc. and certain of
its subsidiaries will have an opportunity to acquire ownership interests (or
increase their existing ownership interests) in White Pine Software, Inc.
through the purchase of shares of common stock, $.01 par value, of White Pine
Software, Inc. ("Common Stock"). It is the intention of White Pine Software,
Inc. that the Plan qualify as an "employee stock purchase plan" under Section
423 of the Internal Revenue Code of 1986, as amended (the "Code"), and the
provisions of the Plan shall be construed so as to extend and limit
participation in a manner consistent with the requirements of Section 423 of the
Code.
SECTION 2. DEFINITIONS
As used herein, the following terms shall have the indicated meanings:
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means the Compensation Committee of the Board.
(c) "Company" means White Pine Software, Inc., as well as any
Subsidiary designated as a participant in the Plan by the
Board, unless the context otherwise requires.
(d) "Compensation" means, for the purpose of any Offering pursuant
to the Plan, base pay in effect as of the Offering
Commencement Date, provided that "Compensation" shall not
include any deferred compensation other than contributions by
an individual through a salary reduction agreement to a cash
or deferred plan pursuant to Section 401(k) of the Code or to
a cafeteria plan pursuant to Section 125 of the Code.
(e) "Designated Officer" means the Treasurer of White Pine
Software, Inc. or, if there is no person serving as Treasurer,
the chief financial officer of White Pine Software, Inc.
(whether or not the person serving in such capacity has the
title of Chief Financial Officer).
(f) "Employee" means any person who is customarily employed by the
Company for more than twenty hours per week and more than five
months in any calendar year.
(g) "Offering," "Offering Commencement Date" and "Offering
Termination Date" have the respective meanings set forth in
Section 4.
(h) "Subsidiary" means any present or future corporation that is
or would constitute a "subsidiary corporation" of White Pine
Software, Inc., as that term is defined in Section 424(f) of
the Code.
<PAGE>
SECTION 3. ELIGIBILITY
(a) Participation in the Plan is completely voluntary. Participation in
any one or more of the Offerings under the Plan shall neither limit nor require
participation in any other Offering.
(b) Each employee of the Company shall be eligible to participate in the
Plan on the first Offering Commencement Date following the completion of six
months of continuous service with the Company. Notwithstanding the foregoing, no
employee shall be granted an option under the Plan:
(i) if, immediately after the grant, such employee would own stock,
and/or hold outstanding options to purchase stock, possessing three
percent or more of the total combined voting power or value of all classes
of stock of the Company or any Subsidiary (it being understood that, for
purposes of this Section, the rules of Section 424(d) of the Code shall
apply in determining the stock ownership of any employee); and
(ii) that permits his rights to purchase stock under all Section 423
employee stock purchase plans of the Company and its Subsidiaries to
exceed $25,000 of the fair market value of the stock (determined at the
time such option is granted) for each calendar year in which such option
is outstanding (it being understood that, for purposes of this Section,
the rules of Section 423(b)(8) of the Code shall apply).
SECTION 4. OFFERING DATES
The right to purchase stock hereunder shall be made available by a series
of six-month offerings (each an "Offering" and collectively "Offerings") to
employees eligible in accordance with Section 3. The Committee will, in its
discretion, determine the applicable date of commencement ("Offering
Commencement Date") and termination date ("Offering Termination Date") for each
Offering. Participation in any one or more of the Offerings shall neither limit
nor require participation in any other Offering.
SECTION 5. PARTICIPATION
Any eligible employee may become a participant in an Offering by
completing a payroll deduction authorization form provided by the Company and
filing it with the Designated Officer of the Company at least five business days
prior to the applicable Offering Commencement Date, as determined by the
Committee pursuant to Section 4. A participant who obtains shares of Common
Stock in one Offering will be deemed to have elected to participate in each
subsequent Offering, provided such participant is eligible to participate in the
subsequent Offering and has not specifically elected not to participate in the
Offering. Such participant will also be deemed to have authorized the same
payroll deductions under Section 6 for each such subsequent Offering as in the
immediately preceding Offering; provided, however, that, during the enrollment
period prior to each new Offering, the participant may elect to change such
participant's payroll deductions by submitting a new payroll deduction
authorization form.
SECTION 6. PAYROLL DEDUCTIONS
(a) At the time a participant files a payroll deduction authorization form
with respect to an Offering, the participant shall elect to have deductions made
from the participant's pay on each payday during the Offering in which he or she
is a participant, at a specified percentage of the participant's Compensation as
determined on the applicable Offering Commencement Date. The specified
percentage shall be in increments of one percent up to a maximum percentage of
six percent.
-2-
<PAGE>
(b) Payroll deductions for a participant shall commence on the Offering
Commencement Date when the applicable authorization for a payroll deduction
becomes effective and, subject to the last sentence of Section 6, shall end on
the Offering Termination Date of the Offering to which such authorization is
applicable, unless sooner terminated by the participant as provided in Section
9.
(c) All payroll deductions made for a participant shall be credited to the
participant's account under the Plan. A participant may not make any separate
cash payment into such account.
SECTION 7. GRANTING OF OPTION
(a) Except as provided in Section 3(b)(ii), on the Offering Commencement
Date of each Offering, a participating employee shall be deemed to have been
granted an option to purchase a maximum number of shares of the Common Stock
determined as follows: (i) 85% of the market value per share of the Common Stock
(determined as provided in Section 7(b)(i)) on the applicable Offering
Commencement Date shall be divided into the percentage of the employee's
Compensation which the employee has elected to have withheld (multiplied by the
employee's Compensation over the Offering Period), multiplied by (ii) two.
(b) The option price of the Common Stock purchased with payroll deductions
made during each such Offering for a participant therein shall be the lower of:
(i) 85% of the average of the bid and asked prices as reported by
Nasdaq Stock Market, Inc. in The Wall Street Journal, or, if the Common
Stock is designated as a Nasdaq National Market security, the last trading
price of the Common Stock as reported on the Nasdaq National Market in The
Wall Street Journal, or, if the Common Stock is listed on an exchange, the
closing price of the Common Stock on the exchange on the Offering
Commencement Date applicable to such Offering (or on the next regular
business date on which shares of the Common Stock shall be traded, in the
event that no shares of the Common Stock have been traded on the Offering
Commencement Date); or if the Common Stock is not quoted by Nasdaq Stock
Market, Inc., not designated as a Nasdaq National Market security and not
listed on an exchange, 85% of the fair market value on the Offering
Commencement Date as determined by the Committee; and
(ii) 85% of the average of the bid and asked prices as reported by
Nasdaq Stock Market, Inc. in The Wall Street Journal, or, if the Common
Stock is designated as a Nasdaq National Market security, the last trading
price of the Common Stock as reported by the Nasdaq National Market in The
Wall Street Journal, or, if the Common Stock is listed on an exchange, the
closing price of the Common Stock on the exchange on the Offering
Termination Date applicable to such Offering (or on the next regular
business date on which shares of the Common Stock shall be traded, in the
event that no shares of the Common Stock shall have been traded on the
Offering Termination Date); or if the Common Stock is not quoted by Nasdaq
Stock Market, Inc., not designated as a Nasdaq National Market security
and not listed on an exchange, 85% of the fair market value on the
Offering Termination Date as determined by the Committee.
SECTION 8. EXERCISE OF OPTION
(a) Unless a participant gives written notice to the Designated Officer
as hereinafter provided, the participant's option for the purchase of Common
Stock with payroll deductions made during any Offering will be deemed to have
been exercised automatically on the Offering Termination Date applicable to
such Offering for the purchase of the number of full shares of Common Stock
which the accumulated payroll deductions in the participant's account at that
time will purchase at the applicable option price (but not in excess of the
-3-
<PAGE>
number of shares for which options have been granted to the participant
pursuant to Section 7(a)), and any excess in the participant's account at
that time will be returned to the participant, without interest.
(b) Fractional shares will not be issued under the Plan and any
accumulated payroll deductions that would have been used to purchase fractional
shares shall be automatically carried forward to the next Offering unless the
participant elects, by written notice to the Designated Officer, to have the
excess cash returned to the participant.
SECTION 9. WITHDRAWAL AND TERMINATION
(a) Prior to the Offering Termination Date for an Offering, any
participant may withdraw the payroll deductions credited to the participant's
account for such Offering under the Plan by giving written notice to the
Designated Officer. All of the participant's payroll deductions credited to such
account will be paid to the participant promptly after receipt of notice of
withdrawal, without interest, and no future payroll deductions will be made from
the participant's pay during such Offering. The Company will treat any attempt
to borrow by a participant on the security of accumulated payroll deductions as
an election to withdraw such deductions.
(b) A participant's election not to participate in, or withdrawal from,
any Offering will not have any effect upon the participant's eligibility to
participate in any succeeding Offering or in any similar plan which may
hereafter be adopted by the Company.
(c) Upon termination of the participant's employment for any reason,
including retirement but excluding death, the payroll deductions credited to the
participant's account will be returned to the participant, or, in the case of
the participant's death, to the person or persons entitled thereto under Section
13.
(d) Upon termination of the participant's employment because of death, the
participant's beneficiary (as designated pursuant to Section 13) shall have the
right to elect, by written notice given to the Designated Officer prior to the
expiration of a period of ninety days commencing with the date of the death of
the participant, either:
(i) to withdraw all of the payroll deductions credited to the
participant's account under the Plan; or
(ii) to exercise the participant's option for the purchase of stock
on the Offering Termination Date next following the date of the
participant's death for the purchase of the number of full shares which
the accumulated payroll deductions in the participant's account at the
date of the participant's death will purchase at the applicable option
price (subject to the limitation contained in Section 7(a)), and any
excess in such account will be returned to said beneficiary. In the event
that no such written notice of election shall be duly received by the
office of the Designated Officer, the beneficiary shall automatically be
deemed to have elected to withdraw the payroll deductions credited to the
participant's account at the date of the participant's death and the same
will be paid promptly to said beneficiary.
SECTION 10. INTEREST
No interest will be paid or allowed on any money paid into the Plan or
credited to the account of any participating employee.
-4-
<PAGE>
SECTION 11. STOCK
(a) The maximum number of shares of Common Stock available for issuance
and purchase by employees under the Plan (including shares issued prior to the
amendment and restatement hereof on December 16, 1998), subject to adjustment
upon changes in capitalization of the Company as provided in Section 16, shall
be 200,000 shares. If the total number of shares for which options are exercised
on any Offering Termination Date in accordance with Section 8 exceeds the number
of shares that remain available for issuance and purchase by employees under the
Plan, the Company shall make a pro rata allocation of the shares available for
delivery and distribution in an equitable manner, with the balances of payroll
deductions credited to the account of each participant under the Plan returned
to each participant.
(b) The participant will have no interest in the stock covered by the
participant's option until such option has been exercised.
SECTION 12. ADMINISTRATION
The Plan shall be administered by the Committee. The interpretation and
construction of any provision of the Plan and adoption of rules and regulations
for administering the Plan shall be made by the Committee. Determinations made
by the Committee with respect to any matter or provision contained in the Plan
shall be final, conclusive and binding upon the Company and upon all
participants, their heirs or legal representatives. Any rule or regulation
adopted by the Committee shall remain in full force and effect unless and until
altered, amended or repealed by the Committee.
SECTION 13. DESIGNATION OF BENEFICIARY
A participant shall file with the Designated Officer a written designation
of a beneficiary who is to receive any Common Stock and/or cash under the Plan.
Such designation of beneficiary may be changed by the participant at any time by
written notice. Upon the death of a participant and upon receipt by the Company
of proof of the identity and existence of a beneficiary validly designated by
the participant under the Plan, the Company shall deliver such Common Stock
and/or cash to such beneficiary. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such participant's death, the Company shall deliver such Common
Stock and/or cash to the executor or administrator of the estate of the
participant. No beneficiary shall, prior to the death of the participant by whom
he or she has been designated, acquire any interest in the Common Stock and/or
cash credited to the participant under the Plan.
SECTION 14. TRANSFERABILITY
Neither payroll deductions credited to a participant's account nor any
rights with regard to the exercise of an option or to receive Common Stock under
the Plan may be assigned, transferred, pledged or otherwise disposed of in any
way by the participant other than by will or the laws of descent and
distribution. Any such attempted assignment, transfer, pledge or other
disposition shall be without effect, except that the Company may treat such act
as an election to withdraw funds in accordance with Section 9(a).
SECTION 15. USE OF FUNDS
All payroll deductions received or held by the Company under the Plan may
be used by the Company for any corporate purpose, and the Company shall not be
obligated to segregate such payroll deductions.
-5-
<PAGE>
SECTION 16. EFFECT OF CHANGES OF COMMON STOCK
If at any time after the effective date of the Plan the Company shall
subdivide or reclassify the Common Stock which has been or may be optioned under
the Plan, or shall declare thereon any dividend payable in shares of such Common
Stock, or shall take any other action of a similar nature affecting such Common
Stock, then the number and class of shares of Common Stock which may thereafter
be optioned (in the aggregate and to any participant) shall be adjusted
accordingly and in the case of each option outstanding at the time of any such
action, the number and class of shares which may thereafter be purchased
pursuant to such option and the option price per share shall be adjusted to such
extent as may be determined by the Committee, following consultation with the
Company's independent public accountants and counsel, to be necessary to
preserve the rights of the holder of such option.
SECTION 17. AMENDMENT OR TERMINATION
The Board may at any time terminate or amend the Plan. No such termination
shall affect options previously granted, nor may an amendment make any change in
any option theretofore granted which would adversely affect the rights of any
participant holding options under the Plan.
SECTION 18. NOTICES
All notices or other communications by a participant to the Company under
or in connection with the Plan shall be deemed to have been duly given when
received by the Designated Officer.
SECTION 19. MERGER OR CONSOLIDATION
If the Company shall at any time merge into or consolidate with another
corporation, the holder of each option then outstanding will thereafter be
entitled to receive at the next Offering Termination Date, upon the exercise of
such option and for each share as to which such option shall be exercised, the
securities or property which a holder of one share of the Common Stock was
entitled to upon and at the time of such merger or consolidation. In accordance
with this Section and Section 16, the Committee shall determine the kind and
amount of such securities or property which such holder of an option shall be
entitled to receive. A sale of all or substantially all of the assets of the
Company shall be deemed a merger or consolidation for the foregoing purposes.
SECTION 20. APPROVAL OF STOCKHOLDERS
The Plan is subject to the approval of the stockholders of the Company by
written consent or at their next annual meeting or at any special meeting of the
stockholders for which one of the purposes of such a special meeting shall be to
act upon the Plan.
SECTION 21. GOVERNMENTAL AND OTHER REGULATIONS
The Plan, and the grant and exercise of the rights to purchase shares
hereunder, and the Company's obligation to sell and deliver shares upon the
exercise of rights to purchase shares, shall be subject to all applicable
federal, state and foreign laws, rules and regulations, and to such approvals by
any regulatory or governmental agency as may, in the opinion of counsel for the
Company, be required. The Plan shall be governed by, and construed and enforced
in accordance with, the provisions of Sections 421, 423 and 424 of the Code and
the substantive laws of the State of New Hampshire. In the event of any
inconsistency between such provisions of the Code and any such laws, the
provisions of the Code shall govern to the extent necessary
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<PAGE>
to preserve the favorable federal income tax treatment afforded employee stock
purchase plans under Section 423 of the Code.
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<PAGE>
EXHIBIT 10.13
August 5, 1997
Ms. Christine J. Cox
443 Pleasant Street
Dunstable, MA 01827
Dear Ms. Cox:
White Pine Software is pleased to offer you the promotion to Vice
President of Finance, effective August 5, 1997. In this position, you will be
reporting directly to Killko Caballero.
Your salary for this position will be paid at the rate of $3,846.15 per
pay period (which is equivalent to an annual base salary of $100,000.00, paid
out over 26 pay periods per year), in accordance with the two-week payment
schedule now being employed by the Company.
In addition to your base salary, you shall be eligible to receive an
annual fiscal year incentive bonus with a maximum annual amount equal up to
$15,000 (the "Incentive Bonus"). Payment of the Incentive Bonus will be based
upon accomplishment of goals and upon revenue growth, profitability, and
achievement of specific corporate milestones.
You will be eligible to be paid up to six (6) months severance pay, on the
same terms and conditions as you are paid your base salary, if your employment
is involuntarily terminated, unless your employment is terminated for cause.
"Cause" for termination shall be deemed to exist upon any of the following
occurrences: (a) your conviction of any crime (whether or not involving the
Company) which constitutes a felony in the jurisdiction involved; (b) willful
misconduct by you in connection with your employment (including but not limited
to any act of theft, fraud, misappropriation of funds, embezzlement or any other
act of dishonesty by you resulting or intending to result directly or indirectly
in any person's or entity's gain or enrichment at the expense of the Company);
(c) any willful breach of your duties in the course of your employment
(including but not limited to any breach by you of the Secrecy and Invention
Agreement or the Guide), or the habitual neglect of your duties, or (to the
extent permitted by law) your continued incapacity to perform your duties; or
(d) excessive use by you of alcohol and/or drugs which materially interferes
with the performance of your duties.
The Company reserves the right annually to review each of its salary,
bonus, and benefit offers to you and to adjust them from time to time at its
sole discretion. It is understood that you are not being offered employment for
a definite period of time and that either you or the Company may terminate the
employment relationship at any time and for any reason without prior notice.
Nothing in the Company's offer to you of compensation (including salary and),
stock options or benefits should be interpreted as creating anything other than
an at-will employment relationship.
Please indicate your acceptance of this offer by signing and dating the
enclosed copy of this letter and returning it to me.
<PAGE>
Ms. Christine J. Cox
August 5, 1997
Page 2
We look forward to your contributions to the Company in your new role and
are pleased to be able to offer you the opportunity.
Sincerely,
/s/ Killko Caballero
-----------------------------
Killko Caballero
President
Agreed: /s/ Christine J. Cox 8/05/97
----------------------------- ------------------------
Christine J. Cox Date
<PAGE>
<PAGE>
EXHIBIT 10.23
TECHNOLOGY TRANSFER AGREEMENT
This Technology Transfer Agreement (the "Transfer Agreement") is made
and entered into as of November 11, 1998 (the "Effective Date"), by and between
WHITE PINE SOFTWARE, INC. ("White Pine"), a Delaware corporation having its
principal place of business at 542 Amherst Street, Nashua, New Hampshire 03063,
and CORNELL RESEARCH FOUNDATION, INC. ("Foundation"), a New York corporation
having its principal place of business at 20 Thornwood Drive, Suite 105, Ithaca,
New York 144850.
RECITALS
Foundation has developed certain technology ("Technology" and as more
fully detailed in Exhibit B) for providing desk-top video conferencing, in which
Technology Foundation holds, or may hereafter acquire, certain intellectual
property rights, including, but not limited to, patents, copyright, trademark
rights, and/or other proprietary rights. Foundation has also developed certain
names, marks, and other brand identifiers that have become associated with the
Technology and products embodying the Technology (the "Marks").
White Pine is in the business of, among other things, providing
Internet-based videoconferencing solutions which permits users to participate
in real-time, multipoint videoconferences over the Internet and intranets.
White Pine currently has, from Foundation, an exclusive worldwide license to the
Technology, including the rights to develop, modify, support, market,
distribute, copy, make or have made, sell, sublicense, and appoint distributors
in connection with the Technology.
Foundation is interested in conveying to White Pine, and White Pine is
interested in acquiring from Foundation, all present and future intellectual
property rights and title in and to the Technology.
NOW, THEREFORE, White Pine and Foundation (collectively "Parties") in
consideration of the mutual covenants and agreements set forth below, and for
good and valuable consideration the receipt of which is hereby acknowledged, the
parties agree as follows:
1. DEFINITIONS
Defined terms, indicated by the use of initial capitalization, will
have the meaning ascribed to them in context, or, for defined terms not
defined in context, will have the meaning ascribed to them on Exhibit
A, attached hereto and incorporated by reference as though fully set
forth herein.
2. ASSIGNMENT, LICENSE AND COOPERATION
2.1 TECHNOLOGY ASSIGNMENT - Foundation hereby irrevocably assigns,
conveys and transfers to White Pine all rights, title, and
interests in and to the Technology. In
<PAGE>
furtherance of this transfer, and contemporaneously with their
execution of this Transfer Agreement, the Parties hereto will
enter into a Technology Assignment in the form attached hereto
as Exhibit B.
2.2 TRADEMARK ASSIGNMENT - Foundation hereby irrevocably assigns,
conveys and transfers to White Pine all rights, title, and
interests in and to the Marks, including applications or
registrations thereof. In furtherance of this transfer, and
contemporaneously with their execution of this Transfer
Agreement, the Parties hereto will enter into an Assignment of
U.S. and Foreign Trademarks in the form attached hereto as
Exhibit C.
2.3 GRANT-BACK LICENSE - In consideration of the assignments set
forth in sections 2.1 and 2.2, White Pine hereby grants to
Foundation a perpetual, non-exclusive, world-wide,
royalty-free, right and license to use the Products subject to
the terms of White Pine's ordinary End User Licenses for such
Products, as amended from time to time by White Pine. The
current End User Licenses for the Products are attached hereto
as Exhibit D.
2.4 COOPERATION IN ASSIGNMENTS, REGISTRATIONS AND LITIGATION
-Foundation, without additional payment or compensation,
other than that provided herein, agrees to assist White
Pine in obtaining and enforcing proper protection for the
Technology and the Marks through patent, copyright,
trademark, service mark, other forms of government
certification or registration, or other forms of legal
protection, however denominated, in any country. Upon
request, Foundation will sign all applications,
assignments, releases, affidavits, instruments and papers,
deliver to the White Pine all documentation as may
reasonably be required, and perform all acts necessary or
desired by White Pine to assign all such Technology and all
such Marks fully and completely to White Pine and to enable
White Pine, its successors, assigns and nominees, to
establish, memorialize, perfect, defend, and/or secure the
full and exclusive benefits and advantages any and all
rights, title, and interests in and to the Technology and
the Marks. Without limitation, such cooperation extends to
include cooperating with White Pine in any litigation
initiated by White Pine arising from or relating to the
Technology or the Marks, including, without limitation,
offering good faith testimony and joining or initiating
legal actions if such activity would provide an advantage
consistent with law in any effort by White Pine or its
assigns to establish, perfect, or defend its rights.
Foundation's obligations under this section will continue
after assignment of the Technology and Marks to White Pine
and White Pine will reimburse Foundation for its reasonable
out-of-pocket expenses incurred at White Pine's request in
connection with providing such cooperation.
2.5 TECHNOLOGY AND DOCUMENT TRANSFER - Foundation shall sign
and/or deliver to the White Pine all know-how in Foundation's
possession relating to the Technology
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and all documentation ("Documentation") (a listing of which is
attached hereto as Exhibit E) as may reasonably be required by
the White Pine to effectuate the purposes and intent of this
Transfer Agreement including, without limitation, an
Assignment in and to the Technology in the form attached
hereto as Exhibit B, and those documents deemed by the White
Pine to be necessary or desirable in obtaining and securing
title and control of the Technology, including patent,
copyright, trademark, and/or service mark protection, or other
forms of government certification or registration. If the
Foundation fails to sign and/or deliver such Documentation,
the White Pine is irrevocably authorized and appointed
attorney-in-fact of and for the Foundation to sign and deliver
such additional documentation.
3. PAYMENT
3.1 Subject to the terms of this Transfer Agreement, White Pine
agrees to pay Foundation an amount which consists of an
Advance, an Adjusted Amount, and a Remainder, as such are
defined below. All Payments to Foundation will be by check
made out to a party to be designated by Foundation and
acceptable to White Pine and delivered to Foundation at the
following address:
3.2 The Advance payment is one million U.S. dollars (U.S.
$1,000,000). Foundation acknowledges payment of the Advance
from White Pine and receipt of the Advance by Foundation in
full satisfaction of White Pine's obligation to pay the
Advance, with no further obligations with respect to the
Advance except as expressly stated in section 3.3 below.
3.3 The Adjustment payment will be the total difference between
(a) the Royalties from White Pine to Foundation under the
Prior License for the period from January 1, 1997 through
December 31, 2000 and (b) the Advance. If the Royalties
exceeds the Advance, then the Adjustment payment will be a
payment by White Pine to Foundation in the amount of the
excess due on January 31, 2001.
3.4 The Remainder is three hundred thousand U.S. dollars (U.S.
$300,000) per year to be paid by White Pine to Foundation as
follows:
(1) $300,000 on June 30, 2000
(2) $300,000 on June 30, 2001
(3) $300,000 on June 30, 2002
3.5 White Pine agrees to keep accurate records showing the
information by which White Pine arrived at the Adjustment, and
agrees to permit a person appointed by
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<PAGE>
Foundation and acceptable to White Pine to make such
inspection of the records as may be necessary to verify the
Adjustment reports made by White Pine.
3.6 In consideration of Foundation's performance under Section 2
of this Transfer Agreement, White Pine will rescind stock
warrants previously issued to Foundation with a warrant
exercise price of $6 per share and will replace such warrants
with warrants to purchase the same number and quantity of
shares at a warrant exercise price of $1 per share. The manner
in which this obligation will be performed will be mutually
acceptable to both parties, provided however, that White Pines
will not issue new warrants until all of such previously
issued warrants are surrendered.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Parties hereby represent and warrant to one another that
each has full corporate power and authority to enter into this
Transfer Agreement and to carry out the provisions hereof.
4.2 Foundation hereby represents and warrants to White Pine
that Foundation is the owner of all rights, title, and
interests in and to the Technology and the Marks, including
all patent rights, trademark rights, copyrights, and trade
secrets, and other proprietary rights, however denominated,
and all Documentation related to the Technology, and has
full legal right, power and authority to grant to White
Pine an Assignment of all such rights and Documentation, as
set forth in this Transfer Agreement without violating any
rights of any third party, including without limitation,
the National Science Foundation, or any person claiming by,
through, or under the National Science Foundation, with the
exception of the University of Illinois. Foundation
represents and warrants that it has executed a license
agreement with the University of Illinois, copy attached
hereto as Attachment F, which grants Foundation the right
to sublicense software pertaining to the processing of
audio information.
4.3 Foundation further represents and warrants to White Pine that
Foundation has no outstanding encumbrances or agreements,
including any agreements with academic institutions,
universities, third party employers, or any person claiming
by, through, or under any of these entities, whether written,
oral or implied, which would be inconsistent with the terms
and provisions of this Transfer Agreement, and there is
currently no actual or threatened suit or claim by any third
party based on an alleged violation of any agreements or
obligations entered into by Foundation.
4.4 Foundation makes no representations or warranties other than
those explicitly specified in this paragraph 4.
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<PAGE>
5. INDEMNIFICATION AND LIMITED LIABILITIES
5.1 INDEMNIFICATION - Foundation shall defend, indemnify, and hold
harmless White Pine, its successors, subsidiaries and assigns,
from and against any losses, damages, liabilities, costs,
expenses, fees (including reasonable attorney's fees),
recoveries, actions, claims, causes, allegations, judgments,
and penalties that may be imposed upon, obtained against, or
suffered by White Pine, its successors, subsidiaries and
assigns, by the breach of any warranty, covenant, agreement or
representation made by Foundation in this Transfer Agreement.
Foundation's liability under this paragraph 5.1 shall be
limited to royalties actually paid under paragraphs 3.3 and
3.4.
5.2 Except for and expressly excluding Foundation's
indemnification of White Pine under Paragraph 5.1, White
Pine shall defend, indemnify, and hold harmless Foundation,
its successors, subsidiaries and assigns, from and against
any losses, damages, liabilities, costs, expenses, fees
(including reasonable attorney's fees), recoveries,
actions, claims, causes, allegations, judgments, and
penalties that may be imposed upon, obtained against, or
suffered by Foundation, its successors, subsidiaries and
assigns, arising (a) out of any use, sale, or other
disposition by LICENSEE or its transferees of Technology or
Marks, or (b) out of any use, sale or other disposition by
LICENSEE or its transferees of products made by use of
Technology or Marks. As used in this clause, Foundation
includes its Trustees, Officers, Agents and Employees, and
those of Cornell University, and "LICENSEE" includes its
Affiliates, Subsidiaries, Contractors and Sub-Contractors.
6. CONFIDENTIALITY
6.1 STANDARD OF CARE - Foundation will maintain Confidential
Information received from White Pine in such manner and with
the same degree of care that it exercises with respect to its
own information of a like nature, but in no event less than
reasonable care, so as to prevent unauthorized dissemination
and use of White Pine's Confidential Information.
6.2 OBLIGATION TO PROTECT - Foundation will not disclose
Confidential Information received from White Pine to any third
parties, except as permitted by this Transfer Agreement, or
otherwise permitted in writing by White Pine. Foundation will
not use Confidential Information received from White Pine for
any purpose other than as provided herein.
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<PAGE>
7. TERM AND TERMINATION
7.1 TERM - This Transfer Agreement shall commence, on the
Effective Date and shall continue in full force and effect
thereafter unless and until terminated as provided in this
section 7.
7.2 TERMINATION - In the event of a material breach of any
warranty, term, condition or covenant as set forth in this
Transfer Agreement by either party, the non breaching party
may suspend its performance or terminate this Transfer
Agreement, upon the failure of the breaching party to cure
such breach after ninety (90) days of receiving a written
notice thereof from the non-breaching party.
7.3 EFFECT OF TERMINATION - Upon termination of this Transfer
Agreement or any provision thereof, the rights and obligations
of the Parties with respect to the Technology Assignment and
Trademark Assignment, set forth in sections 2.1 and 2.2,
Grant-Back License, set forth in section 2.3, and with respect
to sections 2.4, 2.5, and 6 shall survive such termination and
shall remain in full force and effect. In the event of breach
of the Transfer Agreement by White Pine, Foundation's sole
recourse and remedy shall be an action at law for damages.
Foundation hereby waives and covenants not to assert rights
for recission, or specific performance, or injunctive relief
of any kind.
8. GENERAL PROVISIONS
8.1 FORCE MAJEURE - The failure of any party hereunder to perform
any obligation otherwise due (except for the payment of monies
due hereunder) as a result of governmental action, law, order
or regulation, or as a result of war, act of public enemy,
fire, flood, act of God or other causes of like kind beyond
the reasonable control of such party, will be excused for so
long as said cause exists, provided that the party seeking
excuse under this provision provides prompt written notice of
the events giving rise to such excuse and takes commercially
reasonable steps to mitigate the harm, disruption or delay
caused by such events.
8.2 INDEPENDENT RELATIONSHIP - Foundation and White Pine are
independent contractors and are not, and will not represent
themselves as, principal and agent, partners or joint
venturers. Neither party will attempt to act, or represent
itself as having the power, to bind the other or create any
obligation on behalf of the other.
8.3 SUCCESSORS AND ASSIGNS - This Transfer Agreement shall be
binding upon, and inure to the benefit of, the Parties and
their respective heirs, legal representatives, successors and
assigns.
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<PAGE>
8.4 SEVERABILITY - If any term or provision of this Transfer
Agreement is found by a court of competent jurisdiction to be
unenforceable, that provision of the Transfer Agreement shall
be enforced to the maximum extent permissible so as to effect
the intent of the Parties, and the remainder of this Transfer
Agreement will remain in full force and effect.
8.5 NON-WAIVER - The failure of either party to enforce any terms
or provisions of this Transfer Agreement shall not be deemed a
waiver of any rights under, or a waiver of future enforcement
of such terms and of that or any other provisions.
8.6 NOTICES - All notices required or permitted by this Agreement
shall be made in writing, and be deemed given (i) when
personally delivered, (ii) five (5) days after having been
sent by registered or certified mail, return receipt
requested, postage prepaid, or (iii) three (3) days after
having been sent by a reputable private overnight courier with
established tracking capability, such as Federal Express, UPS,
Airborne, or DHL, to the party to be notified, postage
pre-paid and marked for delivery to the party to be notified
at the address first given above or such other address of the
party to be notified may indicate in writing from time to
time.
8.7 GOVERNMENT RIGHTS - To the extent that the Technology, or
any portion thereof, was developed through research
activities subject to 37 C.F.R. Section 401 "Rights to
Inventions Made by Nonprofit Organizations and Small
Business Firms Under Government Grants, Contracts and
Cooperative Agreements," then the federal government shall
have the rights to such Technology, or any portion thereof,
as provided under 37 C.F.R. Section 401, and any
implementing regulations issued by the awarding agency.
8.8 COUNTERPARTS - This Transfer Agreement may be executed by
telephone facsimile and in counterparts. Each signed
counterpart will be deemed to be an original and all the
signed counterparts taken together will be deemed to be one
agreement.
8.9 COMPLETE AGREEMENT - This Transfer Agreement, including all
Exhibits, constitutes the entire agreement between the Parties
regarding the subject matter hereof, and supercedes and
replaces all prior or contemporaneous understandings,
promises, agreements or representations, whether written or
oral, except as provided below.
To the extent necessary, section 5 of the "Prior License"
may be relied upon, for terms specifically relating to the
calculations of Royalties as set forth in sections 3.3
above.
8.10 MODIFICATION -This Transfer Agreement may not be supplemented,
altered, modified, amended, rescinded, canceled or waived, in
whole or part, except by a
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<PAGE>
written instrument signed by both Parties and expressly
referencing this Transfer Agreement.
8.11 CHOICE OF LAW AND VENUE - This Transfer Agreement will be
governed by the law of the State of New Hampshire, of the
United States of America, as such law is applied to contracts
made and performed entirely therein. All disputes arising from
or relating to this Transfer Agreement will be heard and
resolved by the courts of Nashua, New Hampshire, USA. The
Parties hereby consent to the personal jurisdiction of such
courts over them, stipulate to the convenience and fairness of
proceeding in such forum, and covenant not to assert any
objection to proceeding in such forum based upon lack of
personal jurisdiction or the alleged inefficiency or
unfairness of proceeding in such forum.
IN WITNESS WHEREOF, the Parties hereto have executed this Transfer
Agreement under seal as of the Effective Date provided above.
White Pine Software, Inc. Cornell Research Foundation, Inc.
By:/s/ Killko Caballero By: /s/ Richard S. Cahoon
------------------------------- -------------------------------
Date: Nov. 13, 1998 Date: Nov. 13, 1998
----------------------------- ------------------------------
-8-
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EXHIBIT A
SCHEDULE OF DEFINITIONS
In addition to defined terms (indicated by initial capitalization) that
will have the meaning assigned to them as they occur in the context of this
Transfer Agreement, the following terms will have the stated meaning.
"Confidential Information" includes (i) any trade secrets, updates, and
information related to any of the foregoing, including but not limited to any
information relating to White Pine's business plans, product plans, designs,
costs, prices and names, finances, marketing plans, business opportunities,
personnel, research, development or know-how, (ii) all information disclosed to
a Party from or through the other Party in connection with the negotiation and
consummation of the Transfer Agreement that is identified, in writing, as
"Confidential Information" or "Confidential", at the time of the disclosure, or
if not disclosed as such or disclosed orally, reduced to writing and designated
as "Confidential Information" or "Confidential" within five (5) business days
after such time. Confidential Information will not be disclosed to any third
party, or used for any purpose other than the purpose of pursuing the
transactions contemplated by this Transfer Agreement up to the Effective Date,
without the written permission of the other Party. Confidential Information
shall not include information that: (i) is or becomes generally known or
available by publication, commercial use or otherwise through no fault of the
receiving party; (ii) is known and has been reduced to tangible form by the
receiving party at the time of disclosure and is not subject to restriction;
(iii) is independently developed or learned by the receiving party; or (iv) is
lawfully obtained from a third party who has the right to make such disclosure.
Absent a writing agreement signed by both Parties stating otherwise, within
thirty (30) days from the Effective Date, or if the negotiations terminate prior
to closing, within thirty (30) days of such termination, each party will return
to the other all Confidential Information in its possession, including all
copies, duplicates, or transcriptions of such Information, however maintained,
whether in paper, electronic or other medium.
"Documentation" is as defined in Exhibit E.
"Prior License" means the Exclusive Software License Agreement, entered into on
June 1, 1995, between Cornell Research Foundation, Inc. and White Pine Software,
Inc., and as amended on May 22, 1997.
"Products" will mean the White Pine software products which incorporates the
Technology and includes and/or as described below:
"Technology" means the computer software code, developed at Cornell University
known as CU-SeeMe. CU-SeeMe was developed at Cornell University by the Cornell
Information Technologies (CIT) organization, partially under a cooperative
agreement from the National Science Foundation (NSF), and incorporating software
from the University of Illinois for
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<PAGE>
processing audio information. The purpose of CU-SeeMe is to make low cost
desktop video conferencing available to Internet users. NSF requested CIT to
further develop the functionality to support another NSF project, the Global
Schoolhouse, an internationally recognized demonstration project on the use of
the Internet in K-12 education. The result is a robust video conferencing system
that provides interactive communication between widely dispersed participants at
a very modest price.
The software consists of two parts, desktop or client software and reflector or
server software. Currently there are two versions of the client, one written for
Apple's Macintosh operating system and one for Windows. The reflector software
runs on a Unix workstation. Both the desktop system and the reflector system
must be connected through an IP (Internet Protocol) network such as a campus
network or the Internet. The desktop system sends the audio and video
information to the reflector which makes the appropriate number of copies and
sends them out to the receiving desktop systems. The reflector may also send
this information to another reflector that, in turn, sends it to the desktop
systems involved in a conference. Currently, a reflector, or multiple reflectors
networked together, will support only one conference at a time.
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EXHIBIT B
TECHNOLOGY ASSIGNMENT
WHEREAS, the undersigned, Cornell Research Foundation, Inc., a New York
corporation having its principal place of business at 20 Thornwood Drive, Suite
105, Ithaca, New York 144850 (Hereinafter "Assignor"), has developed technology
(the "Technology") for providing desk-top video conferencing, which Technology
is further defined in Schedule A attached herewith, and executed on even date
herewith, having full right to convey their entire worldwide right, title and
interest, both legal and equitable, in and to said Technology, including all
registrations for patent protection, trademark and/or service mark protection,
copyright protection, or other forms of governmental certification or
registration, free from all prior assignments, agreements, licenses, mortgages,
security interests, or other encumbrances whatsoever; and
WHEREAS, White Pine Software, Inc., a Delaware corporation having its
principal place of business at 542 Amherst Street, Nashua, New Hampshire 03063
(hereinafter "Assignee"), is desirous of acquiring the entire worldwide
assignment thereof;
NOW, THEREFORE, in consideration of the payments made and to be made
under section 3 and other good and valuable consideration, the sufficiency of
which are hereby acknowledged by the undersigned, the undersigned do hereby
sell, assign, transfer and set over unto said Assignee, its successors and
assigns, their entire right, title and interest throughout the world in and to
said Technology, in any form or embodiment thereof, and in and to the aforesaid
registration; and in and to any application filed in any country based thereon,
including the right to file said foreign applications and claim priority under
the provisions of any international convention or treaty; also the entire right,
title and interest throughout the world in and to any and all patents or
reissues or extensions thereof to be obtained in this or any foreign country
upon said invention or inventions and any divisional, continuation,
continuation-in-part or substitute applications which may be filed upon said
invention or inventions in this or any foreign country; and the undersigned
hereby authorize and request the issuing authority to issue any and all patents
on said application or applications to said Assignee or its successors and
assigns.
The undersigned further agrees, without any further payment or
compensation by said Assignee or its successors and assigns, to communicate to
said Assignee, its representatives or agents or its successors and assigns, any
facts relating to said Technology including evidence for interference purposes
or for other legal proceedings whenever requested; testify in any interference
or other legal proceedings, whenever requested; execute and deliver, on request,
all lawful papers required to make any of the foregoing provisions effective;
and generally do everything possible to aid said Assignee, its successors or
assigns and nominees to secure, obtain and enforce proper protection and
registration for said Technology in this or any foreign country.
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The undersigned further agrees to waive and covenant not to assert any
proprietary rights against the Assignee, including rights for recission,
specific damages, or injunctive relief.
IN TESTIMONY WHEREOF, the undersigned has hereunto set its hand and
seal on the date after its signature.
By: /s/ Richard S. Cahoon Nov. 13, 1998
--------------------------------- -----------------------------------
of Cornell Research Foundation, Inc. Date
State of New York )
County of Tompkins)
On this the 13th day of November, 1998, before me personally appeared
Richard S. Carson, to me personally known, and known to me to be the person who
signed the foregoing assignment, and acknowledged the signing of same as his
free act and deed.
/s/ Rosemary Reynolds
-------------------------------------------
Notary Public
My commission expires MAY 18, 1999
ROSEMARY REYNOLDS
Notary Public, State of New York
No. 4695247
Qualified in Tompkins County
Term Expires May 18, 1999
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SCHEDULE A
"Technology" means the computer software code, developed at Cornell University
known as CU-SeeMe. CU-SeeMe was developed at Cornell University by the Cornell
Information Technologies (CIT) organization, partially under a cooperative
agreement from the National Science Foundation (NSF), and incorporating software
from the University of Illinois for processing audio information. The purpose of
CU-SeeMe is to make low cost desktop video conferencing available to Internet
users. NSF requested CIT to further develop the functionality to support another
NSF project, the Global Schoolhouse, an internationally recognized demonstration
project on the use of the Internet in K-12 education. The result is a robust
video conferencing system that provides interactive communication between widely
dispersed participants at a very modest price.
The software consists of two parts, desktop or client software and reflector or
server software. Currently there are two versions of the client, one written for
Apple's Macintosh operating system and one for Windows. The reflector software
runs on a Unix workstation. Both the desktop system and the reflector system
must be connected through an IP (Internet Protocol) network such as a campus
network or the Internet. The desktop system sends the audio and video
information to the reflector which makes the appropriate number of copies and
sends them out to the receiving desktop systems. The reflector may also send
this information to another reflector that, in turn, sends it to the desktop
systems involved in a conference. Currently, a reflector, or multiple reflectors
networked together, will support only one conference at a time.
-13-
<PAGE>
EXHIBIT C
ASSIGNMENT OF U.S. AND FOREIGN TRADEMARKS
This Assignment is made and entered into as of November 11, 1998, by
and between Cornell Research Foundation, Inc., a New York corporation having its
principal place of business at 20 Thornwood Drive, Suite 105, Ithaca, New York
144850 ("Assignor"), and White Pine Software, Inc., a Delaware corporation
having its principal place of business at 542 Amherst Street, Nashua, New
Hampshire 03063 ("Assignee").
WHEREAS, the Assignor has rights, title and interests in and to the
marks set forth in paragraph 1 below, the Assignor has used such marks and the
Assignor has filed applications to register such marks with the U.S. Patent and
Trademark Office, and other similar National Offices in the United Kingdom,
France, Germany and Japan; and
WHEREAS, the Assignee is desirous of acquiring all right, title and
interest worldwide in such marks and the applications for registration thereof;
NOW, THEREFORE, in consideration of the payments made and to be made in
section 3, the sufficiency of which are hereby acknowledged, the Assignor hereby
agrees as follows:
1. The Assignor hereby assigns, transfers and conveys to the Assignee
all right, title and interest in and to the following mark:
Mark Country Serial No.
CU-SeeMe United States
United Kingdom
France
Germany
Japan
2. The Assignor hereby also assigns, transfers and conveys to the
Assignee worldwide rights, title and interests in and to the applications for
registration of the above marks, all registrations and renewals thereof,
together with the goodwill of the business connected with the use of, and
symbolized by, said marks and all rights of action accrued and to accrue under
and
-14-
<PAGE>
by virtue thereof, including, without limitation, the right to sue and recover
for past infringement and passing off of said marks.
3. The Assignor hereby further assigns, transfers and conveys to the
Assignee worldwide rights, title and interests in and to all goodwill of the
business inure to the Assignor in connection with the use of, and symbolized by,
the above mark, and all other goodwill, and all rights of action accrued and to
accrue under and by virtue thereof, including, without limitation, the right to
sue and recover for past infringement and passing off of said marks.
Cornell Research Foundation, Inc.
Date: Nov. 13, 1998 By: /s/ Richard S. Cahoon
--------------------------------- ------------------------
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<PAGE>
IN THE UNITED STATES PATENT AND TRADEMARK OFFICE
Mark:
Serial No.:
Filing Date:
Applicant:
Class(es),
Assistant Commissioner for Trademarks
2900 Crystal Drive
Arlington, VA 22202-3513
Sir:
REVOCATION OF POWER OF ATTORNEY AND
APPOINTMENT OF NEW ATTORNEY
Applicant hereby revokes all previous powers of attorney and appoints
Edward G. Black, Esq., Charles E. Weinstein, Esq., Susan Barbieri Montgomery,
Esq., Thomas M.S. Hemnes, Esq., Charles H. Cella, Esq., Bruce R. Parker, Esq.,
T. Maria Lam, Esq. and Chinh H. Pham, Esq. of Foley, Hoag & Eliot LLP, or any of
them, One Post Office Square, Boston, Massachusetts 02109, (617) 832-1000,
Members of the Bar of The Commonwealth of Massachusetts to transact all business
in the U.S. Patent and Trademark Office in connection with the above-referenced
application, and to receive all correspondence from the U.S. Patent and
Trademark Office in connection therewith.
Respectfully submitted,
White Pine Software, Inc.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Date: , 1998
-----------------------
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<PAGE>
EXHIBIT D
WHITE PINE SOFTWARE, INC. END USER LICENSE AGREEMENT
THIS IS A CONTRACT. BY INSTALLING THIS SOFTWARE YOU ACCEPT ALL THE
TERMS AND CONDITIONS OF THIS AGREEMENT.
1. White Pine grants to you a non-exclusive, non-sublicensable, license to use
this Software in binary executable form.
This White Pine Software, Inc. ("White Pine") End User License Agreement
accompanies a White Pine software product and related explanatory written
materials ("Software"). The term "Software" shall also include any upgrades,
modified versions or updates of the Software licensed to you by White Pine.
YOU MAY NOT USE, COPY, MODIFY, OR TRANSFER THE PROGRAM OR DOCUMENTATION, OR ANY
COPY EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT.
2. White Pine reserves the right at any time to alter prices, features,
specifications, capabilities, functions, licensing terms, release dates, general
availability or other characteristics of the commercial release of the software.
3. Title, ownership rights, and intellectual property rights in and to the
Software shall remain in White Pine and/or its suppliers. You agree to abide by
the copyright law and all other applicable laws of the United States including,
but not limited to, export control laws. You acknowledge that the Software in
source code form remains a confidential trade secret of White Pine and/or its
suppliers and therefore you agree not to modify the Software or attempt to
decipher, decompile, disassemble or reverse engineer the Software, except to the
extent applicable laws specifically prohibit such restriction.
4. Copyright. The Software is owned by White Pine and its suppliers, and its
structure, organization and code are the valuable trade secrets of White Pine
and its suppliers. The Software is also protected by United States Copyright Law
and International Treaty provisions, You agree not to modify, adapt, translate,
reverse engineer, decompile, disassemble or otherwise attempt to discover the
source code of the Software. You may use trademarks only to identify printed
output produced by the Software, in accordance with accepted trademark practice,
including identification of trademark owner's name. Such use of any trademark
does not give you any rights of ownership in that trademark. Except as stated
above, this Agreement does not grant you any intellectual property rights in the
Software.
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<PAGE>
5. White Pine may terminate this License at any time by delivering notice to
you and you may terminate this License at any time by destroying or erasing
your copy of the Software. In the event of termination, the following
sections of this License will survive: 2, 3, 4, 5, and 6. This License is
personal to you and you agree not to assign your rights herein. This License
shall be governed by and construed in accordance with the laws of the State
of New Hampshire and, as to matters affecting copyrights, trademarks and
patents, by U.S. federal law. This License sets forth the entire agreement
between you and White Pine.
6. WHITE PINE OR ITS SUPPLIERS SHALL NOT BE LIABLE FOR (a) INCIDENTAL,
CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES OF ANY SORT, WHETHER ARISING IN TORT,
CONTRACT OR OTHERWISE, EVEN IF WHITE PINE HAS BEEN INFORMED OF THE POSSIBILITY
OF SUCH DAMAGES, OR (b) FOR ANY CLAIM BY ANY OTHER PARTY. THIS LIMITATION OF
LIABILITY SHALL NOT APPLY TO LIABILITY FOR DEATH OR PERSONAL INJURY TO THE
EXTENT APPLICABLE LAW PROHIBITS SUCH LIMITATION. FURTHERMORE, SOME STATES DO NOT
ALLOW THE EXCLUSION OR LIMITATION OF INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO
THIS LIMITATION AND EXCLUSION MAY NOT APPLY TO YOU.
7. ACKNOWLEDGMENT: YOU ACKNOWLEDGE THAT YOU HAVE READ THIS AGREEMENT, UNDERSTAND
IT, AND AGREE TO BE BOUND BY ITS TERMS AND CONDITIONS. YOU ALSO AGREE THAT THIS
AGREEMENT IS THE COMPLETE AND EXCLUSIVE STATEMENT OF AGREEMENT BETWEEN THE
PARTIES AND SUPERSEDES ALL PROPOSALS OR PRIOR AGREEMENTS, VERBAL OR WRITTEN, AND
ANY OTHER COMMUNICATIONS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER OF
THIS AGREEMENT.
Should you have any questions concerning this Agreement, please contact in
writing: White Pine Software, Inc., 542 Amherst Street, Nashua, NH 03063.
-18-
<PAGE>
EXHIBIT E
FOUNDATION DOCUMENTATION
The Foundation Documentation will include all guides, manuals,
laboratory notebooks, documents, notes, diagrams, calculations, tests and tests
results, operating, installation, maintenance or shutdown requirements, and
other written materials reasonably necessary to make the best commercial use of
the Technology, including, without limitation, on-line news groups, web-site
information and content, mailing lists, beta testers and other signed licensees,
and lists of sponsors and consortium members.
-19-
<PAGE>
EXHIBIT F
SOFTWARE ROYALTY SHARING AGREEMENT
-20-
<PAGE>
SOFTWARE ROYALTY SHARING AGREEMENT
This Agreement made on this 28th day of March, by and between Cornell
Research Foundation, having offices at 20 Thornwood Drive, Suite 105, Ithaca, NY
14850 (hereinafter "CRF") and the Board of Trustees of the University of
Illinois (hereinafter "UOI").
WITNESSETH THAT:
WHEREAS, CRF desires to out-license intellectual property developed at
Cornell University (CU), and in particular the software known as "CU-SeeMe,"
which implements desk top video conferencing; and
WHEREAS, a portion of the CU-SeeMe software, pertaining to the
processing of audio information (the "Software"), was developed at UOI and
provided to CU at no cost, for the purpose of incorporating it into CU-SeeMe;
and
WHEREAS, CRF has intentions of licensing CU-SeeMe for commercial
purposes under royalty bearing license agreements and is willing to share
royalty income with UOI in proportion to its contribution to CU-SeeMe;
NOW, THEREFORE, the Parties agree as follows:
1. LICENSE. Subject to the terms of this agreement, UOI grants to CRF a license
to use, modify, distribute, and sublicense the Software, in both source code and
executable code forms, under the condition that the Software is integrated with,
and incorporated into, CU-SeeMe.
2. CRF'S RIGHT TO LICENSE CU-SEEME. UOI agrees that CRF shall have the sole
right and responsibility for licensing CU-SeeMe.
3. EXPRESS WARRANTIES. UOI hereby represents and warrants to CRF that (i) UOI
has all rights, absolute title and interest in and to the Software provided to
CU, which is to the best of UOI's present knowledge subject to no adverse claim,
lien, encumbrance or license or rights of any nature of any third party,
including, but not limited to, ownership, patent, trademark, copyright, or trade
secrecy claims or rights of any kind, (ii) to the best of UOI's present
knowledge the Software does not infringe upon any intellectual property rights
of any other person, and (iii) UOI has the full and unrestricted right, power
and authority to enter into this Agreement, to license the Software to CRF and
to consummate the transactions contemplated hereby.
4. NOTIFICATION. UOI reserves the right, at its sole discretion, to release,
license and/or distribute the Software. In the event that UOI makes a decision
to release, license or distribute the Software in source code form, UOI hereby
agrees to provide written notice to CRF at
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<PAGE>
least three (3) months in advance of such release, license or distribution.
5. UPDATES. UOI agrees to promptly provide to CRF updates, enhancements,
improvements, additions to, and bug fixes for the Software (the "Updates") for
the duration of the period that UOI distributes the Software and Updates at no
cost. Said Updates shall be provided at no cost and without adjustment to the
royalty distribution, defined in paragraph 6, below.
6. ROYALTY DISTRIBUTION. CRF agrees to provide UOI with ten percent (10%) of
the royalty income, after expenses, derived from the licensing of CU-SeeMe.
Distribution to UOI will be made annually according to CRF's normal accounting
cycle. Under the accounting cycle currently in effect, royalty income is
distributed to institutions in the month of January, for the fiscal year ending
on the previous June 30.
7. ACCOUNTING AND NOTICES. CRF will keep accurate records, certified by it,
showing the information by which CRF arrived at a royalty determination and will
permit a person appointed by UOI and acceptable to CRF (the "Auditor") to make
such inspection of said records as may be necessary to verify royalty reports
made by CRF. Royalty distributions and correspondence shall be sent to the Vice
Chancellor for Research at 601 East John Street, Champaign IL 61820.
UNDERSTOOD AND AGREED TO:
THE BOARD OF TRUSTEES
UNIVERSITY OF ILLINOIS CORNELL RESEARCH FOUNDATION
/s/ Craig S. Bazzani /s/ H. Walter Haeussler
- -------------------------------- ----------------------------------
Signature Signature
Craig S. Bazzani
- -------------------------------- ----------------------------------
Name H. Walter Haeussler
Comptroller President
- -------------------------------- ----------------------------------
Title Title
3-28-95 March 17, 1995
- -------------------------------- ----------------------------------
Date Date
Attest /S/ Michelle M. Thompson
Michelle M. Thompson, Secretary
Form Approved
/s/ M. A. Rol____er
Univ. Counsel
-22-
<PAGE>
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997
---------- ----------
<S> <C> <C>
Weighted average shares outstanding..................................... 9,798,307 9,147,661
----------- -----------
Net loss................................................................ $(8,423,889) $(6,825,636)
----------- -----------
----------- -----------
Net loss per share: Basic $ (0.86) $ (0.75)
----------- -----------
----------- -----------
Diluted................................... $ (0.86) $ (0.75)
----------- -----------
----------- -----------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 333-21269 and 333-26973) 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 Andrew Hally
dated as of March 25, 1996,
Letter Agreement between White Pine Software, Inc. and Richard Kennerly
delivered as of April 16, 1996,
White Pine Software, Inc. 1996 Incentive and Nonqualified Stock Option
Plan,
White Pine Software, Inc. 1996 Employee Stock Purchase Plan
of our report dated March 30, 1999, 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, 1998.
/s/ ERNST & YOUNG LLP
Manchester, New Hampshire
March 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 6,420,686
<SECURITIES> 0
<RECEIVABLES> 2,268,302
<ALLOWANCES> 146,027
<INVENTORY> 64,916
<CURRENT-ASSETS> 437,433
<PP&E> 2,239,040
<DEPRECIATION> 985,405
<TOTAL-ASSETS> 15,995,770
<CURRENT-LIABILITIES> 2,419,147
<BONDS> 0
0
0
<COMMON> 104,602
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 15,995,770
<SALES> 0
<TOTAL-REVENUES> 7,793,158
<CGS> 0
<TOTAL-COSTS> 1,645,248
<OTHER-EXPENSES> 15,058,796
<LOSS-PROVISION> 19,792
<INTEREST-EXPENSE> 3,756
<INCOME-PRETAX> (8,418,583)
<INCOME-TAX> 5,306
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,423,889)
<EPS-PRIMARY> (0.86)
<EPS-DILUTED> (0.86)
</TABLE>
